G.R. No.

L-20451 December 28, 1964

R. F. SUGAY and CO., INC., petitioner,

vs.
PABLO C. REYES, CESAR CURATA, PACIFIC PRODUCTS, INC., and WORKMEN'S COMPENSATION
COMMISSION, respondents.

G. S. Mangay for petitioner.

Ross, Selph & Carrascoso and Reyes & Flores for respondent Pacific Products, Inc.
R. P. Decena for respondent Cesar Curata
Villavieja & Martinez for respondent Workmen's Compensation Commission.

PAREDES, J.:

This is a Workmen's Compensation Case, the compensability of the injuries suffered by the claimants, Pablo C.
Reyes, and Cesar Curata, being admitted by all the parties. The only issue requiring determination is, who among
the three (3) persons (Romulo Sugay, R. F. Sugay & Co., Inc., and Pacific Products, Inc.) is the statutory
employer of said claimants and who should be liable for their disability compensation.

In the evening of January 13, 1961, respondents Pablo Reyes and Cesar Curata suffered burns of various
degrees, while painting the building of the Pacific Products, Inc., caused by a fire of accidental origin, resulting in
their temporary disability from work. For said injuries they filed claims for disability and medical expenses against
the R. F. Sugay & Co., Inc., Romulo F. Sugay and the Pacific Products, Inc. The R. F. Sugay & Co., Inc.,
answered the claim, alleging that the corporation was not the employer of the claimants but it was the Pacific
Products, Inc., which had an administration and supervision job contract with Romulo F. Sugay, who, aside from
being the President of the corporation, bearing his name, had also a business of his own, distinct and separate
from said corporation; and that the Regional Office of the Department of Labor had no jurisdiction over the subject
matter. Romulo F. Sugay did not file an Answer, but voluntarily appeared during the hearing and disclaimed
liability. The Answer of Pacific Products, Inc., contained the customary admissions and denials, and averred that
its business was mainly in the manufacture and sale of lacquer and other painting materials. As defenses, it
stated that the claimants were the employees of respondents R. F. Sugay Construction Co., Inc., and/or Romulo
F. Sugay that as a result of the, fire, it incurred a loss of P2,000,000.00, occasioned by the employment of
incompetent men in the painting of its factory by the Sugays.

The Hearing Officer dismissed the case with respect, to R. F. Sugay & Co., Inc., and Romulo F. Sugay "for want
of employer-employee relationship with the claimants, either directly or through an independent contractor"
declaring:

WHEREFORE, the Pacific Products, Inc., is hereby adjudged to pay through this office, the following
benefits to the claimants as follows:

1. To PABLO C. REYES, the sum of P490.05 as temporary total disability benefits plus P44.53 for
permanent partial disability of index finger plus P40.20 for the middle finger plus P49.48 for the ring finger;
plus hospital and medical expenses of P659.70 or a total of ONE THOUSAND TWO HUNDRED EIGHTY-
THREE and 96/100 PESOS (P1,283.96) as total benefits under the Act.

2. To CESAR CURATA, the sum of P415.80 as temporary total disability compensation plus P477.75 and
P273.00 for impairment of his right and left feet plus P4,459.96 as medical and hospital expenses or a
total of FIVE THOUSAND SIX HUNDRED TWENTY-FIVE and 80/100 PESOS (P5,625.80) as total
benefits under the Act.

3. To pay to this office the sum of EIGHTEEN PESOS (P18.00) as fees for the two claims pursuant to
Section 55 of the Act.

The respondents, ROMULO F. SUGAY and R. F. SUGAY & CO., INC., should be as they are hereby
exempted from any liability for lack of employer-employee relationship with the claimants.

Pacific Products, Inc., appealed the above decision to the Commission. On August 24, 1962, Commissioner Jose
Sanchez rendered judgment affirming the compensability of the injuries and the amounts due them, but modified
the decision of the Hearing Officer, by finding that R. F. Sugay & Co., Inc., was the statutory employer of the
claimants and should be liable to them. Pacific Products, Inc., was absolved from all responsibility. In the
decision, the Associate Commissioner, made the following findings and conclusions, to wit:

xxx xxx xxx

A careful study of the evidence leads us to the conclusion that, although the accident happened within the
premises of the respondent Pacific Products, Inc., the responsibility for the payment of the compensation
due in this case should be lodged somewhere else. In the first place, even the evidence presented by the
claimants and the other two respondents clearly established the fact that the accident occurred while the
 claimant, were painting the Office of Pacific Products Inc., an undertaking which had nothing to do with
the business of the latter. It was fairly shown that Pacific Products, Inc., was engaged in the manufacture
and sale of paints, varnish and other allied products, and, therefore, the work which was then being
undertaken in its office at the time of the accident has nothing to do with the nature of its business. The
records disclose that the injured painter were hired, through an intermediary, by R. F. Sugay & Co., which
was purposely established "to engage itself in the constructions, repairs, remodelling of all kinds of
houses, residences, edifices and all such other buildings and all kinds of construction works allied
thereto." (Exh. "11", Articles of Incorporation of R. F. Sugay & Co., Inc., page 241 Records of the case.)

xxx xxx xxx

The evidence adduced by the parties indicates rather clearly that, except for the fact that the Pacific
Products, Inc. supplied the paint, it did not exercise any of the above-enumerated powers. The claimants
were hired by one Rodolfo Babatid pursuant to the instruction received by the latter from Romulo Sugay.
They were paid by Eduardo Sugay, brother of Romulo and Secretary of R. F. Sugay & Co., and were
under the control of these persons during the time they were painting the office of Pacific Products, Inc.
Following the rulings enunciated in the abovecited decisions of the Supreme Court.1 we are constrained
to disagree with the Hearing Officer's decision in so far as it held that respondent Pacific Products, Inc.
should be solely responsible for the payment of the compensation he awarded in favor of the claimants.
Neither can we see the reason of the Hearing Officer in ordering said respondent to pay the
compensation in this case after ruling categorically that "the herein claimants were casual employees of
Pacific Products, Inc." A casual employee,' by the way, is one "whose employment is purely casual and is
not for the purposes of the occupation or business of the employer." (Section 39[b] Workmen's.
Compensation Act, as amended.)

xxx xxx xxx

... In a situation like this, much weight should be given to the testimony of a person who does not stand to
lose or gain from the outcome of the case. Rodolfo Babatid, who was presented by both the respondent
Romulo Sugay and the claimants, swore on the witness stand that he has been for a long time, an
employee of the firm R. F. Sugay & Co. and that he hired the other painters pursuant to Sugay as
president of said firm. This witness, and the two claimants were in unison in declaring that they were paid
by the firm, thru its secretary Eduardo Sugay, who directly supervised them in their work. That the
claimants were of the belief that they were hired by R. F. Sugay & Co., thru Mr. Babatid, is also shown by
their declarations under oath that they were paid thru the company payroll; which they signed. ... . These
two persons, as already adverted to above, expressed their honest belief that they were connected with
R. F. Sugay & Co., having been hired by one who was known to be a trusted employee of said business
establishment. Under this set of facts it may be said that R. F. Sugay & Co., is now estopped from
denying any relationship with the claimants because, thru its responsible officials, it made others believe
that the painters hired by Mr. Babatid were being employed by it. Without insinuating that the dual role
played by Romulo F. Sugay was intended to be used as a subterfuge of the corporation to cloak the
responsibilities of the corporation under his presidency, we must state that such dual roles cannot be
allowed to confuse the facts relating to employer-employee relationships.

The Commission en banc, on September 19, 1962, denied the motion for reconsideration stating that there was
"nothing to warrant a modification much less a reversal, of the decision sought to be reviewed." In the appeal of
R. F. Sugay & Co., to this Court, it is insisted that Pacific Products, Inc. was the employer of the claimants.

At the outset, We would wish to point out that this case is an appeal from the decision of the Workmen's
Compensation Commission. Needless to state, in this class of proceedings, only questions of law should be
raised, the findings of facts made by the Commission, being conclusive and binding upon this Court. (Bernardo
vs. Pascual, L-13260, October 31, 1960.) Indeed, We are authorized to inquire into the facts, but only when the
conclusions thereupon are not supported by the evidence. In the case at bar, however, We find that the findings
of facts made by the Commissioner and concurred in by the Commission en banc are fully supported by the
evidence on record which clearly points out that R. F. Sugay & Co., is the statutory employer of the claimants.
The decisive elements showing that it is the employer, are present, such as selection and engagement; payment
of wages; power of dismissal, and control (Viaña vs. Alejo-Alagadan, et al., May 31, 1956). These powers were
lodged in R. F. Sugay & Co. On this very score alone, the petition for review should be dismissed.

There was a faint attempt by the petitioning corporation, to evade liability, by advancing the theory that Romulo P.
Sugay, its President, was the one who entered into a contract of administration and supervision for the painting of
the factory of the Pacific Products, Inc., and making it appear that said Romulo F. Sugay acted as an agent of the
Pacific Products, Inc., and as such, the latter should be made answerable to the compensation due to the
claimants. We, however, agree with the Commission that "the dual roles of Romulo F. Sugay should not be
allowed to confuse the facts relating to employer-employee relationship." It is a legal truism that when the veil of
corporate fiction is made as a shield to perpetrate a fraud and/or confuse legitimate issues (here, the relation of
employer-employee), the same should be pierced. Verily the R. F. Sugay & Co., Inc. is a business conduit of R.
F. Sugay.
IN VIEW HEREOF, the writ is denied, and the judgment appealed from, is hereby affirmed, in all respects. Costs
taxed against petitioner R. F. Sugay & Co., Inc., in both instances.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P.,
and Zaldivar, JJ., concur.

Footnotes

1Philippine Manufacturing Co. vs. E. Santos Vda. de Geronimo, et al., L-6968, November 29, 1954; Viaña
vs. Alejo-Alagadan, et al., L-8967, May 31, 1956.
G.R. No. L-20886 April 27, 1967

NATIONAL MARKETING CORPORATION (NAMARCO), plaintiff-appellant,

vs.
ASSOCIATED FINANCE COMPANY, INC., and FRANCISCO SYCIP, defendants.
FRANCISCO SYCIP, defendant-appellee.

Tomas P. Matic, Jr,. for plaintiff and appellant.

Francisco Sycip in his behalf as defendant and appellee.

DIZON, J.:

Appeal by the National Marketing Corporation — hereinafter referred to as NAMARCO, from the decision of the
Court of First Instance of Manila in Civil Case No. 45770 ordering the Associated Finance Company, Inc. —
hereinafter referred to as the ASSOCIATED — to pay the NAMARCO the sum of P403,514.28, with legal interest
thereon from the date of filing of the action until fully paid, P80,702.26 as liquidated damages, P5,000.00 as
attorney's fees, plus costs, but dismissing the complaint insofar as defendant Francisco Sycip was concerned, as
well as the latter's counterclaim. The appeal is only from that portion of the decision dismissing the case as
against Francisco Sycip.

On March 25, 1958, ASSOCIATED, a domestic corporation, through its President, appellee Francisco Sycip,
entered into an agreement to exchange sugar with NAMARCO, represented by its then General Manager,
Benjamin Estrella, whereby the former would deliver to the latter 22,516 bags (each weighing 100 pounds) of
"Victorias" and/or "National" refined sugar in exchange for 7,732.71 bags of "Busilak" and 17,285.08 piculs of
"Pasumil" raw sugar belonging to NAMARCO, both agreeing to pay liquidated damages equivalent to 20% of the
contractual value of the sugar should either party fail to comply with the terms and conditions stipulated (Exhibit
A). Pursuant thereto, on May 19,1958, NAMARCO delivered to ASSOCIATED 7,732.71 bars of "Busilak" and
17,285.08 piculs of "Pasumil" domestic raw sugar. As ASSOCIATED failed to deliver to NAMARCO the 22,516
bags of "Victoria" and/or "National" refined sugar agreed upon, the latter, on January 12, 1959, demanded in
writing from the ASSOCIATED either (a) immediate delivery thereof before January 20, or (b) payment of its
equivalent cash value amounting to P372,639.80.

On January 19, 1959, ASSOCIATED, through Sycip, offered to pay NAMARCO the value of 22,516 bags of
refined sugar at the rate of P15.30 per bag, but the latter rejected the offer. Instead, on January 21 of the same
year it demanded payment of the 7,732.71 bags of "Busilak" raw sugar at P15.30 per bag, amounting to
P118,310.40. and of the 17,285.08 piculs of "Pasumil" raw sugar at P16.50 per picul, amounting, to P285.203.82,
or a total price of P403,514.28 for both kinds of sugar, based on the sugar quotations (Exh. H) as of March 20,
1958 — the date when the exchange agreement was entered into.

As ASSOCIATED refused to deliver the raw sugar or pay for the refined sugar delivered to it, inspite of repeated
demands therefore, NAMARCO instituted the present action in the lower court to recover the sum of P403,514.28
in payment of the raw sugar received by defendants from it; P80,702.86 as liquidated damages; P10,000.00 as
attorney's fees, expenses of litigation and exemplary damages, with legal interest thereon from the filing of the
complaint until fully paid.

In their amended answer defendants, by way of affirmative defenses, alleged that the correct value of the sugar
delivered by NAMARCO to them was P259,451.09 or P13.30 per bag of 100 lbs. weight (quedan basis) and not
P403,514.38 as claimed by NAMARCO. As counterclaim they prayed for the award of P500,000.00 as moral
damages, P100,000.00 as exemplary damages and P10,000.00 as attorney's fees.

After due trial court rendered the appealed judgment. The appeal was taken to the Court of Appeals, but on
January 15, 1963 the latter certified the case to us for final adjudication pursuant to sections 17 and 31 of the
Judiciary Act of 1948, as amended, the amount involved being more than P200,000.00, exclusive of interests and
cost.

The only issue to be resolved is whether, upon the facts found by the trial court, — which, in our opinion, are fully
supported by the evidence — Francisco Sycip may be held liable, jointly and severally with his co-defendant, for
the sums of money adjudged in favor of NAMARCO.

The evidence of record shows that, of the capital stock of ASSOCIATED, Sycip owned P60,000.00 worth of
shares, while his wife — the second biggest stockholder — owned P20,000.00 worth of shares; that the par value
of the subscribed capital stock of ASSOCIATED was only P105,000.00; that negotiations that lead to the
execution of the exchange agreement in question were conducted exclusively by Sycip on behalf of
ASSOCIATED; that, as a matter of fact, in the course of his testimony, Sycip referred to himself as the one who
contracted or transacted the business in his personal capacity, and asserted that the exchange agreement was
his personal contract; that it was Sycip who made personal representations and gave assurances that
ASSOCIATED was in actual possession of the 22,516 bags of "Victorias" and/or "National" refined sugar which
the latter had agreed to deliver to NAMARCO, and that the same was ready for delivery; that, as a matter of fact,
ASSOCIATED was at that time already insolvent; that when NAMARCO made demands upon ASSOCIATED to
deliver the 22,516 bags of refined sugar it was under obligation to deliver to the former, ASSOCIATED and Sycip,
instead of making delivery of the sugar, offered to pay its value at the rate of P15.30 per bag — a clear indication
that they did not have the sugar contracted for. 1äwphï1.ñët

The foregoing facts, fully established by the evidence, can lead to no other conclusion than that Sycip was guilty
of fraud because through false representations he succeeded in inducing NAMARCO to enter into the aforesaid
exchange agreement, with full knowledge, on his part, on the fact that ASSOCIATED whom he represented and
over whose business and affairs he had absolute control, was in no position to comply with the obligation it had
assumed. Consequently, he can not now seek refuge behind the general principle that a corporation has a
personality distinct and separate from that of its stockholders and that the latter are not personally liable for the
corporate obligations. To the contrary, upon the proven facts, We feel perfectly justified in "piercing the veil of
corporate fiction" and in holding Sycip personally liable, jointly and severally with his co-defendant, for the sums
of money adjudged in favor of appellant. It is settled law in this and other jurisdictions that when the corporation is
the mere alter ego of a person, the corporate fiction may be disregarded; the same being true when the
corporation is controlled, and its affairs are so conducted as to make it merely an instrumentality, agency or
conduit of another (Koppel Phils., etc. vs. Yatco, etc., 43 O.G. No. 11. Nov. 1947; Yutivo Sons, etc. vs. Court of
Tax Appeals, etc., G.R. No. L-13203, promulgated on January 28, 1961).

Wherefore, the decision appealed from is modified by sentencing defendant-appellee Francisco Sycip to pay,
jointly and severally with the Associated Finance Company, Inc., the sum of money which the trial court
sentenced the latter to pay to the National Marketing Corporation, as follows: the sum of FOUR HUNDRED
THREE THOUSAND FIVE HUNDRED FOURTEEN PESOS, and TWENTY-EIGHT CENTAVOS P403,514.28),
with interest at the legal rate from the date of the filing of the action until fully paid plus an additional amount of
EIGHTY THOUSAND SEVEN HUNDRED TWO PESOS and EIGHTY-SIX CENTAVOS (P80,702.86) as
liquidated damages and P5,000.00 as attorney's fees and further to pay the costs. With costs.

Concepcion, C.J., Reyes, J.B.L., Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez JJ., concur.
Castro, J., took no part.
G.R. No. L-15121 August 31, 1962

GREGORIO PALACIO, in his own behalf and in behalf of his minor child,
MARIO PALACIO, plaintiffs-appellants,
vs.
FELY TRANSPORTATION COMPANY, defendant-appellee.

Antonio A. Saba for plaintiffs-appellants.

Mercado, Ver and Reyes for defendant-appellee.

REGALA, J.:

This is an appeal by the plaintiffs from the decision of the Court of First Instance of Manila which dismissed their
complaint.

Originally taken to the Court of Appeals, this appeal was certified to this Court on the ground that it raises purely
questions of law.

The parties in this case adopt the following findings of fact of the lower court:

In their complaint filed with this Court on May 15, 1954, plaintiffs allege, among other things, "that about
December, 1952, the defendant company hired Alfredo Carillo as driver of AC-787 (687) (a registration for
1952) owned and operated by the said defendant company; that on December 24, 1952, at about 11:30
a.m., while the driver Alfonso (Alfredo) Carillo was driving AC-687 at Halcon Street, Quezon City, wilfully,
unlawfully and feloniously and in a negligent, reckless and imprudent manner, run over a child Mario
Palacio of the herein plaintiff Gregorio Palacio; that on account of the aforesaid injuries, Mario Palacio
suffered a simple fracture of the right tenor (sic), complete third, thereby hospitalizing him at the Philippine
Orthopedic Hospital from December 24, 1952, up to January 8, 1953, and continued to be treated for a
period of five months thereafter; that the plaintiff Gregorio Palacio herein is a welder by occupation and
owner of a small welding shop and because of the injuries of his child he has abandoned his shop where
he derives income of P10.00 a day for the support of his big family; that during the period that the
plaintiff's (Gregorio Palacio's) child was in the hospital and who said child was under treatment for five
months in order to meet the needs of his big family, he was forced to sell one air compressor (heavy duty)
and one heavy duty electric drill, for a sacrifice sale of P150.00 which could easily sell at P350.00; that as
a consequence of the negligent and reckless act of the driver Alfredo Carillo of the herein defendant
company, the herein plaintiffs were forced to litigate this case in Court for an agreed amount of P300.00
for attorney's fee; that the herein plaintiffs have now incurred the amount of P500.00 actual expenses for
transportation, representation and similar expenses for gathering evidence and witnesses; and that
because of the nature of the injuries of plaintiff Mario Palacio and the fear that the child might become a
useless invalid, the herein plaintiff Gregorio Palacio has suffered moral damages which could be
conservatively estimated at P1,200.00.

On May 23, 1956, defendant Fely Transportation Co., filed a Motion to Dismiss on the grounds (1) that
there is no cause of action against the defendant company, and (2) that the cause of action is barred by
prior judgment..

In its Order, dated June 8, 1956, this Court deferred the determination of the grounds alleged in the
Motion to Dismiss until the trial of this case.

On June 20, 1956, defendant filed its answer. By way of affirmative defenses, it alleges (1) that complaint
states no cause of action against defendant, and (2) that the sale and transfer of the jeep AC-687 by
Isabelo Calingasan to the Fely Transportation was made on December 24, 1955, long after the driver
Alfredo Carillo of said jeep had been convicted and had served his sentence in Criminal Case No. Q-1084
of the Court of First Instance of Quezon City, in which both the civil and criminal cases were
simultaneously tried by agreement of the parties in said case. In the Counterclaim of the Answer,
defendant alleges that in view of the filing of this complaint which is a clearly unfounded civil action merely
to harass the defendant, it was compelled to engage the services of a lawyer for an agreed amount of
P500.00.

During the trial, plaintiffs presented the transcript of the stenographic notes of the trial of the case of
"People of the Philippines vs. Alfredo Carillo, Criminal Case No. Q-1084," in the Court of First Instance of
Rizal, Quezon City (Branch IV), as Exhibit "A". 1äw phï1.ñët

It appears from Exhibit "A" that Gregorio Palacio, one of the herein plaintiffs, testified that Mario Palacio,
the other plaintiff, is his son; that as a result of the reckless driving of accused Alfredo Carillo, his child
Mario was injured and hospitalized from December 24, 1952, to January 8, 1953; that during all the time
that his child was in the hospital, he watched him during the night and his wife during the day; that during
that period of time he could not work as he slept during the day; that before his child was injured, he used
to earn P10.00 a day on ordinary days and on Sundays from P20 to P50 a Sunday; that to meet his
 expenses he had to sell his compressor and electric drill for P150 only; and that they could have been
sold for P300 at the lowest price.

During the trial of the criminal case against the driver of the jeep in the Court of First Instance of Quezon
City (Criminal Case No. Q-1084) an attempt was unsuccessfully made by the prosecution to prove moral
damages allegedly suffered by herein plaintiff Gregorio Palacio. Likewise an attempt was made in vain by
the private prosecutor in that case to prove the agreed attorney's fees between him and plaintiff Gregorio
Palacio and the expenses allegedly incurred by the herein plaintiffs in connection with that case. During
the trial of this case, plaintiff Gregorio Palacio testified substantially to the same facts.

The Court of First Instance of Quezon City in its decision in Criminal Case No. 1084 (Exhibit "2")
determined and thoroughly discussed the civil liability of the accused in that case. The dispositive part
thereof reads as follows:

IN VIEW OF THE FOREGOING, the Court finds the accused Alfredo Carillo y Damaso guilty beyond
reasonable doubt of the crime charged in the information and he is hereby sentenced to suffer
imprisonment for a period of Two Months & One Day of Arresto Mayor; to indemnify the offended party,
by way of consequential damages, in the sum of P500.00 which the Court deems reasonable; with
subsidiary imprisonment in case of insolvency but not to exceed ¹/3 of the principal penalty imposed; and to pay the costs.

On the basis of these facts, the lower court held action is barred by the judgment in the criminal case and, that
under Article 103 of the Revised Penal Code, the person subsidiarily liable to pay damages is Isabel Calingasan,
the employer, and not the defendant corporation.

Against that decision the plaintiffs appealed, contending that:

THE LOWER COURT ERRED IN NOT SUSTAINING THAT THE DEFENDANT-APPELLEE IS

SUBSIDIARILY LIABLE FOR DAMAGES AS A RESULT OF CRIMINAL CASE NO. Q-1084 OF THE
COURT OF FIRST INSTANCE OF QUEZON CITY FOR THE REASON THAT THE INCORPORATORS
OF THE FELY TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE HEREIN, ARE
ISABELO CALINGASAN HIMSELF, HIS SON AND DAUGHTERS;

THE LOWER COURT ERRED IN NOT CONSIDERING THAT THE INTENTION OF ISABELO
CALINGASAN IN INCORPORATING THE FELY TRANSPORTATION COMPANY, THE DEFENDANT-
APPELLEE HEREIN, WAS TO EVADE HIS CIVIL LIABILITY AS A RESULT OF THE CONVICTION OF
HIS DRIVER OF VEHICLE AC-687 THEN OWNED BY HIM:

THE LOWER COURT ERRED IN HOLDING THAT THE CAUSE OF ACTION OF THE PLAINTIFFS-
APPELLANTS IS BARRED BY PRIOR JUDGMENT.

With respect to the first and second assignments of errors, plaintiffs contend that the defendant corporate should
be made subsidiarily liable for damages in the criminal case because the sale to it of the jeep in question, after
the conviction of Alfred Carillo in Criminal Case No. Q-1084 of the Court of First Instance of Quezon City was
merely an attempt on the part of Isabelo Calingasan its president and general manager, to evade his subsidiary
civil liability.

The Court agrees with this contention of the plaintiffs. Isabelo Calingasan and defendant Fely Transportation may
be regarded as one and the same person. It is evident that Isabelo Calingasan's main purpose in forming the
corporation was to evade his subsidiary civil liability1 resulting from the conviction of his driver, Alfredo Carillo.
This conclusion is borne out by the fact that the incorporators of the Fely Transportation are Isabelo Calingasan,
his wife, his son, Dr. Calingasan, and his two daughters. We believe that this is one case where the defendant
corporation should not be heard to say that it has a personality separate and distinct from its members when to
allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end
subversive of justice. (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., G.R. No.
L-5677, May 25, 1953) Furthermore, the failure of the defendant corporation to prove that it has other property
than the jeep (AC-687) strengthens the conviction that its formation was for the purpose above indicated.

And while it is true that Isabelo Calingasan is not a party in this case, yet, is held in the case of Alonso v. Villamor,
16 Phil. 315, this Court can substitute him in place of the defendant corporation as to the real party in interest.
This is so in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay.
(Sec. 2, Rule 17, Rules of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud, 12 Phil. 109.)

Accordingly, defendants Fely Transportation and Isabelo Calingasan should be held subsidiarily liable for
P500.00 which Alfredo Carillo was ordered to pay in the criminal case and which amount he could not pay on
account of insolvency.

We also sustain plaintiffs' third assignment of error and hold that the present action is not barred by the judgment
of the Court of First Instance of Quezon City in the criminal case. While there seems to be some confusion on
part of the plaintiffs as to the theory on which the is based — whether ex-delito or quasi ex-delito (culpa aquiliana)
— We are convinced, from the discussion prayer in the brief on appeal, that they are insisting the subsidiary civil
liability of the defendant. As a matter of fact, the record shows that plaintiffs merely presented the transcript of the
stenographic notes (Exhibit "A") taken at the hearing of the criminal case, which Gregorio Palacio corroborated, in
support of their claim for damages. This rules out the defense of res judicata, because such liability proceeds
precisely from the judgment in the criminal action, where the accused was found guilty and ordered to pay an
indemnity in the sum P500.00.

WHEREFORE, the decision of the lower court is hereby reversed and defendants Fely Transportation and
Isabelo Calingasan are ordered to pay, jointly and severally, the plaintiffs the amount of P500.00 and the costs.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon and Makalintal, concur.
Reyes, J.B.L., J., took no part.

Footnotes

1Article 103 of the Revised Penal Code states that "the subsidiary liability established in the next
preceding article shall also apply to employers, teachers, persons, and corporations engaged in any kind
of industry for felonies committed by their servants, pupils, workmen, apprentices, or employees in the
discharge of their duties."
G.R. No. L-23893 October 29, 1968

VILLA REY TRANSIT, INC., plaintiff-appellant,

vs.
EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC SERVICE
COMMISSION,defendants.
EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION CO., INC., defendants-appellants.

PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant,

vs.
JOSE M. VILLARAMA, third-party defendant-appellee.

Chuidian Law Office for plaintiff-appellant.

Bengzon, Zarraga & Villegas for defendant-appellant / third-party plaintiff-appellant.
Laurea & Pison for third-party defendant-appellee.

ANGELES, J.:

This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No. 41845,
declaring null and void the sheriff's sale of two certificates of public convenience in favor of defendant Eusebio E.
Ferrer and the subsequent sale thereof by the latter to defendant Pangasinan Transportation Co., Inc.; declaring
the plaintiff Villa Rey Transit, Inc., to be the lawful owner of the said certificates of public convenience; and
ordering the private defendants, jointly and severally, to pay to the plaintiff, the sum of P5,000.00 as and for
attorney's fees. The case against the PSC was dismissed.

The rather ramified circumstances of the instant case can best be understood by a chronological narration of the
essential facts, to wit:

Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey
Transit, pursuant to certificates of public convenience granted him by the Public Service Commission (PSC, for
short) in Cases Nos. 44213 and 104651, which authorized him to operate a total of thirty-two (32) units on various
routes or lines from Pangasinan to Manila, and vice-versa. On January 8, 1959, he sold the aforementioned two
certificates of public convenience to the Pangasinan Transportation Company, Inc. (otherwise known as
Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for a period of
10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."

Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Transit, Inc. (which shall be
referred to hereafter as the Corporation) was organized with a capital stock of P500,000.00 divided into 5,000
shares of the par value of P100.00 each; P200,000.00 was the subscribed stock; Natividad R. Villarama (wife of
Jose M. Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of P199,000.00
was subscribed by the brother and sister-in-law of Jose M. Villarama; of the subscribed capital stock,
P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama.

In less than a month after its registration with the Securities and Exchange Commission (March 10, 1959), the
Corporation, on April 7, 1959, bought five certificates of public convenience, forty-nine buses, tools and
equipment from one Valentin Fernando, for the sum of P249,000.00, of which P100,000.00 was paid upon the
signing of the contract; P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00 one
year after the final approval of the sale; and the balance of P50,000.00 "shall be paid by the BUYER to the
different suppliers of the SELLER."

The very same day that the aforementioned contract of sale was executed, the parties thereto immediately
applied with the PSC for its approval, with a prayer for the issuance of a provisional authority in favor of the
vendee Corporation to operate the service therein involved.1 On May 19, 1959, the PSC granted the provisional
permit prayed for, upon the condition that "it may be modified or revoked by the Commission at any time, shall be
subject to whatever action that may be taken on the basic application and shall be valid only during the pendency
of said application." Before the PSC could take final action on said application for approval of sale, however, the
Sheriff of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved therein,
namely, those issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by the
Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment
creditor, against Valentin Fernando, defendant, judgment debtor. The Sheriff made and entered the levy in the
records of the PSC. On July 16, 1959, a public sale was conducted by the Sheriff of the said two certificates of
public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his name.

Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval
their corresponding contract of sale to the PSC.2 Pantranco therein prayed that it be authorized provisionally to
operate the service involved in the said two certificates.

The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case No. 124057,
and that of Ferrer and Pantranco, Case No. 126278, were scheduled for a joint hearing. In the meantime, to wit,
on July 22, 1959, the PSC issued an order disposing that during the pendency of the cases and before a final
resolution on the aforesaid applications, the Pantranco shall be the one to operate provisionally the service under
the twocertificates embraced in the contract between Ferrer and Pantranco. The Corporation took issue with this
particular ruling of the PSC and elevated the matter to the Supreme Court,3 which decreed, after deliberation, that
until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the
Corporation should be the one to operate the lines provisionally.

On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for the
annulment of the sheriff's sale of the aforesaid two certificates of public convenience (PSC Cases Nos. 59494
and 63780) in favor of the defendant Ferrer, and the subsequent sale thereof by the latter to Pantranco, against
Ferrer, Pantranco and the PSC. The plaintiff Corporation prayed therein that all the orders of the PSC relative to
the parties' dispute over the said certificates be annulled.

In separate answers, the defendants Ferrer and Pantranco averred that the plaintiff Corporation had no valid title
to the certificates in question because the contract pursuant to which it acquired them from Fernando was subject
to a suspensive condition — the approval of the PSC — which has not yet been fulfilled, and, therefore, the
Sheriff's levy and the consequent sale at public auction of the certificates referred to, as well as the sale of the
same by Ferrer to Pantranco, were valid and regular, and vested unto Pantranco, a superior right thereto.

Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama and the
Corporation, are one and the same; that Villarama and/or the Corporation was disqualified from operating the two
certificates in question by virtue of the aforementioned agreement between said Villarama and Pantranco, which
stipulated that Villarama "shall not for a period of 10 years from the date of this sale, apply for any TPU service
identical or competing with the buyer."

Upon the joinder of the issues in both the complaint and third-party complaint, the case was tried, and thereafter
decision was rendered in the terms, as above stated.

As stated at the beginning, all the parties involved have appealed from the decision. They submitted a joint record
on appeal.

Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc. (Corporation) is a
distinct and separate entity from Jose M. Villarama; that the restriction clause in the contract of January 8, 1959
between Pantranco and Villarama is null and void; that the Sheriff's sale of July 16, 1959, is likewise null and
void; and the failure to award damages in its favor and against Villarama.

Ferrer, for his part, challenges the decision insofar as it holds that the sheriff's sale is null and void; and the sale
of the two certificates in question by Valentin Fernando to the Corporation, is valid. He also assails the award of
P5,000.00 as attorney's fees in favor of the Corporation, and the failure to award moral damages to him as
prayed for in his counterclaim.

The Corporation, on the other hand, prays for a review of that portion of the decision awarding only P5,000.00 as
attorney's fees, and insisting that it is entitled to an award of P100,000.00 by way of exemplary damages.

After a careful study of the facts obtaining in the case, the vital issues to be resolved are: (1) Does the stipulation
between Villarama and Pantranco, as contained in the deed of sale, that the former "SHALL NOT FOR A
PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR
COMPETING WITH THE BUYER," apply to new lines only or does it include existing lines?; (2) Assuming that
said stipulation covers all kinds of lines, is such stipulation valid and enforceable?; (3) In the affirmative, that said
stipulation is valid, did it bind the Corporation?

For convenience, We propose to discuss the foregoing issues by starting with the last proposition.

The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation,
alleging that he did not become such, because he did not have sufficient funds to invest, his wife, however, was
an incorporator with the least subscribed number of shares, and was elected treasurer of the Corporation. The
finances of the Corporation which, under all concepts in the law, are supposed to be under the control and
administration of the treasurer keeping them as trust fund for the Corporation, were, nonetheless, manipulated
and disbursed as if they were the private funds of Villarama, in such a way and extent that Villarama appeared to
be the actual owner-treasurer of the business without regard to the rights of the stockholders. The following
testimony of Villarama,4together with the other evidence on record, attests to that effect:

Q. Doctor, I want to go back again to the incorporation of the Villa Rey Transit, Inc. You heard the
testimony presented here by the bank regarding the initial opening deposit of ONE HUNDRED FIVE
THOUSAND PESOS, of which amount Eighty-Five Thousand Pesos was a check drawn by yourself
personally. In the direct examination you told the Court that the reason you drew a check for Eighty-Five
Thousand Pesos was because you and your wife, or your wife, had spent the money of the stockholders
given to her for incorporation. Will you please tell the Honorable Court if you knew at the time your wife
 was spending the money to pay debts, you personally knew she was spending the money of the
incorporators?

A. You know my money and my wife's money are one. We never talk about those things.

Q. Doctor, your answer then is that since your money and your wife's money are one money and you
did not know when your wife was paying debts with the incorporator's money?

A. Because sometimes she uses my money, and sometimes the money given to her she gives to me
and I deposit the money.

Q. Actually, aside from your wife, you were also the custodian of some of the incorporators here, in
the beginning?

A. Not necessarily, they give to my wife and when my wife hands to me I did not know it belonged to
the incorporators.

Q. It supposes then your wife gives you some of the money received by her in her capacity as
treasurer of the corporation?

A. Maybe.

Q. What did you do with the money, deposit in a regular account?

A. Deposit in my account.

Q. Of all the money given to your wife, she did not receive any check?

A. I do not remember.

Q. Is it usual for you, Doctor, to be given Fifty Thousand Pesos without even asking what is this?

xxx xxx xxx

JUDGE: Reform the question.

Q. The subscription of your brother-in-law, Mr. Reyes, is Fifty-Two Thousand Pesos, did your wife
give you Fifty-two Thousand Pesos?

A. I have testified before that sometimes my wife gives me money and I do not know exactly for what.

The evidence further shows that the initial cash capitalization of the corporation of P105,000.00 was mostly
financed by Villarama. Of the P105,000.00 deposited in the First National City Bank of New York, representing
the initial paid-up capital of the Corporation, P85,000.00 was covered by Villarama's personal check. The deposit
slip for the said amount of P105,000.00 was admitted in evidence as Exh. 23, which shows on its face that
P20,000.00 was paid in cash and P85,000.00 thereof was covered by Check No. F-50271 of the First National
City Bank of New York. The testimonies of Alfonso Sancho5 and Joaquin Amansec,6 both employees of said
bank, have proved that the drawer of the check was Jose Villarama himself.

Another witness, Celso Rivera, accountant of the Corporation, testified that while in the books of the corporation
there appears an entry that the treasurer received P95,000.00 as second installment of the paid-in subscriptions,
and, subsequently, also P100,000.00 as the first installment of the offer for second subscriptions worth
P200,000.00 from the original subscribers, yet Villarama directed him (Rivera) to make vouchers liquidating the
sums.7 Thus, it was made to appear that the P95,000.00 was delivered to Villarama in payment for equipment
purchased from him, and the P100,000.00 was loaned as advances to the stockholders. The said accountant,
however, testified that he was not aware of any amount of money that had actually passed hands among the
parties involved,8 and actually the only money of the corporation was the P105,000.00 covered by the deposit slip
Exh. 23, of which as mentioned above, P85,000.00 was paid by Villarama's personal check.

Further, the evidence shows that when the Corporation was in its initial months of operation, Villarama purchased
and paid with his personal checks Ford trucks for the Corporation. Exhibits 20 and 21 disclose that the said
purchases were paid by Philippine Bank of Commerce Checks Nos. 992618-B and 993621-B, respectively.
These checks have been sufficiently established by Fausto Abad, Assistant Accountant of Manila Trading &
Supply Co., from which the trucks were purchased9 and Aristedes Solano, an employee of the Philippine Bank of
Commerce,10as having been drawn by Villarama.

Exhibits 6 to 19 and Exh. 22, which are photostatic copies of ledger entries and vouchers showing that Villarama
had co-mingled his personal funds and transactions with those made in the name of the Corporation, are very
illuminating evidence. Villarama has assailed the admissibility of these exhibits, contending that no evidentiary
value whatsoever should be given to them since "they were merely photostatic copies of the originals, the best
evidence being the originals themselves." According to him, at the time Pantranco offered the said exhibits, it was
the most likely possessor of the originals thereof because they were stolen from the files of the Corporation and
only Pantranco was able to produce the alleged photostat copies thereof.

Section 5 of Rule 130 of the Rules of Court provides for the requisites for the admissibility of secondary evidence
when the original is in the custody of the adverse party, thus: (1) opponent's possession of the original; (2)
reasonable notice to opponent to produce the original; (3) satisfactory proof of its existence; and (4) failure or
refusal of opponent to produce the original in court.11 Villarama has practically admitted the second and fourth
requisites.12As to the third, he admitted their previous existence in the files of the Corporation and also that he
had seen some of them.13 Regarding the first element, Villarama's theory is that since even at the time of the
issuance of the subpoena duces tecum, the originals were already missing, therefore, the Corporation was no
longer in possession of the same. However, it is not necessary for a party seeking to introduce secondary
evidence to show that the original is in the actual possession of his adversary. It is enough that the circumstances
are such as to indicate that the writing is in his possession or under his control. Neither is it required that the party
entitled to the custody of the instrument should, on being notified to produce it, admit having it in his
possession.14 Hence, secondary evidence is admissible where he denies having it in his possession. The party
calling for such evidence may introduce a copy thereof as in the case of loss. For, among the exceptions to the
best evidence rule is "when the original has been lost, destroyed, or cannot be produced in court."15 The originals
of the vouchers in question must be deemed to have been lost, as even the Corporation admits such loss.
Viewed upon this light, there can be no doubt as to the admissibility in evidence of Exhibits 6 to 19 and 22.

Taking account of the foregoing evidence, together with Celso Rivera's testimony,16 it would appear that:
Villarama supplied the organization expenses and the assets of the Corporation, such as trucks and
equipment;17 there was no actual payment by the original subscribers of the amounts of P95,000.00 and
P100,000.00 as appearing in the books;18 Villarama made use of the money of the Corporation and deposited
them to his private accounts;19 and the Corporation paid his personal accounts.20

Villarama himself admitted that he mingled the corporate funds with his own money.21 He also admitted that
gasoline purchases of the Corporation were made in his name22 because "he had existing account with Stanvac
which was properly secured and he wanted the Corporation to benefit from the rebates that he received."23

The foregoing circumstances are strong persuasive evidence showing that Villarama has been too much involved
in the affairs of the Corporation to altogether negative the claim that he was only a part-time general manager.
They show beyond doubt that the Corporation is his alter ego.

It is significant that not a single one of the acts enumerated above as proof of Villarama's oneness with the
Corporation has been denied by him. On the contrary, he has admitted them with offered excuses.

Villarama has admitted, for instance, having paid P85,000.00 of the initial capital of the Corporation with the lame
excuse that "his wife had requested him to reimburse the amount entrusted to her by the incorporators and which
she had used to pay the obligations of Dr. Villarama (her husband) incurred while he was still the owner of Villa
Rey Transit, a single proprietorship." But with his admission that he had received P350,000.00 from Pantranco for
the sale of the two certificates and one unit,24 it becomes difficult to accept Villarama's explanation that he and his
wife, after consultation,25 spent the money of their relatives (the stockholders) when they were supposed to have
their own money. Even if Pantranco paid the P350,000.00 in check to him, as claimed, it could have been easy
for Villarama to have deposited said check in his account and issued his own check to pay his obligations. And
there is no evidence adduced that the said amount of P350,000.00 was all spent or was insufficient to settle his
prior obligations in his business, and in the light of the stipulation in the deed of sale between Villarama and
Pantranco that P50,000.00 of the selling price was earmarked for the payments of accounts due to his creditors,
the excuse appears unbelievable.

On his having paid for purchases by the Corporation of trucks from the Manila Trading & Supply Co. with his
personal checks, his reason was that he was only sharing with the Corporation his credit with some companies.
And his main reason for mingling his funds with that of the Corporation and for the latter's paying his private bills
is that it would be more convenient that he kept the money to be used in paying the registration fees on time, and
since he had loaned money to the Corporation, this would be set off by the latter's paying his bills. Villarama
admitted, however, that the corporate funds in his possession were not only for registration fees but for other
important obligations which were not specified.26

Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only a part-time
manager,27 he admitted not only having held the corporate money but that he advanced and lent funds for the
Corporation, and yet there was no Board Resolution allowing it.28

Villarama's explanation on the matter of his involvement with the corporate affairs of the Corporation only renders
more credible Pantranco's claim that his control over the corporation, especially in the management and
disposition of its funds, was so extensive and intimate that it is impossible to segregate and identify which money
belonged to whom. The interference of Villarama in the complex affairs of the corporation, and particularly its
finances, are much too inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to
separate personal responsibilities from corporate undertakings. It is the very essence of incorporation that the
acts and conduct of the corporation be carried out in its own corporate name because it has its own personality.

The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who
compose it is recognized and respected in all cases which are within reason and the law.29 When the fiction is
urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime,30 the veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.

Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of evidence have
shown that the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the
contract entered into by the latter and Pantranco is also enforceable and binding against the said Corporation.
For the rule is that a seller or promisor may not make use of a corporate entity as a means of evading the
obligation of his covenant.31 Where the Corporation is substantially the alter ego of the covenantor to the
restrictive agreement, it can be enjoined from competing with the covenantee.32

The Corporation contends that even on the supposition that Villa Rey Transit, Inc. and Villarama are one and the
same, the restrictive clause in the contract between Villarama and Pantranco does not include the purchase of
existing lines but it only applies to application for the new lines. The clause in dispute reads thus:

(4) The SELLER shall not, for a period of ten (10) years from the date of this sale apply for any TPU
service identical or competing with the BUYER. (Emphasis supplied)

As We read the disputed clause, it is evident from the context thereof that the intention of the parties was to
eliminate the seller as a competitor of the buyer for ten years along the lines of operation covered by the
certificates of public convenience subject of their transaction. The word "apply" as broadly used has for frame of
reference, a service by the seller on lines or routes that would compete with the buyer along the routes acquired
by the latter. In this jurisdiction, prior authorization is needed before anyone can operate a TPU service,33whether
the service consists in a new line or an old one acquired from a previous operator. The clear intention of the
parties was to prevent the seller from conducting any competitive line for 10 years since, anyway, he has bound
himself not to apply for authorization to operate along such lines for the duration of such period.34

If the prohibition is to be applied only to the acquisition of new certificates of public convenience thru an
application with the Public Service Commission, this would, in effect, allow the seller just the same to compete
with the buyer as long as his authority to operate is only acquired thru transfer or sale from a previous operator,
thus defeating the intention of the parties. For what would prevent the seller, under the circumstances, from
having a representative or dummy apply in the latter's name and then later on transferring the same by sale to the
seller? Since stipulations in a contract is the law between the contracting parties,

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. (Art. 19, New Civil Code.)

We are not impressed of Villarama's contention that the re-wording of the two previous drafts of the contract of
sale between Villarama and Pantranco is significant in that as it now appears, the parties intended to effect the
least restriction. We are persuaded, after an examination of the supposed drafts, that the scope of the final
stipulation, while not as long and prolix as those in the drafts, is just as broad and comprehensive. At most, it can
be said that the re-wording was done merely for brevity and simplicity.

The evident intention behind the restriction was to eliminate the sellers as a competitor, and this must be,
considering such factors as the good will35 that the seller had already gained from the riding public and his
adeptness and proficiency in the trade. On this matter, Corbin, an authority on Contracts has this to say.36

When one buys the business of another as a going concern, he usually wishes to keep it going; he wishes
to get the location, the building, the stock in trade, and the customers. He wishes to step into the seller's
shoes and to enjoy the same business relations with other men. He is willing to pay much more if he can
get the "good will" of the business, meaning by this the good will of the customers, that they may continue
to tread the old footpath to his door and maintain with him the business relations enjoyed by the seller.

... In order to be well assured of this, he obtains and pays for the seller's promise not to reopen business
in competition with the business sold.

As to whether or not such a stipulation in restraint of trade is valid, our jurisprudence on the matter37says:

The law concerning contracts which tend to restrain business or trade has gone through a long series of
changes from time to time with the changing condition of trade and commerce. With trifling exceptions,
said changes have been a continuous development of a general rule. The early cases show plainly a
disposition to avoid and annul all contract which prohibited or restrained any one from using a lawful trade
"at any time or at any place," as being against the benefit of the state. Later, however, the rule became
 well established that if the restraint was limited to "a certain time" and within "a certain place," such
contracts were valid and not "against the benefit of the state." Later cases, and we think the rule is now
well established, have held that a contract in restraint of trade is valid providing there is a limitation upon
either time or place. A contract, however, which restrains a man from entering into business or trade
without either a limitation as to time or place, will be held invalid.

The public welfare of course must always be considered and if it be not involved and the restraint upon
one party is not greater than protection to the other requires, contracts like the one we are discussing will
be sustained. The general tendency, we believe, of modern authority, is to make the test whether the
restraint is reasonably necessary for the protection of the contracting parties. If the contract is reasonably
necessary to protect the interest of the parties, it will be upheld. (Emphasis supplied.)

Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature of an
agreement suppressing competition, it is, however, merely ancillary or incidental to the main agreement which is
that of sale. The suppression or restraint is only partial or limited: first, in scope, it refers only to application for
TPU by the seller in competition with the lines sold to the buyer; second, in duration, it is only for ten (10) years;
and third, with respect to situs or territory, the restraint is only along the lines covered by the certificates sold. In
view of these limitations, coupled with the consideration of P350,000.00 for just two certificates of public
convenience, and considering, furthermore, that the disputed stipulation is only incidental to a main agreement,
the same is reasonable and it is not harmful nor obnoxious to public service.38 It does not appear that the ultimate
result of the clause or stipulation would be to leave solely to Pantranco the right to operate along the lines in
question, thereby establishing monopoly or predominance approximating thereto. We believe the main purpose of
the restraint was to protect for a limited time the business of the buyer.

Indeed, the evils of monopoly are farfetched here. There can be no danger of price controls or deterioration of the
service because of the close supervision of the Public Service Commission.39 This Court had stated long
ago,40that "when one devotes his property to a use in which the public has an interest, he virtually grants to the
public an interest in that use and submits it to such public use under reasonable rules and regulations to be fixed
by the Public Utility Commission."

Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful agreement, the underlying
reason sustaining its validity is well explained in 36 Am. Jur. 537-539, to wit:

... Numerous authorities hold that a covenant which is incidental to the sale and transfer of a trade or
business, and which purports to bind the seller not to engage in the same business in competition with the
purchaser, is lawful and enforceable. While such covenants are designed to prevent competition on the
part of the seller, it is ordinarily neither their purpose nor effect to stifle competition generally in the
locality, nor to prevent it at all in a way or to an extent injurious to the public. The business in the hands of
the purchaser is carried on just as it was in the hands of the seller; the former merely takes the place of
the latter; the commodities of the trade are as open to the public as they were before; the same
competition exists as existed before; there is the same employment furnished to others after as before;
the profits of the business go as they did before to swell the sum of public wealth; the public has the same
opportunities of purchasing, if it is a mercantile business; and production is not lessened if it is a
manufacturing plant.

The reliance by the lower court on tile case of Red Line Transportation Co. v. Bachrach41 and finding that the
stipulation is illegal and void seems misplaced. In the said Red Line case, the agreement therein sought to be
enforced was virtually a division of territory between two operators, each company imposing upon itself an
obligation not to operate in any territory covered by the routes of the other. Restraints of this type, among
common carriers have always been covered by the general rule invalidating agreements in restraint of trade. 42

Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant case. In Pampanga Bus
Co., Inc. v. Enriquez,43the undertaking of the applicant therein not to apply for the lifting of restrictions imposed on
his certificates of public convenience was not an ancillary or incidental agreement. The restraint was the principal
objective. On the other hand, in Red Line Transportation Co., Inc. v. Gonzaga,44 the restraint there in question not
to ask for extension of the line, or trips, or increase of equipment — was not an agreement between the parties
but a condition imposed in the certificate of public convenience itself.

Upon the foregoing considerations, Our conclusion is that the stipulation prohibiting Villarama for a period of 10
years to "apply" for TPU service along the lines covered by the certificates of public convenience sold by him to
Pantranco is valid and reasonable. Having arrived at this conclusion, and considering that the preponderance of
the evidence have shown that Villa Rey Transit, Inc. is itself the alter ego of Villarama, We hold, as prayed for in
Pantranco's third party complaint, that the said Corporation should, until the expiration of the 1-year period
abovementioned, be enjoined from operating the line subject of the prohibition.

To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition upon Villarama is not
against his application for, or purchase of, certificates of public convenience, but merely the operation of TPU
along the lines covered by the certificates sold by him to Pantranco. Consequently, the sale between Fernando
and the Corporation is valid, such that the rightful ownership of the disputed certificates still belongs to the plaintiff
being the prior purchaser in good faith and for value thereof. In view of the ancient rule of caveat
emptor prevailing in this jurisdiction, what was acquired by Ferrer in the sheriff's sale was only the right which
Fernando, judgment debtor, had in the certificates of public convenience on the day of the sale.45

Accordingly, by the "Notice of Levy Upon Personalty" the Commissioner of Public Service was notified that "by
virtue of an Order of Execution issued by the Court of First Instance of Pangasinan, the rights, interests, or
participation which the defendant, VALENTIN A. FERNANDO — in the above entitled case may have in the
following realty/personalty is attached or levied upon, to wit: The rights, interests and participation on the
Certificates of Public Convenience issued to Valentin A. Fernando, in Cases Nos. 59494, etc. ... Lines — Manila
to Lingayen, Dagupan, etc. vice versa." Such notice of levy only shows that Ferrer, the vendee at auction of said
certificates, merely stepped into the shoes of the judgment debtor. Of the same principle is the provision of Article
1544 of the Civil Code, that "If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be movable
property."

There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public convenience in
question, between the Corporation and Fernando, was not consummated, it being only a conditional sale subject
to the suspensive condition of its approval by the Public Service Commission. While section 20(g) of the Public
Service Act provides that "subject to established limitation and exceptions and saving provisions to the contrary, it
shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and
authorization of the Commission previously had ... to sell, alienate, mortgage, encumber or lease its property,
franchise, certificates, privileges, or rights or any part thereof, ...," the same section also provides:

... Provided, however, That nothing herein contained shall be construed to prevent the transaction from
being negotiated or completed before its approval or to prevent the sale, alienation, or lease by any public
service of any of its property in the ordinary course of its business.

It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for the validity and
consummation of the sale.

Anent the question of damages allegedly suffered by the parties, each of the appellants has its or his own version
to allege.

Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer) in acquiring
the certificates of public convenience in question, despite constructive and actual knowledge on their part of a
prior sale executed by Fernando in favor of the said corporation, which necessitated the latter to file the action to
annul the sheriff's sale to Ferrer and the subsequent transfer to Pantranco, it is entitled to collect actual and
compensatory damages, and attorney's fees in the amount of P25,000.00. The evidence on record, however,
does not clearly show that said defendants acted in bad faith in their acquisition of the certificates in question.
They believed that because the bill of sale has yet to be approved by the Public Service Commission, the
transaction was not a consummated sale, and, therefore, the title to or ownership of the certificates was still with
the seller. The award by the lower court of attorney's fees of P5,000.00 in favor of Villa Rey Transit, Inc. is,
therefore, without basis and should be set aside.

Eusebio Ferrer's charge that by reason of the filing of the action to annul the sheriff's sale, he had suffered and
should be awarded moral, exemplary damages and attorney's fees, cannot be entertained, in view of the
conclusion herein reached that the sale by Fernando to the Corporation was valid.

Pantranco, on the other hand, justifies its claim for damages with the allegation that when it purchased
ViIlarama's business for P350,000.00, it intended to build up the traffic along the lines covered by the certificates
but it was rot afforded an opportunity to do so since barely three months had elapsed when the contract was
violated by Villarama operating along the same lines in the name of Villa Rey Transit, Inc. It is further claimed by
Pantranco that the underhanded manner in which Villarama violated the contract is pertinent in establishing
punitive or moral damages. Its contention as to the proper measure of damages is that it should be the purchase
price of P350,000.00 that it paid to Villarama. While We are fully in accord with Pantranco's claim of entitlement to
damages it suffered as a result of Villarama's breach of his contract with it, the record does not sufficiently supply
the necessary evidentiary materials upon which to base the award and there is need for further proceedings in
the lower court to ascertain the proper amount.

PREMISES CONSIDERED, the judgment appealed from is hereby modified as follows:

1. The sale of the two certificates of public convenience in question by Valentin Fernando to Villa Rey Transit, Inc.
is declared preferred over that made by the Sheriff at public auction of the aforesaid certificate of public
convenience in favor of Eusebio Ferrer;

2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan Transportation Co. against Jose
M. Villarama, holding that Villa Rey Transit, Inc. is an entity distinct and separate from the personality of Jose M.
Villarama, and insofar as it awards the sum of P5,000.00 as attorney's fees in favor of Villa Rey Transit, Inc.;
3. The case is remanded to the trial court for the reception of evidence in consonance with the above findings as
regards the amount of damages suffered by Pantranco; and

4. On equitable considerations, without costs. So ordered.

Concepcion, C. J., Reyes, J.B.L., Dizon, Makalintal, Castro and Fernando, JJ., concur.
Sanchez and Capistrano, JJ., took no part.
Zaldivar, J., is on leave.
G.R. No. L-10510 March 17, 1961

M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL., petitioners,

vs.
THE COURT OF APPEALS and DOMINGA DE LOS REYES, assisted by her husband, SABINO
PADILLA,respondents.

Jesus B. Santos and Cornelio Antiquera for petitioners.

Teodoro Padilla for respondents.

REYES, J.B.L., J.:

The issue before us in the correctness of the decision of the Court of Appeals that, under the circumstances of
record, there was justification for disregarding the corporate entity of the Park Rite Co., Inc., and holding its
controlling stockholders personally responsible for a judgment against the corporation.

The Court of Appeals found that the Park Rite Co., Inc., a Philippine corporation, was originally organized on or
about April 15, 1947, with a capital stock of 1,500 shares at P1.00 a share. The corporation leased from Rafael
Perez Rosales y Samanillo a vacant lot on Juan Luna street (Manila) which it used for parking motor vehicles for
a consideration.

It turned out that in operating its parking business, the corporation occupied and used not only the Samanillo lot it
had leased but also an adjacent lot belonging to the respondents-appellees Padilla, without the owners'
knowledge and consent. When the latter discovered the truth around October of 1947, they demanded payment
for the use and occupation of the lot.

The corporation (then controlled by petitioners Cirilo Parades and Ursula Tolentino, who had purchased and held
1,496 of its 1,500 shares) disclaimed liability, blaming the original incorporators, McConnel, Rodriguez and
Cochrane. Whereupon, the lot owners filed against it a complaint for forcible entry in the Municipal Court of
Manila on 7 October 1947 (Civil Case No. 4031).

Judgment was rendered in due course on 13 November 1947, ordering the Park Rite Co., Inc. to pay P7,410.00
plus legal interest as damages from April 15, 1947 until return of the lot. Restitution not having been made until
31 January 1948, the entire judgment amounted to P11,732.50. Upon execution, the corporation was found
without any assets other than P550.00 deposited in Court. After their application to the judgment credit, there
remained a balance of P11,182.50 outstanding and unsatisfied.

The judgment creditors then filed suit in the Court of First Instance of Manila against the corporation and its past
and present stockholders, to recover from them, jointly and severally, the unsatisfied balance of the judgment,
plus legal interest and costs. The Court of First Instance denied recovery; but on appeal, the Court of Appeals
(CA-G.R. No. 8434-R) reversed, finding that the corporation was a mere alter ego or business conduit of the
principal stockholders that controlled it for their own benefit, and adjudged them responsible for the amounts
demanded by the lot owners, as follows:

WHEREFORE, premises considered, the decision appealed from is reversed. Defendants-appellees

Cirilo Paredes and Ursula Tolentino are hereby declared liable to the plaintiffs-appellants for the rentals
due on the lot in question from August 22, 1947 to January 31, 1948 at the rate of P1,235.00 a month,
with legal interest thereon from the time of the filing of the complaint. Deducting the P550.00 which was
paid at the time when the corporation was already acquired by the said defendants-appellees Cirilo
Paredes and Ursula Tolentino, they are hereby ordered to pay to plaintiffs-appellants Dominga de los
Reyes and Sabino Padilla the sum of P6,036.66 with legal interest therein from the time of the filing of the
complaint until fully paid.

Defendant-appellee RICARDO RODRIGUEZ is hereby ordered to pay to the plaintiffs-appellants

Dominga de los Reyes and Sabino Padilla the sum of P1,742.64 with legal interest thereon from the time
of the filing of the complaint and until it is fully paid. In addition thereto the defendants-appellees Cirilo
Paredes, Ursula Tolentino and Ricardo Rodriguez shall pay the costs proportionately in both instances.

IT IS SO ORDERED.

Cirilo Paredes and Ursula Tolentino then resorted to this court. We granted certiorari.

On the main issue whether the individual stockholders maybe held liable for obligations contracted by the
corporation, this Court has already answered the question in the affirmative wherever circumstances have shown
that the corporate entity is being used as an alter ego or business conduit for the sole benefit of the stockholders,
or else to defeat public convenience, justify wrong, protect fraud, or defend crime (Koppel [Phil.] Inc. vs. Yatco, 77
Phil. 496; Arnold vs. Willits and Patterson, 44 Phil. 364).

The Court of Appeals has made express findings to the following effect:
 There is no question that a wrong has been committed by the so-called Park Rite Co., Inc., upon the
plaintiffs when it occupied the lot of the latter without its prior knowledge and consent and without paying
the reasonable rentals for the occupation of said lot. There is also no doubt in our mind that the
corporation was a mere alter ego or business conduit of the defendants Cirilo Paredes and Ursula
Tolentino, and before them — the defendants M. McConnel, W. P. Cochrane, and Ricardo Rodriguez.
The evidence clearly shows that thesepersons completely dominated and controlled the corporation and
that the functions of the corporation were solely for their benefits.

When it was originally organized on or about April 15, 1947, the original incorporators were M. McConnel,
W. P. Cochrane, Ricardo Rodriguez, Benedicto M. Dario and Aurea Ordrecio with a capital stock of
P1,500.00 divided into 1,500 shares at P1.00 a share. McConnel and Cochrane each owned 500 shares,
Ricardo Rodriguez 408 shares, and Dario and Ordrecio 1 share each. It is obvious that the shares of the
last two named persons were merely qualifying shares. Then or about August 22, 1947 the defendants
Cirilo Paredes and Ursula Tolentino purchased 1,496 shares of the said corporation and the remaining
four shares were acquired by Bienvenido J. Claudio, Quintin C. Paredes, Segundo Tarictican, and
Paulino Marquez at one share each. It is obvious that the last four shares bought by these four persons
were merely qualifying shares and that to all intents and purposes the spouses Cirilo Paredes and Ursula
Tolentino composed the so-called Park Rite Co., Inc. That the corporation was a mere extension of their
personality is shown by the fact that the office of Cirilo Paredes and that of Park Rite Co., Inc. were
located in the same building, in the same floor and in the same room — at 507 Wilson Building. This is
further shown by the fact that the funds of the corporation were kept by Cirilo Paredes in his own name (p.
14, November 8, 1950, T.S.N.) The corporation itself had no visible assets, as correctly found by the trial
court, except perhaps the toll house, the wire fence around the lot and the signs thereon. It was for this
reason that the judgment against it could not be fully satisfied. (Emphasis supplied).

The facts thus found can not be varied by us, and conclusively show that the corporation is a mere instrumentality
of the individual stockholder's, hence the latter must individually answer for the corporate obligations. While the
mere ownership of all or nearly all of the capital stock of a corporation is a mere business conduit of the
stockholder, that conclusion is amply justified where it is shown, as in the case before us, that the operations of
the corporation were so merged with those of the stockholders as to be practically indistinguishable from them.
To hold the latter liable for the corporation's obligations is not to ignore the corporation's separate entity, but
merely to apply the established principle that such entity can not be invoked or used for purposes that could not
have been intended by the law that created that separate personality.

The petitioners-appellants insist that the Court could have no jurisdiction over an action to enforce a judgment
within five (5) years from its rendition, since the Rules of Court provide for enforcement by mere motion during
those five years. The error of this stand is apparent, because the second action, originally begun in the Court of
First Instance, was not an action to enforce the judgment of the Municipal Court, but an action to have non-parties
to the judgment held responsible for its payment.

Finding no error in the judgment appealed from, the same is hereby affirmed, with costs against petitioners-
appellants Cirilo Paredes and Ursula Tolentino.

Bengzon, Actg. C.J., Bautista, Angelo, Labrador, Barrera and Dizon, JJ., concur.
Concepcion and Paredes, JJ., took no part.
G.R. No. L-17618 August 31, 1964

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
NORTON and HARRISON COMPANY, respondent.

Office of the Solicitor General for petitioner.

Pio Joven for respondent.

PAREDES, J.:

This is an appeal interposed by the Commissioner of Internal Revenue against the following judgment of the
Court of Tax Appeals:

IN VIEW OF THE FOREGOING, we find no legal basis to support the assessment in question against
petitioner. If at all, the assessment should have been directed against JACKBILT, the manufacturer.
Accordingly, the decision appealed from is reversed, and the surety bond filed to guarantee payment of
said assessment is ordered cancelled. No pronouncement as to costs.

Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale and retail, all kinds of
goods, wares, and merchandise; (2) to act as agents of manufacturers in the United States and foreign countries;
and (3) to carry on and conduct a general wholesale and retail mercantile establishment in the Philippines.
Jackbilt is, likewise, a corporation organized on February 16, 1948 primarily for the purpose of making, producing
and manufacturing concrete blocks. Under date of July 27, 1948. Norton and Jackbilt entered into an agreement
whereby Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt.
Pursuant to this agreement, whenever an order for concrete blocks was received by the Norton & Harrison Co.
from a customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the customer.
Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the amount charged the customer
less a certain amount, as its compensation or profit. To exemplify the sales procedures adopted by the Norton
and Jackbilt, the following may be cited. In the case of the sale of 420 pieces of concrete blocks to the American
Builders on April 1, 1952, the purchaser paid to Norton the sum of P189.00 the purchase price. Out of this
amount Norton paid Jackbilt P168.00, the difference obviously being its compensation. As per records of Jackbilt,
the transaction was considered a sale to Norton. It was under this procedure that the sale of concrete blocks
manufactured by Jackbilt was conducted until May 1, 1953, when the agency agreement was terminated and a
management agreement between the parties was entered into. The management agreement provided that
Norton would sell concrete blocks for Jackbilt, for a fixed monthly fee of P2,000.00, which was later increased to
P5,000.00.

During the existence of the distribution or agency agreement, or on June 10, 1949, Norton & Harrison acquired by
purchase all the outstanding shares of stock of Jackbilt. Apparently, due to this transaction, the Commissioner of
Internal Revenue, after conducting an investigation, assessed the respondent Norton & Harrison for deficiency
sales tax and surcharges in the amount of P32,662.90, making as basis thereof the sales of Norton to the Public.
In other words, the Commissioner considered the sale of Norton to the public as the original sale and not the
transaction from Jackbilt. The period covered by the assessment was from July 1, 1949 to May 31, 1953. As
Norton and Harrison did not conform with the assessment, the matter was brought to the Court of Tax Appeals.

The Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by Norton &
Harrison, the corporate personality of the former (Jackbilt) should be disregarded for sales tax purposes, and the
sale of Jackbilt blocks by petitioner to the public must be considered as the original sales from which the sales tax
should be computed. The Norton & Harrison Company contended otherwise — that is, the transaction subject to
tax is the sale from Jackbilt to Norton.

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

The majority of the Tax Court, in relieving Norton & Harrison of liability under the assessment, made the following
observations:

The law applicable to the case is Section 186 of the National Internal Revenue Code which imposes a
percentage tax of 7% on every original sale of goods, wares or merchandise, such tax to be based on the
gross selling price of such goods, wares or merchandise. The term "original sale" has been defined as the
first sale by every manufacturer, producer or importer. (Sec. 5, Com. Act No. 503.) Subsequent sales by
persons other than the manufacturer, producer or importer are not subject to the sales tax.

If JACKBILT actually sold concrete blocks manufactured by it to petitioner under the distributorship or
agency agreement of July 27, 1948, such sales constituted the original sales which are taxable under
Section 186 of the Revenue Code, while the sales made to the public by petitioner are subsequent sales
which are not taxable. But it appears to us that there was no such sale by JACKBILT to petitioner.
 Petitioner merely acted as agent for JACKBILT in the marketing of its products. This is shown by the fact
that petitioner merely accepted orders from the public for the purchase of JACKBILT blocks. The
purchase orders were transmitted to JACKBILT which delivered the blocks to the purchaser directly.
There was no instance in which the blocks ordered by the purchasers were delivered to the petitioner.
Petitioner never purchased concrete blocks from JACKBILT so that it never acquired ownership of such
concrete blocks. This being so, petitioner could not have sold JACKBILT blocks for its own account. It did
so merely as agent of JACKBILT. The distributorship agreement of July 27, 1948, is denominated by the
parties themselves as an "agency for marketing" JACKBILT products. ... .

xxx xxx xxx

Therefore, the taxable selling price of JACKBILT blocks under the aforesaid agreement is the price
charged to the public and not the amount billed by JACKBILT to petitioner. The deficiency sales tax
should have been assessed against JACKBILT and not against petitioner which merely acted as the
former's agent.

xxx xxx xxx

Presiding Judge Nable of the same Court expressed a partial dissent, stating:

Upon the aforestated circumstances, which disclose Norton's control over and direction of Jackbilt's
affairs, the corporate personality of Jackbilt should be disregarded, and the transactions between these
two corporations relative to the concrete blocks should be ignored in determining the percentage tax for
which Norton is liable. Consequently, the percentage tax should be computed on the basis of the sales of
Jackbilt blocks to the public.

The majority opinion is now before Us on appeal by the Commissioner of Internal Revenue, on four (4) assigned
errors, all of which pose the following propositions: (1) whether the acquisition of all the stocks of the Jackbilt by
the Norton & Harrison Co., merged the two corporations into a single corporation; (2) whether the basis of the
computation of the deficiency sales tax should be the sale of the blocks to the public and not to Norton.

It has been settled that the ownership of all the stocks of a corporation by another corporation does not
necessarily breed an identity of corporate interest between the two companies and be considered as a sufficient
ground for disregarding the distinct personalities (Liddell & Co., Inc. v. Coll. of Int. Rev. L-9687, June 30, 1961).
However, in the case at bar, we find sufficient grounds to support the theory that the separate identities of the two
companies should be disregarded. Among these circumstances, which we find not successfully refuted by
appellee Norton are: (a) Norton and Harrison owned all the outstanding stocks of Jackbilt; of the 15,000
authorized shares of Jackbilt on March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each
to seven others; (b) Norton constituted Jackbilt's board of directors in such a way as to enable it to actually direct
and manage the other's affairs by making the same officers of the board for both companies. For instance, James
E. Norton is the President, Treasurer, Director and Stockholder of Norton. He also occupies the same positions in
Jackbilt corporation, the only change being, in the Jackbilt, he is merely a nominal stockholder. The same is true
with Mr. Jordan, F. M. Domingo, Mr. Mantaring, Gilbert Golden and Gerardo Garcia, while they are merely
employees of the North they are Directors and nominal stockholders of the Jackbilt (c) Norton financed the
operations of the Jackbilt, and this is shown by the fact that the loans obtained from the RFC and Bank of
America were used in the expansion program of Jackbilt, to pay advances for the purchase of equipment,
materials rations and salaries of employees of Jackbilt and other sundry expenses. There was no limit to the
advances given to Jackbilt so much so that as of May 31, 1956, the unpaid advances amounted to P757,652.45,
which were not paid in cash by Jackbilt, but was offset by shares of stock issued to Norton, the absolute and sole
owner of Jackbilt; (d) Norton treats Jackbilt employees as its own. Evidence shows that Norton paid the salaries
of Jackbilt employees and gave the same privileges as Norton employees, an indication that Jackbilt employees
were also Norton's employees. Furthermore service rendered in any one of the two companies were taken into
account for purposes of promotion; (e) Compensation given to board members of Jackbilt, indicate that Jackbilt is
merely a department of Norton. The income tax return of Norton for 1954 shows that as President and Treasurer
of Norton and Jackbilt, he received from Norton P56,929.95, but received from Jackbilt the measly amount of
P150.00, a circumstance which points out that remuneration of purported officials of Jackbilt are deemed included
in the salaries they received from Norton. The same is true in the case of Eduardo Garcia, an employee of Norton
but a member of the Board of Jackbilt. His Income tax return for 1956 reveals that he received from Norton in
salaries and bonuses P4,220.00, but received from Jackbilt, by way of entertainment, representation, travelling
and transportation allowances P3,000.00. However, in the withholding statement (Exh. 28-A), it was shown that
the total of P4,200.00 and P3,000.00 (P7,220.00) was received by Garcia from Norton, thus portraying the
oneness of the two companies. The Income Tax Returns of Albert Golden and Dioscoro Ramos both employees
of Norton but board members of Jackbilt, also disclose the game method of payment of compensation and
allowances. The offices of Norton and Jackbilt are located in the same compound. Payments were effected by
Norton of accounts for Jackbilt and vice versa. Payments were also made to Norton of accounts due or payable
to Jackbilt and vice versa.

Norton and Harrison, while not denying the presence of the set up stated above, tried to explain that the control
over the affairs of Jackbilt was not made in order to evade payment of taxes; that the loans obtained by it which
were given to Jackbilt, were necessary for the expansion of its business in the manufacture of concrete blocks,
which would ultimately benefit both corporations; that the transactions and practices just mentioned, are not
unusual and extraordinary, but pursued in the regular course of business and trade; that there could be no
confusion in the present set up of the two corporations, because they have separate Boards, their cash assets
are entirely and strictly separate; cashiers and official receipts and bank accounts are distinct and different; they
have separate income tax returns, separate balance sheets and profit and loss statements. These explanations
notwithstanding an over-all appraisal of the circumstances presented by the facts of the case, yields to the
conclusion that the Jackbilt is merely an adjunct, business conduit or alter ego, of Norton and Harrison and that
the fiction of corporate entities, separate and distinct from each, should be disregarded. This is a case where the
doctrine of piercing the veil of corporate fiction, should be made to apply. In the case of Liddell & Co. Inc. v. Coll.
of Int. Rev., supra, it was held:

There are quite a series of conspicuous circumstances that militates against the separate and distinct
personality of Liddell Motors Inc., from Liddell & Co. We notice that the bulk of the business of Liddell &
Co. was channel Red through Liddell Motors, Inc. On the other hand, Liddell Motors Inc. pursued no
activities except to secure cars, trucks, and spare parts from Liddell & Co., Inc. and then sell them to the
general public. These sales of vehicles by Liddell & Co, to Liddell Motors. Inc. for the most part were
shown to have taken place on the same day that Liddell Motors, Inc. sold such vehicles to the public. We
may even say that the cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of
formality.

xxx xxx xxx

Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and
controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the
separate corporate identity of one from the other. There is however, in this instant case, a peculiar
sequence of the organization and activities of Liddell Motors, Inc.

As opined in the case of Gregory v. Helvering "the legal right of a tax payer to decrease the amount of
what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be
doubted". But as held in another case, "where a corporation is a dummy, is unreal or a sham and serves
no business purpose and is intended only as a blind, the corporate form may be ignored for the law
cannot countenance a form that is bald and a mischievous fictions".

... a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the revenue
officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for
tax evasion and treat the person who actually may take benefits of the transactions as the person
accordingly taxable.

... to allow a taxpayer to deny tax liability on the ground that the sales were made through another and
distinct corporation when it is proved that the latter is virtually owned by the former or that they are
practically one and the same is to sanction a circumvention of our tax laws. (and cases cited therein.)

In the case of Yutivo Sons Hardware Co. v. Court of Tax Appeals, L-13203, Jan. 28, 1961, this Court made a
similar ruling where the circumstances of unity of corporate identities have been shown and which are identical to
those obtaining in the case under consideration. Therein, this Court said:

We are, however, inclined to agree with the court below that SM was actually owned and controlled by
petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the
vehicles at retail (here concrete blocks) ... .

It may not be amiss to state in this connection, the advantages to Norton in maintaining a semblance of separate
entities. If the income of Norton should be considered separate from the income of Jackbilt, then each would
declare such earning separately for income tax purposes and thus pay lesser income tax. The combined taxable
Norton-Jackbilt income would subject Norton to a higher tax. Based upon the 1954-1955 income tax return of
Norton and Jackbilt (Exhs. 7 & 8), and assuming that both of them are operating on the same fiscal basis and
their returns are accurate, we would have the following result: Jackbilt declared a taxable net income of
P161,202.31 in which the income tax due was computed at P37,137.00 (Exh. 8); whereas Norton declared as
taxable, a net income of P120,101.59, on which the income tax due was computed at P25,628.00. The total of
these liabilities is P50,764.84. On the other hand, if the net taxable earnings of both corporations are combined,
during the same taxable year, the tax due on their total which is P281,303.90 would be P70,764.00. So that, even
on the question of income tax alone, it would be to the advantages of Norton that the corporations should be
regarded as separate entities.

WHEREFORE, the decision appealed from should be as it is hereby reversed and another entered making the
appellee Norton & Harrison liable for the deficiency sales taxes assessed against it by the appellant
Commissioner of Internal Revenue, plus 25% surcharge thereon. Costs against appellee Norton & Harrison.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes J.B.L., Regala and Makalintal, JJ., concur.
G.R. No. L-20214 March 17, 1923

G. C. ARNOLD, plaintiff-appellant,
vs.
WILLITS & PATTERSON, LTD., defendant-appellee.

Fisher, DeWitt, Perkins and Brady for appellant.

Ross and Lawrence for appellee.

STATEMENT

For a number of years prior to the times alleged in the complaint, the plaintiff was in the employ of the
International Banking Corporation of Manila, and it is conceded that he is a competent and experienced business
man. July 31, 1916, C. D. Willits and I. L. Patterson were partners doing business in San Francisco, California,
under the name of Willits & Patterson. The plaintiff was then in San Francisco, and as a result of negotiations the
plaintiff and the firm entered into a written contract, known in the record as Exhibit A, by which the plaintiff was
employed as the agent of the firm in the Philippine Islands for certain purposes for the period of five years at a
minimum salary of $200 per month and travelling expenses. The plaintiff returned to Manila and entered on the
discharge of his duties under the contract. As a result of plaintiff's employment and the world war conditions, the
business of the firm in the Philippines very rapidly increased and grew beyond the fondest hopes of either party.
A dispute arose between the plaintiff and the firm as to the construction of Exhibit A as to the amount which
plaintiff should receive for his services. Meanwhile Patterson retired from the firm and Willits became the sole
owner of its assets. For convenience of operation and to serve his own purpose, Willits organized a corporation
under the laws of California with its principal office at San Francisco, in and by which he subscribed for, and
became the exclusive owner of all the capital stock except a few shares for organization purposes only, and the
name of the firm was used as the name of the corporation. A short time after that Willits came to Manila and
organized a corporation here known as Willits & Patterson, Ltd., in and to which he again subscribed for all of the
capital stock except the nominal shares necessary to qualify the directors. In legal effect, the San Francisco
corporation took over and acquired all of the assets and liabilities of the Manila corporation. At the time that Willits
was in Manila and while to all intents and purposes he was the sole owner of the stock of corporations, there was
a conference between him and the plaintiff over the disputed construction of Exhibit A. As a result of which
another instrument, known in the record as Exhibit B, was prepared in the form of a letter which the plaintiff
addressed to Willits at Manila on November 10, 1919, the purpose of which was to more clearly define and
specify the compensation which the plaintiff was to receive for his services. Willits received and confirmed this
letter by signing the name of Willits & Patterson, By C.d. Willits. At the time both corporations were legally
organized, and there is nothing in the corporate minutes to show that Exhibit B was ever formally ratified or
approved by either corporation. After its organization, the Manila corporation employed a regular accountant
whose duty it was to audit the accounts of the company and render financial statements both for the use of the
local banks and the local and parent corporations at San Francisco. From time to time and in the ordinary course
of business such statements of account were prepared by the accountant and duly forwarded to the home office,
and among other things was a statement of July 31, 1921, showing that there was due and owing the plaintiff
under Exhibit B the sum of P106,277.50. A short time previous to that date, the San Francisco corporation
became involved in financial trouble, and all of its assets were turned over to a "creditors' committee." When this
statement was received, the "creditors' committee" immediately protested its allowance. An attempt was made
without success to adjust the matter on a friendly basis and without litigation. January 10, 1922, the plaintiff
brought this action to recover from the defendant the sum of P106,277.50 with legal interest and costs, and
written instruments known in the record as Exhibits A and B were attached to, and made a part of, the complaint.

For answer, the defendant admits the formal parts of the complaint, the execution of Exhibit A and denies each
and every other allegation, except as specifically admitted, and alleges that what is known as Exhibit B was
signed by Willits without the authority of the defendant corporation or the firm of Willits & Patterson, and that it is
not an agreement which was ever entered into with the plaintiff by the defendant or the firm, and, as a separate
defense and counterclaim, it alleges that on the 30th of June, 1920, there was a balance due and owing the
plaintiff from the defendant under the contract Exhibit A of the sum of P8,741.05. That his salary from June 30,
1920, to July 31, 1921, under Exhibit A was $400 per month, or a total of P10,400. That about July 6, 1921, the
plaintiff wrongfully took P30,000 from the assets of the firm, and that he is now indebted to the firm in the sum of
P10,858.95, with interest and costs, from which it prays judgement.

The plaintiff admits that he withdrew the P30,000, but alleges that it was with the consent and authority of the
defendant, and denies all other new matter in the answer.

Upon such issues a trial was had, and the lower court rendered judgment in favor of the defendant as prayed for
in its counterclaim, from which the plaintiff appeals, contending that the trial court erred in not holding that the
contract between the parties is that which is embodied in Exhibits A and B, and that the defendant assumed all
partnership obligations, and in failing to render judgment for the plaintiff, as prayed for, and in dismissing his
complaint, and denying plaintiff's motion for a new trial.
JOHNS, J.:

In their respective briefs opposing counsel agree that the important questions involved are "what was the contract
under which the plaintiff rendered services for five years ending July 31, 1921," and "what is due the plaintiff
under that contract." Plaintiff contends that his services were performed under Exhibits A and B, and that the
defendant assumed all of the obligations of the original partnership under Exhibit A, and is now seeking to deny
its liability under, and repudiate, Exhibit B. The defendant admits that Exhibit A was the original contract between
Arnold and the firm of Willits & Patterson by which he came to the Philippine Islands, and that it was therein
agreed that he was to be employed for a period of five years as the agent of Willits & Patterson in the Philippine
Islands to operate a certain oil mill, and to do such other business as might be deemed advisable for which he
was to receive, first, the travelling expenses of his wife and self from San Francisco to Manila, second, the
minimum salary of $200 per month, third, a brokerage of 1 per cent upon all purchases and sales of merchandise,
except for the account of the coconut oil mill, fourth, one-half of the profits on any transaction in the name of the
firm or himself not provided for in the agreement. That the agreement also provided that if it be found that the
business was operated at a loss, Arnold should receive a monthly salary of $400 during such period. That the
business was operated at a loss from June 30, 1920, to July 31, 1921, and that for such reason, he was entitled
to nothing more than a salary of $400 per month, or for that period P10,400. Adding this amount to the P8,741.05,
which the defendant admits he owed Arnold on June 30, 1920, makes a total of P19,141.05, leaving a balance
due the defendant as set out in the counterclaim. In other words, that the plaintiff's compensation was measured
by, and limited to, the above specified provisions in the contract Exhibit A, and that the defendant corporation is
not bound by the terms or provisions of Exhibit B, which is as follows:

WILLITS & PATTERSON, LTD.

MANILA, P. I., Nov. 10, 1919.

CHAS. D. WILLITS, Esq.,

Present.

DEAR MR. WILLITS: My understanding of the intent of my agreement with Willits & Patterson is
as under:

Commissions. Willits & Patterson, San Francisco, pay me a commission of one per cent on all
purchases made for them in the Philippines or sales made to them by Manila and one per cent on
all sales made for them in the Philippines, or purchases made from them by Manila. If such
purchases or sales are on an f. o. b. basis the commission is on the f. o. b. price; if on a c. i. f.
basis the commission is computed on the c. i. f. price

These commissions are credited to me in San Francisco.

I do not participate in any profits on business transacted between Willits & Patterson, San
Francisco, and Willits & Patterson, Ltd., Manila.

Profits. On all business transacted between Willits & Patterson, Ltd. and others than Willits &
Patterson, San Francisco, half the profits are to be credited to my account and half to the Profit &
Loss account of Willits & Patterson, Ltd., Manila.

On all other business, such as the Cooperative Coconut Products Co. account, or any other
business we may undertake as agents or managers, half the profits are to be credited to my
account and half to the Profit & Loss account of Willits & Patterson, Ltd., Manila.

Where Willits & Patterson, San Francisco, or Willits & Patterson, Ltd., Manila, have their own
funds invested in the capital stock or a corporation, I of course do not participate in the earnings of
such stock, any more than Willits & Patterson would participate in the earnings of stock held by
me on my account.

If the foregoing conforms to your understanding of our agreement, please confirm below.

Yours faithfully,

(Sgd.) G. C. ARNOLD

Confirmed:

WILLITS & PATTERSON

By (Sgd.) CHAS. D. WILLITS

There is no dispute about any of the following facts: That at the inception C.D. Willits and I. L. Patterson
constituted the firm of Willits & Patterson doing business in the City of San Francisco; that later Patterson retired
from the firm, and Willits acquired all of his interests and thereafter continued the business under the name and
style of Willits & Patterson; that the original contract Exhibit A was made between the plaintiff and the old firm at
San Francisco on July 31, 1916, to cover a period of five years from that date; that plaintiff entered upon the
discharged of his duties and continued his services in the Philippine Islands to someone for the period of five
years; that on November 10, 1919, and as a result of conferences between Willits and the plaintiff, Exhibit B was
addressed and signed in the manner and form above stated in the City of Manila. A short time prior to that date
Willits organized a corporation in San Francisco, in the State of California, which took over and acquired all of the
assets of the firm's business in California then being conducted under the name and style of Willits & Patterson;
that he subscribed for all of the capital stock of the corporation, and that in truth and in fact he was the owner of
all of its capital stock. After this was done he caused a new corporation to be organized under the laws of the
Philippine Islands with principal office at Manila, which took over and acquired all the business and assets of the
firm of Willits & Patterson in the Philippine Islands, in and to which, in legal effect, he subscribed for all of its
capital stock, and was the owner of all of its stock. After both corporations were organized the above letter was
drafted and signed. The plaintiff contends that the signing of Exhibit B in the manner and under the conditions in
which it was signed, and through the subsequent acts and conduct of the parties, was ratified and, in legal effect,
became and is now binding upon the defendant.

It will be noted that Exhibit B was executed in Manila, and that at the time it was signed by Willits, he was to all
intents and purposes the legal owner of all the stock in both corporations. It also appears from the evidence that
the parent corporation at San Francisco took over and acquired all of the assets and liabilities of the local
corporation at Manila. That after it was organized the Manila corporation kept separate records and account
books of its own, and that from time to time financial statements were made and forwarded to the home office,
from which it conclusively appears that plaintiff was basing his claim for services upon Exhibit A, as it was
modified by Exhibit B. That at no time after Exhibit B was signed was there ever any dispute between plaintiff and
Willits as to the compensation for plaintiff's services. That is to say, as between the plaintiff and Willits, Exhibit B
was approved, followed and at all times in force and effect, after it was signed November 10, 1919. It appears
from an analysis of Exhibit B that it was for the mutual interest of both parties. From a small beginning, the
business was then in a very flourishing conditions and growing fast, and the profits were very large and were
running into big money.

Among other things, Exhibit A provided: "(a) That the net profits from said coconut oil business shall be divided in
equal shares between the said parties hereto; (b) that Arnold should receive a brokerage of 1 per cent from all
purchases and sales of merchandise, except for the account of the coconut mills; (c) that the net profits from all
other business should be divided in equal half shares between the parties hereto."

Under the above provisions, the plaintiff might well contend that he was entitled to one-half of all the profits and a
brokerage of 1 per cent from all purchases and sales, except those for the account of the coconut oil mills, which
under the volume of business then existing would run into a very large sum of money. It was for such reason and
after personal conferences between them, and to settle all disputed questions, that Exhibit B was prepared and
signed.

The record recites that "the defendant admits that from July 31, 1916 to July 31, 1921, the plaintiff faithfully
performed all the duties incumbent upon him under his contract of employment, it being understood, however,
that this admission does not include an admission that the plaintiff placed a proper interpretation upon his right to
remuneration under said contract of employment."

It being admitted that the plaintiff worked "under his contract of employment" for the period of five years, the
question naturally arises, for whom was he working? His contract was made with the original firm of Willits &
Patterson, and that firm was dissolved and it ceased to exist, and all of its assets were merged in, and taken over
by, the parent corporation at San Francisco. In the very nature of things, after the corporation was formed, the
plaintiff could not and did not continue to work for the firm, and, yet, he continued his employment for the full
period of five years. For whom did he work after the partnership was merged in the corporation and ceased to
exist?

It is very apparent that, under the conditions then existing, the signing of Exhibit B was for the mutual interests of
both parties, and that if the contract Exhibit A was to be enforced according to its terms, that Arnold might well
contend for a much larger sum of money for his services. In truth and in fact Willits and both corporations
recognized his employment and accepted the benefits of his services. He continued his employment and
rendered his services after the corporation were organized and Exhibit B was signed just the same as he did
before, and both corporations recognized and accepted his services. Although the plaintiff was president of the
local corporation, the testimony is conclusive that both of them were what is known as a one man corporation,
and Willits, as the owner of all of the stock, was the force and dominant power which controlled them. After
Exhibit B was signed it was recognized by Willits that the plaintiff's services were to be performed and measured
by its term and provisions, and there never was any dispute between plaintiff and Willits upon that question.

The controversy first arose after the corporation was in financial trouble and the appointment of what is known in
the record as a "creditors' committee." There is no claim or pretense that there was any fraud or collusion
between plaintiff and Willits, and it is very apparent that Exhibit B was to the mutual interest of both parties. It is
elementary law that if Exhibit B is a binding contract between the plaintiff and Willits and the corporations, it is
equally binding upon the creditors' committee. It would not have any higher or better legal right than the
corporation itself, and could not make any defense which it could not make. It is very significant that the claim or
defense which is now interposed by the creditors' committee was never made or asserted at any previous time by
the defendant, and that it never was made by Willits, and it is very apparent that if he had remained in control of
the corporation, it would never have made the defense which is now made by the creditors' committee. The
record is conclusive that at the time he signed Exhibit B, Willits was, in legal effect, the owner and holder of all the
stock in both corporations, and that he approved it in their interest, and to protect them from the plaintiff having
and making a much larger claim under Exhibit A. As a matter of fact, it appears from the statement of Mr. Larkin,
the accountant, in the record that if plaintiff's cause of action was now founded upon Exhibit A, he would have a
claim for more than P160,000.

Thompson on Corporations, 2d ed., vol. I, section 10, says:

The proposition that a corporation has an existence separate and distinct from its membership has its
limitations. It must be noted that this separate existence is for particular purposes. It must also be
remembered that there can be no corporate existence without persons to compose it; there can be no
association without associates. This separate existence is to a certain extent a legal fiction. Whenever
necessary for the interests of the public or for the protection or enforcement of the rights of the
membership, courts will disregard this legal fiction and operate upon both the corporation and the persons
composing it.

In the same section, the author quotes from a decision in 49 Ohio State, 1371; 15 L. R. A., 145, in which the
Supreme Court of Ohio says:

"So long as a proper use is made of the fiction that a corporation is an entity apart from its shareholders, it
is harmless, and, because convenient, should not be called in question; but where it is urged to an end
subversive of its policy, or such is the issue, the fiction must be ignored, and the question determined
whether the act in question, though done by shareholders, — that is to say, by the persons uniting in one
body, — was done simply as individuals, and with respect to their individual interest as shareholders, or
was done ostensibly as such, but, as a matter of fact, to control the corporation, and affect the transaction
of its business, in the same manner as if the act had been clothed with all the formalities of a corporate
act. This must be so, because, the stockholders having a dual capacity, and capable of acting in either,
and a possible interest to conceal their character when acting in their corporate capacity, the absence of
the formal evidence of the character of the act cannot preclude judicial inquiry on the subject. If it were
otherwise, then in that department of the law fraud would enjoy an immunity awarded to it in no other."

Where the stock of a corporation is owned by one person whereby the corporation functions only for the
benefit of such individual owner, the corporation and the individual should be deemed to be the same. (U.
S. Gypsum Co. vs. Mackay Wall Plaster Co., 199 Pac., 249.)

Ruling Case Law, vol. 7, section 663, says:

While of course a corporation cannot ratify a contract which is strictly ultra vires, and which it in the first
instance could not have made, it may by ratification render binding on it a contract, entered into on its
behalf by its officers or agents without authority. As a general rule such ratification need not be
manifested by any voted or formal resolution of the corporation or be authenticated by the corporate seal;
no higher degree of evidence is requisite in establishing ratification on the part of a corporation, than is
requisite in showing an antecedent authorization.

xxx xxx xxx

SEC. 666. The assent or approval of a corporation to acts done on its account may be inferred in the
same manner that the absent of a natural person may be, and it is well settled that where a corporation
with full knowledge of the unauthorized act of its officer or agents acquiesces in and consents to such
acts, it thereby ratifies them, especially where the acquiescence results in prejudice to a third person.

xxx xxx xxx

SEC. 669. So, when, in the usual course of business of a corporation, an officer has been allowed in his
official capacity to manage its affair, his authority to represent the corporation may be inferred from the
manner in which he has been permitted by the directors to transact its business.

SEC. 656. In accordance with a well-known rule of the law of agency, notice to corporate officers or
agents within the scope or apparent scope of their authority is attributed to the corporation.

SEC. 667. As a general rule, if a corporation with knowledge of its agents unauthorized act received and
enjoys the benefits thereof, it impliedly ratifies the unauthorized act if it is one capable of ratification by
parol.
In its article on corporations, Corpus Juris, in section 2241 says:

Ratification by a corporation of a transaction not previously authorized is more easily inferred where the
corporation receives and retains property under it, and as a general rule where a corporation, through its
proper officers or board, takes and retains the benefits of the unauthorized act or contract of an officer or
agent, with full knowledge of all the material facts, it thereby ratifies and becomes bound by such act of
contract, together with all the liabilities and burdens resulting therefrom, and in some jurisdiction this rule
is, in effect, declared by statute. Thus the corporation is liable on the ground of ratification where, with
knowledge of the facts, it accepts the benefit of services rendered under an unauthorized contract of
employment . . . .

Applying the law to the facts.

Mr. Larkin, an experienced accountant, was employed by the local corporation, and from time to time and in the
ordinary course of business made and prepared financial statements showing its assets and liabilities, true copies
of which were sent to the home office in San Francisco. It appears upon their face that plaintiff's compensation
was made and founded on Exhibit B, and that such statements were made and prepared by the accountant on
the assumption that Exhibit B was in full force and effect as between the plaintiff and the defendant. In the course
of business in the early part of 1920, plaintiff, as manager of the defendant, sold 500 tons of oil for future delivery
at P740 per ton. Due to break in the market, plaintiff was able to purchase the oil at P380 per ton or a profit of
P180,000.

It appears from Exhibit B under the heading of "Profits" that:

On all the business transacted between Willits & Patterson, Ltd. and others than Willits & Patterson, San
Francisco, half the profit are to be credited to may account and half to the Profit & Loss account Willits &
Patterson, Ltd., Manila.

The purchasers paid P105,000 on the contracts and gave their notes for P75,000, and it was agreed that all of
the oil purchased should be held as security for the full payment of the purchase price. As a result, the defendant
itself received the P105,000 in cash, P75,000 in notes, and still holds the 500 tons of oil as security for the
balance of the purchase price. This transaction was shown in the semi-annual financial statement for the period
ending December 31, 1920. That is to say, the business was transacted by and through the plaintiff, and the
defendant received and accepted all of the profits on the deal, and the statement which was rendered gave him a
credit for P90,737.88, or half the profit as provided in the contract Exhibit B, with interest.

Although the previous financial statements show upon their face that the account of plaintiff was credit with
several small items on the same basis, it was not until the 23d of March, 1921, that any objection was ever made
by anyone, and objection was made for the first time by the creditors' committee in a cable of that date.

As we analyze the facts Exhibit B was, in legal effect, ratified and approved and is now binding upon the
defendant corporation, and the plaintiff is entitled to recover for his services on that writing as it modified the
original contract Exhibit A.

It appears from the statement prepared by accountant Larkin founded upon Exhibit B that the plaintiff is entitled to
recover P106,277.50. It is very apparent that his statement was based upon the assumption that there was a net
profit of P180,000 on the 500 tons of oil, of which the plaintiff was entitled to one-half.

In the absence of any other proof, we have the right to assume that the 500 tons of oil was worth the amount
which the defendant paid for them at the time of the purchase or P380 per ton, and the record shows that the
defendant took and now has the possession of all of the oil secure the payment of the price at which it was sold.
Hence, the profit on the deal to the defendant at the time of the sale would amount to the difference between
what the defendant paid for the oil and the amount which it received for the oil at the time it sold the oil. It appears
that at the time of the sale the defendant only received P105,000 in cash, and that it took and accepted the
promissory notes of Cruz & Tan Chong Say, the purchasers, for P75,000 more which have been collected and
may never be. Hence, it must follow that the amount evidence by the notes cannot now be deemed or treated as
profits on the deal and cannot be until such times as the notes are paid.

The judgment of the lower court is reversed, and a money judgment will be entered here in favor of the plaintiff
and against the defendant for the sum of P68,527.50, with thereon at the rate of 6 per cent per annum from the
10th day of January, 1922. In addition thereto, judgment will be rendered against the defendant in substance and
to the effect that the plaintiff is the owner of an undivided one-half interest in the promissory notes for P75,000
which were executed by Cruz & Tan Chong Say, as a part of the purchase price of the oil, and that he is entitled
to have and receive one-half of all the proceeds from the notes or either of them, and that also he have judgment
against the defendant for costs. So ordered.

Araullo, C. J., Street, Malcolm, Avanceña, Ostrand, and Romualdez, JJ., concur.
Footnotes

1 State ex rel. vs. Standard Oil Co.

G.R. No. L-5677 May 25, 1953

LA CAMPANA FACTORY, INC., and TAN TONG doing business under the trial name "LA CAMPANA
GAUGAU PACKING", petitioners,
vs.
KAISAHAN NG MGA MANGGAGAWA SA LA CAMPANA (KKM) and THE COURT OF INDUSTRIAL
RELATIONS, respondents.

Ceferino de los Santos, R., Ceferino de los Santos, Jr. and Manuel V. Roxas for petitioners.
Carlos E. Santiago for respondent union.

REYES, J.:

Tan Tong, one of the herein petitioners, has since 1932 been engaged in the business of buying and selling
gaugau under the trade name La Campana Gaugau Packing with an establishment in Binondo, Manila, which
was later transferred to España Extension, Quezon City. But on July 6, 1950, Tan Tong, with himself and
members of his family corporation known as La Campana Factory Co., Inc., with its principal office located in the
same place as that of La Campana Gaugau Packing.

About a year before the formation of the corporation, or on July 11, 1949, Tan Tong had entered into a collective
bargaining agreement with the Philippine Legion of Organized Workers, known as PLOW for short, to which the
union of Tan Tong's employees headed by Manuel E. Sadde was then affiliated. Seceding, however, from the
PLOW, Tan Tong's employees later formed their own organization known as Kaisahan Ng Mga Manggagawa Sa
La Campana, one of the herein respondents, and applied for registration in the Department of Labor as an
independent entity. Pending consideration of this application, the Department gave the new organization legal
standing by issuing it a permit as an affiliate to the Kalipunan Ng Mga Manggagawa.

On July 19, 1951, the Kaisahan Ng Mga Manggagawa Sa La Campana, hereinafter to be referred to as the
respondent Kaisahan, which, as of that date, counted with 66 members — workers all of them of both La
Campana Gaugau Packing and La Campana Coffee Factory Co., Inc. — presented a demand for higher wages
and more privileges, the demand being addressed to La Campana Starch and Coffee Factory, by which name
they sought to designate, so it appears, the La Campana Gaugau Packing and the La Campana Coffee Factory
Co., Inc. As the demand was not granted and an attempt at settlement through the mediation of the Conciliation
Service of the Department of Labor had given no result, the said Department certified the dispute to the Court of
Industrial Relations on July 17, 1951, the case being there docketed as Case No. 584-V.

With the case already pending in the industrial court, the Secretary of Labor, on September 5, 1951, revoked
the Kalipunan Ng Mga Kaisahang Manggagawa's permit as a labor union on the strength of information received
that it was dominated by subversive elements, and, in consequence, on the 20th of the same month, also
suspended the permit of its affiliate, the respondent Kaisahan.

We have it from the court's order of January 15, 1952, which forms one of the annexes to the present petition,
that following the revocation of the Kaisahan's permit, "La Campana Gaugau and Coffee Factory" (obviously the
combined name of La Campana Gaugau Packing and La Campana Coffee Factory Co., Inc,) and the PLOW,
which had been allowed to intervene as a party having an interest in the dispute, filed separate motions for the
dismissal of the case on the following grounds:

1. That the action is directed against two different entities with distinct personalities, with "La Campana
Starch Factory" and the "La Campana Coffee Factory, Inc.";

2. That the workers of the "La Campana Coffee Factory, Inc." are less than thirty-one;

3. That the petitioning union has no legal capacity to sue, because its registration as an organized union
has been revoked by the Department of Labor on September 5, 1951; and

4. That there is an existing valid contract between the respondent "La Campana Gaugau Packing" and
the intervenor PLOW, where-in the petitioner's members are contracting parties bound by said contract.

Several hearings were held on the above motions, in the course of which ocular inspections were also made, and
on the basis of the evidence received and the facts observed in the ocular inspections, the Court of Industrial
Relations denied the said motions in its order of January 14, 1952, because if found as a fact that:

A. While the coffee corporation is a family corporation with Mr. Tan Tong, his wife, and children as the
incorporations and stockhelders (Exhibit 1), the La Campana Gaugau Packing is merely a business name
(Exhibit 4).

B. According to the contract of lease (Exhibit 23), Mr. Tan Tong., propriety and manager of the Ka
Campana Gaugau Factory, leased a space of 200 square meters in the bodega housing the gaugau
factory to his son Tan Keng Lim, manager of the La Campana Coffee Factory. But the lease was
 executed only on September 1, 1951, while the dispute between the parties was pending before the
Court.

C. There is only one entity La Campana Starch and Coffee Factory, as shown by the signboard (Exhibit
1), the advertisement in the delivery trucks (Exhibit I-1), the packages of gaugau(Exhibit K), and delivery
forms (Exhibits J, J-1, and J-2).

D. All the laborers working in the gaugau or in the coffee factory receive their pay from the same person,
the cashier, Miss Natividad Garcia, secretary of Mr. Tan Tong; and they are transferred from the gaugau
to the coffee and vice-versa as the management so requires.

E. There has been only one payroll for the entire La Campana personnel and only one person preparing
the same — Miss Natividad Garcia, secretary of Mr. Tan Tong. But after the case at bar was certified to
this Court on July 17, 1951, the company began making separate payrolls for the coffee factory (Exhibits
M-2 and M-3, and for the gaugau factory (Exhibits O-2, O-3 and O-4). It is to be noted that before July 21,
1951, the coffee payrolls all began with number "41-Maria Villanueva" with 24 or more laborers (Exhibits
M and M-1), whereas beginning July 21, 1951, the payrolls for the coffee factory began with No. 1-Loreta
Bernabe with only 14 laborers (Exhibits M-2 and M-3).

F. During the ocular inspection made in the factory on August 26, 1951 the Court has found the following:

In the ground floor and second floor of the gaugau factory there were hundreds of bags of raw coffee
behind the pile of gaugau sacks. There were also women employees working paper wrappers for gaugau,
and, in the same place there were about 3,000 cans to be used as containers for coffee.

The Court found out also that there were 16 trucks used both for the delivery of coffee and gaugau. To
show that those trucks carried both coffee and gaugau, the union president invited the Court to examine
the contents of delivery truck No. T-582 parked in a garage between the gaugau building and the coffee
factory, and upon examination, there were found inside the said truck boxes of gaugau and cans of
coffee,

and held that:

. . . there is only one management for the business of gaugau and coffee with whom the laborers are
dealing regarding their work. Hence, the filing of action against the Ka Campana Starch and Coffee
Factory is proper and justified.

With regards to the alleged lack of personality, it is to be noted that before the certification of the case to
this Court on July 17, 1951, the petitioner Kaisahan Ng Mga Manggagawa Sa La Campana, had a
separate permit from the Department of Labor. This permit was suspended on September 30, 1951.
(Exhibit M-Intervenor, page 55, of the record). It is not true that, on July 17, 1951, when this case
forwarded to this Court, the petitioner's permit, as an independent union, had not yet been issued, for the
very Exhibit MM-Intervenor regarding the permit, conclusively shows the preexistence of said permit.
(Annex G.)

Their motion for reconsideration of the above order having been denied, Tan Tong and La Campana Coffee
Factory, Inc. (same as La Campana Coffee Factory Co., Inc.), later joined by the PLOW, filed the present petition
for certiorari on the grounds that the Court of Industrial Relations had no jurisdiction to take cognizance of the
case, for the reason, according to them, "(1) that the petitioner La Campana Coffee Factory, Inc. has only 14
employees, only 5 of whom are members of the respondent union and therefore the absence of the jurisdictional
number (30) as provided by sections 1 and 4 of Commonwealth Act No. 103; and, (2) that the suspension of
respondent union's permit by the Secretary of Labor has the effect of taking away the union's right to collective
bargaining under section 2 of Commonwealth Act No. 213 and consequently, its personality to sue for ad in
behalf of its members."

As to the first ground, petitioners obviously do not question the fact that the number of employees of the La
Campana Gaugau Packing involved in the case is more than the jurisdictional number (31) required bylaw, but
they do contend that the industrial court has no jurisdiction to try the case as against La Campana Coffee
Factory, Inc. because the latter has allegedly only 14 laborers and only of these are members of the respondent
Kaisahan. This contention loses force when it is noted that, as found by the industrial court — and this finding is
conclusive upon us — La Campana Gaugau Packing and La Campana Coffee Factory Co. Inc., are operating
under one single management, that is, as one business though with two trade names. True, the coffee factory is a
corporation and, by legal fiction, an entity existing separate and apart fro the persons composing it, that is, Tan
Tong and his family. But it is settled that this fiction of law, which has been introduced as a matter of convenience
and to subserve the ends of justice cannot be invoked to further an end subversive of that purpose.

Disregarding Corporate Entity. — The doctrine that a corporation is a legal entity existing separate and
apart from the person composing it is a legal theory introduced for purposes of convenience and to
subserve the ends of justice. The concept cannot, therefore, be extended to a point beyond its reason
 and policy, and when invoked in support of an end subversive of this policy, will be disregarded by the
courts. Thus, in an appropriate case and in furtherance of the ends of justice, a corporation and the
individual or individuals owning all its stocks and assets will be treated as identical, the corporate entity
being disregarded where used as a cloak or cover for fraud or illegality. (13 Am. Jur., 160-161.)

. . . A subsidiary or auxiliary corporation which is created by a parent corporation merely as an agency for
the latter may sometimes be regarded as identical with the parent corporation, especially if the
stockholders or officers of the two corporations are substantially the same or their system of operation
unified. (Ibid. 162; see Annotation 1 A. L. R. 612, s. 34 A. L. R. 599.)

In the present case Tan Tong appears to be the owner of the gaugau factory. And the coffee factory, though an
incorporated business, is in reality owned exclusively by Tan Tong and his family. As found by the Court of
industrial Relations, the two factories have but one office, one management and one payroll, except after July 17,
the day the case was certified to the Court of Industrial Relations, when the person who was discharging the
office of cashier for both branches of the business began preparing separate payrolls for the two. And above all, it
should not be overlooked that, as also found by the industrial court, the laborers of the gaugau factory and the
coffee factory were interchangeable, that is, the laborers from the gaugau factory were sometimes transferred to
the coffee factory and vice-versa. In view of all these, the attempt to make the two factories appears as two
separate businesses, when in reality they are but one, is but a device to defeat the ends of the law (the Act
governing capital and labor relations) and should not be permitted to prevail.

The second point raised by petitioners is likewise with-out merit. In the first place, there being more than 30
laborers involved and the Secretary of Labor having certified the dispute to the Court of Industrial Relations, that
court duly acquired jurisdiction over the case (International Oil Factory vs. NLU, Inc. 73 Phil., 401; section 4, C. A.
103). This jurisdiction was not when the Department of Labor suspended the permit of the respondent Kaisahan
as a labor organization. For once jurisdiction is acquired by the Court of Industrial Relations it is retained until the
case is completely decided. (Manila Hotel Employees Association vs. Manila Hotel Co. et al., 73 Phil., 374.)

In view of the foregoing, the petition is denied, with costs against the petitioner.

Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo, Bautista Angelo and Labrador, JJ., concur.
G.R. No. L-13203 January 28, 1961

YUTIVO SONS HARDWARE COMPANY, petitioner,

vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents.

Sycip, Quisumbing, Salazar & Associates for petitioner.

Office of the Solicitor General for respondents.

GUTIERREZ DAVID, J.:

This is a petition for review of a decision of the Court of Tax Appeals ordering petitioner to pay to respondent
Collector of Internal Revenue the sum of P1,266,176.73 as sales tax deficiency for the third quarter of 1947 to the
fourth quarter of 1950; inclusive, plus 75% surcharge thereon, equivalent to P349,632.54, or a sum total of
P2,215,809.27, plus costs of the suit.

From the stipulation of facts and the evidence adduced by both parties, it appears that petitioner Yutivo Sons
Hardware Co. (hereafter referred to as Yutivo) is a domestic corporation, organized under the laws of the
Philippines, with principal office at 404 Dasmariñas St., Manila. Incorporated in 1916, it was engaged, prior to the
last world war, in the importation and sale of hardware supplies and equipment. After the liberation, it resumed its
business and until June of 1946 bought a number of cars and trucks from General Motors Overseas Corporation
(hereafter referred to as GM for short), an American corporation licensed to do business in the Philippines. As
importer, GM paid sales tax prescribed by sections 184, 185 and 186 of the Tax Code on the basis of its selling
price to Yutivo. Said tax being collected only once on original sales, Yutivo paid no further sales tax on its sales to
the public.

On June 13, 1946, the Southern Motors, Inc. (hereafter referred to as SM) was organized to engage in the
business of selling cars, trucks and spare parts. Its original authorized capital stock was P1,000,000 divided into
10,000 shares with a par value of P100 each.

At the time of its incorporation 2,500 shares worth P250,000 appear to have been subscribed into equal
proportions by Yu Khe Thai, Yu Khe Siong, Hu Kho Jin, Yu Eng Poh, and Washington Sycip. The first three
named subscribers are brothers, being sons of Yu Tiong Yee, one of Yutivo's founders. The latter two are
respectively sons of Yu Tiong Sin and Albino Sycip, who are among the founders of Yutivo.

After the incorporation of SM and until the withdrawal of GM from the Philippines in the middle of 1947, the cars
and tracks purchased by Yutivo from GM were sold by Yutivo to SM which, in turn, sold them to the public in the
Visayas and Mindanao.

When GM decided to withdraw from the Philippines in the middle of 1947, the U.S. manufacturer of GM cars and
trucks appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its previous
arrangement of selling exclusively to SM. In the same way that GM used to pay sales taxes based on its sales to
Yutivo, the latter, as importer, paid sales tax prescribed on the basis of its selling price to SM, and since such
sales tax, as already stated, is collected only once on original sales, SM paid no sales tax on its sales to the
public.

On November 7, 1950, after several months of investigation by revenue officers started in July, 1948, the
Collector of Internal Revenue made an assessment upon Yutivo and demanded from the latter P1,804,769.85 as
deficiency sales tax plus surcharge covering the period from the third quarter of 1947 to the fourth quarter of
1949; or from July 1, 1947 to December 31, 1949, claiming that the taxable sales were the retail sales by SM to
the public and not the sales at wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo were one and
the same corporation, the former being the subsidiary of the latter.

The assessment was disputed by the petitioner, and a reinvestigation of the case having been made by the
agents of the Bureau of Internal Revenue, the respondent Collector in his letter dated November 15, 1952
countermanded his demand for sales tax deficiency on the ground that "after several investigations conducted
into the matter no sufficient evidence could be gathered to sustain the assessment of this Office based on the
theory that Southern Motors is a mere instrumentality or subsidiary of Yutivo." The withdrawal was subject,
however, to the general power of review by the now defunct Board of Tax Appeals. The Secretary of Finance to
whom the papers relative to the case were endorsed, apparently not agreeing with the withdrawal of the
assessment, returned them to the respondent Collector for reinvestigation.

After another investigation, the respondent Collector, in a letter to petitioner dated December 16, 1954,
redetermined that the aforementioned tax assessment was lawfully due the government and in addition assessed
deficiency sales tax due from petitioner for the four quarters of 1950; the respondents' last demand was in the
total sum of P2,215,809.27 detailed as follows:

Deficiency 75% Total Amount

Sales Tax Surcharge Due
 Assessment (First) of November 7,
1950 for deficiency sales Tax for the
period from 3rd Qrtr 1947 to 4th Qrtr
1949 inclusive P1,031,296.60 P773,473.45 P1,804,769.05
Additional Assessment for period
from 1st to 4th Qrtr 1950, inclusive 234,880.13 176,160.09 411,040.22
Total amount demanded per letter of
December 16, 1954 P1,266,176.73 P949,632.54 P2,215,809.27

This second assessment was contested by the petitioner Yutivo before the Court of Tax Appeals, alleging that
there is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner
Yutivo; (2) that assuming the separate personality of SM may be disregarded, the sales tax already paid by
Yutivo should first be deducted from the selling price of SM in computing the sales tax due on each vehicle; and
(3) that the surcharge has been erroneously imposed by respondent. Finding against Yutivo and sustaining the
respondent Collector's theory that there was no legitimate or bona fide purpose in the organization of SM — the
apparent objective of its organization being to evade the payment of taxes — and that it was owned (or the
majority of the stocks thereof are owned) and controlled by Yutivo and is a mere subsidiary, branch, adjunct,
conduit, instrumentality or alter ego of the latter, the Court of Tax Appeals — with Judge Roman Umali not taking
part — disregarded its separate corporate existence and on April 27, 1957, rendered the decision now
complained of. Of the two Judges who signed the decision, one voted for the modification of the computation of
the sales tax as determined by the respondent Collector in his decision so as to give allowance for the reduction
of the tax already paid (resulting in the reduction of the assessment to P820,509.91 exclusive of surcharges),
while the other voted for affirmance. The dispositive part of the decision, however, affirmed the assessment made
by the Collector. Reconsideration of this decision having been denied, Yutivo brought the case to this Court thru
the present petition for review.

It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporation petitions to which it may be connected. However, "when
the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime," the
law will regard the corporation as an association of persons, or in the case of two corporations merge them into
one. (Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 496, citing I Fletcher Cyclopedia of Corporation, Perm Ed., pp. 135
136; United States vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.) Another rule is
that, when the corporation is the "mere alter ego or business conduit of a person, it may be disregarded." (Koppel
[Phil.], Inc. vs. Yatco, supra.)

After going over the voluminous record of the present case, we are inclined to rule that the Court of Tax Appeals
was not justified in finding that SM was organized for no other purpose than to defraud the Government of its
lawful revenues. In the first place, this corporation was organized in June, 1946 when it could not have caused
Yutivo any tax savings. From that date up to June 30, 1947, or a period of more than one year, GM was the
importer of the cars and trucks sold to Yutivo, which, in turn resold them to SM. During that period, it is not
disputed that GM as importer, was the one solely liable for sales taxes. Neither Yutivo or SM was subject to the
sales taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not arise until July 1, 1947 when
it became the importer and simply continued its practice of selling to SM. The decision, therefore, of the Tax
Court that SM was organized purposely as a tax evasion device runs counter to the fact that there was no tax to
evade.

Making the observation from a newspaper clipping (Exh. "T") that "as early as 1945 it was known that GM was
preparing to leave the Philippines and terminate its business of importing vehicles," the court below speculated
that Yutivo anticipated the withdrawal of GM from business in the Philippines in June, 1947. This observation,
which was made only in the resolution on the motion for reconsideration, however, finds no basis in the record.
On the other hand, GM had been an importer of cars in the Philippines even before the war and had but recently
resumed its operation in the Philippines in 1946 under an ambitious plan to expand its operation by establishing
an assembly plant here, so that it could not have been expected to make so drastic a turnabout of not merely
abandoning the assembly plant project but also totally ceasing to do business as an importer. Moreover, the
newspaper clipping, Exh. "T", was published on March 24, 1947, and clipping, merely reported a rumored plan
that GM would abandon the assembly plant project in the Philippines. There was no mention of the cessation of
business by GM which must not be confused with the abandonment of the assembly plant project. Even as
respect the assembly plant, the newspaper clipping was quite explicit in saying that the Acting Manager refused
to confirm that rumor as late as March 24, 1947, almost a year after SM was organized.

At this juncture, it should be stated that the intention to minimize taxes, when used in the context of fraud, must
be proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be
justified by a mere speculation. This is because fraud is never lightly to be presumed. (Vitelli & Sons vs. U.S 250
U.S. 355; Duffin vs. Lucas, 55 F (2d) 786; Budd vs. Commr., 43 F (2d) 509; Maryland Casualty Co. vs. Palmette
Coal Co., 40 F (2d) 374; Schoonfield Bros., Inc. vs. Commr., 38 BTA 943; Charles Heiss vs. Commr 36 BTA 833;
Kerbaugh vs. Commr 74 F (2d) 749; Maddas vs. Commr., 114 F. (2d) 548; Moore vs. Commr., 37 BTA 378;
National City Bank of New York vs. Commr., 98 (2d) 93; Richard vs. Commr., 15 BTA 316; Rea Gane vs.
Commr., 19 BTA 518). (See also Balter, Fraud Under Federal Law, pp. 301-302, citing numerous authorities:
Arroyo vs. Granada, et al., 18 Phil. 484.) Fraud is never imputed and the courts never sustain findings of fraud
upon circumstances which, at the most, create only suspicion. (Haygood Lumber & Mining Co. vs. Commr., 178 F
(2d) 769; Dalone vs. Commr., 100 F (2d) 507).

In the second place, SM was organized and it operated, under circumstance that belied any intention to evade
sales taxes. "Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to
lessen or defeat taxes. The transactions between Yutivo and SM, however, have always been in the open,
embodied in private and public documents, constantly subject to inspection by the tax authorities. As a matter of
fact, after Yutivo became the importer of GM cars and trucks for Visayas and Mindanao, it merely continued the
method of distribution that it had initiated long before GM withdrew from the Philippines.

On the other hand, if tax saving was the only justification for the organization of SM, such justification certainly
ceased with the passage of Republic Act No. 594 on February 16, 1951, governing payment of advance sales tax
by the importer based on the landed cost of the imported article, increased by mark-ups of 25%, 50%, and 100%,
depending on whether the imported article is taxed under sections 186, 185 and 184, respectively, of the Tax
Code. Under Republic Act No. 594, the amount at which the article is sold is immaterial to the amount of the sales
tax. And yet after the passage of that Act, SM continued to exist up to the present and operates as it did many
years past in the promotion and pursuit of the business purposes for which it was organized.

In the third place, sections 184 to 186 of the said Code provides that the sales tax shall be collected "once only
on every original sale, barter, exchange . . , to be paid by the manufacturer, producer or importer." The use of the
word "original" and the express provision that the tax was collectible "once only" evidently has made the
provisions susceptible of different interpretations. In this connection, it should be stated that a taxpayer has the
legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which
the law permits. (U.S. vs. Isham 17 Wall. 496, 506; Gregory vs. Helvering 293 U.S. 465, 469; Commr. vs. Tower,
327 U.S. 280; Lawton vs. Commr 194 F (2d) 380). Any legal means by the taxpayer to reduce taxes are all right
Benry vs. Commr. 25 T. Cl. 78). A man may, therefore, perform an act that he honestly believes to be sufficient to
exempt him from taxes. He does not incur fraud thereby even if the act is thereafter found to be insufficient. Thus
in the case of Court Holding Co. vs. Commr. 2 T. Cl. 531, it was held that though an incorrect position in law had
been taken by the corporation there was no suppression of the facts, and a fraud penalty was not justified.

The evidence for the Collector, in our opinion, falls short of the standard of clear and convincing proof of fraud. As
a matter of fact, the respondent Collector himself showed a great deal of doubt or hesitancy as to the existence of
fraud. He even doubted the validity of his first assessment dated November 7, 1959. It must be remembered that
the fraud which respondent Collector imputed to Yutivo must be related to its filing of sales tax returns of less
taxes than were legally due. The allegation of fraud, however, cannot be sustained without the showing that
Yutivo, in filing said returns, did so fully knowing that the taxes called for therein called for therein were less than
what were legally due. Considering that respondent Collector himself with the aid of his legal staff, and after some
two years of investigation and duty of investigation and study concluded in 1952 that Yutivo's sales tax returns
were correct — only to reverse himself after another two years — it would seem harsh and unfair for him to say in
1954 that Yutivo fully knew in October 1947 that its sales tax returns were inaccurate.

On this point, one other consideration would show that the intent to save taxes could not have existed in the
minds of the organizers of SM. The sales tax imposed, in theory and in practice, is passed on to the vendee, and
is usually billed separately as such in the sales invoice. As pointed out by petitioner Yutivo, had not SM handled
the retail, the additional tax that would have been payable by it, could have been easily passed off to the
consumer, especially since the period covered by the assessment was a "seller's market" due to the post-war
scarcity up to late 1948, and the imposition of controls in the late 1949.

It is true that the arrastre charges constitute expenses of Yutivo and its non-inclusion in the selling price by Yutivo
cost the Government P4.00 per vehicle, but said non-inclusion was explained to have been due to an inadvertent
accounting omission, and could hardly be considered as proof of willful channelling and fraudulent evasion of
sales tax. Mere understatement of tax in itself does not prove fraud. (James Nicholson, 32 BTA 377, affirmed 90
F. (2) 978, cited in Merten's Sec. 55.11 p. 21) The amount involved, moreover, is extremely small inducement for
Yutivo to go thru all the trouble of organizing SM. Besides, the non-inclusion of these small arrastre charges in
the sales tax returns of Yutivo is clearly shown in the records of Yutivo, which is uncharacteristic of fraud (See
Insular Lumber Co. vs. Collector, G.R. No. L-719, April 28, 1956.)

We are, however, inclined to agree with the court below that SM was actually owned and controlled by petitioner
as to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail and
maintaining stores for spare parts as well as service repair shops. It is not disputed that the petitioner, which is
engaged principally in hardware supplies and equipment, is completely controlled by the Yutivo, Young or Yu
family. The founders of the corporation are closely related to each other either by blood or affinity, and most of its
stockholders are members of the Yu (Yutivo or Young) family. It is, likewise, admitted that SM was organized by
the leading stockholders of Yutivo headed by Yu Khe Thai. At the time of its incorporation 2,500 shares worth
P250,000.00 appear to have been subscribed in five equal proportions by Yu Khe Thai, Yu Khe Siong, Yu Khe
Jin, Yu Eng Poh and Washington Sycip. The first three named subscribers are brothers, being the sons of Yu
Tien Yee, one of Yutivo's founders. Yu Eng Poh and Washington Sycip are respectively sons of Yu Tiong Sing
and Alberto Sycip who are co-founders of Yutivo. According to the Articles of Incorporation of the said
subscriptions, the amount of P62,500 was paid by the aforenamed subscribers, but actually the said sum was
advanced by Yutivo. The additional subscriptions to the capital stock of SM and subsequent transfers thereof
were paid by Yutivo itself. The payments were made, however, without any transfer of funds from Yutivo to SM.
Yutivo simply charged the accounts of the subscribers for the amount allegedly advanced by Yutivo in payment of
the shares. Whether a charge was to be made against the accounts of the subscribers or said subscribers were
to subscribe shares appears to constitute a unilateral act on the part of Yutivo, there being no showing that the
former initiated the subscription.

The transactions were made solely by and between SM and Yutivo. In effect, it was Yutivo who undertook the
subscription of shares, employing the persons named or "charged" with corresponding account as nominal
stockholders. Of course, Yu Khe Thai, Yu Khe Jin, Yu Khe Siong and Yu Eng Poh were manifestly aware of these
subscriptions, but considering that they were the principal officers and constituted the majority of the Board of
Directors of both Yutivo and SM, their subscriptions could readily or easily be that of Yutivo's Moreover, these
persons were related to death other as brothers or first cousins. There was every reason for them to agree in
order to protect their common interest in Yutivo and SM.

The issued capital stock of SM was increased by additional subscriptions made by various person's but except
Ng Sam Bak and David Sycip, "payments" thereof were effected by merely debiting 'or charging the accounts of
said stockholders and crediting the corresponding amounts in favor of SM, without actually transferring cash from
Yutivo. Again, in this instance, the "payments" were Yutivo, by effected by the mere unilateral act of Yutivo a
accounts of the virtue of its control over the individual persons charged, would necessarily exercise preferential
rights and control directly or indirectly, over the shares, it being the party which really undertook to pay or
underwrite payment thereof.

The shareholders in SM are mere nominal stockholders holding the shares for and in behalf of Yutivo, so even
conceding that the original subscribers were stockholders bona fide Yutivo was at all times in control of the
majority of the stock of SM and that the latter was a mere subsidiary of the former.

True, petitioner and other recorded stockholders transferred their shareholdings, but the transfers were made to
their immediate relatives, either to their respective spouses and children or sometimes brothers or sisters.
Yutivo's shares in SM were transferred to immediate relatives of persons who constituted its controlling
stockholders, directors and officers. Despite these purported changes in stock ownership in both corporations, the
Board of Directors and officers of both corporations remained unchanged and Messrs. Yu Khe Thai, Yu Khe
Siong Hu Khe Jin and Yu Eng Poll (all of the Yu or Young family) continued to constitute the majority in both
boards. All these, as observed by the Court of Tax Appeals, merely serve to corroborate the fact that there was a
common ownership and interest in the two corporations.

SM is under the management and control of Yutivo by virtue of a management contract entered into between the
two parties. In fact, the controlling majority of the Board of Directors of Yutivo is also the controlling majority of the
Board of Directors of SM. At the same time the principal officers of both corporations are identical. In addition
both corporations have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivo's
president, Yu Khe Thai. There is therefore no doubt that by virtue of such control, the business, financial and
management policies of both corporations could be directed towards common ends.

Another aspect relative to Yutivo's control over SM operations relates to its cash transactions. All cash assets of
SM were handled by Yutivo and all cash transactions of SM were actually maintained thru Yutivo. Any and all
receipts of cash by SM including its branches were transmitted or transferred immediately and directly to Yutivo in
Manila upon receipt thereof. Likewise, all expenses, purchases or other obligations incurred by SM are referred to
Yutivo which in turn prepares the corresponding disbursement vouchers and payments in relation there, the
payment being made out of the cash deposits of SM with Yutivo, if any, or in the absence thereof which occurs
generally, a corresponding charge is made against the account of SM in Yutivo's books. The payments for and
charges against SM are made by Yutivo as a matter of course and without need of any further request, the latter
would advance all such cash requirements for the benefit of SM. Any and all payments and cash vouchers are
made on Yutivo stationery and made under authority of Yutivo's corporate officers, without any copy thereof being
furnished to SM. All detailed records such as cash disbursements, such as expenses, purchases, etc. for the
account of SM, are kept by Yutivo and SM merely keeps a summary record thereof on the basis of information
received from Yutivo.

All the above plainly show that cash or funds of SM, including those of its branches which are directly remitted to
Yutivo, are placed in the custody and control of Yutivo, resources and subject to withdrawal only by Yutivo. SM's
being under Yutivo's control, the former's operations and existence became dependent upon the latter.

Consideration of various other circumstances, especially when taken together, indicates that Yutivo treated SM
merely as its department or adjunct. For one thing, the accounting system maintained by Yutivo shows that it
maintained a high degree of control over SM accounts. All transactions between Yutivo and SM are recorded and
effected by mere debit or credit entries against the reciprocal account maintained in their respective books of
accounts and indicate the dependency of SM as branch upon Yutivo.

Apart from the accounting system, other facts corroborate or independently show that SM is a branch or
department of Yutivo. Even the branches of SM in Bacolod, Iloilo, Cebu, and Davao treat Yutivo — Manila as
their "Head Office" or "Home Office" as shown by their letters of remittances or other correspondences. These
correspondences were actually received by Yutivo and the reference to Yutivo as the head or home office is
obvious from the fact that all cash collections of the SM's branches are remitted directly to Yutivo. Added to this
fact, is that SM may freely use forms or stationery of Yutivo

The fact that SM is a mere department or adjunct of Yutivo is made more patent by the fact that arrastre
conveying, and charges paid for the "operation of receiving, loading or unloading" of imported cars and trucks on
piers and wharves, were charged against SM. Overtime charges for the unloading of cars and trucks as
requested by Yutivo and incurred as part of its acquisition cost thereof, were likewise charged against and treated
as expenses of SM. If Yutivo were the importer, these arrastre and overtime charges were Yutivo's expenses in
importing goods and not SM's. But since those charges were made against SM, it plainly appears that Yutivo had
sole authority to allocate its expenses even as against SM in the sense that the latter is a mere adjunct, branch or
department of the former.

Proceeding to another aspect of the relation of the parties, the management fees due from SM to Yutivo were
taken up as expenses of SM and credited to the account of Yutivo. If it were to be assumed that the two
organizations are separate juridical entities, the corresponding receipts or receivables should have been treated
as income on the part of Yutivo. But such management fees were recorded as "Reserve for Bonus" and were
therefore a liability reserve and not an income account. This reserve for bonus were subsequently distributed
directly to and credited in favor of the employees and directors of Yutivo, thereby clearly showing that the
management fees were paid directly to Yutivo officers and employees.

Briefly stated, Yutivo financed principally, if not wholly, the business of SM and actually extended all the credit to
the latter not only in the form of starting capital but also in the form of credits extended for the cars and vehicles
allegedly sold by Yutivo to SM as well as advances or loans for the expenses of the latter when the capital had
been exhausted. Thus, the increases in the capital stock were made in advances or "Guarantee" payments by
Yutivo and credited in favor of SM. The funds of SM were all merged in the cash fund of Yutivo. At all times
Yutivo thru officers and directors common to it and SM, exercised full control over the cash funds, policies,
expenditures and obligations of the latter.

Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax Appeals correctly
disregarded the technical defense of separate corporate entity in order to arrive at the true tax liability of Yutivo.

Petitioner contends that the respondent Collector had lost his right or authority to issue the disputed assessment
by reason of prescription. The contention, in our opinion, cannot be sustained. It will be noted that the first
assessment was made on November 7, 1950 for deficiency sales tax from 1947 to 1949. The corresponding
returns filed by petitioner covering the said period was made at the earliest on October 1, as regards the third
quarter of 1947, so that it cannot be claimed that the assessment was not made within the five-year period
prescribed in section 331 of the Tax Code invoked by petitioner. The assessment, it is admitted, was withdrawn
by the Collector on insufficiency of evidence, but November 15, 1952 due to insufficiency of evidence, but the
withdrawal was made subject to the approval of the Secretary of Finance and the Board of Tax Appeals, pursuant
to the provisions of section 9 of Executive Order No. 401-A, series of 1951. The decision of the previous
assessment of November 7, Collector countermanding the as 1950 was forwarded to the Board of Tax Appeals
through the Secretary of Finance but that official, apparently disagreeing with the decision, sent it back for re-
investigation. Consequently, the assessment of November 7, 1950 cannot be considered to have been finally
withdrawn. That the assessment was subsequently reiterated in the decision of respondent Collector on
December 16, 1954 did not alter the fact that it was made seasonably. In this connection, it would appear that a
warrant of distraint and levy had been issued on March 28, 1951 in relation with this case and by virtue thereof
the properties of Yutivo were placed under constructive distraint. Said warrant and constructive distraint have not
been lifted up to the present, which shows that the assessment of November 7, 1950 has always been valid and
subsisting.

Anent the deficiency sale tax for 1950, considering that the assessment thereof was made on December 16,
1954, the same was assessed well within the prescribed five-year period.

Petitioner argues that the original assessment of November 7, 1950 did not extend the prescriptive period on
assessment. The argument is untenable, for, as already seen, the assessment was never finally withdrawn, since
it was not approved by the Secretary of Finance or of the Board of Tax Appeals. The authority of the Secretary to
act upon the assessment cannot be questioned, for he is expressly granted such authority under section 9 of
Executive Order No. 401-And under section 79 (c) of the Revised Administrative Code, he has "direct control,
direction and supervision over all bureaus and offices under his jurisdiction and may, any provision of existing law
to the contrary not withstanding, repeal or modify the decision of the chief of said Bureaus or offices when
advisable in public interest."

It should here also be stated that the assessment in question was consistently protested by petitioner, making
several requests for reinvestigation thereof. Under the circumstances, petitioner may be considered to have
waived the defense of prescription.

"Estoppel has been employed to prevent the application of the statute of limitations against the
government in certain instances in which the taxpayer has taken some affirmative action to prevent the
collection of the tax within the statutory period. It is generally held that a taxpayer is estopped to repudiate
waivers of the statute of limitations upon which the government relied. The cases frequently involve
 dissolved corporations. If no waiver has been given, the cases usually show come conduct directed to a
postponement of collection, such, for example, as some variety of request to apply an overassessment.
The taxpayer has 'benefited' and 'is not in a position to contest' his tax liability. A definite representation of
implied authority may be involved, and in many cases the taxpayer has received the 'benefit' of being
saved from the inconvenience, if not hardship of immediate collection. "

Conceivably even in these cases a fully informed Commissioner may err to the sorrow of the revenues,
but generally speaking, the cases present a strong combination of equities against the taxpayer, and few
will seriously quarrel with their application of the doctrine of estoppel." (Mertens Law of Federal Income
Taxation, Vol. 10-A, pp. 159-160.)

It is also claimed that section 9 of Executive Order No. 401-A, series of 1951 — es involving an original
assessment of more than P5,000 — refers only to compromises and refunds of taxes, but not to total withdrawal
of the assessment. The contention is without merit. A careful examination of the provisions of both sections 8 and
9 of Executive Order No. 401-A, series of 1951, reveals the procedure prescribed therein is intended as a check
or control upon the powers of the Collector of Internal Revenue in respect to assessment and refunds of taxes. If
it be conceded that a decision of the Collector of Internal Revenue on partial remission of taxes is subject to
review by the Secretary of Finance and the Board of Tax Appeals, then with more reason should the power of the
Collector to withdraw totally an assessment be subject to such review.

We find merit, however, in petitioner's contention that the Court of Tax Appeals erred in the imposition of the 5%
fraud surcharge. As already shown in the early part of this decision, no element of fraud is present.

Pursuant to Section 183 of the National Internal Revenue Code the 50% surcharge should be added to the
deficiency sales tax "in case a false or fraudulent return is willfully made." Although the sales made by SM are in
substance by Yutivo this does not necessarily establish fraud nor the willful filing of a false or fraudulent return.

The case of Court Holding Co. v. Commissioner of Internal Revenue (August 9, 1943, 2 TC 531, 541-549) is in
point. The petitioner Court Holding Co. was a corporation consisting of only two stockholders, to wit: Minnie Miller
and her husband Louis Miller. The only assets of third husband and wife corporation consisted of an apartment
building which had been acquired for a very low price at a judicial sale. Louis Miller, the husband, who directed
the company's business, verbally agreed to sell this property to Abe C. Fine and Margaret Fine, husband and
wife, for the sum of $54,000.00, payable in various installments. He received $1,000.00 as down payment. The
sale of this property for the price mentioned would have netted the corporation a handsome profit on which a
large corporate income tax would have to be paid. On the afternoon of February 23, 1940, when the Millers and
the Fines got together for the execution of the document of sale, the Millers announced that their attorney had
called their attention to the large corporate tax which would have to be paid if the sale was made by the
corporation itself. So instead of proceeding with the sale as planned, the Millers approved a resolution to declare
a dividend to themselves "payable in the assets of the corporation, in complete liquidation and surrender of all the
outstanding corporate stock." The building, which as above stated was the only property of the corporation, was
then transferred to Mr. and Mrs. Miller who in turn sold it to Mr. and Mrs. Fine for exactly the same price and
under the same terms as had been previously agreed upon between the corporation and the Fines.

The return filed by the Court Holding Co. with the respondent Commissioner of Internal Revenue reported no
taxable gain as having been received from the sale of its assets. The Millers, of course, reported a long term
capital gain on the exchange of their corporate stock with the corporate property. The Commissioner of Internal
Revenue contended that the liquidating dividend to stockholders had no purpose other than that of tax avoidance
and that, therefore, the sale by the Millers to the Fines of the corporation's property was in substance a sale by
the corporation itself, for which the corporation is subject to the taxable profit thereon. In requiring the corporation
to pay the taxable profit on account of the sale, the Commissioner of Internal Revenue, imposed a surcharge of
25% for delinquency, plus an additional surcharge as fraud penalties.

The U. S. Court of Tax Appeals held that the sale by the Millers was for no other purpose than to avoid the tax
and was, in substance, a sale by the Court Holding Co., and that, therefore, the said corporation should be liable
for the assessed taxable profit thereon. The Court of Tax Appeals also sustained the Commissioner of Internal
Revenue on the delinquency penalty of 25%. However, the Court of Tax Appeals disapproved the fraud penalties,
holding that an attempt to avoid a tax does not necessarily establish fraud; that it is a settled principle that a
taxpayer may diminish his tax liability by means which the law permits; that if the petitioner, the Court Holding
Co., was of the opinion that the method by which it attempted to effect the sale in question was legally sufficient
to avoid the imposition of a tax upon it, its adoption of that methods not subject to censure; and that in taking a
position with respect to a question of law, the substance of which was disclosed by the statement indorsed on it
return, it may not be said that that position was taken fraudulently. We quote in full the pertinent portion of the
decision of the Court of Tax Appeals: .

". . . The respondent's answer alleges that the petitioner's failure to report as income the taxable profit on
the real estate sale was fraudulent and with intent to evade the tax. The petitioner filed a reply denying
fraud and averring that the loss reported on its return was correct to the best of its knowledge and belief.
We think the respondent has not sustained the burden of proving a fraudulent intent. We have concluded
that the sale of the petitioner's property was in substance a sale by the petitioner, and that the liquidating
dividend to stockholders had no purpose other than that of tax avoidance. But the attempt to avoid tax
 does not necessarily establish fraud. It is a settled principle that a taxpayer may diminish his liability by
any means which the law permits. United States v. Isham, 17 Wall. 496; Gregory v. Helvering, supra;
Chrisholm v. Commissioner, 79 Fed. (2d) 14. If the petitioner here was of the opinion that the method by
which it attempted to effect the sale in question was legally sufficient to avoid the imposition of tax upon it,
its adoption of that method is not subject to censure. Petitioner took a position with respect to a question
of law, the substance of which was disclosed by the statement endorsed on its return. We can not say,
under the record before us, that that position was taken fraudulently. The determination of the fraud
penalties is reversed."

When GM was the importer and Yutivo, the wholesaler, of the cars and trucks, the sales tax was paid only once
and on the original sales by the former and neither the latter nor SM paid taxes on their subsequent sales. Yutivo
might have, therefore, honestly believed that the payment by it, as importer, of the sales tax was enough as in the
case of GM Consequently, in filing its return on the basis of its sales to SM and not on those by the latter to the
public, it cannot be said that Yutivo deliberately made a false return for the purpose of defrauding the government
of its revenues which will justify the imposition of the surcharge penalty.

We likewise find meritorious the contention that the Tax Court erred in computing the alleged deficiency sales tax
on the selling price of SM without previously deducting therefrom the sales tax due thereon. The sales tax
provisions (sees. 184.186, Tax Code) impose a tax on original sales measured by "gross selling price" or "gross
value in money". These terms, as interpreted by the respondent Collector, do not include the amount of the sales
tax, if invoiced separately. Thus, General Circular No. 431 of the Bureau of Internal Revenue dated July 29, 1939,
which implements sections 184.186 of the Tax Code provides: "

. . .'Gross selling price' or gross value in money' of the articles sold, bartered, exchanged, transferred as
the term is used in the aforecited sections (sections 184, 185 and 186) of the National Internal Revenue
Code, is the total amount of money or its equivalent which the purchaser pays to the vendor to receive or
get the goods. However, if a manufacturer, producer, or importer, in fixing the gross selling price of an
article sold by him has included an amount intended to cover the sales tax in the gross selling price of the
articles, the sales tax shall be based on the gross selling price less the amount intended to cover the tax,
if the same is billed to the purchaser as a separate item.

General Circular No. 440 of the same Bureau reads:

Amount intended to cover the tax must be billed as a separate em so as not to pay a tax on the tax. — On
sales made after he third quarter of 1939, the amount intended to cover the sales tax must be billed to the
purchaser as separate items in the, invoices in order that the reduction thereof from the gross ailing price
may be allowed in the computation of the merchants' percentage tax on the sales. Unless billed to the
purchaser as a separate item in the invoice, the amounts intended to cover the sales tax shall be
considered as part of the gross selling price of the articles sold, and deductions thereof will not be
allowed, (Cited in Dalupan, Nat. Int. Rev. Code, Annotated, Vol. II, pp. 52-53.)

Yutivo complied with the above circulars on its sales to SM, and as separately billed, the sales taxes did not form
part of the "gross selling price" as the measure of the tax. Since Yutivo had previously billed the sales tax
separately in its sales invoices to SM General Circulars Nos. 431 and 440 should be deemed to have been
complied. Respondent Collector's method of computation, as opined by Judge Nable in the decision complained
of —

. . . is unfair, because . . .(it is) practically imposing tax on a tax already paid. Besides, the adoption of the
procedure would in certain cases elevate the bracket under which the tax is based. The late payment is
already penalized, thru the imposition of surcharges, by adopting the theory of the Collector, we will be
creating an additional penalty not contemplated by law."

If the taxes based on the sales of SM are computed in accordance with Gen. Circulars Nos. 431 and 440 the total
deficiency sales taxes, exclusive of the 25% and 50% surcharges for late payment and for fraud, would amount
only to P820,549.91 as shown in the following computation:

Gross Sales of Sales Taxes Due Total Gross

Rates of
Vehicles and Computed Selling Price
Sales
Exclusive of under Gen. Cir Charged to the
Tax
Sales Tax Nos. 431 & 400 Public
5% P11,912,219.57 P595,610.98 P12,507,83055
7% 909,559.50 63,669.16 973,228.66
10% 2,618,695.28 261,869.53 2,880,564.81
15% 3,602,397.65 540,359.65 4,142,757.30
20% 267,150.50 53,430.10 320,580.60
30% 837,146.97 251,114.09 1,088,291.06
50% 74,244.30 37,122.16 111,366.46
 75% 8,000.00 6,000.00 14,000.00
TOTAL P20,220,413.77 P1,809,205.67 P22,038,619.44

Less Taxes Paid by

Yutivo 988,655.76
Deficiency Tax still due P820,549.91

This is the exact amount which, according to Presiding Judge Nable of the Court of Tax Appeals, Yutivo would
pay, exclusive of the surcharges.

Petitioner finally contends that the Court of Tax Appeals erred or acted in excess of its jurisdiction in promulgating
judgment for the affirmance of the decision of respondent Collector by less than the statutory requirement of at
least two votes of its judges. Anent this contention, section 2 of Republic Act No. 1125, creating the Court of Tax
Appeals, provides that "Any two judges of the Court of Tax Appeals shall constitute a quorum, and the
concurrence of two judges shall be necessary to promulgate decision thereof. . . . " It is on record that the present
case was heard by two judges of the lower court. And while Judge Nable expressed his opinion on the issue of
whether or not the amount of the sales tax should be excluded from the gross selling price in computing the
deficiency sales tax due from the petitioner, the opinion, apparently, is merely an expression of his general or
"private sentiment" on the particular issue, for he concurred the dispositive part of the decision. At any rate,
assuming that there is no valid decision for lack of concurrence of two judges, the case was submitted for
decision of the court below on March 28, 1957 and under section 13 of Republic Act 1125, cases brought before
said court hall be decided within 30 days after submission thereof. "If no decision is rendered by the Court within
thirty days from the date a case is submitted for decision, the party adversely affected by said ruling, order or
decision, may file with said Court a notice of his intention to appeal to the Supreme Court, and if no decision has
as yet been rendered by the Court, the aggrieved party may file directly with the Supreme Court an appeal from
said ruling, order or decision, notwithstanding the foregoing provisions of this section." The case having been
brought before us on appeal, the question raised by petitioner as become purely academic.

IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals under review is hereby modified in that
petitioner shall be ordered to pay to respondent the sum of P820,549.91, plus 25% surcharge thereon for late
payment.

So ordered without costs.

Bengzon, Labrador, Concepcion, Reyes, J.B.L., Barrera and Paredes, JJ., concur.
Padilla, J., took no part.
G.R. No. L-9687 June 30, 1961

LIDDELL & CO., INC., petitioner-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.

Ozaeta, Lichauco and Picazo for petitioner-appellant.

Office of the Solicitor General for respondent-appellee.

BENGZON, C.J.:

Statement. This is an appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability of
P1,317,629.61 on Liddell & Co., Inc.

Said Company lists down several issues which may be boiled to the following:

(a) Whether or not Judge Umali of the Tax Court below could validly participate in the making of the
decision;

(b) Whether or not Liddell & Co. Inc., and the Liddell Motors, Inc. are (practically) identical corporations,
the latter being merely .the alter ego of the former;

(c) Whether or not, granting the identical nature of the corporations, the assessment of tax liability,
including the surcharge thereon by the Court of Tax Appeals, is correct.

Undisputed Facts. The parties submitted a partial stipulation of facts, each reserving the right to present
additional evidence.

Said undisputed facts are substantially as follows:

The petitioner, Liddell & Co. Inc., (Liddell & Co. for short) is a domestic corporation establish in the
Philippines on February 1, 1946, with an authorized capital of P100,000 divided into 1000 share at P100
each. Of this authorized capital, 196 shares valued at P19,600 were subscribed and paid by Frank Liddell
while the other four shares were in the name of Charles Kurz, E.J. Darras, Angel Manzano and Julian
Serrano at one shares each. Its purpose was to engage in the business of importing and retailing
Oldsmobile and Chevrolet passenger cars and GMC and Chevrolet trucks..

On January 31, 1947, with the limited paid-in capital of P20,000, Liddell & Co. was able to declare a 90%
stock dividend after which declaration on, Frank Liddells holding in the Company increased to 1,960
shares and the employees, Charles Kurz E.J. Darras, Angel Manzano and Julian Serrano at 10 share
each. The declaration of stock dividend was followed by a resolution increasing the authorized capital of
the company to P1,000.000 which the Securities & Exchange Commission approved on March 3, 1947.
Upon such approval, Frank Liddell subscribed to 3,000 additional shares, for which he paid into the
corporation P300,000 so that he had in his own name 4,960 shares.

On May 24, 1957, Frank Liddell, on one hand and Messrs. Kurz, Darras, Manzano and Serrano on the
other, executed an agreement (Exhibit A) which was further supplemented by two other agreements
(Exhibits B and C) dated May 24, 1947 and June 3, 1948, wherein Frank Liddell transferred (On June 7,
1948) to various employees of Liddell & Co. shares of stock.

At the annual meeting of stockholders of Liddell & Co. held on March 9, 1948, a 100% stock dividend was
declared, thereby increasing the issued capital stock of aid corporation from P1,000.000 to P 3,000,000
which increase was duly approved by the Securities and Exchange Commission on June 7, 1948. Frank
Liddell subscribed to and paid 20% of the increase of P400,000. He paid 25% thereof in the amount of
P100,000 and the balance of P3,000,000 was merely debited to Frank Liddell-Drawing Account and
credited to Subscribed Capital Stock on December 11, 1948.

On March 8, 1949, stock dividends were again issued by Liddell & Co. and in accordance with the
agreements, Exhibits A, B, and C, the stocks of said company stood as follows:

No. of
Name Amount Per Cent
Shares
Frank Liddell 13,688 P1,368,800 72.00%
Irene Liddell 1 100 .01%
Mercedes Vecin 1 100 .01%
Charles Kurz 1,225 122,500 6.45%
 E.J. Darras 1,225 122,500 6.45%
Angel Manzano 1,150 115,000 6.06%
Julian Serrano 710 71,000 3.74%
E. Hasim 500 50,000 2.64%
G. W. Kernot 500 50,000 2.64%
19,000 P1,900,000 100.00%

On November 15, 1948, in accordance with a resolution of a special meeting of the Board of Directors of Liddell &
Co., stock dividends were again declared. As a result of said declaration and in accordance with the agreements,
Exhibits, A, B, and C, the stockholdings in the company appeared to be:

No. of
Name Amount Per Cent
Shares
Frank Liddell 19,738 P1,973,800 65.791%
Irene Liddell 1 100 .003%
Mercedes Vecin 1 100 .003%
Charles Kurz 2,215 221,500 7.381%
E.J. Darras 2,215 221,500 7.381%
Angel Manzano 1,810 181,000 6.031%
Julian Serrano 1,700 170,000 5.670%
E. Hasim 830 83,000 2.770%
G. W. Kernot 1,490 149,000 4.970%
30,000 P3,000,000 100.000%

On the basis of the agreement Exhibit A, (May, 1947) "40%" of the earnings available for dividends accrued to
Frank Liddell although at the time of the execution of aid instrument, Frank Liddell owned all of the shares in said
corporation. 45% accrued to the employees, parties thereto; Kurz 12-1/2%; Darras 12-1/2%; A. Manzano 12-
1/2% and Julian Serrano 7-1/2%. The agreement Exhibit A was also made retroactive to 1946. Frank Liddell
reserved the right to reapportion the 45% dividends pertaining to the employees in the future for the purpose of
including such other faithful and efficient employees as he may subsequently designate. (As a matter of fact,
Frank Liddell did so designate two additional employees namely: E. Hasim and G. W. Kernot). It was for such
inclusion of future faithful employees that Exhibits B-1 and C were executed. As per Exhibit C, dated May 13,
1948, the 45% given by Frank Liddell to his employees was reapportioned as follows: C. Kurz — 12,%; E. J.
Darras — 12%; A. Manzano — l2%; J. Serrano — 3-1/2%; G. W. Kernot — 2%.

Exhibit B contains the employees' definition in detail of the manner by which they sought to prevent their share-
holdings from being transferred to others who may be complete strangers to the business on Liddell & Co.

From 1946 until November 22, 1948 when the purpose clause of the Articles of Incorporation of Liddell & Co. Inc.,
was amended so as to limit its business activities to importations of automobiles and trucks, Liddell & Co. was
engaged in business as an importer and at the same time retailer of Oldsmobile and Chevrolet passenger cars
and GMC and Chevrolet trucks.

On December 20, 1948, the Liddell Motors, Inc. was organized and registered with the Securities and Exchange
Commission with an authorized capital stock of P100,000 of which P20,000 was subscribed and paid for as
follows: Irene Liddell wife of Frank Liddell 19,996 shares and Messrs. Marcial P. Lichauco, E. K. Bromwell, V. E.
del Rosario and Esmenia Silva, 1 share each.

At about the end of the year 1948, Messrs. Manzano, Kurz and Kernot resigned from their respective positions in
the Retail Dept. of Liddell & Co. and they were taken in and employed by Liddell Motors, Inc.: Kurz as Manager-
Treasurer, Manzano as General Sales Manager for cars and Kernot as General Sales Manager for trucks.

Beginning January, 1949, Liddell & Co. stopped retailing cars and trucks; it conveyed them instead to Liddell
Motors, Inc. which in turn sold the vehicles to the public with a steep mark-up. Since then, Liddell & Co. paid
sales taxes on the basis of its sales to Liddell Motors Inc. considering said sales as its original sales.

Upon review of the transactions between Liddell & Co. and Liddell Motors, Inc. the Collector of Internal Revenue
determined that the latter was but an alter ego of Liddell & Co. Wherefore, he concluded, that for sales tax
purposes, those sales made by Liddell Motors, Inc. to the public were considered as the original sales of Liddell &
Co. Accordingly, the Collector of Internal Revenue assessed against Liddell & Co. a sales tax deficiency,
including surcharges, in the amount of P1,317,629.61. In the computation, the gross selling price of Liddell
Motors, Inc. to the general public from January 1, 1949 to September 15, 1950, was made the basis without
deducting from the selling price, the taxes already paid by Liddell & Co. in its sales to the Liddell Motors Inc.
The Court of Tax Appeals upheld the position taken by the Collector of Internal Revenue.

A. Judge Umali: Appellant urges the disqualification on of Judge Roman M. Umali to participate in the decision of
the instant case because he was Chief of the Law Division, then Acting Deputy Collector and later Chief Counsel
of the Bureau of Internal Revenue during the time when the assessment in question was made.1 In refusing to
disqualify himself despite admission that had held the aforementioned offices, Judge Umali stated that he had not
in any way participated, nor expressed any definite opinion, on any question raised by the parties when this case
was presented for resolution before the said bureau. Furthermore, after careful inspection of the records of the
Bureau, he (Judge Umali as well as the other members of the court below), had not found any indication that he
had expressed any opinion or made any decision that would tend to disqualify him from participating in the
consideration of the case in the Tax Court.

At this juncture, it is well to consider that petitioner did not question the truth of Judge Umali's statements. In view
thereof, this Tribunal is not inclined to disqualify said judge. Moreover, in furtherance of the presumption of the
judge's moral sense of responsibility this Court has adopted, and now here repeats, the ruling that the mere
participation of a judge in prior proceedings relating to the subject in the capacity of an administrative official does
not necessarily disqualify him from acting as judge.2

Appellant also contends that Judge Umali signed the said decision contrary to the provision of Section 13,
Republic Act No. 1125;3 that whereas the case was submitted for decision of the Court of Tax Appeals on July 12,
1955, and the decision of Associate Judge Luciano and Judge Nable were both signed on August 11, 1955 (that
is, on the last day of the 30-day period provided for in Section 13, Republic Act No. 1125), Judge Umali signed
the decision August 31, 1955 or 20 days after the lapse of the 30-day period allotted by law.

By analogy it may be said that inasmuch as in Republic Act No. 1125 (law creating the Court of Tax Appeals) like
the law governing the procedure in the court of Industrial Relations, there is no provision invalidating decisions
rendered after the lapse of 30 days, the requirement of Section 13, Republic Act No. 1125 should be construed
as directory.4

Besides as pointed out by appellee, the third paragraph of Section 13 of Republic Act No. 1125 (quoted in the
margin)5 confirms this view; because in providing for two thirty-day periods, the law means that decision may still
be rendered within the second period of thirty days (Judge Umali signed his decision within that period).

B. Identity of the two corporations: On the question whether or not Liddell Motors, Inc. is the alter ego of Liddell &
Co. Inc., we are fully convinced that Liddell & Co. is wholly owned by Frank Liddell. As of the time of its
organization, 98% of the capital stock belonged to Frank Liddell. The 20% paid-up subscription with which the
company began its business was paid by him. The subsequent subscriptions to the capital stock were made by
him and paid with his own money.

These stipulations and conditions appear in Exhibit A: (1) that Frank Liddell had the authority to designate in the
future the employee who could receive earnings of the corporation; to apportion among the stock holders the
share in the profits; (2) that all certificates of stock in the names of the employees should be deposited with Frank
Liddell duly indorsed in blank by the employees concerned; (3) that each employee was required to sign an
agreement with the corporation to the effect that, upon his death or upon his retirement or separation for any
cause whatsoever from the corporation, the said corporation should, within a period of sixty days therefor, have
the absolute and exclusive option to purchase and acquire the whole of the stock interest of the employees so
dying, resigning, retiring or separating.

These stipulations in our opinion attest to the fact that Frank Liddell also owned it. He supplied the original his
complete control over the corporation.

As to Liddell Motors, Inc. we are fully persuaded that Frank Liddell also owned it. He supplied the original capital
funds.6 It is not proven that his wife Irene, ostensibly the sole incorporator of Liddell Motors, Inc. had money of her
own to pay for her P20,000 initial subscription.7 Her income in the United States in the years 1943 and 1944 and
the savings therefrom could not be enough to cover the amount of subscription, much less to operate an
expensive trade like the retail of motor vehicles. The alleged sale of her property in Oregon might have been true,
but the money received therefrom was never shown to have been saved or deposited so as to be still available at
the time of the organization of the Liddell Motors, Inc.

The evidence at hand also shows that Irene Liddell had scant participation in the affairs of Liddell Motors, Inc.
She could hardly be said to possess business experience. The income tax forms record no independent income
of her own. As a matter of fact, the checks that represented her salary and bonus from Liddell Motors, Inc. found
their way into the personal account of Frank Liddell. Her frequent absences from the country negate any active
participation in the affairs of the Motors company.

There are quite a series of conspicuous circumstances that militate against the separate and distinct personality
of Liddell Motors, Inc. from Liddell & Co.8 We notice that the bulk of the business of Liddell & Co. was channeled
through Liddell Motors, Inc. On the other hand, Liddell Motors, Inc. pursued no activities except to secure cars,
trucks, and spare parts from Liddell & Co. Inc. and then sell them to the general public. These sales of vehicles
by Liddell & Co. to Liddell Motors, Inc. for the most part were shown to have taken place on the same day that
Liddell Motors, Inc. sold such vehicles to the public. We may even say that the cars and trucks merely touched
the hands of Liddell Motors, Inc. as a matter of formality.

During the first six months of 1949, Liddell & Co. issued ten (10) checks payable to Frank Liddell which were
deposited by Frank Liddell in his personal account with the Philippine National Bank. During this time also, he
issued in favor of Liddell Motors, Inc. six (6) checks drawn against his personal account with the same bank. The
checks issued by Frank Liddell to the Liddell Motors, Inc. were significantly for the most part issued on the same
day when Liddell & Co. Inc. issued the checks for Frank Liddell9 and for the same amounts.

It is of course accepted that the mere fact that one or more corporations are owned and controlled by a single
stockholder is not of itself sufficient ground for disregarding separate corporate entities. Authorities10 support the
rule that it is lawful to obtain a corporation charter, even with a single substantial stockholder, to engage in a
specific activity, and such activity may co-exist with other private activities of the stockholder. If the corporation is
a substantial one, conducted lawfully and without fraud on another, its separate identity is to be respected.

Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned and controlled by
Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate corporate identity
of one from the other. There is, however, in this instant case, a peculiar consequence of the organization and
activities of Liddell Motors, Inc.

Under the law in force at the time of its incorporation the sales tax on original sales of cars (sections 184, 185 and
186 of the National Internal Revenue Code), was progressive, i.e. 10% of the selling price of the car if it did not
exceed P5000, and 15% of the price if more than P5000 but not more than P7000, etc. This progressive rate of
the sales tax naturally would tempt the taxpayer to employ a way of reducing the price of the first sale. And Liddell
Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax liability.

Let us illustrate: a car with engine motor No. 212381 was sold by Liddell & Co. Inc. to Liddell Motors, Inc. on
January 17, 1948 for P4,546,000.00 including tax; the price of the car was P4,133,000.23, the tax paid being
P413.22, at 10%. And when this car was later sold (on the same day) by Liddell Motors, Inc. to P.V. Luistro for
P5500, no more sales tax was paid.11 In this price of P5500 was included the P413.32 representing taxes paid by
Liddell & Co. Inc. in the sale to Liddell Motors, Inc. Deducting P413.32 representing taxes paid by Liddell & Co.,
Inc. the price of P5500, the balance of P5,087.68 would have been the net selling price of Liddell & Co., Inc. to
the general public (had Liddell Motors, Inc. not participated and intervened in the sale), and 15% sales tax would
have been due. In this transaction, P349.68 in the form of taxes was evaded. All the other transactions
(numerous) examined in this light will inevitably reveal that the Government coffers had been deprived of a
sizeable amount of taxes.

As opined in the case of Gregory v. Helvering,12 "the legal right of a taxpayer to decrease the amount of what
otherwise would be his taxes, or altogether avoid them by means which the law permits, cannot be doubted." But,
as held in another case,13 "where a corporation is a dummy, is unreal or a sham and serves no business purpose
and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form that is
bald and a mischievous fiction."

Consistently with this view, the United States Supreme Court14 held that "a taxpayer may gain advantage of doing
business thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the separate
corporate entity where it serves but as a shield for tax evasion and treat the person who actually may take the
benefits of the transactions as the person accordingly taxable."

Thus, we repeat: to allow a taxpayer to deny tax liability on the ground that the sales were made through an other
and distinct corporation when it is proved that the latter is virtually owned by the former or that they are practically
one and the same is to sanction a circumvention of our tax laws.15

C. Tax liability computation: In the Yutivo case16 the same question involving the computation of the alleged
deficiency sales tax has been raised. In accordance with our ruling in said case we hold as correctly stated by
Judge Nable in his concurring and dissenting opinion on this case, that the deficiency sales tax should be based
on the selling price obtained by Liddell Motors, Inc. to the public AFTER DEDUCTING THE TAX ALREADY PAID
BY LIDDELL & CO., INC. in its sales to Liddell Motors, Inc.

On the imposition of the 50% surcharge by reason of fraud, we see that the transactions between Liddell Motors
Inc. and Liddell & Co., Inc. have always been embodied in proper documents, constantly subject to inspection by
the tax authorities. Liddell & Co., Inc. have always made a full report of its income and receipts in its income tax
returns.

Paraphrasing our decision in the Yutivo case, we may now say, in filing its return on the basis of its sales to
Liddell Motors, Inc. and not on those by the latter to the public, it cannot be held that the Liddell & Co., Inc.
deliberately made a false return for the purpose of defrauding the government of its revenue, and should suffer a
50% surcharge. But penalty for late payment (25%) should be imposed.
In view of the foregoing, the decision appealed from is hereby modified: Liddell & Co., Inc. is declared liable only
for the amount of P426,811.67 with 25% surcharge for late payment and 6% interest thereon from the time the
judgment becomes final.

As it appears that, during the pendency of this litigation appellant paid under protest to the Government the total
amount assessed by the Collector, the latter is hereby required to return the excess to the petitioner. No costs.

Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, De Leon and Natividad, JJ., concur.

Footnotes

1 Section 5, Rep. Act No. 1125: "Judges of the said Court shall be disqualified from sitting in any case on
the same grounds provided under Rule One Hundred Twenty-six of the Rules of Court for the
disqualification of judicial offices."

2 Gov't of the Phil. v. Heirs of Abella, 49 Phil. 374.

3See. 13, Republic Act No. 1125. Decision. Cases brought before the Court shall be decided within thirty
days after the submission thereof for decision.

4See case of Permanent Concrete Products, Inc., and Santiago v. Juan Frivalden, L-14179, September
10, 1960.

5 "If no decision is rendered by the Court within thirty days from the date a case is submitted for decision,
the party adversely affected by said ruling, order or decision, may file with said Court a notice of intention
to appeal, and if, within thirty days from the filing of said notice, no decision has as yet been rendered by
the Court, the aggrieved party may file directly with the Supreme Court an appeal from said decision,
ruling or order, notwithstanding the foregoing provisions of this section." (Emphasis ours).

6 In fact it was paid by her husband's personal check.

7 The other four owned only one share each.

8 Appellee's brief describes several. We mention only a few.

9 See Exhibits 2 to 17.

Burnet, Commissioner v. Clarke, 287 U.S. 410, 53 S. Ct. 207, 77 L. Ed. 397; Burnet, Commissioner v.
10

Commonwealth Improvement Co., 287 U.S. 415, 53 S. Ct. 198, 77 L. ed.

11 At this price sales tax of 15% would have represented P825.00.

12 293 U.S. 465, 7 L. ed. 596, 599, 55 S. Ct.

13 Higgins v. Smith, 1940, 308 U.S. 406, 84 L. ed.

14 Higgins v. Smith (supra).

15Cf. Koppel v. Yatco, 77 Phil. 496.16 Yutivo Sons Hardware Co. v. The Collector of Internal Revenue, L-
13203, January 28, 1961.

16 Yutivo & Son Hardware Co. vs. The Collector of Internal Revenue, 110 Phil., 750.
G.R. No. 142435 April 30, 2003

ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners,

vs.
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY
and the Heirs of EUGENIO D. TRINIDAD, respondents.

QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the Decision1 dated October 21, 1999 of the Court of
Appeals in CA-G.R. CV No. 41536 which dismissed herein petitioners' appeal from the Decision2 dated February
10, 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-4152. The trial
court had dismissed petitioners' complaint for annulment of real estate mortgage and the extra-judicial foreclosure
thereof. Likewise brought for our review is the Resolution3 dated February 23, 2000 of the Court of Appeals which
denied petitioners' motion for reconsideration.

The facts, as culled from records, are as follows:

Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading" (BET), a single
proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the
manufacture of garments for domestic and foreign consumption. The Lipats also owned the "Mystical Fashions"
in the United States, which sells goods imported from the Philippines through BET. Mrs. Lipat designated her
daughter, Teresita B. Lipat, to manage BET in the Philippines while she was managing "Mystical Fashions" in the
United States.

In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special
power of attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit
accommodations from respondent Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita to
execute mortgage contracts on properties owned or co-owned by her as security for the obligations to be
extended by Pacific Bank including any extension or renewal thereof.

Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in behalf
of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be
manufactured by BET and exported to "Mystical Fashions" in the United States. As security therefor, the Lipat
spouses, as represented by Teresita, executed a Real Estate Mortgage over their property located at No. 814
Aurora Blvd., Cubao, Quezon City. Said property was likewise made to secure "other additional or new loans,
discounting lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor
may subsequently obtain from the Mortgagee as well as any renewal or extension by the Mortgagor and/or
Debtor of the whole or part of said original, additional or new loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to
the Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the accounts, books and
records of the Mortgagee."4

On September 5, 1979, BET was incorporated into a family corporation named Bela's Export Corporation (BEC)
in order to facilitate the management of the business. BEC was engaged in the business of manufacturing and
exportation of all kinds of garments of whatever kind and description5 and utilized the same machineries and
equipment previously used by BET. Its incorporators and directors included the Lipat spouses who owned a
combined 300 shares out of the 420 shares subscribed, Teresita Lipat who owned 20 shares, and other close
relatives and friends of the Lipats.6 Estelita Lipat was named president of BEC, while Teresita became the vice-
president and general manager.

Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with
the corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was
also opened by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after BEC
executed the corresponding trust receipt therefor. Export bills were also executed in favor of Pacific Bank for
additional finances. These transactions were all secured by the real estate mortgage over the Lipats' property.

The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC
defaulted in its payments. After receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of the
bank's liquidator and asked for additional time to enable her to personally settle BEC's obligations. The bank
acceded to her request but Estelita failed to fulfill her promise.

Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law the
mortgaged property was sold at public auction. On January 31, 1989, a certificate of sale was issued to
respondent Eugenio D. Trinidad as the highest bidder.

On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of the
real estate mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against Pacific
Bank and Eugenio D. Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152, alleged, among
others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were
executed without the requisite board resolution of the Board of Directors of BEC. The Lipats also averred that
assuming said acts were valid and binding on BEC, the same were the corporation's sole obligation, it having a
personality distinct and separate from spouses Lipat. It was likewise pointed out that Teresita's authority to
secure a loan from Pacific Bank was specifically limited to Mrs. Lipat's sole use and benefit and that the real
estate mortgage was executed to secure the Lipats' and BET's P583,854.00 loan only.

In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade
payments of the value of the promissory notes, trust receipt, and export bills with their property because they and
the BEC are one and the same, the latter being a family corporation. Respondent Trinidad further claimed that he
was a buyer in good faith and for value and that petitioners are estopped from denying BEC's existence after
holding themselves out as a corporation.

After trial on the merits, the RTC dismissed the complaint, thus:

WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in this
case must be, as is hereby, dismissed. Plaintiffs however has five (5) months and seventeen (17) days
reckoned from the finality of this decision within which to exercise their right of redemption. The writ of
injunction issued is automatically dissolved if no redemption is effected within that period.

The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.

No costs.

IT IS SO ORDERED.7

The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family corporation
of the Lipats. As such, it was a mere extension of petitioners' personality and business and a mere alter ego or
business conduit of the Lipats established for their own benefit. Hence, to allow petitioners to invoke the theory of
separate corporate personality would sanction its use as a shield to further an end subversive of justice.8 Thus,
the trial court pierced the veil of corporate fiction and held that Bela's Export Corporation and petitioners (Lipats)
are one and the same. Pacific Bank had transacted business with both BET and BEC on the supposition that both
are one and the same. Hence, the Lipats were estopped from disclaiming any obligations on the theory of
separate personality of corporations, which is contrary to principles of reason and good faith.

The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said appeal,
however, was dismissed by the appellate court for lack of merit. The Court of Appeals found that there was ample
evidence on record to support the application of the doctrine of piercing the veil of corporate fiction. In affirming
the findings of the RTC, the appellate court noted that Mrs. Lipat had full control over the activities of the
corporation and used the same to further her business interests.9 In fact, she had benefited from the loans
obtained by the corporation to finance her business. It also found unnecessary a board resolution authorizing
Teresita Lipat to secure loans from Pacific Bank on behalf of BEC because the corporation's by-laws allowed
such conduct even without a board resolution. Finally, the Court of Appeals ruled that the mortgage property was
not only liable for the original loan of P583,854.00 but likewise for the value of the promissory notes, trust receipt,
and export bills as the mortgage contract equally applies to additional or new loans, discounting lines, overdrafts,
and credit accommodations which petitioners subsequently obtained from Pacific Bank.

The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of
February 23, 2000.10

Hence, this petition, with petitioners submitting that the court a quo erred —

1) . . . IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION

APPLIES IN THIS CASE.

2) . . . IN HOLDING THAT PETITIONERS' PROPERTY CAN BE HELD LIABLE UNDER THE REAL
ESTATE MORTGAGE NOT ONLY FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL
VALUE OF PROMISSORY NOTES, TRUST RECEIPTS AND EXPORT BILLS OF BELA'S EXPORT
CORPORATION.

3) . . . IN HOLDING THAT "THE IMPOSITION OF 15% ATTORNEY'S FEES IN THE EXTRA-JUDICIAL

FORECLOSURE IS BEYOND THIS COURT'S JURISDICTION FOR IT IS BEING RAISED FOR THE
FIRST TIME IN THIS APPEAL."

4) . . . IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY

NOTES, THE DOLLAR ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE EVIDENT FACT
THAT THEY WERE NOT SIGNED BY HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING
TO HIM.
 5) . . . IN DENYING PETITIONERS' MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAID
MOTION FOR RECONSIDERATION IS "AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER
WHICH CAN NEITHER BIND NOR BE OF ANY CONSEQUENCE TO APPELLANTS." 11

In sum, the following are the relevant issues for our resolution:

1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;

2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount of
P583,854.00 but also for the value of the promissory notes, trust receipt, and export bills subsequently incurred
by BEC; and

3. Whether or not petitioners are liable to pay the 15% attorney's fees stipulated in the deed of real estate
mortgage.

On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for the
obligations incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction absent
any clear showing of fraud on their part.

Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given the
findings of the trial court, as affirmed by the Court of Appeals, that BEC was organized as a business conduit for
the benefit of petitioners.

Petitioners' contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the
resolution of the appellate court show that in finding petitioners' mortgaged property liable for the obligations of
BEC, both courts below relied upon the alter ego doctrine or instrumentality rule, rather than fraud in piercing the
veil of corporate fiction. When the corporation is the mere alter ego or business conduit of a person, the separate
personality of the corporation may be disregarded.12 This is commonly referred to as the "instrumentality rule" or
the alter ego doctrine, which the courts have applied in disregarding the separate juridical personality of
corporations. As held in one case,

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a
mere instrumentality or adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may
be disregarded. The control necessary to invoke the rule is not majority or even complete stock control
but such domination of finances, policies and practices that the controlled corporation has, so to speak,
no separate mind, will or existence of its own, and is but a conduit for its principal. x x x .13

We find that the evidence on record demolishes, rather than buttresses, petitioners' contention that BET and BEC
are separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the
owners of BET14 and were two of the incorporators and majority stockholders of BEC.15 It is also undisputed that
Estelita Lipat executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and credit
lines from Pacific Bank on her behalf.16 Incidentally, Teresita was designated as executive-vice president and
general manager of both BET and BEC, respectively.17 We note further that: (1) Estelita and Alfredo Lipat are the
owners and majority shareholders of BET and BEC, respectively;18 (2) both firms were managed by their
daughter, Teresita;19 (3) both firms were engaged in the garment business, supplying products to "Mystical
Fashion," a U.S. firm established by Estelita Lipat; (4) both firms held office in the same building owned by the
Lipats;20 (5) BEC is a family corporation with the Lipats as its majority stockholders; (6) the business operations of
the BEC were so merged with those of Mrs. Lipat such that they were practically indistinguishable; (7) the
corporate funds were held by Estelita Lipat and the corporation itself had no visible assets; (8) the board of
directors of BEC was composed of the Burgos and Lipat family members;21 (9) Estelita had full control over the
activities of and decided business matters of the corporation;22 and that (10) Estelita Lipat had benefited from the
loans secured from Pacific Bank to finance her business abroad23 and from the export bills secured by BEC for
the account of "Mystical Fashion."24 It could not have been coincidental that BET and BEC are so intertwined with
each other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one and
the same and the latter is a conduit of and merely succeeded the former. Petitioners' attempt to isolate
themselves from and hide behind the corporate personality of BEC so as to evade their liabilities to Pacific Bank
is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our
view, BEC is a mere continuation and successor of BET, and petitioners cannot evade their obligations in the
mortgage contract secured under the name of BEC on the pretext that it was signed for the benefit and under the
name of BET. We are thus constrained to rule that the Court of Appeals did not err when it applied the
instrumentality doctrine in piercing the corporate veil of BEC.

On the second issue, petitioners contend that their mortgaged property should not be made liable for the
subsequent credit lines and loans incurred by BEC because, first, it was not covered by the mortgage contract of
BET which only covered the loan of P583,854.00 and which allegedly had already been paid; and, second, it was
secured by Teresita Lipat without any authorization or board resolution of BEC.

We find petitioners' contention untenable. As found by the Court of Appeals, the mortgaged property is not limited
to answer for the loan of P583,854.00. Thus:
 Finally, the extent to which the Lipats' property can be held liable under the real estate mortgage is not
limited to P583,854.00. It can be held liable for the value of the promissory notes, trust receipt and export
bills as well. For the mortgage was executed not only for the purpose of securing the Bela's Export
Trading's original loan of P583,854.00, but also for "other additional or new loans, discounting lines,
overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may
subsequently obtain from the mortgagee as well as any renewal or extension by the Mortgagor and/or
Debtor of the whole or part of said original, additional or new loans, discounting lines, overdrafts and other
credit accommodations, including interest and expenses or other obligations of the Mortgagor and/or
Debtor owing to the Mortgagee, whether directly, or indirectly principal or secondary, as appears in the
accounts, books and records of the mortgagee.25

As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on
appeal by the Supreme Court, provided they are borne out by the record or based on substantial evidence.26 As
noted earlier, BEC merely succeeded BET as petitioners' alter ego; hence, petitioners' mortgaged property must
be held liable for the subsequent loans and credit lines of BEC.

Further, petitioners' contention that the original loan had already been paid, hence, the mortgaged property
should not be made liable to the loans of BEC, is unsupported by any substantial evidence other than Estelita
Lipat's self-serving testimony. Two disputable presumptions under the rules on evidence weigh against
petitioners, namely: (a) that a person takes ordinary care of his concerns;27 and (b) that things have happened
according to the ordinary course of nature and the ordinary habits of life.28 Here, if the original loan had indeed
been paid, then logically, petitioners would have asked from Pacific Bank for the required documents evidencing
receipt and payment of the loans and, as owners of the mortgaged property, would have immediately asked for
the cancellation of the mortgage in the ordinary course of things. However, the records are bereft of any evidence
contradicting or overcoming said disputable presumptions.

Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained by
BEC as they were secured without any proper authorization or board resolution. They also blame the bank for its
laxity and complacency in not requiring a board resolution as a requisite for approving the loans.

Such contentions deserve scant consideration.

Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both
petitioner Estelita Lipat and Alice Burgos, petitioners' rebuttal witness, no business or stockholder's meetings
were conducted nor were there election of officers held since its incorporation. In fact, not a single board
resolution was passed by the corporate board29 and it was Estelita Lipat and/or Teresita Lipat who decided
business matters.30

Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered into
by Teresita Lipat with Pacific Bank, who in good faith, relied on the authority of the former as manager to act on
behalf of petitioner Estelita Lipat and both BET and BEC. While the power and responsibility to decide whether
the corporation should enter into a contract that will bind the corporation is lodged in its board of directors, subject
to the articles of incorporation, by-laws, or relevant provisions of law, yet, just as a natural person may authorize
another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions
and powers to officers, committees, or agents. The authority of such individuals to bind the corporation is
generally derived from law, corporate by-laws, or authorization from the board, either expressly or impliedly by
habit, custom, or acquiescence in the general course of business.31 Apparent authority, is derived not merely from
practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an
officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it
clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, whether within or beyond the scope of his ordinary powers.32

In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of
attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both BEC and BET and
had been deciding business matters in the absence of Estelita Lipat. Further, the export bills secured by BEC
were for the benefit of "Mystical Fashion" owned by Estelita Lipat.33 Hence, Pacific Bank cannot be faulted for
relying on the same authority granted to Teresita Lipat by Estelita Lipat by virtue of a special power of attorney. It
is a familiar doctrine that if a corporation knowingly permits one of its officers or any other agent to act within the
scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from
denying the agent's authority.34

We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of BEC.
Suffice it to state that Alfredo Lipat never disputed the validity of the real estate mortgage of the original loan;
hence, he cannot now dispute the subsequent loans obtained using the same mortgage contract since it is, by its
very terms, a continuing mortgage contract.

On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of the
issue on attorney's fees on the ground that it was raised for the first time on appeal. We find the conclusion of the
Court of Appeals to be in accord with settled jurisprudence. Basic is the rule that matters not raised in the
complaint cannot be raised for the first time on appeal.35 A close perusal of the complaint yields no allegations
disputing the attorney's fees imposed under the real estate mortgage and petitioners cannot now allege that they
have impliedly disputed the same when they sought the annulment of the contract.

In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and
resolution herein assailed by petitioners.

WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated February
23, 2000 of the Court of Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against petitioners.

SO ORDERED.

Bellosillo, Austria-Martinez and Callejo, Sr., JJ ., concur.

Footnotes

1Rollo, pp. 45–62. Penned by Associate Justice Ramon A. Barcelona, with Associate Justices Demetrio
G. Demetria and Mercedes Gozo-Dadole concurring.

2 Id. at 65–74.

3 Id. at 63–64.

4 Records, Civil Case No. Q-89-4152, pp. 12–14.

5 Id. at 77–85.

6 Id. at 81–82.

7 Rollo, p. 74.

8 Id. at 70.

9 Id. at 56.

10 Supra, note 3.

11 Rollo, pp. 14–15.

12Cagayan Valley Enterprises, Inc. v. Court of Appeals, G.R. No. 78413, 8 November 1989, 179 SCRA
218, 230.

13 Concept Builders, Inc. v. NLRC, G.R. No. 108734, 29 May 1996, 257 SCRA 149, 158.

14 TSN, 17 August 1990, p. 3.

15 Id. at 16–17.

16 Rollo, p. 87.

17 TSN, 17 August 1990, pp. 26–27.

18 Supra, note 14.

19 Ibid.

20 Rollo, p. 50.

21 Id. at 51.

22 Id. at 56; TSN, 20 March 1992, p. 7.

23 TSN, 17 August 1990, p. 19.

24 Id. at 21.

25 Rollo, pp. 60–61.

26 Milestone Realty and Co., Inc. and William L. Perez v. CA, G.R. No. 135999, 19 April 2002, p. 8.

27 Revised Rules of Court, Rule 131, Sec. 3(d).

28 Id. at Sec. 3(y).

29 See TSN, 17 August 1990, p. 29 and TSN, 20 March 1992, p. 6.

30 See TSN, 20 March 1992, p. 7.

31See People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, G.R. No. 117847, 7 October
1998, 297 SCRA 170, 182.

32 Id. at 183–184.

33 TSN, 17 August 1990, p. 21.

34 Supra, note 31 at 184–185.

35 Orosa v. Court of Appeals, G.R. No. 111080, 5 April 2000, 329 SCRA 652, 661.
G.R. No. L-28694 May 13, 1981

TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner,

vs.
WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL and LEONILA SANTOS
GATUS, for herself and in behalf of her minor children, Teresita, Antonina and Reynaldo, all surnamed
GATUS, respondents.

MELENCIO-HERRERA, J.: 1äwph ï1.ñët

These certiorari proceedings stem from the award rendered against petitioner Telephone Engineering and
Services, Co., Inc. (TESCO) on October 6, 1967 by the Acting Referee of Regional Office No. 4, Quezon City
Sub-Regional Office, Workmen's Compensation Section, in favor of respondent Leonila S. Gatus and her
children, dependents of the deceased employee Pacifico L. Gatus. The principal contention is that the award was
rendered without jurisdiction as there was no employer-employee relationship between petitioner and the
deceased.

Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment with offices
at Sheridan Street, Mandaluyong, Rizal. Its Executive Vice-President and General Manager is Jose Luis
Santiago. It has a sister company, the Utilities Management Corporation (UMACOR), with offices in the same
location. UMACOR is also under the management of Jose Luis Santiago.

On September 8, 1964, UMACOR employed the late Pacifica L. Gatus as Purchasing Agent. On May 16, 1965,
Pacifico L. Gatus was detailed with petitioner company. He reported back to UMACOR on August 1, 1965. On
January 13, 1967, he contracted illness and although he retained to work on May 10, 1967, he died nevertheless
on July 14, 1967 of "liver cirrhosis with malignant degeneration."

On August 7, 1967, his widow, respondent Leonila S. Gatus, filed a "Notice and Claim for Compensation" with
Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, alleging therein that
her deceased husband was an employee of TESCO, and that he died of liver cirrhosis. 1 On August 9, 1967, and
Office wrote petitioner transmitting the Notice and for Compensation, and requiring it to submit an Employer's
Report of Accident or Sickness pursuant to Section 37 of the Workmen's Compensation Act (Act No. 3428). 2 An
"Employer's Report of Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the
deceased. The Report was signed by Jose Luis Santiago. In answer to questions Nos. 8 and 17, the employer
stated that it would not controvert the claim for compensation, and admitted that the deceased employee
contracted illness "in regular occupation." 3 On the basis of this Report, the Acting Referee awarded death
benefits in the amount of P5,759.52 plus burial expenses of P200.00 in favor of the heirs of Gatus in a letter-
award dated October 6, 1967 4 against TESCO.

Replying on October 27, 1967, TESCO, through Jose Luis Santiago, informed the Acting Referee that it would
avail of the 15-days-notice given to it to state its non-conformity to the award and contended that the cause of the
illness contracted by Gatus was in no way aggravated by the nature of his work. 5

On November 6, 1967, TESCO requested for an extension of ten days within which to file a Motion for
Reconsideration, 6 and on November 15, 1967, asked for an additional extension of five days. 7 TESCO filed its
"Motion for Reconsideration and/or Petition to Set Aside Award" on November 18, 1967, alleging as grounds
therefor, that the admission made in the "Employer's Report of Accident or Sickness" was due to honest mistake
and/or excusable negligence on its part, and that the illness for which compensation is sought is not an
occupational disease, hence, not compensable under the law. 8 The extension requested was denied. The Motion
for Reconsideration was likewise denied in an Order issued by the Chief of Section of the Regional Office dated
December 28, 1967 9 predicated on two grounds: that the alleged mistake or negligence was not excusable, and
that the basis of the award was not the theory of direct causation alone but also on that of aggravation. On
January 28, 1968, an Order of execution was issued by the same Office.

On February 3, 1968, petitioner filed an "Urgent Motion to Compel Referee to Elevate the Records to the
Workmen's Compensation Commission for Review." 10 Meanwhile, the Provincial Sheriff of Rizal levied on and
attached the properties of TESCO on February 17, 1968, and scheduled the sale of the same at public auction on
February 26, 1968. On February 28, 1968, the Commission issued an Order requiring petitioner to submit verified
or true copies of the Motion for Reconsideration and/or Petition to Set Aside Award and Order of December 28,
1967, and to show proof that said Motion for Reconsideration was filed within the reglementary period, with the
warning that failure to comply would result in the dismissal of the Motion. However, before this Order could be
released, TESCO filed with this Court, on February 22, 1968, The present petition for "Certiorari with Preliminary
Injunction" seeking to annul the award and to enjoin the Sheriff from levying and selling its properties at public
auction.
On February 29, 1968, this Court required respondents to answer the Petition but denied Injunction. 11 TESCO'S
Urgent Motion dated April 2, 1968, for the issuance of a temporary restraining order to enjoin the Sheriff from
proceeding with the auction sale of its properties was denied in our Resolution dated May 8, 1968.

TESCO asserts: 1äwphï1.ñët

I. That the respondent Workmen's Compensation Commission has no jurisdiction nor authority to
render the award (Annex 'D', Petition) against your petitioner there being no employer-employee
relationship between it and the deceased Gatus;

II. That petitioner can never be estopped from questioning the jurisdiction of respondent
commission especially considering that jurisdiction is never conferred by the acts or omission of
the parties;

III. That this Honorable Court has jurisdiction to nullify the award of respondent commission.

TESCO takes the position that the Commission has no jurisdiction to render a valid award in this suit as there
was no employer-employee relationship between them, the deceased having been an employee of UMACOR and
not of TESCO. In support of this contention, petitioner submitted photostat copies of the payroll of UMACOR for
the periods May 16-31, 1967 and June 1-15, 1967 12 showing the name of the deceased as one of the three
employees listed under the Purchasing Department of UMACOR. It also presented a photostat copy of a check of
UMACOR payable to the deceased representing his salary for the period June 14 to July 13, 1967. 13

Both public and private respondents contend, on the other hand, that TESCO is estopped from claiming lack of
employer – employee relationship.

To start with, a few basic principles should be re-stated the existence of employer-employee relationship is the
jurisdictional foundation for recovery of compensation under the Workmen's Compensation Law. 14 The lack of
employer-employee relationship, however, is a matter of defense that the employer should properly raise in the
proceedings below. The determination of this relationship involves a finding of fact, which is conclusive and
binding and not subject to review by this Court. 15

Viewed in the light of these criteria, we note that it is only in this Petition before us that petitioner denied, for the
first time, the employer-employee relationship. In fact, in its letter dated October 27, 1967 to the Acting Referee,
in its request for extension of time to file Motion for Reconsideration, in its "Motion for Reconsideration and/or
Petition to Set Aside Award," and in its "Urgent Motion to Compel the Referee to Elevate Records to the
Commission for Review," petitioner represented and defended itself as the employer of the deceased. Nowhere
in said documents did it allege that it was not the employer. Petitioner even admitted that TESCO and UMACOR
are sister companies operating under one single management and housed in the same building. Although respect
for the corporate personality as such, is the general rule, there are exceptions. In appropriate cases, the veil of
corporate fiction may be pierced as when the same is made as a shield to confuse the legitimate issues. 16

While, indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCO'S denial at this stage
that it is the employer of the deceased is obviously an afterthought, a devise to defeat the law and evade its
obligations. 17 This denial also constitutes a change of theory on appeal which is not allowed in this
jurisdiction. 18 Moreover, issues not raised before the Workmen's Compensation Commission cannot be raised for
the first time on appeal. 19For that matter, a factual question may not be raised for the first time on appeal to the
Supreme Court. 20

This certiorari proceeding must also be held to have been prematurely brought. Before a petition for certiorari can
be instituted, all remedies available in the trial Court must be exhausted first. 21 certiorari cannot be resorted to
when the remedy of appeal is present. 22 What is sought to be annulled is the award made by the Referee.
However, TESCO did not pursue the remedies available to it under Rules 23, 24 and 25 of the Rules of the
Workmen's Compensation Commission, namely, an appeal from the award of the Referee, within fifteen days
from notice, to the Commission; a petition for reconsideration of the latter's resolution, if adverse, to the
Commission en banc; and within ten days from receipt of an unfavorable decision by the latter, an appeal to this
Court. As petitioner had not utilized these remedies available to it, certiorari win not he, it being prematurely filed.
As this Court ruled in the case of Manila Jockey Club, Inc. vs. Del Rosario, 2 SCRA 462 (1961). 1äwphï1.ñët

An aggrieved party by the decision of a Commissioner should seek a reconsideration of the

decision by the Commission en banc. If the decision is adverse to him, he may appeal to the
Supreme Court. An appeal brought to the Supreme Court without first resorting to the remedy
referred to is premature and may be dismissed.

Although this rule admits of exceptions, as where public welfare and the advancement of public policy so dictate,
the broader interests of justice so require, or where the Orders complained of were found to be completely null
and void or that the appeal was not considered the appropriate remedy, 23 the case at bar does not fan within any
of these exceptions. WHEREFORE, this Petition is hereby dismissed.
SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur. 1äwphï1.ñët

G.R. No. L-23586 March 20, 1968

A. D. SANTOS, INC., petitioner,

vs.
VENTURA VASQUEZ, respondent.

Emiliano S. Samson and R. Balderrama-Samson for petitioner.

Orlando L. Espinas for respondent.

SANCHEZ, J.:

Respondent Ventura Vasquez was petitioner's taxi driver. Sometime on December 22 or 23, 1961, at about
11:00 a.m., while driving petitioner's taxicab, he vomitted blood. Aside from his hemoptysis, he suffered back
pains, fever and headache. He reported to petitioner the fact of his having vomitted blood. He was sent to
petitioner company's physician, Dr. Roman, who treated him and sent him to Sto. Tomas Hospital where he was
confined for six days. Thereafter, he was admitted at the Quezon Institute. There he stayed until March 19, 1962
under the medical care of Dr. Mario Lirag. Dr. Lirag diagnosed his ailment as pulmonary tuberculosis, moderately
advanced in both lungs. Upon his discharge on March 19, 1962, he was clinically improved. His X-ray
examination, however, showed the same finding, i.e., PTB, moderately advanced. He has not resumed work.

Offshoot of the foregoing is respondent's claim filed on May 9, 1962 with the Workmen's Compensation
Commission. 1 In affirming the decision of the Hearing Officer, the Commission ordered petitioner:

1. To pay the claimant, thru this Commission, the sum of THREE THOUSAND SEVEN HUNDRED
THIRTY-TWO and 30/100 (P3,732.30) PESOS as compensation as of August 11, 1964, and P27.30
thereafter up to a period of 208 weeks, but in no case said amount of compensation exceed P4,000.00;

2. To reimburse the claimant, thru this Commission, the sum of P53.60 which he had actually spent for his
treatment;

3. To provide claimant continuous medical, surgical and hospital services and supplies as his illness may
warrant;

4. To pay the claimant, also thru this Commission, the sum of P277.92 as Attorney's fees; and

5. To pay the Commission the sum of P43.00 as costs based on the amount of compensation already due
the claimant as of August 11, 1964, and P1.00 for every hundred pesos which may accrue in his favor as
weekly compensation pursuant to Section 55 of the Act.

The case is now before us on review.

Two questions are raised by petitioner: (1) respondent's claim should have been dismissed for his failure to
file the notice of injury and claim for compensation required by Section 24 of the Workmen's Compensation Act;
and (2) the claim for compensation is directed against Amador Santos, not against petitioner.

1. Sickness manifested itself on December 22 or 23, 1961. Claim was filed on May 9, 1962. Petitioner
argues that by Section 24 of the Workmen's Compensation Act, the claim should be thrown out of court.
Because, according to petitioner, such claim was not filed within two months following illness.

Petitioner's case must fail. Stabilized jurisprudence is that failure of the employer to file with the
Commission notice of controversion set forth in the second paragraph of Section 45 of the Workmen's
Compensation Act is a waiver of the defense that the claim for compensation was not filed within the statutory
period and a forfeiture of the employer's right to controvert the claim. Petitioner here knew of respondent's illness.
Yet, it did not controvert respondent's right to compensation. Constructively, such failure is an admission that the
claim is compensable. 2

2. Petitioner's averment that respondent driver had no cause of action against petitioner is equally without
merit. Respondent's claim for compensation herein is directed against petitioner A.D. Santos, Inc. Petitioner, in
answer to the claim, categorically admitted that claimant was its taxi driver. Add to this is the fact that the claimant
contracted pulmonary tuberculosis by reason of his said employment. And respondent's cause of action against
petitioner is complete.

But petitioner, cites the fact that respondent driver, in the course of his testimony, mentioned that he
worked for the City Cab operated by Amador Santos. This will not detract from the validity of respondent's right to
compensation. For, the truth is that really at one time Amador Santos was the sole owner and operator of the City
Cab. It was subsequently transferred to petitioner A.D. Santos, Inc. in which Amador Santos was an officer. The
mention by respondent of Amador Santos as his employer in the course of his testimony, in the words of this
Court in Sugay vs. Reyes, L-20451, December 28, 1964, "should not be allowed to confuse the facts relating to
employer-employee relationship" for "when the veil of corporate fiction is made as a shield to perpetrate a fraud
and/or confuse legitimate issues (here, the relation of employer-employee), the same should be pierced."

For the reasons given, the decision under review is hereby affirmed. 1äwphï1.ñët

Costs against petitioner. So ordered.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Castro, Angeles and Fernando, JJ., concur.

Footnotes

1 R04-WC Case 2066, entitled "Ventura Vasquez, Claimant, vs. A.D. Santos, Inc., Respondent."

A.D. Santos, Inc. vs. De Sapon, L-22220, April 29, 1966; Itemcop vs. Florzo, L-21969, August 31, 1966;
2

Nadeco vs. Rongavilla, L-21963, August 30, 1967; Rio y Compañia. vs. Workmen's Compensation
Commission, L-21467, August 30,1967; Pampanga Sugar Mills vs. Espeleta, L-24073, January 30, 1968.
 [G.R. No. 123893. November 22, 2001]

LUISITO PADILLA and PHOENIX-OMEGA DEVELOPMENT AND

MANAGEMENT CORPORATION, petitioners, vs. THE HONORABLE COURT
OF APPEALS and SUSANA REALTY, INC., respondents.

DECISION
QUISUMBING, J.:

This petition for review seeks the reversal of the Court of Appeals decision[1] in CA-G.R. SP No. 36685,
refusing to set aside (1) the order dated November 29, 1994 of the Regional Trial Court of Pasay City,
Branch 113, which authorized the issuance of an alias writ of execution in connection with Civil Case No.
7302 filed before said court; and (2) the order dated February 10, 1995, which denied petitioners motion for
reconsideration of the order of November 29, 1994, regarding the annulment of the alias writ of execution
and cancellation of the notice of levy and sale dated December 16, 1994, issued pursuant to the
implementation of said alias writ.
The antecedent facts, as summarized by the Court of Appeals, are as follows:

On June 27, 1983, Susana Realty, Inc. (SRI), by a deed of absolute sale, sold to the Light Rail
Transit Authority (LRTA) several parcels of land located in Taft Avenue Extension, San Rafael
District, Pasay City. Under paragraph 7 of the deed of sale, SRI reserved to itself the right of first
refusal to develop and/or improve the property sold should the LRTA decide to lease and/or
assign to any person the right to develop and/or improve the property.

On November 28, 1986, the LRTA and Phoenix Omega Development and Management
Corporation (Phoenix Omega) entered into a Commercial Stall Concession Contract authorizing
the latter to construct and develop commercial stalls on a 90 sq. m. portion of the property bought
from SRI. SRI opposed the agreement as having violated the deed of sale it entered with
LRTA. A tripartite agreement was later concluded by the parties, however, whereby SRI agreed
to honor the terms of the concession contract and to lease to Phoenix Omega its (SRIs) property
(remaining property) adjacent to the 90 sq. m. portion subject of the concession contract.

A contract was thus entered into on July 28, 1988 between Phoenix Omega and SRI with LRTA
whereby Phoenix Omega undertook to construct commercial stalls on the 90-sq. m. property in
accordance with plans and specifications prepared by the latter, the construction to begin,
however, only upon SRIs approval of such plans and specifications. Also on July 28, 1988,
Phoenix Omega, by a deed of assignment, assigned its right and interests over the remaining
property unto its sister company, PKA Development and Management Corporation
(PKA). Signatories to the deed of assignment were Eduardo Gatchalian in his capacity as
President of Phoenix Omega, and Luisito B. Padilla (Padilla), one of the petitioners herein, in his
capacity as President and General Manager of PKA. The development of the remaining property
having been assigned to PKA, it entered into a contract of lease with SRI likewise on July 28,
1988.

In the meantime, SRI sold part of its remaining property to a third party. An amended contract of
lease was thus forged in January 1989 among SRI, PKA and Phoenix Omega, whereby the
parties agreed to substitute the already sold portion of SRIs remaining property with 2 parcels of
land also belonging to SRI. In this amended contract of lease, PKA was again represented by
Padilla in his capacity as its President and General Manager. And Phoenix Omega, which was
not a party to the July 28, 1988 lease contract sought to be amended but which was a party, to the
amended contract, was also represented by Padilla as Chairman of the Board of Directors of
Phoenix Omega.

PKAs building permit was later revoked due to certain violations of the National Building Code
(BP 344).
On August 24, 1989, PKA was allowed by the (Department) of Public Works and Highway(s) to
resume construction on the leased premises subject to PKAs correction of the defects in the
construction to conform to BP 344.

As SRIs approval of PKAs amended plans in the construction was required, PKA transmitted the
same to SRI which withheld approval thereof pending PKAs correction of the defects in the
construction.

Repeated requests for approval of its amended plans not having been heeded by SRI, PKA filed
at the court a quo the action at bar for rescission of contract of lease against SRI, alleging that
SRIs refusal to approve the plans without any justifiable reason deprived it of the use of the
commercial stalls, thereby incurring losses.

SRI, upon the other hand, claimed that it was PKA which violated the terms of their contract,
alleging that PKA failed to complete within six months the construction of the commercial stalls
during which period it was not paying any rentals and that PKA undertook the construction
without first having its plans approved.[2] (Underscoring in the original.)

On January 7, 1991, the RTC rendered its decision, as follows:

WHEREFORE, judgment is hereby rendered:

1. Declaring the rescission and termination of the Contract of Lease, as amended, and the passing
in ownership of all the improvements now existing on the premises, and ordering plaintiff to
surrender possession of the leased premises to the defendant.

2. Ordering plaintiff to pay to the defendant the following sums of money:

(a) P1,750,000.00 as of April 30, 1990, plus monthly rental of P200,000 per month starting in
May, 1990, until plaintiff shall turn over possession of the premises to the defendant, with
interest at 1% per month until fully paid;

(b) Moral damages in the amount of P100,000.00;

(c) Exemplary damages in the amount of P100,000.00; and

(d) Attorneys fees in the amount of P150,000.00; and

(e) The cost of suit.[3]

PKA appealed the RTC decision to the Court of Appeals. On October 2, 1992, the CA affirmed the RTC
decision, decreeing as follows:

WHEREFORE, with MODIFICATIONS that the award of P100,000.00 for moral damages and
P100,000.00 for exemplary damages is DELETED from the judgment appealed from, the rest
thereof not inconsistent herewith is AFFIRMED. No costs.[4]

PKAs motion for reconsideration was denied by the CA in a resolution dated March 15, 1993. PKA then
filed before this Court a petition for review on certiorari, which we denied in a resolution dated September
27, 1993. We likewise denied PKAs motion for reconsideration in a resolution dated January 17, 1994.
A writ of execution was issued in due course by the RTC, which reads as follows:

NOW THEREFORE, you are hereby commanded to cause the execution of the aforesaid
decision, ordering the plaintiff and all persons claiming under it to surrender possession of the
premises to the defendant, and that of the goods and chattels of the plaintiff you cause to be made
the sum of P1,750,000.00 plus monthly rental of P200,000.00 starting in May, 1990 until
plaintiff shall turn over possession of the premises to defendant with interest of 1% per month
until fully paid, and the further sum of P150,000.00 as attorneys fees, and the cost of suit,
together with your lawful fees for service of this execution all in Philippine currency, and that
you tender the same to defendant Susana Realty, Inc. aside from your own fees on this execution
and to likewise return this writ to this Court within sixty (60) days from receipt hereof with your
proceedings endorsed thereon.

But if sufficient personal property of the plaintiff cannot be found whereof to satisfy the amount
of said judgment, you are hereby directed to levy the real property of the said plaintiff and to sell
the same or so much thereof in the manner provided for by law for the satisfaction of the said
judgment.[5]

Possession of the subject properties was subsequently restored to SRI, but the monetary award was left
unsatisfied. Thus, on November 14, 1994, SRI filed a motion for issuance of an alias writ against herein
petitioners, based on the trial courts observation that PKA and Phoenix-Omega are one and the same
entity. This was granted by the RTC in an order[6] dated November 29, 1994, which reads:

WHEREFORE, as prayed for by the defendant-judgment creditor Susana Realty, Inc., let an alias
writ of execution issue against the properties, both real and personal, of PKA Development and
Management Corporation, of Phoenix-Omega Development Corporation, and of Luisito B.
Padilla, for the enforcement of the decision dated January 7, 1991, promulgated by this Court, the
same be implemented by deputy sheriff Edilberto A. Santiago. (Underscoring by petitioners.)

The RTC issued an alias writ on the same day pursuant to the above order:

NOW THEREFORE, you are hereby commanded to cause the execution of the aforesaid
decision and that of the goods and chattels of the plaintiff, PKA Development and Management
Corporation, Phoenix-Omega, caused to be made the sum of P1,750,000.00 plus monthly rentals
of P200,000.00 starting in May, 1990 with interest of 1% per month, until fully paid, and the
further sum of P150,000.00 as attorneys fees; P100,000.00 moral damages and the cost of suit,
together with your lawful fees for service of this execution all in Philippine currency, and that
you tender the same to the defendant SUSANA REALTY, INC., aside from your own fees on
this execution and to likewise return this writ to this Court within 60 days from receipt hereof
with your proceeding indorsed thereon.

But if sufficient personal properties of the plaintiff cannot be found whereof to satisfy the amount
of said judgment, you are directed to levy the real property of the plaintiff, PKA Development
and Management Corporation, Phoenix-Omega Development and Management Corporation and
Luisito B. Padilla and to sell the same or so much thereof in the manner provided for by law for
the satisfaction of the said judgment.[7]

Alleging that the writ of execution cannot be enforced against them, herein petitioners filed with the
RTC on December 15, 1994, an omnibus motion for the reconsideration of the order of November 29, 1994,
and for annulment of the alias writ of the same date and cancellation of the notice of levy and sale dated
December 16, 1994. Petitioners assailed these orders as confiscatory, since they were never parties to the case
filed by PKA against SRI, and they were unable to present evidence on their behalf. The motion was denied
on February 10, 1995.
Subsequently, on March 8, 1995, petitioners filed with the Court of Appeals a petition for certiorari and
prohibition under Rule 65 of the Rules of Court. This petition was also denied; so was petitioners motion for
reconsideration of said denial.
The Court of Appeals agreed with the RTCs finding that there is evidence on record to support the RTCs
conclusion that PKA and Phoenix-Omega are one and the same, or that the former is a mere conduit of the
latter. It pointed out that petitioner Padilla is both president and general manager of PKA and at the same
time chairman of the board of directors and controlling stockholder of Phoenix-Omega.PKA and Phoenix-
Omega also shared officers, laborers, and offices.
While aware that the dispositive portion of the RTC decision holds only PKA liable to SRI, the Court of
Appeals pointed out that the intent of the RTC was clearly to hold PKA, Phoenix-Omega, and Padilla liable,
as shown in the body of the RTC decision. The rule that the dispositive portion of a decision is the subject of
execution only applies where the disposition is clear and unequivocal, according to the CA, unlike in this
case where there is uncertainty and ambiguity. The body of the decision may be consulted to construe the
judgment in this case.
On the claim that Phoenix-Omega and Padilla were not parties to the case, the CA ruled that

a person not so impleaded to an action is deemed to be a party to a suit when he has the right
to control the proceedings, to make defense, to adduce and cross examine witnesses, and to
appeal from a decision (67 C.J.S. 887 cited in Albert v. University Publishing Co., 13 SCRA
84). That petitioner Padilla is in reality the one who had and duly exercised these rights is
glaringly borne by the records.[8]

Hence, this petition for review, in which petitioners allege that the CA erred:

I. IN RENDERING THE DECISION AND RESOLUTION IN QUESTION IN DEFIANCE

OF LAW AND JURISPRUDENCE BY SUSTAINING THE TRIAL COURTS ORDER
AND WRIT BOTH DATED NOVEMBER 29, 1994 FINDING PETITIONERS JOINTLY
AND SEVERALLY LIABLE WITH PKA, THEREBY AUTHORIZING THE
EXECUTION OF THE DECISION AGAINST THEIR PROPERTIES, DESPITE THE
ADMITTED FACT THAT --

A. PETITIONERS WERE NEVER IMPLEADED AS PARTIES IN THE CASE

BEFORE THE TRIAL COURT (CIVIL CASE NO. 7302), THEREBY CONFIRMING
THE OPPRESSIVE AND CONFISCATORY NATURE OF THE ORDER AND WRIT
(ANNEXES N AND O);

B. PETITIONERS COULD NOT AND DID NOT HAVE ANY OPPORTUNITY TO

ADDUCE EVIDENCE TO REFUTE THE CAUSES OF ACTIONS ALLEGED IN
RESPONDENT SRIS COMPLAINT BEFORE THE TRIAL COURT (CIVIL CASE
NO. 7302) THUS VIOLATING THEIR RIGHT TO DUE PROCESS OF LAW.

II. IN CONCLUSIONS REACHED IN THE DECISION AND RESOLUTION IN

QUESTION BY AFFIRMING THE ORDER AND WRIT AS ISSUED BY THE TRIAL
COURT IN CIVIL CASE NO. 7302 WHICH EXPANDED THE SCOPE OF THE WRIT
HOLDING PETITIONERS SOLIDARILY LIABLE WITH PKA NOTWITHSTANDING
THAT THIS FINDING WAS NOT CONTAINED IN THE DISPOSITIVE PORTION OF
THE DECISION, IN DEFIANCE OF LAW AND JURISPRUDENCE ON THE MATTER.

III. IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE

FICTION TO THE CASE AT BAR DESPITE THE FACT THAT THE GROUNDS FOR
ITS APPLICATION UNDER CASE LAW HAVE NOT BEEN SHOWN, THEREBY
ABROGATING PRONOUNCEMENTS OF THIS HONORABLE COURT IN
NUMEROUS DECISIONS ON THE SUBJECT.

IV. IN AFFIRMING THE ORDER AND WRIT OF THE TRIAL COURT

NOTWITHSTANDING THE ABSENCE OF ANY MISTAKE, OMISSION OR
AMBIGUITY IN THE JANUARY 9, 1991 DECISION IN THE MAIN CASE AS WOULD
HAVE JUSTIFIED ITS MODIFICATION PURSUANT TO EXTANT JURISPRUDENCE
ON THE MATTER.[9]

Petitioners stress that the RTC, the CA, and this Court, in the main case (Civil Case No. 7302), did not
find them solidarily liable with PKA, and rightly so since PKA and Phoenix-Omega are two different
entities. Phoenix-Omegas only participation in the properties subject of the main case was as the construction
company that would develop the properties on behalf of PKA. Phoenix-Omega was involved in the amended
lease agreement between SRI and PKA only to the extent that it had to apply the terms of the tripartite
agreement (among LRTA, SRI, and Phoenix-Omega) to the development of the LRTA-owned property
situated in front of the lots leased to PKA by SRI.[10] Petitioners argue that the amended lease contract was, in
reality, only between SRI and PKA.
 Petitioners protest the piercing of the veil of corporate fiction between themselves and PKA. They
contend, citing Filmerco Commercial Co., Inc. v. IAC, No. L-70661, 149 SCRA 193 (1987), that the court
must first acquire jurisdiction over the corporation attempting to misuse the corporate vehicle to shield the
commission of a fraud.
Petitioners contend that the finding by the trial court as regards the single personality of PKA and
Phoenix-Omega was made only to refute PKAs claim that it was not liable for constructions made by
Phoenix-Omega outside the leased areas.
On the other hand, private respondent argues that there is no error in the issuance of the alias writ of
execution against the properties of petitioners since the trial court, the CA, and this Court had all ruled that
petitioners and PKA are in reality one and the same entity. This is the reason why, when the first writ of
execution was returned unsatisfied, SRI moved for the issuance of an alias writ of execution not only against
the properties of PKA but those of petitioners as well. There is no violation of petitioners right to due process
since petitioner Padilla actively participated in the proceedings before the RTC as the responsible officer of
both PKA and Phoenix-Omega.
Private respondent also contends that the CA ruled on the necessity of construing the dispositive portion
of the judgment along with its text, which petitioners allegedly accepted by not discussing the issue in their
pleadings.
To our mind, the main issue for our consideration is whether or not the trial court had jurisdiction over
petitioners, to justify the issuance of an alias writ of execution against their properties.
A court acquires jurisdiction over a person through either a valid service of summons or the persons
voluntary appearance in court.[11] A court must necessarily have jurisdiction over a party for the latter to be
bound by a court decision.

Generally accepted is the principle that no man shall be affected by any proceeding to which he
is a stranger, and strangers to a case are not bound by judgment rendered by the court. xxx[12]

In the present case, we note that the trial court never acquired jurisdiction over petitioners through any of
the modes mentioned above. Neither of the petitioners was even impleaded as a party to the case.[13]
Without the trial court having acquired jurisdiction over petitioners, the latter could not be bound by the
decision of the court. Execution can only be issued against a party and not against one who was not accorded
his day in court.[14] To levy upon their properties to satisfy a judgment in a case in which they were not even
parties is not only inappropriate; it most certainly is deprivation of property without due process of
law.[15] This we cannot allow.
The courts a quo ruled that petitioner Padilla, in particular, had his day in court. As general manager of
PKA, he actively participated in the case in the trial court. He ha(d) the right to control the proceedings, to
make defense, to adduce and cross examine witnesses, and to appeal from a decision.[16] Therefore, Padilla
and Phoenix-Omega, of which Padilla is chairman of the board, could not now argue that they did not have
the opportunity to present their case in court, according to private respondent.
To begin with, it is clear that Padilla participated in the proceedings below as general manager of PKA
and not in any other capacity. The fact that at the same time he was the chairman of the board of Phoenix-
Omega cannot, by any stretch of reasoning, equate to participation by Phoenix-Omega in the same
proceedings. We again stress that Phoenix-Omega was not a party to the case and so could not have taken
part therein.
Private respondent, however, insists that the trial court had pierced the veil of corporate fiction
protecting petitioners, and this justifies execution against their properties.
The general rule is that a corporation is clothed with a personality separate and distinct from the persons
composing it. It may not be held liable for the obligations of the persons composing it, and neither can its
stockholders be held liable for its obligations.[17]
This veil of corporate fiction may only be disregarded in cases where the corporate vehicle is being used
to defeat public convenience, justify wrong, protect fraud, or defend crime.[18] PKA and Phoenix-Omega are
admittedly sister companies, and may be sharing personnel and resources, but we find in the present case no
allegation, much less positive proof, that their separate corporate personalities are being used to defeat public
convenience, justify wrong, protect fraud, or defend crime. For the separate juridical personality of a
corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be
presumed.[19] We find no reason to justify piercing the corporate veil in this instance.
 We understand private respondents frustration at not being able to have the monetary award in their
favor satisfied. But given the circumstances of this case, public respondent cannot order the seizure of
petitioners properties without violating their constitutionally enshrined right to due process, merely to
compensate private respondent.
WHEREFORE, the instant petition is GRANTED. The assailed decision and resolution of the Court of
Appeals in CA-G.R. SP No. 36685 are SET ASIDE, and the order of the trial court dated November 29, 1994
and the alias writ of execution issued on the same date in connection with Civil Case No. 7302, are declared
NULL and VOID.
Costs against private respondent.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
G.R. No. L-20502 February 26, 1965

EMILIO CANO ENTERPRISES, INC., petitioner,

vs.
COURT OF INDUSTRIAL RELATIONS, ET AL., respondents.

D. T. Reyes and Associates for petitioner.

Mariano B. Tuason for respondent Court of Industrial Relations.
C. E. Santiago for respondent Honorata Cruz.

BAUTISTA ANGELO, J.:

In a complaint for unfair labor practice filed before the Court of Industrial Relations on June 6, 1956 by a
prosecutor of the latter court, Emilio, Ariston and Rodolfo, all surnamed Cano, were made respondents in their
capacity as president and proprietor, field supervisor and manager, respectively, of Emilio Cano Enterprises, Inc.

After trial, Presiding Judge Jose S. Bautista rendered decision finding Emilio Cano and Rodolfo Cano guilty of the
unfair labor practice charge, but absolved Ariston for insufficiency of evidence. As a consequence, the two were
ordered, jointly and severally, to reinstate Honorata Cruz, to her former position with payment of backwages from
the time of her dismissal up to her reinstatement, together with all other rights and privileges thereunto
appertaining.

Meanwhile, Emilio Cano died on November 14, 1958, and the attempt to have the case dismissed against him
having failed, the case was appealed to the court en banc, which in due course affirmed the decision of Judge
Bautista. An order of execution was issued on August 23, 1961 the dispositive part of which reads: (1) to reinstate
Honorata Cruz to her former position as ordered in the decision; and (2) to deposit with the court the amount of
P7,222.58 within ten days from receipt of the order, failing which the court will order either a levy on respondents'
properties or the filing of an action for contempt of court.

The order of execution having been directed against the properties of Emilio Cano Enterprises, Inc. instead of
those of the respondents named in the decision, said corporation filed an ex parte motion to quash the writ on the
ground that the judgment sought to be enforced was not rendered against it which is a juridical entity separate
and distinct from its officials. This motion was denied. And having failed to have it reconsidered, the corporation
interposed the present petition for certiorari.
1äwphï1.ñët

The issue posed before us is: Can the judgment rendered against Emilio and Rodolfo Cano in their capacity as
officials of the corporation Emilio Cano Enterprises, Inc. be made effective against the property of the latter which
was not a party to the case?

The answer must be in the affirmative. While it is an undisputed rule that a corporation has a personality separate
and distinct from its members or stockholders because of a fiction of the law, here we should not lose sight of the
fact that the Emilio Cano Enterprises, Inc. is a closed family corporation where the incorporators and directors
belong to one single family. Thus, the following are its incorporators: Emilio Cano, his wife Juliana, his sons
Rodolfo and Carlos, and his daughter-in-law Ana D. Cano. Here is an instance where the corporation and its
members can be considered as one. And to hold such entity liable for the acts of its members is not to ignore the
legal fiction but merely to give meaning to the principle that such fiction cannot be invoked if its purpose is to use
it as a shield to further an end subversive of justice. 1 And so it has been held that while a corporation is a legal
entity existing separate and apart from the persons composing it, that concept cannot be extended to a point
beyond its reason and policy, and when invoked in support of an end subversive of this policy it should be
disregarded by the courts (12 Am. Jur. 160-161).

A factor that should not be overlooked is that Emilio and Rodolfo Cano are here indicted, not in their private
capacity, but as president and manager, respectively, of Emilio Cano Enterprises, Inc. Having been sued officially
their connection with the case must be deemed to be impressed with the representation of the corporation. In
fact, the court's order is for them to reinstate Honorata Cruz to her former position in the corporation and
incidentally pay her the wages she had been deprived of during her separation. Verily, the order against them is
in effect against the corporation. No benefit can be attained if this case were to be remanded to the court a
quo merely in response to a technical substitution of parties for such would only cause an unwarranted delay that
would work to Honorata's prejudice. This is contrary to the spirit of the law which enjoins a speedy adjudication of
labor cases disregarding as much as possible the technicalities of procedure. We, therefore, find unmeritorious
the relief herein prayed for.

WHEREFORE, petition is dismissed, with costs.

Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and
Zaldivar, JJ., concur.

Footnotes
1La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., L-5677, March 25,
1953; McConnel, et al. v. The Court of Appeals, et al., L-10510, March 17, 1961.
G.R. No. 80043 June 6, 1991

ROBERTO A. JACINTO, petitioner,

vs.
HONORABLE COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY, respondents.

Romeo G. Carlos for petitioner.

Jorge, Perez & Associates for private respondents.

DAVIDE, JR., J.:

This is an appeal by certiorari to partially set aside the Decision of the Court of Appeals in C.A-G.R. CV No.
081531.promulgated on 19 August 1987, which affirmed in toto the decision of the Regional Trial Court of Manila,
Branch 11, in Civil Case No. 133164 entitled "Metropolitan Bank and Trust Co. vs. Inland Industries Inc. and
Roberto Jacinto," the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering defendants to pay, jointly and severally, the
plaintiff, the principal obligation of P382,015.80 (Annex J-1 to J-3 of Stipulation), with interest/charges
thereon at the rate of 16 % per annum from January 1, 1979 up to the time the said amount is fully paid,
plus the sum of P20,000.00 as attorney's fees. Said defendants are further ordered to pay in solidum the
costs of this suit.

SO ORDERED.2

Petitioner's co-defendant in the courts below, Inland Industries Inc., just as in the case of petitioner's motion to
reconsider the questioned decision,3 chose not to join him in this appeal.

In Our resolution of 28 August 1988 We required the respondent to comment on the petition. Respondent
Metropolitan Bank and Trust Co. filed its comment4 on 12 October 1988. We required the petitioner to file a reply
thereto,5 which he comment plied with on 20 December 1988.6

We gave due course to the petition on 8 May 19897 and required the parties to submit their respective
memoranda.

Private respondent filed its memorandum on 29 June 19898 while petitioner asked leave to adopt his petition and
reply as his memorandum,9 which We granted on 14 June 1989.10

Petitioner submits the following issues:

1. Whether or not the respondent Court of Appeals can validly pierce the fiction of corporate identity of the
defendant corporation Inland Industries, Inc. even if there is no allegation in the complaint regarding the
same, nor is there anything in the prayer demanding the piercing of the corporate veil of the corporation
Inland Industries, Inc.;

2. Whether or not the Court of Appeals can validly pierce the fiction of corporate identity of the defendant
Inland Industries, Inc. even if absolutely no proof was presented in court to serve as legal justification for
the same.

We find this petition to be bereft of merit. The issues are basically factual and a careful scrutiny of the decisions of
both courts below reveals that their findings and conclusions on the matter of piercing the veil of corporate fiction
and on the liability of herein petitioner are overwhelmingly supported by the evidence.

Insofar as material and relevant to the issues raised, the trial court found and held:11

As to [the] liability of [the] defendant Roberto A. Jacinto, it would appear that he is in factetum (sic), or, in
fact, the corporation itself known as Inland Industries, Inc. Aside from the fact that he is admittedly the
President and General Manager of the corporation and a substantial stockholders (sic) thereof, it was
defendant Roberto A. Jacinto who dealt entirely with the plaintiff in those transactions. In the Trust
Receipts that he signed supposedly in behalf of Inland Industries, Inc., it is not even mentioned that he did
so in this official capacity.

xxx xxx xxx

In this case, the Court is satisfied that Roberto A. Jacinto was practically the corporation itself, the Inland
industries, Inc.
In a detailed fashion, the respondent Court of Appeals brushed aside the posturing of petitioner as follows:

Defendant Roberto Jacinto, tried to escape liability and shift the entire blame under the trust receipts
solely and exclusively on defendant-appellant corporation. He asserted that he cannot be held solidarily
liable with the latter (defendant corporation) because he just signed said instruments in his official
capacity as president of Inland Industries, Inc. and the latter (defendant corporation) has a juridical
personality distinct and separate from its officers and stockholders. It is likewise asserted, citing an
American case, that the principle of piercing the fiction of corporate entity should be applied with great
caution and not precipitately, because a dual personality by a corporation and its stockholders would
defeat the principal purpose for which a corporation is formed. Upon the other hand, plaintiff-appellee
reiterated its allegation in the complaint that defendant corporation is just a mere alter ego of defendant
Roberto Jacinto who is its President and General Manager, while the wife of the latter owns a majority of
its shares of stock.

Defendants-appellants' assertion is plainly without legal basis. This is shown by the undisputed fact that
Roberto Jacinto even admitted that he and his wife own 52% of the stocks of defendant corporation (TSN,
April 22, 1985, p. 6). We cannot accept as true the assertion of defendant Jacinto that he only acted in his
official capacity as President and General Manager of Inland Industries, Inc. when he signed the
aforesaid trust receipts. To Our mind the same is just a clever ruse and a convenient ploy to thwart his
personal liability therefor by taking refuge under the protective mantle of the separate corporate
personality of defendant corporation.

As could be expected, Roberto Jacinto in his direct testimony presented a different corporate scenario
regarding Inland Industries, Inc. and vehemently declared that it is Bienvenida Catabas who is its
President, while Aurora Heresa is its Chairman of the Board. His assertion on this point, however, is not
convincing in view of his admission in the same breath, that his wife, Hedy U. Jacinto, own (sic) with him
52% of the shares of stock of said corporation. Indeed, this circumstance –– even if standing alone ––
cannot but engender in the most unprejudiced mind doubt and misgiving why Catabas and Heresa would
be defendant corporation's President and Chairman of the Board, respectively. Pertinent portion of his
testimony on this point is quoted hereunder:

Atty. Carlos Do you know the defendant Inland Industries, Inc.?

A Yes, sir. Because I am the General Manager of this corporation.

Q Aside from being the General Manager of the defendant corporation are you in any other way
connected with the same?

A I am also a stockholder.

Q Does your corporation have a Board of Directors?

A Yes, sir.

Q By the way, who are the stockholders of this corporation?

A Bienvenida Catabas, Aurora Heresa, Paz Yulo, Hedy Y. Jacinto and myself.

Q Who is the President of the defendant corporation?

A Bienvenida Catabas.

Q Who is the Chairman of the Board?

A Aurora Heresa.

Q Do you have any relation with Hedy Y. Jacinto?

A She is my wife.

Q If you combine the stockholdings of your wife together with yours and percentage wise, how
much is your equity?

Atty. Dizon raised some objections. However, the Court allowed the same.

A About 52 % (Ibid., pp. 3-6)

 Furthermore, a cursory perusal of the Stipulation of facts clearly shows that defendant Roberto Jacinto
acted in his capacity as President and General Manager of Inland Industries, Inc. when he signed said
trust receipts. Pertinent portion of his testimony are quoted below:

(d) All the goods covered by the three (3) Letters of Credit (Annexes "A", "B" & "C") and paid for
under the Bills of Exchange (Annexes "D", "E" & "F") were delivered to and received by defendant
Inland Industries, Inc. through its co-defendant Roberto A. Jacinto, its President and General
Manager, who signed for and in behalf of defendant Inland and agreed to the terms and
conditions of three (3) separate trust receipts covering the same and herein identified as follows: .
. . (p. 3 of Stipulations of Facts and Formulation of Issues [p. 95, Records]).

The conflicting statements by defendant Jacinto place in extreme doubt his credibility anent his alleged
participation in said transactions and We are thus persuaded to agree with the findings of the lower court
that the latter (Roberto Jacinto) was practically the corporation itself. Indeed, a painstaking examination of
the records show that there is no clear-cut delimitation between the personality of Roberto Jacinto as an
individual and the personality of Inland Industries, Inc. as a corporation.

The circumstances aforestated lead Us to conclude that the corporate veil that en-shrouds defendant
Inland Industries, Inc. could be validly pierced, and a host of cases decided by our High Court is
supportive of this view. Thus it held that "when the veil of corporate fiction is made as a shield to
perpetuate fraud and/or confuse legitimate issues, the same should be pierced." (Republic vs. Razon, 20
SCRA 234; A.D. Santos, Inc. vs. Vasquez, 22 SCRA 1156; Emilio Cano Enterprises, Inc. vs. Court of
Appeals, 13 SCRA 290). Almost in the same vein is the dictum enunciated by the same court in the case
of Commissioner of Internal Revenue vs. Norton & Harrison Co., (11 SCRA 714), that "Where a
corporation is merely an adjunct, business conduit or alter ego, the fiction of separate and distinct
corporate entity should be disregarded."

In its resolution of 29 September 1987, the respondent Court of Appeals, on the contention again of petitioner that
the finding that defendant corporation is his mere alter ego is not supported by the evidence and has no legal
justification, ruled that:

The contention . . . is nothing but an empty assertion. A cursory perusal of the decision would at once
readily show on pages 11-13 of the same that said factual findings of the court is well grounded as the
same in fact even include a portion of the very testimony of said defendant-appellant admitting that he
and his wife own 52% of the stocks of defendant corporation. The stipulation of facts also show (sic) that
appellant Roberto Jacinto acted in his capacity as President/General Manager of defendant corporation
and that "all the goods covered by the three (3) Letters of Credit (Annexes "A", "B" & "C") and paid for
under the Bills of Exchange (Annexes "D", "E" & "F") were delivered to and received by defendant Inland
Industries, Inc. through its co-defendant Roberto A. Jacinto, its President and General Manager, who
signed for and in behalf of defendant Inland and agreed to the terms and conditions of three (3) separate
trust receipts covering the same.

Petitioner, however, faults the courts below for piercing the veil of corporate fiction despite the absence of any
allegation in the complaint questioning the separate identity and existence of Inland Industries, Inc. This is not
accurate. While on the face of the complaint there is no specific allegation that the corporation is a mere alter
1âwphi 1

ego of petitioner, subsequent developments, from the stipulation of facts up to the presentation of evidence and
the examination of witnesses, unequivocally show that respondent Metropolitan Bank and Trust Company sought
to prove that petitioner and the corporation are one or that he is the corporation. No serious objection was heard
from petitioner. Section 5 of Rule 10 of the Rules of Court provides:

Sec. 5. Amendment to conform to or authorize presentation of evidence. –– When issues not raised by
the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects,
as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to
cause them to conform to the evidence and to raise these issues may be made upon motion of any party
at any time, even after judgment; but failure so to amend does not affect the trial of these issues. If the
evidence is objected to at the time of trial on the ground that it is not within the issues made by the
pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation
of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that
the admission of such evidence would prejudice him in maintaining his action or defense upon the merits.
The court may grant continuance to enable the objecting party to meet such evidence.

Pursuant thereto, "when evidence is presented by one party, with the express or implied consent of the adverse
party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards those issues, which
shall be considered as if they have been raised in the pleadings. There is implied consent to the evidence thus
presented when the adverse party fails to object thereto.12

WHEREFORE, for lack of merit, the Petition is DISMISSED with costs against petitioner.

SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
G.R. No. L-69494 May 29, 1987

A.C. RANSOM LABOR UNION-CCLU, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, First Division A.C. RANSOM (PHIIS.) CORPORATION
RUBEN HERNANDEZ, MAXIMO C. HERNANDEZ, SR., PORFIRIO R. VALENCIA, LAURA H. CORNEJO,
FRANCISCO HERNANDEZ, CELESTINO C. HERNANDEZ and MA. ROSARIO HERNANDEZ, respondents.

RESOLUTION

MELENCIO-HERRERA, J.:

In a joint Decision in two earlier cases rendered by the then Court of Industrial Relations (CIR) on August 19,
1972, it declared in the dispositive portion thereof:

IN VIEW OF ALL THE FOREGOING, ... the A.C. Ransom Philippine Corporation is guilty of unfair
labor practice of interference and discrimination herein above held and specified; ordering said
corporation, its officers and agents to cease and desist from committing the same: finding
the strike legal and justified; and to reinstate immediately ... , to their respective positions with
backwages from July 25, 1969 until actually reinstated, without loss of seniority rights and other
privileges appurtenant to their employment. (Emphasis supplied). 1

This Court affirmed that Decision when it denied the Petition for Review filed by RANSOM on February 26, 1973 in G.R. Nos. L-36226-68.

The backwages due the 22 employees having been computed at P 199,276.00 by the (CIR) Examiner,
successive Motions for Execution were filed by the UNION on January 27, 1973 and March 1, 1973, all of which
RANSOM opposed stressing its "precarious financial position if immediate execution of the backwages would be
ordered." Upon the UNION's Motion of April 22, 1973 asking the CIR that RANSOM be ordered to deposit with
the Court the backwages due them. RANSOM manifested that it did not have the necessary funds to deposit and
asked that the employees' earnings elsewhere during this suspension be deducted. After several hearings, a
recomputation was made and the award of P199,276.00 was reduced to P 164,984.00. 2

The records show that, upon application filed by RANSOM on April 2, 1973, it was granted clearance by the
Secretary of Labor on June 7, 1973 to cease operation and terminate employment effective May 1, 1973, without
prejudice to the right of subject employees to seek redress of grievances under existing laws and decrees. 3 The
reasons given by RANSOM for the clearance application were financial difficulties on account of obligations
incurred prior to 1966.

On January 21, 1974, the UNION filed another Motion for Execution alleging that although RANSOM had
assumed a posture of suffering from business reverse, its officers and principal stockholders had organized a
new corporation, the Rosario Industrial Corporation (thereinafter called ROSARIO), using the same equipment,
personnel, business stocks and the same place of business. For its part, RANSOM declared that ROSARIO is a
distinct and separate corporation, which was organized long before these instant cases were decided adversely
against RANSOM.

It appears that sometime in 1969, ROSARIO, a closed corporation, was, in fact, established. It was engaged in
the same line of business as RANSOM with the same Hernandez family as the owners, the same officers, the
same President, the same counsel and the same address at 555 Quirino Avenue, Paranaque, Rizal. The
compound, building, plant, equipment, machinery, laboratory and bodega were the same as those occupied and
used by RANSOM. The UNION claims that ROSARIO thrives to this day.

Writs of execution were issued successively against RANSOM on June 23, 1976, and February 17, 1977, to no
avail.

On December 18, 1978, the UNION again filed an ex-parte Motion for Writ of Execution and Garnishment praying
that the Writ issue against the Officers/Agents of RANSOM personally and or their estates, as the case may be,
considering their success in hiding or shielding the assets of said company. RANSOM countered that the CIR
Decision, dated August 19, 1972, could no longer be enforced by mere Motion because more than five (5) years
had already lapsed.

Acting on the Motion, Labor Arbiter Tito F. Genilo issued, on March 11, 1980, an Order, the pertinent part of
which reads:

Under the circumstances and pursuant to the decision aforementioned, especially that portion
holding the respondent corporation's officers and agents liable, the following officers of the
respondent corporation — as appears in the record-are hereby deemed included parties
respondents in their official capacity:
 a) Ruben Hernandez (President, per his testimony on August 21, 1974);

b) Maximo C. Hernandez, Jr. (Director);

c) Porfirio N. Valencia (Director);

d) Laura H. Cornejo (Director);

e) Francisco Hernandez (Chairman of the Board);

f) Celestino C. Hernandez (Director); and

g) Ma. Rosario Hernandez (Director).

Consequently, let a writ of execution be issued for P 164,984.00 against respondent corporation
and its officers/agents enumerated above.

SO ORDERED. (Emphasis supplied) 4

It appears that among the persons named in the aforequoted Order, Ma. Rosario Hernandez died in 1971;
Francisco Hernandez died in 1977: and Celestino C. Hernandez passed away in 1979. And Maximo Hernandez
who was named in the CIR Decision, died in 1966. 5

The NLRC, on appeal, modified the Decision by relieving the officers and agents of liability as follows:

As to the liability of the respondent's officers and agents, we agree with the contention of the
respondent-appellant that there is nothing in the order dated March 11, 1980 that would justify the
holding of the individual officers and agents of respondent in their personal capacity. As a general
rule, officers of the corporation are not liable personally for the official acts unless they have
exceeded the scope of their authority. In the absence of evidence showing that the officers
mentioned in the Order of the Labor Arbiter dated March 11, 1980 have exceeded their authority,
the writ of execution can not be enforced against them, especially' so since they were not given a
chance to be heard.

WHEREFORE, the Order appealed from is hereby affirmed, except as modified above.

SO ORDERED. 6

Reconsideration sought by the UNION from the NLRC was denied, hence this special civil action of Certiorari.

On June 10, 1986, this Court promulgated its Decision, the dispositive portion of which decrees:

WHEREFORE, the questioned Decision of the National Labor Relations Commission is SET
ASIDE, and the Order of the Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated with the
modification that personal liability for the backwages due the 22 strikers shall be limited to Ruben
Hernandez, who was President of RANSOM in 1974, jointly and severally with other Presidents of
the same corporation who had been elected as such after 1972 or up to the time the corporate life
was terminated.

Both parties have moved for reconsideration. Private respondents point out that they were never impleaded as
parties in the Trial Court, and that their personal liabilities were never at issue; that judgment holding Ruben
Hernandez personally liable is tantamount to deprivation of property without due process of law; and that he was
not an officer of the corporation at the time the unfair labor practices were committed.

The UNION on the other hand, in its own Motion for Reconsideration, prays that the veil of corporate fiction be
pierced and that the Decision be modified, in that all the individual private respondents and not only the
President, should be held jointly and severally liable with RANSOM. On November 4, 1986, it further filed an
Urgent Motion for Preliminary Mandatory Injunction "directing private respondents to deposit the amount of P
199,276.00 or to put up a supersedeas bond of the same sum."

Incontrovertible is the fact that RANSOM was found guilty by the CIR, in its Decision of August 19, 1972, of unfair
labor practice; that its officers and agents were ordered to cease and desist from further committing acts
constitutive of the same, and to reinstate immediately the 22 union members to their respective positions with
backwages from July 25, 1969 until actually reinstated.

The CIR Decision became final, conclusive, and executory after this Court denied the RANSOM petition for
review in 1973. In other words, this Court upheld that portion of the judgment ordering the officers and agents of
RANSOM to reinstate the laborers concerned, with backwages. The inclusion of the officers and agents was but
proper since a corporation, as an artificial being, can act only through them. It was also pursuant to the CIR Act
(CA No. 103 ), 7 the Industrial Peace Act (R.A. 875) 8 the Minimum Wage Law (R.A. 602). 9 Consequently, when,
in resolving the UNION's Motion for Writ of Execution and Garnishment in the Order of March 11, 1980, Labor
Arbiter Genilo named the seven (17) private respondents herein as the RANSOM officers and agents, who should
be held liable (supra), he merely implemented the already final and executory CIR decision of August 19, 1972.
The NLRC, on appeal to it by RANSOM, could not have modified the CIR Decision, as affirmed by this Court, by
relieving RANSOM's officers and agents of liability. It is also for that reason that in our Decision of June 10, 1986
we set aside said NLRC Decision and reinstated the Order of Labor Arbiter Genilo, with modification, in that we
limited liability for backwages due the 22 UNION members to the President of RANSOM in 1974 jointly and
severally with other Presidents of the same corporation who had been elected as such after 1972 or up to the
time the corporation life was terminated, since the President should also be deemed included in the term
"employer. "

The foregoing, however, limits the scope of liability and deviates from the CIR Decision, affirmed by this Court in
1973, holding the officers and agents of RANSOM liable. In other words, the officers and agents listed in the
Genilo Order except for those who have since passed away, should, as affirmed by this Court, be held jointly and
severally liable for the payment of backwages to the 22 strikers.

This finding does not ignore the legal fiction that a corporation has a personality separate and distinct from its
stockholders and members, for, as this Court had held "where the incorporators and directors belong to a single
family, the corporation and its members can be considered as one in order to avoid its being used as an
instrument to commit injustice," 10 or to further an end subversive of justice. 11 In the case of Claparols vs. CIR 12 involving almost similar facts
as in this case, it was also held that the shield of corporate fiction should be pierced when it is deliberately and maliciously designed to evade financial
obligations to employees. To the same effect was this Court's rulings in still other cases:

When the notion of legal entity is used as a means to perpetrate fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, and or confuse
legitimate issues the veil which protects the corporation will be lifted (Villa Rey Transit, Inc. vs.
Ferrer, 25 SCRA 846 [1968]; Republic vs. Razon, 20 SCRA 234 [1967]; A.D. Santos, Inc. vs.
Vasquez, 22 SCRA 1156 [1968]; Telephone Eng'g. & Service Company, Inc. vs. WCC, 104 SCRA
354 [1981]).

The alleged bankruptcy of RANSOM furnishes no justification for non-payment of backwages to the employees
concerned taking into consideration Article 110 of the Labor Code, which provides:

ART. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or liquidation of
an employer's business, his workers shall enjoy first preference as regards wages due them for
services rendered during the period prior to the bankruptcy or liquidation, any provision of law to
the contrary notwithstanding. Unpaid wages shag be paid in full before other creditors may
establish any claim to a share in the assets of the employer.

The term "wages" refers to all remunerations, earnings and other benefits in terms of money accruing to the
employees or workers for services rendered. They are to be paid in full before other creditors may establish any
claim to a share in the assets of the employer.

Section 10. Payment of wages in case of bankruptcy.-Unpaid wages earned by the employees
before the declaration of bankruptcy or judicial liquidation of the employer's business shall be
given first preference and shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer. 13

The foregoing provisions are but in consonance with the principles of social justice and protection to labor
guaranteed by past and present Constitutions and are not really being given any retroactive effect when applied
herein.

The Decision of the CIR was rendered on August 19, 1972. Clearance to RANSOM to cease operations and
terminate employment granted by the Secretary of Labor was made effective on May 1, 1973. The right of the
employees concerned to backwages awarded them, therefore, had already vested at the time and even before
clearance was granted. Note should also be taken of the fact that the clearance was without prejudice to the right
of subject employees to seek redress of grievances under existing laws and decrees.

The worker preference applies even if the employer's properties are encumbered by means of a mortgage
contract, as in this case. So that, when machinery and equipment of RANSOM were sold to Revelations
Manufacturing Corporation for P 2M in 1975, the right of the 22 laborers to be paid from the proceeds should
have been recognized, even though it is claimed that those proceeds were turned over to the Commercial Bank
and Trust Company (Comtrust) in payment of RANSOM obligations, since the workers' preference is over and
above the claim of other creditors.

The contention, therefore, of the heirs of the late Maximo C. Hernandez, Sr. that since they paid from their own
personal funds the balance of the amount owing by RANSOM to Comtrust they are the "preferential creditors" of
RANSOM, is clearly without merit. Workers are to be paid in full before other creditors may establish any claim to
a share in the assets of the employer.

... even if the employer's properties are encumbered by means of a mortgage contract, still the
workers' wages which enjoy first preference in case of bankruptcy or liquidation are duly protected
by an automatic first lien over and above all other earlier encumbrances on the said properties.
Otherwise, workers' wages may be imperilled by foreclosure of mortgages, and as a
consequence, the aforecited provision of the New Labor Code would be rendered meaningless. 14

Aggravating RANSOM's clear evasion of payment of its financial obligations is the organization of a "run-away corporation," ROSARIO, in 1969 at the time the
unfair labor practice case was pending before the CIR by the same persons who were the officers and stockholders of RANSOM, engaged in the same line of
business as RANSOM, producing the same line of products, occupying the same compound, using the same machineries, buildings, laboratory, bodega and
sales and accounts departments used by RANSOM, and which is still in existence. Both corporations were closed corporations owned and managed by
members of the same family. Its organization proved to be a convenient instrument to avoid payment of backwages and the reinstatement of the 22 workers.
This is another instance where the fiction of separate and distinct corporate entities should be disregarded.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction
whose veil in the present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its employees.

... When a notion of legal entity is used to. defeat public convenience, justify wrong, protect fraud,
or defend crime, the law will regard the corporation as an association or persons, or, in the case
of two corporations, will merge them into one. 15

The corporation will be treated merely as an aggregation of individuals or, where there are two corporations, they will be merged as one,
the one being merely regarded as part of the instrumentality of the other. 16

The UNION's plea, therefore, for the reinstatement of the 22 strikers in ROSARIO should be favorably heard. However, ROSARIO shall have the option to
award them separation pay equivalent to one-half month for every year of service actually rendered by the 22 strikers.

The plea of the UNION for the restoration of the original computation of P199,276.00 or to grant the 22 Union
members three (3) years backwages is rejected. It is the amount of P164,984.00 as backwages, which was the
subject of the Writ of Execution issued by the Labor Arbiter pursuant to the CIR Decision of 1972.

With the conclusions arrived at, the UNION's Urgent Motion for a Writ of Preliminary Mandatory Injunction
directing private respondents to deposit the amount due as backwages in the meantime, need no longer be acted
on.

A final and executory Decision in favor of the UNION obtained in 1972 and affirmed by this Court in 1973 has
remained unsatisfied to this date despite no less than ten (10) Motions for Execution over a period of fourteen
(14) years, not to mention the fact that this is the second time that this case is before this Court. The detriment
and prejudice caused the employees concerned is subversive of the ends of justice. This protracted litigation
must end and labor should now enjoy the just deserts of its legal victory.

ACCORDINGLY, private respondents' Motion for Reconsideration is hereby denied with FINALITY; the Motion for
Reconsideration filed by petitioner is granted in part; and the dispositive portion of the Decision, dated June 10,
1986, is hereby amended to read as follows:

WHEREFORE, the questioned Decision of the National Labor Relations Commission is SET
ASIDE, and the Order of Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated with the
modification that Rosario Industrial Corporation and its officers and agents are hereby held jointly
and severally liable with the surviving private respondents for the payment of the backwages due
the 22 union members.

Rosario Industrial Corporation is hereby ordered to reinstate the 22 union members or, if this is
not possible, to award them separation pay equivalent at least to one (1) month pay or to one (1)
month salary for every year of service actually rendered by them with A.C. Ransom (Phils).
Corporation, whichever is higher.

This decision is immediately executory.

SO ORDERED.

Yap (Chairman), Cruz, Paras * and Gancayco, JJ., concur.

Narvasa ** and Sarmiento, *** JJ., took no part.

Feliciano, J., is on leave.

G.R. No. 79907 March 16, 1989

SAMUEL CASAS LIM, petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION and VICTORIA R. CALSADO, respondents.

G.R. No. 79975. March 16, 1989

SWEET LINES, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION; HON. NESTOR C. LIM (In his capacity as Labor Arbiter of
the Ministry of Labor and Employment and VICTORIA R. CALSADO, respondents.

Puruganan, Chato, Chato & Tan Law Office for petitioner.

Leo C. Romero for petitioner Sweet Lines, Inc.

Andrea R. dela Cueva for Victoria R. Calsado.

CRUZ, J.:

These two cases have been consolidated because they relate to the same factual antecedents and the same
private respondent. The issues are:

1. In G.R. No. 79975, whether or not the private respondent was an employee of the petitioner
and, if so, had been illegally dismissed; and corollarily, whether or not the NLRC had jurisdiction
over their dispute.

2. In G.R. No. 79907, whether or not the petitioner could be held solidarity liable with Sweet Lines,
Inc. to the private respondent.

The record shows that private respondent Victoria Calsado was hired by Sweet Lines, Inc. on March 5, 1981, as
Senior Branch Officer of its International Accounts Department for a fixed salary and a stipulated 5 % commission
on sales production. On December 1, 1983, after tendering her resignation to accept another offer of
employment, she was persuaded to remain with an offer of her promotion to Manager of the Department with
corresponding increase in compensation, which she accepted. She was also allowed to buy a second-hand Colt
Lancer pursuant to a liberal car plan under which one-half of the cost was to be paid by the company and the
other half was to be deducted from her salary. Relations began to sour later, however, when she repeatedly
asked for payment of her commissions, which had accumulated and were long overdue. She also complained of
the inordinate demands on her time even when she was sick and in the hospital. Finally, on July 16, 1985, she
was served with a letter from Samuel Casas Lim, the other petitioner, informing her that her "employment with
Sweet Lines" would terminate on August 5, 1985. Efforts were also taken by Sweet Lines to forcibly take the car
from her, culminating in an action for replevin against her in the regional trial court of Manila.

On August 14, 1985, Calsado filed a complaint against both petitioners for illegal dismissal, illegal deduction, and
unpaid wages and commissions plus moral and exemplary damages, among other claims. 1 There followed an extended
hearing where she testified on the details of her employment, emphasizing her unsatisfactory treatment by the management of Sweet Lines and especially the
termination of her services without the required notice and hearing and without valid cause. She also presented four other witnesses to corroborate her
charges.

The respondents' defenses were based mainly on the claim that Calsado was not an employee of Sweet Lines
but an independent contractor and that therefore their dispute with her came under the jurisdiction of the civil
courts and not of the Labor Arbiter. 2 On this matter the private respondent pointedly comments:

At this point, private respondent would like to underscore the fact that while private respondent in
the proceedings before the Labor Arbiter presented five witnesses including herself, all of whom
were cross-examined by petitioners, and numerous documents which were marked as Exhs. "A"
to "GG-8d" and 858 receipts and bills, all of which were duly identified and testified to by private
respondent and her witnesses and examined by petitioners, petitioner failed to present any single
evidence, testimonial or documentary, to controvert private respondent's evidence. All that they
presented were their unsubstantiated pleadings not one of which was under oath, not even their
position paper which, under the NLRC rules (Sec. 2, Rule 7, Revised Rules of the NLRC), have to
be verified. 3

On December 29, 1986, decision was rendered against the two petitioners by the Labor Arbiter 4 who held them liable in
solidum to the complainant for the following amounts:
 (a) Separation pay equivalent to one month pay for every year of service based on her latest
basic salary of P2,500.00 plus allowance of P500.00, or a total monthly pay of P3,000.00;

(b) Backwages based on her last monthly pay rate of P3,000.00 to be computed from the time of
her dismissal to the actual payment of her separation pay;

(c) Proportionate 13th month pay for the year 1985;

(d) Sales commission in the sum of P432,656.68;

(e) Moral damages of P100,000.00;

(f) Exemplary damages of P10,000.00; and

(g) Attorney's fees of P10,000.00 plus 25 % of the total monetary awards in favor of the
complainant.

The decision was appealed to the National Labor Relations Commission and affirmed in toto except as to the
attorney's fees, which were reduced to 10% of the total award. 5 Both Sweet Lines and Lim then came to us in separate petitions to
raise the above-stated issues. On October 14, 1987, we issued a temporary restraining order against the enforcement of the decision of the public respondent
dated September 11, 1987. 6 The petitions were consolidated on December 7, 1987, and given due course on May 16, 1987, with the parties being required to
submit their respective memoranda. On the first question, we hold that the employee-employer relations between Calsado and Sweet Lines have been
sufficiently established. The following documents submitted by the former and not controverted by the latter should belie the claim that Calsado was only an
independent contractor over whom Sweet Lines had no control.

1. Certification issued by Sweet Lines, lnc. dated May 2l,1984, stating that private respondent 'is
employed with this company since March 5, 1982 up to the present, presently designated as
International Accounts Manager of the Sweet Lines, Inc., Manila Branch." (Exh. "W" )

2. Termination letter issued by Samuel Casas Lim to private respondent reading. 'Your
employment with Sweet lines, Inc. will cease effective August 15, 1985. In connection with the
foregoing, you are entitled to (1) separation pay equivalent to one half month of every year of
service ... ; (2) The computed money value of unused vacation leave ... ; (3) Thirteenth month pay
... ;" (Exh. "W")

3. Notice of private respondent's promotion effective December 1, 1982 from Senior Branch
Officer to Manager, International Accounts, with an increase in basic salary from P1,250 to
P2,500 a month; (Exh. "D")

4. Computation of her salary, allowance and 13th month pay differentials on account of her
promotion, prepared and approved by the proper officials of petitioner Sweet Lines, Inc. whose
signatures appear thereon; (Exh. "E")

5. Certification dated September 6, 19M issued by the petitioner company, subscribed and sworn
to before a notary public declaring that private respondent was then an Account Executive of
Sweet Lines, Inc.; (Exh. "E")

6. Certification, notarized on January 10, 1985, by Atty. Gregorio Francisco, counsel for petitioner
company, that private respondent "is a bona fide employee of Sweet Lines, Inc. and presently
holding the position of Manager, International Account.' (Exh. "Y")

7. Approved application for sick leave of private respondent for 15 days from March 7, 1985 to
April 3, 1985. (Exh. "I")

There is in the above exhibits a consistent and categorical recognition of Calsado as an employee of petitioner
Sweet Lines. Indeed, its notarized certification that Calsado was its bona fide employee is irrefutable. The
petitioner cannot now argue that the grant to her of the 13th month pay and even the differential pay was a mere
accomodation like the car plan (which, for that matter, is a benefit usually extended only to employees). If it is true
that Sweet Lines had no control over her and left her free to determine her work schedule, there would have been
no reason at all for its approval of her application for sick leave from March 7, 1985 to April 3, 1985. The
termination letter itself, which was signed by the other petitioner as Vice President of Sweet Lines, said she was
"entitled" to certain payments as a result of the cessation of her "employment with Sweet Lines, Inc."

Sweet Lines has also failed to substantiate its allegation that Calsado was an independent contractor, as it should
have, with evidence showing inter alia that she had the financial resources and other means or equipment to
operate as such. One must prove what one alleges, but Sweet Lines confined itself to mere denials.

At any rate, the determination of the existence of employee-employer relations is a factual finding which this
Court will not disturb or reverse in the absence of a showing of grave abuse of discretion. We do not see such
justification here. On the contrary, the ascertainment of the employment status of the private respondent was
made on the basis of the criteria consistently employed by the Court in the determination of the employee-
employer relationship. 7 We find from the record that all these test have been satisfied.

Such relationship having been established, the third issue is automatically resolved and requires not much
elaboration. Suffice it only to stress that the damages claimed by private respondent as a result of her illegal
dismissal and the violation of the terms and conditions of her employment also come within the jurisdiction of the
Labor Arbiter as a contrary rule would result in the splitting of actions and the consequent multiplication of suits.
So we recently affirmed in Limquiaco v. Ramolete 8 and more positively in National Union of Bank Employees v. Lazaro, 9 where we
declared:

As we stated, the damages (allegedly) suffered by the petitioners only form part of the civil
component of the injury arising from the unfair labor practice. Under Article 247 of the Code, "the
civil aspects of all cases involving unfair labor practices which may include claims for damages
and other affirmative relief, shall be under the jurisdiction of the labor arbiters.

On the fourth issue, we agree with petitioner Lim that he cannot be held personally liable with Sweet Lines for
merely having signed the letter informing Calsado of her separation. There is no evidence that he acted with
malice or bad faith. The letter, in fact, informed her not only of her separation but also of the benefits due her as a
result of the termination of her services.

It is true that Lim has raised this matter rather tardily and also that he belongs to a closed corporation controlled
by the members of one family only. But these circumstances should not be allowed to operate against him if he is
to be accorded substantial justice in the resolution of the private respondent's claim. As we said in Ortigas vs.
Lufthansa German Airlines, 10 the Court is "clothed with ample authority to review matters, even if they are not assigned as errors in the appeal, if it
finds that its consideration is necessary in arriving at a just decision of the case." As for the second charge, the mere fact that Lim is part of the family
corporation does not mean that all its acts are imputable to him directly and personally. His acts were official acts, done in his capacity as Vice President of
Sweet Lines and on its behalf. There is no showing that he acted without or in excess of his authority or was motivated by personal ill-will toward Calsado. The
applicable decision isSunio v. NLRC, 11 where it was held:

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner
corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in
terminating the services of private respondents. His act, therefore, was within the scope of his
authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those
of the persons composing it as well as from that of any other entity to which it may be related.
Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality. Petitioner Sunio, therefore, should not have been made personally answerable for the
payment of private respondents' back salaries.

The case of Ransom v. NLRC 12 is not in point because there the debtor corporation actually ceased operations after the decision of the Court of
Industrial Relations was promulgated against it, making it necessary to enforce it against its former president. Sweet lines is still existing and able to satisfy the
judgment in favor of the private respondent.

The Solicitor General, invoking equity rather than law, observes that making Lim solidarity liable with Sweet Lines
will ensure payment of Calsado's claim. But this precaution, even assuming it to be valid, is really unnecessary. in
fact, as a condition for the issuance of our temporary restraining order of October 14, 1987, Sweet Lines posted
as required a bond in the amount of P850,000.00, which should cover the amounts awarded to the private
respondent.13

We especially uphold the award of moral and exemplary damages in view of the acts of harassment and bad faith
testified to by the private respondent and not refuted by Sweet Lines. Her treatment during her employment, the
delays in the payment of her commissions, the pressures exerted upon her even when she was sick in the
hospital, the suggestion of one of the company officers that she discuss her complaints with him alone in a private
place, her arbitrary separation, the questionable attempts to get the vehicle from her after her dismissal, among
other aggravations, clearly demonstrate the validity of the private respondent's complaints.

Finally, we hold that the contention of Sweet Lines that separation pay and back wages are inconsistent with
each other is not well-taken. Separation pay is granted where reinstatement is no longer advisable because of
strained relations between the employee and the employer. Back wages represent compensation that should
have been earned but were not collected because of the unjust dismissal. The bases for computing the two are
different, the first being usually the length of the employee's service and the second the actual period when he
was unlawfully prevented from working.

We have ordered the payment of both in proper case 14 as otherwise the employee might be deprived of benefits justly due him. Thus, if
an employee who has worked only one year is sustained by the labor court after three years from his unjust dismissal, granting him separation pay only would
entitle him to only one month salary. There is no reason why he should not also be paid three years back wages corresponding to the period when he could not
return to his work or could not find employment elsewhere.

WHEREFORE, subject to the modification that the award of backwages shall be limited to only three years, in
accordance with existing policy, G.R. No. 79975 is DISMISSED, with costs against the petitioner, G.R. No. 79907
is GRANTED and petitioner Samuel Casas Lim is hereby absolved of liability in his personal capacity. The
temporary restraining order dated October 14, 1987, is LIFTED. It is so ordered.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

G.R. No. 96073 January 23, 1995

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
SANDIGANBAYAN (First Division), MARIA CLARA LOBREGAT, BIENVINIDO MARQUEZ, CELESTINO
SABATE, JOSE R. ELEAZAR, JR., DOMINGO ESPINA, JOSE GOMEZ, MAUEL DEL ROSARIO, JOSE
MARTINEZ, JR., JOSE REYNALDO MORENTE, ELADIO CHATTO, and PHILIPPINE COCONUT
PRODUCERS FEDERATION, INC., respondents.

G.R. No. 104065 January 23, 1995

REPUBLIC OF THE PHILIPPINES, represented by the Presidential Commission on Good Government

(PCGG), petitioner,
vs.
SANDIGANBAYAN (Second Division), PHILIPPINE VILLAGE HOTEL, INC., respondents.

G.R. No. 104167 January 23, 1995

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG), petitioner,
vs.
SANDIGANBAYAN (Third Division), MARSTEEL CONSOLIDATED, INC., MARSTEEL CORPORATION,
TOURIST TRADE & TRAVEL CORPORATION, BACOLOD REAL ESTATE DEVELOPMENT
CORPORATION, respondents.

G.R. No. 104168 January 23, 1995

REPUBLIC OF THE PHILIPPINES, et al, petitioners,

vs.
SANDIGANBAYAN [Second Division], SILAHIS INTERNATIONAL HOTEL, INC., and HOTEL PROPERTIES,
INC., respondents.

G.R. No. 104679 January 23, 1995

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG), petitioner,
vs.
SANDIGANBAYAN (Third Division) and MARCELO FIBERGLASS CORPORATION, respondents.

G.R. No. 104850 January 23, 1995

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,

vs.
SANDIGANBAYAN (Third Division) AGRICULTURAL CONSULTANCY SERVICES, INC., ARCHIPELAGO
REALTY CORPORATION, BALETE RANCH, INC. BLACK STALLION RANCH, INC., KALAWAKAN
RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., et al., respondents.

G.R. No. 104883 January 23, 1995

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,

vs.
SANDIGANBAYAN (Third) and POLYGON INVESTORS and MANAGERS, INC., respondents.

G.R. No. 105170 January 23, 1995

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
HON. SANDIGANBAYAN (First Division), FE ROA GIMENEZ, GEI-GUARANTEED EDUCATION,
INC., respondents.

G.R. No. 105205 January 23, 1995

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG), petitioner,
vs.
SANDIGANBAYAN [Second Division], TERNATE DEVELOPMENT CORPORATION, FANTASIA FILIPINA
RESORTS, INC., MONTE SOL DEVELOPMENT CORPORATION OLAS DEL MAR DEVELOPMENT
CORPORATION PUERTO AZUL OCEAN VILLAS CONDOMINIUM, PHILROAD CONSTRUCTION
CORPORATION, respondents.

G.R. No. 105206 January 23, 1995

REPUBLIC OF THE PHILIPPINES, et al., petitioner,

vs.
SANDIGANBAYAN [First Division], RODOLFO CUENCA, CUENCA INVESTMENT CORPORATION,
UNIVERSAL HOLDINGS CORPORATION, respondents.

G.R. Nos. 105711-12 January 23, 1995

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,

vs.
TRADERS' HOLDINGS & MARKETING, INC., and GABRIEL VILLAREAL, respondents.

TRADERS' HOLDINGS & MARKETING, INC., GABRIEL VILLAREAL and YOLANDA M. UY, respondents.

G.R. No. 105808 January 23, 1995

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,

vs.
SANDIGANBAYAN (Second Division) and TRANS MIDDLE EAST (Phil.) EQUITIES, INC., respondents.

G.R. No. 105809 January 23, 1995

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,

vs.
SANDIGANBAYAN (Second Division), PALM AVENUE REALTY & DEVELOPMENT CORPORATION, et al.,
respondents.

G.R. No. 105850 January 23, 1995

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,

vs.
SANDIGANBAYAN (Third Division), PHILIPPINE COMMUNICATIONS SATELITE CORPORATION and
PHILIPPINE OVERSEAS TELECOMMUNICATIONS CORPORATION, respondents.

G.R. No. 106176 January 23, 1995

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
SANDIGANBAYAN [First Division], HI-TRI DEVELOPMENT CORPORATION, 7-R HEAVY EQUIPMENT CO.,
INC., 7-R SALES CO., INC., 7-R RANCH, INC., and 7-R DEVELOPMENT CORPORATION, respondents.

G.R. No. 106765 January 23, 1995

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,

vs.
SANDIGANBAYAN [Second Division], KALAWAKAN RESORTS, et al., respondents.

G.R. No. 107233 January 23, 1995

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG), petitioner,
vs.
SANDIGANBAYAN (Second Division), LUIS YULO and YKR CORPORATION, respondents.

G.R. No. 107908 January 23, 1995

REBECCO E. PANLILIO and SILAHIS INTERNATIONAL HOTEL. INC., petitioners,

vs.
SANDIGANBAYAN (Second Division), and PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
(PCGG), respondents.

G.R. No. 109314 January 23, 1995

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG), petitioner,
vs.
SANDIGANBAYAN (Second Division), PETER A. SABIDO, PHILIPPINE INTEGRATED MEAT
CORPORATION and LIANGA BAY LOGGING CO., INC., respondents.

G.R. No. 109592 January 23, 1995

TRANS MIDDLE EAST (Phils.) EQUITIES, INC., petitioner,

vs.
BOARD OF DIRECTORS OF PHILIPPINE COMMERCIAL INTERNATIONAL BANK, MARCIAL O.T. BALGOS
(&c.) and the CHAIRMAN OF THE BOARD OF DIRECTORS OF PCI BANK, respondents.

NARVASA, C.J.:

I. Government Policy for Recovery

of Ill-Gotten Wealth.

One of the very first undertakings of the Revolutionary Government swept into power by the so-called EDSA
Revolution in February, 1986 was the recovery of "ill-gotten wealth" reputedly amassed by former President and
Mrs. Ferdinand Marcos, their relatives, friends and business associates. This surely was an enterprise "of great
pith and moment;" it was attended by "great expectations;" it was initiated not only out of considerations of simple
justice but also out of sheer necessity — the national coffers were empty, or nearly so. At the time that the
government of former President Marcos was driven from power, the country's debt was over twenty-six billion US
dollars; and the indications were that "illegally acquired wealth" of the deposed president alone, not counting that
of his relatives and cronies, was in the aggregate amount of from five, to ten billion US dollars, the bulk of it being
deposited and hidden abroad.

II. Provisional Remedies in Pursuance

of Policy

Special adjective tools or devices were provided by the Revolutionary Government for the recovery of that "ill-
gotten wealth." These took the form of provisional remedies akin to preliminary attachment (Rule 57), writ of
seizure of personality (Rule 60) and receivership (Rule 59). They were (a) sequestration and (b) freeze orders, as
regards "unearthed instances of 'ill-gotten wealth;" and (c) provisional takeover, as regards "business enterprises
and properties taken over by the government of the Marcos Administration or by entities or persons close to
former President Marcos."1

A. Executive Orders Re Sequestration,

Freezing and Takeover

These special remedies were prescribed and defined in Executive Orders Numbered 1 and 2, promulgated by
President Corazon C. Aquino in March, 1986. Their validity and propriety were sustained by this Court on May 27,
1987,2 against claims that they were unconstitutional as being bills of attainder, or as violative of the right against
self-incrimination and the guaranty against unreasonable searches and seizures. In the same case, the Court
also set the parameters for and restrictions on the proper exercise of the remedies.

On the explicit premise 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," the
Presidential Commission on Good Government — PCGG, for short — was created by Executive Order No. 1 to
assist the President in the recovery of the ill-gotten wealth thus accumulated, "whether located in the Philippines
or abroad." The Commission's powers included "the takeover or sequestration of all business enterprises and
entities owned or controlled by . . . (President Marcos, his family and close associates) 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."3

Executive Order No. 2 asserted that the ill-gotten "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."4

And Executive Order No. 145 conferred on the Sandiganbayan exclusive and original jurisdiction over all cases of
ill-gotten wealth, etc., and provided that civil suits involving the same may be filed separately from, and proceed
independently of, any criminal proceeding, and that "technical rules of procedure and evidence shall not be
strictly applied to . . . (said) civil cases." The exclusivity of the jurisdiction of the Sandiganbayan was stressed
in BASECO6 and in PCGG vs. Peña, et al.7

B. Relevant Constitutional Provisions

It appears to have been universally acknowledged that President Aquino had legitimate authority to wield
legislative power under the revolutionary regime, at least "(u)ntil a legislature is elected and convened under a
new constitution."8Such a new constitution was drawn up very quickly, and promulgated on March 25, 1986.9 The
matter of the recovery of ill-gotten wealth was explicitly dealt with therein; and President Aquino was thereby
given the right and duty to "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." 10

The present (1987) Constitution 11 also treats particularly of the matter of sequestration and recovery of ill-gotten
wealth. Section 26, Article XVIII thereof provides as follows:

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 shall remain operative for not more
than eighteen months after 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."

III. Orders of Sequestration issued by PCGG

During 1986 and 1887 numerous orders of sequestration, freezing or provisional takeover of companies or
properties, real or personal, were issued and implemented. Among those were the orders handed out against the
firms or assets hereunder hereunder listed, with the dates of sequestration, freezing
take-over, to wit:

SUBJECTS/OBJECTS OF SEQUESTRATION DATE

a. COCOFED, COCOMARK, CIC, etc., shares of March 19; April
stock of 1,405,366 coconut farmers" in UCPB 21; June 24, 26
and of the so-called "CIIF companies" 12 in 8-Jul-86
the same bank
b. Assets of Roberto S. Benedicto, Julita C. April 11, May 5,
Benedicto, including shares of stock in Traders 4-Jun-86
Royal Bank
c. Philippine Village Hotel, and all its assets, pro- 6-Jun-86
perties, records and documents
d. Assets and records of Marsteel Consolidated, Inc., Sept. 22, 1986
Marsteel Corporation, Dayton Metals Corp., Oct. 1, 1986
Tourist Trade & Travel Corp., Bacolod Real Estate
Development Corporation; American-Philippine
Fiber Industries, Inc.; Filipinas Micro-Circuits, Inc.
e. Silahis International Hotel, Hotel Properties, and 31-May-86
Philroad Construction Corporation.
f. Marcelo Fiberglass Corporation, and all its assets, 16-Feb-87
properties, records and documents
g. Shares of stock in San Miguel Corporation in the April 8, 22, and
names of so-called "Cojuangco Companies, e.g., 16-May-86
Agricultural Consultancy Services, Inc., Meadow
Lark Plantations, Silver Leaf Plantations, Pri-
mavera Farms, Pastoral Farms, Reddee Develop-
ers, Inc., Discovery Realty Corp., First United
Transport, Inc.; Archipelago Finance & Leasing
Corp., San Esteban Dev. Corp.; Balete Ranch, Inc.,
Oro Verde Services, Inc., Kalawakan Resorts, Inc.,
Philippine Technologies, Inc., Wings Resorts Corp.,
 Unexplored Land Developers, Inc., Archipelago
Realty Corp., Balete Ranch, Inc., etc., Spade One Re-
sorts Corporation, Oceanside Maritime Enterprises,
Inc., Pura Electric Co., Inc., Punong Bayan Housing
Dev. Corp., Southern Service Traders, Inc., North-
east Contract Traders, Inc., Habagat Realty Dev.,
Inc., Labayug Air Terminals, Inc.
h. Ternate Development Corporation, Fantasia Fi- March 10 and
lipina Resorts, Inc., Monte Sol Development Cor- 4-Apr-88
poration Olas del Mar Dev. Corp., Puerto Azul
Ocean Villas Condominium, and their shares of
stock, assets, records and documents.
i. Assets and records of Rodolfo Cuenca, Universal May 23, 1986, July
Holdings Corp., Cuenca Investment Corporation, 23, 1987
Philippine National Construction Corp. (formerly
CDCP), San Mariano Mining Copr., etc.
j. Bakunawa Group of Companies (Hi-Tri Dev. Corp- March 15 and
oration. 7-R Heavy Equipment Co., Inc., 7-R April 16, 19863,
Sales Co., Inc., 7-Ranch, Inc., 7-R Development
Corporation), Fishponds
k. 27 certificates of time deposit issued by UCPB in 10-Apr-86
favor of Kalawakan Resorts, et al.
l. YKR Corporation, Philippine Integrated Meat 2-Apr-86
Corp, (PIMECO), Lianga Bay Logging Co., Inc., Mar. 17, June 3,
Dipudo Industries, Inc., Highway Builders, Inc., 1986
Taggat Industries, Inc., together with their assets
m. Shares of stock in Dutch Boy Phils. Inc. held by Sept. 30, 1986
or registered in the name of REDDEE Developers,
Inc., and Traders Holdings and Marketing Inc.
n 6,119,067 common shares in PCIB), and 6,237,339 April 5, 15, 1986
Benguet Corp. shares in the name of Palm Avenue
Realty, Palm Avenue Holdings (pledged with PCIB
and Equitable Bank) (allegedly owned by Benjamin
[Kokoy] Romualdez), and Trans Middle East Philippine
Equities, Inc.
o. Shares of stock of Roberto Benedicto, Jose L. Africa, 11-Apr-86
Victor A. Africa, and Alfredo L. Africa in Philippine
Communications Satellite Corporation and Philippine
Overseas Telecommunications Corporation.
p. Polygon Investors and Managers, Inc., together with June 15, 1988 (but
all its shares of stock, office premises, records, writ served on Aug.
documents, assets and other properties 3, 1988)
q. GEI — Guaranteed Education, Inc. Oct. 24, 1986
IV. Actions Bought in Connection with
Orders of Sequestration, Etc.

In connection with these orders of sequestration, freezing or takeover, court actions were also instituted by the
PCGG in the name of the Republic of the Philippines, against the persons believed to be owners or holders of the
property subject thereof. These actions were invariably denominated suits for "reconveyance, reversion,
accounting, restitution and damages." The docket numbers of the actions, the defendants named in the
complaints, and the dates of commencement of suit — as well as those of related proceedings — are as follows:

CASE NO. DEFENDANTS DATE OF SUIT

No. 0007 Fe Roa Gimenez, Ignacio B. Gimenez, Vilma 21-Jul-87
Bautista, Gregorio Bautista, Oscar Cariño,
Ferdinand E. Marcos, Imelda R. Marcos
No. 0009 Jose Africa, Manuel Nieto, Jr., Ferdinand 22-Jul-87
Marcos, Imelda Marcos, Ferdinand Marcos,
 Jr., Roberto S. Benedicto, Juan Ponce Enrile,
Potenciano Ilusorio
No. 0014 Modesto Enriquez, Trinidad Diaz Enriquez, 23-Jul-87
Rebecco Panlilio, Erlinda Enriquez Panlilio,
Leandro Enriquez, the Marcos Spouses, Don
M. Ferry, Roman A. Cruz, Jr., Guillermo
Gastrock, Gregorio R. Castillo, Ernesto Abalos,
No. 0016 Rodolfo Cuenca, Spouses Marcos, Nora O. 24-Jul-87
Vinluan, Oscar P. Beltran, Saul Y. Alfonso,
Roberto S. Cuenca, Panfilo Domingo, Jose L.
Africa, Roberto V. Ongpin, Ricardo de Leon, et al.
No. 0021 Edward T. Marcelo, Fabian C. Ver, Marcos 29-Jul-87
Spouses
No. 0023 Sps. Luz Reyes Bakunawa, and Manuel 29-Jul-87
Bakunawa, Jr., Manuel Bakunawa III, Marcos
Spouses
No. 0024 Peter Sabido, Roberto S. Benedicto, Luis D. 29-Jul-87
Yulo, Nicolas Dehesa, Spouses Marcos, Jose
R. Tengco, Jr., Rafael Sison, Cesar Zalamea,
Don M. Ferry
No. 0025 Antonio V. Martel, Rodolfo V. Martel, Jose V. 29-Jul-87
Martel, Enrique V. Martel, Alita V. Martel,
Spouses Marcos, Don M. Ferry
No. 0033 Eduardo Cojuangco, Jr., Ferdinand E. Marcos, 31-Jul-87
Imelda R. Marcos, Juan Ponce Enrile, Maria
Clara Lobregat, Manuel (Manda) Elizalde, Jr.,
Jose Aspiras, Edgardo J. Angara, Jose C. Con-
cepcion, Teodoro D. Regala, Avelino V. Cruz,
Rogelio A. Vinluan, Eduardo U. Escueta, Paraja G.
Hayudini, Raul S. Roco, Cesar C. Zalamea, Jose
R. Tengco, Jr., Don M. Ferry, Alicia Ll. Reyes,
Rolando M. Zosa, Gretchen Cojuangco, Rolando
de la Cuesta, Enrique Cojuangco, Marcos Cojuangco,
Danilo Ursua, Jesus Pineda, Jr., Narciso Pineda,
Alex Tanwangco, Amado Mamuric, Rafael
Abello, Emesto Escaler, Ernest Escaler, Rodolfo
Tinsay, Renato Sawit, Homobono Sawit, Douglas
Luy, Enrique Luy, Inaki R. Mendezona, Bienvenido
Marquez, Sr., 13 Domingo Espina, J. Reynaldo
Morente, Eladio Chatto, Jose Martinez, Jr.,
Celestino Sabate, Sulpicio Granada, Jose Gomez,
Manuel del Rosario, Jose R. Eleazar, Jr., Francisco
Eizmendi, Jr., Hermenegildo Zayco, Francis Gaston,
Norberto Coronel, Alfredo Tumacder, Jr., Antonio
Carag, Jose M. Guerrero, Bernardo M. Vergara,
Michael de Guzman, Emmanuel Almeda, Anastacio
Emano, Sr., Mohammad Ali Dimaporo,
No. 0034 Roberto Benedicto, Julita C. Benedicto, 30-Jul-87
Francisca O. Benedicto, Marciano Benedicto
(deceased), Romulo Benedicto, et al.
No. 0035 Benjamin (Kokoy) Romualdez (in which 30-Jul-87
intervention by Trans Middle East (Phil.) Equities,
Inc. (TMEE) was allowed)
[No. 0043 An action for injunction filed in connection Aug. 5, 1988.
with Case No. 0009 by Polygon Investors and
Managers, Inc.]
[No. 0059 Action for prohibition vs. PCGG filed by Dec. 13, 1988
 Kalawakan Resorts, Inc., Habagat Realty Develop-
ment Corp., Labayug Air Terminals, Inc., Punong
Bayan Housing Dev. Corp., Pura Electric Co., Inc.,
Ocean Side Maritime Ent., Inc., Spade One Resorts
Corp., Unexplodred Land Developers, Inc., Wings
Resorts Corp.]
[No. 0061 Action for prohibition against PCGC filed Jan. 25, 1989
by Traders Holdings and Marketing, Inc.]
[No. 0071 Action of quo warranto and prohibition 22-May-89
filed also by Traders Holdings and Marketing, Inc.]
[No. 0110 An action for prohibition filed by Primavera Oct. 23, 1989
Farms, Inc., and 57 others in relation to Case
No. 0033, supra]
[No. 0114 An action for injunction in connection with 1-Mar-92
Case No. 0009 filed by Philippine Commu-
nications Satellite Corp., and Philippine Overseas Telecommunications Corp.]
[No. 0136 An action for prohibition in connection with Sept. 23, 1991
Case No. 0014, supra, brought by Silahis Int'l
Hotel and Hotel Properties, Inc.
[No. 0137 An action for prohibition in connection with Sept. 23, 1991
Case No. 0014, brought by Philippine Village
Hotel, Inc.]
[No. 0138 An action for prohibition in connection with Oct. 2, 1991
Case No. 0014, filed by Ternate Dev. Corp.,
Fantasia Fllipina Resorts, Inc., Monte Sol
Dev. Corp., Olas del Mar Dev. Corp., Puerto
Azul Ocean Villas Condominium, Philroad
Construction Corp.]

A brief description of the nature of these cases is appropriate at this point and is now undertaken.

A. Similarities in Allegations and

Prayers of Complaints

The complaints in Cases Numbered 0007, 0009, 0014, 0016, 0021, 0023, 0024, 0025, 0033, 0034 and 0035, all
contained substantially the same general averments, to wit:

. . . (I)n unlawful concert with one another, and with gross abuse of power and authority,
Defendants . . .

converted government-owned and controlled corporations into private enterprises and

appropriated them and/or their assets for their own benefit and enrichment;

awarded contracts with the Government to their relatives, business associates, dummies,
nominees, agents or persons who were beholden to said Defendants, under terms and conditions
grossly and manifestly disadvantageous to the government;

misappropriated, embezzled and/or converted to their own use funds of Government financial
institutions, those allocated to the Office of the President and other ministries and agencies of the
Government including, particularly, those conveniently denominated as intelligence or counter-
insurgency fungs, as well as funds provided to Plaintiff by foreign countries, multinational, public
and private financial institutions;

engaged in other illegal and improper acts and practices designed to defraud Plaintiff and the
Filipino people, or otherwise misappropriated and converted to their own use, benefit and
enrichment the lawful patrimony and revenues of the Filipino people.

And the common prayer for judgment in all the complaints was in essence as follows:

a. To return and reconvey to the government all funds and other property impressed with
constructive trust in favor of the government and the Filipino people, as well as funds and other
property acquired by defendants' abuse of right and power and through unjust enrichment or
 alternatively, to jointly and severally pay the government the value thereof with interest from the
date of unlawful acquisition to full payment;

b. To show to the satisfaction of the Honorable Court that they have lawfully acquired all such
funds, assets, and property which are in excess of their legal net income, and for this Honorable
Court to decree that defendants are under obligation to account to the government with respect to
all legal or beneficial interest in funds, properties and assets of whatever kind and wherever
located in excess of their lawful earning.

B. Specific Averments

In addition, there were, of course, statements peculiar to each set of defendants.

1. Case No. 0007

In connection, among others, with the sequestration by the PCGG on October 30, 1986, of the company known
as GEI-Guaranteed Education, Inc., a complaint was filed on July 21, 1987 in the Sandiganbayan in the name of
the Republic against seven (7) persons, namely: Fe Roa Gimenez and her husband, Ignacio B. Gimenez; Vilma
Bautista and her husband, Gregorio Bautista; Oscar Cariño; Ferdinand E. Marcos and Imelda R. Marcos. The
complaint identified Fe Gimenez as the Malacañang Social Secretary at the time; Vilma Bautista, as consular
official of the Philippine Mission to the United Nations from 1966 to 1986, and confidential secretary of Imelda
Marcos; Oscar Cariño, as the Sr. Vice President of the PNB, NY Branch, from June 18, 1973 to September 15,
1985.

The complaint particularly alleged that the Gimenez Spouses acquired assets with a total value of
P93,798,129.65 although declaring a total net income of only P955,273.71 during the period from 1981 to 1985;
that the Bautista Spouses also acquired assets grossly and manifestly disproportionate to their salaries or lawful
income; that Fe Gimenez and Vilma Bautista siphoned millions of dollars of government funds (e.g., from PNB,
NY., etc.) into several accounts in foreign countries; that they served as conduits of the Marcoses in the purchase
of New York properties such as the Crown Building, the Lindenmere Estate, expensive works of art; acted as
dummies of the Marcoses in several corporations; obtained construction contracts thru corporations organized by
them (e.g., New City Builders Inc. [NCBI]) and thus undertook such projects as the construction of the University
of Life Sports Complex and dining hall, and those for the National Manpower Corporation, Human Settlements
Commission, GSIS, Maharlika Livelihood. The complaint also asserted that the defendants illegally acquired
wealth, itemized in an appended list (marked Annex A), consisting, among others, of real property in various
provinces, motor vehicles, money placements, bank deposits, 14 shares of stock in a number of corporations, to
wit:

(Ignacio and Fe Roa Gimenez)

1. Guaranteed Education Inc.

2. Acofe Mining Corporation
3. Baguio Gold Mining
4. Marinduque Mining and Industrial Corporation
5. The Energy Corporation
6. Basic Petroleum & Minerals, Inc.
7. Landoil Resources Corporation
8. Lepanto Consolidated Mining Company
9. Multi-National Resources
10. Oriental Petroleum & Minerals Corporation
11. Philippine Overseas and Telecommunication Corporation
12. Pioneer Naturala Resources
13. Sabena Mining Corporation
14. San Jose Oil Incorporated
15. White Eagle Overseas and Oil
16. Apex Mining Corporation
17. Atlas Consolildated Mining
18. Canlubang Golf and Country Club
19. J.B. Gimenez Securities, Inc.
20. New City Builders Inc.
21. Pyro Control Technology Corporation
22. Transnational Products Inc.
23. Allied Leasing and Finance Corporation
24. Allied Banking Corporation
25. Manila Stock Exchange.

2. Case No. 0009

In relation to the sequestration of the assets, properties, records and documents of Polygon Investors &
Managers, Inc., the PCGG filed on July 22, 1987, a complaint before the Sandiganbayan for "Reconveyance,
Reversion, Accounting, Restitution and Damages" against Jose Africa, Manuel H. Nieto, Jr., the Marcos Spouses,
Ferdinand Marcos, Jr., Roberto Benedicto, Juan Ponce Enrile, Potenciano Ilusorio. The action was docketed as
Case No. 0009.

The complaint averred particularly that defendants:

(1) through improper manipulations and arrangements and under highly unconscionable terms
and conditions, succeeded in acquiring (a) the shareholdings of the National Development
Corporation (NDC) in the Philippine Communications Satellite Corporation (PHILCOMSAT), and
(b) the major shareholdings of Cable and Wireless Co. Limited in Eastern Telecommunications
Philippines Inc. (ETPI);

(2) sought to monopolize the telecommunications industry by causing contracts to be entered into
between ETPI and corporations owned or controlled by them, such as Polygon Investors and
Managers, Inc.;

(3) through other firms owned or controlled by them, such as Mid-Pasig Land Development
Corporation and Independent Realty Corporation, improperly acquired a substantial portion of the
shareholdings in Philippine Overseas Telecommunications Corporation (POTC) — Philippine
Communications Satellite Corporation (PHILCOMSAT).

The complaint asserted further that by said illegal means, the defendants came to own and hold properties, real
and personal, which should be deemed acquired for the benefit of the Republic, impressed with a constructive
trust in favor of the latter and the Filipino people. The property supposedly acquired illegally was specifically set
out in a list appended to the complaint as Annex A. Said list included inter alia the shares of stock of Jose Africa
in twenty (20) corporations, to wit:

1. Domestic Satellite Phils., Inc.

2. Philippine Communications Satellite Corp.
3. Philippine Overseas Telecommunications Corp.
4. Eastern Telecommunications Philippines, Inc.
5. Polygon Investors & Managers, Inc.
6. Security Bank & Trust Company (and SBTC Trust, Class A: Accounts Nos. 2016, 2017 and
2018)
7. Oceanic Wireless Network, Inc.
8. Bukidnon Sugar Milling Co., Inc.
9. Northern Lines, Inc.
10. Far East Managers & Investors, Inc.
11. Traders Royal Bank
12. Universal Molasses Corp.
13. Silangan Investors & Managers, Inc.
14. Masters Assets Corp. (Class B)
15. Gainful Assets Corp. (Class B)
16. Aerocom Investors & Managers, Inc.
17. Luzon Stevedoring Corp.
18. Amalgamated Motors (Phils.), Inc.
19. Philippine National Construction Corp.
20. Consolidated Tobacco Industries Corp.

The list also included the shares of stock of defendant Manuel Nieto in fifteen (15) corporations, namely:

1. Domestic Satellite Phils., Inc.

2. Philippine Communications Satellite Corp.
3. Philippine Overseas Telecommunications Corp.
4. Eastern Telecommunications Philippines, Inc.
5. Polygon Ventures & Land Development Corp.
6. Ozamis Agricultural Development, Inc.
7. Rang'ay Farms
8. Hacienda San Martin, Inc.
9. Bukidnon Sugar Milling Co., Inc.
10. Silangan Investors & Managers, Inc.
11. Oceanic Wireless Network, Inc.
12. Integral Factors Corp.
13. Aerocom Investors and Managers, Inc.
14. Del Carmen Investments, Inc.
15. Sunnyday Farms Co., Inc.

3. Case No. 0014

As above stated, in March and April of 1986 (and April, 1988) the PCGG issued orders of sequestration against
all assets, properties, records and documents of several companies allegedly owned by Marcos cronies, namely:
Philippine Village Hotel, Inc., Silahis International Hotel, Inc., Ternate Development Corporation, Fantasia Filipina
Resorts, Inc., Monte Sol Development Corporation, Olas del Mar Development Corporation, Puerto Azul Ocean
Villas Condominium, Philroad Construction Corporation, Sulo Dobbs, Inc., Hotel Properties, Inc. Thereafter the
PCGG filed with the Sandiganbayan a complaint for "Reconveyance, Reversion, Accounting, Restitution and
Damages" against Modesto Enriquez, Trinidad Diaz Enriquez, Rebecco Panlilio, Erlinda Enriquez Panlilio,
Leandro Enriquez, the Marcos Spouses, Don M. Ferry, Roman A. Cruz, Jr., Guillermo Gastrock, Emesto Abalos,
and Gregorio R. Castillo. The case was docketed as Civil Case No. 0014. The sequestered corporations
themselves were not impleaded as defendants. At the instance of PCGG, the complaint was "expanded," with
leave of the Sandiganbayan granted on December 8, 1987.

The complaint particularly alleged15 that the defendants took advantage of their close relationship with the Marcos
Spouses, acted as dummies, nominees or agents in acquiring ownership and control of the corporations above
mentioned, and through these firms secured highly unconscionable loans and financial assistance or
accommodation from the Government Service Insurance System (GSIS) and Development Bank of the
Philippines (DBP). The complaint charged defendants with manipulating the sale in May, 1979 of a parcel of land
at Ternate, Cavite (owned by Fantasia Filipina Resorts, Inc.) to the GSIS with the active participation of the
latter's then President and General Manager, for a bloated price (amounting to much more than its market value);
obtaining from the GSIS a loan in the amount of P71 million to finance the construction of a luxury hotel known as
Puerto Azul on the same parcel of land at Ternate, to be managed by said defendants for twenty-five (25) years
with option to purchase the property; and also procuring additional loans of P21 million, P25.74 million and P17
million from the GSIS for Fantasia Filipina Resorts, Inc. The complaint also accused defendants of acquiring the
controlling interests in the Silahis International Hotel from the Development Bank of the Philippines (DBP), for an
undervalued price, by improper means, and in conspiracy with the latter's then Vice-Chairman (Don M. Ferry).

To the complaint was appended, as Annex "A," a list of assets allegedly acquired illegally by the Panlilios and
Enriquezes, consisting of shares of stock in twenty-three (23) corporations, to wit:

1. Cebu Plaza Hotel

2. Universal Hotels and Tourism Development Corp.
3. Philroad Construction Corp.
4. Silahis International Hotel
5. Hotel Properties Inc.
6. Phil. Games and Holiday Corp.
7. Pacific Tourism Consultants Inc.
8. Ternate Development Corp.
9. Zamboanga Plaza Hotel
10. Monte Sol Development Corp.
11. Olas del Mar Development Corp.
12. Phil. Village Hotel
13. Sulo-Dobbs Food Services Inc.
14. Fantasia Filipino Resorts Inc.
15. Puerto Azul Beach and Country Club Inc.
16. Sulo Hotels Corp.
17. Sulo — D & E Inc.
18. D & E Realty Inc.
19. D & E Inc.
20. Sulo Management Co. Inc.
21. Ocean Villas Condominium Corp.
22. Notions and Potions Inc.
23. Sun and Shade Merchandise Inc.

The complaint prayed that the property thus obtained be deemed acquired for the benefit of the Republic,
impressed with a constructive trust in favor of the latter and the Filipino people.

After the promulgation by this Court on October 2, 1990 of its Resolution in G.R. No. 92755 involving
the International Copra Export Corporation and Interco Manufacturing Corporation (the "INTERCO Case"), 16 the
PCGG filed with the Sandiganbayan a motion for admission of a Third Amended Complaint impleading eleven of
the above-mentioned corporations as defendants, namely:

1. Fantasia Pilipino Resorts, Inc.

2. Hotel Properties, Inc.
3. Monte Sol Development Corporation
4. Ocean Villas Condominium Corporation
5. Olas del Mar Development Corporation
6. Philippine Village Hotel
7. Philroad Construction Corporation
8. Puerto Azul Beach and Country Club, Inc.
9. Silahis International Hotel
 10. Sulo-Dobbs Food Services, Inc.
11. Ternate Development Corporation.

The motion was granted by the Sandiganbayan (Third Division) in a Resolution dated April 3, 1992.

4. Case No. 0016

An order of sequestration was, as also aforestated, issued by the PCGG over Universal Holdings Corporation,
and on all shareholdings, rights, and interests of Cuenca Investment Corp. in Philippine National Construction
Corporation (PNCC, formerly CDCP). This was followed by the filing by the PCGG of a complaint, docketed as
Civil Case No. 0016, against Rodolfo M. Cuenca, the Marcos Spouses, Nora O. Vinluan, Panfilo Domingo, Jose
L. Africa, Roberto V. Ongpin, Ricardo P. de Leon, Antonio L. Carpio, Arturo Lazo, Arthur C. Balch, Manuel I.
Tinio, Mario K. Alfelor, Rodolfo M. Munsayac, Don M. Ferry.

The complaint particularly averred that Rodolfo M. Cuenca organized and managed the Construction and
Development Corporation of the Phils. (CDCP) (originally known as "Cuenca knowledge, assistance, and willing
participation of the other defendants, obtained favored public works contracts amounting to billions of pesos from
the Department of Public Works (later the Department of Public Highways), and from the National Irrigation
Administration, such as the construction projects for the Philippine Associated Smelting and Refining Corp.
(PASAR), the Philippine Phosphate Fertilizer Corp. (PHILPHOS), the Light Railway Transit Project (LRT), the
building of sugar centrals. The complaint also alleged that Cuenca secured loans and financial assistance without
sufficient collateral from government financial institutions such as the PNB, which collaborated in the illegal
extension and release of such loans and financial assistance to CDCP. Additionally, the complaint declared that
Cuenca —

1) obtained a favored rescue arrangement at the behest of the Marcoses, through the conversion
of a multi-million peso debt in favor of NDC into equity, release of collaterals to his company
(CDCP), its subsidiaries and affiliates notwithstanding that it had unpaid obligations, and secured
as well the payment to CDCP of government funds in violation of the standing policy against such
payments to persons or firms having obligations with the government;

2) through Galleon Shipping Corporation, acquired vessels at an inflated consideration paid

through dollar loans on the guarantee of the DBP, which loans remain unpaid;

3) after Galleon Shipping Corporation defaulted in its obligations, obtained additional financial
assistance from government institutions, through the issuance by President Marcos of Letter of
Instructions No. 115, which required the National Development Company (NDC) to buy all of
Cuenca's shareholdings in Galleon Shipping Corp. and those of the other stockholders for P46.7
million;

4) organized the Universal Holding Corporation, a holding company for CDCP, Sta. Ines Malale,
and Resort Hotels, beneficially controlled jointly by him (Cuenca) and the Marcoses; and with the
cooperation and participation of the other defendants as directors, officers and/or agents, served
as conduits for the deposit abroad of illegally obtained funds and property;

5) through the Security Bank and Trust Company, transferred US $8 Million to CDCP's
international bank account with Irving Trust, N.Y., which amount was used by the Marcoses to
purchase property in New York.

The assets supposedly acquired by the defendants in an illegal manner were set out in a list attached to the
complaint as Annex "A." These are comprised of corporations allegedly owned by Rodolfo Cuenca, namely:

1. Communications Strategists Corporation

2. Cuenca Investments Incorporated
3. Arenia investment Corp.
4. Hydro Resources Construction Corporation
5. MRC Construction Resources Corporation
6. Filipinas Dravo Corporation
7. Ultra International Trading Corporation
8. Construction and Development Corporation of the Philippines
9. CDCP Mining Corporation
10. Philskan Industries Corporation
11. BBC Normlec (Phil.) Corporation
12. Dasmariñas Industrial and Steel Corp.
13. Marina Properties Corporation
14. Manila Land Corporation
15. Dasmariñas Estates Development Corporation
16. Luzon Stevedoring Corporation
17. Air Mindanao Corporation
 18. Builders Insurance Brokers Corporation
19. Port Moresby
20. Holdings, Kuala Lumpur, Malaysia
21. Holdings, Cunching, Sarawak
22. Sta. Ines, Malale
23. Taurus Financing
24. Trading Company, New York
25. Trading Company, San Francisco
26. Constech, International
27. Dans Corporation
28. Toros International Limited
29. Asian International Hardware Limited
30. Construction and Development Corp. of the Phils. (CDCP) America
31. Construction and Development Corp. of the Phils. (CDCP) Saudi Arabia
32. Construction and Development Corp. of the Phils. (CDCP) Indonesia
33. Construction and Development Corp. of the Phils. (CDCP) Singapore
34. Construction and Development Corp. of the Phils. (CDCP) Malaysia
35. Construction and Development Corp. of the Phils. (CDCP) Hongkong
36. Construction and Development Corp. of the Phils. (CDCP) Iraq
37. Philippine Associated Smelting & Refining Corp.
38. Resort Hotels Corporation
39. Wood Marketing Company Hongkong (handles the export sales of Sta. Ines)

Subsequently, the complaint was "amended/expanded" to make its allegations more detailed. After promulgation
of the Resolution in the INTERCO case on October 2, 1991, supra, a motion for admission of a Third Amended
Complaint was filed by the PCGG on October 18, 1991 in the Sandiganbayan impleading as co-defendants some
of the corporations allegedly owned by Cuenca, namely:

1. Universal Holding Corporation

2. Philippine National Construction Corporation (PNCC), formerly CDCP
3. Sta. Ines Malale Forest Products Corporation
4. Resort Hotels Corporation
5. CDCP Mining, Inc.
6. Galleon Shipping Corporation
7. Cuenca Investment Corporation.

It does not appear that the motion for admission has been resolved by the Sandiganbayan (First Division).

5. Case No. 0021

The sequestration by the PCGG of all assets, properties, records and documents of Marcelo Fiberglass
Corporation was followed by the filing in the Sandiganbayan of a complaint for "Reconveyance, Reversion,
Accounting, Restitution and Damages" against Edward T. Marcelo, Fabian C. Ver and the Spouses Marcos. The
action was docketed as Civil Case No. 0021. The complaint alleged 17 basically that the defendants —

1) unlawfully obtained a favored contract with the Philippine Navy for the construction of high-
speed fiberglass boats at a cost of hundreds of millions of pesos; and unlawfully collected and
received by way of advances 79% of the contract price, although not a single boat had been
delivered;

2) illegally secured a loan with a foreign bank with the "Guarantee of the Government" upon the
personal behest of President Marcos, a loan which to date remains unpaid.

The properties allegedly acquired by Marcelo illegally are enumerated in a list attached to the complaint as Annex
"A," comprising shares of stock in several corporations, namely:

1. Marcelo Fiberglass Corporation

2. Philippine Casino Operators Corporation
3. Provident International Resources Corporation
4. Philippine Smelters Corporation, et al.
5. Marcelo Chemical Pigment Corporation
6. Marcelo Steel Corporation
7. Maria Cristina Fertilizer Corporation
8. Marcelo Tire and Rubber Corporation
9. Marcelo Rubber & Latex Products Co., Inc.
10. Farmer's Fertilizer Corporation
11. Insular Rubber Co., Inc.
12. Fil-Asia Agro Industries Corporation
13. Polaris Marketing Corporation
14. "H" Marcelo Corporation
The original complaint was afterwards "amended/expanded" to make its averments more specific. Still later, a
motion was presented for admission of a Third Amended Complaint, impleading the corporations above listed and
two (2) others, as co-defendants.

1. Marcelo Fiberglass Corporation

2. Philippine Casino Operators Corporation
3. Provident International Resources Corporation
4. Philippine Smelters Corporation, et al.
5. Philippine Special Services Corporation
6. Marcelo Steel Corporation
7. Maria Cristina Fertilizer Corporation
8. Marcelo Tire and Rubber Corporation
9. Marcelo Rubber & Latex Products Co., Inc.
10. Farmer's Fertilizer Corporation
11. Insular Rubber Co., Inc.
12. Fil-Asia Agro Industries Corporation
13. Polaris Marketing Corporation
14. "H" Marcelo Corporation
15. Hydronics Corporation, Philippines
16. Marcelo Chemical Pigment Corporation

The motion for admission, as far as is known, is still pending with the Sandiganbayan (Third Division).

6. Case No. 0023

The Bakunawa Group of Companies was sequestered by the PCGG on the theory that the owners thereof — the
Spouses Luz Reyes Bakunawa and Manuel Bakunawa, Jr. — were dummies or cronies of the Marcoses. A
complaint was later filed by the PCGG with the Sandiganbayan, docketed as Civil Case No. 0023, against Luz
Reyes Bakunawa, Manual Bakunawa, Jr., Manuel Bakunawa III, and the Marcos Spouses. The firms themselves
were not impleaded as defendants.

The complaint alleged essentially 18 that the Bakunawas —

1) acted as dummies, nominees, and/or agents of the Marcoses and, with the active collaboration,
knowledge and willing participation of the other defendants, established several corporations
engaged in a wide range of commercial activities, such as construction and cattle ranching;

2) secured favored contracts with the Department of Public Works and Communications for the
construction of government projects (e.g., Roxas Blvd.) through grossly undercapitalized
corporations and without complying with such usual requirements as public bidding, notice and
publication of contractors;

3) unlawfully acquired heads of cattle from the government dispersal program and raised them on
ranch lands encroaching on forest zones;

4) unlawfully enroached upon a mangrove-forested section in Masbate, Masbate and converted it

into a fishpond;

5) unlawfully amassed funds by obtaining huge credit lines from government financial institutions,
e.g., PNB, and incorporating into their contracts a cost-escalation adjustment provision to justify
collection of grossly arbitrary and unconscionable amounts unsupported by evidence of increase
in prices;

6) unlawfully imported hundreds of brand-new units of heavy equipment without paying customs
duties and other allied taxes amounting to millions of pesos, by falsely representing said heavy
equipment to be for official government use and selling them at very low prices to avoid paying
the required taxes.

As in the other actions already mentioned, to the complaint in this case was appended a list marked Annex "A,"
enumerating the assets supposedly constituting the defendants' illegally acquired wealth, comprised of shares of
stock in several companies, to wit:

1. Seven R Development Corporation

2. Seven R Heavy Equipment Company, Incorporated
3. Seven R Ranch
4. Seven R Sales Company
5. Hi-Tri Development Corporation
6. Seven R International
 7. Seven R Enterprises, Incorporated
8. Seven R Group of Companies.

7. Case No. 0024

On the basis of what it considered sufficient prima facie evidence, the PCGG issued an order placing under
sequestration YKR Corporation, Lianga Bay Logging Co., Phil-Asia Food Industries Corporation, Philippine
Integrated Meat Corporation, Pepsi-Cola Far East Track Development, Inc., PIMECO Marketing Corporation,
Emerald Pizza, Inc., and Pizza Hut Phil, Inc. Thereafter, it filed a complaint for "Reconveyance, Reversion,
Accounting, Restitution and Damages" before the Sandiganbayan against Peter Sabido, Roberto S. Benedicto,
Luis D. Yulo Nicolas Dehesa, the Marcos Spouses, Jose R. Tengco, Jr., Rafael Sison, Cesar Zalamea, and Don
M. Ferry.

Aside from the general averments common to the other complaints filed by the PCGG for recovery of "ill-gotten
wealth," supra, 19 the complaint specifically alleged that defendants —

1) obtained enormous loans from government financial institutions such as the DBP, in favor of
Phil-Asia Food Industries Co. beneficially held and controlled by Peter Sabido and the other
defendants, including the following:

a) a foreign currency loan of US $5,755,663.00 from DBP on December 7, 1979

(under the Export-Import bank of the United States Credit Line) to cover 85% of
the cost of machinery and equipment to be imported from Archer Danilla Midland
Corp. of the United States;

b) another foreign currency loan of US $6,000,000.00 from DBP on December 7,

1979 (under the International Bank for Reconstruction and Development Credit
Line) to cover (1) part of the cost of imported machinery to be procured locally and
(2) the direct foreign currency costs of the buildings and improvements to be
constructed and (acquisition of) the machinery and transportation equipment; (??)

c) a direct loan of US $8,784,877.00 from DBP on December 7, 1979 to be drawn

from other foreign borrowings of the DBP to cover part of the cost of acquisition,
construction and installation of Phil-Asia's fixed assets;

d) another foreign currency loan and direct loan in the amount of US

$11,700,000.00 from DBP on January 21, 1982

e) other loans evidenced by five (5) promissory notes all dated May 13, 1980 in
the amounts of US $145,420.00, US $8,529,257.00, US $11,755,663.00, and US
$110,700.00;

2) obtained, under favored and very liberal terms, huge loans from the GSIS in favor of Philippine
Integrated Meat Company (PIMECO), a corporation beneficially held and/or controlled by Peter
Sabido and the other defendants in the following manner to wit:

a. On November 2, 1973, PIMECO and GSIS through the Meat Packing Corp. of
the, Philippines (MPCP) the latter's wholly owned subsidiary, entered into a Lease-
Purchase Agreement over the GSIS-foreclosed Delta Manufacturing Corp. plant
whereby MCPC transferred the Delta meat plant complex to PIMECO for a total
consideration of P38,515,789.87 payable within a period of 28 years, interest free.
Under the agreement, PIMECO was granted a four-year grace period before
amortizing the debt and MPCP undertook to rehabilitate, refurbish and place the
plant completely in operational condition. At the time the contract was entered into,
PIMECO had only a paid-up capital of P500,000.00.

b. On July 9, 1981, PIMECO and MPCP entered into a Supplementary Agreement

to reflect a sum total of P93,695,552.29 as the new contractual obligation of
PIMECO to run over a period of 28 years, interest free. The loan and advances
were extended to PIMECO nowithstanding the fact that it consistently incurred
losses and a steady increase in its deficit from 1976 to 1980.

c. With the issuance of Executive Order No. 572 on December 6, 1979 and Letter
of Instructions No. 972 on December 19, 1979, MCPC came to enjoy unwarranted
preferential rights in livestock and meat importation through PIMECO and its
marketing arm, the PIMECO Marketing Corporation; it thus gained a monopoly in
the supply of meat products to the Greater Manila Area.
 3) Shortly after the death of his father (the late Roberto Sabido), Sabido installed himself as
Chairman of the Board of Lianga Bay Logging Corp. (LIANGA), a domestic corporation which
owned and operated a lumber concession in Lianga, Surigao del Sur, and performed acts of
depredation inimical to the best interests of the workers, as follows:

a) Through artful cunning, entered into an onerous Management Contract with

Lianga Bay Logging Corp. after buying the remaining shares of Georgia Pacific
International Corp. from the former corporation in 1982, with a stipulated
management fee of P312,375.00/month thereby insuring his perpetual control over
the corporation.

b. Debauched the resources of Lianga by paying himself astronomical

management fees and collecting other recievables in millions of pesos.

c. Diverted and appropriated to his own personal use and benefit millions of pesos
in SSS contributions and accumulated retirement and pension funds of
employees.

e. Defaulted in the payment of income, forestry sales, withholding and privilege

taxes estimated at approximately P33,000,000.00.

The assets acquired by Peter Sabido on account of his illegal activities were set out in a list appended to the
complaint as Annex "A," including shares of stock in the following corporations, namely:

1. Lianga Bay Logging Co.

2. Phil-Asia Food Industries Co.
3. Phil. Integrated Meat Corp.
4. YKR Corporation
5. Pepsi-Cola Far East Track Development Inc.
6. PIMECO Marketing Corp.
7. Emerald Pizza Inc.
8. Pizza Hut Phil. Inc.

Subsequently, the PCGG filed a motion for admission of an Amended Complaint which impleaded as additional
defendants, the following corporations allegedly owned by the original defendants:

1. Lianga Bay Logging Corporation

2. Philippine Integrated Meat Corporation
3. YKR Corporation
4. PIMECO Marketing Corporation.

The motion was granted by the Third Division of the Sandiganbayan by Resolution dated November 29, 1991.

8. Case No. 0025

On the theory that MARSTEEL Corporation, Marsteel Consolidated, Inc., Dayton Metals Corporation, Tourist
Trade & Travel Corporation, and Bacolod Real Estate Dev. Corporation were companies under the influence
and/or control of known "Marcos cronies," sequestration orders were issued against them.

A complaint was thereafter filed with the Sandiganbayan by the PCGG against Antonio V. Martel, Rodolfo V.
Martel, Enrique V. Martel, Jose V. Martel, Alita R. Martel, the Spouses Marcos, and Don M. Ferry. The claim is
that they illegally acquired and control the sequestered corporations. The case was docketed as Civil Case No.
0025. The complaint averred20 specifically that the defendants Antonio V. Martel et al. —

1) secured for Dayton Metal Corp. (held or controlled by them) a favored contract with the
Department of National Defense for the manufacture of mortar shells under PD No. 415, a secret
decree marked "not for general circulation," without need of complying with such normal
requirements as public bidding, notice and publication of contractors involved in the project;

2) obtained from the DBP direct loans amounting to millions of US dollars for the above-
mentioned project; pursuant to said PD 415, Dayton Metals Corp. (DMC), together with other
favored companies, cornered and/or monopolized the military hardware requirements of the old
Armed Forces of the Philippines; on April 27, 1977, the DBP approved, under Board Resolution
1337, guarantees in the amount of $4,910,119.00 for the importation of the raw materials needed
for the manufacture of ammunition; on March 20, 1980, a direct foreign currency loan of US $3.5
M was approved in favor of DMC to refinance domestic borrowings of $1.86 million, the balance of
$1.6 M being intended to finance the capital requirements of DMC;
 3) obtained from DBP for the Tourist Trade and Travel Corp. (TTTC), owned and controlled by
defendants, a loan amounting to millions of US dollars, under terms and conditions grossly and
manifestly disadvantageous to the Government, with the collaboration, knowledge and willing
participation of DBP officers; e.g., a loan of P967 million was granted on June 10, 1982 by the
DBP to the TTTC to fully liquidate the latter's outstanding obligation to the former;

4) manipulated, with the collaboration, knowledge and willing participation of Don M. Ferry of the
DBP, the release to themselves of the insurance proceeds on account of the burning of Harrison
Plaza, instead of applying said proceeds to their outstanding loan with the DBP; and a loan of P67
million was granted on June 18, 1982 by the DBP to the TTTC to fully liquidate the latter's
outstanding obligation to the former;

5) manipulated the award of a contract to Marsteel Corp., to supply thousands of units of hand
tractors which Pres. Marcos ordered the Department of Agrarian Reform to acquire in accordance
with PD 287 dated September 6, 1973 (appropriating P140 million for the purpose). Marsteel
Corp. was to sell to the Dept. of Agrarian Reform 5,000 units of Kubota hand tractors which
Marsteel Corp. contracted to purchase from "TOYOMENKA" a corporation organized under the
laws of the State of New York. The CB approved the amount of P6,094,800 to finance the said
units and the DBP acted as guarantor. Marsteel did not make payments to its supplier
TOYOMENKA, as the DAR installments paid to Marsteel were used to fund other Marsteel
operations instead of being used to pay DBP its obligations. In return DBP make good the
payment as guarantor.

Corporations in which Rodolfo Martel holds stock, supposedly constituting ill-gotten wealth, are listed in Annex
"A" of the complaint, to wit:

1. American-Phils. Fiber Industries Corp.

2. Armco-Marsteel Alloy Corp.
3. Bacolod Real estate Dev't. Corp.
4. Daytons Metals Corp.
5. Filipinas Micro-Circuits Inc.
6. Marsteel Consolidated Inc.
7. Marsteel Corp.
8. Multiplex Marketing Corp.
9. Plaza Amusement Inc.
10. Tourist Trade and Travel Corp.
11. Manila Inter-Ocean Lines, Inc.
12. San Luis Mining Co.
13. Marinduque Mining (in the name of John Martel)
14. United Resources Development Corp. (in the name of Luz Martel, Irene Martel and Maria
Anette P. Martel)
15. Kubota-Marsteel Machinery Co., Inc.
16. Okuro-Marsteel Crane Co., Inc.
17. Suarez Shipping Co., Inc.
18. Associated Development Corp.
19. Fabquip Phils. Inc.
20. Maranaw Hotels and Restaurant Corp.
21. Far East Assembly Corp.
22. Phividec Westlake Realty Corp.
23. Aquila Phils.
24. Eastern Davao Oil Mills
25. Great Fortune Shipping Co. S.A.
26. Imperial Navigation Co.
27. CBO-MC-Manor-SDN BHD
28. Astral Limited
29. Marble Craft Inc.
30. Harrison Plaza Development Corp.
31. Agro-industrial Machinery Corp.
32. U.S. Export Authority Inc.
33. Gabrielle Investment Co. Inc.
34. Asia Assembly Corp. (USA)
35. Plaza Fashion Mart (TTTC)
36. VIP Restaurant (TTTC)
37. Candy Bar (TTTC)

Subsequently, by the Sandiganbayan's leave given on December 8, 1987, the Complaint was
"amended/expanded" to make its allegations more detailed.

9. Case No. 0033

Case No. 0033 instituted by the PCGG against Eduardo Cojuangco, Jr. and sixty (60) others, 21 related to
sequestration orders over the firms known as COCOFED, COCOMARK, CIC, and over the shares of stock
allegedly owned by "one million coconut farmers" in UCPB, and the so-called "CIIF" and "Cojuangco
companies." 22 The orders were based allegedly on reasonable grounds of belief that Eduardo Cojuangco, Jr., had
organized the corporation and had come to own shares therein in his own name or through employment of
dummies, nominees or other fellow cronies. The complaint, apart from setting forth the common allegations
repeatedly referred to, also averred that:

1) in 1975, with the active collaboration of his co-defendants, Cojuangco manipulated the
purchase by the Philippine Coconut Authority (PCA) of 72.2% of the outstanding capital stock of
the First United Bank (FUB) which was subsequently converted into a universal bank named
United Coconut Planters Bank (UCPB); this was accomplished by the use of P85,773,100.00
initially from the Coconut Consumers Stabilization Fund (CCSF) levy — contrary to law and the
specific purposes for which said levy was imposed and collected under PD 276 — and under
anomalous circumstances, to wit:

a) he (Cojuangco) used the coconut levy funds to exercise his private option to
buy controlling interest in FUB; claiming that the 72,2% of the outstanding capital
stock of FUB could only be purchased and transferred through the exercise of his
"personal and exclusive option to acquire the 144,000 shares" of said bank, he
and the Philippine Coconut Authority (PCA), represented by Maria Clara Lobregat,
executed on May 26, 1975, a purchase agreement providing, among others, for
the cession to him as compensation thereof 95,383 shares worth P1,444,000.00,
with the further condition that he shall manage and control the bank as Director
and President for a term of five (5) years renewable for another five (5) years, and
have authority to name for election three (3) persons of his choice as members of
the bank's Board of Directors;

b) he caused the issuance by Pres. Marcos of PD 755 (a) declaring that the
coconut levy funds shall not be considered special fiduciary and trust funds and do
not form part of the general funds of the National Government — repealing for that
purpose PD Nos. 276 and 414 declaring the character of the coconut levy funds
as special fiduciary trust and governmental funds; (b) confirming the agreement
between him (Cojuangco) and PCA regarding the purchase of FUB, by
incorporating that private commercial agreement by reference in PD 755;

c) to consolidate his control of UCPB, he (Cojuangco) imposed as a condition

attendant upon his purchase of its stock that he should receive and own one out of
every nine shares given to PCA; and

d) to make use of the coconut levy funds to build his economic empire, to the
prejudice of the government, he (Cojuangco) caused the issuance by Pres.
Marcos of PD 1468 requiring the deposit with UCPB of all coconut levy funds,
interest free;

2) again with the use of coconut levy funds, he (Cojaungco) created and/or funded various
corporations such as the Philippine Coconut Producers Federation, Inc. (COCOFED), Coconut
Investment Company (CIC), COCOFED Marketing Corporation (COCOMARK), and the United
Coconut Planters Life Assurance Corporation (COCOLIFE) with the active collaboration and
participation of his co-defendants Juan Ponce Enrile, Maria Clara Lobregat, Rolando de la
Cuesta, Jose R. Eleazar, Jr. Jose Reynaldo Morente, Eladio Chatto, Domingo Espina, Anastacio
Emano, Sr., Bienvenido Marquez, Jose Gomez, Inaki Mendezona, Manuel del Rosario, Sulpicio
Granada, Jose Martinez Jr., Emmanuel Almeda, Danilo Ursua, Herminigildo Zayco and Celestino
Zabate, most of whom comprised the interlocking sets of officers and directors of said companies;
and he and his co-defendants dissipated, misused and/or misappropriated a substantial part of
said coconut levy funds and alloted to themselves excessive salaries, allowances, bonuses and
other emoluments, for their own personal benefit, including huge cash advances in millions of
pesos which, to date remain unliquidated and unaccounted for; and finally, gained ownership and
control of the UCPB by misusing the names and/or identities of the so-called "more than one
million coconut farmers;"

3) he misappropriated, misused and dissipated P840 million of the Coconut Industry Development
Funds (CIDF) — deposited with the National Industry Development Corporation (NIDC) as
administrator-trustee of said shares and later with UCPB of which he (Cojaungco) was the Chief
Executive Officer — in connection with the (1) development, improvement, operation and
maintenance of the Bugsuk Island Seed Garden ("Bugsuk") with Agricultural Investors, Inc. ("AII")
as developer (both Bugsuk and AII being beneficially held and controlled by Cojuangco); (2)
payment of liquidated damages in the amount of P640,856,878.67 and arbitration fees of
P150,000.00 pursuant to a decision rendered by a Board of Arbitration against UCPB for alleged
breach of contract;
 4) he misappropriated and dissipated the coconut levy funds by withdrawing therefrom tens of
millions of pesos in order to pay damages adjudged against UNICOM, headed and controlled by
Cojuangco, as aforestated, in an anti-trust suit in California, USA;

5) he established and caused to be funded with coconut levy funds, with the active collaboration
of Pres. Marcos (through the issuance of LOI926) and of defendants Juan Ponce Enrile, dose R.
Eleazar, Jr., Maria Clara Lobregat, Jose C. Concepcion, Inaki Mendoza, Douglas Luym, Teodoro
D. Regala, Emmanuel Almeda, Eduardo Escueta, Leo Palma and Rolando de la Cuesta, the
United Coconut Oil Mills, Inc. (UNICOM), a corporation beneficially controlled by him (Cojuanco),
and bought sixteen (16) other competing and/or non-operating oil mills at exorbitant prices in the
total amount of P184.935 million, to control the prices of copra and other coconut products, and
assumed and paid the outstanding loan obligations of seven (7) of those purchased oil mills in the
total amount of P805,984 million with the express consent and approval of Pres. Marcos, thereby
establishing a coconut monopoly for their own benefit;

6) with the active participation of defendants Mohammad Ali Dimaporo and Teodoro D. Regala,
Cojuangco manipulated the sale of Mindanao Coconut Oil Mills (MINCOCO) to UNICOM through
the issuance of LOI 926 by Pres. Marcos in violation of the Guaranty Agreement dated July 23,
1976 which prohibited the sale, among others, of the MINCOCO assets/properties without the
prior written consent of NIDC;

7) Re drew up a payment scheme to settle the accounts of MINCOCO and other UNICOM-
acquired mills with their respective creditors, viz.: the NIDC (National Investment Development
Corporation, Development Bank of the Philippines (DBP), Philippine Veterans Bank (PVB):

8) he misused, dissipated and unlawfully disbursed coconut levy funds with the active
collaboration and participation of defendants Maria Clara Lobregat, Juan Ponce Enrile, Jose
Eleazar Jr., Rolando de la Cuesta and Herminigioldo Zayco for projects of Imelda Marcos,
including various donations made by PCA such as the amount of P400,000.00 and P10 million for
social services and Mrs. Marcos' health and medical assistance projects; P125,000.00 for the
yearly Malang pasko project; P10 million to the Cultural Center of the Philippines; P5 million to the
Philippine Youth Health and Special Center; P50 million for the construction of the Tahanang
Maharlika building, and P6 million to COCOFED; and other donations made by the UCPB of
P10,000.00 to the Manila International Film Festival; P10 million to the UP Faculty Development
Fund; P50,000.00 to the Manila Symphony Foundation, Inc., a parcel of land located at Baguio
City to the University of Life and "other similar unlawful disbursements", which remain
unaccounted for to date;

9) he misused coconut levy funds to buy put the majority of the outstanding shares of stock of San
Miguel Corporation in order to control the largest agri-business food and beverage company in the
country;

10) he misused coconut levy funds, with the active collaboration of defendants Ernesto O. Escaler
and Ernest Escaler to buy out the local partner of Pepsi-Cola, to implement his scheme to
monopolize the soft-drinks industry;

11) he obtained huge loans and credit privileges from DBP in or about 1981, with the active
collaboration of defendants Cesar Zalamea, Jose R. Tangco, Don M. Ferry, Alicia LI. Reyes and
Rolando M. Zosa, all members of the Board of Governors of the DBP, in the aggregate amount of
P603,343,470.00, for the use and benefit of the Northern Cement Corp., a company beneficially
held and controlled by him (Cojuangco), with inadequate collateral and under terms and
conditions disadvantageous to DBP;

12) with the active collaboration of defendant Antonio Carag, he obtained the plant, machineries
and facilities of Alpha Integrated Textile Mills Inc., for and in favor of Southern Textile mills, Inc., a
company beneficially held and controlled by him (Cojuangco); and

13) he obtained in October, 1981, with the active collaboration of defendants Manuel (Manda)
Elizalde Jr., Jose Aspiras, Jose M. Guerrero and Bernardo M. Vergara, loans and credits from the
Philippine Tourism Authority in the amount of P70 million, for and in favor of the Holiday Village
Hotel Philippine, Inc. and Coral Island Resort and Development Corp., corporations beneficially
held and controlled by defendants Manuel (Manda) Elizalde Jr., Jose D. Aspiras and himself
(Cojuangco) to finance a village resort complex project at San Juan, Batangas which never
materialized.

Shares of stock of Eduardo Cojuangco, Jr. in close to two hundred and fifty (250) corporations, allegedly
constituting illegally acquired assets, are set forth in a list appended to the complaint as Annex "A," namely:
1. Agricultural Consultancy Services Corp.
2. Agricultural Investors Incorporated
3. Anchor Insurance Brokerage Corp.
4. Aquacor Food Marketing Corp.
5. Aquacultural Investors Inc.
6. Autonomous Development Corp.
7. Balete Ranch Incorporated
8. Bugsok Island
9. Bukidnon Farms Incorporated
10. Cagayan de Oro Oil Company Incorporated
11. Challenge Corporation of the Phils. (PEPSI)
12. Cocoa Investors Incorporated
13. Cocofed Marketing Corp.
14. Coconut Investment Corporation
15. Coconut Producers Federation of the Phils.
16. Cojuangco (Central) Resources Corp.
17. Consultants Manila Incorporated
18. Coral Islands Resort and Development Corp.
19. Countryside Millers Incorporated
20. Daal Corporation
21. DH, Incorporated (Diversified Holdings)
22. Dutch Boy Philippines, Incorporated
23. E. Cojuangco, Jr. and Sons, Incorporated
24. E. M. Cojuangco Br Sons Agricultural Enterprise
Incorporated
25. BCI, Challenge Incorporated
26. Filsov Shipping Agency
27. First United Transport Incorporated
28. First United Travel
29. Granex
30 Hacienda Fe, Incorporated
31. HYCO Agricultural Incorporated
32. ILICOCO, Iligan Coconut Industry
33. INDOPHIL (OLA), Oil Mills, Incorporated
34. Interco Manufacturing Corporation
35. International Copra Export Corporation
36. Jewel-Mer International Corporation
37. Legaspi Oil Company Incorporated, Cagayan de Oro City
38. Legaspi Oil Company Incorporated, Davao City
39. Metroplex Commodities Incoporated
40. MINDOPHIL
41. Northeastern Agro-Industrial Development Corp.
42. Northern Carriers Corporation
43. Northern Cement Corporation
44. Palm Oil Project
45. PCY Oil Manufacturing Company Incorporated
46. Prosperidad Agricultural Corporation
47. San Miguel Corporation
48. San Miguel Farm
49. Sierra Madre Wood Industrial Corporation.
50. Southern Island Oil Mills Corporation
51. Southern Textile Mills Incorporated
52. Taggat Industries Incorporated
53. United Cocoa Planters Incorporated
54. United Coconut Planters Bank
55. United Sari-Sari and Livelihood Corporation
56. Vaness Corporation
57. Venture Securities
58. Radyo Pilipino Corporation
59. Philippine Cement Manufacturing Corp.
60. Granexport Manufacturing Corp.
61. Pacific Union Insurance Company
62. United Coconut Planters Life Assurance Corp.
63. Ernesto Oppen Incorporated
64. Manila Penenisula Hotel
65. Eastern Pacific Drydock Corporation
66. Bulletin Publishing Corporation
67. Philex Mining Corporation
68. Philippine Overseas Drilling and Oil Development Corporation
69. Welding Industries
70. Consolidated Farms
71. Pfizer Incorporated.
72. Trans-Asia Oil and Mineral Development Corp.
73. DWRL AM Radio Station
74. DXOW Radio Station
75. DYCU AM Radio Station
76. Anca Corporation
77. Anglo Ventures, Inc.
78. AP Holdings, Inc.
79. ARC Investors
80. ASC Investors
81. Atini Developments
82. Basic Agri and Aqua Ventures Corporation
83. Basic Agri Ventures
84. Belmont Reds Philippine Corporation
85. Core Foundation, Inc.
86. Diversified Holdings, Inc.
87. Echo Ranch, Inc.
88. Mantrade Incorporated
89. First Meridian Development, Inc.
90. Fernandez Holdings, Inc.
91. Fiscal Managers, Inc.
92. La Purisima Agricultural Corporation
93. Matrix Manufacturing Corporation
94. Multivisions, Inc.
95. Nobel Philippines
96. Paniqui Producers Marketing Corporation
97. Pegasus Shipping Corporation
98. Philippine Radio Communication
99. Loreto Forest Land Developers
100. Phil. Bakers, Inc.
101. Phil. Technologies, Inc.
102. Radio Corporation of the Philippines
103. Randy Allied Ventures, Inc.
104. R & E Agricultural Corporation
105. Reddee Developers, Inc.
106. Rock Steel Resources
107. Roxas Shares, Inc.
108. San Miguel Officers Corporation, Inc.
109. Soriano Shares, Inc.
110. Southern Luzon Coconut, Oil Mills, Inc.
111. SMC Shipping and Lighterage Corporation
112. Sta. Irene Agro forest Developers, Incorporated
113. Te Deum Resources, Inc.
114. UCPB Realty Co., Inc.
115. Toda Holdings, Inc.
116. United Coconut Chemicals
117. United Coconut Oil Mills, Inc.
118. United Janitorial & Manpower Services Corporation
119. Valhalla Properties Ltd., Inc.
120. Oriental Petroleum and Mineral Corporation
121. Meralco
122. The Shell Chemicals Company (Phil.) Inc.
123. Globe-Mackay and Radio Corporation
124. PLDT
125. Radio Incorporated
126. Philippine Radio Corporation
127. DZYR 134. DXJM
128. DZYS 135 DXGS
129. DZYM 136 DYRM
130. DYRM 137 DXOC
131. DWRN 138 DYOL
132. DZLT 139. DZYA
133. DZXT 140. DXTC
134 DXJM 141. DXCU
142. Allied Guarantee Assurance Company, Inc.
143. Commercial Motors Corp. — L
144. Action Builders Consultancy Incorporated
145. Agricultural Pathfinders Incorporated
146. Agro-Forest Land Developers
147. Agusan Corporation
148. Allied Guarantee Insurance Corporation
149. Orient Farmland Development Corporation
150. Archipelago Finance & Leasing Corporation
151. Archipelago Realty Corp.
152. Bicol Coconut Planters Trading Incorporated
153. Black Stallion Ranch
154. Central Resources Corporation
155. Central Communication Sytem
156. Christensen Plantations Incorporated
157. Coconut Industry Foundation Incorporated
158. Corporate Counselors Incorporated
159. Data Managers Incorporated
160. Davao Coconut Planters Trading Incorporated
161. Discovery Realty Corporation
162. Dream Pastures Incorporated
163. ECJ & Sons Farmers Foundation Incorporated
164. ECJ Condominium Corporation
165. Esperanza Forest Developers, Inc.
166. Far East Ranch, Inc.
167. G & E Realty and Developement Corp.
166. Far East Ranch, Inc.
167. G & E Realty and Development Corp.
168. Golden Times Trading Company Incorporated
169. Growth Trading Corporation
170. Habagat Realty Development Corporation
171. Hydro Resources Contractors Corp.
172. Inner Huns Agricultural Developers Inc.
173. Integrated Labor Resources
174. Integrated Sea Development Association Inc.
175. Interpublic Associates, Inc.
176. J & E Development Corporation
177. Kabuhayan Agricultural Development Corporation
178. Kalawakan Resources Incorporated
179. Kalusugan Agro-Development Incorporated
180. Kaunlaran Agricultural Corporation
181. Labayug Air Terminal, Inc.
182. Land Air Internal Marketing Corp.
183. Leyte Coconut Planters Trading Incorporated
184. LHL Cattle Corporation
185. Loreto Forest Development Corporation
186. Los Arcos Agricultural Corporation
187. Lucena Oil factory Incorporated
188. Meadow-Lark Plantation Incorporated
189. Mermaid Marketing Corporation
190. Midland Cement Corporation
191. Mirador Hills Realty Incorporated
192. Misty Mountain Agricultural Corporation
193. Multi-Properties Incorporated
194. Multi-Visions Incorporated
195. Northeast Contact Traders Incorporated
196. Northern Consolidated Corporation
197. Northern Mindanao Coco Planters Trading
198. Oceanside Maritime Enterprises Inc.
199. Oro Verde Services, Inc.
200. Pastoral Farms Inc.
201. People Builders Inc.
202. Philippine ARC Welding & Manufacturing Corp.
203. Philippine Construction Materials
204. Primavera Farms Inc.
205. Punong-Bayan Housing Development Corp.
206. Pura Electric Corp.
207. Radio Audience Development
208. Integrated Organization Inc.
209. Rancho Grande Incorporated
210. Rock Hills Land Improvers & Developers Inc.
211. S & A Agricultural Corp.
212. San Esteban Development Corp.
213. Silverleaf Plantation Corporation
214. Southern Contract Traders Inc.
215. Southern Service Traders Inc.
216 Southern Star Cattle Corp.
217. Spade One Resort Corp.
 218. Tagalog Coco-Planters Trading
219. Traders Holdings Inc.
220. Unexplored Land Developers Inc.
221. Uni-Group Inc.
222. United Agusan Agro-Forest Development Corp.
223. United Cocoa Plantations Inc.
224. United Coconut Planters International
225. United Human Resources Management Corp.
226. United Plaza Properties Inc.
227. United Stock Transfer Registry Inc.
228. Verdant Plantation Inc.
229. Vesta Agricultural Corp.
230. Visayan Coconut Planters Trading Inc.
231. Wings Resort Corp.
232. Woodsmen Agro Development Inc.
233. Zamboanga Coconut Planters Trading Inc.
234. National Stevedoring and Lighterage Company
235. San Pablo Oil Manufacturing Company Inc.
236. Maximum Trading Corp. (MATICO)
237. Southern Plywood Corp.
238. Universal Motors Corp. — L
239. Pamplona Redwood Veneer Co.
240. September Trading & Industrial Corp.
241. Veteran Woodworks, Inc.
242. Western Cagayan Lumber

Again, as in the other actions the complaint in this case was "amended/expanded" to make the allegations more
specific. After issuance of the Resolution in the "INTERCO case," supra. the PCGG filed a motion for the
admission of a Third Amended Complaint impleading seventy-seven (77) of the corporations above listed as
defendants. The motion was granted and the third amended complaint admitted in a Resolution dated February 3,
1992 issued by the Sandiganbayan, Third Division.

10. Case No. 0034 23

On July 30, 1987; PCGG filed before the Sandiganbayan a case for Reconveyance, Reversion, Accounting and
Damages against other so-called cronies of the Marcoses: Roberto Benedicto, et al, The case was docketed as
Civil Case No. 0034. The complaint alleged that defendants had acquired funds and property in flagrant breach of
and of their fiduciary obligations as public officers. The properties, real and personal, allegedly acquired
unlawfully, listed in an annex (marked A) attached to the complaint.

On November 3, 1990, Benedicto entered into a Compromise Agreement with the PCGG wherein the former
agreed to cede and assign in favor of the latter certain sequestered properties subject of Civil Case No, 0034
(Inter-Continental Broadcasting Corporation [IBC-13]; Radio Philippines Network [RPN-9]; and Banahaw
Broadcasting Corporation [BBC-2]. The Compromise Agreement was submitted by the parties to the
Sandiganbayan for approval. The propriety of such a compromise agreement was unsuccessfully challenged in
this Court, 24 the Court declaring that its execution was within the PCGG's competency although its final approval
properly appertained to the Sandiganbayan 25 The Compromise Agreement eventually received approval of that
Court (Second Division) in due course and, having afterwards been fully implemented, effectively put an end to
the controversy. 26

11 Case No, 0035

On April 5, 1986, the PCCG sequestered 6,237.339 shares of Benguet Corporation in the name of Palm Avenue
Realty and Development Corporation (PAR) and Palm Avenue Holdings, (PAH), on the theory that these were
illegally acquired by Benjamin ("Kokoy") Romualdez. These shares had been pledged with PCIBANK and
Equitable Bank. as security for certain loans, and were about to be sold at public auction because the loans were
all past due.

On April 15, 1986, the PCGG also sequestered 6, 119.067 common shares of stock of PCIBank (Philippine
Commercial & Industrial Bank), registered in the name of Trans Middle East (Phil.) Equities, Inc. (TMEE), also on
the theory that they actually belonged to Benjamin Romuladez and constituted "illegally acquired wealth."

To recover these shares, and many others also sequestered, 27 a complaint was filed in the Sandiganbayan
against Romualdez, docketed as Civil Case No. 0035; but the ostensible owner-corporations [Palm Ave. Realty
and TMEE] were not themselves impleaded.

The complaint particularly alleged that Romualdez —

1) obtained — with the active collaboration of defendants Senen J. Gabaldon; Mario D. Camacho;
Mamerto Nepomuceno; Carlos J. Valdez; Delia Tantuico; Jovencio F. Cinco; Cesar C. Zalamea;
Francisco Tantuico; Atty. Jose Bengzon, Jr. and his law partners (namely: Edilberto S. Narciso,
Jr., Jose Vicente E. Jimenez, Amado V. Faustino, Jr., and Leonardo C. Cruz); Jose S. Sandejas
and his fellow senior managers of FMMC/PNI Holdings groups of companies (such as Leonardo
Gamboa, Vicente T. Mills, Jr., Jose M. Mantecon, Abelardo S. Termulo, Rex C. Drillon II and Kurt
Bachmann, Jr.) — control of some of the biggest enterprises in the Philippines, such as Manila
Electric Company (MERALCO], Benguet. Consolidated Mining Corp. (Benguet), Pilipinas Shell
Corp. and the Philippine Commercial & International Bank (PCI Bank), through employment of
devious financial schemes and techniques entailing the massive infusion (or hemorrhage) of
government funds with a minimum or negligible "cash-out" from him (Romualdez), the general
features of his classic take-over bid being as follows:

a) the take-over assumed as avowed and ostensible objectives, a declared

national policy: in MERALCO, it was the diversification of ownership in a vital
public utillity; in Benguet and Pllipinas Shell, nationalization in anticipation of the
expiration of the Laurel-Langley Agreement;

b) the shares were placed in the name of corporations organized solely for the
purpose of holding title to them, said corporations having no operating history or
financial track' record and projected cash flow consisting almost Solely of future
and contingent dividends on the shares held; despite these limitations, the
companies somehow came to enjoy excellent credit lines from banks and other
financial institutions, as evidenced by the millions of pesos in loans and
guarantees outstanding in their books;

c) the "seed money" used to wrest control came from government and taxpayers'
money in the form of millions of pesos in loans, guarantee and standby L/Cs from
government financial institutions, notably the DBP and PNB, which in turn
rediscounted the obligations with the Central Bank:

d) additional funding was provided from other related interests; and

e) this intricate skein of inter-corporate dealings controlled and administered by an

exclusive, interlocking and closely knit directorate and officership.

2) accorded undue advantage to MERALCO (a) by effecting the increase of power

rates with automatic authority to tack into the consumers' electric bills the so-called
purchase and currency adjustment, and (b) by reducing in collaboration with
others, the electric franchise tax from 50% to 2% of gross receipts and the tariff
duty on fuel oil imports by public utilities from 20% to 10%, resulting in substantial
savings for MERALCO but without significant benefit to the consumers of electric
power, and loss of millions of pesos in much needed revenues to the government:

3) burdened MERALCO consumers with the heavy cost of purchasing, maintaining and operating
two airplanes and one helicopter for his (Romualdez") personal use;

4) formed the MERALCO Foundation Inc. (MFI) to gain control of the MERALCO group of
companies upon a false commitment, among others, to free Eugenio Lopez Jr., from detention
and transform MERALCO into a cooperative; in reality, defendants used MFI's tax-exempt status
as a convenient tax and financial shelter;

5) using public funds, took over and electric cooperatives, such as (1) Rizal Electric Cooperative)
and Talim Electric Cooperative, which were owned by the electric consumers in seven Rizal
towns; (2) the electric firms in Laguna and Quezon; (3) the First Cavite Electric Cooperative, Inc.;
(4) three electric cooperatives in Bulacan; (5) the Communications and Electricity Development
Authority in Cavite and (6) the San Mateo Electric Light and Power company — without just cause
and without compensation to the owners thereof;

6) with the active collaboration of Imelda Marcos, Chairman of the Board of Administrators of the
National Electrification Administration (NEA), caused the revocation of the franchise earlier
granted to the above-mentioned cooperatives by the National Electric Commission, in order to
expand MERALCO operations around Manila, to the exclusions and gross disadvantage of other
electric cooperatives;

7) in a veiled attempt to justify MERALCO's anomalous acquisition of the electric cooperative, and
with the active collaboration of defendants Jose C. Hernandez, Juanito R. Remulla, Isidro
Rodriguez, Cesar E.A. Virata, Pedro Dumol, Ricardo C. Galing, Francisco C. Gatmaitan, Mario D.
Camacho, etc. secured the approval by Pres. Marcos and his cabinet of the so-called "Three-year
Program for Extension of MERALCO's Service to Areas Within the 60-Kilometer Radius of
Manila," which required government capital investment amounting to millions of pesos;

8) manipulated the assumption by MERALCO of the electric cooperatives' restructured obligations

with the National Power Corporation (NPC) and soft loans with the NEA, at an exceedingly low
interest rate of 30% per annum. payable in thirty-five years, to further facilitate the unlawful
appropriation of the electric cooperatives;

9) caused the issuance of PD 40 which commanded ill the sale of MERALCO base load power
plants to the National Power Corporation (NPC) at an exorbitant price, generating for MERALCO
a net profit of more than P208.2 Million, and (2) the assumption by NPC of the foreign loans and
other obligations of MERALCO;

10) with the active collaboration of his co-defendants, effected the sale of the shareholdings of the
First Philippine Holding Corp. in the Philippine Commercial International Bank (PCIB) to Trans
Middle East Philippine Equities Inc., a front organization of his (Romualdez), in order to gain
control of PCIB with a minimum or negligible "cash out;" the acquisition of said PCIB shares was
packaged by PCIB, and financed by PCIB and the Philippine Commercial Capital, Inc. through
loans extended to SOLOIL Inc., for and in behalf of Trans Middle East Philippines Equities, Inc.;
the funding by PCIB of the purchase of shares of its own capital stock violated banking laws, rules
and regulations concerning (1) loans to Directors, Officers, Stockholders and Other Related
Interests (DOSRI), (2) single borrowers limit (SBL), (3) disclosure requirements, and (4) the duty
to ascertain identity of borrower and purpose of loan;

11) took over and appropriated for his own personal gain and benefit the business and publication
of daily newspapers belonging to critics or oponents of the Marcos dictatorship;

12) with the active collaboration of defendants Jose Sandejas, Francisco Tantuico and Dominador
G. Ingco, caused the National Investment and Development Corporation (NIDC) to dispose of its
interest in the oil plants located Tanauan. Leyte — owned and operated by its subsidiary, the
NIDC Oil Mills, Inc. — in favor of the SOLOIL, Inc., a corporation beneficially held and controlled
by him (Romuladez), under terms and conditions grossly diasadvantageous to the NIDC;

13) with the support, assistance and collaboration of Philguarantee officials and the senior
managers of FMMC/PNI Holdings, Inc. led by Jose S. Sandejas, Jr., Jose M. Mantecon and Kurt
S. Bachmann, Jr. among others — manipulated the formation of Erectors Holdings, Inc. without
infusing additional capital, solely for the purpose of making it assume the obligation of Erectors
Inc. with Philguarantee in the amount of P527,387,440.71, with insufficient security, and thus
make Erectors Inc. appear viable and enable it to borrow more capital, with the result that its
obligation with Philguarantee reached a total of more that P2 Billion as of June 30, 1987;

14) at the onset of the present Administration and/or within the week following the February 1986
People's Revolution, in conspiracy with and with the support, assistance and collaboration' of the
above-named lawyers of the Bengzon Law Offices, manipulated, schemed, and/or executed a
series of devices intended to conceal and place beyond the inquiry and jurisdiction of the PCGG
the defendants' individual and collective funds, properties and assets subject of and/or involved in
the instant complaint;

15) with the technical know-how and legalistic talents of the FMMC senior managers and retained
lawyers, maneuvered the purported sale of his (Romualdez's) interests in the (1) Professional
Managers, Inc., (2) A & International Corp. (A & E) (3) First Manila Management Corp., (FMMC).
(4) Maguindanao Navigation (MNI), (5) SOLOIL, Inc., (6) Philippine World Travel Inc. (PWTI) and
its subsidiaries (consisting of 36 corporations in all) to PNI Holdings, Inc. [whose purported
incorporators are all members of his retained law firm) for only P5 million, on March 3, 1986 or
three days after the creation of the PCGG on February 28, 1986; this, for the sole purpose of
deceiving the Government particularly the PCGG, and making it appear that the defendant
Romualdez had already divested himself of his ownership of the same when in truth and in fact,
his interests are well intact and protected by his retained attorneys together with FMMC senior
managers, who still control and run the affairs of said corporations, and in order to entice the
PCGG to approve the said fictitious sale, the above-named defendants offered P20 million as
"donation" to the Government;

16) with the connivance, support and technical assistance of his retained law firm, together with
defendants Cesar Zalamea, Antonio Ozaeta, Mario D, Camacho and Senen J. Gabaldon as
members of the Board of Directors of the Philippine Commercial International Bank (PCIB),
misused the Meralco Pension Fund in the amount of P25 million by causing it to be invested in the
PCIB, and through the Bank's TSG, assigned to PCI Development and PCI Equity at 50% each,
the Fund's (a) 8,028.0011 common shares in the Bank and (b) "Deposit in Subscription" in the
amount of P4,929,972.50, but of the agreed consideration of P28 million for the said assignment,
PCI Development and PCI Equity were able to pay only P5,500 down payment and the first
 amortization of P3,937,500,00, thus prompting the Fund to rescind its assignment, and the
consequent reversion of the assigned shares brought the total shareholdings of the Fund to
11,470.555 voting shares or 36.8% of the voting stock at PCIB; and this development [which the
defendants themselves orchestrated or allowed to happen) was used by them as an excuse for
the unlawful dismantling or cancellation of the Fund's 10 million shares for allegedly exceeding the
30-percent ceiling prescribed by Section 12-B of the General Banking Act, although they knew for
a fact that what the law declares as unlawful and void ab initio are the subscriptions in excess of
the 30% ceiling "to the extent of the excess over any of the ceililngs prescribed . . . " and not the
whole or entire stockholding which they allowed to stay for six years (from June 30, 1980 to March
24, 1986);

17) through the use of the names and managerial expertise of the FMMC senior managers
identified as Jose B. Sandejas, Leonardo Gamboa, Vicente T. Mills. Abelardo S. Termulo,
Edilberto S. Narciso, Jr., Jose M. Mantecon, Rex C Drilon II, Kurt Bachmann, Jr., together with the
legal talents of corporate lawyers, cleverly hid behind the veil of corporate entities, his ill-gotten
wealth including among others, the 6,229,177 shares in PCIB registered in the names of Trans
Middle East Phils, Equities, Inc. and Edilberto S. Narciso, Jr., which they refused to surrender to
PCGG despite their disclosure, as they tried and continue to exert efforts in getting hold of the
same, as well as the shares in Benguet registered in the names of Palm Avenue Moldings and
Palm Avenue Realty Development Corp., purportedly to be applied as payment for the claim of
P70 million of a member company of the First Manila Management Corp. group" supposedly
owned by them although in truth, all said firms are still beneficially owned by said defendant
Benjamin Romualdez.

The assets alleged to have been illegally acquired by Romualdez are enumerated in a list attached to the
complaint as Annex "A," consisting of shares of stock in sixty-one (61) corporations, to wit:

1. Phil-Commercial Capital Inc.

2. Erectors Inc.
3. Erincor Development Corp.
4. Professional Management Inc.
5. Pilipinas Automotive Credit Corp.
6. Philhino Sales Corp.
7. Pilipinas Transport Industries Inc.
8. Agro-Tech Corporation
9. Filmarine Shipping Corp.
10. Integrated Industrial Agronomics Inc.
11. Maranao Navigation Corp.
12. Gamma Realty Corporation
13. Philworld Charter & Travel Services Inc.
14. Pllipinas Maintenance Services Corporation
15. Pilipinas Magnetics incorporated
16. Metro Motors Incorporated
17. Data Systems Services Incorporated
18. Service Systems Incorporated
19. A & E International Corporation
20. PSEI Holding Incorporated
21. Genesia Management and Development Corp.
22. International Heavy Equipment Corporation
23. St. Bernanrd Services Corporation
24. Philippine Hawk Transport Corporation
25. Mantrade Development Corporation
26. Badjao Navigation Corporation
27. Power Contractors Incorporated
28. Asian Specialists Contractors Incorporated
29. PSEI Transport Corporation
30. Maguindanao Navigation
31. Manila World Traders
32. Meralco Foundation Incorporated
33. Tacloban City Ice Plant
34. East Visayan Broadcasting Station
35. Chinatown Publishing Corporation
36. Central Citigas Station
37. Philippine Commercial and Industrial Bank
38. First Philippine Holdings Corporation
39. MERALCO
40. Busali Stud Farms
41. Travel Agency New York
42. Aviles Realty Corporation
43. Benguet Corporation
44. Capital City Realty Development Corporation
 45. First Manila Management Corporation
46. First Phil. Industrial Corporation
47. Palm Ave. Realty Development Corporation
48. Palm Ave. Holdings Incorporated
49. Philippine Journalist Incorporated
50. Philtranco Service Enterprise
51. Pilipinas Hino
52. Pilipinas Nissan
53. Repro Color Center Incorporated
54. PR — TV 12
55. Soioil Incorporated
56. Universal Broadcasting Corporation
57. Visayan Maritime Academy
58. DYBR — radio station
59. DYMM — AM radio station
60. Tubigan House
61. Pilipinas Shell Petroleum Corporation

V. PCGG's Theory of the Case Generally

As will be noted, the theory of the PCGG in all these eleven (11) actions (Cases Numbered 0007, 0009, 0014,
0016, 0021, 0023, 0024, 0025, 0033, 0034, 0035) is in essence that the natural persons named as defendants in
the complaints took advantage of their public offices, their closeness to President and Mrs. Marcos, and their
prestige, power and influence in order to set up corporations over which they wield overt or secret control; or to
acquire substantial holdings in, and control of, existing corporations; and generally, through or with the aid of
these firms, to manipulate or misappropriate public funds and property and employ pressure and undue influence
to amass immense assets and wealth, The complaints commonly assert that the defendants acted "singly or
collectively and in unlawful concert with one another," and their reprehensible activities included "the
misappropriation and theft of public funds, plunder of the nation's wealth, extortion, blackmail, bribery,
embezzlement and other acts of corruption, betrayal of public trust and brazen abuse of power," at the expense
and to the grave and irreparable damage of the Government and the Filipino people,

The cognate reliefs sought by the PCGG in its complaints are the return and reconveyance to the Government of
all funds and other property unlawfully acquired by the defendants, and consequently impressed with a
constructive trust in favor of the Government and the Filipino people, as well as of the funds and other property
acquired by their abuse of right and power through unjust enrichment; and the requirement or command that said
defendants account for all legal or beneficial interests in funds, properties and assets of whatever kind and
wherever located, in excess of their lawful earnings,

VI. Omission to Implead Corporations

Referred to in PCGG Complaints.

The corporations in which the defendants (natural persons) allegedly own substantial interests and which are
subject to their control — whether organized by them, their dummies or co-conspirators, or previously existing but
subsequently coming under their power — were not impleaded as defendants but were merely mentioned or
listed, and specifically described in the complaints as instruments for illegal acquisition of wealth, or as
depositaries of illegal wealth, or as constituting the fruits thereof,

VII. Lifting of Sequestration by Sandiganbayan

on Account of Said Omission, and Actions
in this Court for Review Thereof

This negative circumstance, perceivable in all the complaints — i.e., that the sequestered corporations were
simply listed and described in the complaints (as the instruments, depositaries or fruits of ill-gotten wealth) but
were not explicitly impleaded as parties defendant — was to prove procedurally calamitous to the PCGG, For that
omission was seized upon by the defendants as the basic premise of motions for the lifting of the orders of
sequestration effected on those corporations, on the theory that as to them no proper judicial actions had been
filed within the time and in the manner required by Section 26, Article XVIII of the 1987 Constitution and,
therefore, their sequestration should be deemed automatically lifted.

Said constitutional provision, quoted earlier in this opinion, 28 pertinently provides the following:29

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 these issued
after such ratification, the judicial action 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.

Upon the foregoing premises, the Sandiganbayan promulgated resolutions in the various cases pending before it
for recovery of ill-gotten wealth, declaring as automatically lifted the sequestrations imposed prior to the
ratification of the Constitution on February 2, 1987, on the corporations listed or mentioned in the PCGG
complaints, there having been no "judicial action or proceeding" individually and particularly instituted against
them on or before August 2, 1987.

These resolutions are specified and more particularly dealt with in the following paragraphs, beginning with those
promulgated in or in connection with Case No. 0033, since these happen to be the most numerous among all the
cases herein dealt with.

A. Case No. 0033

On November 19, 1990, the Sandiganbayan (First Division) issued a Resolution in Case No. 0033 lifting the
sequestration orders over the Philippine Coconut Federation, Inc. (COCOFED), Coconut Investment Company
(CIC), COCOFED Marketing Corporation (COCOMARK), and the shares of stock of over one million coconut
producers/farmers [except those registered in the names of the individual defendants in Case No. 0033) in the
United Coconut Planters Bank (UCPB) and in the so-called "CIIF companies;" 30 on the ground that said
companies were not impleaded as party defendants within the 6-month period fixed in the Constitution, ending on
August 2, 1987 — but were merely mentioned as entities organized, controlled pr used by the defendants (i.e., as
instruments for acquisition, or depositaries, or the fruits, of illegal wealth);

1. G.R. No. 96073

This Resolution is now subject of a challenge before this Court through a special civil action of certiorari initiated
by the PCGG, docketed as G.R. No. 96073.

2. The "Interco" Case

A similar disposition was made by the Sandiganbayan as regards two (2) of the corporations separately
sequestered by the PCGG, i.e, International Copra Export Corporation and Interco Manufacturing
Corporation and included; in the list of "ill-gotten" properties appended to the complaint in said Case No. 0033.

These firms were sequestered under separate orders dated June 10, 1987 on the theory that Eduardo
Cojuangco, Jr. beneficially owns shares of stock therein which, however, had been placed in the names of
"dummies" or nominees — like Enrique Luy, who appears as the majority stockholder of both corporations, and
who was included as one of the defendants in Case No. 0033. After two years or so, these companies assailed
the sequestration orders in this Court in a certiorari action (docketed as G.R. No. 86989), The matter was
however referred for proper disposition to the Sandiganbayan, which docketed the same as Case No. 0086. After
due hearing, the Sandiganbayan rendered judgment thereon, dated March 29, 1990, sustaining the theory of the
petitioner firms that the orders of sequestration effected on them had been rendered ineffective as a result of the
PCGG's failure to file the proper judicial action or proceeding against them within the time prescribed by Section
26 of Article XII of the Constitution.

The judgment of March 29, 1990 was upheld by this Court in a special civil action of certiorari initiated by the
PCGG, docketed as G.R. No. 92755, in an unsigned but extended resolution dated October 2, 1990. The
resolution pointed out that the inclusion of Enrique Luy, ostensible principal stockholder of the corporations
involved, as defendant in Case No. 0033 could not be deemed substantial compliance with the constitutional
requirement above mentioned, since corporations have legal personalities distinct and that "the shareholdings of
Enrique Luy are beneficially owned by Eduardo Cojuangco Jr.," this being a matter still to be established in Civil
Case No. 0033." 31

3. G.R. No. 104850

Some of the supposedly "dummy" or "shell" companies listed in Annex "A" of the complaint in Case No. 0033 —
Primavera Farms, Inc., Agricultural Consultancy Services Inc., Archipelago Realty Corporation Balete Ranch,
Inc., Black Stallion Ranch, Inc., Christensen Plantation Co., Cocoa investors, Discovery Realty Corp.; Dream
Pastures, Inc.; Habagat Realty Development Kalawakan Resorts, Inc., Kaunlaran Agricultural Corp.; Labayug Air
Terminals, Inc., etc., — instituted in the same Sandiganbayan a civil action to annul the sequestration effected on
their shares of stock in San Miguel Corporation. This was docketed as Case No. 0110.

The PCGG moved to consolidate Case No. 0110 with Case No. 0033. The motion was denied by Resolution of
the Third Division dated September 27, 1991, The resolution was upheld by this Court in a resolution
promulgated on June 15, 1992 in G.R. Nos. 102370-71.
On April 8, 1992, the Third Division of the Sandiganbayan promulgated a resolution lifting, on motion of the
petitioners in Case No. 0110, the sequestration over the shares of stock standing in their names In San Miguel
Corporation. Invalidation of this Resolution is prayed for by the PCGG in G.R. No. 104850.

4. G.R. No. 106765

Still in connection with Case No. 0044, another group of corporations included in the list appended to the
complaint — Kalawakan Resorts, Inc., Habagat Realty Development, Inc., Labayug Air Terminals, Inc., Punong
Bayan Housing Development Corporation Pura Electric Company, Inc., Ocean Side Maritime Ent., Inc., Spade
One Resorts Corporation, Unexplored Land Developers, Inc., and Wings Resorts Corporation — filed a petition
for prohibition in the Sandiganbayan to stop the PCGG and the UCPB from terminating and encashing some
certificates of time deposit (CTDs) in their names and transferring the proceeds thereof to the National Treasury.
This was docketed as Case No. 0059.

On November 27, 1990, the Sandiganbayan (Second Division) rendered a decision holding that the sequestration
of the time deposits in question was deemed automatically lifted pursuant to Section 26, Article XVIII of the is
Constitution. This resolution is challenged in G.R. No. 106765.

5. G.R. Nos. 105711-12

Yet another company listed as a "Cojuangco" corporation in Annex "A" of the complaint in Case No. 0033, the
Traders' Holdings & Marketing, Inc., filed two (2) actions in the Sandiganbayan, which were docketed as Cases
Numbered 0061 and 0071.

Case No. 0061 was an action of prohibition and mandamus with prayer for preliminary injunction and/or
temporary restraining order against PCGG and Dutch Boy (Phils.) Inc., seeking recovery of cash dividends
allegedly due on its (Traders') 124,842 shares in the latter firm and which had been deposited by the PCGG with
the PNB under an escrow account until a decision was reached by the proper court. It was prayed that Dutch Boy
be ordered to remit to Traders all stock and cash dividends, and PCGG prohibited from receiving them and from
depositing the same with any bank.

Case No. 0071 was an action of quo warranto initiated by Traders (through Gabriel L. Villareal and Yolanda M.
Uy), questioning the election of PCGG nominees as directors in Dutch Boy on the ground that PCGG had no
authority to vote the Traders shares sequestered by it.

Upon motion of PCGG the two cases (No. 0061 and No. 0071) were consolidated.

On July 17, 1989, the Sandiganbayan issued an Order inter alia embodying a stipulation on the following facts,
among others: that the case involves 30% of the total outstanding shares of stock in Dutch Boy Philippines, Inc.;
that Traders is not under sequestration nor is it a defendant in Civil Case No. 0033 concerning Cojuangco's
misuse of the Coconut Levy Fund; that it is the PCGG's position that the inclusion of Traders in Annex A is
adequate compliance with the Constitution.

(a) Sandiganbayan Resolution,

February 3, 1992, Admitting
Amendment of PCGG Complaint

On August 23, 1991, the PCGG (Republic) filed a "Motion for Leave to Amend and for Admission of Third
Amended Complaint" in Case No. 0033. The amendment consisted in the impleading of numerous corporations
(about 81, according to the Sandiganbayan), including the COCOFED as an entity and representative of the so-
called "more than one million member-coconut farmers" as parties defendants. Specifically, the third amended
complaint set out the names and addresses of the corporations included in the additional defendants, alleged that
said defendant corporations were used "as fronts" by the individual defendants; that the latter had gained
ownership and control of the UCPB by misusing the names damages, and/or identities of the so-called more than
one million coconut farmers; and that two of the new defendant firms had claimed adverse title to one of the
"falcon jet" aircraft supposedly belonging to Eduardo Cojuangco, Jr.; and incorporated an additional prayer for the
return and reconveyance of the properties "listed in Annex 'A' together with the accruing income or increment
from date of acquisition until final judgment."

Over the defendants' opposition, the Sandiganbayan (First Division) granted the motion and admitted the third
amended complaint by resolution dated February 3, 1992. 32 It ruled that the PCGG had no intent to delay the
case by moving to amend the complaint; indeed, "it was loath to sue ever so many, and was merely compelled to
do so, with unequivocal reservations, as a result of the decision of the Supreme Court in Interco 33 . . . It also ruled
that the amendment worked no substantial alteration in the causes of action "which still remain the same, namely:
breach of public trust, abuse of right and power, unjust enrichment, accounting and liability for damages." It held,
finally, that the amendment was sanctioned by the rules on joinder of parties and of causes of action.

No challenge to this resolution has been mounted in this Court.

 (b) Sandiganbayan Directive, March
30, 1992 for Delivery of Duch
Boy Shares to Traders

On March 30, 1993, the Sandiganbayan promulgated a decision holding that the writ of sequestration issued over
the shares of Traders in Dutch Boy was automatically lifted for failure to file the necessary judicial action pursuant
to Section 26, Article XVIII of the Constitution (citing PCGG v. INTERCO, et al., G.R. No. 92755, Oct. 2, 1990), It
thus directed the delivery of the Dutch Boy Shares to Traders' plus all the stock and cash dividends earned since
sequestration of the shares on Oct. 7, 1981, and that PCGG desist from exercising any of the rights pertaining to
said stock.

A motion for reconsideration was filed, arguing points later embodied in a petition for certiorari filed with this Court
and docketed as G.R. Nos. 105711-12 (Traders' Holdings and Marketing, Inc. v. PCGG and Dutch Boy
Philippines, Inc.). supra. In the main, the petition argued that the decision of the Sandiganbayan misinterpreted,
and thus erroneously invoked and applied, the rulings of this Court in PCGG vs. International Copra Export
Corporation (INTERCO), G.R. No. 92755, decided October 2, 1990, and Republic vs, Sandiganbayan, 200 SCRA
531; that in the INTERCO case, even after its remand by this Court to the Sandiganbayan for reception of
evidence to justify further sequestration of the unimpleaded (respondent) corporation, no proof was adduced that
Eduardo Cojuangco, Jr., actually owned any of the shares of stock of said corporations and that in fact the
respondent corporations had established that INTERCO had been organized as a family corporation of the Luy
family; that, contrarily, there was evidence of such dummy ownership in Traders' Holdings, such as:

(a) the fact that 42,232 Dutch Boy shares in the name of Traders' were wholly (100%) owned by
Reddee Developers, Inc. [adverting to the letter of David Bonney, senior vice-president of Dutch
Boy; and the letter of Mervyn Encanto to the PCGG 34];

(b) the fact that Reddee stockholders — practicing attorneys, — had executed affidavits
disclaiming ownership of the shares listed in their names: 35 that the address of Reddee was the
16th Floor of the UCPB Building and, after the EDSA Revolution, c/o Gabriel Villareal Law Offices,
the latter, together with former Solicitor General Estelito Mendoza, being counsel for Reddee.
Traders' and Cojuangco, Jr.; and that there had been NO DENIAL on the part of Traders' that
these ostensible stockholders were dummies of Cojuangco, Jr.,

all of which showed that Traders' was a "shell" corporation of Eduardo Cojuangco, Jr. "to facilitate and
conceal his acquisition of ill-gotten wealth,"

B. Case No. 0007 — G.R. No. 105170

In Case No. 0007 entitled "Republic v. Fe Roa Gimenez, et al," the Sandiganbayan, by resolution dated
September 17, 1991 granted the motion of GEI (Guaranteed Education, Inc. to lift the writ of sequestration over it,
The attempt of PCGG to have the resolution reconsidered failed; its motion therefor was denied by Resolution of
the Sandiganbayan dated April 14, 1992.

The Republic instituted a special civil action in May, 1992, docketed as G.R. No. 105170, seeking nullification of
the abovementioned Resolutions.

C. Case No. 0009 — G.R. No. 104883

and G.R. No. 105850

Two of the allegedly "dummy" corporations mentioned in the list attached to the complaint in Case No. 0009
(Republic v. Jose L. Africa, et al.), namely: Philippine Communications Satellite Corporation and Philippine
Overseas Telecommunications Corporation, filed a complaint for injunction in the Sandiganbayan against the
PCGG, which was docketed as Case No. 0043, Another, Polygon Investors & Managers, Inc., filed a similar
complaint, docketed as Case No. 0014. The three thereafter separately filed motions for the lifting of
sequestrations, earlier imposed on them, Polygon on August 3, 1991, and the other two, on August 8, 1991.

On December 4, 1991, the Sandiganbayan (Third Division) promulgated a Resolution declaring the order of
sequestration over Philippine Communications Satellite Corporation and Philippine Overseas
Telecommunications Corporation to have been automatically set aside for failure of the Government to file the
necessary judicial action within the period prescribed in Section 26, Article XVIII of the 1987 Constitution, The
PCGG's motion for reconsideration was denied by Resolution dated June 18, 1992.

By another Resolution, dated April 1, 1992, the Sandiganbayan (Third Division) also pronounced the order of
sequestration as regards Polygon to have been automatically lifted on the strength of the same Section 26, Article
XVIII of the Constitution.

Nullification of these Resolutions is sought by the PCGG in G.R. No. 104883 and G.R. No. 105850.

D. Case No. 0014

In Case No. 0014, an action involving the sequestered firms, Silahis International Hotel, Inc., Philippine Village
Hotel, Inc., and Ternate Development Corporation, said companies, as independent juridical entities, separately
challenged the sequestration orders handed down against them. They filed with the Sandiganbayan petitions for
prohibition with application for preliminary injunction, docketed as Civil Cases Numbered 0136, 0137 and 0138,
respectively. They alleged the common argument inter alia that no judicial action had been filed against them
within the 6-month period provided in Section 26, Article XVIII of the Constitution.

Their moves all met with success. On November 18, 1991, October 11, 1991 and November 15, 1991, the
Sandiganbayan (Second Division) issued Resolutions granting the writs of preliminary injunction individually
sought by the three petitioner firms in the foregoing cases, on the ground that the continuance of the acts
complained of would work injustice to them, these acts appearing to be in direct contravention of the cited
provision of the Constitution,.

1. G.R. Nos. 104065, 104168, 105205

These resolutions are now respectively challenged in this Court through special civil actions of certiorari instituted
by the PCGG, docketed as G.R. Nos. 104065, 104168, and 105205.

2. G.R. No. 107908

In view of the Interco 36 Resolution, the PCGG filed in Case No. 0014, a "Motion for Leave to Amend and for
Admission of Amended Complaint Dated October 8, 1991," seeking the Sandiganbayan's permission to implead
new defendants and introduce additional allegations to "afford it complete relief under its Complaint." This was
opposed by defendants Rebecco Panlilio and Erlinda Enriquez. They argued that the amendment would result in
delay; the motion was an attempt to circumvent Section 26, Article XVIII of the Constitution; inclusion of the
corporations as defendants was irrelevant and "out-of-context" since the proposed amended complaint contains
no allegation of illegal acts or conduct directly attributable to them.

a. Sandiganbayan Resolution, April

3, 1992, Admitting Amendment
of PCGG Complaint

The opposition notwithstanding, the Sandiganbayan. (Second Division) granted PCGG's motion and admitted its
amended complaint: this, by Resolution dated April 3, 1992. 37 It agreed that the "additional defendant
corporations must be complete relief is to be obtained in the action since they are alleged to have been part of the
devices, schemes, and strategies used by individual defendants in committing the acts forming part of the
impleaded if main cause of action at bar. Indeed the original complaint had already virtually imputed acts or
causes of action against them when they were described in Annex 'A' thereof and listed therein as having been
sequestered on the theory that they were in truth owned by the defendants." The Panlilio Spouses' motion for
individual reconsideration was denied.

This Resolution of April 2, 1992 is now challenged in this court in certiorari action filed by the Panlilios, docketed
as G.R. No. 107908. The petition in this Court focuses on the issue — whether the complaint in the ill-gotten
cases filed by the PCGG may be amended for the third time after the lapse of more than five years from the
commencement of the action, to implead additional corporate defendants, and consequently to maintain their
continued sequestration, in light of the 1987 Constitution.

E. Case No. 0016 — G.R. No. i105206

In relation to Case No. 0016 against Rodolfo M. Cuenca, the Spouses Marcos, Oscar P. Beltran Saul Y. Alfoni,
Roberto S. Cuenca, Nora O. Vinluan, Panfilo Domingo, Jose L. Africa, Roberto V. Ongpin, Ricardo P. de Leon,
Arturo Lazo, Arthur C. Balch, Manuel I. Tinio, Mario K. Alfelor, Rodolfo M. Munsayac, Don M. Ferry, Antonio L.
Carpio — involving sequestration orders issued by the PCGG on Universal Holdings Corporation, and on all
Shareholdings, rights, interest of Cuenca Investment Corporation in Philippine National Construction Corporation
(PNCC, formerly CDCP) — the Sandiganbayan (First Division) issued on October 10, 1991 a Resolution lifting
the sequestration order as regards Universal Holdings Corporation on the ground that it had not been impleaded
in an appropriate judicial proceedings as required by Section 26, Article XVIII of the Constitution.

The Resolution is now assailed in G.R. No. 105206 (Republic v. Sandiganbayan [First Division], Rodolfo Cuenca.
Cuenca Investment Corp., Universal Holdings Corp.)

F. Case No. 0021 — G.R. No. 104679

Marcelo Fiberglass Corporation, listed in the complaint in Case No. 0021 as one of the companies controlled by
defendant Edward Marcelo, filed a petition for mandamus in the Sandiganbayan to compel the PCGG to lift the
sequestration imposed on it. The action was docketed as Case No. 0133. On December 13, 1991, the
Sandiganbayan (Third Division) issued a Resolution lifting, as August 16, 1987, the sequestration as regards the
assets, properties, records and documents of the Marcelo Fiberglass Corporation on the ground that no judicial
action had been filed against the defendants within the period mandated by the Constitution, the companies in
question not having been impleaded as parties but only listed in an annex of the complaint.

This Resolution is sought to be invalidated in G.R. No. 104679.

G. Case No. 0023 — G.R. No. 106176

Again, in connection with Case No. 0023 against Luz Reyes Bakunawa, Manual Bakunawa Jr., Manuel
Bakunawa III, and the Marcoses — involving the sequestration of the so-called Bakunawa Group of Companies
on the stated ground that the controlling stockholders of these companies, the spouses Luz Reyes Bakunawa
and Manuel Bakunawa, Jr., were dummies/cronies of the Marcoses — the Sandiganbayan (First Division) issued
on October 18, 1991 a Resolution lifting the sequestration on the ground that the PCGG failed to implead the
group of firms, namely: Hi-Tri Dev. Corp., Inc. 7-R Heavy Equipment Corp., 7-R Sales Company, Inc., 7-R Ranch
Inc., and 7R Development Corporation, in any judicial proceeding in compliance with Section 26, Article XVIII, in
1987 Constitution.

The Resolution of October 18, 1991 is now challenged in G.R. No. 106176 (Republic vs. Sandiganbayan [First
Division] HI-TRI Dev. Corp., 7-R Heavy Equipment Co., Inc., 7-R Sales Co., Inc., 7-R Ranch, Inc. and 7-R
Development Corp.)

H. Case No. 0024

1. G.R. No. 107233

Luis D. Yulo, a defendant in this case (No. 0024) filed a motion on October 1, 1991 to lift the sequestration over
the YKR Corporation, one of those listed in Annex "A" of the complaint as a "dummy" or "shell" company of the
defendants. The Sandiganbayan (Second Division) found merit in the motion and, by Resolution dated November
29, 1991, declared the sequestration of said YKR Corporation to have been automatically lifted pursuant to the
1987 Constitution. The resolution is now subject of a certiorari action in this Court, G.R. No. 107233.

2. G.R. No. 109314

Another defendant, Peter Sabido, filed in said Civil Case No. 0024 a "Motion (to Lift Writs of Sequestration)"
dated August 12, 1991, arguing that the orders issued against Philippine Integrated Meat Corporation (PIMECO)
and Lianga Bay Logging Company, Inc. on March 17, 1986 and June 2, 1986, respectively, were ipso facto lifted
when PCGG failed to file the corresponding judicial action against the two firms as required by the Constitution
within the set therefor. Over the opposition of the PCGG, the Sandiganbayan (Second Division) granted the
motion, in its Resolution of November 29, 1991. This resolution is now assailed and sought to be invalidated in
G.R. No. 109314.

I. Case No. 0025 — G.R. No. 104167

Supposedly "dummy" companies listed in the annex attached to the complaint in Case No. 0025, namely:
Marsteel Consolidated Inc., Marsteel Corporation, Dayton Metals Corporation, Tourist Trade & Travels
Corporation, and Bacolod Real Estate Development Corporation, filed a motion to lift the sequestration effected
over them by the PCGG. By Resolution of the Third Division issued on October 28, 1991, the motion was granted
and the sequestration declared as automatically lifted pursuant to Section 26, Article XVIII of the Constitution.

The Resolution of October 28, 1991 is now challenged in G.R. No. 104167.

J. Case No. 0034

On November 19, 1991, the Sandiganbayan (Second Division) promulgated a Resolution in Case No. 0034 lifting
the sequestration order effected over the "Benedicto Companies" for failure of the PCGG to file the necessary
judicial action within the six-month period after the ratification of the 1987 Constitution — apart from the additional
reason that said order was null and void because of the absence of signatures of two of the PCGG
Commissioners — and directing the return to Benedicto of the corporations listed in Annex "A" of the complaint
together with the other assets and properties sequestered, without prejudice to the continuation of the proceeding
for final determination as to whether they constitute "ill-gotten wealth" or not, and/or the final disposition of the
proceeding connection with the approval of the Compromise Agreement executed between the PCGG and
Benedicto. 38

K. Case No. 0035

This action in the Sandiganbayan, Case No. 0035, in which the plaintiff PCGG seeks to recover, among others,
6,119,067 common shares of stock of PCIBank registered in the name of Trans Middle East (Phil.) Equities, Inc.
(TMEE), and 6,237,330 shares of stock of Benguet Corporation in the name of Palm Avenue Realty (PAR) — on
the theory that the real owner of the stock is Benjamin ("Kokoy") Romualdez 39 — has given rise to three special
civil actions in this Court: G.R. Nos. 105808, 105809 and 109592.
 1. G.R. No. 105808
Re PCIB Shares

TMEE filed a "Motion for Intervention" seeking admission of its pleading in intervention. It sought to enjoin PCGG
from voting the sequestered shares and to allow it (TMEE) to exercise its rights as holder thereof. It also filed an
urgent motion for issuance of a preliminary injunction or temporary restraining order to stop the PCGG from
voting the shares at the annual stockholder's meeting on April 28, 1988.

a. PCGG Claim:
TMEE a Dummy

The PCGG opposed the petition. (i) It adverted among other things to a letter dated April 10, 1986, written by
Edilberto S. Ramos, Treasurer of Movant TMEE (Trans Middle East [Phils.] Equities, Inc.), in which he
acknowledged that the "beneficial owner of said shares was former Governor Benjamin Romualdez," (ii) It also
drew attention to an "Agreement for Sale and Purchase of Shares of Stock" dated March 3, 1986, entered into
between Mantrasco, Inc., as buyer, and First Manila Management Corporation (FMMC) Group of Companies, as
seller, by virtue of which a "Partial Compromise Settlement Agreement" was subsequently executed between the
PCGG (representing the Republic) and Mantrasco, Inc., whereby the latter transferred possession and control of
Trans Middle shares of stock in the PCIB to the PCGG. For its part, TMEE denied knowledge of any such
agreements, and of ownership by Romualdez of the stock in question. 40

On April 26, 1988, the Sandiganbayan issued resolution allowing intervention by TMEE, but denying its motion for
injunction or temporary restraining order.

TMEE filed another motion to enjoin PCGG from voting the shares at the annual meeting scheduled on May 9,
1991 and to prevent the election of one member of Board whom TMEE's shares could theoretically vote into
office.

On May 8, 1991, the Sandiganbayan issued a Resolution enjoining PCGG and PCIBank and their agents from
voting some 10,853,431 shares standing in the books in the name of TMEE, at the stockholders' meeting.

On August 8, 1991, TMEE filed a motion praying that PCIBANK be ordered to call a special election for the
vacant seat in the Board to enable TMEE to exercise its rights as shareholder and elect such necessary number
of Board Members as its holdings shall allow. The motion was also opposed by the PCGG.

The Sandiganbayan on October 2, 1991 issued a Resolution ruling that (1) PCGG has no right to vote the
10,853.431 shares in the name of TMEE at the stockholder's meeting; and that (2) TMEE may vote said shares in
person or by proxy in any such election. The motion for reconsideration of PCGC was denied by Resolution dated
May 19, 1992.

The PCGG instituted G.R. No. 105808 in this Court praying for annulment of said Resolutions dated October 2,
1991 and May 19, 1992. In connection therewith (and G.R. No. 105809, consolidated with it, infra), this Court
issued a temporary restraining order on July 9, 1992 directing the Sandiganbayan (Second Division) "to CEASE
and DESIST from enforcing . . . (the) questioned Resolutions dated October 3, May 25 and May 26, 1992 in Civil
Case No. 0035 entitled 'Republic of the Philippines vs. Benjamin "Kokoy" Romualdez, et al."

2. G.R. No. 105809 Re Ben-

guet Corporation Shares

In the same case, No. 0035, Intervenors PALM AVENUE HOLDINGS (PAH) and PALM AVENUE REALTY (PAR)
filed a motion to enjoin PCGG from voting their shares in the annual meeting of Benguet Corporation slated on
May 28,1991. 41PCGG however voted the shares over the objection of PAH and PAR. Subsequently, an
agreement was supposedly entered into between the latter's lawyers and the former to the effect that PCGG
would vote the shares and elect three nominees, but in the event that the decision Cojuangco case should
become final, they would have their nominees vacate their seats immediately in favor of the nominees of PAH
and PAR.

PAH and PAR filed a motion reiterating their prayer to enjoin the PCGG from voting the shares.

a. PCGG Claim :
PAR, a Dummy

PCGG opposed the motion. It argued:

(1) that the Sandiganbayan had no jurisdiction over the issue of P12,237,339 (nor merely 6,737,339) Benguet
shares still under sequestration, that issue being still in dispute and unresolved in G.R. No. 90667 (Republic v.
Sandiganbayan, et al.);
(2) that this Court's decision rendered on August 31, 1987 in Palm Avenue Realty Corp. et al., v. PCGG, et
al., 42 had found as a fact that Palm Avenue Realty Corporation, et al. had transferred ownership of these
13,237,339 shares of Benguet stock for valuable consideration (i.e., full payment of their indebtedness to their
creditor banks) and hence no longer possessed and interest therein; and

(3) that the stock in question in truth belonged to Benjamin ("Kokoy") Romualdez, as evidenced by a letter dated
April 4, 1986 of Jose S. Sandejas, attorney-in-fact of Palm Avenue Realty Corporation in which he admitted that
"the beneficial owner of said shares is former Gov. Benjamin Romualdez," and another letter dated April 16, 1986
of Jovencio B. Cinco, director of Benguet Corporation to the same effect, that the beneficial owner of subject
Benguet shares was indeed Romualdez. 43

A Resolution dated May 25, 1992 by the Sandiganbayan ordered: (1) that the three (3) nominees of the PCGG
vacate their offices as Board Members of Benguet Corporation; (2) that Benguet Corporation allow PAH and PAR
to vote their shares sufficient to elect three (3) directors; and (3) that PCGG be enjoined from voting said shares.

To nullify this Resolution of May 19, 1992, G.R. No. 105809 was commenced in this Court by the PCGG. As
above stated, the case was consolidated with G.R. No. 105808, and a temporary restraining order was issued on
July 9, 1992.

3. G.R. No. 109592

In connection with the annual meeting of the PCIB scheduled May 25, 1993, TMEE filed with this Court a petition
for mandamus to order the Board of the PCIBank to allow TMEE to vote its sequestered shares in said meeting.
PCIB's refusal to allow TMEE to do was premised on the temporary restraining order issued by this Court in G. R.
Nos. 105808-09 on July 9, 1992, supra, enjoining the Sandiganbayan from implementing its resolutions
(perpetually prohibiting the PCCG voting the sequestered shares in Civil Case No. 0035)

The Court granted a temporary restraining order on April 20, 1993, enjoining PCIBANK from holding its annual
stockholder's meeting,

a. TRO Applicable also to

Benguet Corporation

Thereafter, acting on a motion dated May 13, 1993 44 seeking inter alia clarification of the restraining order of July
9, 1992 — as applicable only to PCIB and not to Benguet Corporation so as to disqualify PCGG from voting its
sequestered shares at Benguet's annual meeting scheduled on May 25, 1993 — this Court promulgated a
Resolution on May 25, 1993 in G.R. Nos. 105808, 105809 and 109592 declaring that although the import of the
restraining order of July 9, 1992 was clear enough — as covering both PCIB and Benguet Corporation —
nevertheless, to lay all doubts to rest and "so that a final adjudication on the merits of . . . (said) three cases may
not be rendered possibly academic and/or nugatory, . . . a similar order TEMPORARILY RESTRAINING the
holding of elections for directors in the annual stockholders' meeting of Benguet Corporation, scheduled today,
May 25, 1993 or at any time thereafter, until further orders" — should be, as it was thereby, issued. The
Resolution allowed the meeting, "however, (to) continue as to any other matters in the agenda.

4. G.R. No. 92376 Re Shares in

Philippine Journalists, Inc.

One other incident in Case No. 0035 must be recounted and it is that concerning the Philippine Journalists, Inc.
(PJI). Among the assets seized by the PCGG as constituting "ill-gotten wealth" of defendant Romualdez were his
shares of stock in PJI, The PCGG thereafter voted these shares at meetings of the corporation, In addition, the
PCGG also voted a block of common shares registered in the names of eight (8) persons, namely: Manuel Salak,
Araceli Linsangan, Alejandro Maramag, Caridad Orpiada, Line Sison and Milagros Hizon; this, on the theory that
the shares in truth belonged to Romualdez and sequestration of the latter's shares included sequestration of the
former's stock.

On January 30, 1990, a motion was filed in Case No. 0035 by proxy 45 of said eight (8) stockholders to enjoin
PCGG from their "unsequestered shares" at or during the annual stockholders' meeting of the Philippine
Journalists, Inc. (PJI) scheduled on February 6, 1990, pending termination of the proceeding or until further
orders of the Sandiganbayan. A temporary restraining order was handed down on February 5, 1990 by the
Sandiganbayan, without prejudice to PCGG's subsequently filing an opposition to the motion for injunction and
the holding of a hearing on the application for preliminary injunction.

On February 26, 1990, after due hearing, the Sandiganbayan ruled that continuance of the act complained of
would work injustice and cause great or irreparable injury to the movants, and upon a bond in sum of P20,000.00
filed, ordered the PCGG and its officers; etc., to desist and refrain from voting the common shares of the eight (8)
movants. This is because — even assuming the shares had been actually sequestered — no judicial action or
proceeding had been instituted against the above-named stockholders the PCGG having failed to institute the
corresponding judicial action against the shareholders within six (6) months from date of sequestration as
required by Section 26, Article XVIII of the Constitution.
The PCGG commenced a special civil action of certiorari, in this Court, docketed as G.R. No. 92376 (Republic of
the Philippines (PCGG) v. Sandiganbayan and Rosario M. B. Olivares), which resulted in a decision promulgated
on August 12, 1991, 46 holding that no grave abuse of discretion tainted the resolution of the Sandiganbayan; that
the claim of the PCGG that the listing of the sequestered PJI shares as Item No. 49 in an annex appended to the
complaint was sufficient compliance with the constitutional mandate, was untenable for a corporation has a
distinct and separate personality from its stockholders; that also untenable was the claim that Romualdez is the
real and beneficial owner of all the shares of stock in question and the registered owners, mere dummies, such a
proposition being simply assumed, and still remained to be proved in Case No. 0035 before the Sandiganbayan;
that hence, the inclusion of Romualdez as defendant did not excuse the failure to file the corresponding action
against the eight (8) movants; and the moreover, there was no showing that the of the stock in question by the
PCGG was necessary to prevent dissipation of property of the corporation or of the shares themselves.

VIII. Indications that Some Corporations

Are In Fact Mere "Dummies"

To be sure, the records of these cases abound with indications, mostly in the form of admissions, that several of
the corporations listed in the complaint against Eduardo J. Cojuangco, Jr. are "dummies" or manipulated
instruments, or repositories of wealth deceitfully amassed at the expense of the People, or simply the fruits
thereof.

A. Dummy Owners of San Miguel

Corporation (SMC) Stock

For instance, three (3) corporations, namely: (1) Meadow-Lark Plantations, Inc., (2) Primavera Farms, Inc., and
(3) Silver-Leaf Plantations, Inc., appear in the books of San Miguel Corporation (SMC) as owners of 8, 138,440
shares of the latter's stock. And a certain Jose C. Concepcion also appears in its books as owner of "San Miguel
Corporation Stock Certificate No. A962930 for 5,000 shares."

All the outstanding capital stock (100%) of these three (3) companies is owned by five (5) persons, all lawyers,
namely: (1) the aforenamed Jose C. Concepcion, (2) Victoria C. de los Reyes, (3) Florentino M. Herrera III, (4)
Teresita J. Herbosa, and (5) Jose Riodil Montebon. Concepcion, Herbosa and Montebon of one law firm; Herrera
and de los Reyes are members of another.

All these (5) are shown to be signatories of three (3) identically worded voting trust agreements executed on April
13, 1984 giving to Eduardo M. Cojuangco, Jr. the right to vote for a period of five (5) years, the shares of stock of
the three (3) corporations above mentioned — of the entire capital stock of which they are, as aforestated, the
ostensible owners.

Moreover, there are on record more or less identically worded voting trust agreements executed on April 13, 1984
giving to Eduardo M. Cojuangco, Jr. the right to vote for a period of five (5) years, the shares of stock of the three
(3) corporations above mentioned — of the entire capital stock of which they are, as aforestated, the ostensible
owners.

Moreover, there are on record more or less identically worded affidavits of Jose C. Concepcion, Teresita J.
Herbosa and Jose R. D. Montebon frankly confessing that the shares of stock listed under their names in the
corporate books of the three (3) corporations above mentioned — and several other firms shortly to be named —
were merely assigned to them as "nominee stockholders," but in truth they do "not have any proprietary interest in
any of
. . . (said) shares of stock.

Concepcion's affidavit contains the additional declaration of his being "nominee stockholder" of "San Miguel
Corporation Stock Certificate No. A962930 for 5,000 shares and all stock dividends declared thereon," supra,
although in truth he does "not have any proprietary interest" therein.

It thus appears that by their own unequivocal admissions, not one of the aforementioned five attorneys is the
owner of the stock under their names in the three (3) corporations above mentioned, which in turn own not
inconsiderable stock in San Miguel Corporation.

Jose C. Concepcion appears furthermore to have executed in blank three (3) documents entitled
"DECLARATION OF TRUST AND ASSIGNMENT OF SUBSCRIPTION," all dated April 13, 1984, in each of
which he (a) declares that all shares of stock registered in his name in the three corporations above named
(Meadow-Lark Plantations, Inc., Primavera Farms, Inc., and Silver-Leaf Plantations, Inc.) were assigned to him
"only as nominee and only for the benefit and in trust for" an assignee whom he does not name, and (b) binds
himself "to assign, transfer and convey all his rights, title and interest in the aforesaid shares of stock in favor of
the (unnamed) ASSIGNEE or his nominees or assigns at anytime upon the request of the ASSIGNEE.

B. Dummy Ownership of
Dutch Boy Shares of Stock
The same pattern of masked ownership is prima facie divulged by the record in respect of a substantial cluster of
shares of stock of Dutch Boy Philippines, Inc. The latter's books show ownership of 42,232 Dutch Boy shares in
the name of Traders Holdings & Marketing Corporation (Traders), said block of shares constituting 37% of the
total outstanding capital stock of Dutch Boy Philippines, Inc. The entire capital stock of Traders (100%) appears in
turn to be owned by Reddee Developers, Inc. (RDI)

RDI is another corporation sequestered by the PCGG on the theory that it is one or many dummy or controlled
corporations of Eduardo M. Cojuangco, Jr. Among its stockholders are four (4) of the lawyers already mentioned,
Florentino M. Herrera III, Victoria C. de los Reyes, Jose Riodil D. Montebon and Rogelio A. Vinluan. On record
are affidavits of these four (4) individuals — and one (1) other, Atty. Armando Q. Ongsioco (apparently connected
with the same law firm as Concepcion, Herbosa and Montebon] — stating that although RDI stock is registered in
their names in the corporate books, they do "not have any proprietary interest in any of . . . (said) shares of stock.

C. Other Confessions Regarding So-

Called "Cojuangco Companies"

Similar confessions of cloaked ownership bared by the record as regards several other companies sequestered
by the PCGG.

Jose C. Concepcion's affidavit for instance, acknowledges his being a mere nominee without "proprietary interest"
only as regards shares of stock in San Miguel Corporation Meadow-Lark Plantations, Inc., Primavera Farms, Inc.
and Silver-Leaf Plantations, Inc., supra, but also as regards stock in twenty (20) other alleged" Cojuangco
companies," namely:

1. Anchor Insurance Brokerage Corporation

2. Balete Ranch, Inc.
3. Belmont Reds Phils Corporation
4. Core Foundation, Inc.
5. Dream Pastures, Inc.
6. Echo Ranch, Inc.
7. Eduardo M. Cojuangco, Jr. & Sons Agricultural Enterprises,
Inc.
8. Fiscal Managers, Inc.
9. Granexport Manufacturing Corporation
10. Hacienda Fe, Inc.
11. LHL Cattle Corporation
12. Matrix Manufacturing Corporation
13. Indo Phil. (OLA) Oil Mills, Inc.
14. Rancho Grande, Inc.
15. Southern Islands Oil Mills Corporation
16. Southern Star Cattle Corporation
17. United Coconut Chemicals, Inc.
18. United Sari-Sari Livelihood Corp.
19. United Coconut Planters Bank
20. United Coconut Oil Mills, Inc.

So, too, Atty. F.M. Herrera admits under oath his being "nominee stockholder" but without "proprietary interest"
not only in the corporations already mentioned — Meadow-Lark Plantations, Inc., Primavera Farms, Inc., Silver-
Leaf Plantations, Inc. and Reddee Developers, Inc. — but also in fourteen (14) other so-called "Cojuangco
companies," to wit:

1. Archipelago Realty Corporation

2. Autonomous Development Corporation
3. Balete Ranch, Inc.
4. Dream Pasture, Inc.
5. Echo Ranch, Inc.
6. Far East Ranch, Inc.
7. Growth Trading
8. Hacienda Fe, Inc.
9. Land Air International Marketing Corporation
10. LHL Cattle Corporation
11. Philippine Construction Materials, Inc.
12. Rancho Grande, Inc.
13. San Esteban Development Corporation
14. Southern Star Cattle Corporation

In her affidavit already above referred to, Victoria C. de los Reyes confesses to being a mere "nominee
stockholder" without "proprietary interest in any of the shares of stock registered under . . . (her) name" in the . . .
(following) corporations (said to be "Cojuangco firms"):
 1. Agricultural Consultancy Services, Inc.
2. Anchor Insurance Brokerage Corp.
3. Archipelago Realty Corporation
4. Autonomous Development Corp.
5. Balete Ranch, Inc.
6. Belmont Red Philippines, Inc.
7. Central Communications System, Inc.
8. Cocoa Investors, Inc.
9. Core Foundation, Inc.
10. Dream Pastures, Inc.
11. Echo Ranch, Inc.
12. Far East Ranch, Inc.
13. First United Travel, Inc.
14. Growth Trading, Inc.
15. Haciend Fe, Inc.
16. Land Air International Mktg. Corp.
17. LHL Cattle Corporation
18. [Meadow-Lark Plantations, Inc. (supra)
19. Mirador Hills Realty, Inc.
20. Philippine Construction Materials, Inc.
21. Rancho Grande, Inc.
22. [Reddee Developers, Inc. (supra)]
23. San Esteban Development Corp.
24. United Janitorial and Manpower Services Corp.
25. Ventures Securities, Inc.

In his affidavit, Jose R. D. Montebon makes the same admissions with respect not only to Meadow-Lark
Plantations, Inc. and Reddee Developers, Inc. (above already mentioned), but also to eight (8) others alleged to
be "Cojuangco companies," to wit:

1. Archipelago Realty Corporation

2. Autonomous Development Corp.
3. Cocoa Investors, Inc.
4. Growth Trading
5. Hacienda Fe, Inc.
6. Mirador Hills Realty, Inc.
7. Phil. Construction Materials, Inc.
8. San Esteban Development Corporation.

Another lawyer, the above named Armando Q. Ongsioco, makes the same statement in his affidavit, that he is
"nominee stockholder" merely without "any proprietary interest in any of the shares of stock registered under . . .
(his) name," not only in Reddee Developers, Inc. (already mentioned), but also in six (6) other firms claimed to be
"Cojuangco corporations," to wit:

1. United Agusan Agro Developers, Inc.

2. Archipelago Realty Corporation
3. Interpublik Associates, Inc.
4. Mermaid Marketing Corp.
5. Mirador Hills Realty, Inc. Phil.
6. Construction Materials, Inc.

Atty. T. D. Regala, makes the same statement, "In the course of rendering professional services to clients," he
says in his affidavit found in the record, he "acted as nominee stockholder" but without "proprietary interest in any
of the shares of stock registered under . . . (his) name in the . . . (following) corporations:

1. Balete Ranch, Inc.

2. Cocoa Investors, Inc.
3. Dream Pastures, Inc.
4. Echo Ranch, Inc.
5. Far East Ranch, Inc.
6. LHL Cattle Corporation
7. Rancho Grande, Inc.

In a similar affidavit, Atty. Manuel R. Roxas acknowledges his holding of stock only as "nominee stockholder"
without "proprietary interest" in any
stock in

1. Verdant Plantations, Inc. and

2. Vesta Agricultural Corporation
In his affidavit in the record, lawyer Rogelio A.. Vinluan, already above mentioned, declares that he is only a
"nominee stockholder" and does not really own the stock registered in his name in —

1. Agricultural Consultancy Services, Inc.

2. Archipelago Realty Corporation
3. Radyo Pilipino Corporation
4. Reddee Developers, Inc. (supra)

In other words, according to the affidavits and documents allegedly executed by the parties concerned, there are
two or more bogus stockholders in a number of the so-called "Cojuangco Companies," to wit:

1. In Agricultural Consultancy Services, Inc. —

Victoria C. de los Reyes

Rogelio A. Vinluan

2. In Archipelago Realty Corporation —

Victoria C. de los Reyes

Florentino M. Herrera III
Rogelio A. Vinluan
Jose Riodil D. Montebon
Armando Q. Ongsioco

3. In Balete Ranch, Inc. —

Jose C. Concepcion
Florentino M. Herrera III
Teodoro D. Regala
Victoria C. de los Reyes

4. In Dream Pastures, Inc. —

Jose C. Concepcion
Florentino M. Herrera III
Teodoro D. Regala
Victoria C. de los Reyes

5. In Echo Ranch, Inc.—

Jose C. Concepcion
Florentino M. Herrera III
Teodoro D. Regala
Victoria C. de los Reyes

6. In LHL Cattle Corporation —

Jose C. Concepcion
Florentino M. Herrera III
Teodoro D. Regala
Victoria C. de los Reyes

7. In Rancho Grande, Inc. —

Jose C. Concepcion
Florentino M. Herrera III
Teodoro D. Regala
Victoria C. de los Reyes

8. In Mirador Hills Realty, Inc. —

Jose Riodil D. Montebon

Armando Q. Ongsioco

9. In Phil. Construction materials, Inc. —

Jose Riodil D. Montebon

Armando Q. Ongsioco
And there would appear to be at least one (1) bogus stockholder in the rest of the so-called "Cojuangco
companies" above listed.

IX. Basic in All Cases

The crucial question underlying all these cases may be put in this wise:

DOES INCLUSION IN THE COMPLAINTS FILED BY THE PCGG BEFORE THE

SANDIGANBAYAN OF SPECIFIC ALLEGATIONS OF CORPORATIONS BEING "DUMMIES" OR
UNDER THE CONTROL OF ONE OR ANOTHER OF THE NAMED THEREIN AND USED AS
INSTRUMENTS FOR ACQUISITION OR AS BEING DEPOSITARIES OR PRODUCTS, OF ILL-
GOTTEN WEALTH; OR THE ANNEXING TO SAID COMPLAINTS OF A LIST OF SAID FIRMS,
BUT WITHOUT ACTUALLY IMPLEADING THEM AS DEFENDANTS, SATISFY THE
CONSTITUTIONAL REQUIREMENT THAT IN ORDER TO MAINTAIN A SEIZURE EFFECTED
IN ACCORDANCE WITH EXECUTIVE ORDER NO. 1, s, 1986, THE CORRESPONDING
"JUDICIAL ACTION OR PROCEEDING" SHOULD BE FILED WITHIN THE SIX-MONTH PERIOD
PRESCRIBED IN SECTION 26, ARTICLE XVIII, OF THE (1987) CONSTITUTION.

The contending parties have expectedly taken opposing sides on the question. The PCGG maintains the
affirmative of the issue. The various private respondents say "No," that contemplated enabling or saving effect
could only be brought about by the actual, formal impleading of the sequestered entities or the ostensible holders
of the sequestered assets, and asserting that sequestrations affecting persons or entities not so impleaded
automatically lapsed upon expiration of either of the six-month periods, whichever was applicable, specified in the
cited provision of the Constitution.

That issue submits to resolution upon equally basic and familiar principles of procedural and substantive law and
of the interpretation of statutes.

X. Purpose of Constitutional Requirement for

Filing of "Judicial Action or Proceeding"
Within Fixed Period Re Orders of Seques-
tration, Etc.

The purpose of the constitutional requirement that the corresponding judicial action or proceeding be filed within a
definite period as regards orders of sequestration, freezing or provisional takeover, is not difficult to discern.
Sequestration, freezing, provisional takeover are fundamentally remedies which are temporary, interim,
provisional. In the very nature of things, as emphasized in BASECO, 47 they are not meant to bring about a
permanent state of affairs. They are severe, radical measures taken against apparent, ostensible owners of
property, or parties against whom, at the worst, there are merely prima facie indications of having amassed "ill-
gotten wealth," indications which must still be shown to lead towards actual facts in accordance with the judicial
procedures of the land.

Thus, the rationale for the limitations placed upon the power of sequestration, etc. by the Constitution, these
being the following: 48

1. The authority to issue such orders was made "operative for not more than eighteen months after ratification of .
. . (the) Constitution;" i.e., not beyond 18 months form February 2, 1987, unless extended by the Congress "on
the national interest, as certified by the President;" 49

2. Said orders could issue only upon showing of a prima facie case;

3. The order and the list of sequestered or frozen properties had to be registered forthwith with the proper court;
the Sandiganbayan, according to
law; 50

4. For orders issued before ratification of the 1987 Constitution, the corresponding judicial action or proceeding
should be filed within six months therefrom (i.e., six months from February 2, 1987); and for those issued
thereafter, within six months from issuance of the order of the sequestration etc.

The issue in all the cases at bar chiefly concerns the fourth limitation pursuant to which the PCGG had to file "the
corresponding judicial action or proceeding" within a fixed period of six months. The evident purpose was to
preclude the possibility that the PCGG indefinitely maintain its orders of sequestration, etc. and to compel it,
within a reasonable time, to bring them into the realm of judicial oversight, evaluation and control, to the end that
excesses of the officials and agents enforcing and implementing said orders might be prevented and avoided and
private rights duly protected and vindicated, while the main business of determining the character of the property
as "ill-gotten wealth" or not was being attended to

XI. Nature of Contemplated "Judicial

Action of Proceeding"
There is no particular description or specification of the kind and character of the "judicial action or proceeding"
contemplated, much less an explicit requirement for the impleading of the of the corporations sequestered, or of
the ostensible owners of property suspected to be ill-gotten. The only modifying or qualifying requirement in the
constitution is that the action or proceeding be filed "for — i.e., with regard or in relation to, in respect of, or in
connection with, or concerning — orders of sequestration, freezing, or provisional takeover. 51 What is apparently
contemplated is that the action or proceeding concern of involve the matter of sequestration, freezing or
provisional takeover of specific property, corporeal or incorporeal, personal or real; and should have as objective,
the demonstration by competent evidence that the property thus sequestered, frozen or taken over is indeed "ill-
gotten wealth" over which the government has a legitimate claim for recovery and other relief. Stated otherwise,
the action or proceeding contemplated is one for the finalsubstantiation or proof of the prima facie showing on the
basis of which a particular order of sequestration, freezing or takeover was issued.

XII. Character of actions Actually Brought

Now, there would seem to be no dispute about the fact that in all the cases at bench, an "action or proceeding"
was actually filed with regard or in relation to in respect of in connection with, or concerning the sequestration,
other freezing or provisional takeover of corporations proceeding" was filed within

As regards the sequestered corporations, the complaints in the actions thus brought all alleged that said entities
were either the instruments or conduits for personal aggrandizement or the acquisition of ill-gotten wealth, or
were the depositaries, or were themselves the fruits, of ill-gotten wealth. In other words, they were organized so
that they could be used for improper, illegal and anomalous availment of financial or other advantage; or were
formed or being operated or manipulated by public officers sub rosa, or by private individuals, with the use of
public funds or property or assets otherwise illegally acquired, or in breach of public trust or violation of fiduciary
duty; or in the case of existing firms, that their stock had been purchased by or for public officers and their
relatives, friends, and associates, with the use of public funds or illegally acquired money, or in violation of law or
fiduciary duty, etc. Elsewise stated, following the classic pattern of a money-laundering operation, they were
either sham, "shell" or "dummy" corporations serving as fraudulent devices or conduits for private gain of public
officers and employees; or companies from which stock had been acquired, or firms into which capital had been
infused, or shares of stock purchased, with the use of illegally acquired assets, and which therefore constituted
the res: the thing or object treated of in the action.

Without belaboring the obvious, some illustrations may not be amiss, and may serve to make clear the PCGG
theory, as the Court sees it, of sequestered companies organized to serve as tools for acquiring, or being
depositaries or the fruits of, ill-gotten wealth.

A. Cases Where Corporations Used as

Instruments to Illegally Amass Wealth

For instance, in the following cases, the PCGG contends that corporations were used as conduits or instruments
to obtain favored contracts from government institutions or agencies, through undue influence, fraud or other
illegal means, invariably with the omission of burdensome requisites and conditions imposed by law. In Civil Case
No. 0007, the PCGG alleges that the defendants (Fe Gimenez Roa, et al.) used corporations organized and
controlled by them to obtain favorable construction contracts from the Government. In Civil Case No. 0009, the
PCGG theory is that the defendants therein (Jose Africa, et al.) used the companies controlled by them to set up
a monopoly in the telecommunications industry, and acquire substantial shareholdings in POTC-PHILCOMSAT.
In Civil Case No. 0014, the PCGG contends that the defendants (Enriquez Spouses, et al.) illicitly took control of
several corporations which they afterwards used as instruments to obtain unconscionable loans and financial
accommodation from the GSIS and DBP, and sell land at a bloated price to the GSIS. In Civil Case No. 0016, the
PCGG asserts that the defendants (Cuenca, et al.) utilized corporations controlled by them to procure favored
contracts from such government agencies as the Department of Public Works and the National Irrigation Authority
for many construction projects costing billions of pesos; obtain financial assistance without sufficient collateral or
under anomalous terms from such government institutions as the Philippine National Bank; and transfer US
dollars to a foreign account for eventual use by the Marcoses to buy property in New York. In Case No. 0024, the
PCGG position is that the defendants (Peter Sabido, Luis Yulo, et al.) made use of corporations controlled by
them to obtain huge loans (in domestic and foreign currencies) under anomalously one-sided conditions; and in
Case No. 0025, that the defendants (Antonio Martel, et al.) utilized their controlled company to get favored
contracts with the Department of National Defense and huge dollar loans from the DBP.

B. Cases of Corporations as Depositaries

of Fruits of Ill-Gotten Wealth

In other instances, the PCGG theory is that companies in which alleged Marcos cronies or dummies own
substantial beneficial interests, received Government property or public funds misappropriated or converted by
public officers or other persons and were used for said companies' commercial advancement (Civil Cases Nos,
0014, 0023).

In still other instances, according to the PCGG, substantial or controlling blocks of stock of highly profitable
business enterprises were purchased with Government funds or illegally acquired wealth in the names of the
purchasers themselves or their "dummies" or "nominees" (e.g., San Miguel Corporation, Benguet Mining
Corporation, MERALCO).

C. Common Prayer of Complaints

The complaints in the cases at bar all pray either that the shares of stock illegally acquired or the public funds
deposited or invested in banking or other existing companies, through fraud or anomalous machinations by public
officers and employees, or through the use of undue influence and pressure or other illegitimate means and
methods, or the corporations controlled by the defendants and used for nefarious purposes, be conveyed to and
forfeited in favor of the Government.

Now, it would seem a self-evident proposition that if the material averments of the complaints are shown to be
true by identified competent proof, the ill-gotten wealth thereby described and identified should justly be forfeited
in favor of the Government, and other appropriate remedy granted by the Court to the Republic and Filipino
people.

This is precisely the relief prayed for by the PCGG on the strength of the specific and express allegations of its
several complaints. No reason of substance or significance exists to deny it the opportunity to obtain that relief.

XIII. Postulated Procedural Error

in PCGG Complaints

It is postulated, however, that judicial actions instituted by the PCGG. relation to or in connection with its orders of
sequestration or seizure against corporations or shares of stock held by supposed dummies, suffered from a
grave procedural defect. The sequestered corporations — which, in the above mentioned view of the PCGG had
served as tools or instruments for acquisition of ill-gotten wealth, or were the depositaries or fruits thereof — or
the natural persons ostensibly owning stock as "dummies," had not been impleaded as defendants in the various
complaints.

A. Error Immaterial to Requirement to

File Actions or Proceedings within
Constitutional Time Limits

Such a procedural defect, however, conceding its existence for the nonce, does not contradict or adversely affect
the actuality that judicial actions or proceedings had been brought within the time limits, laid down by the
Constitution "for" them; i.e., with regard or in relation to, in connection with, or involving or concerning the
sequestration or seizure by the PCGG of the assets or properties in question.

Other considerations bearing upon the matter should also be taken into account.

B. Impleading Unnecessary in Cases for

Recovery of Shares of Stock or Bank
Deposits

As regards actions in which the complaints seek recovery of defendants' shares of stock in existing corporations
(e.g., San Miguel Corporation, Benguet Corporation, Meralco, etc.) because allegedly purchased with
misappropriated public funds, in breach of fiduciary duty, or otherwise under illicit or anomalous conditions, the
impleading of said firms could clearly appear to be unnecessary. If warranted by the evidence, judgments may be
handed down against the corresponding defendants divesting them of ownership of their stock, the acquisition
thereof being illegal and consequently burdened with a constructive trust, and imposing on them the obligation of
surrendering them to the Government.

Quite the same thing may be said of illegally obtained funds deposited in banks. The impleading of the banks
would also appear unnecessary. Indeed, there would exist no cause of action against them. Judgment may
properly be rendered on the basis of competent evidence, that said funds are ill-gotten wealth over which the
defendants have no right, and should consequently be surrendered to their rightful owner, the Government. The
judgment would constitute sufficient warrant for the bank to make the corresponding transfer of the funds.

C. Impleading Unnecessary Re Firms

Which are the Res of the Actions

And as to corporations organized with ill-gotten wealth, but are not themselves guilty of misappropriation, fraud or
other illicit conduct — in other words, the companies themselves are the object or thing involved in the action,
the res thereof — there is no need to implead them either. Indeed, their impleading is not proper on the strength
alone of their having been formed with ill-gotten funds, absent any other particular wrong doing on their part. The
judgment may simply be directed against the shares of stock shown to have been issued in consideration of ill-
gotten wealth.
Such showing of having been formed with, or having received ill-gotten funds, however strong or convincing,
does not, without more, warrant identifying the corporations in question with the persons who formed or made use
of them to give the color or appearance of lawful, innocent acquisition to illegally amassed wealth — at the least,
not so as place on the Government the onus of impleading the former together with the latter in actions to recover
such wealth. Distinguished, in terms of juridical personality and legal culpability from their erring members or
stockholders, said corporations are not themselves guilty of the sins of the latter, of the embezzlement,
asportaton, etc., that gave rise to the Government's cause of action for recovery; their creation or organization
was merely the result of their members' (or stockholders') manipulations and maneuvers to conceal the illegal
origins of the assets or monies invested therein. In this light they are simply the res in the actions for the recovery
of the illegally acquired wealth, and there is, in principle no cause of action against them and no ground to
implead them as defendants in said actions.

The Government is thus, not to be faulted for not making such corporations defendants in the actions referred to.
It is even conceivable that had this been attempted, motions to dismiss would have lain in frustrate such attempts.

D. In any Case, Omission to Implead

Firms not Fatal, but Curable Error

Even in those cases were it might reasonably be argued that the failure of the Government to implead the
sequestered corporations as defendants is indeed a procedural aberration, as where said firms were allegedly
used, and actively cooperated with the defendants, as instruments, or conduits for conversion of public funds or
property or illicit or fraudulent obtention of favored Government contracts, etc., slight reflection would
nevertheless lead to the conclusion that the defect is not fatal, but one correctible under applicable adjective rules
— e.g., Section 10, Rule 5 of the Rules of Court [specifying the remedy of amendment during trial to authorize or
to conform to the evidence 52); Section 1, Rule 20 [governing amendments before trial], in relation to the rule
respecting the omission of so-called necessary or indispensable parties, set out in Section 11, Rule 3 of the Rules
of Court. 53 It is relevant in this context to advert to the old, familiar doctrines that he omission to implead such
parties "is a mere technical defect which can be cured at any stage of the proceedings even after judgment; 54 and
that, particularly in the case of indispensable parties,55 since their presence and participation is essential to the
very life of the action, for without them no judgment may be rendered, amendments of the complaint in order to
implead them should be freely allowed, even on appeal, in fact even after rendition of judgment by this Court,
where it appears that the complaint otherwise indicates their identity and character as such indispensable
parties. 56 or necessary parties, it bears repeating that their sequestration would not thereby be rendered functus
officio, since, as already pointed out, judicial actions or proceedings have in truth been filed concerning or
regarding said sequestration in literal and faithful compliance with Section 26, Article XVIII of the Constitution.

XIV. Effect of Sequestration on

Corporations Concerned

Moreover, the fact of sequestration clearly placed the corporations subjected thereto on notice that in the
Government's view, they were instruments for acquisition of ''ill-gotten wealth." or their formation, organization
and operation were tainted by impropriety and wrongdoing (e.g., by infusion of stolen funds or property); and that
therefore, they should expect some form of Government action for redress and relief. In any event, in common
with everybody else, they were charged with notice of the State policy, enunciated by the Revolutionary
Government, reiterated in the Freedom Constitution, and explicitly set forth in the 1987 Constitution, that
preferential attention should be given to the mission of recovering ill-gotten wealth. It might even be theorized, not
unreasonably, that these circumstances placed on them the onus of intervening in the corresponding action, to
quash the writs of sequestration by proof that they are not "ill-gotten wealth," that they are legitimate corporations,
engaged in licit business.

XV. Continuing Vitality of State Policy

For Recovery of Ill-Gotten Wealth.

Political normalization of the country — which fortunately came not too long after the EDSA Revolution of 1986 —
did not abrogate, or diminish the strength of the lofty state policy for recovery of ill-gotten wealth, no matter that its
prosecution has thus far yielded what not a few are disposed to regard as at best only fixed results, or was
attended by much abuse on the part of some of its officers or "fiscal agents;" indeed, that circumstance should
vigorously argue for its more sustained and effective pursuit and implementation.

And equally, if not more, important, strong paramount public policy is not to be set at naught by technical rules of
procedure or by narrow constructions of constitutional provisions that frustrate their clear intent or unreasonably
restrict their scope. This, of course, even on the premise that impleading sequestered firms is necessary to the
maintenance of their sequestration — a premise that is of doubtful validity, as already pointed out, given the
language of the constitutional provision.

Furthermore, if actions are not to be dismissed for lack of an indispensable party, where the latter may be
subsequently joined by amendment of the pleadings, no reason appears why provisional remedies in those
actions, such as sequestrations, should be affected by the initial non-inclusion of an indispensable party, the
obvious remedy being to allow amendment of the complaint to effect the impleading.
 XVI. The "Interco" and "PJI" Rulings

This Court is not unmindful of the fact that its Resolution of July 26, 1991 on the petitioner's motion for
reconsideration in G.R. No. 92755 (PCGG vs. Interco) 57 appears to sustain the proposition that actual impleading
in the recovery action of a corporation under sequestration for being a repository of illegally-acquired wealth, is
necessary and requisite for such proposed or pending seizure to come under the protective umbrella of the
Constitution. But Interco is to be differentiated from the cases now under review in that in the former, as already
elsewhere herein made clear, there was a lack of proof, even of the prima facie kind, that Eduardo Cojuangco, Jr.
owned any stock in Interco, the evidence on the evidence on record being in fact that corporation had been
organized as a family corporation of the Luys.

So, too, this Court's judgment in the so-called "PJI Case" (Republic of the Philippines [PCGG] v. Sandiganbayan
and Rosario Olivares) 58 may not be regarded as on all fours with the cases under consideration.
The PJI Case involved the shares of stock in the name of-eight (8) natural persons which had never been
sequestered at all. What happened was that the PCGG simply arrogated unto itself the right to vote those
unsequestered shares on the bare claim that the eight (8) registered owners thereof were "dummies" of Benjamin
Romualdez, the real owner of the shares; and all that the PCGG had done as predicate for that act of
appropriation of the stock, was to include all the shares of PJI in a list (Annex A) appended to its complaint in
Sandiganbayan Case No. 0035, describing them as among the properties illegally acquired by Romualdez.
Unfortunately, as in Interco, the PCGG failed to substantiate by competent evidence its theory of clandestine
ownership of Romualdez; and since moreover, there had been no sequestration of the alleged dummies' shares
of stock, it was undoubtedly correct for the Sandiganbayan to grant the latter's motion for them to be recognized
and declared as the true owners of the stock in question, which judgment this Court subsequently pronounced to
be free from grave abuse of discretion.

It is obvious that the now-questioned rulings of the Sandiganbayan merely hewed to what that tribunal perceived
to be the doctrine laid down in Interco, and PJI. That was error, as already explained in some detail, all things
considered, one not easily avoided.

XVII. Final Dispositions

It is thus both needful and timely to pronounce that:

1) Section 26, Article XVIII of the Constitution does not, by its terms or any fair interpretation thereof, require that
corporations or business enterprises alleged to be repositories of "ill-gotten wealth." as the term is used in said
provision, be actually and formally impleaded in the actions for the recovery thereof, in order to maintain in effect
existing sequestrations thereof;

2) complaints for the recovery of ill-gotten wealth which merely identify and/or allege said corporations or
enterprises to be the instruments, repositories or of the fruits of ill-gotten wealth, without more, come within the
meaning of the phrase "corresponding judicial action or proceeding" contemplated by the constitutional provision
referred to; the more so, that normally, said corporations, as distinguished from their stockholders or members,
are not generally suable for the latter's illegal or criminal actuations in the acquisition of the assets invested by
them in the former:

3) even assuming the impleading of said corporations to be necessary and proper so that judgment may
comprehensively and effectively be rendered in the actions, amendment of the complaints to implead them as
defendants may, under existing rules of procedure, be done at any time during the pendency of the actions
thereby initiated, and even during the pendency of an appeal to the Supreme Court — a procedure that, in any
case, is not inconsistent with or proscribed by the constitutional time limits to the filing of the corresponding
complaints "for — i.e., with regard or in relation to, in respect of, or in connection with, or concerning — orders of
sequestration, freezing, or provisional takeover."

WHEREFORE, judgment is hereby rendered:

A. NULLIFYING AND SETTING ASIDE:

1) in G.R. No. 96073, the challenged Resolution of the Sandiganbayan promulgated on November
39, 1990;

2) in G.R. No. 104065, the Sandiganbayan's Resolutions issued on November 18, 1991 and
January 31, 1992;

3) in G.R. No. 104167, the challenged Resolutions of the Sandiganbayan issued on October 28,
1991 and February 19, 1991;

4) in G.R. No. 104168, said Court's challenged Resolutions dated October 11, 1991 and February
12, 1992;
 5) in G.R. No. 104679, its challenged Resolutions issued on December 13, 1991 and March 18,
1992;

6) in G.R. No. 104850, its questioned Resolution promulgated on April 8, 1992;

7) in G.R. No. 104883, its questioned Resolution promulgated on April 24, 1992;

8) in G.R. No. 105170, its questioned Resolutions dated September 17, 1991 and January 17,
1992;

9) in G.R. No. 105205, its Resolutions issued on November 15, 1991 and January 17, 1992;

10) in G.R. No. 105206, its Resolutions dated October 10, 1991 and May 4, 1992;

11) in G.R. Nos. 105711-12, its assailed Decision dated March 30, 1992, and Resolutions dated
May 28, 1992;

12) in G.R. 105808, the Sandiganbayan's Resolutions dated October 3, 1991 and May 26, 1992;
and in G.R. No. 105809, its Resolutions issued on May 25, 1992;

13) in G.R. No. 105850, the Resolutions issued on December 4, 1991 and June 18, 1992;

14) in G.R. No. 106176, the challenged Resolutions dated October 18, 1991 and June 19, 1992;

15) in G.R. No. 106765, the Sandiganbayan's impugned Decision dated November 27, 1990;

16) in G.R. No. 107233, its Resolutions issued on November 29, 1991; and

17) In G.R. No. 109314, its impugned Resolutions dated November 29, 1991 and February 16,
1993;

B CONFIRMING AND MAINTAINING the temporary restraining orders issued in G.R. Nos. 104883, 105170,
105206, 105808, 105809, 107233, and 107908, which shall continue in force and effect during the continuation of
the proceedings in the corresponding civil actions in the Sandiganbayan, subject to the latter's power to modify or
terminate the same in the exercise of its sound discretion in light of such evidence as may subsequently be
adduced; and

C. DISMISSING the petitions in G.R. No. 107908 and 109592. for lack of merit.

IT IS SO ORDERED.

Bidin, Regalado, Davide, Jr. Bellosillo, Melo, Quiason, Puno, Vitug and Mendoza, JJ., concur.

Feliciano and Romero, JJ., took no part.

Separate Opinions

PADILLA, J., dissenting:

With great reluctance, I dissent even if it is a lonely voice in the field of due process and fair play.

The core issue to be resolved in these consolidated cases is:

Does inclusion in the complaints filed by the PCGG before the Sandiganbayan of specific allegations of certain
corporations being "dummies" or under the control of one or more of the defendants named therein and having
been allegedly used as instruments for acquisition, or as being depositories or products, of ill-gotten wealth; or
the annexing to said complaints of a list of said firms as fruits of ill-gotten wealth or corporations in which
defendants own illegally acquired stock, but without actually impleading them as defendants, satisfy the
constitutional requirement that in order to maintain a sequestration effected in accordance with Executive Order
No. 1 s. 1986, the corresponding "judicial action or proceeding" should be filed within the six-month period
prescribed in Section 26, Article XVIII of the 1987 Constitution?

The Court's decision points out (see p. 54) that:

Sequestration, freezing, provisional take-over are fundamentally remedies which are temporary, interim,
provisional. In the very nature of things, as emphasized in BASECO, they are not meant to bring about a
permanent state of affairs. They are severe, radical measures taken against apparent, ostensible owners of
property, or parties against whom, at the worst, there are merely prima facie indications of having amassed 'ill-
gotten wealth', indications which must still be shown to lead towards actual facts in accordance with the judicial
procedures of the land

"Hence, the limitations placed upon the power of sequestration, etc. by the Constitution, among them being the
following:

1. The authority to issue such orders of sequestration was made 'operative for not more than eighteen months
after ratification of . . . [the] Constitution;' i.e. not beyond 18 months from 02 February 1987, unless extended by
the Congress 'in the national interest', as certified by the President;

2. Said orders of sequestration could issue only upon showing of a prima facie case;

3. An order of sequestration and the list of sequestered or frozen properties had to be registered forthwith with the
proper court: the Sandiganbayan, according to law;

4. For orders of sequestration issued before ratification of the 1987 Constitution, the corresponding judicial action
or proceeding should be filed within six (6) months therefrom (i.e., six (6) months from 02 February 1987); and for
orders issued thereafter, within six (6) months from issuance of the order of sequestration, etc.

The issue in all the cases at bar chiefly concerns the fourth limitation, above-mentioned, pursuant to which the
PCGG would have to file 'the corresponding judicial action or proceeding' within a fixed period of six (6) months.
The evident purpose was to preclude the possibility that the PCGG would indefinitely maintain its orders of
sequestration, etc. and to compel it, within a reasonable time, to bring them into the realm of judicial oversight,
evaluation and control, to the end that excesses of the officials and agents enforcing and implementing said
orders might be prevented and avoided and private rights duly protected and vindicated, while the main business
of determining the character of the properties as 'ill-gotten wealth' or not was being attended to in court.

While the Court's decision recognizes that the constitutional provisions limiting the PCGG's powers of
sequestration were designed to protect private property rights, the decision goes on to posit the theory that the
"judicial action or proceeding" contemplated by the Constitution is any action concerning or involving the property
under sequestration, i.e. a proceeding to prove that the property is ill-gotten, without the necessity of impleading
in said actions, the sequestered companies themselves.

It is suggested that in cases of recovery of shares of stock or bank deposits, the corporation or bank involved
need not be impleaded since there would in fact exist no cause of action against them as the holders
(stockholders or depositors) merely hold the shares or deposits in constructive trust in favor of the government.

In cases of corporations allegedly organized using ill-gotten wealth, it is also suggested that they (the
corporations) need not be impleaded since the corporations themselves are merely the object or res of the action.

As an alternative, it is argued that the corporations may still be impleaded by amending the complaints under
appropriate provisions of the Rules of Court. Also, it is stated that the corporations involved were clearly put on
notice, by virtue of the sequestration, that they could be instruments for acquisition of ill-gotten wealth and that
said corporations had the onus of intervening in the cases.

It should be remembered, in this connection, that orders of sequestration are extraordinary writs by which the
government, through the PCGG, secured properties and assets alleged to have been illegally acquired during the
period prior to the 1986 EDSA Revolution which ousted then President Marcos. Sequestration (Philippine-style)
involved the seizure by the government of specified properties and assets of private persons and likewise
included the take-over of the management and/or control of sequestered corporations, without the need of prior
notice to the owner of the properties or corporation to be sequestered. The PCGG was empowered to issue writs
of sequestration by virtue of Executive Orders Nos. 1 and 2 and Proclamation No. 3 issued in 1986 by then
President Aquino.

Sequestration therefore is akin to the provisional remedies of preliminary attachment and receivership. However,
it should be pointed out that unlike said two (2) provisional remedies, writs of sequestration are issued not by a
judicial body but by the PCGG itself, upon its own determination that there exists a prima facie factual foundation
for the writs. Unlike in ordinary civil cases where specific grounds are provided for by the Rules of Court for the
issuance of the writs, no definite or specific grounds are required for the issuance of writs of sequestration. If
applied to civil cases, it would be allowing the plaintiff to take control of a defendant's assets even prior to the
filing of a complaint based on the former's own belief or assertion that the has a better right to such assets. Also,
unlike the two (2) provisional remedies, aforementioned, no bond is required to indemnify a defendant for any
undue damage which might be suffered by him as a consequence of the issuance of the writ.
It thus cannot be denied that the authority of the PCGG then to issue writs of sequestration was an invasion upon
a private person's right, against deprivation of property without due process of law.

The framers of the Constitution were evidently concerned with such irregular procedures inherent in sequestration
so that they included Sec. 26, Article XVIII in the Constitution, thus:

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 shall 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 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."(Emphasis supplied)

This constitutional safeguard cannot and should not be given such a strict and narrow construction as to render it
in effective.

In the case of corporations allegedly organized using ill-gotten wealth, the Court's decision agrees that such
corporations have personalities distinct and separate from the alleged beneficial owners who are named
defendants in the complaints. I submit that failure to implead these corporations as defendants and merely
annexing a list of such corporations to the complaints is a violation of their right to due process for it would in
effect be disregarding their distinct and separate personality without a hearing.

In cases where stocks of a corporation were allegedly the fruits of ill-gotten wealth, it should be remembered that
in most of these cases the stocks involved constitute a substantial if not controlling interest in the corporations.
The basic tenets of fair play demand that these corporations be impleaded as defendants since a judgment in
favor of the government will undoubtedly substantially and decisively affect the corporations as distinct entities.
The judgment could strip them of everything without being previously heard as they are not parties to the action in
which the judgment is rendered.

The issue in these consolidated cases cannot be disposed of by simply holding, as the Court does, that
corporations merely hold stocks in a constructive trust for the government or are but the res of the complaints.
Holding that the "corresponding judicial action or proceeding" contemplated by the Constitution is any action
concerning or involving the corporation under sequestration is over simplifying the solution, the result of which is
antagonistic to the principles of justice and fair play.

I submit that the actions contemplated by the Constitution should be those which include the corporation not as a
mere annex to the complaint but as defendant. This is the minimum requirement of the due process guarantee.
Short of being impleaded, the corporation has no standing in the judicial action. It cannot adequately defend itself.
It may not even be heard.

On the Court's opinion that alternatively the corporations can be impleaded as defendants by amendment of the
complaint, Section 26, Article XVIII of the Constitution would appear to preclude this procedure, for allowing
amendment of the complaint to implead theretofore unimpleaded corporations would in effect allow complaints
against the corporations to be filed beyond the Periods fixed by said Section 26.

Justice Amuerfina Melencio-Herrera in her separate opinion in Bataan Shipyard and Engineering Corporation,
Inc. v.PCGG (150 SCRA 181, 253) correctly stated what should be the rule, thus:

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, and Justice. (Emphasis supplied)

While government efforts to recover illegally amassed wealth should have support from all its branches,
eagerness and zeal should not be allowed to run berserk, overriding in the process the very principles that it is
sworn to uphold. In our legal system, the ends do not always justify the means. Wrongs are never corrected by
committing other wrongs, and as above-discussed the recovery of ill-gotten wealth does not and should never
justify unreasonable intrusions into constitutionally forbidden grounds. It is for these reasons that, in my view, the
writs of sequestration involved in these cases should now be lifted in accordance with the last paragraph of
Section 26, Article XVIII of the Constitution.
Separate Opinions

PADILLA, J., dissenting:

With great reluctance, I dissent even if it is a lonely voice in the field of due process and fair play.

The core issue to be resolved in these consolidated cases is:

Does inclusion in the complaints filed by the PCGG before the Sandiganbayan of specific allegations of certain
corporations being "dummies" or under the control of one or more of the defendants named therein and having
been allegedly used as instruments for acquisition, or as being depositories or products, of ill-gotten wealth; or
the annexing to said complaints of a list of said firms as fruits of ill-gotten wealth or corporations in which
defendants own illegally acquired stock, but without actually impleading them as defendants, satisfy the
constitutional requirement that in order to maintain a sequestration effected in accordance with Executive Order
No. 1 s. 1986, the corresponding "judicial action or proceeding" should be filed within the six-month period
prescribed in Section 26, Article XVIII of the 1987 Constitution?

The Court's decision points out (see p. 54) that:

Sequestration, freezing, provisional take-over are fundamentally remedies which are temporary, interim,
provisional. In the very nature of things, as emphasized in BASECO, they are not meant to bring about a
permanent state of affairs. They are severe, radical measures taken against apparent, ostensible owners of
property, or parties against whom, at the worst, there are merely prima facie indications of having amassed 'ill-
gotten wealth', indications which must still be shown to lead towards actual facts in accordance with the judicial
procedures of the land

"Hence, the limitations placed upon the power of sequestration, etc. by the Constitution, among them being the
following:

1. The authority to issue such orders of sequestration was made 'operative for not more than eighteen months
after ratification of . . . [the] Constitution;' i.e. not beyond 18 months from 02 February 1987, unless extended by
the Congress 'in the national interest', as certified by the President;

2. Said orders of sequestration could issue only upon showing of a prima facie case;

3. An order of sequestration and the list of sequestered or frozen properties had to be registered forthwith with the
proper court: the Sandiganbayan, according to law;

4. For orders of sequestration issued before ratification of the 1987 Constitution, the corresponding judicial action
or proceeding should be filed within six (6) months therefrom (i.e., six (6) months from 02 February 1987); and for
orders issued thereafter, within six (6) months from issuance of the order of sequestration, etc.

The issue in all the cases at bar chiefly concerns the fourth limitation, above-mentioned, pursuant to which the
PCGG would have to file 'the corresponding judicial action or proceeding' within a fixed period of six (6) months.
The evident purpose was to preclude the possibility that the PCGG would indefinitely maintain its orders of
sequestration, etc. and to compel it, within a reasonable time, to bring them into the realm of judicial oversight,
evaluation and control, to the end that excesses of the officials and agents enforcing and implementing said
orders might be prevented and avoided and private rights duly protected and vindicated, while the main business
of determining the character of the properties as 'ill-gotten wealth' or not was being attended to in court.

While the Court's decision recognizes that the constitutional provisions limiting the PCGG's powers of
sequestration were designed to protect private property rights, the decision goes on to posit the theory that the
"judicial action or proceeding" contemplated by the Constitution is any action concerning or involving the property
under sequestration, i.e. a proceeding to prove that the property is ill-gotten, without the necessity of impleading
in said actions, the sequestered companies themselves.

It is suggested that in cases of recovery of shares of stock or bank deposits, the corporation or bank involved
need not be impleaded since there would in fact exist no cause of action against them as the holders
(stockholders or depositors) merely hold the shares or deposits in constructive trust in favor of the government.

In cases of corporations allegedly organized using ill-gotten wealth, it is also suggested that they (the
corporations) need not be impleaded since the corporations themselves are merely the object or res of the action.

As an alternative, it is argued that the corporations may still be impleaded by amending the complaints under
appropriate provisions of the Rules of Court. Also, it is stated that the corporations involved were clearly put on
notice, by virtue of the sequestration, that they could be instruments for acquisition of ill-gotten wealth and that
said corporations had the onus of intervening in the cases.

It should be remembered, in this connection, that orders of sequestration are extraordinary writs by which the
government, through the PCGG, secured properties and assets alleged to have been illegally acquired during the
period prior to the 1986 EDSA Revolution which ousted then President Marcos. Sequestration (Philippine-style)
involved the seizure by the government of specified properties and assets of private persons and likewise
included the take-over of the management and/or control of sequestered corporations, without the need of prior
notice to the owner of the properties or corporation to be sequestered. The PCGG was empowered to issue writs
of sequestration by virtue of Executive Orders Nos. 1 and 2 and Proclamation No. 3 issued in 1986 by then
President Aquino.

Sequestration therefore is akin to the provisional remedies of preliminary attachment and receivership. However,
it should be pointed out that unlike said two (2) provisional remedies, writs of sequestration are issued not by a
judicial body but by the PCGG itself, upon its own determination that there exists a prima facie factual foundation
for the writs. Unlike in ordinary civil cases where specific grounds are provided for by the Rules of Court for the
issuance of the writs, no definite or specific grounds are required for the issuance of writs of sequestration. If
applied to civil cases, it would be allowing the plaintiff to take control of a defendant's assets even prior to the
filing of a complaint based on the former's own belief or assertion that the has a better right to such assets. Also,
unlike the two (2) provisional remedies, aforementioned, no bond is required to indemnify a defendant for any
undue damage which might be suffered by him as a consequence of the issuance of the writ.

It thus cannot be denied that the authority of the PCGG then to issue writs of sequestration was an invasion upon
a private person's right, against deprivation of property without due process of law.

The framers of the Constitution were evidently concerned with such irregular procedures inherent in sequestration
so that they included Sec. 26, Article XVIII in the Constitution, thus:

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 shall 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 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."(Emphasis supplied)

This constitutional safeguard cannot and should not be given such a strict and narrow construction as to render it
in effective.

In the case of corporations allegedly organized using ill-gotten wealth, the Court's decision agrees that such
corporations have personalities distinct and separate from the alleged beneficial owners who are named
defendants in the complaints. I submit that failure to implead these corporations as defendants and merely
annexing a list of such corporations to the complaints is a violation of their right to due process for it would in
effect be disregarding their distinct and separate personality without a hearing.

In cases where stocks of a corporation were allegedly the fruits of ill-gotten wealth, it should be remembered that
in most of these cases the stocks involved constitute a substantial if not controlling interest in the corporations.
The basic tenets of fair play demand that these corporations be impleaded as defendants since a judgment in
favor of the government will undoubtedly substantially and decisively affect the corporations as distinct entities.
The judgment could strip them of everything without being previously heard as they are not parties to the action in
which the judgment is rendered.

The issue in these consolidated cases cannot be disposed of by simply holding, as the Court does, that
corporations merely hold stocks in a constructive trust for the government or are but the res of the complaints.
Holding that the "corresponding judicial action or proceeding" contemplated by the Constitution is any action
concerning or involving the corporation under sequestration is over simplifying the solution, the result of which is
antagonistic to the principles of justice and fair play.

I submit that the actions contemplated by the Constitution should be those which include the corporation not as a
mere annex to the complaint but as defendant. This is the minimum requirement of the due process guarantee.
Short of being impleaded, the corporation has no standing in the judicial action. It cannot adequately defend itself.
It may not even be heard.
On the Court's opinion that alternatively the corporations can be impleaded as defendants by amendment of the
complaint, Section 26, Article XVIII of the Constitution would appear to preclude this procedure, for allowing
amendment of the complaint to implead theretofore unimpleaded corporations would in effect allow complaints
against the corporations to be filed beyond the Periods fixed by said Section 26.

Justice Amuerfina Melencio-Herrera in her separate opinion in Bataan Shipyard and Engineering Corporation,
Inc. v.PCGG (150 SCRA 181, 253) correctly stated what should be the rule, thus:

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, and Justice. (Emphasis supplied)

While government efforts to recover illegally amassed wealth should have support from all its branches,
eagerness and zeal should not be allowed to run berserk, overriding in the process the very principles that it is
sworn to uphold. In our legal system, the ends do not always justify the means. Wrongs are never corrected by
committing other wrongs, and as above-discussed the recovery of ill-gotten wealth does not and should never
justify unreasonable intrusions into constitutionally forbidden grounds. It is for these reasons that, in my view, the
writs of sequestration involved in these cases should now be lifted in accordance with the last paragraph of
Section 26, Article XVIII of the Constitution.

Footnotes

1 Bataan Shipyard & Engineering Co., Inc. (BASECO) v. PCGG, 150 SCRA 181, 208.

2 In its aforementioned decision in BASECO v. PCGG, id.

3 SEC. 2 a

4 Second Whereas Clause

5 Effective May 7, 1986

6 See footnote No. 1, supra

7 159 SCRA 556

8 Proclamation No. 3, March 25, 1986

9 It has since come to be known as the "Freedom Constitution"

10 ART. II, Sec. 1, d)

11 EFFECTIVE immediately upon its ratification by a majority of the votes cast in a plebiscite held
for the purpose (Sec. 27, ART. XVIII); duly ratified by a majority of the votes cast in the plebiscite
held on February 2, 1987, as certified by President Aquino in Proclamation No. 58 dated Feb. 11,
1987

12 United Coconut Planters Life; Assurance Company; CAGOIL; GRANEX; ILICOCO; LEGOIL;
SOLCOM, etc.

13 Bienvenido Marquez, Sr. died on July 4, 1994 and has been substituted by his heirs.

14 E.g., in Security Bank, Escolta, Allied Banking Corporation, International Corporate Bank,
Philippine Trust Company, Commercial Bank of Manila, Bank of the Philippine Islands, China
Banking Corporation, Citibank, Philippine Bank of Communications, Pacific Banking Corporation,
Consolidated Bank & Trust Company, Metropolitan Bank & Trust Company, Philippine Savings
Bank, Consolidated Bank & Trust Corporation, Union Bank, Bankers Trust Co. (A/C # 34-714-415,
1980-1986), Traders Royal Bank (A/C # 74-702836-9, May 2-31, 1985), Philippine National Bank,
Bankers Trust, AG (A/C # 107094-50)

15 SEE common allegations and prayer of PCGG complaints: Sub-Head IV, A, supra.

16 SEE Sub-Head VII, A, 2, infra.

17 SEE common allegations and prayer of PCGG complaints: IV, A, supra.

18 SEE common allegations and prayer of PCGG complaints: IV, A, supra

19 SEE common allegations and prayer of PCGG complaints: IV, A, supra

20 SEE common allegations and prayer of PCGG complaints: IV, A, supra

21 SEE Sub-Head IV, A, 9 , supra.

22 SEE Sub-Head III, items a and g, supra

23 Now moot and academic.

24 G.R. No. 96087, later consolidated with G.R. No. 87710, decision rendered on March 1, 1992.

25 G.R. No. 103879

26 SEE Sub-Head VII, J, infra

27 Sequestered, aside from the shares of stock in PCIBANK and Benguet Corporation, on the
theory that they belonged to Benjamin Romualdez, were his shares of stock in fifty-nine (59) other
corporations including Philippine Communications Satellite Corp., Philippine Overseas
Telecommunications Corp., Polygon Investors & Managers, Inc., Palm Avenue Realty
Development Corporation, Palm Avenue Holdings Inc., Erectors, Inc.; Meralco Foundation, Inc.;
First Philippine Holdings Corporation; MERALCO, Pillpinas Shell Petroleum Corporation.

28 SEE footnote 11, supra

29 Emphasis supplied

30 GRANEX, ILICO, Legazpi Oil of Davao City, Legazpi Oil of Cagayan de Oro City, Anchor
Insurance Brokerage, Inc., Southern Luzon Coconut Oil Mills, San Pablo Oil Manufacturing Co.,
Inc., United Coconut Oil Mills (UNICOM), INDOPHIL Medina, Misamis Oriental, CAGOIL,
COCOFED Marketing Corp. (COCOMARK), United coconut Planters Life Assurance Corp.
[COCOLIFE), United Coconut Chemicals, Inc. (UNICHEM), United Coconut Planters, International
(UCPI), Iligan Bay Express Corp. (IBEC), United Cocoa Plantation, United Coconut Planters, Inc.
(UCPI), Mt. Bulusan Agricultural Commodities, Inc.; Sharp Peak Agricultural Commodities, Inc.,
Mt. Tuayan Agricultural Commodities, Inc., Lamon Bay Agricultural Commodities, Inc., Mactan
Agricultural Commodities, Inc., Malipayon Agricultural Commodities, Inc. N.B. CIIF also invested
in the following copra trading companies, to wit: Davao Coconut Planters Trading, Inc.,
Zamboanga Coconut Plantes Trading, Inc., Leyte Coconut Planters Trading, Inc., Northern
Mindanao Planters Trading, Inc., Visayas Coconut Planters Trading, Inc., Bicol Coconut Planters,
Inc., Tagalog Coconut Planters, Inc. (SEE Rollo, G.R. No. 7513 [COCOFED v. PCGG], p. 203;
Annex A, complaint in CC No. 0033).31 SEE also, decision in G.R. No. 92376, August 12, 1991,
cited in footnote 46 and related text, infra:

32 The Second Division also favorably acted on a similar motion of the PCGG for leave to amend
complaint: SEE footnote 53, infra

34 Exhs. A-10, A-14, Sandiganbayan Cases No. 0061 and 0071; SEE Sub-Head VIII, B, infra

33 SEE Sub-Head s VII, A, 2, and IV, B, 9

35 SEE Sub-Head VIII, B, infra

36 International Copra Export Corporation and Interco Mfg. Corporation. G.R. No. 92755,
Resolution dated October 2, 1990 supra; SEE Sub-Head VII, A, 2, supra

37 SEE footnote 32, supra.

38 The case has become moot and academic: SEE Sub-Head IV, B, 10, supra

39 SEE Sub-Head IV, B ,11, supra

40 SEE Resolutions, per Escareal, J., May 8, 1991 and October 3, 1991, in Case No. 0035 (Sub-
Head IV, B, 11, supra)

41 SEE Palm Avenue Realty Development Corporation v. PCGG, 153 SCRA 579 (1987)
42 153 SCRA 579

43 SEE Resolution of Escareal, J., May 25, 1992, in Case No. 0035 (Sub-Head IV, B,11, supra)

44 Rollo, G.R. No. 105809, pp. 163-172

45 Rosario Olivares, a stockholder whose own shares in PJI had apparently been sequestered

46 200 SCRA 530: SEE footnote 31, supra

47 150 SCRA 181, 211-213

48 First paragraph, Sec. 26, ART, XVIII. SEE Bernas, S.J., "The Constitution of the Republic of
the Philippines, A Commentary," 1st (1988) ed., Vol. II, pp. 625-629, for a summary of the debates
in the Constitutional Commission relative to the safeguards intended to minimize abuse of the
powers of sequestration, freezing and provisional takeover.

49 A contingency that, as everyone now knows, has not taken place

50 Executive Order No. 14; see footnote 5 and related text, supra

51 Among the many meanings given to the preposition by Webster's Third New International
Dictionary, are "as regards, in respect to, concerning;" and by the Oxford English Dictionary, 1961
ed., Vol. IV (F-G), "as regards, with regard or respect to concerning,"

52 Of course the impleading of a sequestered corporation under either rule would add a due
process dimension to the situation, making it necessary for the impleaded corporation to be
summoned and given an opportunity to answer and defend itself in the action.

53 Indeed, in at least three instances, in Cases Nos. 0014, 0024 and 0033, supra., these rules
were invoked and applied by the Sandiganbayan (Third Division) as basis for admission of
amendments of its complaints by the PCGG to implead sequestered corporations as party
defendants; and there are at this time motions pending before the Sandiganbayan, grounded on
the same rules, for leave to amend the complaints in other cases (e.g., Nos. 0016 and 0021).

54 Quizon v. Salud, 12 Phil., 109; Diaz v. de la Rama, 73 Phil. 104; Cuyugan v. Dizon, 79 Phil.
89; Balago v. Lara, C.A. 50 O.G. 4908, all cited in Feria, Civil Procedure, 1969 ed., p. 154;
Sanchez v. CFI, 40 Phil. 155, cited in Regalado, Remedial Law Compendium, 5th Revised Ed.,
Vol. 1, p. 58

55 Defined in Sec. 7, Rule 3. as "(p)arties in interest without whom no final determination can be
had of an action." who should thus be joined in the action "under any and all conditions" (Borlasa
v. Polistico, 47 Phil, 345, 348, cited in Feria, op. cit., p. 152; and Regalado, op. cit., p. 56, which
also cites Cortez v. Avila. 101 Phil, 705).

56 The principle was made clear by this Court as early as in the 1920's, in Chua Kiong v.
Whitaker, 46 Phil. 578, 581-583; see also, Cuyugan v. Dizon, 79 Phil. 80 and Adiarte v.
Tumaneng, 88 Phil. 333, cited in Feria. Civil Procedure, 1969 ed., pp. 245-249; see also Ambrosio
v. Salvador, 87 SCRA 217, 223.

57 SEE Sub-Head VII, A, 2, supra

58 G.R. No. 92376, Aug. 12, 1991, 200 SCRA 530; SEE footnotes 31 and 46, supra