G.R. No.

L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-
appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.

Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.

Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.

FERNANDO, J.:

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New
York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on
March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a
Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court,
then presided by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After
considering the motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the
Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the
administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the
33,002 shares of stock standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said
certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be
delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court."1

From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust
Company of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot
possibly prosper. The challenged order represents a response and expresses a policy, to paraphrase Frankfurter,
arising out of a specific problem, addressed to the attainment of specific ends by the use of specific remedies, with
full and ample support from legal doctrines of weight and significance.

The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins,
who died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of
appellant, the certificates being in the possession of the County Trust Company of New York, which as noted, is the
domiciliary administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August
12, 1960, Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila;
Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the
appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the ancillary
administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in
question. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County
Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The
domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator
petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the 33,002 shares
issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is
concerned as to "who is entitled to the possession of the stock certificates in question; appellant opposed the
petition of the ancillary administrator because the said stock certificates are in existence, they are today in the
possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."4

It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost.
Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock
certificates could be issued. Hence, its appeal.

As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an
emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary
administrator in refusing to accord obedience to a court decree. How, then, can this order be stigmatized as illegal?

As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation.
What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without
undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and
resourcefulness as to preclude such a solution, the more so as deeper reflection would make clear its being
buttressed by indisputable principles and supported by the strongest policy considerations.

It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of
the country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought
about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted,
voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June
27, 1963, and filing a petition for relief from a previous order of March 15, 1963.

Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For
without it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the
domiciliary administrator, with residence abroad, of what was previously ordained by a court order could be thus
remedied, it would have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete
paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain
control and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a
power is inherent in his duty to settle her estate and satisfy the claims of local creditors.5 As Justice Tuason
speaking for this Court made clear, it is a "general rule universally recognized" that administration, whether principal
or ancillary, certainly "extends to the assets of a decedent found within the state or country where it was granted,"
the corollary being "that an administrator appointed in one state or country has no power over property in another
state or country."6

It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice
Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies
intestate owning property in the country of his domicile as well as in a foreign country, administration is had in both
countries. That which is granted in the jurisdiction of decedent's last domicile is termed the principal administration,
while any other administration is termed the ancillary administration. The reason for the latter is because a grant of
administration does not ex proprio vigore have any effect beyond the limits of the country in which it is granted.
Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The ancillary
administration is proper, whenever a person dies, leaving in a country other than that of his last domicile, property to
be administered in the nature of assets of the deceased liable for his individual debts or to be distributed among his
heirs."7

It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock
certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated,
Inc...." be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and
subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise
as immune from lawful court orders.

Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case,
the actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of
the above undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do
so even if it were so minded.

2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the
challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of
persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the
lower court its "considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the
deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress that the "lower court could not
"consider as lost" the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and
does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the
possession of the domiciliary administrator in New York."10

There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the
reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in
New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and
requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the
ancillary administrator could be discharged and his responsibility fulfilled.

Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled
discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in
refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial
decree could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant
disregard.

It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the
facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered
however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate
ends have played an important part in its development."11

Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of
justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent
jurist, noting "the quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the
empire of "as if" today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of
thought, but which at times hides itself from view till reflection and analysis have brought it to the light."14

What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There
should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial
technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation
of a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this
particular alleged error does not carry persuasion.

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the
provisions of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed
stock certificate; it would stress that in the event of a contest or the pendency of an action regarding ownership of
such certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or
certificates would await the "final decision by [a] court regarding the ownership [thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the
foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the
express admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of
the stock certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision
conclusiveness and finality. Assuming that a contrariety exists between the above by-law and the command of a
court decree, the latter is to be followed.

It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the
judiciary must yield deference, when appropriately invoked and deemed applicable. It would be most highly
unorthodox, however, if a corporate by-law would be accorded such a high estate in the jural order that a court must
not only take note of it but yield to its alleged controlling force.

The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside
for its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly
constitutes a valid defense, assuming that such apprehension of a possible court action against it could possibly
materialize. Thus far, nothing in the circumstances as they have developed gives substance to such a fear.
Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful exercise of judicial
authority.

4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with
the basic postulates of corporate theory.

We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."16 It
owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a
corporation was conceived as an artificial person, owing its existence through creation by a sovereign power."17 As a
matter of fact, the statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College
decision defined a corporation precisely as "an artificial being, invisible, intangible, and existing only in
contemplation of law."18

The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a
person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person
distinct and separate from its individual stockholders.... It owes its existence to law. It is an artificial person created
by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its
charter."19Dean Pound's terse summary, a juristic person, resulting from an association of human beings granted
legal personality by the state, puts the matter neatly.20

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is
the reality of the group as a social and legal entity, independent of state recognition and concession."21 A
corporation as known to Philippine jurisprudence is a creature without any existence until it has received the
imprimatur of the state according to law. It is logically inconceivable therefore that it will have rights and privileges of
a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its
state organs, certainly not excluding the judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our
jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the
appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances,
where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it.

To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy
which may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule
the state, the source of its very existence; it is to contend that what any of its governmental organs may lawfully
require could be ignored at will. So extravagant a claim cannot possibly merit approval.

5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings
then pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain
sum of money paid to the minor under guardianship, alleging that the lower court had previously granted its petition
to consider the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main
office in the United States. The motion was denied. In seeking a reconsideration of such order, the Administrator
relied on an American federal statute making his decisions "final and conclusive on all questions of law or fact"
precluding any other American official to examine the matter anew, "except a judge or judges of the United States
court."23 Reconsideration was denied, and the Administrator appealed.

In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal
should be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S.
Veterans' Administrator final and conclusive when made on claims property submitted to him for resolution; but they
are not applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a
great difference between actions against the Administrator (which must be filed strictly in accordance with the
conditions that are imposed by the Veterans' Act, including the exclusive review by United States courts), and those
actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing
actions therein. Our attention has not been called to any law or treaty that would make the findings of the Veterans'
Administrator, in actions where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of
judicial discretion and render them mere subordinate instrumentalities of the Veterans' Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive,
determinations made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive
power by our courts over juridical persons within our jurisdiction, the force and effectivity of their orders could be
made to depend on the whim or caprice of alien entities. It is difficult to imagine of a situation more offensive to the
dignity of the bench or the honor of the country.

Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems
to be firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal.
Certainly we must at all pains see to it that it does not succeed. The deplorable consequences attendant on
appellant prevailing attest to the necessity of negative response from us. That is what appellant will get.

That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure
extreme and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and
conviction is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and
distinguished by its correspondence with what a sense of realism requires. For through the appealed order, the
imperative requirement of justice according to law is satisfied and national dignity and honor maintained.

WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated
May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.

Makalintal, Zaldivar and Capistrano, JJ., concur.

Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result.
G.R. No. L-17295 July 30, 1962

ANG PUE & COMPANY, ET AL., plaintiffs-appellants,

vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.

Felicisimo E. Escaran for plaintiffs-appellants.

Office of the Solicitor General for defendant-appellee.

DIZON, J.:

Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, Ang Pue and Tan
Siong against the Secretary of Commerce and Industry to secure judgment "declaring that plaintiffs could extend for
five years the term of the partnership pursuant to the provisions of plaintiffs' Amendment to the Article of Co-
partnership."

The answer filed by the defendant alleged, in substance, that the extension for another five years of the term of the
plaintiffs' partnership would be in violation of the provisions of Republic Act No. 1180.

It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue
& Company for a term of five years from May 1, 1953, extendible by their mutual consent. The purpose of the
partnership was "to maintain the business of general merchandising, buying and selling at wholesale and retail,
particularly of lumber, hardware and other construction materials for commerce, either native or foreign." The
corresponding articles of partnership (Exhibit B) were registered in the Office of the Securities & Exchange
Commission on June 16, 1953.

On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among other
things, that, after its enactment, a partnership not wholly formed by Filipinos could continue to engage in the retail
business until the expiration of its term.

On April 15, 1958 — prior to the expiration of the five-year term of the partnership Ang Pue & Company, but after
the enactment of the Republic Act 1180, the partners already mentioned amended the original articles of part
ownership (Exhibit B) so as to extend the term of life of the partnership to another five years. When the amended
articles were presented for registration in the Office of the Securities & Exchange Commission on April 16, 1958,
registration was refused upon the ground that the extension was in violation of the aforesaid Act.

From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this appeal.

The question before us is too clear to require an extended discussion. To organize a corporation or a partnership
that could claim a juridical personality of its own and transact business as such, is not a matter of absolute right but
a privilege which may be enjoyed only under such terms as the State may deem necessary to impose. That the
State, through Congress, and in the manner provided by law, had the right to enact Republic Act No. 1180 and to
provide therein that only Filipinos and concerns wholly owned by Filipinos may engage in the retail business can not
be seriously disputed. That this provision was clearly intended to apply to partnership already existing at the time of
the enactment of the law is clearly showing by its provision giving them the right to continue engaging in their retail
business until the expiration of their term or life.

To argue that because the original articles of partnership provided that the partners could extend the term of the
partnership, the provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to erroneously
assume that the aforesaid provision constitute a property right of which the partners can not be deprived without due
process or without their consent. The agreement contain therein must be deemed subject to the law existing at the
time when the partners came to agree regarding the extension. In the present case, as already stated, when the
partners amended the articles of partnership, the provisions of Republic Act 1180 were already in force, and there
can be not the slightest doubt that the right claimed by appellants to extend the original term of their partnership to
another five years would be in violation of the clear intent and purpose of the law aforesaid.

WHEREFORE, the judgment appealed from is affirmed, with costs.

Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Regala and Makalintal, JJ., concur.
Bautista Angelo and Reyes, J.B.L., JJ., took no part.
 [G.R. Nos. 84132-33 : December 10, 1990.]
192 SCRA 257
NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE
VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity as
Deputy Sheriff of Calamba, Laguna, Respondents.

DECISION

CRUZ, J.:

This case involves the constitutionality of a presidential decree which, like all other issuances of President
Marcos during his regime, was at that time regarded as sacrosanct. It is only now, in a freer atmosphere,
that his acts are being tested by the touchstone of the fundamental law that even then was supposed to
limit presidential action.
: rd

The particular enactment in question is Pres. Decree No. 1717, which ordered the rehabilitation of the
Agrix Group of Companies to be administered mainly by the National Development Company. The law
outlined the procedure for filing claims against the Agrix companies and created a Claims Committee to
process these claims. Especially relevant to this case, and noted at the outset, is Sec. 4(1) thereof
providing that "all mortgages and other liens presently attaching to any of the assets of the dissolved
corporations are hereby extinguished."
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine Veterans
Bank a real estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los Baños,
Laguna. During the existence of the mortgage, AGRIX went bankrupt. It was for the expressed purpose of
salvaging this and the other Agrix companies that the aforementioned decree was issued by President
Marcos.
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the payment
of its loan credit. In the meantime, the New Agrix, Inc. and the National Development Company,
petitioners herein, invoking Sec. 4 (1) of the decree, filed a petition with the Regional Trial Court of
Calamba, Laguna, for the cancellation of the mortgage lien in favor of the private respondent. For its part,
the private respondent took steps to extrajudicially foreclose the mortgage, prompting the petitioners to
file a second case with the same court to stop the foreclosure. The two cases were consolidated.
After the submission by the parties of their respective pleadings, the trial court rendered the impugned
decision. Judge Francisco Ma. Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but the
entire Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of legislative power was a
violation of the principle of separation of powers; (2) the law impaired the obligation of contracts; and (3)
the decree violated the equal protection clause. The motion for reconsideration of this decision having
been denied, the present petition was filed.: rd

The petition was originally assigned to the Third Division of this Court but because of the constitutional
questions involved it was transferred to the Court en banc. On August 30, 1988, the Court granted the
petitioner's prayer for a temporary restraining order and instructed the respondents to cease and desist
from conducting a public auction sale of the lands in question. After the Solicitor General and the private
respondent had filed their comments and the petitioners their reply, the Court gave due course to the
petition and ordered the parties to file simultaneous memoranda. Upon compliance by the parties, the
case was deemed submitted.
The petitioners contend that the private respondent is now estopped from contesting the validity of the
decree. In support of this contention, it cites the recent case of Mendoza v. Agrix Marketing, Inc., 1 where
the constitutionality of Pres. Decree No. 1717 was also raised but not resolved. The Court, after noting
that the petitioners had already filed their claims with the AGRIX Claims Committee created by the decree,
had simply dismissed the petition on the ground of estoppel.
The petitioners stress that in the case at bar the private respondent also invoked the provisions of Pres.
Decree No. 1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to
foreclose the real estate mortgage executed by AGRIX in its favor, which had been extinguished by the
decree. It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the
decree, that the private respondent attacked the validity of the provision. At that stage, however,
consistent with Mendoza, the private respondent was already estopped from questioning the
constitutionality of the decree.
The Court does not agree that the principle of estoppel is applicable.
It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to
this decree. It must be noted, however, that this was done in 1980, when President Marcos was the
absolute ruler of this country and his decrees were the absolute law. Any judicial challenge to them would
have been futile, not to say foolhardy. The private respondent, no less than the rest of the nation, was
aware of that reality and knew it had no choice under the circumstances but to conform. : nad

It is true that there were a few venturesome souls who dared to question the dictator's decisions before
the courts of justice then. The record will show, however, that not a single act or issuance of President
Marcos was ever declared unconstitutional, not even by the highest court, as long as he was in power. To
rule now that the private respondent is estopped for having abided with the decree instead of boldly
assailing it is to close our eyes to a cynical fact of life during that repressive time.
This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the
AGRIX Claims Committee, received in settlement thereof shares of stock valued at P40,000.00 without
protest or reservation. The herein private respondent has not been paid a single centavo on its claim,
which was kept pending for more than seven years for alleged lack of supporting papers. Significantly, the
validity of that claim was not questioned by the petitioner when it sought to restrain the extrajudicial
foreclosure of the mortgage by the private respondent. The petitioner limited itself to the argument that
the private respondent was estopped from questioning the decree because of its earlier compliance with
its provisions.
Independently of these observations, there is the consideration that an affront to the Constitution cannot
be allowed to continue existing simply because of procedural inhibitions that exalt form over substance.
The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages
and other liens attaching to the assets of AGRIX. It also notes, with equal concern, the restriction in
Subsection (ii) thereof that all "unsecured obligations shall not bear interest" and in Subsection (iii) that
"all accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether secured
or unsecured, shall not be recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no
person shall be deprived of life, liberty or property without due course of law nor shall any person be
denied the equal protection of the law" and in Section 10 that "no law impairing the obligation of contracts
shall be passed."
In defending the decree, the petitioners argue that property rights, like all rights, are subject to regulation
under the police power for the promotion of the common welfare. The contention is that this inherent
power of the state may be exercised at any time for this purpose so long as the taking of the property
right, even if based on contract, is done with due process of law.
This argument is an over-simplification of the problem before us. The police power is not a panacea for all
constitutional maladies. Neither does its mere invocation conjure an instant and automatic justification for
every act of the government depriving a person of his life, liberty or property.
A legislative act based on the police power requires the concurrence of a lawful subject and a lawful
method. In more familiar words, a) the interests of the public generally, as distinguished from those of a
particular class, should justify the interference of the state; and b) the means employed are reasonably
necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2
Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not
sufficiently involved to warrant the interference of the government with the private contracts of AGRIX.
The decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if the
corporation were not to be assisted. However, the record does not state how many there are of such
investors, and who they are, and why they are being preferred to the private respondent and other
creditors of AGRIX with vested property rights. :-cralaw

The public interest supposedly involved is not identified or explained. It has not been shown that by the
creation of the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the
interests of the public as a whole, as distinguished from those of a particular class, would be promoted or
protected. The indispensable link to the welfare of the greater number has not been established. On the
contrary, it would appear that the decree was issued only to favor a special group of investors who, for
reasons not given, have been preferred to the legitimate creditors of AGRIX.
Assuming there is a valid public interest involved, the Court still finds that the means employed to
rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. The
oppressiveness is patent on the face of the decree. The right to property in all mortgages, liens, interests,
penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for
the extinction of the mortgage rights. The accrued interests and other charges are simply rejected by the
decree. The right to property is dissolved by legislative fiat without regard to the private interest violated
and, worse, in favor of another private interest.
A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of
Rights. So do interests on loans, as well as penalties and charges, which are also vested rights once they
accrue. Private property cannot simply be taken by law from one person and given to another without
compensation and any known public purpose. This is plain arbitrariness and is not permitted under the
Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and
other liens, the decree lumps the secured creditors with the unsecured creditors and places them on the
same level in the prosecution of their respective claims. In this respect, all of them are considered
unsecured creditors. The only concession given to the secured creditors is that their loans are allowed to
earn interest from the date of the decree, but that still does not justify the cancellation of the interests
earned before that date. Such interests, whether due to the secured or the unsecured creditors, are all
extinguished by the decree. Even assuming such cancellation to be valid, we still cannot see why all kinds
of creditors, regardless of security, are treated alike.
Under the equal protection clause, all persons or things similarly situated must be treated alike, both in
the privileges conferred and the obligations imposed. Conversely, all persons or things differently situated
should be treated differently. In the case at bar, persons differently situated are similarly treated, in
disregard of the principle that there should be equality only among equals. - nad

One may also well wonder why AGRIX was singled out for government help, among other corporations
where the stockholders or investors were also swindled. It is not clear why other companies entitled to
similar concern were not similarly treated. And surely, the stockholders of the private respondent, whose
mortgage lien had been cancelled and legitimate claims to accrued interests rejected, were no less
deserving of protection, which they did not get. The decree operated, to use the words of a celebrated
case, 3 "with an evil eye and an uneven hand."
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article
XIV, Section 4 of the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization,
or regulation of private corporations, unless such corporations are owned or controlled by the Government
or any subdivision or instrumentality thereof. 4
The new corporation is neither owned nor controlled by the government. The National Development
Corporation was merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc.
Pending payment thereof, NDC would undertake the management of the corporation, but with the
obligation of making periodic reports to the Agrix board of directors. After payment of the loan, the said
board can then appoint its own management. The stocks of the new corporation are to be issued to the
old investors and stockholders of AGRIX upon proof of their claims against the abolished corporation. They
shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so should have
been organized under the Corporation Law in accordance with the above-cited constitutional provision.
The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private
respondent without justification. While it is true that the police power is superior to the impairment clause,
the principle will apply only where the contract is so related to the public welfare that it will be considered
congenitally susceptible to change by the legislature in the interest of the greater number. 5 Most present-
day contracts are of that nature. But as already observed, the contracts of loan and mortgage executed by
AGRIX are purely private transactions and have not been shown to be affected with public interest. There
was therefore no warrant to amend their provisions and deprive the private respondent of its vested
property rights.
It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we
sustained the preference in payment of a mortgage creditor as against the argument that the claims of
laborers should take precedence over all other claims, including those of the government. In arriving at
this ruling, the Court recognized the mortgage lien as a property right protected by the due process and
contract clauses notwithstanding the argument that the amendment in Section 110 of the Labor Code was
a proper exercise of the police power. : nad

The Court reaffirms and applies that ruling in the case at bar.
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in
conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of the
mortgage and other liens and of the interest and other charges pertaining to the legitimate creditors of
AGRIX constitutes taking without due process of law, and this is compounded by the reduction of the
secured creditors to the category of unsecured creditors in violation of the equal protection clause.
Moreover, the new corporation, being neither owned nor controlled by the Government, should have been
created only by general and not special law. And insofar as the decree also interferes with purely private
agreements without any demonstrated connection with the public interest, there is likewise an impairment
of the obligation of the contract.
With the above pronouncements, we feel there is no more need to rule on the authority of President
Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if he
had such authority, the decree must fall just the same because of its violation of the Bill of Rights.
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. The
temporary restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners. - nad

SO ORDERED.
Fernan (C.J.), Narvasa, Gutierrez, Jr., Paras, Gancayco Padilla, Bidin, Sarmiento, Griño-Aquino,
Medialdea and Regalado, JJ., concur.
Melencio-Herrera, J., In the result. In Dumlao v. COMELEC, 95 SCRA 392 (1980), a portion of
the second paragraph of section 4 of Batas Pambansa Blg. 52 was declared null and void for
being unconstitutional.
Feliciano, J., is on leave.
G.R. No. L-19891 July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN, petitioners,

vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and
HON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, respondents.

Felipe N. Aurea for petitioners.

Tañada, Teehankee and Carreon for respondent Imperial Insurance, Inc.

PAREDES, J.:

Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an establishment duly franchised by
the Congress of the Philippines, to conduct a messenger and delivery express service. On July 12, 1961, the
respondent Imperial Insurance, Inc., presented with the CFI of Manila a complaint (Civ. Case No. 47520), for sum of
money against the petitioner corporation. After the defendants therein have submitted their Answer, the parties
entered into a Compromise Agreement, assisted by their respective counsels, the pertinent portions of which recite:

1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary indebtedness to the PLAINTIFF
in the full sum of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY-TWO & 32/100
(P61,172.32), Philippine Currency, itemized as follows:

a) Principal P50,000.00
b) Interest at 12% per annum 5,706.14
c) Liquidated damages at 7% per annum 3,330.58
d) Costs of suit 135.60
e) Attorney's fees 2,000.00

2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby promise to pay their
aforementioned obligation to the PLAINTIFF at its business address at 301-305 Banquero St., (Ground
Floor), Regina Building, Escolta, Manila, within sixty (60) days from March 16, 1962 or on or before May 14,
1962;

3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of PESOS SIXTY ONE
THOUSAND ONE HUNDRED SEVENTY TWO & 32/100 (P61,172.32), Philippine Currency, for any reason
whatsoever, on May 14, 1962, the PLAINTIFF shall be entitled, as a matter of right, to move for the
execution of the decision to be rendered in the above-entitled case by this Honorable Court based on this
COMPROMISE AGREEMENT.

On March 17, 1962, the lower court rendered judgment embodying the contents of the said compromise agreement,
the dispositive portion of which reads —

WHEREFORE, the Court hereby approves the above-quoted compromise agreement and renders judgment
in accordance therewith, enjoining the parties to comply faithfully and strictly with the terms and conditions
thereof, without special pronouncement as to costs.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by
this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not
covered by this stipulation of facts.
1äw phï1.ñët

On May 15, 1962, one day after the date fixed in the compromise agreement, within which the judgment debt would
be paid, but was not, respondent Imperial Insurance Inc., filed a "Motion for the Insurance of a Writ of Execution".
On May 23, 1962, a Writ of Execution was issued by respondent Sheriff of Manila and on May 26, 1962, Notices of
Sale were sent out for the auction of the personal properties of the petitioner J.R.S. Business Corporation. On June
2, 1962, a Notice of Sale of the "whole capital stocks of the defendants JRS Business Corporation, the business
name, right of operation, the whole assets, furnitures and equipments, the total liabilities, and Net Worth, books of
accounts, etc., etc." of the petitioner corporation was, handed down. On June 9, the petitioner, thru counsel,
presented an "Urgent Petition for Postponement of Auction Sale and for Release of Levy on the Business Name and
Right to Operate of Defendant JRS Business Corporation", stating that petitioners were busy negotiating for a loan
with which to pay the judgment debt; that the judgment was for money only and, therefore, plaintiff (respondent
Insurance Company) was not authorized to take over and appropriate for its own use, the business name of the
defendants; that the right to operate under the franchise, was not transferable and could not be considered a
personal or immovable, property, subject to levy and sale. On June 10, 1962, a Supplemental Motion for Release of
Execution, was filed by counsel of petitioner JRS Business Corporation, claiming that the capital stocks thereof,
could not be levied upon and sold under execution. Under date of June 20, 1962, petitioner's counsel presented a
pleading captioned "Very Urgent Motion for Postponement of Public Auction Sale and for Ruling on Motion for
Release of Levy on the Business Name, Right to Operate and Capital Stocks of JRS Business Corporation". The
auction sale was set for June 21, 1962. In said motion, petitioners alleged that the loan they had applied for, was to
be secured within the next ten (10) days, and they would be able to discharge the judgment debt. Respondents
opposed the said motion and on June 21, 1962, the lower court denied the motion for postponement of the auction
sale.
In the sale which was conducted in the premises of the JRS Business Corporation at 1341 Perez St., Paco, Manila,
all the properties of said corporation contained in the Notices of Sale dated May 26, 1962, and June 2, 1962 (the
latter notice being for the whole capital stocks of the defendant, JRS Business Corporation, the business name, right
of operation, the whole assets, furnitures and equipments, the total liabilities and Net Worth, books of accounts, etc.,
etc.), were bought by respondent Imperial Insurance, Inc., for P10,000.00, which was the highest bid offered.
Immediately after the sale, respondent Insurance Company took possession of the proper ties and started running
the affairs and operating the business of the JRS Business Corporation. Hence, the present appeal.

It would seem that the matters which need determination are (1) whether the respondent Judge acted without or in
excess of his jurisdiction or with grave abuse of discretion in promulgating the Order of June 21, 1962, denying the
motion for postponement of the scheduled sale at public auction, of the properties of petitioner; and (2) whether the
business name or trade name, franchise (right to operate) and capital stocks of the petitioner are properties or
property rights which could be the subject of levy, execution and sale.

The respondent Court's act of postponing the scheduled sale was within the discretion of respondent Judge, the
exercise of which, one way or the other, did not constitute grave abuse of discretion and/or excess of jurisdiction.
There was a decision rendered and the corresponding writ of execution was issued. Respondent Judge had
jurisdiction over the matter and erroneous conclusions of law or fact, if any, committed in the exercise of such
jurisdiction are merely errors of judgment, not correctible by certiorari (Villa Rey Transit v. Bello, et al., L-18957, April
23, 1963, and cases cited therein.)

The corporation law, on forced sale of franchises, provides —

Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use public property or any
portion of the public domain or any right of way over public property or the public domain, and any rights and
privileges acquired under such franchise may be levied upon and sold under execution, together with the
property necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of such
franchise or right of way, in the same manner and with like effect as any other property to satisfy any
judgment against the corporation: Provided, That the sale of the franchise or right of way and the property
necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of said franchise or
right of way is especially decreed and ordered in the judgment: And provided, further, That the sale shall not
become effective until confirmed by the court after due notice. (Sec. 56, Corporation Law.)

In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held —

The first question then for decision is the meaning of the word "franchise" in the statute.

"A franchise is a special privilege conferred by governmental authority, and which does not belong to
citizens of the country generally as a matter of common right. ... Its meaning depends more or less
upon the connection in which the word is employed and the property and corporation to which it is
applied. It may have different significations.

"For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate
or general franchises; and (2) special or secondary franchises. The former is the franchise to exist
as a corporation, while the latter are certain rights and privileges conferred upon existing
corporations, such as the right to use the streets of a municipality to lay pipes or tracks, erect poles
or string wires." 2 Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. 160; Adams v. Yazon & M. V. R.
Co., 24 So. 200, 317, 28 So. 956, 77 Miss. 253, 60 L.R.A. 33 et seq.

The primary franchise of a corporation that is, the right to exist as such, is vested "in the individuals who
compose the corporation and not in the corporation itself" (14 C.J. pp. 160, 161; Adams v. Railroad, supra; 2
Fletcher's Cyclopedia Corp. Secs. 1153, 1158; 3 Thompson on Corporations 2d Ed.] Secs. 2863, 2864), and
cannot be conveyed in the absence of a legislative authority so to do (14A CJ. 543, 577; 1 Fletcher's Cyc.
Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct. 299, 112 U.S. 609, 28 L.E.d. 837; Vicksburg
Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S. 453, 50 L.E.d. 1102, 6 Ann. Cas. 253; Arthur v.
Commercial & Railroad Bank, 9 Smedes & M. 394, 48 Am. Dec. 719), but the specify or secondary
franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged
under a general power granted to a corporation to dispose of its property (Adams v. Railroad, supra; 14A
C.J. 542, 557; 3 Thompson on Corp. [2nd Ed.] Sec. 2909), except such special or secondary franchises as
are charged with a public use (2 Fletcher's Cyc. Corp. see. 1225; 14A C.J. 544; 3 Thompson on Corp. [2d
Ed.] sec. 2908; Arthur v. Commercial & R.R. Bank, supra; McAllister v. Plant, 54 Miss. 106).

The right to operate a messenger and express delivery service, by virtue of a legislative enactment, is admittedly a
secondary franchise (R.A. No. 3260, entitled "An Act granting the JRS Business Corporation a franchise to conduct
a messenger and express service)" and, as such, under our corporation law, is subject to levy and sale on execution
together and including all the property necessary for the enjoyment thereof. The law, however, indicates the
procedure under which the same (secondary franchise and the properties necessary for its enjoyment) may be sold
under execution. Said franchise can be sold under execution, when such sale is especially decreed and ordered in
the judgment and it becomes effective only when the sale is confirmed by the Court after due notice (Sec. 56, Corp.
Law). The compromise agreement and the judgment based thereon, do not contain any special decree or order
making the franchise answerable for the judgment debt. The same thing may be stated with respect to petitioner's
trade name or business name and its capital stock. Incidentally, the trade name or business name corresponds to
the initials of the President of the petitioner corporation and there can be no serious dispute regarding the fact that a
trade name or business name and capital stock are necessarily included in the enjoyment of the franchise. Like that
of a franchise, the law mandates, that property necessary for the enjoyment of said franchise, can only be sold to
satisfy a judgment debt if the decision especially so provides. As We have stated heretofore, no such directive
appears in the decision. Moreover, a trade name or business name cannot be sold separately from the franchise,
and the capital stock of the petitioner corporation or any other corporation, for the matter, represents the interest and
is the property of stockholders in the corporation, who can only be deprived thereof in the manner provided by law
(Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6
Words and Phrases, 109).

It, therefore, results that the inclusion of the franchise, the trade name and/or business name and the capital stock of
the petitioner corporation, in the sale of the properties of the JRS Business Corporation, has no justification. The
sale of the properties of petitioner corporation is set aside, in so far as it authorizes the levy and sale of its franchise,
trade name and capital stocks. Without pronouncement as to costs.

Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Regala and Makalintal, JJ., concur.
G.R. No. 15574 September 17, 1919

SMITH, BELL & COMPANY (LTD.), petitioner,

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.

Ross and Lawrence for petitioner.

Attorney-General Paredes for respondent.

MALCOLM, J.:

A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of Customs of the
port of Cebu, Philippine Islands, to compel him to issue a certificate of Philippine registry to the petitioner for its
motor vessel Bato. The Attorney-General, acting as counsel for respondent, demurs to the petition on the general
ground that it does not state facts sufficient to constitute a cause of action. While the facts are thus admitted, and
while, moreover, the pertinent provisions of law are clear and understandable, and interpretative American
jurisprudence is found in abundance, yet the issue submitted is not lightly to be resolved. The question, flatly
presented, is, whether Act. No. 2761 of the Philippine Legislature is valid — or, more directly stated, whether the
Government of the Philippine Islands, through its Legislature, can deny the registry of vessels in its coastwise trade
to corporations having alien stockholders.

FACTS.

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority
of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it in the
Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the present year for the
purpose of transporting plaintiff's merchandise between ports in the Islands. Application was made at Cebu, the
home port of the vessel, to the Collector of Customs for a certificate of Philippine registry. The Collector refused to
issue the certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either
of the United States or of the Philippine Islands. The instant action is the result.

LAW.

The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting a portion of
section 3 of this Law, and still in force, provides in its section 1:

That until Congress shall have authorized the registry as vessels of the United States of vessels owned in
the Philippine Islands, the Government of the Philippine Islands is hereby authorized to adopt, from time to
time, and enforce regulations governing the transportation of merchandise and passengers between ports or
places in the Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7 Pub. Laws,
364.)

The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in section 3,
(first paragraph, first sentence), 6, 7, 8, 10, and 31, as follows.

SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or
property without due process of law, or deny to any person therein the equal protection of the laws. . . .

SEC. 6. That the laws now in force in the Philippines shall continue in force and effect, except as altered,
amended, or modified herein, until altered, amended, or repealed by the legislative authority herein provided
or by Act of Congress of the United States.

SEC. 7. That the legislative authority herein provided shall have power, when not inconsistent with this Act,
by due enactment to amend, alter modify, or repeal any law, civil or criminal, continued in force by this Act
as it may from time to time see fit

This power shall specifically extend with the limitation herein provided as to the tariff to all laws relating to
revenue provided as to the tariff to all laws relating to revenue and taxation in effect in the Philippines.

SEC. 8. That general legislative power, except as otherwise herein provided, is hereby granted to the
Philippine Legislature, authorized by this Act.

SEC. 10. That while this Act provides that the Philippine government shall have the authority to enact a tariff
law the trade relations between the islands and the United States shall continue to be governed exclusively
by laws of the Congress of the United States: Provided, That tariff acts or acts amendatory to the tariff of the
Philippine Islands shall not become law until they shall receive the approval of the President of the United
States, nor shall any act of the Philippine Legislature affecting immigration or the currency or coinage laws
of the Philippines become a law until it has been approved by the President of the United States: Provided
further, That the President shall approve or disapprove any act mentioned in the foregoing proviso within six
months from and after its enactment and submission for his approval, and if not disapproved within such
time it shall become a law the same as if it had been specifically approved.

SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any of the provisions
of this Act are hereby continued in force and effect." (39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law amended
section 1172 of the Administrative Code to read as follows:

SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic ownership, and of
more than fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of
domestic ownership and of fifteen tons gross or less, the taking of the certificate of Philippine register shall
be optional with the owner.

"Domestic ownership," as used in this section, means ownership vested in some one or more of the
following classes of persons: (a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the
United States residing in the Philippine Islands; (c) any corporation or company composed wholly of citizens
of the Philippine Islands or of the United States or of both, created under the laws of the United States, or of
any State thereof, or of thereof, or the managing agent or master of the vessel resides in the Philippine
Islands

Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen, had a
certificate of Philippine register under existing law, shall likewise be deemed a vessel of domestic ownership
so long as there shall not be any change in the ownership thereof nor any transfer of stock of the companies
or corporations owning such vessel to person not included under the last preceding paragraph.

Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read as follows:

SEC. 1176. Investigation into character of vessel. — No application for a certificate of Philippine register
shall be approved until the collector of customs is satisfied from an inspection of the vessel that it is engaged
or destined to be engaged in legitimate trade and that it is of domestic ownership as such ownership is
defined in section eleven hundred and seventy-two of this Code.

The collector of customs may at any time inspect a vessel or examine its owner, master, crew, or
passengers in order to ascertain whether the vessel is engaged in legitimate trade and is entitled to have or
retain the certificate of Philippine register.

SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — No Philippine vessel
operating in the coastwise trade or on the high seas shall be permitted to have on board more than one
master or one mate and one engineer who are not citizens of the United States or of the Philippine Islands,
even if they hold licenses under section one thousand one hundred and ninety-nine hereof. No other person
who is not a citizen of the United States or of the Philippine Islands shall be an officer or a member of the
crew of such vessel. Any such vessel which fails to comply with the terms of this section shall be required to
pay an additional tonnage tax of fifty centavos per net ton per month during the continuance of said failure.

ISSUES.

Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act No 2761 of
the Philippine Legislature is valid in whole or in part — whether the Government of the Philippine Islands, through its
Legislature, can deny the registry of vessel in its coastwise trade to corporations having alien stockholders .

OPINION.

1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the Philippine
Legislature to enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific delegation of authority to
the Government of the Philippine Islands to regulate the transportation of merchandise and passengers between
ports or places therein, the liberal construction given to the provisions of the Philippine Bill, the Act of Congress of
July 1, 1902, by the courts, and the grant by the Act of Congress of August 29, 1916, of general legislative power to
the Philippine Legislature, are certainly superabundant authority for such a law. While the Act of the local legislature
may in a way be inconsistent with the Act of Congress regulating the coasting trade of the Continental United
States, yet the general rule that only such laws of the United States have force in the Philippines as are expressly
extended thereto, and the abnegation of power by Congress in favor of the Philippine Islands would leave no
starting point for convincing argument. As a matter of fact, counsel for petitioner does not assail legislative action
from this direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How., 227.)

2. It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act No. 2761.
The first paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the first paragraph of the
Philippine Bill of Rights as set forth in the Jones Law, provides "That no law shall be enacted in said Islands which
shall deprive any person of life, liberty, or property without due process of law, or deny to any person therein the
equal protection of the laws." Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection
of the laws because it, in effect, prohibits the corporation from owning vessels, and because classification of
corporations based on the citizenship of one or more of their stockholders is capricious, and that Act No. 2761
deprives the corporation of its properly without due process of law because by the passage of the law company was
automatically deprived of every beneficial attribute of ownership in the Bato and left with the naked title to a boat it
could not use .

The guaranties extended by the Congress of the United States to the Philippine Islands have been used in the same
sense as like provisions found in the United States Constitution. While the "due process of law and equal protection
of the laws" clause of the Philippine Bill of Rights is couched in slightly different words than the corresponding
clause of the Fourteenth Amendment to the United States Constitution, the first should be interpreted and given the
same force and effect as the latter. (Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U.
S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment has been announced in
classic decisions of the United States Supreme Court. Even at the expense of restating what is so well known, these
basic principles must again be set down in order to serve as the basis of this decision.

The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are
universal in their application to all person within the territorial jurisdiction, without regard to any differences of race,
color, or nationality. The word "person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax vs.
Raich [1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within the scope of the guaranties in so far
as their property is concerned. (Santa Clara County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina
Mining Co. vs. Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford [1896], 164 U.
S., 578.) Classification with the end in view of providing diversity of treatment may be made among corporations, but
must be based upon some reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe
Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional because of unlawful
discrimination against aliens could be cited. Generally, these decisions relate to statutes which had attempted
arbitrarily to forbid aliens to engage in ordinary kinds of business to earn their living. (State vs. Montgomery [1900],
94 Maine, 192, peddling — but see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of
Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination
against Chinese; Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway &
Torley Co. [1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898], 187 Penn., 193, all relating to the
employment of aliens by private corporations.)

A literal application of general principles to the facts before us would, of course, cause the inevitable deduction that
Act No. 2761 is unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of
the equal protection of the laws. Like all beneficient propositions, deeper research discloses provisos. Examples of a
denial of rights to aliens notwithstanding the provisions of the Fourteenth Amendment could be cited.
(Tragesser vs.Gray [1890], 73 Md., 250, licenses to sell spirituous liquors denied to persons not citizens of the
United States; Commonwealth vs. Hana [1907], 195 Mass , 262, excluding aliens from the right to peddle;
Patsone vs.Commonwealth of Pennsylvania [1914], 232 U. S. , 138, prohibiting the killing of any wild bird or animal
by any unnaturalized foreign-born resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in favor of citizens
with reference to the taking for private use of the common property in fish and oysters found in the public waters of
the State; Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915], 239 U. S., 195, limiting
employment on public works by, or for, the State or a municipality to citizens of the United States.)

One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the
Fourteenth Amendment to the United States Constitution, broad and comprehensive as it is, nor any other
amendment, "was designed to interfere with the power of the State, sometimes termed its `police power,' to
prescribe regulations to promote the health, peace, morals, education, and good order of the people, and legislate
so as to increase the industries of the State, develop its resources and add to its wealth and prosperity. From the
very necessities of society, legislation of a special character, having these objects in view, must often be had in
certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27; New Orleans Gas Co. vs. Lousiana Light Co. [1885],
115 U.S., 650.) This is the same police power which the United States Supreme Court say "extends to so dealing
with the conditions which exist in the state as to bring out of them the greatest welfare in of its people."
(Bacon vs.Walker [1907], 204 U.S., 311.) For quite similar reasons, none of the provision of the Philippine Organic
Law could could have had the effect of denying to the Government of the Philippine Islands, acting through its
Legislature, the right to exercise that most essential, insistent, and illimitable of powers, the sovereign police power,
in the promotion of the general welfare and the public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and
Tait vs. Rafferty [1915], 32 Phil., 580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another notable
exception permits of the regulation or distribution of the public domain or the common property or resources of the
people of the State, so that use may be limited to its citizens. (Ex parte Gilleti [1915], 70 Fla., 442;
McCready vs. Virginia [1876], 94 U. S., 391; Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.)
Still another exception permits of the limitation of employment in the construction of public works by, or for, the State
or a municipality to citizens of the United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207;
Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New York [1915], 239 U. S., 195.) Even as to classification, it is
admitted that a State may classify with reference to the evil to be prevented; the question is a practical one,
dependent upon experience. (Patsone vs.Commonwealth of Pennsylvania [1914], 232 U. S., 138.)

To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of Philippine
registry only on condition that they be composed wholly of citizens of the Philippine Islands or of the United States
or both, as not infringing Philippine Organic Law, it must be done under some one of the exceptions here mentioned
This must be done, moreover, having particularly in mind what is so often of controlling effect in this jurisdiction —
our local experience and our peculiar local conditions.

To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more than three
thousand islands. Literally, and absolutely, steamship lines are, for an Insular territory thus situated, the arteries of
commerce. If one be severed, the life-blood of the nation is lost. If on the other hand these arteries are protected,
then the security of the country and the promotion of the general welfare is sustained. Time and again, with such
conditions confronting it, has the executive branch of the Government of the Philippine Islands, always later with the
sanction of the judicial branch, taken a firm stand with reference to the presence of undesirable foreigners. The
Government has thus assumed to act for the all-sufficient and primitive reason of the benefit and protection of its
own citizens and of the self-preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil., 93;
Forbes vs.Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38 Phil.,
41.) Boats owned by foreigners, particularly by such solid and reputable firms as the instant claimant, might indeed
traverse the waters of the Philippines for ages without doing any particular harm. Again, some evilminded foreigner
might very easily take advantage of such lavish hospitality to chart Philippine waters, to obtain valuable information
for unfriendly foreign powers, to stir up insurrection, or to prejudice Filipino or American commerce. Moreover, under
the Spanish portion of Philippine law, the waters within the domestic jurisdiction are deemed part of the national
domain, open to public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3, 1866, arts 1, 2,
3.) Common carriers which in the Philippines as in the United States and other countries are, as Lord Hale said,
"affected with a public interest," can only be permitted to use these public waters as a privilege and under such
conditions as to the representatives of the people may seem wise. (See De Villata vs. Stanley [1915], 32 Phil., 541.)

In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before mentioned, Justice
Holmes delivering the opinion of the United States Supreme Court said:

This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or animal
except in defense of person or property, and `to that end' makes it unlawful for such foreign-born person to
own or be possessed of a shotgun or rifle; with a penalty of $25 and a forfeiture of the gun or guns. The
plaintiff in error was found guilty and was sentenced to pay the abovementioned fine. The judgment was
affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this court on the ground
that the statute is contrary to the 14th Amendment and also is in contravention of the treaty between the
United States and Italy, to which latter country the plaintiff in error belongs .

Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of property, and
discrimination against such aliens as a class. But the former really depends upon the latter, since it hardly
can be disputed that if the lawful object, the protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40 L.
ed., 793; 16 Sup. Ct. Rep., 600), warrants the discrimination, the, means adopted for making it effective also
might be adopted. . . .

The discrimination undoubtedly presents a more difficult question. But we start with reference to the evil to
be prevented, and that if the class discriminated against is or reasonably might be considered to define
those from whom the evil mainly is to be feared, it properly may be picked out. A lack of abstract symmetry
does not matter. The question is a practical one, dependent upon experience. . . .

The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania was
not warranted in assuming as its premise for the law that resident unnaturalized aliens were the peculiar
source of the evil that it desired to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33
Sup. Ct. Rep., 692.)

Obviously the question, so stated, is one of local experience, on which this court ought to be very slow to
declare that the state legislature was wrong in its facts (Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed.,
971,.977; 33 Sup. Ct. Rep., 610.) If we might trust popular speech in some states it was right; but it is
enough that this court has no such knowledge of local conditions as to be able to say that it was manifestly
wrong. . . .

Judgment affirmed.

We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to
the protection afforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of
Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell &.
Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not belong to that vicious species of
class legislation which must always be condemned, but does fall within authorized exceptions, notably, within the
purview of the police power, and so does not offend against the constitutional provision.

This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative history of the
United States and the Philippine Islands, and, probably, the legislative history of other countries, if we were to take
the time to search it out, might disclose similar attempts at restriction on the right to enter the coastwise trade, and
might thus furnish valuable aid by which to ascertain and, if possible, effectuate legislative intention.

3. The power to regulate commerce, expressly delegated to the Congress by the Constitution, includes the
power to nationalize ships built and owned in the United States by registries and enrollments, and the
recording of the muniments of title of American vessels. The Congress "may encourage or it may entirely
prohibit such commerce, and it may regulate in any way it may see fit between these two extremes."
(U.S. vs.Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1; The Passenger Cases [1849], 7
How., 283.)

Acting within the purview of such power, the first Congress of the United States had not been long convened before
it enacted on September 1, 1789, "An Act for Registering and Clearing Vessels, Regulating the Coasting Trade, and
for other purposes." Section 1 of this law provided that for any ship or vessel to obtain the benefits of American
registry, it must belong wholly to a citizen or citizens of the United States "and no other." (1 Stat. at L., 55.) That Act
was shortly after repealed, but the same idea was carried into the Acts of Congress of December 31, 1792 and
February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that in order to obtain the registry
of any vessel, an oath shall be taken and subscribed by the owner, or by one of the owners thereof, before the
officer authorized to make such registry, declaring, "that there is no subject or citizen of any foreign prince or state,
directly or indirectly, by way of trust, confidence, or otherwise, interested in such vessel, or in the profits or issues
thereof." Section 32 of the Act of 1793 even went so far as to say "that if any licensed ship or vessel shall be
transferred to any person who is not at the time of such transfer a citizen of and resident within the United States, ...
every such vessel with her tackle, apparel, and furniture, and the cargo found on board her, shall be forefeited." In
case of alienation to a foreigner, Chief Justice Marshall said that all the privileges of an American bottom were ipso
facto forfeited. (U.S. vs. Willings and Francis [1807], 4 Cranch, 48.) Even as late as 1873, the Attorney-General of
the United States was of the opinion that under the provisions of the Act of December 31, 1792, no vessel in which a
foreigner is directly or indirectly interested can lawfully be registered as a vessel of the United. States. (14 Op. Atty.-
Gen. [U.S.], 340.)

These laws continued in force without contest, although possibly the Act of March 3, 1825, may have affected them,
until amended by the Act of May 28, 1896 (29 Stat. at L., 188) which extended the privileges of registry from vessels
wholly owned by a citizen or citizens of the United States to corporations created under the laws of any of the states
thereof. The law, as amended, made possible the deduction that a vessel belonging to a domestic corporation was
entitled to registry or enrollment even though some stock of the company be owned by aliens. The right of
ownership of stock in a corporation was thereafter distinct from the right to hold the property by the corporation
(Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen.
[U.S.],188.)

On American occupation of the Philippines, the new government found a substantive law in operation in the Islands
with a civil law history which it wisely continued in force Article fifteen of the Spanish Code of Commerce permitted
any foreigner to engage in Philippine trade if he had legal capacity to do so under the laws of his nation. When the
Philippine Commission came to enact the Customs Administrative Act (No. 355) in 1902, it returned to the old
American policy of limiting the protection and flag of the United States to vessels owned by citizens of the United
States or by native inhabitants of the Philippine Islands (Sec. 117.) Two years later, the same body reverted to the
existing Congressional law by permitting certification to be issued to a citizen of the United States or to a corporation
or company created under the laws of the United States or of any state thereof or of the Philippine Islands (Act No.
1235, sec. 3.) The two administration codes repeated the same provisions with the necessary amplification of
inclusion of citizens or native inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of
1917, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the original Customs Administrative
Act which in turn was merely a reflection of the statutory language of the first American Congress.

Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of Philippine registry, are
thus found not to be as radical as a first reading would make them appear.

Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien
shipping act. The ultimate purpose of the Legislature is to encourage Philippine ship-building. This, without doubt,
has, likewise, been the intention of the United States Congress in passing navigation or tariff laws on different
occasions. The object of such a law, the United States Supreme Court once said, was to encourage American trade,
navigation, and ship-building by giving American ship-owners exclusive privileges. (Old Dominion Steamship
Co. vs.Virginia [1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)

In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is found the following:

Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts licensing gaming
houses, retailers of spirituous liquors, etc. The act, in this instance, is distinctly of that character, and forms
part of an extensive system, the object of which is to encourage American shipping, and place them on an
equal footing with the shipping of other nations. Almost every commercial nation reserves to its own subjects
a monopoly of its coasting trade; and a countervailing privilege in favor of American shipping is
contemplated, in the whole legislation of the United States on this subject. It is not to give the vessel an
American character, that the license is granted; that effect has been correctly attributed to the act of her
enrollment. But it is to confer on her American privileges, as contradistinguished from foreign; and to
preserve the. Government from fraud by foreigners, in surreptitiously intruding themselves into the American
commercial marine, as well as frauds upon the revenue in the trade coastwise, that this whole system is
projected.

The United States Congress in assuming its grave responsibility of legislating wisely for a new country did so
imbued with a spirit of Americanism. Domestic navigation and trade, it decreed, could only be carried on by citizens
of the United States. If the representatives of the American people acted in this patriotic manner to advance the
national policy, and if their action was accepted without protest in the courts, who can say that they did not enact
such beneficial laws under the all-pervading police power, with the prime motive of safeguarding the country and of
promoting its prosperity? Quite similarly, the Philippine Legislature made up entirely of Filipinos, representing the
mandate of the Filipino people and the guardian of their rights, acting under practically autonomous powers, and
imbued with a strong sense of Philippinism, has desired for these Islands safety from foreign interlopers, the use of
the common property exclusively by its citizens and the citizens of the United States, and protection for the common
good of the people. Who can say, therefore, especially can a court, that with all the facts and circumstances
affecting the Filipino people before it, the Philippine Legislature has erred in the enactment of Act No. 2761?

Surely, the members of the judiciary are not expected to live apart from active life, in monastic seclusion amidst
dusty tomes and ancient records, but, as keen spectators of passing events and alive to the dictates of the general
— the national — welfare, can incline the scales of their decisions in favor of that solution which will most effectively
promote the public policy. All the presumption is in favor of the constitutionally of the law and without good and
strong reasons, courts should not attempt to nullify the action of the Legislature. "In construing a statute enacted by
the Philippine Commission (Legislature), we deem it our duty not to give it a construction which would be repugnant
to an Act of Congress, if the language of the statute is fairly susceptible of another construction not in conflict with
the higher law." (In re Guariña [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the true construction
which will best carry legislative intention into effect.

With full consciousness of the importance of the question, we nevertheless are clearly of the opinion that the
limitation of domestic ownership for purposes of obtaining a certificate of Philippine registry in the coastwise trade to
citizens of the Philippine Islands, and to citizens of the United States, does not violate the provisions of paragraph 1
of section 3 of the Act of Congress of August 29, 1916 No treaty right relied upon Act No. 2761 of the Philippine
Legislature is held valid and constitutional .
The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.

Arellano, C.J., Torres, Johnson, Araullo, Street, Avanceña and Moir, JJ., concur.
G.R. No. L-19550 June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity as
Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I.
PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN,
Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal Court of Manila; JUDGE HERMOGENES
CALUAG, Court of First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal
Court of Quezon City, respondents.

Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro, Assistant Solicitor
General Frine C. Zaballero, Solicitor Camilo D. Quiason and Solicitor C. Padua for respondents.

CONCEPCION, C.J.:

Upon application of the officers of the government named on the margin1 — hereinafter referred to as Respondents-
Prosecutors — several judges2 — hereinafter referred to as Respondents-Judges — issued, on different dates,3 a
total of 42 search warrants against petitioners herein4 and/or the corporations of which they were officers,5 directed
to the any peace officer, to search the persons above-named and/or the premises of their offices, warehouses
and/or residences, and to seize and take possession of the following personal property to wit:

Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit
journals, typewriters, and other documents and/or papers showing all business transactions including
disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette wrappers).

as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be
used as the means of committing the offense," which is described in the applications adverted to above as "violation
of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code."

Alleging that the aforementioned search warrants are null and void, as contravening the Constitution and the Rules
of Court — because, inter alia: (1) they do not describe with particularity the documents, books and things to be
seized; (2) cash money, not mentioned in the warrants, were actually seized; (3) the warrants were issued to fish
evidence against the aforementioned petitioners in deportation cases filed against them; (4) the searches and
seizures were made in an illegal manner; and (5) the documents, papers and cash money seized were not delivered
to the courts that issued the warrants, to be disposed of in accordance with law — on March 20, 1962, said
petitioners filed with the Supreme Court this original action for certiorari, prohibition, mandamus and injunction, and
prayed that, pending final disposition of the present case, a writ of preliminary injunction be issued restraining
Respondents-Prosecutors, their agents and /or representatives from using the effects seized as aforementioned or
any copies thereof, in the deportation cases already adverted to, and that, in due course, thereafter, decision be
rendered quashing the contested search warrants and declaring the same null and void, and commanding the
respondents, their agents or representatives to return to petitioners herein, in accordance with Section 3, Rule 67, of
the Rules of Court, the documents, papers, things and cash moneys seized or confiscated under the search
warrants in question.

In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are valid and have been
issued in accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners' consent; and
(3) that, in any event, the effects seized are admissible in evidence against herein petitioners, regardless of the
alleged illegality of the aforementioned searches and seizures.

On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the petition. However, by
resolution dated June 29, 1962, the writ was partially lifted or dissolved, insofar as the papers, documents and
things seized from the offices of the corporations above mentioned are concerned; but, the injunction was
maintained as regards the papers, documents and things found and seized in the residences of petitioners herein.7

Thus, the documents, papers, and things seized under the alleged authority of the warrants in question may be split
into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and
(b) those found and seized in the residences of petitioners herein.

As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations
have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the
amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold
therein may be.8 Indeed, it is well settled that the legality of a seizure can be contested only by the party whose
rights have been impaired thereby,9 and that the objection to an unlawful search and seizure is purely personal and
cannot be availed of by third parties. 10 Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and premises of the
corporations adverted to above, since the right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their individual capacity. 11 Indeed, it has been held:

. . . that the Government's action in gaining possession of papers belonging to the corporation did not relate
to nor did it affect the personal defendants. If these papers were unlawfully seized and thereby the
constitutional rights of or any one were invaded, they were the rights of the corporation and not the rights of
 the other defendants. Next, it is clear that a question of the lawfulness of a seizure can be raised only by
one whose rights have been invaded. Certainly, such a seizure, if unlawful, could not affect the constitutional
rights of defendants whose property had not been seized or the privacy of whose homes had not been
disturbed; nor could they claim for themselves the benefits of the Fourth Amendment, when its violation, if
any, was with reference to the rights of another. Remus vs. United States (C.C.A.)291 F. 501, 511. It follows,
therefore, that the question of the admissibility of the evidence based on an alleged unlawful search and
seizure does not extend to the personal defendants but embraces only the corporation whose property was
taken. . . . (A Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)

With respect to the documents, papers and things seized in the residences of petitioners herein, the aforementioned
resolution of June 29, 1962, lifted the writ of preliminary injunction previously issued by this Court, 12 thereby, in
effect, restraining herein Respondents-Prosecutors from using them in evidence against petitioners herein.

In connection with said documents, papers and things, two (2) important questions need be settled, namely: (1)
whether the search warrants in question, and the searches and seizures made under the authority thereof, are valid
or not, and (2) if the answer to the preceding question is in the negative, whether said documents, papers and things
may be used in evidence against petitioners herein. 1äwphï1.ñët

Petitioners maintain that the aforementioned search warrants are in the nature of general warrants and that
accordingly, the seizures effected upon the authority there of are null and void. In this connection, the
Constitution 13provides:

The right of the people to be secure in their persons, houses, papers, and effects against unreasonable
searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of the complainant and the witnesses he
may produce, and particularly describing the place to be searched, and the persons or things to be seized.

Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue
but upon probable cause, to be determined by the judge in the manner set forth in said provision; and (2) that the
warrant shall particularly describe the things to be seized.

None of these requirements has been complied with in the contested warrants. Indeed, the same were issued upon
applications stating that the natural and juridical person therein named had committed a "violation of Central Ban
Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other words,
no specific offense had been alleged in said applications. The averments thereof with respect to the offense
committed were abstract. As a consequence, it was impossible for the judges who issued the warrants to have
found the existence of probable cause, for the same presupposes the introduction of competent proof that the party
against whom it is sought has performed particular acts, or committed specific omissions, violating a given provision
of our criminal laws. As a matter of fact, the applications involved in this case do not allege any specific acts
performed by herein petitioners. It would be the legal heresy, of the highest order, to convict anybody of a "violation
of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code," — as alleged
in the aforementioned applications — without reference to any determinate provision of said laws or

To uphold the validity of the warrants in question would be to wipe out completely one of the most fundamental
rights guaranteed in our Constitution, for it would place the sanctity of the domicile and the privacy of communication
and correspondence at the mercy of the whims caprice or passion of peace officers. This is precisely the evil sought
to be remedied by the constitutional provision above quoted — to outlaw the so-called general warrants. It is not
difficult to imagine what would happen, in times of keen political strife, when the party in power feels that the
minority is likely to wrest it, even though by legal means.

Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this
Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court 14 by providing in its counterpart,
under the Revised Rules of Court 15 that "a search warrant shall not issue but upon probable cause in connection
with one specific offense." Not satisfied with this qualification, the Court added thereto a paragraph, directing that
"no search warrant shall issue for more than one specific offense."

The grave violation of the Constitution made in the application for the contested search warrants was compounded
by the description therein made of the effects to be searched for and seized, to wit:

Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit
journals, typewriters, and other documents and/or papers showing all business transactions including
disbursement receipts, balance sheets and related profit and loss statements.

Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of
petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure
of all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly
contravening the explicit command of our Bill of Rights — that the things to be seized be particularly described — as
well as tending to defeat its major objective: the elimination of general warrants.

Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, even if the searches
and seizures under consideration were unconstitutional, the documents, papers and things thus seized are
admissible in evidence against petitioners herein. Upon mature deliberation, however, we are unanimously of the
opinion that the position taken in the Moncado case must be abandoned. Said position was in line with the American
common law rule, that the criminal should not be allowed to go free merely "because the constable has
blundered," 16 upon the theory that the constitutional prohibition against unreasonable searches and seizures is
protected by means other than the exclusion of evidence unlawfully obtained, 17 such as the common-law action for
damages against the searching officer, against the party who procured the issuance of the search warrant and
against those assisting in the execution of an illegal search, their criminal punishment, resistance, without liability to
an unlawful seizure, and such other legal remedies as may be provided by other laws.

However, most common law jurisdictions have already given up this approach and eventually adopted the
exclusionary rule, realizing that this is the only practical means of enforcing the constitutional injunction against
unreasonable searches and seizures. In the language of Judge Learned Hand:

As we understand it, the reason for the exclusion of evidence competent as such, which has been unlawfully
acquired, is that exclusion is the only practical way of enforcing the constitutional privilege. In earlier times
the action of trespass against the offending official may have been protection enough; but that is true no
longer. Only in case the prosecution which itself controls the seizing officials, knows that it cannot profit by
their wrong will that wrong be repressed.18

In fact, over thirty (30) years before, the Federal Supreme Court had already declared:

If letters and private documents can thus be seized and held and used in evidence against a citizen accused
of an offense, the protection of the 4th Amendment, declaring his rights to be secure against such searches
and seizures, is of no value, and, so far as those thus placed are concerned, might as well be stricken from
the Constitution. The efforts of the courts and their officials to bring the guilty to punishment, praiseworthy as
they are, are not to be aided by the sacrifice of those great principles established by years of endeavor and
suffering which have resulted in their embodiment in the fundamental law of the land.19

This view was, not only reiterated, but, also, broadened in subsequent decisions on the same Federal Court. 20After
reviewing previous decisions thereon, said Court held, in Mapp vs. Ohio (supra.):

. . . Today we once again examine the Wolf's constitutional documentation of the right of privacy free from
unreasonable state intrusion, and after its dozen years on our books, are led by it to close the only
courtroom door remaining open to evidence secured by official lawlessness in flagrant abuse of that basic
right, reserved to all persons as a specific guarantee against that very same unlawful conduct. We hold that
all evidence obtained by searches and seizures in violation of the Constitution is, by that same authority,
inadmissible in a State.

Since the Fourth Amendment's right of privacy has been declared enforceable against the States through
the Due Process Clause of the Fourteenth, it is enforceable against them by the same sanction of exclusion
as it used against the Federal Government. Were it otherwise, then just as without the Weeks rule the
assurance against unreasonable federal searches and seizures would be "a form of words," valueless and
underserving of mention in a perpetual charter of inestimable human liberties, so too, without that rule the
freedom from state invasions of privacy would be so ephemeral and so neatly severed from its conceptual
nexus with the freedom from all brutish means of coercing evidence as not to permit this Court's high regard
as a freedom "implicit in the concept of ordered liberty." At the time that the Court held in Wolf that the
amendment was applicable to the States through the Due Process Clause, the cases of this Court as we
have seen, had steadfastly held that as to federal officers the Fourth Amendment included the exclusion of
the evidence seized in violation of its provisions. Even Wolf "stoutly adhered" to that proposition. The right to
when conceded operatively enforceable against the States, was not susceptible of destruction by avulsion of
the sanction upon which its protection and enjoyment had always been deemed dependent under the Boyd,
Weeks and Silverthorne Cases. Therefore, in extending the substantive protections of due process to all
constitutionally unreasonable searches — state or federal — it was logically and constitutionally necessarily
that the exclusion doctrine — an essential part of the right to privacy — be also insisted upon as an essential
ingredient of the right newly recognized by the Wolf Case. In short, the admission of the new constitutional
Right by Wolf could not tolerate denial of its most important constitutional privilege, namely, the exclusion of
the evidence which an accused had been forced to give by reason of the unlawful seizure. To hold otherwise
is to grant the right but in reality to withhold its privilege and enjoyment. Only last year the Court itself
recognized that the purpose of the exclusionary rule to "is to deter — to compel respect for the constitutional
guaranty in the only effectively available way — by removing the incentive to disregard it" . . . .

The ignoble shortcut to conviction left open to the State tends to destroy the entire system of constitutional
restraints on which the liberties of the people rest. Having once recognized that the right to privacy
embodied in the Fourth Amendment is enforceable against the States, and that the right to be secure
against rude invasions of privacy by state officers is, therefore constitutional in origin, we can no longer
permit that right to remain an empty promise. Because it is enforceable in the same manner and to like
effect as other basic rights secured by its Due Process Clause, we can no longer permit it to be revocable at
the whim of any police officer who, in the name of law enforcement itself, chooses to suspend its enjoyment.
Our decision, founded on reason and truth, gives to the individual no more than that which the Constitution
guarantees him to the police officer no less than that to which honest law enforcement is entitled, and, to the
courts, that judicial integrity so necessary in the true administration of justice. (emphasis ours.)

Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the constitutional
injunction against unreasonable searches and seizures. To be sure, if the applicant for a search warrant has
competent evidence to establish probable cause of the commission of a given crime by the party against whom the
warrant is intended, then there is no reason why the applicant should not comply with the requirements of the
fundamental law. Upon the other hand, if he has no such competent evidence, then it is not possible for the Judge to
find that there is probable cause, and, hence, no justification for the issuance of the warrant. The only possible
explanation (not justification) for its issuance is the necessity of fishing evidence of the commission of a crime. But,
then, this fishing expedition is indicative of the absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal search warrant and/or make
unreasonable searches or seizures would suffice to protect the constitutional guarantee under consideration,
overlooks the fact that violations thereof are, in general, committed By agents of the party in power, for, certainly,
those belonging to the minority could not possibly abuse a power they do not have. Regardless of the handicap
under which the minority usually — but, understandably — finds itself in prosecuting agents of the majority, one
must not lose sight of the fact that the psychological and moral effect of the possibility 21 of securing their conviction,
is watered down by the pardoning power of the party for whose benefit the illegality had been committed.

In their Motion for Reconsideration and Amendment of the Resolution of this Court dated June 29, 1962, petitioners
allege that Rooms Nos. 81 and 91 of Carmen Apartments, House No. 2008, Dewey Boulevard, House No. 1436,
Colorado Street, and Room No. 304 of the Army-Navy Club, should be included among the premises considered in
said Resolution as residences of herein petitioners, Harry S. Stonehill, Robert P. Brook, John J. Brooks and Karl
Beck, respectively, and that, furthermore, the records, papers and other effects seized in the offices of the
corporations above referred to include personal belongings of said petitioners and other effects under their exclusive
possession and control, for the exclusion of which they have a standing under the latest rulings of the federal courts
of federal courts of the United States. 22

We note, however, that petitioners' theory, regarding their alleged possession of and control over the
aforementioned records, papers and effects, and the alleged "personal" nature thereof, has Been Advanced, not in
their petition or amended petition herein, but in the Motion for Reconsideration and Amendment of the Resolution of
June 29, 1962. In other words, said theory would appear to be readjustment of that followed in said petitions, to suit
the approach intimated in the Resolution sought to be reconsidered and amended. Then, too, some of the affidavits
or copies of alleged affidavits attached to said motion for reconsideration, or submitted in support thereof, contain
either inconsistent allegations, or allegations inconsistent with the theory now advanced by petitioners herein.

Upon the other hand, we are not satisfied that the allegations of said petitions said motion for reconsideration, and
the contents of the aforementioned affidavits and other papers submitted in support of said motion, have sufficiently
established the facts or conditions contemplated in the cases relied upon by the petitioners; to warrant application of
the views therein expressed, should we agree thereto. At any rate, we do not deem it necessary to express our
opinion thereon, it being best to leave the matter open for determination in appropriate cases in the future.

We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby, abandoned; that the
warrants for the search of three (3) residences of herein petitioners, as specified in the Resolution of June 29, 1962,
are null and void; that the searches and seizures therein made are illegal; that the writ of preliminary injunction
heretofore issued, in connection with the documents, papers and other effects thus seized in said residences of
herein petitioners is hereby made permanent; that the writs prayed for are granted, insofar as the documents,
papers and other effects so seized in the aforementioned residences are concerned; that the aforementioned motion
for Reconsideration and Amendment should be, as it is hereby, denied; and that the petition herein is dismissed and
the writs prayed for denied, as regards the documents, papers and other effects seized in the twenty-nine (29)
places, offices and other premises enumerated in the same Resolution, without special pronouncement as to costs.

It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

CASTRO, J., concurring and dissenting:

From my analysis of the opinion written by Chief Justice Roberto Concepcion and from the import of the
deliberations of the Court on this case, I gather the following distinct conclusions:

1. All the search warrants served by the National Bureau of Investigation in this case are general warrants
and are therefore proscribed by, and in violation of, paragraph 3 of section 1 of Article III (Bill of Rights) of
the Constitution;

2. All the searches and seizures conducted under the authority of the said search warrants were
consequently illegal;

3. The non-exclusionary rule enunciated in Moncado vs. People, 80 Phil. 1, should be, and is declared,
abandoned;

4. The search warrants served at the three residences of the petitioners are expressly declared null and void
the searches and seizures therein made are expressly declared illegal; and the writ of preliminary injunction
heretofore issued against the use of the documents, papers and effect seized in the said residences is made
permanent; and

5. Reasoning that the petitioners have not in their pleadings satisfactorily demonstrated that they have legal
standing to move for the suppression of the documents, papers and effects seized in the places other than
the three residences adverted to above, the opinion written by the Chief
Justice refrains from expressly declaring as null and void the such warrants served at such other places and
as illegal the searches and seizures made therein, and leaves "the matter open for determination in
appropriate cases in the future."

It is precisely the position taken by the Chief Justice summarized in the immediately preceding paragraph
(numbered 5) with which I am not in accord.
I do not share his reluctance or unwillingness to expressly declare, at this time, the nullity of the search warrants
served at places other than the three residences, and the illegibility of the searches and seizures conducted under
the authority thereof. In my view even the exacerbating passions and prejudices inordinately generated by the
environmental political and moral developments of this case should not deter this Court from forthrightly laying down
the law not only for this case but as well for future cases and future generations. All the search warrants, without
exception, in this case are admittedly general, blanket and roving warrants and are therefore admittedly and
indisputably outlawed by the Constitution; and the searches and seizures made were therefore unlawful. That the
petitioners, let us assume in gratia argumente, have no legal standing to ask for the suppression of the papers,
things and effects seized from places other than their residences, to my mind, cannot in any manner affect, alter or
otherwise modify the intrinsic nullity of the search warrants and the intrinsic illegality of the searches and seizures
made thereunder. Whether or not the petitioners possess legal standing the said warrants are void and remain void,
and the searches and seizures were illegal and remain illegal. No inference can be drawn from the words of the
Constitution that "legal standing" or the lack of it is a determinant of the nullity or validity of a search warrant or of
the lawfulness or illegality of a search or seizure.

On the question of legal standing, I am of the conviction that, upon the pleadings submitted to this Court the
petitioners have the requisite legal standing to move for the suppression and return of the documents, papers and
effects that were seized from places other than their family residences.

Our constitutional provision on searches and seizures was derived almost verbatim from the Fourth Amendment to
the United States Constitution. In the many years of judicial construction and interpretation of the said constitutional
provision, our courts have invariably regarded as doctrinal the pronouncement made on the Fourth Amendment by
federal courts, especially the Federal Supreme Court and the Federal Circuit Courts of Appeals.

The U.S. doctrines and pertinent cases on standing to move for the suppression or return of documents, papers and
effects which are the fruits of an unlawful search and seizure, may be summarized as follows; (a) ownership of
documents, papers and effects gives "standing;" (b) ownership and/or control or possession — actual or
constructive — of premises searched gives "standing"; and (c) the "aggrieved person" doctrine where the search
warrant and the sworn application for search warrant are "primarily" directed solely and exclusively against the
"aggrieved person," gives "standing."

An examination of the search warrants in this case will readily show that, excepting three, all were directed against
the petitioners personally. In some of them, the petitioners were named personally, followed by the designation, "the
President and/or General Manager" of the particular corporation. The three warrants excepted named three
corporate defendants. But the "office/house/warehouse/premises" mentioned in the said three warrants were also
the same "office/house/warehouse/premises" declared to be owned by or under the control of the petitioners in all
the other search warrants directed against the petitioners and/or "the President and/or General Manager" of the
particular corporation. (see pages 5-24 of Petitioners' Reply of April 2, 1962). The searches and seizures were to be
made, and were actually made, in the "office/house/warehouse/premises" owned by or under the control of the
petitioners.

Ownership of matters seized gives "standing."

Ownership of the properties seized alone entitles the petitioners to bring a motion to return and suppress, and gives
them standing as persons aggrieved by an unlawful search and seizure regardless of their location at the time of
seizure. Jones vs. United States, 362 U.S. 257, 261 (1960) (narcotics stored in the apartment of a friend of the
defendant); Henzel vs. United States, 296 F. 2d. 650, 652-53 (5th Cir. 1961), (personal and corporate papers of
corporation of which the defendant was president), United States vs. Jeffers, 342 U.S. 48 (1951) (narcotics seized in
an apartment not belonging to the defendant); Pielow vs. United States, 8 F. 2d 492, 493 (9th Cir. 1925) (books
seized from the defendant's sister but belonging to the defendant); Cf. Villano vs. United States, 310 F. 2d 680, 683
(10th Cir. 1962) (papers seized in desk neither owned by nor in exclusive possession of the defendant).

In a very recent case (decided by the U.S. Supreme Court on December 12, 1966), it was held that under the
constitutional provision against unlawful searches and seizures, a person places himself or his property within a
constitutionally protected area, be it his home or his office, his hotel room or his automobile:

Where the argument falls is in its misapprehension of the fundamental nature and scope of Fourth
Amendment protection. What the Fourth Amendment protects is the security a man relies upon when
he places himself or his property within a constitutionally protected area, be it his home or his office, his
hotel room or his automobile. There he is protected from unwarranted governmental intrusion. And when he
puts some thing in his filing cabinet, in his desk drawer, or in his pocket, he has the right to know it will be
secure from an unreasonable search or an unreasonable seizure. So it was that the Fourth Amendment
could not tolerate the warrantless search of the hotel room in Jeffers, the purloining of the petitioner's private
papers in Gouled, or the surreptitious electronic surveilance in Silverman. Countless other cases which have
come to this Court over the years have involved a myriad of differing factual contexts in which the
protections of the Fourth Amendment have been appropriately invoked. No doubt, the future will bring
countless others. By nothing we say here do we either foresee or foreclose factual situations to which the
Fourth Amendment may be applicable. (Hoffa vs. U.S., 87 S. Ct. 408 (December 12, 1966). See also U.S.
vs. Jeffers, 342 U.S. 48, 72 S. Ct. 93 (November 13, 1951). (Emphasis supplied).

Control of premises searched gives "standing."

Independent of ownership or other personal interest in the records and documents seized, the petitioners have
standing to move for return and suppression by virtue of their proprietary or leasehold interest in many of the
premises searched. These proprietary and leasehold interests have been sufficiently set forth in their motion for
reconsideration and need not be recounted here, except to emphasize that the petitioners paid rent, directly or
indirectly, for practically all the premises searched (Room 91, 84 Carmen Apts; Room 304, Army & Navy Club;
Premises 2008, Dewey Boulevard; 1436 Colorado Street); maintained personal offices within the corporate offices
(IBMC, USTC); had made improvements or furnished such offices; or had paid for the filing cabinets in which the
papers were stored (Room 204, Army & Navy Club); and individually, or through their respective spouses, owned
the controlling stock of the corporations involved. The petitioners' proprietary interest in most, if not all, of the
premises searched therefore independently gives them standing to move for the return and suppression of the
books, papers and affects seized therefrom.

In Jones vs. United States, supra, the U.S. Supreme Court delineated the nature and extent of the interest in the
searched premises necessary to maintain a motion to suppress. After reviewing what it considered to be the unduly
technical standard of the then prevailing circuit court decisions, the Supreme Court said (362 U.S. 266):

We do not lightly depart from this course of decisions by the lower courts. We are persuaded, however, that
it is unnecessarily and ill-advised to import into the law surrounding the constitutional right to be free from
unreasonable searches and seizures subtle distinctions, developed and refined by the common law in
evolving the body of private property law which, more than almost any other branch of law, has been shaped
by distinctions whose validity is largely historical. Even in the area from which they derive, due consideration
has led to the discarding of those distinctions in the homeland of the common law. See Occupiers' Liability
Act, 1957, 5 and 6 Eliz. 2, c. 31, carrying out Law Reform Committee, Third Report, Cmd. 9305. Distinctions
such as those between "lessee", "licensee," "invitee," "guest," often only of gossamer strength, ought not be
determinative in fashioning procedures ultimately referable to constitutional safeguards. See also Chapman
vs. United States, 354 U.S. 610, 616-17 (1961).

It has never been held that a person with requisite interest in the premises searched must own the property seized
in order to have standing in a motion to return and suppress. In Alioto vs. United States, 216 F. Supp. 48 (1963), a
Bookkeeper for several corporations from whose apartment the corporate records were seized successfully moved
for their return. In United States vs. Antonelli, Fireworks Co., 53 F. Supp. 870, 873 (W D. N. Y. 1943), the
corporation's president successfully moved for the return and suppression is to him of both personal and corporate
documents seized from his home during the course of an illegal search:

The lawful possession by Antonelli of documents and property, "either his own or the corporation's was
entitled to protection against unreasonable search and seizure. Under the circumstances in the case at bar,
the search and seizure were unreasonable and unlawful. The motion for the return of seized article and the
suppression of the evidence so obtained should be granted. (Emphasis supplied).

Time was when only a person who had property in interest in either the place searched or the articles seize had the
necessary standing to invoke the protection of the exclusionary rule. But in MacDonald vs. Unite States, 335 U.S.
461 (1948), Justice Robert Jackson joined by Justice Felix Frankfurter, advanced the view that "even a guest may
expect the shelter of the rooftree he is under against criminal intrusion." This view finally became the official view of
the U.S. Supreme Court and was articulated in United States vs. Jeffers, 432 U.S 48 (1951). Nine years later, in
1960, in Jones vs. Unite States, 362 U.S. 257, 267, the U.S. Supreme Court went a step further. Jones was a mere
guest in the apartment unlawfully searched but the Court nonetheless declared that the exclusionary rule protected
him as well. The concept of "person aggrieved by an unlawful search and seizure" was enlarged to include "anyone
legitimately on premise where the search occurs."

Shortly after the U.S. Supreme Court's Jones decision the U.S. Court of Appeals for the Fifth Circuit held that the
defendant organizer, sole stockholder and president of a corporation had standing in a mail fraud prosecution
against him to demand the return and suppression of corporate property. Henzel vs. United States, 296 F 2d 650,
652 (5th Cir. 1961), supra. The court conclude that the defendant had standing on two independent grounds: First
—he had a sufficient interest in the property seized, and second — he had an adequate interest in the premises
searched (just like in the case at bar). A postal inspector had unlawfully searched the corporation' premises and had
seized most of the corporation's book and records. Looking to Jones, the court observed:

Jones clearly tells us, therefore, what is not required qualify one as a "person aggrieved by an unlawful
search and seizure." It tells us that appellant should not have been precluded from objecting to the Postal
Inspector's search and seizure of the corporation's books and records merely because the appellant did not
show ownership or possession of the books and records or a substantial possessory interest in the invade
premises . . . (Henzel vs. United States, 296 F. 2d at 651). .

Henzel was soon followed by Villano vs. United States, 310 F. 2d 680, 683, (10th Cir. 1962). In Villano, police
officers seized two notebooks from a desk in the defendant's place of employment; the defendant did not claim
ownership of either; he asserted that several employees (including himself) used the notebooks. The Court held that
the employee had a protected interest and that there also was an invasion of privacy.
Both Henzel and Villano considered also the fact that the search and seizure were "directed at" the moving
defendant. Henzel vs. United States, 296 F. 2d at 682; Villano vs. United States, 310 F. 2d at 683.

In a case in which an attorney closed his law office, placed his files in storage and went to Puerto Rico, the Court of
Appeals for the Eighth Circuit recognized his standing to move to quash as unreasonable search and seizure under
the Fourth Amendment of the U.S. Constitution a grand jury subpoena duces tecum directed to the custodian of his
files. The Government contended that the petitioner had no standing because the books and papers were physically
in the possession of the custodian, and because the subpoena was directed against the custodian. The court
rejected the contention, holding that
 Schwimmer legally had such possession, control and unrelinquished personal rights in the books and
papers as not to enable the question of unreasonable search and seizure to be escaped through the mere
procedural device of compelling a third-party naked possessor to produce and deliver them. Schwimmer vs.
United States, 232 F. 2d 855, 861 (8th Cir. 1956).

Aggrieved person doctrine where the search warrant s primarily directed against said person gives "standing."

The latest United States decision squarely in point is United States vs. Birrell, 242 F. Supp. 191 (1965, U.S.D.C.
S.D.N.Y.). The defendant had stored with an attorney certain files and papers, which attorney, by the name of Dunn,
was not, at the time of the seizing of the records, Birrell's attorney. * Dunn, in turn, had stored most of the records at
his home in the country and on a farm which, according to Dunn's affidavit, was under his (Dunn's) "control and
management." The papers turned out to be private, personal and business papers together with corporate books
and records of certain unnamed corporations in which Birrell did not even claim ownership. (All of these type records
were seized in the case at bar). Nevertheless, the search in Birrell was held invalid by the court which held that even
though Birrell did not own the premises where the records were stored, he had "standing" to move for the return
ofall the papers and properties seized. The court, relying on Jones vs. U.S., supra; U.S. vs. Antonelli Fireworks Co.,
53 F. Supp. 870, Aff'd 155 F. 2d 631: Henzel vs. U.S., supra; and Schwimmer vs. U.S., supra, pointed out that

It is overwhelmingly established that the searches here in question were directed solely and exclusively
against Birrell. The only person suggested in the papers as having violated the law was Birrell. The first
search warrant described the records as having been used "in committing a violation of Title 18, United
States Code, Section 1341, by the use of the mails by one Lowell M. Birrell, . . ." The second search warrant
was captioned: "United States of America vs. Lowell M. Birrell. (p. 198)

Possession (actual or constructive), no less than ownership, gives standing to move to suppress. Such was
the rule even before Jones. (p. 199)

If, as thus indicated Birrell had at least constructive possession of the records stored with Dunn, it matters
not whether he had any interest in the premises searched. See also Jeffers v. United States, 88 U.S. Appl.
D.C. 58, 187 F. 2d 498 (1950), affirmed 432 U.S. 48, 72 S. Ct. 93, 96 L. Ed. 459 (1951).

The ruling in the Birrell case was reaffirmed on motion for reargument; the United States did not appeal from this
decision. The factual situation in Birrell is strikingly similar to the case of the present petitioners; as in Birrell, many
personal and corporate papers were seized from premises not petitioners' family residences; as in Birrell, the
searches were "PRIMARILY DIRECTED SOLETY AND EXCLUSIVELY" against the petitioners. Still both types of
documents were suppressed in Birrell because of the illegal search. In the case at bar, the petitioners connection
with the premises raided is much closer than in Birrell.

Thus, the petitioners have full standing to move for the quashing of all the warrants regardless whether these were
directed against residences in the narrow sense of the word, as long as the documents were personal papers of the
petitioners or (to the extent that they were corporate papers) were held by them in a personal capacity or under their
personal control.

Prescinding a from the foregoing, this Court, at all events, should order the return to the petitioners
all personal and private papers and effects seized, no matter where these were seized, whether from their
residences or corporate offices or any other place or places. The uncontradicted sworn statements of the petitioners
in their, various pleadings submitted to this Court indisputably show that amongst the things seized from the
corporate offices and other places were personal and private papers and effects belonging to the petitioners.

If there should be any categorization of the documents, papers and things which where the objects of the unlawful
searches and seizures, I submit that the grouping should be: (a) personal or private papers of the petitioners were
they were unlawfully seized, be it their family residences offices, warehouses and/or premises owned and/or
possessed (actually or constructively) by them as shown in all the search and in the sworn applications filed in
securing the void search warrants and (b) purely corporate papers belonging to corporations. Under such
categorization or grouping, the determination of which unlawfully seized papers, documents and things
are personal/private of the petitioners or purely corporate papers will have to be left to the lower courts which issued
the void search warrants in ultimately effecting the suppression and/or return of the said documents.

And as unequivocally indicated by the authorities above cited, the petitioners likewise have clear legal standing to
move for the suppression of purely corporate papers as "President and/or General Manager" of the corporations
involved as specifically mentioned in the void search warrants.

Finally, I must articulate my persuasion that although the cases cited in my disquisition were criminal prosecutions,
the great clauses of the constitutional proscription on illegal searches and seizures do not withhold the mantle of
their protection from cases not criminal in origin or nature.
 [G.R. No. L-32409. February 27, 1971.]

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M. RUIZ,
MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON,
GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN
DOE, Respondents.

San Juan, Africa, Gonzales & San Agustin, for Petitioners.

Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor Pedro A. Ramirez and
Special Attorney Jaime M. Maza for Respondents.

DECISION

VILLAMOR, J.:

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory and
prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of
the Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-
70 issued by respondent Judge on February 25, 1970; to order respondents to desist from enforcing the same and/or
keeping the documents, papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on
petitioner corporation alleged by petitioners to have been made on the basis of the said documents, papers and effects, and
to order the return of the latter to petitioners. We gave due course to the petition but did not issue the writ of preliminary
injunction prayed for therein.

The pertinent facts of this case, as gathered from record, are as follows: chanro b1es vi rtua l 1aw lib ra ry

On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to respondent
Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section 46(a) of the
National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and
209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for
search warrant which was attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent Arturo Logronio,
went to the Court of First Instance of Rizal. They brought with them the following papers: respondent Vera’s aforesaid letter-
request; an application for search warrant already filled up but still unsigned by respondent De Leon; an affidavit of
respondent Logronio subscribed before respondent De Leon; a deposition in printed form of respondent Logronio already
accomplished and signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned by
respondent Judge.

At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to
take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was informed
that the depositions had already been taken. The stenographer, upon request of respondent Judge, read to him her
stenographic notes; and thereafter, respondent Judge asked respondent Logronio to take the oath and warned him that if his
deposition was found to be false and without legal basis, he could be charged for perjury. Respondent Judge signed
respondent de Leon’s application for search warrant and respondent Logronio’s deposition, Search Warrant No. 2-M-70 was
then sign by respondent Judge and accordingly issued.

Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant petitioners at
the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’ lawyers protested the search on the ground
that no formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with
their search which yielded six boxes of documents.

On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant be
quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search
warrant be declared null and void, and that the respondents be ordered to pay petitioners, jointly and severally, damages
and attorney’s fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an answer to the petition. After
hearing, the court, presided over by respondent Judge, issued on July 29, 1970, an order dismissing the petition for
dissolution of the search warrant. In the meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax
assessments on petitioner corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the documents thus
seized. Petitioners came to this Court.

The petition should be granted for the following reasons: chan rob1es v irt ual 1aw l ibra ry

1. Respondent Judge failed to personally examine the complainant and his witness.

The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court are: jgc:chanroble s.com. ph

"(3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable searches and
seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after
examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the
place to be searched, and the persons or things to be seized." (Art. III, Sec. 1, Constitution.)

"SEC. 3. Requisites for issuing search warrant. — A search warrant shall not issue but upon probable cause in connection
with one specific offense to be determined by the judge or justice of the peace after examination under oath or affirmation of
the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or
things to be seized.

"No search warrant shall issue for more than one specific offense.

"SEC. 4. Examination of the applicant. — The judge or justice of the peace must, before issuing the warrant, personally
examine on oath or affirmation the complainant and any witnesses he may produce and take their depositions in writing, and
attach them to the record, in addition to any affidavits presented to him." (Rule 126, Revised Rules of Court.)

The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3, of the
Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by the judge himself and
not by others. The phrase "which shall be determined by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce," appearing in the said constitutional provision, was introduced by Delegate
Francisco as an amendment to the draft submitted by the Sub-Committee of Seven. The following discussion in the
Constitutional Convention (Laurel, Proceedings of the Philippine Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jg c:chan rob les.com. ph

"SR. ORENSE. Vamos a dejar compañero los piropos y vamos al grano.

En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia mediante el registro
inmediato y la incautacion del cuerpo del delito, no cree Su Señoria que causaria cierta demora el procedimiento apuntado en
su enmienda en tal forma que podria frustrar los fines de la justicia o si Su Señoria encuentra un remedio para esto casos
con el fin de compaginar los fines de la justicia con los derechos del individuo en su persona, bienes etcetera, etcetera.

"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Señoria pregunta por la siguiente razon: el que solicita
un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en la Mesa del Juez sin que alguien vaya
el juez a presentar ese escrito o peticion de sucuestro. Esa persona que presenta el registro puede ser el mismo denunciante
o alguna persona que solicita dicho mandamiento de registro. Ahora toda la enmienda en esos casos consiste en que haya
peticion de registro y el juez no se atendra solamente a sea peticion sino que el juez examiner a ese denunciante y si tiene
testigos tambin examiner a los testigos.

"SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese denunciante por escrito siempre requeriria algun
tiempo?.

"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las vejaciones injustas
con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males debemos escoger. el menor.

x x x

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating in our constitution
something of a fundamental character. Now, before a judge could issue a search warrant, he must be under the obligation to
examine personally under oath the complainant and if he has any witness, the witnesses that he may produce . . ." cralaw virtua 1aw lib rary

The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for it requires the
judge, before issuing a search warrant, to "personally examine on oath or affirmation the complainant and any witnesses he
may produce . . ." cralaw virt ua1aw lib rary

Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the
existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126
of the Revised Rules of Court, both of which prohibit the issuance of warrants except "upon probable cause." The
determination of whether or not a probable cause exists calls for the exercise of judgment after a judicial appraisal of facts
and should not be allowed to be delegated in the absence of any rule to the contrary.

In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant (respondent De
Leon) and his witness (respondent Logronio). While it is true that the complainant’s application for search warrant and the
witness’ printed-form deposition were subscribed and sworn to before respondent Judge, the latter did not ask either of the
two any question the answer to which could possibly be the basis for determining whether or not there was probable cause
against herein petitioners. Indeed, the participants seem to have attached so little significance to the matter that notes of
the proceedings before respondent Judge were not even taken. At this juncture it may be well to recall the salient facts. The
transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case in the
court below shows that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court, took
the depositions of the complainant and his witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At that
time respondent Judge was at the sala hearing a case. After respondent Judge was through with the hearing, Deputy Clerk
Gonzales, stenographer Gaspar, complainant De Leon and witness Logronio went to respondent Judge’s chamber and
informed the Judge that they had finished the depositions. Respondent Judge then requested the stenographer to read to
him her stenographic notes. Special Deputy Clerk Gonzales testified as follows: jgc:cha nrob les.co m.ph

"A And after finishing reading the stenographic notes, the Honorable Judge requested or instructed them, requested Mr.
Logronio to raise his hand and warned him if his deposition will be found to be false and without legal basis, he can be
charged criminally for perjury. The Honorable Court told Mr. Logronio whether he affirms the facts contained in his deposition
and the affidavit executed before Mr. Rodolfo de Leon.

"Q And thereafter?

"A And thereafter, he signed the deposition of Mr. Logronio.

"Q Who is this he?

"A The Honorable Judge.

"Q The deposition or the affidavit?

"A The affidavit, Your Honor." cralaw virt ua1aw lib ra ry

Thereafter, respondent Judge signed the search warrant.

The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No. 2-M-70 was thus
limited to listening to the stenographer’s readings of her notes, to a few words of warning against the commission of perjury,
and to administering the oath to the complainant and his witness. This cannot be consider a personal examination. If there
was an examination at all of the complainant and his witness, it was the one conducted by the Deputy Clerk of Court. But, as
stated, the Constitution and the rules require a personal examination by the judge. It was precisely on account of the
intention of the delegates to the Constitutional Convention to make it a duty of the issuing judge to personally examine the
complainant and his witnesses that the question of how much time would be consumed by the judge in examining them
came up before the Convention, as can be seen from the record of the proceedings quoted above. The reading of the
stenographic notes to respondent Judge did not constitute sufficient compliance with the constitutional mandate and the rule;
for by that manner respondent Judge did not have the opportunity to observe the demeanor of the complainant and his
witness, and to propound initial and follow-up questions which the judicial mind, on account of its training, was in the best
position to conceive. These were important in arriving at a sound inference on the all-important question of whether or not
there was probable cause.
2. The search warrant was issued for more than one specific offense.

Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue Code in relation to all
other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The question is: Was the said search warrant
issued "in connection with one specific offense," as required by Sec. 3, Rule 126?

To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to above. Thus we
find the following:
chan rob1e s virtual 1aw lib rary

Sec. 46(a) requires the filing of income tax returns by corporations.

Sec. 53 requires the withholding of income taxes at source.

Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent returns.

Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information required under
the Tax Code.

Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures any article subject to a specific
tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of illicit distilling, rectifying,
compounding, or illicit manufacture of any article subject to specific tax . . .," and provides that in the case of a corporation,
partnership, or association, the official and/or employee who caused the violation shall be responsible.

Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed, or to pay the
tax due thereon.

The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the violation of
Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second is the violation of Sec.
53 (withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of business or
occupation); and the fourth is the violation of Sec. 209 (failure to make a return of receipts, sales, business or gross value of
output actually removed or to pay the tax due thereon). Even in their classification the six above-mentioned provisions are
embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208 and 209 are
under Title V (Privilege Tax on Business and Occupation).

Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA 383), is not applicable, because
there the search warrants were issued for "violation of Central Bank Laws, Internal Revenue (Code) and Revised Penal
Code;" whereas, here Search Warrant No 2-M-70 was issued for violation of only one code, i.e., the National Internal
Revenue Code. The distinction more apparent than real, because it was precisely on account of the Stonehill incident, which
occurred sometime before the present Rules of Court took effect on January 1, 1964, that this Court amended the former
rule by inserting therein the phrase "in connection with one specific offense," and adding the sentence "No search warrant
shall issue for more than one specific offense," in what is now Sec. 3, Rule 126. Thus we said in Stonehill: jgc:cha nro bles. com.ph

"Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court
deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that ‘a search warrant shall not issue but upon
probable cause in connection with one specific offense.’ Not satisfied with this qualification, the Court added thereto a
paragraph, directing that ‘no search warrant shall issue for more than one specific offense.’"

3. The search warrant does not particularly describe the things to be seized.

The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this manner: jgc:cha nrob les.com. ph

"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books, customers
ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory notes and deeds of sale;
telex and coded messages; business communications, accounting and business records; checks and check stubs; records of
bank deposits and withdrawals; and records of foreign remittances, covering the years 1966 to 1970." cralaw virtua1aw l ib rary

The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the Revised
Rules of Court, that the warrant should particularly describe the things to be seized.

In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said: jgc:chan roble s.com. ph

"The grave violation of the Constitution made in the application for the contested search warrants was compounded by the
description therein made of the effects to be searched for and seized, to wit: cha nrob 1es vi rtual 1aw lib rary

‘Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or paper showing all business transactions including disbursement receipts, balance
sheets and related profit and loss statements.’

"Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners
herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of the
petitioners and the aforementioned corporations, whatever their nature, thus openly contravening the explicit command of
our Bill of Rights — that the things to be seized be particularly described — as well as tending to defeat its major objective:
the elimination of general warrants." cralaw virt ua1aw li bra ry

While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant nevertheless
tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the language used
therein is so all-embracing as to include all conceivable records of petitioner corporation, which, if seized, could possibly
render its business inoperative.

In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the purpose of the
requirement that the warrant should particularly describe the place to be searched and the things to be seized, to wit: jgc:chan rob les.com. ph

". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search warrant should
particularly describe the place to be searched and the things to be seized. The evident purpose and intent of this requirement
is to limit the things to be seized to those, and only those, particularly described in the search warrant — to leave the officers
of the law with no discretion regarding what articles they shall seize, to the end that ‘unreasonable searches and seizures’
may not be made, — that abuses may not be committed. That this is the correct interpretation of this constitutional provision
is borne out by American authorities." cralaw vi rtua 1aw lib rary

The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in this case.
A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as
the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the description expresses a conclusion of fact
— not of law — by which the warrant officer may be guided in making the search and seizure (idem., dissent of Abad
Santos, J.,); or when the things described are limited to those which bear direct relation to the offense for which the warrant
is being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein search warrant does not conform to any of the
foregoing tests. If the articles desired to be seized have any direct relation to an offense committed, the applicant must
necessarily have some evidence, other than those articles, to prove the said offense; and the articles subject of search and
seizure should come in handy merely to strengthen such evidence. In this event, the description contained in the herein
disputed warrant should have mentioned, at least, the dates, amounts, persons, and other pertinent data regarding the
receipts of payments, certificates of stocks and securities, contracts, promissory notes, deeds of sale, messages and
communications, checks, bank deposits and withdrawals, records of foreign remittances, among others, enumerated in the
warrant.

Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of respondent
Judge’s order of July 29, 1970. The contention is without merit. In the first place, when the questions raised before this Court
are the same as those which were squarely raised in and passed upon by the court below, the filing of a motion for
reconsideration in said court before certiorari can be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v.
Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring the filing of a motion for reconsideration before an
application for a writ of certiorari can be entertained was never intended to be applied without considering the circumstances.
(Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar time is of the essence in view of the tax assessments sought to
be enforced by respondent officers of the Bureau of Internal Revenue against petitioner corporation, On account of which
immediate and more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule
does not apply where, as in this case, the deprivation of petitioners’ fundamental right to due process taints the proceeding
against them in the court below not only with irregularity but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)

It is next contended by respondents that a corporation is not entitled to protection against unreasonable search and seizures.
Again, we find no merit in the contention.

"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a
violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional powers,
cannot refuse to produce the books and papers of such corporation, we do not wish to be understood as holding that a
corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and seizures. A
corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In
organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be
taken without compensation. It can only be proceeded against by due process of law, and is protected, under the 14th
Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)

"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a corporation,
the ground that it was not privileged from producing its books and papers. But the rights of a corporation against unlawful
search and seizure are to be protected even if the same result might have been achieved in a lawful way." (Silverthorne
Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)

In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to object against
unreasonable searches and seizures, thus: jgc:chan roble s.com.p h

"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or
the interest of each of them in said corporations, whatever, the offices they hold therein may be. Indeed, it is well settled
that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently,
petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized
from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers
in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their individual capacity . . ." cralaw virtua1aw l ibra ry

In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were
searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and
whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a
different footing from the corporations in Stonehill.

The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by petitioners — at least partly — as
in effect admitted by respondents — based on the documents seized by virtue of Search Warrant No. 2-M-70. Furthermore,
the fact that the assessments were made some one and one-half months after the search and seizure on February 25, 1970,
is a strong indication that the documents thus seized served as basis for the assessments. Those assessments should
therefore not be enforced.

PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent Judge is
declared null and void; respondents are permanently enjoined from enforcing the said search warrant; the documents,
papers and effects seized thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of
Internal Revenue and their representatives are permanently enjoined from enforcing the assessments mentioned in Annex
"G" of the present petition, as well as other assessments based on the documents, papers and effects seized under the
search warrant herein nullified, and from using the same against petitioners in any criminal or other proceeding. No
pronouncement as to costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and Makasiar, JJ., concur.

Reyes, J.B.L., J., concurs with Mr. Justice Barredo.

Castro, J., concurs in the result.

Separate Opinions

BARREDO, J., concurring: chan rob1e s virtual 1aw li brary

I concur.

I agree with the ruling that the search warrants in question violates the specific injunction of Section 3, Rule 126 that "No
search warrant shall issue for more than one specific offense." There is no question in my mind that, as very clearly pointed
out by Mr. Justice Villamor, the phrase "for violation of Section 46 (a) of the National Internal Revenue Code in relation to all
other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209" refers to more than one specific offense,
considering that the violation of Section 53 which refers to withholding of income taxes at the sources, Section 208 which
punishes pursuit of business or occupation without payment of the corresponding specific or privilege taxes, and Section 209
which penalizes failure to make a return of receipts sales, business or gross value output actually removed or to pay the
taxes thereon in connection with Title V on Privilege Taxes on Business and Occupation can hardly be absorbed in a charge of
alleged violation of Section 46(a), which merely requires the filing of income tax returns by corporations, so as to constitute
with it a single offense. I perceive here the danger that the result of the search applied for may be used as basis not only for
a charge of violating Section 46(a) but also and separately of Section 53, 208 and 209. Of course, it is to be admitted that
Sections 72 and 73, also mentioned in the application, are really directly related to Section 46(a) because Section 72
provides for surcharges for failure to render, returns and for rendering false and fraudulent returns and Section 73 refers to
the penalty for failure to file returns or to pay the corresponding tax. Taken together, they constitute one single offense
penalized under Section 73. I am not and cannot be in favor of any scheme which amounts to an indirect means of achieving
that which not allowed to be done directly. By merely saying that a party is being charged with violation of one section of the
code in relation to a number of other sections thereof which in truth have no clear or direct bearing with the first is to me
condemnable because it is no less than a shotgun device which trenches on the basic liberties intended to be protected by
the unequivocal limitations imposed by the Constitution and the Rules of Court on the privilege to secure a search warrant
with the aggravating circumstance of being coupled with an attempt to mislead the judge before whom the application for its
issuance is presented.

I cannot close this brief concurrence without expressing my vehement disapproval of the action taken by respondent internal
revenue authorities in using the documents and papers secured during the search, the legality of which was pending
resolution by the court, as basis of an assessment, no matter how highly motivated such action might have been. This
smacks of lack of respect, if not contempt for the court and is certainly intolerable. At the very least, it appears as an
attempt to render the court proceedings moot and academic, and dealing as this case does with constitutionally protected
rights which are part and parcel of the basic concepts of individual liberty and democracy, the government agents should
have been the first ones to refrain from trying to make a farce of these court proceedings. Indeed, it is to be regretted that
the government agents and the court have acted irregularly, for it is highly doubtful if it would be consistent with the
sacredness of the rights herein found to have been violated to permit the filing of another application which complies with the
constitutional requirements above discussed and the making of another search upon the return of the papers and documents
now in their illegal possession. This could be an instance wherein taxes properly due the State will probably remain
unassessed and unpaid only because the ones in charge of the execution of the laws did not know how to respect basic
constitutional rights and liberties.
G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,

vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER
MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.

Apostol, Bernas, Gumaru, Ona and Associates for petitioner.

Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:

Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan
Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President
Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover,
and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission
on Good Government and/or its Commissioners and agents, affecting said corporation.

1. The Sequestration, Takeover, and Other Orders Complained of

a. The Basic Sequestration Order

The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April
14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission,
hereafter simply referred to as PCGG. It reads as follows:

RE: SEQUESTRATION ORDER

By virtue of the powers vested in the Presidential Commission on Good Government, by authority of
the President of the Philippines, you are hereby directed to sequester the following companies.

1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and
Mariveles Shipyard)

2. Baseco Quarry

3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc.

5. Romson Realty, Inc.

6. Trident Management Co.

7. New Trident Management

8. Bay Transport

9. And all affiliate companies of Alfredo "Bejo" Romualdez

You are hereby ordered:

1. To implement this sequestration order with a minimum disruption of these companies' business
activities.

2. To ensure the continuity of these companies as going concerns, the care and maintenance of
these assets until such time that the Office of the President through the Commission on Good
Government should decide otherwise.

3. To report to the Commission on Good Government periodically.

Further, you are authorized to request for Military/Security Support from the Military/Police
authorities, and such other acts essential to the achievement of this sequestration order. 1

b. Order for Production of Documents

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated
April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production of
certain documents, to wit:
 1. Stock Transfer Book

2. Legal documents, such as:

2.1. Articles of Incorporation

2.2. By-Laws

2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986

2.4. Minutes of the Regular and Special Meetings of the Board of Directors from
1973 to 1986

2.5. Minutes of the Executive Committee Meetings from 1973 to 1986

2.6. Existing contracts with suppliers/contractors/others.

3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly
certified by the Corporate Secretary.

4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to
December 31, 1985.

5. Monthly Financial Statements for the current year up to March 31, 1986.

6. Consolidated Cash Position Reports from January to April 15, 1986.

7. Inventory listings of assets up dated up to March 31, 1986.

8. Updated schedule of Accounts Receivable and Accounts Payable.

9. Complete list of depository banks for all funds with the authorized signatories for withdrawals
thereof.

10. Schedule of company investments and placements. 2

The letter closed with the warning that if the documents were not submitted within five days, the officers would be
cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21,
1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration
order. He sent a letter to BASECO's Vice-President for Finance, 3 terminating the contract for security services
within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security
agencies," CAPCOM military personnel having already been assigned to the area,

(2) Change of Mode of Payment of Entry Charges

On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors,"
particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts
with BASECO in the sense that the stipulated charges for use of the BASECO road network were made payable
"upon entry and not anymore subject to monthly billing as was originally agreed upon." 4

d. Aborted Contract for Improvement of Wharf at Engineer Island

On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine
Integrated Port Services, Inc., in virtue of which the latter undertook to introduce improvements costing
approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor condition, avowedly to
"optimize its utilization and in return maximize the revenue which would flow into the government coffers," in
consideration of Deltamarine's being granted "priority in using the improved portion of the wharf ahead of anybody"
and exemption "from the payment of any charges for the use of wharf including the area where it may install its
bagging equipments" "until the improvement remains in a condition suitable for port operations." 5 It seems however
that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management
Team," advised Deltamarine by letter dated July 30, 1986 that "the new management is not in a position to honor
the said contract" and thus "whatever improvements * * (may be introduced) shall be deemed unauthorized * * and
shall be at * * (Deltamarine's) own risk." 6

e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan

By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O.
Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the BASECO
Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in representation of the
PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement
to this effect having been executed by them on September 17, 1986. 7

f. Order to Dispose of Scrap, etc.

By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also
"authorized to clean and beautify the Company's compound," and in this connection, to dispose of or sell "metal
scraps" and other materials, equipment and machineries no longer usable, subject to specified guidelines and
safeguards including audit and verification. 8

g. The TAKEOVER Order

By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of
BASECO, "the Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the provisions of
Section 3 (c) of Executive Order No. 1, empowering the Commission —

* * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business
enterprises and properties taken over by the government of the Marcos Administration or by entities
or persons close to former President Marcos, until the transactions leading to such acquisition by the
latter can be disposed of by the appropriate authorities.

A management team was designated to implement the order, headed by Capt. Siacunco, and was given the
following powers:

1. Conducts all aspects of operation of the subject companies;

2. Installs key officers, hires and terminates personnel as necessary;

3. Enters into contracts related to management and operation of the companies;

4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently;
revenues are duly accounted for; and disburses funds only as may be necessary;

5. Does actions including among others, seeking of military support as may be necessary, that will
ensure compliance to this order;

6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects
related to this take-over order.

h. Termination of Services of BASECO Officers

Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto
Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10

2. Petitioner's Plea and Postulates

It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner
BASECO would have this Court nullify. More particularly, BASECO prays that this Court-

1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on
the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO
executives. 11

a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders

While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of
Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the
principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be
acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under
Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that
"No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12

It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order * * issued purportedly under
the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and
business were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as prosecutor and judge in the
same cause; Third, there is nothing in the issuances which envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the
validity of the takeover after the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption
of innocence and general rules and procedures, they constitute a Bill of Attainder." 13

b. Re Order to Produce Documents

It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied
with, was issued without court authority and infringed its constitutional right against self-incrimination, and
unreasonable search and seizure. 14

c. Re PCGG's Exercise of Right of Ownership and Management

BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its
business affairs by —

1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of
the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with
National Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the
constitution; 15

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc., giving the latter free use of
BASECO premises; 16

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman,
Mariveles; 17

4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18

5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;

6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises
M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
20
7) planning to elect its own Board of Directors;

8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * *
rolls of cable wires, worth P600,000.00 on May 11, 1986; 21

9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried
therein. 22

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders

Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been
engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law
governing these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed and
useless debates about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly
exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the
process many of the objections raised by BASECO will be dealt with.

4. The Governing Law

a. Proclamation No. 3

The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional
Constitution, ordained by Proclamation No. 3, 23 that the President-in the exercise of legislative power which she was
authorized to continue to wield "(until a legislature is elected and convened under a new Constitution" — "shall give
priority to measures to achieve the mandate of the people," among others to (r)ecover ill-gotten properties amassed
by the leaders and supporters of the previous regime and protect the interest of the people through orders of
sequestration or freezing of assets or accounts." 24

b. Executive Order No. 1

Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources
of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives,
and close associates both here and abroad." 25 Upon these premises, the Presidential Commission on Good
Government was created, 26 "charged with the task of assisting the President in regard to (certain specified)
matters," among which was precisely-

* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close associates, whether located in the Philippines or
abroad, including the takeover or sequestration of all business enterprises and entities owned or
controlled by them, during his administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority, influence, connections or
relationship. 27

In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the
PCGG was granted "power and authority" to do the following particular acts, to wit:

1. To sequester or place or cause to be placed under its control or possession any building or office
wherein any ill-gotten wealth or properties may be found, and any records pertaining thereto, in
 order to prevent their destruction, concealment or disappearance which would frustrate or hamper
the investigation or otherwise prevent the Commission from accomplishing its task.

2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business
enterprises and properties taken over by the government of the Marcos Administration or by entities
or persons close to former President Marcos, until the transactions leading to such acquisition by the
latter can be disposed of by the appropriate authorities.

3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may
render moot and academic, or frustrate or otherwise make ineffectual the efforts of the Commission
to carry out its task under this order. 28

So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require
submission of evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 29It
was given power also to promulgate such rules and regulations as may be necessary to carry out the purposes of * *
(its creation). 30

c. Executive Order No. 2

Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten
properties amassed by the leaders and supporters of the previous regime." It declares that:

1) * * the Government of the Philippines is in possession of evidence showing that there are assets
and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or
nominees which had been or were acquired by them directly or indirectly, through or as a result of
the improper or illegal use of funds or properties owned by the government of the Philippines or any
of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of their office, authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the
Philippines:" and

2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of
stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds
of real and personal properties in the Philippines and in various countries of the world." 31

Upon these premises, the President-

1) froze "all assets and properties in the Philippines in which former President Marcos and/or his
wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates,
dummies, agents, or nominees have any interest or participation;

2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives,
subordinates, business associates, duties, agents, or nominees from transferring, conveying,
encumbering, concealing or dissipating said assets or properties in the Philippines and abroad,
pending the outcome of appropriate proceedings in the Philippines to determine whether any such
assets or properties were acquired by them through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their
official position, authority, relationship, connection or influence to unjustly enrich themselves at the
expense and to the grave damage and prejudice of the Filipino people and the Republic of the
Philippines;

3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or

concealing such assets and properties or from assisting or taking part in their transfer,
encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;"
and

4) required "all persons in the Philippines holding such assets or properties, whether located in the
Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the
same to the Commission on Good Government within thirty (30) days from publication of * (the)
Executive Order, * *. 32

d. Executive Order No. 14

A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the
assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases
investigated by it * * as may be warranted by its findings." 34 All such cases, whether civil or criminal, are to be filed
"with the Sandiganbayan which shall have exclusive and original jurisdiction thereof." 35 Executive Order No. 14 also
pertinently provides that civil suits for restitution, reparation of damages, or indemnification for consequential
damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil
Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed
separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of
evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly applied to* *
(said)civil cases." 36
5. Contemplated Situations

The situations envisaged and sought to be governed are self-evident, these being:

1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous
regime"; 37

a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, * * located in the
Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or controlled
by them, during * * (the Marcos) administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority, influence, Connections or
relationship; 38

b) otherwise stated, that "there are assets and properties purportedly pertaining to former President
Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives,
subordinates, business associates, dummies, agents or nominees which had been or were acquired
by them directly or indirectly, through or as a result of the improper or illegal use of funds or
properties owned by the Government of the Philippines or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of their office, authority,
influence, connections or relationship, resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the Republic of the Philippines"; 39

c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares
of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other
kinds of real and personal properties in the Philippines and in various countries of the world;" 40 and

2) that certain "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos. 41

6. Government's Right and Duty to Recover All Ill-gotten Wealth

There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten
wealth."

Neither can there be any debate about the proposition that assuming the above described factual premises of the
Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from
Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on the part
of Government.

But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling
necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private
property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of
that society may without exception lay claim.

* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary

components freedom of conscience, freedom of expression, and freedom in the pursuit of
happiness. Along with these freedoms are included economic freedom and freedom of
enterprise within reasonable bounds and under proper control. * * Evincing much concern for the
protection of property, the Constitution distinctly recognizes the preferred position which real estate
has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as
democracy is conceived in the Constitution.The Constitution realizes the indispensable role which
property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic
effort and the formation and growth of a solid social middle class that is said to be the bulwark of
democracy and the backbone of every progressive and happy country. 42

a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly
established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten
wealth may be validly and properly adjudged and consummated; although there are some who maintain that the
fact-that an immense fortune, and "vast resources of the government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have
resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the
realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the
requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed
explicitly laid down, in Executive Order No. 14.

b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits

Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the
evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to
prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of the
suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to
recover the same.
7. Provisional Remedies Prescribed by Law

To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze
orders; and (3) provisional takeover.

Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The
remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over
by the government of the Marcos Administration or by entities or persons close to former President Marcos." 43

a. Sequestration

By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place
or cause to be placed under its possession or control said property, or any building or office wherein any such
property and any records pertaining thereto may be found, including "business enterprises and entities,"-for the
purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the
same-until it can be determined, through appropriate judicial proceedings, whether the property was in truth will-
gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the
Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of official position, authority relationship, connection or influence, resulting in unjust enrichment of the
ostensible owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which the term is
commonly understood in other jurisdictions. 45

b. "Freeze Order"

A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth"
"from transferring, conveying, encumbering or otherwise depleting or concealing such property, or from assisting or
taking part in its transfer, encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor
to hold the property and conserve it subject to the orders and disposition of the authority decreeing such freezing. In
this sense, it is akin to a garnishment by which the possessor or ostensible owner of property is enjoined not to
deliver, transfer, or otherwise dispose of any effects or credits in his possession or control, and thus becomes in a
sense an involuntary depositary thereof. 47

c. Provisional Takeover

In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill
gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to which
the remedy of sequestration applies, it being necessarily inferred that the remedy entails no interference, or the least
possible interference with the actual management and operations thereof; and "business enterprises which
were taken over by the government government of the Marcos Administration or by entities or persons close to
him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent disposal or
dissipation of the enterprises." 48 Such a "provisional takeover" imports something more than sequestration or
freezing, more than the placing of the business under physical possession and control, albeit without or with the
least possible interference with the management and carrying on of the business itself. In a "provisional takeover,"
what is taken into custody is not only the physical assets of the business enterprise or entity, but the business
operation as well. It is in fine the assumption of control not only over things, but over operations or on- going
activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken
over by the government of the Marcos Administration or by entities or persons close to former President Marcos."

d. No Divestment of Title Over Property Seized

It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just
described. Indeed the law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies
may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of
property or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of
whether or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating
anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the property
sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can
be done only for the causes and by the processes laid down by law.

That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and
exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that
the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such
acquisition * * can be disposed of by the appropriate authorities." 49 Executive Order No. 2 declares that the assets
or properties therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the
Philippines to determine whether any such assets or properties were acquired" by illegal means. Executive Order
No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or not
particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.

e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command

There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional
takeover is designed to be an end in itself, that it is the device through which persons may be deprived of their
property branded as "ill-gotten," that it is intended to bring about a permanent, rather than a passing, transitional
state of affairs. That this is not so is quite explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional
remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from extending
ratification or confirmation (although not really necessary) to the institution by presidential fiat of the remedy of
sequestration and freeze orders:

SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated
March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain operative for not more
than eighteen months after the ratification of this Constitution. However, in the national interest, as
certified by the President, the Congress may extend said period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order
and the list of the sequestered or frozen properties shall forthwith be registered with the proper court.
For orders issued before the ratification of this Constitution, the corresponding judicial action or
proceeding shall be filed within six months from its ratification. For those issued after such
ratification, the judicial action or proceeding shall be commenced within six months from the
issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is
commenced as herein provided. 52

f. Kinship to Attachment Receivership

As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary
attachment, or receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may
stand as security for the satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or
lost intentionally or otherwise, pending the action. 54 By receivership, property, real or personal, which is subject of
litigation, is placed in the possession and control of a receiver appointed by the Court, who shall conserve it pending
final determination of the title or right of possession over it. 55 All these remedies — sequestration, freezing,
provisional, takeover, attachment and receivership — are provisional, temporary, designed for-particular exigencies,
attended by no character of permanency or finality, and always subject to the control of the issuing court or agency.

g. Remedies, Non-Judicial

Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment.
The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal
Revenue has been by law authorized to issue against property of a delinquent taxpayer. 56 BASECO itself declares
that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels) that the law
should not be ossified to a point that makes it insensitive to change." What it insists on, what it pronounces to be its
"unyielding position, is that any change in procedure, or the institution of a new one, should conform to due process
and the other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which there
can be no disagreement.

h. Orders May Issue Ex Parte

Like the remedy of preliminary attachment and receivership, as well as delivery of personal property
in replevin suits, sequestration and provisional takeover writs may issue ex parte. 58 And as in preliminary
attachment, receivership, and delivery of personality, no objection of any significance may be raised to the ex
parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of temporariness
or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to recover ill-
gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the
people;" 59 as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby
cause that disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident, that
"any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or
hamper the efforts of the Government" at the just recovery thereof. 60

8. Requisites for Validity

What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual
foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it
and endeavor to cause its negation or nullification. 61

Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.

a. Prima Facie Evidence as Basis for Orders

Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due
process." 62Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and properties,
"it is the position of the new democratic government that President Marcos * * (and other parties affected) be
afforded fair opportunity to contest these claims before appropriate Philippine authorities." 63 Section 7 of the
Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the
authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu
proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. 64 A similar
requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or
freeze order shall be issued only upon showing of a prima facie case." 65
 b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set
aside a writ of sequestration or freeze order, viz:

SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold
order is directed may request the lifting thereof in writing, either personally or through counsel within
five (5) days from receipt of the writ or order, or in the case of a hold order, from date of knowledge
thereof.

SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause
shown, the Commission may lift the writ or order unconditionally or subject to such conditions as it
may deem necessary, taking into consideration the evidence and the circumstance of the case. The
resolution of the commission may be appealed by the party concerned to the Office of the President
of the Philippines within fifteen (15) days from receipt thereof.

Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed
by some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the
executive orders in question, it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails
and official acts which are devoid of rational basis in fact or law, or are whimsical and capricious, are condemned
and struck down. 66

9. Constitutional Sanction of Remedies

If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of
sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the
authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned,
the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to
achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters of
the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or
accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of, and ratifies
the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."

The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t
lie power of promoting the public welfare by restraining and regulating the use of liberty and property," 68 and as "the
most essential, insistent and illimitable of powers * * in the promotion of general welfare and the public
interest," 69and said to be co-extensive with self-protection and * * not inaptly termed (also) the'law of overruling
necessity." "70

10. PCGG not a "Judge"; General Functions

It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never
intended to act as, a judge. Its general function is to conduct investigations in order to collect evidence establishing
instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus
collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and
prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent
jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and
determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether
or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the
Constitution and the executive orders. This function is reserved to the designated court, in this case, the
Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation, leveled by BASECO, 72that
the PCGG plays the perfidious role of prosecutor and judge at the same time.

11. Facts Preclude Grant of Relief to Petitioner

Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be
discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued.

The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his
administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority,
or influence, " and that it was by and through the same means, that BASECO had taken over the business and/or
assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities.

12. Organization and Stock Distribution of BASECO

BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic
private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main
office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard
is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital stock is
P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been
subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the incorporators. 74The
same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3)
Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8)
Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13)
Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso
Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo
Torres. As of this year, 1986, there were twenty (20) stockholders listed in BASECO's Stock and Transfer
Book. 75Their names and the number of shares respectively held by them are as follows:

1. Jose A. Rojas 1,248

shares
2. Severino 1,248
G. de la Cruz shares
3. Emilio T. 2,508
Yap shares
4. Jose 1,248
Fernandez shares
5. Jose 128
Francisco shares
6. Manuel S. 96
Mendoza shares
7. Anthony P. 1,248
Lee shares
8. Hilario M. 32
Ruiz shares
9. Constante 8
L. Fariñas shares
10. Fidelity 65,882
Management, shares
Inc.
11. Trident 7,412
Management shares
12. United 1,240
Phil. Lines shares
13. Renato 8
M. Tanseco shares
14. Fidel 8
Ventura shares
15. Metro 136,370
Bay Drydock shares
16. Manuel 1 share
Jacela
17. Jonathan 1 share
G. Lu
18. Jose J. 1 share
Tanchanco
19. Dioscoro 128
Papa shares
20. Edward 4
T. Marcelo shares
TOTAL 218,819
shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or
NASSCO, a government-owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the
Bataan National Shipyard (BNS), and — except for NASSCO's Engineer Island Shops and certain equipment of the
BNS, consigned for future negotiation — all its structures, buildings, shops, quarters, houses, plants, equipment and
facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage"
executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to
NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the
inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%)
per annum, compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a term of
nine (9) years, payment to commence after a grace period of two (2) years from date of turnover of the shipyard to
BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos

Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8)
months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and
was signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as
General Manager. 77 This agreement bore, at the top right corner of the first page, the word "APPROVED" in the
handwriting of President Marcos, followed by his usual full signature. The document recited that a down payment of
P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-annual
installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum.

15. Acquisition of 300 Hectares from Export Processing Zone Authority

On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export
Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale,
P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in installments. 78

16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President
Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the first two (2)
purchase documents. This was accomplished by a deed entitled "Contract of Purchase and Sale," 79 which, like the
Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first page,
the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full
signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and interests over all
equipment and facilities including structures, buildings, shops, quarters, houses, plants and expendable or semi-
expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the equipment
of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by
BASECO and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the
same deed, NASSCO committed itself to cooperate with BASECO for the acquisition from the National Government
or other appropriate Government entity of Engineer Island. Consideration for the sale was set at P5,000,000.00; a
down payment of P1,000,000.00 appears to have been made, and the balance was stipulated to be paid at 7%
interest per annum in equal semi annual installments over a term of nine (9) years, to commence after a grace
period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager, Mr.
David R. Ines.

17. Loans Obtained

It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available
Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80 On
September 3, 1975, it got another loan also from the NDC in the amount of P30,000,000.00 (id.). And on January
28, 1976, it got still another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has been
made that not a single centavo has been paid on these loans. 82

18. Reports to President Marcos

In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was
contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied
in a confidential memorandum dated September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine
hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity.

a. BASECO President's Report

In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or
demands for ship construction" for some time and expressed the fear that if that state of affairs persisted, BASECO
would not be able to pay its debts to the Government, which at the time stood at the not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spin-off (of their) shipbuilding activities
which shall be handled exclusively by an entirely new corporation to be created;" and towards this end, he informed
Marcos that BASECO was —

* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to
BASECO amounting to P341.165M and assuming and converting a portion of BASECO's
shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's equity
contribution in the new corporation. LUSTEVECO will participate by absorbing and converting a
portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to P32.538M.86

b. Romualdez' Report

Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following
caption:

MEMORANDUM:

FOR : The President

 SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission

FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the
fact that "orders to build ships as expected * * did not materialize."

He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A.
Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr.
Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the following quite
revealing, and it may be added, quite cynical and indurate recommendation, to wit:

* * (that) their replacements (be effected) so we can register their names in the stock book prior to
the implementation of your instructions to pass a board resolution to legalize the transfers under
SEC regulations;

2. By getting their replacements, the families cannot question us later on; and

3. We will owe no further favors from them. 87

He also transmitted to Marcos, together with the report, the following documents: 88

1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89

2. The articles of incorporation, the amended articles, and the by-laws of BASECO;

3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island",
Port Area, Manila;

4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";

5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at
Mariveles, Bataan;

6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at
Engineer Island, Port Area Manila;

7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at
Mariveles, Bataan;

8. List of BASECO's fixed assets;

9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;

10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for
BASECO's rank-and-file employees. 90

Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will
have enough orders for ships in order for the company to meet loan obligations," and that —

An LOI may be issued to government agencies using floating equipment, that a linkage scheme be
applied to a certain percent of BASECO's net profit as part of BASECO's amortization payments
to make it justifiable for you, Sir. 91

It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has
presented a report on BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's
affairs and problems.

19. Marcos' Response to Reports

President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off"
and the "linkage scheme" relative to "BASECO's amortization payments."

a. Instructions re "Spin-Off"

Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine
National Oil Company and Chairman Constante Fariñas of the National Development Company, directing them "to
participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component
of BASECO along the following guidelines:
 a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of
P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to be
converted to equity of the said new corporation, to wit:

1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting shares.

For immediate compliance. 92

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their
president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Fariñas and Geronimo Z. Velasco, in
representation of their respective corporations, executed a PRE-INCORPORATION AGREEMENT dated October
20, 1977. 93 In it, they undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING
CORPORATION," to bring to realization their president's instructions. It would seem that the new corporation
ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." 94

b. Letter of Instructions No. 670

Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he
issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National
Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National Development Company
(NDC). What is commanded therein is summarized by the Solicitor General, with pithy and not inaccurate
observations as to the effects thereof (in italics), as follows:

* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC

subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing the
handling and incidental expenses incurred by BASECO in the installation of said equipment (so
instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO instead the
amount of P18.285M); 2) the shipbuilding equipment procured from reparations through EPZA, now
in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to
LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by
LUSTEVECO, acting through PNOC and NDC, as the government's equity participation in a
shipbuilding corporation to be established in partnership with the private sector.

xxx xxx xxx

And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC
and REPACOM * * in the total amount of P83.365M and BSD's REPACOM loan of P32.438M were
wiped out and converted into non-voting preferred shares. 95

20. Evidence of Marcos'

Ownership of BASECO

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President
Marcos of BASECO has been sufficiently shown.

Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised
control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock.

It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock
outstanding, ostensibly owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro
Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident
Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations, among
themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.

Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang
shortly after the sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent
(95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of assignment of
practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82% of
all BASECO stock), signed by the owners thereof although not notarized. 97

More specifically, found in Malacanang (and now in the custody of the PCGG) were:

1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. — which
supposedly owns as aforesaid 65,882 shares of BASECO stock;

2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock
Corporation — which allegedly owns 136,370 shares of BASECO stock;
 3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. — which
allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and

4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO
stock; that is, all but 5 % — all endorsed in blank. 99

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO
stockholders were still in possession of their respective stock certificates and had "never endorsed * * them in blank
or to anyone else," 100 that denial is exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable
factual declaration.

By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT, as
undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as
listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter alia that
"said certificates of stock are in the possession of third parties, among whom being the respondents themselves * * and petitioner is still endeavoring to secure
copies thereof from them." 102 On the same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of
Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of respondents." 103

In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to secure copies of the stock
certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their) certificates of stock," and the reason, according to him,
was "that 95% of said shares * * have been endorsed in blank and found in Malacañang after the former President and his family fled the country." To this
manifestation BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned
their stock. 105

In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the petitioner * * to deposit upon proper
receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its possession or accessible to it, mentioned and described in Annex
'P' of its petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5, 1986, 107 BASECO's counsel made the
statement, quite surprising in the premises, that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if
available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to
produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * * (him) to borrow said
certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge and/or to secure performance of obligations,
while others allegedly have entrusted them to third parties in view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the
details of the transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial importance of convincing this
Court of their present custody of the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that
the originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not get the
originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in their possession,
these having already been assigned in blank to then President Marcos.

21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of
BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any
shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the
filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and
business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president.

From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private
corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his
administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers,
authority, influence * *," and that NASSCO and other property of the government had been taken over by BASECO;
and the situation justified the sequestration as well as the provisional takeover of the corporation in the public
interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions
with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the
Republic pursuant to Executive Order No. 14.

As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the
acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far
been set out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders
pursuant to which they were done, are fatally defective in not according to the parties affected prior notice and
hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had
acted as prosecutor and judge at the same time.

22. Executive Orders Not a Bill of Attainder

Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder
is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt." 112

In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the executive orders,
inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a
judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no punishment is inflicted by the
executive orders, as the merest glance at their provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of
attainder.

23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures

BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been
transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986
under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3
(e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such
books, papers, contracts, records, statements of accounts and other documents as may be material to the
investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to
"require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the
Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The
contention lacks merit.
It is elementary that the right against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special privileges and franchises,
may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113

Relevant jurisprudence is also cited by the Solicitor General. 114

* * corporations are not entitled to all of the constitutional protections which private individuals have.
* * They are not at all within the privilege against self-incrimination, although this court more than
once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure
provisions. It is also settled that an officer of the company cannot refuse to produce its records in its
possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma
Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).

* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the
public. It received certain special privileges and franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are limited by law. It can make no contract not
authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys
the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find
out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having
chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty,
inquire how these franchises had been employed, and whether they had been abused, and demand
the production of the corporate books and papers for that purpose. The defense amounts to this, that
an officer of the corporation which is charged with a criminal violation of the statute may plead the
criminality of such corporation as a refusal to produce its books. To state this proposition is to
answer it. While an individual may lawfully refuse to answer incriminating questions unless protected
by an immunity statute, it does not follow that a corporation, vested with special privileges and
franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v.
United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to
individuals required to produce evidence before the PCGG against any possible violation of his right against self-
incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to
present. As amended, said Section 4 now provides that —

xxx xxx xxx

The witness may not refuse to comply with the order on the basis of his privilege against self-
incrimination; but no testimony or other information compelled under the order (or any information
directly or indirectly derived from such testimony, or other information) may be used against the
witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise
failing to comply with the order.

The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar
either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure
on the occasion thereof.

24. Scope and Extent of Powers of the PCGG

One other question remains to be disposed of, that respecting the scope and extent of the powers that may be
wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken
over. Obviously, it is not a question to which an answer can be easily given, much less one which will suffice for
every conceivable situation.

a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property
sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of
sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over
said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or
provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict
ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of
receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant
authority for the performance of acts of dominion.

Equally evident is that the resort to the provisional remedies in question should entail the least possible interference
with business operations or activities so that, in the event that the accusation of the business enterprise being "ill
gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at
the time of sequestration.

b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business sequestered or
provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents;
collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator.
In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or
frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and
secure the assistance of any office, agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns,
businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or
overseer. It is not that of manager, or innovator, much less an owner.

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him;
Limitations Thereon

Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the
government of the Marcos Administration or by entities or persons close to former President Marcos," 117 the PCGG is
given power and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the
term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the
PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the
intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation"
of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies,
particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified
by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers
may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking to the end that truly competent, experienced
and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how wen meaning. The road to hell, it has
been said, is paved with good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not
fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once
judicially established to be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of
business enterprises provisionally taken over may legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the
prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a
Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of
proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it
may have sequestered in corporations at all stockholders' meetings called for the election of directors, declaration of
dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a
manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same
matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks
sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be
voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy,
program or practice of the corporation except for demonstrably weighty and defensible grounds, and always in the
context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue
disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists.
Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and
undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such
circumstances as assure that the replacements are truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in
their stead because the evidence showed prima facie that the former were just tools of President Marcos and were
no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28,
1986; 118 this Court declared that —

Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents'
calling and holding of a stockholders' meeting for the election of directors as authorized by the
Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this
case, the government can, through its designated directors, properly exercise control and
management over what appear to be properties and assets owned and belonging to the government
itself and over which the persons who appear in this case on behalf of BASECO have failed to show
any right or even any shareholding in said corporation.

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management
of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should
never for a moment allow themselves to forget that they are conservators, not owners of the business; they are
fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required.

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of
certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the
present state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in
the appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its judgment for that of the
PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be said to have established the correctness of its
submission that the acts of the PCGG in question were done without or in excess of its powers, or with grave abuse of discretion.

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.

Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

Separate Opinions
TEEHANKEE, CJ., concurring:

I fully concur with the masterly opinion of Mr. Justice Narvasa. In the process of disposing of the issues raised by
petitioner BASECO in the case at bar, it comprehensively discusses the laws and principles governing the
Presidential Commission on Good Government (PCGG) and defines the scope and extent of its powers in the
discharge of its monumental task of recovering the "ill-gotten wealth, accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or
abroad (and) business enterprises and entities owned or controlled by them during I . . .(the Marcos) administration,
directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority,
influence, connections or relationship." 1

The Court is unanimous insofar as the judgment at bar upholds the imperative need of recovering the ill-gotten properties amassed by the previous regime, which
"deserves the fullest support of the judiciary and all sectors of society." 2 To quote the pungent language of Mr. Justice Cruz, "(T)here is no question that all lawful
efforts should be taken to recover the tremendous wealth plundered from the people by the past regime in the most execrable thievery perpetrated in all history.
No right-thinking Filipino can quarrel with this necessary objective, and on this score I am happy to concur with the ponencia." 3

The Court is likewise unanimous in its judgment dismissing the petition to declare unconstitutional and void
Executive Orders Nos. 1 and 2 to annul the sequestration order of April 14, 1986. For indeed, the 1987 Constitution
overwhelmingly adopted by the people at the February 2, 1987 plebiscite expressly recognized in Article XVIII,
section 26 thereof 4 the vital functions of respondent PCGG to achieve the mandate of the people to recover such ill-
gotten wealth and properties as ordained by Proclamation No. 3 promulgated on March 25, 1986.

The Court is likewise unanimous as to the general rule set forth in the main opinion that "the PCGG cannot exercise
acts of dominion over property sequestered, frozen or provisionally taken over" and "(T)he PCGG may thus exercise
only powers of administration over the property or business sequestered or provisionally taken over, much like a
court-appointed receiver, such as to bring and defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as
conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened
commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make
ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of
Court; and seek and secure the assistance of any office, agency or instrumentality of the government. In the case of
sequestered businesses generally (i.e. going concerns, business in current operation), as in the case of
sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, 'watchdog' or
overseer. It is not that of manager, or innovator, much less an owner." 5

Now, the case at bar involves one where the third and most encompassing and rarely invoked of provisional
remedies, 6 the provisional takeover of the Baseco properties and business operations has been availed of by the
PCGG, simply because the evidence on hand, not only prima facie but convincingly with substantial and
documentary evidence of record establishes that the corporation known as petitioner BASECO "was owned or
controlled by President Marcos 'during his administration, through nominees, by taking undue advantage of his
public office and/or using his powers, authority, or influence;' and that it was by and through the same means, that
BASECO had taken over the business and/or assets of the [government-owned] National Shipyard and Engineering
Co., Inc., and other government-owned or controlled entities." The documentary evidence shows that petitioner
BASECO (read Ferdinand E. Marcos) in successive transactions all directed and approved by the former President-
in an orgy of what according to the PCGG's then chairman, Jovito Salonga, in his statement before the 1986
Constitutional Commission, "Mr. Ople once called 'organized pillage' "-gobbled up the government corporation
National Shipyard & Steel Corporation NASSCO its shipyard at Mariveles, 300 hectares of land in Mariveles from
the Export Processing Zone Authority, Engineer Island itself in Manila and its complex of equipment and facilities
including structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets and
obtained huge loans of $19,000,000.00 from the last available Japanese war damage fund, P30,000,000.00 from
the NDC and P12,400,000.00 from the GSIS. The sordid details are set forth in detail in Paragraphs 1 1 to 20 of the
main opinion. They include confidential reports from then BASECO president Hilario M. Ruiz and the deposed
President's brother-in- law, then Captain (later Commodore) Alfredo Romualdez, who although not on record as an
officer or stockholder of BASECO reported directly to the deposed President on its affairs and made the
recommendations, all approved by the latter, for the gobbling up by BASECO of all the choice government assets
and properties.

All this evidence has been placed of record in the case at bar. And petitioner has had all the time and opportunity to
refute it, submittals to the contrary notwithstanding, but has dismally failed to do so. To cite one glaring instance: as
stated in the main opinion, the evidence submitted to this Court by the Solicitor General "proves that President
Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its
outstanding stock." It cites the fact that three corporations, evidently front or dummy corporations, among twenty
shareholders, in name, of BASECO, namely Metro Bay Drydock, Fidelity Management, Inc. and Trident
Management hold 209,664 shares or 95.82%, of BASECO's outstanding stock. Now, the Solicitor General points out
further than BASECO certificates "corresponding to more than ninety-five percent (95%) of all the outstanding
shares of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding
shares of stock of the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by
the owners thereof although not notarized" 7 were found in Malacañang shortly after the deposed President's sudden
flight from the country on the night of February 25, 1986. Thus, the main opinion's unavoidable conclusion that
"(W)hile the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO
stockholders were still in possession of their respective stock certificates and had 'never endorsed * * * them in
blank or to anyone else,' that denial is exposed by his own prior and subsequent recorded statements as a mere
gesture of defiance rattler than a verifiable factual declaration . . . . Under the circumstances, the Court can only
conclude that he could not get the originals from the stockholders for the simple reason that as the Solicitor General
maintains, said stockholders in truth no longer have them in their possession, these having already been assigned
in blank to President Marcos."8

With this strong unrebutted evidence of record in this Court, Justice Melencio-Herrera, joined by Justice Feliciano,
expressly concurs with the main opinion upholding the commission's take-over, stating that "(I) have no objection to
according the right to vote sequestered stock in case of a takeover of business actually belonging to the government
or whose capitalization comes from public funds but which, somehow, landed in the hands of private persons, as in
the case of BASECO." They merely qualify their concurrence with the injunction that such takeovers be exercised
with "caution and prudence" pending the determination of "the true and real ownership" of the sequestered shares.
Suffice it to say in this regard that each case has to be judged from the pertinent facts and circumstances and that
the main opinion emphasizes sufficiently that it is only in the special instances specified in the governing laws
grounded on the superior national interest and welfare and the practical necessity of preserving the property and
preventing its loss or disposition that the provisional remedy of provisional take-over is exercised.

Here, according to the dissenting opinion, "the PCGG concludes that sequestered property is ill-gotten wealth and
proceeds to exercise acts of ownership over said properties . . . . and adds that "the fact of ownership must be
established in a proper suit before a court of justice"-which this Court has preempted with its finding that "in the
context of the proceedings at bar, the actuality of the control by President Marcos of BASECO has been sufficiently
shown."

But BASECO who has instituted this action to set aside the sequestration and take-over orders of respondent
commission has chosen to raise these very issues in this Court. We cannot ostrich-like hide our head in the sand
and say that it has not yet been established in the proper court that what the PCGG has taken over here
are government properties, as a matter of record and public notice and knowledge, like the NASSCO, its Engineer
Island and Mariveles Shipyard and entire complex, which have been pillaged and placed in the name of the dummy
or front company named BASECO but from all the documentary evidence of record shown by its street certificates
all found in Malacanang should in reality read "Ferdinand E. Marcos" and/or his brother-in-law. Such take-over can
in no way be termed "lawless usurpation," for the government does not commit any act of usurpation in taking
over its own properties that have been channeled to dummies, who are called upon to prove in the proper court
action what they have failed to do in this Court, that they have lawfully acquired ownership of said properties,
contrary to the documentary evidence of record, which they must likewise explain away. This Court, in the exercise
of its jurisdiction on certiorari and as the guardian of the Constitution and protector of the people's basic
constitutional rights, has entertained many petitions on the part of parties claiming to be adversely affected by
sequestration and other orders of the PCGG, This Court set the criterion that such orders should issue only upon
showing of a prima facie case, which criterion was adopted in the 1987 Constitution. The Court's judgment cannot
be faulted if much more than a prima facie has been shown in this case, which the faceless figures claiming to
represent BASECO have failed to refute or disprove despite all the opportunity to do so.

The record plainly shows that petitioner BASECO which is but a mere shell to mask its real owner did not and could
not explain how and why they received such favored and preferred treatment with tailored Letters of Instruction and
handwritten personal approval of the deposed President that handed it on a silver platter the whole complex and
properties of NASSCO and Engineer Island and the Mariveles Shipyard.

It certainly would be the height of absurdity and helplessness if this government could not here and now take over
the possession and custody of its very own properties and assets that had been stolen from it and which it had
pledged to recover for the benefit and in the greater interest of the Filipino people, whom the past regime had
saddled with a huge $27-billion foreign debt that has since ballooned to $28.5-billion.

Thus, the main opinion correctly concludes that "(I)n the light of the affirmative showing by the Government
that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 were mere 'dummies,'
nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in the
corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing
whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for
in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the
PCGG to persons who are 'dummies' nominees or alter egos of the former President." 9

And Justice Padilla in his separate concurrence "called a spade a spade," citing the street certificates representing
95 % of BASECO's outstanding stock found in Malacañang after Mr. Marcos' hasty flight in February, 1986 and the
extent of the control he exercised over policy decisions affecting BASECO and concluding that "Consequently, even
ahead of judicial proceedings, I am convinced that the Republic of the Philippines, thru the PCGG, has the right and
even the duty to take over full control and supervision of BASECO."

Indeed, the provisional remedies available to respondent commission are rooted in the police power of the State, the
most pervasive and the least limitable of the powers of Government since it represents "the power of sovereignty,
the power to govern men and things within the limits of its domain." 10 Police power has been defined as the power inherent in the
State "to prescribe regulations to promote the health, morals, education, good order or safety, and general welfare of the people." 11 Police power rests upon
public necessity and upon the right of the State and of the public to self-protection. 12 "Salus populi suprema est lex" or "the welfare of the people is the Supreme
Law." 13 For this reason, it is co-extensive with the necessities of the case and the safeguards of public interest. 14 Its scope expands and contracts with changing
needs. 15 "It may be said in a general way that the police power extends to all the great public needs. It may be put forth in aid of what is sanctioned by usage, or
held by the prevailing morality or strong and preponderant opinion to be greatly and immediately necessary to the public welfare." 16 That the public interest or the
general welfare is subserved by sequestering the purported ill-gotten assets and properties and taking over stolen properties of the government channeled to
dummy or front companies is stating the obvious. The recovery of these ill-gotten assets and properties would greatly aid our financially crippled government and
hasten our national economic recovery, not to mention the fact that they rightfully belong to the people. While as a measure of self-protection, if, in the interest of
general welfare, police power may be exercised to protect citizens and their businesses in financial and economic matters, it may similarly be exercised to protect
the government itself against potential financial loss and the possible disruption of governmental functions. 17 Police power as the power of self-protection on the
part of the community bears the same relation to the community that the principle of self-defense bears to the individual. 18 Truly, it may be said that even more
than self- defense, the recovery of ill-gotten wealth and of the government's own properties involves the material and moral survival of the nation, marked as the
past regime was by the obliteration of any line between private funds and the public treasury and abuse of unlimited power and elimination of any accountability in
public office, as the evidence of record amply shows.
It should be mentioned that the tracking down of the deposed President's actual ownership of the BASECO shares
was fortuitously facilitated by the recovery of the street certificates in Malacañang after his hasty flight from the
country last year. This is not generally the case.

For example, in the ongoing case filed by the government to recover from the Marcoses valuable real estate
holdings in New York and the Lindenmere estate in Long Island, former PCGG chairman Jovito Salonga has
revealed that their names "do not appear on any title to the property. Every building in New York is titled in the name
of a Netherlands Antilles corporation, which in turn is purportedly owned by three Panamanian corporations, with
bearer shares. This means that the shares of this corporation can change hands any time, since they can be
transferred, under the law of Panama, without previous registration on the books of the corporation. One of the first
documents that we discovered shortly after the February revolution was a declaration of trust handwritten by Mr.
Joseph Bernstein on April 4, 1982 on a Manila Peninsula Hotel stationery stating that he would act as a trustee for
the benefit of President Ferdinand Marcos and would act solely pursuant to the instructions of Marcos with respect
to the Crown Building in New York." 19

This is just to stress the difficulties of the tasks confronting respondent PCGG, which nevertheless has so far
commendably produced unprecedented positive results. As stated by then chairman Salonga:

PCGG has turned over to the Office of the President around 2 billion pesos in cash, free of any lien.
It has also delivered to the President-as a result of a compromise settlement-around 200 land titles
involving vast tracks of land in Metro Manila, Rizal, Laguna, Cavite, and Bataan, worth several billion
pesos. These lands are now available for low-cost housing projects for the benefit of the poor and
the dispossessed amongst our people.

In the legal custody of the Commission as a result of sequestration proceedings, are expensive
jewelry amounting to 310 million pesos, 42 aircraft amounting to 718 million pesos, vessels
amounting to 748 million pesos, and shares of stock amounting to around 215 million pesos.

But, as I said, the bulk of the ill-gotten wealth is located abroad, not in the Philippines. Through the
efforts of the PCGG, we have caused the freezing or sequestration of properties, deposits, and
securities probably worth many billions of pesos in New York, New Jersey, Hawaii, California, and
more importantly-in Switzerland. Due to favorable developments in Switzerland, we may expect,
according to our Swiss lawyers, the first deliveries of the Swiss deposits in the foreseeable future,
perhaps in less than a year's time. In New York, PCGG through its lawyers who render their services
free of cost to the Philippine government, succeeded in getting injunctive relief against Mr. and Mrs.
Marcos and their nominees and agents. There is now an offer for settlement that is being studied
and explored by our lawyers there.

If we succeed in recovering not an (since this is impossible) but a substantial part of the ill-gotten
wealth here and in various countries of the world — something the revolutionary governments of
China, Ethiopia, Iran and Nicaragua were not able to accomplish at all with respect to properties
outside their territorial boundaries — the Presidential Commission on Good Government, which has
undertaken the difficult and thankless task of trying to undo what had been done so secretly and
effectively in the last twenty years, shall have more than justified its existence. 20

The misdeeds of some PCGG volunteers and personnel cited in the dissenting opinion do not detract at an from the
PCGG's accomplishments, just as no one would do away with newspapers because of some undesirable elements.
The point is that all such misdeeds have been subject to public exposure and as stated in the dissent itself, the
erring PCGG representatives have been forthwith dismissed and replaced.

The magnitude of the tasks that confront respondent PCGG with its limited resources and staff support and
volunteers should be appreciated, together with the assistance that foreign governments and lawyers have
spontaneously given the commission.

A word about the PCGG's firing of the BASECO lawyers who filed the present petition challenging its questioned
orders, filing a motion to withdraw the petition, after it had put in eight of its representatives as directors of the
BASECO board of directors. This was entirely proper and in accordance with the Court's Resolution of October 28,
1986, which denied BASECO's motion for the issuance of a restraining order against such take-over and declared
that "the government can, through its designated directors, properly exercise control and management over what
appear to be properties and assets owned and belonging to the government itself and over which the persons who
appear in this case on behalf of BASECO have failed to show any eight or even any shareholding in said
corporation." In other words, these dummies or fronts cannot seek to question the government's right to recover the
very properties and assets that have been stolen from it by using the very same stolen properties and funds derived
therefrom. If they wish to pursue their own empty claim, they must do it on their own, after first establishing that they
indeed have a lawful right and/or shareholding in BASECO.

Under the 1987 Constitution, the PCGG is called upon to file the judicial proceedings for forfeiture and recovery of
the sequestered or frozen properties covered by its orders issued before the ratification of the Constitution on
February 2, 1987, within six months from such ratification, or by August 2, 1987. (For those orders issued after such
ratification, the judicial action or proceeding must be commenced within six months from the issuance thereof.) The
PCGG has not really been given much time, considering the magnitude of its tasks. It is entitled to some
forbearance, in availing of the maximum time granted it for the filing of the corresponding judicial action with the
Sandiganbayan.

PADILLA, J., concurring:

The majority opinion penned by Mr. Justice Narvasa maintains and upholds the valid distinction between acts of
conservation and preservation of assets and acts of ownership. Sequestration, freeze and temporary take-over
encompass the first type of acts. They do not include the second type of acts which are reserved only to the rightful
owner of the assets or business sequestered or temporarily taken over.

The removal and election of members of the board of directors of a corporate enterprise is, to me, a clear act of
ownership on the part of the shareholders of the corporation. Under ordinary circumstances, I would deny the PCGG
the authority to change and elect the members of BASECO's Board of Directors. However, under the facts as
disclosed by the records, it appears that the certificates of stock representing about ninety-five (95%) per cent of the
total ownership in BASECO's capital stock were found endorsed in blank in Malacanang (presumably in the
possession and control of Mr. Marcos) at the time he and his family fled in February 1986. This circumstance let
alone the extent of the control Mr. Marcos exercised, while in power, over policy decisions affecting BASECO,
entirely satisfies my mind that BASECO was owned and controlled by Mr. Marcos. This is calling a spade a spade. I
am also entirely satisfied in my mind that Mr. Marcos could not have acquired the ownership of BASECO out of his
lawfully-gotten wealth.

Consequently, even ahead of judicial proceedings, I am convinced that the Republic of the Philippines, through the
PCGG, has the right and even the duty to take-over full control and supervision of BASECO.

MELENCIO-HERRERA, J., concurring:

I would like to qualify my concurrence in so far as the voting of sequestered stork is concerned.

The voting of sequestered stock is, to my mind, an exercise of an attribute of ownership. It goes beyond the purpose
of a writ of sequestration, which is essentially to preserve the property in litigation (Article 2005, Civil Code).
Sequestration is in the nature of a judicial deposit (ibid.).

I have no objection to according the right to vote sequestered stock in case of a take-over of business actually
belonging to the government or whose capitalization comes from public funds but which, somehow, landed in the
hands of private persons, as in the case of BASECO. To my mind, however, caution and prudence should be
exercised in the case of sequestered shares of an on-going private business enterprise, specially the sensitive ones,
since the true and real ownership of said shares is yet to be determined and proven more conclusively by the
Courts.

It would be more in keeping with legal norms if forfeiture proceedings provided for under Republic Act No. 1379 be
filed in Court and the PCGG seek judicial appointment as a receiver or administrator, in which case, it would be
empowered to vote sequestered shares under its custody (Section 55, Corporation Code). Thereby, the assets in
litigation are brought within the Court's jurisdiction and the presence of an impartial Judge, as a requisite of due
process, is assured. For, even in its historical context, sequestration is a judicial matter that is best handled by the
Courts.

I consider it imperative that sequestration measures be buttressed by judicial proceedings the soonest possible in
order to settle the matter of ownership of sequestered shares and to determine whether or not they are legally
owned by the stockholders of record or are "ill-gotten wealth" subject to forfeiture in favor of the State. Sequestration
alone, being actually an ancillary remedy to a principal action, should not be made the basis for the exercise of acts
of dominion for an indefinite period of time.

Sequestration is an extraordinary, harsh, and severe remedy. It should be confined to its lawful parameters and
exercised, with due regard, in the words of its enabling laws, to the requirements of fairness, due process (Executive
Order No. 14, palay 7, 1986), and Justice (Executive Order No. 2, March 12, 1986).

Feliciano, J., concur.

GUTIERREZ, JR., J., concurring and dissenting:

I concur, in part, in the erudite opinion penned for the Court by my distinguished colleague Mr. Justice Andres R.
Narvasa. I agree insofar as it states the principles which must govern PCGG sequestrations and emphasizes the
limitations in the exercise of its broad grant of powers.

I concur in the general propositions embodied in or implied from the majority opinion, among them:

(1) The efforts of Government to recover ill-gotten properties amassed by the previous regime deserve the fullest
support of the judiciary and all sectors of society. I believe, however, that a nation professing adherence to the rule
of law and fealty to democratic processes must adopt ways and means which are always within the bounds of
lawfully granted authority and which meet the tests of due process and other Bill of Rights protections.

(2) Sequestration is intended to prevent the destruction, concealment, or dissipation of ill-gotten wealth. The object
is conservation and preservation. Any exercise of power beyond these objectives is lawless usurpation.

(3) The PCGG exercises only such powers as are granted by law and not proscribed by the Constitution. The
remedies it enforces are provisional and contingent. Whether or not sequestered property is indeed ill-gotten must
be-determined by a court of justice. The PCGG has absolutely no power to divest title over sequestered property or
to act as if its findings are final.

(4) The PCGG does not own sequestered property. It cannot and must not exercise acts of ownership. To quote the
majority opinion, "one thing is certain ..., the PCGG cannot exercise acts of dominion."

(5) The provisional takeover in a sequestration should not be indefinitely maintained. It is the duty of the PCGG to
immediately file appropriate criminal or civil cases once the evidence has been gathered.

It is the difference between what the Court says and what the PCGG does which constrains me to dissent. Even as
the Court emphasizes principles of due process and fair play, it has unfortunately validated ultra vires acts violative
of those very same principles. While we stress the rules which must govern the PCGG in the exercise of its powers,
the Court has failed to stop or check acts which go beyond the power of sequestration given by law to the PCGG.

We are all agreed in the Court that the PCGG is not a judge. It is an investigator and prosecutor. Sequestration is
only a preliminary or ancillary remedy. There must be a principal and independent suit filed in court to establish the
true ownership of sequestered properties. The factual premise that a sequestered property was ill-gotten by former
President Marcos, his family, relatives, subordinates, and close associates cannot be assumed. The fact of
ownership must be established in a proper suit before a court of justice.

But what has the Court, in effect, ruled?

Pages 21 to 33 of the majority opinion are dedicated to a statement of facts which conclusively and indubitably
shows that BASECO is owned by President Marcos-and that it was acquired and vastly enlarged by the former
President's taking undue advantage of his public office and using his powers, authority, or influence.

There has been no court hearing, no trial, and no presentation of evidence. All that we have is what the PCGG has
given us. The petitioner has not even been allowed to see the evidence, much less refute it.

What the PCGG has gathered in the course of its seizures and investigations may be gospel truth. However, that
truth must be properly established in a trial court, not unilaterally determined by the PCGG or declared by this Court
in a special proceeding which only asks us to set aside or enjoin an illegal exercise of power. After this decision,
there is nothing more for a trial court to ascertain. Certainly, no lower court would dare to arrive at findings contrary
to this Court's conclusions, no matter how insistent we may be in labelling such conclusions as "prima facie." To me,
this is the basic flaw in PCGG procedures that the Court is, today, unwittingly legitimating. Even before the
institution of a court case, the PCGG concludes that sequestered property is ill-gotten wealth and proceeds to
exercise acts of ownership over said properties. It treats sequestered property as its own even before the oppositor-
owners have been divested of their titles.

The Court declares that a state of seizure is not to be indefinitely maintained. This means that court proceedings to
either forfeit the sequestered properties or clear the names and titles of the petitioners must be filed as soon as
possible.

This case is a good example of disregard or avoidance of this requirement. With the kind of evidence which the
PCGG professes to possess, the forfeiture case could have been filed simultaneously with the issuance of
sequestration orders or shortly thereafter.

And yet, the records show that the PCGG appears to concentrate more on the means rather than the ends, in
running the BASECO, taking over the board of directors and management, getting rid of security guards, disposing
of scrap, entering into new contracts and otherwise behaving as if it were already the owner. At this late date and
with all the evidence PCGG claims to have, no court case has been filed.

Among the interesting items elicited during the oral arguments or found in the records of this petition are:

(1) Upon sequestering BASECO, some PCGG personnel lost no time in digging up paved premises with jack
hammers in a frantic search for buried gold bars.

(2) Two top PCGG volunteers charged each other with stealing properties under their custody. The PCGG had to
step in, dismiss the erring representatives, and replace them with new ones.

(3) The petitioner claims that the lower bid of a rock quarry operator was accepted even as a higher and more
favorable bid was offered. When the questionable deal was brought to our attention, the awardee allegedly raised
his bid to the level of the better offer. The successful bidder later submitted a comment in intervention explaining his
side. Whoever is telling the truth, the fact remains that multi-million peso contracts involving the operations of
sequestered companies should be entered into under the supervision of a court, not freely executed by the PCGG
even when the petitioner-owners question the propriety and integrity of those transactions.

(4) The PCGG replaced eight out of eleven members of the BASECO board of directors with its own men. Upon
taking over full control of the corporation, the newly installed board reversed the efforts of the former owners to
protect their interests. The new board fired the BASECO lawyers who instituted the instant petition. It then filed a
motion to withdraw this very same petition we are now deciding. In other words, the "new owners" did not want the
Supreme Court to continue poking into the legality of their acts. They moved to abort the petition filed with us.
Any suspicion of impropriety would have been avoided if the PCGG had filed the required court proceedings and
exercised its acts of management and control under court supervision. The requirements of due process would have
been met.

One other matter I wish to discuss in this separate opinion is PCGG's selection of eight out of the eleven members
of the BASECO board of directors.

The election of the members of a board of directors is distinctly and unqualifiedly an act of ownership. When
stockholders of a corporation elect or remove members of a board of directors, they exercise their right of ownership
in the company they own, By no stretch of the imagination can the revamp of a board of directors be considered as
a mere act of conserving assets or preventing the dissipation of sequestered assets. The broad powers of a
sequestrator are more than enough to protect sequestered assets. There is no need and no legal basis to reach out
further and exercise ultimate acts of ownership.

Under the powers which PCGG has assumed and wields, it can amend the articles and by-laws of a sequestered
corporation, decrease the capital stock, or sell substantially all corporate assets without any effective check from the
owners not yet divested of their titles or from a court of justice. The PCGG is tasked to preserve assets but when it
exercises the acts of an owner, it could also very well destroy. I hope that the case of the Philippine Daily Express, a
major newspaper closed by the PCGG, is an isolated example. Otherwise, banks, merchandizing firms, investment
institutions, and other sensitive businesses will find themselves in a similar quandary.

I join the PCGG and all right thinking Filipinos in condemning the totalitarian acts which made possible the
accumulation of ill-gotten wealth. I, however, dissent when authoritarian and ultra vires methods are used to recover
that stolen wealth. One wrong cannot be corrected by the employment of another wrong.

I, therefore, vote to grant the petition. Pending the filing of an appropriate case in court, the PCGG must be enjoined
from exercising any and all acts of ownership over the sequestered firm.

Bidin and Cortes, JJ., concur and dissent.

CRUZ, J., dissenting:

My brother Narvasa has written a truly outstanding decision that bespeaks a penetrating and analytical mind and a
masterly grasp of the serious problem we are asked to resolve. He deserves and I offer him my sincere admiration.

There is no question that all lawful efforts should be taken to recover the tremendous wealth plundered from the
people by the past regime in the most execrable thievery perpetrated in all history. No right-thinking Filipino can
quarrel with this necessary objective, and on this score I am happy to concur with the ponencia.

But for all my full agreement with the basic thesis of the majority, I regret I find myself unable to support its
conclusions in favor Of the respondent PCGG. My view is that these conclusions clash with the implacable
principles of the free society. foremost among which is due process. This demands our reverent regard.

Due process protects the life, liberty and property of every person, whoever he may be. Even the most despicable
criminal is entitled to this protection. Granting this distinction to Marcos, we are still not justified in depriving him of
this guaranty on the mere justification that he appears to own the BASECO shares.

I am convinced and so submit that the PCGG cannot at this time take over the BASECO without any court order and
exercise thereover acts of ownership without court supervision. Voting the shares is an act of ownership.
Reorganizing the board of directors is an act of ownership. Such acts are clearly unauthorized. As the majority
opinion itself stresses, the PCGG is merely an administrator whose authority is limited to preventing the sequestered
properties from being dissipated or clandestinely transferred.

The court action prescribed in the Constitution is not inadequate and is available to the PCGG. The advantage of
this remedy is that, unlike the ad libitum measures now being take it is authorized and at the same time
also limited by the fundamental law. I see no reason why it should not now be employed by the PCGG, to remove all
doubts regarding the legality of its acts and all suspicions concerning its motives.

Separate Opinions

TEEHANKEE, CJ., concurring:

I fully concur with the masterly opinion of Mr. Justice Narvasa. In the process of disposing of the issues raised by
petitioner BASECO in the case at bar, it comprehensively discusses the laws and principles governing the
Presidential Commission on Good Government (PCGG) and defines the scope and extent of its powers in the
discharge of its monumental task of recovering the "ill-gotten wealth, accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or
abroad (and) business enterprises and entities owned or controlled by them during I . . .(the Marcos) administration,
directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority,
influence, connections or relationship." 1

The Court is unanimous insofar as the judgment at bar upholds the imperative need of recovering the ill-gotten
properties amassed by the previous regime, which "deserves the fullest support of the judiciary and all sectors of
society." 2 To quote the pungent language of Mr. Justice Cruz, "(T)here is no question that all lawful efforts should be
taken to recover the tremendous wealth plundered from the people by the past regime in the most execrable
thievery perpetrated in all history. No right-thinking Filipino can quarrel with this necessary objective, and on this
score I am happy to concur with the ponencia." 3

The Court is likewise unanimous in its judgment dismissing the petition to declare unconstitutional and void
Executive Orders Nos. 1 and 2 to annul the sequestration order of April 14, 1986. For indeed, the 1987 Constitution
overwhelmingly adopted by the people at the February 2, 1987 plebiscite expressly recognized in Article XVIII,
section 26 thereof 4 the vital functions of respondent PCGG to achieve the mandate of the people to recover such ill-
gotten wealth and properties as ordained by Proclamation No. 3 promulgated on March 25, 1986.

The Court is likewise unanimous as to the general rule set forth in the main opinion that "the PCGG cannot exercise
acts of dominion over property sequestered, frozen or provisionally taken over" and "(T)he PCGG may thus exercise
only powers of administration over the property or business sequestered or provisionally taken over, much like a
court-appointed receiver, such as to bring and defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as
conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened
commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make
ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of
Court; and seek and secure the assistance of any office, agency or instrumentality of the government. In the case of
sequestered businesses generally (i.e. going concerns, business in current operation), as in the case of
sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, 'watchdog' or
overseer. It is not that of manager, or innovator, much less an owner." 5

Now, the case at bar involves one where the third and most encompassing and rarely invoked of provisional
remedies, 6 the provisional takeover of the Baseco properties and business operations has been availed of by the
PCGG, simply because the evidence on hand, not only prima facie but convincingly with substantial and
documentary evidence of record establishes that the corporation known as petitioner BASECO "was owned or
controlled by President Marcos 'during his administration, through nominees, by taking undue advantage of his
public office and/or using his powers, authority, or influence;' and that it was by and through the same means, that
BASECO had taken over the business and/or assets of the [government-owned] National Shipyard and Engineering
Co., Inc., and other government-owned or controlled entities." The documentary evidence shows that petitioner
BASECO (read Ferdinand E. Marcos) in successive transactions all directed and approved by the former President-
in an orgy of what according to the PCGG's then chairman, Jovito Salonga, in his statement before the 1986
Constitutional Commission, "Mr. Ople once called 'organized pillage' "-gobbled up the government corporation
National Shipyard & Steel Corporation NASSCO its shipyard at Mariveles, 300 hectares of land in Mariveles from
the Export Processing Zone Authority, Engineer Island itself in Manila and its complex of equipment and facilities
including structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets and
obtained huge loans of $19,000,000.00 from the last available Japanese war damage fund, P30,000,000.00 from
the NDC and P12,400,000.00 from the GSIS. The sordid details are set forth in detail in Paragraphs 1 1 to 20 of the
main opinion. They include confidential reports from then BASECO president Hilario M. Ruiz and the deposed
President's brother-in- law, then Captain (later Commodore) Alfredo Romualdez, who although not on record as an
officer or stockholder of BASECO reported directly to the deposed President on its affairs and made the
recommendations, all approved by the latter, for the gobbling up by BASECO of all the choice government assets
and properties.

All this evidence has been placed of record in the case at bar. And petitioner has had all the time and opportunity to
refute it, submittals to the contrary notwithstanding, but has dismally failed to do so. To cite one glaring instance: as
stated in the main opinion, the evidence submitted to this Court by the Solicitor General "proves that President
Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its
outstanding stock." It cites the fact that three corporations, evidently front or dummy corporations, among twenty
shareholders, in name, of BASECO, namely Metro Bay Drydock, Fidelity Management, Inc. and Trident
Management hold 209,664 shares or 95.82%, of BASECO's outstanding stock. Now, the Solicitor General points out
further than BASECO certificates "corresponding to more than ninety-five percent (95%) of all the outstanding
shares of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding
shares of stock of the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by
the owners thereof although not notarized" 7 were found in Malacañang shortly after the deposed President's sudden
flight from the country on the night of February 25, 1986. Thus, the main opinion's unavoidable conclusion that
"(W)hile the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO
stockholders were still in possession of their respective stock certificates and had 'never endorsed * * * them in
blank or to anyone else,' that denial is exposed by his own prior and subsequent recorded statements as a mere
gesture of defiance rattler than a verifiable factual declaration . . . . Under the circumstances, the Court can only
conclude that he could not get the originals from the stockholders for the simple reason that as the Solicitor General
maintains, said stockholders in truth no longer have them in their possession, these having already been assigned
in blank to President Marcos."8

With this strong unrebutted evidence of record in this Court, Justice Melencio-Herrera, joined by Justice Feliciano,
expressly concurs with the main opinion upholding the commission's take-over, stating that "(I) have no objection to
according the right to vote sequestered stock in case of a takeover of business actually belonging to the government
or whose capitalization comes from public funds but which, somehow, landed in the hands of private persons, as in
the case of BASECO." They merely qualify their concurrence with the injunction that such takeovers be exercised
with "caution and prudence" pending the determination of "the true and real ownership" of the sequestered shares.
Suffice it to say in this regard that each case has to be judged from the pertinent facts and circumstances and that
the main opinion emphasizes sufficiently that it is only in the special instances specified in the governing laws
grounded on the superior national interest and welfare and the practical necessity of preserving the property and
preventing its loss or disposition that the provisional remedy of provisional take-over is exercised.

Here, according to the dissenting opinion, "the PCGG concludes that sequestered property is ill-gotten wealth and
proceeds to exercise acts of ownership over said properties . . . . and adds that "the fact of ownership must be
established in a proper suit before a court of justice"-which this Court has preempted with its finding that "in the
context of the proceedings at bar, the actuality of the control by President Marcos of BASECO has been sufficiently
shown."

But BASECO who has instituted this action to set aside the sequestration and take-over orders of respondent
commission has chosen to raise these very issues in this Court. We cannot ostrich-like hide our head in the sand
and say that it has not yet been established in the proper court that what the PCGG has taken over here
are government properties, as a matter of record and public notice and knowledge, like the NASSCO, its Engineer
Island and Mariveles Shipyard and entire complex, which have been pillaged and placed in the name of the dummy
or front company named BASECO but from all the documentary evidence of record shown by its street certificates
all found in Malacanang should in reality read "Ferdinand E. Marcos" and/or his brother-in-law. Such take-over can
in no way be termed "lawless usurpation," for the government does not commit any act of usurpation in taking
over its own properties that have been channeled to dummies, who are called upon to prove in the proper court
action what they have failed to do in this Court, that they have lawfully acquired ownership of said properties,
contrary to the documentary evidence of record, which they must likewise explain away. This Court, in the exercise
of its jurisdiction on certiorari and as the guardian of the Constitution and protector of the people's basic
constitutional rights, has entertained many petitions on the part of parties claiming to be adversely affected by
sequestration and other orders of the PCGG, This Court set the criterion that such orders should issue only upon
showing of a prima facie case, which criterion was adopted in the 1987 Constitution. The Court's judgment cannot
be faulted if much more than a prima facie has been shown in this case, which the faceless figures claiming to
represent BASECO have failed to refute or disprove despite all the opportunity to do so.

The record plainly shows that petitioner BASECO which is but a mere shell to mask its real owner did not and could
not explain how and why they received such favored and preferred treatment with tailored Letters of Instruction and
handwritten personal approval of the deposed President that handed it on a silver platter the whole complex and
properties of NASSCO and Engineer Island and the Mariveles Shipyard.

It certainly would be the height of absurdity and helplessness if this government could not here and now take over
the possession and custody of its very own properties and assets that had been stolen from it and which it had
pledged to recover for the benefit and in the greater interest of the Filipino people, whom the past regime had
saddled with a huge $27-billion foreign debt that has since ballooned to $28.5-billion.

Thus, the main opinion correctly concludes that "(I)n the light of the affirmative showing by the Government
that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 were mere 'dummies,'
nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in the
corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing
whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for
in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the
PCGG to persons who are 'dummies' nominees or alter egos of the former President." 9

And Justice Padilla in his separate concurrence "called a spade a spade," citing the street certificates representing
95 % of BASECO's outstanding stock found in Malacañang after Mr. Marcos' hasty flight in February, 1986 and the
extent of the control he exercised over policy decisions affecting BASECO and concluding that "Consequently, even
ahead of judicial proceedings, I am convinced that the Republic of the Philippines, thru the PCGG, has the right and
even the duty to take over full control and supervision of BASECO."

Indeed, the provisional remedies available to respondent commission are rooted in the police power of the State, the
most pervasive and the least limitable of the powers of Government since it represents "the power of sovereignty,
the power to govern men and things within the limits of its domain." 10 Police power has been defined as the power inherent in the
State "to prescribe regulations to promote the health, morals, education, good order or safety, and general welfare of the people." 11 Police power rests upon
public necessity and upon the right of the State and of the public to self-protection. 12 "Salus populi suprema est lex" or "the welfare of the people is the Supreme
Law." 13 For this reason, it is co-extensive with the necessities of the case and the safeguards of public interest. 14 Its scope expands and contracts with changing
needs. 15 "It may be said in a general way that the police power extends to all the great public needs. It may be put forth in aid of what is sanctioned by usage, or
held by the prevailing morality or strong and preponderant opinion to be greatly and immediately necessary to the public welfare." 16 That the public interest or the
general welfare is subserved by sequestering the purported ill-gotten assets and properties and taking over stolen properties of the government channeled to
dummy or front companies is stating the obvious. The recovery of these ill-gotten assets and properties would greatly aid our financially crippled government and
hasten our national economic recovery, not to mention the fact that they rightfully belong to the people. While as a measure of self-protection, if, in the interest of
general welfare, police power may be exercised to protect citizens and their businesses in financial and economic matters, it may similarly be exercised to protect
the government itself against potential financial loss and the possible disruption of governmental functions. 17 Police power as the power of self-protection on the
part of the community bears the same relation to the community that the principle of self-defense bears to the individual. 18 Truly, it may be said that even more
than self- defense, the recovery of ill-gotten wealth and of the government's own properties involves the material and moral survival of the nation, marked as the
past regime was by the obliteration of any line between private funds and the public treasury and abuse of unlimited power and elimination of any accountability in
public office, as the evidence of record amply shows.

It should be mentioned that the tracking down of the deposed President's actual ownership of the BASECO shares
was fortuitously facilitated by the recovery of the street certificates in Malacañang after his hasty flight from the
country last year. This is not generally the case.

For example, in the ongoing case filed by the government to recover from the Marcoses valuable real estate
holdings in New York and the Lindenmere estate in Long Island, former PCGG chairman Jovito Salonga has
revealed that their names "do not appear on any title to the property. Every building in New York is titled in the name
of a Netherlands Antilles corporation, which in turn is purportedly owned by three Panamanian corporations, with
bearer shares. This means that the shares of this corporation can change hands any time, since they can be
transferred, under the law of Panama, without previous registration on the books of the corporation. One of the first
documents that we discovered shortly after the February revolution was a declaration of trust handwritten by Mr.
Joseph Bernstein on April 4, 1982 on a Manila Peninsula Hotel stationery stating that he would act as a trustee for
the benefit of President Ferdinand Marcos and would act solely pursuant to the instructions of Marcos with respect
to the Crown Building in New York." 19

This is just to stress the difficulties of the tasks confronting respondent PCGG, which nevertheless has so far
commendably produced unprecedented positive results. As stated by then chairman Salonga:

PCGG has turned over to the Office of the President around 2 billion pesos in cash, free of any lien.
It has also delivered to the President-as a result of a compromise settlement-around 200 land titles
involving vast tracks of land in Metro Manila, Rizal, Laguna, Cavite, and Bataan, worth several billion
pesos. These lands are now available for low-cost housing projects for the benefit of the poor and
the dispossessed amongst our people.

In the legal custody of the Commission as a result of sequestration proceedings, are expensive
jewelry amounting to 310 million pesos, 42 aircraft amounting to 718 million pesos, vessels
amounting to 748 million pesos, and shares of stock amounting to around 215 million pesos.

But, as I said, the bulk of the ill-gotten wealth is located abroad, not in the Philippines. Through the
efforts of the PCGG, we have caused the freezing or sequestration of properties, deposits, and
securities probably worth many billions of pesos in New York, New Jersey, Hawaii, California, and
more importantly-in Switzerland. Due to favorable developments in Switzerland, we may expect,
according to our Swiss lawyers, the first deliveries of the Swiss deposits in the foreseeable future,
perhaps in less than a year's time. In New York, PCGG through its lawyers who render their services
free of cost to the Philippine government, succeeded in getting injunctive relief against Mr. and Mrs.
Marcos and their nominees and agents. There is now an offer for settlement that is being studied
and explored by our lawyers there.

If we succeed in recovering not an (since this is impossible) but a substantial part of the ill-gotten
wealth here and in various countries of the world-something the revolutionary governments of China,
Ethiopia, Iran and Nicaragua were not able to accomplish at all with respect to properties outside
their territorial boundaries-the Presidential Commission on Good Government, which has undertaken
the difficult and thankless task of trying to undo what had been done so secretly and effectively in
the last twenty years, shall have more than justified its existence. 20

The misdeeds of some PCGG volunteers and personnel cited in the dissenting opinion do not detract at an from the
PCGG's accomplishments, just as no one would do away with newspapers because of some undesirable elements.
The point is that all such misdeeds have been subject to public exposure and as stated in the dissent itself, the
erring PCGG representatives have been forthwith dismissed and replaced.

The magnitude of the tasks that confront respondent PCGG with its limited resources and staff support and
volunteers should be appreciated, together with the assistance that foreign governments and lawyers have
spontaneously given the commission.

A word about the PCGG's firing of the BASECO lawyers who filed the present petition challenging its questioned
orders, filing a motion to withdraw the petition, after it had put in eight of its representatives as directors of the
BASECO board of directors. This was entirely proper and in accordance with the Court's Resolution of October 28,
1986, which denied BASECO's motion for the issuance of a restraining order against such take-over and declared
that "the government can, through its designated directors, properly exercise control and management over what
appear to be properties and assets owned and belonging to the government itself and over which the persons who
appear in this case on behalf of BASECO have failed to show any eight or even any shareholding in said
corporation." In other words, these dummies or fronts cannot seek to question the government's right to recover the
very properties and assets that have been stolen from it by using the very same stolen properties and funds derived
therefrom. If they wish to pursue their own empty claim, they must do it on their own, after first establishing that they
indeed have a lawful right and/or shareholding in BASECO.

Under the 1987 Constitution, the PCGG is called upon to file the judicial proceedings for forfeiture and recovery of
the sequestered or frozen properties covered by its orders issued before the ratification of the Constitution on
February 2, 1987, within six months from such ratification, or by August 2, 1987. (For those orders issued after such
ratification, the judicial action or proceeding must be commenced within six months from the issuance thereof.) The
PCGG has not really been given much time, considering the magnitude of its tasks. It is entitled to some
forbearance, in availing of the maximum time granted it for the filing of the corresponding judicial action with the
Sandiganbayan.

PADILLA, J., concurring:

The majority opinion penned by Mr. Justice Narvasa maintains and upholds the valid distinction between acts of
conservation and preservation of assets and acts of ownership. Sequestration, freeze and temporary take-over
encompass the first type of acts. They do not include the second type of acts which are reserved only to the rightful
owner of the assets or business sequestered or temporarily taken over.

The removal and election of members of the board of directors of a corporate enterprise is, to me, a clear act of
ownership on the part of the shareholders of the corporation. Under ordinary circumstances, I would deny the PCGG
the authority to change and elect the members of BASECO's Board of Directors. However, under the facts as
disclosed by the records, it appears that the certificates of stock representing about ninety-five (95%) per cent of the
total ownership in BASECO's capital stock were found endorsed in blank in Malacanang (presumably in the
possession and control of Mr. Marcos) at the time he and his family fled in February 1986. This circumstance let
alone the extent of the control Mr. Marcos exercised, while in power, over policy decisions affecting BASECO,
entirely satisfies my mind that BASECO was owned and controlled by Mr. Marcos. This is calling a spade a spade. I
am also entirely satisfied in my mind that Mr. Marcos could not have acquired the ownership of BASECO out of his
lawfully-gotten wealth.

Consequently, even ahead of judicial proceedings, I am convinced that the Republic of the Philippines, through the
PCGG, has the right and even the duty to take-over full control and supervision of BASECO.

MELENCIO-HERRERA, J., concurring:

I would like to qualify my concurrence in so far as the voting of sequestered stork is concerned.

The voting of sequestered stock is, to my mind, an exercise of an attribute of ownership. It goes beyond the purpose
of a writ of sequestration, which is essentially to preserve the property in litigation (Article 2005, Civil Code).
Sequestration is in the nature of a judicial deposit (ibid.).

I have no objection to according the right to vote sequestered stock in case of a take-over of business actually
belonging to the government or whose capitalization comes from public funds but which, somehow, landed in the
hands of private persons, as in the case of BASECO. To my mind, however, caution and prudence should be
exercised in the case of sequestered shares of an on-going private business enterprise, specially the sensitive ones,
since the true and real ownership of said shares is yet to be determined and proven more conclusively by the
Courts.

It would be more in keeping with legal norms if forfeiture proceedings provided for under Republic Act No. 1379 be
filed in Court and the PCGG seek judicial appointment as a receiver or administrator, in which case, it would be
empowered to vote sequestered shares under its custody (Section 55, Corporation Code). Thereby, the assets in
litigation are brought within the Court's jurisdiction and the presence of an impartial Judge, as a requisite of due
process, is assured. For, even in its historical context, sequestration is a judicial matter that is best handled by the
Courts.

I consider it imperative that sequestration measures be buttressed by judicial proceedings the soonest possible in
order to settle the matter of ownership of sequestered shares and to determine whether or not they are legally
owned by the stockholders of record or are "ill-gotten wealth" subject to forfeiture in favor of the State. Sequestration
alone, being actually an ancillary remedy to a principal action, should not be made the basis for the exercise of acts
of dominion for an indefinite period of time.

Sequestration is an extraordinary, harsh, and severe remedy. It should be confined to its lawful parameters and
exercised, with due regard, in the words of its enabling laws, to the requirements of fairness, due process (Executive
Order No. 14, palay 7, 1986), and Justice (Executive Order No. 2, March 12, 1986).

Feliciano, J., concur.

GUTIERREZ, JR., J., concurring and dissenting:

I concur, in part, in the erudite opinion penned for the Court by my distinguished colleague Mr. Justice Andres R.
Narvasa. I agree insofar as it states the principles which must govern PCGG sequestrations and emphasizes the
limitations in the exercise of its broad grant of powers.

I concur in the general propositions embodied in or implied from the majority opinion, among them:

(1) The efforts of Government to recover ill-gotten properties amassed by the previous regime deserve the fullest
support of the judiciary and all sectors of society. I believe, however, that a nation professing adherence to the rule
of law and fealty to democratic processes must adopt ways and means which are always within the bounds of
lawfully granted authority and which meet the tests of due process and other Bill of Rights protections.

(2) Sequestration is intended to prevent the destruction, concealment, or dissipation of ill-gotten wealth. The object
is conservation and preservation. Any exercise of power beyond these objectives is lawless usurpation.

(3) The PCGG exercises only such powers as are granted by law and not proscribed by the Constitution. The
remedies it enforces are provisional and contingent. Whether or not sequestered property is indeed ill-gotten must
be-determined by a court of justice. The PCGG has absolutely no power to divest title over sequestered property or
to act as if its findings are final.

(4) The PCGG does not own sequestered property. It cannot and must not exercise acts of ownership. To quote the
majority opinion, "one thing is certain ..., the PCGG cannot exercise acts of dominion."

(5) The provisional takeover in a sequestration should not be indefinitely maintained. It is the duty of the PCGG to
immediately file appropriate criminal or civil cases once the evidence has been gathered.
It is the difference between what the Court says and what the PCGG does which constrains me to dissent. Even as
the Court emphasizes principles of due process and fair play, it has unfortunately validated ultra vires acts violative
of those very same principles. While we stress the rules which must govern the PCGG in the exercise of its powers,
the Court has failed to stop or check acts which go beyond the power of sequestration given by law to the PCGG.

We are all agreed in the Court that the PCGG is not a judge. It is an investigator and prosecutor. Sequestration is
only a preliminary or ancillary remedy. There must be a principal and independent suit filed in court to establish the
true ownership of sequestered properties. The factual premise that a sequestered property was ill-gotten by former
President Marcos, his family, relatives, subordinates, and close associates cannot be assumed. The fact of
ownership must be established in a proper suit before a court of justice.

But what has the Court, in effect, ruled?

Pages 21 to 33 of the majority opinion are dedicated to a statement of facts which conclusively and indubitably
shows that BASECO is owned by President Marcos-and that it was acquired and vastly enlarged by the former
President's taking undue advantage of his public office and using his powers, authority, or influence.

There has been no court hearing, no trial, and no presentation of evidence. All that we have is what the PCGG has
given us. The petitioner has not even been allowed to see the evidence, much less refute it.

What the PCGG has gathered in the course of its seizures and investigations may be gospel truth. However, that
truth must be properly established in a trial court, not unilaterally determined by the PCGG or declared by this Court
in a special proceeding which only asks us to set aside or enjoin an illegal exercise of power. After this decision,
there is nothing more for a trial court to ascertain. Certainly, no lower court would dare to arrive at findings contrary
to this Court's conclusions, no matter how insistent we may be in labelling such conclusions as "prima facie." To me,
this is the basic flaw in PCGG procedures that the Court is, today, unwittingly legitimating. Even before the
institution of a court case, the PCGG concludes that sequestered property is ill-gotten wealth and proceeds to
exercise acts of ownership over said properties. It treats sequestered property as its own even before the oppositor-
owners have been divested of their titles.

The Court declares that a state of seizure is not to be indefinitely maintained. This means that court proceedings to
either forfeit the sequestered properties or clear the names and titles of the petitioners must be filed as soon as
possible.

This case is a good example of disregard or avoidance of this requirement. With the kind of evidence which the
PCGG professes to possess, the forfeiture case could have been filed simultaneously with the issuance of
sequestration orders or shortly thereafter.

And yet, the records show that the PCGG appears to concentrate more on the means rather than the ends, in
running the BASECO, taking over the board of directors and management, getting rid of security guards, disposing
of scrap, entering into new contracts and otherwise behaving as if it were already the owner. At this late date and
with all the evidence PCGG claims to have, no court case has been filed.

Among the interesting items elicited during the oral arguments or found in the records of this petition are:

(1) Upon sequestering BASECO, some PCGG personnel lost no time in digging up paved premises with jack
hammers in a frantic search for buried gold bars.

(2) Two top PCGG volunteers charged each other with stealing properties under their custody. The PCGG had to
step in, dismiss the erring representatives, and replace them with new ones.

(3) The petitioner claims that the lower bid of a rock quarry operator was accepted even as a higher and more
favorable bid was offered. When the questionable deal was brought to our attention, the awardee allegedly raised
his bid to the level of the better offer. The successful bidder later submitted a comment in intervention explaining his
side. Whoever is telling the truth, the fact remains that multi-million peso contracts involving the operations of
sequestered companies should be entered into under the supervision of a court, not freely executed by the PCGG
even when the petitioner-owners question the propriety and integrity of those transactions.

(4) The PCGG replaced eight out of eleven members of the BASECO board of directors with its own men. Upon
taking over full control of the corporation, the newly installed board reversed the efforts of the former owners to
protect their interests. The new board fired the BASECO lawyers who instituted the instant petition. It then filed a
motion to withdraw this very same petition we are now deciding. In other words, the "new owners" did not want the
Supreme Court to continue poking into the legality of their acts. They moved to abort the petition filed with us.

Any suspicion of impropriety would have been avoided if the PCGG had filed the required court proceedings and
exercised its acts of management and control under court supervision. The requirements of due process would have
been met.

One other matter I wish to discuss in this separate opinion is PCGG's selection of eight out of the eleven members
of the BASECO board of directors.

The election of the members of a board of directors is distinctly and unqualifiedly an act of ownership. When
stockholders of a corporation elect or remove members of a board of directors, they exercise their right of ownership
in the company they own, By no stretch of the imagination can the revamp of a board of directors be considered as
a mere act of conserving assets or preventing the dissipation of sequestered assets. The broad powers of a
sequestrator are more than enough to protect sequestered assets. There is no need and no legal basis to reach out
further and exercise ultimate acts of ownership.

Under the powers which PCGG has assumed and wields, it can amend the articles and by-laws of a sequestered
corporation, decrease the capital stock, or sell substantially all corporate assets without any effective check from the
owners not yet divested of their titles or from a court of justice. The PCGG is tasked to preserve assets but when it
exercises the acts of an owner, it could also very well destroy. I hope that the case of the Philippine Daily Express, a
major newspaper closed by the PCGG, is an isolated example. Otherwise, banks, merchandizing firms, investment
institutions, and other sensitive businesses will find themselves in a similar quandary.

I join the PCGG and all right thinking Filipinos in condemning the totalitarian acts which made possible the
accumulation of ill-gotten wealth. I, however, dissent when authoritarian and ultra vires methods are used to recover
that stolen wealth. One wrong cannot be corrected by the employment of another wrong.

I, therefore, vote to grant the petition. Pending the filing of an appropriate case in court, the PCGG must be enjoined
from exercising any and all acts of ownership over the sequestered firm.

Bidin and Cortes, JJ., concur and dissent.

CRUZ, J., dissenting:

My brother Narvasa has written a truly outstanding decision that bespeaks a penetrating and analytical mind and a
masterly grasp of the serious problem we are asked to resolve. He deserves and I offer him my sincere admiration.

There is no question that all lawful efforts should be taken to recover the tremendous wealth plundered from the
people by the past regime in the most execrable thievery perpetrated in all history. No right-thinking Filipino can
quarrel with this necessary objective, and on this score I am happy to concur with the ponencia.

But for all my full agreement with the basic thesis of the majority, I regret I find myself unable to support its
conclusions in favor Of the respondent PCGG. My view is that these conclusions clash with the implacable
principles of the free society. foremost among which is due process. This demands our reverent regard.

Due process protects the life, liberty and property of every person, whoever he may be. Even the most despicable
criminal is entitled to this protection. Granting this distinction to Marcos, we are still not justified in depriving him of
this guaranty on the mere justification that he appears to own the BASECO shares.

I am convinced and so submit that the PCGG cannot at this time take over the BASECO without any court order and
exercise thereover acts of ownership without court supervision. Voting the shares is an act of ownership.
Reorganizing the board of directors is an act of ownership. Such acts are clearly unauthorized. As the majority
opinion itself stresses, the PCGG is merely an administrator whose authority is limited to preventing the sequestered
properties from being dissipated or clandestinely transferred.

The court action prescribed in the Constitution is not inadequate and is available to the PCGG. The advantage of
this remedy is that, unlike the ad libitum measures now being take it is authorized and at the same time
also limited by the fundamental law. I see no reason why it should not now be employed by the PCGG, to remove all
doubts regarding the legality of its acts and all suspicions concerning its motives.
 [G.R. No. 128690. January 21, 1999]

ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT

OF APPEALS, REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS,
INC., and VICENTE DEL ROSARIO, respondents.

DECISION
DAVIDE, JR., C.J.:

In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABS-CBN)
seeks to reverse and set aside the decision[1] of 31 October 1996 and the resolution[2] of 10 March 1997 of the
Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the decision[3] of 28 April
1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-12309. The latter
denied the motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave
ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in
accordance with paragraph 2.4 [sic] of said agreement stating that-

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such
right shall be exercised by ABS-CBN from the actual offer in writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-
Concio, a list of three (3) film packages (36 title) from which ABS-CBN may exercise its right of
first refusal under the afore-said agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-CBN,
however through Mrs. Concio, can tick off only ten (10) titles (from the list) we can purchase (Exh.
3 Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by
Mrs. Concio are not the subject of the case at bar except the film Maging Sino Ka Man.

For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby
quoted:

6 January 1992

Dear Vic,

This is not a very formal business letter I am writing to you as I would like to express my difficulty
in recommending the purchase of the three film packages you are offering ABS-CBN.

From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I
hope you will understand my position. Most of the action pictures in the list do not have big action
stars in the cast. They are not for primetime. In line with this I wish to mention that I have not
scheduled for telecast several action pictures in our very first contract because of the cheap
production value of these movies as well as the lack of big action stars. As a film producer, I am
sure you understand what I am trying to say as Viva produces only big action pictures.

In fact, I would like to request two (2) additional runs for these movies as I can only schedule them
in out non-primetime slots. We have to cover the amount that was paid for these movies because as
you very well know that non-primetime advertising rates are very low. These are the unaired titles
in the first contract.

1. Kontra Persa [sic]

2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejected because of the
ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other
Viva movies produced last year, I have quite an attractive offer to make.

Thanking you and with my warmest regards.

(Signed)
Charo Santos-Concio

On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list
consisting of 52 original movie titles (i.e., not yet aired on television) including the 14 titles subject
of the present case, as well as 104 re-runs (previously aired on television) from which ABS-CBN
may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights
over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will
be in cash and P30,000,000.00 worth of television spots (Exh. 4 to 4-C Viva; 9 Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met
at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA. What
transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he
and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen
(14) films for a total consideration of P36 million; that he allegedly put this agreement as to the
price and number of films in a napkin and signed it and gave it to Mr. Del Rosario (Exh. D; TSN,
pp. 24-26, 77-78, June 8, 1992). On the other hand. Del Rosario denied having made any agreement
with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote
something; and insisted that what he and Lopez discussed at the lunch meeting was Vivas film
package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez
promising [sic]to make a counter proposal which came in the form of a proposal contract Annex C
of the complaint (Exh. 1 Viva; Exh C ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance
discussed the terms and conditions of Vivas offer to sell the 104 films, after the rejection of the
same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from
Ms. Concio, (Exh. 5 Viva), which reads: Heres the draft of the contract.I hope you find everything
in order, to which was attached a draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3)
a counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario
and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit C provides that
ABS-CBN is granted film rights to 53 films and contains a right of first refusal to 1992 Viva
Films. The said counter proposal was however rejected by Vivas Board of Directors [in the]
evening of the same day, April 7, 1992, as Viva would not sell anything less than the package of
104 films for P60 million pesos (Exh. 9 Viva), and such rejection was relayed to Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and
meetings defendant Del Rosario and Vivas President Teresita Cruz, in consideration of P60 million,
signed a letter of agreement dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-
produced and/or acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films
subject of the present case.[4]

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a
writ of preliminary injunction and/or temporary restraining order against private respondents Republic
Broadcasting Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del Rosario. The
complaint was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private respondents from
proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy,
starting with the film Maging Sino Ka Man, which was scheduled to be shown on private respondent RBS
channel 7 at seven oclock in the evening of said date.
 On 17 June 1992, after appropriate proceedings, the RTC issued an order[7] directing the issuance of a writ
of preliminary injunction upon ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the reduction
of the bond,[8] while private respondents moved for reconsideration of the order and offered to put up a
counterbond.[9]
In the meantime, private respondents filed separate answer with counterclaim.[10] RBS also set up a cross-
claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction upon the
posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by
virtue of such dissolution. However, it reduced petitioners injunction bond to P15 million as a condition
precedent for the reinstatement of the writ of preliminary injunction should private respondents be unable to
post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the
possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within
which to put up a P30 million counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a counterbond,
which the RTC approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15 October 1992
Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a
petition[17] challenging the RTCs Order of 3 August and 15 October 1992 and praying for the issuance of a writ
of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP
No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order[18] to enjoin the airing,
broadcasting, and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing the petition in CA-G.R.
SP No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this
Court on 19 January 1993, which was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309. Thereafter,
on 28 April 1993, it rendered a decision[20] in favor of RBS and VIVA and against ABS-CBN disposing as
follows:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in
favor of defendants and against the plaintiff.

(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued defendants RBSs bond
to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorneys
fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged
agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and
said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for
ABS-CBNs demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first
refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concios letter to Del
Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new
contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No. 108363, as no reversible
error was committed by the Court of Appeals in its challenged decision and the case had become moot and
academic in view of the dismissal of the main action by the court a quo in its decision of 28 April 1993.
 Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was a
perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject
films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and
additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between
ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever
Del Rosario, its agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBNs
evidence that Lopez III actually wrote down such an agreement on a napkin, as the same was never produced in
court. It likewise rejected ABS-CBNs insistence on its right of first refusal and ratiocinated as follows:

As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was
entered into between Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990 and that
parag. 1.4 thereof provides:

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such
right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in
writing (Records, p. 14).

[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be
subjected to such terms as may be agreed upon by the parties thereto, and that the said right shall be
exercised by ABS-CBN within fifteen (15) days from the actual offer in writing.

Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the
film right to the twenty-four (24) films, nor did it specify the terms thereof.The same are still left to
be agreed upon by the parties.

In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only
tick off ten (10) films, and the draft contract Exhibit C accepted only fourteen (14) films, while
parag. 1.4 of Exhibit A speaks of the next twenty-four (24) films.

The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88;
Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to
ABS-CBN. The Vice President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated
January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by
rejecting the offer of VIVA. As aptly observed by the trial court, with the said letter of Mrs. Concio
of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen
(15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN
after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall
exercise its right of first refusal has already expired.[22]

Accordingly, respondent court sustained the award factual damages consisting in the cost of print
advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss
which RBS has suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral
damages, the Court of Appeals found reasonable basis therefor, holding that RBSs reputation was debased by
the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film Maging Sino Ka
Man. Respondent court also held that exemplary damages were correctly imposed by way of example or
correction for the public good in view of the filing of the complaint despite petitioners knowledge that the
contract with VIVA had not been perfected. It also upheld the award of attorneys fees, reasoning that with ABS-
CBNs act of instituting Civil Case No. Q-92-12309, RBS was unnecessarily forced to litigate. The appellate
court, however, reduced the awards of moral damages to P 2 million, exemplary damages to P2 million, and
attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it was RBS
and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that
the Court of Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE
RESPONDENT VIVA NOTWITHSTANDINGPREPONFERANCE OF EVIDENCE ADDUCED BY
PETITIONER TO THE CONTRARY.
II
 IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT
RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the
1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give
credence to Lopezs testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms
and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the
same on a paper napkin. It also asserts that the contract has already been effective, as the elements thereof,
namely, consent, object, and consideration were established. It then concludes that the Court of Appeals
pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995 in
Limketkai Sons Milling, Inc. v. Court of Appeals,[23] which cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang
Yu Asuncion v. Court of Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the
premium on the counterbond of its own volition in order to negate the injunction issued by the trial court after
the parties had ventilated their respective positions during the hearings for the purpose. The filing of the
counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to
incur such expense. Besides, RBS had another available option, i.e., move for the dissolution of the injunction;
or if it was determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article
2203 of the Civil Code, the party suffering loss injury is also required to exercise the diligence of a good father
of a family to minimize the damages resulting from the act or omission. As regards the cost of print
advertisements, RBS had not convincingly established that this was a loss attributable to the non-showing
of Maging Sino Ka Man; on the contrary, it was brought out during trial that with or without the case or
injunction, RBS would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards of moral and exemplary
damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction
between them. The claims for such damages did not arise from any contractual dealings or from specific acts
committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose
by virtue only of the filing of the complaint. An award of moral and exemplary damages is not warranted where
the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. [27] In any case,
free resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of every one
to sue for that which he honestly believes to be his right without fear of standing trial for damages where by
lack of sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case
would lose ground.[28]One who, makes use of his own legal right does no injury.[29] If damage results from filing
of the complaint, it is damnum absque injuria.[30] Besides, moral damages are generally not awarded in favor of
a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in social
humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or
equitable justification. In sustaining the trial courts award, the Court of Appeals acted in clear disregard of the
doctrine laid down in Buan v. Camaganacan[32] that the text of the decision should state the reason why
attorneys fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been
imputed on, much less proved as having been committed by, ABS-CBN. It has been held that where no
sufficient showing of bad faith would be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause, attorneys fees shall not be recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent
meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that
ABS-CBNs claim of a right of first refusal was correctly rejected by the trial court. RBS insists the premium it
had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up
the counterbond due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no
cause of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS could
recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash
bond would prove to be more expensive, as the loss would be equivalent to the cost of money RBS would
forego in case the P30 million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the
film Maging Sino Ka Man because the print advertisements were out to announce the showing on a particular
day and hour on Channel 7, i.e., in its entirety at one time, not as series to be shown on a periodic basis. Hence,
the print advertisements were good and relevant for the particular date of showing, and since the film could not
be shown on that particular date and hour because of the injunction, the expenses for the advertisements had
gone to waste.
 As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured
injunctions purely for the purpose of harassing and prejudicing RBS.Pursuant then to Articles 19 and 21 of the
Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino,[34] damages may be awarded in
cases of abuse of rights even if the done is not illicit, and there is abuse of rights where a plaintiff institutes an
action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondent
RBS cited People v. Manero,[35] where it was stated that such entity may recover moral and exemplary damages
if it has a good reputation that is debased resulting in social humiliation. It then ratiocinates; thus:

There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When
RBS was not able to fulfill its commitment to the viewing public to show the film Maging Sino Ka
Man on the scheduled dates and times (and on two occasions that RBS advertised), it
suffered serious embarrassment and social humiliation.When the showing was cancelled, irate
viewers called up RBS offices and subjected RBS to verbal abuse (Announce kayo ng announce,
hindi ninyo naman ilalabas, nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not
something RBS brought upon itself. It was exactly what ABS-CBN had planted to happen.

The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify
the amount of the award.

The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a
broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those
who own and watch television. It is not an exaggeration to state, and it is a matter of judicial notice
that almost every other person in the country watches television. The humiliation suffered by RBS
is multiplied by the number of televiewers who had anticipated the showing of the film, Maging
Sino Ka Man on May 28 and November 3, 1992 but did not see it owing to the cancellation. Added
to this are the advertisers who had placed commercial spots for the telecast and to whom RBS had a
commitment in consideration of the placement to show the film in the dates and times specified.

The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and
injury are far greater in degree when caused by an entity whose ultimate business objective is to
lure customers (viewers in this case) away from the competition.[36]

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the
Court of Appeals do not support ABS-CBNs claim that there was a perfected contract. Such factual findings can
no longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised, not
questions of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and
ABS-CBN, and (2) whether RBS is entitled to damages and attorneys fees. It may be noted that that award of
attorneys fees of P212,000 in favor of VIVA is not assigned as another error.
I

The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two
persons whereby one binds himself to give something or render some service to another[37] for a
consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties;
(2) object certain which is the subject of the contract; and (3) cause of the obligation, which is established. [38] A
contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the
moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the
contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. [39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment
a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without
variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes
a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any
modification or variation from the terms of the offer annuls the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to
discuss the package of films, said package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a
new Film Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the form a draft
contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be
nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill
Restaurant. Clearly, there was no acceptance of VIVAs offer, for it was met by a counter-offer which
substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals[41] and Villonco Realty Company
v. Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an acceptance may contain a request for
certain changes in the terms of the offer and yet be a binding acceptance as long as it is clear that the meaning
of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not.
This ruling was, however, reversed in the resolution of 29 March 1996,[43] which ruled that the acceptance of an
offer must be unqualified and absolute, i.e., it must be identical in all respects with that of the offer so as to
produce consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not
material but merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v.
Franklin Life Insurance Co.[44] that a vendors change in a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-
offer.[45] However, when any of the elements of the contract is modified upon acceptance, such alteration
amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent
period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft
contract. VIVA through its Board of Directors, rejected such counter-offer. Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there
was no proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as the
power to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate such
powers to either an executive committee or officials or contracted managers. The delegation, except for the
executive committee, must be for specific purposes.[47] Delegation to officers makes the latter agents of the
corporation; accordingly, the general rules of agency as to the binding effects of their acts would apply.[48] For
such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must
specially authorize them to do so. that Del Rosario did not have the authority to accept ABS-CBNs counter-
offer was best evidenced by his submission of the draft contract to VIVAs Board of Directors for the latters
approval. In any event, there was between Del Rosario and Lopez III no meeting of minds. The following
findings of the trial court are instructive:

A number of considerations militate against ABS-CBNs claim that a contract was perfected at that
lunch meeting on April 02, 1992 at the Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price
and the number of films, which he wrote on a napkin. However, Exhibit C contains numerous
provisions which were not discussed at the Tamarind Grill, if Lopez testimony was to be believed
nor could they have been physically written on a napkin. There was even doubt as to whether it was
a paper napkin or cloth napkin. In short what were written in Exhibit C were not discussed, and
therefore could not have been agreed upon, by the parties. How then could this court compel the
parties to sign Exhibit C when the provisions thereof were not previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was
14 films. The complaint in fact prays for delivery of 14 films. But Exhibit C mentions 53 films as
its subject matter. Which is which? If Exhibit C reflected the true intent of the parties, then ABS-
CBNs claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then
Exhibit C did not reflect what was agreed upon by the parties. This underscores the fact that there
was no meeting of the minds as to the subject matter of the contract, so as to preclude perfection
thereof. For settled is the rule that there can be no contract where there is no object certain which is
its subject matter (Art. 1318, NCC).

THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:

We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen
(14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva
commercial slots worth P19,950,000.00. We had already earmarked this P16,050,000.00.

which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00

equals P36,000,000.00).
On cross-examination Mr. Lopez testified:

Q What was written in this napkin?

A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies
because the price was broken down accordingly. The none [sic] Viva and the seven other Viva movies and the
sharing between the cash portion and the concerned spot portion in the total amount of P35 million pesos.

Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del
Rosario with a handwritten note, describing said Exhibit C as a draft.(Exh. 5 Viva; tsn pp. 23-24,
June 08, 1992). The said draft has a well defined meaning.

Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for
discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-
CBN and Viva. Exhibit C could not therefore legally bind Viva, not having agreed thereto. In fact,
Ms. Concio admitted that the terms and conditions embodied in Exhibit C were prepared by ABS-
CBNs lawyers and there was no discussion on said terms and conditions.

As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was
no evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot
be a binding contract. The fact that Viva refused to sign Exhibit C reveals only two [sic] well that it
did not agree on its terms and conditions, and this court has no authority to compel Viva to agree
thereto.

FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind
Grill was only provisional, in the sense that it was subject to approval by the Board of Directors of
Viva. He testified:

Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that you have the
meeting of the minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of
Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no
authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors
approved it. The complaint, in fact, alleges that Mr. Del Rosario is the Executive Producer of
defendant Viva which is a corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario
could not bind Viva unless what he did is ratified by its Directors. (Vicente vs.Geraldez, 52 SCRA
210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by
plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion as
party defendant has no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil. 125; Salmon
vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was
not a binding agreement. It is as it should be because corporate power to enter into a contract is
lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the
Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid
binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence
adduced shows that the Board of Directors of Viva rejected Exhibit C and insisted that the film
package for 104 films be maintained (Exh. 7-1 Cica).[49]
 The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films
under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a
continuation of said previous contract is untenable. As observed by the trial court, ABS-CBNs right of first
refusal had already been exercised when Ms. Concio wrote to Viva ticking off ten films. Thus:

[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for
an entirely different package. Ms. Concio herself admitted on cross-examination to having used
or exercised the right of first refusal. She stated that the list was not acceptable and was indeed
not accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted
that the right of first refusal may have been already exercised by Ms. Concio (as she
had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that
ABS-CBN has lost its right of first refusal when his list of 36 titles were rejected (Tsn, June 9,
1992, pp. 10-11).[50]
II

However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2,
Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as
provided by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary
loss suffered by him as he has duly proved.[51] The indemnification shall comprehend not only the value of the
loss suffered, but also that of the profits that the obligee failed to obtain.[52] In contracts and quasi-contracts the
damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise. In
case of good faith, the damages recoverable are those which are the natural and probable consequences of the
breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of
the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall
be responsible for all damages which may be reasonably attributed to the non-performance of the
obligation.[53] In crimes and quasi-delicts, the defendants shall be liable for all damages which are the natural
and probable consequences of the act or omission complained of, whether or not such damages have been
foreseen or could have reasonably been foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiffs business standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It
arose from the fact of filing of the complaint despite ABS-CBNs alleged knowledge of lack of cause of
action. Thus paragraph 12 of RBSs Answer with Counterclaim and Cross-claim under the heading
COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As a result
thereof, RBS suffered actual damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above law on actual
damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as
follows:

ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.

ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall
indemnify the latter for the same.

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which
the defendant may suffer by reason of the writ are recoverable from the injunctive bond.[57] In this case, ABS-
CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to
the Court of Appeals to challenge the order on the matter. Clearly then, it was not necessary for RBS to file a
counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack of
sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction
on the basis of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC
did not dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS
that it be allowed to put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be
recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of
the Civil Code.[58]
 The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no
premium should be placed on the right to litigate.[59] They are not to be awarded every time a party wins a
suit. The power of the court t award attorneys fees under Article 2208 demands factual, legal, and equitable
justification.[60]Even when a claimant is compelled to litigate with third persons or to incur expenses to protect
his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be reflected in
a partys persistence in a case other than an erroneous conviction of the righteousness of his cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217
thereof defines what are included in moral damages, while Article 2219 enumerates the cases where they may
be recovered. Article 2220 provides that moral damages may be recovered in breaches of contract where the
defendant acted fraudulently or in bad faith. RBSs claim for moral damages could possibly fall only under item
(10) of Article 2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.

Moral damages are in the category of an award designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer.[62] The award is not meant to enrich the complainant at
the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that will
serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the limits of the
possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted.[63] Trial courts
must then guard against the award of exorbitant damages; they should exercise balanced restrained and
measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption or the part of the trial
court.[64]
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person
and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot,
therefore, experience physical suffering and mental anguish, which can be experienced only by one having a
nervous system.[65]The statement in People v. Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation
may recover moral damages if it has a good reputation that is debased, resulting in social humiliation is
an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil
Code. These are imposed by way of example or correction for the public good, in addition to moral, temperate,
liquidated, or compensatory damages.[68] They are recoverable in criminal cases as part of the civil liability when
the crime was committed with one or more aggravating circumstances;[69] in quasi-delicts, if the defendant acted
with gross negligence;[70] and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.[71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract,
delict, or quasi-delict. Hence, the claims for moral and exemplary damages can only be based on Articles 19,
20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty,
(2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20
speaks of the general sanction for all provisions of law which do not especially provide for their own sanction;
while Article 21 deals with acts contra bonus mores, and has the following elements: (1) there is an act which is
legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3) and it is done
with intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. [73] Such must
be substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced
of the merits of its cause after it had undergone serious negotiations culminating in its formal submission of a
draft contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful
and subject the actor to damages, for the law could not have meant impose a penalty on the right to litigate. If
damages result from a persons exercise of a right, it is damnum absque injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in
CA-G.R. CV No. 44125 is hereby REVERSED except as to unappealed award of attorneys fees in favor of
VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
Melo, Kapunan, Martinez, and Pardo, JJ., concur.
 [G.R. No. 128066. June 19, 2000]

JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR EAST MILLS
SUPPLY CORPORATION, respondents.

[G.R. No. 128069 June 19, 2000]

PURE FOODS CORPORATION, petitioner, vs. COURT OF APPEALS and FAR EAST
MILLS SUPPLY CORPORATION, respondents.

DECISION

BELLOSILLO, J.:

This is rather a simple case for specific performance with damages which could have
been resolved through mediation and conciliation during its infancy stage had the parties
been earnest in expediting the disposal of this case. They opted however to resort to full
court proceedings and denied themselves the benefits of alternative dispute resolution,
thus making the process more arduous and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was
then experiencing. To remedy and curtail further losses due to the series of power failures,
petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to install two
(2) 1500 KW generators in its food processing plant in San Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators
was held. Several suppliers and dealers were invited to attend a pre-bidding conference to
discuss the conditions, propose scheme and specifications that would best suit the needs
of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding
conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY
CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid
proposals and gave bid bonds equivalent to 5% of their respective bids, as required.

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso

Po, PUREFOODS confirmed the award of the contract to FEMSCO -

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the
project: Supply and Installation of two (2) units of 1500 KW/unit Generator
Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your
proposal number PC 28-92 dated November 20, 1992, subject to the following
basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of

materials and labor for the local portion and the labor for the imported
materials, payable by progress billing twice a month, with ten percent (10%)
retention. The retained amount shall be released thirty (30) days after
acceptance of the completed project and upon posting of Guarantee Bond in
an amount equivalent to twenty percent (20%) of the contract price. The
Guarantee Bond shall be valid for one (1) year from completion and
acceptance of project. The contract price includes future increase/s in costs of
materials and labor;

2. The project shall be undertaken pursuant to the attached specifications. It is

understood that any item required to complete the project, and those not
included in the list of items shall be deemed included and covered and shall
be performed;

3. All materials shall be brand new;

 4. The project shall commence immediately and must be completed within
twenty (20) working days after the delivery of Generator Set to Marikina Plant,
penalty equivalent to 1/10 of 1% of the purchase price for every day of delay;

5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of

the contract price, and shall procure All Risk Insurance equivalent to the
contract price upon commencement of the project. The All Risk Insurance
Policy shall be endorsed in favor of and shall be delivered to Pure Foods
Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

Once finalized, we shall ask you to sign the formal contract embodying the
foregoing terms and conditions.

Immediately, FEMSCO submitted the required performance bond in the amount

of P1,841,187.90 and contractors all-risk insurance policy in the amount of P6,137,293.00
which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a
letter dated 18 December 1992. FEMSCO also made arrangements with its principal and
started the PUREFOODS project by purchasing the necessary materials. PUREFOODS
on the other hand returned FEMSCOs Bidders Bond in the amount of P1,000,000.00, as
requested.

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior
Vice President Teodoro L. Dimayuga unilaterally canceled the award as "significant
factors were uncovered and brought to (their) attention which dictate (the) cancellation
and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested
the cancellation of the award and sought a meeting with PUREFOODS. However, on 26
March 1993, before the matter could be resolved, PUREFOODS already awarded the
project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc.
(hereafter JARDINE), which incidentally was not one of the bidders.

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE
to cease and desist from delivering and installing the two (2) generators at PUREFOODS.
Its demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE:
PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference
and inducement. Trial ensued. After FEMSCO presented its evidence, JARDINE filed
a Demurrer to Evidence.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, granted JARDINEs Demurrer
[1]

to Evidence. The trial court concluded that "[w]hile it may seem to the plaintiff that by the
actions of the two defendants there is something underhanded going on, this is all a
matter of perception, and unsupported by hard evidence, mere suspicions and
suppositions would not stand up very well in a court of law." Meanwhile trial proceeded
[2]

as regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to
indemnify FEMSCO the sum of P2,300,000.00 representing the value of engineering
services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent,
and P900,000.00 representing contractor's mark-up on installation work, considering that it
would be impossible to compel PUREFOODS to honor, perform and fulfill its contractual
obligations in view of PUREFOOD's contract with JARDINE and noting that construction
had already started thereon; (c) to pay attorneys fees in an amount equivalent to 20% of
the total amount due; and, (d) to pay the costs. The trial court dismissed the counterclaim
filed by PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed
the 27 June 1994 Resolution of the trial court which granted the Demurrer to
Evidence filed by JARDINE resulting in the dismissal of the complaint against it, while
PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to
pay FEMSCO.
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the
trial court. It also reversed the 27 June 1994 Resolution of the lower court and ordered
[3]

JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latters
contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00
for moral damages. In addition, PUREFOODS was also directed to pay
FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages
as well as 20% of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for
reconsideration filed by PUREFOODS and JARDINE. Hence, these two (2) petitions for
review filed by PUREFOODS and JARDINE which were subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court
are premised on a misapprehension of facts. It argues that its 12 December 1992 letter to
FEMSCO was not an acceptance of the latter's bid proposal and award of the project but
more of a qualified acceptance constituting a counter-offer which required FEMSCO's
express conforme. Since PUREFOODS never received
FEMSCOs conforme, PUREFOODS was very well within reason to revoke its qualified
acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS
and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt
with FEMSCO. Hence moral and exemplary damages should not have been awarded.

Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior
knowledge of the supposed contract between PUREFOODS and FEMSCO, and that it
induced PUREFOODS to violate the latters alleged contract with FEMSCO. Moreover,
JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages.
But granting arguendo that the award of moral damages is proper, P2,000,000.00 is
extremely excessive.

In the main, these consolidated cases present two (2) issues: first, whether there existed a
perfected contract between PUREFOODS and FEMSCO; and second, granting there
existed a perfected contract, whether there is any showing that JARDINE induced or
connived with PUREFOODS to violate the latter's contract with FEMSCO.

A contract is defined as "a juridical convention manifested in legal form, by virtue of which
one or more persons bind themselves in favor of another or others, or reciprocally, to the
fulfillment of a prestation to give, to do, or not to do." There can be no contract unless the
[4]

following requisites concur: (a) consent of the contracting parties; (b) object certain which
is the subject matter of the contract; and, (c) cause of the obligation which is
established. A contract binds both contracting parties and has the force of law between
[5]

them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer
made by the offeror. From that moment, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. To produce a contract,
[6]

the acceptance must not qualify the terms of the offer. However, the acceptance may be
express or implied. For a contract to arise, the acceptance must be made known to the
[7]

offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known
to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the
cause of the obligation. The controversy lies in the consent - whether there was an
acceptance of the offer, and if so, if it was communicated, thereby perfecting the contract.

To resolve the dispute, there is a need to determine what constituted the offer and the
acceptance. Since petitioner PUREFOODS started the process of entering into the
contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that
"[a]dvertisements for bidders are simply invitations to make proposals," applies.
Accordingly, the Terms and Conditions of the Bidding disseminated by petitioner
PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including respondent FEMSCO, are the
offers. And, the reply of petitioner PUREFOODS, the acceptance or rejection of the
respective offers.

Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to FEMSCO

constituted acceptance of respondent FEMSCOs offer as contemplated by law. The tenor
of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm (FEMSCO)
the project," could not be more categorical. While the same letter enumerated certain
"basic terms and conditions," these conditions were imposed on the performance of the
obligation rather than on the perfection of the contract. Thus, the first "condition" was
merely a reiteration of the contract price and billing scheme based on the Terms and
Conditions of Bidding and the bid or previous offer of respondent FEMSCO. The second
and third "conditions" were nothing more than general statements that all items and
materials including those excluded in the list but necessary to complete the project shall
be deemed included and should be brand new. The fourth "condition" concerned the
completion of the work to be done, i.e., within twenty (20) days from the delivery of the
generator set, the purchase of which was part of the contract. The fifth "condition" had to
do with the putting up of a performance bond and an all-risk insurance, both of which
should be given upon commencement of the project. The sixth "condition" related to the
standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions"
were prescriptions on how the obligation was to be performed and implemented. They
were far from being conditions imposed on the perfection of the contract.

In Babasa v. Court of Appeals we distinguished between a condition imposed on the

[8]

perfection of a contract and a condition imposed merely on the performance of an

obligation. While failure to comply with the first condition results in the failure of a contract,
failure to comply with the second merely gives the other party options and/or remedies to
protect his interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial
court -

As can be inferred from the actual phrase used in the first portion of the letter,
the decision to award the contract has already been made. The letter only
serves as a confirmation of such decision. Hence, to the Courts mind, there is
already an acceptance made of the offer received by Purefoods.
Notwithstanding the terms and conditions enumerated therein, the offer has
been accepted and/or amplified the details of the terms and conditions
contained in the Terms and Conditions of Bidding given out by Purefoods to
prospective bidders. [9]

But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS
constituted a "conditional counter-offer," respondent FEMCO's submission of the
performance bond and contractor's all-risk insurance was an implied acceptance, if not a
clear indication of its acquiescence to, the "conditional counter-offer," which expressly
stated that the performance bond and the contractor's all-risk insurance should be given
upon the commencement of the contract. Corollarily, the acknowledgment thereof by
petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a
concrete manifestation of its knowledge that respondent FEMSCO indeed consented to
the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either
be express or implied, and this can be inferred from the contemporaneous and
[10]

subsequent acts of the contracting parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected,
and respondent FEMSCO's conforme would only be a mere surplusage. The discussion of
the price of the project two (2) months after the 12 December 1992 letter can be deemed
as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent
FEMSCO to lower the price even after the contract had been perfected. Indeed from the
facts, it can easily be surmised that petitioner PUREFOODS was haggling for a lower
price even after agreeing to the earlier quotation, and was threatening to unilaterally
cancel the contract, which it eventually did. Petitioner PUREFOODS also makes an issue
out of the absence of a purchase order (PO). Suffice it to say that purchase orders or POs
do not make or break a contract. Thus, even the tenor of the subsequent letter of
petitioner PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to
your company of the project," presupposes that the contract has been perfected. For,
there can be no cancellation if the contract was not perfected in the first place.

Petitioner PUREFOODS also argues that it was never in bad faith. On the contrary, it
believed in good faith that no such contract was perfected. We are not convinced. We
subscribe to the factual findings and conclusions of the trial court which were affirmed by
the appellate court -

Hence, by the unilateral cancellation of the contract, the defendant (petitioner

PURE FOODS) has acted with bad faith and this was further aggravated by
the subsequent inking of a contract between defendant Purefoods and
erstwhile co-defendant Jardine. It is very evident that Purefoods thought that
by the expedient means of merely writing a letter would automatically cancel
or nullify the existing contract entered into by both parties after a process of
bidding. This, to the Courts mind, is a flagrant violation of the express
provisions of the law and is contrary to fair and just dealings to which every
man is due. [11]

This Court has awarded in the past moral damages to a corporation whose reputation has
been besmirched. In the instant case, respondent FEMSCO has sufficiently shown that
[12]

its reputation was tarnished after it immediately ordered equipment from its suppliers on
account of the urgency of the project, only to be canceled later. We thus sustain
respondent appellate court's award of moral damages. We however reduce the award
from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the
recipient. Likewise, the award of exemplary damages by way of example for the public
good is excessive and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in
ordering it to pay moral damages to respondent FEMSCO as it supposedly induced
PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem that
petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we
find no specific evidence on record to support such perception. Likewise, there is no
showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The
similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE
and respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are
insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to
violate its contract with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of
Appeals reversing the 27 June 1994 resolution of the trial court and ordering petitioner
JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS SUPPLY
CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for
insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of
Appeals ordering petitioner PURE FOODS CORPORATION to pay private respondent
FAR EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00 representing the
value of engineering services it rendered, US$14,000.00 or its peso equivalent,
and P900,000.00 representing the contractor's mark-up on installation work, as well as
attorney's fees equivalent to twenty percent (20%) of the total amount due, is AFFIRMED.
In addtion, petitioner PURE FOODS CORPORATION is ordered to pay private respondent
FAR EAST MILLS SUPPLY CORPORATION moral damages in the amount
of P1,000,000.00 and exemplary damages in the amount of P1,000,000.00. Costs against
petitioner.
SO ORDERED.

Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

 [G.R. No. 141994. January 17, 2005]

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND

EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE,
(AMEC-BCCM) and ANGELITA F. AGO, respondents.

DECISION
CARPIO, J.:

The Case

This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution
of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification
the 14 December 1992 Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil
Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters
Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical
and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees and costs
of suit.

The Antecedents

Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes
Jun Alegre (Alegre).[5] Expos is aired every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities and
other Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged
complaints from students, teachers and parents against Ago Medical and Educational Center-Bicol
Christian College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint
for damages[7] against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the
allegedly libelous broadcasts:

JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMEC-
BCCM, advise them to pass all subjects because if they fail in any subject they will repeat
their year level, taking up all subjects including those they have passed already. Several
students had approached me stating that they had consulted with the DECS which told them that
there is no such regulation. If [there] is no such regulation why is AMEC doing the same?

xxx

Second: Earlier AMEC students in Physical Therapy had complained that the course is not
recognized by DECS. xxx

Third: Students are required to take and pay for the subject even if the subject does not have
an instructor - such greed for money on the part of AMECs administration. Take the subject
Anatomy: students would pay for the subject upon enrolment because it is offered by the school.
However there would be no instructor for such subject. Students would be informed that course
would be moved to a later date because the school is still searching for the appropriate instructor.

xxx

It is a public knowledge that the Ago Medical and Educational Center has survived and has been
surviving for the past few years since its inception because of funds support from foreign
foundations. If you will take a look at the AMEC premises youll find out that the names of the
buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio
Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for
AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it
would be very easy for detractors and enemies of the Ago family to stop the flow of support of
foreign foundations who assist the medical school on the basis of the latters purpose. But if the
purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being
it is possible for these foreign foundations to lift or suspend their donations temporarily. [8]

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the
AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of
salary are absorbing or continues to accept rejects. For example how many teachers in AMEC
are former teachers of Aquinas University but were removed because of immorality? Does it mean
that the present administration of AMEC have the total definite moral foundation from catholic
administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping
ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms
of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She
is too old to work, being an old woman. Is the AMEC administration exploiting the very
[e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently
making use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility
the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is
also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University
a long time ago but AMEC has patiently made use of her.

xxx

MEL RIMA:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit
people. What does this mean? Immoral and physically misfits as teachers.

May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no
longer fit to teach. You are too old. As an aviation, your case is zero visibility. Dont insist.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship
committee at that. The reason is practical cost saving in salaries, because an old person is not
fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by
thats why she (Lola) was taken in as Dean.

xxx

xxx On our end our task is to attend to the interests of students. It is likely that the students would
be influenced by evil. When they become members of society outside of campus will be
liabilities rather than assets. What do you expect from a doctor who while studying at AMEC is
so much burdened with unreasonable imposition? What do you expect from a student who aside
from peculiar problems because not all students are rich in their struggle to improve their social
status are even more burdened with false regulations. xxx[9] (Emphasis supplied)

The complaint further alleged that AMEC is a reputable learning institution. With the supposed
exposs, FBNI, Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs
(AMEC and Ago) reputation. AMEC and Ago included FBNI as defendant for allegedly failing to
exercise due diligence in the selection and supervision of its employees, particularly Rima and
Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an
Answer[10] alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre
claimed that they were plainly impelled by a sense of public duty to report the goings-on in AMEC,
[which is] an institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo
Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss [11] on FBNIs behalf. The trial
court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it
exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that
before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3)
undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed
that it always reminds its broadcasters to observe truth, fairness and objectivity in their broadcasts
and to refrain from using libelous and indecent language. Moreover, FBNI requires all broadcasters to
pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP
permit.
On 14 December 1992, the trial court rendered a Decision[12] finding FBNI and Alegre liable for
libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected
the broadcasters claim that their utterances were the result of straight reporting because it had no
factual basis. The broadcasters did not even verify their reports before airing them to show good faith.
In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the
selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he
agreed with Alegres expos. The trial court found Rimas statement within the bounds of freedom of
speech, expression, and of the press. The dispositive portion of the decision reads:

WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of
damages caused by the controversial utterances, which are not found by this court to be
really very serious and damaging, and there being no showing that indeed the enrollment of
plaintiff school dropped, defendants Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting
Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay
plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-
BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys
fees, and to pay the costs of suit.

SO ORDERED. [13] (Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other,
appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial courts
judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre.
The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were
directed against AMEC, and not against her. The dispositive portion of the Court of Appeals decision
reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification
that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes
Alegre.

SO ORDERED.[14]

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its
26 January 2000 Resolution.
Hence, FBNI filed this petition.[15]

The Ruling of the Court of Appeals

The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per
se and that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of
Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to
inform the public of the students gripes as insufficient to justify the utterance of the defamatory
remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals
ruled that the broadcasts were made with reckless disregard as to whether they were true or false.
The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the
students who allegedly complained against AMEC. Rima and Alegre merely gave a single name
when asked to identify the students. According to the Court of Appeals, these circumstances cast
doubt on the veracity of the broadcasters claim that they were impelled by their moral and social duty
to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is
a dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean
Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students
with unreasonable imposition and false regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and
supervision of its employees for allowing Rima and Alegre to make the radio broadcasts without the
proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees
because the libelous remarks were directed against AMEC, and not against her. The Court of
Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys
fees and costs of suit.

Issues

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR
PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.

The Courts Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and
Alegre against AMEC.[17] While AMEC did not point out clearly the legal basis for its complaint, a
reading of the complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the
Civil Code. Article 30[18] authorizes a separate civil action to recover civil liability arising from a
criminal offense. On the other hand, Article 33[19] particularly provides that the injured party may bring
a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also
invokes Article 19[20] of the Civil Code to justify its claim for damages. AMEC cites Articles
2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.

I.
Whether the broadcasts are libelous

A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary,
or any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or
contempt of a natural or juridical person, or to blacken the memory of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to AMEC defects or
circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such
as greed for money on the part of AMECs administrators; AMEC is a dumping ground, garbage of xxx
moral and physical misfits; and AMEC students who graduate will be liabilities rather than assets of
the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-
making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and
Alegre were plainly impelled by their civic duty to air the students gripes. FBNI alleges that there is no
evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points
out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to
defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show
adequately their good intention and justifiable motive in airing the supposed gripes of the students. As
hosts of a documentary or public affairs program, Rima and Alegre should have presented the public
issues free from inaccurate and misleading information.[26] Hearing the students alleged complaints a
month before the expos,[27] they had sufficient time to verify their sources and information. However,
Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did
they inquire about nor confirm the purported irregularities in AMEC from the Department of Education,
Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged
AMEC official who refused to disclose any information. Alegre simply relied on the words of the
students because they were many and not because there is proof that what they are saying is
true.[28] This plainly shows Rima and Alegres reckless disregard of whether their report was true or
not.
 Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly,
some courts in the United States apply the privilege of neutral reportage in libel cases involving
matters of public interest or public figures. Under this privilege, a republisher who accurately and
disinterestedly reports certain defamatory statements made against public figures is shielded from
liability, regardless of the republishers subjective awareness of the truth or falsity of the
accusation.[29] Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded
comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC
when the broadcasts were made. The privilege of neutral reportage applies where the defamed
person is a public figure who is involved in an existing controversy, and a party to that controversy
makes the defamatory statement.[30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v.
Court of Appeals,[31] FBNI contends that the broadcasts fall within the coverage of qualifiedly
privileged communications for being commentaries on matters of public interest. Such being the case,
AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual
malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair
comment, thus:

[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an
action for libel or slander. The doctrine of fair comment means that while in general every
discreditable imputation publicly made is deemed false, because every man is presumed innocent
until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless,
when the discreditable imputation is directed against a public person in his public capacity, it is not
necessarily actionable. In order that such discreditable imputation to a public official may be
actionable, it must either be a false allegation of fact or a comment based on a false
supposition. If the comment is an expression of opinion, based on established facts, then it is
immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from
the facts.[32] (Emphasis supplied)

True, AMEC is a private learning institution whose business of educating students is genuinely
imbued with public interest. The welfare of the youth in general and AMECs students in particular is a
matter which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the
subject broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned
broadcasts are not based on established facts. The record supports the following findings of the trial
court:

xxx Although defendants claim that they were motivated by consistent reports of students and
parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a
single student who made the complaint to them, much less present written complaint or petition to
that effect. To accept this defense of defendants is too dangerous because it could easily give
license to the media to malign people and establishments based on flimsy excuses that there were
reports to them although they could not satisfactorily establish it. Such laxity would encourage
careless and irresponsible broadcasting which is inimical to public interests.

Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of
their duties, did not verify and analyze the truth of the reports before they aired it, in order to prove
that they are in good faith.

Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy
courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more
than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course had
already been given the plaintiff, which certificate is signed by no less than the Secretary of
Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have
easily known this were they careful enough to verify. And yet, defendants were very categorical
and sounded too positive when they made the erroneous report that plaintiff had no permit to offer
Physical Therapy courses which they were offering.

The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald
Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing.
Although a big building of plaintiff school was given the name Mcdonald building, that was only in
order to honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago.
Contrary to the claim of defendants over the air, not a single centavo appears to be received by
plaintiff school from the aforementioned McDonald Foundation which does not exist.

Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when
medical students fail in one subject, they are made to repeat all the other subject[s], even those they
have already passed, nor their claim that the school charges laboratory fees even if there are no
laboratories in the school. No evidence was presented to prove the bases for these claims, at least in
order to give semblance of good faith.

As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers,
defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility already.
Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older
people prove to be effective teachers like Supreme Court Justices who are still very much in
demand as law professors in their late years. Counsel for defendants is past 75 but is found by this
court to be still very sharp and effective. So is plaintiffs counsel.

Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is
still alert and docile.

The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court is aware that majority of the medical graduates
of plaintiffs pass the board examination easily and become prosperous and responsible
professionals.[33]

Had the comments been an expression of opinion based on established facts, it is immaterial that
the opinion happens to be mistaken, as long as it might reasonably be inferred from the
facts.[34] However, the comments of Rima and Alegre were not backed up by facts. Therefore, the
broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas,
Ink. (Radio Code). Item I(B) of the Radio Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

1. x x x

4. Public affairs program shall present public issues free from personal bias, prejudice
and inaccurate and misleading information. x x x Furthermore, the station shall strive
to present balanced discussion of issues. x x x.

xxx

7. The station shall be responsible at all times in the supervision of public affairs, public
issues and commentary programs so that they conform to the provisions and standards
of this code.

8. It shall be the responsibility of the newscaster, commentator, host and announcer to

protect public interest, general welfare and good order in the presentation of public
affairs and public issues.[36] (Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the
code of ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a
voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio
Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are
subject to a code by which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code
of conduct of their profession, just like other professionals. A professional code of conduct provides
the standards for determining whether a person has acted justly, honestly and with good faith in the
exercise of his rights and performance of his duties as required by Article 19 [37] of the Civil Code. A
professional code of conduct also provides the standards for determining whether a person who
willfully causes loss or injury to another has acted in a manner contrary to morals or good customs
under Article 21[38] of the Civil Code.
II.
 Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a corporation. [39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it
cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et
al.[41]to justify the award of moral damages. However, the Courts statement in Mambulao that a
corporation may have a good reputation which, if besmirched, may also be a ground for the award of
moral damages is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 [43] of the Civil
Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or
any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or
juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or
any other form of defamation and claim for moral damages.[44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case,
evidence of an honest mistake or the want of character or reputation of the party libeled goes only in
mitigation of damages.[46] Neither in such a case is the plaintiff required to introduce evidence of
actual damages as a condition precedent to the recovery of some damages. [47] In this case, the
broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that
even though the broadcasts were libelous per se, AMEC has not suffered any substantial or material
damage to its reputation. Therefore, we reduce the award of moral damages from P300,000
to P150,000.

III.
Whether the award of attorneys fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award
of attorneys fees. FBNI adds that the instant case does not fall under the enumeration in Article
2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for
attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover,
both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for
the award of attorneys fees.[49] In Inter-Asia Investment Industries, Inc. v. Court of Appeals,[50] we
held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than
the rule, and counsels fees are not to be awarded every time a party wins a suit. The power of the
court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and
equitable justification, without which the award is a conclusion without a premise, its basis
being improperly left to speculation and conjecture. In all events, the court must explicitly state
in the text of the decision, and not only in the decretal portion thereof, the legal reason for the
award of attorneys fees.[51] (Emphasis supplied)

While it mentioned about the award of attorneys fees by stating that it lies within the discretion of
the court and depends upon the circumstances of each case, the Court of Appeals failed to point out
any circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages
and attorneys fees because it exercised due diligence in the selection and supervision of its
employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and
Alegre, undergo a very regimented process before they are allowed to go on air. Those who apply for
broadcaster are subjected to interviews, examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a
broadcaster. FBNI points out that the minor deficiencies in the KBP accreditation of Rima and Alegre
do not in any way prove that FBNI did not exercise the diligence of a good father of a family in
selecting and supervising them. Rimas accreditation lapsed due to his non-payment of the KBP
annual fees while Alegres accreditation card was delayed allegedly for reasons attributable to the
KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by
any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the
tort which they commit.[52] Joint tort feasors are all the persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve
of it after it is done, if done for their benefit. [53] Thus, AMEC correctly anchored its cause of action
against FBNI on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for
damages arising from the libelous broadcasts. As stated by the Court of Appeals, recovery for
defamatory statements published by radio or television may be had from the owner of the station, a
licensee, theoperator of the station, or a person who procures, or participates in, the making of the
defamatory statements.[54] An employer and employee are solidarily liable for a defamatory statement
by the employee within the course and scope of his or her employment, at least when the employer
authorizes or ratifies the defamation.[55] In this case, Rima and Alegre were clearly performing their
official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither
alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was
likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed
that it exercised diligence in the selection of its broadcasters without introducing any evidence to
prove that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show
how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its
broadcasters to observe truth, fairness and objectivity and to refrain from using libelous and indecent
language is not enough to prove due diligence in the supervision of its broadcasters. Adequate
training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and
continuous evaluation of the broadcasters performance are but a few of the many ways of showing
diligence in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as
broadcasters, bearing in mind their qualifications. However, no clear and convincing evidence shows
that Rima and Alegre underwent FBNIs regimented process of application. Furthermore, FBNI admits
that Rima and Alegre had deficiencies in their KBP accreditation,[56] which is one of FBNIs
requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary,
indicates the broadcasters strong commitment to observe the broadcast industrys rules and
regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising
Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and
Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the
MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the
award of attorneys fees is deleted. Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.
 [G.R. No. 100152. March 31, 2000]

ACEBEDO OPTICAL COMPANY, INC., petitioner, vs. THE HONORABLE COURT OF

APPEALS, Hon. MAMINDIARA MANGOTARA, in his capacity as Presiding Judge of
the RTC, 12th Judicial Region, Br. 1, Iligan City; SAMAHANG OPTOMETRIST Sa
PILIPINAS - Iligan City Chapter, LEO T. CAHANAP, City Legal Officer, and Hon.
CAMILO P. CABILI, City Mayor of Iligan, respondents.

DECISION

PURISIMA, J.:

At bar is a petition for review under Rule 45 of the Rules of Court seeking to nullify the
dismissal by the Court of Appeals of the original petition for certiorari, prohibition and
mandamus filed by the herein petitioner against the City Mayor and City Legal Officer of
Iligan and the Samahang Optometrist sa Pilipinas - Iligan Chapter (SOPI, for brevity).

The antecedent facts leading to the filing of the instant petition are as follows:

Petitioner applied with the Office of the City Mayor of Iligan for a business permit. After
consideration of petitioners application and the opposition interposed thereto by local
optometrists, respondent City Mayor issued Business Permit No. 5342 subject to the
following conditions:

1. Since it is a corporation, Acebedo cannot put up an optical clinic but only a

commercial store;

2. Acebedo cannot examine and/or prescribe reading and similar optical

glasses for patients, because these are functions of optical clinics;

3. Acebedo cannot sell reading and similar eyeglasses without a prescription

having first been made by an independent optometrist (not its employee) or
independent optical clinic. Acebedo can only sell directly to the public, without
need of a prescription, Ray-Ban and similar eyeglasses;

4. Acebedo cannot advertise optical lenses and eyeglasses, but can advertise
Ray-Ban and similar glasses and frames;

5. Acebedo is allowed to grind lenses but only upon the prescription of an

independent optometrist. [1]

On December 5, 1988, private respondent Samahan ng Optometrist Sa Pilipinas (SOPI),

Iligan Chapter, through its Acting President, Dr. Frances B. Apostol, lodged a complaint
against the petitioner before the Office of the City Mayor, alleging that Acebedo had
violated the conditions set forth in its business permit and requesting the cancellation
and/or revocation of such permit.

Acting on such complaint, then City Mayor Camilo P. Cabili designated City Legal Officer
Leo T. Cahanap to conduct an investigation on the matter. On July 12, 1989, respondent
City Legal Officer submitted a report to the City Mayor finding the herein petitioner guilty of
violating all the conditions of its business permit and recommending the disqualification of
petitioner from operating its business in Iligan City. The report further advised that no new
permit shall be granted to petitioner for the year 1989 and should only be given time to
wind up its affairs.

On July 19, 1989, the City Mayor sent petitioner a Notice of Resolution and Cancellation
of Business Permit effective as of said date and giving petitioner three (3) months to wind
up its affairs.

On October 17, 1989, petitioner brought a petition for certiorari, prohibition and mandamus
with prayer for restraining order/preliminary injunction against the respondents, City
Mayor, City Legal Officer and Samahan ng Optometrists sa Pilipinas-Iligan City
Chapter (SOPI), docketed as Civil Case No. 1497 before the Regional Trial Court of Iligan
City, Branch I. Petitioner alleged that (1) it was denied due process because it was not
given an opportunity to present its evidence during the investigation conducted by the City
Legal Officer; (2) it was denied equal protection of the laws as the limitations imposed on
its business permit were not imposed on similar businesses in Iligan City; (3) the City
Mayor had no authority to impose the special conditions on its business permit;
and (4) the City Legal Officer had no authority to conduct the investigation as the matter
falls within the exclusive jurisdiction of the Professional Regulation Commission and the
Board of Optometry.

Respondent SOPI interposed a Motion to Dismiss the Petition on the ground of non-
exhaustion of administrative remedies but on November 24, 1989, Presiding Judge
Mamindiara P. Mangotara deferred resolution of such Motion to Dismiss until after trial of
the case on the merits. However, the prayer for a writ of preliminary injunction was
granted. Thereafter, respondent SOPI filed its answer.

On May 30, 1990, the trial court dismissed the petition for failure to exhaust administrative
remedies, and dissolved the writ of preliminary injunction it earlier issued. Petitioners
motion for reconsideration met the same fate. It was denied by an Order dated June 28,
1990.

On October 3, 1990, instead of taking an appeal, petitioner filed a petition for certiorari,
prohibition and mandamus with the Court of Appeals seeking to set aside the questioned
Order of Dismissal, branding the same as tainted with grave abuse of discretion on the
part of the trial court.

On January 24, 1991, the Ninth Division of the Court of Appeals dismissed the petition for
[2]

lack of merit. Petitioners motion reconsideration was also denied in the Resolution dated
May 15, 1991.

Undaunted, petitioner has come before this court via the present petition, theorizing that:
A.

THE RESPONDENT COURT, WHILE CORRECTLY HOLDING THAT THE

RESPONDENT CITY MAYOR ACTED BEYOND HIS AUTHORITY IN
IMPOSING THE SPECIAL CONDITIONS IN THE PERMIT AS THEY HAD
NO BASIS IN ANY LAW OR ORDINANCE, ERRED IN HOLDING THAT THE
SAID SPECIAL CONDITIONS NEVERTHELESS BECAME BINDING ON
PETITIONER UPON ITS ACCEPTANCE THEREOF AS A PRIVATE
AGREEMENT OR CONTRACT.
B.

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE

CONTRACT BETWEEN PETITIONER AND THE CITY OF ILIGAN WAS
ENTERED INTO BY THE LATTER IN THE PERFORMANCE OF ITS
PROPRIETARY FUNCTIONS.

The petition is impressed with merit.

Although petitioner agrees with the finding of the Court of Appeals that respondent City
Mayor acted beyond the scope of his authority in imposing the assailed conditions in
subject business permit, it has excepted to the ruling of the Court of Appeals that the said
conditions nonetheless became binding on petitioner, once accepted, as a private
agreement or contract. Petitioner maintains that the said special conditions are null and
void for being ultra vires and cannot be given effect; and therefore, the principle of
estoppel cannot apply against it.
On the other hand, the public respondents, City Mayor and City Legal Officer, private
respondent SOPI and the Office of the Solicitor General contend that as a valid exercise
of police power, respondent City Mayor has the authority to impose, as he did, special
conditions in the grant of business permits.

Police power as an inherent attribute of sovereignty is the power to prescribe regulations

to promote the health, morals, peace, education, good order or safety and general welfare
of the people. The State, through the legislature, has delegated the exercise of police
[3]

power to local government units, as agencies of the State, in order to effectively

accomplish and carry out the declared objects of their creation. This delegation of police
[4]

power is embodied in the general welfare clause of the Local Government Code which
provides:

Sec. 16. General Welfare. - Every local government unit shall exercise the
powers expressly granted, those necessarily implied therefrom, as well as
powers necessary, appropriate, or incidental for its efficient and effective
governance, and those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local government units
shall ensure and support, among other things, the preservation and
enrichment of culture, promote health and safety, enhance the right of the
people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities, improve
public morals, enhance economic prosperity and social justice, promote full
employment among their residents, maintain peace and order, and preserve
the comfort and convenience of their inhabitants.

The scope of police power has been held to be so comprehensive as to encompass

almost all matters affecting the health, safety, peace, order, morals, comfort and
convenience of the community. Police power is essentially regulatory in nature and the
power to issue licenses or grant business permits, if exercised for a regulatory and not
revenue-raising purpose, is within the ambit of this power. [5]

The authority of city mayors to issue or grant licenses and business permits is beyond
cavil. It is provided for by law.

Section 171, paragraph 2 (n) of Batas Pambansa Bilang 337 otherwise known as the
Local Government Code of 1983, reads:

Sec. 171. The City Mayor shall:

xxx

n) Grant or refuse to grant, pursuant to law, city licenses or permits, and

revoke the same for violation of law or ordinance or the conditions upon which
they are granted.

However, the power to grant or issue licenses or business permits must always be
exercised in accordance with law, with utmost observance of the rights of all concerned to
due process and equal protection of the law.

Succinct and in point is the ruling of this Court, that:

"x x x While a business may be regulated, such regulation must, however, be

within the bounds of reason, i. e., the regulatory ordinance must be
reasonable, and its provision cannot be oppressive amounting to an arbitrary
interference with the business or calling subject of regulation. A lawful
business or calling may not, under the guise of regulation, be unreasonably
interfered with even by the exercise of police power. xxx

xxx xxx xxx

 xxx The exercise of police power by the local government is valid unless it
contravenes the fundamental law of the land or an act of the legislature, or
unless it is against public policy or is unreasonable, oppressive, partial,
discriminating or in derogation of a common right."[6]

In the case under consideration, the business permit granted by respondent City Mayor to
petitioner was burdened with several conditions. Petitioner agrees with the holding by the
Court of Appeals that respondent City Mayor acted beyond his authority in imposing such
special conditions in its permit as the same have no basis in the law or ordinance. Public
respondents and private respondent SOPI, on the other hand, are one in saying that the
imposition of said special conditions on petitioners business permit is well within the
authority of the City Mayor as a valid exercise of police power.

As aptly discussed by the Solicitor General in his Comment, the power to issue licenses
and permits necessarily includes the corollary power to revoke, withdraw or cancel the
same. And the power to revoke or cancel, likewise includes the power to restrict through
the imposition of certain conditions. In the case of Austin-Hardware, Inc. vs. Court of
Appeals, it was held that the power to license carries with it the authority to provide
[7]

reasonable terms and conditions under which the licensed business shall be conducted.
As the Solicitor General puts it:

"If the City Mayor is empowered to grant or refuse to grant a license, which is
a broader power, it stands to reason that he can also exercise a lesser power
that is reasonably incidental to his express power, i. e. to restrict a license
through the imposition of certain conditions, especially so that there is no
positive prohibition to the exercise of such prerogative by the City Mayor, nor
is there any particular official or body vested with such authority"
[8]

However, the present inquiry does not stop there, as the Solicitor General believes. The
power or authority of the City Mayor to impose conditions or restrictions in the business
permit is indisputable. What petitioner assails are the conditions imposed in its particular
case which, it complains, amount to a confiscation of the business in which petitioner is
engaged.

Distinction must be made between the grant of a license or permit to do business and the
issuance of a license to engage in the practice of a particular profession. The first is
usually granted by the local authorities and the second is issued by the Board or
Commission tasked to regulate the particular profession. A business permit authorizes the
person, natural or otherwise, to engage in business or some form of commercial activity. A
professional license, on the other hand, is the grant of authority to a natural person to
engage in the practice or exercise of his or her profession.

In the case at bar, what is sought by petitioner from respondent City Mayor is a permit to
engage in the business of running an optical shop. It does not purport to seek a license to
engage in the practice of optometry as a corporate body or entity, although it does have in
its employ, persons who are duly licensed to practice optometry by the Board of
Examiners in Optometry.

The case of Samahan ng Optometrists sa Pilipinas vs. Acebedo International

Corporation, G.R. No. 117097, promulgated by this Court on March 21, 1997, is in point.
[9]

The factual antecedents of that case are similar to those of the case under consideration
and the issue ultimately resolved therein is exactly the same issue posed for resolution by
this Court en banc.

In the said case, the Acebedo International Corporation filed with the Office of the
Municipal Mayor an application for a business permit for the operation of a branch of
Acebedo Optical in Candon, Ilocos Sur. The application was opposed by the Samahan ng
Optometrists sa Pilipinas-Ilocos Sur Chapter, theorizing that Acebedo is a juridical entity
not qualified to practice optometry. A committee was created by the Office of the Mayor to
study private respondents application. Upon recommendation of the said committee,
Acebedos application for a business permit was denied. Acebedo filed a petition with the
Regional Trial Court but the same was dismissed. On appeal, however, the Court of
Appeals reversed the trial courts disposition, prompting the Samahan ng Optometrists to
elevate the matter to this Court.

The First Division of this Court, then composed of Honorable Justice Teodoro Padilla,
Josue Bellosillo, Jose Vitug and Santiago Kapunan, with Honorable Justice Regino
Hermosisima, Jr. as ponente, denied the petition and ruled in favor of respondent
Acebedo International Corporation, holding that "the fact that private respondent hires
optometrists who practice their profession in the course of their employment in private
respondents optical shops, does not translate into a practice of optometry by private
respondent itself." The Court further elucidated that in both the old and new Optometry
[10]

Law, R.A. No. 1998, superseded by R.A. No. 8050, it is significant to note that there is no
prohibition against the hiring by corporations of optometrists. The Court concluded thus:

"All told, there is no law that prohibits the hiring by corporations of

optometrists or considers the hiring by corporations of optometrists as a
practice by the corporation itself of the profession of optometry."

In the present case, the objective of the imposition of subject conditions on petitioners
business permit could be attained by requiring the optometrists in petitioners employ to
produce a valid certificate of registration as optometrist, from the Board of Examiners in
Optometry. A business permit is issued primarily to regulate the conduct of business and
the City Mayor cannot, through the issuance of such permit, regulate the practice of a
profession, like that of optometry. Such a function is within the exclusive domain of the
administrative agency specifically empowered by law to supervise the profession, in this
case the Professional Regulations Commission and the Board of Examiners in Optometry.

It is significant to note that during the deliberations of the bicameral conference committee
of the Senate and the House of Representatives on R.A. 8050 (Senate Bill No. 1998 and
House Bill No. 14100), the committee failed to reach a consensus as to the prohibition on
indirect practice of optometry by corporations. The proponent of the bill, former Senator
Freddie Webb, admitted thus:

"Senator Webb: xxx xxx xxx

The focus of contention remains to be the proposal of prohibiting the indirect practice of
optometry by corporations. We took a second look and even a third look at the issue in the
bicameral conference, but a compromise remained elusive." [11]

Former Senator Leticia Ramos-Shahani likewise voted her reservation in casting her vote:

"Senator Shahani: Mr. President

The optometry bills have evoked controversial views from the members of the
panel. While we realize the need to uplift the standards of optometry as a
profession, the consensus of both Houses was to avoid touching sensitive
issues which properly belong to judicial determination. Thus, the bicameral
conference committee decided to leave the issue of indirect practice of
optometry and the use of trade names open to the wisdom of the Courts
which are vested with the prerogative of interpreting the laws." [12]

From the foregoing, it is thus evident that Congress has not adopted a unanimous position
on the matter of prohibition of indirect practice of optometry by corporations, specifically
on the hiring and employment of licensed optometrists by optical corporations. It is clear
that Congress left the resolution of such issue for judicial determination, and it is therefore
proper for this Court to resolve the issue.

Even in the United States, jurisprudence varies and there is a conflict of opinions among
the federal courts as to the right of a corporation or individual not himself licensed, to hire
and employ licensed optometrists. [13]
Courts have distinguished between optometry as a learned profession in the category of
law and medicine, and optometry as a mechanical art. And, insofar as the courts regard
optometry as merely a mechanical art, they have tended to find nothing objectionable in
the making and selling of eyeglasses, spectacles and lenses by corporations so long as
the patient is actually examined and prescribed for by a qualified practitioner. [14]

The primary purpose of the statute regulating the practice of optometry is to insure that
optometrical services are to be rendered by competent and licensed persons in order to
protect the health and physical welfare of the people from the dangers engendered by
unlicensed practice. Such purpose may be fully accomplished although the person
rendering the service is employed by a corporation. [15]

Furthermore, it was ruled that the employment of a qualified optometrist by a corporation

is not against public policy. Unless prohibited by statutes, a corporation has all the
[16]

contractual rights that an individual has and it does not become the practice of medicine
[17]

or optometry because of the presence of a physician or optometrist. The manufacturing,

[18]

selling, trading and bartering of eyeglasses and spectacles as articles of merchandise do

not constitute the practice of optometry. [19]

In the case of Dvorine vs. Castelberg Jewelry Corporation, defendant corporation

[20]

conducted as part of its business, a department for the sale of eyeglasses and the
furnishing of optometrical services to its clients. It employed a registered optometrist who
was compensated at a regular salary and commission and who was furnished instruments
and appliances needed for the work, as well as an office. In holding that the corporation
was not engaged in the practice of optometry, the court ruled that there is no public policy
forbidding the commercialization of optometry, as in law and medicine, and recognized the
general practice of making it a commercial business by advertising and selling
eyeglasses.

To accomplish the objective of the regulation, a state may provide by statute that
corporations cannot sell eyeglasses, spectacles, and lenses unless a duly licensed
physician or a duly qualified optometrist is in charge of, and in personal attendance at the
place where such articles are sold. In such a case, the patients primary and essential
[21]

safeguard lies in the optometrists control of the "treatment" by means of prescription and
preliminary and final examination. [22]

In analogy, it is noteworthy that private hospitals are maintained by corporations

incorporated for the purpose of furnishing medical and surgical treatment. In the course of
providing such treatments, these corporations employ physicians, surgeons and medical
practitioners, in the same way that in the course of manufacturing and selling eyeglasses,
eye frames and optical lenses, optical shops hire licensed optometrists to examine,
prescribe and dispense ophthalmic lenses. No one has ever charged that these
corporations are engaged in the practice of medicine. There is indeed no valid basis for
treating corporations engaged in the business of running optical shops differently.

It also bears stressing, as petitioner has pointed out, that the public and private
respondents did not appeal from the ruling of the Court of Appeals. Consequently, the
holding by the Court of Appeals that the act of respondent City Mayor in imposing the
questioned special conditions on petitioners business permit is ultra vires cannot be put
into issue here by the respondents. It is well-settled that:

"A party who has not appealed from the decision may not obtain any
affirmative relief from the appellate court other than what he had obtain from
the lower court, if any, whose decision is brought up on appeal. [23]

xxx an appellee who is not an appellant may assign errors in his brief where
his purpose is to maintain the judgment on other grounds, but he cannot seek
modification or reversal of the judgment or affirmative relief unless he has also
appealed." [24]
Thus, respondents submission that the imposition of subject special conditions on
petitioners business permit is not ultra vires cannot prevail over the finding and ruling by
the Court of Appeals from which they (respondents) did not appeal.

Anent the second assigned error, petitioner maintains that its business permit issued by
the City Mayor is not a contract entered into by Iligan City in the exercise of its proprietary
functions, such that although petitioner agreed to such conditions, it cannot be held in
estoppel since ultra vires acts cannot be given effect.

Respondents, on the other hand, agree with the ruling of the Court of Appeals that the
business permit in question is in the nature of a contract between Iligan City and the
herein petitioner, the terms and conditions of which are binding upon agreement, and that
petitioner is estopped from questioning the same. Moreover, in the Resolution denying
petitioners motion for reconsideration, the Court of Appeals held that the contract between
the petitioner and the City of Iligan was entered into by the latter in the performance of its
proprietary functions.

This Court holds otherwise. It had occasion to rule that a license or permit is not in the
nature of a contract but a special privilege.

"xxx a license or a permit is not a contract between the sovereignty and the
licensee or permitee, and is not a property in the constitutional sense, as to
which the constitutional proscription against impairment of the obligation of
contracts may extend. A license is rather in the nature of a special privilege, of
a permission or authority to do what is within its terms. It is not in any way
vested, permanent or absolute." [25]

It is therefore decisively clear that estoppel cannot apply in this case. The fact that
petitioner acquiesced in the special conditions imposed by the City Mayor in subject
business permit does not preclude it from challenging the said imposition, which is ultra
vires or beyond the ambit of authority of respondent City Mayor. Ultra vires acts or acts
which are clearly beyond the scope of ones authority are null and void and cannot be
given any effect. The doctrine of estoppel cannot operate to give effect to an act which is
otherwise null and void or ultra vires.

The Court of Appeals erred in adjudging subject business permit as having been issued
by respondent City Mayor in the performance of proprietary functions of Iligan City. As
hereinabove elaborated upon, the issuance of business licenses and permits by a
municipality or city is essentially regulatory in nature. The authority, which devolved upon
local government units to issue or grant such licenses or permits, is essentially in the
exercise of the police power of the State within the contemplation of the general welfare
clause of the Local Government Code.

WHEREFORE, the petition is GRANTED; the Decision of the Court of Appeals in CA-GR
SP No. 22995 REVERSED; and the respondent City Mayor is hereby ordered to reissue
petitioners business permit in accordance with law and with this disposition. No
pronouncement as to costs.

SO ORDERED.

Bellosillo, Puno, Mendoza, Quisumbing, Buena, Gonzaga-Reyes, Ynares-

Santiago, and De Leon, Jr., JJ., concur.

Kapunan, J., see concurring opinion.

Vitug, J., please see dissent.

Davide, Jr., C.J., Melo, Panganiban, and Pardo, JJ., joined Mr. Justice Vitug in his dissent.
G.R. No. L-27155 May 18, 1978

PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, INC., respondents.

Medina, Locsin, Coruña, & Sumbillo for petitioner.

Manuel Lim & Associates for private respondents.

ANTONIO, J.:

Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of
Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio,
as third-party plaintiff, the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same
is fully paid, P200.00 attorney's fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the
Philippine American General Insurance Co., Inc., to be paid directly to the Philippine American General Insurance
Co., Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the former; plus P500.00
attorney's fees for Rita Gueco Tapnio and costs. The basic action is the complaint filed by Philamgen (Philippine
American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of
the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of respondents Tapnio and
Gueco, pursuant to an indemnity agreement. Petitioner Bank was made third-party defendant by Tapnio and Gueco
on the theory that their failure to pay the debt was due to the fault or negligence of petitioner.

The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of
Manila, are quoted hereunder:

Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the
Philippine National Bank Branch at San Fernando, Pampanga, to guarantee the payment of
defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the payment of
whatever amount the bonding company would pay to the Philippine National Bank, both defendants
executed the indemnity agreement, Exh. B. Under the terms and conditions of this indemnity
agreement, whatever amount the plaintiff would pay would earn interest at the rate of 12% per
annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of court
litigation.

The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00.

It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of
P2,000.00, plus accumulated interests unpaid, which she failed to pay despite demands. The Bank
wrote a letter of demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on September
18, 1957, the full amount due and owing in the sum of P2,379.91, for and on account of defendant
Rita Gueco's obligation (Exhs. D and D-1).

Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F),
but to no avail.

Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand
was made upon her by plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she
did not consider herself to be indebted to the Bank at all because she had an agreement with one
Jacobo-Nazon whereby she had leased to the latter her unused export sugar quota for the 1956-
1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of
P2,800.00, which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A. This
lease agreement, according to her, was with the knowledge of the bank. But the Bank has placed
obstacles to the consummation of the lease, and the delay caused by said obstacles forced 'Nazon
to rescind the lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint against the
Bank to recover from the latter any and all sums of money which may be adjudged against her and
in favor of the plaitiff plus moral damages, attorney's fees and costs.

Insofar as the contentions of the parties herein are concerned, we quote with approval the following
findings of the lower court based on the evidence presented at the trial of the case:

It has been established during the trial that Mrs. Tapnio had an export sugar quota of
1,000 piculs for the agricultural year 1956-1957 which she did not need. She agreed
to allow Mr. Jacobo C. Tuazon to use said quota for the consideration of P2,500.00
(Exh. "4"-Gueco). This agreement was called a contract of lease of sugar allotment.

At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National
Bank at San Fernando, Pampanga. Her indebtedness was known as a crop loan and
was secured by a mortgage on her standing crop including her sugar quota allocation
for the agricultural year corresponding to said standing crop. This arrangement was
necessary in order that when Mrs. Tapnio harvests, the P.N.B., having a lien on the
 crop, may effectively enforce collection against her. Her sugar cannot be exported
without sugar quota allotment Sometimes, however, a planter harvest less sugar
than her quota, so her excess quota is utilized by another who pays her for its use.
This is the arrangement entered into between Mrs. Tapnio and Mr. Tuazon regarding
the former's excess quota for 1956-1957 (Exh. "4"-Gueco).

Since the quota was mortgaged to the P.N.B., the contract of lease had to be
approved by said Bank, The same was submitted to the branch manager at San
Fernando, Pampanga. The latter required the parties to raise the consideration of
P2.80 per picul or a total of P2,800.00 (Exh. "2-Gueco") informing them that "the
minimum lease rental acceptable to the Bank, is P2.80 per picul." In a letter
addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the
manager that he was agreeable to raising the consideration to P2.80 per picul. He
further informed the manager that he was ready to pay said amount as the funds
were in his folder which was kept in the bank.

Explaining the meaning of Tuazon's statement as to the funds, it was stated by him
that he had an approved loan from the bank but he had not yet utilized it as he was
intending to use it to pay for the quota. Hence, when he said the amount needed to
pay Mrs. Tapnio was in his folder which was in the bank, he meant and the manager
understood and knew he had an approved loan available to be used in payment of
the quota. In said Exh. "6-Gueco", Tuazon also informed the manager that he would
want for a notice from the manager as to the time when the bank needed the money
so that Tuazon could sign the corresponding promissory note.

Further Consideration of the evidence discloses that when the branch manager of the Philippine
National Bank at San Fernando recommended the approval of the contract of lease at the price of
P2.80 per picul (Exh. 1 1-Bank), whose recommendation was concurred in by the Vice-president of
said Bank, J. V. Buenaventura, the board of directors required that the amount be raised to 13.00
per picul. This act of the board of directors was communicated to Tuazon, who in turn asked for a
reconsideration thereof. On November 19, 1956, the branch manager submitted Tuazon's request
for reconsideration to the board of directors with another recommendation for the approval of the
lease at P2.80 per picul, but the board returned the recommendation unacted upon, considering that
the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank).

The parties were notified of the refusal on the part of the board of directors of the Bank to grant the
motion for reconsideration. The matter stood as it was until February 22, 1957, when Tuazon wrote a
letter (Exh. 10-Bank informing the Bank that he was no longer interested to continue the deal,
referring to the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio. The result is
that the latter lost the sum of P2,800.00 which she should have received from Tuazon and which she
could have paid the Bank to cancel off her indebtedness,

The court below held, and in this holding we concur that failure of the negotiation for the lease of the
sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of the
Philippine National Bank, The refusal on the part of the bank to approve the lease at the rate of
P2.80 per picul which, as stated above, would have enabled Rita Gueco Tapnio to realize the
amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the Bank, and its
insistence on the rental price of P3.00 per picul thus unnecessarily increasing the value by only a
difference of P200.00. inevitably brought about the rescission of the lease contract to the damage
and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The unreasonableness of the
position adopted by the board of directors of the Philippine National Bank in refusing to approve the
lease at the rate of P2.80 per picul and insisting on the rate of P3.00 per picul, if only to increase the
retail value by only P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the
Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and
interests on her properties, and surety bonds, aside from the fact that from Exh. 8-Bank, it appears
that she was offering to execute a real estate mortgage in favor of the Bank to replace the surety
bond This statement is further bolstered by the fact that Rita Gueco Tapnio apparently had the
means to pay her obligation fact that she has been granted several value of almost P80,000.00 for
the agricultural years from 1952 to 56. 1

Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the
present petition.

The petitioner contends that the Court of Appeals erred:

(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita
Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract,
and its unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and

(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the
petitioner, the latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota
leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and
under the Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which
include the right to approve or disapprove the said lease of sugar quota and in the exercise of that authority, its

Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject
of the lease between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and
the Corporation Law, petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect
to fixing of rental prices of export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act
arbitrarily since the said Board was guided by statistics of sugar price and prices of sugar quotas prevailing at the
time. Since the fixing of the rental of the sugar quota is a function lodged with petitioner's Board of Directors and is a
matter of policy, the respondent Court of Appeals could not substitute its own judgment for that of said Board of
Directors, which acted in good faith, making as its basis therefore the prevailing market price as shown by statistics
which were then in their possession.

Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a
creditor, it shall be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required
to return to respondent Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to
petitioner by said insurance company in behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and
without recourse against respondent Rita Gueco Tapnio.

We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing
only errors of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of
the evidence. 2

The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon
was executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank
at San Fernando, Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was
secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop. The latter required the parties to raise the consideration to P2.80 per picul, the
minimum lease rental acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch Manager, thru a
letter dated August 10, 1956, that he was agreeable to raising the consideration to P2.80 per picul. He further
informed the manager that he was ready to pay the said sum of P2,800.00 as the funds were in his folder which was
kept in the said Bank. This referred to the approved loan of Tuazon from the Bank which he intended to use in
paying for the use of the sugar quota. The Branch Manager submitted the contract of lease of sugar quota allocation
to the Head Office on September 7, 1956, with a recommendation for approval, which recommendation was
concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of Directors
of petitioner required that the consideration be raised to P3.00 per picul.

Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On
November 19, 1956, the Branch Manager submitted the request for reconsideration and again recommended the
approval of the lease at P2.80 per picul, but the Board returned the recommendation unacted, stating that the
current price prevailing at that time was P3.00 per picul.

On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the
lease of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota,
resulting in her loss in the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been
implemented.

It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration
of the lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the
Branch Manager of the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per
picul was acceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the
sum of P2,800.00 which was the total consideration of the lease. This arrangement was not only satisfactory to the
Branch Manager but it was also approves by Vice-President J. V. Buenaventura of the PNB. Under that
arrangement, Rita Gueco Tapnio could have realized the amount of P2,800.00, which was more than enough to pay
the balance of her indebtedness to the Bank which was secured by the bond of Philamgen.

There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the
disapproval of the lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is
liable for the damage caused.

As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since
the same must be utilized during the milling season, because any allotment which is not filled during such milling
season may be reallocated by the Sugar Quota Administration to other holders of allotments. 3 There was no proof
that there was any other person at that time willing to lease the sugar quota allotment of private respondents for a
price higher than P2.80 per picul. "The fact that there were isolated transactions wherein the consideration for the
lease was P3.00 a picul", according to the trial court, "does not necessarily mean that there are always ready takers
of said price. " The unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the
fact that the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded
by the Board amounted only to a total sum of P200.00. Considering that all the accounts of Rita Gueco Tapnio with
the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her
properties, and surety bonds and that she had apparently "the means to pay her obligation to the Bank, as shown by
the fact that she has been granted several sugar crop loans of the total value of almost P80,000.00 for the
agricultural years from 1952 to 1956", there was no reasonable basis for the Board of Directors of petitioner to have
rejected the lease agreement because of a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was
mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the
interest of private respondents, that degree of care, precaution and vigilance which the circumstances justly demand
in approving or disapproving the lease of said sugar quota. The law makes it imperative that every person "must in
the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith, 4 This petitioner failed to do. Certainly, it knew that the agricultural year was about to expire,
that by its disapproval of the lease private respondents would be unable to utilize the sugar quota in question. In
failing to observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably
impose, petitioner is consequently liable for the damages caused on private respondents. Under Article 21 of the
New Civil Code, "any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage." The afore-cited provisions on human
relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy for the
untold number of moral wrongs which is impossible for human foresight to specifically provide in the statutes. 5

A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules
governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable, therefore,
whenever a tortious act is committed by an officer or agent under express direction or authority from the
stockholders or members acting as a body, or, generally, from the directors as the governing body." 6

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.

Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.

Separate Opinions

BARREDO, J., concurring:

concurs on the basis of Article 19 of the Civil Code, or at least, of equity. He reserves his opinion on the matter of
torts relied upon in the main opinion.

Separate Opinions

BARREDO, J., concurring:

concurs on the basis of Article 19 of the Civil Code, or at least, of equity. He reserves his opinion on the matter of
torts relied upon in the main opinion.
G. R. No. 164317 February 6, 2006

ALFREDO CHING, Petitioner,

vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE
EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP.
and THE PEOPLE OF THE PHILIPPINES, Respondents.

DECISION

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. SP
No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and its
Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof.

Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to
October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank)
for the issuance of commercial letters of credit to finance its importation of assorted goods.3

Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The
goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as surety, acknowledging
delivery of the following goods:

T/R Date Granted Maturity Date Principal Description of Goods

Nos.
1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK" Brand
Synthetic Graphite Electrode

1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles)

Calorized Lance Pipes

1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired Refractory

Tundish Bricks

1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for CCM

1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds

2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory Nozzle
Bricks

1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite Electrode

[with] tapered pitch filed
nipples
1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles
calorized lance pipes [)]

1895 12-17-80 03-17-81 P67,652.04 Spare parts for

Spectrophotometer
1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds
2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds

2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for rolling

mills
2100 02-10-81 05-12-81 P210,748.00 Spare parts for Lacolaboratory
Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way
of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as
soon as received, to apply against the relative acceptances and payment of other indebtedness to respondent bank.
In case the goods remained unsold within the specified period, the goods were to be returned to respondent bank
without any need of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the form of
money or bills, receivables, or accounts separate and capable of identification" were respondent bank’s property.

When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value
amounting to ₱6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa6 against
petitioner in the Office of the City Prosecutor of Manila.

After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as
the Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner before the Regional Trial Court
(RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of
said court.

Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed
in a Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the
Minister of Justice granted the motion, thus reversing the previous resolution finding probable cause against
petitioner.8 The City Prosecutor was ordered to move for the withdrawal of the Informations.

This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24,
1988.9The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground that the
material allegations therein did not amount to estafa.10

In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoñez,11 holding that the penal
provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited
to transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a component of a
product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a trust receipt is an
act violative of the obligation of the entrustee to pay."12

On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office
of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.

Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no probable cause
to charge petitioner with violating P.D. No. 115, as petitioner’s liability was only civil, not criminal, having signed the
trust receipts as surety.13 Respondent bank appealed the resolution to the Department of Justice (DOJ) via petition
for review, alleging that the City Prosecutor erred in ruling:

1. That there is no evidence to show that respondent participated in the misappropriation of the goods
subject of the trust receipts;

2. That the respondent is a mere surety of the trust receipts; and

3. That the liability of the respondent is only civil in nature.14

On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition and reversing the
assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior Vice-
President of PBMI, executed the 13 trust receipts and as such, was the one responsible for the offense. Thus, the
execution of said receipts is enough to indict the petitioner as the official responsible for violation of P.D. No. 115.
The Justice Secretary also declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately
destined for sale, as this issue had already been settled in Allied Banking Corporation v. Ordoñez,16 where the Court
ruled that P.D. No. 115 is "not limited to transactions in goods which are to be sold (retailed), reshipped, stored or
processed as a component of a product ultimately sold but covers failure to turn over the proceeds of the sale of
entrusted goods, or to return said goods if unsold or not otherwise disposed of in accordance with the terms of the
trust receipts."

The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only
as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as
surety as determined by the Supreme Court in its decision in Rizal Commercial Banking Corporation v. Court of
Appeals;17 and second, as the corporate official responsible for the offense under P.D. No. 115, via criminal
prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without prejudice to the
civil liabilities arising from the criminal offense." Thus, according to the Justice Secretary, following Rizal
Commercial Banking Corporation, the civil liability imposed is clearly separate and distinct from the criminal liability
of the accused under P.D. No. 115.

Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against
petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No.
99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for
reconsideration, which the Secretary of Justice denied in a Resolution18 dated January 17, 2000.

Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the
Secretary of Justice on the following grounds:

1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE
THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN THE
ALLEGED TRANSACTIONS.

2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF

DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF
THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE
PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.

3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN

GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY
CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS.19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or
proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is
finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby
undertakes to notify this Honorable Court within five (5) days from such notice."20

In its Comment on the petition, the Office of the Solicitor General alleged that -

A.

THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO

CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF
PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE
315, PAR. 1(B) OF THE REVISED PENAL CODE.

B.

THERE IS NO MERIT IN PETITIONER’S CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE
CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL.

C.

THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS NOT
THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE
PRESENT PETITION MUST THEREFORE BE DISMISSED.21

On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural grounds.
On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by petitioner and
incorporated in the petition was defective for failure to comply with the first two of the three-fold undertakings
prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition
and mandamus was not the proper remedy of the petitioner.

On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly
issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the signatory to the
trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he
violated P.D. No. 115 by his actuations, had already been resolved and laid to rest in Allied Bank Corporation v.
Ordoñez;22 and (c) petitioner was estopped from raising the

City Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to do so in the DOJ.

Thus, petitioner filed the instant petition, alleging that:

THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE
CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE.

II

THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF
JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS.23

The Court will delve into and resolve the issues seriatim.

The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of
procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be
construed liberally especially when, as in this case, his substantial rights are adversely affected; hence, the
deficiency in his certification of non-forum shopping should not result in the dismissal of his petition.

The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of
non-forum shopping incorporated in the petition before the CA is defective because it failed to disclose essential
facts about pending actions concerning similar issues and parties. It asserts that petitioner’s failure to comply with
the Rules of Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in
Melo v. Court of Appeals.24

We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his petition
before the appellate court is defective. The certification reads:

It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court
of Appeals or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it
hereby undertakes to notify this Honorable Court within five (5) days from such notice.25

Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied
by a sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said
Rules. The latter provision reads in part:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. — The petition shall contain the
full names and actual addresses of all the petitioners and respondents, a concise statement of the matters involved,
the factual background of the case and the grounds relied upon for the relief prayed for.

xxx

The petitioner shall also submit together with the petition a sworn certification that he has not theretofore
commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different
divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the status
of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he
undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days
therefrom. xxx

Compliance with the certification against forum shopping is separate from and independent of the avoidance of
forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing
requirement shall be sufficient ground for the dismissal of the petition without prejudice, unless otherwise provided.26

Indubitably, the first paragraph of petitioner’s certification is incomplete and unintelligible. Petitioner failed to certify
that he "had not heretofore commenced any other action involving the same issues in the Supreme Court, the Court
of Appeals or the different divisions thereof or any other tribunal or agency" as required by paragraph 4, Section 3,
Rule 46 of the Revised Rules of Court.

We agree with petitioner’s contention that the certification is designed to promote and facilitate the orderly
administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on the
Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with respect to the
contents of the certification which the pleader may prepare, the rule of substantial compliance may be availed
of.27However, there must be a special circumstance or compelling reason which makes the strict application of the
requirement clearly unjustified. The instant petition has not alleged any such extraneous circumstance. Moreover, as
worded, the certification cannot even be regarded as substantial compliance with the procedural requirement. Thus,
the CA was not informed whether, aside from the petition before it, petitioner had commenced any other action
involving the same issues in other tribunals.

On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice
committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under
Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court
ratiocinated:

Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough
to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out with
his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is
no iota of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability, if
at all, is purely civil because he signed the said trust receipts merely as a xxx surety and not as the entrustee. These
assertions are, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz:

"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:

‘xxx If the violation or offense is committed by a corporation, partnership, association or other judicial entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or
persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.’

"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13)
trust receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot
be proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is
required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against
the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus,
the execution by respondent of said receipts is enough to indict him as the official responsible for violation of PD
115.

"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately
destined for sale and not goods, like those imported by PBM, for use in manufacture. This issue has already been
settled in the Allied Banking Corporation case, supra, where he was also a party, when the Supreme Court ruled
that PD 115 is ‘not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as
a component or a product ultimately sold’ but ‘covers failure to turn over the proceeds of the sale of entrusted
goods, or to return said goods if unsold or disposed of in accordance with the terms of the trust receipts.’
"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust
receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities
which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as
determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as
the corporate official responsible for the offense under PD 115, the present case is an appropriate remedy under our
penal law.

"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil liabilities
arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is
clearly separate and distinct from his criminal liability under PD 115.’"28

Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction between PBMI and
respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity
as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence, could not have
committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and
used the same in operating its machineries and equipment and not for resale.

The OSG, for its part, submits a contrary view, to wit:

34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged
as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the
transactions sued upon were clearly entered into in his capacity as an officer of the corporation" and that [h]e never
received the goods as an entrustee for PBM as he never had or took possession of the goods nor did he commit
dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of merit.

35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any
liability. Petitioner’s responsibility as the corporate official of PBM who received the goods in trust is premised on
Section 13 of P.D. No. 115, which provides:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense. (Emphasis supplied)

36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM, it
was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBM’s
violation of P.D. No. 115.29

The ruling of the CA is correct.

In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial officer may
be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford adequate
protection to the constitutional rights of the accused; (b) when necessary for the orderly administration of justice; (c)
when the acts of the officer are without or in excess of authority; (d) where the charges are manifestly false and
motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against the accused.31 The
Court also declared that, if the officer conducting a preliminary investigation (in that case, the Office of the
Ombudsman) acts without or in excess of his authority and resolves to file an Information despite the absence of
probable cause, such act may be nullified by a writ of certiorari.32

Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure,33 the Information shall be prepared by
the Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent
for trial. The Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is
filed against the respondent despite absence of evidence showing probable cause therefor.34 If the Secretary of
Justice reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent
for trial, and orders such prosecutor to file the Information despite the absence of probable cause, the Secretary of
Justice acts contrary to law, without authority and/or in excess of authority. Such resolution may likewise be nullified
in a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure.35

A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution,
is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is probable cause to
believe that the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably
charged with a crime. Probable cause need not be based on clear and convincing evidence of guilt, as the
investigating officer acts upon probable cause of reasonable belief. Probable cause implies probability of guilt and
requires more than bare suspicion but less than evidence which would justify a conviction. A finding of probable
cause needs only to rest on evidence showing that more likely than not, a crime has been committed by the
suspect.36

However, while probable cause should be determined in a summary manner, there is a need to examine the
evidence with care to prevent material damage to a potential accused’s constitutional right to liberty and the
guarantees of freedom and fair play37 and to protect the State from the burden of unnecessary expenses in
prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless charges.38

In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing
the assailed resolutions. Indeed, he acted in accord with law and the evidence.

Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree,
is any transaction by and between a person referred to in this Decree as the entruster, and another person referred
to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over
certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the
latter’s execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee
binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms
and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:

1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or
process the goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under
trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain
its title over the goods whether in its original or processed form until the entrustee has complied fully with his
obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a manner
preliminary or necessary to their sale; or

2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal;
or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to
effect their presentation, collection or renewal.

The sale of goods, documents or instruments by a person in the business of selling goods, documents or
instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such
goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as
security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the
purview and coverage of this Decree.

An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt
transaction, and any successor in interest of such person for the purpose of payment specified in the trust receipt
agreement.39 The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the entruster and
shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the
proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire, theft,
pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form, separate
and capable of identification as property of the entruster; (5) return the goods, documents or instruments in the
event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust receipt
not contrary to the provisions of the decree.40

The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under
a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or
to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights
conferred on him in the trust receipt; provided, such are not contrary to the provisions of the document.41

In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust
receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement was as follows:

And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with
liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the Bank’s
account, but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the
proceeds) either by way of conditional sale, pledge or otherwise.

I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other casualties
as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the understanding that
the BANK is, not to be chargeable with the storage premium or insurance or any other expenses incurred on said
goods.

In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply
against the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours
to the BANK. In case of non-sale within the period specified herein, I/we agree to return the goods under this Trust
Receipt to the BANK without any need of demand.

I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or
bills, receivables, or accounts separate and capable of identification as property of the BANK.42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the
failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said goods,
if not sold, is a public nuisance to be abated by the imposition of penal sanctions.43

The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured
as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v.
Ordoñez.44 The law applies to goods used by the entrustee in the operation of its machineries and equipment. The
non-payment of the amount covered by the trust receipts or the non-return of the goods covered by the receipts, if
not sold or otherwise not disposed of, violate the entrustee’s obligation to pay the amount or to return the goods to
the entruster.

In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in a trust receipt
transaction. The first is covered by the provision which refers to money received under the obligation involving the
duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which
refers to merchandise received under the obligation to return it (devolvera) to the owner.46 Thus, failure of the
entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts to the entruster or to return
said goods if they were not disposed of in accordance with the terms of the trust receipt is a crime under P.D. No.
115, without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in the handling
of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or not. A mere
failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that causes
prejudice, not only to another, but more to the public interest.47

The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had
no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.

The penalty clause of the law, Section 13 of P.D. No. 115 reads:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation,
1âwphi1

partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.

The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315
of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other
juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided in
said Article 315, which reads:

ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:

1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the
amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds
the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty
years. In such cases, and in connection with the accessory penalties which may be imposed and for the
purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be;

2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is
over 6,000 pesos but does not exceed 12,000 pesos;

3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such
amount is over 200 pesos but does not exceed 6,000 pesos; and

4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided
that in the four cases mentioned, the fraud be committed by any of the following means; xxx

Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other
officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such
officers or employees are vested with the authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible
share in the violations of the law.48

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers
thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of
the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for
a crime punishable by imprisonment.49 However, a corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may
be prosecuted and, if found guilty, may be fined.50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A
necessary part of the definition of every crime is the designation of the author of the crime upon whom the penalty is
to be inflicted. When a criminal statute designates an act of a corporation or a crime and prescribes punishment
therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the
corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for
which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be
committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees
of such corporation or other persons responsible for the offense, only such individuals will suffer such
penalty.51Corporate officers or employees, through whose act, default or omission the corporation commits a crime,
are themselves individually guilty of the crime.52

The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those
corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or
other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to prevent the act.53 Moreover, all parties active in promoting a
crime, whether agents or not, are principals.54 Whether such officers or employees are benefited by their delictual
acts is not a touchstone of their criminal liability. Benefit is not an operative fact.

In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate
corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself
behind a corporation where he is the actual, present and efficient actor.55

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice Asscociate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above
decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

ARTEMIO V. PANGANIBAN
Chief Justice
 [G.R. No. 114286. April 19, 2001]

THE CONSOLIDATED BANK AND TRUST CORPORATION

(SOLIDBANK), petitioner, vs. THE COURT OF APPEALS, CONTINENTAL
CEMENT CORPORATION, GREGORY T. LIM and SPOUSE, respondents.

DECISION
YNARES-SANTIAGO, J.:

The instant petition for review seeks to partially set aside the July 26, 1993 Decision [1] of respondent Court
of Appeals in CA-G.R. CV No. 29950, insofar as it orders petitioner to reimburse respondent Continental
Cement Corporation the amount of P490,228.90 with interest thereon at the legal rate from July 26, 1988 until
fully paid.The petition also seeks to set aside the March 8, 1994 Resolution[2] of respondent Court of Appeals
denying its Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent Corporation) and
Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner Consolidated Bank and Trust
Corporation Letter of Credit No. DOM-23277 in the amount of P1,068,150.00 On the same date, respondent
Corporation paid a marginal deposit of P320,445.00 to petitioner. The letter of credit was used to purchase
around five hundred thousand liters of bunker fuel oil from Petrophil Corporation, which the latter delivered
directly to respondent Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the
amount of P1,001,520.93 was executed by respondent Corporation, with respondent Lim as signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof,
petitioner filed a complaint for sum of money with application for preliminary attachment [3] before the Regional
Trial Court of Manila. In answer to the complaint, respondents averred that the transaction between them was a
simple loan and not a trust receipt transaction, and that the amount claimed by petitioner did not take into
account payments already made by them. Respondent Lim also denied any personal liability in the subject
transactions. In a Supplemental Answer, respondents prayed for reimbursement of alleged overpayment to
petitioner of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:

1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction;

2) Whether or not the interest rates charged against the defendants by the plaintiff are proper under
the letter of credit, trust receipt and under existing rules or regulations of the Central Bank;

3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the
defendant corporation on July 13, 1982 as payment for the latters account; and

4) Whether or not the defendants are personally liable under the transaction sued for in this case.[4]

On September 17, 1990, the trial court rendered its Decision,[5] dismissing the Complaint and ordering
petitioner to pay respondents the following amounts under their counterclaim: P490,228.90 representing
overpayment of respondent Corporation, with interest thereon at the legal rate from July 26, 1988 until fully
paid; P10,000.00 as attorneys fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award
of attorneys fees in favor of respondents and, instead, ordering respondent Corporation to pay petitioner
P37,469.22 as and for attorneys fees and litigation expenses.
Hence, the instant petition raising the following issues:

1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY

OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS
OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT
OF P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN THE
DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN
VIOLATION OF THE NEW CIVIL CODE.

2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT

BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING
PRACTICE.
3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING
OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES
AND REGULATIONS OF THE CENTRAL BANK.

4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN

NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT
TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE
RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR.

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN

NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST
RECEIPT TRANSACTION.[6]

The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lower court and respondent Court of
Appeals, we stress the time-honored rule that findings of fact by the Court of Appeals especially if they affirm
factual findings of the trial court will not be disturbed by this Court, unless these findings are not supported by
evidence.[7]
Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an
overpayment made. While such a computation may not have appeared in the Decision itself, we note that the
trial courts finding of overpayment is supported by evidence presented before it. At any rate, we painstakingly
reviewed and computed the payments together with the interest and penalty charges due thereon and found that
the amount of overpayment made by respondent Bank to petitioner, i.e., P563,070.13, was more than what was
ordered reimbursed by the lower court. However, since respondents did not file an appeal in this case, the
amount ordered reimbursed by the lower court should stand.
Moreover, petitioners contention that the marginal deposit made by respondent Corporation should not be
deducted outright from the amount of the letter of credit is untenable. Petitioner argues that the marginal deposit
should be considered only after computing the principal plus accrued interests and other charges. However, to
sustain petitioner on this score would be to countenance a clear case of unjust enrichment, for while a marginal
deposit earns no interest in favor of the debtor-depositor, the bank is not only able to use the same for its own
purposes, interest-free, but is also able to earn interest on the money loaned to respondent Corporation. Indeed,
it would be onerous to compute interest and other charges on the face value of the letter of credit which the
petitioner issued, without first crediting or setting off the marginal deposit which the respondent Corporation
paid to it. Compensation is proper and should take effect by operation of law because the requisites in Article
1279 of the Civil Code are present and should extinguish both debts to the concurrent amount.[8]
Hence, the interests and other charges on the subject letter of credit should be computed only on the
balance of P681,075.93, which was the portion actually loaned by the bank to respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating rate
of interest exhorted by petitioner to be applicable. The pertinent provision in the trust receipt agreement of the
parties fixing the interest rate states:

I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur
after July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the
penalty of 1% per month until the amount/s or installment/s due and unpaid under the trust receipt
on the reverse side hereof is/are fully paid.[9]

We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no
reference rate set either by it or by the Central Bank, leaving the determination thereof at the sole will and
control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to
stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market
conditions, there should always be a reference rate upon which to peg such variable interest rates. An example
of such a valid variable interest rate was found in Polotan, Sr. v. Court of Appeals.[10] In that case, the
contractual provision stating that if there occurs any change in the prevailing market rates, the new interest rate
shall be the guiding rate in computing the interest due on the outstanding obligation without need of serving
notice to the Cardholder other than the required posting on the monthly statement served to the
Cardholder[11] was considered valid. The aforequoted provision was upheld notwithstanding that it may partake
of the nature of an escalation clause, because at the same time it provides for the decrease in the interest rate in
case the prevailing market rates dictate its reduction.In other words, unlike the stipulation subject of the instant
case, the interest rate involved in the Polotan case is designed to be based on the prevailing market rate. On the
other hand, a stipulation ostensibly signifying an agreement to any increase or decrease in the interest rate,
without more, cannot be accepted by this Court as valid for it leaves solely to the creditor the determination of
what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent Corporation is really a trust
receipt transaction instead of merely a simple loan, as found by the lower court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals[12] appears to be foursquare with the facts obtaining in the
case at bar. There, we found that inasmuch as the debtor received the goods subject of the trust receipt before
the trust receipt itself was entered into, the transaction in question was a simple loan and not a trust receipt
agreement.Prior to the date of execution of the trust receipt, ownership over the goods was already transferred
to the debtor. This situation is inconsistent with what normally obtains in a pure trust receipt transaction,
wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is
granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust
receipt occurred long before the trust receipt itself was executed. More specifically, delivery of the bunker fuel
oil to respondent Corporations Bulacan plant commenced on July 7, 1982 and was completed by July 19,
1982.[13]Further, the oil was used up by respondent Corporation in its normal operations by August, 1982. [14] On
the other hand, the subject trust receipt was only executed nearly two months after full delivery of the oil was
made to respondent Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was explained in Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another
regardless of whether the latter is the owner. Here, it is crystal clear that on the part of Petitioners
there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of
PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts
issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for
their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a
state of mind was not proved to be present in Petitioners situation. Petitioners employed no artifice
in dealing with PBC and never did they evade payment of their obligation nor attempt to
abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who obtained
the fungible goods for their construction project. At no time did title over the construction materials
pass to the bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the
trust receipt in question vagueness and ambiguity, which should not be the basis for criminal
prosecution in the event of violation of its provisions.

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be unjust
and inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers
have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and
hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this
case. Eventually, PBC showed its true colors and admitted that it was only after collection of the
money, as manifested by its Affidavit of Desistance.

Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with
petitioner. Neither has it been shown that it has evaded payment of its obligations. Indeed, it continually
endeavored to meet the same, as shown by the various receipts issued by petitioner acknowledging payment on
the loan. Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal amount of only
P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling of funds on the part of
respondent Corporation, which are the gravamen of a trust receipt violation. Furthermore, respondent
Corporation is not an importer which acquired the bunker fuel oil for re-sale; it needed the oil for its own
operations. More importantly, at no time did title over the oil pass to petitioner, but directly to respondent
Corporation to which the oil was directly delivered long before the trust receipt was executed. The fact that
ownership of the oil belonged to respondent Corporation, through its President, Gregory Lim, was
acknowledged by petitioners own account officer on the witness stand, to wit:
Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the defendants thereby paying
the value of the bunker fuel oil what transpired next after that?
 A - Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the bunker fuel oil were
transferred to them.
Q - You mentioned them to whom are you referring to?
A - To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the ownership of the
bunker fuel oil this should be acceptable for whatever disposition he may make.
Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?
A - By the Continental Cement Corp.
Q - So by your statement who really owns the bunker fuel oil?
ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that question has already
been answered.
ATTY. BAAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAAGA:
Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?
A - Gregory Lim.[15]
By all indications, then, it is apparent that there was really no trust receipt transaction that took
place. Evidently, respondent Corporation was required to sign the trust receipt simply to facilitate collection by
petitioner of the loan it had extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally liable
under the subject trust receipt. Petitioners argument that respondent Corporation and respondent Lim and his
spouse are one and the same cannot be sustained. The transactions sued upon were clearly entered into by
respondent Lim in his capacity as Executive Vice President of respondent Corporation. We stress the hornbook
law that corporate personality is a shield against personal liability of its officers. Thus, we agree that
respondents Gregory T. Lim and his spouse cannot be made personally liable since respondent Lim entered into
and signed the contract clearly in his official capacity as Executive Vice President. The personality of the
corporation is separate and distinct from the persons composing it.[16]
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of
the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.
Pardo J., no part.