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there is a refusal, persistently adhered to by the domiciliary

[G.R. No. L-23145. November 29, 1968.]

administrator in New York, to deliver the shares of stocks of


appellant corporation owned by the decedent to the ancillary

TESTATE ESTATE OF IDONAH SLADE PERKINS,

administrator

in

the

Philippines,

there

was

nothing

deceased. RENATO D. TAYAG, ancillary administrator-

unreasonable or arbitrary in considering them as lost and

appellee, v. BENGUET CONSOLIDATED, INC., Oppositor-

requiring the appellant to issue new certificates in lieu thereof.

Appellant.

Thereby, the task incumbent under the law on the ancillary


administrator could be discharged and his responsibility

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

fulfilled. Any other view would result in the compliance to a

appellee.

valid judicial order being made to depend on the uncontrolled


discretion

of

party

or

entity.

Ross, Salcedo, Del Rosario, Bito & Misa for OppositorAppellant.

4.

CORPORATION

LAW;

CORPORATIONS;

CONCEPT

AND

NATURE. A corporation is an artificial being created by


operation of law (Sec. 2, Act No. 1459). A corporation as

SYLLABUS

known to Philippine jurisprudence is a creature without any


existence until it has received the imprimatur of the state

1. REMEDIAL LAW; SPECIAL PROCEEDINGS; SETTLEMENT OF

acting according to law. It is logically inconceivable therefore

ESTATE; WHEN ANCILLARY ADMINISTRATION IS PROPER.

that it will have rights and privileges of a higher priority than

The ancillary administration is proper, whenever a person

that of its creator. More than that, it cannot legitimately refuse

dies, leaving in a country other than that of his last domicile,

to yield obedience to acts of its state organs, certainly not

property to be administered in the nature of assets of the

excluding the judiciary, whenever called upon to do so. A

deceased liable for his individual debts or to be distributed

corporation is not in fact and in reality a person, but the law

among his heirs (Johannes v. Harvey, 43 Phil. 175). Ancillary

treats it as though it were a person by process of fiction, or by

administration

regarding it as an artificial person distinct and separate from

is

necessary

or

the

reason

for

such

administration is because a grant of administration does not

its

ex proprio vigore have any effect beyond the limits of the

Corporations, pp. 19-20)

individual

stockholders

(1

Fletcher,

Cyclopedia

country in which it is granted. Hence, an administrator


appointed in a foreign state has no authority in the
Philippines.

DECISION
FERNANDO, J.:

2. ID.; ID.; ID.; SCOPE OF POWER AND AUTHORITY OF AN

Confronted by an obstinate and adamant refusal of the

ANCILLARY ADMINISTRATOR. No one could dispute the

domiciliary administrator, the County Trust Company of New

power of an ancillary administrator to gain control and

York, United States of America, of the estate of the deceased

possession of all assets of the decedent within the jurisdiction

Idonah Slade Perkins, who died in New York City on March 27,

of the Philippines. Such a power is inherent in his duty to

1960, to surrender to the ancillary administrator in the

settle her estate and satisfy the claims of local creditors (Rule

Philippines the stock certificates owned by her in a Philippine

84, Sec. 3, Rules of Court. Cf Pavia v. De la Rosa, 8 Phil. 70;

corporation,

Liwanag v. Reyes, L-19159, Sept. 29, 1964; Ignacio v. Elchico,

legitimate claims of local creditors, the lower court, then

L-18937, May 16, 1967; etc.). It is a general rule universally

presided by the Honorable Arsenio Santos, now retired, issued

recognized that administration, whether principal or ancillary,

on May 18, 1964, an order of this tenor: "After considering the

certainly extends to the assets of a decedent found within the

motion of the ancillary administrator, dated February 11,

state or country where it was granted, the corollary being

1964, as well as the opposition filed by the Benguet

"that an administrator appointed in one state or country has

Consolidated, Inc., the Court hereby (1) considers as lost for

no power over property in another state or country" (Leon and

all purposes in connection with the administration and

Ghezzi

liquidation of the Philippine estate of Idonah Slade Perkins the

v.

Manufacturers

Life

Ins.

Co.,

90

Phil.

459).

Benguet

Consolidated,

Inc.,

to

satisfy

the

stock certificates covering the 33,002 shares of stock standing


3. ID.; ID.; ID.; ID.; CASE AT BAR. Since, in the case at bar,

in her name in the books of the Benguet Consolidated, Inc.,

existence, they are today in the possession of the domiciliary

(2) orders said certificates cancelled, and (3) directs said

administrator, the County Trust Company, in New York,

corporation to issue new certificates in lieu thereof, the same

U.S.A..

."

to be delivered by said corporation to either the incumbent


ancillary administrator or to the Probate Division of this

It is its view, therefore, that under the circumstances, the

Court."

stock certificates cannot be declared or considered as lost.

Moreover, it would allege that there was a failure to observe


From such an order, an appeal was taken to this Court not by

certain

requirements

the domiciliary administrator, the County Trust Company of

certificates

could

of
be

its

by-laws

issued.

before

Hence,

new
its

stock
appeal.

New York, but by the Philippine corporation, the Benguet


Consolidated, Inc. The appeal cannot possibly prosper. The

As was made clear at the outset of this opinion, the appeal

order challenged represents a response and expresses a

lacks merit. The challenged order constitutes an emphatic

policy, to paraphrase Frankfurter, arising out of a specific

affirmation of judicial authority sought to be emasculated by

problem, addressed to the attainment of specific ends by the

the willful conduct of the domiciliary administrator in refusing

use of specific remedies, with full and ample support from

to accord obedience to a court decree. How, then, can this

legal

order

doctrines

of

weight

and

significance.

be

stigmatized

as

illegal?

The facts will explain why. As set forth in the brief of appellant

As is true of many problems confronting the judiciary, such a

Benguet Consolidated, Inc., Idonah Slade Perkins, who died on

response was called for by the realities of the situation. What

March 27, 1960 in New York City, left among others, two stock

cannot be ignored is that conduct bordering on willful

certificates

the

defiance, if it had not actually reached it, cannot without

certificates being in the possession of the County Trust

undue loss of judicial prestige, be condoned or tolerated. For

Company of New York, which as noted, is the domiciliary

the law is not so lacking in flexibility and resourcefulness as to

administrator of the estate of the deceased 2 Then came this

preclude such a solution, the more so as deeper reflection

portion of the appellants brief: "On August 12, 1960, Prospero

would make clear its being buttressed by indisputable

Sanidad instituted ancillary administration proceedings in the

principles

Court of First Instance of Manila; Lazaro A. Marquez was

considerations.

covering

33,002

shares

of

appellant,

and

supported

by

the

strongest

policy

appointed ancillary administrator; and on January 22, 1963,


he was substituted by the appellee Renato D. Tayag. A dispute

It can truly be said then that the result arrived at upheld and

arose between the domiciliary administrator in New York and

vindicated the honor of the judiciary no less than that of the

the ancillary administrator in the Philippines as to which of

country. Through this challenged order, there is thus dispelled

them was entitled to the possession of the stock certificates in

the atmosphere of contingent frustration brought about by the

question. On January 27, 1964, the Court of First Instance of

persistence of the domiciliary administrator to hold on to the

Manila ordered the domiciliary administrator, County Trust

stock certificates after it had, as admitted, voluntarily

Company, to `produce and deposit them with the ancillary

submitted itself to the jurisdiction of the lower court by

administrator or with the Clerk of Court. The domiciliary

entering its appearance through counsel on June 27, 1963,

administrator did not comply with the order, and on February

and filing a petition for relief from a previous order of March

11, 1964, the ancillary administrator petitioned the court to

15, 1963. Thus did the lower court, in the order now on

"issue an order declaring the certificate or certificates of

appeal, impart vitality and effectiveness to what was decreed.

stocks covering the 33,002 shares issued in the name of

For without it, what it had been decided would be set at

Idonah Slade Perkins by Benguet Consolidated, Inc. be

naught and nullified. Unless such a blatant disregard by the

declared

domiciliary administrator, with residence abroad, of what was

[or]

considered

as

lost."

previously ordained by a court order could be thus remedied,


It is to be noted further that appellant Benguet Consolidated,

it would have entailed, insofar as this matter was concerned,

Inc. admits that "it is immaterial" as far as it is concerned as

not a partial but a well-nigh complete paralysis of judicial

to "who is entitled to the possession of the stock certificates

authority.

in question; appellant opposed the petition of the ancillary


administrator because the said stock certificates are in

1. Appellant Benguet Consolidated, Inc. did not dispute the

power of the appellee ancillary administrator to gain control


and possession of all assets of the decedent within the

2. In the face of such incontrovertible doctrines that argue in a

jurisdiction of the Philippines. Nor could it. Such a power is

rather conclusive fashion for the legality of the challenged

inherent in his duty to settle her estate and satisfy the claims

order, how does appellant Benguet Consolidated, Inc. propose

of local creditors. 5 As Justice Tuason speaking for this Court

to carry the extremely heavy burden of persuasion of

made clear, it is a "general rule universally recognized" that

precisely demonstrating the contrary? It would assign as the

administration,

certainly

basic error allegedly committed by the lower court its

"extends to the assets of a decedent found within the state or

"considering as lost the stock certificates covering 33,002

country where it was granted," the corollary being "that an

shares of Benguet belonging to the deceased Idonah Slade

administrator appointed in one state or country has no power

Perkins, . . ." 9 More specifically, appellant would stress that

over

the "lower court could not `consider as lost the stock

property

whether

in

principal

another

or

state

ancillary,

or

country."

certificates in question when, as a matter of fact, his Honor


It is to be noted that the scope of the power of the ancillary

the trial Judge knew, and does know, and it is admitted by the

administrator was, in an earlier case, set forth by Justice

appellee, that the said stock certificates are in existence and

Malcolm. Thus: "It is often necessary to have more than one

are today in the possession of the domiciliary administrator in

administration of an estate. When a person dies intestate

New

York."

10

owning property in the country of his domicile as well as in a


foreign country, administration is had in both countries. That

There may be an element of fiction in the above view of the

which is granted in the jurisdiction of decedents last domicile

lower court. That certainly does not suffice to call for the

is termed the principal administration, while any other

reversal of the appealed order. Since there is a refusal,

administration is termed the ancillary administration. The

persistently adhered to by the domiciliary administrator in

reason for the latter is because a grant of administration does

New York, to deliver the shares of stocks of appellant

not ex proprio vigore have any effect beyond the limits of the

corporation

country in which it is granted. Hence, an administrator

administrator

appointed in a foreign state has no authority in the

unreasonable or arbitrary in considering them as lost and

[Philippines]. The ancillary administration is proper, whenever

requiring the appellant to issue new certificates in lieu thereof.

a person dies, leaving in a country other than that of his last

Thereby, the task incumbent under the law on the ancillary

domicile, property to be administered in the nature of assets

administrator could be discharged and his responsibility

of the deceased liable for his individual debts or to be

fulfilled.

distributed

among

his

heirs."

owned
in

by
the

the

decedent

Philippines,

to

the

ancillary

there

was

nothing

7
Any other view would result in the compliance to a valid

It would follow then that the authority of the probate court to

judicial order being made to depend on the uncontrolled

require that ancillary administrators right to "the stock

discretion of the party or entity, in this case domiciled abroad,

certificates covering the 33,002 shares .. standing in her

which thus far has shown the utmost persistence in refusing

name in the books of [appellant] Benguet Consolidated, Inc.."

to yield obedience. Certainly, appellant would not be heard to

be respected is equally beyond question. For appellant is a

contend in all seriousness that a judicial decree could be

Philippine corporation owing full allegiance and subject to the

treated as a mere scrap of paper, the court issuing it being

unrestricted jurisdiction of local courts. Its shares of stock

powerless

to

remedy

its

flagrant

disregard.

cannot therefore be considered in any wise as immune from


lawful

court

orders.

It may be admitted of course that such alleged loss as found


by the lower court did not correspond exactly with the facts.

Our holding in Wells Fargo Bank and Union v. Collector of

To be more blunt, the quality of truth may be lacking in such a

Internal Revenue 8 finds application. "In the instant case, the

conclusion arrived at. It is to be remembered however, again

actual situs of the shares of stock is in the Philippines, the

to borrow from Frankfurter, "that fictions which the law may

corporation being domiciled [here]." To the force of the above

rely upon in the pursuit of legitimate ends have played an

undeniable proposition, not even appellant is insensible. It

important

part

in

its

development."

11

does not dispute it. Nor could it successfully do so even if it


were

so

minded.

Speaking of the common law in its earlier period, Cardozo

could state that fictions "were devices to advance the ends of

of

it

but

yield

to

its

alleged

controlling

force.

justice, [even if] clumsy and at times offensive." 12 Some of


them have persisted even to the present, that eminent jurist,

The fear of appellant of a contingent liability with which it

noting "the quasi contract, the adopted child, the constructive

could be saddled unless the appealed order be set aside for

trust, all of flourishing vitality, to attest the empire of `as if

its inconsistency with one of its by-laws does not impress us.

today." 13 He likewise noted "a class of fictions of another

Its obedience to a lawful court order certainly constitutes a

order, the fiction which is a working tool of thought, but which

valid defense, assuming that such apprehension of a possible

at times hides itself from view till reflection and analysis have

court action against it could possibly materialize. Thus far,

brought

it

nothing in the circumstances as they have developed gives

What

be

to

the

light."

14

substance to such a fear. Gossamer possibilities of a future


cannot

disputed,

therefore,

is

the

at

times

indispensable role that fictions as such played in the law.

prejudice to appellant do not suffice to nullify the lawful


exercise

of

judicial

authority.

There should be then on the part of the appellant a further


refinement in the catholicity of its condemnation of such

4. What is more the view adopted by appellant Benguet

judicial technique. If ever an occasion did call for the

Consolidated, Inc. is fraught with implications at war with the

employment of a legal fiction to put an end to the anomalous

basic

postulates

of

corporate

theory.

situation of a valid judicial order being disregarded with


apparent impunity, this is it. What is thus most obvious is that

We start with the undeniable premise that, "a corporation is

this particular alleged error does not carry persuasion.

an artificial being created by operation of law . . ." 16 It owes


its life to the state, its birth being purely dependent on its will.

3. Appellant Benguet Consolidated, Inc. would seek to bolster

As Berle so aptly stated: "Classically, a corporation was

the above contention by its invoking one of the provisions of

conceived as an artificial person, owing its existence through

its by-laws which would set forth the procedure to be followed

creation by a sovereign power. 17 As a matter of fact, the

in case of a lost, stolen or destroyed stock certificate; it would

statutory language employed owes much to Chief Justice

stress that in the event of a contest or the pendency of an

Marshall, who in the Dartmouth College decision, defined a

action regarding ownership of such certificate or certificates

corporation

of stock allegedly lost, stolen or destroyed, the issuance of a

intangible, and existing only in contemplation of law." 18

precisely

as

"an

artificial

being

invisible,

new certificate or certificates would await the "final decision


by

[a]

court

regarding

the

ownership

[thereof]."

15

The well-known authority Fletcher could summarize the


matter thus: "A corporation is not in fact and in reality a

Such reliance is misplaced. In the first place, there is no such

person, but the law treats it as though it were a person by

occasion to apply such a by-law. It is admitted that the foreign

process of fiction, or by regarding it as an artificial person

domiciliary administrator did not appeal from the order now in

distinct and separate from its individual stockholders.. It owes

question. Moreover, there is likewise the express admission of

its existence to law. It is an artificial person created by law for

appellant that as far as it is concerned, "it is immaterial . . .

certain specific purposes, the extent of whose existence,

who is entitled to the possession of the stock certificates . . ."

powers and liberties is fixed by its charter." 19 Dean Pounds

Even if such were not the case, it would be a legal absurdity

terse summary, a juristic person, resulting from an association

to impart to such a provision conclusiveness and finality.

of human beings granted legal personality by the state, puts

Assuming that a contrariety exists between the above by-law

the

matter

neatly.

20

and the command of a court decree, the latter is to be


followed.

There is thus a rejection of Gierkes genosssenchaft theory,


the basic theme of which to quote from Friedmann, "is the

It is understandable, as Cardozo pointed out, that the

reality of the group as a social and legal entity, independent

Constitution overrides a statute, to which, however, the

of state recognition and concession." 21 A corporation as

judiciary must yield deference, when appropriately invoked

known to Philippine jurisprudence is a creature without any

and deemed applicable. It would be most highly unorthodox,

existence until it has received the imprimatur of the state

however, if a corporate by-law would be accorded such a high

acting according to law. It is logically inconceivable therefore

estate in the jural order that a court must not only take note

that it will have rights and privileges of a higher priority than

that of its creator. More than that, it cannot legitimately refuse

courts), and those actions where the Veterans Administrator

to yield obedience to acts of its state organs, certainly not

seeks a remedy from our courts and submits to their

excluding the judiciary, whenever called upon to do so.

jurisdiction by filing actions therein. Our attention has not


been called to any law or treaty that would make the findings

As a matter of fact, a corporation once it comes into being,

of the Veterans Administrator, in actions where he is a party,

following American law still of persuasive authority in our

conclusive on our courts. That, in effect, would deprive our

jurisdiction, comes more often within the ken of the judiciary

tribunals

than the other two coordinate branches. It institutes the

subordinate

appropriate Court Action to enforce its rights. Correlatively, it

Administrator."cralaw

of

judicial

discretion

and

instrumentalities

render

of

them

the

mere

Veterans

virtua1aw

library

is not immune from judicial control in those instances, where a


duty under the law as ascertained in an appropriate legal

It is bad enough as the Viloria decision made patent for our

proceeding

judiciary to accept as final and conclusive, determinations

is

cast

upon

it.

made by foreign governmental agencies. It is infinitely worse


To assert that it can choose which court order to follow and

if through the absence of any coercive power by our courts

which to disregard is to confer upon it not autonomy which

over juridical persons within our jurisdiction, the force and

may be conceded but license which cannot be tolerated. It is

effectivity of their orders could be made to depend on the

to argue that it may, when so minded, overrule the state, the

whim or caprice of alien entities. It is difficult to imagine of a

source of its very existence; it is to contend that what any of

situation more offensive to the dignity of the bench or the

its governmental organs may lawfully require could be ignored

honor

of

the

country.

at will. So extravagant a claim cannot possibly merit approval.


Yet that would be the effect, even if unintended, of the
5. One last point. In Viloria v. Administrator of Veterans Affairs,

proposition to which appellant Benguet Consolidated seems to

22 it was shown that in a guardianship proceeding then

be firmly committed as shown by its failure to accept the

pending in a lower court, the United States Veterans

validity of the order complained of; it seeks its reversal.

Administration filed a motion for the refund of a certain sum

Certainly we must at all pains see to it that it does not

of money paid to the minor under guardianship, alleging that

succeed.

the lower court had previously granted its petition to consider

appellant prevailing attest to the necessity of a negative

the deceased father as not entitled to guerilla benefits

response

The

deplorable

from

us.

That

consequences

is

what

attendant

appellant

will

on

get.

according to a determination arrived at by its main office in


the United States. The motion was denied. In seeking a

That is all then that this case presents. It is obvious why the

reconsideration of such order, the Administrator relied on an

appeal cannot succeed. It is always easy to conjure extreme

American federal statute making his decisions "final and

and even oppressive possibilities. That is not decisive. It does

conclusive on all questions of law or fact" precluding any

not settle the issue. What carries weight and conviction is the

other American official to examine the matter anew, "except a

result arrived at, the just solution obtained, grounded in the

judge

soundest

or

judges

of

the

United

States

court."

23

Reconsideration was denied, and the Administrator appealed.

of

legal

doctrines

and

distinguished

by

its

correspondence with what a sense of realism requires. For


through the appealed order, the imperative requirement of

In an opinion by Justice J.B.L. Reyes, we sustained the lower

justice according to law is satisfied and national dignity and

court. Thus: "We are of the opinion that the appeal should be

honor

maintained.

rejected. The provisions of the U.S. Code, invoked by the


appellant, make the decisions of U.S. Veteran Administrator

WHEREFORE, the appealed order of the Honorable Arsenio

final and conclusive when made on claims properly submitted

Santos, the Judge of the Court of First Instance, dated May 18,

to him for resolution; but they are not applicable to the

1964, is affirmed. With costs against oppositor-appellant

present case, where the Administrator is not acting as a judge

Benguet Consolidated, Inc.

but as a litigant. There is a great difference between actions


against the Administrator (which must be filed strictly in
accordance with the conditions that are imposed by the
Veterans Act, including the exclusive review by United States

EN

BANC

[G.R.

No.

L-17295.

July

30,

1962.

Action for declaratory relief filed in the Court of First Instance


of Iloilo by Ang Pue & Company, Ang Pue and Tan Siong

ANG PUE & COMPANY, ET AL., Plaintiffs-Appellants, v.

against the Secretary of Commerce and Industry to secure

SECRETARY OF COMMERCE AND INDUSTRY, Defendant-

judgment "declaring that plaintiffs could extend for five years

Appellee.

the term of the partnership pursuant to the provisions of


plaintiffs

Felicisimo

E.

Escaran,

for Plaintiffs-Appellants.

Solicitor General, for Defendant-Appellee.

Amendment

to

partnership."cralaw

the

Articles

of

virtua1aw

Colibrary

The answer filed by the defendant alleged, in substance, that


the extension for another five years of the term of the
plaintiffs partnership would be in violation of the provisions of

SYLLABUS

Republic

Act

No.

1180.

1. PARTNERSHIP; TO ORGANIZE NOT ABSOLUTE RIGHT. To

It appears that on May 1, 1953, Ang Pue and Tan Siong, both

organize a corporation or partnership that could claim a

Chinese citizens, organized the partnership Ang Pue &

juridical personality of its own and transact business as such,

Company for a term of five years from May 1, 1953,

is not a matter of absolute right but a privilege which may be

extendible by their mutual consent. The purpose of the

enjoyed only under such terms as the state may deem

partnership

necessary

merchandising, buying and selling at wholesale and retail,

to

impose.

was

"to

maintain

the

business

of

general

particularly of lumber, hardware and other construction


2. ID.; ONLY FILIPINOS TO ENGAGE IN RETAIL BUSINESS; REP.

materials for commerce, either native or foreign." The

ACT 1180 APPLICABLE TO EXISTING PARTNERSHIP. The

corresponding

state through Congress had the right to enact Republic Act No.

registered in the Office of the Securities & Exchange

1180 providing that only Filipinos may engage in the retail

Commission

articles

of

partnership

on

June

(Exhibit

B)

16,

were

1953.

business and such provision was intended to apply to


partnership owned by foreigners already existing at the time

On June 19, 1954 Republic Act No. 1180 was enacted to

of its enactment giving them the right to continue engaging in

regulate the retail business. It provided, among other things,

their retail business until the expiration of their term of life.

that, after its enactment, a partnership not wholly formed by


Filipinos could continue to engage in the retail business until

3. ID.; AMENDMENT OF ARTICLES OF PARTNERSHIP TO EXTEND

the expiration of its term:chanrob1es virtual 1aw library

TERM AFTER ENACTMENT OF THE LAW. The agreement in


the articles of partnership to extend the term of its life is not a

On April 15, 1958 prior to the expiration of the five-year

property right and it must be deemed subject to the law

term of the partnership Ang Pue & Company, but after the

existing at the time when the partners came to agree

enactment of Republic Act 1180 the partners already

regarding the extension. In the case at bar, when the partners

mentioned amended the original articles of partnership

amended the articles of partnership, the provisions of

Exhibit B so as to extend the term of life of the partnership to

Republic Act 1180 were already in force, and there can be not

another

the slightest doubt that the right claimed by appellants to

presented for registration in the Office of the Securities &

extend the original term of their partnership to another five

Exchange Commission on April 16, 1958, registration was

years would be in violation of the clear intent and purpose of

refused upon the ground that the extension was in violation of

said Act.

the

DECISION

DIZON, J.:

five

years.

When

the

amended

articles

aforesaid

were

Act.

From the decision of the lower court dismissing the action,


with

costs,

the

plaintiffs

interposed

this

appeal.

The question before us is too clear to require an extended


discussion. To organize a corporation or a partnership that
could claim a juridical personality of its own and transact

business as such, is not a matter of absolute right but a


privilege which may be enjoyed only under such terms as the
State may deem necessary to impose. That the State, through

KAPUNAN, J.:

Congress, and in the manner provided by law, had the right to


enact Republic Act No. 1180 and to provide therein that only

In this petition for review on certiorari under Rule 45 of the

Filipinos and concerns wholly owned by Filipinos may engage

Revised Rules of Court, petitioners seek to annul the decision

in the retail business can not be seriously disputed. That this

of the Court of Appeals in CA-G.R. SP. No. 31748 dated 23 May

provision was clearly intended to apply to partnerships

1994 and its subsequent resolution dated 10 May 1995

already existing at the time of the enactment of the law is

denying petitioners motion for reconsideration.chanrobles law

clearly shown by its provision giving them the right to

library

red

continue engaging in their retail business until the expiration


of

their

term

of

life.

The present case involves two separate but interrelated


conflicts. The facts leading to the first controversy are as

To argue that because the original articles of partnership

follows:chanrob1es

virtual

1aw

library

provided that the partners could extend the term of the


partnership, the provisions of Republic Act 1180 cannot

The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the

adversely affect appellants herein, is to erroneously assume

majority

that the aforesaid provision constitute a property right of

Corporation while private respondents who are the children of

which the partners can not be deprived without due process

Judge Torres deceased brother Antonio A. Torres, constituted

or without their consent. The agreement contained therein

the minority stockholders. In particular, their respective

must be deemed subject to the law existing at the time when

shareholdings and positions in the corporation were as

the partners come to agree regarding the extension. In the

follows:chanrob1es

stockholder

of

Tormil

Realty

virtual

&

Development

1aw

library

present case, as already stated, when the partners amended


the articles of partnership, the provisions of Republic Act 1180

Name of Stockholder Number of Shares Percentage Position(s)

were already in force, and there can be not the slightest doubt
that the right claimed by appellants to extend the original

Manuel

A.

Torres,

Jr.

100,120

57.21

Dir./Pres./Chair

33,430

19.10

Dir./Treasurer

term of their partnership to another five years would be in


violation of the clear intent and purpose of the law aforesaid.

Milagros

WHEREFORE, the judgment appealed from is affirmed, with

Josefina

P.

P.

Torres

Torres

8,290

4.73

Dir./Ass.

Cor-Sec.

costs.
Ma.
FIRST

[G.R.

DIVISION

No.

120138.

September

5,

1997.]

MANUEL A. TORRES, JR., (Deceased), GRACIANO J.


TOBIAS,

RODOLFO

JURISPRUDENCIA,
EDGARDO

D.

L.

JOCSON,

AUGUSTUS

JR.,

MELVIN

CESAR

PABALAN, Petitioners,

AZURA
v.

COURT

S.
and
OF

APPEALS, SECURITIES AND EXCHANGE COMMISSION,


TORMIL

REALTY

&

DEVELOPMENT

CORPORATION,

ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA.


LUISA

T.

MORALES

MORALES, Respondents.

and

DANTE

D.

Cristina

Antonio

P.

Ma.

Jacinta

Ma.

Luisa

Dante

D.

T.

Carlos

Torres,

P.

T.

8,290

4.73

Dir./Cor-Sec.

Jr.

8,290

4.73

Director

Torres

8,290

4.73

Director

Morales

7,790

4.45

Director

Morales

500

.28

Director

In 1984, Judge Torres, in order to make substantial savings in


taxes, adopted an "estate planning" scheme under which he
assigned to Tormil Realty & Development Corporation (Tormil
for brevity) various real properties he owned and his shares of
stock in other corporations in exchange for 225,972 Tormil
Realty shares. Hence, on various dates in July and August of

DECISION

1984, ten (10) deeds of assignment were executed by the late

Judge

Torres:chanrob1es

virtual

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Likewise, all the assigned parcels of land were duly registered

ASSIGNMENT DATE PROPERLY ASSIGNED LOCATION SHARES

with the respective Register of Deeds in the name of Tormil

TO

Realty, except for the ones located in Makati and Pasay City.

BE

ISSUED

At the time of the assignments and exchange, however, only


225,000 Tormil Realty shares remained unsubscribed, all of

1.

July

13,

1984

TCT

81834

Quezon

City

13,252

which were duly issued to and received by Judge Torres (as


evidenced by stock certificates nos. 17, 18, 19, 20, 21, 22, 23,

TCT

2.

144240

July

13,

Quezon

1984

TCT

City

77008

Manila

24

&

25).

Due to the insufficient number of shares of stock issued to


Judge Torres and the alleged refusal of private respondents to

TCT

65689

Manila

78,493

approve the needed increase in the corporations authorized


capital stock (to cover the shortage of 972 shares due to

TCT

109200

Manila

Judge Torres under the "estate planning" scheme), on 11


September 1986, Judge Torres revoked the two (2) deeds of

3.

July

13,

1984

TCT

374079

Makati

8,307

assignment covering the properties in Makati and Pasay City.


4

4.

July

24,

1984

TCT

41527

Pasay
Noting the disappearance of the Makati and Pasay City

TCT

41528

Pasay

9,855

properties from the corporations inventory of assets and


financial records private respondents, on 31 March 1987, were

TCT

41529

Pasay

constrained to file a complaint with the Securities and


Exchange Commission (SEC) docketed as SEC Case No. 3153

5.

Aug.

06,

1984

El

Hogar

Filipino

Stocks

2,000

to compel Judge Torres to deliver to Tormil corporation the two


(2) deeds of assignment covering the aforementioned Makati

6.

Aug.

06,

1984

Manila

Jockey

Club

Stocks

48,737

and Pasay City properties which he had unilaterally revoked


and to cause the registration of the corresponding titles in the

7.

Aug.

07,

1984

San

Miguel

Corp.

Stocks

50,283

name of Tormil. Private respondents alleged that following the


disappearance of the properties from the corporations

8.

Aug.

07,

1984

China

Banking

Corp.

Stocks

6,300

inventory of assets, they found that on October 24, 1986,


Judge Torres, together with Edgardo Pabalan and Graciano

9.

Aug.

20,

1984

Ayala

Corp.

Stocks

7,468

Tobias, then General Manager and legal counsel, respectively,


of Tormil, formed and organized a corporation named "Torres-

10.

Aug.

29,

1984

Ayala

Fund

Stocks

1,322

Pabalan Realty and Development Corporation" and that as


part of Judge Torres contribution to the new corporation, he

executed in its favor a Deed of Assignment conveying the


same Makati and Pasay City properties he had earlier

225,972

transferred

to

Tormil.

The second controversy involving the same parties


concerned the election of the 1987 corporate board of

Consequently, the aforelisted properties were duly recorded in

directors.

the inventory of assets of Tormil Realty and the revenues


generated by the said properties were correspondingly

The 1987 annual stockholders meeting and election of

entered in the corporations books of account and financial

directors of Tormil corporation was scheduled on 25 March

records.

1987 in compliance with the provisions of its by-laws.

appear in the meeting claiming subject corporation is a family


Pursuant thereto, Judge Torres assigned from his own shares,

and private firm. We explained that our appearance there was

one

Jocson,

merely in response to the request of Manuel Torres, Jr. and

Jurisprudencia, Azura and Pabalan. These assigned shares

that SEC has jurisdiction over all registered corporations.

were in the nature of "qualifying shares," for the sole purpose

Manuel Torres, Jr., a septuagenarian, argued that as holder of

of meeting the legal requirement to be able to elect them

the major and controlling shares, he approved of our

(Tobias and company) to the Board of Directors as Torres

attendance

(1)

share

each

to

petitioners

Tobias,

in

the

meeting.

nominees.
At about 2:30 p.m., a group composed of Edgardo Pabalan,
The assigned shares were covered by corresponding Tormil

Atty. Graciano Tobias, Atty. Rodolfo Jocson, Jr., Atty. Melvin

Stock Certificates Nos. 030, 029, 028, 027, 026 and at the

Jurisprudencia, and Atty. Augustus Cesar Azura arrived. Atty.

back

is

Azura told the body that they came as counsels of Manuel

library

Torres, Jr. and as stockholders having assigned qualifying

of

each

certificate

found:chanrob1es

the

virtual

following

inscription

1aw

shares

by

Manuel

Torres.

Jr.

The present certificate and/or the one share it represents,


conformably to the purpose and intention of the Deed of

The stockholders meeting started at 2:45 p.m. with Mr.

Assignment dated March 6, 1987, is not held by me under any

Pabalan presiding after verbally authorized by Manuel Torres,

claim of ownership and I acknowledge that I hold the same

Jr., the President and Chairman of the Board. The secretary

merely as trustee of Judge Manuel A. Torres, Jr. and for the

when asked about the quorum, said that there was more than

sole

a quorum. Mr. Pabalan distributed copies of the presidents

purpose

of

qualifying

me

as

Director;

report and the financial statements. Antonio Torres, Jr.


(Signature

of

Assignee)

requested time to study the said reports and brought out the
question of auditing the finances of the corporation which he

The reason behind the aforestated action was to remedy the

claimed was approved previously by the board. Heated

"inequitable lopsided set-up obtaining in the corporation,

arguments ensued which also touched on family matters.

where,

the

Antonio Torres, Jr. moved for the suspension of the meeting

corporation, the late Judge held only a single seat in the nine-

notwithstanding

his

controlling

interest

in

but Manuel Torres, Jr. voted for the continuation of the

member Board of Directors and was, therefore, at the mercy

proceedings.

of the minority, a combination of any two (2) of whom would


suffice to overrule the majority stockholder in the Boards

Mr.

decision

representatives be asked on the propriety of suspending the

making

functions."

Pabalan

suggested

that

the

opinion

of

the

SEC

meeting but Antonio Torres, Jr. objected reasoning out that we


On 25 March 1987, the annual stockholders meeting was held

were

just

observers.

as scheduled. What transpired therein was ably narrated by


Attys. Benito Cataran and Bayani De los Reyes, the official

When the Chairman called for the election of directors, the

representatives dispatched by the SEC to observe the

Secretary refused to write down the names of nominees

proceedings (upon request of the late Judge Torres) in their

prompting Atty. Azura to initiate the appointment of Atty.

report dated 27 March 1987:chanrob1es virtual 1aw library

Jocson,

Antonio Torres, Jr. nominated the present members of the

Jr.

as

Acting

Secretary.

Board. At this juncture, Milagros Torres cried out and told the
group

of

Manuel

Torres,

Jr.

to

leave

the

house.

The undersigned arrived at 1:55 p.m. in the place of the


meeting, a residential bungalow in Urdaneta Village, Makati,

Manuel Torres, Jr., together with his lawyers-stockholders went

Metro Manila. Upon arrival, Josefina Torres introduced us to the

to the residence of Ma. Jacinta Torres in San Miguel Village,

stockholders namely: Milagros Torres, Antonio Torres, Jr., Ma.

Makati, Metro Manila. The undersigned joined them since the

Luisa Morales, Ma. Cristina Carlos and Ma. Jacinta Torres.

group with Manuel Torres, Jr. the one who requested for S.E.C.

Antonio Torres, Jr. questioned our authority and personality to

observers, represented the majority of the outstanding capital

stock

and

still

constituted

quorum.
WHEREFORE,

At the resumption of the meeting, the following were

rendered

premises

as

considered,

follows:chanrob1es

judgment
virtual

is

hereby

1aw

library

nominated and elected as directors for the year 19871988:chanrob1es

virtual

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library

1.

Ordering

and

directing

the

respondents,

particularly

respondent Manuel A. Torres, Jr., to turn over and deliver to


1.

Manuel

Torres,

Jr.

TORMIL through its Corporate Secretary, Ma. Cristina T. Carlos:


(a) the originals of the Deeds of Assignment dated July 13 and

2.

Ma.

Jacinta

Torres

24, 1984 together with the owners duplicates of Transfer


Certificates of Title Nos. 374079 of the Registry of Deeds for

3.

Edgardo

Pabalan

Makati, and 41527, 41528 and 41529 of the Registry of Deeds


for Pasay City and/or to cause the formal registration and

4.

Graciano

Tobias

transfer of title in and over such real properties in favor of


TORMIL with the proper government agency; (b) all corporate

5.

Rodolfo

Jocson,

Jr.

books of account, records and papers as may be necessary for


the conduct of a comprehensive audit examination, and to

6.

Melvin

Jurisprudencia

allow the examination and inspection of such accounting


books, papers and records by any or all of the corporate

7.

Augustus

Cesar

Azura

directors,

officers

authorized
8.

Josefina

9.

Dante

and

stockholders

representatives

and/or

their

or

duly

auditors;

Torres
2. Declaring as permanent and final the writ of preliminary
Morales

injunction issued by the Hearing Panel on February 13,


1989:chanrob1es

virtual

1aw

library

After the election, it was resolved that after the meeting, the
new board of directors shall convene for the election of

3. Declaring as null and void the election and appointment of

officers.

respondents to the Board of Directors and executive positions


of TORMIL held on March 25, 1987, and all their acts and

resolutions made for and in behalf of TORMIL by authority of


and pursuant to such invalid appointment & election held on

Consequently,

on

10

April

1987,

private

respondents

March

25,

1987;

instituted a complaint with the SEC (SEC Case No. 3161)


praying in the main, that the election of petitioners to the

4. Ordering the respondents jointly and severally, to pay the

Board

complainants the sum of ONE HUNDRED THOUSAND PESOS

of

Directors

be

annulled.

(P100,000.00)

as

and

by

way

of

attorneys

fees.

Private respondents alleged that the petitioners-nominees


were not legitimate stockholders of Tormil because the

Petitioners promptly appealed to the SEC en banc (docketed

assignment

as SEC-AC No. 339). Thereafter, on 3 April 1991, during the

stockholders

of

shares

right

corporations

of

to

them

pre-emption

articles

violated
as

the

provided

and

minority
in

the

pendency of said appeal, petitioner Manuel A. Torres, Jr. died.

by-laws.

However, notice thereof was brought to the attention of the


SEC not by petitioners counsel but by private respondents in

Upon motion of petitioners, SEC Cases Nos. 3153 and 3161


were

consolidated

for

joint

hearing

and

Manifestation

dated

24

April

1991.

adjudication.
On 8 June 1993, petitioners filed a Motion to Suspend

On 6 March 1991, the Panel of Hearing Officers of the SEC

Proceedings on grounds that no administrator or legal

rendered a decision in favor of private respondents. The

representative of the late Judge Torres estate has yet been

dispositive portion thereof states, thus:chanrob1es virtual 1aw

appointed by the Regional Trial Court of Makati where Sp.

library

Proc. No. M-1768 ("In the Matter of the Issuance of the Last

Will and Testament of Manuel A. Torres, Jr.") was pending. Two

FULL LENGTH DECISION, WITHOUT THE EVIDENCE AND THE

similar motions for suspension were filed by petitioners on 28

ORIGINAL RECORD OF S.E.C.-AC NO. 339 BEING PROPERLY

June

BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION, AN

1993

and

July

1993.

OMISSION RESULTING IN A CLEAR TRANSGRESSION OR


On 19 July 1993, the SEC en banc issued an Order denying

CURTAILMENT OF THE RIGHTS OF THE HEREIN PETITIONERS

petitioners

TO

aforecited

motions

on

the

following

PROCEDURAL

DUE

PROCESS;

ground:jgc:chanrobles.com.ph
(2)
"Before the filing of these motions, the Commission en banc
had already completed all proceedings and had likewise ruled

WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE

on the merits of the appealed cases. Viewed in this light, we

RESPONDENT S.E.C., WHICH IS VOID FOR HAVING BEEN

thus feel that there is nothing left to be done except to deny

RENDERED WITHOUT THE PROPER SUBSTITUTION OF THE

these

DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO.

motions

to

suspend

proceedings."

10

339 AND CONSEQUENTLY, FOR WANT OF JURISDICTION OVER


On the same date, the SEC en banc rendered a decision, the

THE SAID DECEASEDS TESTATE ESTATE, AND MOREOVER,

dispositive portion of which reads. thus:chanrob1es virtual

WHEN IT SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITS

1aw

APPLICATION OF THE CIVIL LAW CONCEPT OF NEGOTIORUM

library

GESTIO;
WHEREFORE, premises considered, the appealed decision of
the hearing panel is hereby affirmed and all motions pending

(3)

before us incident to this appealed case are necessarily


DISMISSED.

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE


EVIDENCE AND THE ORIGINAL RECORD OF S.E.C.-AC NO. 339

SO

ORDERED.

11

NOT HAVING ACTUALLY BEEN RE-EXAMINED, THAT S.E.C. CASE


NO. 3153 INVOLVED A SITUATION WHERE PERFORMANCE WAS

Undaunted, on 10 August 1993, petitioners proceeded to

IMPOSSIBLE (AS CONTEMPLATED UNDER ARTICLE 1191 OF

plead its cause to the Court of Appeals by way of a petition for

THE CIVIL CODE) AND WAS NOT A MERE CASE OF LESION OR

review

INADEQUACY OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL

(docketed

as

CA-G.R.

SP

No.

31748).

CODE)
On 23 May 1994, the Court of Appeals rendered a decision,

AS

SO

ERRONEOUSLY

RESPONDENT

CHARACTERIZED

BY

S.E.C.;

THE
and,

the dispositive portion of which states:jgc:chanrobles.com.ph


(4)
"WHEREFORE, the petition for review is DISMISSED and the
appealed

decision

is

accordingly

affirmed.

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE


EVIDENCE AND THE ORIGINAL RECORD OF S.E.C.-AC NO. 339

SO

ORDERED.

12

NOT

HAVING

ACTUALLY

BEEN

EXAMINED,

THAT

THE

RECORDING BY THE LATE JUDGE MANUEL A. TORRES, JR. OF


From the said decision, petitioners filed a motion for

THE QUESTIONED ASSIGNMENT OF QUALIFYING SHARES TO

reconsideration which was denied in a resolution issued by the

HIS NOMINEES, WAS AFFIRMED IN THE STOCK AND TRANSFER

Court

BOOK

of

Appeals

dated

10

May

1995.

13

BY

AN

ACTING

CORPORATE

SECRETARY

AND

MOREOVER, THAT ACTUAL NOTICE OF SAID ASSIGNMENT WAS


Insisting on their cause, petitioners filed the present petition

TIMELY

MADE

TO

THE

OTHER

for review alleging that the Court of Appeals committed the


following errors in its decision:chanrob1es virtual 1aw library

We shall resolve the issues in seriatim.

(1)

WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A

STOCKHOLDERS.

14

Petitioners insist that the failure to transmit the original


records to the Court of Appeals deprived them of procedural

b)

due process. Without the evidence and the original records of

memoranda" in its resolution dated October 15, 1993 (this is

it

required

the

parties

to

submit

the proceedings before the SEC, the Court of Appeals,

in addition to the comment required to be filed by the

petitioners adamantly state, could not have possibly made a

respondents) and furthermore declared in the same resolution

proper appreciation and correct determination of the issues,

that the petition will be decided "on the merits," instead of

particularly the factual issues, they had raised on appeal.

outrightly

dismissing

"simultaneous

the

same;

Petitioners also assert that since the Court of Appeals


allegedly gave due course to their petition, the original

c) it rendered a full length decision, wherein: (aa) it expressly

records

declared the respondent S.E.C. as having erred in denying the

should

have

been

forwarded

to

said

court.

pertinent motions to suspend proceedings; (bb) it declared


Petitioners anchor their argument on Secs. 8 and 11 of SC

the supposed error as having become a non-issue when the

Circular 1-91 (dated 27 February 1991) which provides

respondent C.A. "proceeded to hear (the) appeal" ; (cc) it

that:chanrob1es

formulated and applied its own theory of negotiorum gestio in

virtual

1aw

library

justifying the non-substitution of the deceased principal party


8. WHEN PETITION GIVEN DUE COURSE. The Court of

in S.E.C.-AC No. 339 and moreover, its theory of di minimis

Appeals shall give due course to the petition only when it

non curat lex (this, without first determining the true extent of

shows prima facie that the court, commission, board, office or

and the correct legal characterization of the so-called

agency concerned has committed errors of fact or law that

"shortage" of Tormil shares; and, (dd) it expressly affirmed the

would warrant reversal or modification of the order, ruling or

assailed

decision

of

respondent

S.E.C.

15

decision sought to be reviewed. The findings of fact of the


court, commission, board, office or agency concerned when

Petitioners

contention

is

unmeritorious.

supported by substantial evidence shall be final.


There is nothing on record to show that the Court of Appeals
x

gave due course to the petition. The fact alone that the Court
of Appeals issued a restraining order and a writ of preliminary
injunction and required the parties to submit their respective

11. TRANSMITTAL OF RECORD. Within fifteen (15) days from

memoranda does not indicate that the petition was given due

notice that the petition has been given due course, the court,

course. The office of an injunction is merely to preserve the

commission, board, office or agency concerned shall transmit

status quo pending the disposition of the case. The court can

to the Court of Appeals the original or a certified copy of the

require the submission of memoranda in support of the

entire record of the proceeding under review. The record to be

respective claims and positions of the parties without

transmitted may be abridged by agreement of all parties to

necessarily giving due course to the petition. The matter of

the proceeding. The Court of Appeals may require or permit

whether or not to give due course to a petition lies in the

subsequent

discretion

correction

or

addition

to

the

record.

of

the

court.

Petitioners contend that the Court of Appeals had given due

It is worthy to mention that SC Circular No. 1-91 has been

course to their petition as allegedly indicated by the following

replaced by Revised Administrative Circular No. 1-95 (which

acts:chanrobles.com.ph

took effect on 1 June 1995) wherein the procedure for appeals

virtual

law

library

from quasi-judicial agencies to the Court of Appeals was


a) it granted the restraining order applied for by the herein

clarified

thus:chanrob1es

virtual

1aw

library

petitioners, and after hearing, also the writ of preliminary


injunction sought by them; under the original SC Circular No.

10. Due course. If upon the filing of the comment or such

1-91, a petition for review may be given due course at the

other pleadings or documents as may be required or allowed

onset (paragraph 8) upon a mere prima facie finding of errors

by the Court of Appeals or upon the expiration of the period

of fact or law having been committed, and such prima facie

for the filing thereof, and on the bases of the petition or the

finding is but consistent with the grant of the extraordinary

record the Court of Appeals finds prima facie that the court or

writ

agency concerned has committed errors of fact or law that

of

preliminary

injunction;

would

warrant

reversal

award,

immediately appear for and on behalf of the interest of the

judgment, final order or resolution sought to be reviewed, it

deceased. The court charges involved in procuring such

may give due course to the petition; otherwise, it shall dismiss

appointment, if defrayed by the opposing party, may be

the same. The findings of fact of the court or agency

recovered as costs. The heirs of the deceased may be allowed

concerned, when supported by substantial evidence, shall be

to be substituted for the deceased, without requiring the

binding

appointment of an executor or administrator and the court

on

or

modification

the

Court

of

the

of

Appeals.

may

appoint

guardian

ad

litem

for

the

minor

heirs.

11. Transmittal of record. Within fifteen (15) days from


notice that the petition has been given due course, the Court

Petitioners insist that the SEC en banc should have granted

of Appeals may require the court or agency concerned to

the motions to suspend they filed based as they were on the

transmit the original or a legible certified true copy of the

ground that the Regional Trial Court of Makati, where the

entire record of the proceeding under review. The record to be

probate of the late Judge Torres will was pending, had yet to

transmitted may be abridged by agreement of all parties to

appoint an administrator or legal representative of his estate.

the proceeding. The Court of Appeals may require or permit


subsequent

correction

of

or

addition

to

the

record.

(Underscoring

ours.)

We

are

not

aforequoted

unaware

of

the

principle

provision:chanrob1es

virtual

underlying
1aw

the

library

The aforecited circular now formalizes the correct practice and

It has been held that when a party dies in an action that

clearly states that in resolving appeals from quasi judicial

survives, and no order is issued by the Court for the

agencies, it is within the discretion of the Court of Appeals to

appearance of the legal representative or of the heirs of the

have the original records of the proceedings under review be

deceased to be substituted for the deceased, and as a matter

transmitted to it. In this connection, petitioners claim that the

of fact no such substitution has ever been effected, the trial

Court of Appeals could not have decided the case on the

held by the court without such legal representative or heirs,

merits without the records being brought before it is patently

and the judgment rendered after such trial, are null and void

lame. Indubitably, the Court of Appeals decided the case on

because the court acquired no jurisdiction over the persons of

the

the legal representative or of the heirs upon whom the trial

basis

of

the

uncontroverted

facts

and

admissions

contained in the pleadings, that is, the petition, comment,

and

the

judgment

are

not

binding.

16

reply, rejoinder, memoranda, etc. filed by the parties.


As early as 8 April 1988, Judge Torres instituted Special
II

Proceedings No. M-1768 before the Regional Trial Court of


Makati for the ante-mortem probate of his holographic will
which he had executed on 31 October 1986. Testifying in the

Petitioners contend that the decisions of the SEC and the

said proceedings, Judge Torres confirmed his appointment of

Court of Appeals are null and void for being rendered without

petitioner Edgardo D. Pabalan as the sole executor of his will

the necessary substitution of parties (for the deceased

and administrator of his estate. The proceedings, however,

petitioner Manuel A. Torres, Jr.) as mandated by Sec. 17, Rule

were

as

respondents Antonio P. Torres, Jr., Ma. Luisa T. Morales and Ma.

library

Cristina T. Carlos, 17 who are nephew and nieces of Judge

of

the

Revised

Rules

follows:chanrob1es

of

Court,

virtual

which

provides

1aw

opposed

by

the

same

parties,

herein

private

Torres, being the children of his late brother Antonio A. Torres.


SEC. 17. Death of party. After a party dies and the claim is
not thereby extinguished, the court shall order, upon proper

It can readily be observed therefore that the parties involved

notice, the legal representative of the deceased to appear and

in the present controversy are virtually the same parties

to be substituted for the deceased, within a period of thirty

fighting over the representation of the late Judge Torres

(30) days, or within such time as may be granted. If the legal

estate. It should be recalled that the purpose behind the rule

representative fails to appear within said time, the court may

on substitution of parties is the protection of the right of every

order the opposing party to procure the appointment of a

party to due process. It is to ensure that the deceased party

legal representative of the deceased within a time to be

would continue to be properly represented in the suit through

specified

the duly appointed legal representative of his estate. In the

by

the

court,

and

the

representative

shall

present case, this purpose has been substantially fulfilled

not

necessary

(despite the lack of formal substitution) in view of the peculiar

appeared, participated in the case and presented evidence in

fact that both proceedings involve practically the same

defense of deceased defendant. Attending the case at bench,

parties. Both parties have been fiercely fighting in the probate

after all, are these particular circumstances which negate

proceedings of Judge Torres holographic will for appointment

petitioners

as legal representative of his estate. Since both parties claim

violation of her rights to due process. We should not lose sight

interests over the estate, the rights of the estate were

of the principle underlying the general rule that formal

expected to be fully protected in the proceedings before the

substitution of heirs must be effectuated for them to be bound

SEC en banc and the Court of Appeals. In either case, whoever

by a subsequent judgment. Such had been the general rule

shall be appointed legal representative of Judge Torres estate

established not because the rule on substitution of heirs and

(petitioner Pabalan or private respondents) would no longer

that

be a stranger to the present case, the said parties having

jurisdictional

voluntarily submitted to the jurisdiction of the SEC and the

compliance therewith results in the undeniable violation of the

Court of Appeals and having thoroughly participated in the

right to due process of those who, though not duly notified of

proceedings.

the proceedings, are substantially affected by the decision

on

when

belated

the

and

appointment

themselves

seemingly

of

requirements

rendered

heirs

legal

per

se

ostensible

voluntarily

claim

representative
but

therein.

because

of

are
non-

The foregoing rationale finds support in the recent case of


Vda. de Salazar v. CA, 18 wherein the Court expounded

It is appropriate to mention here that when Judge Torres died

thus:chanrob1es

on April 3, 1991, the SEC en banc had already fully heard the

virtual

1aw

library

parties and what remained was the evaluation of the evidence


The need for substitution of heirs is based on the right to due

and

rendition

of

the

judgment.

process accruing to every party in any proceeding. The


rationale underlying this requirement in case a party dies

Further, petitioners filed their motions to suspend proceedings

during

not

only after more than two (2) years from the death of Judge

extinguished by such death, is that . . . the exercise of judicial

Torres. Petitioners counsel was even remiss in his duty under

power to hear and determine a cause implicitly presupposes

Sec. 16, Rule 3 of the Revised Rules of Court. 19 Instead, it

in the trial court, amongst other essentials, jurisdiction over

was private respondents who informed the SEC of Judge

the persons of the parties. That jurisdiction was inevitably

Torres death through a manifestation dated 24 April 1991.

the

pendency

of

proceedings

of

nature

impaired upon the death of the protestee pending the


proceedings below such that unless and until a legal

For the SEC en banc to have suspended the proceedings to

representative

the

await the appointment of the legal representative by the

jurisdiction of the trial court, no adjudication in the cause

estate was impractical and would have caused undue delay in

could have been accorded any validity or binding effect upon

the proceedings and a denial of justice. There is no telling

any party, in representation of the deceased, without

when the probate court will decide the issue, which may still

trenching upon the fundamental right to a day in court which

be

is

the

very

guarantee

is

for him

essence
of

of

duly named

the

and

constitutionally
due

within

appealed

to

the

higher

courts.

enshrined
process.

In any case, there has been no final disposition of the


properties of the late Judge Torres before the SEC. On the

We are not unaware of several cases where we have ruled

contrary, the decision of the SEC en banc as affirmed by the

that a party having died in an action that survives, the trial

Court of Appeals served to protect and preserve his estate.

held by the court without appearance of the deceaseds legal

Consequently, the rule that when a party dies, he should be

representative or substitution of heirs and the judgment

substituted by his legal representative to protect the interests

rendered after such trial, are null and void because the court

of his estate in observance of due process was not violated in

acquired no jurisdiction over the persons of the legal

this case in view of its peculiar situation where the estate was

representatives or of the heirs upon whom the trial and the

fully protected by the presence of the parties who claim

judgment would be binding. This general rule notwithstanding,

interests therein either as directors, stockholders or heirs.

in denying petitioners motion for reconsideration, the Court


of Appeals correctly ruled that formal substitution of heirs is

Finally, we agree with petitioners contention that the principle

of negotiorum gestio 20 does not apply in the present case.

Torres. Hence, the shortage of 972 shares would never be a

Said principle explicitly covers abandoned or neglected

valid ground for the revocation of the deeds covering Pasay

property or business.

and

III

In

Quezon

Universal

Food

City

Corp.

held:chanrob1es

v.

CA,

properties.

the

virtual

Supreme

1aw

Court
library

Petitioners find legal basis for Judge Torres act of revoking the

The general rule is that rescission of a contract will not be

assignment of his properties in Makati and Pasay City to Tormil

permitted for a slight or carnal breach, but only for such

corporation by relying on Art. 1191 of the Civil Code which

substantial and fundamental breach as would defeat the very

provides

object

that:chanrob1es

virtual

1aw

library

of

the

parties

in

making

the

agreement.

ART. 1191. The power to rescind obligations is implied in

The shortage of 972 shares definitely is not substantial and

reciprocal ones, in case one of the obligors should not comply

fundamental breach as would defeat the very object of the

with

parties in entering into contract. Art. 1355 of the Civil Code

what

is

incumbent

upon

him.

also provides: "Except in cases specified by law, lesion or


The injured party may choose between the fulfillment and the

inadequacy of cause shall not invalidate a contract, unless

rescission of the obligation, with the payment of damages in

there has been fraud, mistake or undue influences." There

either case. He may also seek rescission, even after he has

being no fraud, mistake or undue influence exerted on

chosen fulfillment, if the latter should become impossible.

respondent Torres by TORMIL and the latter having already


issued to the former of its 225,000 unissued shares, the most

The court shall decree the rescission claimed, unless there be

logical course of action is to declare as null and void the deed

just

of revocation executed by respondent Torres. (Rollo, pp. 45-

cause

authorizing

the

fixing

of

period.

46.)

21

This is understood to be without prejudice to the rights of third


persons who have acquired the thing, in accordance with

The aforequoted Civil Code provision does not apply in this

articles

particular situation for the obvious reason that a specific

1385

and

1388

and

the

Mortgage

Law.

number of shares of stock (as evidenced by stock certificates)


Petitioners contentions cannot be sustained. We see no

had already been issued to the late Judge Torres in exchange

justifiable reason to disturb the findings of SEC, as affirmed by

for his Makati and Pasay City properties. The records thus

the

disclose:chanrob1es

Court

of

Appeals:chanrob1es

virtual

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library

We sustain the ruling of respondent SEC in the decision


appealed

from

(Rollo,

pp.

45-46)

that

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library

DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF

ASSIGNMENT

ASSIGNED

TO

BE

ISSUED

COMPLIANCE*

. . . the shortage of 972 shares would not be valid ground for


respondent

Torres

to

unilaterally

revoke

the

deeds

of

1. July 13, 1984 TCT 81834 Quezon City 13,252 3rd

assignment he had executed on July 13, 1984 and July 24,


1984

wherein

he

voluntarily

assigned

to

TORMIL

real

TCT

144240

Quezon

City

properties covered by TCT No. 374079 (Makati) and TCT No.


41527,

41528

and

41529

(Pasay)

respectively.

A comparison of the number of shares that respondent Torres

2.

July

TCT

13,

65689

1984

TCT

Manila

77008

Manila

78,493

2nd

received from TORMIL by virtue of the "deeds of assignment"


and the stock certificates issued by the latter to the former

TCT

102200

Manila

readily shows that TORMIL had substantially performed what


was expected of it. In fact, the first two issuances were in
satisfaction to the properties being revoked by respondent

3.

July

13,

1984

TCT

374079

Makati

8,307

1st

4.

July

24,

1984

TCT

41527

Pasay
Petitioners further argue that:chanrob1es virtual 1aw library

TCT

41528

Pasay

9,855

4th
10.10. Certainly, there is no legal or just basis for the

TCT

41529

Pasay

respondent S.E.C. to penalize the late Judge Torres by


invalidating the questioned entries in the stock and transfer

5. August 06, 1984 El Hogar Filipino Stocks 2,000 7th

book, simply because he initially made those entries (they


were later affirmed by an acting corporate secretary) and

6. August 06, 1984 Manila Jockey Club Stocks 48,737 5th

because the stock and transfer book was in his possession


instead of the elected corporate secretary, if the background

7. August 07, 1984 San Miguel Corp. Stocks 50,238 8th

facts herein-before narrated and the serious animosities that


then reigned between the deceased Judge and his relatives

8. August 07, 1984 China Banking Corp. Stocks 6,300 6th

are to be taken into account;

9.

August

20,

1984

10. August 29, 1984

Ayala

Ayala

Corp.

Fund

Stocks

Stocks

7,468.2)

1,322.1)

9th
10.12. Indeed it was a practice in the corporate respondent, a
family corporation with only a measly number of stockholders,

for the late judge to have personal custody of corporate


TOTAL

225,972.3

records; as president, chairman and majority stockholder, he


had the prerogative of designating an acting corporate

* Order of stock certificate issuances by TORMIL to respondent

secretary or to himself make the needed entries, in instances

Torres relative to the Deeds of Assignment he executed

where the regular secretary, who is a mere subordinate, is

sometime in July and August, 1984. 22 (Emphasis ours.)

unavailable or intentionally defaults, which was the situation


that

obtained

immediately

prior

to

the

1987

annual

Moreover, we agree with the contention of the Solicitor

stockholders meeting of Tormil, as the late Judge Torres had so

General that the shortage of shares should not have affected

indicated in the stock and transfer book in the form of the

the assignment of the Makati and Pasay City properties which

entries

now

in

question;

were executed in 13 and 24 July 1984 and the consideration


for which have been duly paid or fulfilled but should have

10.13. Surely, it would have been futile nay foolish for him to

been applied logically to the last assignment of property

have insisted under those circumstances, for the regular

Judge Torres Ayala Fund shares which was executed on 29

secretary, who was then part of a group ranged against him,

August

to make the entries of the assignments in favor of his

1984.

23

nominees;

24

Petitioners insist that the assignment of "qualifying shares" to


the nominees of the late Judge Torres (herein petitioners) does

Petitioners

contentions

lack

merit.

not partake of the real nature of a transfer or conveyance of


shares of stock as would call for the "imposition of stringent

It is precisely the brewing family discord between Judge Torres

requirements (with respect to the) recording of the transfer of

and private respondents his nephew and nieces that should

said shares." Anyway, petitioners add, there was substantial

have placed Judge Torres on his guard. He should have been

compliance with the abovestated requirement since said

more careful in ensuring that his actions (particularly the

assignments were entered by the late Judge Torres himself in

assignment of qualifying shares to his nominees) comply with

the corporations stock and transfer book on 6 March 1987,

the requirements of the law. Petitioners cannot use the flimsy

prior to the 25 March 1987 annual stockholders meeting and

excuse that it would have been a vain attempt to force the

which entries were confirmed on 8 March 1987 by petitioner

incumbent corporate secretary to register the aforestated

Azura who was appointed Assistant Corporate Secretary by

assignments in the stock and transfer book because the latter

Judge

belonged

Torres.

to

the

opposite

faction.

It

is

the

corporate

secretarys duty and obligation to register valid transfers of


stocks and if said corporate officer refuses to comply, the

All corporations, big or small, must abide by the provisions of

transferor-stockholder may rightfully bring suit to compel

the Corporation Code. Being a simple family corporation is not

performance. 25 In other words, there are remedies within the

an exemption. Such corporations cannot have rules and

law that petitioners could have availed of, instead of taking

practices

other

than

those

established

by

law.

the law in their own hands, as the clich goes.chanrobles


WHEREFORE, premises considered, the petition for review
Thus, we agree with the ruling of the SEC en banc as affirmed

on certiorari is

hereby

DENIED.

by the Court of Appeals:chanrob1es virtual 1aw library


SO ORDERED.
We likewise sustain respondent SEC when it ruled, interpreting
Section 74 of the Corporation Code, as follows (Rollo, p.
45):chanrob1es

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1aw

Theory of Enterprise Entity

library
SECOND

DIVISION

In the absence of (any) provision to the contrary, the


corporate secretary is the custodian of corporate records.

[G.R.

No.

125469.

October

27,

1997.]

Corollarily, he keeps the stock and transfer book and makes


proper

and

necessary

entries

therein.

PHILIPPINE STOCK EXCHANGE, INC., Petitioner, v. THE


HONORABLE COURT OF APPEALS, SECURITIES AND

Contrary to the generally accepted corporate practice, the

EXCHANGE COMMISSION

stock and transfer book of TORMIL, was not kept by Ms. Maria

INC.,Respondents.

and PUERTO AZUL LAND,

Cristina T. Carlos, the corporate secretary but by respondent


Torres, the President and Chairman of the Board of Directors of

DECISION

TORMIL. In contravention to the above cited provision, the


stock and transfer book was not kept at the principal office of
the corporation either but at the place of respondent Torres.

TORRES, JR., J.:

These being the obtaining circumstances, any entries made in

The Securities and Exchange Commission is the government

the stock and transfer book on March 8, 1987 by respondent

agency, under the direct general supervision of the Office of

Torres of an alleged transfer of nominal shares to Pabalan and

the President, 1 with the immense task of enforcing the

Co. cannot therefore be given any valid effect. Where the

Revised Securities Act, and all other duties assigned to it by

entries made are not valid, Pabalan and Co. cannot therefore

pertinent laws. Among its innumerable functions, and one of

be considered stockholders of record of TORMIL. Because they

the most important, is the supervision of all corporations,

are not stockholders, they cannot therefore be elected as

partnerships or associations, who are grantees of primary

directors of TORMIL. To rule otherwise would not only

franchise and/or a license or permit issued by the government

encourage violation of clear mandate of Sec. 74 of the

to operate in the Philippines. 2 Just how far this regulatory

Corporation Code that stock and transfer book shall be kept in

authority extends, particularly, with regard to the Petitioner

the principal office of the corporation but would likewise open

Philippine Stock Exchange, Inc. is the issue in the case at bar.

the flood gates of confusion in the corporation as to who has


the proper custody of the stock and transfer book and who are

In this Petition for Review on Certiorari, petitioner assails the

the real stockholders of records of a certain corporation as

resolution of the respondent Court of Appeals, dated June 27,

any holder of the stock and transfer book, though not the

1996, which affirmed the decision of the Securities and

corporate secretary, at pleasure would make entries therein.

Exchange Commission ordering the petitioner Philippine Stock


Exchange, Inc. to allow the private respondent Puerto Azul

The fact that respondent Torres

holds

81.28% of the

outstanding capital stock of TORMIL is of no moment and is


not a license for him to arrogate unto himself a duty lodged to
(sic)

the

corporate

secretary.

26

Land, Inc. to be listed in its stock market, thus paving the way
for

the

public

offering

of

PALIs

shares.

The facts of the case are undisputed, and are hereby restated

informed that the Marcoses received a Temporary Restraining

in

Order on the same date, enjoining the Marcoses from, among

sum.

others, "further impeding, obstructing, delaying or interfering


The Puerto Azul Land, Inc. (PALI), a domestic real estate

in any manner by or any means with the consideration,

corporation, had sought to offer its shares to the public in

processing and approval by the PSE of the initial public

order to raise funds allegedly to develop its properties and

offering of PALI." The TRO was issued by Judge Martin S.

pay its loans with several banking institutions. In January,

Villarama, Executive Judge of the RTC of Pasig City in Civil

1995, PALI was issued a Permit to Sell its shares to the public

Case

No.

65561,

pending

in

Branch

69

thereof.

by the Securities and Exchange Commission (SEC). To


facilitate the trading of its shares among investors, PALI

In its regular meeting held on March 27, 1996, the Board of

sought to course the trading of its shares through the

Governors of the PSE reached its decision to reject PALIs

Philippine Stock Exchange, Inc. (PSE), for which purpose it

application, citing the existence of serious claims, issues and

filed with the said stock exchange an application to list its

circumstances surrounding PALIs ownership over its assets

shares,

that adversely affect the suitability of listing PALIs shares in

with

supporting

documents

attached.

the

stock

exchange.

On February 8, 1996, the Listing Committee of the PSE, upon


a perusal of PALIs application, recommended to the PSEs

On April 11, 1996, PALI wrote a letter to the SEC addressed to

Board of Governors the approval of PALIs listing application.

the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to


the SECs attention the action taken by the PSE in the

On February 14, 1996, before it could act upon PALIs

application of PALI for the listing of its shares with the PSE,

application, the Board of Governors of the PSE received a

and requesting that the SEC in the exercise of its supervisory

letter from the heirs of Ferdinand E. Marcos, claiming that the

and regulatory powers over stock exchanges under Section

late President Marcos was the legal and beneficial owner of

6(j) of P.D. No. 902-A, review the PSEs action on PALIs listing

certain properties forming part of the Puerto Azul Beach Hotel

application and institute such measures as are just and proper

and Resort Complex which PALI claims to be among its assets

under

the

circumstances.

and that the Ternate Development Corporation, which is


among the stockholders of PALI, likewise appears to have

On the same date, or on April 11, 1996, the SEC wrote to the

been held and continue to be held in trust by one Rebecco

PSE, attaching thereto the letter of PALI and directing the PSE

Panlilio for then President Marcos and now, effectively for his

to file its comments thereto within five days from its receipt

estate, and requested PALIs application to be deferred. PALI

and for its authorized representative to appear for an "inquiry"

was

on the matter. On April 22, 1996, the PSE submitted a letter to

requested

to

comment

upon

the

said

letter.

the SEC containing its comments to the April 11, 1996 letter
PALIs answer stated that the properties forming part of the

of

PALI.

Puerto Azul Beach Hotel and Resort Complex were not claimed
by PALI as its assets. On the contrary, the resort is actually

On April 24, 1996, the SEC rendered its Order, reversing the

owned by Fantasia Filipina Resort, Inc. and the Puerto Azul

PSEs decision. The dispositive portion of the said order

Country Club, entities distinct from PALI. Furthermore, the

reads:jgc:chanrobles.com.ph

Ternate Development Corporation owns only 1.20% of PALI.


The Marcoses responded that their claim is not confined to the

"WHEREFORE,

facilities forming part of the Puerto Azul Hotel and Resort

Commissioners authority and jurisdiction under Section 3 of

Complex, thereby implying that they are also asserting legal

the Revised Securities Act, in conjunction with Section 3, 6(j)

and beneficial ownership of other properties titled under the

and 6(m) of Presidential Decree No. 902-A, the decision of the

name

Board of Governors of the Philippine Stock Exchange denying

of

PALI.chanroblesvirtual|awlibrary

premises

considered,

and

invoking

the

the listing of shares of Puerto Azul Land, Inc., is hereby set


On February 20, 1996, the PSE wrote Chairman Magtanggol

aside, and the PSE is hereby ordered to immediately cause

Gunigundo

Good

the listing of the PALI shares in the Exchange, without

Government (PCGG) requesting for comments on the letters of

of

the

Presidential

Commission

on

prejudice to its authority to require PALI to disclose such other

the PALI and the Marcoses. On March 4, 1996, the PSE was

material information it deems necessary for the protection of

the

investing

public.
On June 4, 1996, PALI filed its Comment to the Petition for

This

Order

shall

take

effect

immediately.

Review and subsequently, a Comment and Motion to Dismiss.


On June 10, 1996, PSE filed its Reply to Comment and

SO

ORDERED."cralaw

virtua1aw

library

Opposition

to

Motion

to

Dismiss.chanroblesvirtuallawlibrary:red
PSE filed a motion for reconsideration of the said order on
April 29, 1996, which was, however denied by the Commission

On June 27, 1996, the Court of Appeals promulgated its

in its May 9, 1996 Order which states:jgc:chanrobles.com.ph

Resolution dismissing the PSEs Petition for Review. Hence,


this

Petition

by

the

PSE.

"WHEREFORE, premises considered, the Commission finds no


compelling reason to reconsider its order dated April 24, 1996,

The appellate court had ruled that the SEC had both

and in the light of recent developments on the adverse claim

jurisdiction and authority to look into the decision of the

against the PALI properties, PSE should require PALI to submit

petitioner PSE, pursuant to Section 3 3 of the Revised

full disclosure of material facts and information to protect the

Securities Act in relation to Section 6(j) and 6(m) 4 of P.D. No.

investing public. In this regard, PALI is hereby ordered to

902-A, and Section 38(b) 5 of the Revised Securities Act, and

amend its registration statements filed with the Commission

for the purpose of ensuring fair administration of the

to incorporate the full disclosure of these material facts and

exchange. Both as a corporation and as a stock exchange, the

information."cralaw

petitioner is subject to public respondents jurisdiction,

virtua1aw

library

regulation and control. Accepting the argument that the public


Dissatisfied with this ruling, the PSE filed with the Court of

respondent has the authority merely to supervise or regulate,

Appeals on May 17, 1996 a Petition for Review (with

would amount to serious consequences, considering that the

Application for Writ of Preliminary Injunction and Temporary

petitioner is a stock exchange whose business is impressed

Restraining Order), assailing the above mentioned orders of

with public interest. Abuse is not remote if the public

the

the

respondent is left without any system of control. If the

library

securities act vested the public respondent with jurisdiction

SEC,

submitting

SEC:chanrob1es

the

following

virtual

as
1aw

errors

of

and control over all corporations; the power to authorize the


I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF

establishment of stock exchanges; the right to supervise and

DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT

regulate the same; and the power to alter and supplement

POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER

rules of the exchange in the listing or delisting of securities,

TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE

then the law certainly granted to the public respondent the

ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE

plenary authority over the petitioner; and the power of review

DECISIONS

necessarily

OF

PSE

ON

LISTING

APPLICATIONS;

comes

within

its

authority.

II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF

All in all, the court held that PALI complied with all the

DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY

requirements for public listing, affirming the SECs ruling to

AND ABUSIVE MANNER IN DISAPPROVING PALIS LISTING

the

effect

that:jgc:chanrobles.com.ph

APPLICATION;
". . . the Philippine Stock Exchange has acted in an arbitrary
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID

and abusive manner in disapproving the application of PALI for

FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN

listing

CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY

considerations:chanrob1es

RESERVATION;

of

its

shares

in

the

face

virtual

of

the
1aw

following
library

AND
1. PALI has clearly and admittedly complied with the Listing

IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY

Rules and full disclosure requirements of the Exchange;

PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION


IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE

2. In applying its clear and reasonable standards on the

CONSTITUTION.

suitability for listing of shares, PSE has failed to justify why it

acted differently on the application of PALI, as compared to

on January 17, 1997, whereas the PSE filed its own Comment

the IPOs of other companies similarly situated that were

on

allowed

listing

in

the

January

20,

1997.

Exchange;
On February 25, 1996, the PSE filed its Consolidated Reply to

3. It appears that the claims and issues on the title to PALIs

the comments of respondent PALI (October 17, 1996) and the

properties were even less serious than the claims against the

Solicitor General (December 26, 1996). On May 16, 1997, PALI

assets of the other companies in that, the assertions of the

filed its Rejoinder to the said consolidated reply of PSE.

Marcoses that they are owners of the disputed properties


were not substantiated enough to overcome the strength of a

PSE submits that the Court of Appeals erred in ruling that the

title to properties issued under the Torrens System as

SEC had authority to order the PSE to list the shares of PALI in

evidence

the stock exchange. Under Presidential Decree No. 902-A, the

of

ownership

thereof;

powers of the SEC over stock exchanges are more limited as


4. No action has been filed in any court of competent

compared to its authority over ordinary corporations. In

jurisdiction seeking to nullify PALIs ownership over the

connection with this, the powers of the SEC over stock

disputed properties, neither has the government instituted

exchanges under the Revised Securities Act are specifically

recovery proceedings against these properties. Yet the import

enumerated, and these do not include the power to reverse

of PSEs decision in denying PALIs application is that it would

the decisions of the stock exchange. Authorities are in

be PALI, not the Marcoses, that must go to court to prove the

abundance even in the United States, from which the

legality of its ownership on these properties before its shares

countrys security policies are patterned, to the effect of

can

giving the Securities Commission less control over stock

be

listed."cralaw

virtua1aw

library

exchanges, which in turn are given more leeway in making the


In addition, the argument that the PALI properties belong to

decision whether or not to allow corporations to offer their

the Military/Naval Reservation does not inspire belief. The

stock to the public through the stock exchange. This is in

point is, the PALI properties are now titled. A property loses its

accord with the "business judgment rule" whereby the SEC

public character the moment it is covered by a title. As a

and the courts are barred from intruding into business

matter of fact, the titles have long been settled by a final

judgments of corporations, when the same are made in good

judgment; and the final decree having been registered, they

faith. The said rule precludes the reversal of the decision of

can no longer be re-opened considering that the one year

the PSE to deny PALIs listing application, absent a showing of

period has already passed. Lastly, the determination of what

bad faith on the part of the PSE. Under the listing rules of the

standard to apply in allowing PALIs application for listing,

PSE, to which PALI had previously agreed to comply, the PSE

whether the discretion method or the system of public

retains the discretion to accept or reject applications for

disclosure adhered to by the SEC, should be addressed to the

listing. Thus, even if an issuer has complied with the PSE

Securities Commission, it being the government agency that

listing rules and requirements, PSE retains the discretion to

exercises both supervisory and regulatory authority over all

accept or reject the issuers listing application if the PSE

corporations.

determines that the listing shall not serve the interests of the
investing

public.

On August 15, 1996, the PSE, after it was granted an


extension, filed the instant Petition for Review on Certiorari,

Moreover, PSE argues that the SEC has no jurisdiction over

taking exception to the rulings of the SEC and the Court of

sequestered

Appeals. Respondent PALI filed its Comment to the petition on

properties are under sequestration. A reading of Republic of

October 17, 1996. On the same date, the PCGG filed a Motion

the Philippines v. Sandiganbayan, G.R. No. 105205, 240 SCRA

for Leave to file a Petition for Intervention. This was followed

376, would reveal that the properties of PALI, which were

up by the PCGGs Petition for Intervention on October 21,

derived from the Ternate Development Corporation (TDC) and

1996. A supplemental Comment was filed by PALI on October

the Monte del Sol Development Corporation (MSDC), are

25, 1997. The Office of the Solicitor General, representing the

under sequestration by the PCGG, and subject of forfeiture

SEC and the Court of Appeals, likewise filed its Comment on

proceedings in the Sandiganbayan. This ruling of the Court is

December 26, 1996. In answer to the PCGGs motion for leave

the "law of the case" between the Republic and TDC and

to file petition for intervention, PALI filed its Comment thereto

MSDC. It categorically declares that the assets of these

corporations,

nor

with

corporations

whose

corporations were sequestered by the PCGG on March 10,

of stock exchanges so that the interests of the investing

1986

public

and

April

4,

1988.

may

be

fully

safeguarded.

It is, likewise, intimated that the Court of Appeals sanction

Section 3 of Presidential Decree 902-A, standing alone, is

that PALIs ownership over its properties can no longer be

enough authority to uphold the SECs challenged control

questioned, since certificates of title have been issued to PALI

authority over the petitioner PSE even as it provides that "the

and more than one year has since lapsed, is erroneous and

Commission shall have absolute jurisdiction, supervision, and

ignores well settled jurisprudence on land titles. That a

control over all corporations, partnerships or associations,

certificate of title issued under the Torrens System is a

who are the grantees of primary franchises and/or a license or

conclusive evidence of ownership is not an absolute rule and

permit

admits certain exceptions. It is fundamental that forest lands

Philippines . . ." The SECs regulatory authority over private

or military reservations are non-alienable. Thus, when a title

corporations encompasses a wide margin of areas, touching

covers a forest reserve or a government reservation, such title

nearly all of a corporations concerns. This authority springs

is

from the fact that a corporation owes its existence to the

void.

issued

concession

of

by

its

the

government

corporate

to

franchise

operate

from

the

in

the

state.

PSE, likewise, assails the SECs and the Court of Appeals


reliance on the alleged policy of "full disclosure" to uphold the

The SECs power to look into the subject ruling of the PSE,

listing of PALIs shares with the PSE, in the absence of a clear

therefore, may be implied from or be considered as necessary

mandate for the effectivity of such policy. As it is, the case

or incidental to the carrying out of the SECs express power to

records reveal the truth that PALI did not comply with the

insure fair dealing in securities traded upon a stock exchange

listing rules and disclosure requirements. In fact, PALIs

or to ensure the fair administration of such exchange. 7 It is,

documents

likewise, observed that the principal function of the SEC is the

supporting

misrepresentations

and

its

application

misleading

contained

statements,

and

supervision and control over corporations, partnerships and

concealed material information. The matter of sequestration

associations with the end in view that investment in these

of PALIs properties and the fact that the same form part of

entities may be encouraged and protected, and their activities

military/naval/forest reservations were not reflected in PALIs

pursued for the promotion of economic development. 8

application.
Thus, it was in the alleged exercise of this authority that the
It is undeniable that the petitioner PSE is not an ordinary

SEC reversed the decision of the PSE to deny the application

corporation, in that although it is clothed with the markings of

for listing in the stock exchange of the private respondent

a corporate entity, it functions as the primary channel through

PALI. The SECs action was affirmed by the Court of Appeals.

which the vessels of capital trade ply. The PSEs relevance to


the continued operation and filtration of the securities

We affirm that the SEC is the entity with the primary say as to

transactions in the country gives it a distinct color of

whether or not securities, including shares of stock of a

importance such that government intervention in its affairs

corporation, may be traded or not in the stock exchange. This

becomes justified, if not necessary. Indeed, as the only

is in line with the SECs mission to ensure proper compliance

operational stock exchange in the country today, the PSE

with the laws, such as the Revised Securities Act and to

enjoys a monopoly of securities transactions, and as such, it

regulate the sale and disposition of securities in the country. 9

yields an immense influence upon the countrys economy.

As

Due to this special nature of stock exchanges, the countrys

"Paramount policy also supports the authority of the public

lawmakers have seen it wise to give special treatment to the

respondent to review petitioners denial of the listing. Being a

administration

stock exchange, the petitioner performs a function that is vital

and

regulation

of

stock

exchanges.

the

appellate

court

explains:jgc:chanrobles.com.ph

to the national economy, as the business is affected with


These provisions, read together with the general grant of

public interest. As a matter of fact, it has often been said that

jurisdiction, and right of supervision and control over all

the economy moves on the basis of the rise and fall of stocks

corporations under Sec. 3 of P.D. 902-A, give the SEC the

being traded. By its economic power, the petitioner certainly

special mandate to be vigilant in the supervision of the affairs

can dictate which and how many users are allowed to sell

securities thru the facilities of a stock exchange, if allowed to

obliquity and conscious doing of wrong. It means a breach of a

interpret its own rules liberally as it may please. Petitioner can

known duty through some motive or interest of ill will,

either allow or deny the entry to the market of securities. To

partaking of the nature of fraud.chanrobles.com : virtual

repeat,

lawlibrary

the

monopoly,

unless

accompanied

by

control,

becomes subject to abuse; hence, considering public interest,


then it should be subject to government regulation."cralaw

In reaching its decision to deny the application for listing of

virtua1aw

PALI, the PSE considered important facts, which, in the

library

general scheme, brings to serious question the qualification of


The role of the SEC in our national economy cannot be

PALI to sell its shares to the public through the stock

minimized. The legislature, through the Revised Securities Act,

exchange. During the time for receiving objections to the

Presidential Decree No. 902-A, and other pertinent laws, has

application, the PSE heard from the representative of the late

entrusted to it the serious responsibility of enforcing all laws

President Ferdinand E. Marcos and his family who claim the

affecting corporations and other forms of associations not

properties of the private respondent to be part of the Marcos

otherwise vested in some other government office. 10

estate. In time, the PCGG confirmed this claim. In fact, an


order

of

sequestration

has

been

issued

covering

the

This is not to say, however, that the PSEs management

properties of PALI, and suit for reconveyance to the state has

prerogatives are under the absolute control of the SEC. The

been filed in the Sandiganbayan Court. How the properties

PSE is, after all, a corporation authorized by its corporate

were effectively transferred, despite the sequestration order,

franchise to engage in its proposed and duly approved

from the TDC and MSDC to Rebecco Panlilio, and to the

business. One of the PSEs main concerns, as such, is still the

private respondent PALI, in only a short span of time, are not

generation of profit for its stockholders. Moreover, the PSE has

yet explained to the Court, but it is clear that such

all the rights pertaining to corporations, including the right to

circumstances give rise to serious doubt as to the integrity of

sue and be sued, to hold property in its own name, to enter

PALI as a stock issuer. The petitioner was in the right when it

(or not to enter) into contracts with third persons, and to

refused application of PALI, for a contrary ruling was not to the

perform all other legal acts within its allocated express or

best interest of the general public. The purpose of the Revised

implied

Securities Act, after all, is to give adequate and effective

powers.

protection

to

the

investing

public

against

fraudulent

A corporation is but an association of individuals, allowed to

representations, or false promises, and the imposition of

transact under an assumed corporate name, and with a

worthless

ventures.

14

distinct legal personality. In organizing itself as a collective


body, it waives no constitutional immunities and perquisites

It is to be observed that the U.S. Securities Act emphasized its

appropriate to such a body. 11 As to its corporate and

avowed protection to acts detrimental to legitimate business,

management decisions, therefore, the state will generally not

thus:jgc:chanrobles.com.ph

interfere

with

the

same.

Questions

of

policy

and

of

management are left to the honest decision of the officers and

"The Securities Act, often referred to as the "truth in

directors of a corporation, and the courts are without authority

securities" Act, was designed not only to provide investors

to substitute their judgment for the judgment of the board of

with adequate information upon which to base their decisions

directors.

to buy and sell securities, but also to protect legitimate

The

board

is

the

business

manager

of

the

corporation, and so long as it acts in good faith, its orders are

business

not

presentation against competition from crooked promoters and

reviewable

by

the

courts.

12

seeking

to

obtain

capital

through

honest

to prevent fraud in the sale of securities. (Tenth Annual


Thus, notwithstanding the regulatory power of the SEC over

Report, U.S. Securities & Exchange Commission, p. 14).

the PSE, and the resultant authority to reverse the PSEs


decision in matters of application for listing in the market, the

As has been pointed out, the effects of such an act are chiefly

SEC may exercise such power only if the PSEs judgment is

(1) prevention of excesses and fraudulent transactions,

attended by bad faith. In Board of Liquidators v. Kalaw, 13 it

merely by requirement of that their details be revealed; (2)

was held that bad faith does not simply connote bad judgment

placing the market during the early stages of the offering of a

or negligence. It imports a dishonest purpose or some moral

security a body of information, which operating indirectly

through investment services and expert investors, will tend to

an absolute fact. What is material is that the uncertainty of

produce a more accurate appraisal of a security. . . . Thus, the

the properties ownership and alienability exists, and this puts

Commission may refuse to permit a registration statement to

to question the qualification of PALIs public offering. In sum,

become effective if it appears on its face to be incomplete or

the Court finds that the SEC had acted arbitrarily in arrogating

inaccurate

in

any

Commission

to

material

issue

respect,
stop

and

order

empower

the

unto itself the discretion of approving the application for

suspending

the

listing in the PSE of the private respondent PALI, since this is a

effectiveness of any registration statement which is found to

matter addressed to the sound discretion of the PSE, a

include any untrue statement of a material fact or to omit to

corporate entity, whose business judgments are respected in

state any material fact required to be stated therein or

the

absence

of

bad

faith.

necessary to make the statements therein not misleading.


(Idem)."cralaw

virtua1aw

library

The question as to what policy is, or should be relied upon in


approving the registration and sale of securities in the SEC is

Also, as the primary market for securities, the PSE has

not for the Court to determine, but is left to the sound

established its name and goodwill, and it has the right to

discretion of the Securities and Exchange Commission. In

protect such goodwill by maintaining a reasonable standard of

mandating the SEC to administer the Revised Securities Act,

propriety in the entities who choose to transact through its

and in performing its other functions under pertinent laws, the

facilities. It was reasonable for the PSE, therefore, to exercise

Revised Securities Act, under Section 3 thereof, gives the SEC

its judgment in the manner it deems appropriate for its

the power to promulgate such rules and regulations as it may

business identity, as long as no rights are trampled upon, and

consider appropriate in the public interest for the enforcement

public

of the said laws. The second paragraph of Section 4 of the

welfare

is

safeguarded.

said law, on the other hand, provides that no security, unless


In this connection, it is proper to observe that the concept of

exempt by law, shall be issued, endorsed, sold, transferred or

government absolutism is a thing of the past, and should

in any other manner conveyed to the public, unless registered

remain

in accordance with the rules and regulations that shall be

so.

promulgated in the public interest and for the protection of


The observation that the title of PALI over its properties is

investors by the Commission. Presidential Decree No. 902-A,

absolute and can no longer be assailed is of no moment. At

on the other hand, provides that the SEC, as regulatory

this juncture, there is the claim that the properties were

agency, has supervision and control over all corporations and

owned by TDC and MSDC and were transferred in violation of

over the securities market as a whole, and as such, is given

sequestration orders, to Rebecco Panlilio and later on to PALI,

ample authority in determining appropriate policies. Pursuant

besides the claim of the Marcoses that such properties belong

to this regulatory authority, the SEC has manifested that it

to the Marcos estate, and were held only in trust by Rebecco

has adopted the policy of "full material disclosure" where all

Panlilio. It is also alleged by the petitioner that these

companies, listed or applying for listing, are required to

properties belong to naval and forest reserves, and therefore

divulge truthfully and accurately, all material information

beyond private dominion. If any of these claims is established

about themselves and the securities they sell, for the

to be true, the certificates of title over the subject properties

protection of the investing public, and under pain of

now held by PALI may be disregarded, as it is an established

administrative, criminal and civil sanctions. In connection with

rule that a registration of a certificate of title does not confer

this, a fact is deemed material if it tends to induce or

ownership over the properties described therein to the person

otherwise effect the sale or purchase of its securities. 15

named as owner. The inscription in the registry, to be

While the employment of this policy is recognized and

effective, must be made in good faith. The defense of

sanctioned by the laws, nonetheless, the Revised Securities

indefeasibility of a Torrens Title does not extend to a

Act sets substantial and procedural standards which a

transferee who takes the certificate of title with notice of a

proposed issuer of securities must satisfy. 16 Pertinently,

flaw.

Section 9 of the Revised Securities Act sets forth the possible


Grounds

In any case, for the purpose of determining whether PSE acted


correctly in

refusing

the application

for

the

Rejection

of

the

registration

of

security:jgc:chanrobles.com.ph

of PALI, the true

ownership of the properties of PALI need not be determined as

". . . The Commission may reject a registration statement and

refuse to issue a permit to sell the securities included in such

meant to protect the interests of the investing public against

registration

fraudulent and worthless securities, and the SEC is mandated

statement

if

it

finds

that

by law to safeguard these interests, following the policies and


(1) The registration statement is on its face incomplete or

rules therefore provided. The absolute reliance on the full

inaccurate in any material respect or includes any untrue

disclosure

statement of a material fact or omits to state a material fact

therefore, untenable. As it is, the Court finds that the private

required to be stated therein or necessary to make the

respondent PALI, on at least two points (nos. 1 and 5) has

statements

failed to support the propriety of the issue of its shares with

therein

not

misleading;

or

method

in

the

registration

of

securities

is,

unfailing clarity, thereby lending support to the conclusion


(2)

The

issuer

or

registrant

that the PSE acted correctly in refusing the listing of PALI in its
stock exchange. This does not discount the effectivity of

(i) is not solvent or not in sound financial condition;

whatever method the SEC, in the exercise of its vested


authority, chooses in setting the standard for public offerings

(ii) has violated or has not complied with the provisions of this

of corporations wishing to do so. However, the SEC must

Act, or the rules promulgated pursuant thereto, or any order

recognize and implement the mandate of the law, particularly

of

the Revised Securities Act, the provisions of which cannot be

the

Commission;

amended or supplanted by mere administrative issuance.


(iii) has

failed

to

comply

with

any of the applicable

requirements and conditions that the Commission may, in the

In resum, the Court finds that the PSE has acted with

public interest and for the protection of investors, impose

justified

before

imputation of arbitrariness and whimsical animation on its

the

security

can

be

registered;

circumspection,

discounting,

therefore,

any

part. Its action in refusing to allow the listing of PALI in the


(iv) has been engaged or is engaged or is about to engage in

stock

fraudulent

circumstances

transactions;

exchange

is

justified

by

the

attendant

law

and

by

to

the
this

case.chanroblesvirtuallawlibrary:red
(v) is in any way dishonest or is not of good repute; or
ACCORDINGLY, in view of the foregoing considerations, the
(vi) does not conduct its business in accordance with law or is

Court hereby GRANTS the Petition for Review on Certiorari.

engaged

to

The Decisions of the Court of Appeals and the Securities and

regulations.

Exchange Commission dated July 27, 1996 and April 24, 1996,

in

business

government

that

is

rules

illegal
and

or

contrary

respectively, are hereby REVERSED and SET ASIDE, and a new


(3) The enterprise or the business of the issuer is not shown to

Judgment is hereby ENTERED, affirming the decision of the

be sound or to be based on sound business principles;

Philippine Stock Exchange to deny the application for listing of


the

private

respondent

Puerto

Azul

Land,

Inc.

(4) An officer, member of the board of directors, or principal


stockholder of the issuer is disqualified to be such officer,
director

or

principal

stockholder;

SO ORDERED.

or
Artificial Being

(5) The issuer or registrant has not shown to the satisfaction


of the Commission that the sale of its security would not work

THIRD

DIVISION

to the prejudice of the public interest or as a fraud upon the


purchasers

or

investors."

(Emphasis

ours)

[G.R.

No.

142936.

NATIONAL

lawmakers to make the registration and issuance of securities

DEVELOPMENT CORPORATION, Petitioners, v. ANDRADA

dependent, to a certain extent, on the merits of the securities

ELECTRIC

themselves, and of the issuer, to be determined by the


Securities and Exchange Commission. This measure was

DECISION

NATIONAL

2002.]

PHILIPPINE

ENGINEERING

&

17,

A reading of the foregoing grounds reveals the intention of the

&

BANK

April

SUGAR

COMPANY, Respondent.

organized, existing and operating under the 1975 laws of the


Philippines, and had its business office before 1975 at Del

PANGANIBAN, J.:

Carmen,

Floridablanca,

Pampanga;

that

the

plaintiff

is

engaged in the business of general construction for the


Basic is the rule that a corporation has a legal personality

repairs and/or construction of different kinds of machineries

distinct and separate from the persons and entities owning it.

and buildings; that on August 26, 1975, the defendant PNB

The corporate veil may be lifted only if it has been used to

acquired the assets of the defendant PASUMIL that were

shield fraud, defend crime, justify a wrong, defeat public

earlier foreclosed by the Development Bank of the Philippines

convenience, insulate bad faith or perpetuate injustice. Thus,

(DBP) under LOI No. 311; that the defendant PNB organized

the mere fact that the Philippine National Bank (PNB) acquired

the defendant NASUDECO in September, 1975, to take

ownership or management of some assets of the Pampanga

ownership and possession of the assets and ultimately to

Sugar Mill (PASUMIL), which had earlier been foreclosed and

nationalize and consolidate its interest in other PNB controlled

purchased at the resulting public auction by the Development

sugar mills; that prior to October 29, 1971, the defendant

Bank of the Philippines (DBP), will not make PNB liable for the

PASUMIL engaged the services of plaintiff for electrical

PASUMILs

contractual

debts

to Respondent.chanrob1es

rewinding and repair, most of which were partially paid by the

1aw

1ibrary

defendant PASUMIL, leaving several unpaid accounts with the

virtua1

plaintiff; that finally, on October 29, 1971, the plaintiff and the
Statement

of

the

Case

defendant PASUMIL entered into a contract for the plaintiff to


perform

the

following,

to

wit

Before us is a Petition for Review assailing the April 17, 2000


Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No.

(a)

Construction

of

one

(1)

power

house

building;

57610. The decretal portion of the challenged Decision reads


as

follows:jgc:chanrobles.com.ph

(b) Construction of three (3) reinforced concrete foundation


for three (3) units 350 KW diesel engine generating set[s];

"WHEREFORE,

the

judgment

appealed

from

is

hereby

AFFIRMED." 2

(c) Construction of three (3) reinforced concrete foundation


for the 5,000 KW and 1,250 KW turbo generator sets;

The Facts
(d) Complete overhauling and reconditioning tests sum for
three

(3)

350

KW

diesel

engine

generating

set[s];

The factual antecedents of the case are summarized by the


Court

of

Appeals

as

follows:jgc:chanrobles.com.ph

(e) Installation of turbine and diesel generating sets including


transformer, switchboard, electrical wirings and pipe provided

"In its complaint, the plaintiff [herein respondent] alleged that

those

it is a partnership duly organized, existing, and operating

accessories;

stated

units

are

completely

supplied

with

their

under the laws of the Philippines, with office and principal


place of business at Nos. 794-812 Del Monte [A]venue,

(f) Relocating of 2,400 V transmission line, demolition of all

Quezon City, while the defendant [herein petitioner] Philippine

existing concrete foundation and drainage canals, excavation,

National Bank (herein referred to as PNB), is a semi-

and earth fillings all for the total amount of P543,500.00 as

government

and

evidenced by a contract, [a] xerox copy of which is hereto

operating under the laws of the Philippines, with office and

attached as Annex A and made an integral part of this

principal place of business at Escolta Street, Sta. Cruz, Manila;

complaint;

whereas,

corporation

the

other

duly

organized,

defendant,

the

existing

National

Sugar

Development Corporation (NASUDECO in brief), is also a semi-

that aside from the work contract mentioned-above, the

government corporation and the sugar arm of the PNB, with

defendant PASUMIL required the plaintiff to perform extra

office and principal place of business at the 2nd Floor,

work, and provide electrical equipment and spare parts, such

Sampaguita Building, Cubao, Quezon City; and the defendant

as:chanrob1es

Pampanga Sugar Mills (PASUMIL in short), is a corporation

virtual

1aw

library

(a)

Supply

of

electrical

devices;
(1) Sentencing the defendants to pay the plaintiffs the sum of

(b)

Extra

mechanical

works;

P513,263.80, with annual interest of 14% from the time the


obligation

(c)

Extra

fabrication

falls

due

and

demandable;

works;
(2) Condemning the defendants to pay attorneys fees

(d)

Supply

items;

amounting

repair;

(3) Ordering the defendants to pay the costs of the suit.

(f) Supply of parts and related works for turbine generator;

"The defendants PNB and NASUDECO filed a joint motion to

(e)

of

materials

and

Electrical

consumable

shop

to

25%

of

the

amount

claim;

dismiss the complaint chiefly on the ground that the


(g)

Supply

of

electrical

equipment

for

machinery;

complaint failed to state sufficient allegations to establish a


cause of action against both defendants, inasmuch as there is

(h) Supply of diesel engine parts and other related works

lack or want of privity of contract between the plaintiff and

including

the two defendants, the PNB and NASUDECO, said defendants

fabrication

of

parts.

citing Article 1311 of the New Civil Code, and the case law
that out of the total obligation of P777,263.80, the defendant

ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and

PASUMIL had paid only P250,000.00, leaving an unpaid

Manila Port Service, Et. Al. v. Court of Appeals, Et Al., 20 SCRA

balance, as of June 27, 1973, amounting to P527,263.80, as

1214.

shown in the Certification of the chief accountant of the PNB,


a machine copy of which is appended as Annex C of the

"The motion to dismiss was by the court a quo denied in its

complaint; that out of said unpaid balance of P527,263.80, the

Order of November 27, 1980; in the same order, that court

defendant PASUMIL made a partial payment to the plaintiff of

directed the defendants to file their answer to the complaint

P14,000.00, in broken amounts, covering the period from

within

15

days.

January 5, 1974 up to May 23, 1974, leaving an unpaid


balance of P513,263.80; that the defendant PASUMIL and the

"In their answer, the defendant NASUDECO reiterated the

defendant PNB, and now the defendant NASUDECO, failed and

grounds of its motion to dismiss, to wit:chanrob1es virtual

refused to pay the plaintiff their just, valid and demandable

1aw

library

obligation; that the President of the NASUDECO is also the


Vice-President of the PNB, and this official holds office at the

That the complaint does not state a sufficient cause of action

10th Floor of the PNB, Escolta, Manila, and plaintiff besought

against the defendant NASUDECO because: (a) NASUDECO is

this official to pay the outstanding obligation of the defendant

not . . . privy to the various electrical construction jobs being

PASUMIL, inasmuch as the defendant PNB and NASUDECO

sued upon by the plaintiff under the present complaint; (b) the

now owned and possessed the assets of the defendant

taking over by NASUDECO of the assets of defendant PASUMIL

PASUMIL, and these defendants all benefited from the works,

was solely for the purpose of reconditioning the sugar central

and the electrical, as well as the engineering and repairs,

of defendant PASUMIL pursuant to martial law powers of the

performed by the plaintiff; that because of the failure and

President under the Constitution; (c) nothing in the LOI No.

refusal of the defendants to pay their just, valid, and

189-A (as well as in LOI No. 311) authorized or commanded

demandable obligations, plaintiff suffered actual damages in

the PNB or its subsidiary corporation, the NASUDECO, to

the total amount of P513,263.80; and that in order to recover

assume the corporate obligations of PASUMIL as that being

these sums, the plaintiff was compelled to engage the

involved in the present case; and, (d) all that was mentioned

professional services of counsel, to whom the plaintiff agreed

by the said letter of instruction insofar as the PASUMIL

to pay a sum equivalent to 25% of the amount of the

liabilities [were] concerned [was] for the PNB, or its subsidiary

obligation due by way of attorneys fees. Accordingly, the

corporation the NASUDECO, to make a study of, and submit

plaintiff prayed that judgment be rendered against the

[a] recommendation on the problems concerning the same.

defendants

PNB,

severally

to

NASUDECO,

and

wit:chanrob1es

PASUMIL,
virtual

jointly

1aw

and

library

"By way of counterclaim, the NASUDECO averred that by

reason of the filing by the plaintiff of the present suit, which it

of Assignment; [8] that moreover, LOI No. 311 did not

[labeled] as unfounded or baseless, the defendant NASUDECO

authorize or direct PNB to assume the corporate obligations of

was constrained to litigate and incur litigation expenses in the

PASUMIL, including the alleged obligation upon which this

amount of P50,000.00, which plaintiff should be sentenced to

present suit was brought; and [9] that, at most, what was

pay. Accordingly, NASUDECO prayed that the complaint be

granted to PNB in this respect was the authority to make a

dismissed and on its counterclaim, that the plaintiff be

study of and submit recommendation on the problems

condemned to pay P50,000.00 in concept of attorneys fees as

concerning the claims of PASUMIL creditors, under sub-par. 5

well

LOI

as

exemplary

damages.

No.

311.

"In its answer, the defendant PNB likewise reiterated the

"In its counterclaim, the PNB averred that it was unnecessarily

grounds of its motion to dismiss, namely: (1) the complaint

constrained to litigate and to incur expenses in this case,

states no cause of action against the defendant PNB; (2) that

hence it is entitled to claim attorneys fees in the amount of at

PNB is not a party to the contract alleged in par. 6 of the

least P50,000.00. Accordingly, PNB prayed that the complaint

complaint and that the alleged services rendered by the

be dismissed; and that on its counterclaim, that the plaintiff

plaintiff to the defendant PASUMIL upon which plaintiffs suit is

be sentenced to pay defendant PNB the sum of P50,000.00 as

erected, was rendered long before PNB took possession of the

attorneys fees, aside from exemplary damages in such

assets of the defendant PASUMIL under LOI No. 189-A; (3) that

amount that the court may seem just and equitable in the

the PNB take-over of the assets of the defendant PASUMIL

premises.

under LOI 189-A was solely for the purpose of reconditioning


the sugar central so that PASUMIL may resume its operations

"Summons by publication was made via the Philippines Daily

in time for the 1974-75 milling season, and that nothing in the

Express, a newspaper with editorial office at 371 Bonifacio

said LOI No. 189-A, as well as in LOI No. 311, authorized or

Drive, Port Area, Manila, against the defendant PASUMIL,

directed PNB to assume the corporate obligation/s of PASUMIL,

which was thereafter declared in default as shown in the

let alone that for which the present action is brought; (4) that

August

7,

1981

Order

issued

by

the

Trial

Court.

PNBs management and operation under LOI No. 311 did not
refer to any asset of PASUMIL which the PNB had to acquire

"After due proceedings, the Trial Court rendered judgment, the

and thereafter [manage], but only to those which were

decretal portion of which reads:chanrob1es virtual 1aw library

foreclosed by the DBP and were in turn redeemed by the PNB


from the DBP; (5) that conformably to LOI No. 311, on August

WHEREFORE, judgment is hereby rendered in favor of plaintiff

15, 1975, the PNB and the Development Bank of the

and against the defendant Corporation, Philippine National

Philippines (DBP) entered into a Redemption Agreement

Bank (PNB) NATIONAL SUGAR DEVELOPMENT CORPORATION

whereby DBP sold, transferred and conveyed in favor of the

(NASUDECO)

PNB, by way of redemption, all its (DBP) rights and interest in

ordering the latter to pay jointly and severally the former the

and over the foreclosed real and/or personal properties of

following:chanrob1es

and

PAMPANGA

SUGAR

virtual

MILLS

(PASUMIL),

1aw

library

PASUMIL, as shown in Annex C which is made an integral


part of the answer; (6) that again, conformably with LOI No.

1. The sum of P513,623.80 plus interest thereon at the rate of

311, PNB pursuant to a Deed of Assignment dated October 21,

14% per annum as claimed from September 25, 1980 until

1975, conveyed, transferred, and assigned for valuable

fully

consideration,

in

favor

of

NASUDECO,

distinct

paid;

and

independent corporation, all its (PNB) rights and interest in

2.

The

sum

of

P102,724.76

as

attorneys

fees;

and,

and under the above Redemption Agreement. This is shown


in Annex D which is also made an integral part of the

3.

Costs.

answer; [7] that as a consequence of the said Deed of


Assignment, PNB on October 21, 1975 ceased to manage and

SO

ORDERED.

operate the above-mentioned assets of PASUMIL, which


function was now actually transferred to NASUDECO. In other

Manila,

Philippines,

September

4,

1986.

words, so asserted PNB, the complaint as to PNB, had become


moot and academic because of the execution of the said Deed

(SGD)

ERNESTO

S.

TENGCO

Judge " 3

As a general rule, questions of fact may not be raised in a


petition for review under Rule 45 of the Rules of Court. 7 To

Ruling of the Court of Appeals

this rule, however, there are some exceptions enumerated in


Fuentes v. Court of Appeals. 8 After a careful scrutiny of the
records and the pleadings submitted by the parties, we find

Affirming the trial court, the CA held that it was offensive to

that the lower courts misappreciated the evidence presented.

the basic tenets of justice and equity for a corporation to take

9 Overlooked by the CA were certain relevant facts that would

over and operate the business of another corporation, while

justify a conclusion different from that reached in the assailed

disavowing or repudiating any responsibility, obligation or

Decision.

liability

arising

therefrom.

10

4
Petitioners posit that they should not be held liable for the

Hence, this Petition. 5

corporate debts of PASUMIL, because their takeover of the


latters foreclosed assets did not make them assignees. On

Issues

the other hand, respondent asserts that petitioners and


PASUMIL should be treated as one entity and, as such, jointly

In their Memorandum, petitioners raise the following errors for


the Courts consideration:chanrob1es virtual 1aw library

and severally held liable for PASUMILs unpaid obligation.

As a rule, a corporation that purchases the assets of another


will not be liable for the debts of the selling corporation,

"I

provided the former acted in good faith and paid adequate

The Court of Appeals gravely erred in law in holding the herein


petitioners liable for the unpaid corporate debts of PASUMIL, a
corporation whose corporate existence has not been legally
extinguished or terminated, simply because of petitioners[]
take-over of the management and operation of PASUMIL
pursuant to the mandates of LOI No. 189-A, as amended by
LOI No. 311.

consideration for such assets, except when any of the


following circumstances is present: (1) where the purchaser
expressly or impliedly agrees to assume the debts, (2) where
the transaction amounts to a consolidation or merger of the
corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the
transaction is fraudulently entered into in order to escape
liability

for

those

debts.

11

"II
Piercing

The Court of Appeals gravely erred in law in not applying [to]

the

Veil

Corporate

Not

Warranted

the case at bench the ruling enunciated in Edward J. Nell Co.


v.

Pacific

Farms,

15

SCRA

415."

A corporation is an artificial being created by operation of law.


It possesses the right of succession and such powers,

Succinctly put, the aforesaid errors boil down to the principal

attributes, and properties expressly authorized by law or

issue of whether PNB is liable for the unpaid debts of PASUMIL

incident to its existence. 12 It has a personality separate and

to Respondent.

distinct from the persons composing it, as well as from any


other legal entity to which it may be related. 13 This is basic.

This Courts Ruling


Equally well-settled is the principle that the corporate mask
may be removed or the corporate veil pierced when the
The

Petition

is

meritorious.

corporation is just an alter ego of a person or of another


corporation. 14 For reasons of public policy and in the interest

Main

Issue:chanrob1es

virtual

1aw

library

of justice, the corporate veil will justifiably be impaled 15 only


when it becomes a shield for fraud, illegality or inequity

Liability

for

Corporate

Debts

committed

against

third

persons.

16

veil, respondent had the burden of presenting clear and


Hence, any application of the doctrine of piercing the

convincing evidence to justify the setting aside of the

corporate veil should be done with caution. 17 A court should

separate corporate personality rule. 34 However, it utterly

be mindful of the milieu where it is to be applied. 18 It must

failed to discharge this burden; 35 it failed to establish by

be certain that the corporate fiction was misused to such an

competent evidence that petitioners separate corporate veil

extent that injustice, fraud, or crime was committed against

had been used to conceal fraud, illegality or inequity. 36

another, in disregard of its rights. 19 The wrongdoing must be


clearly and convincingly established; it cannot be presumed.

While we agree with respondents claim that the assets of the

20 Otherwise, an injustice that was never unintended may

National Sugar Development Corporation (NASUDECO) can be

result

easily traced to PASUMIL, 37 we are not convinced that the

from

an

erroneous

application.

21

transfer of the latters assets to petitioners was fraudulently


This Court has pierced the corporate veil to ward off a

entered

into

judgment credit, 22 to avoid inclusion of corporate assets as

to Respondent.

in

order

to

escape

liability

for its

debt
38

part of the estate of the decedent, 23 to escape liability


arising from a debt, 24 or to perpetuate fraud and/or confuse

A careful review of the records reveals that DBP foreclosed the

legitimate issues 25 either to promote or to shield unfair

mortgage executed by PASUMIL and acquired the assets as

objectives 26 or to cover up an otherwise blatant violation of

the highest bidder at the public auction conducted. 39 The

the prohibition against forum-shopping. 27 Only in these and

bank was justified in foreclosing the mortgage, because the

similar instances may the veil be pierced and disregarded. 28

PASUMIL account had incurred arrearages of more than 20


percent of the total outstanding obligation. 40 Thus, DBP had

The question of whether a corporation is a mere alter ego is

not only a right, but also a duty under the law to foreclose the

one of fact. 29 Piercing the veil of corporate fiction may be

subject

properties.

41

allowed only if the following elements concur: (1) control


not mere stock control, but complete domination not only

Pursuant to LOI No. 189-A 42 as amended by LOI No. 311, 43

of finances, but of policy and business practice in respect to

PNB acquired PASUMILs assets that DBP had foreclosed and

the transaction attacked, must have been such that the

purchased in the normal course. Petitioner bank was likewise

corporate entity as to this transaction had at the time no

tasked to manage temporarily the operation of such assets

separate mind, will or existence of its own; (2) such control

either by itself or through a subsidiary corporation. 44

must have been used by the defendant to commit a fraud or a


wrong to perpetuate the violation of a statutory or other

PNB, as the second mortgagee, redeemed from DBP the

positive legal duty, or a dishonest and an unjust act in

foreclosed PASUMIL assets pursuant to Section 6 of Act No.

contravention of plaintiffs legal right; and (3) the said control

3135. 45 These assets were later conveyed to PNB for a

and breach of duty must have proximately caused the injury

consideration, the terms of which were embodied in the

or

Redemption Agreement 46 PNB, as successor-in-interest,

unjust

loss

complained

of.

30

stepped into the shoes of DBP as PASUMILs creditor 47 By


We believe that the absence of the foregoing elements in the

way of a Deed of Assignment, 48 PNB then transferred to

present case precludes the piercing of the corporate veil. First,

NASUDECO all its rights under the Redemption Agreement.

other than the fact that petitioners acquired the assets of


PASUMIL, there is no showing that their control over it

In Development Bank of the Philippines v. Court of Appeals, 49

warrants the disregard of corporate personalities. 31 Second,

we had the occasion to resolve a similar issue. We ruled that

there is no evidence that their juridical personality was used

PNB, DBP and their transferees were not liable for Marinduque

to commit a fraud or to do a wrong; or that the separate

Minings unpaid obligations to Remington Industrial Sales

corporate entity was farcically used as a mere alter ego,

Corporation (Remington) after the two banks had foreclosed

business conduit or instrumentality of another entity or

the assets of Marinduque Mining. We likewise held that

person. 32 Third, respondent was not defrauded or injured

Remington failed to discharge its burden of proving bad faith

when

on the part of Marinduque Mining to justify the piercing of the

petitioners

acquired

the

assets

of PASUMIL.

33

corporate
Being the party that asked for the piercing of the corporate

veil.

In the instant case, the CA erred in affirming the trial courts

of June 27, 1973, PASUMIL had paid P250,000 to respondent

lifting of the corporate mask. 50 The CA did not point to any

and, from January 5, 1974 to May 23, 1974, another P14,000.

fact evidencing bad faith on the part of PNB and its transferee.
51 The corporate fiction was not used to defeat public

Neither did petitioner expressly or impliedly agree to assume

convenience, justify a wrong, protect fraud or defend crime.

the debt of PASUMIL to Respondent. 61 LOI No. 11 explicitly

52 None of the foregoing exceptions was shown to exist in the

provides that PNB shall study and submit recommendations

present case. 53 On the contrary, the lifting of the corporate

on the claims of PASUMILs creditors. 62 Clearly, the corporate

veil would result in manifest injustice. This we cannot allow.

separateness between PASUMIL and PNB remains, despite


respondents

No

Merger

insistence

to

the

contrary.

63

or
WHEREFORE, the Petition is hereby GRANTED and the assailed

Consolidation

Decision

SET

ASIDE.

costs.chanrob1es

No

pronouncement

virtua1

1aw

as

to

1ibrary

Respondent further claims that petitioners should be held


liable for the unpaid obligations of PASUMIL by virtue of LOI

SO ORDERED.

Nos. 189-A and 311, which expressly authorized PASUMIL and


PNB to merge or consolidate. On the other hand, petitioners

FIRST

contend that their takeover of the operations of PASUMIL did

[G.R.

not involve any corporate merger or consolidation, because


the latter had never lost its separate identity as a corporation.

form a new entity called the consolidated corporation. A


merger, on the other hand, is a union whereby one or more
existing corporations are absorbed by another corporation
that survives and continues the combined business. 54

No.

48930.

February

ANTONIO VAZQUEZ, Petitioner,


BORJA, Respondent.
[G.R.

A consolidation is the union of two or more existing entities to

DIVISION

No.

48931.

23,
v.

February

1944.

FRANCISCO
23,

FRANCISCO
DE
BORJA, Petitioner,
VAZQUEZ, Respondent.

1944.

v.

]
DE
]

ANTONIO

SYLLABUS
1.

CORPORATIONS;

OFFICERS

PERSONAL

LIABILITY

ON

CONTRACTS. It is well known that a corporation is an


The merger, however, does not become effective upon the
mere agreement of the constituent corporations. 55 Since a
merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and
creditors,

there must be an

express

provision

of law

authorizing them. 56 For a valid merger or consolidation, the


approval by the Securities and Exchange Commission (SEC) of
the articles of merger or consolidation is required. 57 These
articles must likewise be duly approved by a majority of the
respective stockholders of the constituent corporations. 58

artificial being invested by law with a personality of its own,


separate and distinct from that of its stockholders and from
that of its officers who manage and run its affairs. The mere
fact that its personality is owing to a legal fiction and that it
necessarily has to act thru its agents, does not make the
latter personally liable on a contract duly entered into, or for
an act lawfully performed, by them for and in its behalf. The
legal fiction by which the personality of a corporation is
created is a practical reality and necessity. Without it no
corporate entities may exist and no corporate business may
be transacted. Such legal fiction may be disregarded only

In the case at bar, we hold that there is no merger or


consolidation with respect to PASUMIL and PNB. The procedure
prescribed under Title IX of the Corporation Code 59 was not
followed.

when an attempt is made to use it as a cloak to hide an


unlawful or fraudulent purpose. No such thing has been
alleged or proven in this case. It has not been alleged nor
even intimated that Vazquez personally benefited by the
contract of sale in question and that he is merely invoking the

In fact, PASUMILs corporate existence, as correctly found by


the CA, had not been legally extinguished or terminated. 60
Further, prior to PNBs acquisition of the foreclosed assets,
PASUMIL had previously made partial payments to respondent
for the formers obligation in the amount of P777,263.80. As

legal fiction to avoid personal liability. Neither is it contended


that he entered into said contract for the corporation in bad
faith and with intent to defraud the plaintiff. We find no legal
and factual basis upon which to hold him liable on the

contract

either

principally

or

subsidiarily.

2. ID.; ID.; NEGLIGENCE. The trial court found him guilty of

DECISION

negligence in the performance of the contract and held him


personally liable on that account. On the other hand, the

OZAETA, J.:

Court of Appeals found that he "no solamente obro con


negligencia, sino interviniendo culpa de su parte, por lo que
de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el
debe ser responsable subsidiariamente del pago de la
cantidad objeto de la demanda." We think both the trial court
and the Court of Appeals erred in law in so holding. They have
manifestly

failed

to

distinguish

contractual

from

an

extracontractual obligation, or an obligation arising from


contract from an obligation arising from culpa aquiliana. The
fault and negligence referred to in articles 1101-1104 of the
Civil

Code

are

those

incidental

to

the

fulfillment

or

nonfulfillment of a contractual obligation; while the fault or


negligence referred to in article 1902 is the culpa aquiliana of
the civil law, homologous but not identical to tort of the
common law, which gives rise to an obligation independently
of any contract. (Cf. Manila R. R. Co. v. Cia. Trasatlantica, 38
Phil., 875, 887-890; Cangco v. Manila R. R. Co., 38 Phil., 768.)
The fact that the corporation, acting thru Vazquez as its
manager, was guilty of negligence in the fulfillment of the
contract, did not make Vazquez principally or even subsidiarily
liable for such negligence. Since it was the corporations
contract, its nonfulfillment, whether due to negligence or fault
or to any other cause, made the corporation and not its agent
liable.

Manila by Francisco de Borja against Antonio Vazquez and


Fernando Busuego to recover from them jointly and severally
the total sum of P4,702.70 upon three alleged causes of
action, to wit: First, that in or about the month of January,
1932,

the

defendants

jointly

and

severally

obligated

themselves to sell to the plaintiff 4,000 cavans of palay at


P2.10 per cavan, to be delivered during the month of
February, 1932, the said defendants having subsequently
received from the plaintiff in virtue of said agreement the sum
of P8,400; that the defendants delivered to the plaintiff during
the months of February, March, and April, 1932, only 2,488
cavans of palay of the value of P5,224.80 and refused to
deliver the balance of 1,512 cavans of the value of P3,175.20
notwithstanding repeated demands. Second, that because of
defendants refusal to deliver to the plaintiff the said 1,512
cavans of palay within the period above mentioned, the
plaintiff suffered damages in the sum of P1,000. And, third,
that on account of the agreement above mentioned the
plaintiff delivered to the defendants 4,000 empty sacks, of
which they returned to the plaintiff only 2,490 and refused to
deliver to the plaintiff the balance of 1,510 sacks or to pay
their value amounting to P377.50; and that on account of

3. ID.; ID.; ID. On the other hand, independently of the


contract Vazquez by his fault or negligence caused damage to
the plaintiff, he would be liable to the latter under article 1902
of the Civil Code. But then the plaintiffs cause of action
should be based on culpa aquiliana and not on the contract
alleged in his complaint herein; and Vazquez liability would
be principal and not merely subsidiary, as the Court of
Appeals

This action was commenced in the Court of First Instance of

has

erroneously

held.

4. ID.; ID.; ID.; NO CAUSE OF ACTION BASED ON "CULPA


AQUILIANA" ALLEGED IN COMPLAINT OR LITIGATED IN TRIAL
COURT; NO JURISDICTION OVER THE ISSUE. No such cause
of action was alleged in the complaint or tried by express or
implied consent of the parties by virtue of section 4 of Rule
17. Hence the trial court had no jurisdiction over the issue and
could not adjudicate upon it. (Reyes v. Diaz, G. R. No. 48754.)
Consequently it was error for the Court of Appeals to remand
the case to the trial court to try and decide such issue.

such refusal the plaintiff suffered damages in the sum of


P150.

The defendant Antonio Vazquez answered the complaint,


denying having entered into the contract mentioned in the
first cause of action in his own individual and personal
capacity, either solely or together with his codefendant
Fernando Busuego, and alleging that the agreement for the
purchase of 4,000 cavans of palay and the payment of the
price of P8,400 were made by the plaintiff with and to the
Natividad-Vazquez

Sabani

Development

Co.,

Inc.,

corporation organized and existing under the laws of the


Philippines, of which the defendant Antonio Vazquez was the
acting manager at the time the transaction took place. By way
of counterclaim, the said defendant alleged that he suffered
damages in the sum of P1,000 on account of the filing of this
action against him by the plaintiff with full knowledge that the
said defendant had nothing to do whatever with any and all of

the transactions mentioned in the complaint in his own

como principal error el de que el habia sido condenado

individual

personalmente, y no la corporacion por el representada.

and

personal

capacity.

The trial court rendered judgment ordering the defendant

"Segun la preponderancia de las pruebas, la venta hecha por

Antonio Vazquez to pay to the plaintiff the sum of P3,175.20

Antonio Vazquez a favor de Francisco de Borja de los 4,000

plus the sum of P377.50, with legal interest on both sums, and

cavanes de palay fue en su capacidad de Presidente interino y

absolving the defendant Fernando Busuego (treasurer of the

Manager

corporation) from the complaint and the plaintiff from the

Development Co., Inc. Asi resulta del Exh. 1, que es la copia al

defendant Antonio Vazquez counterclaim. Upon appeal to the

carbon del recibo otorgado por el demandado Vazquez, y cuyo

Court of Appeals, the latter modified that judgment by

original lo habia perdido el demandante, segun el. Asi tambien

reducing it to the total sum of P3,314.78, with legal interest

consta en los libros de la corporacion arriba mencionada,

thereon and the costs. But by a subsequent resolution upon

puesto que en los mismos se ha asentado tanto la entrada de

the defendants motion for reconsideration, the Court of

los P8,400, precio del palay, como su envio al gobierno en

Appeals set aside its judgment and ordered that the case be

pago de los alquileres de la Hacienda Sabani. Asi mismo lo

remanded to the court of origin for further proceedings. The

admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz,

defendant Vazquez, not being agreeable to that result, filed

posterior

the present petition for certiorari (G.R. No. 48930) to review

arrendamiento de la Sabani Estate, cuando el solicito sus

and reverse the judgment of the Court of Appeals; and the

buenos oficios para el cobro del precio del palay no

plaintiff Francisco de Borja, excepting to the resolution of the

entregado. Asi igualmente lo declaro el que hizo entrega de

Court of Appeals whereby its original judgment was set aside

parte del palay a Borja, Felipe Veneracion, cuyo testimonio no

and the case was ordered remanded to the court of origin for

ha sido refutado. Y asi se deduce de la misma demanda,

further proceedings, filed a cross-petition for certiorari (G.R.

cuando se incluyo en ella a Fernando Busuego, tesorero de la

No. 48931) to maintain the original judgment of the Court of

Natividad-Vazquez

de

la

corporacion

Natividad-Vazquez

presidente de la corporacion

Sabani

Sabani

sucesora en

Development

Co.,

el

Inc.

Appeals.
"Siendo esto asi, la principal responsable debe ser la
The original decision of the Court of Appeals and its

Natividad- Vazquez Sabani Development Co., Inc., que quedo

subsequent

insolvente y dejo de existir. El Juez sentenciador declaro, sin

resolutions

on

reconsideration

read

as

follows:jgc:chanrobles.com.ph

embargo, al demandado Vazquez responsable del pago de la


cantidad reclamada por su negligencia al vender los referidos

"Es hecho no controvertido que el 25 de Febrero de 1932, el

4,000 cavanes de palay sin averiguar antes si o no dicha

demandado-apelante vendio al demandante 4,000 cavanes

cantidad

existia

en

las

bodegas

de

la

corporacion.

de palay al precio de P2.10 el cavan, de los cuales, dicho


demandante

solamente

recibio

2,583

cavanes;

que

"Resulta del Exh. 8 que despues de la venta de los 4,000

asimismo recibio para su envase 4,000 sacos vacios. Esta

cavanes de palay a Francisco de Borja, el mismo demandado

probado que de dichos 4,000 sacos vacios solamente se

vendio a Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el

entregaron, 2,583 quedando en poder del demandado el

cavan, y decimos despues porque esta ultima venta aparece

resto, y cuyo valor es el de P0.24 cada uno. Presentada la

asentada despues de la primera. Segun esto, el apelante no

demanda contra los demandados Antonio Vazquez y Fernando

solamente obro con negligencia, sino interviniendo culpa de

Busuego para el pago de la cantidad de P4,702.70, con sus

su parte, por lo que de acuerdo con los arts. 1102, 1103 y

intereses legales desde el 1.0 de marzo de 1932 hasta su

1902

completeo pago y las costas, el Juzgado de Primera Instancia

subsidiariamente del pago de la cantidad objeto de la

de Manila fallo el asunto condenando a Antonio Vazquez a

demanda.

del

Codigo

Civil,

el

debe

ser

responsable

pagar al demandante la cantidad de P3,175.20, mas la


cantidad de P377.50, con sus intereses legales, absolviendo al

"En meritos de todo lo expuesto, se confirma la decision

demandado

al

apelada con la modificacion de que el apelante debe pagar al

demandante de la reconvencion de los demandados, sin

apelado la suma de P2,975.70 como valor de los 1,417

especial pronunciamiento en cuanto a las costas. De dicha

cavanes de palay que dejo de entregar al demandante, mas la

decision apelo el demandado Antonio Vazquez, apuntando

suma de P339.08 como importe de los 1,417 sacos vacios,

Fernando

Busuego

de

la

demanda

que dejo de devolver, a razon de P0.24 el saco, total

point is, in any event, beside the issue, and this we shall now

P3,314.78, con sus intereses legales desde la interposicion de

discuss in connection with the original judgment of the Court

la demanda y las

of Appeals which the plaintiff cross-petitioner seeks to

costas

de ambas instancias."cralaw

virtua1aw

library

maintain.

"Vista la mocion de reconsideracion de nuestra decision de

The action being on a contract, and it appearing from the

fecha 13 de Octubre de 1942, y alegandose en la misma que

preponderance of the evidence that the party liable on the

cuando el apelante vendio los 1,500 cavanes de palay a Ah

contract is the Natividad-Vazquez Sabani Development Co.,

Phoy, la corporacion todavia tenia bastante existencia de

Inc., which is not a party herein, the complaint should have

dicho grano, y no estando dicho extremo suficientemente

been dismissed. Counsel for the plaintiff, in his brief as

discutido y probado, y pudiendo variar el resultado del asunto,

respondent, argues that altho by the preponderance of the

dejamos sin efecto nuestra citada decision, y ordenamos la

evidence the trial court and the Court of Appeals found that

devolucion de la causa al Juzgado de origen para que reciba

Vazquez celebrated the contract in his capacity as acting

pruebas

decision

president of the corporation and altho it was the latter, thru

library

Vazquez, with which the plaintiff had contracted and which,

al

efecto

dicte

correspondiente."cralaw

despues

la

virtua1aw

thru Vazquez, had received the sum of P8,400 from Borja, and
"Upon consideration of the motion of the attorney for the

altho that was true from the point of view of a legal fiction,

plaintiff-appellee in case CA-G.R. No. 8676, Francisco de Borja

"ello no impide que tambien sea verdad lo alegado en la

v. Antonio Vazquez Et. Al., praying, for the reasons therein

demanda de que la persona de Vazquez fue la que contrato

given, that the resolution of December

22, 1942, be

con Borja y que la misma persona de Vazquez fue quien

reconsidered: Considering that said resolution remanding the

recibio la suma de P8,400." But such argument is invalid and

case to the lower court is for the benefit of the plaintiff-

insufficient to show that the president of the corporation is

appellee to afford him opportunity to refute the contention of

personally liable on the contract duly and lawfully entered into

the

by

defendant-appellant

denied."cralaw

Antonio

Vazquez,

virtua1aw

motion

him

in

its

behalf.

library
It is well known that a corporation is an artificial being

The action is on a contract, and the only issue pleaded and

invested by law with a personality of its own, separate and

tried is whether the plaintiff entered into the contract with the

distinct from that of its stockholders and from that of its

defendant Antonio Vazquez in his personal capacity or as

officers who manage and run its affairs. The mere fact that its

manager of the Natividad-Vazquez Sabani Development Co.,

personality is owing to a legal fiction and that it necessarily

Inc. The Court of Appeals found that according to the

has to act thru its agents, does not make the latter personally

preponderance of the evidence "the sale made by Antonio

liable on a contract duly entered into, or for an act lawfully

Vazquez in favor of Francisco de Borja of 4,000 cavans of

performed, by them for and in its behalf. The legal fiction by

palay was in his capacity as acting president and manager of

which the personality of a corporation is created is a practical

the corporation Natividad-Vazquez Sabani Development Co.,

reality and necessity. Without it no corporate entities may

Inc." That finding of fact is final and, it resolving the only issue

exist and no corporate business may be transacted. Such

involved,

legal fiction may be disregarded only when an attempt is

should

be

determinative

of

the

result.

made to use it as a cloak to hide an unlawful or fraudulent


The Court of Appeals doubly erred in ordering that the cause

purpose. No such thing has been alleged or proven in this

be remanded to the court of origin for further trial to

case. It has not been alleged nor even intimated that Vazquez

determine whether the corporation had sufficient stock of

personally benefited by the contract of sale in question and

palay at the time appellant sold 1,500 cavans of palay to

that he is merely invoking the legal fiction to avoid personal

Kwong Ah Phoy. First, if that point was material to the issue, it

liability. Neither is it contended that he entered into said

should have been proven during the trial; and the statement

contract for the corporation in bad faith and with intent to

of the court that it had not been sufficiently discussed and

defraud the plaintiff. We find no legal and factual basis upon

proven was no justification for ordering a new trial, which, by

which to hold him liable on the contract either principally or

the way, neither party had solicited but against which, on the

subsidiarily.

contrary, both parties now vehemently protest. Second, the

The trial court found him guilty of negligence in the

damages on account of the bringing of the action. The finding

performance of the contract and held him personally liable on

of the Court of Appeals that according to the preponderance

that account. On the other hand, the Court of Appeals found

of the evidence the defendant Vazquez celebrated the

that

sino

contract not in his personal capacity but as acting president

interviniendo culpa de su parte, por lo que de acuerdo con los

and manager of the corporation, does not warrant his

arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser

contention that the suit against him is malicious and tortious;

responsable subsidiariamente del pago de la cantidad objeto

and since we have to decide defendants counterclaim upon

de la demanda." We think both the trial court and the Court of

the facts found by the Court of Appeals, we find no sufficient

Appeals erred in law in so holding. They have manifestly failed

basis upon which to sustain said counterclaim. Indeed, we feel

to

he

"no

distinguish

solamente

obro

extracontractual

that as a matter of moral justice we ought to state here that


the indignant attitude adopted by the defendant towards the

obligation

and

plaintiff for having brought this action against him is in our

negligence referred to in articles 1101-1104 of the Civil Code

estimation not wholly right. Altho from the legal point of view

are those incidental to the fulfillment or nonfulfillment of a

he was not personally liable for the fulfillment of the contract

contractual obligation; while the fault or negligence referred

entered into by him on behalf of the corporation of which he

to in article 1902 is the culpa aquiliana of the civil law,

was the acting president and manager, we think it was his

homologous but not identical to tort of the common law,

moral duty towards the party with whom he contracted in said

which gives rise to an obligation independently of any

capacity to see to it that the corporation represented by him

contract. (Cf. Manila R. R. Co. v. Cia. Trasatlantica, 38 Phil.,

fulfilled the contract by delivering the palay it had sold, the

875, 887-890; Cangco v. Manila R. R. Co., 38 Phil., 768.) The

price of which it had already received. Recreant to such duty

fact that the corporation, acting thru Vazquez as its manager,

as a moral person, he has no legitimate cause for indignation.

was guilty of negligence in the fulfillment of the contract, did

We feel that under the circumstances he not only has no

not make Vazquez principally or even subsidiarily liable for

cause of action against the plaintiff for damages but is not

such negligence. Since it was the corporations contract, its

even

from

from

negligencia,

obligation, or an obligation arising from contract from an


arising

contractual

con

culpa

an

aquiliana.

The

fault

entitled

to

costs.

nonfulfillment, whether due to negligence or fault or to any


other cause, made the corporation and not its agent liable.

The judgment of the Court of Appeals is reversed, and the


complaint is hereby dismissed, without any finding as to

On the other hand, if independently of the contract Vazquez

costs.

by his fault or negligence caused damage to the plaintiff, he


would be liable to the latter under article 1902 of the Civil

Yulo, C.J., Moran, Horrilleno, and Bocobo, JJ., concur.

Code. But then the plaintiffs cause of action should be based


on culpa aquiliana and not on the contract alleged in his

Separate Opinions

complaint herein; and Vazquez liability would be principal and


not

merely

subsidiary,

as

the

Court

of

Appeals

has

erroneously held. No such cause of action was alleged in the

PARAS, J.,

dissenting:chanrob1es

virtual

1aw

library

complaint or tried by express or implied consent of the parties


by virtue of section 4 of Rule 17. Hence the trial court had no

Upon the facts of this case as expressly or impliedly admitted

jurisdiction over the issue and could not adjudicate upon it.

in the majority opinion, the plaintiff is entitled to a judgment

(Reyes v. Diaz, G. R. No. 48754.) Consequently it was error for

against the defendant. The latter, as acting president and

the Court of Appeals to remand the case to the trial court to

manager of Natividad-Vazquez Sabani Development Co., Inc.,

try

and with full knowledge of the then insolvent status of his

and

decide

such

issue.

company, agreed to sell to the plaintiff 4,000 cavans of palay.


It only remains for us to consider petitioners second

Notwithstanding the receipt from the plaintiff of the full

assignment of error referring to the lower courts refusal to

purchase price, the defendant delivered only 2,488 cavans

entertain

the

and failed and refused to deliver the remaining 1,512 cavans

respondent Borja arising from the bringing of this action. The

and a quantity of empty sacks, or their value. Such failure

lower courts having sustained plaintiffs action, they naturally

resulted, according to the Court of First Instance of Manila and

could not have entertained defendants counterclaim for

the

his

counterclaim

for

damages

against

Court

of

Appeals,

from

his

fault

or

negligence.

On June 30 1989, petitioner International Express Travel and


It is true that the cause of action made out by the complaint is

Tour Services, Inc., through its managing director, wrote a

technically based on a contract between the plaintiff and

letter to the Philippine Football Federation (Federation),

Natividad- Vazquez Sabani Development Co., Inc., which is not

through its president private respondent Henri Kahn, wherein

a party to this case. Nevertheless, inasmuch as it was proven

the former offered its services as a travel agency to the latter.

at the trial that the defendant was guilty of fault in that he

prevented the performance of the plaintiffs contract and also


of negligence bordering on fraud which caused damage to the

The offer was accepted.chanrob1es virtua1 1aw 1ibrary

plaintiff, the error of procedure should not be a hindrance to


the rendition of a decision in accordance with the evidence

Petitioner secured the airline tickets for the trips of the

actually introduced by the parties, especially when in such a

athletes and officials of the Federation to the South East Asian

situation we may order the necessary amendment of the

Games in Kuala Lumpur as well as various other trips to the

pleadings, or even consider them correspondingly amended.

Peoples Republic of China and Brisbane. The total cost of the


tickets amounted to P449,654.83. For the tickets received, the

As already stated, the corporation of which the defendant was

Federation made two partial payments, both in September of

acting president and manager was, at the time he made the

1989,

in

the

total

amount

of

P176,467.50.

sale to the plaintiff, known to him to be insolvent. As a matter


of fact, said corporation was soon thereafter dissolved. There

On 4 October 1989, petitioner wrote the Federation, through

is admitted damage on the part of the plaintiff, proven to have

the private respondent a demand letter requesting for the

been inflicted by reason of the fault or negligence of the

amount

defendant. In the interest of simple justice and to avoid

Federation, through the Project Gintong Alay, paid the amount

multiplicity of suits I am therefore impelled to consider the

of

of

P265,894.33.

On

30

October

P31,603.00.

1989,

the

present action as one based on fault or negligence and to


sentence the defendant accordingly. Otherwise, he would be

On 27 December 1989, Henri Kahn issued a personal check in

allowed to profit by his own wrong under the protective cover

the amount of P50,000 as partial payment for the outstanding

of the corporate existence of the company he represented. It

balance of the Federation. 5 Thereafter, no further payments

cannot be pretended that any advantage under the sale

were made despite repeated demands.chanrob1es virtua1

inured

1aw

to

the

benefit

of

Natividad-Vazquez

Sabani

1ibrary

Development Co., Inc., and not of the defendant personally,


since the latter undoubtedly owned a considerable part of its

This prompted petitioner to file a civil case before the

capital.

Regional Trial Court of Manila. Petitioner sued Henri Kahn in


his personal capacity and as President of the Federation and

FIRST

[G.R.

DIVISION

No.

119002.

October

19,

2000.]

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES,


INC., Petitioner, v. HON. COURT OF APPEALS, HENRI
KAHN,

PHILIPPINES

FEDERATION,Respondents.

DECISION

FOOTBALL

impleaded

the

Federation

as

an

alternative

defendant.

Petitioner sought to hold Henri Kahn liable for the unpaid


balance for the tickets purchased by the Federation on the
ground that Henri Kahn allegedly guaranteed the said
obligation.

Henri Kahn filed his answer with counterclaim. While not


denying the allegation that the Federation owed the amount
P207,524.20, representing the unpaid balance for the plane
tickets, he averred that the petitioner has no cause of action
against him either in his personal capacity or in his official
capacity as president of the Federation. He maintained that

KAPUNAN, J.:

he; did not guarantee payment but merely acted as an agent


of the Federation which has a separate and distinct juridical
personality.

On the other hand, the Federation failed to file its answer,


hence, was declared in default by the trial court. 8

With

In due course, the trial court rendered judgment and ruled in

Only Henri Kahn elevated the above decision to the Court of

favor of the petitioner and declared Henri Kahn personally

Appeals. On 21 December 1994, the respondent court

liable for the unpaid obligation of the Federation. In arriving at

rendered a decision reversing the trial court, the decretal

the said ruling, the trial court rationalized:chanrob1es virtual

portion of said decision reads:chanrob1es virtual 1aw library

1aw

the

costs

against

defendant

Henri

Kahn.

10

library
WHEREFORE, premises considered, the judgment appealed

Defendant Henri Kahn would have been correct in his

from is hereby REVERSED and SET ASIDE and another one is

contentions had it been duly established that defendant

rendered dismissing the complaint against defendant Henri S.

Federation is a corporation The trouble, however, is that

Kahn.

11

neither the plaintiff nor the defendant Henri Kahn has


adduced any evidence proving the corporate existence of the

In finding for Henri Kahn, the Court of Appeals recognized the

defendant Federation. In paragraph 2 of its complaint, plaintiff

juridical existence of the Federation. It rationalized that since

asserted that "defendant Philippine Football Federation is a

petitioner failed to prove that Henri Kahn guaranteed the

sports association . . ." This has not been denied by defendant

obligation of the Federation, he should not be held liable for

Henri Kahn in his Answer. Being the President of defendant

the same as said entity has a separate and distinct

Federation, its corporate existence is within the personal

personality

from

its

officers.

knowledge of defendant Henri Kahn. He could have easily


denied specifically the assertion of the plaintiff that it is a

Petitioner filed a motion for reconsideration and as an

mere sports association if it were a domestic corporation. But

alternative prayer pleaded that the Federation be held liable

he did not.

for the unpaid obligation. The same was denied by the


appellate court in its resolution of 8 February 1995, where it

stated

that:chanrob1es

virtua1

1aw

1ibrary

As to the alternative prayer for the Modification of the


A

voluntary

unincorporated

association,

like

defendant

Decision by expressly declaring in the dispositive portion

Federation has no power to enter into, or to ratify, a contract.

thereof the Philippine Football Federation (PFF) as liable for

The contract entered into by its officers or agents on behalf of

the unpaid obligation, it should be remembered that the trial

such association is not binding on, or enforceable against it.

court dismissed the complaint against the Philippine Football

The officers or agents are themselves personally liable.

Federation, and the plaintiff did not appeal from this decision.
Hence, the Philippine Football Federation is not a party to this

The

dispositive

appeal and consequently, no judgment may be pronounced by


this Court against the PFF without violating the due process

reads:chanrob1es

portion

of

the

virtual

trial

courts
1aw

decision

clause, let alone the fact that the judgment dismissing the

library

complaint against it, had already become final by virtue of the


plaintiffs failure to appeal therefrom. The alternative prayer is

WHEREFORE, judgment is rendered ordering defendant Henri

therefore

similarly

DENIED.

12

Kahn to pay the plaintiff the principal sum of P207,524.20,


plus the interest thereon at the legal rate computed from July

Petitioner now seeks recourse to this Court and alleges that

5, 1990, the date the complaint was filed, until the principal

the respondent court committed the following assigned errors:

obligation is fully liquidated; and another sum of P15,000.00

13

for

attorneys

fees.chanrob1es

virtua1

1aw

1ibrary
A. THE, HONORABLE COURT OF APPEALS ERRED IN HOLDING

The complaint of the plaintiff against the Philippine Football

THAT PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL

Federation and the counterclaims of the defendant Henri Kahn

FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT

are

HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE

hereby

dismissed.

ONE, WHO REPRESENTED THE PFF AS HAVING CORPORATE

4. To affiliate with international or regional sports Associations

PERSONALITY.

after due consultation with the executive committee;

B. THE HONORABLE COURT OF APPEALS ERRED IN NOT

HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY


LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF,
HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED

13. To perform such other acts as may be necessary for the

THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL

proper accomplishment of their purposes and not inconsistent

PAYMENT AN ASSURED PETITIONER OF FULLY SETTLING THE

with

this

Act.

OBLIGATION.
Section 8 of P.D. 604, grants similar functions to these sports
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN

associations:chanrob1es

virtual

1aw

library

IS NOT PERSONALLY LIABLE, THE HONORABLE COURT OF


APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS

SECTION. 8. Functions, Powers, and Duties of National Sports

DECISION

THE

Association. The National sports associations shall have the

1ibrary

following functions, powers, and duties:chanrob1es virtual

THAT

THE

PFF

IS

OBLIGATION.chanrob1es

SOLELY

virtua1

LIABLE
1aw

FOR

1aw

library

The resolution of the case at bar hinges on the determination


of the existence of the Philippine Football Federation as a

1. Adopt a Constitution and By-Laws for their internal

juridical person. In the assailed decision, the appellate court

organization and government which shall be submitted to the

recognized the existence of the Federation. In support of this,

Department and any amendment hereto shall take effect

the CA cited Republic Act 3135, otherwise known as the

upon approval by the Department: Provided, however, That no

Revised Charter of the Philippine Amateur Athletic Federation,

team, school, club, organization or entity shall be admitted as

and Presidential Decree No. 604 as the laws from which said

a voting member of an association unless 60 per cent of the

Federation derives its existence.chanrob1es virtua1 1aw

athletes composing said team, school, club, organization or

1ibrary

entity

As correctly observed by the appellate court, both R.A. 3135

2. Raise funds by donations, benefits, and other means for

and P.D. No. 604 recognized the juridical existence of national

their purpose subject to the approval of the Department;

are

Filipino

citizens.

sports associations. This may be gleaned from the powers and


functions granted to these associations. Section 14 of R.A.

3. Purchase, sell, lease, or otherwise encumber property, both

3135

library

real and personal, for the accomplishment of their purpose;

SECTION 14. Functions, powers and duties of Associations.

4. Conduct local, interport, and international competitions,

The National Sports Association shall have the following

other than the Olympic and Asian Games, for the promotion of

functions, powers and duties:chanrob1es virtual 1aw library

their

1. To adopt a constitution and by-laws for their internal

5. Affiliate with international or regional sports associations

organization

after due consultation with the Department;

provides:chanrob1es

and

virtual

1aw

government.

2. To raise funds by donations benefits, and other means for


their

purposes.

3. To purchase, sell, lease or otherwise encumber property


both real and personal, for the accomplishment of their
purpose;

sport;

13. Perform such other functions as may be provided by law.

The above powers and functions granted to national sports


associations clearly indicate that these entities may acquire a
juridical personality. The power to purchase, sell, lease and

encumber property are acts which may only be done by

seeing to it that the National Sports Associations are formed

persons, whether natural or artificial, with juridical capacity.

and organized within six months from and after the passage

However, while we agree with the appellate court that

of

this

Act.chanrob1es

virtua1

1aw

1ibrary

national sports associations may be accorded corporate


status, such does not automatically take place by the mere

Section 7 of P.D. 604, similarly provides:chanrob1es virtual

passage

1aw

of these

laws.chanrob1es

virtua1

1aw

1ibrary

library

It is a basic postulate that before a corporation may acquire

SECTION 7. National Sports Associations: Application for

juridical personality, the State must give its consent either in

accreditation or recognition as a national sports association

the form of a special law or a general enabling act. We cannot

for each individual sport in the Philippines shall be filed with

agree with the view of the appellate court; and the private

the Department together with, among others, a copy of the

respondent that the Philippine Football Federation came into

Constitution and By-Laws and a list of the members of the

existence upon the passage of these laws. Nowhere can it be

proposed

association.

found in R.A. 3135 or P.D. 604 any provision creating the


Philippine Football Federation. These laws merely recognized

The Department shall give the recognition applied for if it is

the existence of national sports associations and provided the

satisfied that the national sports association to be organized

manner

will

by

which

these

entities

may

acquire

juridical

promote

the

objectives

of

this

Decree

and

has

personality. Section 11 of R.A. 3135 provides:chanrob1es

substantially complied with the rules and regulations of the

virtual

Department: Provided, That the Department may withdraw

1aw

library

accreditation or recognition for violation of this Decree and


SECTION 11. National Sports Association; organization and

such

rules

and

regulations

formulated

by

it.

recognition. A National Association shall be organized for


each individual sports in the Philippines in the manner

The

Department

hereinafter provided to constitute the Philippine Amateur

association: Provided, That the latter shall have exclusive

Athletic Federation. Applications for recognition as a National

technical control over the development and promotion of the

Sports Association shall be filed with the executive committee

particular

sport

shall

for

supervise

which

the

they

national

are

sports

organized.

together with, among others, a copy of the constitution and


by-laws and a list of the members of the proposed association,

Clearly the above cited provisions require that before an

and

entity may be considered as a national sports association,

filing

fee

of

ten

pesos.

such

entity

must

be

recognized

by

the

accrediting

The Executive Committee shall give the recognition applied

organization, the Philippine, Amateur Athletic Federation

for if it is satisfied that said association will promote the

under R.A. 3135, and the Department of Youth and Sports

purposes of this Act and particularly section three thereof. No

Development

under

P.D.

604.

application shall be held pending for more than three months


after the filing thereof without any action having been taken

This fact of recognition, however, Henri Kahn failed to

thereon by the executive committee. Should the application

substantiate. In attempting to prove the juridical existence of

be rejected, the reasons for such rejection shall be clearly

the Federation, Henri Kahn attached to his motion for

stated in a written communication to the applicant. Failure to

reconsideration

specify the reasons for the rejection shall not affect the

constitution and by-laws of the Philippine, Football Federation.

application which shall be considered as unacted upon:

Unfortunately, the same does not prove that said Federation

Provided however, That until the executive committee herein

has indeed been recognized and accredited by either the

provided shall have been formed, applications for recognition

Philippine Amateur Athletic Federation or the Department of

shall be passed upon by the duly elected members of the

Youth and Sports Development. Accordingly, we rule that the

present executive committee of the Philippine Amateur

Philippine

Athletic Federation. The said executive committee shall be

association within the purview of the aforementioned laws and

dissolved upon the organization of the executive committee

does not have corporate existence of its own.chanrob1es

herein provided: Provided, further, That the functioning

virtua1

executive committee is charged with the responsibility of

before

Football

the

trial

Federation

1aw

is

court

not

copy

national

of

the

sports

1ibrary

Thus being said, it follows that private respondent Henry Kahn

FIDEL ESPIRITU, SIMEON ESPIRITU, JR., AND LIBERATO

should be held liable for the unpaid obligations of the

MANGOBA, Respondents.

unincorporated Philippine Football Federation. It is a settled


principal in corporation law that any person acting or
purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and becomes personally
liable for contract entered into or for other acts performed as
such agent. 14 As president of the Federation, Henri Kahn is
presumed to have known about the corporate existence or
non-existence of the Federation. We cannot subscribe to the
position taken by the appellate court that even assuming that
the Federation was defectively incorporated, the petitioner
cannot deny the corporate existence of the Federation
because it had contracted and dealt with the Federation in
such a manner as to recognize and in effect admit its
existence. 15 The doctrine of corporation by estoppel is
mistakenly applied by the respondent court to the petitioner.
The application of the doctrine applies to a third party only
when he tries to escape liabilities on a contract from which he
has

benefited

on

the

irrelevant

ground

of

defective

incorporation. 16 In the case at bar, the petitioner is not trying


to escape liability from the contract but rather is the one
claiming

from

the

contract.

WHEREFORE, the decision appealed from is REVERSED and


SET ASIDE. The decision of the Regional Trial Court of Manila,
Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.

DECISION
SERENO, C.J.:
Security

of

tenure

is

constitutionally

guaranteed

right. Employees may not be terminated from their regular


employment except for just or authorized causes under the
Labor Code2and other pertinent laws. A mere change in the
equity composition of a corporation is neither a just nor an
authorized cause that would legally permit the dismissal of
the

corporations

employees en

masse.

Before this Court are consolidated Rule 45 Petitions for Review


on Certiorari3 assailing the Decision4 and Resolution5 of the
Court of Appeals (CA) in CA-G.R. SP No. 97510 and its
Decision6and

Resolution7 in

CA-G.R.

SP

No.

97942.

The facts of the case are as follows:chanroblesvirtualawlibrary

Respondent employees Elicerio Gaspar (Elicerio), Ricardo


Gaspar, Jr. (Ricardo), Eufemia Rosete (Eufemia), Fidel Espiritu
(Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba
(Liberato) were employees of Small and Medium Enterprise
Bank, Incorporated (SME Bank). Originally, the principal
shareholders and corporate directors of the bank were
Eduardo M. Agustin, Jr. (Agustin) and Peregrin de Guzman, Jr.

SO ORDERED.

(De

Right of Succession

Guzman).

In June 2001, SME Bank experienced financial difficulties. To


remedy the situation, the bank officials proposed its sale to

EN BANC

Abelardo

(Samson).8cralawlibrary

Samson

G.R. No. 184517, October 08, 2013


Accordingly, negotiations ensued, and a formal offer was
SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON

made to Samson. Through his attorney-in-fact, Tomas S.

AND AURELIO VILLAFLOR, JR., Petitioners, v. PEREGRIN T.

Gomez

DE GUZMAN, EDUARDO M. AGUSTIN, JR., ELICERIO

Agreements) to Agustin and De Guzman, demanding the

GASPAR, RICARDO GASPAR JR., EUFEMIA ROSETE, FIDEL

following as preconditions for the sale of SME Banks shares of

ESPIRITU,

stock:chanroblesvirtualawlibrary

SIMEON

ESPIRITU,

JR.,

AND

LIBERATO

IV,

Samson

then

sent

formal

letters

(Letter

MANGOBA, Respondents.
4.
G.R.

No.

186641,

October

08,

2013

You shall guarantee the peaceful turn over of all


assets as well as the peaceful transition of management
of the bank and shall terminate/retire the employees we

SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON

mutually agree upon, upon transfer of shares in favor of

AND

our groups nominees;

AURELIO

VILLAFLOR,

JR., Petitioners, v. ELICERIO

GASPAR, RICARDO GASPAR, JR., EUFEMIA ROSETE,

xxxx

Aggrieved by the loss of their jobs, respondent employees


filed

7.

All

retirement

benefits,

of

before

the

National

Labor

Relations

hereby

sued SME Bank, spouses Abelardo and Olga Samson and

waived upon cosummation [sic] of the above sale. The

Aurelio Villaflor (the Samson Group) for unfair labor practice;

retirement benefits of the rank and file employees

illegal

including the managers shall be honored by the new

nonpayment of allowances, separation pay and 13th month

management in accordance with B.R. No. 10, S. 1997.9

pay.28 Subsequently, they amended their Complaint to include

directors

the

Complaint

Commission (NLRC) Regional Arbitration Branch No. III and

of

any

above

officers/stockholders/board

if

are

dismissal;

Agustin
Agustin and De Guzman accepted the terms and conditions

and

illegal

De

deductions;

Guzman

as

underpayment;

respondents

to

and

the

29

case. cralawlibrary

proposed by Samson and signed the conforme portion of the


Agreements.10cralawlibrary

Letter

On 27 October 2004, the labor arbiter ruled that the buyer of


an enterprise is not bound to absorb its employees, unless

Simeon Espiritu (Espiritu), then the general manager of SME

there is an express stipulation to the contrary. However, he

Bank, held a meeting with all the employees of the head office

also

and of the Talavera and Muoz branches of SME Bank and

dismissed, because they had involuntarily executed their

persuaded them to tender their resignations,11 with the

resignation letters after relying on representations that they

promise that they would be rehired upon reapplication. His

would be given their separation benefits and rehired by the

directive was allegedly done at the behest of petitioner Olga

new management. Accordingly, the labor arbiter decided the

12

Samson. cralawlibrary

found

respondent

employees

were

illegally

case against Agustin and De Guzman, but dismissed the


Complaint

Relying

that

against

the

Samson

Group,

as

this

representation,

Elicerio,13 Ricardo,14 Fidel,15 Simeon,

Jr.,16 and

WHEREFORE, premises considered, judgment is hereby

Liberato

on

17

follows:chanroblesvirtualawlibrary

tendered their resignations dated 27 August 2001.

rendered ordering respondents Eduardo Agustin, Jr. and

As for Eufemia, the records show that she first tendered a

Peregrin De Guzman to pay complainants separation pay in

resignation letter dated 27 August 2001,18 and then a

the

retirement

letter

dated

September

2001.19cralawlibrary

Elicerio,20 Ricardo,21 Fidel,22 Simeon,

Jr.,23 and

Liberato24 submitted application letters on 11 September


2001. Both the resignation letters and copies of respondent
employees application letters were transmitted by Espiritu to
Samsons

representative

on

11

September

25

2001. cralawlibrary

On 11 September 2001, Agustin and De Guzman signified


their conformity to the Letter Agreements and sold 86.365%
of the shares of stock of SME Bank to spouses Abelardo and
Olga Samson. Spouses Samson then became the principal
shareholders of SME Bank, while Aurelio Villaflor, Jr. was
appointed bank president. As it turned out, respondent

total

amount

of P339,403.00 detailed

as

follows:chanroblesvirtualawlibrary
Elicerio
P5,837.0
B.
=
0
Gaspar
Ricardo
B.
P11,674.
=
Gaspar,
00
Jr.
Liberato
P64,207.
B.
=
00
Mangoba
Fidel
E. P29,185.
=
Espiritu
00
Simeon
B.
P26,000.
=
Espiritu, 00
Jr.
Eufemia
P202,510
=
E. Rosete .00
All other claims including the complaint against Abelardo
Samson, Olga Samson and Aurelio Villaflor are hereby
DISMISSED

for

want

of

merit.

employees, except for Simeon, Jr.,26 were not rehired. After a


month in service, Simeon, Jr. again resigned on October
27

2001. cralawlibrary

SO ORDERED.30
Dissatisfied with the Decision of the labor arbiter, respondent
employees, Agustin and De Guzman brought separate appeals

Respondent-employees

demanded

the payment of their

respective separation pays, but their requests were denied.

to the NLRC. Respondent employees questioned the labor


arbiters failure to award backwages, while Agustin and De

Guzman contended that they should not be held liable for the

WHEREFORE, premises considered, the instant Petition for

payment

Certiorari is denied, and the herein assailed May 8, 2006

of

the

employees

claims.

Decision and November 28, 2006 Resolution of the NLRC are


The NLRC found that there was only a mere transfer of shares

hereby AFFIRMED.

and therefore, a mere change of management from


Agustin and De Guzman to the Samson Group. As the change

SO ORDERED.34

of management was not a valid ground to terminate

The appellate court denied the Motions for Reconsideration

respondent bank employees, the NLRC ruled that they had

filed by the parties in Resolutions dated 1 September

indeed been illegally dismissed. It further ruled that Agustin,

200835 and

19

2009.36cralawlibrary

February

De Guzman and the Samson Group should be held jointly and


severally liable for the employees separation pay and

The Samson Group then filed two separate Rule 45 Petitions

backwages, as follows:chanroblesvirtualawlibrary

questioning the CA Decisions and Resolutions in CA-G.R. SP

WHEREFORE, premises considered, the Decision appealed

No. 97510 and CA-G.R. SP No. 97942. On 17 June 2009, this

from is hereby MODIFIED. Respondents are hereby Ordered

Court resolved to consolidate both Petitions. 37cralawlibrary

to jointly and severally pay the complainants backwages from


11 September 2001 until the finality of this Decision,

THE ISSUES

separation pay at one month pay for every year of service,


P10,000.00 and P5,000.00 moral and exemplary damages,

Succinctly, the parties are asking this Court to determine

and

whether respondent employees were illegally dismissed and,

five

(5%)

percent

attorneys

fees.

if so, which of the parties are liable for the claims of the
Other

dispositions

are AFFIRMED

employees and the extent of the reliefs that may be awarded


to these employees.

SO ORDERED.

31

On 28 November 2006, the NLRC denied the Motions for


Reconsideration filed by Agustin, De Guzman and the Samson
Group.32cralawlibrary

Agustin

and

De

Guzman

filed

Rule

65

Petition

for Certiorari with the CA, docketed as CA-G.R. SP No. 97510.


The Samson Group likewise filed a separate Rule 65 Petition
for Certiorariwith the CA, docketed as CA-G.R. SP No. 97942.
Motions to consolidate both cases were not acted upon by the
appellate

court.

On 13 March 2008, the CA rendered a Decision in CA-G.R. SP


No. 97510 affirming that of the NLRC. The fallo of the CA
Decision reads:chanroblesvirtualawlibrary
WHEREFORE,

in

view

of

the

foregoing,

the

petition

is DENIED. Accordingly, the Decision dated May 8, 2006, and


Resolution dated November 28, 2006 of the National Labor
Relations Commission in NLRC NCR CA No. 043236-05 (NLRC
RAB

III-07-4542-02)

are

hereby AFFIRMED.

SO ORDERED.33
Subsequently, CA-G.R. SP No. 97942 was disposed of by the
appellate court in a Decision dated 15 January 2008, which
likewise affirmed that of the NLRC. The dispositive portion of
the CA Decision states:chanroblesvirtualawlibrary

THE COURTS RULING

The instant Petitions are partly meritorious.


I
Respondent employees were illegally dismissed.

As to Elicerio Gaspar, Ricardo Gaspar, Jr., Fidel Espiritu,


Eufemia

Rosete

and

Liberato

Mangoba

The Samson Group contends that Elicerio, Ricardo, Fidel, and


Liberato voluntarily resigned from their posts, while Eufemia
retired from her position. As their resignations and retirements
were

voluntary,

they

were

not

dismissed

from

their

employment.38 In support of this argument, it presented


copies of their resignation and retirement letters, 39 which were
couched

in

terms

of

gratitude.

We disagree. While resignation letters containing words of


gratitude may indicate that the employees were not coerced
into resignation,40 this fact alone is not conclusive proof that
they intelligently, freely and voluntarily resigned. To rule that
resignation letters couched in terms of gratitude are, by
themselves, conclusive proof that the employees intended to
relinquish their posts would open the floodgates to possible

abuse. In order to withstand the test of validity, resignations

chose to retire and submitted a retirement letter to that

must

be

made

voluntarily

relinquishing

the

relinquishment.

41

office,

and

with

coupled

the

with

intention

of

effect.47 It was this letter that was subsequently transmitted to

an

of

the representative of the Samson Group on 11 September

act

Therefore, in order to determine whether the

2001.48cralawlibrary

employees truly intended to resign from their respective


posts, we cannot merely rely on the tenor of the resignation

In San Miguel Corporation v. NLRC,49 we have explained that

letters, but must take into consideration the totality of

involuntary

circumstances

employees can only choose the means and methods of

in

each

particular

case.

retirement

is

tantamount

to

dismissal,

as

terminating their employment, but are powerless as to the


Here, the records show that Elicerio, Ricardo, Fidel, and

status of their employment and have no choice but to leave

Liberato only tendered resignation letters because they were

the company. This rule squarely applies to Eufemias case.

led to believe that, upon reapplication, they would be

Indeed, she could only choose between resignation and

reemployed by the new management.

42

As it turned out,

retirement, but was made to understand that she had no

except for Simeon, Jr., they were not rehired by the new

choice but to leave SME Bank. Thus, we conclude that, similar

management. Their reliance on the representation that they

to her other co-employees, she was illegally dismissed from

would be reemployed gives credence to their argument that

employment.

they merely submitted courtesy resignation letters because it


was demanded of them, and that they had no real intention of

The Samson Group further argues 50 that, assuming the

leaving their posts. We therefore conclude that Elicerio,

employees were dismissed, the dismissal is legal because

Ricardo, Fidel, and Liberato did not voluntarily resign from

cessation of operations due to serious business losses is one

their

of the authorized causes of termination under Article 283 of

work;

rather,

they

were

terminated

from

their

employment.

the

As to Eufemia, both the CA and the NLRC discussed her case

Again,

Code.51cralawlibrary

Labor

we

disagree.

together with the cases of the rest of respondent-employees.


However, a review of the records shows that, unlike her co-

The law permits an employer to dismiss its employees in the

employees, she did not resign; rather, she submitted a letter

event of closure of the business establishment. 52 However, the

indicating

employer is required to serve written notices on the worker

that

she

was

retiring

from

her

former

43

position. cralawlibrary

and the Department of Labor at least one month before the


intended

date

closure.53 Moreover,

of

the

dismissed

The fact that Eufemia retired and did not resign, however,

employees are entitled to separation pay, except if the closure

does not change our conclusion that illegal dismissal took

was

place.

due

reverses.

54

to

serious

However,

to

business
be

exempt

losses
from

or

financial

making

such

payment, the employer must justify the closure by presenting


Retirement, like resignation, should be an act completely

convincing evidence that it actually suffered serious financial

voluntary on the part of the employee. If the intent to retire is

reverses.55cralawlibrary

not clearly established or if the retirement is involuntary, it is


to

be

treated

as

discharge.44cralawlibrary

In this case, the records do not support the contention of SME


Bank that it intended to close the business establishment. On

In this case, the facts show that Eufemias retirement was not

the contrary, the intention of the parties to keep it in

of her own volition. The circumstances could not be more

operation is confirmed by the provisions of the Letter

telling. The facts show that Eufemia was likewise given the

Agreements requiring Agustin and De Guzman to guarantee

option to resign or retire in order to fulfill the precondition in

the peaceful transition of management of the bank and to

the Letter Agreements that the seller should terminate/retire

appoint a manager of [the Samson Groups] choice x x x to

the employees [mutually agreed upon] upon transfer of

oversee

shares to the buyers.

45

2001.

operations.

Thus, like her other co-employees,

she first submitted a letter of resignation dated 27 August


46

bank

For one reason or another, instead of resigning, she

Even assuming that the parties intended to close the bank,


the records do not show that the employees and the

Department of Labor were given written notices at least one

dismiss corporate employees absent a just or authorized

month before the dismissal took place. Moreover, aside from

cause.

their bare assertions, the parties failed to substantiate their


claim that SME Bank was suffering from serious financial

In the case at bar, the Letter Agreements show that their main

reverses.

object is the acquisition by the Samson Group of 86.365% of


the shares of stock of SME Bank. 66 Hence, this case involves a

In fine, the argument that the dismissal was due to an

stock sale, whereby the transferee acquires the controlling

authorized

shares of stock of the corporation. Thus, following the rule in

cause

holds

no

water.

stock sales, respondent employees may not be dismissed


Petitioner bank also argues that, there being a transfer of the

except for just or authorized causes under the Labor Code.

business establishment, the innocent transferees no longer


have any obligation

continue employing respondent

Petitioner bank argues that, following our ruling in Manlimos v.

and that the most that they can do is to give

NLRC,67 even in cases of stock sales, the new owners are

preference to the qualified separated employees; hence, the

under no legal duty to absorb the sellers employees, and that

dismissed.57cralawlibrary

the most that the new owners may do is to give preference to

employees,

56

employees

to

were

validly

the qualified separated employees.68 Thus, petitioner bank


The argument is misleading and unmeritorious. Contrary to

argues

that

the

dismissal

was

lawful.

petitioner banks argument, there was no transfer of the


business establishment to speak of, but merely a
change

in

the

new

majority

shareholders

of

We

are

not

persuaded.

the

corporation.

Manlimos dealt with a stock sale in which a new owner or


management group acquired complete ownership of the

There are two types of corporate acquisitions: asset sales and

corporation at the shareholder level.69 The employees of the

stock sales.58 In asset sales, the corporate entity 59 sells all or

corporation were later considered terminated, with their

substantially all of its assets

60

to another entity. In stock sales,

the individual or corporate shareholders


block

of

stock62 to

new

or

61

sell a controlling

existing

shareholders.

conformity70 by

the

new

majority

shareholders.

The

employees then re-applied for their jobs and were rehired on a


probationary

basis.

After

about

six

months,

the

new

management dismissed two of the employees for having


In asset sales, the rule is that the seller in good faith is

abandoned

their

work,

and

it

dismissed

the

rest

for

authorized to dismiss the affected employees, but is liable for

committing acts prejudicial to the interest of the new

the payment of separation pay under the law. 63 The buyer in

management.71cralawlibrary

good faith, on the other hand, is not obliged to absorb the


employees affected by the sale, nor is it liable for the
payment of their claims.

64

Thereafter, the employees sought reinstatement, arguing that

The most that it may do, for

their dismissal was illegal, since they remained regular

reasons of public policy and social justice, is to give

employees of the corporation regardless of the change of

preference to the qualified separated personnel of the selling

management.72cralawlibrary

firm.65cralawlibrary
In disposing of the merits of the case, we upheld the validity
In contrast with asset sales, in which the assets of the selling

of the second termination, ruling that the parties are free to

corporation are transferred to another entity, the transaction

renew the contract or not [upon the expiration of the period

in stock sales takes place at the shareholder level. Because

provided

for
73

in
Citing

their
our

probationary

contract

pronouncements

of

the corporation possesses a personality separate and distinct

employment].

from that of its shareholders, a shift in the composition of its

Azucarera del Danao v. Court of Appeals,74San Felipe Neri

in Central

shareholders will not affect its existence and continuity. Thus,

School of Mandaluyong, Inc. v. NLRC,75 and MDII Supervisors &

notwithstanding the stock sale, the corporation continues to

Confidential Employees Association v. Presidential Assistant

be the employer of its people and continues to be liable for

on Legal Affairs,76 we likewise upheld the validity of the

the payment of their just claims. Furthermore, the corporation

employees first separation from employment, pronouncing as

or its new majority shareholders are not entitled to lawfully

follows:chanroblesvirtualawlibrary

A change of ownership in a business concern is not proscribed

Employees Association all dealt with asset sales, as they

by law. In Central Azucarera del Danao vs. Court of Appeals,

involved a sale of all or substantially all of the assets of the

this Court stated:chanroblesvirtualawlibrary

corporation. The transactions in those cases were not made at

There can be no controversy for it is a principle well-

the shareholder level, but at the corporate level. Thus,

recognized, that it is within the employers legitimate sphere

applicable to those cases were the rules in asset sales: the

of management control of the business to adopt economic

employees may be separated from their employment, but the

policies or make some changes or adjustments in their

seller is liable for the payment of separation pay; on the other

organization or operations that would insure profit to itself or

hand, the buyer in good faith is not required to retain the

protect the investment of its stockholders. As in the exercise

affected employees in its service, nor is it liable for the

of such management prerogative, the employer may merge or

payment

of

their

claims.

consolidate its business with another, or sell or dispose all or


substantially all of its assets and properties which may bring

The rule should be different in Manlimos, as this case involves

about the dismissal or termination of its employees in the

a stock sale. It is error to even discuss transfer of ownership of

process. Such dismissal or termination should not however be

the business, as the business did not actually change hands.

interpreted in such a manner as to permit the employer to

The transfer only involved a change in the equity composition

escape payment of termination pay. For such a situation is not

of the corporation. To reiterate, the employees are not

envisioned in the law. It strikes at the very concept of social

transferred to a new employer, but remain with the

justice.

original corporate employer, notwithstanding an equity


shift in its majority shareholders. This being so, the

In a number of cases on this point, the rule has been laid

employment status of the employees should not have been

down that the sale or disposition must be motivated by good

affected by the stock sale. A change in the equity composition

faith as an element of exemption from liability. Indeed, an

of the corporate shareholders should not result in the

innocent transferee of a business establishment has no

automatic termination of the employment of the corporations

liability to the employees of the transfer or to continue

employees.

employer them. Nor is the transferee liable for past unfair

shareholders the right to legally dismiss the corporations

labor practices of the previous owner, except, when the

employees,

Neither

absent

should

it

just

give

or

the

new

majority

authorized

cause.

liability therefor is assumed by the new employer under the


contract of sale, or when liability arises because of the new

The right to security of tenure guarantees the right of

owners participation in thwarting or defeating the rights of

employees to continue in their employment absent a just or

the employees.chanrob1esvirtualawlibrary

authorized cause for termination. This guarantee proscribes a

Where such transfer of ownership is in good faith, the

situation in which the corporation procures the severance of

transferee is under no legal duty to absorb the transferors

the employment of its employees who patently still desire to

employees as there is no law compelling such absorption. The

work for the corporation only because new majority

most that the transferee may do, for reasons of public policy

stockholders and a new management have come into the

and social justice, is to give preference to the qualified

picture. This situation is a clear circumvention of the

separated employees in the filling of vacancies in the facilities

employees constitutionally guaranteed right to security of

of

purchaser.

tenure, an act that cannot be countenanced by this Court.

Since the petitioners were effectively separated from work

It is thus erroneous on the part of the corporation to consider

due to a bona fide change of ownership and they were

the employees as terminated from their employment when

accordingly paid their separation pay, which they freely and

the sole reason for so doing is a change of management by

voluntarily accepted, the private respondent corporation was

reason of the stock sale. The conformity of the employees to

under no obligation to employ them; it may, however, give

the corporations act of considering them as terminated and

them preference in the hiring. x x x. (Citations omitted)

their subsequent acceptance of separation pay does not

We

the

take

this

opportunity

to

revisit

our

ruling

remove the taint of illegal dismissal. Acceptance of separation

in Manlimos insofar as it applied a doctrine on asset sales to a

pay does not bar the employees from subsequently contesting

stock sale case. Central Azucarera del Danao, San Felipe Neri

the legality of their dismissal, nor does it estop them from

School of Mandaluyong and MDII Supervisors & Confidential

challenging

the

legality

of

their

separation

from

the

service.77cralawlibrary

We rule that these circumstances show that Simeon, Jr. was


constructively dismissed. In Peaflor v. Outdoor Clothing

We therefore see it fit to expressly reverse our ruling

Manufacturing Corporation,86 we have defined constructive

in Manlimos insofar as it upheld that, in a stock sale, the

dismissal as follows:chanroblesvirtualawlibrary

buyer in good faith has no obligation to retain the employees

Constructive dismissal is an involuntary resignation by the

of the selling corporation; and that the dismissal of the

employee

affected employees is lawful, even absent a just or authorized

conditions set by the employer and which arises when a clear

cause.

discrimination, insensibility, or disdain by an employer exists

due

to

the

harsh,

hostile,

and

unfavorable

and has become unbearable to the employee. 87


As

to

Simeon

Espiritu,

Jr.

Constructive dismissal exists where there is cessation of work,


because continued employment is rendered impossible,

The CA and the NLRC discussed the case of Simeon, Jr.

unreasonable or unlikely, as an offer involving a demotion in

together with that of the rest of respondent-employees.

rank or a diminution in pay and other benefits. 88cralawlibrary

However, a review of the records shows that the conditions


leading to his dismissal from employment are different. We

These circumstances are clearly availing in Simeon, Jr.s case.

thus

He was made to resign, then rehired under conditions that

discuss

his

circumstance

separately.

were substantially less than what he was enjoying before the


The Samson Group contends that Simeon, Jr., likewise

illegal termination occurred. Thus, for the second time, he

voluntarily resigned from his post.78 According to them, he had

involuntarily resigned from his employment. Clearly, this case

resigned from SME Bank before the share transfer took

is illustrative of constructive dismissal, an act prohibited

79

place. Upon the change of ownership of the shares and the

under our labor laws.

management of the company, Simeon, Jr. submitted a letter of


application
management.
purely

to
80

and

rehired

by

the

new

However, the Samson Group alleged that for

personal

employment

was

reasons,

on

15

he

again

October

resigned

from

his

II
SME Bank, Eduardo M. Agustin, Jr. and Peregrin de
Guzman, Jr. are liable for illegal dismissal.

2001.81cralawlibrary
Having ruled on the illegality of the dismissal, we now discuss

Simeon, Jr., on the other hand, contends that while he was

the issue of liability and determine who among the parties are

reappointed by the new management after his letter of

liable for the claims of the illegally dismissed employees.

application was transmitted, he was not given a clear position,


his benefits were reduced, and he suffered a demotion in
rank.

82

These allegations were not refuted by the Samson

The settled rule is that an employer who terminates the


employment of its employees without lawful cause or due

Group.

process of law is liable for illegal dismissal.89cralawlibrary

We hold that Simeon, Jr. was likewise illegally dismissed from

None of the parties dispute that SME Bank was the employer

his

of respondent employees. The fact that there was a change in

employment.

the composition of its shareholders did not affect the


Similar to our earlier discussion, we find that his first courtesy

employer-employee relationship between the employees and

resignation letter was also executed involuntarily. Thus, it

the corporation, because an equity transfer affects neither the

cannot be the basis of a valid resignation; and thus, at that

existence nor the liabilities of a corporation. Thus, SME Bank

point, he was illegally terminated from his employment. He

continued to be the employer of respondent employees

was, however, rehired by SME Bank under new management,

notwithstanding the equity change in the corporation. This

although based on his allegations, he was not reinstated to his

outcome is in line with the rule that a corporation has a

Rather,

personality separate and distinct from that of its individual

he even suffered a reduction in benefits and a demotion in

shareholders or members, such that a change in the

rank.84 These led to his submission of another resignation

composition of its shareholders or members would not affect

former position or to a substantially equivalent one.

letter

effective

15

October

85

83

2001. cralawlibrary

its

corporate

liabilities.

Therefore, we conclude that, as the employer of the illegally

or retirements and eventually found themselves jobless.

dismissed employees before and after the equity transfer,

Clearly,

petitioner SME Bank is liable for the satisfaction of their

circumvention of our labor laws and a violation of the

claims.

employees constitutionally guaranteed right to security of

this

sequence

of

events

constituted

gross

tenure. We therefore rule that, as Agustin and De Guzman are


Turning now to the liability of Agustin, De Guzman and the

corporate directors who have acted in bad faith, they may be

Samson Group for illegal dismissal, at the outset we point out

held solidarily liable with SME Bank for the satisfaction of the

that there is no privity of employment contracts between

employees

lawful

claims.

Agustin, De Guzman and the Samson Group, on the one hand,


and

the

As to spouses Samson, we find that nowhere in the records

employment contracts were between SME Bank and the

respondent

does it appear that they were either corporate directors or

employees. However, this fact does not mean that Agustin, De

officers of SME Bank at the time the illegal termination

Guzman and the Samson Group may not be held liable for

occurred, except that the Samson Group had already taken

illegal dismissal as corporate directors or officers. In Bogo-

over as new management when Simeon, Jr. was constructively

Medellin Sugarcane Planters Association, Inc. v. NLRC,90 we

dismissed. Not being corporate directors or officers, spouses

laid down the rule as regards the liability of corporate

Samson

directors

as

consequently had no power to dismiss its employees.

Unless they have exceeded their authority, corporate officers

Respondent employees argue that the Samson Group had

are, as a general rule, not personally liable for their official

already taken over and conducted an inventory before the

acts, because a corporation, by legal fiction, has a personality

execution of the share purchase agreement. 92 Agustin and De

separate and distinct from its officers, stockholders and

Guzman likewise argued that it was at Olga Samsons behest

members. However,

be pierced

that the employees were required to resign from their

whenever the corporate personality is used as a means of

posts.93 Even if this statement were true, it cannot amount to

perpetuating a fraud or an illegal act, evading an existing

a finding that spouses Samson should be treated as corporate

obligation, or confusing a legitimate issue. In cases of illegal

directors or officers of SME Bank. The records show that it was

dismissal, corporate directors and officers are solidarily liable

Espiritu who asked the employees to tender their resignation

with the corporation, where terminations of employment are

and or retirement letters, and that these letters were actually

and

employees

officers

in

on

the

illegal

other.

dismissal

Rather,

cases,

were

not

in

legal

control

of

the

bank

and

follows:chanroblesvirtualawlibrary

this

fictional veil may

done with malice or in bad faith.

91

(Citations omitted)

tendered to him.94 He then transmitted these letters to the

Thus, in order to determine the respective liabilities of

representative of the Samson Group. 95 That the spouses

Agustin, De Guzman and the Samson Group under the afore-

Samson had to ask Espiritu to require the employees to resign

quoted rule, we must determine, first, whether they may be

shows that they were not in control of the corporation, and

considered as corporate directors or officers; and, second,

that the former shareholders through Espiritu were still in

whether the terminations were done maliciously or in bad

charge

faith.

corporate officers nor directors at the time the illegal

thereof.

As

the

spouses

Samson

were

neither

dismissal took place, we find that there is no legal basis in the


There is no question that both Agustin and De Guzman were

present case to hold them in their personal capacities

corporate directors of SME Bank. An analysis of the facts

solidarily

likewise reveals that the dismissal of the employees was done

respondent employees, without prejudice to any liabilities that

in bad faith. Motivated by their desire to dispose of their

may

liable with

have

SME

attached

Bank

under

for

other

illegally

dismissing

provisions

of

law.

shares of stock to Samson, they agreed to and later


implemented the precondition in the Letter Agreements as to

Furthermore, even if spouses Samson were already in control

the termination or retirement of SME Banks employees.

of

However, instead of going through the proper procedure, the

constructively dismissed, we refuse to pierce the corporate

bank manager induced respondent employees to resign or

veil and find them liable in their individual steads. There is no

retire from their respective employments, while promising

showing that his constructive dismissal amounted to more

that they would be rehired by the new management. Fully

than a corporate act by SME Bank, or that spouses Samson

relying on that promise, they tendered courtesy resignations

acted maliciously or in bad faith in bringing about his

the

corporation

at

the

time

that

Simeon,

Jr.

was

constructive

dismissal.
WHEREFORE, premises considered, the instant Petitions for

Finally,

as

regards

Aurelio

Villaflor,

while

he

may

be

Review

are PARTIALLY

GRANTED.

considered as a corporate officer, being the president of SME


Bank, the records are bereft of any evidence that indicates his

The assailed Decision and Resolution of the Court of Appeals

actual

in CA G.R. SP No. 97510 dated 13 March 2008 and 1

participation

in

the

termination

of

respondent

employees. Not having participated at all in the illegal act, he

September

may not be held individually liable for the satisfaction of their

hereby REVERSED and SET

claims.

held Abelardo P. Samson, Olga Samson and Aurelio


Villaflor,

2008,

respectively,

Jr. solidarily

ASIDEinsofar

liable

for

are
as

illegal

it

dismissal.

III
Respondent employees are entitled to separation pay,

The assailed Decision and Resolution of the Court of Appeals

full backwages, moral damages, exemplary damages

in CA-G.R. SP No. 97942 dated 15 January 2008 and 19

and attorneys fees.

February 2009, respectively, are likewise REVERSED and SET


ASIDE insofar

as

it

held Abelardo

P.

Samson,

Olga

The rule is that illegally dismissed employees are entitled to

Samson and Aurelio Villaflor, Jr. solidarily liable for illegal

(1) either reinstatement, if viable, or separation pay if

dismissal.

reinstatement

is

no

longer

viable;

and

(2)

backwages.96cralawlibrary

We REVERSE our ruling in Manlimos v. NLRC insofar as it


upheld that, in a stock sale, the buyer in good faith has no

Courts may grant separation pay in lieu of reinstatement

obligation to retain the employees of the selling corporation,

when the relations between the employer and the employee

and that the dismissal of the affected employees is lawful

have been so severely strained; when reinstatement is not in

even

absent

just

or

authorized

cause.

the best interest of the parties; when it is no longer advisable


or practical to order reinstatement; or when the employee

SO ORDERED.

decides not to be reinstated.97 In this case, respondent


employees expressly pray for a grant of separation pay in lieu
of reinstatement. Thus, following a finding of illegal dismissal,
we rule that they are entitled to the payment of separation
pay equivalent to their one-month salary for every year of
service

as

an

alternative

to

reinstatement.

Respondent employees are likewise entitled to full backwages


notwithstanding the grant of separation pay. In Santos v.
NLRC,98 we explained that an award of backwages restores the
income that was lost by reason of the unlawful dismissal,

SECOND

[G.R.

DIVISION

No.

WENSHA

185122

SPA

PETITIONERS,

CENTER,
VS.

August

INC.

LORETA

T.

16,

AND/OR
YUNG,

XU

2010]

ZHI

JIE,

RESPONDENT.

DECISION
MENDOZA, J.:

while separation pay "provide[s] the employee with 'the


wherewithal during the period that he is looking for another

This is a petition for review on certiorari under Rule 45 of the

employment.'"99 Thus, separation pay is a proper substitute

Rules of Court filed by an employer who was charged before

only for reinstatement; it is not an adequate substitute for

the

National

Labor

Relations

Commission (NLRC) for

Hence, respondent

dismissing an employee upon the advice of a Feng Shui

employees are entitled to the grant of full backwages in

master. In this action, the petitioners assail the May 28, 2008

addition

Decision1 and October 23, 2008 Resolution 2 of the Court of

both reinstatement and backwages.

to

100

separation

pay.

Appeals (CA) in CA-G.R. SP No. 98855 entitled Loreta T. Yung


As to moral damages, exemplary damages and attorney's

v. National Labor Relations Commission, Wensha Spa Center,

fees, we uphold the appellate court's grant thereof based on

Inc.

and/or

Xu

Zhi

Jie.

our finding that the forced resignations and retirement were


fraudulently

done

and

attended

by

bad

faith.

THE

FACTS:

loss of trust and confidence in her. The LA's decision7 partly


Wensha Spa Center, Inc. (Wensha) in Quezon City is in the

reads:

business of sauna bath and massage services. Xu Zhi Jie


a.k.a. Pobby Co (Xu) is its president,3 respondent Loreta T.

However, this office has found it dubious and hard to believe

Yung(Loreta) was its administrative manager at the time of

the contentions made by the complainant that she was

her

dismissed by the respondents on the sole ground that she is a

termination

from

employment.

"mismatch" in respondents' business as advised by an alleged


In her position paper, Loreta stated that she used to be

Feng Shui Master. The complainant herself alleged in her

employed by Manmen Services Co., Ltd. (Manmen) where Xu

position paper that she has done several improvements in

was a client. Xu was apparently impressed by Loreta's

respondents' business such as uplifting the morale and

performance. After he established Wensha, he convinced

efficiency of its employees and increasing respondents'

Loreta to transfer and work at Wensha. Loreta was initially

clientele, and that respondent Co was very much pleased with

reluctant to accept Xu's offer because her job at Manmen was

the improvements made by the complainant that she was

stable and she had been with Manmen for seven years. But

offered twice a promotion but she nevertheless declined. It

Xu was persistent and offered her a higher pay.

would be against human experience and contrary to business

Enticed,

Loreta resigned from Manmen and transferred to Wensha.

acumen to let go of someone, who was an asset and has done

She started working on April 21, 2004 as Xu's personal

so much for the company merely on the ground that she is a

assistant and interpreter at a monthly salary of P12,000.00.

"mismatch" to the business. Absent any proof submitted by


the complainant, this office finds it more probable that the

Loreta introduced positive changes to Wensha which resulted


in increased business. This pleased Xu so that on May 18,

complainant
confidence.

was

dismissed

due

to

loss

of

trust

and

2004, she was promoted to the position of Administrative


This ruling was affirmed by the NLRC in its December 29, 2006

Manager.5

Resolution,9 citing its observation that Wensha was still


Loreta recounted that on August 10, 2004, she was asked to

considering the proper action to take on the day Loreta left

leave her office because Xu and a Feng Shui master were

Wensha and filed her complaint. The NLRC added that this

exploring the premises. Later that day, Xu asked Loreta to go

finding was bolstered by Wensha's September 10, 2004 letter

on leave with pay for one month. She did so and returned on

to Loreta asking her to come back to personally clarify some

September 10, 2004. Upon her return, Xu and his wife asked

matters, but she declined because she had already filed a

her to resign from Wensha because, according to the Feng

case.

Shui master, her aura did not match that of Xu. Loreta refused
but was informed that she could no longer continue working

Loreta moved for a reconsideration of the NLRC's ruling but

at Wensha. That same afternoon, Loreta went to the NLRC

her motion was denied. Loreta then went to the CA on a

and filed a case for illegal dismissal against Xu and Wensha.

petition for certiorari. The CA reversed the ruling of the NLRC


on the ground that it gravely abused its discretion in

Wensha

and

Xu

denied

illegally

terminating

Loreta's

appreciating the factual bases that led to Loreta's dismissal.

employment. They claimed that two months after Loreta was

The

hired, they received various complaints against her from the

inconsistencies in Wensha's position.

employees so that on August 10, 2004, they advised her to

following:

take a leave of absence for one month while they conducted


an investigation on the matter. Based on the results of the
investigation, they terminated Loreta's employment on August
31,

2004

for

loss

of

trust

and

confidence. 6

The Labor Arbiter (LA) Francisco Robles dismissed Loreta's


complaint for lack of merit. He found it more probable that
Loreta was dismissed from her employment due to Wensha's

CA

noted

that

there

were

irregularities

and

The CA stated the

We, thus, peruse the affidavits and documentary evidence of


the Private Respondents and find the following: First, on the
affidavits of their witnesses, it must be noted that the same
were mere photocopies. It was held that [T]he purpose of the
rule in requiring the production of the best evidence is the
prevention of fraud, because if a party is in possession of such
evidence and withholds it, and seeks to substitute inferior
evidence in its place, the presumption naturally arise[s] that

the better evidence is withheld for fraudulent purposes which

WHEREFORE, the instant petition is GRANTED. Wensha Spa

its production would expose and defeat. Moreover, the

Center, Inc. and Xu Zhi Jie are ORDERED to, jointly and

affidavits were not executed under oath. The rule is that an

severally, pay Loreta T. Yung her full backwages, other

affiant must sign the document in the presence of and take

privileges,

his oath before a notary public as evidence that the affidavit

corresponding to the period of her dismissal from September

was properly made. Guided by these principles, the affidavits

1, 2004 up to the finality of this decision, and damages in the

cannot be assigned any weighty probative value and are mere

amounts of fifty thousand pesos (Php50,000.00) as moral

scraps of paper the contents of which are hearsay. Second,

damages, twenty five thousand pesos (Php25,000.00) as

on the sales report and order slips, which allegedly prove that

exemplary

Yung had been charging her food and drinks to Wensha, the

(Php20,000.00)

and

benefits,

damages,
as

or

their

and

monetary

twenty

attorney's

equivalent,

thousand

fees.

No

pesos
costs.

said pieces of evidence do not, however, bear Yung's name


thereon or even her signature.

In fact, it does not state

anyone's name, except that of Wensha.

SO ORDERED.11

Hence, it would

simply be capricious to pinpoint, or impute, on Yung as the

Wensha and Xu now assail this ruling of the CA in this petition

author in charging such expenses to Wensha on the basis of

presenting the following:

hearsay evidence. Third, while the affidavit of Wensha's


Operations Manager, Princess delos Reyes (delos Reyes), may

V. GROUNDS FOR THE ALLOWANCE OF THE PETITION

have been duly executed under oath, she did not, however,
specify the alleged infractions that Yung committed. If at all,

5.1 The following are the reasons and arguments, which are

delos Reyes only made general statements on the alleged

purely questions of law and some questions of facts, which

complaints against Yung that were not even substantiated by

justify the appeal by certiorari under Rule 45 of the 1997

any other piece of evidence. Finally, the daily time records

Revised Rules of Civil Procedure, as amended, to this

(DTRs)

Honorable SUPREME COURT of the assailed Decision and

of

Yung,

which

supposedly

prove

her

habitual

tardiness, were mere photocopies that are not even signed by

Resolution,

to

wit:

Wensha's authorized representative, thus suspect, if not


violative of the best evidence rule and, therefore, incompetent

5.1.1 The Honorable COURT OF APPEALS gravely erred in

evidence.

reversing that factual findings of the Honorable Labor Arbiter

[Emphases

appear

in

the

original]

and the Honorable NLRC (Third Division) notwithstanding


x

x.

recognized and established rule in our jurisdiction that


findings of facts of quasi-judicial agencies who have gained

Finally, after the Private Respondents filed their position

expertise on their respective subject matters are given

paper, they alleged mistake on the part of their former

respect

and

finality;

counsel in stating that Yung was dismissed on August 31,


2004. Thus, they subsequently moved for the admission of

5.1.2

their rejoinder.

Notably, however, the said rejoinder was

abuse of discretion and serious errors when it ruled that

dated October 4, 2004, earlier than the date when their

findings of facts of the Honorable Labor Arbiter and the

position paper was filed, which was on November 3, 2004. It

Honorable NLRC are not supported by substantial evidence

is also puzzling that their position paper was dated November

despite the fact that the records clearly show that petitioner

25, 2004, much later than its date of filing. The irregularities

therein was not dismissed but is under investigation, and that

are simply too glaring to be ignored.

she is guilty of serious infractions that warranted her

Nevertheless, the

Private Respondents' admission of Yung's termination on

The Honorable COURT OF APPEALS committed grave

termination;

August 31, 2004 cannot be retracted. They cannot use the


mistake of their counsel as an excuse considering that

5.1.3

the position paper was verified by their Operations

when it ordered herein petitioner to pay herein respondent her

The Honorable COURT OF APPEALS grave[ly] erred

Manager, delos Reyes, who attested to the truth of the

separation pay, in lieu of reinstatement, and full backwages,

contents therein.10[Emphasis supplied]

as

Hence, the fallo of the CA decision reads:

5.1.4

well

as

damages

and

attorney's

fees;

The Honorable COURT OF APPEALS committed grave

abuse of discretion and serious errors when it held that

leave of absence with pay for one month starting August 10,

petitioner XU ZHI JIE to be solidarily liable with WENSHA,

2004.16

assuming

that

respondent

was

illegally

dismissed;
Wensha also alleged that Loreta was "sowing intrigues in the

5.2

The same need to be corrected as they would work

company" which was inimical to Wensha.

She was also

injustice to the herein petitioner, grave and irreparable

accused of dishonesty, serious breach of trust reposed in her,

damage will be done to him, and would pose dangerous

tardiness,

and

abuse

authority. 17

of

precedent.12
In its Rejoinder, Wensha changed its position claiming that it
THE

COURT'S

RULING:

did not terminate Loreta's employment on August 31, 2004. It


even sent her a notice requesting her to report back to work.

Loreta's security of tenure is guaranteed by the Constitution

She, however, declined because she had already filed her

and the Labor Code.

complaint.18

The 1987 Philippine Constitution

provides in Section 18, Article II that the State shall protect


the rights of workers and promote their welfare. Section 3,

As correctly found by the CA, the cause of Loreta's dismissal is

Article XIII also provides that all workers shall be entitled to

questionable.

security of tenure. Along that line, Article 3 of the Labor Code

ground for dismissal must have basis and must be founded on

mandates that the State shall assure the rights of workers to

clearly

security

of

Loss of trust and confidence to be a valid

facts.19

established

tenure.
The Court finds the LA ruling that states, "[a]bsent any proof

Under the security of tenure guarantee, a worker can only be

submitted by the complainant, this office finds it more

terminated from his employment for cause and after due

probable that the complainant was dismissed due to loss of

process. For a valid termination by the employer: (1) the

trust and confidence,"20 to be utterly erroneous as it is

dismissal must be for a valid cause as provided in Article 282,

contrary to the applicable rules and pertinent jurisprudence.

or for any of the authorized causes under Articles 283 and 284

The onus of proving a valid dismissal rests on the employer,

of the Labor Code; and (2) the employee must be afforded an

not on the employee.21 It is the employer who bears the

opportunity to be heard and to defend himself. A just and

burden of proving that its dismissal of the employee is for a

valid cause for an employee's dismissal must be supported by

valid

substantial evidence, and before the employee can be

or

evidence.

authorized

cause

supported

by

substantial

22

dismissed, he must be given notice and an adequate


opportunity to be heard.13 In the process, the employer bears

According to the NLRC, "[p]erusal of the entire records show

the burden of proving that the dismissal of an employee was

that complainant left the respondents' premises when she was

for a valid cause. Its failure to discharge this burden renders

confronted with the infractions imputed against her." 23 This

illegal. 14

information was taken from the affidavit 24 of Princess Delos

the

dismissal

unjustified

and,

therefore,

Reyes (Delos Reyes) which was dated March 21, 2005, not in
As a rule, the factual findings of the court below are

Wensha's earlier position paper or pleadings submitted to the

conclusive on Us in a petition for review on certiorari where

LA. The affidavits25 of employees attached to Delos Reyes'

We review only errors of law. This case, however, is an

affidavit were all dated November 19, 2004 indicating that

exception because the CA's factual findings are not congruent

they were not yet executed when the complaints against

with

LA.

Loreta were supposedly being investigated in August 2004.

According to Wensha in its position paper, 15 it dismissed

It is also noteworthy that Wensha's position paper related that

Loreta on August 31, 2004 after investigating the complaints

because of the gossips perpetrated by Loreta, a certain Oliva

against her. Wensha asserted that her dismissal was a valid

Gonzalo (Gonzalo) resigned from Wensha.

exercise of an employer's right to terminate a managerial

incident, Gonzalo, whose father was a policeman, "reportedly

employee for loss of trust and confidence. It claimed that she

got angry with complainant and of the management telling

caused the resignation of an employee because of gossips

her friends at respondent company that she would retaliate

initiated by her. It was the reason she was asked to take a

thus creating fear among those concerned." 26 As a result,

those

of

the

NLRC

and

the

Because of the

Loreta was advised to take a paid leave of absence for one

respondents. Surprised and shocked, complainant demanded

month

of Jiang Xue Qin to issue a letter of termination if it were the

while

Wensha

conducted

an

investigation.

reason

therefor.

According to Loreta, however, the reason for her termination


was her aura did not match that of Xu and the work

Instead of a termination letter issued, Jiang Xue Qin insisted

environment at Wensha. Loreta narrated:

for the complainant's resignation.

But when complainant

stood her ground, Jian Xue Qin shouted invectives at her and
On August 10, 2004 however, complainant was called by

told

to

leave

the

office

immediately.

respondent Xu and told her to wait at the lounge area while


the latter and a Feng Shui Master were doing some analysis of

Respondent Xu did not show up but talked to the complainant

the office. After several hours of waiting, respondent Xu then

over the mobile phone and convinced her likewise to resign

told complainant that according to the Feng Shui master her

from the company since there is no way to retain her because

Chinese Zodiac sign is a "mismatch" with that of the

her aura unbalanced the area of employment according to the

respondents;

the

Feng Shui, the Chinese spiritual art of placement. Hearing

administrative office for a month while an altar was to be

this from no lees than respondent Xu, complainant left the

placed on the left side where complainant has her table to

office and went straight to this Office and filed the present

allegedly correct the "mismatch" and that it is necessary that

case on September 10, 2004. xxx28

that

complainant

should

not

enter

offerings and prayers have to be made and said for about a


month to correct the alleged "jinx." Respondent Xu instructed

Loreta also alleged that in the afternoon of that day,

complainant not to report to the office for a month with

September 10, 2004, a notice was posted on the Wensha

assurance of continued and regular salary. She was ordered

bulletin board that reads:

not to seek employment elsewhere and was told to come back


on the 10th of September 2004.27

TO ALL EMPLOYEES OF WENSHA SPA CENTER

Although she was a little confused, Loreta did as she was


instructed and did not report for work for a month.
returned to work on September 10, 2004.

She

This is how Loreta

recounted the events of that day:

WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE YUNG,


FORMER

ADMINISTRATIVE

CENTER IS

NO

STARTING

OFFICER

OF

LONGER CONNECTED

TO

TODAY SEPTEMBER

WENSHA
THIS

SPA

COMPANY

10,

2004.

On September 10, 2004, in the morning, complainant reported


to the office of respondents. As usual, she punched-in her

ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY

time card and signed in the logbook of the security guard.

OF

THE

COMPANY.

When she entered the administrative office, some of its


employees

immediately

contacted

respondent

Xu.

(SGD.) THE MANAGEMENT [Italics were in red letters.]29

Respondent Xu then contacted complainant thru her mobile


phone and told her to leave the administrative office

The

immediately and instead to wait for him in the dining area.

consistency in her pleadings and evidence.

Court

finds

Loreta's

complaint

credible.

There

is

In contrast,

Wensha's pleadings and evidence, taken as a whole, suffer


xxx

from inconsistency. Moreover, the affidavits of the employees


only pertain to petty matters that, to the Court's mind, are not

Complainant waited for respondent Xu in the dining area.

sufficient to support Wensha's alleged loss of trust and

After waiting for about two (2) hours, respondent Xu was

confidence.

nowhere. Instead, it was Jiang Xue Qin a.k.a Annie Co, the

employment, the act or acts constituting breach of trust must

Chinese wife of respondent Xu, who arrived and after a short

have been done intentionally, knowingly, and purposely; and

conversation

they

between

them,

the

former

frankly

told

must

To

be

be

valid

founded

on

cause

clearly

for

termination

established

of

facts.

complainant that she has to resign allegedly she is a


mismatch to respondent Xu according to the Feng Shui master

The CA decision is supported by evidence and logically flows

and therefore she does not fit to work (sic) with the

from a review of the records. Loreta's narration of the events

surrounding her termination from employment was simple and


straightforward.

Her claims are more credible than the

In the case at bench, the CA, upon its own assessment,

affidavits which were clearly prepared as an afterthought.

pronounced that the relations between petitioners and the


respondent have become strained because of her dismissal

More importantly, the records are bereft of evidence that

anchored on dubious charges.

Loreta was duly informed of the charges against her and that

contested the finding.

she was given the opportunity to respond to those charges

reinstated, she should be paid separation pay equivalent to

prior to her dismissal. If there were indeed charges against

one (1) month salary for every year of service.33 The CA,

Loreta that Wensha had to investigate, then it should have

however, failed to decree such award in the dispositive

informed her of those charges and required her to explain her

portion.

side.

Wensha

should

also

have

kept

records

of

This

The respondent has not

As she is not insisting on being

should

be

rectified.

the

investigation conducted while Loreta was on leave. The law

Nevertheless, the Court finds merit in the argument of

requires that two notices be given to an employee prior to a

petitioner Xu that the CA erred in ruling that he is solidarily

valid termination: the first notice is to inform the employee of

liable

with

Wensha.

the charges against her with a warning that she may be


terminated from her employment and giving her reasonable

Elementary is the rule that a corporation is invested by law

opportunity within which to explain her side, and the second

with a personality separate and distinct from those of the

notice is the notice to the employee that upon due

persons composing it and from that of any other legal entity

consideration

being

to which it may be related. "Mere ownership by a single

This is a requirement of

stockholder or by another corporation of all or nearly all of the

due process and clearly, Loreta did not receive any of those

capital stock of a corporation is not of itself sufficient ground

required

for

of

all

the

circumstances,

terminated from her employment.

30

she

is

notices.

disregarding

the

separate

corporate

personality." 34

We are in accord with the pronouncement of the CA that the

In labor cases, corporate directors and officers may be held

reinstatement of Loreta to her former position is no longer

solidarily liable with the corporation for the termination of

feasible in the light of the strained relations between the

employment only if done with malice or in bad faith. 35 Bad

parties. Reinstatement, under the circumstances, would no

faith does not connote bad judgment or negligence; it imports

longer be practical as it would not be in the interest of both

a dishonest purpose or some moral obliquity and conscious

parties.

illegally

doing of wrong; it means breach of a known duty through

dismissed employee is entitled to two reliefs - backwages and

some motive or interest or ill will; it partakes of the nature of

reinstatement,

fraud.36

Under

the

law

which

and

are

jurisprudence,

separate

and

an

distinct.

If

reinstatement would only exacerbate the tension and further


ruin the relations of the employer and the employee, or if

In the subject decision, the CA concluded that petitioner Xu

their

to

and Wensha are jointly and severally liable to Loreta. 37 We

irreconcilable differences, particularly where the illegally

have read the decision in its entirety but simply failed to come

dismissed employee held a managerial or key position in the

across any finding of bad faith or malice on the part of Xu.

company, it would be prudent to order payment of separation

There is, therefore, no justification for such a ruling.

relationship

has

been

pay instead of reinstatement.

31

unduly

strained

due

In the case of Golden Ace

Builders v. Talde,32 We wrote:

To

sustain such a finding, there should be an evidence on record


that an officer or director acted maliciously or in bad faith in
terminating the services of an employee. 38 Moreover, the

Under the doctrine of strained relations, the payment of

finding or indication that the dismissal was effected with

separation pay has been considered an acceptable alternative

malice or bad faith should be stated in the decision itself. 39

to reinstatement when the latter option is no longer desirable


or viable. On the one hand, such payment liberates the

WHEREFORE, the petition is PARTIALLY GRANTED.

employee from what could be a highly oppressive work

decretal portion of the May 28, 2008 Decision of the Court of

environment. On the other, the payment releases the

Appeals, in CA-G.R. SP No. 98855, is hereby MODIFIED to

employer

read as follows:

from

the

grossly

unpalatable

obligation

maintaining in its employ a worker it could no longer trust.

of

The

WHEREFORE, the petition is GRANTED. Wensha Spa Center,

original incorporators (collectively known as the group of

Inc. is hereby ordered to pay Loreta T. Yung her full

Antonio Monfort III).

backwages, other privileges, and benefits, or their monetary


equivalent, and separation pay reckoned from the date of

The petition in G.R. No. 152542, assails the October 5, 2001

her dismissal, September 1, 2004, up to the finality of this

Decision1 of the Special Tenth Division of the Court of Appeals

decision, plus damages in the amounts of Fifty Thousand

in CA-G.R. SP No. 53652, which ruled that Ma. Antonia M.

(P50,000.00) Pesos, as moral damages; Twenty Five Thousand

Salvatierra has no legal capacity to represent the Corporation

(P25,000.00) Pesos as exemplary damages; and Twenty

in the forcible entry case docketed as Civil Case No. 534-C,

Thousand (P20,000.00) Pesos, as attorney's fees. No costs.

before the Municipal Trial Court of Cadiz City.On the other


hand, the petition in G.R. No. 155472, seeks to set aside the
June 7, 2002 Decision2 rendered by the Special Former

SO ORDERED.

Thirteenth Division of the Court of Appeals in CA-G.R. SP No.


49251,

Creature with enumerated powers

where

it

refused

to

address,

on

jurisdictional

considerations, the issue of Ma. Antonia M. Salvatierras


capacity to file a complaint for replevin on behalf of the

FIRST DIVISION

Corporation in Civil Case No. 506-C before the Regional Trial


[G.R. NO. 152542 : July 8, 2004]

Court of Cadiz City, Branch 60.

MONFORT HERMANOS AGRICULTURAL DEVELOPMENT

Monfort Hermanos Agricultural Development Corporation, a

CORPORATION, as represented by MA. ANTONIA M.

domestic private corporation, is the registered owner of a

SALVATIERRA,Petitioner, v.ANTONIO B. MONFORT III, MA.

farm, fishpond and sugar cane plantation known as Haciendas

LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT,

San Antonio II, Marapara, Pinanoag and Tinampa-an, all

ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY

situated in Cadiz City.3 It also owns one unit of motor vehicle

FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R.

and two units of tractors.4 The same allowed Ramon H.

PAYLADO, JOSE MARTIN M. RODRIGUEZ and COURT OF

Monfort, its Executive Vice President, to breed and maintain

APPEALS,Respondents.

fighting cocks in his personal capacity at Hacienda San


Antonio.5 rll

[G.R. NO. 155472 : July 8, 2004]


In 1997, the group of Antonio Monfort III, through force and
ANTONIO

B.

ASCALON,

MONFORT

ILDEFONSO

III,
B.

MA.

LUISA

MONFORT,

MONFORT

ALFREDO

B.

MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA

intimidation, allegedly took possession of the 4 Haciendas, the


produce thereon and the motor vehicle and tractors, as well
as the fighting cocks of Ramon H. Monfort.

R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE


MARTIN M. RODRIGUEZ, Petitioners, v. HON. COURT OF
APPEALS,

MONFORT

HERMANOS

In G.R. No. 155472:

AGRICULTURAL

DEVELOPMENT CORPORATION, as represented by MA.

On April 10, 1997, the Corporation, represented by its

ANTONIA

President, Ma. Antonia M. Salvatierra, and Ramon H. Monfort,

M.

SALVATIERRA,

and

RAMON

H.

in his personal capacity, filed against the group of Antonio

MONFORT, Respondents.

Monfort III, a complaint6 for delivery of motor vehicle, tractors


and 378 fighting cocks, with prayer for injunction and

DECISION

damages, docketed as Civil Case No. 506-C, before the


YNARES-SANTIAGO, J.:

Regional Trial Court of Negros Occidental, Branch 60.

Before the Court are consolidated petitions for review of the

The group of Antonio Monfort III filed a motion to dismiss

decisions of the Court of Appeals in the complaints for forcible

contending, inter alia, that Ma. Antonia M. Salvatierra has no

entry and replevin filed by Monfort Hermanos Agricultural

capacity to sue on behalf of the Corporation because the

Development

March 31, 1997 Board Resolution 7 authorizing Ma. Antonia M.

Corporation

(Corporation)

and

Ramon

H.

Monfort against the children, nephews, and nieces of its

Salvatierra and/or

Ramon

H. Monfort to represent the

Corporation is void as the purported Members of the Board

Unfazed, the Corporation filed a Petition for Review with this

who passed the same were not validly elected officers of the

Court, docketed as G.R. No. 152542 which was consolidated

Corporation.

with G.R. No. 155472 per Resolution dated January 21,


2004.17 rll

On May 4, 1998, the trial court denied the motion to


dismiss.8 The group of Antonio Monfort III filed a petition

The focal issue in these consolidated petitions is whether or

for certiorari with the Court of Appeals but the same was

not Ma. Antonia M. Salvatierra has the legal capacity to sue on

dismissed on June 7, 2002. The Special Former Thirteenth

behalf of the Corporation.

Division of the appellate court did not resolve the validity of


the March 31, 1997 Board Resolution and the election of the

The group of Antonio Monfort III claims that the March 31,

officers who signed it, ratiocinating that the determination of

1997 Board Resolution authorizing Ma. Antonia M. Salvatierra

said question is within the competence of the trial court.

and/or Ramon H. Monfort to represent the Corporation is void


because the purported Members of the Board who passed the

The motion for reconsideration filed by the group of Antonio


Monfort III was denied.

10

same were not validly elected officers of the Corporation.

Hence, they instituted a Petition for


A corporation has no power except those expressly conferred

Review with this Court, docketed as G.R. No. 155472.

on it by the Corporation Code and those that are implied or


In G.R. No. 152542:

incidental to its existence.In turn, a corporation exercises said


powers

through its

board

of directors and/or its duly

On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of

authorized officers and agents.Thus, it has been observed that

the Corporation a complaint for forcible entry, preliminary

the power of a corporation to sue and be sued in any court is

mandatory injunction with temporary restraining order and

lodged with the board of directors that exercises its corporate

damages against the group of Antonio Monfort III, before the

powers.In turn, physical acts of the corporation, like the

Municipal Trial Court (MTC) of Cadiz City. 11 It contended that

signing of documents, can be performed only by natural

the latter through force and intimidation, unlawfully took

persons duly authorized for the purpose by corporate by-laws

possession of the 4 Haciendas and deprived the Corporation

or by a specific act of the board of directors. 18 rll

of the produce thereon.


Corollary thereto, corporations are required under Section 26
In their answer,

12

the group of Antonio Monfort III alleged that

of the Corporation Code to submit to the SEC within thirty (30)

they are possessing and controlling the Haciendas and

days

harvesting the produce therein on behalf of the corporation

residences of the elected directors, trustees and officers of

and not for themselves.They likewise raised the affirmative

the Corporation.In order to keep stockholders and the public

defense of lack of legal capacity of Ma. Antonia M. Salvatierra

transacting business with domestic corporations properly

to sue on behalf of the Corporation.

informed of their organizational operational status, the SEC

after

the

election

the

names,

nationalities

and

issued the following rules:rbl r l l


On February 18, 1998, the MTC of Cadiz City rendered a

lbrr

decision dismissing the complaint. 13 On appeal, the Regional


Trial Court of Negros Occidental, Branch 60, reversed the

xxx

Decision of the MTCC and remanded the case for further


proceedings.14 rll

2.A General Information Sheetshall be filed with this


Commission within thirty (30) days following the date of the

Aggrieved, the group of Antonio Monfort III filed a Petition for

annual stockholders meeting.No extension of said period shall

Review with the Court of Appeals.On October 5, 2001, the

be allowed, except for very justifiable reasons stated in

Special Tenth Division set aside the judgment of the RTC and

writing by the President, Secretary, Treasurer or other officers,

dismissed the complaint for forcible entry for lack of capacity

upon which the Commission may grant an extension for not

of

more than ten (10) days.

Ma.

Antonia

Corporation.

15

M.

Salvatierra

to

represent

the

The motion for reconsideration filed by the

latter was denied by the appellate court.16 rll

2.A.Should a director, trustee or officer die, resign or in any

damages. In the said case, we sustained the dismissal of the

manner, cease to hold office, the corporation shall report such

complaint because it was not established that the Members of

fact to the Commission with fifteen (15) days after such death,

the Board who authorized the filing of the complaint were the

resignation or cessation of office.

lawfully elected officers of the corporation.Thus

3.If for any justifiable reason, the annual meeting has to be

The only issue in this case is whether or not the filing of the

postponed, the company should notify the Commission in

case for damages against private respondent was authorized

writing of such postponement.

by a duly constituted Board of Directors of the petitioner


corporation.

The General Information Sheet shall state, among


others, the names of the elected directors and officers,

Petitioner, through the first set of officers, viz., Mario Zavalla,

together

Oscar Gan, Lionel Pengson, Jose Ma. Silva, Aderito Yujuico and

with

their

corresponding

position

title (Emphasis supplied)rllbrr

Rodolfo Millare, presented the Minutes of the meeting of its


Board of Directors held on April 1, 1982, as proof that the

In the instant case, the six signatories to the March 31, 1997

filing of the case against private respondent was authorized

Board Resolution authorizing Ma. Antonia M. Salvatierra

by the Board. On the other hand, the second set of

and/or Ramon H. Monfort to represent the Corporation, were:

officers, viz., Saturnino G. Belen, Jr., Alberto C. Nograles and

Ma. Antonia M. Salvatierra, President; Ramon H. Monfort,

Jose L.R. Reyes, presented a Resolution dated July 30, 1986, to

Executive Vice President; Directors Paul M. Monfort, Yvete M.

show that Premium did not authorize the filing in its behalf of

Benedicto and Jaqueline M. Yusay; and Ester S. Monfort,

any

Secretary.19However, the names of the last four (4) signatories

Corporate Bank.

suit

against

the

private

respondent

International

to the said Board Resolution do not appear in the 1996


General Information Sheet submitted by the Corporation with

Later on, petitioner submitted its Articles of Incorporation

the

the

dated November 6, 1979 with the following as Directors: Mario

follows:rbl

C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and

SEC.Under

composition

of

said
the

General

Board

is

Information
as

Sheet

r l l lbrr
1.Ma.

Jose Ma. Silva.

Antonia

M.

Salvatierra (Chairman) ;chanroblesvirtuallawlibrary

However, it appears from the general information sheet and


the Certification issued by the SEC on August 19, 1986 that as
of March 4, 1981, the officers and members of the board of

2.Ramon H. Monfort (Member);chanroblesvirtuallawlibrary

directors

of

the

Premium

Marble

Resources,

Inc.

were:rbl r l l lbrr
3.Antonio H. Monfort, Jr., (Member);chanroblesvirtuallawlibrary
Alberto C. Nograles President/Director
4.Joaquin H. Monfort (Member);chanroblesvirtuallawlibrary
Fernando D. Hilario Vice President/Director
5.Francisco H. Monfort (Member) and
Augusto I. Galace Treasurer
6.Jesus Antonio H. Monfort (Member).

20

rll
Jose L.R. Reyes Secretary/Director

There is thus a doubt as to whether Paul M. Monfort, Yvete M.


Benedicto, Jaqueline M. Yusay and Ester S. Monfort, were

Pido E. Aguilar Director

indeed duly elected Members of the Board legally constituted


to bring suit in behalf of the Corporation.21 rll

Saturnino G. Belen, Jr. Chairman of the Board.

In Premium Marble Resources, Inc. v. Court of Appeals ,22 the

While the Minutes of the Meeting of the Board on April 1, 1982

Court was confronted with the similar issue of capacity to sue

states that the newly elected officers for the year 1982 were

of the officers of the corporation who filed a complaint for

Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare,

petitioner failed to show proof that this election was reported

In the case at bar, the fact that four of the six Members of the

to the SEC. In fact, the last entry in their General Information

Board listed in the 1996 General Information Sheet23 are

Sheet with the SEC, as of 1986 appears to be the set of

already dead24 at the time the March 31, 1997 Board

officers elected in March 1981.

Resolution was issued, does not automatically make the four


signatories (i.e., Paul M. Monfort, Yvete M. Benedicto,

We agree with the finding of public respondent Court of

Jaqueline M. Yusay and Ester S. Monfort) to the said Board

Appeals, that in the absence of any board resolution from its

Resolution (whose name do not appear in the 1996 General

board of directors the [sic] authority to act for and in behalf of

Information Sheet) as among the incumbent Members of the

the corporation, the present action must necessarily fail. The

Board.This is because it was not established that they were

power of the corporation to sue and be sued in any court is

duly elected to replace the said deceased Board Members.

lodged with the board of directors that exercises its corporate


powers. Thus, the issue of authority and the invalidity of

To correct the alleged error in the General Information Sheet,

plaintiff-appellants subscription which is still pending, is a

the retained accountant of the Corporation informed the SEC

matter that is also addressed, considering the premises, to

in its November 11, 1998 letter that the non-inclusion of the

the

lawfully elected directors in the 1996 General Information

sound

judgment

of

the

Securities

&

Exchange

Commission.

Sheet was attributable to its oversight and not the fault of the
Corporation.25 This belated attempt, however, did not erase

By the express mandate of the Corporation Code (Section 26),

the doubt as to whether an election was indeed held.As

all corporations duly organized pursuant thereto are required

previously stated, a corporation is mandated to inform the

to submit within the period therein stated (30 days) to the

SEC of the names and the change in the composition of its

Securities and Exchange Commission the names, nationalities

officers and board of directors within 30 days after election if

and residences of the directors, trustees and officers elected.

one was held, or 15 days after the death, resignation or


cessation of office of any of its director, trustee or officer if

Sec.

26

of

the

Corporation

Code

provides,

thus:rbl r l l lbrr

any of them died, resigned or in any manner, ceased to hold


office.This, the Corporation failed to do.The alleged election of
the directors and officers who signed the March 31, 1997

Sec. 26.Report of election of directors, trustees and officers.

Board Resolution was held on October 16, 1996, but the SEC

Within thirty (30) days after the election of the directors,

was informed thereof more than two years later, or on

trustees and officers of the corporation, the secretary, or any

November 11, 1998.The 4 Directors appearing in the 1996

other officer of the corporation, shall submit to the Securities

General Information Sheet died between the years 1984

andExchangeCommission,the

1987,26 but the records do not show if such demise was

names,

nationalities

and

residences of the directors,trustees andofficerselected. xxx

reported to the SEC.

Evidently, the objective sought to be achieved by Section 26

What further militates against the purported election of those

is to give the public information, under sanction of oath of

who signed the March 31, 1997 Board Resolution was the

responsible officers, of the nature of business, financial

belated submission of the alleged Minutes of the October 16,

condition and operational status of the company together with

1996 meeting where the questioned officers were elected.The

information on its key officers or managers so that those

issue of legal capacity of Ma. Antonia M. Salvatierra was

dealing with it and those who intend to do business with it

raised before the lower court by the group of Antonio Monfort

may know or have the means of knowing facts concerning the

III as early as 1997, but the Minutes of said October 16, 1996

corporations financial resources and business responsibility.

meeting

was

presented

by

the

Corporation

only

in

its September 29, 1999 Comment before the Court of


The claim, therefore, of petitioners as represented by Atty.

Appeals.27 Moreover, the Corporation failed to prove that the

Dumadag, that Zaballa, et al., are the incumbent officers of

same October 16, 1996 Minutes was submitted to the SEC.In

Premium has not been fully substantiated.In the absence of an

fact, the 1997 General Information Sheet28 submitted by the

authority from the board of directors, no person, not even the

Corporation does not reflect the names of the 4 Directors

officers of the corporation, can validly bind the corporation.

claimed to be elected on October 16, 1996.

Considering the foregoing, we find that Ma. Antonia M.


Salvatierra failed to prove that four of those who authorized
her to represent the Corporation were the lawfully elected
Members of the Board of the Corporation.As such, they cannot
confer valid authority for her to sue on behalf of the
corporation.

replevin before the Regional Trial Court of Negros Occidental,


Branch 60, has 2 causes of action, i.e., unlawful detention of
the Corporations motor vehicle and tractors, and the unlawful
of

EN

BANC

[G.R.

No.

L-19550.

June

19,

1967.]

HARRY S. STONEHlLL, ROBERT P. BROOKS, JOHN J.

The Court notes that the complaint in Civil Case No. 506-C, for

detention

Entitlement to Constitutional Guarantees

the of

387

fighting

cocks

of Ramon

H.

Monfort.Since Ramon sought redress of the latter cause of


action in his personal capacity, the dismissal of the complaint
for lack of capacity to sue on behalf of the corporation should
be limited only to the corporations cause of action for delivery
of motor vehicle and tractors.In view, however, of the demise
of Ramon on June 25, 1999, 29 substitution by his heirs is
proper.
WHEREFORE, in view of all the foregoing, the petition in G.R.
No. 152542 is DENIED.The October 5, 2001 Decision of the
Special Tenth Division of the Court of Appeals in CA-G.R. SP
No. 53652, which set aside the August 14, 1998 Decision of
the Regional Trial Court of Negros Occidental, Branch 60 in
Civil Case No. 822, is AFFIRMED.
In G.R. No. 155472, the petition is GRANTED and the June 7,

BROOKS and KARL BECK, Petitioners, v. HON. JOSE W.


DIOKNO, in his capacity as SECRETARY OF JUSTICE,
JOSE LUKBAN, in his capacity as Acting Director of the
National

Bureau

of

Investigation;

SPECIAL

PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and


MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G.
REYES, JUDGE AMADO ROAN, Municipal Court of Manila,
JUDGE ROMAN CANSINO, Municipal Court of Manila,
JUDGE HERMOGENES CALUAG, Court of First Instance of
Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ,
Municipal

Court

of

Quezon

City, Respondents.

Paredes, Poblador, Cruz & Nazareno and Meer, Meer &


Meer

and

Juan

David,

for Petitioners.

Solicitor General Arturo A. Alafriz, Assistant Solicitor


General

Pacifico

P.

de

Castro,

Assistant

Solicitor

General Frine C . Zaballero, Solicitor Camilo D. Quiason


and Solicitor C . Padua for Respondents.

SYLLABUS

2002 Decision rendered by the Special Former Thirteenth


Division of the Court of Appeals in CA-G.R. SP No. 49251,
dismissing the petition filed by the group of Antonio Monfort
III, is REVERSED and SET ASIDE.
The complaint for forcible entry docketed as Civil Case No.
822 before the Municipal Trial Court of Cadiz City is
DISMISSED.In Civil Case No. 506-C with the Regional Trial
Court of Negros Occidental, Branch 60, the action for delivery
of personal property filed by Monfort Hermanos Agricultural
Development Corporation is likewise DISMISSED.With respect
to the action filed by Ramon H. Monfort for the delivery of 387
fighting cocks, the Regional Trial Court of Negros Occidental,
Branch 60, is ordered to effect the corresponding substitution
of parties.
No costs.

1. CONSTITUTIONAL LAW; SEARCH AND SEIZURE; WHO MAY


CONTEST LEGALITY THEREOF CASE AT BAR. It is well settled
that the legality of a seizure can be contested only by the
party whose rights have been impaired thereby (Lewis v. U.S.,
6 F. 2d. 22) and that the objection to an unlawful search and
seizure is purely personal and cannot be availed of by third
parties (In. re Dooley, 48 F. 2d. 121: Rouda v. U.S., 10 F. 2d.
916; Lusco v. U.S., 287 F. 69; Ganci v. U.S., 287 F, 60; Moriz v.
U.S., 26 F. 2d. 444). Consequently, petitioner in the case at
bar may not validly object to the use in evidence against them
of the document, papers, and things seized from the offices
and premises of the corporation adverted to, since the right to
object to the admission of said papers in evidence belongs
exclusively to the corporations, to whom the seized effects
belong, and may not be invoked by the corporate officers in
proceedings against them in their individual capacity U.S., v.

SO ORDERED.

Gaas, 17 F. 2d. 997; People v. Rubio, 57 Phil., 384).

2. ID.; ID.; REQUISITES FOR ISSUANCE OF SEARCH WARRANT.

warrant shall issue for more than one specific offense."cralaw

Two points must be stressed in connection with this

virtua1aw

library

constitutional mandate, namely: (1) that no warrant issue but


upon probable cause, to be determined by the judge in the

4. ID.; ID.; ID.; ID.; CASE AT BAR. The grave violation of the

manner set forth in said provision; and (2) that the warrant

Constitution made in the application for the contested search

shall particularly describe the things to be seized. None of

warrants was compounded by the description therein made of

these requirements has been complied with in the contested

the effects to be searched for and seized, to wit: "Books of

warrants. Indeed, the same were issued upon applications

accounts,

stating that the natural and juridical persons therein named

correspondence, receipts, ledgers, portfolios, credit journals,

had committed a "violation of Central Bank Laws, Tariff and

typewriters, and other documents and/or papers, showing all

Customs Laws, Internal Revenue (Code) and Revised Penal

business

Code." In other words, no specific offense had been alleged in

balance sheets and related profit and loss statements." Thus,

said applications. The averments thereof with respect to the

the warrants authorized the search for and seizure of records

offense committed were abstract. As a consequence, it was

pertaining to all business transactions petitioners herein,

impossible for the judges who issued the warrants to have

regardless of whether the transaction were legal or illegal. The

found the existence of probable cause, for the same

warrants sanctioned the seizure of all records of the

presupposes the introduction of competent proof that the

petitioners and the aforementioned corporations, whatever

party against whom it is sought has performed particular acts,

their nature, thus openly contravening the explicit command

or committed specific omissions, violating a given provision of

of our Bill of Rights that the things to be seized be

our criminal laws. As a matter of fact, the applications

particularly described as well as tending to defeat its major

involved in the case at bar do not allege any specific acts

objective:

Financial

transactions

the

records,

vouchers,

including

elimination

disbursement

of

general

journals,

receipts,

warrants.

performed by herein petitioners. It would be a legal heresy, of


the highest order, to convict anybody of a "violation of Central

5. ID.; ID.; ID.; NON-EXCLUSIONARY RULE CONTRAVENES THE

Bank Laws, Tariff and Customs Laws, Internal Revenue (Code)

CONSTITUTIONAL PROHIBITIONS AGAINST UNREASONABLE

and Revised Penal Code", as alleged in aforementioned

SEARCH AND SEIZURES. Indeed, the non-exclusionary rule

applications without reference to any determine provision

is contrary, not only to the letter, but also to the spirit of the

of

constitutional injunction against unreasonable searches and

said

laws

or

coders.

seizures. To be sure, if the applicant for a search warrant has


3. ID.; ID.; ID.; GENERAL WARRANTS ARE OUTLAWED BY THE

competent evidence to establish probable cause of the

CONSTITUTION. To uphold the validity of the warrants in

commission of a given crime by the party against whom the

question, would be to wipe out completely one of the most

warrant is intended, then there is no reason why the applicant

fundamental rights guaranteed in our Constitution, for it

should not comply with the requirements of the fundamental

would place the sanctity of the domicile and the privacy of

law. Upon the other hand, if he has no such competent

communication and correspondence at the mercy of the

evidence, then it is not possible for the Judge to find that

victims, caprice or passion of peace officers. This is precisely

there is probable cause and only possible for the Judge to find

the evil sought to be remedied by the constitutional provision

that there is probable cause and hence, no justification for the

Sec. 1, par. 3 Art. III, Const.) to outlaw the so-called general

issuance of the warrant. The only possible explanation (not

warrants. It is not difficult to imagine what would happen, in

justification) for its issuance is the necessity of fishing

times of keen political strife, when the party in power feels

evidence of the commission of crime. crime. But when this

that the minority is likely to wrest it, even though by legal

fishing expedition is indicative of the absence of evidence to

means. Such is the seriousness of the irregularities committed

establish

probable

cause.

in connection with the disputed search warrants, that this


Court deemed it fit to amend Section 3 of Rule 122 of the

6. ID.; ID.; ID.; ID.; PROSECUTION OF THOSE WHO SECURE

former Rules of Court, by providing in its counterpart, under

ILLEGAL

the Revised Rules of Court (Sec. 3, Rule 126) that "a search

SEARCH OR SEIZURE IS NO EXCUSE. The theory that the

warrant shall not issue but upon probable cause in connection

criminal prosecution of those who secure an illegal search

with one specific offense." Not satisfied with this qualification,

warrant and/or make unreasonable searches or seizures would

the Court added thereto paragraph, directing that "no search

suffice

SEARCH

to

protect

WARRANT

the

OR

MAKE

constitutional

UNREASONABLE

guarantee

under

consideration, overlooks the fact that violations thereof are, in

virtua1aw

library

general, committed by agents of the party in power, for


certainly, those belonging to the minority could not possibly

Alleging that the aforementioned search warrants are null and

abuse a power they do not have. Regardless of the handicap

void, as contravening the Constitution and the Rules of Court

under which the minority usually but understandably finds

because, inter alia: (1) they do not describe with

itself in prosecuting agents of the majority, one must not lose

particularity the documents, books and things to be seized;

sight of the fact that the psychological and moral effect of the

(2) cash money, not mentioned in the warrants, were actually

possibility of securing their conviction, is watered down by the

seized; (3) the warrants were issued to fish evidence against

pardoning power of the party for whose benefit the illegality

the aforementioned petitioners in deportation cases filed

had

against them; (4) the searches and seizures were made in an

been

committed.

illegal manner; and (5) the documents, papers and cash


7. ID.; ID.; ID.; MONCADO DOCTRINE ABANDONED. The

money seized were not delivered to the courts that issued the

doctrine adopted in the Moncado case must be, as it is

warrants, to be disposed of in accordance with law on

hereby, abandoned; the warrants for the search of 3

March 20, 1962, said petitioners filed with the Supreme Court

residences of petitioners, as specified in the Resolution of June

this original action for certiorari, prohibition, mandamus and

29, 1962, are null and void; the searches and seizures therein

injunction, and prayed that, pending final disposition of the

made are illegal.

present case, a writ of preliminary injunction be issued


restraining

Respondent-Prosecutors,

representatives

DECISION

from

using

the

their

agents

effects

and

seized

or
as

aforementioned, or any copies thereof, in the deportation


cases already adverted to, and that, in due course, thereafter,

CONCEPCION, C.J.:

decision be rendered quashing the contested search warrants


and declaring the same null and void, and commanding the

Upon application of the officers of the government named on


the margin 1 hereinafter referred to as RespondentProsecutors several judges 2 hereinafter referred to as
Respondent-Judges issued, on different dates, 3 a total of
42 search warrants against petitioners herein 4 and/or the
corporations of which they were officers, 5 directed to any
peace officer, to search the persons above-named and/or the
premises of their offices, warehouses and/or residences, and
to seize and take possession of the following personal
property

"Books

to

of

accounts,

wit:jgc:chanrobles.com.ph

financial

records,

vouchers,

correspondence, receipts, ledgers, journals, portfolios, credit


journals, typewriters, and other documents and/or papers
showing all business transactions including disbursements
receipts, balance sheets and profit and loss statements and
Bobbins

(cigarette

wrappers)."cralaw

virtua1aw

library

as "the subject of the offense; stolen or embezzled and


proceeds or fruits of the offense," or "used or intended to be
used as the means of committing the offense," which is
described in the applications adverted to above as "violation
of Central Bank Laws, Tariff and Customs Laws, Internal
Revenue

(Code)

and

the

Revised

Penal

Code."cralaw

respondents, their agents or representatives to return to


petitioners herein, in accordance with Section 3, Rule 67, of
the Rules of Court, the documents, papers, things and cash
moneys seized or confiscated under the search warrants in
question.

In their answer, respondents-prosecutors alleged 6 (1) that


the contested search warrants are valid and have been issued
in accordance with law; (2) that the defects of said warrants, if
any, were cured by petitioners consent; and (3) that, in any
event, the effects seized are admissible in evidence against
herein petitioners, regardless of the alleged illegality of the
aforementioned

searches

and

seizures.

On March 22, 1962, this Court issued the writ of preliminary


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

herein.

Thus, the documents, papers, and things seized under the


alleged authority of the warrants in question may be split into

(2) major groups, namely: (a) those found and seized in the

the residences of petitioners herein, the aforementioned

offices of the aforementioned corporations and (b) those

resolution of June 29, 1962, denied the lifting of the writ of

found

preliminary injunction previously issued by this Court, 12

seized

in

the

residences

of

petitioners

herein.

thereby, in effect, restraining herein Respondent-Prosecutors


As regards the first group, we hold that petitioners herein

from using them in evidence against petitioners herein.

have no cause of action to assail the legality of the contested


warrants and of the seizures made in pursuance thereof, for

In connection with said documents, papers and things, two (2)

the simple reason that said corporations have their respective

important questions need be settled, namely: (1) whether the

personalities, separate and distinct from the personality of

search warrants in question, and the searches and seizures

herein petitioners, regardless of the amount of shares of stock

made under the authority thereof, are valid or not; and (2) if

or of the interest of each of them in said corporations, and

the answer to the preceding question is in the negative,

whatever the offices they hold therein may be. 8 Indeed, it is

whether said documents, papers and things may be used in

well settled that the legality of a seizure can be contested

evidence

against

petitioners

herein.

only by the party whose rights have been impaired thereby, 9


and that the objection to an unlawful search and seizure is

Petitioners maintain that the aforementioned search warrants

purely personal and cannot be availed of by third parties. 10

are in the nature of general warrants and that, accordingly,

Consequently, petitioners herein may not validly object to the

the seizures effected upon the authority thereof are null and

use in evidence against them of the documents, papers and

void.

things

provides:jgc:chanrobles.com.ph

seized

from

the

offices

and

premises

of

the

In

this

connection,

the

Constitution

13

corporations adverted to above, since the right to object to


the admission of said papers in evidence belongs exclusively

"The right of the people to be secure in their persons, houses,

to the corporations, to whom the seized effects belong, and

papers, and effects against unreasonable searches and

may not be invoked by the corporate officers in proceedings

seizures shall not be violated, and no warrants shall issue but

against them in their individual capacity. 11 Indeed, it has

upon probable cause, to be determined by the judge after

been

examination under oath or affirmation of the complainant and

held:jgc:chanrobles.com.ph

the witnesses he may produce, and particularly describing the


". . . that the Governments action in gaining possession of

place to be searched, and the persons or things to be

papers belonging to the corporation did not relate to nor did it

seized."cralaw

affect

the

personal

defendants.

If

these

papers

virtua1aw

library

were

unlawfully seized and thereby the constitutional rights of or

Two

any one were invaded, they were the rights of the corporation

constitutional mandate, namely: (1) that no warrant shall

points

must

be

stressed

in

connection

with

this

and not the rights of the other defendants. Next, it is clear

issue but upon probable cause, to be determined by the judge

that a question of the lawfulness of a seizure can be raised

in the manner set forth in said provision; and (2) that the

only by one whose rights have been invaded. Certainly, such a

warrant shall particularly describe the things to be seized.

seizure, if unlawful, could not affect the constitutional rights of


defendants whose property had not been seized or the

None of these requirements has been complied with in the

privacy of whose homes had not been disturbed; nor could

contested warrants. Indeed, the same were issued upon

they claim for

of the Fourth

applications stating that the natural and juridical persons

Amendment, when its violation, if any, was with reference to

therein named had committed a "violation of Central Bank

the rights of another. Remus v. United States (C.C.A.) 291 F.

Laws, Tariff and Customs Laws, Internal Revenue (Code) and

501, 511. It follows, therefore, that the question of the

Revised Penal Code." In other words, no specific offense had

admissibility of the evidence based on an alleged unlawful

been alleged in said applications. The averments thereof with

search

personal

respect to the offense committed were abstract. As a

defendants but embraces only the corporation whose property

consequence, it was impossible for the judges who issued the

was taken . . ." (A. Guckenheimer & Bros. Co. v. United States,

warrants to have found the existence of probable cause, for

[1925]

the same presupposes the introduction of competent proof

and

themselves

seizure

F.

2d,

does

the benefits

not

786,

extend

to

the

789, Emphasis

supplied.)

that the party against whom it is sought has performed


With respect to the documents, papers and things seized in

particular acts, or committed specific omissions, violating a

given provision of our criminal laws. As a matter of fact, the

the

petitioners

and

applications involved in this case do not allege any specific

whatever their nature, thus openly contravening the explicit

acts performed by herein petitioners. It would be a legal

command of our Bill of Rights that the things to be seized

heresy, of the highest order, to convict anybody of a "violation

be particularly described as well as tending to defeat its

of Central Bank Laws, Tariff and Customs Laws, Internal

major

objective:

the

the

aforementioned

elimination

of

corporations,

general

warrants.

Revenue (Code) and Revised Penal Code," as alleged in the


aforementioned applications without reference to any

Relying upon

determinate

Respondent- Prosecutors maintain that, even if the searches

provision

of

said

laws

or

codes.

Moncado v. Peoples Court (80 Phil. 1),

and seizures under consideration were unconstitutional, the


To uphold the validity of the warrants in question would be to

documents, papers and things thus seized are admissible in

wipe out completely one of the most fundamental rights

evidence

guaranteed in our Constitution, for it would place the sanctity

deliberation, however, we are unanimously of the opinion that

of the domicile and the privacy of communication and

the position taken in the Moncado case must be abandoned.

correspondence at the mercy of the whims, caprice or passion

Said position was in line with the American common law rule,

of peace officers. This is precisely the evil sought to be

that the criminal should not be allowed to go free merely

remedied by the constitutional provision above quoted to

"because the constable has blundered," 16 upon the theory

outlaw the so-called general warrants. It is not difficult to

that

imagine what would happen, in times of keen political strife,

searches and seizures is protected by means other than the

when the party in power feels that the minority is likely to

exclusion of evidence unlawfully obtained, 17 such as the

wrest

common-law action for damages against the searching officer,

it,

even

though

by

legal

means.

against

the

petitioners

constitutional

herein.

prohibition

Upon

against

mature

unreasonable

against the party who procured the issuance of the search


Such is the seriousness of the irregularities committed in

warrant and against those assisting in the execution of an

connection with the disputed search warrants, that this Court

illegal search, their criminal punishment, resistance, without

deemed it fit to amend Section 3 of Rule 122 of the former

liability to an unlawful seizure, and such other legal remedies

Rules of Court 14 by providing in its counterpart, under the

as

may

be

provided

by

other

laws.

Revised Rules of Court 15 that "a search warrant shall not


issue upon probable cause in connection with one specific

However, most common law jurisdictions have already given

offense." Not satisfied with this qualification, the Court added

up this approach and eventually adopted the exclusionary

thereto a paragraph, directing that "no search warrant shall

rule, realizing that this is the only practical means of enforcing

issue for more than one specific offense."cralaw virtua1aw

the constitutional injunction against unreasonable searches

library

and

seizures.

In

the

language

of

Judge

Learned

Hand:jgc:chanrobles.com.ph
The grave violation of the Constitution made in the application
for the contested search warrants was compounded by the

"As we understand it, the reason for the exclusion of evidence

description therein made of the effects to be searched for and

competent as such, which has been unlawfully acquired, is

seized,

that exclusion is the only practical way of enforcing the

to

wit:jgc:chanrobles.com.ph

constitutional privilege. In earlier times the action of trespass


"Books of accounts, financial records, vouchers, journals,

against the offending official may have been protection

correspondence, receipts, ledgers, portfolios, credit journals,

enough; but that is true no longer. Only in case the

typewriters, and other documents and/or papers showing all

prosecution which itself controls the seizing officials, knows

business

that it cannot profit by their wrong, will that wrong be

transactions

including

disbursement

receipts,

balance sheets and related profit and loss statements."cralaw


virtua1aw

repressed."

18

library
In fact, over thirty (30) years before, the Federal Supreme

Thus, the warrants authorized the search for and seizure of

Court

had

already

declared:jgc:chanrobles.com.ph

records pertaining to all business transactions of petitioners


herein, regardless of whether the transactions were legal or

"If letters and private documents can thus be seized and held

illegal. The warrants sanctioned the seizure of all records of

and used in evidence against a citizen accused of an offense,

the protection of the 4th Amendment, declaring his rights to

which its protection and enjoyment had always been deemed

be secure against such searches and seizures, is of no value,

dependent under the Boyd, Weeks and Silverthorne Cases.

and, so far as those thus placed are concerned, might as well

Therefore, in extending the substantive protections of due

be stricken from the Constitution. The efforts of the courts and

process to all constitutionally unreasonable searches state

their officials to bring the guilty to punishment, praiseworthy

or federal it was logically and constitutionally necessary

as they are, are not to be aided by the sacrifice of those great

that the exclusion doctrine an essential part of the right to

principles established by years of endeavor and suffering

privacy be also insisted upon as an essential ingredient of

which have resulted in their embodiment in the fundamental

the right newly recognized by the Wolf Case. In short, the

law

admission of the new constitutional right by Wolf could not

of

the

land."

19

consistently

tolerate

denial

of

its

most

important

This view was, not only reiterated, but, also, broadened in

constitutional privilege, namely, the exclusion of the evidence

subsequent decisions of the same Federal Court. 20 After

which an accused had been forced to give by reason of the

reviewing previous decisions thereon, said Court held, in Mapp

unlawful seizure. To hold otherwise is to grant the right but in

v.

reality to withhold its privilege and enjoinment. Only last year

Ohio

(supra.):jgc:chanrobles.com.ph

the

Court

itself

recognized

that

the

purpose

of

the

". . . Today we once again examine the Wolfs constitutional

exclusionary rule is to deter to compel respect for the

documentation of the right of privacy free from unreasonable

constitutional guaranty in the only effectively available way

state intrusion, and, after its dozen years on our books, are

by

removing

the

incentive

to

disregard

it.

led by it to close the only courtroom door remaining open to


evidence secured by official lawlessness in flagrant abuse of

"The ignoble shortcut to conviction left open to the State

that basic right, reserved to all persons as a specific

tends to destroy the entire system of constitutional restraints

guarantee against that very same unlawful conduct. We held

on which the liberties of the people rest. Having once

that all evidence obtained by searches and seizures in

recognized that the right to privacy embodied in the Fourth

violation of the Constitution is, by that same authority,

Amendment is enforceable against the States, and that the

inadmissible

right to be secure against rude invasions of privacy by state

in

State

court.

officers is, therefore constitutional in origin, we can no longer


"Since the Fourth Amendments right of privacy has been

permit that right to remain an empty promise. Because it is

declared enforceable against the States through the Due

enforceable in the same manner and to like effect as other

Process Clause of the Fourteenth, it is enforceable against

basic rights secured by the Due Process Clause, we can no

them by the same sanction of exclusion as it used against the

longer permit it to be revocable at the whim of any police

Federal Government. Were it otherwise, then just as without

officer who, in the name of law enforceable itself, chooses to

the Weeks rule the assurance against unreasonable federal

suspend its enjoinment. Our decision, founded on reason and

searches and seizures would be a form of words, valueless

truth, gives to the individual no more than that which the

and undeserving of mention in a perpetual charter of

Constitution guarantees him, to the police officer no less than

inestimable human liberties, so too, without that rule the

that to which honest law enforcement is entitled, and, to the

freedom from state invasions of privacy would be so

courts, that judicial integrity so necessary in the true

ephemeral and so neatly severed from its conceptual nexus

administration

of

justice."

(Emphasis

ours.)

with the freedom from all brutish means of coercing evidence


as not to permit this Courts high regard as a freedom implicit

Indeed, the non-exclusionary rule is contrary, not only to the

in the concept of ordered liberty. At the time that the Court

letter, but, also, to spirit of the constitutional injunction

held in Wolf that the Amendment was applicable to the States

against unreasonable searches and seizures. To be sure, if the

through the Due Process Clause, the cases of this Court as we

applicant for a search warrant has competent evidence to

have seen, had steadfastly held that as to federal officers the

establish probable cause of the commission of a given crime

Fourth Amendment included the exclusion of the evidence

by the party against whom the warrant is intended, then there

seized in violation of its provisions. Even Wolf stoutly

is no reason why the applicant should not comply with the

adhered to that proposition. The right to privacy, when

requirements of the fundamental law. Upon the other hand, if

conceded operatively enforceable against the States, was not

he has no such competent evidence, then it is not possible for

susceptible of destruction by avulsion of the sanction upon

the judge to find that there is probable cause, and, hence, no

justification for the issuance of the warrant. The only possible

allegations inconsistent with the theory now advanced by

explanation (not justification) for its issuance is the necessity

petitioners

herein.

of fishing evidence of the commission of a crime. But, then,


this fishing expedition is indicative of the absence of evidence

Upon the other hand, we are not satisfied that the allegations

to

of said petitions and motion for reconsideration, and the

establish

probable

cause.

contents of the aforementioned affidavits and other papers


Moreover, the theory that the criminal prosecution of those

submitted in support of said motion, have sufficiently

who

make

established the facts or conditions contemplated in the cases

unreasonable searches or seizures would suffice to protect the

relied upon by the petitioners, to warrant application of the

constitutional guarantee under consideration, overlooks the

views therein expressed, should we agree thereto. At any rate,

fact that violations thereof are, in general, committed by

we do not deem it necessary to express our opinion thereon, it

agents of the party in power, for, certainly, those belonging to

being best to leave the matter open for determination in

the minority could not possibly abuse a power they do not

appropriate

secure

an

illegal

search

warrant

and/or

cases

in

the

future.

have. Regardless of the handicap under which the minority


usually but, understandably finds itself in prosecuting

We hold, therefore, that the doctrine adopted in the Moncado

agents of the majority, one must not lose sight of the fact that

case must be, as it is hereby, abandoned; that the warrants

the psychological and moral effect of the possibility 21 of

for the search of three (3) residences of herein petitioners, as

securing their conviction, is watered down by the pardoning,

specified in the Resolution of June 29, 1962 are null and void;

power of the party for whose benefit the illegality had been

that the searches and seizures therein made are illegal; that

committed.

the writ of preliminary injunction heretofore issued, in


connection with the documents, papers and other effects thus

In their Motion for Reconsideration and Amendment of the

seized in said residences of herein petitioners is hereby made

Resolution of this Court dated June 29, 1962, petitioners

permanent, that the writs prayed for are granted, insofar as

allege that Room Nos. 81 and 91 of Carmen Apartments,

the documents, papers and other effects so seized in the

House No. 2008, Dewey Boulevard, House No. 1436, Colorado

aforementioned

Street, and Room No. 304 of the Army-Navy Club, should be

aforementioned motion for Reconsideration and Amendment

included among the premises considered in said Resolution as

should be, as it is hereby, denied; and that the petition herein

residences of herein petitioners, Harry S. Stonehill, Robert P.

is dismissed and the writs prayed for denied, as regards the

Brook, John J. Brooks and Karl Beck, respectively, and that,

documents, papers and other effects seized in the twenty-nine

furthermore, the records, papers and other effects seized in

(29) places, offices and other premises enumerated in the

the offices of the corporations above referred to include

same Resolution, without special pronouncement as to costs.

residences

are

concerned;

that

the

personal belongings of said petitioners and other effects


under their exclusive possession and control, for the exclusion

It

is

so

ordered.

of which they have a standing under the latest rulings of the


federal

courts

of

the

United

States.

22

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


Sanchez, JJ., concur.

We note, however, that petitioners theory, regarding their


alleged possession of and control over the aforementioned

Separate Opinions

records, papers and effects, and the alleged "personal" nature


thereof, has been advanced, not in their petition or amended
petition herein, but in the Motion for Reconsideration and

CASTRO, J., concurring and dissenting:chanrob1es virtual 1aw

Amendment of the Resolution of June 29, 1962. In other

library

words, said theory would appear to be a readjustment of that


followed in said petitions, to suit the approach intimated in

From my analysis of the opinion written by Chief Justice

the Resolution sought to be reconsidered and amended. Then,

Roberto Concepcion and from the import of the deliberations

too, some of the affidavits or copies of alleged affidavits

of the Court on this case, I gather the following distinct

attached to said motion for reconsideration, or submitted in

conclusions:chanrob1es

support thereof, contain either inconsistent allegations, or

virtual

1aw

library

1. All the search warrants served by the National Bureau of

gratia argumenti, have no legal standing to ask for the

Investigation in this case are general warrants and are

suppression of the papers, things and effects seized from

therefore prescribed by, and in violation of, Paragraph 3 of

places other than their residences, to my mind, cannot in any

Section 1 of Article III (Bill of Rights) of the Constitution;

manner affect, alter or otherwise modify the intrinsic illegality


of the search warrants and the intrinsic illegality of the

2. All the searches and seizures conducted under the

searches and seizures made thereunder. Whether or not the

authority of the said search warrants were consequently

petitioners possess legal standing, the said warrants are void

illegal;

and remain void, and the searches and seizures were illegal
and remain illegal. No inference can be drawn from the words

3. The non-exclusionary rule enunciated in Moncado v. People,

of the Constitution that "legal standing" or the lack of it is a

80

determinant of the nullity or validity of a search warrant or of

Phil.

1,

should

be,

and

is

declared,

abandoned;

the

lawfulness

or

illegality

of

search

or

seizure.

4. The search warrants served at the three residences of the


petitioners are expressly declared null and void; the searches

On the question of legal standing, I am of the conviction that,

and seizures therein made are expressly declared illegal; and

upon the pleadings submitted to this Court, the petitioners

the writ of preliminary injunction heretofore issued against the

have the requisite legal standing to move for the suppression

use of the documents, papers and effects seized in the

and return of the documents, papers and effects that were

residences

and

seized from places other than their family residences.

5. Reasoning that the petitioners have not in their pleadings

Our constitutional provision on searches and seizures was

satisfactorily demonstrated that they have legal standing to

derived almost verbatim from the Fourth Amendment to the

move for the suppression of the documents, papers and

United States Constitution. In the many years of judicial

effects seized in the places other than the three residences

construction and interpretation of the said constitutional

adverted to above, the opinion written by the Chief Justice

provision, our courts have invariably regarded as doctrinal the

refrains from expressly declaring as null and void the search

pronouncements made on the Fourth Amendment by federal

warrants served at such other places and as illegal the

courts, especially the Federal Supreme Court and the Federal

searches and seizures made therein, and leaves "the matter

Circuit

open

is

for

made

determination

future."cralaw

in

permanent;

appropriate

cases

virtua1aw

in

Courts

of

Appeals.

the

library

The U.S. doctrines and pertinent cases on standing to move


for the suppression or return of documents, papers and effects

It is precisely the position taken by the Chief Justice

which are the fruits of an unlawful search and seizure, may be

summarized

summarized as follows: (a) ownership of documents, papers

(numbered

in
5)

the

immediately

with

which

preceding
am

not

paragraph
in

accord.

and effects gives "standing" ; (b) ownership and/or control or


possession actual or constructive of premises searched

I do not share his reluctance or unwillingness to expressly

gives "standing" ; and (c) the "aggrieved person" doctrine

declare, at this time, the nullity of the search warrants served

where the search warrant and the sworn application for search

at places other than the three residences, and the illegality of

warrant are "primarily" directed solely and exclusively against

the searches and seizures conducted under the authority

the "aggrieved person", gives "standing."cralaw virtua1aw

thereof. In my view even the exacerbating passions and

library

prejudices

inordinately

generated

by

the

environmental

political and moral developments of this case should not deter

An examination of the search warrants in this case will readily

this Court from forthrightly laying down the law - not only for

show that, excepting three, all were directed against the

this case but as well for future cases and future generations.

petitioners personally. In some of them, the petitioners were

All the search warrants, without exception, in this case are

named personally, followed by the designation, "the President

admittedly general, blanket and roving warrants and are

and/or General Manager" of the particular corporation. The

therefore

the

three warrants excepted named three corporate defendants.

Constitution; and the searches and seizures made were

admittedly

and

indisputably

outlawed

by

But the "office/house/warehouse/premises" mentioned in the

therefore unlawful. That the petitioners, let us assume in

said

three

warrants

were

also

the

same

"office/house/warehouse/premises" declared to be owned by

the purloining of the petitioners private papers in Gouled, or

or under the control of the petitioners in all the other search

the

warrants directed against the petitioners and/or "the President

Countless other cases which have come to this Court over the

and/or General Manager" of the particular corporation. (see

years have involved a myriad of differing factual contexts in

pages 5-24 of Petitioners Reply of April 2, 1962). The

which the protections of the Fourth Amendment have been

searches and seizures were to be made, and were actually

appropriately invoked. No doubt the future will bring countless

made, in the "office/house warehouse/premises" owned by or

others. By nothing we say here or do we either foresee or

under

foreclose factual situations to which the Fourth Amendment

the

control

of

the

petitioners.

surreptitious

electronic

surveillance

in

Silverman.

may be applicable." Hoffa v. U.S. 87 S. Ct. 408 (December 12,


Ownership

of

matters

seized

gives

"standing."cralaw

virtua1aw

Ownership

library

of

the

properties

seized

alone

entitles

the

petitioners to bring a motion to return and suppress, and

1966) See also U.S. v. Jeffers, 342 U.S. 48, 72 S. Ct. 93


(November

Control

13,

of

1951).

premises

(Emphasis

searches

gives

supplied).

"standing."cralaw

virtua1aw

library

gives them standing as persons aggrieved by an unlawful


search and seizure regardless of their location at the time of

Independent of ownership or other personal interest in the

seizure. Jones v. United States, 362 U.S. 257, 261 (1960)

records and documents seized, the petitioners have standing

(narcotics stored in the apartment of a friend of the

to move for return and suppression by virtue of their

defendant); Henzel v. United States, 296 F 2d. 650, 652-53

proprietary or leasehold interest in many of the premises

(5th Cir. 1961) (personal and corporate papers of corporation

searched. These proprietary and leasehold interests have

of which the defendant was president); United States v.

been sufficiently set forth in their motion for reconsideration

Jeffers, 342 U.S. 48 (1951) (narcotics seized in an apartment

and need not be recounted here, except to emphasize that

not belonging to the defendant); Pielow v. United States, 8F.

the petitioners paid rent, directly or indirectly, for practically

2d

the

all the premises searched (Room 91, 84 Carmen Apts.; Room

defendants sister but belonging to the defendant); Cf. Villano

304, Army & Navy Club; Premises 2008, Dewey Boulevard;

v. United States, 310 F. 2d 680, 683 (10th Cir. 1962) (papers

1436 Colorado Street); maintained personal offices within the

seized in desk neither owned by nor in exclusive possession of

corporate offices (IBMS, USTC); had made improvements or

the

furnished such offices; or had paid for the filing cabinets in

492, 493

(9th

Cir.

1925) (books

seized

from

defendant).

which the papers were stored (Room 204, Army & Navy Club);
In a very recent case (decided by the U.S. Supreme Court on

and individually, or through their respective spouses, owned

December 12, 1966), it was held that under the constitutional

the controlling stock of the corporations involved. The

provision against unlawful searches and seizures, a person

petitioners proprietary interest in most, if not all, of the

places himself or his property within a constitutionally

premises

protected area, be it his home or his office, his hotel room or

standing to move for the return and suppression of the books,

his

papers

automobile:jgc:chanrobles.com.ph

searched

therefore

and

independently

effects

seized

gives

them

therefrom.

"Where the argument falls is in its misapprehension of the

In Jones v. United States, supra, the U.S. Supreme Court

fundamental

Amendment

delineated the nature and extent of the interest in the

protection. What the Fourth Amendment protects is the

nature

and

scope

of

Fourth

searched premises necessary to maintain a motion to

security a man relies upon when he places himself or his

suppress. After reviewing what it considered to be the unduly

property within a constitutionally protected area, be it his

technical standards of the then prevailing circuit court

homes, or his office, his hotel room or his automobile. There

decisions,

he is protected from unwarranted governmental intrusion. And

266):jgc:chanrobles.com.ph

the

Supreme

Court

said

(362

U.S.

when he puts something in his filing cabinet, in his desk


drawer, or in his pocket, he has the right to know it will be

"We do not lightly depart from this course of decisions by the

secure from an unreasonable search or an unreasonable

lower

seizure. So it was that the Fourth Amendment could not

unnecessary and ill-advised to import into the law surrounding

tolerate the warrantless search of the hotel room in Jeffers,

the constitutional right to be free from unreasonable searches

courts.

We

are

persuaded,

however,

that

it

is

and seizures subtle distinctions, developed and refined by the

the exclusionary rule protected him as well. The concept of

common law in evolving the body of private property law,

"person aggrieved by an unlawful search and seizure" was

which, more than almost any other branch of law, has been

enlarged to include "anyone legitimately on premises where

shaped by distinctions whose validity is largely historical.

the

search

occurs."cralaw

virtua1aw

library

Even in the area from which they derive, due consideration


has led to the discarding of those distinctions in the homeland

Shortly after the U.S. Supreme Courts Jones decision, the U.S.

of the common law. See Occupiers Liability Act, 1957, 5 and 6

Court of Appeals for the Fifth Circuit held that the defendant

Eliz. 2, c. 31, carrying out Law Reform Committee, Third

organizer, sole stockholder and president of a corporation had

Report, Cmd. 9305. Distinctions such as those between

standing in a mail fraud prosecution against him to demand

lessee, licensee, invitee, and guest, often only of

the return and suppression of corporate property. Henzel v.

gossamer strength, ought not be determinative in fashioning

United States, 296 F. 2d. 650, 652 (5th Cir. 1961), supra. The

procedures ultimately referable to constitutional safeguards."

court concluded that the defendant had standing on two

See also Chapman v. United States,354 U.S. 610, 616-17

independent grounds: First he had a sufficient interest in

(1961).

the property seized, and second he had an adequate


interest in the premises searched (just in the case at bar). A

It has never been held that a person with requisite interest in

postal inspector had unlawfully searched the corporations

the premises searched must own the property seized in order

premises and had seized most of the corporations books and

to have standing in a motion to return and suppress. In Alioto

records.

v. United States, 216 F. Supp. 48 (1963), a bookkeeper for

observed:jgc:chanrobles.com.ph

Looking

to

Jones,

the

court

several corporations from whose apartment the corporate


records were seized successfully moved for their return. In

"Jones clearly tells us, therefore, what is not required to

United States v. Antonelli Fireworks Co., 53 F. Supp. 870, 873

qualify one as a person aggrieved by an unlawful search and

(W. D. N. Y. 1943), the corporations president successfully

seizure. It tells us that appellant should not have been

moved for the return and suppression as to him of both

precluded from objecting to the Postal Inspectors search and

personal and corporate documents seized from his home

seizure of the corporations books and records, merely

during the course of an illegal search:jgc:chanrobles.com.ph

because the appellant did not show ownership or possession


of the books and records or a substantial possessory interest

"The lawful possession by Antonelli of documents and

in the invaded premises . . ." Henzel v. United States, 296 F.

property, either his own or the corporations, was entitled to

2d

at

651.

protection against unreasonable search and seizure. Under


the circumstances in the case at bar, the search and seizure

Henzel was soon followed by Villano v. United States, 310 F.

were unreasonable and unlawful. The motion for the return of

2d 680, 683, (10th Cir. 1962). In Villano, police officers seized

seized articles and the suppression of the evidence so

two notebooks from a desk in the defendants place of

obtained

employment; the defendant did not claim ownership of either;

should

be

granted."

(Emphasis

supplied)

he asserted that several employees (including himself) used


Time was when only a person who had property interest in

the notebooks. The Court held that the employee had a

either the place searched or the articles seized had the

protected interest and that there also was an invasion of

necessary

the

privacy. Both Henzel and Villano considered also the fact that

exclusionary rule. But in MacDonald v. United States, 336 U.S.

standing

to

invoke

the

protection

of

the search and seizure were "directed at" the moving

461 (1948), Justice Robert Jackson, joined by Justice Felix

defendant. Henzel v. United States, 296 F. 2d at 682; Villano v.

Frankfurter, advanced the view that "even a guest may expect

United

States,

310

F.

2d

at

683.

the shelter of the rooftree he is under against criminal


intrusion." This view finally became the official view of the

In a case in which an attorney closed his law office, placed his

U.S. Supreme Court and was articulated in United States v.

files in storage and went to Puerto Rico, the Court of Appeals

Jeffers, 342 U.S. 48 (1951). Nine years later, in 1960, in Jones

for the Eighth Circuit recognized his standing to move to

v. United States, 362 U.S. 257, 267, the U.S. Supreme Court

quash as unreasonable search and seizure under the Fourth

went a step further. Jones was a mere guest in the apartment

Amendment of the U.S. Constitution a grand jury subpoena

unlawfully searched, but the Court nonetheless declared that

duces tecum directed to the custodian of his files. The

Government contended that the petitioner had no standing

"Possession (actual or constructive), no less than ownership,

because the books and papers were physically in the

gives standing to move to suppress. Such was the rule even

possession of the custodian, and because the subpoena was

before

Jones."

(p.

199)

directed against the custodian. The court rejected the


contention,

holding

that.

"If, as thus indicated, Birrell had at least constructive


possession of the records stored with Dunn, it matters not

"Schwimmer

legally

had

such

possession,

control

and

whether he had any interest in the premises searched." See

unrelinquished personal rights in the books and papers as not

also Jeffers v. United States. 88 U.S. Appl. D.C. 58, 187 F. 2d

to enable the question of unreasonable search and seizure to

498 (1950), affirmed 342 U.S. 48, 72 S. Ct. 93, 96 L. Ed. 459

be escaped through the mere procedural device of compelling

(1951).

a third-party naked possessor to produce and deliver them."


Schwimmer v. United. States, 232 F. 2d 855, 861 (8th Cir.

The ruling in the Birrell case was reaffirmed on motion for

1956).

reargument; the United States did not appeal from this


decision. The factual situation in Birrell is strikingly similar to

Aggrieved person doctrine where the search warrant is

the case of the present petitioners; as in Birrell, many

primarily directed against said person gives "standing."cralaw

personal and corporate papers were seized from premises not

virtua1aw

petitioners family residences; as in Birrell, the searches were

library

"PRIMARILY DIRECTED SOLELY AND EXCLUSIVELY" against the


The latest United States decision squarely in point is United

petitioners. Still both types of documents were suppressed in

States v. Birrell, 242 F. Supp. 191 (1965, U.S.D.C., S.D.N.Y.).

Birrell because of the illegal search. In the case at bar, the

The defendant had stored with an attorney certain files and

petitioners connection with the premises raided is much

papers, which attorney, by the name of Dunn, was not, at the

closer

than

in

Birrell.

time of the seizing of the records, Birrells attorney. * Dunn, in


turn, had stored most of the records at his home in the

Thus, the petitioners have full standing to move for the

country and on a farm which, according to Dunns affidavit,

quashing of all the warrants regardless of whether these were

was under his (Dunns) "control and management." The

directed against residences in the narrow sense of the word,

papers turned out to be private, personal and business papers

as long as the documents were personal papers of the

together

certain

petitioners or (to the extent that they were corporate papers)

unnamed corporations in which Birrell did not even claim

were held by them in a personal capacity or under their

ownership. (All of these type records were seized in the case

personal

with

corporate

books

and

records

of

control.

at bar). Nevertheless, the search in Birrell was held invalid by


the court which held that even though Birrell did not own the

Prescinding from the foregoing, this Court, at all events,

premises where the records were stored, he had "standing" to

should order the return to the petitioners all personal and

move for the return of all the papers and properties seized.

private papers and effects seized, no matter where these

The court, relying on Jones v. U.S., supra; U.S. v. Antonelli

were seized, whether from their residences or corporate

Fireworks Co., 53 F. Supp. 870, Affd 155 F. 2d 631; Henzel v.

offices or any other place or places. The uncontradicted sworn

U.S., supra; and Schwimmer v. U.S., supra, pointed out that.

statements of the petitioners in their various pleadings


submitted to this Court indisputably show that amongst the

"It is overwhelmingly established that the searches here in

things seized from the corporate offices and other places were

question were directed solely and exclusively against Birrell.

personal and private papers and effects belonging to the

The only person suggested in the papers as having violated

petitioners.

the law was Birrell. The first "search warrant described the
records as having been used in committing a violation of Title

If there should be any categorization of the documents,

18, United States Code, Section 1341, by the use of the mails

papers and things which were the objects of the unlawful

by one Lowell M. Birrell, . . . The second search warrant was

searches and seizures, I submit that the grouping should be:

captioned: United States of America v. Lowell M. Birrell. (p.

(a) personal or private papers of the petitioners wherever they

198)

were unlawfully seized, be it their family residences, offices,


warehouses and/or premises owned and/or controlled and/or

possessed (actually or constructively) by them as shown in all


the search warrants and in the sworn applications filed in
securing the void search warrants, and (b) purely corporate
papers belonging to corporations. Under such categorization
or grouping, the determination of which unlawfully seized
papers, documents and things are personal/private of the
petitioners or purely corporate papers will have to be left to
the lower courts which issued the void search warrants in
ultimately effecting the suppression and/or return of the said
documents.

And as unequivocally indicated by the authorities above cited,


the petitioners likewise have clear legal standing to move for
the suppression of purely corporate papers as "President
and/or General Manager" of the corporations involved as
specifically

mentioned

in

the

void

search

warrants.

Finally, I must articulate my persuasion that although the


cases cited in my disquisition were criminal prosecutions, the
great clauses of the constitutional proscription on illegal
searches and seizures do not withhold the mantle of their
protection from cases not criminal in origin or nature.

EN
[G.R.

BANC
No.

L-32409.

February

27,

1971.]

BACHE & CO. (PHIL.), INC. and FREDERICK E.


SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M.
RUIZ, MISAEL P. VERA, in his capacity as Commissioner
of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE
LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR
ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN
DOE, Respondents.
San
Juan,
Africa,
for Petitioners.

Gonzales

&

San

Agustin,

Solicitor General Felix Q. Antonio, Assistant Solicitor


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

DECISION

VILLAMOR, J.:

This is an original action of certiorari, prohibition and


mandamus, with prayer for a writ of preliminary mandatory
and prohibitory injunction. In their petition Bache & Co. (Phil.),
Inc., a corporation duly organized and existing under the laws
of the Philippines, and its President, Frederick E. Seggerman,
pray this Court to declare null and void Search Warrant No. 2M-70 issued by respondent Judge on February 25, 1970; to
order respondents to desist from enforcing the same and/or
keeping the documents, papers and effects seized by virtue
thereof, as well as from enforcing the tax assessments on
petitioner corporation alleged by petitioners to have been
made on the basis of the said documents, papers and effects,

and to order the return of the latter to petitioners. We gave


due course to the petition but did not issue the writ of
preliminary
injunction
prayed
for
therein.
The pertinent facts of this case, as gathered from record, are
as
follows:chanrob1es
virtual
1aw
library
On February 24, 1970, respondent Misael P. Vera,
Commissioner of Internal Revenue, wrote a letter addressed to
respondent Judge Vivencio M. Ruiz requesting the issuance of
a search warrant against petitioners for violation of Section
46(a) of the National Internal Revenue Code, in relation to all
other pertinent provisions thereof, particularly Sections 53,
72, 73, 208 and 209, and authorizing Revenue Examiner
Rodolfo de Leon, one of herein respondents, to make and file
the application for search warrant which was attached to the
letter.
In the afternoon of the following day, February 25, 1970,
respondent De Leon and his witness, respondent Arturo
Logronio, went to the Court of First Instance of Rizal. They
brought with them the following papers: respondent Veras
aforesaid letter-request; an application for search warrant
already filled up but still unsigned by respondent De Leon; an
affidavit of respondent Logronio subscribed before respondent
De Leon; a deposition in printed form of respondent Logronio
already accomplished and signed by him but not yet
subscribed; and a search warrant already accomplished but
still
unsigned
by
respondent
Judge.
At that time respondent Judge was hearing a certain case; so,
by means of a note, he instructed his Deputy Clerk of Court to
take the depositions of respondents De Leon and Logronio.
After the session had adjourned, respondent Judge was
informed that the depositions had already been taken. The
stenographer, upon request of respondent Judge, read to him
her stenographic notes; and thereafter, respondent Judge
asked respondent Logronio to take the oath and warned him
that if his deposition was found to be false and without legal
basis, he could be charged for perjury. Respondent Judge
signed respondent de Leons application for search warrant
and respondent Logronios deposition, Search Warrant No. 2M-70 was then sign by respondent Judge and accordingly
issued.
Three days later, or on February 28, 1970, which was a
Saturday, the BIR agents served the search warrant
petitioners at the offices of petitioner corporation on Ayala
Avenue, Makati, Rizal. Petitioners lawyers protested the
search on the ground that no formal complaint or transcript of
testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded six
boxes
of
documents.
On March 3, 1970, petitioners filed a petition with the Court of
First Instance of Rizal praying that the search warrant be
quashed, dissolved or recalled, that preliminary prohibitory
and mandatory writs of injunction be issued, that the search
warrant be declared null and void, and that the respondents
be ordered to pay petitioners, jointly and severally, damages
and attorneys fees. On March 18, 1970, the respondents, thru
the Solicitor General, filed an answer to the petition. After
hearing, the court, presided over by respondent Judge, issued
on July 29, 1970, an order dismissing the petition for
dissolution of the search warrant. In the meantime, or on April
16, 1970, the Bureau of Internal Revenue made tax
assessments on petitioner corporation in the total sum of
P2,594,729.97, partly, if not entirely, based on the documents
thus
seized.
Petitioners
came
to
this
Court.
The petition should
reasons:chanrob1es

be granted
virtual

for the
1aw

following
library

1. Respondent Judge failed to personally examine the


complainant
and
his
witness.
The pertinent provisions of the Constitution of the Philippines

and of the Revised Rules of Court are:jgc:chanrobles.com.ph


"(3) The right of the people to be secure in their persons,
houses, papers and effects against unreasonable searches
and seizures shall not be violated, and no warrants shall issue
but upon probable cause, to be determined by the judge after
examination under oath or affirmation of the complainant and
the witnesses he may produce, and particularly describing the
place to be searched, and the persons or things to be seized."
(Art.
III,
Sec.
1,
Constitution.)
"SEC. 3. Requisites for issuing search warrant. A search
warrant shall not issue but upon probable cause in connection
with one specific offense to be determined by the judge or
justice of the peace after examination under oath or
affirmation of the complainant and the witnesses he may
produce, and particularly describing the place to be searched
and
the
persons
or
things
to
be
seized.
"No search warrant shall issue for more than one specific
offense.
"SEC. 4. Examination of the applicant. The judge or justice
of the peace must, before issuing the warrant, personally
examine on oath or affirmation the complainant and any
witnesses he may produce and take their depositions in
writing, and attach them to the record, in addition to any
affidavits presented to him." (Rule 126, Revised Rules of
Court.)
The examination of the complainant and the witnesses he
may produce, required by Art. III, Sec. 1, par. 3, of the
Constitution, and by Secs. 3 and 4, Rule 126 of the Revised
Rules of Court, should be conducted by the judge himself and
not by others. The phrase "which shall be determined by the
judge after examination under oath or affirmation of the
complainant and the witnesses he may produce," appearing in
the said constitutional provision, was introduced by Delegate
Francisco as an amendment to the draft submitted by the
Sub-Committee of Seven. The following discussion in the
Constitutional Convention (Laurel, Proceedings of the
Philippine Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos
al
grano.
En los casos de una necesidad de actuar inmediatamente
para que no se frusten los fines de la justicia mediante el
registro inmediato y la incautacion del cuerpo del delito, no
cree Su Seoria que causaria cierta demora el procedimiento
apuntado en su enmienda en tal forma que podria frustrar los
fines de la justicia o si Su Seoria encuentra un remedio para
esto casos con el fin de compaginar los fines de la justicia con
los derechos del individuo en su persona, bienes etcetera,
etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico
que Su Seoria pregunta por la siguiente razon: el que solicita
un mandamiento de registro tiene que hacerlo por escrito y
ese escrito no aparecer en la Mesa del Juez sin que alguien
vaya el juez a presentar ese escrito o peticion de sucuestro.
Esa persona que presenta el registro puede ser el mismo
denunciante
o
alguna
persona
que
solicita
dicho
mandamiento de registro. Ahora toda la enmienda en esos
casos consiste en que haya peticion de registro y el juez no se
atendra solamente a sea peticion sino que el juez examiner a
ese denunciante y si tiene testigos tambin examiner a los
testigos.

registro. Creo que entre dos males debemos escoger. el


menor.
x

"MR. LAUREL. . . . The reason why we are in favor of this


amendment is because we are incorporating in our
constitution something of a fundamental character. Now,
before a judge could issue a search warrant, he must be under
the obligation to examine personally under oath the
complainant and if he has any witness, the witnesses that he
may
produce
.
.
."cralaw
virtua1aw
library
The implementing rule in the Revised Rules of Court, Sec. 4,
Rule 126, is more emphatic and candid, for it requires the
judge, before issuing a search warrant, to "personally examine
on oath or affirmation the complainant and any witnesses he
may
produce
.
.
."cralaw
virtua1aw
library
Personal examination by the judge of the complainant and his
witnesses is necessary to enable him to determine the
existence or non-existence of a probable cause, pursuant to
Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126
of the Revised Rules of Court, both of which prohibit the
issuance of warrants except "upon probable cause." The
determination of whether or not a probable cause exists calls
for the exercise of judgment after a judicial appraisal of facts
and should not be allowed to be delegated in the absence of
any
rule
to
the
contrary.
In the case at bar, no personal examination at all was
conducted by respondent Judge of the complainant
(respondent De Leon) and his witness (respondent Logronio).
While it is true that the complainants application for search
warrant and the witness printed-form deposition were
subscribed and sworn to before respondent Judge, the latter
did not ask either of the two any question the answer to which
could possibly be the basis for determining whether or not
there was probable cause against herein petitioners. Indeed,
the participants seem to have attached so little significance to
the matter that notes of the proceedings before respondent
Judge were not even taken. At this juncture it may be well to
recall the salient facts. The transcript of stenographic notes
(pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at
the hearing of this case in the court below shows that per
instruction of respondent Judge, Mr. Eleodoro V. Gonzales,
Special Deputy Clerk of Court, took the depositions of the
complainant and his witness, and that stenographic notes
thereof were taken by Mrs. Gaspar. At that time respondent
Judge was at the sala hearing a case. After respondent Judge
was through with the hearing, Deputy Clerk Gonzales,
stenographer Gaspar, complainant De Leon and witness
Logronio went to respondent Judges chamber and informed
the Judge that they had finished the depositions. Respondent
Judge then requested the stenographer to read to him her
stenographic notes. Special Deputy Clerk Gonzales testified as
follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the
Honorable Judge requested or instructed them, requested Mr.
Logronio to raise his hand and warned him if his deposition
will be found to be false and without legal basis, he can be
charged criminally for perjury. The Honorable Court told Mr.
Logronio whether he affirms the facts contained in his
deposition and the affidavit executed before Mr. Rodolfo de
Leon.
"Q

And

thereafter?

"SR. ORENSE. No cree Su Seoria que el tomar le declaracion


de ese denunciante por escrito siempre requeriria algun
tiempo?.

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

"SR. FRANCISCO. Seria cuestio de un par de horas, pero por


otro lado minimizamos en todo lo posible las vejaciones
injustas con la expedicion arbitraria de los mandamientos de

"A

"Q

Who
The

is

this
Honorable

he?
Judge.

"Q
"A

The
The

deposition

affidavit,

Your

or

Honor."cralaw

the

affidavit?

virtua1aw

library

Thereafter, respondent Judge signed the search warrant.


The participation of respondent Judge in the proceedings
which led to the issuance of Search Warrant No. 2-M-70 was
thus limited to listening to the stenographers readings of her
notes, to a few words of warning against the commission of
perjury, and to administering the oath to the complainant and
his witness. This cannot be consider a personal examination. If
there was an examination at all of the complainant and his
witness, it was the one conducted by the Deputy Clerk of
Court. But, as stated, the Constitution and the rules require a
personal examination by the judge. It was precisely on
account of the intention of the delegates to the Constitutional
Convention to make it a duty of the issuing judge to
personally examine the complainant and his witnesses that
the question of how much time would be consumed by the
judge in examining them came up before the Convention, as
can be seen from the record of the proceedings quoted above.
The reading of the stenographic notes to respondent Judge did
not constitute sufficient compliance with the constitutional
mandate and the rule; for by that manner respondent Judge
did not have the opportunity to observe the demeanor of the
complainant and his witness, and to propound initial and
follow-up questions which the judicial mind, on account of its
training, was in the best position to conceive. These were
important in arriving at a sound inference on the all-important
question of whether or not there was probable cause.
2. The search warrant was issued for more than one specific
offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec.
46(a) of the National Internal Revenue Code in relation to all
other pertinent provisions thereof particularly Secs. 53, 72,
73, 208 and 209." The question is: Was the said search
warrant issued "in connection with one specific offense," as
required
by
Sec.
3,
Rule
126?
To arrive at the correct answer it is essential to examine
closely the provisions of the Tax Code referred to above. Thus
we find the following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by
corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax
returns and for rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax,
to make a return or to supply the information required under
the
Tax
Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies,
repacks, compounds, or manufactures any article subject to a
specific tax, without having paid the privilege tax therefore, or
who aids or abets in the conduct of illicit distilling, rectifying,
compounding, or illicit manufacture of any article subject to
specific tax . . .," and provides that in the case of a
corporation, partnership, or association, the official and/or
employee who caused the violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts,
sales, business, or gross value of output removed, or to pay
the
tax
due
thereon.
The search warrant in question was issued for at least four
distinct offenses under the Tax Code. The first is the violation
of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax
returns), which are interrelated. The second is the violation of
Sec. 53 (withholding of income taxes at source). The third is
the violation of Sec. 208 (unlawful pursuit of business or

occupation); and the fourth is the violation of Sec. 209 (failure


to make a return of receipts, sales, business or gross value of
output actually removed or to pay the tax due thereon). Even
in their classification the six above-mentioned provisions are
embraced in two different titles: Secs. 46(a), 53, 72 and 73
are under Title II (Income Tax); while Secs. 208 and 209 are
under Title V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L19550, June 19, 1967 (20 SCRA 383), is not applicable,
because there the search warrants were issued for "violation
of Central Bank Laws, Internal Revenue (Code) and Revised
Penal Code;" whereas, here Search Warrant No 2-M-70 was
issued for violation of only one code, i.e., the National Internal
Revenue Code. The distinction more apparent than real,
because it was precisely on account of the Stonehill incident,
which occurred sometime before the present Rules of Court
took effect on January 1, 1964, that this Court amended the
former rule by inserting therein the phrase "in connection with
one specific offense," and adding the sentence "No search
warrant shall issue for more than one specific offense," in
what is now Sec. 3, Rule 126. Thus we said in
Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in
connection with the disputed search warrants, that this Court
deemed it fit to amend Section 3 of Rule 122 of the former
Rules of Court that a search warrant shall not issue but upon
probable cause in connection with one specific offense. Not
satisfied with this qualification, the Court added thereto a
paragraph, directing that no search warrant shall issue for
more
than
one
specific
offense."
3. The search warrant does not particularly describe the
things
to
be
seized.
The documents, papers and effects sought to be seized are
described in Search Warrant No. 2-M-70 in this
manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers,
journals, columnars, receipts and disbursements books,
customers ledgers); receipts for payments received;
certificates of stocks and securities; contracts, promissory
notes and deeds of sale; telex and coded messages; business
communications, accounting and business records; checks
and check stubs; records of bank deposits and withdrawals;
and records of foreign remittances, covering the years 1966 to
1970."cralaw
virtua1aw
library
The description does not meet the requirement in Art III, Sec.
1, of the Constitution, and of Sec. 3, Rule 126 of the Revised
Rules of Court, that the warrant should particularly describe
the
things
to
be
seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto
Concepcion,
said:jgc:chanrobles.com.ph
"The grave
application
compounded
be searched
library

violation of the Constitution made in the


for the contested search warrants was
by the description therein made of the effects to
for and seized, to wit:chanrob1es virtual 1aw

Books of accounts, financial records, vouchers, journals,


correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or paper showing all
business transactions including disbursement receipts,
balance sheets and related profit and loss statements.
"Thus, the warrants authorized the search for and seizure of
records pertaining to all business transactions of petitioners
herein, regardless of whether the transactions were legal or
illegal. The warrants sanctioned the seizure of all records of
the petitioners and the aforementioned corporations,
whatever their nature, thus openly contravening the explicit
command of our Bill of Rights that the things to be seized

be particularly described as well as tending to defeat its


major objective: the elimination of general warrants."cralaw
virtua1aw
library
While the term "all business transactions" does not appear in
Search Warrant No. 2-M-70, the said warrant nevertheless
tends to defeat the major objective of the Bill of Rights, i.e.,
the elimination of general warrants, for the language used
therein is so all-embracing as to include all conceivable
records of petitioner corporation, which, if seized, could
possibly
render
its
business
inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896,
this Court had occasion to explain the purpose of the
requirement that the warrant should particularly describe the
place to be searched and the things to be seized, to
wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58
(sec. 97) specifically require that a search warrant should
particularly describe the place to be searched and the things
to be seized. The evident purpose and intent of this
requirement is to limit the things to be seized to those, and
only those, particularly described in the search warrant to
leave the officers of the law with no discretion regarding what
articles they shall seize, to the end that unreasonable
searches and seizures may not be made, that abuses may
not be committed. That this is the correct interpretation of this
constitutional provision is borne out by American
authorities."cralaw
virtua1aw
library
The purpose as thus explained could, surely and effectively,
be defeated under the search warrant issued in this case.
A search warrant may be said to particularly describe the
things to be seized when the description therein is as specific
as the circumstances will ordinarily allow (People v. Rubio; 57
Phil. 384); or when the description expresses a conclusion of
fact not of law by which the warrant officer may be
guided in making the search and seizure (idem., dissent of
Abad Santos, J.,); or when the things described are limited to
those which bear direct relation to the offense for which the
warrant is being issued (Sec. 2, Rule 126, Revised Rules of
Court). The herein search warrant does not conform to any of
the foregoing tests. If the articles desired to be seized have
any direct relation to an offense committed, the applicant
must necessarily have some evidence, other than those
articles, to prove the said offense; and the articles subject of
search and seizure should come in handy merely to
strengthen such evidence. In this event, the description
contained in the herein disputed warrant should have
mentioned, at least, the dates, amounts, persons, and other
pertinent data regarding the receipts of payments, certificates
of stocks and securities, contracts, promissory notes, deeds of
sale, messages and communications, checks, bank deposits
and withdrawals, records of foreign remittances, among
others,
enumerated
in
the
warrant.
Respondents contend that certiorari does not lie because
petitioners failed to file a motion for reconsideration of
respondent Judges order of July 29, 1970. The contention is
without merit. In the first place, when the questions raised
before this Court are the same as those which were squarely
raised in and passed upon by the court below, the filing of a
motion for reconsideration in said court before certiorari can
be instituted in this Court is no longer a prerequisite. (Pajo,
etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place,
the rule requiring the filing of a motion for reconsideration
before an application for a writ of certiorari can be entertained
was never intended to be applied without considering the
circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In
the case at bar time is of the essence in view of the tax
assessments sought to be enforced by respondent officers of
the Bureau of Internal Revenue against petitioner corporation,
On account of which immediate and more direct action
becomes necessary. (Matute v. Court of Appeals, Et Al., 26
SCRA 768.) Lastly, the rule does not apply where, as in this

case, the deprivation of petitioners fundamental right to due


process taints the proceeding against them in the court below
not only with irregularity but also with nullity. (Matute v. Court
of
Appeals,
Et
Al.,
supra.)
It is next contended by respondents that a corporation is not
entitled to protection against unreasonable search and
seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion
that an officer of a corporation which is charged with a
violation of a statute of the state of its creation, or of an act of
Congress passed in the exercise of its constitutional powers,
cannot refuse to produce the books and papers of such
corporation, we do not wish to be understood as holding that
a corporation is not entitled to immunity, under the 4th
Amendment, against unreasonable searches and seizures. A
corporation is, after all, but an association of individuals under
an assumed name and with a distinct legal entity. In
organizing itself as a collective body it waives no
constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only
be proceeded against by due process of law, and is protected,
under
the
14th
Amendment,
against
unlawful
discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed.
652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it
was thought that a different rule applied to a corporation, the
ground that it was not privileged from producing its books and
papers. But the rights of a corporation against unlawful search
and seizure are to be protected even if the same result might
have been achieved in a lawful way." (Silverthorne Lumber
Company, Et. Al. v. United States of America, 251 U.S. 385, 64
L.
ed.
319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly
recognized the right of a corporation to object against
unreasonable
searches
and
seizures,
thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein
have no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for
the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of
herein petitioners, regardless of the amount of shares of stock
or the interest of each of them in said corporations, whatever,
the offices they hold therein may be. Indeed, it is well settled
that the legality of a seizure can be contested only by the
party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal
and cannot be availed of by third parties. Consequently,
petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things
seized from the offices and premises of the corporations
adverted to above, since the right to object to the admission
of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not
be invoked by the corporate officers in proceedings against
them in their individual capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various
corporations in whose offices documents, papers and effects
were searched and seized were the petitioners. In the case at
bar, the corporation to whom the seized documents belong,
and whose rights have thereby been impaired, is itself a
petitioner. On that score, petitioner corporation here stands
on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if
not entirely as claimed by petitioners at least partly as
in effect admitted by respondents based on the documents
seized by virtue of Search Warrant No. 2-M-70. Furthermore,
the fact that the assessments were made some one and onehalf months after the search and seizure on February 25,
1970, is a strong indication that the documents thus seized

served as basis for the assessments. Those assessments


should
therefore
not
be
enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly,
Search Warrant No. 2-M-70 issued by respondent Judge is
declared null and void; respondents are permanently enjoined
from enforcing the said search warrant; the documents,
papers and effects seized thereunder are ordered to be
returned to petitioners; and respondent officials the Bureau of
Internal Revenue and their representatives are permanently
enjoined from enforcing the assessments mentioned in Annex
"G" of the present petition, as well as other assessments
based on the documents, papers and effects seized under the
search warrant herein nullified, and from using the same
against petitioners in any criminal or other proceeding. No
pronouncement
as
to
costs.
Concepcion, C.J.,
Teehankee
Reyes,

J.B.L., J.,

Dizon,
and

Makalintal, Zaldivar,
Makasiar, JJ.,

concurs

with

Mr.

Fernando,
concur.

Justice

Barredo.

Castro, J., concurs in the result.

internal revenue authorities in using the documents and


papers secured during the search, the legality of which was
pending resolution by the court, as basis of an assessment, no
matter how highly motivated such action might have been.
This smacks of lack of respect, if not contempt for the court
and is certainly intolerable. At the very least, it appears as an
attempt to render the court proceedings moot and academic,
and dealing as this case does with constitutionally protected
rights which are part and parcel of the basic concepts of
individual liberty and democracy, the government agents
should have been the first ones to refrain from trying to make
a farce of these court proceedings. Indeed, it is to be
regretted that the government agents and the court have
acted irregularly, for it is highly doubtful if it would be
consistent with the sacredness of the rights herein found to
have been violated to permit the filing of another application
which complies with the constitutional requirements above
discussed and the making of another search upon the return
of the papers and documents now in their illegal possession.
This could be an instance wherein taxes properly due the
State will probably remain unassessed and unpaid only
because the ones in charge of the execution of the laws did
not know how to respect basic constitutional rights and
liberties.

Separate Opinions
BARREDO, J.,
I

concurring:chanrob1es

virtual

1aw

library
concur.

I agree with the ruling that the search warrants in question


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

EN BANC
G.R. No. 75885 May 27, 1987
BATAAN
SHIPYARD
&
ENGINEERING
CO.,
INC.
(BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,
COMMISSIONER
RAUL
R.
DAZA,
COMMISSIONER
QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et
al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:
Challenged in this special civil action of certiorari and
prohibition by a private corporation known as the Bataan
Shipyard and Engineering Co., Inc. are: (1) Executive Orders
Numbered 1 and 2, promulgated by President Corazon C.
Aquino on February 28, 1986 and March 12, 1986,
respectively, and (2) the sequestration, takeover, and other
orders issued, and acts done, in accordance with said
executive orders by the Presidential Commission on Good
Government and/or its Commissioners and agents, affecting
said corporation.
1. The Sequestration, Takeover, and Other Orders Complained
of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner
corporation, initiated all its misery was issued on April 14,
1986 by Commissioner Mary Concepcion Bautista. It was
addressed to three of the agents of the Commission, hereafter
simply referred to as PCGG. It reads as follows:

RE: SEQUESTRATION ORDER

2. Legal documents, such as:

By virtue of the powers vested in the


Presidential
Commission
on
Good
Government, by authority of the President of
the Philippines, you are hereby directed to
sequester the following companies.
1. Bataan Shipyard and
Engineering
Co.,
Inc.
(Engineering
Island
Shipyard and Mariveles
Shipyard)
2. Baseco Quarry
3.
Philippine
Corporation
4. Fidelity
Co., Inc.

Management

Management

7.
New
Management

Trident

8. Bay Transport
9.
And
all
affiliate
companies
of
Alfredo
"Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order
with a minimum disruption of these
companies' business activities.
2. To ensure the continuity of these
companies as going concerns, the care and
maintenance of these assets until such time
that the Office of the President through the
Commission on Good Government should
decide otherwise.
3. To report to the Commission on Good
Government periodically.
Further, you are authorized to request for
Military/Security
Support
from
the
Military/Police authorities, and such other
acts essential to the achievement of this
sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M.
Balde, acting for the PCGG, addressed a letter dated April 18,
1986 to the President and other officers of petitioner firm,
reiterating an earlier request for the production of certain
documents, to wit:
1. Stock Transfer Book

of

2.2. By-Laws
2.3. Minutes of the Annual
Stockholders Meeting from
1973 to 1986
2.4.
Minutes
of
the
Regular
and
Special
Meetings of the Board of
Directors from 1973 to
1986

Jai-Alai

5. Romson Realty, Inc.


6. Trident
Co.

2.1.
Articles
Incorporation

2.5.
Minutes
of
the
Executive
Committee
Meetings from 1973 to
1986
2.6. Existing contracts
with
suppliers/contractors/othe
rs.
3. Yearly list of stockholders with their
corresponding
share/stockholdings
from
1973 to 1986 duly certified by the Corporate
Secretary.
4. Audited Financial Statements such as
Balance Sheet, Profit & Loss and others from
1973 to December 31, 1985.
5. Monthly Financial Statements for the
current year up to March 31, 1986.
6. Consolidated Cash Position Reports from
January to April 15, 1986.
7. Inventory listings of assets up dated up to
March 31, 1986.
8. Updated schedule of Accounts Receivable
and Accounts Payable.
9. Complete list of depository banks for all
funds with the authorized signatories for
withdrawals thereof.
10. Schedule of company investments and
placements. 2
The letter closed with the warning that if the documents were
not submitted within five days, the officers would be cited for
"contempt in pursuance with Presidential Executive Order
Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination
Contract
for
Services

of
Security

A third order assailed by petitioner corporation, hereafter


referred to simply as BASECO, is that issued on April 21, 1986

by a Capt. Flordelino B. Zabala, a member of the task force


assigned to carry out the basic sequestration order. He sent a
letter to BASECO's Vice-President for Finance, 3 terminating
the contract for security services within the Engineer Island
compound between BASECO and "Anchor and FAIRWAYS" and
"other civilian security agencies," CAPCOM military personnel
having already been assigned to the area,
(2) Change of Mode of
Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a
Memorandum addressed to "Truck Owners and Contractors,"
particularly a "Mr. Buddy Ondivilla National Marine
Corporation," advising of the amendment in part of their
contracts with BASECO in the sense that the stipulated
charges for use of the BASECO road network were made
payable "upon entry and not anymore subject to monthly
billing as was originally agreed upon." 4
d. Aborted Contract for Improvement of
Wharf at Engineer Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered
into a contract in behalf of BASECO with Deltamarine
Integrated Port Services, Inc., in virtue of which the latter
undertook to introduce improvements costing approximately
P210,000.00 on the BASECO wharf at Engineer Island,
allegedly then in poor condition, avowedly to "optimize its
utilization and in return maximize the revenue which would
flow into the government coffers," in consideration of
Deltamarine's being granted "priority in using the improved
portion of the wharf ahead of anybody" and exemption "from
the payment of any charges for the use of wharf including the
area where it may install its bagging equipments" "until the
improvement remains in a condition suitable for port
operations." 5 It seems however that this contract was never
consummated. Capt. Jorge B. Siacunco, "Head- (PCGG)
BASECO Management Team," advised Deltamarine by letter
dated July 30, 1986 that "the new management is not in a
position to honor the said contract" and thus "whatever
improvements * * (may be introduced) shall be deemed
unauthorized * * and shall be at * * (Deltamarine's) own
risk." 6

"the Philippine Dockyard Corporation and all their affiliated


companies." 9 Diaz invoked the provisions of Section 3 (c) of
Executive Order No. 1, empowering the Commission
* * To provisionally takeover in the public
interest or to prevent its disposal or
dissipation,
business
enterprises
and
properties taken over by the government of
the Marcos Administration or by entities or
persons close to former President Marcos,
until the transactions leading to such
acquisition by the latter can be disposed of
by the appropriate authorities.
A management team was designated to implement the order,
headed by Capt. Siacunco, and was given the following
powers:
1. Conducts all aspects of operation of the
subject companies;
2. Installs key officers, hires and terminates
personnel as necessary;
3. Enters into contracts related to
management
and
operation
of
the
companies;
4. Ensures that the assets of the companies
are not dissipated and used effectively and
efficiently; revenues are duly accounted for;
and disburses funds only as may be
necessary;
5. Does actions including among others,
seeking of military support as may be
necessary, that will ensure compliance to
this order;
6. Holds itself fully accountable to the
Presidential
Commission
on
Good
Government on all aspects related to this
take-over order.

e. Order for Operation of Sesiman Rock


Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista
first directed a PCGG agent, Mayor Melba O. Buenaventura,
"to plan and implement progress towards maximizing the
continuous operation of the BASECO Sesiman Rock Quarry * *
by conventional methods;" but afterwards, Commissioner
Bautista, in representation of the PCGG, authorized another
party, A.T. Abesamis, to operate the quarry, located at
Mariveles, Bataan, an agreement to this effect having been
executed by them on September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated
June 26, 1986, Mayor Buenaventura was also "authorized to
clean and beautify the Company's compound," and in this
connection, to dispose of or sell "metal scraps" and other
materials, equipment and machineries no longer usable,
subject to specified guidelines and safeguards including audit
and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz
decreed the provisional takeover by the PCGG of BASECO,

h. Termination of Services
of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz,
Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero,
and Benito R. Cuesta I, advising of the termination of their
services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its
members and agents which, to repeat, petitioner BASECO
would have this Court nullify. More particularly, BASECO prays
that this Court1) declare unconstitutional
Numbered 1 and 2;

and

void

Executive

Orders

2) annul the sequestration order dated April- 14, 1986, and all
other orders subsequently issued and acts done on the basis
thereof, inclusive of the takeover order of July 14, 1986 and
the termination of the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the
Sequestration and Takeover Orders

While BASECO concedes that "sequestration without resorting


to judicial action, might be made within the context of
Executive Orders Nos. 1 and 2 before March 25, 1986 when
the Freedom Constitution was promulgated, under the
principle that the law promulgated by the ruler under a
revolutionary regime is the law of the land, it ceased to be
acceptable when the same ruler opted to promulgate the
Freedom Constitution on March 25, 1986 wherein under
Section I of the same, Article IV (Bill of Rights) of the 1973
Constitution was adopted providing, among others, that "No
person shall be deprived of life, liberty and property without
due process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the
Executive Orders "as well as the Sequestration Order * * and
Takeover Order * * issued purportedly under the authority of
said Executive Orders, rests on four fundamental
considerations: First, no notice and hearing was accorded * *
(it) before its properties and business were taken
over; Second, the PCGG is not a court, but a purely
investigative agency and therefore not competent to act as
prosecutor and judge in the same cause; Third, there is
nothing in the issuances which envisions any proceeding,
process or remedy by which petitioner may expeditiously
challenge the validity of the takeover after the same has been
effected; and Fourthly, being directed against specified
persons, and in disregard of the constitutional presumption of
innocence and general rules and procedures, they constitute a
Bill of Attainder." 13

7) planning to elect its own Board of Directors;

20

8) allowing willingly or unwillingly its personnel to take, steal,


carry away from petitioner's premises at Mariveles * * rolls of
cable wires, worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to
retrieve gold bars supposed to have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze
and Takeover Orders
Many misconceptions and much doubt about the matter of
sequestration, takeover and freeze orders have been
engendered
by
misapprehension,
or
incomplete
comprehension if not indeed downright ignorance of the law
governing these remedies. It is needful that these
misconceptions and doubts be dispelled so that uninformed
and useless debates about them may be avoided, and
arguments tainted b sophistry or intellectual dishonesty be
quickly exposed and discarded. Towards this end, this opinion
will essay an exposition of the law on the matter. In the
process many of the objections raised by BASECO will be dealt
with.
4. The Governing Law
a. Proclamation No. 3

b. Re Order to Produce Documents


It argues that the order to produce corporate records from
1973 to 1986, which it has apparently already complied with,
was issued without court authority and infringed its
constitutional
right
against
self-incrimination,
and
unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership
and Management
BASECO further contends that the PCGG had unduly interfered
with its right of dominion and management of its business
affairs by
1) terminating its contract for security services with Fairways
& Anchor, without the consent and against the will of the
contracting parties; and amending the mode of payment of
entry fees stipulated in its Lease Contract with National
Stevedoring & Lighterage Corporation, these acts being in
violation of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an
"anomalous contract" with Deltamarine Integrated Port
Services, Inc., giving the latter free use of BASECO
premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to
manage and operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal
scrap, equipment, machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard
Corporation, and all their affiliated companies;
6) terminating the services of BASECO executives: President
Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez;
Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R.
Cuesta I; 19

The impugned executive orders are avowedly meant to carry


out the explicit command of the Provisional Constitution,
ordained by Proclamation No. 3, 23 that the President-in the
exercise of legislative power which she was authorized to
continue to wield "(until a legislature is elected and convened
under a new Constitution" "shall give priority to measures
to achieve the mandate of the people," among others
to (r)ecover ill-gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of
the people through orders of sequestration or freezing of
assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all
ill-gotten wealth," and postulates that "vast resources of the
government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and
close associates both here and abroad." 25 Upon these
premises, the Presidential Commission on Good Government
was created, 26 "charged with the task of assisting the
President in regard to (certain specified) matters," among
which was precisely* * The recovery of all in-gotten wealth
accumulated by former President Ferdinand
E. Marcos, his immediate family, relatives,
subordinates and close associates, whether
located in the Philippines or abroad,
including the takeover or sequestration of
all business enterprises and entities owned
or
controlled
by
them,
during
his
administration,
directly
or
through
nominees, by taking undue advantage of
their public office and/or using their powers,
authority,
influence,
connections
or
relationship. 27
In relation to the takeover or sequestration that it was
authorized to undertake in the fulfillment of its mission, the
PCGG was granted "power and authority" to do the following
particular acts, to wit:

1. To sequester or place or cause to be


placed under its control or possession any
building or office wherein any ill-gotten
wealth or properties may be found, and any
records pertaining thereto, in order to
prevent their destruction, concealment or
disappearance which would frustrate or
hamper the investigation or otherwise
prevent the Commission from accomplishing
its task.
2. To provisionally take over in the public
interest or to prevent the disposal or
dissipation,
business
enterprises
and
properties taken over by the government of
the Marcos Administration or by entities or
persons close to former President Marcos,
until the transactions leading to such
acquisition by the latter can be disposed of
by the appropriate authorities.
3. To enjoin or restrain any actual or
threatened commission of acts by any
person or entity that may render moot and
academic, or frustrate or otherwise make
ineffectual the efforts of the Commission to
carry out its task under this order. 28
So that it might ascertain the facts germane to its objectives,
it was granted power to conduct investigations; require
submission
of
evidence
by
subpoenae ad
testificandum and duces tecum; administer oaths; punish for
contempt. 29 It was given power also to promulgate such rules
and regulations as may be necessary to carry out the
purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data
and directions respecting "the recovery of ill-gotten properties
amassed by the leaders and supporters of the previous
regime." It declares that:
1) * * the Government of the Philippines is
in possession of evidence showing that
there are assets and properties purportedly
pertaining to former Ferdinand E. Marcos,
and/or his wife Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates,
business associates, dummies, agents or
nominees which had been or were acquired
by them directly or indirectly, through or as
a result of the improper or illegal use of
funds or properties owned by the
government of the Philippines or any of its
branches, instrumentalities, enterprises,
banks or financial institutions, or by taking
undue advantage of their office, authority,
influence, connections or relationship,
resulting in their unjust enrichment and
causing grave damage and prejudice to the
Filipino people and the Republic of the
Philippines:" and
2) * * said assets and properties are in the
form of bank accounts, deposits, trust
accounts, shares of stocks, buildings,
shopping centers, condominiums, mansions,
residences, estates, and other kinds of real
and personal properties in the Philippines
and in various countries of the world." 31
Upon these premises, the President-

1) froze "all assets and properties in the


Philippines in which former President Marcos
and/or his wife, Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates,
business associates, dummies, agents, or
nominees have any interest or participation;
2) prohibited former President Ferdinand
Marcos and/or his wife * *, their close
relatives, subordinates, business associates,
duties,
agents,
or
nominees
from transferring, conveying, encumbering,
concealing or dissipating said assets or
properties in the Philippines and abroad,
pending the outcome of appropriate
proceedings in the Philippines to determine
whether any such assets or properties were
acquired by them through or as a result of
improper or illegal use of or the conversion
of funds belonging to the Government of the
Philippines or any of its branches,
instrumentalities, enterprises, banks or
financial institutions, or by taking undue
advantage
of
their
official
position,
authority,
relationship,
connection
or
influence to unjustly enrich themselves at
the expense and to the grave damage and
prejudice of the Filipino people and the
Republic of the Philippines;
3) prohibited "any person from transferring,
conveying, encumbering or otherwise
depleting or concealing such assets and
properties or from assisting or taking part in
their transfer, encumbrance, concealment
or dissipation under pain of such penalties
as are prescribed by law;" and
4) required "all persons in the Philippines
holding such assets or properties, whether
located in the Philippines or abroad, in their
names as nominees, agents or trustees, to
make full disclosure of the same to the
Commission on Good Government within
thirty (30) days from publication of * (the)
Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No.
14, 33 by which the PCGG is empowered, "with the assistance
of the Office of the Solicitor General and other government
agencies, * * to file and prosecute all cases investigated by
it * * as may be warranted by its findings." 34 All such cases,
whether civil or criminal, are to be filed "with
the Sandiganbayanwhich shall have exclusive and original
jurisdiction thereof." 35 Executive Order No. 14 also pertinently
provides that civil suits for restitution, reparation of damages,
or indemnification for consequential damages, forfeiture
proceedings provided for under Republic Act No. 1379, or any
other civil actions under the Civil Code or other existing laws,
in connection with * * (said Executive Orders Numbered 1 and
2) may be filed separately from and proceed independently of
any criminal proceedings and may be proved by a
preponderance of evidence;" and that, moreover, the
"technical rules of procedure and evidence shall not be strictly
applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are selfevident, these being:

1) that "(i)ll-gotten properties (were)


amassed by the leaders and supporters of
the previous regime";37
a) more particularly, that ill-gotten wealth
(was) accumulated by former President
Ferdinand E. Marcos, his immediate family,
relatives, subordinates and close associates,
* * located in the Philippines or abroad, * *
(and) business enterprises and entities
(came to be) owned or controlled by them,
during * * (the Marcos) administration,
directly or through nominees, by taking
undue advantage of their public office
and/or using their powers, authority,
influence, Connections or relationship; 38
b) otherwise stated, that "there are assets
and properties purportedly pertaining to
former President Ferdinand E. Marcos,
and/or his wife Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates,
business associates, dummies, agents or
nominees which had been or were acquired
by them directly or indirectly, through or as
a result of the improper or illegal use of
funds or properties owned by the
Government of the Philippines or any of its
branches, instrumentalities, enterprises,
banks or financial institutions, or by taking
undue advantage of their office, authority,
influence, connections or relationship,
resulting in their unjust enrichment and
causing grave damage and prejudice to the
Filipino people and the Republic of the
Philippines"; 39
c) that "said assets and properties are in the
form of bank accounts. deposits, trust.
accounts, shares of stocks, buildings,
shopping centers, condominiums, mansions,
residences, estates, and other kinds of real
and personal properties in the Philippines
and in various countries of the world;" 40 and
2) that certain "business enterprises and
properties (were) taken over by the
government of the Marcos Administration or
by entities or persons close to former
President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten
Wealth
There can be no debate about the validity and eminent
propriety of the Government's plan "to recover all ill-gotten
wealth."
Neither can there be any debate about the proposition that
assuming the above described factual premises of the
Executive Orders and Proclamation No. 3 to be true, to be
demonstrable by competent evidence, the recovery from
Marcos, his family and his dominions of the assets and
properties involved, is not only a right but a duty on the part
of Government.
But however plain and valid that right and duty may be, still a
balance must be sought with the equally compelling necessity
that a proper respect be accorded and adequate protection
assured, the fundamental rights of private property and free
enterprise which are deemed pillars of a free society such as
ours, and to which all members of that society may without
exception lay claim.

* * Democracy, as a way of life enshrined in


the Constitution, embraces as its necessary
components
freedom
of
conscience,
freedom of expression, and freedom in the
pursuit of happiness. Along with these
freedoms are included economic freedom
and freedom of enterprise within reasonable
bounds and under proper control. * *
Evincing much concern for the protection of
property,
the
Constitution
distinctly
recognizes the preferred position which real
estate
has
occupied
in
law
for
ages. Property is bound up with every
aspect of social life in a democracy as
democracy
is
conceived
in
the
Constitution. The Constitution realizes the
indispensable role which property, owned in
reasonable quantities and used legitimately,
plays in the stimulation to economic effort
and the formation and growth of a solid
social middle class that is said to be the
bulwark of democracy and the backbone of
every progressive and happy country. 42
a. Need of Evidentiary Substantiation in
Proper Suit
Consequently, the factual premises of the Executive Orders
cannot simply be assumed. They will have to be duly
established by adequate proof in each case, in a proper
judicial proceeding, so that the recovery of the ill-gotten
wealth may be validly and properly adjudged and
consummated; although there are some who maintain that
the fact-that an immense fortune, and "vast resources of the
government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and
close associates both here and abroad," and they have
resorted to all sorts of clever schemes and manipulations to
disguise and hide their illicit acquisitions-is within the realm of
judicial notice, being of so extensive notoriety as to dispense
with proof thereof, Be this as it may, the requirement of
evidentiary substantiation has been expressly acknowledged,
and the procedure to be followed explicitly laid down, in
Executive Order No. 14.
b. Need of Provisional Measures to Collect
and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits
for the recovery of such "ill-gotten wealth" as the evidence at
hand may reveal, there is an obvious and imperative need for
preliminary,
provisional
measures
to
prevent
the
concealment, disappearance, destruction, dissipation, or loss
of the assets and properties subject of the suits, or to restrain
or foil acts that may render moot and academic, or effectively
hamper, delay, or negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3)
provisional remedies. These are: (1) sequestration; (2) freeze
orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally
to unearthed instances of "ill-gotten wealth." The remedy of
"provisional takeover" is peculiar to cases where "business
enterprises and properties (were) taken over by the
government of the Marcos Administration or by entities or
persons close to former President Marcos."43
a. Sequestration

By the clear terms of the law, the power of the PCGG


to sequester property claimed to be "ill-gotten" means to
place or cause to be placed under its possession or control
said property, or any building or office wherein any such
property and any records pertaining thereto may be found,
including "business enterprises and entities,"-for the purpose
of preventing the destruction, concealment or dissipation of,
and otherwise conserving and preserving, the same-until it
can be determined, through appropriate judicial proceedings,
whether the property was in truth will- gotten," i.e., acquired
through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government or any of its
branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official position,
authority relationship, connection or influence, resulting in
unjust enrichment of the ostensible owner and grave damage
and prejudice to the State. 44 And this, too, is the sense in
which the term is commonly understood in other
jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or
control of property alleged to constitute "ill-gotten wealth"
"from transferring, conveying, encumbering or otherwise
depleting or concealing such property, or from assisting or
taking part in its transfer, encumbrance, concealment, or
dissipation." 46 In other words, it commands the possessor to
hold the property and conserve it subject to the orders and
disposition of the authority decreeing such freezing. In this
sense, it is akin to a garnishment by which the possessor or
ostensible owner of property is enjoined not to deliver,
transfer, or otherwise dispose of any effects or credits in his
possession or control, and thus becomes in a sense an
involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law
acknowledges the apparent distinction between "ill gotten"
"business enterprises and entities" (going concerns,
businesses in actual operation), generally, as to which the
remedy of sequestration applies, it being necessarily inferred
that the remedy entails no interference, or the least possible
interference with the actual management and operations
thereof; and "business enterprises which were taken over by
the government government of the Marcos Administration or
by entities or persons close to him," in particular, as to which
a "provisional takeover" is authorized, "in the public interest
or
to
prevent
disposal
or
dissipation
of
the
enterprises." 48 Such
a "provisional takeover"
imports
something more than sequestration or freezing, more than the
placing of the business under physical possession and control,
albeit without or with the least possible interference with the
management and carrying on of the business itself. In a
"provisional takeover," what is taken into custody is not only
the physical assets of the business enterprise or entity, but
the business operation as well. It is in fine the assumption of
control not only over things, but over operations or on- going
activities. But, to repeat, such a "provisional takeover" is
allowed only as regards "business enterprises * * taken over
by the government of the Marcos Administration or by entities
or persons close to former President Marcos."
d. No Divestment of Title Over Property
Seized
It may perhaps be well at this point to stress once again the
provisional, contingent character of the remedies just
described. Indeed the law plainly qualifies the remedy of takeover by the adjective, "provisional." These remedies may be
resorted to only for a particular exigency: to prevent in the
public interest the disappearance or dissipation of property or
business, and conserve it pending adjudgment in appropriate

proceedings of the primary issue of whether or not the


acquisition of title or other right thereto by the apparent
owner was attended by some vitiating anomaly. None of the
remedies is meant to deprive the owner or possessor of his
title or any right to the property sequestered, frozen or taken
over and vest it in the sequestering agency, the Government
or other person. This can be done only for the causes and by
the processes laid down by law.
That this is the sense in which the power to sequester, freeze
or provisionally take over is to be understood and exercised,
the language of the executive orders in question leaves no
doubt. Executive Order No. 1 declares that the sequestration
of property the acquisition of which is suspect shall last "until
the transactions leading to such acquisition * * can be
disposed of by the appropriate authorities." 49 Executive Order
No. 2 declares that the assets or properties therein mentioned
shall remain frozen "pending the outcome of appropriate
proceedings in the Philippines to determine whether any such
assets
or
properties
were
acquired"
by
illegal
means. Executive Order No. 14 makes clear that judicial
proceedings are essential for the resolution of the basic issue
of whether or not particular assets are "ill-gotten," and
resultant recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely
Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by
BASECO 50 that sequestration, freezing or provisional takeover
is designed to be an end in itself, that it is the device through
which persons may be deprived of their property branded as
"ill-gotten," that it is intended to bring about a permanent,
rather than a passing, transitional state of affairs. That this is
not so is quite explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any
lingering fears about the duration of these provisional
remedies. Section 26 of its Transitory Provisions, 51 lays down
the relevant rule in plain terms, apart from extending
ratification or confirmation (although not really necessary) to
the institution by presidential fiat of the remedy of
sequestration and freeze orders:
SEC.
26.
The
authority
to
issue
sequestration or freeze orders under
Proclamation No. 3 dated March 25, 1986 in
relation to the recovery of ill-gotten wealth
shag remain operative for not more
thaneighteen months after the ratification of
this Constitution. However, in the national
interest, as certified by the President,
the Congress may extend said period.
A sequestration or freeze order shall be
issued only upon showing of a prima
facie case. The order and the list of the
sequestered or frozen properties shall
forthwith be registered with the proper
court. For orders issued before the
ratification
of
this
Constitution,
the
corresponding judicial action or proceeding
shall be filed within six months from its
ratification. For those issued after such
ratification, the judicial action or proceeding
shall be commenced within six months from
the issuance thereof.
The sequestration or freeze order is deemed
automatically lifted if no judicial action or
proceeding is commenced as herein
provided. 52

f. Kinship to Attachment Receivership


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

Executive Order No. 14 enjoins that there be "due regard to


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

g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or
takeover orders are not issued by a court is of no moment.
The Solicitor General draws attention to the writ of distraint
and levy which since 1936 the Commissioner of Internal
Revenue has been by law authorized to issue against property
of a delinquent taxpayer. 56 BASECO itself declares that it has
not manifested "a rigid insistence on sequestration as a purely
judicial remedy * * (as it feels) that the law should not be
ossified to a point that makes it insensitive to change." What
it insists on, what it pronounces to be its "unyielding position,
is that any change in procedure, or the institution of a new
one, should conform to due process and the other
prescriptions of the Bill of Rights of the Constitution." 57 It is,
to be sure, a proposition on which there can be no
disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership,
as well as delivery of personal property in replevinsuits,
sequestration and provisional takeover writs may issue ex
parte. 58 And as in preliminary attachment, receivership, and
delivery of personality, no objection of any significance may
be raised to the ex parte issuance of an order of
sequestration, freezing or takeover, given its fundamental
character of temporariness or conditionality; and taking
account specially of the constitutionally expressed "mandate
of the people to recover ill-gotten properties amassed by the
leaders and supporters of the previous regime and protect the
interest of the people;" 59 as well as the obvious need to avoid
alerting suspected possessors of "ill-gotten wealth" and
thereby cause that disappearance or loss of property precisely
sought to be prevented, and the fact, just as self-evident, that
"any transfer, disposition, concealment or disappearance of
said assets and properties would frustrate, obstruct or hamper
the efforts of the Government" at the just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of
attachment and receivership, there exist a prima facie factual
foundation, at least, for the sequestration, freeze or takeover
order, and adequate and fair opportunity to contest it and
endeavor to cause its negation or nullification. 61
Both are assured under the executive orders in question and
the rules and regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders

And Sections 5 and 6 of the same Rules and Regulations lay


down the procedure by which a party may seek to set aside a
writ of sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person
against whom a writ of sequestration or
freeze or hold order is directed may request
the lifting thereof in writing, either
personally or through counsel within five (5)
days from receipt of the writ or order, or in
the case of a hold order, from date of
knowledge thereof.
SECTION 6. Procedure for review of writ or
order.-After due hearing or motu proprio for
good cause shown, the Commission may lift
the writ or order unconditionally or subject
to such conditions as it may deem
necessary, taking into consideration the
evidence and the circumstance of the case.
The resolution of the commission may be
appealed by the party concerned to the
Office of the President of the Philippines
within fifteen (15) days from receipt thereof.
Parenthetically, even if the requirement for a prima
facie showing of "ill- gotten wealth" were not expressly
imposed by some rule or regulation as a condition to warrant
the sequestration or freezing of property contemplated in the
executive orders in question, it would nevertheless be exigible
in this jurisdiction in which the Rule of Law prevails and official
acts which are devoid of rational basis in fact or law, or are
whimsical and capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing
considerations as to the validity and propriety of
sequestration, freeze and takeover orders, it should be
dispelled by the fact that these particular remedies and the
authority of the PCGG to issue them have received
constitutional approbation and sanction. As already
mentioned, the Provisional or "Freedom" Constitution
recognizes the power and duty of the President to enact
"measures to achieve the mandate of the people to * * *
(recover ill- gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of
the people through orders of sequestration or freezing of
assets or accounts." And as also already adverted to, Section
26, Article XVIII of the 1987 Constitution 67 treats of, and
ratifies the "authority to issue sequestration or freeze orders
under Proclamation No. 3 dated March 25, 1986."

The institution of these provisional remedies is also premised


upon the State's inherent police power, regarded, as t lie
power of promoting the public welfare by restraining and
regulating the use of liberty and property," 68 and as "the
most essential, insistent and illimitable of powers * * in the
promotion of general welfare and the public interest," 69 and
said to be co-extensive with self-protection and * * not inaptly
termed (also) the'law of overruling necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has
thus far been said that the PCGG is not, and was never
intended to act as, a judge. Its general function is to conduct
investigations in order to collect evidenceestablishing
instances of "ill-gotten wealth;" issue sequestration, and such
orders as may be warranted by the evidence thus collected
and as may be necessary to preserve and conserve the assets
of which it takes custody and control and prevent their
disappearance, loss or dissipation; and eventually file and
prosecute in the proper court of competent jurisdiction all
cases investigated by it as may be warranted by its findings. It
does not try and decide, or hear and determine, or adjudicate
with any character of finality or compulsion, cases involving
the essential issue of whether or not property should be
forfeited and transferred to the State because "ill-gotten"
within the meaning of the Constitution and the executive
orders. This function is reserved to the designated court, in
this case, the Sandiganbayan. 71 There can therefore be no
serious regard accorded to the accusation, leveled by
BASECO, 72 that the PCGG plays the perfidious role of
prosecutor and judge at the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the
facts disclosed by the record, hereafter to be discussed, the
petition cannot succeed. The writs of certiorari and prohibition
prayed for will not be issued.

(2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio


Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this
year, 1986, there were twenty (20) stockholders listed in
BASECO's Stock and Transfer Book. 75 Their names and the
number of shares respectively held by them are as follows:

1. Jose A. Rojas

1,248 shares

2. Severino G. de la
Cruz

1,248 shares

3. Emilio T. Yap

2,508 shares

4. Jose Fernandez

1,248 shares

5. Jose Francisco

128 shares

6.
Manuel
Mendoza

S.

96 shares

7. Anthony P. Lee

1,248 shares

The facts show that the corporation known as BASECO was


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

8. Hilario M. Ruiz

32 shares

12. Organization and Stock Distribution of BASECO

9.
Constante
Farias

BASECO describes itself in its petition as "a shiprepair and


shipbuilding company * * incorporated as a domestic private
corporation * * (on Aug. 30, 1972) by a consortium of Filipino
shipowners and shipping executives. Its main office is at
Engineer Island, Port Area, Manila, where its Engineer Island
Shipyard is housed, and its main shipyard is located at
Mariveles Bataan." 73 Its Articles of Incorporation disclose that
its authorized capital stock is P60,000,000.00 divided into
60,000 shares, of which 12,000 shares with a value of
P12,000,000.00 have been subscribed, and on said
subscription, the aggregate sum of P3,035,000.00 has been
paid by the incorporators. 74 The same articles Identify the
incorporators, numbering fifteen (15), as follows: (1) Jose A.
Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P.
Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio
M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10)
Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13)
Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo
Torres.
By 1986, however, of these fifteen (15) incorporators, six (6)
had ceased to be stockholders, namely: (1) Generoso Tanseco,

L.

8 shares

10.
Fidelity
Management, Inc.

65,882 shares

11.
Trident
Management

7,412 shares

12. United Phil. Lines

1,240 shares

13.

8 shares

Renato

M.

Tanseco

14. Fidel Ventura

15.
Metro
Drydock

8 shares

Bay

136,370
shares

Unaccountably, the price of P52,000,000.00 was reduced by


more than one-half, to P24,311,550.00, about eight (8)
months later. A document to this effect was executed on
October 9, 1973, entitled "Memorandum Agreement," and was
signed for NASSCO by Arturo Pacificador, as Presiding Officer
of the Board of Directors, and David R. Ines, as General
Manager. 77 This agreement bore, at the top right corner of the
first page, the word "APPROVED" in the handwriting
of President Marcos, followed by his usual full signature. The
document recited that a down payment of P5,862,310.00 had
been made by BASECO, and the balance of P19,449,240.00
was payable in equal semi-annual installments over nine (9)
years after a grace period of two (2) years, with interest at 7%
per annum.
15. Acquisition of 300 Hectares from Export Processing Zone
Authority

16. Manuel Jacela

1 share

17. Jonathan G. Lu

1 share

On October 1, 1974, BASECO acquired three hundred (300)


hectares of land in Mariveles from the Export Processing Zone
Authority for the price of P10,047,940.00 of which, as set out
in the document of sale, P2,000.000.00 was paid upon its
execution, and the balance stipulated to be payable in
installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of
Marcos

18. Jose J. Tanchanco

1 share

19. Dioscoro Papa

128 shares

20.
Edward
Marcelo

T.

TOTAL

4 shares

218,819
shares.

13 Acquisition of NASSCO by BASECO


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

Some nine months afterwards, or on July 15, 1975, to be


precise, BASECO, again with the intervention of President
Marcos, acquired ownership of the rest of the assets of
NASSCO which had not been included in the first two (2)
purchase documents. This was accomplished by a deed
entitled "Contract of Purchase and Sale," 79 which, like the
Memorandum of Agreement dated October 9, 1973 supra also
bore at the upper right-hand corner of its first page, the
handwritten
notation
of President
Marcos reading,
"APPROVED, July 29, 1973," and underneath it, his usual full
signature. Transferred to BASECO were NASSCO's "ownership
and all its titles, rights and interests over all equipment and
facilities including structures, buildings, shops, quarters,
houses, plants and expendable or semi-expendable assets,
located at the Engineer Island, known as the Engineer Island
Shops, including all the equipment of the Bataan National
Shipyards (BNS) which were excluded from the sale of NBS to
BASECO but retained by BASECO and all other selected
equipment and machineries of NASSCO at J. Panganiban
Smelting Plant." In the same deed, NASSCO committed itself
to cooperate with BASECO for the acquisition from the
National Government or other appropriate Government entity
of Engineer Island. Consideration for the sale was set at
P5,000,000.00; a down payment of P1,000,000.00 appears to
have been made, and the balance was stipulated to be paid at
7% interest per annum in equal semi annual installments over
a term of nine (9) years, to commence after a grace period of
two (2) years. Mr. Arturo Pacificador again signed for NASSCO,
together with the general manager, Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a
loan from the NDC, taken from "the last available Japanese
war damage fund of $19,000,000.00," to pay for "Japanese
made heavy equipment (brand new)." 80 On September 3,
1975, it got another loan also from the NDC in the amount of
P30,000,000.00 (id.). And on January 28, 1976, it got still
another loan, this time from the GSIS, in the sum of
P12,400,000.00. 81 The claim has been made that not a single
centavo has been paid on these loans. 82
18. Reports to President Marcos

14. Subsequent Reduction of Price; Intervention of Marcos

In September, 1977, two (2) reports were submitted to


President Marcos regarding BASECO. The first was contained
in a letter dated September 5, 1977 of Hilario M. Ruiz,
BASECO president. 83 The second was embodied in a
confidential memorandum dated September 16, 1977 of Capt.
A.T. Romualdez. 84 They further disclose the fine hand of
Marcos in the affairs of BASECO, and that of a Romualdez, a
relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz
reported to Marcos that there had been "no orders or
demands for ship construction" for some time and expressed
the fear that if that state of affairs persisted, BASECO would
not be able to pay its debts to the Government, which at the
time stood at the not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to "save the
situation," there be a "spin-off (of their) shipbuilding activities
which shall be handled exclusively by an entirely new
corporation to be created;" and towards this end, he informed
Marcos that BASECO was
*
*
inviting
NDC and LUSTEVECO
to
participate
by
converting
the
NDC
shipbuilding loan to BASECO amounting to
P341.165M and assuming and converting a
portion of BASECO's shipbuilding loans from
REPACOM amounting to P52.2M or a total of
P83.365M as NDC's equity contribution in
the new corporation. LUSTEVECO will
participate by absorbing and converting a
portion of the REPACOM loan of Bay
Shipyard and Drydock, Inc., amounting to
P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted
eleven (11) days later. It opened with the following caption:
MEMORANDUM:

2. By getting their replacements, the


families cannot question us later on; and
3. We will owe no further favors from
them. 87
He also transmitted to Marcos, together with the report, the
following documents: 88
1. Stock certificates indorsed and assigned
in blank with assignments and waivers; 89
2. The articles of incorporation, the
amended articles, and the by-laws of
BASECO;
3. Deed of Sales, wherein NASSCO sold to
BASECO four (4) parcels of land in "Engineer
Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in
the name of BASECO, covering "Engineer
Island";
5. Contract dated October 9, 1973, between
NASSCO and BASECO re-structure and
equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between
NASSCO and BASECO re-structure and
equipment at Engineer Island, Port Area
Manila;
7. Contract dated October 1, 1974, between
EPZA and BASECO re 300 hectares of land
at Mariveles, Bataan;
8. List of BASECO's fixed assets;

FOR : The President

9. Loan Agreement dated September 3,


1975, BASECO's loan from NDC of
P30,000,000.00;

SUBJECT: An Evaluation and Re-assessment


of a Performance of a Mission

10. BASECO-REPACOM
May 27, 1975;

FROM: Capt. A.T. Romualdez.

11. GSIS loan to BASECO dated January 28,


1976 of P12,400,000.00 for the housing
facilities
for
BASECO's
rank-and-file
employees. 90

Like Ruiz, Romualdez wrote that BASECO faced great


difficulties in meeting its loan obligations due chiefly to the
fact that "orders to build ships as expected * * did not
materialize."
He advised that five stockholders had "waived and/or
assigned their holdings inblank," these being: (1) Jose A.
Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw
Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw
Torres * * is already dead and Mr. Jose A. Rojas had a major
heart attack," he made the following quite revealing, and it
may be added, quite cynical and indurate recommendation, to
wit:
* * (that) their replacements (be effected) so
we can register their names in the stock
book prior to the implementation of your
instructions to pass a board resolution to
legalize the transfers under SEC regulations;

Agreement

dated

Capt. Romualdez also recommended that BASECO's loans be


restructured "until such period when BASECO will have
enough orders for ships in order for the company to meet loan
obligations," and that
An LOI may be issued to government
agencies using floating equipment, that a
linkage scheme be applied to a certain
percent of BASECO's net profit as part of
BASECO's amortization payments tomake it
justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to
be a stockholder or officer of BASECO, yet he has presented a
report on BASECO to President Marcos, and his report
demonstrates intimate familiarity with the firm's affairs and
problems.

19. Marcos' Response to Reports


President Marcos lost no time in acting on his subordinates'
recommendations, particularly as regards the "spin-off" and
the "linkage scheme" relative to "BASECO's amortization
payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a
Memorandum to Secretary Geronimo Velasco of the Philippine
National Oil Company and Chairman Constante Farias of the
National Development Company, directing them "to
participate in the formation of a new corporation resulting
from the spin-off of the shipbuilding component of BASECO
along the following guidelines:
a. Equity participation of government shall
be through LUSTEVECO and NDC in the
amount of P115,903,000 consisting of the
following obligations of BASECO which are
hereby authorized to be converted to
equity of the said new corporation, to wit:
1.
NDC
P83,865,000
(P31.165M loan & P52.2M
Reparation)
2.
LUSTEVECO
P32,538,000 (Reparation)
b. Equity participation of government shall
be in the form of non- voting shares.
For immediate compliance.

92

Mr. Marcos' guidelines were promptly complied with by his


subordinates. Twenty-two (22) days after receiving their
president's memorandum, Messrs. Hilario M. Ruiz, Constante
L. Farias and Geronimo Z. Velasco, in representation of their
respective corporations, executed a PRE-INCORPORATION
AGREEMENT dated October 20, 1977. 93 In it, they undertook
to form a shipbuilding corporation to be known as "PHIL-ASIA
SHIPBUILDING CORPORATION," to bring to realization their
president's instructions. It would seem that the new
corporation ultimately formed was actually named "Philippine
Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation
for a letter of instructions. On February 14, 1978, he issued
Letter of Instructions No. 670 addressed to the Reparations
Commission REPACOM the Philippine National Oil Company
(PNOC), the Luzon Stevedoring Company (LUSTEVECO), and
the National Development Company (NDC). What is
commanded therein is summarized by the Solicitor General,
with pithy and not inaccurate observations as to the effects
thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured
by
BASECO
through
reparations
be
transferred
to
NDC
subject
to
reimbursement by NDC to BASECO (of) the
amount of s allegedly representing the
handling and incidental expenses incurred
by BASECO in the installation of said
equipment (so instead of NDC getting paid
on its loan to BASECO, it was made to pay
BASECO
instead
the
amount
of
P18.285M); 2) the shipbuilding equipment

procured from reparations through EPZA,


now in the possession of BASECO and BSDI
(Bay Shipyard & Drydocking, Inc.) be
transferred to LUSTEVECO through PNOC;
and 3) the shipbuilding equipment (thus)
transferred be invested by LUSTEVECO,
acting through PNOC and NDC, as the
government's equity participation in a
shipbuilding corporation to be established in
partnership with the private sector.
xxx xxx xxx
And so, through a simple letter of instruction
and
memorandum,
BASECO's
loan
obligation to NDC and REPACOM * * in the
total amount of P83.365M and BSD's
REPACOM loan of P32.438M were wiped out
and converted into non-voting preferred
shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the
proceedings at bar, the actuality of the control by President
Marcos of BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor
General proves that President Marcos not only exercised
control over BASECO, but also that he actually owns well nigh
one hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April
23, 1986, there were 218,819 shares of stock outstanding,
ostensibly owned by twenty (20) stockholders. 96 Four of these
twenty are juridical persons: (1) Metro Bay Drydock, recorded
as holding 136,370 shares; (2) Fidelity Management,
Inc., 65,882 shares; (3) Trident Management, 7,412 shares;
and (4) United Phil. Lines, 1,240 shares. The first three
corporations, among themselves, own an aggregate of
209,664 shares of BASECO stock, or 95.82% of the
outstanding stock.
Now, the Solicitor General has drawn the Court's attention to
the intriguing circumstance that found in Malacanang shortly
after the sudden flight of President Marcos, were certificates
corresponding to more than ninety-five percent (95%) of all
the outstanding shares of stock of BASECO, endorsed in blank,
together with deeds of assignment of practically all the
outstanding shares of stock of the three (3) corporations
above mentioned (which hold 95.82% of all BASECO stock),
signed by the owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the
custody of the PCGG) were:
1) the deeds of assignment of all 600
outstanding shares of Fidelity Management
Inc. which supposedly owns as aforesaid
65,882 shares of BASECO stock;
2) the deeds of assignment of 2,499,995 of
the 2,500,000 outstanding shares of Metro
Bay Drydock Corporation which allegedly
owns 136,370 shares of BASECO stock;
3) the deeds of assignment of 800
outstanding shares of Trident Management
Co., Inc. which allegedly owns 7,412

shares of BASECO
blank; 98 and

stock,

assigned

in

4)
stock
certificates
corresponding
to 207,725 out of the 218,819 outstanding
shares of BASECO stock; that is, all but 5 %
all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this
asserted fact, assuring this Court that the BASECO
stockholders were still in possession of their respective stock
certificates and had "never endorsed * * them in blank or to
anyone else," 100 that denial is exposed by his own prior and
subsequent recorded statements as a mere gesture of
defiance rather than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted
BASECO's counsel a period of 10 days "to SUBMIT,as
undertaken by him, * * the certificates of stock issued to the
stockholders of * * BASECO as of April 23, 1986, as listed in
Annex 'P' of the petition.' 101 Counsel thereafter moved for
extension; and in his motion dated October 2, 1986, he
declared inter alia that "said certificates of stock are in the
possession of third parties, among whom being the
respondents themselves * * and petitioner is still endeavoring
to secure copies thereof from them." 102 On the same day he
filed another motion praying that he be allowed "to secure
copies of the Certificates of Stock in the name of Metro Bay
Drydock, Inc., and of all other Certificates, of Stock of
petitioner's stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor
General not unreasonably argued that counsel's aforestated
motion to secure copies of the stock certificates "confirms the
fact that stockholders of petitioner corporation are not in
possession of * * (their) certificates of stock," and the reason,
according to him, was "that 95% of said shares * * have been
endorsed in blank and found in Malacaang after the former
President and his family fled the country." To this
manifestation BASECO's counsel replied on November 5,
1986, as already mentioned, Stubbornly insisting that the
firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court
resolved on November 27, 1986 among other things "to
require * * the petitioner * * to deposit upon proper receipt
with Clerk of Court Juanito Ranjo the originals of the stock
certificates alleged to be in its possession or accessible to it,
mentioned and described in Annex 'P' of its petition, (and
other pleadings) * * within ten (10) days from notice." 106 In
a motion filed on December 5, 1986, 107 BASECO's counsel
made the statement, quite surprising in the premises, that "it
will negotiate with the owners (of the BASECO stock in
question) to allow petitioner to borrow from them, if available,
the certificates referred to" but that "it needs a more sufficient
time therefor" (sic). BASECO's counsel however eventually
had to confess inability to produce the originals of the stock
certificates, putting up the feeble excuse that while he had
"requested the stockholders to allow * * (him) to borrow said
certificates, * * some of * * (them) claimed that they had
delivered the certificates to third parties by way of pledge
and/or to secure performance of obligations, while others
allegedly have entrusted them to third parties in view of last
national emergency." 108 He has conveniently omitted, nor
has he offered to give the details of the transactions adverted
to by him, or to explain why he had not impressed on the
supposed stockholders the primordial importance of
convincing this Court of their present custody of the originals
of the stock, or if he had done so, why the stockholders are
unwilling to agree to some sort of arrangement so that the
originals of their certificates might at the very least be
exhibited to the Court. Under the circumstances, the Court
can only conclude that he could not get the originals from the
stockholders for the simple reason that, as the Solicitor

General maintains, said stockholders in truth no longer have


them in their possession, these having already been assigned
in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover
Orders
In the light of the affirmative showing by the Government
that, prima facie at least, the stockholders and directors of
BASECO as of April, 1986 109 were mere "dummies,"
nominees or alter egos of President Marcos; at any rate, that
they are no longer owners of any shares of stock in the
corporation, the conclusion cannot be avoided that said
stockholders and directors have no basis and no standing
whatever to cause the filing and prosecution of the instant
proceeding; and to grant relief to BASECO, as prayed for in
the petition, would in effect be to restore the assets,
properties and business sequestered and taken over by the
PCGG to persons who are "dummies," nominees or alter
egos of the former president.
From the standpoint of the PCGG, the facts herein stated at
some length do indeed show that the private corporation
known as BASECO was "owned or controlled by former
President Ferdinand E. Marcos * * during his administration, *
* through nominees, by taking advantage of * * (his) public
office and/or using * * (his) powers, authority, influence * *,"
and that NASSCO and other property of the government had
been taken over by BASECO; and the situation justified the
sequestration as well as the provisional takeover of the
corporation in the public interest, in accordance with the
terms of Executive Orders No. 1 and 2, pending the filing of
the requisite actions with the Sandiganbayan to cause
divestment of title thereto from Marcos, and its adjudication in
favor of the Republic pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this
assessment of the facts is correct; accordingly, it sustains the
acts of sequestration and takeover by the PCGG as being in
accord with the law, and, in view of what has thus far been set
out in this opinion, pronounces to be without merit the theory
that said acts, and the executive orders pursuant to which
they were done, are fatally defective in not according to the
parties affected prior notice and hearing, or an adequate
remedy to impugn, set aside or otherwise obtain relief
therefrom, or that the PCGG had acted as prosecutor and
judge at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive
orders in question are a bill of attainder. 110 "A bill of
attainder is a legislative act which inflicts punishment without
judicial trial." 111 "Its essence is the substitution of a
legislative for a judicial determination of guilt." 112
In the first place, nothing in the executive orders can be
reasonably construed as a determination or declaration of
guilt. On the contrary, the executive orders, inclusive of
Executive Order No. 14, make it perfectly clear that any
judgment of guilt in the amassing or acquisition of "ill-gotten
wealth" is to be handed down by a judicial tribunal, in this
case,
the Sandiganbayan, upon
complaint
filed
and
prosecuted by the PCGG. In the second place, no punishment
is inflicted by the executive orders, as the merest glance at
their provisions will immediately make apparent. In no sense,
therefore, may the executive orders be regarded as a bill of
attainder.
23. No Violation of Right against Self-Incrimination and
Unreasonable Searches and Seizures

BASECO also contends that its right against self incrimination


and unreasonable searches and seizures had been
transgressed by the Order of April 18, 1986 which required it
"to produce corporate records from 1973 to 1986 under pain
of contempt of the Commission if it fails to do so." The order
was issued upon the authority of Section 3 (e) of Executive
Order No. 1, treating of the PCGG's power to "issue subpoenas
requiring * * the production of such books, papers, contracts,
records, statements of accounts and other documents as may
be material to the investigation conducted by the
Commission, " and paragraph (3), Executive Order No. 2
dealing with its power to "require all persons in the Philippines
holding * * (alleged "ill-gotten") assets or properties, whether
located in the Philippines or abroad, in their names as
nominees, agents or trustees, to make full disclosure of the
same * *." The contention lacks merit.
It is elementary that the right against self-incrimination has no
application to juridical persons.
While an individual may lawfully refuse to
answer incriminating questions unless
protected by an immunity statute, it does
not follow that a corporation, vested with
special privileges and franchises, may
refuse to show its hand when charged with
an abuse ofsuchprivileges * * 113
Relevant jurisprudence
General. 114

is

also

cited

by

the

Solicitor

* * corporations are not entitled to all of the


constitutional protections which private
individuals have. * *They are not at all
within
the
privilege
against
selfincrimination, although this court more than
once has said that the privilege runs very
closely with the 4th Amendment's Search
and Seizure provisions.It is also settled that
an officer of the company cannot refuse to
produce its records in its possession upon
the plea that they will either incriminate him
or may incriminate it." (Oklahoma Press
Publishing Co. v. Walling, 327 U.S. 186;
emphasis, the Solicitor General's).
* * The corporation is a creature of the
state. It is presumed to be incorporated for
the benefit of the public. It received certain
special privileges and franchises, and holds
them subject to the laws of the state and
the limitations of its charter. Its powers are
limited by law. It can make no contract not
authorized by its charter. Its rights to act as
a corporation are only preserved to it so
long as it obeys the laws of its creation.
There is a reserve right in the legislature to
investigate its contracts and find out
whether it has exceeded its powers. It would
be a strange anomaly to hold that a state,
having chartered a corporation to make use
of certain franchises, could not, in the
exercise of sovereignty, inquire how these
franchises had been employed, and whether
they had been abused, and demand the
production of the corporate books and
papers for that purpose. The defense
amounts to this, that an officer of the
corporation which is charged with a criminal
violation of the statute may plead the
criminality of such corporation as a refusal
to produce its books. To state this
proposition is to answer it. While an
individual may lawfully refuse to answer

incriminating questions unless protected by


an immunity statute, it does not follow that
a corporation, vested with special privileges
and franchises may refuse to show its hand
when charged with an abuse of such
privileges. (Wilson v. United States, 55 Law
Ed., 771, 780 [emphasis, the Solicitor
General's])
At any rate, Executive Order No. 14-A, amending Section 4 of
Executive Order No. 14 assures protection to individuals
required to produce evidence before the PCGG against any
possible violation of his right against self-incrimination. It
gives them immunity from prosecution on the basis of
testimony or information he is compelled to present. As
amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with
the order on the basis of his privilege
against self-incrimination; but no testimony
or other information compelled under the
order (or any information directly or
indirectly derived from such testimony, or
other information) may be used against the
witness in any criminal case, except a
prosecution for perjury, giving a false
statement, or otherwise failing to comply
with the order.
The constitutional safeguard against unreasonable searches
and seizures finds no application to the case at bar either.
There has been no search undertaken by any agent or
representative of the PCGG, and of course no seizure on the
occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting
the scope and extent of the powers that may be wielded by
the PCGG with regard to the properties or businesses placed
under sequestration or provisionally taken over. Obviously, it
is not a question to which an answer can be easily given,
much less one which will suffice for every conceivable
situation.
a. PCGG May
Ownership

Not

Exercise

Acts

of

One thing is certain, and should be stated at the outset:


the PCGG cannot exercise acts of dominion over property
sequestered, frozen or provisionally taken over. AS already
earlier stressed with no little insistence, the act of
sequestration; freezing or provisional takeover of property
does not import or bring about a divestment of title over said
property; does not make the PCGG the owner thereof. In
relation to the property sequestered, frozen or provisionally
taken
over,
the PCGG
is
a
conservator,
not
an
owner. Therefore, it can not perform acts of strict ownership;
and this is specially true in the situations contemplated by the
sequestration rules where, unlike cases of receivership, for
example, no court exercises effective supervision or can upon
due application and hearing, grant authority for the
performance of acts of dominion.
Equally evident is that the resort to the provisional remedies
in question should entail the least possible interference with
business operations or activities so that, in the event that the
accusation of the business enterprise being "ill gotten" be not
proven, it may be returned to its rightful owner as far as

possible in the same condition as it was at the time of


sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration
over the property or business sequestered or provisionally
taken over, much like a court-appointed receiver, 115 such as
to bring and defend actions in its own name; receive rents;
collect debts due; pay outstanding debts; and generally do
such other acts and things as may be necessary to fulfill its
mission as conservator and administrator. In this context, it
may in addition enjoin or restrain any actual or threatened
commission of acts by any person or entity that may render
moot and academic, or frustrate or otherwise make ineffectual
its efforts to carry out its task; punish for direct or indirect
contempt in accordance with the Rules of Court; and seek and
secure the assistance of any office, agency or instrumentality
of the government. 116 In the case of sequestered
businesses generally (i.e., going concerns, businesses in
current operation), as in the case of sequestered objects, its
essential role, as already discussed, is that of conservator,
caretaker, "watchdog" or overseer. It is not that of manager,
or innovator, much less an owner.
c. Powers over Business Enterprises Taken
Over by Marcos or Entities or Persons Close
to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by
evidence to have been "taken over by the government of the
Marcos Administration or by entities or persons close to
former President Marcos," 117 the PCGG is given power and
authority, as already adverted to, to "provisionally take (it)
over in the public interest or to prevent * * (its) disposal or
dissipation;" and since the term is obviously employed in
reference to going concerns, or business enterprises in
operation, something more than mere physical custody is
connoted; the PCGG may in this case exercise some measure
of control in the operation, running, or management of the
business itself. But even in this special situation, the intrusion
into management should be restricted to the minimum degree
necessary to accomplish the legislative will, which is "to
prevent the disposal or dissipation" of the business enterprise.
There should be no hasty, indiscriminate, unreasoned
replacement or substitution of management officials or
change of policies, particularly in respect of viable
establishments. In fact, such a replacement or substitution
should be avoided if at all possible, and undertaken only when
justified by demonstrably tenable grounds and in line with the
stated objectives of the PCGG. And it goes without saying that
where replacement of management officers may be called for,
the greatest prudence, circumspection, care and attention should accompany that undertaking to the end that truly
competent, experienced and honest managers may be
recruited. There should be no role to be played in this area by
rank amateurs, no matter how wen meaning. The road to hell,
it has been said, is paved with good intentions. The business
is not to be experimented or played around with, not run into
the ground, not driven to bankruptcy, not fleeced, not ruined.
Sight should never be lost sight of the ultimate objective of
the whole exercise, which is to turn over the business to the
Republic, once judicially established to be "ill-gotten." Reason
dictates that it is only under these conditions and
circumstances that the supervision, administration and control
of business enterprises provisionally taken over may
legitimately be exercised.
d. Voting of Sequestered Stock; Conditions
Therefor
So, too, it is within the parameters of these conditions and
circumstances that the PCGG may properly exercise the
prerogative to vote sequestered stock of corporations,

granted to it by the President of the Philippines through a


Memorandum dated June 26, 1986. That Memorandum
authorizes the PCGG, "pending the outcome of proceedings to
determine the ownership of * * (sequestered) shares of stock,"
"to vote such shares of stock as it may have sequestered in
corporations at all stockholders' meetings called for the
election of directors, declaration of dividends, amendment of
the Articles of Incorporation, etc." The Memorandum should
be construed in such a manner as to be consistent with, and
not contradictory of the Executive Orders earlier promulgated
on the same matter. There should be no exercise of the right
to vote simply because the right exists, or because the stocks
sequestered constitute the controlling or a substantial part of
the corporate voting power. The stock is not to be voted to
replace directors, or revise the articles or by-laws, or
otherwise bring about substantial changes in policy, program
or practice of the corporation except for demonstrably
weighty and defensible grounds, and always in the context of
the stated purposes of sequestration or provisional takeover,
i.e., to prevent the dispersion or undue disposal of the
corporate assets. Directors are not to be voted out simply
because the power to do so exists. Substitution of directors is
not to be done without reason or rhyme, should indeed be
shunned if at an possible, and undertaken only when essential
to prevent disappearance or wastage of corporate property,
and always under such circumstances as assure that the
replacements are truly possessed of competence, experience
and probity.
In the case at bar, there was adequate justification to vote the
incumbent directors out of office and elect others in their
stead because the evidence showed prima facie that the
former were just tools of President Marcos and were no longer
owners of any stock in the firm, if they ever were at all. This is
why, in its Resolution of October 28, 1986;118 this Court
declared that
Petitioner has failed to make out a case of
grave abuse or excess of jurisdiction in
respondents' calling and holding of a
stockholders' meeting for the election of
directors as authorized by the Memorandum
of the President * * (to the PCGG) dated June
26, 1986, particularly, where as in this case,
the government can, through its designated
directors, properly exercise control and
management over what appear to be
properties and assets owned and belonging
to the government itself and over which the
persons who appear in this case on behalf of
BASECO have failed to show any right or
even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG
nominees in the BASECO Board in the management of the
company's affairs should henceforth be guided and governed
by the norms herein laid down. They should never for a
moment allow themselves to forget that they are
conservators, not owners of the business; they are fiduciaries,
trustees, of whom the highest degree of diligence and
rectitude is, in the premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e.,
the cancellation or revision, and the execution of certain
contracts, inclusive of the termination of the employment of
some of its executives, 119 this Court cannot, in the present
state of the evidence on record, pass upon them. It is not
necessary to do so. The issues arising therefrom may and will
be left for initial determination in the appropriate action. But
the Court will state that absent any showing of any important
cause therefor, it will not normally substitute its judgment for
that of the PCGG in these individual transactions. It is clear

however, that as things now stand, the petitioner cannot be


said to have established the correctness of its submission that
the acts of the PCGG in question were done without or in
excess of its powers, or with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary
restraining order issued on October 14, 1986 is lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

Separate Opinions

TEEHANKEE, CJ., concurring:


I fully concur with the masterly opinion of Mr. Justice Narvasa.
In the process of disposing of the issues raised by petitioner
BASECO in the case at bar, it comprehensively discusses the
laws and principles governing the Presidential Commission on
Good Government (PCGG) and defines the scope and extent
of its powers in the discharge of its monumental task of
recovering the "ill-gotten wealth, accumulated by former
President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, whether located in the
Philippines or abroad (and) business enterprises and entities
owned or controlled by them during I . . .(the Marcos)
administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers,
authority, influence, connections or relationship." 1
The Court is unanimous insofar as the judgment at bar
upholds the imperative need of recovering the ill-gotten
properties amassed by the previous regime, which "deserves
the fullest support of the judiciary and all sectors of
society." 2 To quote the pungent language of Mr. Justice Cruz,
"(T)here is no question that all lawful efforts should be taken
to recover the tremendous wealth plundered from the people
by the past regime in the most execrable thievery perpetrated
in all history. No right-thinking Filipino can quarrel with this
necessary objective, and on this score I am happy to concur
with the ponencia." 3
The Court is likewise unanimous in its judgment dismissing
the petition to declare unconstitutional and void Executive
Orders Nos. 1 and 2 to annul the sequestration order of April
14, 1986. For indeed, the 1987 Constitution overwhelmingly
adopted by the people at the February 2, 1987 plebiscite
expressly recognized in Article XVIII, section 26 thereof 4 the
vital functions of respondent PCGG to achieve the mandate of
the people to recover such ill-gotten wealth and properties as
ordained by Proclamation No. 3 promulgated on March 25,
1986.
The Court is likewise unanimous as to the general rule set
forth in the main opinion that "the PCGG cannot exercise acts
of dominion over property sequestered, frozen or provisionally
taken over" and "(T)he PCGG may thus exercise only powers
of administration over the property or business sequestered
or provisionally taken over, much like a court-appointed
receiver, such as to bring and defend actions in its own name;
receive rents; collect debts due; pay outstanding debts; and
generally do such other acts and things as may be necessary
to fulfill its mission as conservator and administrator. In this
context, it may in addition enjoin or restrain any actual or
threatened commission of acts by any person or entity that
may render moot and academic, or frustrate or otherwise

make ineffectual its efforts to carry out its task; punish for
direct or indirect contempt in accordance with the Rules of
Court; and seek and secure the assistance of any office,
agency or instrumentality of the government. In the case of
sequestered businesses generally (i.e. going concerns,
business in current operation), as in the case of sequestered
objects, its essential role, as already discussed, is that of
conservator, caretaker, 'watchdog' or overseer. It is not that of
manager, or innovator, much less an owner." 5
Now, the case at bar involves one where the third and most
encompassing
and
rarely
invoked
of
provisional
remedies, 6 the provisional takeover of the Baseco properties
and business operations has been availed of by the PCGG,
simply because the evidence on hand, not only prima
facie but convincingly with substantial and documentary
evidence of record establishes that the corporation known as
petitioner BASECO "was owned or controlled by President
Marcos 'during his administration, through nominees, by
taking undue advantage of his public office and/or using his
powers, authority, or influence;' and that it was by and
through the same means, that BASECO had taken over the
business and/or assets of the [government-owned] National
Shipyard and Engineering Co., Inc., and other governmentowned or controlled entities." The documentary evidence
shows that petitioner BASECO (read Ferdinand E. Marcos) in
successive transactions all directed and approved by the
former President-in an orgy of what according to the PCGG's
then chairman, Jovito Salonga, in his statement before the
1986 Constitutional Commission, "Mr. Ople once called
'organized pillage' "-gobbled up the government corporation
National Shipyard & Steel Corporation NASSCO its shipyard at
Mariveles, 300 hectares of land in Mariveles from the Export
Processing Zone Authority, Engineer Island itself in Manila and
its complex of equipment and facilities including structures,
buildings, shops, quarters, houses, plants and expendable or
semi-expendable assets and obtained huge loans of
$19,000,000.00 from the last available Japanese war damage
fund, P30,000,000.00 from the NDC and P12,400,000.00 from
the GSIS. The sordid details are set forth in detail in
Paragraphs 1 1 to 20 of the main opinion. They include
confidential reports from then BASECO president Hilario M.
Ruiz and the deposed President's brother-in- law, then Captain
(later Commodore) Alfredo Romualdez, who although not on
record as an officer or stockholder of BASECO reported
directly to the deposed President on its affairs and made the
recommendations, all approved by the latter, for the gobbling
up by BASECO of all the choice government assets and
properties.
All this evidence has been placed of record in the case at bar.
And petitioner has had all the time and opportunity to refute
it, submittals to the contrary notwithstanding, but has
dismally failed to do so. To cite one glaring instance: as stated
in the main opinion, the evidence submitted to this Court by
the Solicitor General "proves that President Marcos not only
exercised control over BASECO, but also that he actually owns
well nigh one hundred percent of its outstanding stock." It
cites the fact that three corporations, evidently front or
dummy corporations, among twenty shareholders, in name, of
BASECO, namely Metro Bay Drydock, Fidelity Management,
Inc. and Trident Management hold 209,664 shares or 95.82%,
of BASECO's outstanding stock. Now, the Solicitor General
points out further than BASECO certificates "corresponding to
more than ninety-five percent (95%) of all the outstanding
shares of stock of BASECO, endorsed in blank, together with
deeds of assignment of practically all the outstanding shares
of stock of the three (3) corporations above mentioned (which
hold 95.82% of all BASECO stock), signed by the owners
thereof although not notarized" 7 were found in Malacaang
shortly after the deposed President's sudden flight from the
country on the night of February 25, 1986. Thus, the main
opinion's unavoidable conclusion that "(W)hile the petitioner's
counsel was quick to dispute this asserted fact, assuring this
Court that the BASECO stockholders were still in possession of
their respective stock certificates and had 'never endorsed * *

* them in blank or to anyone else,' that denial is exposed by


his own prior and subsequent recorded statements as a mere
gesture of defiance rattler than a verifiable factual declaration
. . . . Under the circumstances, the Court can only conclude
that he could not get the originals from the stockholders for
the simple reason that as the Solicitor General maintains, said
stockholders in truth no longer have them in their possession,
these having already been assigned in blank to President
Marcos." 8
With this strong unrebutted evidence of record in this Court,
Justice Melencio-Herrera, joined by Justice Feliciano, expressly
concurs with the main opinion upholding the commission's
take-over, stating that "(I) have no objection to according the
right to vote sequestered stock in case of a takeover of
business actually belonging to the government or whose
capitalization comes from public funds but which, somehow,
landed in the hands of private persons, as in the case of
BASECO." They merely qualify their concurrence with the
injunction that such takeovers be exercised with "caution and
prudence" pending the determination of "the true and real
ownership" of the sequestered shares. Suffice it to say in this
regard that each case has to be judged from the pertinent
facts and circumstances and that the main opinion
emphasizes sufficiently that it is only in the special instances
specified in the governing laws grounded on the superior
national interest and welfare and the practical necessity of
preserving the property and preventing its loss or disposition
that the provisional remedy of provisional take-over is
exercised.
Here, according to the dissenting opinion, "the PCGG
concludes that sequestered property is ill-gotten wealth and
proceeds to exercise acts of ownership over said
properties . . . . and adds that "the fact of ownership must be
established in a proper suit before a court of justice"-which
this Court has preempted with its finding that "in the context
of the proceedings at bar, the actuality of the control by
President Marcos of BASECO has been sufficiently shown."
But BASECO who has instituted this action to set aside the
sequestration and take-over orders of respondent commission
has chosen to raise these very issues in this Court. We cannot
ostrich-like hide our head in the sand and say that it has not
yet been established in the proper court that what the PCGG
has taken over here aregovernment properties, as a matter of
record and public notice and knowledge, like the NASSCO, its
Engineer Island and Mariveles Shipyard and entire complex,
which have been pillaged and placed in the name of the
dummy or front company named BASECO but from all the
documentary evidence of record shown by its street
certificates all found in Malacanang should in reality read
"Ferdinand E. Marcos" and/or his brother-in-law. Such takeover can in no way be termed "lawless usurpation," for the
government does not commit any act of usurpation in taking
over its own properties that have been channeled to
dummies, who are called upon to prove in the proper court
action what they have failed to do in this Court, that they
have lawfully acquired ownership of said properties, contrary
to the documentary evidence of record, which they must
likewise explain away. This Court, in the exercise of its
jurisdiction on certiorari and as the guardian of the
Constitution and protector of the people's basic constitutional
rights, has entertained many petitions on the part of parties
claiming to be adversely affected by sequestration and other
orders of the PCGG, This Court set the criterion that such
orders should issue only upon showing of a prima facie case,
which criterion was adopted in the 1987 Constitution. The
Court's judgment cannot be faulted if much more than
a prima facie has been shown in this case, which the faceless
figures claiming to represent BASECO have failed to refute or
disprove despite all the opportunity to do so.
The record plainly shows that petitioner BASECO which is but
a mere shell to mask its real owner did not and could not

explain how and why they received such favored and


preferred treatment with tailored Letters of Instruction and
handwritten personal approval of the deposed President that
handed it on a silver platter the whole complex and properties
of NASSCO and Engineer Island and the Mariveles Shipyard.
It certainly would be the height of absurdity and helplessness
if this government could not here and now take over the
possession and custody of its very own properties and
assets that had been stolen from it and which it had pledged
to recover for the benefit and in the greater interest of the
Filipino people, whom the past regime had saddled with a
huge $27-billion foreign debt that has since ballooned to
$28.5-billion.
Thus, the main opinion correctly concludes that "(I)n the light
of the affirmative showing by the Government that,prima
facie at least, the stockholders and directors of BASECO as of
April, 1986 were mere 'dummies,' nominees or alter egos of
President Marcos; at any rate, that they are no longer owners
of any shares of stock in the corporation, the conclusion
cannot be avoided that said stockholders and directors have
no basis and no standing whatever to cause the filing and
prosecution of the instant proceeding; and to grant relief to
BASECO, as prayed for in the petition, would in effect be to
restore the assets, properties and business sequestered and
taken over by the PCGG to persons who are 'dummies'
nominees or alter egos of the former President." 9
And Justice Padilla in his separate concurrence "called a spade
a spade," citing the street certificates representing 95 % of
BASECO's outstanding stock found in Malacaang after Mr.
Marcos' hasty flight in February, 1986 and the extent of the
control he exercised over policy decisions affecting BASECO
and concluding that "Consequently, even ahead of judicial
proceedings, I am convinced that the Republic of the
Philippines, thru the PCGG, has the right and even the duty to
take over full control and supervision of BASECO."
Indeed, the provisional remedies available to respondent
commission are rooted in the police power of the State, the
most pervasive and the least limitable of the powers of
Government since it represents "the power of sovereignty, the
power to govern men and things within the limits of its
domain." 10 Police power has been defined as the power
inherent in the State "to prescribe regulations to promote the
health, morals, education, good order or safety, and general
welfare of the people." 11 Police power rests upon public
necessity and upon the right of the State and of the public to
self-protection. 12 "Salus populi suprema est lex" or "the
welfare of the people is the Supreme Law." 13 For this reason,
it is co-extensive with the necessities of the case and the
safeguards of public interest. 14 Its scope expands and
contracts with changing needs. 15 "It may be said in a
general way that the police power extends to all the great
public needs. It may be put forth in aid of what is sanctioned
by usage, or held by the prevailing morality or strong and
preponderant opinion to be greatly and immediately
necessary to the public welfare." 16 That the public interest
or the general welfare is subserved by sequestering the
purported ill-gotten assets and properties and taking over
stolen properties of the government channeled to dummy or
front companies is stating the obvious. The recovery of these
ill-gotten assets and properties would greatly aid our
financially crippled government and hasten our national
economic recovery, not to mention the fact that they rightfully
belong to the people. While as a measure of self-protection, if,
in the interest of general welfare, police power may be
exercised to protect citizens and their businesses in financial
and economic matters, it may similarly be exercised to protect
the government itself against potential financial loss and the
possible disruption of governmental functions. 17 Police
power as the power of self-protection on the part of the
community bears the same relation to the community that the
principle of self-defense bears to the individual. 18 Truly, it

may be said that even more than self- defense, the recovery
of ill-gotten wealth and of the government's own properties
involves the material and moral survival of the nation, marked
as the past regime was by the obliteration of any line between
private funds and the public treasury and abuse of unlimited
power and elimination of any accountability in public office, as
the evidence of record amply shows.
It should be
President's
fortuitously
certificates
country last

mentioned that the tracking down of the deposed


actual ownership of the BASECO shares was
facilitated by the recovery of the street
in Malacaang after his hasty flight from the
year. This is not generally the case.

For example, in the ongoing case filed by the government to


recover from the Marcoses valuable real estate holdings in
New York and the Lindenmere estate in Long Island, former
PCGG chairman Jovito Salonga has revealed that their names
"do not appear on any title to the property. Every building in
New York is titled in the name of a Netherlands Antilles
corporation, which in turn is purportedly owned by three
Panamanian corporations, with bearer shares. This means that
the shares of this corporation can change hands any time,
since they can be transferred, under the law of Panama,
without previous registration on the books of the corporation.
One of the first documents that we discovered shortly after
the February revolution was a declaration of trust handwritten
by Mr. Joseph Bernstein on April 4, 1982 on a Manila Peninsula
Hotel stationery stating that he would act as a trustee for the
benefit of President Ferdinand Marcos and would act solely
pursuant to the instructions of Marcos with respect to the
Crown Building in New York." 19
This is just to stress the difficulties of the tasks confronting
respondent
PCGG, which
nevertheless
has
so
far
commendably produced unprecedented positive results. As
stated by then chairman Salonga:
PCGG has turned over to the Office of the
President around 2 billion pesos in cash, free
of any lien. It has also delivered to the
President-as a result of a compromise
settlement-around 200 land titles involving
vast tracks of land in Metro Manila, Rizal,
Laguna, Cavite, and Bataan, worth several
billion pesos. These lands are now available
for low-cost housing projects for the benefit
of the poor and the dispossessed amongst
our people.
In the legal custody of the Commission as a
result of sequestration proceedings, are
expensive jewelry amounting to 310 million
pesos, 42 aircraft amounting to 718 million
pesos, vessels amounting to 748 million
pesos, and shares of stock amounting to
around 215 million pesos.
But, as I said, the bulk of the ill-gotten
wealth is located abroad, not in the
Philippines. Through the efforts of the PCGG,
we
have
caused
the
freezing
or
sequestration of properties, deposits, and
securities probably worth many billions of
pesos in New York, New Jersey, Hawaii,
California,
and
more
importantly-in
Switzerland. Due to favorable developments
in Switzerland, we may expect, according to
our Swiss lawyers, the first deliveries of the
Swiss deposits in the foreseeable future,
perhaps in less than a year's time. In New
York, PCGG through its lawyers who render
their services free of cost to the Philippine
government, succeeded in getting injunctive

relief against Mr. and Mrs. Marcos and their


nominees and agents. There is now an offer
for settlement that is being studied and
explored by our lawyers there.
If we succeed in recovering not an (since
this is impossible) but a substantial part of
the ill-gotten wealth here and in various
countries of the world something the
revolutionary
governments
of
China,
Ethiopia, Iran and Nicaragua were not able
to accomplish at all with respect to
properties
outside
their
territorial
boundaries the Presidential Commission
on Good Government, which has undertaken
the difficult and thankless task of trying to
undo what had been done so secretly and
effectively in the last twenty years, shall
have more than justified its existence. 20
The misdeeds of some PCGG volunteers and personnel cited
in the dissenting opinion do not detract at an from the PCGG's
accomplishments, just as no one would do away with
newspapers because of some undesirable elements. The point
is that all such misdeeds have been subject to public exposure
and as stated in the dissent itself, the erring PCGG
representatives have been forthwith dismissed and replaced.
The magnitude of the tasks that confront respondent PCGG
with its limited resources and staff support and volunteers
should be appreciated, together with the assistance that
foreign governments and lawyers have spontaneously given
the commission.
A word about the PCGG's firing of the BASECO lawyers who
filed the present petition challenging its questioned orders,
filing a motion to withdraw the petition, after it had put in
eight of its representatives as directors of the BASECO board
of directors. This was entirely proper and in accordance with
the Court's Resolution of October 28, 1986, which denied
BASECO's motion for the issuance of a restraining order
against such take-over and declared that "the government
can, through its designated directors, properly exercise
control and management over what appear to be properties
and assets owned and belonging to the government itself and
over which the persons who appear in this case on behalf of
BASECO have failed to show any eight or even any
shareholding in said corporation." In other words, these
dummies or fronts cannot seek to question the government's
right to recover the very properties and assets that have been
stolen from it by using the very same stolen properties and
funds derived therefrom. If they wish to pursue their own
empty claim, they must do it on their own, after first
establishing that they indeed have a lawful right and/or
shareholding in BASECO.
Under the 1987 Constitution, the PCGG is called upon to file
the judicial proceedings for forfeiture and recovery of the
sequestered or frozen properties covered by its orders issued
before the ratification of the Constitution on February 2, 1987,
within six months from such ratification, or by August 2, 1987.
(For those orders issued after such ratification, the judicial
action or proceeding must be commenced within six months
from the issuance thereof.) The PCGG has not really been
given much time, considering the magnitude of its tasks. It is
entitled to some forbearance, in availing of the maximum
time granted it for the filing of the corresponding judicial
action with the Sandiganbayan.
PADILLA, J., concurring:
The majority opinion penned by Mr. Justice Narvasa maintains
and upholds the valid distinction between acts of conservation

and preservation of assets and acts of ownership.


Sequestration, freeze and temporary take-over encompass
the first type of acts. They do not include the second type of
acts which are reserved only to the rightful owner of the
assets or business sequestered or temporarily taken over.
The removal and election of members of the board of
directors of a corporate enterprise is, to me, a clear act of
ownership on the part of the shareholders of the corporation.
Under ordinary circumstances, I would deny the PCGG the
authority to change and elect the members of BASECO's
Board of Directors. However, under the facts as disclosed by
the records, it appears that the certificates of stock
representing about ninety-five (95%) per cent of the total
ownership in BASECO's capital stock were found endorsed in
blank in Malacanang (presumably in the possession and
control of Mr. Marcos) at the time he and his family fled in
February 1986. This circumstance let alone the extent of the
control Mr. Marcos exercised, while in power, over policy
decisions affecting BASECO, entirely satisfies my mind that
BASECO was owned and controlled by Mr. Marcos. This is
calling a spade a spade. I am also entirely satisfied in my
mind that Mr. Marcos could not have acquired the ownership
of BASECO out of his lawfully-gotten wealth.
Consequently, even ahead of judicial proceedings, I am
convinced that the Republic of the Philippines, through the
PCGG, has the right and even the duty to take-over full control
and supervision of BASECO.
MELENCIO-HERRERA, J., concurring:
I would like to qualify my concurrence in so far as the voting
of sequestered stork is concerned.
The voting of sequestered stock is, to my mind, an exercise of
an attribute of ownership. It goes beyond the purpose of a
writ of sequestration, which is essentially to preserve the
property in litigation (Article 2005, Civil Code). Sequestration
is in the nature of a judicial deposit (ibid.).
I have no objection to according the right to vote sequestered
stock in case of a take-over of business actually belonging to
the government or whose capitalization comes from public
funds but which, somehow, landed in the hands of private
persons, as in the case of BASECO. To my mind, however,
caution and prudence should be exercised in the case of
sequestered shares of an on-going private business
enterprise, specially the sensitive ones, since the true and
real ownership of said shares is yet to be determined and
proven more conclusively by the Courts.
It would be more in keeping with legal norms if forfeiture
proceedings provided for under Republic Act No. 1379 be filed
in Court and the PCGG seek judicial appointment as a receiver
or administrator, in which case, it would be empowered to
vote sequestered shares under its custody (Section 55,
Corporation Code). Thereby, the assets in litigation are
brought within the Court's jurisdiction and the presence of an
impartial Judge, as a requisite of due process, is assured. For,
even in its historical context, sequestration is a judicial matter
that is best handled by the Courts.
I consider it imperative that sequestration measures be
buttressed by judicial proceedings the soonest possible in
order to settle the matter of ownership of sequestered shares
and to determine whether or not they are legally owned by
the stockholders of record or are "ill-gotten wealth" subject to
forfeiture in favor of the State. Sequestration alone, being
actually an ancillary remedy to a principal action, should not
be made the basis for the exercise of acts of dominion for an
indefinite period of time.

Sequestration is an extraordinary, harsh, and severe remedy.


It should be confined to its lawful parameters and exercised,
with due regard, in the words of its enabling laws, to the
requirements of fairness, due process (Executive Order No.
14, palay 7, 1986), and Justice (Executive Order No. 2, March
12, 1986).
Feliciano, J., concur.

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


I concur, in part, in the erudite opinion penned for the Court
by my distinguished colleague Mr. Justice Andres R. Narvasa. I
agree insofar as it states the principles which must govern
PCGG sequestrations and emphasizes the limitations in the
exercise of its broad grant of powers.
I concur in the general propositions embodied in or implied
from the majority opinion, among them:
(1) The efforts of Government to recover ill-gotten properties
amassed by the previous regime deserve the fullest support
of the judiciary and all sectors of society. I believe, however,
that a nation professing adherence to the rule of law and
fealty to democratic processes must adopt ways and means
which are always within the bounds of lawfully granted
authority and which meet the tests of due process and other
Bill of Rights protections.
(2) Sequestration is intended to prevent the destruction,
concealment, or dissipation of ill-gotten wealth. The object is
conservation and preservation. Any exercise of power beyond
these objectives is lawless usurpation.
(3) The PCGG exercises only such powers as are granted by
law and not proscribed by the Constitution. The remedies it
enforces are provisional and contingent. Whether or not
sequestered property is indeed ill-gotten must be-determined
by a court of justice. The PCGG has absolutely no power to
divest title over sequestered property or to act as if its
findings are final.
(4) The PCGG does not own sequestered property. It cannot
and must not exercise acts of ownership. To quote the
majority opinion, "one thing is certain ..., the PCGG cannot
exercise acts of dominion."
(5) The provisional takeover in a sequestration should not be
indefinitely maintained. It is the duty of the PCGG to
immediately file appropriate criminal or civil cases once the
evidence has been gathered.
It is the difference between what the Court says and what the
PCGG does which constrains me to dissent. Even as the Court
emphasizes principles of due process and fair play, it has
unfortunately validated ultra vires acts violative of those very
same principles. While we stress the rules which must govern
the PCGG in the exercise of its powers, the Court has failed to
stop or check acts which go beyond the power of
sequestration given by law to the PCGG.
We are all agreed in the Court that the PCGG is not a judge. It
is an investigator and prosecutor. Sequestration is only a
preliminary or ancillary remedy. There must be a principal and
independent suit filed in court to establish the true ownership
of sequestered properties. The factual premise that a
sequestered property was ill-gotten by former President
Marcos, his family, relatives, subordinates, and close

associates cannot be assumed. The fact of ownership must be


established in a proper suit before a court of justice.
But what has the Court, in effect, ruled?
Pages 21 to 33 of the majority opinion are dedicated to a
statement of facts which conclusively and indubitably
shows that BASECO is owned by President Marcos-and that it
was acquired and vastly enlarged by the former President's
taking undue advantage of his public office and using his
powers, authority, or influence.
There has been no court hearing, no trial, and no presentation
of evidence. All that we have is what the PCGG has given us.
The petitioner has not even been allowed to see the evidence,
much less refute it.
What the PCGG has gathered in the course of its seizures and
investigations may be gospel truth. However, that truth must
be properly established in a trial court, not unilaterally
determined by the PCGG or declared by this Court in a special
proceeding which only asks us to set aside or enjoin an illegal
exercise of power. After this decision, there is nothing more for
a trial court to ascertain. Certainly, no lower court would dare
to arrive at findings contrary to this Court's conclusions, no
matter how insistent we may be in labelling such conclusions
as "prima facie." To me, this is the basic flaw in PCGG
procedures that the Court is, today, unwittingly legitimating.
Even before the institution of a court case, the PCGG
concludes that sequestered property is ill-gotten wealth and
proceeds to exercise acts of ownership over said properties. It
treats sequestered property as its own even before the
oppositor-owners have been divested of their titles.
The Court declares that a state of seizure is not to be
indefinitely maintained. This means that court proceedings to
either forfeit the sequestered properties or clear the names
and titles of the petitioners must be filed as soon as possible.
This case is a good example of disregard or avoidance of this
requirement. With the kind of evidence which the PCGG
professes to possess, the forfeiture case could have been filed
simultaneously with the issuance of sequestration orders or
shortly thereafter.
And yet, the records show that the PCGG appears to
concentrate more on the means rather than the ends, in
running the BASECO, taking over the board of directors and
management, getting rid of security guards, disposing of
scrap, entering into new contracts and otherwise behaving as
if it were already the owner. At this late date and with all the
evidence PCGG claims to have, no court case has been filed.
Among the interesting items elicited during the
arguments or found in the records of this petition are:

oral

(1) Upon sequestering BASECO, some PCGG personnel lost no


time in digging up paved premises with jack hammers in a
frantic search for buried gold bars.
(2) Two top PCGG volunteers charged each other with stealing
properties under their custody. The PCGG had to step in,
dismiss the erring representatives, and replace them with new
ones.
(3) The petitioner claims that the lower bid of a rock quarry
operator was accepted even as a higher and more favorable
bid was offered. When the questionable deal was brought to
our attention, the awardee allegedly raised his bid to the level
of the better offer. The successful bidder later submitted a
comment in intervention explaining his side. Whoever is

telling the truth, the fact remains that multi-million peso


contracts involving the operations of sequestered companies
should be entered into under the supervision of a court, not
freely executed by the PCGG even when the petitioner-owners
question the propriety and integrity of those transactions.
(4) The PCGG replaced eight out of eleven members of the
BASECO board of directors with its own men. Upon taking over
full control of the corporation, the newly installed board
reversed the efforts of the former owners to protect their
interests. The new board fired the BASECO lawyers who
instituted the instant petition. It then filed a motion to
withdraw this very same petition we are now deciding. In
other words, the "new owners" did not want the Supreme
Court to continue poking into the legality of their acts. They
moved to abort the petition filed with us.
Any suspicion of impropriety would have been avoided if the
PCGG had filed the required court proceedings and exercised
its acts of management and control under court supervision.
The requirements of due process would have been met.
One other matter I wish to discuss in this separate opinion is
PCGG's selection of eight out of the eleven members of the
BASECO board of directors.
The election of the members of a board of directors is
distinctly and unqualifiedly an act of ownership. When
stockholders of a corporation elect or remove members of a
board of directors, they exercise their right of ownership in the
company they own, By no stretch of the imagination can the
revamp of a board of directors be considered as a mere act of
conserving assets or preventing the dissipation of
sequestered assets. The broad powers of a sequestrator are
more than enough to protect sequestered assets. There is no
need and no legal basis to reach out further and exercise
ultimate acts of ownership.
Under the powers which PCGG has assumed and wields, it can
amend the articles and by-laws of a sequestered corporation,
decrease the capital stock, or sell substantially all corporate
assets without any effective check from the owners not yet
divested of their titles or from a court of justice. The PCGG is
tasked to preserve assets but when it exercises the acts of an
owner, it could also very well destroy. I hope that the case of
the Philippine Daily Express, a major newspaper closed by the
PCGG,
is
an
isolated
example.
Otherwise,
banks,
merchandizing firms, investment institutions, and other
sensitive businesses will find themselves in a similar
quandary.
I join the PCGG and all right thinking Filipinos in condemning
the totalitarian acts which made possible the accumulation of
ill-gotten wealth. I, however, dissent when authoritarian
and ultra vires methods are used to recover that stolen
wealth. One wrong cannot be corrected by the employment of
another wrong.
I, therefore, vote to grant the petition. Pending the filing of an
appropriate case in court, the PCGG must be enjoined from
exercising any and all acts of ownership over the sequestered
firm.
Bidin and Cortes, JJ., concur and dissent.

CRUZ, J., dissenting:


My brother Narvasa has written a truly outstanding decision
that bespeaks a penetrating and analytical mind and a

masterly grasp of the serious problem we are asked to


resolve. He deserves and I offer him my sincere admiration.
There is no question that all lawful efforts should be taken to
recover the tremendous wealth plundered from the people by
the past regime in the most execrable thievery perpetrated in
all history. No right-thinking Filipino can quarrel with this
necessary objective, and on this score I am happy to concur
with the ponencia.
But for all my full agreement with the basic thesis of the
majority, I regret I find myself unable to support its
conclusions in favor Of the respondent PCGG. My view is that
these conclusions clash with the implacable principles of the
free society. foremost among which is due process. This
demands our reverent regard.
Due process protects the life, liberty and property of every
person, whoever he may be. Even the most despicable
criminal is entitled to this protection. Granting this distinction
to Marcos, we are still not justified in depriving him of this
guaranty on the mere justification that he appears to own the
BASECO shares.
I am convinced and so submit that the PCGG cannot at this
time take over the BASECO without any court order and
exercise thereover acts of ownership without court
supervision. Voting the shares is an act of ownership.
Reorganizing the board of directors is an act of ownership.
Such acts are clearly unauthorized. As the majority opinion
itself stresses, the PCGG is merely an administrator whose
authority is limited to preventing the sequestered properties
from being dissipated or clandestinely transferred.
The court action prescribed in the Constitution is not
inadequate and is available to the PCGG. The advantage of
this remedy is that, unlike the ad libitum measures now being
take it is authorized and at the same time also limitedby the
fundamental law. I see no reason why it should not now be
employed by the PCGG, to remove all doubts regarding the
legality of its acts and all suspicions concerning its motives.

Separate Opinions
TEEHANKEE, CJ., concurring:
I fully concur with the masterly opinion of Mr. Justice Narvasa.
In the process of disposing of the issues raised by petitioner
BASECO in the case at bar, it comprehensively discusses the
laws and principles governing the Presidential Commission on
Good Government (PCGG) and defines the scope and extent
of its powers in the discharge of its monumental task of
recovering the "ill-gotten wealth, accumulated by former
President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, whether located in the
Philippines or abroad (and) business enterprises and entities
owned or controlled by them during I . . .(the Marcos)
administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers,
authority, influence, connections or relationship." 1
The Court is unanimous insofar as the judgment at bar
upholds the imperative need of recovering the ill-gotten
properties amassed by the previous regime, which "deserves
the fullest support of the judiciary and all sectors of
society." 2 To quote the pungent language of Mr. Justice Cruz,
"(T)here is no question that all lawful efforts should be taken

to recover the tremendous wealth plundered from the people


by the past regime in the most execrable thievery perpetrated
in all history. No right-thinking Filipino can quarrel with this
necessary objective, and on this score I am happy to concur
with the ponencia." 3
The Court is likewise unanimous in its judgment dismissing
the petition to declare unconstitutional and void Executive
Orders Nos. 1 and 2 to annul the sequestration order of April
14, 1986. For indeed, the 1987 Constitution overwhelmingly
adopted by the people at the February 2, 1987 plebiscite
expressly recognized in Article XVIII, section 26 thereof 4 the
vital functions of respondent PCGG to achieve the mandate of
the people to recover such ill-gotten wealth and properties as
ordained by Proclamation No. 3 promulgated on March 25,
1986.
The Court is likewise unanimous as to the general rule set
forth in the main opinion that "the PCGG cannot exercise acts
of dominion over property sequestered, frozen or provisionally
taken over" and "(T)he PCGG may thus exercise only powers
of administration over the property or business sequestered
or provisionally taken over, much like a court-appointed
receiver, such as to bring and defend actions in its own name;
receive rents; collect debts due; pay outstanding debts; and
generally do such other acts and things as may be necessary
to fulfill its mission as conservator and administrator. In this
context, it may in addition enjoin or restrain any actual or
threatened commission of acts by any person or entity that
may render moot and academic, or frustrate or otherwise
make ineffectual its efforts to carry out its task; punish for
direct or indirect contempt in accordance with the Rules of
Court; and seek and secure the assistance of any office,
agency or instrumentality of the government. In the case of
sequestered businesses generally (i.e. going concerns,
business in current operation), as in the case of sequestered
objects, its essential role, as already discussed, is that of
conservator, caretaker, 'watchdog' or overseer. It is not that of
manager, or innovator, much less an owner." 5
Now, the case at bar involves one where the third and most
encompassing
and
rarely
invoked
of
provisional
remedies, 6 the provisional takeover of the Baseco properties
and business operations has been availed of by the PCGG,
simply because the evidence on hand, not only prima
facie but convincingly with substantial and documentary
evidence of record establishes that the corporation known as
petitioner BASECO "was owned or controlled by President
Marcos 'during his administration, through nominees, by
taking undue advantage of his public office and/or using his
powers, authority, or influence;' and that it was by and
through the same means, that BASECO had taken over the
business and/or assets of the [government-owned] National
Shipyard and Engineering Co., Inc., and other governmentowned or controlled entities." The documentary evidence
shows that petitioner BASECO (read Ferdinand E. Marcos) in
successive transactions all directed and approved by the
former President-in an orgy of what according to the PCGG's
then chairman, Jovito Salonga, in his statement before the
1986 Constitutional Commission, "Mr. Ople once called
'organized pillage' "-gobbled up the government corporation
National Shipyard & Steel Corporation NASSCO its shipyard at
Mariveles, 300 hectares of land in Mariveles from the Export
Processing Zone Authority, Engineer Island itself in Manila and
its complex of equipment and facilities including structures,
buildings, shops, quarters, houses, plants and expendable or
semi-expendable assets and obtained huge loans of
$19,000,000.00 from the last available Japanese war damage
fund, P30,000,000.00 from the NDC and P12,400,000.00 from
the GSIS. The sordid details are set forth in detail in
Paragraphs 1 1 to 20 of the main opinion. They include
confidential reports from then BASECO president Hilario M.
Ruiz and the deposed President's brother-in- law, then Captain
(later Commodore) Alfredo Romualdez, who although not on
record as an officer or stockholder of BASECO reported

directly to the deposed President on its affairs and made the


recommendations, all approved by the latter, for the gobbling
up by BASECO of all the choice government assets and
properties.
All this evidence has been placed of record in the case at bar.
And petitioner has had all the time and opportunity to refute
it, submittals to the contrary notwithstanding, but has
dismally failed to do so. To cite one glaring instance: as stated
in the main opinion, the evidence submitted to this Court by
the Solicitor General "proves that President Marcos not only
exercised control over BASECO, but also that he actually owns
well nigh one hundred percent of its outstanding stock." It
cites the fact that three corporations, evidently front or
dummy corporations, among twenty shareholders, in name, of
BASECO, namely Metro Bay Drydock, Fidelity Management,
Inc. and Trident Management hold 209,664 shares or 95.82%,
of BASECO's outstanding stock. Now, the Solicitor General
points out further than BASECO certificates "corresponding to
more than ninety-five percent (95%) of all the outstanding
shares of stock of BASECO, endorsed in blank, together with
deeds of assignment of practically all the outstanding shares
of stock of the three (3) corporations above mentioned (which
hold 95.82% of all BASECO stock), signed by the owners
thereof although not notarized" 7 were found in Malacaang
shortly after the deposed President's sudden flight from the
country on the night of February 25, 1986. Thus, the main
opinion's unavoidable conclusion that "(W)hile the petitioner's
counsel was quick to dispute this asserted fact, assuring this
Court that the BASECO stockholders were still in possession of
their respective stock certificates and had 'never endorsed * *
* them in blank or to anyone else,' that denial is exposed by
his own prior and subsequent recorded statements as a mere
gesture of defiance rattler than a verifiable factual declaration
. . . . Under the circumstances, the Court can only conclude
that he could not get the originals from the stockholders for
the simple reason that as the Solicitor General maintains, said
stockholders in truth no longer have them in their possession,
these having already been assigned in blank to President
Marcos." 8
With this strong unrebutted evidence of record in this Court,
Justice Melencio-Herrera, joined by Justice Feliciano, expressly
concurs with the main opinion upholding the commission's
take-over, stating that "(I) have no objection to according the
right to vote sequestered stock in case of a takeover of
business actually belonging to the government or whose
capitalization comes from public funds but which, somehow,
landed in the hands of private persons, as in the case of
BASECO." They merely qualify their concurrence with the
injunction that such takeovers be exercised with "caution and
prudence" pending the determination of "the true and real
ownership" of the sequestered shares. Suffice it to say in this
regard that each case has to be judged from the pertinent
facts and circumstances and that the main opinion
emphasizes sufficiently that it is only in the special instances
specified in the governing laws grounded on the superior
national interest and welfare and the practical necessity of
preserving the property and preventing its loss or disposition
that the provisional remedy of provisional take-over is
exercised.
Here, according to the dissenting opinion, "the PCGG
concludes that sequestered property is ill-gotten wealth and
proceeds to exercise acts of ownership over said
properties . . . . and adds that "the fact of ownership must be
established in a proper suit before a court of justice"-which
this Court has preempted with its finding that "in the context
of the proceedings at bar, the actuality of the control by
President Marcos of BASECO has been sufficiently shown."
But BASECO who has instituted this action to set aside the
sequestration and take-over orders of respondent commission
has chosen to raise these very issues in this Court. We cannot
ostrich-like hide our head in the sand and say that it has not

yet been established in the proper court that what the PCGG
has taken over here aregovernment properties, as a matter of
record and public notice and knowledge, like the NASSCO, its
Engineer Island and Mariveles Shipyard and entire complex,
which have been pillaged and placed in the name of the
dummy or front company named BASECO but from all the
documentary evidence of record shown by its street
certificates all found in Malacanang should in reality read
"Ferdinand E. Marcos" and/or his brother-in-law. Such takeover can in no way be termed "lawless usurpation," for the
government does not commit any act of usurpation in taking
over its own properties that have been channeled to
dummies, who are called upon to prove in the proper court
action what they have failed to do in this Court, that they
have lawfully acquired ownership of said properties, contrary
to the documentary evidence of record, which they must
likewise explain away. This Court, in the exercise of its
jurisdiction on certiorari and as the guardian of the
Constitution and protector of the people's basic constitutional
rights, has entertained many petitions on the part of parties
claiming to be adversely affected by sequestration and other
orders of the PCGG, This Court set the criterion that such
orders should issue only upon showing of a prima facie case,
which criterion was adopted in the 1987 Constitution. The
Court's judgment cannot be faulted if much more than
a prima facie has been shown in this case, which the faceless
figures claiming to represent BASECO have failed to refute or
disprove despite all the opportunity to do so.
The record plainly shows that petitioner BASECO which is but
a mere shell to mask its real owner did not and could not
explain how and why they received such favored and
preferred treatment with tailored Letters of Instruction and
handwritten personal approval of the deposed President that
handed it on a silver platter the whole complex and properties
of NASSCO and Engineer Island and the Mariveles Shipyard.
It certainly would be the height of absurdity and helplessness
if this government could not here and now take over the
possession and custody of its very own properties and
assets that had been stolen from it and which it had pledged
to recover for the benefit and in the greater interest of the
Filipino people, whom the past regime had saddled with a
huge $27-billion foreign debt that has since ballooned to
$28.5-billion.
Thus, the main opinion correctly concludes that "(I)n the light
of the affirmative showing by the Government that,prima
facie at least, the stockholders and directors of BASECO as of
April, 1986 were mere 'dummies,' nominees or alter egos of
President Marcos; at any rate, that they are no longer owners
of any shares of stock in the corporation, the conclusion
cannot be avoided that said stockholders and directors have
no basis and no standing whatever to cause the filing and
prosecution of the instant proceeding; and to grant relief to
BASECO, as prayed for in the petition, would in effect be to
restore the assets, properties and business sequestered and
taken over by the PCGG to persons who are 'dummies'
nominees or alter egos of the former President." 9
And Justice Padilla in his separate concurrence "called a spade
a spade," citing the street certificates representing 95 % of
BASECO's outstanding stock found in Malacaang after Mr.
Marcos' hasty flight in February, 1986 and the extent of the
control he exercised over policy decisions affecting BASECO
and concluding that "Consequently, even ahead of judicial
proceedings, I am convinced that the Republic of the
Philippines, thru the PCGG, has the right and even the duty to
take over full control and supervision of BASECO."
Indeed, the provisional remedies available to respondent
commission are rooted in the police power of the State, the
most pervasive and the least limitable of the powers of
Government since it represents "the power of sovereignty, the

power to govern men and things within the limits of its


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

mentioned that the tracking down of the deposed


actual ownership of the BASECO shares was
facilitated by the recovery of the street
in Malacaang after his hasty flight from the
year. This is not generally the case.

For example, in the ongoing case filed by the government to


recover from the Marcoses valuable real estate holdings in
New York and the Lindenmere estate in Long Island, former
PCGG chairman Jovito Salonga has revealed that their names
"do not appear on any title to the property. Every building in
New York is titled in the name of a Netherlands Antilles
corporation, which in turn is purportedly owned by three
Panamanian corporations, with bearer shares. This means that
the shares of this corporation can change hands any time,
since they can be transferred, under the law of Panama,
without previous registration on the books of the corporation.
One of the first documents that we discovered shortly after
the February revolution was a declaration of trust handwritten
by Mr. Joseph Bernstein on April 4, 1982 on a Manila Peninsula
Hotel stationery stating that he would act as a trustee for the
benefit of President Ferdinand Marcos and would act solely
pursuant to the instructions of Marcos with respect to the
Crown Building in New York." 19
This is just to stress the difficulties of the tasks confronting
respondent
PCGG, which
nevertheless
has
so
far
commendably produced unprecedented positive results. As
stated by then chairman Salonga:
PCGG has turned over to the Office of the
President around 2 billion pesos in cash, free
of any lien. It has also delivered to the
President-as a result of a compromise
settlement-around 200 land titles involving

vast tracks of land in Metro Manila, Rizal,


Laguna, Cavite, and Bataan, worth several
billion pesos. These lands are now available
for low-cost housing projects for the benefit
of the poor and the dispossessed amongst
our people.
In the legal custody of the Commission as a
result of sequestration proceedings, are
expensive jewelry amounting to 310 million
pesos, 42 aircraft amounting to 718 million
pesos, vessels amounting to 748 million
pesos, and shares of stock amounting to
around 215 million pesos.
But, as I said, the bulk of the ill-gotten
wealth is located abroad, not in the
Philippines. Through the efforts of the PCGG,
we
have
caused
the
freezing
or
sequestration of properties, deposits, and
securities probably worth many billions of
pesos in New York, New Jersey, Hawaii,
California,
and
more
importantly-in
Switzerland. Due to favorable developments
in Switzerland, we may expect, according to
our Swiss lawyers, the first deliveries of the
Swiss deposits in the foreseeable future,
perhaps in less than a year's time. In New
York, PCGG through its lawyers who render
their services free of cost to the Philippine
government, succeeded in getting injunctive
relief against Mr. and Mrs. Marcos and their
nominees and agents. There is now an offer
for settlement that is being studied and
explored by our lawyers there.
If we succeed in recovering not an (since
this is impossible) but a substantial part of
the ill-gotten wealth here and in various
countries of the world-something the
revolutionary
governments
of
China,
Ethiopia, Iran and Nicaragua were not able
to accomplish at all with respect to
properties
outside
their
territorial
boundaries-the Presidential Commission on
Good Government, which has undertaken
the difficult and thankless task of trying to
undo what had been done so secretly and
effectively in the last twenty years, shall
have more than justified its existence. 20
The misdeeds of some PCGG volunteers and personnel cited
in the dissenting opinion do not detract at an from the PCGG's
accomplishments, just as no one would do away with
newspapers because of some undesirable elements. The point
is that all such misdeeds have been subject to public exposure
and as stated in the dissent itself, the erring PCGG
representatives have been forthwith dismissed and replaced.
The magnitude of the tasks that confront respondent PCGG
with its limited resources and staff support and volunteers
should be appreciated, together with the assistance that
foreign governments and lawyers have spontaneously given
the commission.
A word about the PCGG's firing of the BASECO lawyers who
filed the present petition challenging its questioned orders,
filing a motion to withdraw the petition, after it had put in
eight of its representatives as directors of the BASECO board
of directors. This was entirely proper and in accordance with
the Court's Resolution of October 28, 1986, which denied
BASECO's motion for the issuance of a restraining order
against such take-over and declared that "the government
can, through its designated directors, properly exercise

control and management over what appear to be properties


and assets owned and belonging to the government itself and
over which the persons who appear in this case on behalf of
BASECO have failed to show any eight or even any
shareholding in said corporation." In other words, these
dummies or fronts cannot seek to question the government's
right to recover the very properties and assets that have been
stolen from it by using the very same stolen properties and
funds derived therefrom. If they wish to pursue their own
empty claim, they must do it on their own, after first
establishing that they indeed have a lawful right and/or
shareholding in BASECO.
Under the 1987 Constitution, the PCGG is called upon to file
the judicial proceedings for forfeiture and recovery of the
sequestered or frozen properties covered by its orders issued
before the ratification of the Constitution on February 2, 1987,
within six months from such ratification, or by August 2, 1987.
(For those orders issued after such ratification, the judicial
action or proceeding must be commenced within six months
from the issuance thereof.) The PCGG has not really been
given much time, considering the magnitude of its tasks. It is
entitled to some forbearance, in availing of the maximum
time granted it for the filing of the corresponding judicial
action with the Sandiganbayan.
PADILLA, J., concurring:
The majority opinion penned by Mr. Justice Narvasa maintains
and upholds the valid distinction between acts of conservation
and preservation of assets and acts of ownership.
Sequestration, freeze and temporary take-over encompass
the first type of acts. They do not include the second type of
acts which are reserved only to the rightful owner of the
assets or business sequestered or temporarily taken over.
The removal and election of members of the board of
directors of a corporate enterprise is, to me, a clear act of
ownership on the part of the shareholders of the corporation.
Under ordinary circumstances, I would deny the PCGG the
authority to change and elect the members of BASECO's
Board of Directors. However, under the facts as disclosed by
the records, it appears that the certificates of stock
representing about ninety-five (95%) per cent of the total
ownership in BASECO's capital stock were found endorsed in
blank in Malacanang (presumably in the possession and
control of Mr. Marcos) at the time he and his family fled in
February 1986. This circumstance let alone the extent of the
control Mr. Marcos exercised, while in power, over policy
decisions affecting BASECO, entirely satisfies my mind that
BASECO was owned and controlled by Mr. Marcos. This is
calling a spade a spade. I am also entirely satisfied in my
mind that Mr. Marcos could not have acquired the ownership
of BASECO out of his lawfully-gotten wealth.
Consequently, even ahead of judicial proceedings, I am
convinced that the Republic of the Philippines, through the
PCGG, has the right and even the duty to take-over full control
and supervision of BASECO.
MELENCIO-HERRERA, J., concurring:
I would like to qualify my concurrence in so far as the voting
of sequestered stork is concerned.
The voting of sequestered stock is, to my mind, an exercise of
an attribute of ownership. It goes beyond the purpose of a
writ of sequestration, which is essentially to preserve the
property in litigation (Article 2005, Civil Code). Sequestration
is in the nature of a judicial deposit (ibid.).

I have no objection to according the right to vote sequestered


stock in case of a take-over of business actually belonging to
the government or whose capitalization comes from public
funds but which, somehow, landed in the hands of private
persons, as in the case of BASECO. To my mind, however,
caution and prudence should be exercised in the case of
sequestered shares of an on-going private business
enterprise, specially the sensitive ones, since the true and
real ownership of said shares is yet to be determined and
proven more conclusively by the Courts.
It would be more in keeping with legal norms if forfeiture
proceedings provided for under Republic Act No. 1379 be filed
in Court and the PCGG seek judicial appointment as a receiver
or administrator, in which case, it would be empowered to
vote sequestered shares under its custody (Section 55,
Corporation Code). Thereby, the assets in litigation are
brought within the Court's jurisdiction and the presence of an
impartial Judge, as a requisite of due process, is assured. For,
even in its historical context, sequestration is a judicial matter
that is best handled by the Courts.
I consider it imperative that sequestration measures be
buttressed by judicial proceedings the soonest possible in
order to settle the matter of ownership of sequestered shares
and to determine whether or not they are legally owned by
the stockholders of record or are "ill-gotten wealth" subject to
forfeiture in favor of the State. Sequestration alone, being
actually an ancillary remedy to a principal action, should not
be made the basis for the exercise of acts of dominion for an
indefinite period of time.
Sequestration is an extraordinary, harsh, and severe remedy.
It should be confined to its lawful parameters and exercised,
with due regard, in the words of its enabling laws, to the
requirements of fairness, due process (Executive Order No.
14, palay 7, 1986), and Justice (Executive Order No. 2, March
12, 1986).
Feliciano, J., concur.

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


I concur, in part, in the erudite opinion penned for the Court
by my distinguished colleague Mr. Justice Andres R. Narvasa. I
agree insofar as it states the principles which must govern
PCGG sequestrations and emphasizes the limitations in the
exercise of its broad grant of powers.
I concur in the general propositions embodied in or implied
from the majority opinion, among them:
(1) The efforts of Government to recover ill-gotten properties
amassed by the previous regime deserve the fullest support
of the judiciary and all sectors of society. I believe, however,
that a nation professing adherence to the rule of law and
fealty to democratic processes must adopt ways and means
which are always within the bounds of lawfully granted
authority and which meet the tests of due process and other
Bill of Rights protections.
(2) Sequestration is intended to prevent the destruction,
concealment, or dissipation of ill-gotten wealth. The object is
conservation and preservation. Any exercise of power beyond
these objectives is lawless usurpation.
(3) The PCGG exercises only such powers as are granted by
law and not proscribed by the Constitution. The remedies it
enforces are provisional and contingent. Whether or not

sequestered property is indeed ill-gotten must be-determined


by a court of justice. The PCGG has absolutely no power to
divest title over sequestered property or to act as if its
findings are final.
(4) The PCGG does not own sequestered property. It cannot
and must not exercise acts of ownership. To quote the
majority opinion, "one thing is certain ..., the PCGG cannot
exercise acts of dominion."
(5) The provisional takeover in a sequestration should not be
indefinitely maintained. It is the duty of the PCGG to
immediately file appropriate criminal or civil cases once the
evidence has been gathered.
It is the difference between what the Court says and what the
PCGG does which constrains me to dissent. Even as the Court
emphasizes principles of due process and fair play, it has
unfortunately validated ultra vires acts violative of those very
same principles. While we stress the rules which must govern
the PCGG in the exercise of its powers, the Court has failed to
stop or check acts which go beyond the power of
sequestration given by law to the PCGG.
We are all agreed in the Court that the PCGG is not a judge. It
is an investigator and prosecutor. Sequestration is only a
preliminary or ancillary remedy. There must be a principal and
independent suit filed in court to establish the true ownership
of sequestered properties. The factual premise that a
sequestered property was ill-gotten by former President
Marcos, his family, relatives, subordinates, and close
associates cannot be assumed. The fact of ownership must be
established in a proper suit before a court of justice.
But what has the Court, in effect, ruled?
Pages 21 to 33 of the majority opinion are dedicated to a
statement of facts which conclusively and indubitably
shows that BASECO is owned by President Marcos-and that it
was acquired and vastly enlarged by the former President's
taking undue advantage of his public office and using his
powers, authority, or influence.
There has been no court hearing, no trial, and no presentation
of evidence. All that we have is what the PCGG has given us.
The petitioner has not even been allowed to see the evidence,
much less refute it.
What the PCGG has gathered in the course of its seizures and
investigations may be gospel truth. However, that truth must
be properly established in a trial court, not unilaterally
determined by the PCGG or declared by this Court in a special
proceeding which only asks us to set aside or enjoin an illegal
exercise of power. After this decision, there is nothing more for
a trial court to ascertain. Certainly, no lower court would dare
to arrive at findings contrary to this Court's conclusions, no
matter how insistent we may be in labelling such conclusions
as "prima facie." To me, this is the basic flaw in PCGG
procedures that the Court is, today, unwittingly legitimating.
Even before the institution of a court case, the PCGG
concludes that sequestered property is ill-gotten wealth and
proceeds to exercise acts of ownership over said properties. It
treats sequestered property as its own even before the
oppositor-owners have been divested of their titles.
The Court declares that a state of seizure is not to be
indefinitely maintained. This means that court proceedings to
either forfeit the sequestered properties or clear the names
and titles of the petitioners must be filed as soon as possible.
This case is a good example of disregard or avoidance of this
requirement. With the kind of evidence which the PCGG

professes to possess, the forfeiture case could have been filed


simultaneously with the issuance of sequestration orders or
shortly thereafter.
And yet, the records show that the PCGG appears to
concentrate more on the means rather than the ends, in
running the BASECO, taking over the board of directors and
management, getting rid of security guards, disposing of
scrap, entering into new contracts and otherwise behaving as
if it were already the owner. At this late date and with all the
evidence PCGG claims to have, no court case has been filed.
Among the interesting items elicited during the
arguments or found in the records of this petition are:

oral

(1) Upon sequestering BASECO, some PCGG personnel lost no


time in digging up paved premises with jack hammers in a
frantic search for buried gold bars.
(2) Two top PCGG volunteers charged each other with stealing
properties under their custody. The PCGG had to step in,
dismiss the erring representatives, and replace them with new
ones.
(3) The petitioner claims that the lower bid of a rock quarry
operator was accepted even as a higher and more favorable
bid was offered. When the questionable deal was brought to
our attention, the awardee allegedly raised his bid to the level
of the better offer. The successful bidder later submitted a
comment in intervention explaining his side. Whoever is
telling the truth, the fact remains that multi-million peso
contracts involving the operations of sequestered companies
should be entered into under the supervision of a court, not
freely executed by the PCGG even when the petitioner-owners
question the propriety and integrity of those transactions.
(4) The PCGG replaced eight out of eleven members of the
BASECO board of directors with its own men. Upon taking over
full control of the corporation, the newly installed board
reversed the efforts of the former owners to protect their
interests. The new board fired the BASECO lawyers who
instituted the instant petition. It then filed a motion to
withdraw this very same petition we are now deciding. In
other words, the "new owners" did not want the Supreme
Court to continue poking into the legality of their acts. They
moved to abort the petition filed with us.
Any suspicion of impropriety would have been avoided if the
PCGG had filed the required court proceedings and exercised
its acts of management and control under court supervision.
The requirements of due process would have been met.
One other matter I wish to discuss in this separate opinion is
PCGG's selection of eight out of the eleven members of the
BASECO board of directors.
The election of the members of a board of directors is
distinctly and unqualifiedly an act of ownership. When
stockholders of a corporation elect or remove members of a
board of directors, they exercise their right of ownership in the
company they own, By no stretch of the imagination can the
revamp of a board of directors be considered as a mere act of
conserving assets or preventing the dissipation of
sequestered assets. The broad powers of a sequestrator are
more than enough to protect sequestered assets. There is no
need and no legal basis to reach out further and exercise
ultimate acts of ownership.
Under the powers which PCGG has assumed and wields, it can
amend the articles and by-laws of a sequestered corporation,
decrease the capital stock, or sell substantially all corporate
assets without any effective check from the owners not yet

divested of their titles or from a court of justice. The PCGG is


tasked to preserve assets but when it exercises the acts of an
owner, it could also very well destroy. I hope that the case of
the Philippine Daily Express, a major newspaper closed by the
PCGG,
is
an
isolated
example.
Otherwise,
banks,
merchandizing firms, investment institutions, and other
sensitive businesses will find themselves in a similar
quandary.

Corporate Social Responsibility

I join the PCGG and all right thinking Filipinos in condemning


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

PROFESSIONAL SERVICES, INC., PETITIONER, VS. THE

EN

[G.R.

BANC

No.

126297

February

02,

2010]

COURT OF APPEALS AND NATIVIDAD AND ENRIQUE


AGANA,

RESPONDENTS.

[G.R.

NO.

126467]

I, therefore, vote to grant the petition. Pending the filing of an


appropriate case in court, the PCGG must be enjoined from
exercising any and all acts of ownership over the sequestered
firm.

NATIVIDAD

Bidin and Cortes, JJ., concur and dissent.

AGANA-ANDAYA, JESUS AGANA AND RAYMUND AGANA]

[SUBSTITUTED

BY

HER

CHILDREN

MARCELINO AGANA III, ENRIQUE AGANA, JR., EMMA

AND ENRIQUE AGANA, PETITIONERS, VS. THE COURT OF


APPEALS

AND

JUAN

FUENTES,

RESPONDENTS.

CRUZ, J., dissenting:


[G.R.
My brother Narvasa has written a truly outstanding decision
that bespeaks a penetrating and analytical mind and a
masterly grasp of the serious problem we are asked to
resolve. He deserves and I offer him my sincere admiration.
There is no question that all lawful efforts should be taken to
recover the tremendous wealth plundered from the people by
the past regime in the most execrable thievery perpetrated in
all history. No right-thinking Filipino can quarrel with this
necessary objective, and on this score I am happy to concur
with the ponencia.

MIGUEL

NO.

AMPIL,

127590]

PETITIONER,

ENRIQUE

VS.

NATIVIDAD

AGANA,

AND

RESPONDENTS.

RESOLUTION
CORONA, J.:
With prior leave of court,1 petitioner Professional Services, Inc.

But for all my full agreement with the basic thesis of the
majority, I regret I find myself unable to support its
conclusions in favor Of the respondent PCGG. My view is that
these conclusions clash with the implacable principles of the
free society. foremost among which is due process. This
demands our reverent regard.
Due process protects the life, liberty and property of every
person, whoever he may be. Even the most despicable
criminal is entitled to this protection. Granting this distinction
to Marcos, we are still not justified in depriving him of this
guaranty on the mere justification that he appears to own the
BASECO shares.
I am convinced and so submit that the PCGG cannot at this
time take over the BASECO without any court order and
exercise thereover acts of ownership without court
supervision. Voting the shares is an act of ownership.
Reorganizing the board of directors is an act of ownership.
Such acts are clearly unauthorized. As the majority opinion
itself stresses, the PCGG is merely an administrator whose
authority is limited to preventing the sequestered properties
from being dissipated or clandestinely transferred.

(PSI) filed a second motion for reconsideration2 urging referral


thereof to the Court en banc and seeking modification of the
decision dated January 31, 2007 and resolution dated
February 11, 2008 which affirmed its vicarious and direct
liability for damages to respondents Enrique Agana and the
heirs

of

Agana

(Aganas).

Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc.


(AHI),4 and Private Hospital Association of the Philippines
(PHAP)5 all sought to intervene in these cases invoking the
common ground that, unless modified, the assailed decision
and resolution will jeopardize the financial viability of private
hospitals

and

jack

up

the

cost

of

health

care.

The Special First Division of the Court granted the motions for
intervention

The court action prescribed in the Constitution is not


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

Natividad

of
6

intervenors), and

MMSI,

AHI

referred en

and

PHAP

consulta to

the

(hereafter
Court en

banc the motion for prior leave of court and the second
motion

for

reconsideration

of

PSI.7

Due to paramount public interest, the Court en banc accepted

the referral8 and heard the parties on oral arguments on one

doctor about his wife's (Natividad's) condition. 23 After his

particular issue: whether a hospital may be held liable for the

meeting with Dr. Ampil, Enrique asked Natividad to personally

negligence of physicians-consultants allowed to practice in its

consult Dr. Ampil.24 In effect, when Enrigue and Natividad

premises.9

engaged the services of Dr. Ampil, at the back of their minds


was that the latter was a staff member of a prestigious

To recall the salient facts, PSI, together with Dr. Miguel Ampil

hospital. Thus, under the doctrine of apparent authority

(Dr. Ampil) and Dr. Juan Fuentes (Dr. Fuentes), was impleaded

applied in Nogales, et al. v. Capitol Medical Center, et al.,25 PSI

by Enrique Agana and Natividad Agana (later substituted by

was

her heirs), in a complaint

10

liable

for

the

negligence

of

Dr.

Ampil.

for damages filed in the Regional

Trial Court (RTC) of Quezon City, Branch 96, for the injuries

Finally, as owner and operator of Medical City General

suffered by Natividad when Dr. Ampil and Dr. Fuentes

Hospital, PSI was bound by its duty to provide comprehensive

neglected to remove from her body two gauzes

11

which were

medical services to Natividad Agana, to exercise reasonable

used in the surgery they performed on her on April 11, 1984

care to protect her from harm,26 to oversee or supervise all

at the Medical City General Hospital. PSI was impleaded as

persons who practiced medicine within its walls, and to take

owner,

active steps in fixing any form of negligence committed within

operator

and

manager

of

the

hospital.

its premises.27 PSI committed a serious breach of its corporate


In a decision12 dated March 17, 1993, the RTC held PSI

duty when it failed to conduct an immediate investigation into

solidarily

the

liable
13

damages.

with

Dr.

Ampil

and

Dr.

Fuentes

for

reported

missing

gauzes.28

On appeal, the Court of Appeals (CA), absolved Dr.

Fuentes but affirmed the liability of Dr. Ampil and PSI, subject
to the right of PSI to claim reimbursement from Dr. Ampil.

14

On petition for review, this Court, in its January 31, 2007


decision, affirmed the CA decision.
reconsideration

16

15

PSI is now asking this Court to reconsider the foregoing rulings


for these reasons:
I

PSI filed a motion for

but the Court denied it in a resolution dated

The declaration in the 31 January 2007 Decision vis--vis the

2008.17

11 February 2009 Resolution that the ruling in Ramos vs.

February

11,

Court of Appeals (G.R. No. 134354, December 29, 1999) that


The Court premised the direct liability of PSI to the Aganas on

"an employer-employee relations exists between hospital and

the

their consultants" stays should be set aside for being

following

facts

and

law:

inconsistent with or contrary to the import of the resolution


First, there existed between PSI and Dr. Ampil an employer-

granting the hospital's motion for reconsideration in Ramos

employee relationship as contemplated in the December 29,

vs. Court of Appeals (G.R. No. 134354, April 11, 2002), which

1999 decision in Ramos v. Court of Appeals18 that "for

is applicable to PSI since the Aganas failed to prove an

purposes of allocating responsibility in medical negligence

employer-employee relationship between PSI and Dr. Ampil

cases, an employer-employee relationship exists between

and PSI proved that it has no control over Dr. Ampil. In fact,

hospitals

and

in Ramos later

their

consultants."

issued

19

Although

Resolution

dated

the

Court

the trial court has found that there is no employer-employee

11,

relationship in this case and that the doctor's are independent

April

200220 reversing its earlier finding on the existence of an


employment relationship between hospital and doctor, a
similar reversal was not warranted in the present case
because the defense raised by PSI consisted of a mere
general denial of control or responsibility over the actions of
Ampil.21

Dr.

Second,

by

accrediting

Dr.

Ampil

and

advertising

his

qualifications, PSI created the public impression that he was


its agent.22 Enrique testified that it was on account of Dr.
Ampil's accreditation with PSI that he conferred with said

contractors.
II

Respondents Aganas engaged Dr. Miguel Ampil as their doctor


and did not primarily and specifically look to the Medical City
Hospital (PSI) for medical care and support; otherwise stated,
respondents Aganas did not select Medical City Hospital (PSI)
to provide medical care because of any apparent authority of
Dr. Miguel Ampil as its agent since the latter was chosen

primarily and specifically based on his qualifications and being

under Article 2176 in relation to Article 143136 and Article

friend and neighbor.

186937 of

the

Civil

Code

or

the

principle

of

apparent

authority.38 Moreover, regardless of its relationship with the


III

doctor, the hospital may be held directly liable to the patient


for its own negligence or failure to follow established standard

PSI cannot be liable under doctrine of corporate negligence

of conduct to which it should conform as a corporation. 39

since the proximate cause of Mrs. Agana's injury was the


negligence of Dr. Ampil, which is an element of the principle of

This Court still employs the "control test" to determine the

corporate negligence.29

existence of an employer-employee relationship between


hospital and doctor. In Calamba Medical Center, Inc. v.

In their respective memoranda, intervenors raise parallel

National Labor Relations Commission, et al.40 it held:

arguments that the Court's ruling on the existence of an


employer-employee relationship between private hospitals

Under the "control test", an employment relationship exists

and consultants will force a drastic and complex alteration in

between a physician and a hospital if the hospital controls

the long-established and currently prevailing relationships

both the means and the details of the process by which the

among patient, physician and hospital, with burdensome

physician

is

to

accomplish

his

task.

operational and financial consequences and adverse effects


on

all

parties.30

three

xx

xx

xx

The Aganas comment that the arguments of PSI need no

As priorly stated, private respondents maintained specific

longer be entertained for they have all been traversed in the

work-schedules, as determined by petitioner through its

31

medical director, which consisted of 24-hour shifts totaling

assailed

decision

and

resolution.

forty-eight hours each week and which were strictly to be


After gathering its thoughts on the issues, this Court

observed

under

pain

of

administrative

sanctions.

holds that PSI is liable to the Aganas, not under the principle
of respondeat superior for lack of evidence of an employment

That petitioner exercised control over respondents

relationship with Dr. Ampil but under the principle of

gains light from the undisputed fact that in the

ostensible agency for the negligence of Dr. Ampil and, pro hac

emergency

vice, under the principle of corporate negligence for its failure

department or ward for that matter, respondents' work

to

is monitored through its nursing supervisors, charge

perform

its

duties

as

hospital.

room,

the

operating

room,

or

any

nurses and orderlies. Without the approval or consent


While in theory a hospital as a juridical entity cannot practice
32

medicine,

in reality it utilizes doctors, surgeons and medical

practitioners in the conduct of its business of facilitating


medical and surgical treatment.

33

of petitioner or its medical director, no operations can


be undertaken in those areas. For control test to apply,
it

is

not

essential

for

the

employer

to

actually

Within that reality, three

supervise the performance of duties of the employee,

legal relationships crisscross: (1) between the hospital and the

it being enough that it has the right to wield the

doctor practicing within its premises; (2) between the hospital

power. (emphasis supplied)

and the patient being treated or examined within its premises


and (3) between the patient and the doctor. The exact nature

Even in its December 29, 1999 decision 41 and April 11, 2002

of each relationship determines the basis and extent of the

resolution42 in Ramos, the

liability of the hospital for the negligence of the doctor.

decisive.

Where an employment relationship exists, the hospital may be

In the present case, it appears to have escaped the Court's

held vicariously liable under Article 2176 34 in relation to Article

attention that both the RTC and the CA found no employment

2180

35

Court

found

the

control

test

of the Civil Code or the principle of respondeat

relationship between PSI and Dr. Ampil, and that the Aganas

superior. Even when no employment relationship exists but it

did not question such finding. In its March 17, 1993

is shown that the hospital holds out to the patient that the

decision, the RTC found "that defendant doctors were not

doctor is its agent, the hospital may still be vicariously liable

employees of PSI in its hospital, they being merely consultants

without any employer-employee relationship and in the


capacity of independent contractors."
questioned

43

Enrique testified that on April 2, 1984, he consulted Dr. Ampil

The Aganas never

regarding the condition of his wife; that after the meeting and

finding.

as advised by Dr. Ampil, he "asked [his] wife to go to Medical

such

City to be examined by [Dr. Ampil]"; and that the next day,


PSI, Dr. Ampil and Dr. Fuentes appealed

44

from the RTC

April 3, he told his daughter to take her mother to Dr.

decision but only on the issues of negligence, agency and

Ampil.50 This timeline indicates that it was Enrique who

corporate liability. In its September 6, 1996 decision, the CA

actually made the decision on whom Natividad should consult

mistakenly referred to PSI and Dr. Ampil as employer-

and where, and that the latter merely acceded to it. It

employee, but it was clear in its discussion on the matter that

explains the testimony of Natividad that she consulted Dr.

it viewed their relationship as one of mere apparent agency.

45

The Aganas appealed from the CA decision, but only to


question the exoneration of Dr. Fuentes.

46

PSI also appealed

Ampil

at

the

instigation

of

daughter.51

her

Moreover, when asked what impelled him to choose Dr. Ampil,


Enrique testified:

from the CA decision, and it was then that the issue of


employment,

though

long

settled,

was

unwittingly

Atty.

Agcaoili

resurrected.
On that particular occasion, April 2, 1984, what was your
In fine, as there was no dispute over the RTC finding that PSI

reason for choosing Dr. Ampil to contact with in connection

and Dr. Ampil had no employer-employee relationship, such

with

finding

became

final

and

conclusive

even

to

your

wife's

illness?

this

There was no reason for PSI to have raised it as an

A. First, before that, I have known him to be a specialist on

issue in its petition. Thus, whatever discussion on the matter

that part of the body as a surgeon, second, I have known him

that

to

47

Court.

may

have

ensued

was

purely

academic.

be

a staff

member of

the

Medical

City

which

is

aprominent and known hospital. And third, because he is a


Nonetheless, to allay the anxiety of the intervenors, the Court

neighbor, I expect more than the usual medical service to be

holds that, in this particular instance, the concurrent finding of

given to us, than his ordinary patients.52 (emphasis supplied)

the RTC and the CA that PSI was not the employer of Dr. Ampil
is correct. Control as a determinative factor in testing the

Clearly, the decision made by Enrique for Natividad to consult

employer-employee relationship between doctor and hospital

Dr. Ampil was significantly influenced by the impression that

under which the hospital could be held vicariously liable to a

Dr. Ampil was a staff member of Medical City General

patient in medical negligence cases is a requisite fact to be

Hospital,

established by preponderance of evidence. Here, there was

prominent. Enrique looked upon Dr. Ampil not as independent

insufficient evidence that PSI exercised the power of control or

of

but

and

as

that

said

integrally

hospital

related

was

to

well

known

Medical

and

City.

wielded such power over the means and the details of the
specific process by which Dr. Ampil applied his skills in the

PSI's acts tended to confirm and reinforce, rather than negate,

treatment of Natividad. Consequently, PSI cannot be held

Enrique's view. It is of record that PSI required a "consent for

vicariously liable for the negligence of Dr. Ampil under the

hospital care"53 to be signed preparatory to the surgery of

principle

Natividad. The form reads:

of respondeat

superior.

There is, however, ample evidence that the hospital (PSI) held
out to the patient (Natividad)48 that the doctor (Dr. Ampil) was
its agent. Present are the two factors that determine apparent
authority: first, the hospital's implied manifestation to the
patient which led the latter to conclude that the doctor was
the hospital's agent; and second, the patient's reliance upon
the conduct of the hospital and the doctor, consistent with
ordinary

care

and

prudence.49

Permission is hereby given to the medical, nursing and


laboratory staff of the Medical City General Hospital to
perform such diagnostic procedures and to administer such
medications and treatments as may be deemed necessary
or advisable by the physicians of this hospital for and
during the confinement of xxx. (emphasis supplied)

By

such

statement,

PSI

virtually

reinforced

the

public

impression that Dr. Ampil was a physician of its hospital,

rather than one independently practicing in it; that the

case. Ms. Agana complained ONLY to Drs. Ampil and

medications and treatments he prescribed were necessary

Fuentes, not the hospital. How then could PSI possibly

and desirable; and that the hospital staff was prepared to

do something to fix the negligence committed by Dr.

carry

Ampil

them

out.

when

it

was

not

informed

about

it

at

55

all. (emphasis supplied)


PSI pointed out in its memorandum that Dr. Ampil's hospital
affiliation was not the exclusive basis of the Aganas' decision

PSI reiterated its admission when it stated that had Natividad

to have Natividad treated in Medical City General Hospital,

Agana "informed the hospital of her discomfort and pain, the

meaning that, had Dr. Ampil been affiliated with another

hospital

would

have

been obliged

to

act

on

it."56

hospital, he would still have been chosen by the Aganas as


surgeon.54

The significance of the foregoing statements is critical.

The Court cannot speculate on what could have been behind

First, they constitute judicial admission by PSI that while it had

the Aganas' decision but would rather adhere strictly to the

no power to control the means or method by which Dr. Ampil

fact that, under the circumstances at that time, Enrique

conducted the surgery on Natividad Agana, it had the power

decided to consult Dr. Ampil for he believed him to be a staff

to review or cause the review of what may have irregularly

member of a prominent and known hospital. After his meeting

transpired

with Dr. Ampil, Enrique advised his wife Natividad to go to the

determining whether some form of negligence may have

Medical City General Hospital to be examined by said doctor,

attended any procedure done inside its premises, with the

and the hospital acted in a way that fortified Enrique's belief.

ultimate

This Court must therefore maintain the ruling that PSI is

Second, it is a judicial admission that, by virtue of the nature

vicariously liable for the negligence of Dr. Ampil as its

of its business as well as its prominence 57 in the hospital

ostensible

industry, it assumed a duty to "tread on" the "captain of the

Natividad's

agent.

within

end

its

walls

of

strictly

for

protecting

the

its

purpose

of

patients.

ship" role of any doctor rendering services within its premises


Moving on to the next issue, the Court notes that PSI made

for the purpose of ensuring the safety of the patients availing

the following admission in its Motion for Reconsideration:

themselves

51. Clearly, not being an agent or employee of petitioner PSI,

Third, by such admission, PSI defined the standards of its

PSI [sic] is not liable for Dr. Ampil's acts during the operation.

corporate conduct under the circumstances of this case,

Considering further that Dr. Ampil was personally engaged as

specifically: (a) that it had a corporate duty to Natividad even

a doctor by Mrs. Agana, it is incumbent upon Dr. Ampil, as

after her operation to ensure her safety as a patient; (b) that

"Captain of the Ship", and as the Agana's doctor to advise her

its corporate duty was not limited to having its nursing staff

on what to do with her situation vis--vis the two missing

note or record the two missing gauzes and (c) that its

gauzes. In

corporate duty extended to determining Dr. Ampil's role in it,

regular

addition
check-ups

to

noting

were

the

made

missing

and

no

gauzes,
signs

of

complications were exhibited during her stay at the

of

its

services

and

facilities.

bringing the matter to his attention, and correcting his


negligence.

hospital, which could have alerted petitioner PSI's


hospital to render and provide post-operation services

And finally, by such admission, PSI barred itself from arguing

to and tread on Dr. Ampil's role as the doctor of Mrs.

in its second motion for reconsideration that the concept of

Agana. The absence of negligence of PSI from the

corporate responsibility was not yet in existence at the time

patient's admission up to her discharge is borne by the

Natividad underwent treatment;58 and that if it had any

finding

evident

corporate responsibility, the same was limited to reporting the

therefrom is the absence of any complaint from Mrs.

of

facts

in

this

case.

Likewise

missing gauzes and did not include "taking an active step in

Agana after her discharge from the hospital which had

fixing the negligence committed."59 An admission made in the

she brought to the hospital's attention, could have

pleading cannot be controverted by the party making such

alerted petitioner PSI to act accordingly and bring the

admission and is conclusive as to him, and all proofs

matter to Dr. Ampil's attention. But this was not the

submitted by him contrary thereto or inconsistent therewith

should be ignored, whether or not objection is interposed by a


party.

60

the duty to take notice of medical records prepared by its own


staff and submitted to its custody, especially when these bear
earmarks of a surgery gone awry. Thus, the record taken

Given the standard of conduct that PSI defined for itself, the

during the operation of Natividad which reported a gauze

next relevant inquiry is whether the hospital measured up to

count discrepancy should have given PSI sufficient reason to

it.

initiate a review. It should not have waited for Natividad to


complain.

PSI excuses itself from fulfilling its corporate duty on the


ground that Dr. Ampil assumed the personal responsibility of
informing Natividad about the two missing gauzes.

61

Dr.

As it happened, PSI took no heed of the record of operation


and consequently did not initiate a review of what transpired

Ricardo Jocson, who was part of the group of doctors that

during

Natividad's

operation.

Rather,

it

shirked

attended to Natividad, testified that toward the end of the

responsibility and passed it on to others - to Dr. Ampil whom it

surgery, their group talked about the missing gauzes but Dr.

expected to inform Natividad, and to Natividad herself to

Ampil assured them that he would personally notify the

complain before it took any meaningful step. By its inaction,

patient about it.62 Furthermore, PSI claimed that there was no

therefore, PSI failed its own standard of hospital care. It

reason for it to act on the report on the two missing gauzes

committed

corporate

its

negligence.

because Natividad Agana showed no signs of complications.


She did not even inform the hospital about her discomfort.63

It should be borne in mind that the corporate negligence


ascribed to PSI is different from the medical negligence

The excuses proffered by PSI are totally unacceptable.

attributed to Dr. Ampil. The duties of the hospital are distinct


from those of the doctor-consultant practicing within its

To begin with, PSI could not simply wave off the problem and

premises in relation to the patient; hence, the failure of PSI to

nonchalantly delegate to Dr. Ampil the duty to review what

fulfill its duties as a hospital corporation gave rise to a direct

transpired during the operation. The purpose of such review

liability to the Aganas distinct from that of Dr. Ampil.

would have been to pinpoint when, how and by whom two


surgical gauzes were mislaid so that necessary remedial

All this notwithstanding, we make it clear that PSI's hospital

measures could be taken to avert any jeopardy to Natividad's

liability based on ostensible agency and corporate negligence

recovery. Certainly, PSI could not have expected that purpose

applies only to this case, pro hac vice. It is not intended to set

to be achieved by merely hoping that the person likely to

a precedent and should not serve as a basis to hold hospitals

have mislaid the gauzes might be able to retrace his own

liable for every form of negligence of their doctors-consultants

steps. By its own standard of corporate conduct, PSI's duty to

under any and all circumstances. The ruling is unique to this

initiate

case, for the liability of PSI arose from an implied agency with

the

review

was

non-delegable.

Dr. Ampil and an admitted corporate duty to Natividad. 64


While Dr. Ampil may have had the primary responsibility of
notifying Natividad about the missing gauzes, PSI imposed

Other circumstances peculiar to this case warrant this

upon itself the separate and independent responsibility of

ruling,65 not the least of which being that the agony wrought

initiating the inquiry into the missing gauzes. The purpose of

upon the Aganas has gone on for 26 long years, with

the first would have been to apprise Natividad of what

Natividad coming to the end of her days racked in pain and

transpired during her surgery, while the purpose of the second

agony. Such wretchedness could have been avoided had PSI

would have been to pinpoint any lapse in procedure that led

simply done what was logical: heed the report of a guaze

to the gauze count discrepancy, so as to prevent a recurrence

count discrepancy, initiate a review of what went wrong and

thereof and to determine corrective measures that would

take corrective measures to ensure the safety of Nativad.

ensure the safety of Natividad. That Dr. Ampil negligently

Rather, for 26 years, PSI hemmed and hawed at every turn,

failed to notify Natividad did not release PSI from its self-

disowning any such responsibility to its patient. Meanwhile,

imposed

the options left to the Aganas have all but dwindled, for the

separate

responsibility.

status

of

Dr.

Ampil

can

no

longer

be

ascertained. 66

Corollary to its non-delegable undertaking to review potential


incidents of negligence committed within its premises, PSI had

Therefore,

taking

all

the

equities

of

this

case

into

consideration, this Court believes P15 million would be a fair

million, subject to 12% p.a. interest from the finality of this

and reasonable liability of PSI, subject to 12% p.a. interest

resolution

to

full

satisfaction.

from the finality of this resolution to full satisfaction.


No further pleadings by any party shall be entertained in this
WHEREFORE,

the

second

motion

for

reconsideration

case.

is DENIED and the motions for intervention are NOTED.


Let the long-delayed entry of judgment be made in this case
Professional Services, Inc. is ORDERED pro hac vice to pay

upon receipt by all concerned parties of this resolution.

Natividad (substituted by her children Marcelino Agana III,


Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and
Raymund Agana) and Enrique Agana the total amount of P15

SO ORDERED.

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