Case 1 Corporation Law Introduction and General Full Text

ASTIBE, MARIA JENNIFER C.
CORPORATION LAW- INTRODUCTION AND GENERAL

[G.R. No. L-7231. March 28, 1956.]
BENGUET CONSOLIDATED MINING CO., Petitioner, vs. MARIANO PINEDA, in his capacity as Securities and Exchange
Commissioner, Respondent. CONSOLIDATED MINES, INC., Intervenor.
DECISION
REYES, J. B. L., J.:
Appeal under Rule 43 from a decision of the Securities and Exchange Commissioner, denying the right of a sociedad anonima to
extend its corporate existence by amendment of its original articles of association, or alternatively, to reform and continue
existing under the Corporation Law (Act 1459) beyond the original period.
The Petitioner, the Benguet Consolidated Mining Co. (hereafter termed “Benguet” for short), was organized on June 24,1903, as
a sociedad anonima regulated by Articles 151 et seq., of the Spanish Code of Commerce of 1886, then in force in the
Philippines. The articles of association expressly provided that it was organized for a term of fifty (50) years. In 1906, the
governing Philippine Commission enacted Act 1459, commonly known as the Corporation Law, establishing in the islands the
American type of juridical entities known as corporation, to take effect on April 1, 1906. Of its enactment, this Court said in its
decision in Harden vs. Benguet Consolidated Mining Co., 58 Phil., 141, at pp. 145-146, and 147:chanroblesvirtuallawlibrary
“When the Philippine Islands passed to the sovereignty of the United States, the attention of the Philippine Commission was
early drawn to the fact there is no entity in Spanish law exactly corresponding to the motion of the corporation in English and
American law; chan roblesvirtualawlibraryand in the Philippine Bill, approved July 1, 1906, the Congress of the United States
inserted certain provisions, under the head of Franchises, which were intended to control the lawmaking power in the Philippine
Islands in the matter of granting of franchises, privileges and concessions. These provisions are found in sections 74 and 75 of
the Act. The provisions of section 74 have been superseded by section 28 of the Act of Congress of August 29, 1916, but in
section 75 there is a provision referring to mining corporations, which still remains the law, as amended. This provision, in its
original form, reads as follows:chanroblesvirtuallawlibrary cralaw it shall be unlawful for any member of a corporation engaged
in agriculture or mining and for any corporation organized for any purpose except irrigation to be in any wise interested in any
other corporation engaged in agriculture or in mining.
Under the guidance of this and certain other provisions thus enacted by Congress, the Philippine Commission entered upon the
enactment of a general law authorizing the creation of corporations in the Philippine Islands. This rather elaborate piece of
legislation is embodied in what is called our Corporation Law (Act No. 1459 of the Philippine Commission). The evident purpose
of the commission was to introduce the American corporation into the Philippine Islands as the standard commercial entity and
to hasten the day when the sociedad anonima of the Spanish law would be obsolete. That statute is a sort of codification of
American corporate law.”
“As it was the intention of our lawmakers to stimulate the introduction of the American corporation into the Philippine law in
the place of the sociedad anonima, it was necessary to make certain adjustment resulting from the continued co-existence, for a
time, of the two forms of commercial entities. Accordingly, in section 75 of the Corporation Law, a provision is found making the
sociedad anonima subject to the provisions of the Corporation Law ‘so far as such provisions may be applicable’ and giving to
the sociedades anonimas previously created in the Islands the option to continue business as such or to reform and organize
under the provisions of the Corporation Law. Again, in section 191 of the Corporation Law, the Code of Commerce is repealed
in so far as it relates to sociedades anonimas. The purpose of the commission in repealing this part of the Code of Commerce
was to compel commercial entities thereafter organized to incorporate under the Corporation Law, unless they should prefer to
adopt some form or other of the partnership. To this provision was added another to the effect that existing sociedades
anonimas, which elected to continue their business as such, instead of reforming and reorganizing under the Corporation Law,
should continue to be governed by the laws that were in force prior to the passage of this Act ‘in relation to their organization
and method of transacting business and to the rights of members thereof as between themselves, but their relations to the
public and public officials shall be governed by the provisions of this Act.’“
Specifically, the two sections of Act No. 1459 referring to sociedades anonimas then already existing, provide as
follows:chanroblesvirtuallawlibrary
“SEC. 75. Any corporation or a sociedad anonima formed, organized, and existing under the laws of the Philippines on the date
of the passage of this Act, shall be subject to the provisions hereof so far as such provisions may be applicable and shall be
entitled at its option either to continue business as such corporation or to reform and organize under and by virtue of the
provisions of this Act, transferring all corporate interests to the new corporation which, if a stock corporation, is authorized to
issue its shares of stock at par to the stockholders or members of the old corporation according to their interests.”
“SEC. 191. The Code of Commerce, in so far as it relates to corporation or sociedades anonimas, and all other Acts or parts of
Acts in conflict or inconsistent with this Act, are hereby repealed with the exception of Act Numbered fifty-two, entitled ‘An Act
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providing for examinations of banking institutions in the Philippines, and for reports by their officers,’ as amended, and Act
Numbered Six hundred sixty-seven, entitled ‘An Act prescribing the method of applying to governments of municipalities, except
the city of Manila and of provinces for franchises to contract and operate street railway, electric light and power and telephone
lines, the conditions upon which the same may be granted, certain powers of the grantee of said franchises, and of grantees of
similar franchises under special Act of the Commission, and for other purposes.’ Provided, however, That nothing in this Act
contained shall be deemed to repeal the existing law relating to those classes of associations which are termed sociedades
colectivas, and sociedades de cuentas en participacion, as to which association the existing law shall be deemed to be still in
force; chan roblesvirtualawlibraryAnd provided, further, That existing corporations or sociedades anonimas, lawfully organized
as such, which elect to continue their business as such sociedades anonimas instead of reforming and reorganizing under and by
virtue of the provisions of this Act, shall continue to be governed by the laws that were in force prior to the passage of this Act in
relation to their organization and method of transacting business and to the rights of members thereof as between themselves,
but their relations to the public and public officials shall be governed by the provisions of this Act.”
As the expiration of its original 50 year term of existence approached, the Board of Directors of Benguet adopted in 1946 a
resolution to extend its life for another 50 years from July 3, 1946 and submitted it for registration to the Respondent Securities
and Exchange Commissioner. Upon advice of the Secretary of Justice (Op. No. 45, Ser. 1917) that such extension was contrary to
law, the registration was denied. The matter was dropped, allegedly because the stockholders of Benguet did not approve of
the Directors’ action.
Some six years later in 1953, the shareholders of Benguet adopted a resolution empowering the Director to “effectuate the
extension of the Company’s business life for not less than 20 and not more than 50 years, and this by either (1) an amendment
to the Articles of Association or Charter of this Company or (2) by reforming and reorganizing the Company as a Philippine
Corporation, or (3) by both or (4) by any other means.” Accordingly, the Board of Directors on May 27, 1953, adopted a
resolution to the following effect —
“Be It
Resolved, that the Company be reformed, reorganized and organized under the provisions of section 75 and other provisions of
the Philippine Corporation Law as a Philippine corporation with a corporate life and corporate powers as set forth in the Articles
of Incorporation attached hereto as Schedule ‘I’ and made a part hereof by this reference; chan roblesvirtualawlibraryand
Be It
‘FURTHER RESOLVED, that any five or more of the following shareholders of the Company be and they hereby are authorized as
instructed to act for and in behalf of the share holders of the Company and of the Company as Incorporators in the reformation,
reorganization and organization of the Company under and in accordance with the provisions aforesaid of said Philippine
Corporation Law, and in such capacity, they are hereby authorized and instructed to execute the aforesaid Articles of
Incorporation attached to these Minutes as Schedule ‘I’ hereof, with such amendments, deletion and additions thereto as any
five or more of those so acting shall deem necessary, proper, advisable or convenient to effect prompt registration of said
Articles under Philippine Law; chan roblesvirtualawlibraryand five or more of said Incorporators are hereby further authorized
and directed to do all things necessary, proper, advisable or convenient to effect such registration.”
In pursuance of such resolution, Benguet submitted in June, 1953, to the Securities and Exchange Commissioner, for alternative
registration, two documents:chanroblesvirtuallawlibrary (1) Certification as to the Modification of (the articles of association
of) the Benguet Consolidated Mining Company, extending the term of its existence to another fifty years from June 15,
1953; chan roblesvirtualawlibraryand (2) articles of incorporation, covering its reformation or reorganization as a corporation in
accordance with section 75 of the Philippine Corporation Law.
Relying mainly upon the adverse opinion of the Secretary of Justice (Op. No. 180, s. 1953), the Securities and Exchange
Commissioner denied the registration and ruled:chanroblesvirtuallawlibrary
(1) That the Benguet, as sociedad anonima, had no right to extend the original term of corporate existence stated in its Articles
of Association, by subsequent amendment thereof adopted after enactment of the Corporation Law (Act No. 1459); chan
roblesvirtualawlibraryand
(2) That Benguet, by its conduct, had chosen to continue as sociedad anonima, under section 75 of Act No. 1459, and could no
longer exercise the option to reform into a corporation, specially since it would indirectly produce the effect of extending its
life.
This ruling is the subject of the present appeal.
Petitioner Benguet contends:chanroblesvirtuallawlibrary
(1) That the proviso of section 18 of the Corporation Law to the effect —
“that the life of said corporation shall not be extended by amendment beyond the time fixed in the original articles.”
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does not apply to sociedades anonimas already in existence at the passage of the law, like Petitioner herein;
(2) That to apply the said restriction imposed by section 18 of the Corporation Law to sociedades anonimas already functioning
when the said law was enacted would be in violation of constitutional inhibitions;
(3) That even assuming that said restriction was applicable to it, Benguet could still exercise the option of reforming and
reorganizing under section 75 of the Corporation Law, thereby prolonging its corporate existence, since the law is silent as to the
time when such option may be exercised or availed of.
The first issue arises because the Code of Commerce of 1886 under which Benguet was organized, contains no prohibition (to
extend the period of corporate existence), equivalent to that set forth in section 18 of the Corporation Law. Neither does it
expressly authorize the extension. But the text of Article 223, reading:chanroblesvirtuallawlibrary
“ART. 223. After the termination of the period for which commercial associations are constituted, it shall not be understood as
extended by the implied or presumed will of the members; chan roblesvirtualawlibraryand if the members desire to continue in
association, they shall draw up new articles, subject to all the formalities prescribed for their creation as provided in Article
119.” (Code of Commerce.)
would seem to imply that the period of existence of the sociedad anonimas (or of any other commercial association for that
matter) may be extended if the partners or members so agree before the expiration of the original period.
While the Code of Commerce, in so far as sociedades anonimas are concerned, was repealed by Act No 1459, Benguet claims
that article 223 is still operative in its favor under the last proviso of section 191 of the Corporation law (ante, p. 4 to the effect
that existing sociedades anonimas would continue to be governed by the law in force before Act 1459,
“in relation to their organization and method of transacting business and to the rights of members among themselves, but their
relations to the public and public officials shall be governed by the provisions of this Act.”
Benguet contends that the period of corporate life relates to its organization and the rights of its members inter se, and not to
its relations to the public or public officials.
We find this contention untenable.
The term of existence of association (partnership or sociedad anonima) is coterminous with their possession of an
independent legal personality, distinct from that of their component members. When the period expires, the sociedad anonima
loses the power to deal and enter into further legal relations with other persons; chan roblesvirtualawlibraryit is no longer
possible for it to acquire new rights or incur new obligations, have only as may be required by the process of liquidating and
winding up its affairs. By the same token, its officers and agents can no longer represent it after the expiration of the life term
prescribed, save for settling its business. Necessarily, therefore, third persons or strangers have an interest in knowing the
duration of the juridical personality of the sociedad anonima, since the latter cannot be dealt with after that period; chan
roblesvirtualawlibrarywherefore its prolongation or cessation is a matter directly involving the company’s relations to the public
at large.
On the importance of the term of existence set in the articles of association of commercial companies under the Spanish Code of
Commerce, D. Lorenzo Benito y Endar, professor of mercantile law in the Universidad Central de Madrid, has this to
say:chanroblesvirtuallawlibrary
“La duracion de la Sociedad. — La necesidad de consignar este requisito en el contrato social tiene un valor analogo al que
dijimos tenia el mismo al tratar de las compañias colectivas, aun cuando respecto de las anonimas no haya de tenerse en cuenta
para nada lo que dijimos entonces acerca de la trascendencia que ello tiene para los socios; chan roblesvirtualawlibraryporque
no existiendo en las anonimas la serie de responsibilidades de caracter personal que afectan a los socios colectivos, es claro que
la duracion de la sociedad importa conocerla a los socios y los terceros, porque ella marca al limite natural del desenvolvimiento
de la empresa constituida y el comienzo de la liquidacion de la sociedad.” (3 Benito, Derecho Mercantil, 292-293.)
“Interesa, pues, la fijacion de la vida de la compañia, desenvolviendose con normalidad y regularidad, tanto a los asociados
como a los terceros. A aquellos, porque su libertad economica, en cierto modo limitada por la existencia del contrato de
compañia, se recobra despues de realizada, mas o menos cumplidamente, la finalidad comun perseguida; chan
roblesvirtualawlibraryy a los terceros, porque les advierte el momento en que, extinguida la compañia, no cabe y a la creacion
con ella de nuevas relaciones juridicas, de que nazcan reciprocamente derechos y obligaciones, sino solo la liquidacion de los
negocios hasta entonces convenidos, sin otra excepcion que la que luego mas adelante habremos de señalar”. (3 Benito,
Derecho Mercantil, p. 245.)
The State and its officers also have an obvious interest in the term of life of associations, since the conferment of juridical
capacity upon them during such period is a privilege that is derived from statute. It is obvious that no agreement between
associates can result in giving rise to a new and distinct personality, possessing independent rights and obligations, unless the
law itself shall decree such result. And the State is naturally interested that this privilege be enjoyed only under the conditions
Page 3 of 108
and not beyond the period that it sees fit to grant; chan roblesvirtualawlibraryand, particularly, that it be not abused in fraud
and to the detriment of other parties; chan roblesvirtualawlibraryand for this reason it has been ruled that “the limitation (of
corporate existence) to a definite period is an exercise of control in the interest of the public” (Smith vs. Eastwood Wire
Manufacturing Co., 43 Atl. 568).
We cannot assent to the thesis of Benguet that its period of corporate existence has relation to its “organization”. The latter
term is defined in Webster’s International Dictionary as:chanroblesvirtuallawlibrary
“The executive structure of a business; chan roblesvirtualawlibrarythe personnel of management, with its several duties and
places in administration; chan roblesvirtualawlibrarythe various persons who conduct a business, considered as a unit.”
The legal definitions of the term “organization” are concordant with that given above:chanroblesvirtuallawlibrary
“Organize or ‘organization,’ as used in reference to corporations, has a well-understood meaning, which is the election of
officers, providing for the subscription and payment of the capital stock, the adoption of by-laws, and such other steps as are
necessary to endow the legal entity with the capacity to transact the legitimate business for which it was created. Waltson vs.
Oliver, 30 P. 172, 173, 49 Kan. 107, 33 Am. St. Rep. 355; chan roblesvirtualawlibraryTopeka Bridge Co. vs. Cummings, 3 Kan. 55,
77; chan roblesvirtualawlibraryHunt vs. Kansas & M. Bridge Co., 11 Kan. 412, 439; chan roblesvirtualawlibraryAspen Water &
Light Co., vs. City of Aspen, 37 P. 728, 730, 6 Colo. App. 12; chan roblesvirtualawlibraryNemaha Coal & Mining Co., vs. Settle 38
P. 483, 484, 54 Kan. 424.
Under a statute providing that, until articles of incorporation should be recorded, the corporation should transact no business
except its own organization, it is held that the term “organization” means simply the process of forming and arranging into
suitable disposition the parties who are to act together in, and defining the objects of, the compound body, and that this
process, even when complete in all its parts, does not confer a franchise either valid or defective, but, on the contrary, it is only
the act of the individuals, and something else must be done to secure the corporate franchise. Abbott vs. Omaha Smelting &
Refining Co. 4 Neb. 416, 421.” (30 Words and Phrases, p. 282.)
It is apparent from the foregoing definitions that the term “organization” relates merely to the systematization and orderly
arrangement of the internal and managerial affairs and organs of the Petitioner Benguet, and has nothing to do with the
prorogation of its corporate life.
From the double fact that the duration of its corporate life (and juridical personality) has evident connection with
the Petitioner’s relations to the public, and that it bears none to the Petitioner’s organization and method of transacting
business, we derive the conclusion that the prohibition contained in section 18 of the Corporation Law (Act No. 1459) against
extension of corporate life by amendment of the original articles was designed and intended to apply to “compañias anonimas”
that, like Petitioner Benguet, were already existing at the passage of said law. This conclusion is reinforced by the avowed policy
of the law to hasten the day when compañias anonimas would be extinct, and replace them with the American type of
corporation (Harden vs. Benguet Consolidated Mining Co., supra), for the indefinite prorogation of the corporation life of
sociedades anonimas would maintain the unnecessary duality of organizational types instead of reducing them to a single
one; chan roblesvirtualawlibraryand what is more, it would confer upon these sociedades anonimas, whose obsolescence was
sought, the advantageous privilege of perpetual existence that the new corporation could not possess.
Of course, the retroactive application of the limitations on the terms of corporate existence could not be made in violation of
constitutional inhibitions specially those securing equal protection of the laws and prohibiting impairment of the obligation of
contracts. It needs no argument to show that if Act No. 1459 allowed existing compañias anonimas to be governed by the old
law in respect to their organization, methods of transacting business and the rights of the members among themselves, it was
precisely in deference to the vested rights already acquired by the entity and its members at the time the Corporation Law was
enacted. But we do not agree with PetitionerBenguet (and here lies the second issue in this appeal) that the possibility to
extend its corporate life under the Code of Commerce constituted a right already vested when Act No. 1459 was adopted. At
that time, Benguet’s existence was well within the 50 years period set in its articles of association; chan
roblesvirtualawlibraryand its members had not entered into any agreement that such period should be extended. It is safe to say
that none of the members of Benguet anticipated in 1906 any need to reach an agreement to increase the term of its corporate
life, barely three years after it had started. The prorogation was purely speculative; chan roblesvirtualawlibrarya mere possibility
that could not be taken for granted. It was as yet conditional, depending upon the ultimate decision of the members and
directors. They might agree to extend Benguet’s existence beyond the original 50 years; chan roblesvirtualawlibraryor again they
might not. It must be remembered that in 1906, the success of Benguet in its mining ventures was by no means so certain as to
warrant continuation of its operations beyond the 50 years set in its articles. The records of this Court show that Benguet ran
into financial difficulties in the early part of its existence, to the extent that, as late as 1913, ten years after it was found, 301,100
shares of its capital stock (with a par value of $1 per share) were being offered for sale at 25 centavos per share in order to raise
the sum of P75,000 that was needed to rehabilitate the company (Hanlon vs. Hausermann and Beam, 40 Phil., 796). Certainly
the prolongation of the corporate existence of Benguet in 1906 was merely a possibility in futuro, a contingency that did not
Page 4 of 108
fulfill the requirements of a vested right entitled to constitutional protection, defined by this Court in Balboa vs. Farrales, 51
Phil., 498, 502, as follows:chanroblesvirtuallawlibrary
“Vested right is ‘some right or interest in the property which has become fixed and established, and is no longer open to doubt
or controversy,”
“A ‘vested’ right is defined to be an immediate fixed right of present or future enjoyment, and rights are ‘vested’ in
contradistinction to being expectant or contingent” (Pearsall vs. Great Northern R. Co., 161 U. S. 646, 40 L. Ed. 838).
In Corpus Juris Secundum we find:chanroblesvirtuallawlibrary
“Rights are vested when the right to enjoyment, present or prospective, has become the property of some particular person or
persons as a present interest. The right must be absolute, complete, and unconditional, independent of a contingency, and a
mere expectancy of future benefit, or a contingent interest in property founded on anticipated continuance of existing laws,
does not constitute a vested right. So, inchoate rights which have not been acted on are not vested.” (16 C.J.S. 214-215.)
Since there was no agreement as yet to extend the period of Benguet’s corporate existence (beyond the original 50 years) when
the Corporation Law was adopted in 1906, neither Benguet nor its members had any actual or vested right to such extension
at that time. Therefore, when the Corporation Law, by section 18, forbade extensions of corporate life, neither Benguet nor
its members were deprived of any actual or fixed right constitutionally protected.
To hold, as Petitioner Benguet asks, that the legislative power could not deprive Benguet or its members of the possibility to
enter at some indefinite future time into an agreement to extend Benguet’s corporate life, solely because such agreements were
authorized by the Code of Commerce, would be tantamount to saying that the said Code was irrepealable on that point. It is a
well settled rule that no person has a vested interest in any rule of law entitling him to insist that it shall remain unchanged for
his benefit. (New York C. R. Co. vs. White, 61 L. Ed (U.S.) 667; chan roblesvirtualawlibraryMondou vs. New York N. H. & H. R. Co.,
56 L. Ed. 327; chan roblesvirtualawlibraryRainey vs. U. S., 58 L. Ed. 617; chan roblesvirtualawlibraryLilly Co. vs. Saunders, 125
ALR. 1308; chan roblesvirtualawlibraryShea vs. Olson, 111 ALR. 998).
“There can be no vested right in the continued existence of a statute or rule of the common law which precludes its change or
repeal, nor in any omission to legislate on a particular matter or subject. Any right conferred by statute may be taken away by
statute before it has become vested, but after a right has vested, repeal of the statute or ordinance which created the right does
not and cannot affect much right.” (16 C.J. S. 222-223.)
It is a general rule of constitutional law that a person has no vested right in statutory privileges and exemptions” (Brearly School
vs. Ward, 201 NY. 358, 40 LRA NS. 1215; chan roblesvirtualawlibraryalso, Cooley, Constitutional Limitations, 7th ed., p. 546).
It is not amiss to recall here that after Act No. 1459 the Legislature found it advisable to impress further restrictions upon the
power of corporations to deal in public lands, or to hold real estate beyond a maximum area; chan roblesvirtualawlibraryand to
prohibit any corporation from endeavouring to control or hold more than 15 per cent of the voting stock of an agricultural or
mining corporation (Act No. 3518). These prohibitions are so closely integrated with our public policy that Commonwealth Act
No. 219 sought to extend such restrictions to associations of all kinds. It would be subversive of that policy to enable Benguet to
prolong its peculiar status of sociedad anonimas, and enable it to cast doubt and uncertainty on whether it is, or not, subject to
those restrictions on corporate power, as it once endeavoured to do in the previous case of Harden vs. Benguet Mining Corp. 58
Phil., 149.
Stress has been laid upon the fact that the Compañia Maritima (like Benguet, a sociedad anonima established before the
enactment of the Corporation Law) has been twice permitted to extend its corporate existence by amendment of its articles of
association, without objection from the officers of the defunct Bureau of Commerce and Industry, then in charge of the
enforcement of the Corporation Laws, although the exact question was never raised then. Be that as it may, it is a well
established rule in this jurisdiction that the government is never estopped by mistake or error on the part of its agents” (Pineda
vs. Court of First Instance of Tayabas, 52 Phil., 803, 807), and that estopped cannot give validity to an act that is prohibited by
law or is against public policy (Eugenio vs. Perdido, (97 Phil., 41, May 19, 1955; chan roblesvirtualawlibrary19 Am. Jur. 802); chan
roblesvirtualawlibraryso that the Respondent, Securities and Exchange Commissioner, was not bound by the rulings of his
predecessor if they be inconsistent with law. Much less could erroneous decisions of executive officers bind this Court and
induce it to sanction an unwarranted interpretation or application of legal principles.
We now turn to the third and last issue of this appeal, concerning the exercise of the option granted by section 75 of the
Corporation Law to every sociedad anonima “formed, organized and existing under the laws of the Philippines on the date of the
passage of this Act” to either continue business as such sociedad anonima or to reform and organize under the provisions of the
Corporation Law. Petitioner-Appellant Benguet contends that as the law does not determine the period within which such
option may be exercised, Benguet may exercise it at any time during its corporate existence; chan roblesvirtualawlibraryand that
in fact on June 22, 1953, it chose to reform itself into a corporation for a period of 50 years from that date, filing the
corresponding papers and by-laws with the Respondent Commissioner of Securities and Exchange registration; chan
roblesvirtualawlibrarybut the latter refused to accept them as belatedly made.
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The Petitioner’s argument proceeds from the unexpressed assumption that Benguet, as sociedad anonima, had not exercised
the option given by section 75 of the Corporation Law until 1953. This we find to be incorrect. Under that section, by continuing
to do business as sociedad anonima, Benguet in fact rejected the alternative to reform as a corporation under Act No. 1459. It
will be noted from the text of section 75 (quoted earlier in this opinion) that no special act or manifestation is required by the
law from the existing sociedades anonimas that prefer to remain and continue as such. It is when they choose to reform and
organize under the Corporation Law that they must, in the words of the section, “transfer all corporate interests to the new
corporation”. Hence if they do not so transfer, the sociedades anonimas affected are to be understood to have elected the
alternative “to continue business as such corporation” (sociedad anonima) 2
The election of Benguet to remain a sociedad anonima after the enactment of the Corporation Law is evidence, not only by its
failure, from 1906 to 1953, to adopt the alternative to transfer its corporate interests to a new corporation, as required by
section 75; chan roblesvirtualawlibraryit also appears from positive acts. Thus around 1933, Benguet claimed and defended in
court its acquisition of shares of the capital stock of the Balatoc Mining Company, on the ground that as a sociedad anonima it
(Benguet) was not a corporation within the purview of the laws prohibiting a mining corporation from becoming interested in
another mining corporation (Harden vs. Benguet Mining Corp., 58 Phil., p. 149). Even in the present proceedings, Benguet has
urged its right to amend its original articles of association as “sociedad anonima” and extend its life as such under the provisions
of the Spanish Code of Commerce. Such appeals to privileges as “sociedad anonima” under the Code of 1886 necessarily imply
that Benguet has rejected the alternative of reforming under the Corporation Law. As Respondent Commissioner’s order, now
under appeal, has stated —
“A sociedad anonima could not claim the benefit of both, but must have to choose one and discard the other. If it elected to
become a corporation it could not continue as a sociedad anonima; chan roblesvirtualawlibraryand if it choose to remain as a
sociedad anonima, it could not become a corporation.”
Having thus made its choice, Benguet may not now go back and seek to change its position and adopt the reformation that it
had formerly repudiated. The election of one of several alternatives is irrevocable once made (as now expressly recognized in
article 940 of the new Civil Code of the Philippines):chanroblesvirtuallawlibrary such rule is inherent in the nature of the choice,
its purpose being to clarify and render definite the rights of the one exercising the option, so that other persons may act in
consequence. While successive choices may be provided there is nothing in section 75 of the Corporation Law to show or hint
that a sociedad anonima may make more than one choice thereunder, since only one option is provided for.
While no express period of time is fixed by the law within which sociedades anonimas may elect under section 75 of Act No.
1459 either to reform or to retain their status quo, there are powerful reasons to conclude that the legislature intended such
choice to be made within a reasonable time from the effectivity of the Act. To enable a sociedad anonima to choose
reformation when its stipulated period of existence is nearly ended, would be to allow it to enjoy a term of existence far
longer than that granted to corporations organized under the Corporation Law; chan roblesvirtualawlibraryin Benguet’s case,
50 years as sociedad anonima, and another 50 years as an American type of corporation under Act 1459; chan
roblesvirtualawlibrarya result incompatible with the avowed purpose of the Act to hasten the disappearance of the sociedades
anonimas. Moreover, such belated election, if permitted, would enable sociedades anonimas to reap the full advantage of both
types of organization. Finally, it would permit sociedades anonimas to prolong their corporate existence indirectly by belated
reformation into corporations under Act No. 1459, when they could not do so directly by amending their articles of association.
Much stress is laid upon allegedly improper motives on the part of the intervenor, Consolidated Mines, Inc., in supporting the
orders appealed from, on the ground that intervenor seeks to terminate Benguet’s operating contract and appropriate the
profits that are the result of Benguet’s efforts in developing the mines of the intervenor. Suffice it to say that whatever such
motives should be, they are wholly irrelevant to the issues in this appeal, that exclusively concern the legal soundness of the
order of the Respondent Securities and Exchange Commissioner rejecting the claims of the Benguet Consolidated Mining
Company to extend its corporate life.
Neither are we impressed by the prophesies of economic chaos that would allegedly ensure with the cessation of Benguet’s
activities. If its mining properties are really susceptible of profitable operation, inexorable economic laws will ensure their
exploitation; chan roblesvirtualawlibraryif, on the other hand, they can no longer be worked at a profit, then catastrophe
becomes inevitable, whether or not Petitioner Benguet retains corporate existence.
Sustaining the opinions of the Respondent Securities and Exchange Commissioner and of the Secretary of Justice, we rule
that:chanroblesvirtuallawlibrary
(1) The prohibition contained in section 18 of Act No. 1459, against extending the period of corporate existence by amendment
of the original articles, was intended to apply, and does apply, to sociedades anonimas already formed, organized and existing at
the time of the effectivity of the Corporation Law (Act No. 1459) in 1906;
(2) The statutory prohibition is valid and impairs no vested rights or constitutional inhibition where no agreement to extend the
original period of corporate life was perfected before the enactment of the Corporation Law;
Page 6 of 108
(3) A sociedad anonima, existing before the Corporation Law, that continues to do business as such for a reasonable time after
its enactments, is deemed to have made its election and may not subsequently claim to reform into a corporation under section
75 of Act No. 1459.
In view of the foregoing, the order appealed from is affirmed. Costs against Petitioner-AppellantBenguet Consolidated Mining
Company.
Padilla, Montemayor, Reyes, A. Labrador, Concepcion and Endencia, JJ., concur.
G.R. No. L-23145 November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.

Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York,
United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to
surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine corporation,
Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided by the Honorable
Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the motion of the ancillary
administrator, dated February 11, 1964, as well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1)
considers as lost for all purposes in connection with the administration and liquidation of the Philippine estate of Idonah Slade
Perkins the stock certificates covering the 33,002 shares of stock standing in her name in the books of the Benguet Consolidated,
Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be
delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court."1
From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New
York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged
order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to
the attainment of specific ends by the use of specific remedies, with full and ample support from legal doctrines of weight and
significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who died on
March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant, the certificates
being in the possession of the County Trust Company of New York, which as noted, is the domiciliary administrator of the estate
of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary
administration proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator,
and on January 22, 1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary
administrator in New York and the ancillary administrator in the Philippines as to which of them was entitled to the possession
of the stock certificates in question. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary
administrator, County Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court.
The domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator petitioned
the court to "issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued in the name of
Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost." 3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as to
"who is entitled to the possession of the stock certificates in question; appellant opposed the petition of the ancillary
administrator because the said stock certificates are in existence, they are today in the possession of the domiciliary
administrator, the County Trust Company, in New York, U.S.A...."4
It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover,
it would allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be
issued. Hence, its appeal.
Page 7 of 108
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic
affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to
accord obedience to a court decree. How, then, can this order be stigmatized as illegal?
As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What
cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without undue loss of
judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as to preclude such a
solution, the more so as deeper reflection would make clear its being buttressed by indisputable principles and supported by the
strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the
country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought about by the
persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily submitted
itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27, 1963, and filing a petition for
relief from a previous order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it, what
it had been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary administrator, with
residence abroad, of what was previously ordained by a court order could be thus remedied, it would have entailed, insofar as
this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control and
possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his
duty to settle her estate and satisfy the claims of local creditors. 5 As Justice Tuason speaking for this Court made clear, it is a
"general rule universally recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a
decedent found within the state or country where it was granted," the corollary being "that an administrator appointed in one
state or country has no power over property in another state or country."6
It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice Malcolm.
Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate owning property in
the country of his domicile as well as in a foreign country, administration is had in both countries. That which is granted in the
jurisdiction of decedent's last domicile is termed the principal administration, while any other administration is termed the
ancillary administration. The reason for the latter is because a grant of administration does not ex proprio vigore have any effect
beyond the limits of the country in which it is granted. Hence, an administrator appointed in a foreign state has no authority in
the [Philippines]. The ancillary administration is proper, whenever a person dies, leaving in a country other than that of his last
domicile, property to be administered in the nature of assets of the deceased liable for his individual debts or to be distributed
among his heirs."7
It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock
certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be
respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and subject to the
unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful
court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue 8 finds application. "In the instant case, the actual
situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above undeniable
proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order,
how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of precisely
demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its "considering as lost
the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..." 9 More specifically,
appellant would stress that the "lower court could not "consider as lost" the stock certificates in question when, as a matter of
fact, his Honor the trial Judge knew, and does know, and it is admitted by the appellee, that the said stock certificates are in
existence and are today in the possession of the domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of
the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the
Page 8 of 108
shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was
nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu
thereof. Thereby, the task incumbent under the law on the ancillary administrator could be discharged and his responsibility
fulfilled.
Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of
the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusing to yield
obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree could be treated as a
mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. To be
more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however, again to borrow
from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in
its development."11
Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of justice,
[even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent jurist, noting "the
quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the empire of "as if" today."13 He
likewise noted "a class of fictions of another order, the fiction which is a working tool of thought, but which at times hides itself
from view till reflection and analysis have brought it to the light." 14
What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be
then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. If ever an
occasion did call for the employment of a legal fiction to put an end to the anomalous situation of a valid judicial order being
disregarded with apparent impunity, this is it. What is thus most obvious is that this particular alleged error does not carry
persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of its
by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it would stress
that in the event of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock
allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the "final decision by [a] court
regarding the ownership [thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign
domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express admission of
appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock certificates ..." Even if
such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness and finality. Assuming that a
contrariety exists between the above by-law and the command of a court decree, the latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary must
yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however, if a
corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it but yield to
its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its
inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes a valid
defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus far, nothing in
the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a future prejudice to
appellant do not suffice to nullify the lawful exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic
postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...." 16 It owes its life to
the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an
artificial person, owing its existence through creation by a sovereign power." 17 As a matter of fact, the statutory language
employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an
artificial being, invisible, intangible, and existing only in contemplation of law." 18
Page 9 of 108
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person, but the
law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and separate from
its individual stockholders.... It owes its existence to law. It is an artificial person created by law for certain specific purposes, the
extent of whose existence, powers and liberties is fixed by its charter."19Dean Pound's terse summary, a juristic person, resulting
from an association of human beings granted legal personality by the state, puts the matter neatly. 20
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the reality of
the group as a social and legal entity, independent of state recognition and concession." 21 A corporation as known to Philippine
jurisprudence is a creature without any existence until it has received the imprimatur of the state according to law. It is logically
inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it
cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called
upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our
jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the
appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances, where a duty
under the law as ascertained in an appropriate legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be
conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its
very existence; it is to contend that what any of its governmental organs may lawfully require could be ignored at will. So
extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs, 22 it was shown that in a guardianship proceedings then pending
in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of money paid to the
minor under guardianship, alleging that the lower court had previously granted its petition to consider the deceased father as
not entitled to guerilla benefits according to a determination arrived at by its main office in the United States. The motion was
denied. In seeking a reconsideration of such order, the Administrator relied on an American federal statute making his decisions
"final and conclusive on all questions of law or fact" precluding any other American official to examine the matter anew, "except
a judge or judges of the United States court."23 Reconsideration was denied, and the Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should be
rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final
and conclusive when made on claims property submitted to him for resolution; but they are not applicable to the present case,
where the Administrator is not acting as a judge but as a litigant. There is a great difference between actions against the
Administrator (which must be filed strictly in accordance with the conditions that are imposed by the Veterans' Act, including
the exclusive review by United States courts), and those actions where the Veterans' Administrator seeks a remedy from our
courts and submits to their jurisdiction by filing actions therein. Our attention has not been called to any law or treaty that
would make the findings of the Veterans' Administrator, in actions where he is a party, conclusive on our courts. That, in effect,
would deprive our tribunals of judicial discretion and render them mere subordinate instrumentalities of the Veterans'
Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations made by
foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts over juridical
persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the whim or caprice of alien
entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of the country.
Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be firmly
committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal. Certainly we must at all
pains see to it that it does not succeed. The deplorable consequences attendant on appellant prevailing attest to the necessity of
negative response from us. That is what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme and
even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction is the result
arrived at, the just solution obtained, grounded in the soundest of legal doctrines and distinguished by its correspondence with
what a sense of realism requires. For through the appealed order, the imperative requirement of justice according to law is
satisfied and national dignity and honor maintained.
Page 10 of 108
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964,
is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.
[G.R. No. 125469. October 27, 1997]

PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and PUERTO AZUL LAND, INC., respondents.
DECISION
TORRES, JR., J.:
The Securities and Exchange Commission is the government agency, under the direct general supervision of the Office of
the President,[1] with the immense task of enforcing the Revised Securities Act, and all other duties assigned to it by pertinent
laws. Among its inumerable functions, and one of the most important, is the supervision of all corporations, partnerships or
associations, who are grantees or primary franchise and/or a license or permit issued by the government to operate in the
Philippines.[2] Just how far this regulatory authority extends, particularly, with regard to the Petitioner Philippine Stock Exchange,
Inc. is the issue in the case at bar.
In this Petition for Review of Certiorari, petitioner assails the resolution of the respondent Court of Appeals, dated June 27,
1996, which affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange,
Inc. to allow the private respondent Puerto Azul 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 in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order
to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In January, 1995, PALI was
issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for
which purpose it filed with the said stock exchange an application to list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs application, recommended to the PSEs
Board of Governors the approval of PALIs listing application.
On February 14, 1996, before it could act upon PALIs application, the Board of Governors of PSE received a letter from the
heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of certain properties
forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate
Development Corporation, which is among the stockholders of PALI, likewise appears to have been held and continue to be held
in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his estate, and requested PALIs application
to be deferred. PALI was requested to comment upon the said letter.
PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort Complex were not claimed by
PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country
Club, entities distinct from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The Marcoses
responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby
implying that they are also asserting legal and beneficial ownership of other properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good
Government (PCGG) requesting for comments on the letter of the PALI and the Marcoses. On March 4, 1996, the PSE was
informed that the Marcoses received a Temporary Restraining Order on the same date, enjoining the Marcoses from, among
others, further impeding, obstructing, delaying or interfering in any manner by or any means with the consideration, processing
and approval by the PSE of the initial public offering of PALI. The TRO was issued by Judge Martin S. Villarama, Executive Judge
of the RTC of Pasig City in Civil Case No. 65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision to reject PALIs
application, citing the existence of serious claims, issues and circumstances surrounding PALIs ownership over its assets that
adversely affect the suitability of listing PALIs shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to
the SECs attention the action taken by the PSE in the application of PALI for the listing of its shares with the PSE, and requesting
that the SEC, in the exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A,
review the PSEs action on PALIs listing application and institute such measures as are just and proper and under the
circumstances.
Page 11 of 108
On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of PALI and directing the PSE
to file its comments thereto within five days from its receipt and for its authorized representative to appear for an inquiry on the
matter. On April 22, 1996, the PSE submitted a letter to the SEC containing its comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The dispositive portion of the said order reads:
WHEREFORE, premises considered, and invoking the Commissioners authority and jurisdiction under Section 3 of the Revised
Securities Act, in conjunction with Section 3, 6(j) and 6(m) of the Presidential Decree No. 902-A, the decision of the Board of
Governors of the Philippine Stock Exchange denying the listing of shares of Puerto Azul Land, Inc., is hereby set aside, and the
PSE is hereby ordered to immediately cause the listing of the PALI shares in the Exchange, without prejudice to its authority to
require PALI to disclose such other material information it deems necessary for the protection of the investing public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied by the Commission
in its May 9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no compelling reason to consider its order dated April 24, 1996, and in
the light of recent developments on the adverse claim against the PALI properties, PSE should require PALI to submit full
disclosure of material facts and information to protect the investing public. In this regard, PALI is hereby ordered to amend its
registration statements filed with the Commission to incorporate the full disclosure of these material facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with application
for Writ of Preliminary Injunction and Temporary Restraining Order), assailing the above mentioned orders of the SEC,
submitting the following as errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT POWER,
JURISDICTION, OR AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE
SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND
ABUSIVE MANNER IN DISAPPROVING PALIS LISTING APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA
LEGIS AND WHICH FORM PART OF NAVAL/MILITARY RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION IN THIS
CASE VIOLATES THE DUE PROCESS CLAUSE OF THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and Motion to
Dismiss. On June 10, 1996, PSE filed its Reply to Comment and Opposition to Motion to Dismiss.
On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSEs Petition for Review. Hence, this
Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner
PSE, pursuant to Section 3[3] of the Revised Securities Act in relation to Section 6(j) and 6(m) [4] of P.D. No. 902-A, and Section
38(b)[5] of the Revised Securities Act, and for the purpose of ensuring fair administration of the exchange. Both as a corporation
and as a stock exchange, the petitioner is subject to public respondents jurisdiction, regulation and control. Accepting the
argument that the public respondent has the authority merely to supervise or regulate, would amount to serious consequences,
considering that the petitioner is a stock exchange whose business is impressed with public interest. Abuse is not remote if the
public respondent is left without any system of control. If the securities act vested the public respondent with jurisdiction and
control over all corporations; the power to authorize the establishment of stock exchanges; the right to supervise and regulate
the same; and the power to alter and supplement rules of the exchange in the listing or delisting of securities, then the law
certainly granted to the public respondent the plenary authority over the petitioner; and the power of review necessarily comes
within its authority.
All in all, the court held that PALI complied with all the requirements for public listing, affirming the SECs ruling to the
effect that:
x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI for
listing of its shares in the face of the following considerations:
Page 12 of 108
1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange;
2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to justify why it acted
differently on the application of PALI, as compared to the IPOs of other companies similarly that were allowed listing in the
Exchange;
3. It appears that the claims and issues on the title to PALIs properties were even less serious than the claims against the assets
of the other companies in that, the assertions of the Marcoses that they are owners of the disputed properties were not
substantiated enough to overcome the strength of a title to properties issued under the Torrens System as evidence of
ownership thereof;
4. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership over the disputed
properties, neither has the government instituted recovery proceedings against these properties. Yet the import of PSEs decision
in denying PALIs application is that it would be PALI, not the Marcoses, that must go to court to prove the legality of its
ownership on these properties before its shares can be listed.
In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief. The
point is, the PALI properties are now titled. A property losses its public character the moment it is covered by a title. As a matter
of fact, the titles have long been settled by a final judgment; and the final decree having been registered, they can no longer be
re-opened considering that the one year period has already passed. Lastly, the determination of what standard to apply in
allowing PALIs application for listing, whether the discretion method or the system of public disclosure adhered to by the SEC,
should be addressed to the Securities Commission, it being the government agency that exercises both supervisory and
regulatory authority over all corporations.
On August 15, 1996, the PSE, after it was granted an extension, filed an instant Petition for Review on Certiorari, taking
exception to the rulings of the SEC and the Court of Appeals. Respondent PALI filed its Comment to the petition on October 17,
1996. On the same date, the PCGG filed a Motion for Leave to file a Petition for Intervention. This was followed up by the PCGGs
Petition for Intervention on October 21, 1996. A supplemental Comment was filed by PALI on October 25, 1997. The Office of
the Solicitor General, representing the SEC and the Court of Appeals, likewise filed its Comment on December 26, 1996. In
answer to the PCGGs motion for leave to file petition for intervention, PALI filed its Comment thereto on January 17, 1997,
whereas the PSE filed its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17, 1996) and the
Solicitor General (December 26, 1996). On may 16, 1997, PALI filed its Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of PALI in
the stock exchange. Under presidential decree No. 902-A, the powers of the SEC over stock exchanges are more limited as
compared to its authority over ordinary corporations. In connection with this, the powers of the SEC over stock exchanges under
the Revised Securities Act are specifically enumerated, and these do not include the power to reverse the decisions of the stock
exchange. Authorities are in abundance even in the United States, from which the countrys security policies are patterned, to
the effect of giving the Securities Commission less control over stock exchanges, which in turn are given more lee-way in making
the decision whether or not to allow corporations to offer their stock to the public through the stock exchange. This is in accord
with the business judgment rule whereby the SEC and the courts are barred from intruding into business judgments of
corporations, when the same are made in good faith. The said rule precludes the reversal of the decision of the PSE to deny
PALIs listing application, absent a showing a bad faith on the part of the PSE. Under the listing rule of the PSE, to which PALI had
previously agreed to comply, the PSE retains the discretion to accept or reject applications for listing. Thus, even if an issuer has
complied with the PSE listing rules and requirements, PSE retains the discretion to accept or reject the issuers listing application
if the PSE determines that the listing shall not serve the interests of the investing public.
Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with corporations whose
properties are under sequestration. A reading of Republic of the Philippines vs. Sandiganbayan, G.R. No. 105205, 240 SCRA 376,
would reveal that the properties of PALI, which were derived from the Ternate Development Corporation (TDC) and the Monte
del Sol Development Corporation (MSDC), are under sequestration by the PCGG, and the subject of forfeiture proceedings in the
Sandiganbayan. This ruling of the Court is the law of the case between the Republic and the TDC and MSDC. It categorically
declares that the assets of these corporations were sequestered by the PCGG on March 10, 1986 and April 4, 1988.
It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership over its properties can no longer be
questioned, since certificates of title have been issued to PALI and more than one year has since lapsed, is erroneous and
ignores well settled jurisprudence on land titles. That a certificate of title issued under the Torrens System is a conclusive
evidence of ownership is not an absolute rule and admits certain exceptions. It is fundamental that forest lands or military
reservations are non-alienable. Thus, when a title covers a forest reserve or a government reservation, such title is void.
Page 13 of 108
PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged policy of full disclosure to uphold the listing
of the PALIs shares with the PSE, in the absence of a clear mandate for the effectivity of such policy. As it is, the case records
reveal the truth that PALI did not comply with the listing rules and disclosure requirements. In fact, PALIs documents supporting
its application contained misrepresentations and misleading statements, and concealed material information. The matter of
sequestration of PALIs properties and the fact that the same form part of military/naval/forest reservations were not reflected
in PALIs application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the marking of a
corporate entity, its functions as the primary channel through which the vessels of capital trade ply. The PSEs relevance to the
continued operation and filtration of the securities transactions in the country gives it a distinct color of importance such that
government intervention in its affairs becomes justified, if not necessary. Indeed, as the only operational stock exchange in the
country today, the PSE enjoys a monopoly of securities transactions, and as such, it yields an immense influence upon the
countrys economy.
Due to this special nature of stock exchanges, the countrys lawmakers has seen it wise to give special treatment to the
administration and regulation of stock exchanges.[6]
These provisions, read together with the general grant of jurisdiction, and right of supervision and control over all
corporations under Sec. 3 of P.D. 902-A, give the SEC the special mandate to be vigilant in the supervision of the affairs of stock
exchanges so that the interests of the investing public may be fully safeguarded.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs challenged control authority
over the petitioner PSE even as it provides that the Commission shall have absolute jurisdiction, supervision, and control over all
corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the
government to operate in the Philippines The SECs regulatory authority over private corporations encompasses a wide margin of
areas, touching nearly all of a corporations concerns. This authority springs from the fact that a corporation owes its existence to
the concession of its corporate franchise from the state.
The SECs power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary or
incidental to the carrying out of the SECs express power to insure fair dealing in securities traded upon a stock exchange or to
ensure the fair administration of such exchange.[7] It is, likewise, observed that the principal function of the SEC is the
supervision and control over corporations, partnerships and associations with the end in view that investment in these entities
may be encouraged and protected, and their activities pursued for the promotion of economic development. [8]
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the application
for listing in the stock exchange of the private respondent PALI. The SECs action was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange. This is in line with the SECs mission to ensure proper compliance with
the laws, such as the Revised Securities Act and to regulate the sale and disposition of securities in the country. [9] As the
appellate court explains:
Paramount policy also supports the authority of the public respondent to review petitioners denial of the listing. Being a stock
exchange, the petitioner performs a function that is vital to the national economy, as the business is affected with public
interest. As a matter of fact, it has often been said that the economy moves on the basis of the rise and fall of stocks being
traded. By its economic power, the petitioner certainly can dictate which and how many users are allowed to sell securities thru
the facilities of a stock exchange, if allowed to interpret its own rules liberally as it may please. Petitioner can either allow or
deny the entry to the market of securities. To repeat, the monopoly, unless accompanied by control, becomes subject to
abuse; hence, considering public interest, then it should be subject to government regulation.
The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities Act,
Presidential Decree No. 902-A, and other pertinent laws, has entrusted to it the serious responsibility of enforcing all laws
affecting corporations and other forms of associations not otherwise vested in some other government office. [10]
This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. The PSE is,
after all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. One of the
PSEs main concerns, as such, is still the generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining
to corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not to enter) into
contracts with third persons, and to perform all other legal acts within its allocated express or implied powers.
Page 14 of 108
A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a
distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites
appropriate to such body.[11] As to its corporate and management decisions, therefore, the state will generally not interfere with
the same. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation,
and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the
business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts. [12]
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSEs
decision in matters of application for listing in the market, the SEC may exercise such power only if the PSEs judgment is
attended by bad faith. In board of Liquidators vs. Kalaw,[13] it was held that bad faith does not simply connote bad judgment or
negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known
duty through some motive or interest of ill will, partaking of the nature of fraud.
In reaching its decision to deny the application for listing of PALI, the PSE considered important facts, which in the general
scheme, brings to serious question the qualification of PALI to sell its shares to the public through the stock exchange. During
the time for receiving objections to the application, the PSE heard from the representative of the late President Ferdinand E.
Marcos and his family who claim the properties of the private respondent to be part of the Marcos estate. In time, the PCGG
confirmed this claim. In fact, an order of sequestration has been issued covering the properties of PALI, and suit for
reconveyance to the state has been filed in the Sandiganbayan Court. How the properties were effectively transferred, despite
the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the private respondent PALI, in only a short span of
time, are not yet explained to the Court, but it is clear that such circumstances give rise to serious doubt as to the integrity of
PALI as a stock issuer. The petitioner was in the right when it refused application of PALI, for a contrary ruling was not to the
best interest of the general public. The purpose of the Revised Securities Act, after all, is to give adequate and effective
protection to the investing public against fraudulent representations, or false promises, and the imposition of worthless
ventures.[14]
It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to legitimate
business, thus:
The Securities Act, often referred to as the truth in securities Act, was designed not only to provide investors with adequate
information upon which to base their decisions to buy and sell securities, but also to protect legitimate business seeking to
obtain capital through honest presentation against competition form crooked promoters and to prevent fraud in the sale of
securities. (Tenth Annual Report, U.S. Securities and Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions, merely by
requirement of that details be revealed; (2) placing the market during the early stages of the offering of a security a body of
information, which operating indirectly through investment services and expert investors, will tend to produce a more accurate
appraisal of a security. x x x. Thus, the Commission may refuse to permit a registration statement to become effective if it
appears on its face to be incomplete or inaccurate in any material respect, and empower the Commission to issue a stop order
suspending the effectiveness of any registration statement which is found to include any untrue statement of a material fact or
to omit to state any material fact required to be stated therein or necessary to make the statements therein not
misleading. (Idem).
Also, as the primary market for securities, the PSE has established its name and goodwill, and it has the right to protect
such goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact through its facilities. It
was reasonable for PSE, therefore, to exercise its judgment in the manner it deems appropriate for its business identity, as long
as no rights are trampled upon, and public welfare is safeguarded.
In this connection, it is proper to observe that the concept of government absolutism in a thing of the past, and should
remain so.
The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no moment. At
this juncture, there is the claim that the properties were owned by the TDC and MSDC and were transferred in violation of
sequestration orders, to Rebecco Panlilio and later on to PALI, besides the claim of the Marcoses that such properties belong to
Marcos estate, and were held only in trust by Rebecco Panlilio. It is also alleged by the petitioner that these properties belong to
naval and forest reserves, and therefore beyond private dominion. If any of these claims is established to be true, the
certificates of title over the subject properties now held by PALI may be disregarded, as it is an established rule that a
registration of a certificate of title does not confer ownership over the properties described therein to the person named as
owner. The inscription in the registry, to be effective, must be made in good faith. The defense of indefeasibility of a Torrens
Title does not extend to a transferee who takes the certificate of title with notice of a flaw.
Page 15 of 108
In any case, for the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true
ownership of the properties of PALI need not be determined as an absolute fact. What is material is that the uncertainty of the
properties ownership and alienability exists, and this puts to question the qualification of PALIs public offering. In sum, the Court
finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE of
the private respondent PALI, since this is a matter addressed to the sound discretion of the PSE, a corporate entity, whose
business judgments are respected in the absence of bad faith.
The question as to what policy is, or should be relied upon in approving the registration and sale of securities in the SEC is
not for the Court to determine, but is left to the sound discretion of the Securities and Exchange Commission. In mandating the
SEC to administer the Revised Securities Act, and in performing its other functions under pertinent laws, the Revised Securities
Act, under Section 3 thereof, gives the SEC the power to promulgate such rules and regulations as it may consider appropriate in
the public interest for the enforcement of the said laws. The second paragraph of Section 4 of the said law, on the other hand,
provides that no security, unless exempt by law, shall be issued, endorsed, sold, transferred or in any other manner conveyed to
the public, unless registered in accordance with the rules and regulations that shall be promulgated in the public interest and for
the protection of investors by the Commission. Presidential Decree No. 902-A, on the other hand, provides that the SEC, as
regulatory agency, has supervision and control over all corporations and over the securities market as a whole, and as such, is
given ample authority in determining appropriate policies. Pursuant to this regulatory authority, the SEC has manifested that it
has adopted the policy of full material disclosure where all companies, listed or applying for listing, are required to divulge
truthfully and accurately, all material information about themselves and the securities they sell, for the protection of the
investing public, and under pain of administrative, criminal and civil sanctions. In connection with this, a fact is deemed material
if it tends to induce or otherwise effect the sale or purchase of its securities. [15] While the employment of this policy is
recognized and sanctioned by laws, nonetheless, the Revised Securities Act sets substantial and procedural standards which a
proposed issuer of securities must satisfy.[16] Pertinently, Section 9 of the Revised Securities Act sets forth the possible Grounds
for the Rejection of the registration of a security:
- - The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such
registration statement if it finds that - -
(1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of
a material fact or omits to state a material facts required to be stated therein or necessary to make the statements therein not
misleading; or
(2) The issuer or registrant - -
(i) is not solvent or not is sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto, or any order of
the Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in the public interest
and for the protection of investors, impose before the security can be registered;
(iv) had been engaged or is engaged or is about to engaged in fraudulent transactions;
(v) is in any was dishonest of is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary or government
rules and regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles;
(4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to such officer, director or
principal stockholder; or
(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to
the prejudice to the public interest or as a fraud upon the purchaser or investors. (Emphasis Ours)
Page 16 of 108
A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of
securities dependent, to a certain extent, on the merits of the securities themselves, and of the issuer, to be determined by the
Securities and Exchange Commission. This measure was meant to protect the interest of the investing public against fraudulent
and worthless securities, and the SEC is mandated by law to safeguard these interests, following the policies and rules therefore
provided. The absolute reliance on the full disclosure method in the registration of securities is, therefore, untenable. At it is,
the Court finds that the private respondent PALI, on at least two points (nos. 1 and 5) has failed to support the propriety of the
issue of its shares with unfailing clarity, thereby lending support to the conclusion that the PSE acted correctly in refusing the
listing of PALI in its stock exchange. This does not discount the effectivity of whatever method the SEC, in the exercise of its
vested authority, chooses in setting the standard for public offerings of corporations wishing to do so. However, the SEC must
recognize and implement the mandate of the law, particularly the Revised Securities Act, the provisions of which cannot be
amended or supplanted my mere administrative issuance.
In resum, the Court finds that the PSE has acted with justified circumspection, discounting, therefore, any imputation of
arbitrariness and whimsical animation on its part. Its action in refusing to allow the listing of PALI in the stock exchange is
justified by the law and by the circumstances attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for Review
on Certiorari. The decisions of the Court of Appeals and the Securities and Exchage Commission dated July 27, 1996 and April 24,
1996, respectively, are hereby REVERSED and SET ASIDE, and a new Judgment is hereby ENTERED, affirming the decision of the
Philippine Stock Exchange to deny the application for listing of the private respondent Puerto Azul Land, Inc.
SO ORDERED.
[G.R. No. 142936. April 17, 2002]

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners, vs. ANDRADA ELECTRIC &
ENGINEERING COMPANY, respondent.
DECISION
PANGANIBAN, J.:
Basic is the rule that a corporation has a legal personality distinct and separate from the persons and entities owning it. The
corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat public convenience,
insulate bad faith or perpetuate injustice. Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or
management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the
resulting public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the PASUMILs
contractual debts to respondent.
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision [1] of the Court of Appeals (CA) in CA-GR CV No.
57610. The decretal portion of the challenged Decision reads as follows:
WHEREFORE, the judgment appealed from is hereby AFFIRMED. [2]
The Facts
The factual antecedents of the case are summarized by the Court of Appeals as follows:
In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly organized, existing, and operating under
the laws of the Philippines, with office and principal place of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while
the defendant [herein petitioner] Philippine National Bank (herein referred to as PNB), is a semi-government corporation duly
organized, existing and operating under the laws of the Philippines, with office and principal place of business at Escolta Street,
Sta. Cruz, Manila; whereas, the other defendant, the National Sugar Development Corporation (NASUDECO in brief), is also a
semi-government corporation and the sugar arm of the PNB, with office and principal place of business at the 2 nd Floor,
Sampaguita Building, Cubao, Quezon City; and the defendant Pampanga Sugar Mills (PASUMIL in short), is a corporation
organized, existing and operating under the 1975 laws of the Philippines, and had its business office before 1975 at Del Carmen,
Floridablanca, Pampanga; that the plaintiff is engaged in the business of general construction for the repairs and/or construction
Page 17 of 108
of different kinds of machineries and buildings; that on August 26, 1975, the defendant PNB acquired the assets of the
defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines (DBP) under LOI No. 311; that the
defendant PNB organized the defendant NASUDECO in September, 1975, to take ownership and possession of the assets and
ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills; that prior to October 29, 1971, the
defendant PASUMIL engaged the services of plaintiff for electrical rewinding and repair, most of which were partially paid by the
defendant PASUMIL, leaving several unpaid accounts with the plaintiff; that finally, on October 29, 1971, the plaintiff and the
defendant PASUMIL entered into a contract for the plaintiff to perform the following, to wit
a) Construction of one (1) power house building;
b) Construction of three (3) reinforced concrete foundation for three (3) units 350 KW diesel engine generating set[s];
c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets;
d) Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel engine generating set[s];
e) Installation of turbine and diesel generating sets including transformer, switchboard, electrical wirings and pipe provided those stated
units are completely supplied with their accessories;
) Relocating of 2,400 V transmission line, demolition of all existing concrete foundation and drainage canals, excavation, and earth fillings
all for the total amount of P543,500.00 as evidenced by a contract, [a] xerox copy of which is hereto attached as Annex A and
made an integral part of this complaint;
that aside from the work contract mentioned-above, the defendant PASUMIL required the plaintiff to perform extra work, and
provide electrical equipment and spare parts, such as:
a) Supply of electrical devices;
b) Extra mechanical works;
c) Extra fabrication works;
d) Supply of materials and consumable items;
e) Electrical shop repair;
) Supply of parts and related works for turbine generator;
g) Supply of electrical equipment for machinery;
h) Supply of diesel engine parts and other related works including fabrication of parts.
that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving an unpaid balance,
as of June 27, 1973, amounting to P527,263.80, as shown in the Certification of the chief accountant of the PNB, a machine copy
of which is appended as Annex C of the complaint; that out of said unpaid balance of P527,263.80, the defendant PASUMIL
made a partial payment to the plaintiff of P14,000.00, in broken amounts, covering the period from January 5, 1974 up to May
23, 1974, leaving an unpaid balance of P513,263.80; that the defendant PASUMIL and the defendant PNB, and now the
defendant NASUDECO, failed and refused to pay the plaintiff their just, valid and demandable obligation; that the President of
the NASUDECO is also the Vice-President of the PNB, and this official holds office at the 10th Floor of the PNB, Escolta, Manila,
and plaintiff besought this official to pay the outstanding obligation of the defendant PASUMIL, inasmuch as the defendant PNB
and NASUDECO now owned and possessed the assets of the defendant PASUMIL, and these defendants all benefited from the
works, and the electrical, as well as the engineering and repairs, performed by the plaintiff; that because of the failure and
refusal of the defendants to pay their just, valid, and demandable obligations, plaintiff suffered actual damages in the total
amount of P513,263.80; and that in order to recover these sums, the plaintiff was compelled to engage the professional services
of counsel, to whom the plaintiff agreed to pay a sum equivalent to 25% of the amount of the obligation due by way of attorneys
fees.Accordingly, the plaintiff prayed that judgment be rendered against the defendants PNB, NASUDECO, and PASUMIL, jointly
and severally to wit:
Page 18 of 108
(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with annual interest of 14% from the time the
obligation falls due and demandable;
(2) Condemning the defendants to pay attorneys fees amounting to 25% of the amount claim;
(3) Ordering the defendants to pay the costs of the suit.
The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly on the ground that the complaint
failed to state sufficient allegations to establish a cause of action against both defendants, inasmuch as there is lack or want of
privity of contract between the plaintiff and the two defendants, the PNB and NASUDECO, said defendants citing Article 1311 of
the New Civil Code, and the case law ruling in Salonga v. Warner Barnes & Co., 88 Phil. 125; and Manila Port Service, et al. v.
Court of Appeals, et al., 20 SCRA 1214.
The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in the same order, that court directed
the defendants to file their answer to the complaint within 15 days.
In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss, to wit:
That the complaint does not state a sufficient cause of action against the defendant NASUDECO because: (a) NASUDECO is not x
x x privy to the various electrical construction jobs being sued upon by the plaintiff under the present complaint; (b) the taking
over by NASUDECO of the assets of defendant PASUMIL was solely for the purpose of reconditioning the sugar central of
defendant PASUMIL pursuant to martial law powers of the President under the Constitution; (c) nothing in the LOI No. 189-A (as
well as in LOI No. 311) authorized or commanded the PNB or its subsidiary corporation, the NASUDECO, to assume the
corporate obligations of PASUMIL as that being involved in the present case; and, (d) all that was mentioned by the said letter of
instruction insofar as the PASUMIL liabilities [were] concerned [was] for the PNB, or its subsidiary corporation the NASUDECO, to
make a study of, and submit [a] recommendation on the problems concerning the same.
By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff of the present suit, which it [labeled]
as unfounded or baseless, the defendant NASUDECO was constrained to litigate and incur litigation expenses in the amount
of P50,000.00, which plaintiff should be sentenced to pay. Accordingly, NASUDECO prayed that the complaint be dismissed and
on its counterclaim, that the plaintiff be condemned to pay P50,000.00 in concept of attorneys fees as well as exemplary
damages.
In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss, namely: (1) the complaint states no
cause of action against the defendant PNB; (2) that PNB is not a party to the contract alleged in par. 6 of the complaint and that
the alleged services rendered by the plaintiff to the defendant PASUMIL upon which plaintiffs suit is erected, was rendered long
before PNB took possession of the assets of the defendant PASUMIL under LOI No. 189-A; (3) that the PNB take-over of the
assets of the defendant PASUMIL under LOI 189-A was solely for the purpose of reconditioning the sugar central so that
PASUMIL may resume its operations in time for the 1974-75 milling season, and that nothing in the said LOI No. 189-A, as well as
in LOI No. 311, authorized or directed PNB to assume the corporate obligation/s of PASUMIL, let alone that for which the
present action is brought; (4) that PNBs management and operation under LOI No. 311 did not refer to any asset of PASUMIL
which the PNB had to acquire and thereafter [manage], but only to those which were foreclosed by the DBP and were in turn
redeemed by the PNB from the DBP; (5) that conformably to LOI No. 311, on August 15, 1975, the PNB and the Development
Bank of the Philippines (DBP) entered into a Redemption Agreement whereby DBP sold, transferred and conveyed in favor of the
PNB, by way of redemption, all its (DBP) rights and interest in and over the foreclosed real and/or personal properties of
PASUMIL, as shown in Annex C which is made an integral part of the answer; (6) that again, conformably with LOI No. 311, PNB
pursuant to a Deed of Assignment dated October 21, 1975, conveyed, transferred, and assigned for valuable consideration, in
favor of NASUDECO, a distinct and independent corporation, all its (PNB) rights and interest in and under the above Redemption
Agreement. This is shown in Annex D which is also made an integral part of the answer; [7] that as a consequence of the said
Deed of Assignment, PNB on October 21, 1975 ceased to managed and operate the above-mentioned assets of PASUMIL, which
function was now actually transferred to NASUDECO. In other words, so asserted PNB, the complaint as to PNB, had become
moot and academic because of the execution of the said Deed of Assignment; [8] that moreover, LOI No. 311 did not authorize
or direct PNB to assume the corporate obligations of PASUMIL, including the alleged obligation upon which this present suit was
brought; and [9] that, at most, what was granted to PNB in this respect was the authority to make a study of and submit
recommendation on the problems concerning the claims of PASUMIL creditors, under sub-par. 5 LOI No. 311.
In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to incur expenses in this case, hence it
is entitled to claim attorneys fees in the amount of at least P50,000.00. Accordingly, PNB prayed that the complaint be
Page 19 of 108
dismissed; and that on its counterclaim, that the plaintiff be sentenced to pay defendant PNB the sum of P50,000.00 as
attorneys fees, aside from exemplary damages in such amount that the court may seem just and equitable in the premises.
Summons by publication was made via the Philippines Daily Express, a newspaper with editorial office at 371 Bonifacio Drive,
Port Area, Manila, against the defendant PASUMIL, which was thereafter declared in default as shown in the August 7, 1981
Order issued by the Trial Court.
After due proceedings, the Trial Court rendered judgment, the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant Corporation, Philippine National Bank
(PNB) NATIONAL SUGAR DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS (PASUMIL), ordering the
latter to pay jointly and severally the former the following:
1. The sum of P513,623.80 plus interest thereon at the rate of 14% per annum as claimed from September 25, 1980 until fully paid;
2. The sum of P102,724.76 as attorneys fees; and,
3. Costs.
SO ORDERED.
Manila, Philippines, September 4, 1986.
'(SGD) ERNESTO S. TENGCO

Judge[3]
Ruling of the Court of Appeals
Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and equity for a corporation to take
over and operate the business of another corporation, while disavowing or repudiating any responsibility, obligation or liability
arising therefrom.[4]
Hence, this Petition.[5]
Issues
In their Memorandum, petitioners raise the following errors for the Courts consideration:
I
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.
II
The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling enunciated in Edward J. Nell Co. v.
Pacific Farms, 15 SCRA 415.[6]
Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the unpaid debts of
PASUMIL to respondent.
This Courts Ruling
The Petition is meritorious.
Main Issue:
Liability for Corporate Debts
Page 20 of 108
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 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 that the lower courts misappreciated the evidence presented. [9] Overlooked
by the CA were certain relevant facts that would justify a conclusion different from that reached in the assailed Decision. [10]
Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because their takeover of the
latters foreclosed assets did not make them assignees. On the other hand, respondent asserts that petitioners and PASUMIL
should be treated as one entity and, as such, jointly 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,
provided the former acted in good faith and paid adequate 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]
Piercing the Corporate
Veil Not Warranted
A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers,
attributes, and properties expressly authorized by law or incident to its existence. [12] It has a personality separate and
distinct from the persons composing it, as well as from any other legal entity to which it may be related. [13] This is basic.
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the
corporation is just an alter ego of a person or of another corporation. [14] For reasons of public policy and in the interest of
justice, the corporate veil will justifiably be impaled[15] only when it becomes a shield for fraud, illegality or inequity
committed against third persons.[16]
Hence, any application of the doctrine of piercing the corporate veil should be done with caution.[17] A court should be
mindful of the milieu where it is to be applied. [18] It must be certain that the corporate fiction was misused to such an
extent that injustice, fraud, or crime was committed against another, in disregard of its rights. [19] The wrongdoing must be
clearly and convincingly established; it cannot be presumed. [20] Otherwise, an injustice that was never unintended may
result from an erroneous application.[21]
This Court has pierced the corporate veil to ward off a judgment credit, [22] to avoid inclusion of corporate assets as
part of the estate of the decedent,[23] to escape liability arising from a debt,[24] or to perpetuate fraud and/or confuse
legitimate issues[25] either to promote or to shield unfair objectives[26] or to cover up an otherwise blatant violation of the
prohibition against forum-shopping.[27] Only in these and similar instances may the veil be pierced and disregarded. [28]
The question of whether a corporation is a mere alter ego is one of fact. [29] Piercing the veil of corporate fiction may
be allowed only if the following elements concur: (1) control -- not mere stock control, but complete domination -- not
only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must
have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive
legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal right; and (3) the said control and breach of
duty must have proximately caused the injury or unjust loss complained of.[30]
We believe that the absence of the foregoing elements in the present case precludes the piercing of the corporate
veil. First, other than the fact that petitioners acquired the assets of PASUMIL, there is no showing that their control over it
warrants the disregard of corporate personalities.[31] Second, there is no evidence that their juridical personality was used
to commit a fraud or to do a wrong; or that the separate corporate entity was farcically used as a mere alter ego, business
conduit or instrumentality of another entity or person. [32] Third, respondent was not defrauded or injured when petitioners
acquired the assets of PASUMIL.[33]
Being the party that asked for the piercing of the corporate veil, respondent had the burden of presenting clear and
convincing evidence to justify the setting aside of the separate corporate personality rule. [34] However, it utterly failed to
discharge this burden;[35] it failed to establish by competent evidence that petitioners separate corporate veil had been
used to conceal fraud, illegality or inequity.[36]
While we agree with respondents claim that the assets of the National Sugar Development Corporation (NASUDECO)
can be easily traced to PASUMIL,[37] we are not convinced that the transfer of the latters assets to petitioners was
fraudulently entered into in order to escape liability for its debt to respondent. [38]
Page 21 of 108
A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and acquired the
assets as the highest bidder at the public auction conducted. [39] The bank was justified in foreclosing the mortgage, because
the PASUMIL account had incurred arrearages of more than 20 percent of the total outstanding obligation. [40] Thus, DBP
had not only a right, but also a duty under the law to foreclose the subject properties. [41]
Pursuant to LOI No. 189-A[42] as amended by LOI No. 311,[43] PNB acquired PASUMILs assets that DBP had foreclosed
and purchased in the normal course. Petitioner bank was likewise tasked to manage temporarily the operation of such
assets either by itself or through a subsidiary corporation.[44]
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to Section 6 of Act No.
3135.[45] These assets were later conveyed to PNB for a consideration, the terms of which were embodied in the
Redemption Agreement.[46] PNB, as successor-in-interest, stepped into the shoes of DBP as PASUMILs creditor.[47] By way of
a Deed of Assignment,[48] PNB then transferred to NASUDECO all its rights under the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals,[49] we had the occasion to resolve a similar issue. We ruled
that PNB, DBP and their transferees were not liable for Marinduque Minings unpaid obligations to Remington Industrial
Sales Corporation (Remington) after the two banks had foreclosed the assets of Marinduque Mining. We likewise held that
Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining to justify the piercing of
the corporate veil.
In the instant case, the CA erred in affirming the trial courts lifting of the corporate mask.[50] The CA did not point to
any fact evidencing bad faith on the part of PNB and its transferee. [51] The corporate fiction was not used to defeat public
convenience, justify a wrong, protect fraud or defend crime.[52] None of the foregoing exceptions was shown to exist in the
present case.[53] On the contrary, the lifting of the corporate veil would result in manifest injustice. This we cannot allow.
No Merger or Consolidation
Respondent further claims that petitioners should be held liable for the unpaid obligations of PASUMIL by virtue of
LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to merge or consolidate. On the other hand,
petitioners contend that their takeover of the operations of PASUMIL did not involve any corporate merger or
consolidation, because the latter had never lost its separate identity as a corporation.
A consolidation is the union of two or more existing entities to 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]
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]
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.
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 of June 27, 1973, PASUMIL had paid P250,000
to respondent and, from January 5, 1974 to May 23, 1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent.[61] LOI No. 11
explicitly provides that PNB shall study and submit recommendations on the claims of PASUMILs creditors.[62] Clearly, the
corporate separateness between PASUMIL and PNB remains, despite respondents insistence to the contrary.[63]
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-48930 February 23, 1944
ANTONIO VAZQUEZ, petitioner,

vs.
FRANCISCO DE BORJA, respondent.
Page 22 of 108
x---------------------------------------------------------x
G.R. No. L-48931 February 23, 1944
FRANCISCO DE BORJA, petitioner,

vs.
ANTONIO VAZQUEZ, respondent.
OZAETA, J.:
This action was commenced in the Court of First Instance of 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 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-Vasquez Sabani Development Co., Inc., a 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 individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff the sum of P3,175.20 plus the
sum of P377.50, with legal interest on both sums, and absolving the defendant Fernando Busuego (treasurer of the corporation)
from the complaint and the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon appeal to the Court of Appeals,
the latter modified that judgment by reducing it to the total sum of P3,314.78, with legal interest thereon and the costs. But by a
subsequent resolution upon the defendant's motion for reconsideration, the Court of Appeals set aside its judgment and
ordered that the case be remanded to the court of origin for further proceedings. The defendant Vazquez, not being agreeable
to that result, filed the present petition for certiorari (G.R. No. 48930) to review and reverse the judgment of the Court of
Appeals; and the plaintiff Francisco de Borja, excepting to the resolution of the Court of Appeals whereby its original judgment
was set aside and the case was ordered remanded to the court of origin for further proceedings, filed a cross-petition for
certiorari (G.R. No. 48931) to maintain the original judgment of the Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on reconsideration read as follows:
Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante vendio al demandante 4,000 cavanes de palay
al precio de P2.10 el cavan, de los cuales, dicho demandante solamente recibio 2,583 cavanes; y que asimismo recibio para su
envase 4,000 sacos vacios. Esta provbado que de dichos 4,000 sacos vacios solamente se entregaron, 2,583 quedando en poder
del demandado el resto, y cuyo valor es el de P0.24 cada uno. Presentada la demanda contra los demandados Antonio Vazquez y
Fernando Busuego para el pago de la cantidad de P4,702.70, con sus intereses legales desde el 1.o de marzo de 1932 hasta su
completo pago y las costas, el Juzgado de Primera Instancia de Manila el asunto condenando a Antonio Vazquez a pagar al
demandante la cantidad de P3,175.20, mas la cantidad de P377.50, con sus intereses legales, absolviendo al demandado
Fernando Busuego de la demanda y al demandante de la reconvencion de los demandados, sin especial pronunciamiento en
cuanto a las costas. De dicha decision apelo el demandado Antonio Vazquez, apuntado como principal error el de que el habia
sido condenado personalmente, y no la corporacion por el representada.
Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor de Francisco de Borja de los 4,000 cavanes
de palay fue en su capacidad de Presidente interino y Manager de la corporacion Natividad-Vazquez Sabani Development Co.,
Page 23 of 108
Inc. Asi resulta del Exh. 1, que es la copia al carbon del recibo otorgado por el demandado Vazquez, y cuyo original lo habia
perdido el demandante, segun el. Asi tambien consta en los libros de la corporacion arriba mencionada, puesto que en los
mismos se ha asentado tanto la entrada de los P8,400, precio del palay, como su envio al gobierno en pago de los alquileres de
la Hacienda Sabani. Asi mismo lo admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior presidente de la
corporacion sucesora en el arrendamiento de la Sabani Estate, cuando el solicito sus buenos oficios para el cobro del precio del
palay no entregado. Asi igualmente lo declaro el que hizo entrega de parte del palay a Borja, Felipe Veneracion, cuyo testimonio
no ha sido refutado. Y asi se deduce de la misma demanda, cuando se incluyo en ella a Fernando Busuego, tesorero de la
Natividad-Vazquez Sabani Development Co., Inc.
Siendo esto asi, la principal responsable debe ser la Natividad-Vazquez Sabani Development Co., Inc., que quedo insolvente y
dejo de existir. El Juez sentenciador declaro, sin embargo, al demandado Vazquez responsable del pago de la cantidad
reclamada por su negligencia al vender los referidos 4,000 cavanes de palay sin averiguar antes si o no dicha cantidad existia en
las bodegas de la corporacion.
Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco de Borja, el mismo demandado vendio a
Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el cavan, y decimos 'despues' porque esta ultima venta aparece asentada
despues de la primera. Segun esto, el apelante 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 objecto de la demanda.
En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion de que el apelante debe pagar al apelado la
suma de P2,295.70 como valor de los 1,417 cavanes de palay que dejo de entregar al demandante, mas la suma de P339.08
como importe de los 1,417 sacos vacios, que dejo de devolver, a razon de P0.24 el saco, total P3,314.78, con sus intereses
legales desde la interposicion de la demanda y las costas de ambas instancias.
Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de 1942, y alegandose en la misma que cuando
el apelante vendio los 1,500 cavanes de palay a Ah Phoy, la corporacion todavia tenia bastante existencia de dicho grano, y no
estando dicho extremo suficientemente discutido y probado, y pudiendo variar el resultado del asunto, dejamos sin efecto
nuestra citada decision, y ordenamos la devolucion de la causa al Juzgado de origen para que reciba pruebas al efecto y dicte
despues la decision correspondiente.
Upon consideration of the motion of the attorney for the plaintiff-appellee in case CA-G.R. No. 8676, Francisco de Borja vs.
Antonio Vasquez et al., praying, for the reasons therein given, that the resolution of December 22, 1942, be reconsidered:
Considering that said resolution remanding the case to the lower court is for the benefit of the plaintiff-appellee to afford him
opportunity to refute the contention of the defendant-appellant Antonio Vazquez, motion denied.
The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered into the contract with the
defendant Antonio Vazquez in his personal capacity or as manager of the Natividad-Vazquez Sabani Development Co., Inc. The
Court of Appeals found that according to the preponderance of the evidence "the sale made by Antonio Vazquez in favor of
Francisco de Borja of 4,000 cavans of palay was in his capacity as acting president and manager of the corporation Natividad-
Vazquez Sabani Development Co., Inc." That finding of fact is final and, it resolving the only issue involved, should be
determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin for further trial to determine
whether the corporation had sufficient stock of palay at the time appellant sold, 1500 cavans of palay to Kwong Ah Phoy. First, if
that point was material to the issue, it should have been proven during the trial; and the statement of the court that it had not
been sufficiently discussed and proven was no justification for ordering a new trial, which, by the way, neither party had
solicited but against which, on the contrary, both parties now vehemently protest. Second, the point is, in any event, beside the
issue, and this we shall now discuss in connection with the original judgment of the Court of Appeals which the plaintiff cross-
petitioner seeks to maintain.
The action being on a contract, and it appearing from the preponderance of the evidence that the party liable on the contract is
the Natividad-Vazquez Sabani Development Co., Inc. which is not a party herein, the complaint should have been dismissed.
Counsel for the plaintiff, in his brief as respondent, argues that altho by the preponderance of the evidence the trial court and
the Court of Appeals found that Vazquez celebrated the contract in his capacity as acting president of the corporation and altho
it was the latter, thru Vazquez, with which the plaintiff had contracted and which, thru Vazquez, had received the sum of P8,400
from Borja, and altho that was true from the point of view of a legal fiction, "ello no impede que tambien sea verdad lo alegado
en la demanda de que la misma persona de Vasquez fue la que contrato con Borja y que la misma persona de Vasquez fue quien
Page 24 of 108
recibio la suma de P8,400." But such argument is invalid and insufficient to show that the president of the corporation is
personally liable on the contract duly and lawfully entered into by him in its behalf.
It is well known that a corporation is an 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 an 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 exists and no corporate business
may be transacted. Such legal fiction may be disregarded only 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 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.
The trial court found him guilty of negligence in the performance of the contract and held him personally liable on that account.
On the other hand, the Court of Appeals found that he "no solamente obro con negligencia, sino interveniendo 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 a 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 nonfullfillment 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. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. 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 corporation's
contract, its nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent
liable.
On the other hand if independently of the contract Vazquez by his fault or negligence cause damaged to the plaintiff, he would
be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's 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 has erroneously held. 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 vs. 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.
It only remains for us to consider petitioner's second assignment of error referring to the lower courts' refusal to entertain his
counterclaim for damages against the respondent Borja arising from the bringing of this action. The lower courts having
sustained plaintiff's action. The finding of the Court of Appeals that according to the preponderance of the evidence the
defendant Vazquez celebrated the contract not in his personal capacity but as acting president and manager of the corporation,
does not warrant his contention that the suit against him is malicious and tortious; and since we have to decide defendant's
counterclaim upon the facts found by the Court of Appeals, we find no sufficient basis upon which to sustain said counterclaim.
Indeed, we feel that a a matter of moral justice we ought to state here that the indignant attitude adopted by the defendant
towards the plaintiff for having brought this action against him is in our estimation not wholly right. Altho from the legal point of
view he was not personally liable for the fulfillment of the contract entered into by him on behalf of the corporation of which he
was the acting president and manager, we think it was his moral duty towards the party with whom he contracted in said
capacity to see to it that the corporation represented by him fulfilled the contract by delivering the palay it had sold, the price of
which it had already received. Recreant to such duty as a moral person, he has no legitimate cause for indignation. We feel that
under the circumstances he not only has no cause of action against the plaintiff for damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without any finding as to costs.
Yulo, C.J., Moran, Horrilleno and Bocobo, JJ., concur.
Separate Opinions
Page 25 of 108
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted in the majority opinion, the plaintiff is entitled to a judgment
against the defendant. The latter, as acting president and manager of Natividad-Vazquez Sabani Development Co., Inc., and with
full knowledge of the then insolvent status of his company, agreed to sell to the plaintiff 4,000 cavans of palay.
Notwithstanding the receipt from the plaintiff of the full purchase price, the defendant delivered only 2,488 cavans and failed
and refused to deliver the remaining 1,512 cavans and failed and refused to deliver the remaining 1,512 cavans and a quantity of
empty sacks, or their value. Such failure resulted, according to the Court of First Instance of Manila and the Court of Appeals,
from his fault or negligence.
It is true that the cause of action made out by the complaint is technically based on a contract between the plaintiff and
Natividad-Vazquez Sabani Development Co., Inc. which is not a party to this case. Nevertheless, inasmuch as it was proven at the
trial that the defendant was guilty of fault in that he prevented the performance of the plaintiff's contract and also of negligence
bordering on fraud which cause damage to the plaintiff, the error of procedure should not be a hindrance to the rendition of a
decision in accordance with the evidence actually introduced by the parties, especially when in such a situation we may order
the necessary amendment of the pleadings, or even consider them correspondingly amended.
As already stated, the corporation of which the defendant was acting president and manager was, at the time he made the sale
of the plaintiff, known to him to be insolvent. As a matter of fact, said corporation was soon thereafter dissolved. There is
admitted damage on the part of the plaintiff, proven to have been inflicted by reason of the fault or negligence of the
defendant. In the interest of simple justice and to avoid multiplicity of suits I am therefore impelled to consider the present
action as one based on fault or negligence and to sentence the defendant accordingly. Otherwise, he would be allowed to profit
by his own wrong under the protective cover of the corporate existence of the company he represented. It cannot be pretended
that any advantage under the sale inured to the benefit of Natividad-Vazquez Sabani Development Co., Inc. and not of the
defendant personally, since the latter undoubtedly owned a considerable part of its capital.
WENSHA SPA CENTER, INC. and/or XU ZHI G.R. No. 185122

JIE, Promulgated:
Petitioners August 16, 2010
- versus -
LORETA T. YUNG,
Respondent.
X -------------------------------------------------------------------------------------- X
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by an employer who was charged
before the National Labor Relations Commission (NLRC) for dismissing an employee upon the advice of a Feng Shui master. In
this action, the petitioners assail the May 28, 2008 Decision [1] and October 23, 2008 Resolution[2] of the Court of Appeals (CA) in
CA-G.R. SP No. 98855 entitled Loreta T. Yung v. National Labor Relations Commission, Wensha Spa Center, Inc. and/or Xu Zhi Jie.
THE FACTS:
Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of sauna bath and massage services. Xu Zhi Jie
a.k.a. Pobby Co (Xu) is its president,[3] respondent Loreta T. Yung (Loreta) was its administrative manager at the time of her
termination from employment.
In her position paper,[4] Loreta stated that she used to be employed by Manmen Services Co., Ltd. (Manmen) where Xu
was a client. Xu was apparently impressed by Loretas performance. After he established Wensha, he convinced Loreta to
transfer and work at Wensha. Loreta was initially reluctant to accept Xus offer because her job at Manmen was stable and she
had been with Manmen for seven years. But Xu was persistent and offered her a higher pay. Enticed, Loreta resigned from
Manmen and transferred to Wensha. She started working on April 21, 2004 as Xus personal assistant and interpreter at a
monthly salary of P12,000.00.
Loreta introduced positive changes to Wensha which resulted in increased business. This pleased Xu so that on May 18,
2004, she was promoted to the position of Administrative Manager.[5]
Page 26 of 108
Loreta recounted that on August 10, 2004, she was asked to leave her office because Xu and a Feng Shui master were
exploring the premises. Later that day, Xu asked Loreta to go on leave with pay for one month. She did so and returned
on September 10, 2004. Upon her return, Xu and his wife asked her to resign from Wensha because, according to the Feng Shui
master, her aura did not match that of Xu. Loreta refused but was informed that she could no longer continue working at
Wensha. That same afternoon, Loreta went to the NLRC and filed a case for illegal dismissal against Xu and Wensha.
Wensha and Xu denied illegally terminating Loretas employment. They claimed that two months after Loreta was hired,
they received various complaints against her from the employees so that on August 10, 2004, they advised her to 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 Loretas employment on August 31, 2004 for loss of trust and confidence.[6]
The Labor Arbiter (LA) Francisco Robles dismissed Loretas complaint for lack of merit. He found it more probable that
Loreta was dismissed from her employment due to Wenshas loss of trust and confidence in her. The LAs decision[7] partly reads:
However, this office has found it dubious and hard to believe the contentions made by the complainant that she was
dismissed by the respondents on the sole ground that she is a mismatch in respondents' business as advised by an alleged Feng
Shui Master. The complainant herself alleged in her position paper that she has done several improvements in respondents
business such as uplifting the morale and efficiency of its employees and increasing respondents clientele, and that respondent
Co was very much pleased with the improvements made by the complainant that she was offered twice a promotion but she
nevertheless declined. It would be against human experience and contrary to business acumen to let go of someone, who was
an asset and has done so much for the company merely on the ground that she is a mismatch to the business. Absent any proof
submitted by the complainant, this office finds it more probable that the complainant was dismissed due to loss of trust and
confidence.[8]
This ruling was affirmed by the NLRC in its December 29, 2006 Resolution,[9] citing its observation that Wensha was still
considering the proper action to take on the day Loreta left Wensha and filed her complaint. The NLRC added that this finding
was bolstered by Wenshas September 10, 2004 letter to Loreta asking her to come back to personally clarify some matters, but
she declined because she had already filed a case.
Loreta moved for a reconsideration of the NLRCs ruling but her motion was denied. Loreta then went to the CA on a
petition for certiorari. The CA reversed the ruling of the NLRC on the ground that it gravely abused its discretion in appreciating
the factual bases that led to Loretas dismissal. The CA noted that there were irregularities and inconsistencies in Wenshas
position. The CA stated the following:
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 its production would expose and defeat. Moreover, the affidavits were not executed
under oath. The rule is that an affiant must sign the document in the presence of and take his oath before a notary public as
evidence that the affidavit was properly made. Guided by these principles, the affidavits cannot be assigned any weighty
probative value and are mere scraps of paper the contents of which are hearsay. Second, on the sales report and order slips,
which allegedly prove that Yung had been charging her food and drinks to Wensha, the said pieces of evidence do not, however,
bear Yungs name thereon or even her signature. In fact, it does not state anyones name, except that of Wensha.Hence, it would
simply be capricious to pinpoint, or impute, on Yung as the author in charging such expenses to Wensha on the basis of hearsay
evidence. Third, while the affidavit of Wenshas Operations Manager, Princess delos Reyes (delos Reyes), may have been duly
executed under oath, she did not, however, specify the alleged infractions that Yung committed. If at all, delos Reyes only made
general statements on the alleged complaints against Yung that were not even substantiated by any other piece of
evidence. Finally, the daily time records (DTRs) of Yung, which supposedly prove her habitual tardiness, were mere photocopies
that are not even signed by Wenshas authorized representative, thus suspect, if not violative of the best evidence rule and,
therefore, incompetent evidence. x x x [Emphases appear in the original]
x x x x.
Finally, after the Private Respondents filed their position paper, they alleged mistake on the part of their former
counsel in stating that Yung was dismissed on August 31, 2004. Thus, they subsequently moved for the admission of their
rejoinder.Notably, however, the said rejoinder was dated October 4, 2004, earlier than the date when their position paper was
filed, which was on November 3, 2004. It is also puzzling that their position paper was dated November 25, 2004, much later
Page 27 of 108
than its date of filing. The irregularities are simply too glaring to be ignored. Nevertheless, the Private Respondents admission of
Yungs termination on August 31, 2004 cannot be retracted. They cannot use the mistake of their counsel as an excuse
considering that the position paper was verified by their Operations Manager, delos Reyes, who attested to the truth of the
contents therein.[10] [Emphasis supplied]
Hence, the fallo of the CA decision reads:
WHEREFORE, the instant petition is GRANTED. Wensha Spa Center, Inc. and Xu Zhi Jie are ORDERED to, jointly and
severally, pay Loreta T. Yung her full backwages, other privileges, and benefits, or their monetary equivalent, corresponding to
the period of her dismissal from September 1, 2004 up to the finality of this decision, and damages in the amounts of fifty
thousand pesos (Php50,000.00) as moral damages, twenty five thousand pesos (Php25,000.00) as exemplary damages, and
twenty thousand pesos (Php20,000.00) as attorneys fees. No costs.
SO ORDERED.[11]
Wensha and Xu now assail this ruling of the CA in this petition presenting the following:
V. GROUNDS FOR THE ALLOWANCE OF THE PETITION
5.1 The following are the reasons and arguments, which are purely questions of law and some questions of facts, which
justify the appeal by certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, as amended, to this Honorable
SUPREME COURT of the assailed Decision and Resolution, to wit:
5.1.1 The Honorable COURT OF APPEALS gravely erred in reversing that factual findings of the Honorable Labor Arbiter and the Honorable
NLRC (Third Division) notwithstanding recognized and established rule in our jurisdiction that findings of facts of quasi-judicial
agencies who have gained expertise on their respective subject matters are given respect and finality;
5.1.2 The Honorable COURT OF APPEALS committed grave abuse of discretion and serious errors when it ruled that findings of facts of
the Honorable Labor Arbiter and the Honorable NLRC are not supported by substantial evidence despite the fact that the
records clearly show that petitioner therein was not dismissed but is under investigation, and that she is guilty of serious
infractions that warranted her termination;
5.1.3 The Honorable COURT OF APPEALS grave[ly] erred when it ordered herein petitioner to pay herein respondent her separation pay,
in lieu of reinstatement, and full backwages, as well as damages and attorneys fees;
5.1.4 The Honorable COURT OF APPEALS committed grave abuse of discretion and serious errors when it held that petitioner XU ZHI JIE
to be solidarily liable with WENSHA, assuming that respondent was illegally dismissed;
5.2 The same need to be corrected as they would work injustice to the herein petitioner, grave and irreparable damage
will be done to him, and would pose dangerous precedent. [12]
THE COURTS RULING:
Loretas security of tenure is guaranteed by the Constitution and the Labor Code. 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, Article
XIII also provides that all workers shall be entitled to security of tenure. Along that line, Article 3 of the Labor Code mandates
that the State shall assure the rights of workers to security of tenure.
Under the security of tenure guarantee, a worker can only be terminated from his employment for cause and after due
process. For a valid termination by the employer: (1) the dismissal must be for a valid cause as provided in Article 282, or for any
of the authorized causes under Articles 283 and 284 of the Labor Code; and (2) the employee must be afforded an opportunity
to be heard and to defend himself. A just and valid cause for an employees dismissal must be supported by substantial evidence,
and before the employee can be dismissed, he must be given notice and an adequate opportunity to be heard. [13] In the process,
the employer bears the burden of proving that the dismissal of an employee was for a valid cause. Its failure to discharge this
burden renders the dismissal unjustified and, therefore, illegal. [14]
Page 28 of 108
As a rule, the factual findings of the court below are conclusive on Us in a petition for review on certiorari where We
review only errors of law. This case, however, is an exception because the CAs factual findings are not congruent with those of
the NLRC and the LA.
According to Wensha in its position paper,[15] it dismissed Loreta on August 31, 2004 after investigating the complaints
against her. Wensha asserted that her dismissal was a valid exercise of an employers right to terminate a managerial employee
for loss of trust and confidence. It claimed that she caused the resignation of an employee because of gossips initiated by her. It
was the reason she was asked to take a leave of absence with pay for one month starting August 10, 2004.[16]
Wensha also alleged that Loreta was sowing intrigues in the company which was inimical to Wensha. She was also
accused of dishonesty, serious breach of trust reposed in her, tardiness, and abuse of authority. [17]
In its Rejoinder, Wensha changed its position claiming that it did not terminate Loretas employment on August 31,
2004. It even sent her a notice requesting her to report back to work. She, however, declined because she had already filed her
complaint.[18]
As correctly found by the CA, the cause of Loretas dismissal is questionable. Loss of trust and confidence to be a valid
ground for dismissal must have basis and must be founded on clearly established facts. [19]
The Court finds the LA ruling that states, [a]bsent any proof submitted by the complainant, this office finds it more
probable that the complainant was dismissed due to loss of trust and confidence, [20] to be utterly erroneous as it is contrary to
the applicable rules and pertinent jurisprudence. The onus of proving a valid dismissal rests on the employer, not on the
employee.[21] It is the employer who bears the burden of proving that its dismissal of the employee is for a valid or authorized
cause supported by substantial evidence. [22]
According to the NLRC, [p]erusal of the entire records show that complainant left the respondents premises when she
was confronted with the infractions imputed against her. [23] This information was taken from the affidavit[24] of Princess Delos
Reyes (Delos Reyes) which was dated March 21, 2005, not in Wenshas earlier position paper or pleadings submitted to the LA.
The affidavits[25] of employees attached to Delos Reyes affidavit were all dated November 19, 2004 indicating that they were not
yet executed when the complaints against Loreta were supposedly being investigated in August 2004.
It is also noteworthy that Wenshas position paper related that because of the gossips perpetrated by Loreta, a certain
Oliva Gonzalo (Gonzalo) resigned from Wensha. Because of the incident, Gonzalo, whose father was a policeman, reportedly got
angry with complainant and of the management telling her friends at respondent company that she would retaliate thus
creating fear among those concerned.[26] As a result, Loreta was advised to take a paid leave of absence for one month while
Wensha conducted an investigation.
According to Loreta, however, the reason for her termination was her aura did not match that of Xu and the work environment
at Wensha. Loreta narrated:
On August 10, 2004 however, complainant was called by respondent Xu and told her to wait at the lounge area while
the latter and a Feng Shui Master were doing some analysis of the office. After several hours of waiting, respondent Xu then told
complainant that according to the Feng Shui master her Chinese Zodiac sign is a mismatch with that of the respondents; that
complainant should not enter the administrative office for a month while an altar was to be placed on the left side where
complainant has her table to allegedly correct the mismatch and that it is necessary that offerings and prayers have to be made
and said for about a month to correct the alleged jinx. Respondent Xu instructed complainant not to report to the office for a
month with assurance of continued and regular salary. She was ordered not to seek employment elsewhere and was told to
come back on the 10th of September 2004.[27]
Although she was a little confused, Loreta did as she was instructed and did not report for work for a month. She
returned to work on September 10, 2004. This is how Loreta recounted the events of that day:
On September 10, 2004, in the morning, complainant reported to the office of respondents. As usual, she punched-in
her time card and signed in the logbook of the security guard. When she entered the administrative office, some of its
employees immediately contacted respondent Xu. Respondent Xu then contacted complainant thru her mobile phone and told
her to leave the administrative office immediately and instead to wait for him in the dining area.
xxx
Page 29 of 108
Complainant waited for respondent Xu in the dining area. After waiting for about two (2) hours, respondent Xu was
nowhere. Instead, it was Jiang Xue Qin a.k.a Annie Co, the Chinese wife of respondent Xu, who arrived and after a short
conversation between them, the former frankly told complainant that she has to resign allegedly she is a mismatch to
respondent Xu according to the Feng Shui master and therefore she does not fit to work (sic) with the respondents. Surprised
and shocked, complainant demanded of Jiang Xue Qin to issue a letter of termination if it were the reason therefor.
Instead of a termination letter issued, Jiang Xue Qin insisted for the complainant's resignation. But when complainant
stood her ground, Jian Xue Qin shouted invectives at her and told to leave the office immediately.
Respondent Xu did not show up but talked to the complainant over the mobile phone and convinced her likewise to
resign from the company since there is no way to retain her because her aura unbalanced the area of employment according to
the Feng Shui, the Chinese spiritual art of placement. Hearing this from no lees than respondent Xu, complainant left the office
and went straight to this Office and filed the present case on September 10, 2004. xxx[28]
Loreta also alleged that in the afternoon of that day, September 10, 2004, a notice was posted on the Wensha bulletin
board that reads:
TO ALL EMPLOYEES OF WENSHA SPA CENTER
WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE YUNG, FORMER ADMINISTRATIVE OFFICER OF WENSHASPA CENTER IS
NO LONGER CONNECTED TO THIS COMPANY STARTING TODAY SEPTEMBER 10, 2004.
ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY OF THE COMPANY.
(SGD.) THE MANAGEMENT [Italics were in red letters.][29]
The Court finds Loretas complaint credible. There is consistency in her pleadings and evidence. In contrast, Wenshas
pleadings and evidence, taken as a whole, suffer from inconsistency. Moreover, the affidavits of the employees only pertain to
petty matters that, to the Courts mind, are not sufficient to support Wenshas alleged loss of trust and confidence. To be a valid
cause for termination of employment, the act or acts constituting breach of trust must have been done intentionally, knowingly,
and purposely; and they must be founded on clearly established facts.
The CA decision is supported by evidence and logically flows from a review of the records. Loretas narration of the
events surrounding her termination from employment was simple and straightforward. Her claims are more credible than the
affidavits which were clearly prepared as an afterthought.
More importantly, the records are bereft of evidence that Loreta was duly informed of the charges against her and that
she was given the opportunity to respond to those charges prior to her dismissal. If there were indeed charges against Loreta
that Wensha had to investigate, then it should have informed her of those charges and required her to explain her side. Wensha
should also have kept records of the investigation conducted while Loreta was on leave. The law requires that two notices be
given to an employee prior to a valid termination: the first notice is to inform the employee of the charges against her with a
warning that she may be terminated from her employment and giving her reasonable opportunity within which to explain her
side, and the second notice is the notice to the employee that upon due consideration of all the circumstances, she is being
terminated from her employment.[30] This is a requirement of due process and clearly, Loreta did not receive any of those
required notices.
We are in accord with the pronouncement of the CA that the reinstatement of Loreta to her former position is no
longer feasible in the light of the strained relations between the parties. Reinstatement, under the circumstances, would no
longer be practical as it would not be in the interest of both parties. Under the law and jurisprudence, an illegally dismissed
employee is entitled to two reliefs - backwages and reinstatement, which are separate and distinct. If reinstatement would only
exacerbate the tension and further ruin the relations of the employer and the employee, or if their relationship has been unduly
strained due to irreconcilable differences, particularly where the illegally dismissed employee held a managerial or key position
in the company, it would be prudent to order payment of separation pay instead of reinstatement.[31] In the case of Golden Ace
Builders v. Talde,[32]We wrote:
Under the doctrine of strained relations, the payment of separation pay has been considered an acceptable alternative
to reinstatement when the latter option is no longer desirable or viable. On the one hand, such payment liberates the employee
Page 30 of 108
from what could be a highly oppressive work environment. On the other, the payment releases the employer from the grossly
unpalatable obligation of maintaining in its employ a worker it could no longer trust.
In the case at bench, the CA, upon its own assessment, pronounced that the relations between petitioners and the
respondent have become strained because of her dismissal anchored on dubious charges. The respondent has not contested the
finding. As she is not insisting on being reinstated, she should be paid separation pay equivalent to one (1) month salary for
every year of service.[33]The CA, however, failed to decree such award in the dispositive portion. This should be rectified.
Nevertheless, the Court finds merit in the argument of petitioner Xu that the CA erred in ruling that he is solidarily liable
with Wensha.
Elementary is the rule that a corporation is invested by law with a personality separate and distinct from those of the
persons composing it and from that of any other legal entity to which it may be related. Mere ownership by a single stockholder
or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding
the separate corporate personality.[34]
In labor cases, corporate directors and officers may be held solidarily liable with the corporation for the termination of
employment only if done with malice or in bad faith. [35] Bad faith does not connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some
motive or interest or ill will; it partakes of the nature of fraud. [36]
In the subject decision, the CA concluded that petitioner Xu and Wensha are jointly and severally liable to Loreta.[37] We
have read the decision in its entirety but simply failed to come across any finding of bad faith or malice on the part of Xu. There
is, therefore, no justification for such a ruling. 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 finding or indication
that the dismissal was effected with malice or bad faith should be stated in the decision itself. [39]
WHEREFORE, the petition is PARTIALLY GRANTED. The decretal portion of the May 28, 2008 Decision of the Court of Appeals, in
CA-G.R. SP No. 98855, is hereby MODIFIED to read as follows:
WHEREFORE, the petition is GRANTED. Wensha Spa Center, Inc. is hereby ordered to pay Loreta T. Yung her full
backwages, other privileges, and benefits, or their monetary equivalent, and separation pay reckoned from the date of her
dismissal, September 1, 2004, up to the finality of this decision, plus damages in the amounts of Fifty Thousand (P50,000.00)
Pesos, as moral damages; Twenty Five Thousand (P25,000.00) Pesos as exemplary damages; and Twenty Thousand (P20,000.00)
Pesos, as attorneys fees. No costs.
SO ORDERED.
[G.R. No. 152542. July 8, 2004]
MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as represented by MA. ANTONIA M.
SALVATIERRA, petitioner, vs. ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT, ALFREDO
B. MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M.
RODRIGUEZ and COURT OF APPEALS, respondents.
[G.R. No. 155472. July 8, 2004]

ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT, ALFREDO B. MONFORT, CARLOS M.
RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ, petitioners,
vs. HON. COURT OF APPEALS, MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as represented by MA.
ANTONIA M. SALVATIERRA, and RAMON H. MONFORT, respondents.
DECISION
YNARES-SANTIAGO, J.:
Before the Court are consolidated petitions for review of the decisions of the Court of Appeals in the complaints for
forcible entry and replevin filed by Monfort Hermanos Agricultural Development Corporation (Corporation) and Ramon H.
Monfort against the children, nephews, and nieces of its original incorporators (collectively known as the group of Antonio
Monfort III).
The petition in G.R. No. 152542, assails the October 5, 2001 Decision[1] of the Special Tenth Division of the Court of Appeals
in CA-G.R. SP No. 53652, which ruled that Ma. Antonia M. Salvatierra has no legal capacity to represent the Corporation in the
forcible entry case docketed as Civil Case No. 534-C, before the Municipal Trial Court of Cadiz City. On the other hand, the
Page 31 of 108
petition in G.R. No. 155472, seeks to set aside the June 7, 2002 Decision [2] rendered by the Special Former Thirteenth Division of
the Court of Appeals in CA-G.R. SP No. 49251, 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 Corporation in Civil Case No. 506-C before the
Regional Trial Court of Cadiz City, Branch 60.
Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the registered owner of a
farm, fishpond and sugar cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag and Tinampa-an, all situated
in Cadiz City.[3] It also owns one unit of motor vehicle and two units of tractors. [4] The same allowed Ramon H. Monfort, its
Executive Vice President, to breed and maintain fighting cocks in his personal capacity at Hacienda San Antonio. [5]
In 1997, the group of Antonio Monfort III, through force and 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.
In G.R. No. 155472:
On April 10, 1997, the Corporation, represented by its President, Ma. Antonia M. Salvatierra, and Ramon H. Monfort, in
his personal capacity, filed against the group of Antonio Monfort III, a complaint[6] for delivery of motor vehicle, tractors and
378 fighting cocks, with prayer for injunction and damages, docketed as Civil Case No. 506-C, before the Regional Trial Court of
Negros Occidental, Branch 60.
The group of Antonio Monfort III filed a motion to dismiss contending, inter alia, that Ma. Antonia M. Salvatierra has no
capacity to sue on behalf of the Corporation because the March 31, 1997 Board Resolution[7] authorizing Ma. Antonia M.
Salvatierra and/or Ramon H. Monfort to represent the Corporation is void as the purported Members of the Board who passed
the same were not validly elected officers of the Corporation.
On May 4, 1998, the trial court denied the motion to dismiss.[8] The group of Antonio Monfort III filed a petition for
certiorari with the Court of Appeals but the same was dismissed on June 7, 2002.[9] The Special Former Thirteenth Division of
the appellate court did not resolve the validity of the March 31, 1997 Board Resolution and the election of the officers who
signed it, ratiocinating that the determination of said question is within the competence of the trial court.
The motion for reconsideration filed by the group of Antonio Monfort III was denied. [10] Hence, they instituted a petition
for review with this Court, docketed as G.R. No. 155472.
In G.R. No. 152542:
On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for forcible entry,
preliminary mandatory injunction with temporary restraining order and damages against the group of Antonio Monfort III,
before the Municipal Trial Court (MTC) of Cadiz City.[11] It contended that the latter through force and intimidation, unlawfully
took possession of the 4 Haciendas and deprived the Corporation of the produce thereon.
In their answer,[12] the group of Antonio Monfort III alleged that they are possessing and controlling the Haciendas and
harvesting the produce therein on behalf of the corporation and not for themselves. They likewise raised the affirmative defense
of lack of legal capacity of Ma. Antonia M. Salvatierra to sue on behalf of the Corporation.
On February 18, 1998, the MTC of Cadiz City rendered a decision dismissing the complaint.[13] On appeal, the Regional
Trial Court of Negros Occidental, Branch 60, reversed the Decision of the MTCC and remanded the case for further
proceedings.[14]
Aggrieved, the group of Antonio Monfort III filed a petition for review with the Court of Appeals. On October 5, 2001, the
Special Tenth Division set aside the judgment of the RTC and dismissed the complaint for forcible entry for lack of capacity of
Ma. Antonia M. Salvatierra to represent the Corporation. [15] The motion for reconsideration filed by the latter was denied by the
appellate court.[16]
Unfazed, the Corporation filed a petition for review with this Court, docketed as G.R. No. 152542 which was consolidated
with G.R. No. 155472 per Resolution dated January 21, 2004.[17]
The focal issue in these consolidated petitions is whether or not Ma. Antonia M. Salvatierra has the legal capacity to sue on
behalf of the Corporation.
The group of Antonio Monfort III claims that the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra
and/or Ramon H. Monfort to represent the Corporation is void because the purported Members of the Board who passed the
same were not validly elected officers of the Corporation.
Page 32 of 108
A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or
incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized
officers and agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with
the board of directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act
of the board of directors.[18]
Corollary thereto, corporations are required under Section 26 of the Corporation Code to submit to the SEC within thirty
(30) days after the election the names, nationalities and residences of the elected directors, trustees and officers of the
Corporation. In order to keep stockholders and the public transacting business with domestic corporations properly informed of
their organizational operational status, the SEC issued the following rules:
xxxxxxxxx
2. A General Information Sheet shall be filed with this Commission within thirty (30) days following the date of the annual
stockholders meeting. No extension of said period shall be allowed, except for very justifiable reasons stated in writing by the
President, Secretary, Treasurer or other officers, upon which the Commission may grant an extension for not more than ten (10)
days.
2.A. Should a director, trustee or officer die, resign or in any manner, cease to hold office, the corporation shall report such fact
to the Commission with fifteen (15) days after such death, resignation or cessation of office.
3. If for any justifiable reason, the annual meeting has to be postponed, the company should notify the Commission in writing of
such postponement.
The General Information Sheet shall state, among others, the names of the elected directors and officers, together with their
corresponding position title (Emphasis supplied)
In the instant case, the six signatories to the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra
and/or Ramon H. Monfort to represent the Corporation, were: Ma. Antonia M. Salvatierra, President; Ramon H. Monfort,
Executive Vice President; Directors Paul M. Monfort, Yvete M. Benedicto and Jaqueline M. Yusay; and Ester S. Monfort,
Secretary.[19] However, the names of the last four (4) signatories to the said Board Resolution do not appear in the 1996 General
Information Sheet submitted by the Corporation with the SEC.Under said General Information Sheet the composition of the
Board is as follows:
1. Ma. Antonia M. Salvatierra (Chairman);
2. Ramon H. Monfort (Member);
3. Antonio H. Monfort, Jr., (Member);
4. Joaquin H. Monfort (Member);
5. Francisco H. Monfort (Member) and
6. Jesus Antonio H. Monfort (Member).[20]
There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort, were indeed
duly elected Members of the Board legally constituted to bring suit in behalf of the Corporation. [21]
In Premium Marble Resources, Inc. v. Court of Appeals,[22] the Court was confronted with the similar issue of capacity to sue
of the officers of the corporation who filed a complaint for damages. In the said case, we sustained the dismissal of the
complaint because it was not established that the Members of the Board who authorized the filing of the complaint were the
lawfully elected officers of the corporation.Thus
The only issue in this case is whether or not the filing of the case for damages against private respondent was authorized by a
duly constituted Board of Directors of the petitioner corporation.
Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson, Jose Ma. Silva, Aderito Yujuico and
Rodolfo Millare, presented the Minutes of the meeting of its Board of Directors held on April 1, 1982, as proof that the filing of
the case against private respondent was authorized by the Board. On the other hand, the second set of officers, viz., Saturnino
G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes, presented a Resolution dated July 30, 1986, to show that Premium did not
authorize the filing in its behalf of any suit against the private respondent International Corporate Bank.
Page 33 of 108
Later on, petitioner submitted its Articles of Incorporation dated November 6, 1979 with the following as Directors: Mario C.
Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose Ma. Silva.
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 directors of the Premium Marble Resources, Inc. were:
Alberto C. Nograles President/Director

Fernando D. Hilario Vice President/Director
Augusto I. Galace Treasurer
Jose L.R. Reyes Secretary/Director
Pido E. Aguilar Director
Saturnino G. Belen, Jr. Chairman of the Board.
While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the year 1982 were
Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to show proof that this election was reported to
the SEC. In fact, the last entry in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers
elected in March 1981.
We agree with the finding of public respondent Court of Appeals, that in the absence of any board resolution from its board of
directors the [sic] authority to act for and in behalf of the corporation, the present action must necessarily fail. The power of the
corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. Thus, the
issue of authority and the invalidity of plaintiff-appellants subscription which is still pending, is a matter that is also addressed,
considering the premises, to the sound judgment of the Securities & Exchange Commission.
By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are required to
submit within the period therein stated (30 days) to the Securities and Exchange Commission the names, nationalities and
residences of the directors, trustees and officers elected.
Sec. 26 of the Corporation Code provides, thus:
Sec. 26. Report of election of directors, trustees and officers. Within thirty (30) days after the election of the directors, trustees
and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities
and Exchange Commission, the names, nationalities and residences of the directors, trustees and officers elected. xxx
Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of
responsible officers, of the nature of business, financial condition and operational status of the company together with
information on its key officers or managers so that those dealing with it and those who intend to do business with it may know
or have the means of knowing facts concerning the corporations financial resources and business responsibility.
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers of Premium
has not been fully substantiated. In the absence of an authority from the board of directors, no person, not even the officers of
the corporation, can validly bind the corporation.
In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General Information Sheet[23] are
already dead[24]at the time the March 31, 1997 Board Resolution was issued, does not automatically make the four signatories
(i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution (whose name
do not appear in the 1996 General Information Sheet) as among the incumbent Members of the Board. This is because it was
not established that they were duly elected to replace the said deceased Board Members.
To correct the alleged error in the General Information Sheet, the retained accountant of the Corporation informed the SEC
in its November 11, 1998 letter that the non-inclusion of the lawfully elected directors in the 1996 General Information Sheet
was attributable to its oversight and not the fault of the Corporation. [25] This belated attempt, however, did not erase the doubt
as to whether an election was indeed held. As previously stated, a corporation is mandated to inform the SEC of the names and
the change in the composition of its officers and board of directors within 30 days after election if one was held, or 15 days after
the death, resignation or cessation of office of any of its director, trustee or officer if 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 Board Resolution was held on October 16, 1996, but the SEC was informed thereof more than two years
Page 34 of 108
later, or on November 11, 1998. The 4 Directors appearing in the 1996 General Information Sheet died between the years 1984
1987,[26] but the records do not show if such demise was reported to the SEC.
What further militates against the purported election of those who signed the March 31, 1997 Board Resolution was the
belated submission of the alleged Minutes of the October 16, 1996 meeting where the questioned officers were elected. The
issue of legal capacity of Ma. Antonia M. Salvatierra was raised before the lower court by the group of Antonio Monfort III as
early as 1997, but the Minutes of said October 16, 1996 meeting was presented by the Corporation only in its September 29,
1999 Comment before the Court of Appeals.[27]Moreover, the Corporation failed to prove that the same October 16, 1996
Minutes was submitted to the SEC. In fact, the 1997 General Information Sheet[28] submitted by the Corporation does not reflect
the names of the 4 Directors 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.
The Court notes that the complaint in Civil Case No. 506-C, for 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 detention of 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, 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.
SO ORDERED.
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,

vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA
and JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,

vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO.,
INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195 which
modified the decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in
G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but in all other respects the trial court's
decision was affirmed.
Page 35 of 108
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff the amount of P311,056.02,
with interest at the rate of 12% per annum compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's
fees from July 2,1966, until full payment is made; plus P70,000.00 moral and exemplary damages.
It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside from
Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco,
the Cervanteses one-half and Maglana the other half, the amount of Pl84,878.74 with interest from the filing of the cross-
complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P184,878.84 with interest from
the filing of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P50,000.00
for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another P20,000.00 to Constancio B.
Maglana as attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants Bormaheco, the Cervanteses and
Constancio B. Maglana, is dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco and the Cervanteses
the amount of P20,000.00 as attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate of interest up to
the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith. The fact that the properties of
the Bormaheco and the Cervanteses were attached and that they were required to file a counterbond in order to dissolve the
attachment, is not an act of bad faith. When a man tries to protect his rights, he should not be saddled with moral or exemplary
damages. Furthermore, the rights exercised were provided for in the Rules of Court, and it was the court that ordered it, in the
exercise of its discretion.
No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it only secured the attachment
prayed for by the plaintiff Pioneer. If an insurance company would be liable for damages in performing an act which is clearly
within its power and which is the reason for its being, then nobody would engage in the insurance business. No further claim or
counter-claim for or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)
FACTS:
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines
(SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract (Exhibit A)
for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US
$109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while the
other aircraft, arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed and
issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts
and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes
(Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the
above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to
expand his airline business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer,
one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements
stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save
harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever
Page 36 of 108
kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay, reimburse
and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should or
may pay or cause to be paid or become liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage
as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and convey to the surety
the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila and with
the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776),
respectively.
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a
total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. The
Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against
Lim and respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to
the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery of
the sums of money they advanced to Lim for the purchase of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against
all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all the
defendants was dismissed. In all other respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND
THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND
THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS
IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of liability under the surety
bond in favor of JDA and subsequently collected the proceeds of such reinsurance in the sum of P295,000.00. Defendants'
alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant action for the recovery of the amount of
P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute the instant
action as it does not stand to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from defendants, hence, it instituted
the action is utterly devoid of merit. Plaintiff did not even present any evidence that it is the attorney-in-fact of the reinsurance
company, authorized to institute an action for and in behalf of the latter. To qualify a person to be a real party in interest in
whose name an action must be prosecuted, he must appear to be the present real owner of the right sought to be enforced
(Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has been held that the real party in interest is the party who
would be benefited or injured by the judgment or the party entitled to the avails of the suit (Salonga v. Warner Barnes & Co.,
Ltd., 88 Phil. 125, 131). By real party in interest is meant a present substantial interest as distinguished from a mere expectancy
or a future, contingent, subordinate or consequential interest (Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank,
52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
Page 37 of 108
Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in interest as it has already been
paid by the reinsurer the sum of P295,000.00 — the bulk of defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, the former was able to
foreclose extra-judicially one of the subject airplanes and its spare engine, realizing the total amount of P37,050.00 from the sale
of the mortgaged chattels. Adding the sum of P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is
patent that plaintiff has been overpaid in the amount of P33,383.72 considering that the total amount it had paid to JDA totals
to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the amount in excess of P298,666.28 would be
tantamount to unjust enrichment as it has already been paid by the reinsurance company of the amount plaintiff has paid to
JDA as surety of defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled is the rule that no person should unjustly
enrich himself at the expense of another (Article 22, New Civil Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was paid by its reinsurer
in the aforesaid amount, as this matter has never been raised by any of the parties herein both in their answers in the court
below and in their respective briefs with respondent court; (Rollo, p. 11) (2) even assuming hypothetically that it was paid by its
reinsurer, still none of the respondents had any interest in the matter since the reinsurance is strictly between the petitioner
and the re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity agreements, the petitioner is
entitled to recover from respondents Bormaheco and Maglana; and (4) the principle of unjust enrichment is not applicable
considering that whatever amount he would recover from the co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA as has been paid with
reinsurance money?
2. If the answer to the preceding question is in the negative, has Pioneer still any claim against defendants, considering the
amount it has realized from the sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of JDA, collected the
proceeds of such reinsurance in the sum of P295,000, and paid with the said amount the bulk of its alleged liability to JDA under
the said surety bond, it is plain that on this score it no longer has any right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the amount paid to it by the
reinsurers, notwithstanding that the cause of action pertains to the latter, Pioneer says: The reinsurers opted instead that the
Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is representing
the reinsurers to recover the amount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing
defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as attorney-in- fact of the
reinsurers for any amount. Lastly, and most important of all, Pioneer has no right to institute and maintain in its own name an
action for the benefit of the reinsurers. It is well-settled that an action brought by an attorney-in-fact in his own name instead of
that of the principal will not prosper, and this is so even where the name of the principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be prosecuted in the name of the real party in
interest.' This provision is mandatory. The real party in interest is the party who would be benefitted or injured by the judgment
or is the party entitled to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is not a real party in interest, that there is no law permitting an
action to be brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo,
19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.
Page 38 of 108
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 from the reinsurers, the
uninsured portion of what it paid to JDA is the difference between the two amounts, or P3,666.28. This is the amount for which
Pioneer may sue defendants, assuming that the indemnity agreement is still valid and effective. But since the amount realized
from the sale of the mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a total of
P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more claim against defendants. (Record on
Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this admitted
payment, the only issue that cropped up was the effect of payment made by the reinsurers to the petitioner. Therefore, the
petitioner's argument that the respondents had no interest in the reinsurance contract as this is strictly between the petitioner
as insured and the reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired in similar cases where the
original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in general applicable to actions or contracts of reinsurance.
(Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which
we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that the
insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not
fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision,
the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. (Emphasis
supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the
respondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore, has no cause
of action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have been dismissed on the
premise that the evidence on record shows that it is entitled to recover from the counter indemnitors. It does not, however, cite
any grounds except its allegation that respondent "Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back
up its contention.
On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its finding that the
counter-indemnitors are not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after the execution of the
chattel mortgage.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue the bond provided that the
same would be mortgaged to it, but this was not possible because the planes were still in Japan and could not be mortgaged
Page 39 of 108
here in the Philippines. As soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer Insurance
to cover the bond, and this indemnity agreement would be cancelled.
The following is averred under oath by Pioneer in the original complaint:
The various conflicting claims over the mortgaged properties have impaired and rendered insufficient the security under the
chattel mortgage and there is thus no other sufficient security for the claim sought to be enforced by this action.
This is judicial admission and aside from the chattel mortgage there is no other security for the claim sought to be enforced by
this action, which necessarily means that the indemnity agreement had ceased to have any force and effect at the time this
action was instituted. Sec 2, Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and spare parts, no longer has
any further action against the defendants as indemnitors to recover any unpaid balance of the price. The indemnity
agreement was ipso jure extinguished upon the foreclosure of the chattel mortgage. These defendants, as indemnitors, would
be entitled to be subrogated to the right of Pioneer should they make payments to the latter. Articles 2067 and 2080 of the New
Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes any further action to
recover any unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as surety having made of the
payments to JDA, the alternative remedies open to Pioneer were as provided in Article 1484 of the New Civil Code, known as the
Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and the instant suit. Such
being the case, as provided by the aforementioned provisions, Pioneer shall have no further action against the purchaser to
recover any unpaid balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No.
L- 24772, May 27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not the vendor but JDA.
The reason is that Pioneer is actually exercising the rights of JDA as vendor, having subrogated it in such rights. Nor may the
application of the provision be validly opposed on the ground that these defendants and defendant Maglana are not the vendee
but indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged these defendants from any
liability as alleged indemnitors. The change of the maturity dates of the obligations of Lim, or SAL extinguish the original
obligations thru novations thus discharging the indemnitors.
The principal hereof shall be paid in eight equal successive three months interval installments, the first of which shall be due and
payable 25 August 1965, the remainder of which ... shall be due and payable on the 26th day x x x of each succeeding three
months and the last of which shall be due and payable 26th May 1967.
However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA, modifying the maturity
dates of the obligations, as follows:
The principal hereof shall be paid in eight equal successive three month interval installments the first of which shall be due and
payable 4 September 1965, the remainder of which ... shall be due and payable on the 4th day ... of each succeeding months and
the last of which shall be due and payable 4th June 1967.
Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates different from that fixed in the
aforesaid memorandum; the due date of the first installment appears as October 15, 1965, and those of the rest of the
installments, the 15th of each succeeding three months, that of the last installment being July 15, 1967.
These restructuring of the obligations with regard to their maturity dates, effected twice, were done without the knowledge,
much less, would have it believed that these defendants Maglana (sic). Pioneer's official Numeriano Carbonel would have it
believed that these defendants and defendant Maglana knew of and consented to the modification of the obligations. But if that
Page 40 of 108
were so, there would have been the corresponding documents in the form of a written notice to as well as written conformity of
these defendants, and there are no such document. The consequence of this was the extinguishment of the obligations and of
the surety bond secured by the indemnity agreement which was thereby also extinguished. Applicable by analogy are the rulings
of the Supreme Court in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v.
Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty
The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any
extension time referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. Consequently, Pioneer has no more
cause of action to recover from these defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an express
stipulation in the surety bond, the failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on
every installment, released Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made
after the obligation has prescribed or became illegal.
These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by reason of the filing of the
instant case against them and the attachment and garnishment of their properties. The instant action is clearly unfounded
insofar as plaintiff drags these defendants and defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate
vehicle but who failed to incorporate the entity in which they had chosen to invest? How are the losses to be treated in
situations where their contributions to the intended 'corporation' were invested not through the corporate form? This Petition
presents these fundamental questions which we believe were resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco, Spouses
Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses and/or gains of the venture in proportion to their contribution. The
petitioner, therefore, questions the appellate court's findings ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amount of P184,878.74 as
correctly found by the trial court, with interest from the filing of the cross-complaints until the amount is fully paid. Defendant
Lim should pay one-half of the said amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It
is established in the records that defendant Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the ownership of the subject airplanes and spare parts (Exhibit 58). In addition,
the cross-party plaintiffs incurred additional expenses, hence, the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association
should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners
(Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to
Page 41 of 108
form a corporation and who carry on business under the corporate name occupy the position of partners inter se (Lynch v.
Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons associate themselves together under articles to
purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation
within the statute, they become in legal effect partners inter se, and their rights as members of the company to the property
acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29
Mich. 369). So, where certain persons associated themselves as a corporation for the development of land for irrigation
purposes, and each conveyed land to the corporation, and two of them contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it was treated as a trustee for
the associates in an action between them for an accounting, and its capital stock was treated as partnership assets, sold, and the
proceeds distributed among them in proportion to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal.
446). However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of
partners, as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6
S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thus,
one who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a
partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in
an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation
between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an
agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter (Heald v. Owen,
44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrial
despite notification. In his answer, the petitioner denied having received any amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court and the appellate court, however, found through Exhibit 58, that the petitioner
received the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the
ownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner
Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his
representations to them. This gives credence to the cross-claims of the respondents to the effect that they were induced and
lured by the petitioner to make contributions to a proposed corporation which was never formed because the petitioner
reneged on their agreement. Maglana alleged in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was
to procure two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the
required permits for the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery
to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking.
Lim in an undertaking sometime on or about August 9,1965, promised to incorporate his airline in accordance with their
agreement and proceeded to acquire the planes on his own account. Since then up to the filing of this answer, Lim has refused,
failed and still refuses to set up the corporation or return the money of Maglana. (Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two airplanes and spare parts
from Japan which the latter considered as their lawful contribution and participation in the proposed corporation to be known
as SAL. Arrangements and negotiations were undertaken by defendant Lim. Down payments were advanced by defendants
Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage and surety bond agreement in
his personal capacity as the alleged proprietor of the SAL. The answering defendants learned for the first time of this trickery
and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel mortgage (sic) allegedly executed by defendant
Lim, thereby forcing them to file an adverse claim in the form of third party claim. Notwithstanding repeated oral demands
made by defendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two planes and their
accessories and or return the amount advanced by the former amounting to an aggregate sum of P 178,997.14 as evidenced by
a statement of accounts, the latter ignored, omitted and refused to comply with them. (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was created
among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed
corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
Page 42 of 108
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.
[G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
DECISION
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being
partners, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on
behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on
its behalf, but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals
in CA-GR CV 41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by
reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the
amount of P532,045.00 and P68,000.00, respectively, or for the total amount of P600,045.00, this Court noted that these items
were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties,
Page 43 of 108
and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less
than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was
deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by
the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its
own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty
damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor
of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to
be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that
the total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust
to award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the
amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants
are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for
plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it
with the Clerk of Court.
SO ORDERED. [3]
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7,
1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a
signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000
were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit
against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against
the three in their capacities as general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent
corporation as shown by a Certification from the Securities and Exchange Commission. [5] On September 20, 1990, the lower
court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B
Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time
within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an
Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his
behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. [6] The trial court maintained the Writ, and
upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries
won the bidding and deposited with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to
the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. [8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses
presented and (2) on a Compromise Agreement executed by the three [9] in Civil Case No. 1492-MN which Chua and Yao had
brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages. [10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the
fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim
Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be
divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
Page 44 of 108
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to
JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. [11]
The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability
could be presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be
held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific
undertaking, that is for commercial fishing x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is x x x. By a contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among
themselves (Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court. [14]

The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE
BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the Court
must resolve this key issue:whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Courts Ruling
The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA
finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the
Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the
negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated
February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership -- the fishing
boat F/B Lourdes.The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that
there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: [15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua
was already Yaos partner;
Page 45 of 108
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and
the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of
Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expenses for the boats
would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount of P1 million
secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne
Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing
Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against
Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership
of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of
which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioners brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term common fund under Article 1767. The contribution
to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any
loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed
formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and
the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing
business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds
from the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the
foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule. [16] In assailing the factual findings of the two lower courts, petitioner effectively
goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the Compromise
Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their
preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant
among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all relevant
facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that
the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the
RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law,
Page 46 of 108
logic and fairness. Verily, the two lower courts factual findings mentioned above nullified petitioners argument that the
existence of a partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and Yao, not a partner in
the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he
was the owner of the boats, including F/B Lourdeswhere the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to
pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what
petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their
loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who
in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did not incur, if
the relationship among the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and
not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so
shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that
there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its
corporate existence. The reason behind this doctrine is obvious - an unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create
agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents
do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent
without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the
liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes
such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such
agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance,
an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality
to be sued to evade its responsibility for a contract it entered into and by virtue of which itreceived advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation
and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged
corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge
of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The
only question here is whether petitioner should be held jointly [18] liable with Chua and Yao. Petitioner contests such liability,
insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not
Page 47 of 108
appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held
liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been
proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively
stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits
of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said
association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso
v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and
position , entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of
procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of
Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that
it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats
were specifically manufactured and tailor-made according to their own design, and were bought and used in the fishing venture
they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is
proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 15574 September 17, 1919
SMITH, BELL & COMPANY (LTD.), petitioner,

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.
Ross and Lawrence for petitioner.

Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of Customs of the port of Cebu,
Philippine Islands, to compel him to issue a certificate of Philippine registry to the petitioner for its motor vessel Bato. The
Attorney-General, acting as counsel for respondent, demurs to the petition on the general ground that it does not state facts
sufficient to constitute a cause of action. While the facts are thus admitted, and while, moreover, the pertinent provisions of law
are clear and understandable, and interpretative American jurisprudence is found in abundance, yet the issue submitted is not
lightly to be resolved. The question, flatly presented, is, whether Act. No. 2761 of the Philippine Legislature is valid — or, more
directly stated, whether the Government of the Philippine Islands, through its Legislature, can deny the registry of vessels in its
coastwise trade to corporations having alien stockholders.
FACTS.
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Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority of its
stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it in the Philippine Islands in 1916,
of more than fifteen tons gross The Bato was brought to Cebu in the present year for the purpose of transporting plaintiff's
merchandise between ports in the Islands. Application was made at Cebu, the home port of the vessel, to the Collector of
Customs for a certificate of Philippine registry. The Collector refused to issue the certificate, giving as his reason that all the
stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the Philippine Islands. The instant
action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting a portion of section 3 of this
Law, and still in force, provides in its section 1:
That until Congress shall have authorized the registry as vessels of the United States of vessels owned in the Philippine Islands,
the Government of the Philippine Islands is hereby authorized to adopt, from time to time, and enforce regulations governing
the transportation of merchandise and passengers between ports or places in the Philippine Archipelago. (35 Stat. at L., 70;
Section 3912, U. S. Comp Stat. [1916]; 7 Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in section 3, (first paragraph,
first sentence), 6, 7, 8, 10, and 31, as follows.
SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or property without due
process of law, or deny to any person therein the equal protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines shall continue in force and effect, except as altered, amended, or modified
herein, until altered, amended, or repealed by the legislative authority herein provided or by Act of Congress of the United
States.
SEC. 7. That the legislative authority herein provided shall have power, when not inconsistent with this Act, by due enactment to
amend, alter modify, or repeal any law, civil or criminal, continued in force by this Act as it may from time to time see fit
This power shall specifically extend with the limitation herein provided as to the tariff to all laws relating to revenue provided as
to the tariff to all laws relating to revenue and taxation in effect in the Philippines.
SEC. 8. That general legislative power, except as otherwise herein provided, is hereby granted to the Philippine Legislature,
authorized by this Act.
SEC. 10. That while this Act provides that the Philippine government shall have the authority to enact a tariff law the trade
relations between the islands and the United States shall continue to be governed exclusively by laws of the Congress of the
United States: Provided, That tariff acts or acts amendatory to the tariff of the Philippine Islands shall not become law until they
shall receive the approval of the President of the United States, nor shall any act of the Philippine Legislature affecting
immigration or the currency or coinage laws of the Philippines become a law until it has been approved by the President of the
United States: Provided further, That the President shall approve or disapprove any act mentioned in the foregoing proviso
within six months from and after its enactment and submission for his approval, and if not disapproved within such time it shall
become a law the same as if it had been specifically approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any of the provisions of this Act are hereby
continued in force and effect." (39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law amended section 1172 of the
Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. — Upon registration of a vessel of domestic ownership, and of more than fifteen
tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of domestic ownership and of fifteen tons gross
or less, the taking of the certificate of Philippine register shall be optional with the owner.
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"Domestic ownership," as used in this section, means ownership vested in some one or more of the following classes of persons:
(a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the United States residing in the Philippine Islands;
(c) any corporation or company composed wholly of citizens of the Philippine Islands or of the United States or of both, created
under the laws of the United States, or of any State thereof, or of thereof, or the managing agent or master of the vessel resides
in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen, had a certificate of
Philippine register under existing law, shall likewise be deemed a vessel of domestic ownership so long as there shall not be any
change in the ownership thereof nor any transfer of stock of the companies or corporations owning such vessel to person not
included under the last preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read as follows:
SEC. 1176. Investigation into character of vessel. — No application for a certificate of Philippine register shall be approved until
the collector of customs is satisfied from an inspection of the vessel that it is engaged or destined to be engaged in legitimate
trade and that it is of domestic ownership as such ownership is defined in section eleven hundred and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or examine its owner, master, crew, or passengers in order to
ascertain whether the vessel is engaged in legitimate trade and is entitled to have or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. — No Philippine vessel operating in the coastwise
trade or on the high seas shall be permitted to have on board more than one master or one mate and one engineer who are not
citizens of the United States or of the Philippine Islands, even if they hold licenses under section one thousand one hundred and
ninety-nine hereof. No other person who is not a citizen of the United States or of the Philippine Islands shall be an officer or a
member of the crew of such vessel. Any such vessel which fails to comply with the terms of this section shall be required to pay
an additional tonnage tax of fifty centavos per net ton per month during the continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act No 2761 of the Philippine
Legislature is valid in whole or in part — whether the Government of the Philippine Islands, through its Legislature, can deny the
registry of vessel in its coastwise trade to corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt as to the power of the Philippine Legislature to
enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific delegation of authority to the Government of the
Philippine Islands to regulate the transportation of merchandise and passengers between ports or places therein, the liberal
construction given to the provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts, and the grant by the
Act of Congress of August 29, 1916, of general legislative power to the Philippine Legislature, are certainly superabundant
authority for such a law. While the Act of the local legislature may in a way be inconsistent with the Act of Congress regulating
the coasting trade of the Continental United States, yet the general rule that only such laws of the United States have force in
the Philippines as are expressly extended thereto, and the abnegation of power by Congress in favor of the Philippine Islands
would leave no starting point for convincing argument. As a matter of fact, counsel for petitioner does not assail legislative
action from this direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How., 227.)
2. It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act No. 2761. The first
paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights
as set forth in the Jones Law, provides "That no law shall be enacted in said Islands which shall deprive any person of life, liberty,
or property without due process of law, or deny to any person therein the equal protection of the laws." Counsel says that Act
No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the corporation from
owning vessels, and because classification of corporations based on the citizenship of one or more of their stockholders is
capricious, and that Act No. 2761 deprives the corporation of its properly without due process of law because by the passage of
the law company was automatically deprived of every beneficial attribute of ownership in the Bato and left with the naked
title to a boat it could not use .
The guaranties extended by the Congress of the United States to the Philippine Islands have been used in the same sense as like
provisions found in the United States Constitution. While the "due process of law and equal protection of the laws" clause of the
Page 50 of 108
Philippine Bill of Rights is couched in slightly different words than the corresponding clause of the Fourteenth Amendment to
the United States Constitution, the first should be interpreted and given the same force and effect as the latter. (Kepner vs. U.S.
[1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth
Amendment has been announced in classic decisions of the United States Supreme Court. Even at the expense of restating what
is so well known, these basic principles must again be set down in order to serve as the basis of this decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are universal in their
application to all person within the territorial jurisdiction, without regard to any differences of race, color, or nationality. The
word "person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax vs. Raich [1915], 239 U. S., 33.) Private
corporations, likewise, are "persons" within the scope of the guaranties in so far as their property is concerned. (Santa Clara
County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125 U. S., 181 Covington &
L. Turnpike Road Co. vs. Sandford [1896], 164 U. S., 578.) Classification with the end in view of providing diversity of treatment
may be made among corporations, but must be based upon some reasonable ground and not be a mere arbitrary selection
(Gulf, Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional because of
unlawful discrimination against aliens could be cited. Generally, these decisions relate to statutes which had attempted
arbitrarily to forbid aliens to engage in ordinary kinds of business to earn their living. (State vs. Montgomery [1900], 94 Maine,
192, peddling — but see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of Examiners of Barbers [1902],
131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese; Truax vs. Raich [1915], 239
U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone
Co. vs. Fagley [1898], 187 Penn., 193, all relating to the employment of aliens by private corporations.)
A literal application of general principles to the facts before us would, of course, cause the inevitable deduction that Act No.
2761 is unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of the equal protection
of the laws. Like all beneficient propositions, deeper research discloses provisos. Examples of a denial of rights to aliens
notwithstanding the provisions of the Fourteenth Amendment could be cited. (Tragesser vs.Gray [1890], 73 Md., 250, licenses to
sell spirituous liquors denied to persons not citizens of the United States; Commonwealth vs. Hana [1907], 195 Mass , 262,
excluding aliens from the right to peddle; Patsone vs.Commonwealth of Pennsylvania [1914], 232 U. S. , 138, prohibiting the
killing of any wild bird or animal by any unnaturalized foreign-born resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in
favor of citizens with reference to the taking for private use of the common property in fish and oysters found in the public
waters of the State; Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915], 239 U. S., 195, limiting employment
on public works by, or for, the State or a municipality to citizens of the United States.)
One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the Fourteenth
Amendment to the United States Constitution, broad and comprehensive as it is, nor any other amendment, "was designed to
interfere with the power of the State, sometimes termed its `police power,' to prescribe regulations to promote the health,
peace, morals, education, and good order of the people, and legislate so as to increase the industries of the State, develop its
resources and add to its wealth and prosperity. From the very necessities of society, legislation of a special character, having
these objects in view, must often be had in certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27; New Orleans Gas
Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same police power which the United States Supreme Court say
"extends to so dealing with the conditions which exist in the state as to bring out of them the greatest welfare in of its people."
(Bacon vs.Walker [1907], 204 U.S., 311.) For quite similar reasons, none of the provision of the Philippine Organic Law could
could have had the effect of denying to the Government of the Philippine Islands, acting through its Legislature, the right to
exercise that most essential, insistent, and illimitable of powers, the sovereign police power, in the promotion of the general
welfare and the public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty [1915], 32 Phil., 580;
Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another notable exception permits of the regulation or distribution of
the public domain or the common property or resources of the people of the State, so that use may be limited to its citizens. (Ex
parte Gilleti [1915], 70 Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391; Patsone vs. Commonwealth of Pennsylvania [1914],
232U. S., 138.) Still another exception permits of the limitation of employment in the construction of public works by, or for, the
State or a municipality to citizens of the United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207; Heim vs. McCall
[1915], 239 U.S., 175; Crane vs. New York [1915], 239 U. S., 195.) Even as to classification, it is admitted that a State may classify
with reference to the evil to be prevented; the question is a practical one, dependent upon experience.
(Patsone vs.Commonwealth of Pennsylvania [1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of Philippine registry only
on condition that they be composed wholly of citizens of the Philippine Islands or of the United States or both, as not infringing
Philippine Organic Law, it must be done under some one of the exceptions here mentioned This must be done, moreover, having
particularly in mind what is so often of controlling effect in this jurisdiction — our local experience and our peculiar local
conditions.
Page 51 of 108
To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more than three thousand
islands. Literally, and absolutely, steamship lines are, for an Insular territory thus situated, the arteries of commerce. If one be
severed, the life-blood of the nation is lost. If on the other hand these arteries are protected, then the security of the country
and the promotion of the general welfare is sustained. Time and again, with such conditions confronting it, has the executive
branch of the Government of the Philippine Islands, always later with the sanction of the judicial branch, taken a firm stand with
reference to the presence of undesirable foreigners. The Government has thus assumed to act for the all-sufficient and primitive
reason of the benefit and protection of its own citizens and of the self-preservation and integrity of its dominion. (In re Patterson
[1902], 1 Phil., 93; Forbes vs.Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38
Phil., 41.) Boats owned by foreigners, particularly by such solid and reputable firms as the instant claimant, might indeed
traverse the waters of the Philippines for ages without doing any particular harm. Again, some evilminded foreigner might very
easily take advantage of such lavish hospitality to chart Philippine waters, to obtain valuable information for unfriendly foreign
powers, to stir up insurrection, or to prejudice Filipino or American commerce. Moreover, under the Spanish portion of
Philippine law, the waters within the domestic jurisdiction are deemed part of the national domain, open to public use. (Book II,
Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers which in the Philippines as in the
United States and other countries are, as Lord Hale said, "affected with a public interest," can only be permitted to use these
public waters as a privilege and under such conditions as to the representatives of the people may seem wise. (See De
Villata vs. Stanley [1915], 32 Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before mentioned, Justice Holmes
delivering the opinion of the United States Supreme Court said:
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or animal except in defense of
person or property, and `to that end' makes it unlawful for such foreign-born person to own or be possessed of a shotgun or
rifle; with a penalty of $25 and a forfeiture of the gun or guns. The plaintiff in error was found guilty and was sentenced to pay
the abovementioned fine. The judgment was affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to
this court on the ground that the statute is contrary to the 14th Amendment and also is in contravention of the treaty between
the United States and Italy, to which latter country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of property, and discrimination against
such aliens as a class. But the former really depends upon the latter, since it hardly can be disputed that if the lawful object, the
protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the discrimination,
the, means adopted for making it effective also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start with reference to the evil to be prevented, and
that if the class discriminated against is or reasonably might be considered to define those from whom the evil mainly is to be
feared, it properly may be picked out. A lack of abstract symmetry does not matter. The question is a practical one, dependent
upon experience. . . .
The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania was not warranted in
assuming as its premise for the law that resident unnaturalized aliens were the peculiar source of the evil that it desired to
prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct. Rep., 692.)
Obviously the question, so stated, is one of local experience, on which this court ought to be very slow to declare that the state
legislature was wrong in its facts (Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we
might trust popular speech in some states it was right; but it is enough that this court has no such knowledge of local conditions
as to be able to say that it was manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the
protection afforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of Rights,
nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the right to
register vessels in the Philippines coastwise trade, does not belong to that vicious species of class legislation which must
always be condemned, but does fall within authorized exceptions, notably, within the purview of the police power, and so
does not offend against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative history of the United
States and the Philippine Islands, and, probably, the legislative history of other countries, if we were to take the time to search it
Page 52 of 108
out, might disclose similar attempts at restriction on the right to enter the coastwise trade, and might thus furnish valuable aid
by which to ascertain and, if possible, effectuate legislative intention.
3. The power to regulate commerce, expressly delegated to the Congress by the Constitution, includes the power to nationalize
ships built and owned in the United States by registries and enrollments, and the recording of the muniments of title of
American vessels. The Congress "may encourage or it may entirely prohibit such commerce, and it may regulate in any way it
may see fit between these two extremes." (U.S. vs.Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1; The
Passenger Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had not been long convened before it enacted
on September 1, 1789, "An Act for Registering and Clearing Vessels, Regulating the Coasting Trade, and for other purposes."
Section 1 of this law provided that for any ship or vessel to obtain the benefits of American registry, it must belong wholly to a
citizen or citizens of the United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed, but the same idea
was carried into the Acts of Congress of December 31, 1792 and February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act
of 1792 provided that in order to obtain the registry of any vessel, an oath shall be taken and subscribed by the owner, or by one
of the owners thereof, before the officer authorized to make such registry, declaring, "that there is no subject or citizen of any
foreign prince or state, directly or indirectly, by way of trust, confidence, or otherwise, interested in such vessel, or in the profits
or issues thereof." Section 32 of the Act of 1793 even went so far as to say "that if any licensed ship or vessel shall be transferred
to any person who is not at the time of such transfer a citizen of and resident within the United States, ... every such vessel with
her tackle, apparel, and furniture, and the cargo found on board her, shall be forefeited." In case of alienation to a foreigner,
Chief Justice Marshall said that all the privileges of an American bottom were ipso facto forfeited. (U.S. vs. Willings and Francis
[1807], 4 Cranch, 48.) Even as late as 1873, the Attorney-General of the United States was of the opinion that under the
provisions of the Act of December 31, 1792, no vessel in which a foreigner is directly or indirectly interested can lawfully be
registered as a vessel of the United. States. (14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the Act of March 3, 1825, may have affected them, until
amended by the Act of May 28, 1896 (29 Stat. at L., 188) which extended the privileges of registry from vessels wholly owned by
a citizen or citizens of the United States to corporations created under the laws of any of the states thereof. The law, as
amended, made possible the deduction that a vessel belonging to a domestic corporation was entitled to registry or enrollment
even though some stock of the company be owned by aliens. The right of ownership of stock in a corporation was thereafter
distinct from the right to hold the property by the corporation (Humphreys vs. McKissock [1890], 140 U.S., 304;
Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the new government found a substantive law in operation in the Islands with a civil
law history which it wisely continued in force Article fifteen of the Spanish Code of Commerce permitted any foreigner to engage
in Philippine trade if he had legal capacity to do so under the laws of his nation. When the Philippine Commission came to enact
the Customs Administrative Act (No. 355) in 1902, it returned to the old American policy of limiting the protection and flag of
the United States to vessels owned by citizens of the United States or by native inhabitants of the Philippine Islands (Sec. 117.)
Two years later, the same body reverted to the existing Congressional law by permitting certification to be issued to a citizen of
the United States or to a corporation or company created under the laws of the United States or of any state thereof or of the
Philippine Islands (Act No. 1235, sec. 3.) The two administration codes repeated the same provisions with the necessary
amplification of inclusion of citizens or native inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of
1917, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the original Customs Administrative Act which in
turn was merely a reflection of the statutory language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of Philippine registry, are thus found
not to be as radical as a first reading would make them appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien shipping act. The
ultimate purpose of the Legislature is to encourage Philippine ship-building. This, without doubt, has, likewise, been the
intention of the United States Congress in passing navigation or tariff laws on different occasions. The object of such a law, the
United States Supreme Court once said, was to encourage American trade, navigation, and ship-building by giving American
ship-owners exclusive privileges. (Old Dominion Steamship Co. vs.Virginia [1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p.
139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is found the following:
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Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts licensing gaming houses, retailers of
spirituous liquors, etc. The act, in this instance, is distinctly of that character, and forms part of an extensive system, the object
of which is to encourage American shipping, and place them on an equal footing with the shipping of other nations. Almost
every commercial nation reserves to its own subjects a monopoly of its coasting trade; and a countervailing privilege in favor of
American shipping is contemplated, in the whole legislation of the United States on this subject. It is not to give the vessel an
American character, that the license is granted; that effect has been correctly attributed to the act of her enrollment. But it is to
confer on her American privileges, as contradistinguished from foreign; and to preserve the. Government from fraud by
foreigners, in surreptitiously intruding themselves into the American commercial marine, as well as frauds upon the revenue in
the trade coastwise, that this whole system is projected.
The United States Congress in assuming its grave responsibility of legislating wisely for a new country did so imbued with a spirit
of Americanism. Domestic navigation and trade, it decreed, could only be carried on by citizens of the United States. If the
representatives of the American people acted in this patriotic manner to advance the national policy, and if their action was
accepted without protest in the courts, who can say that they did not enact such beneficial laws under the all-pervading police
power, with the prime motive of safeguarding the country and of promoting its prosperity? Quite similarly, the Philippine
Legislature made up entirely of Filipinos, representing the mandate of the Filipino people and the guardian of their rights, acting
under practically autonomous powers, and imbued with a strong sense of Philippinism, has desired for these Islands safety from
foreign interlopers, the use of the common property exclusively by its citizens and the citizens of the United States, and
protection for the common good of the people. Who can say, therefore, especially can a court, that with all the facts and
circumstances affecting the Filipino people before it, the Philippine Legislature has erred in the enactment of Act No. 2761?
Surely, the members of the judiciary are not expected to live apart from active life, in monastic seclusion amidst dusty tomes
and ancient records, but, as keen spectators of passing events and alive to the dictates of the general — the national — welfare,
can incline the scales of their decisions in favor of that solution which will most effectively promote the public policy. All the
presumption is in favor of the constitutionally of the law and without good and strong reasons, courts should not attempt to
nullify the action of the Legislature. "In construing a statute enacted by the Philippine Commission (Legislature), we deem it our
duty not to give it a construction which would be repugnant to an Act of Congress, if the language of the statute is fairly
susceptible of another construction not in conflict with the higher law." (In re Guariña [1913], 24. Phil., 36; U.S. vs. Ten Yu
[1912], 24 Phil., 1.) That is the true construction which will best carry legislative intention into effect.
With full consciousness of the importance of the question, we nevertheless are clearly of the opinion that the limitation of
domestic ownership for purposes of obtaining a certificate of Philippine registry in the coastwise trade to citizens of the
Philippine Islands, and to citizens of the United States, does not violate the provisions of paragraph 1 of section 3 of the Act of
Congress of August 29, 1916 No treaty right relied upon Act No. 2761 of the Philippine Legislature is held valid and constitutional
.
The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.
Arellano, C.J., Torres, Johnson, Araullo, Street, Avanceña and Moir, JJ., concur.
G.R. No. L-19550 June 19, 1967
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity as Acting Director, National
Bureau of Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST.
FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal Court of
Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ,
Municipal Court of Quezon City, respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government named on the margin 1 — hereinafter referred to as Respondents-
Prosecutors — several judges2 — hereinafter referred to as Respondents-Judges — issued, on different dates,3 a total of 42
search warrants against petitioners herein4 and/or the corporations of which they were officers, 5 directed to the any peace
officer, to search the persons above-named and/or the premises of their offices, warehouses and/or residences, and to seize
and take possession of the following personal property to wit:
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Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit journals,
typewriters, and other documents and/or papers showing all business transactions including disbursements receipts, balance
sheets and profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be used as
the means of committing the offense," which is described in the applications adverted to above as "violation of Central Bank
Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as contravening the Constitution and the Rules of Court —
because, inter alia: (1) they do not describe with particularity the documents, books and things to be seized; (2) cash money, not
mentioned in the warrants, were actually seized; (3) the warrants were issued to fish evidence against the aforementioned
petitioners in deportation cases filed against them; (4) the searches and seizures were made in an illegal manner; and (5) the
documents, papers and cash money seized were not delivered to the courts that issued the warrants, to be disposed of in
accordance with law — on March 20, 1962, said petitioners filed with the Supreme Court this original action for certiorari,
prohibition, mandamus and injunction, and prayed that, pending final disposition of the present case, a writ of preliminary
injunction be issued restraining Respondents-Prosecutors, their agents and /or representatives from using the effects seized as
aforementioned or any copies thereof, in the deportation cases already adverted to, and that, in due course, thereafter, decision
be rendered quashing the contested search warrants and declaring the same null and void, and commanding the respondents,
their agents or representatives to return to petitioners herein, in accordance with Section 3, Rule 67, of the Rules of Court, the
documents, papers, things and cash moneys seized or confiscated under the search warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are valid and have been issued in
accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners' consent; and (3) that, in any event,
the effects seized are admissible in evidence against herein petitioners, regardless of the alleged illegality of the aforementioned
searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the petition. However, by resolution dated
June 29, 1962, the writ was partially lifted or dissolved, insofar as the papers, documents and things seized from the offices of
the corporations above mentioned are concerned; but, the injunction was maintained as regards the papers, documents and
things found and seized in the residences of petitioners herein.7
Thus, the documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2)
major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and
seized in the residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of
the interest of each of them in said corporations, and whatever the offices they hold therein may be. 8 Indeed, it is well settled
that the legality of a seizure can be contested only by the party whose rights have been impaired thereby,9 and that the
objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. 10 Consequently,
petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from
the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in
evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their individual capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining possession of papers belonging to the corporation did not relate to nor did it affect
the personal defendants. If these papers were unlawfully seized and thereby the constitutional rights of or any one were
invaded, they were the rights of the corporation and not the rights of the other defendants. Next, it is clear that a question of
the lawfulness of a seizure can be raised only by one whose rights have been invaded. Certainly, such a seizure, if unlawful, could
not affect the constitutional rights of defendants whose property had not been seized or the privacy of whose homes had not
been disturbed; nor could they claim for themselves the benefits of the Fourth Amendment, when its violation, if any, was with
reference to the rights of another. Remus vs. United States (C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the
admissibility of the evidence based on an alleged unlawful search and seizure does not extend to the personal defendants but
embraces only the corporation whose property was taken. . . . (A Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d.
786, 789, Emphasis supplied.)
Page 55 of 108
With respect to the documents, papers and things seized in the residences of petitioners herein, the aforementioned resolution
of June 29, 1962, lifted the writ of preliminary injunction previously issued by this Court, 12 thereby, in effect, restraining herein
Respondents-Prosecutors from using them in evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important questions need be settled, namely: (1) whether the
search warrants in question, and the searches and seizures made under the authority thereof, are valid or not, and (2) if the
answer to the preceding question is in the negative, whether said documents, papers and things may be used in evidence
against petitioners herein.1äwphï1.ñët
Petitioners maintain that the aforementioned search warrants are in the nature of general warrants and that accordingly, the
seizures effected upon the authority there of are null and void. In this connection, the Constitution 13provides:
The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures
shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination
under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be
searched, and the persons or things to be seized.
Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue but upon
probable cause, to be determined by the judge in the manner set forth in said provision; and (2) that the warrant
shall particularly describe the things to be seized.
None of these requirements has been complied with in the contested warrants. Indeed, the same were issued upon applications
stating that the natural and juridical person therein named had committed a "violation of Central Ban Laws, Tariff and Customs
Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no specific offense had been alleged in said
applications. The averments thereof with respect to the offense committed were abstract. As a consequence, it
was impossible for the judges who issued the warrants to have found the existence of probable cause, for the same presupposes
the introduction of competent proof that the party against whom it is sought has performed particular acts, or
committed specific omissions, violating a given provision of our criminal laws. As a matter of fact, the applications involved in
this case do not allege any specific acts performed by herein petitioners. It would be the legal heresy, of the highest order, to
convict anybody of a "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal
Code," — as alleged in the aforementioned applications — without reference to any determinate provision of said laws or
To uphold the validity of the warrants in question would be to wipe out completely one of the most fundamental rights
guaranteed in our Constitution, for it would place the sanctity of the domicile and the privacy of communication and
correspondence at the mercy of the whims caprice or passion of peace officers. This is precisely the evil sought to be remedied
by the constitutional provision above quoted — to outlaw the so-called general warrants. It is not difficult to imagine what
would happen, in times of keen political strife, when the party in power feels that the minority is likely to wrest it, even though
by legal means.
Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court deemed
it fit to amend Section 3 of Rule 122 of the former Rules of Court 14 by providing in its counterpart, under the Revised Rules of
Court 15 that "a search warrant shall not issue but upon probable cause in connection with one specific offense." Not satisfied
with this qualification, the Court added thereto a paragraph, directing that "no search warrant shall issue for more than one
specific offense."
The grave violation of the Constitution made in the application for the contested search warrants was compounded by the
description therein made of the effects to be searched for and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or papers showing all business transactions including disbursement receipts, balance
sheets and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners herein,
regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of the petitioners
and the aforementioned corporations, whatever their nature, thus openly contravening the explicit command of our Bill of
Rights — that the things to be seized be particularly described — as well as tending to defeat its major objective: the elimination
of general warrants.
Page 56 of 108
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, even if the searches and seizures
under consideration were unconstitutional, the documents, papers and things thus seized are admissible in evidence against
petitioners herein. Upon mature deliberation, however, we are unanimously of the opinion that the position taken in the
Moncado case must be abandoned. Said position was in line with the American common law rule, that the criminal should not
be allowed to go free merely "because the constable has blundered," 16 upon the theory that the constitutional prohibition
against unreasonable searches and seizures is protected by means other than the exclusion of evidence unlawfully
obtained, 17 such as the common-law action for damages against the searching officer, against the party who procured the
issuance of the search warrant and against those assisting in the execution of an illegal search, their criminal punishment,
resistance, without liability to an unlawful seizure, and such other legal remedies as may be provided by other laws.
However, most common law jurisdictions have already given up this approach and eventually adopted the exclusionary rule,
realizing that this is the only practical means of enforcing the constitutional injunction against unreasonable searches and
seizures. In the language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such, which has been unlawfully acquired, is that
exclusion is the only practical way of enforcing the constitutional privilege. In earlier times the action of trespass against the
offending official may have been protection enough; but that is true no longer. Only in case the prosecution which itself controls
the seizing officials, knows that it cannot profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already declared:
If letters and private documents can thus be seized and held and used in evidence against a citizen accused of an offense, the
protection of the 4th Amendment, declaring his rights to be secure against such searches and seizures, is of no value, and, so far
as those thus placed are concerned, might as well be stricken from the Constitution. The efforts of the courts and their officials
to bring the guilty to punishment, praiseworthy as they are, are not to be aided by the sacrifice of those great principles
established by years of endeavor and suffering which have resulted in their embodiment in the fundamental law of the land.19
This view was, not only reiterated, but, also, broadened in subsequent decisions on the same Federal Court. 20After reviewing
previous decisions thereon, said Court held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the right of privacy free from unreasonable state
intrusion, and after its dozen years on our books, are led by it to close the only courtroom door remaining open to evidence
secured by official lawlessness in flagrant abuse of that basic right, reserved to all persons as a specific guarantee against that
very same unlawful conduct. We hold that all evidence obtained by searches and seizures in violation of the Constitution is, by
that same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable against the States through the Due Process Clause
of the Fourteenth, it is enforceable against them by the same sanction of exclusion as it used against the Federal Government.
Were it otherwise, then just as without the Weeks rule the assurance against unreasonable federal searches and seizures would
be "a form of words," valueless and underserving of mention in a perpetual charter of inestimable human liberties, so
too, without that rule the freedom from state invasions of privacy would be so ephemeral and so neatly severed from its
conceptual nexus with the freedom from all brutish means of coercing evidence as not to permit this Court's high regard as a
freedom "implicit in the concept of ordered liberty." At the time that the Court held in Wolf that the amendment was applicable
to the States through the Due Process Clause, the cases of this Court as we have seen, had steadfastly held that as to federal
officers the Fourth Amendment included the exclusion of the evidence seized in violation of its provisions. Even Wolf "stoutly
adhered" to that proposition. The right to when conceded operatively enforceable against the States, was not susceptible of
destruction by avulsion of the sanction upon which its protection and enjoyment had always been deemed dependent under the
Boyd, Weeks and Silverthorne Cases. Therefore, in extending the substantive protections of due process to all constitutionally
unreasonable searches — state or federal — it was logically and constitutionally necessarily that the exclusion doctrine — an
essential part of the right to privacy — be also insisted upon as an essential ingredient of the right newly recognized by the Wolf
Case. In short, the admission of the new constitutional Right by Wolf could not tolerate denial of its most important
constitutional privilege, namely, the exclusion of the evidence which an accused had been forced to give by reason of the
unlawful seizure. To hold otherwise is to grant the right but in reality to withhold its privilege and enjoyment. Only last year the
Court itself recognized that the purpose of the exclusionary rule to "is to deter — to compel respect for the constitutional
guaranty in the only effectively available way — by removing the incentive to disregard it" . . . .
The ignoble shortcut to conviction left open to the State tends to destroy the entire system of constitutional restraints on which
the liberties of the people rest. Having once recognized that the right to privacy embodied in the Fourth Amendment is
Page 57 of 108
enforceable against the States, and that the right to be secure against rude invasions of privacy by state officers is, therefore
constitutional in origin, we can no longer permit that right to remain an empty promise. Because it is enforceable in the same
manner and to like effect as other basic rights secured by its Due Process Clause, we can no longer permit it to be revocable at
the whim of any police officer who, in the name of law enforcement itself, chooses to suspend its enjoyment. Our decision,
founded on reason and truth, gives to the individual no more than that which the Constitution guarantees him to the police
officer no less than that to which honest law enforcement is entitled, and, to the courts, that judicial integrity so necessary in the
true administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the constitutional injunction against
unreasonable searches and seizures. To be sure, if the applicant for a search warrant has competent evidence to establish
probable cause of the commission of a given crime by the party against whom the warrant is intended, then there is no reason
why the applicant should not comply with the requirements of the fundamental law. Upon the other hand, if he has no such
competent evidence, then it is not possible for the Judge to find that there is probable cause, and, hence, no justification for the
issuance of the warrant. The only possible explanation (not justification) for its issuance is the necessity of fishing evidence of
the commission of a crime. But, then, this fishing expedition is indicative of the absence of evidence to establish a probable
cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal search warrant and/or make unreasonable
searches or seizures would suffice to protect the constitutional guarantee under consideration, overlooks the fact that violations
thereof are, in general, committed By agents of the party in power, for, certainly, those belonging to the minority could not
possibly abuse a power they do not have. Regardless of the handicap under which the minority usually — but, understandably —
finds itself in prosecuting agents of the majority, one must not lose sight of the fact that the psychological and moral effect of
the possibility 21 of securing their conviction, is watered down by the pardoning power of the party for whose benefit the
illegality had been committed.
In their Motion for Reconsideration and Amendment of the Resolution of this Court dated June 29, 1962, petitioners allege that
Rooms Nos. 81 and 91 of Carmen Apartments, House No. 2008, Dewey Boulevard, House No. 1436, Colorado Street, and Room
No. 304 of the Army-Navy Club, should be included among the premises considered in said Resolution as residences of herein
petitioners, Harry S. Stonehill, Robert P. Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore, the records,
papers and other effects seized in the offices of the corporations above referred to include personal belongings of said
petitioners and other effects under their exclusive possession and control, for the exclusion of which they have a standing under
the latest rulings of the federal courts of federal courts of the United States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and control over the aforementioned records,
papers and effects, and the alleged "personal" nature thereof, has Been Advanced, not in their petition or amended petition
herein, but in the Motion for Reconsideration and Amendment of the Resolution of June 29, 1962. In other words, said theory
would appear to be readjustment of that followed in said petitions, to suit the approach intimated in the Resolution sought to
be reconsidered and amended. Then, too, some of the affidavits or copies of alleged affidavits attached to said motion for
reconsideration, or submitted in support thereof, contain either inconsistent allegations, or allegations inconsistent with the
theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said motion for reconsideration, and the contents
of the aforementioned affidavits and other papers submitted in support of said motion, have sufficiently established the facts or
conditions contemplated in the cases relied upon by the petitioners; to warrant application of the views therein expressed,
should we agree thereto. At any rate, we do not deem it necessary to express our opinion thereon, it being best to leave the
matter open for determination in appropriate cases in the future.
We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby, abandoned; that the warrants for
the search of three (3) residences of herein petitioners, as specified in the Resolution of June 29, 1962, are null and void; that
the searches and seizures therein made are illegal; that the writ of preliminary injunction heretofore issued, in connection with
the documents, papers and other effects thus seized in said residences of herein petitioners is hereby made permanent; that the
writs prayed for are granted, insofar as the documents, papers and other effects so seized in the aforementioned residences are
concerned; that the aforementioned motion for Reconsideration and Amendment should be, as it is hereby, denied; and that
the petition herein is dismissed and the writs prayed for denied, as regards the documents, papers and other effects seized in
the twenty-nine (29) places, offices and other premises enumerated in the same Resolution, without special pronouncement as
to costs.
It is so ordered.
Page 58 of 108
Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in
his capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR
DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor Pedro A. Ramirez and Special
Attorney Jaime M. Maza for Respondents.
DECISION
VILLAMOR, J.:
This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory and
prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of the
Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70 issued
by respondent Judge on February 25, 1970; to order respondents to desist from enforcing the same and/or keeping the
documents, papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner corporation
alleged by petitioners to have been made on the basis of the said documents, papers and effects, and to order the return of the
latter to petitioners. We gave due course to the petition but did not issue the writ of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as follows: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 Vera’s aforesaid letter-
request; an application for search warrant already filled up but still unsigned by respondent De Leon; an affidavit of respondent
Logronio subscribed before respondent De Leon; a deposition in printed form of respondent Logronio already accomplished and
signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to take
the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was informed that the
depositions had already been taken. The stenographer, upon request of respondent Judge, read to him her stenographic notes;
and thereafter, respondent Judge asked respondent Logronio to take the oath and warned him that if his deposition was found
to be false and without legal basis, he could be charged for perjury. Respondent Judge signed respondent de Leon’s application
for search warrant and respondent Logronio’s deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and
accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant petitioners at the
offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’ lawyers protested the search on the ground that no
formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with their search
which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant be
quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search warrant
be declared null and void, and that the respondents be ordered to pay petitioners, jointly and severally, damages and attorney’s
fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an answer to the petition. After hearing, the court,
presided over by respondent Judge, issued on July 29, 1970, an order dismissing the petition for dissolution of the search
warrant. In the meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on petitioner corporation
in the total sum of P2,594,729.97, partly, if not entirely, based on the documents thus seized. Petitioners came to this Court.
Page 59 of 108
The petition should be granted for the following reasons:chanrob1es virtual 1aw 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 compañero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia mediante el registro
inmediato y la incautacion del cuerpo del delito, no cree Su Señoria que causaria cierta demora el procedimiento apuntado en su
enmienda en tal forma que podria frustrar los fines de la justicia o si Su Señoria encuentra un remedio para esto casos con el fin
de compaginar los fines de la justicia con los derechos del individuo en su persona, bienes etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Señoria pregunta por la siguiente razon: el que solicita un
mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en la Mesa del Juez sin que alguien vaya el juez
a presentar ese escrito o peticion de sucuestro. Esa persona que presenta el registro puede ser el mismo denunciante o alguna
persona que solicita dicho mandamiento de registro. Ahora toda la enmienda en esos casos consiste en que haya peticion de
registro y el juez no se atendra solamente a sea peticion sino que el juez examiner a ese denunciante y si tiene testigos tambin
examiner a los testigos.
"SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese denunciante por escrito siempre requeriria algun tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las vejaciones injustas con
la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males debemos escoger. el menor.
x x x
"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating in our constitution
something of a fundamental character. Now, before a judge could issue a search warrant, he must be under the obligation to
examine personally under oath the complainant and if he has any witness, the witnesses that he may produce . . ."cralaw
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
Page 60 of 108
Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the existence
or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126 of the Revised
Rules of Court, both of which prohibit the issuance of warrants except "upon probable cause." The determination of whether or
not a probable cause exists calls for the exercise of judgment after a judicial appraisal of facts and should not be allowed to be
delegated in the absence of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant (respondent De Leon)
and his witness (respondent Logronio). While it is true that the complainant’s application for search warrant and the witness’
printed-form deposition were subscribed and sworn to before respondent Judge, the latter did not ask either of the two any
question the answer to which could possibly be the basis for determining whether or not there was probable cause against
herein petitioners. Indeed, the participants seem to have attached so little significance to the matter that notes of the
proceedings before respondent Judge were not even taken. At this juncture it may be well to recall the salient facts. The
transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case in the court
below shows that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the
depositions of the complainant and his witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At that time
respondent Judge was at the sala hearing a case. After respondent Judge was through with the hearing, Deputy Clerk Gonzales,
stenographer Gaspar, complainant De Leon and witness Logronio went to respondent Judge’s chamber and informed the Judge
that they had finished the depositions. Respondent Judge then requested the stenographer to read to him her stenographic
notes. Special Deputy Clerk Gonzales testified as follows:jgc: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?
"A And thereafter, he signed the deposition of Mr. Logronio.
"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?
"A The affidavit, Your Honor."cralaw 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 stenographer’s readings of her notes, to a few words of warning against the commission of perjury,
and to administering the oath to the complainant and his witness. This cannot be consider a personal examination. If there was
an examination at all of the complainant and his witness, it was the one conducted by the Deputy Clerk of Court. But, as stated,
the Constitution and the rules require a personal examination by the judge. It was precisely on account of the intention of the
delegates to the Constitutional Convention to make it a duty of the issuing judge to personally examine the complainant and his
witnesses that the question of how much time would be consumed by the judge in examining them came up before the
Convention, as can be seen from the record of the proceedings quoted above. The reading of the stenographic notes to
respondent Judge did not constitute sufficient compliance with the constitutional mandate and the rule; for by that manner
respondent Judge did not have the opportunity to observe the demeanor of the complainant and his witness, and to propound
initial and follow-up questions which the judicial mind, on account of its training, was in the best position to conceive. These
were important in arriving at a sound inference on the all-important question of whether or not there was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue Code in relation to all other
pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The question is: Was the said search warrant issued "in
connection with one specific offense," as required by Sec. 3, Rule 126?
Page 61 of 108
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., L-19550, June 19, 1967 (20 SCRA 383), is not applicable, because there
the search warrants were issued for "violation of Central Bank Laws, Internal Revenue (Code) and Revised Penal Code;" whereas,
here Search Warrant No 2-M-70 was issued for violation of only one code, i.e., the National Internal Revenue Code. The
distinction more apparent than real, because it was precisely on account of the Stonehill incident, which occurred sometime
before the present Rules of Court took effect on January 1, 1964, that this Court amended the former rule by inserting therein
the phrase "in connection with one specific offense," and adding the sentence "No search warrant shall issue for more than one
specific offense," in what is now Sec. 3, Rule 126. Thus we said in Stonehill:jgc: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 violation of the Constitution made in the application for the contested search warrants was compounded by the
description therein made of the effects to be searched for and seized, to wit:chanrob1es virtual 1aw library
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‘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
Judge’s order of July 29, 1970. The contention is without merit. In the first place, when the questions raised before this Court are
the same as those which were squarely raised in and passed upon by the court below, the filing of a motion for reconsideration
in said court before certiorari can be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil.,
905). In the second place, the rule requiring the filing of a motion for reconsideration before an application for a writ
of certiorari can be entertained was never intended to be applied without considering the circumstances. (Matutina v. Buslon, Et
Al., 109 Phil., 140.) In the case at bar time is of the essence in view of the tax assessments sought to be enforced by respondent
officers of the Bureau of Internal Revenue against petitioner corporation, On account of which immediate and more direct
action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not apply where, as in this
case, the deprivation of petitioners’ fundamental right to due process taints the proceeding against them in the court below not
only with irregularity but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is not entitled to protection against unreasonable search and seizures.
Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a violation
of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional powers, cannot refuse
to produce the books and papers of such corporation, we do not wish to be understood as holding that a corporation is not
entitled to immunity, under the 4th Amendment, against unreasonable searches and seizures. A corporation is, after all, but an
association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it
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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 one-half months after the search and seizure on February 25, 1970, is a
strong indication that the documents thus seized served as basis for the assessments. Those assessments should therefore not
be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent Judge is declared
null and void; respondents are permanently enjoined from enforcing the said search warrant; the documents, papers and effects
seized thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of Internal Revenue and their
representatives are permanently enjoined from enforcing the assessments mentioned in Annex "G" of the present petition, as
well as other assessments based on the documents, papers and effects seized under the search warrant herein nullified, and
from using the same against petitioners in any criminal or other proceeding. No pronouncement as to costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs with Mr. Justice Barredo.
Castro, J., concurs in the result.

G.R. No. L-27155 May 18, 1978
PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE
COMPANY, INC., respondents.
ANTONIO, J.:
Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila in
Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as third-party plaintiff,
the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully paid, P200.00 attorney's
fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine American General Insurance Co.,
Inc., to be paid directly to the Philippine American General Insurance Co., Inc. in full satisfaction of the judgment rendered
Page 64 of 108
against Rita Gueco Tapnio in favor of the former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action
is the complaint filed by Philamgen (Philippine American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and
Cecilio Gueco, for the recovery of the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of
respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank was made third-party defendant by
Tapnio and Gueco on the theory that their failure to pay the debt was due to the fault or negligence of petitioner.
The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila, are
quoted hereunder:
Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the Philippine National Bank
Branch at San Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco Tapnio's account with said Bank. In
turn, to guarantee the payment of whatever amount the bonding company would pay to the Philippine National Bank, both
defendants executed the indemnity agreement, Exh. B. Under the terms and conditions of this indemnity agreement, whatever
amount the plaintiff would pay would earn interest at the rate of 12% per annum, plus attorney's fees in the amount of 15 % of
the whole amount due in case of court litigation.
The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00.
It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00, plus accumulated
interests unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to plaintiff, as per Exh. C;
whereupon, plaintiff paid the bank on September 18, 1957, the full amount due and owing in the sum of P2,379.91, for and on
account of defendant Rita Gueco's obligation (Exhs. D and D-1).
Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made upon her by
plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she did not consider herself to be indebted to the
Bank at all because she had an agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export sugar
quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of P2,800.00,
which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A. This lease agreement, according to her, was
with the knowledge of the bank. But the Bank has placed obstacles to the consummation of the lease, and the delay caused by
said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint against the
Bank to recover from the latter any and all sums of money which may be adjudged against her and in favor of the plaitiff plus
moral damages, attorney's fees and costs.
Insofar as the contentions of the parties herein are concerned, we quote with approval the following findings of the lower court
based on the evidence presented at the trial of the case:
It has been established during the trial that Mrs. Tapnio had an export sugar quota of 1,000 piculs for the agricultural year 1956-
1957 which she did not need. She agreed to allow Mr. Jacobo C. Tuazon to use said quota for the consideration of P2,500.00
(Exh. "4"-Gueco). This agreement was called a contract of lease of sugar allotment.
At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank at San Fernando, Pampanga. Her
indebtedness was known as a crop loan and was secured by a mortgage on her standing crop including her sugar quota
allocation for the agricultural year corresponding to said standing crop. This arrangement was necessary in order that when Mrs.
Tapnio harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against her. Her sugar cannot be
exported without sugar quota allotment Sometimes, however, a planter harvest less sugar than her quota, so her excess quota
is utilized by another who pays her for its use. This is the arrangement entered into between Mrs. Tapnio and Mr. Tuazon
regarding the former's excess quota for 1956-1957 (Exh. "4"-Gueco).
Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said Bank, The same was submitted
to the branch manager at San Fernando, Pampanga. The latter required the parties to raise the consideration of P2.80 per picul
or a total of P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease rental acceptable to the Bank, is P2.80 per
picul." In a letter addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the manager that he was
agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he was ready to pay said
amount as the funds were in his folder which was kept in the bank.
Explaining the meaning of Tuazon's statement as to the funds, it was stated by him that he had an approved loan from the bank
but he had not yet utilized it as he was intending to use it to pay for the quota. Hence, when he said the amount needed to pay
Mrs. Tapnio was in his folder which was in the bank, he meant and the manager understood and knew he had an approved loan
available to be used in payment of the quota. In said Exh. "6-Gueco", Tuazon also informed the manager that he would want for
Page 65 of 108
a notice from the manager as to the time when the bank needed the money so that Tuazon could sign the corresponding
promissory note.
Further Consideration of the evidence discloses that when the branch manager of the Philippine National Bank at San Fernando
recommended the approval of the contract of lease at the price of P2.80 per picul (Exh. 1 1-Bank), whose recommendation was
concurred in by the Vice-president of said Bank, J. V. Buenaventura, the board of directors required that the amount be raised
to 13.00 per picul. This act of the board of directors was communicated to Tuazon, who in turn asked for a reconsideration
thereof. On November 19, 1956, the branch manager submitted Tuazon's request for reconsideration to the board of directors
with another recommendation for the approval of the lease at P2.80 per picul, but the board returned the recommendation
unacted upon, considering that the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank).
The parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion for reconsideration.
The matter stood as it was until February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank informing the Bank that he was no
longer interested to continue the deal, referring to the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio.
The result is that the latter lost the sum of P2,800.00 which she should have received from Tuazon and which she could have
paid the Bank to cancel off her indebtedness,
The court below held, and in this holding we concur that failure of the negotiation for the lease of the sugar quota allocation
of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of the Philippine National Bank, The refusal on the part of
the bank to approve the lease at the rate of P2.80 per picul which, as stated above, would have enabled Rita Gueco Tapnio to
realize the amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the Bank, and its insistence on
the rental price of P3.00 per picul thus unnecessarily increasing the value by only a difference of P200.00. inevitably brought
about the rescission of the lease contract to the damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00.
The unreasonableness of the position adopted by the board of directors of the Philippine National Bank in refusing to approve
the lease at the rate of P2.80 per picul and insisting on the rate of P3.00 per picul, if only to increase the retail value by only
P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on
standing crops, assignment of leasehold rights and interests on her properties, and surety bonds, aside from the fact that from
Exh. 8-Bank, it appears that she was offering to execute a real estate mortgage in favor of the Bank to replace the surety bond
This statement is further bolstered by the fact that Rita Gueco Tapnio apparently had the means to pay her obligation fact that
she has been granted several value of almost P80,000.00 for the agricultural years from 1952 to 56. 1
Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present
petition.
The petitioner contends that the Court of Appeals erred:
(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita Gueco
Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and its unreasonable
insistence on the rental price of P3.00 instead of P2.80 per picul; and
(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner, the
latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by respondent Rita
Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under the
Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which include the right to
approve or disapprove the said lease of sugar quota and in the exercise of that authority, its
Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject of the
lease between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and the Corporation Law,
petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect to fixing of rental prices of
export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since the said Board was
guided by statistics of sugar price and prices of sugar quotas prevailing at the time. Since the fixing of the rental of the sugar
quota is a function lodged with petitioner's Board of Directors and is a matter of policy, the respondent Court of Appeals could
not substitute its own judgment for that of said Board of Directors, which acted in good faith, making as its basis therefore the
prevailing market price as shown by statistics which were then in their possession.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it shall be
deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to respondent
Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by said insurance company
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in behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against respondent Rita Gueco
Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing only errors
of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of the evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was executed
on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San Fernando,
Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a mortgage on her
standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. The latter
required the parties to raise the consideration to P2.80 per picul, the minimum lease rental acceptable to the Bank, or a total of
P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10, 1956, that he was agreeable to raising the
consideration to P2.80 per picul. He further informed the manager that he was ready to pay the said sum of P2,800.00 as the
funds were in his folder which was kept in the said Bank. This referred to the approved loan of Tuazon from the Bank which he
intended to use in paying for the use of the sugar quota. The Branch Manager submitted the contract of lease of sugar quota
allocation to the Head Office on September 7, 1956, with a recommendation for approval, which recommendation was
concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of Directors of
petitioner required that the consideration be raised to P3.00 per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On November 19,
1956, the Branch Manager submitted the request for reconsideration and again recommended the approval of the lease at
P2.80 per picul, but the Board returned the recommendation unacted, stating that the current price prevailing at that time was
P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the lease of
sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her loss in
the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been implemented.
It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the
lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch Manager of
the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was acceptable to him and
that he even offered to use the loan secured by him from petitioner to pay in full the sum of P2,800.00 which was the total
consideration of the lease. This arrangement was not only satisfactory to the Branch Manager but it was also approves by Vice-
President J. V. Buenaventura of the PNB. Under that arrangement, Rita Gueco Tapnio could have realized the amount of
P2,800.00, which was more than enough to pay the balance of her indebtedness to the Bank which was secured by the bond of
Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the disapproval of
the lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is liable for the damage
caused.
As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the same
must be utilized during the milling season, because any allotment which is not filled during such milling season may be
reallocated by the Sugar Quota Administration to other holders of allotments. 3 There was no proof that there was any other
person at that time willing to lease the sugar quota allotment of private respondents for a price higher than P2.80 per picul. "The
fact that there were isolated transactions wherein the consideration for the lease was P3.00 a picul", according to the trial court,
"does not necessarily mean that there are always ready takers of said price. " The unreasonableness of the position adopted by
the petitioner's Board of Directors is shown by the fact that the difference between the amount of P2.80 per picul offered by
Tuazon and the P3.00 per picul demanded by the Board amounted only to a total sum of P200.00. Considering that all the
accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold
rights and interests on her properties, and surety bonds and that she had apparently "the means to pay her obligation to the
Bank, as shown by the fact that she has been granted several sugar crop loans of the total value of almost P80,000.00 for the
agricultural years from 1952 to 1956", there was no reasonable basis for the Board of Directors of petitioner to have rejected
the lease agreement because of a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was mortgaged to
the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest of private
respondents, that degree of care, precaution and vigilance which the circumstances justly demand in approving or disapproving
the lease of said sugar quota. The law makes it imperative that every person "must in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith, 4 This petitioner failed to
do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of the lease private respondents
Page 67 of 108
would be unable to utilize the sugar quota in question. In failing to observe the reasonable degree of care and vigilance which
the surrounding circumstances reasonably impose, petitioner is consequently liable for the damages caused on private
respondents. Under Article 21 of the New Civil Code, "any person who wilfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the latter for the damage." The afore-cited provisions on
human relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy for the
untold number of moral wrongs which is impossible for human foresight to specifically provide in the statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules governing
the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be
a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree
that a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation
as of a natural person, A corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under
express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the
governing body." 6
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.
Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.
G.R. No. L-35262 March 15, 1930
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

vs.
TAN BOON KONG, defendant-appellee.
OSTRAND, J.:
This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to demurrer to an information
charging the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711 as amended. The information reads as
follows:
That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province of Iloilo, Philippine Islands, the said
accused, as corporation organized under the laws of the Philippine Islands and engaged in the purchase and the sale of sugar,
"bayon," coprax, and other native products and as such object to the payment of internal-revenue taxes upon its sales, did then
and there voluntarily, illegally, and criminally declare in 1924 for the purpose of taxation only the sum of P2,352,761.94, when
in truth and in fact, and the accused well knew that the total gross sales of said corporation during that year amounted to
P2,543,303.44, thereby failing to declare for the purpose of taxation the amount of P190,541.50, and voluntarily and illegally not
paying the Government as internal-revenue percentage taxes the sum of P2,960.12, corresponding to 1½ per cent of said
undeclared sales.
The question to be decided is whether the information sets forth facts rendering the defendant, as manager of the corporation
liable criminally under section 2723 of Act No. 2711 for violation of section 1458 of the same act for the benefit of said
corporation. Section 1458 and 2723 read as follows:
SEC. 1458. Payment of percentage taxes — Quarterly reports of earnings. — The percentage taxes on business shall be payable
at the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter; and it shall be
on the duty of every person conducting a business subject to such tax, within the same period as is allowed for the payment of
the quarterly installments of the fixed taxes without penalty, to make a true and complete return of the amount of the receipts
or earnings of his business during the preceeding quarter and pay the tax due thereon. . . . (Act No. 2711.)
SEC. 2723. Failure to make true return of receipts and sales. — Any person who, being required by law to make a return of the
amount of his receipts, sales, or business, shall fail or neglect to make such return within the time required, shall be punished by
a fine not exceeding two thousand pesos or by imprisonment for a term not exceeding one year, or both.
And any such person who shall make a false or fraudulent return shall be punished by a fine not exceeding ten thousand pesos
or by imprisonment for a term not exceeding two years, or both. (Act No. 2711.)
Apparently, the court below based the appealed ruling on the ground that the offense charged must be regarded as committed
by the corporation and not by its officials or agents. This view is in direct conflict with the great weight of authority. A
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corporation can act only through its officers and agents, and where the business itself involves a violation of the law, the correct
rule is that all who participate in it are liable (Grall and Ostrand's Case, 103 Va., 855, and authorities there cited.)
In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary corporation was
criminally liable for the violation of a statute by the corporation through he was not present when the offense was committed.
In the present case the information or complaint alleges that he defendant was the manager of a corporation which was
engaged in business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the total amount
of sale made by said false return constitutes a violation of law, the defendant, as the author of the illegal act, must necessarily
answer for its consequences, provided that the allegation are proven.
The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be returned to
said court for further proceedings not inconsistent with our view as hereinafter stated. Without costs. So ordered.
Johnson, Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.
MANUEL C. ESPIRITU, JR., AUDIE G.R. No. 170891

LLONA, FREIDA F. ESPIRITU,
CARLO F. ESPIRITU, RAFAEL F.
ESPIRITU, ROLANDO M. MIRABUNA,
HERMILYN A. MIRABUNA, KIM
ROLAND A. MIRABUNA, KAYE
ANN A. MIRABUNA, KEN RYAN A.
MIRABUNA, JUANITO P. DE
CASTRO, GERONIMA A. ALMONITE
and MANUEL C. DEE, who are the
officers and directors of BICOL GAS
REFILLING PLANT CORPORATION,
Petitioners,
- versus -
PETRON CORPORATION and
CARMEN J. DOLOIRAS, doing
business under the name KRISTINA Promulgated:
PATRICIA ENTERPRISES,
Respondents. November 24, 2009
x ---------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
This case is about the offense or offenses that arise from the reloading of the liquefied petroleum gas cylinder container of one
brand with the liquefied petroleum gas of another brand.
The Facts and the Case
Respondent Petron Corporation (Petron) sold and distributed liquefied petroleum gas (LPG) in cylinder tanks that carried its
trademark Gasul.[1] Respondent Carmen J. Doloiras owned and operated Kristina Patricia Enterprises (KPE), the exclusive
distributor of Gasul LPGs in the whole of Sorsogon.[2] Jose Nelson Doloiras (Jose) served as KPEs manager.
Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the business of selling and distributing LPGs in Sorsogon but theirs
carried the trademark Bicol Savers Gas. Petitioner Audie Llona managed Bicol Gas.
In the course of trade and competition, any given distributor of LPGs at times acquired possession of LPG cylinder tanks
belonging to other distributors operating in the same area. They called these captured cylinders. According to Jose, KPEs
manager, in April 2001 Bicol Gas agreed with KPE for the swapping of captured cylinders since one distributor could not refill
captured cylinders with its own brand of LPG. At one time, in the course of implementing this arrangement, KPEs Jose visited the
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Bicol Gas refilling plant. While there, he noticed several Gasul tanks in Bicol Gas possession. He requested a swap but Audie
Llona of Bicol Gas replied that he first needed to ask the permission of the Bicol Gas owners. That permission was given and they
had a swap involving around 30 Gasul tanks held by Bicol Gas in exchange for assorted tanks held by KPE.
KPEs Jose noticed, however, that Bicol Gas still had a number of Gasul tanks in its yard. He offered to make a swap for these but
Llona declined, saying the Bicol Gas owners wanted to send those tanks to Batangas. Later Bicol Gas told Jose that it had no
more Gasul tanks left in its possession. Jose observed on almost a daily basis, however, that Bicol Gas trucks which plied the
streets of the province carried a load of Gasul tanks. He noted that KPEs volume of sales dropped significantly from June to July
2001.
On August 4, 2001 KPEs Jose saw a particular Bicol Gas truck on the Maharlika Highway. While the truck carried mostly Bicol
Savers LPG tanks, it had on it one unsealed 50-kg Gasul tank and one 50-kg Shellane tank. Jose followed the truck and when it
stopped at a store, he asked the driver, Jun Leorena, and the Bicol Gas sales representative, Jerome Misal, about the Gasul tank
in their truck. They said it was empty but, when Jose turned open its valve, he noted that it was not. Misal and Leorena then
admitted that the Gasul and Shellane tanks on their truck belonged to a customer who had them filled up by Bicol Gas. Misal
then mentioned that his manager was a certain Rolly Mirabena.
Because of the above incident, KPE filed a complaint[3] for violations of Republic Act (R.A.) 623 (illegally filling up registered
cylinder tanks), as amended, and Sections 155 (infringement of trade marks) and 169.1 (unfair competition) of the Intellectual
Property Code (R.A. 8293). The complaint charged the following: Jerome Misal, Jun Leorena, Rolly Mirabena, Audie Llona, and
several John and Jane Does, described as the directors, officers, and stockholders of Bicol Gas. These directors, officers, and
stockholders were eventually identified during the preliminary investigation.
Subsequently, the provincial prosecutor ruled that there was probable cause only for violation of R.A. 623 (unlawfully filling up
registered tanks) and that only the four Bicol Gas employees, Mirabena, Misal, Leorena, and petitioner Llona, could be
charged.The charge against the other petitioners who were the stockholders and directors of the company was dismissed.
Dissatisfied, Petron and KPE filed a petition for review with the Office of the Regional State Prosecutor, Region V, which initially
denied the petition but partially granted it on motion for reconsideration. The Office of the Regional State Prosecutor ordered
the filing of additional informations against the four employees of Bicol Gas for unfair competition. It ruled, however, that no
case for trademark infringement was present. The Secretary of Justice denied the appeal of Petron and KPE and their motion for
reconsideration.
Undaunted, Petron and KPE filed a special civil action for certiorari with the Court of Appeals[4] but the Bicol Gas employees and
stockholders concerned opposed it, assailing the inadequacy in its certificate of non-forum shopping, given that only Atty. Joel
Angelo C. Cruz signed it on behalf of Petron. In its Decision[5] dated October 17, 2005, the Court of Appeals ruled, however, that
Atty. Cruzs certification constituted sufficient compliance. As to the substantive aspect of the case, the Court of Appeals
reversed the Secretary of Justices ruling. It held that unfair competition does not necessarily absorb trademark
infringement. Consequently, the court ordered the filing of additional charges of trademark infringement against the concerned
Bicol Gas employees as well.
Since the Bicol Gas employees presumably acted under the direct order and control of its owners, the Court of Appeals also
ordered the inclusion of the stockholders of Bicol Gas in the various charges, bringing to 16 the number of persons to be
charged, now including petitioners Manuel C. Espiritu, Jr., Freida F. Espiritu, Carlo F. Espiritu, Rafael F. Espiritu, Rolando M.
Mirabuna, Hermilyn A. Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A. Mirabuna, Ken Ryan A. Mirabuna, Juanito P. de Castro,
Geronima A. Almonite, and Manuel C. Dee (together with Audie Llona), collectively, petitioners Espiritu, et al. The court denied
the motion for reconsideration of these employees and stockholders in its Resolution dated January 6, 2006, hence, the present
petition for review[6] before this Court.
The Issues Presented
The petition presents the following issues:
1. Whether or not the certificate of non-forum shopping that accompanied the petition filed with the Court of Appeals, signed
only by Atty. Cruz on behalf of Petron, complied with what the rules require;
2. Whether or not the facts of the case warranted the filing of charges against the Bicol Gas people for:
a) Filling up the LPG tanks registered to another manufacturer without the latters consent in violation of R.A. 623, as amended;
Page 70 of 108
b) Trademark infringement consisting in Bicol Gas use of a trademark that is confusingly similar to Petrons registered Gasul
trademark in violation of section 155 also of R.A. 8293; and
c) Unfair competition consisting in passing off Bicol Gas-produced LPGs for Petron-produced Gasul LPG in violation of Section
168.3 of R.A. 8293.
The Courts Rulings
First. Petitioners Espiritu, et al. point out that the certificate of non-forum shopping that respondents KPE and Petron attached
to the petition they filed with the Court of Appeals was inadequate, having been signed only by Petron, through Atty. Cruz.
But, while procedural requirements such as that of submittal of a certificate of non-forum shopping cannot be totally
disregarded, they may be deemed substantially complied with under justifiable circumstances. [7] One of these circumstances is
where the petitioners filed a collective action in which they share a common interest in its subject matter or raise a common
cause of action. In such a case, the certification by one of the petitioners may be deemed sufficient. [8]
Here, KPE and Petron shared a common cause of action against petitioners Espiritu, et al., namely, the violation of their
proprietary rights with respect to the use of Gasul tanks and trademark. Furthermore, Atty. Cruz said in his certification that he
was executing it for and on behalf of the Corporation, and co-petitioner Carmen J. Doloiras.[9] Thus, the object of the
requirement to ensure that a party takes no recourse to multiple forums was substantially achieved. Besides, the failure of KPE
to sign the certificate of non-forum shopping does not render the petition defective with respect to Petron which signed it
through Atty. Cruz.[10] The Court of Appeals, therefore, acted correctly in giving due course to the petition before it.
Second. The Court of Appeals held that under the facts of the case, there is probable cause that petitioners Espiritu, et al.
committed all three crimes: (a) illegally filling up an LPG tank registered to Petron without the latters consent in violation of R.A.
623, as amended; (b) trademark infringement which consists in Bicol Gas use of a trademark that is confusingly similar to
Petrons registered Gasul trademark in violation of Section 155 of R.A. 8293; and (c) unfair competition which consists in
petitioners Espiritu, et al. passing off Bicol Gas-produced LPGs for Petron-produced Gasul LPG in violation of Section 168.3 of
R.A. 8293.
Here, the complaint adduced at the preliminary investigation shows that the one 50-kg Petron Gasul LPG tank found on the Bicol
Gas truck belonged to [a Bicol Gas] customer who had the same filled up by BICOL GAS. [11] In other words, the customer had that
one Gasul LPG tank brought to Bicol Gas for refilling and the latter obliged.
R.A. 623, as amended,[12] punishes any person who, without the written consent of the manufacturer or seller of gases
contained in duly registered steel cylinders or tanks, fills the steel cylinder or tank, for the purpose of sale, disposal or trafficking,
other than the purpose for which the manufacturer or seller registered the same. This was what happened in this case, assuming
the allegations of KPEs manager to be true. Bicol Gas employees filled up with their firms gas the tank registered to Petron and
bearing its mark without the latters written authority. Consequently, they may be prosecuted for that offense.
But, as for the crime of trademark infringement, Section 155 of R.A. 8293 (in relation to Section 170 [13]) provides that it is
committed by any person who shall, without the consent of the owner of the registered mark:
1. Use in commerce any reproduction, counterfeit, copy or colorable imitation of a registered mark or the same container or a
dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or services
including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which such
use is likely to cause confusion, or to cause mistake, or to deceive; or
2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature thereof and apply such
reproduction, counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements
intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or
services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.
KPE and Petron have to show that the alleged infringer, the responsible officers and staff of Bicol Gas, used Petrons Gasul
trademark or a confusingly similar trademark on Bicol Gas tanks with intent to deceive the public and defraud its competitor as
to what it is selling.[14] Examples of this would be the acts of an underground shoe manufacturer in Malabon producing Nike
branded rubber shoes or the acts of a local shirt company with no connection to La Coste, producing and selling shirts that bear
the stitched logos of an open-jawed alligator.
Page 71 of 108
Here, however, the allegations in the complaint do not show that Bicol Gas painted on its own tanks Petrons Gasul trademark or
a confusingly similar version of the same to deceive its customers and cheat Petron. Indeed, in this case, the one tank bearing
the mark of Petron Gasul found in a truck full of Bicol Gas tanks was a genuine Petron Gasul tank, more of a captured cylinder
belonging to competition. No proof has been shown that Bicol Gas has gone into the business of distributing imitation Petron
Gasul LPGs.
As to the charge of unfair competition, Section 168.3 (a) of R.A. 8293 (also in relation to Section 170) describes the acts
constituting the offense as follows:
168.3. In particular, and without in any way limiting the scope of protection against unfair competition, the following shall be
deemed guilty of unfair competition:
(a) Any person, who is selling his goods and gives them the general appearance of goods of another manufacturer or dealer,
either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices or words
thereon, or in any other feature of their appearance, which would be likely to influence purchasers to believe that the goods
offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or who otherwise clothes the
goods with such appearance as shall deceive the public and defraud another of his legitimate trade, or any subsequent vendor
of such goods or any agent of any vendor engaged in selling such goods with a like purpose;
Essentially, what the law punishes is the act of giving ones goods the general appearance of the goods of another, which would
likely mislead the buyer into believing that such goods belong to the latter. Examples of this would be the act of manufacturing
or selling shirts bearing the logo of an alligator, similar in design to the open-jawed alligator in La Coste shirts, except that the
jaw of the alligator in the former is closed, or the act of a producer or seller of tea bags with red tags showing the shadow of a
black dog when his competitor is producing or selling popular tea bags with red tags showing the shadow of a black cat.
Here, there is no showing that Bicol Gas has been giving its LPG tanks the general appearance of the tanks of Petrons Gasul.As
already stated, the truckfull of Bicol Gas tanks that the KPE manager arrested on a road in Sorsogon just happened to have
mixed up with them one authentic Gasul tank that belonged to Petron.
The only point left is the question of the liability of the stockholders and members of the board of directors of Bicol Gas with
respect to the charge of unlawfully filling up a steel cylinder or tank that belonged to Petron. The Court of Appeals ruled that
they should be charged along with the Bicol Gas employees who were pointed to as directly involved in overt acts constituting
the offense.
Bicol Gas is a corporation. As such, it is an entity separate and distinct from the persons of its officers, directors, and
stockholders. It has been held, however, that corporate officers or employees, through whose act, default or omission the
corporation commits a crime, may themselves be individually held answerable for the crime. [15]
Jose claimed in his affidavit that, when he negotiated the swapping of captured cylinders with Bicol Gas, its manager, petitioner
Audie Llona, claimed that he would be consulting with the owners of Bicol Gas about it. Subsequently, Bicol Gas declined the
offer to swap cylinders for the reason that the owners wanted to send their captured cylinders to Batangas. The Court of
Appeals seized on this as evidence that the employees of Bicol Gas acted under the direct orders of its owners and that the
owners of Bicol Gas have full control of the operations of the business.[16]
The owners of a corporate organization are its stockholders and they are to be distinguished from its directors and officers.The
petitioners here, with the exception of Audie Llona, are being charged in their capacities as stockholders of Bicol Gas. But the
Court of Appeals forgets that in a corporation, the management of its business is generally vested in its board of directors, not
its stockholders.[17] Stockholders are basically investors in a corporation. They do not have a hand in running the day-to-day
business operations of the corporation unless they are at the same time directors or officers of the corporation. Before a
stockholder may be held criminally liable for acts committed by the corporation, therefore, it must be shown that he had
knowledge of the criminal act committed in the name of the corporation and that he took part in the same or gave his consent
to its commission, whether by action or inaction.
The finding of the Court of Appeals that the employees could not have committed the crimes without the consent, [abetment],
permission, or participation of the owners of Bicol Gas[18] is a sweeping speculation especially since, as demonstrated above,
what was involved was just one Petron Gasul tank found in a truck filled with Bicol Gas tanks. Although the KPE manager heard
petitioner Llona say that he was going to consult the owners of Bicol Gas regarding the offer to swap additional captured
cylinders, no indication was given as to which Bicol Gas stockholders Llona consulted. It would be unfair to charge all the
Page 72 of 108
stockholders involved, some of whom were proved to be minors.[19] No evidence was presented establishing the names of the
stockholders who were charged with running the operations of Bicol Gas. The complaint even failed to allege who among the
stockholders sat in the board of directors of the company or served as its officers.
The Court of Appeals of course specifically mentioned petitioner stockholder Manuel C. Espiritu, Jr. as the registered owner of
the truck that the KPE manager brought to the police for investigation because that truck carried a tank of Petron Gasul. But the
act that R.A. 623 punishes is the unlawful filling up of registered tanks of another. It does not punish the act of transporting such
tanks. And the complaint did not allege that the truck owner connived with those responsible for filling up that Gasul tank with
Bicol Gas LPG.
WHEREFORE, the Court REVERSES and SETS ASIDE the Decision of the Court of Appeals in CA-G.R. SP 87711 dated October 17,
2005 as well as its Resolution dated January 6, 2006, the Resolutions of the Secretary of Justice dated March 11, 2004 and
August 31, 2004, and the Order of the Office of the Regional State Prosecutor, Region V, dated February 19, 2003. The
Court REINSTATES the Resolution of the Office of the Provincial Prosecutor of Sorsogon in I.S. 2001-9231 (inadvertently referred
in the Resolution itself as I.S. 2001-9234), dated February 26, 2002. The names of petitioners Manuel C. Espiritu, Jr., Freida F.
Espititu, Carlo F. Espiritu, Rafael F. Espiritu, Rolando M. Mirabuna, Hermilyn A. Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A.
Mirabuna, Ken Ryan A. Mirabuna, Juanito P. De Castro, Geronima A. Almonite and Manuel C. Dee are ORDEREDexcluded from
the charge.
SO ORDERED.
[G.R. No. 128690. January 21, 1999]
ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP.,
VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABS-CBN) seeks to reverse and
set aside the decision[1] of 31 October 1996 and the resolution [2] of 10 March 1997 of the Court of Appeals in CA-G.R. CV No.
44125. The former affirmed with modification the decision [3] of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City,
Branch 80, in Civil Case No. Q-12309. The latter denied the motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave ABS-CBN an exclusive right to
exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that-
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may
be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the actual offer in
writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three (3) film
packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. 1 par. 2, 2, 2-
A and 2-B Viva). ABS-CBN, however through Mrs. Concio, can tick off only ten (10) titles (from the list) we can purchase (Exh. 3
Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject
of the case at bar except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the purchase
of the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will understand my
position. Most of the action pictures in the list do not have big action stars in the cast. They are not for primetime. In line with
this I wish to mention that I have not scheduled for telecast several action pictures in our very first contract because of the
Page 73 of 108
cheap production value of these movies as well as the lack of big action stars.As a film producer, I am sure you understand what
I am trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in out non-primetime
slots. We have to cover the amount that was paid for these movies because as you very well know that non-primetime
advertising rates are very low. These are the unaired titles in the first contract.
1. Kontra Persa [sic]

2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have them
aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced last
year, I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list consisting of 52 original movie titles
(i.e., not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on
television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights
over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00
worth of television spots (Exh. 4 to 4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant
in Quezon City to discuss the package proposal of VIVA. What transpired in that lunch meeting is the subject of conflicting
versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to
fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to the price and number of
films in a napkin and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand. Del
Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which
Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Vivas film package offer of 104
films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which
came in the form of a proposal contract Annex C of the complaint (Exh. 1 Viva; Exh C ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and
conditions of Vivas offer to sell the 104 films, after the rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms. Concio, (Exh. 5 Viva),
which reads: Heres the draft of the contract. I hope you find everything in order, to which was attached a draft exhibition
agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by
defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit C provides that ABS-CBN
is granted film rights to 53 films and contains a right of first refusal to 1992 Viva Films.The said counter proposal was however
rejected by Vivas Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the
package of 104 films for P60 million pesos (Exh. 9 Viva), and such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and
Vivas President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992, granting RBS
Page 74 of 108
the exclusive right to air 104 Viva-produced and/or acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films
subject of the present case.[4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary
injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation [5] (hereafter RBS),
Viva Production (hereafter VIVA), and Vicente del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order [6] enjoining private respondents from proceeding with the
airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino Ka
Man, which was scheduled to be shown on private respondent RBS channel 7 at seven oclock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order [7] directing the issuance of a writ of preliminary
injunction upon ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the reduction of the bond, [8] while private
respondents moved for reconsideration of the order and offered to put up a counterbond. [9]
In the meantime, private respondents filed separate answer with counterclaim. [10] RBS also set up a cross-claim against
VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction upon the posting by RBS of a P30
million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced
petitioners injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction
should private respondents be unable to post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the possibility of an
amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million
counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a counterbond, which the RTC
approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15 October 1992 Orders, which
RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition [17] challenging the
RTCs Order of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the RTC
from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order [18] to enjoin the airing, broadcasting, and
televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision [19] dismissing the petition in CA-G.R. SP No. 29300 for
being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was
docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309. Thereafter, on 28 April 1993, it
rendered a decision[20]in favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of defendants and against
the plaintiff.
(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued defendants RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorneys fees.
Page 75 of 108
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement
between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was
disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBNs demand that VIVA signed
the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had
previously been exercised per Ms. Concios letter to Del Rosario ticking off ten titles acceptable to them, which would have made
the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No. 108363, as no reversible error was
committed by the Court of Appeals in its challenged decision and the case had become moot and academic in view of the
dismissal of the main action by the court a quo in its decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract
between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del
Rosario also appealed seeking moral and exemplary damages and additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and VIVA
had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, its agent, might have
agreed with Lopez III. The appellate court did not even believe ABS-CBNs evidence that Lopez III actually wrote down such an
agreement on a napkin, as the same was never produced in court. It likewise rejected ABS-CBNs insistence on its right of first
refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between
Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms as may
be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of
fifteen (15) days from the actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to such terms as may be
agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual
offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film right to the twenty-four (24)
films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and the
draft contract Exhibit C accepted only fourteen (14) films, while parag. 1.4 of Exhibit A speaks of the next twenty-four (24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150),
when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Mrs. Charo Santos-
Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting
the offer of VIVA. As aptly observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its
right of first refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another
list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its
right of first refusal has already expired.[22]
Accordingly, respondent court sustained the award factual damages consisting in the cost of print advertisements and the
premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS has suffered as a result of
the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor,
holding that RBSs reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of
the film Maging Sino Ka Man. Respondent court also held that exemplary damages were correctly imposed by way of example
or correction for the public good in view of the filing of the complaint despite petitioners knowledge that the contract with VIVA
had not been perfected. It also upheld the award of attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case No.
Q-92-12309, RBS was unnecessarily forced to litigate. The appellate court, however, reduced the awards of moral damages
to P 2 million, exemplary damages to P2 million, and attorneys fees to P500,000.00.
Page 76 of 108
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it was RBS and not VIVA
which was actually prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of
Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA
NOTWITHSTANDING PREPONFERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film
Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopezs testimony that
he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film
Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has
already been effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes
that the Court of Appeals pronouncements were not supported by law and jurisprudence, as per our decision of 1 December
1995 in Limketkai Sons Milling, Inc. v. Court of Appeals,[23] which cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion
v. Court of Appeals,[25]and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the
counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their
respective positions during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can
hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for
the dissolution of the injunction; or if it was determined to put up a counterbond, it could have presented a cash
bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss injury is also required to exercise the diligence of
a good father of a family to minimize the damages resulting from the act or omission. As regards the cost of print
advertisements, RBS had not convincingly established that this was a loss attributable to the non-showing of Maging Sino Ka
Man; on the contrary, it was brought out during trial that with or without the case or injunction, RBS would have spent such an
amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards of moral and exemplary damages. The
controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for
such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be
characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint. An award of moral and
exemplary damages is not warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in
filing an action.[27] In any case, free resort to courts for redress of wrongs is a matter of public policy. The law recognizes the
right of every one to sue for that which he honestly believes to be his right without fear of standing trial for damages where by
lack of sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case would lose
ground.[28] One who, makes use of his own legal right does no injury. [29] If damage results from filing of the complaint, it
is damnum absque injuria.[30] Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a
good reputation that was debased by the offending party resulting in social humiliation. [31]
As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In
sustaining the trial courts award, the Court of Appeals acted in clear disregard of the doctrine laid down in Buan v.
Camaganacan[32] that the text of the decision should state the reason why attorneys fees are being awarded; otherwise, the
award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-
CBN. It has been held that where no sufficient showing of bad faith would be reflected in a partys persistence in a case other
than an erroneous conviction of the righteousness of his cause, attorneys fees shall not be recovered as cost. [33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent meeting of minds
between them regarding the object and consideration of the alleged contract. It affirms that ABS-CBNs claim of a right of first
refusal was correctly rejected by the trial court.RBS insists the premium it had paid for the counterbond constituted a pecuniary
Page 77 of 108
loss upon which it may recover. It was obliged to put up the counterbond due to the injunction procured by ABS-CBN. Since the
trial court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of
injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash
bond would prove to be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30
million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film Maging Sino Ka
Man because the print advertisements were out to announce the showing on a particular day and hour on Channel 7, i.e., in its
entirety at one time, not as series to be shown on a periodic basis. Hence, the print advertisements were good and relevant for
the particular date of showing, and since the film could not be shown on that particular date and hour because of the injunction,
the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the
purpose of harassing and prejudicing RBS. Pursuant then to Articles 19 and 21 of the Civil Code, ABS-CBN must be held liable for
such damages. Citing Tolentino,[34] damages may be awarded in cases of abuse of rights even if the done is not illicit, and there is
abuse of rights where a plaintiff institutes an action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondent RBS cited
People v. Manero,[35] where it was stated that such entity may recover moral and exemplary damages if it has a good reputation
that is debased resulting in social humiliation. It then ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When RBS was not able to fulfill its
commitment to the viewing public to show the film Maging Sino Ka Man on the scheduled dates and times (and on two
occasions that RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was cancelled, irate
viewers called up RBS offices and subjected RBS to verbal abuse (Announce kayo ng announce, hindi ninyo naman ilalabas,
nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not something RBS brought upon itself. It was exactly what ABS-CBN
had planted to happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the award.
The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a broadcasting company is [sic]
nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state,
and it is a matter of judicial notice that almost every other person in the country watches television. The humiliation suffered by
RBS is multiplied by the number of televiewers who had anticipated the showing of the film, Maging Sino Ka Man on May 28 and
November 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who had placed commercial
spots for the telecast and to whom RBS had a commitment in consideration of the placement to show the film in the dates and
times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury are far greater in degree
when caused by an entity whose ultimate business objective is to lure customers (viewers in this case) away from the
competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do
not support ABS-CBNs claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition
for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys
fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2)
whether RBS is entitled to damages and attorneys fees. It may be noted that that award of attorneys fees of P212,000 in favor of
VIVA is not assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one
binds himself to give something or render some service to another [37] for a consideration. There is no contract unless the
following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3)
cause of the obligation, which is established.[38] A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of
the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and
Page 78 of 108
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. [39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify
the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A
qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original
offer.Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not
sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. [40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of
films, said package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN,
sent through Ms. Concio, counter-proposal in the form a draft contract proposing exhibition of 53 films for a consideration
of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del
Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs offer, for it was met by a counter-offer which
substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals[41] and Villonco Realty Company v. Bormaheco,
[42]
Inc., is misplaced. In these cases, it was held that an acceptance may contain a request for certain changes in the terms of the
offer and yet be a binding acceptance as long as it is clear that the meaning of the acceptance is positively and unequivocally to
accept the offer, whether such request is granted or not. This ruling was, however, reversed in the resolution of 29 March
1996,[43] which ruled that the acceptance of an offer must be unqualified and absolute, i.e., it must be identical in all respects
with that of the offer so as to produce consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but
merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance
Co.[44] that a vendors change in a phrase of the offer to purchase, which change does not essentially change the terms of the
offer, does not amount to a rejection of the offer and the tender of a counter-offer.[45]However, when any of the elements of
the contract is modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent period of
bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract. VIVA through its Board of
Directors, rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the
acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as the power to enter into
contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive
committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific
purposes.[47] Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the
binding effects of their acts would apply.[48] For such officers to be deemed fully clothed by the corporation to exercise a power
of the Board, the latter must specially authorize them to do so. that Del Rosario did not have the authority to accept ABS-CBNs
counter-offer was best evidenced by his submission of the draft contract to VIVAs Board of Directors for the latters approval. In
any event, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are
instructive:
A number of considerations militate against ABS-CBNs claim that a contract was perfected at that lunch meeting on April 02,
1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which
he wrote on a napkin.However, Exhibit C contains numerous provisions which were not discussed at the Tamarind Grill, if Lopez
testimony was to be believed nor could they have been physically written on a napkin. There was even doubt as to whether it
was a paper napkin or cloth napkin. In short what were written in Exhibit C were not discussed, and therefore could not have
been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit C when the provisions thereof
were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact
prays for delivery of 14 films. But Exhibit C mentions 53 films as its subject matter. Which is which? If Exhibit C reflected the true
intent of the parties, then ABS-CBNs claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then
Exhibit C did not reflect what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds
as to the subject matter of the contract, so as to preclude perfection thereof. For settled is the rule that there can be no contract
where there is no object certain which is its subject matter (Art. 1318, NCC).
Page 79 of 108
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:
We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we agreed to
pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked
this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00 equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?

A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies because the
price was broken down accordingly.The none [sic] Viva and the seven other Viva movies and the sharing between the cash
portion and the concerned spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del Rosario with a handwritten note,
describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said draft has a well defined meaning.
Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions
thereof could not have been previously agreed upon by ABS-CBN and Viva. Exhibit C could not therefore legally bind Viva, not
having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit C were prepared by ABS-
CBNs lawyers and there was no discussion on said terms and conditions.
As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no evidence whatsoever that
Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused to sign
Exhibit C reveals only two [sic] well that it did not agree on its terms and conditions, and this court has no authority to compel
Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only provisional, in
the sense that it was subject to approval by the Board of Directors of Viva. He testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that you have the meeting of the
minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a contract
with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario is the
Executive Producer of defendant Viva which is a corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario could not
bind Viva unless what he did is ratified by its Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44
Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva
and his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36
Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been
agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because
Page 80 of 108
corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board
approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid binding upon Viva
(Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva
rejected Exhibit C and insisted that the film package for 104 films be maintained (Exh. 7-1 Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film
Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is
untenable. As observed by the trial court, ABS-CBNs right of first refusal had already been exercised when Ms. Concio wrote to
Viva ticking off ten films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms.
Concio herself admitted on cross-examination to having used or exercised the right of first refusal. She stated that the list was
not acceptable and was indeed not accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that
the right of first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario
himself knew and understand [sic] that ABS-CBN has lost its right of first refusal when his list of 36 titles were rejected (Tsn, June
9, 1992, pp. 10-11).[50]
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book
IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is
entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. [51] The
indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to
obtain.[52] In contracts and quasi-contracts the damages which may be awarded are dependent on whether the obligor acted
with good faith or otherwise. In case of good faith, the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time
of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible
for all damages which may be reasonably attributed to the non-performance of the obligation.[53] In crimes and quasi-delicts, the
defendants shall be liable for all damages which are the natural and probable consequences of the act or omission complained
of, whether or not such damages have been foreseen or could have reasonably been foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent
personal injury, or for injury to the plaintiffs business standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the
fact of filing of the complaint despite ABS-CBNs alleged knowledge of lack of cause of action. Thus paragraph 12 of RBSs Answer
with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As a result thereof, RBS suffered actual
damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could
only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall indemnify the latter for the
same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant
may suffer by reason of the writ are recoverable from the injunctive bond. [57] In this case, ABS-CBN had not yet filed the required
bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the
matter. Clearly then, it was not necessary for RBS to file a counterbond.Hence, ABS-CBN cannot be held responsible for the
premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack of sufficient legal basis. The
RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there
Page 81 of 108
existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal
and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be recovered as actual or
compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. [58]
The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no premium
should be placed on the right to litigate.[59] They are not to be awarded every time a party wins a suit. The power of the court t
award attorneys fees under Article 2208 demands factual, legal, and equitable justification.[60] Even when a claimant is
compelled to litigate with third persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where
no sufficient showing of bad faith could be reflected in a partys persistence in a case other than an erroneous conviction of the
righteousness of his cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what
are included in moral damages, while Article 2219 enumerates the cases where they may be recovered. Article 2220 provides
that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBSs
claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer.[62] The award is not meant to enrich the complainant at the expense of the defendant, but
to enable the injured party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he has
undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted.[63] Trial courts must then guard against the award of exorbitant damages; they should
exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption or
the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only by one having a nervous system. [65] The statement in People v.
Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation may recover moral damages if it has a good reputation that is
debased, resulting in social humiliation is an obiter dictum. On this score alone the award for damages must be set aside, since
RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way
of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. [68] They are
recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating
circumstances;[69] in quasi-delicts, if the defendant acted with gross negligence;[70] and in contracts and quasi-contracts, if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. [71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-
delict. Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is
exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for
all provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores,
and has the following elements: (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public order,
or public policy, and (3) and it is done with intent to injure. [72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity. [73] Such must be substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its
cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that
the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not
have meant impose a penalty on the right to litigate. If damages result from a persons exercise of a right, it is damnum absque
injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No. 44125 is
hereby REVERSED except as to unappealed award of attorneys fees in favor of VIVA Productions, Inc.
No pronouncement as to costs.
Page 82 of 108
SO ORDERED.
Melo, Kapunan, Martinez, and Pardo, JJ., concur.
G.R. No. L-6776 May 21, 1955
THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,

vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.

Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for appellee.
REYES, J.B.L., J.:
The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in due form on January
22, 1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan, Rizal, known as lot No. 2, block 48-D,
PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious organization "Ung Siu Si Temple", operating through
three trustees all of Chinese nationality. The donation was duly accepted by Yu Juan, of Chinese nationality, founder and
deaconess of the Temple, acting in representation and in behalf of the latter and its trustees.
The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance of Manila. On March 14,
1953, the Court upheld the action of the Rizal Register of Deeds, saying:
The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of donation of a parcel of land
executed in favor of a religious organization whose founder, trustees and administrator are Chinese citizens should be registered
or not.
It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious organization whose deaconess, founder,
trustees and administrator are all Chinese citizens, this Court is of the opinion and so hold that in view of the provisions of the
sections 1 and 5 of Article XIII of the Constitution of the Philippines limiting the acquisition of land in the Philippines to its
citizens, or to corporations or associations at least sixty per centum of the capital stock of which is owned by such citizens
adopted after the enactment of said Act No. 271, and the decision of the Supreme Court in the case of Krivenko vs. the Register
of Deeds of Manila, the deed of donation in question should not be admitted for admitted for registration. (Printed Rec. App. pp
17-18).
Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has appealed to this Court,
claiming: (1) that the acquisition of the land in question, for religious purposes, is authorized and permitted by Act No. 271 of
the old Philippine Commission, providing as follows:
SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination, whether incorporated in the
Philippine Islands or in the name of other country, or not incorporated at all, to hold land in the Philippine Islands upon which to
build churches, parsonages, or educational or charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of three Trustees for the use of such
associations; . . .. (Printed Rec. App. p. 5.)
and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our Constitution [Art. III, Sec. 1(7)].
We are of the opinion that the Court below has correctly held that in view of the absolute terms of section 5, Title XIII, of the
Constitution, the provisions of Act No. 271 of the old Philippine Commission must be deemed repealed since the Constitution
was enacted, in so far as incompatible therewith. In providing that, —
Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals,
corporations or associations qualified to acquire or hold lands of the public domain in the Philippines,
Page 83 of 108
the Constitution makes no exception in favor of religious associations. Neither is there any such saving found in sections 1 and 2
of Article XIII, restricting the acquisition of public agricultural lands and other natural resources to "corporations or associations
at least sixty per centum of the capital of which is owned by such citizens" (of the Philippines).
The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional inhibition,
since it is admitted that its members are of foreign nationality. The purpose of the sixty per centum requirement is obviously to
ensure that corporations or associations allowed to acquire agricultural land or to exploit natural resources shall be controlled
by Filipinos; and the spirit of the Constitution demands that in the absence of capital stock, the controlling membership should
be composed of Filipino citizens.
To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive the opening wedge to
revive alien religious land holdings in this country. We can not ignore the historical fact that complaints against land holdings of
that kind were among the factors that sparked the revolution of 1896.
As to the complaint that the disqualification under article XIII is violative of the freedom of religion guaranteed by Article III of
the Constitution, we are by no means convinced (nor has it been shown) that land tenure is indispensable to the free exercise
and enjoyment of religious profession or worship; or that one may not worship the Deity according to the dictates of his own
conscience unless upon land held in fee simple.
The resolution appealed from is affirmed, with costs against appellant.
Pablo, Acting C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, and Concepcion, JJ., concur.
G.R. No. L-8451 December 20, 1957
THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., petitioner,

vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO CITY, respondents.
Teodoro Padilla, for petitioner.

Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and Troadio T. Quianzon, Jr., for
respondents.
FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao seeking the reversal of a
resolution by the Land Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case are as follows:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale of a parcel of
land located in the same city covered by Transfer Certificate No. 2263, in favor of the Roman Catholic Apostolic Administrator of
Davao Inc., s corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian
citizen, as actual incumbent. When the deed of sale was presented to Register of Deeds of Davao for registration, the latter.
having in mind a previous resolution of the Fourth Branch of the Court of First Instance of Manila wherein the Carmelite Nuns of
Davao were made to prepare an affidavit to the effect that 60 per cent of the members of their corporation were Filipino
citizens when they sought to register in favor of their congregation of deed of donation of a parcel of land—
required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof were Filipino
citizens.
The vendee in the letter dated June 28, 1954, expressed willingness to submit an affidavit, both not in the same tenor as that
made the Progress of the Carmelite Nuns because the two cases were not similar, for whereas the congregation of the Carmelite
Nuns had five incorporators, the corporation sole has only one; that according to their articles of incorporation, the organization
Page 84 of 108
of the Carmelite Nuns became the owner of properties donated to it, whereas the case at bar, the totality of the Catholic
population of Davao would become the owner of the property bought to be registered.
As the Register of Deeds entertained some doubts as to the registerability if the document, the matter was referred to the Land
Registration Commissioner en consulta for resolution in accordance with section 4 of Republic Act No. 1151. Proper hearing on
the matter was conducted by the Commissioner and after the petitioner corporation had filed its memorandum, a resolution
was rendered on September 21, 1954, holding that in view of the provisions of Section 1 and 5 of Article XIII of the Philippine
Constitution, the vendee was not qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per
centum of the capital, property, or assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or
controlled by Filipino citizens, there being no question that the present incumbent of the corporation sole was a Canadian
citizen. It was also the opinion of the Land Registration Commissioner that section 159 of the corporation Law relied upon by the
vendee was rendered operative by the aforementioned provisions of the Constitution with respect to real estate, unless the
precise condition set therein — that at least 60 per cent of its capital is owned by Filipino citizens — be present, and, therefore,
ordered the Registered Deeds of Davao to deny registration of the deed of sale in the absence of proof of compliance with such
condition.
After the motion to reconsider said resolution was denied, an action for mandamus was instituted with this Court by said
corporation sole, alleging that under the Corporation Law as well as the settled jurisprudence on the matter, the deed of sale
executed by Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor of the Catholic Church which is qualified to
acquire private agricultural lands for the establishment and maintenance of places of worship, and prayed that judgment be
rendered reserving and setting aside the resolution of the Land Registration Commissioner in question. In its resolution of
November 15, 1954, this Court gave due course to this petition providing that the procedure prescribed for appeals from the
Public Service Commission of the Securities and Exchange Commissions (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines.
Section 1 of the same Article also provides the following:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, water, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, and other natural resources of the Philippines belong to the State, and their disposition,
exploitation, development, or utilization shall be limited to cititzens of the Philippines, or to corporations or associations at least
sixty per centum of the capital of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT, grant, lease, or concession
AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER CONSTITUTION. Natural resources, with the
exception of public agricultural land, shall not be alienated, and no license, concession, or leases for the exploitation,
development, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable
for another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases other than the development and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold agricultural lands in
the Philippines? What is the effect of these constitutional prohibition of the right of a religious corporation recognized by our
Corporation Law and registered as a corporation sole, to possess, acquire and register real estates in its name when the Head,
Manager, Administrator or actual incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not prohibited or
disqualified to acquire and hold real properties. The Corporation Law and the Canon Law are explicit in their provisions that a
corporation sole or "ordinary" is not the owner of the of the properties that he may acquire but merely the administrator
thereof. The Canon Law also specified that church temporalities are owned by the Catholic Church as a "moral person" or by the
diocess as minor "moral persons" with the ordinary or bishop as administrator.
And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a religious society or
organization, it is made up of 2 elements or divisions — the clergy or religious members and the faithful or lay members. The
1948 figures of the Bureau of Census showed that there were 277,551 Catholics in Davao and aliens residing therein numbered
3,465. Ever granting that all these foreigners are Catholics, petitioner contends that Filipino citizens form more than 80 per cent
of the entire Catholics population of that area. As to its clergy and religious composition, counsel for petitioner presented the
Catholic Directory of the Philippines for 1954 (Annex A) which revealed that as of that year, Filipino clergy and women novices
Page 85 of 108
comprise already 60.5 per cent of the group. It was, therefore, allowed that the constitutional requirement was fully met and
satisfied.
Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the land purchased,
yet he has control over the same, with full power to administer, take possession of, alienate, transfer, encumber, sell or dispose
of any or all lands and their improvements registered in the name of the corporation sole and can collect, receive, demand or
sue for all money or values of any kind that may be kind that may become due or owing to said corporation, and vested with
authority to enter into agreements with any persons, concerns or entities in connection with said real properties, or in other
words, actually exercising all rights of ownership over the properties. It was their stand that the theory that properties
registered in the name of the corporation sole are held in true for the benefit of the Catholic population of a place, as of Davao
in the case at bar should be sustained because a conglomeration of persons cannot just be pointed out as the cestui que trust or
recipient of the benefits from the property allegedly administered in their behalf. Neither can it be said that the mass of people
referred to as such beneficiary exercise ant right of ownership over the same. This set-up, respondents argued, falls short of a
trust. The respondents instead tried to prove that in reality, the beneficiary of ecclesiastical properties are not members or
faithful of the church but someone else, by quoting a portion a portion of the ought of fidelity subscribed by a bishop upon his
elevation to the episcopacy wherein he promises to render to the Pontificial Father or his successors an account of
his pastoral office and of all things appertaining to the state of this church.
Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per cent of Filipino
citizenship, the criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is a special form of
corporation usually associated with the clergy. Conceived and introduced into the common law by sheer necessity, this legal
creation which was referred to as "that unhappy freak of English law" was designed to facilitate the exercise of the functions of
ownership carried on by the clerics for and on behalf of the church which was regarded as the property owner (See I Couvier's
Law Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular station,
who are incorporated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which in
their natural persons they could not have had. In this sense, the king is a sole corporation; so is a bishop, or dens, distinct from
their several chapters. (Reid vs. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of petitioner. Section 154
thereof provides:
SEC. 154. — For the administration of the temporalities of any religious denomination, society or church and the management of
the estates and the properties thereof, it shall be lawful for the bishop, chief priest, or presiding either of any such religious
denomination, society or church to become a corporation sole, unless inconsistent wit the rules, regulations or discipline of his
religious denomination, society or church or forbidden by competent authority thereof.
See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:
SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any religious denomination, society
or church must file with the Securities and Exchange Commissioner articles of incorporation setting forth the following facts:
xxx xxx xxx.
(3) That as such bishop, chief priest, or presiding elder he is charged with the administration of the temporalities and the
management of the estates and properties of his religious denomination, society, or church within its territorial jurisdiction,
describing it;
xxx xxx xxx.
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities and Exchange Commissioner of the said articles of incorporation, which
verified by affidavit or affirmation as aforesaid and accompanied by the copy of the commission, certificate of election, or letters
Page 86 of 108
of appointment of the bishop, chief priest, or presiding elder, duly certified as prescribed in the section immediately preceding
such the bishop, chief priest, or presiding elder, as the case may be, shall become a corporation sole and all temporalities,
estates, and properties the religious denomination, society, or church therefore administered or managed by him as such bishop,
chief priest, or presiding elder, shall be held in trust by him as a corporation sole, for the use, purpose, behalf, and sole benefit of
his religious denomination, society, or church, including hospitals, schools, colleges, orphan, asylums, parsonages, and
cemeteries thereof. For the filing of such articles of incorporation, the Securities and Exchange Commissioner shall collect
twenty-five pesos. (As amended by Commonwealth Act. No. 287); and.
SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or society, or by the
diocese, synod, or district organization of any religious denomination or church shall, on its incorporation, pass to the
corporation and shall be held in trust for the use, purpose behalf, and benefit of the religious society, or order so incorporated
or of the church of which the diocese, or district organization is an organized and constituent part.
The Cannon Law contains similar provisions regarding the duties of the corporation sole or ordinary as administrator of the
church properties, as follows:
Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes eclesiasticos que se hallan en su
territorio y no estuvieren sustraidos de su jurisdiccion, salvs las prescriciones legitimas que le concedan mas aamplios derechos.
Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los Ordinarios regular todo lo
concerniente a la administracion de los bienes eclesciasticos, dando las oportunas instucciones particularles dentro del narco del
derecho comun. (Title XXVIII, Codigo de Derecho Canonico, Lib. III, Canon 1519).1
That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are
merely administrators of the church properties that come to their possession, in which they hold in trust for the church. It can
also be said that while it is true that church properties could be administered by a natural persons, problems regarding
succession to said properties can not be avoided to rise upon his death. Through this legal fiction, however, church properties
acquired by the incumbent of a corporation sole pass, by operation of law, upon his death not his personal heirs but to his
successor in office. It could be seen, therefore, that a corporation sole is created not only to administer the temporalities of the
church or religious society where he belongs but also to hold and transmit the same to his successor in said office. If the
ownership or title to the properties do not pass to the administrators, who are the owners of church properties?.
Bouscaren and Elis, S.J., authorities on cannon law, on their treatise comment:
In matters regarding property belonging to the Universal Church and to the Apostolic See, the Supreme Pontiff exercises his
office of supreme administrator through the Roman Curia; in matters regarding other church property, through the
administrators of the individual moral persons in the Church according to that norms, laid down in the Code of Cannon Law. This
does not mean, however, that the Roman Pontiff is the owner of all the church property; but merely that he is the supreme
guardian (Bouscaren and Ellis, Cannon Law, A Text and Commentary, p. 764).
and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of Trinidad vs. Roman Catholic
Archbishop of Manila, 63 Phil. 881, that:
The second question to be decided is in whom the ownership of the properties constituting the endowment of the ecclesiastical
or collative chaplaincies is vested.
Canonists entertain different opinions as to the persons in whom the ownership of the ecclesiastical properties is vested, with
respect to which we shall, for our purpose, confine ourselves to stating with Donoso that, while many doctors cited by Fagnano
believe that it resides in the Roman Pontiff as Head of the Universal Church, it is more probable that ownership, strictly
speaking, does not reside in the latter, and, consequently, ecclesiastical properties are owned by the churches, institutions and
canonically established private corporations to which said properties have been donated.
Considering that nowhere can We find any provision conferring ownership of church properties on the Pope although he
appears to be the supreme administrator or guardian of his flock, nor on the corporation sole or heads of dioceses as they are
admittedly mere administrators of said properties, ownership of these temporalities logically fall and develop upon the church,
diocese or congregation acquiring the same. Although this question of ownership of ecclesiastical properties has off and on been
mentioned in several decisions of the Court yet in no instance was the subject of citizenship of this religious society been passed
upon.
Page 87 of 108
We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of Agustines vs. Court of First
Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila is only a branch of a universal
church by the Pope, with permanent residence in Rome, Italy". There is no question that the Roman Catholic Church existing in
the Philippines is a tributary and part of the international religious organization, for the word "Roman" clearly expresses its unity
with and recognizes the authority of the Pope in Rome. However, lest We become hasty in drawing conclusions, We have to
analyze and take note of the nature of the government established in the Vatican City, of which it was said:
GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy and laity alike as held by the pope
who (since the Middle Ages) is elected by the cardinals assembled in conclave, and holds office until his death or legitimate
abdication. . . While the pope is obviously independent of the laws made, and the officials appointed, by himself or his
predecessors, he usually exercises his administrative authority according to the code of canon law and through the
congregations, tribunals and offices of the Curia Romana. In their respective territories (called generally dioceses) and over their
respective subjects, the patriarchs, metropolitans or archbishops and bishops exercise a jurisdiction which is called ordinary (as
attached by law to an office given to a person. . . (Collier's Encyclopedia, Vol. 17, p. 93).
While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the supreme head; that in the
religious matters, in the exercise of their belief, the Catholic congregation of the faithful throughout the world seeks the
guidance and direction of their Spiritual Father in the Vatican, yet it cannot be said that there is a merger of personalities
resultant therein. Neither can it be said that the political and civil rights of the faithful, inherent or acquired under the laws of
their country, are affected by that relationship with the Pope. The fact that the Roman Catholic Church in almost every country
springs from that society that saw its beginning in Europe and the fact that the clergy of this faith derive their authorities and
receive orders from the Holy See do not give or bestow the citizenship of the Pope upon these branches. Citizenship is a political
right which cannot be acquired by a sort of "radiation". We have to realize that although there is a fraternity among all the
catholic countries and the dioceses therein all over the globe, the universality that the word "catholic" implies, merely
characterize their faith, a uniformity in the practice and the interpretation of their dogma and in the exercise of their belief, but
certainly they are separate and independent from one another in jurisdiction, governed by different laws under which they are
incorporated, and entirely independent on the others in the management and ownership of their temporalities. To allow theory
that the Roman Catholic Churches all over the world follow the citizenship of their Supreme Head, the Pontifical Father, would
lead to the absurdity of finding the citizens of a country who embrace the Catholic faith and become members of that religious
society, likewise citizens of the Vatican or of Italy. And this is more so if We consider that the Pope himself may be an Italian or
national of any other country of the world. The same thing be said with regard to the nationality or citizenship of the
corporation sole created under the laws of the Philippines, which is not altered by the change of citizenship of the incumbent
bishops or head of said corporation sole.
We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every Roman Catholic
Church in different countries, if it exercises its mission and is lawfully incorporated in accordance with the laws of the country
where it is located, is considered an entity or person with all the rights and privileges granted to such artificial being under the
laws of that country, separate and distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to its
religious relations with the latter which are governed by the Canon Law or their rules and regulations.
We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far reaching influence,
nor can We overlook the pages of history that arouse indignation and criticisms against church landholdings. This nurtured
feeling that snowbailed into a strong nationalistic sentiment manifested itself when the provisions on natural to be embodied in
the Philippine Constitution were framed, but all that has been said on this regard referred more particularly to landholdings of
religious corporations known as "Friar Estates" which have already bee acquired by our government, and not to properties held
by corporations sole which, We repeat, are properties held in trust for the benefit of the faithful residing within its territorial
jurisdiction. Though that same feeling probably precipitated and influenced to a large extent the doctrine laid down in the
celebrated Krivenco decision, We have to take this matter in the light of legal provisions and jurisprudence actually obtaining,
irrespective of sentiments.
The question now left for our determination is whether the Universal Roman Catholic Apostolic Church in the Philippines, or
better still, the corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire private
agricultural lands in the Philippines pursuant to the provisions of Article XIII of the Constitution.
We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to acquire hold lands of
the public domain in the Philippines may acquire or be assigned and hold private agricultural lands. Consequently, the decisive
factor in the present controversy hinges on the proposition or whether or not the petitioner in this case can acquire agricultural
lands of the public domain.
Page 88 of 108
From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic Bishop of Zamboanga
was incorporated (as a corporation sole) in September, 1912, principally to administer its temporalities and manage its
properties. Probably due to the ravages of the last war, its articles of incorporation were reconstructed in the Securities and
Exchange Commission on April 8, 1948. At first, this corporation sole administered all the temporalities of the church existing or
located in the island of Mindanao. Later on, however, new dioceses were formed and new corporations sole were created to
correspond with the territorial jurisdiction of the new dioceses, one of them being petitioner herein, the Roman Catholic
Apostolic Administrator of Davao, Inc., which was registered with the Securities and Exchange Commission on September 12,
1950, and succeeded in the administrative for all the "temporalities" of the Roman Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a corporation sole.
is organized and composed of a single individual, the head of any religious society or church, for the ADMINISTRATION of the
temporalities of such society or church. By "temporalities" is meant estate and properties not used exclusively for religious
worship. The successor in office of such religious head or chief priest incorporated as a corporation sole shall become the
corporation sole on ascension to office, and shall be permitted to transact business as such on filing with the Securities and
Exchange Commission a copy of his commission, certificate of election or letter of appointment duly certified by any notary
public or clerk of court of record (Guevara's The Philippine Corporation Law, p. 223).
The Corporation Law also contains the following provisions:
SECTION 159. Any corporation sole may purchase and hold real estate and personal; property for its church, charitable,
benevolent, or educational purposes, and may receive bequests or gifts of such purposes. Such corporation may mortgage or
sell real property held by it upon obtaining an order for that purpose from the Court of First Instance of the province in which
the property is situated; but before making the order proof must be made to the satisfaction of the Court that notice of the
application for leave to mortgage or sell has been given by publication or otherwise in such manner and for such time as said
Court or the Judge thereof may have directed, and that it is to the interest of the corporation that leave to mortgage or sell must
be made by petition, duly verified by the bishop, chief priest, or presiding elder acting as corporation sole, and may be opposed
by any member of the religious denomination, society or church represented by the corporation sole: Provided, however, That
in cases where the rules, regulations, and discipline of the religious denomination, society or church concerned represented by
such corporation sole regulate the methods of acquiring, holding, selling and mortgaging real estate and personal property, such
rules, regulations, and discipline shall control and the intervention of the Courts shall not be necessary.
It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power exercised in the case
at bar, it is not restricted although the power to sell or mortgage sometimes is, depending upon the rules, regulations, and
discipline of the church concerned represented by said corporation sole. If corporations sole can purchase and sell real estate for
its church, charitable, benevolent, or educational purposes, can they register said real properties? As provided by law, lands held
in trust for specific purposes me be subject of registration (section 69, Act 496), and the capacity of a corporation sole, like
petitioner herein, to register lands belonging to it is acknowledged, and title thereto may be issued in its name (Bishop of Nueva
Segovia vs. Insular Government, 26 Phil. 300-1913). Indeed it is absurd that while the corporations sole that might be in need of
acquiring lands for the erection of temples where the faithful can pray, or schools and cemeteries which they are expressly
authorized by law to acquire in connection with the propagation of the Roman Catholic Apostolic faith or in furtherance of their
freedom of religion they could not register said properties in their name. As professor Javier J. Nepomuceno very well says "Man
in his search for the immortal and imponderable, has, even before the dawn of recorded history, erected temples to the
Unknown God, and there is no doubt that he will continue to do so for all time to come, as long as he continues 'imploring the
aid of Divine Providence'" (Nepomuceno's Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41, September, 1956). Under the
circumstances of this case, We might safely state that even before the establishment of the Philippine Commonwealth and of
the Republic of the Philippines every corporation sole then organized and registered had by express provision of law the
necessary power and qualification to purchase in its name private lands located in the territory in which it exercised its functions
or ministry and for which it was created, independently of the nationality of its incumbent unique and single member and head,
the bishop of the dioceses. It can be also maintained without fear of being gainsaid that the Roman Catholic Apostolic Church in
the Philippines has no nationality and that the framers of the Constitution, as will be hereunder explained, did not have in mind
the religious corporations sole when they provided that 60 per centum of the capital thereof be owned by Filipino citizens.
There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having the right of
succession and the power, attributes, and properties expressly authorized by law or incident to its existence (section 1,
Corporation Law). In outlining the general powers of a corporation. Public Act. No. 1459 provides among others:
SEC. 13. Every corporation has the power:
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(5) To purchase, hold, convey, sell, lease, lot, mortgage, encumber, and otherwise deal with such real and personal property as
the purpose for which the corporation was formed may permit, and the transaction of the lawful business of the corporation
may reasonably and necessarily require, unless otherwise prescribed in this Act: . . .
In implementation of the same and specially made applicable to a form of corporation recognized by the same law, Section 159
aforequoted expressly allowed the corporation sole to purchase and hold real as well as personal properties necessary for the
promotion of the objects for which said corporation sole is created. Respondent Land Registration Commissioner, however,
maintained that since the Philippine Constitution is a later enactment than public Act No. 1459, the provisions of Section 159 in
amplification of Section 13 thereof, as regard real properties, should be considered repealed by the former.
There is a reason to believe that when the specific provision of the Constitution invoked by respondent Commissioner was under
consideration, the framers of the same did not have in mind or overlooked this particular form of corporation. It is undeniable
that the naturalization and conservation of our national resources was one of the dominating objectives of the Convention and
in drafting the present Article XII of the Constitution, the delegates were goaded by the desire (1) to insure their conservation
for Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the extension into the country of foreign
control through peaceful economic penetration; and (3) to prevent making the Philippines a source of international conflicts
with the consequent danger to its internal security and independence (See The Framing of the Philippine Constitution by
Professor Jose M. Aruego, a Delegate to the Constitutional Convention, Vol. II. P. 592-604). In the same book Delegate Aruego,
explaining the reason behind the first consideration, wrote:
At the time of the framing of Philippine Constitution, Filipino capital had been to be rather shy. Filipinos hesitated s a general
rule to invest a considerable sum of their capital for the development, exploitation and utilization of the natural resources of the
country. They had not as yet been so used to corporate as the peoples of the west. This general apathy, the delegates knew,
would mean the retardation of the development of the natural resources, unless foreign capital would be encouraged to come
and help in that development. They knew that the naturalization of the natural resources would certainly not encourage
the INVESTMENT OF FOREIGN CAPITAL into them. But there was a general feeling in the Convention that it was better to have
such a development retarded or even postpone together until such time when the Filipinos would be ready and willing to
undertake it rather than permit the natural resources to be placed under the ownership or control of foreigners in order that
they might be immediately be developed, with the Filipinos of the future serving not as owners but utmost as tenants or
workers under foreign masters. By all means, the delegates believed, the natural resources should be conserved for Filipino
posterity.
It could be distilled from the foregoing that the farmers of the Constitution intended said provisions as barrier for foreigners or
corporations financed by such foreigners to acquire, exploit and develop our natural resources, saving these undeveloped
wealth for our people to clear and enrich when they are already prepared and capable of doing so. But that is not the case of
corporations sole in the Philippines, for, We repeat, they are mere administrators of the "temporalities" or properties titled in
their name and for the benefit of the members of their respective religion composed of an overwhelming majority of Filipinos.
No mention nor allusion whatsoever is made in the Constitution as to the prohibition against or the liability of the Roman
Catholic Church in the Philippines to acquire and hold agricultural lands. Although there were some discussions on landholdings,
they were mostly confined in the inclusion of the provision allowing the Government to break big landed estates to put an end
to absentee landlordism.
But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of Article XIII of the
constitution does have bearing on the petitioner's case; even so the clause requiring that at least 60 per centum of the capital of
the corporation be owned by Filipinos is subordinated to the petitioner's aforesaid right already existing at the time of the
inauguration of the Commonwealth and the Republic of the Philippines. In the language of Mr. Justice Jose P. Laurel (a delegate
to the Constitutional Convention), in his concurring opinion of the case of Gold Creek mining Corporation, petitioner vs. Eulogio
Rodriguez, Secretary of Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau of Mines, respondent, 66 Phil.
259:
The saving clause in the section involved of the Constitution was originally embodied in the report submitted by the Committee
on Naturalization and Preservation of Land and Other Natural Resources to the Constitutional Convention on September 17,
1954. It was later inserted in the first draft of the Constitution as section 13 of Article XIII thereof, and finally incorporated as we
find it now. Slight have been the changes undergone by the proviso from the time when it comes out of the committee until it
was finally adopted. When first submitted and as inserted to the first draft of the Constitution it reads: 'subject to any right,
grant, lease, or concession existing in respect thereto on the date of the adoption of the Constitution'. As finally adopted, the
proviso reads: 'subject to any existing right, grant, lease, or concession at the time of the inauguration of the Government
established under this Constitution'. This recognition is not mere graciousness but springs form the just character of the
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government established. The framers of the Constitution were not obscured by the rhetoric of democracy or swayed to hostility
by an intense spirit of nationalism. They well knew that conservation of our natural resources did not mean destruction or
annihilation of acquired property rights. Withal, they erected a government neither episodic nor stationary but well-nigh
conservative in the protection of property rights. This notwithstanding nationalistic and socialistic traits discoverable upon even
a sudden dip into a variety of the provisions embodied in the instrument.
The writer of this decision wishes to state at this juncture that during the deliberation of this case he submitted to the
consideration of the Court the question that may be termed the "vested right saving clause" contained in Section 1, Article XII of
the Constitution, but some of the members of this Court either did not agree with the theory of the writer, or were not ready to
take a definite stand on the particular point I am now to discuss deferring our ruling on such debatable question for a better
occasion, inasmuch as the determination thereof is not absolutely necessary for the solution of the problem involved in this
case. In his desire to face the issues squarely, the writer will endeavor, at least as a disgression, to explain and develop his
theory, not as a lucubration of the Court, but of his own, for he deems it better and convenient to go over the cycle of reasons
that are linked to one another and that step by step lead Us to conclude as We do in the dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all agricultural lands of the
public domain and their disposition shall be limited to citizens of the Philippines or to corporations at least 60 per centum of the
capital of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE
GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION."
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs. Rodriguez et al., 66 Phil.
259, "this recognition (in the clause already quoted), is not mere graciousness but springs from the just character of the
government established. The farmers of the Constitution were not obscured by the rhetoric of democracy or swayed to hostility
by an intense spirit of nationalism. They well knew that conservation of our natural resources did not mean destruction or
annihilation of ACQUIRED PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition of public or private lands by a corporation which
does not fulfill this 60 per cent requisite, refers to purchases of the Constitution and not to later transactions. This argument
would imply that even assuming that petitioner had at the time of the enactment of the Constitution the right to purchase real
property or right could not be exercised after the effectivity of our Constitution, because said power or right of corporations
sole, like the herein petitioner, conferred in virtue of the aforequoted provisions of the Corporation Law, could no longer be
exercised in view of the requisite therein prescribed that at least 60 per centum of the capital of the corporation had to be
Filipino. It has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less
than 5 incorporators, is composed of only one persons, usually the head or bishop of the diocese, a unit which is not subject to
expansion for the purpose of determining any percentage whatsoever; (2) the corporation sole is only the administrator and not
the owner of the temporalities located in the territory comprised by said corporation sole; (3) such temporalities are
administered for and on behalf of the faithful residing in the diocese or territory of the corporation sole; and (4) the latter, as
such, has no nationality and the citizenship of the incumbent Ordinary has nothing to do with the operation, management or
administration of the corporation sole, nor effects the citizenship of the faithful connected with their respective dioceses or
corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of the Constitution
invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers of the same did not have in
mind or overlooked this particular form of corporation. If this were so, as the facts and circumstances already indicated tend to
prove it to be so, then the inescapable conclusion would be that this requirement of at least 60 per cent of Filipino capital was
never intended to apply to corporations sole, and the existence or not a vested right becomes unquestionably immaterial.
But let us assumed that the questioned proviso is material. yet We might say that a reading of said Section 1 will show that it
does not refer to any actual acquisition of land up to the right, qualification or power to acquire and hold private real property.
The population of the Philippines, Catholic to a high percentage, is ever increasing. In the practice of religion of their faithful the
corporation sole may be in need of more temples where to pray, more schools where the children of the congregation could be
taught in the principles of their religion, more hospitals where their sick could be treated, more hallow or consecrated grounds
or cemeteries where Catholics could be buried, many more than those actually existing at the time of the enactment of our
Constitution. This being the case, could it be logically maintained that because the corporation sole which, by express provision
of law, has the power to hold and acquire real estate and personal property of its churches, charitable benevolent, or
educational purposes (section 159, Corporation Law) it has to stop its growth and restrain its necessities just because the
corporation sole is a non-stock corporation composed of only one person who in his unity does not admit of any percentage,
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especially when that person is not the owner but merely an administrator of the temporalities of the corporation sole? The
writer leaves the answer to whoever may read and consider this portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing the case, for even if We were to disregard such
saving clause of the Constitution, which reads: subject to any existing right, grant, etc., at the same time of the inauguration of
the Government established under this Constitution, yet We would have, under the evidence on record, sufficient grounds to
uphold petitioner's contention on this matter.
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. No. L-6776, promulgated May 21, 1955, wherein this
question was considered from a different angle, this Court through Mr. Justice J.B.L. Reyes, said:
The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional inhibition,
since it is admitted that its members are of foreign nationality. The purpose of the sixty per centum requirement is obviously to
ensure that corporation or associations allowed to acquire agricultural land or to exploit natural resources shall be controlled by
Filipinos; and the spirit of the Constitution demands that in the absence of capital stock, the controlling membership should be
composed of Filipino citizens.
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation aggregate, i.e., an
unregistered organization operating through 3 trustees, all of Chinese nationality, and that is why this Court laid down the
doctrine just quoted. With regard to petitioner, which likewise is a non-stock corporation, the case is different, because it is a
registered corporation sole, evidently of no nationality and registered mainly to administer the temporalities and manage the
properties belonging to the faithful of said church residing in Davao. But even if we were to go over the record to inquire into
the composing membership to determine whether the citizenship requirement is satisfied or not, we would find undeniable
proof that the members of the Roman Catholic Apostolic faith within the territory of Davao are predominantly Filipino citizens.
As indicated before, petitioner has presented evidence to establish that the clergy and lay members of this religion fully covers
the percentage of Filipino citizens required by the Constitution. These facts are not controverted by respondents and our
conclusion in this point is sensibly obvious.
Dissenting Opinion—Discussed. — After having developed our theory in the case and arrived at the findings and conclusions
already expressed in this decision. We now deem it proper to analyze and delve into the basic foundation on which the
dissenting opinion stands up. Being aware of the transcendental and far-reaching effects that Our ruling on the matter might
have, this case was thoroughly considered from all points of view, the Court sparing no effort to solve the delicate problems
involved herein.
At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the reversal of the doctrine
We laid down in the celebrated Krivenko case by excluding urban lots and properties from the group of the term "private
agricultural lands" use in this section 5, Article XIII of the Constitution; and (2) by driving Our reasons to a point that might
indirectly cause the appointment of Filipino bishops or Ordinary to head the corporations sole created to administer the
temporalities of the Roman Catholic Church in the Philippines. With regard to the first way, a great majority of the members of
this Court were not yet prepared nor agreeable to follow that course, for reasons that are obvious. As to the second way, it
seems to be misleading because the nationality of the head of a diocese constituted as a corporation sole has no material
bearing on the functions of the latter, which are limited to the administration of the temporalities of the Roman Catholic
Apostolic Church in the Philippines.
Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author lingered on the outskirts
of the issues, thus throwing the main points in controversy out of focus. Of course We fully agree, as stated by Professor Aruego,
that the framers of our Constitution had at heart to insure the conservation of the natural resources of Our motherland of
Filipino posterity; to serve them as an instrument of national defense, helping prevent the extension into the country of foreign
control through peaceful economic penetration; and to prevent making the Philippines a source of international conflicts with
the consequent danger to its internal security and independence. But all these precautions adopted by the Delegates to Our
Constitutional Assembly could have not been intended for or directed against cases like the one at bar. The emphasis and
wonderings on the statement that once the capacity of a corporation sole to acquire private agricultural lands is admitted there
will be no limit to the areas that it may hold and that this will pave the way for the "revival or revitalization of religious
landholdings that proved so troublesome in our past", cannot even furnish the "penumbra" of a threat to the future of the
Filipino people. In the first place, the right of Filipino citizens, including those of foreign extraction, and Philippine corporations,
to acquire private lands is not subject to any restriction or limit as to quantity or area, and We certainly do not see any wrong in
that. The right of Filipino citizens and corporations to acquire public agricultural lands is already limited by law. In the second
place, corporations sole cannot be considered as aliens because they have no nationality at all. Corporations sole are, under the
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law, mere administrators of the temporalities of the Roman Catholic Church in the Philippines. In the third place, every
corporation, be it aggregate or sole, is only entitled to purchase, convey, sell, lease, let, mortgage, encumber and otherwise deal
with real properties when it is pursuant to or in consonance with the purposes for which the corporation was formed, and when
the transactions of the lawful business of the corporation reasonably and necessarily require such dealing — section 13-(5) of
the Corporation Law, Public Act No. 1459 — and considering these provisions in conjunction with Section 159 of the same law
which provides that a corporation sole may only "purchase and hold real estate and personal properties for its church,
charitable, benevolent or educational purposes", the above mentioned fear of revitalization of religious landholdings in the
Philippines is absolutely dispelled. The fact that the law thus expressly authorizes the corporations sole to receive bequests or
gifts of real properties (which were the main source that the friars had to acquire their big haciendas during the Spanish regime),
is a clear indication that the requisite that bequests or gifts of real estate be for charitable, benevolent, or educational purposes,
was, in the opinion of the legislators, considered sufficient and adequate protection against the revitalization of religious
landholdings.
Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional Convention drafted
and approved Article XIII of the Constitution they do not have in mind the corporation sole. We come to this finding because the
Constitutional Assembly, composed as it was by a great number of eminent lawyers and jurists, was like any other legislative
body empowered to enact either the Constitution of the country or any public statute, presumed to know the conditions
existing as to particular subject matter when it enacted a statute (Board of Commerce of Orange Country vs. Bain, 92 S.E. 176; N.
C. 377).
Immemorial customs are presumed to have been always in the mind of the Legislature in enacting legislation. (In re Kruger's
Estate, 121 A. 109; 277 P. 326).
The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which it legislates. (Clover Valley
Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)
The Court in construing a statute, will assume that the legislature acted with full knowledge of the prior legislation on the
subject and its construction by the courts. (Johns vs. Town of Sheridan, 89 N. E. 899, 44 Ind. App. 620.).
The Legislature is presumed to have been familiar with the subject with which it was dealing . . . . (Landers vs. Commonwealth,
101 S. E. 778, 781.).
The Legislature is presumed to know principles of statutory construction. (People vs. Lowell, 230 N. W. 202, 250 Mich. 349,
followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).
It is not to be presumed that a provision was inserted in a constitution or statute without reason, or that a result was intended
inconsistent with the judgment of men of common sense guided by reason" (Mitchell vs. Lawden, 123 N.E. 566, 288 Ill. 326.) See
City of Decatur vs. German, 142 N. E. 252, 310 Ill. 591, and may other authorities that can be cited in support hereof.
Consequently, the Constitutional Assembly must have known:
1. That a corporation sole is organized by and composed of a single individual, the head of any religious society or church
operating within the zone, area or jurisdiction covered by said corporation sole (Article 155, Public Act No. 1459);
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary ( the corporation sole proper) does not own the temporalities which he merely administers;
4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing on the nationality of the
person desiring to acquire real property in the Philippines by purchase or other lawful means other than by hereditary
succession, who according to the Constitution must be a Filipino (sections 1 and 5, Article XIII).
5. That section 159 of the Corporation Law expressly authorized the corporation sole to purchase and holdreal estate for its
church, charitable, benevolent or educational purposes, and to receive bequests or gifts for such purposes;
6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost all of whom were Roman Catholics,
could not have intended to curtail the propagation of the Roman Catholic faith or the expansion of the activities of their church,
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knowing pretty well that with the growth of our population more places of worship, more schools where our youth could be
taught and trained; more hallow grounds where to bury our dead would be needed in the course of time.
Long before the enactment of our Constitution the law authorized the corporations sole even to receive bequests or gifts of real
estates and this Court could not, without any clear and specific provision of the Constitution, declare that any real property
donated, let as say this year, could no longer be registered in the name of the corporation sole to which it was conveyed. That
would be an absurdity that should not receive our sanction on the pretext that corporations sole which have no nationality and
are non-stock corporations composed of only one person in the capacity of administrator, have to establish first that at least
sixty per centum of their capital belong to Filipino citizens. The new Civil Code even provides:
ART. 10. — In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right
and justice to prevail.
Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can acquire, in the name of the
latter, private lands without any limitation whatsoever, and that is so because the properties thus acquired are not for and
would not belong to the administrator but to the Filipino whom he represents. But the dissenting Justice inquires: If the
Ordinary is only the administrator, for whom does he administer? And who can alter or overrule his acts? We will forthwith
proceed to answer these questions. The corporations sole by reason of their peculiar constitution and form of operation have no
designed owner of its temporalities, although by the terms of the law it can be safely implied that the Ordinary holds them in
trust for the benefit of the Roman Catholic faithful to their respective locality or diocese. Borrowing the very words of the law,
We may say that the temporalities of every corporation sole are held in trust for the use, purpose, behalf and benefit of the
religious society, or order so incorporated or of the church to which the diocese, synod, or district organization is an organized
and constituent part (section 163 of the Corporation Law).
In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see now what is the
meaning and scope of the word "control". According to the Merriam-Webster's New International Dictionary, 2nd ed., p. 580, on
of the acceptations of the word "control" is:
4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold from action; to curb; subject; also,
Obs. — to overpower.
SYN: restrain, rule, govern, guide, direct; check, subdue.
It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary, to mortgageor sell real
property held by the corporation sole where the rules, regulations and discipline of the religious denomination, society or
church concerned presented by such corporation sole regulates the methods of acquiring, holding, selling and mortgaging real
estate, and that the Roman Catholic faithful residing in the jurisdiction of the corporation sole has no say either in the manner of
acquiring or of selling real property. It may be also admitted that the faithful of the diocese cannot govern or overrule the acts of
the Ordinary, but all this does not mean that the latter can administer the temporalities of the corporation sole without check or
restraint. We must not forget that when a corporation sole is incorporated under Philippine laws, the head and only member
thereof subjects himself to the jurisdiction of the Philippine courts of justice and these tribunals can thus entertain grievances
arising out of or with respect to the temporalities of the church which came into the possession of the corporation sole as
administrator. It may be alleged that the courts cannot intervene as to the matters of doctrine or teachings of the Roman
Catholic Church. That is correct, but the courts may step in, at the instance of the faithful for whom the temporalities are being
held in trust, to check undue exercise by the corporation sole of its power as administrator to insure that they are used for the
purpose or purposes for which the corporation sole was created.
American authorities have these to say:
It has been held that the courts have jurisdiction over an action brought by persons claiming to be members of a church, who
allege a wrongful and fraudulent diversion of the church property to uses foreign to the purposes of the church, since no
ecclesiastical question is involved and equity will protect from wrongful diversion of the property (Hendryx vs. Peoples United
Church, 42 Wash. 336, 4 L.R.A. — n.s. — 1154).
The courts of the State have no general jurisdiction and control over the officers of such corporations in respect to the
performance of their official duties; but as in respect to the property which they hold for the corporation, they stand in position
of TRUSTEES and the courts may exercise the same supervision as in other cases of trust (Ramsey vs. Hicks, 174 Ind. 428, 91 N.E.
344, 92 N.E. 164, 30 L.R.A. — n.s. — 665; Hendryx vs. Peoples United Church, supra.).
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Courts of the state do not interfere with the administration of church rules or discipline unless civil rights become involved and
which must be protected (Morris St., Baptist Church vs. Dart, 67 S.C. 338, 45 S.E. 753, and others). (All cited in Vol. II, Cooley's
Constitutional Limitations, p. 960-964.).
If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law relative to existing
conditions as to management and operation of corporations sole in the Philippines, and if, on the other hand, almost all of the
Delegates thereto embraced the Roman Catholic faith, can it be imagined even for an instant that when Article XIII of the
Constitution was approved the framers thereof intended to prevent or curtail from then on the acquisition sole, either by
purchase or donation, of real properties that they might need for the propagation of the faith and for there religious and
Christian activities such as the moral education of the youth, the care, attention and treatment of the sick and the burial of the
dead of the Roman Catholic faithful residing in the jurisdiction of the respective corporations sole? The mere indulgence in said
thought would impress upon Us a feeling of apprehension and absurdity. And that is precisely the leit motiv that permeates the
whole fabric of the dissenting opinion.
It seems from the foregoing that the main problem We are confronted with in this appeal, hinges around the necessity of a
proper and adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us then be guided by the principles
of statutory construction laid down by the authorities on the matter:
The most important single factor in determining the intention of the people from whom the constitution emanated is the
language in which it is expressed. The words employed are to be taken in their natural sense, except that legal or technical terms
are to be given their technical meaning. The imperfections of language as a vehicle for conveying meanings result in ambiguities
that must be resolved by result to extraneous aids for discovering the intent of the framers. Among the more important of these
are a consideration of the history of the times when the provision was adopted and of the purposes aimed at in its adoption. The
debates of constitutional convention, contemporaneous construction, and practical construction by the legislative and executive
departments, especially if long continued, may be resorted to resolve, but not to create, ambiguities. . . . Consideration of the
consequences flowing from alternative constructions of doubtful provisions constitutes an important interpretative device. . .
. The purposes of many of the broadly phrased constitutional limitations were the promotion of policies that do not lend
themselves to definite and specific formulation. The courts have had to define those policies and have often drawn on natural
law and natural rights theories in doing so. The interpretation of constitutions tends to respond to changing conceptions of
political and social values. The extent to which these extraneous aids affect the judicial construction of constitutions cannot be
formulated in precise rules, but their influence cannot be ignored in describing the essentials of the process (Rottschaeffer on
Constitutional Law, 1939 ed., p. 18-19).
There are times that when even the literal expression of legislation may be inconsistent with the general objectives of policy
behind it, and on the basis of equity or spirit of the statute the courts rationalize a restricted meaning of the latter. A restricted
interpretation is usually applied where the effect of literal interpretation will make for injustice and absurdity or, in the words of
one court, the language must be so unreasonable 'as to shock general common sense'. (Vol. 3, Sutherland on Statutory
Construction, 3rd ed., 150.).
A constitution is not intended to be a limitation on the development of a country nor an obstruction to its progress and foreign
relations (Moscow Fire Ins. Co. of Moscow, Russia vs. Bank of New York and Trust Co., 294 N. Y. S.648; 56 N.E. 2d. 745, 293 N.Y.
749).
Although the meaning or principles of a constitution remain fixed and unchanged from the time of its adoption, a constitution
must be construed as if intended to stand for a great length of time, and it is progressive and not static. Accordingly, it should
not receive too narrow or literal an interpretation but rather the meaning given it should be applied in such manner as to meet
new or changed conditions as they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed., 1368).
Effect should be given to the purpose indicated by a fair interpretation of the language used and that construction which
effectuates, rather than that which destroys a plain intent or purpose of a constitutional provision, is not only favored but will be
adopted (State ex rel. Randolph Country vs. Walden, 206 S.W. 2d 979).
It is quite generally held that in arriving at the intent and purpose the construction should be broad or liberal or equitable, as the
better method of ascertaining that intent, rather than technical (Great Southern Life Ins. Co. vs. City of Austin, 243 S.W. 778).
All these authorities uphold our conviction that the framers of the Constitution had not in mind the corporations sole, nor
intended to apply them the provisions of section 1 and 5 of said Article XIII when they passed and approved the same. And if it
were so as We think it is, herein petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc., could not be deprived of
Page 95 of 108
the right to acquire by purchase or donation real properties for charitable, benevolent and educational purposes, nor of the
right to register the same in its name with the Register of Deeds of Davao, an indispensable requisite prescribed by the Land
Registration Act for lands covered by the Torrens system.
We leave as the last theme for discussion the much debated question above referred to as "the vested right saving clause"
contained in section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the personal opinion expressed on the
matter by the writer of the decision the most pointed darts of his severe criticism. We think, however, that this strong dissent
should have been spared, because as clearly indicated before, some members of this Court either did not agree with the theory
of the writer or were not ready to take a definite stand on that particular point, so that there being no majority opinion thereon
there was no need of any dissension therefrom. But as the criticism has been made the writer deems it necessary to say a few
words of explanation.
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro, is not in itself a
vested or existing property right that the Constitution protects from impairment. For a property right to be vested (or acquired)
there must be a transition from the potential or contingent to the actual, and the proprietary interest must have attached to a
thing; it must have become 'fixed and established'" (Balboa vs. Farrales, 51 Phil. 498). But the case at bar has to be considered as
an exception to the rule because among the rights granted by section 159 of the Corporation Law was the right to receive
bequests or gifts of real properties for charitable, benevolent and educational purposes. And this right to receive such bequests
or gifts (which implies donations in futuro), is not a mere potentiality that could be impaired without any specific provision in
the Constitution to that effect, especially when the impairment would disturbingly affect the propagation of the religious faith of
the immense majority of the Filipino people and the curtailment of the activities of their Church. That is why the writer gave us a
basis of his contention what Professor Aruego said in his book "The Framing of the Philippine Constitution" and the enlightening
opinion of Mr. Justice Jose P. Laurel, another Delegate to the Constitutional Convention, in his concurring opinion in the case of
Goldcreek Mining Co. vs. Eulogio Rodriguez et al., 66 Phil. 259. Anyway the majority of the Court did not deem necessary to pass
upon said "vested right saving clause" for the final determination of this case.
JUDGMENT
Wherefore, the resolution of the respondent Land Registration Commission of September 21, 1954, holding that in view of the
provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee (petitioner) is not qualified to acquire lands
in the Philippines in the absence of proof that at least 60 per centum of the capital, properties or assets of the Roman Catholic
Apostolic Administrator of Davao, Inc. is actually owned or controlled by Filipino citizens, and denying the registration of the
deed of sale in the absence of proof of compliance with such requisite, is hereby reversed. Consequently, the respondent
Register of Deeds of the City of Davao is ordered to register the deed of sale executed by Mateo L. Rodis in favor of the Roman
Catholic Apostolic Administrator of Davao, Inc., which is the subject of the present litigation. No pronouncement is made as to
costs. It is so ordered.
Bautista Angelo and Endencia, JJ., concur.
Paras, C.J., and Bengzon, J., concur in the result.
G.R. No. L-6055 June 12, 1953
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with the crime of
falsification of a public and commercial document in that, having been entrusted with the preparation and registration of the
article of incorporation of the Pacific Airways Corporation, a domestic corporation organized for the purpose of engaging in
business as a common carrier, he caused it to appear in said article of incorporation that one Arsenio Baylon, a Filipino citizen,
had subscribed to and was the owner of 60.005 per cent of the subscribed capital stock of the corporation when in reality, as the
Page 96 of 108
accused well knew, such was not the case, the truth being that the owner of the portion of the capital stock subscribed to by
Baylon and the money paid thereon were American citizen whose name did not appear in the article of incorporation, and that
the purpose for making this false statement was to circumvent the constitutional mandate that no corporation shall be
authorize to operate as a public utility in the Philippines unless 60 per cent of its capital stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed to this Court.
The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered its articles of
incorporation with the Securities and Exchanged Commission. The article were prepared and the registration was effected by
the accused, who was in fact the organizer of the corporation. The article stated that the primary purpose of the corporation
was to carry on the business of a common carrier by air, land or water; that its capital stock was P1,000,000, represented by
9,000 preferred and 100,000 common shares, each preferred share being of the par value of p100 and entitled to 1/3 vote and
each common share, of the par value of P1 and entitled to one vote; that the amount capital stock actually subscribed was
P200,000, and the names of the subscribers were Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott, James O'Bannon,
Denzel J. Cavin, and William H. Quasha, the first being a Filipino and the other five all Americans; that Baylon's subscription was
for 1,145 preferred shares, of the total value of P114,500, and for 6,500 common shares, of the total par value of P6,500, while
the aggregate subscriptions of the American subscribers were for 200 preferred shares, of the total par value of P20,000, and
59,000 common shares, of the total par value of P59,000; and that Baylon and the American subscribers had already paid 25 per
cent of their respective subscriptions. Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital stock
of the corporation, Baylon nevertheless did not have the controlling vote because of the difference in voting power between the
preferred shares and the common shares. Still, with the capital structure as it was, the article of incorporation were accepted for
registration and a certificate of incorporation was issued by the Securities and Exchange Commission.
There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the corporation. But it
is admitted that the money paid on his subscription did not belong to him but to the Americans subscribers to the corporate
stock. In explanation, the accused testified, without contradiction, that in the process of organization Baylon was made a trustee
for the American incorporators, and that the reason for making Baylon such trustee was as follows:
Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred shares with a total value of P1,135. Do
you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names are listed on page 7 of this certified copy came to my
house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one evening. There was considerable difficulty to
get them all together at one time because they were pilots. They had difficulty in deciding what their respective share holdings
would be. Onstott had invested a certain amount of money in airplane surplus property and they had obtained a considerable
amount of money on those planes and as I recall they were desirous of getting a corporation formed right away. And they
wanted to have their respective shares holdings resolved at a latter date. They stated that they could get together that they feel
that they had no time to settle their respective share holdings. We discussed the matter and finally it was decided that the best
way to handle the things was not to put the shares in the name of anyone of the interested parties and to have someone act as
trustee for their respective shares holdings. So we looked around for a trustee. And he said "There are a lot of people whom I
trust." He said, "Is there someone around whom we could get right away?" I said, "There is Arsenio. He was my boy during the
liberation and he cared for me when i was sick and i said i consider him my friend." I said. They all knew Arsenio. He is a very
kind man and that was what was done. That is how it came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the Revised Penal Code,
which read:
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. — The penalty of prision mayor and a fine
not to exceed 5,000 pesos shall be imposed upon any public officer, employee, or notary who, taking advantage of his official
position, shall falsify a document by committing any of the following acts:
xxx xxx xxx
4. Making untruthful statements in a narration of facts.
ART. 172. Falsification by private individuals and use of falsified documents. — The penalty of prision correccional in its medium
and maximum period and a fine of not more than 5,000 pesos shall be imposed upon:
xxx xxx xxx
Page 97 of 108
1. Any private individual who shall commit any of the falsifications enumerated in the next preceding article in any public or
official document or letter of exchange or any other kind of commercial document.
Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code ( new edition, pp. 407-
408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in the narration of facts must be
made with the wrongful intent of injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the same author
further maintains that even if such wrongful intent is proven, still the untruthful statement will not constitute the crime of
falsification if there is no legal obligation on the part of the narrator to disclose the truth. Wrongful intent to injure a third
person and obligation on the part of the narrator to disclose the truth are thus essential to a conviction for a crime of
falsification under the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing in the articles of
incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses to call him) of his American co-
incorporators, thus giving the impression that Baylon was the owner of the shares subscribed to by him which, as above stated,
amount to 60.005 per cent of the sub-scribed capital stock. This, in the opinion of the trial court, is a malicious perversion of the
truth made with the wrongful intent circumventing section 8, Article XIV of the Constitution, which provides that " no franchise,
certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporation or other entities organized under the law of the Philippines, sixty per centum of the capital of which
is owned by citizens of the Philippines . . . ." Plausible though it may appear at first glance, this opinion loses validity once it is
noted that it is predicated on the erroneous assumption that the constitutional provision just quoted was meant to prohibit the
mere formation of a public utility corporation without 60 per cent of its capital being owned by the Filipinos, a mistaken belief
which has induced the lower court to that the accused was under obligation to disclose the whole truth about the nationality of
the subscribed capital stock of the corporation by revealing that Baylon was a mere trustee or dummy of his American co-
incorporators, and that in not making such disclosure defendant's intention was to circumvent the Constitution to the detriment
of the public interests. Contrary to the lower court's assumption, the Constitution does not prohibit the mere formation of a
public utility corporation without the required formation of Filipino capital. What it does prohibit is the granting of a franchise or
other form of authorization for the operation of a public utility to a corporation already in existence but without the requisite
proportion of Filipino capital. This is obvious from the context, for the constitutional provision in question qualifies the terms "
franchise", "certificate", or "any other form of authorization" with the phrase "for the operation of a public utility," thereby
making it clear that the franchise meant is not the "primary franchise" that invest a body of men with corporate existence but
the "secondary franchise" or the privilege to operate as a public utility after the corporation has already come into being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then how can the
accused be charged with having wrongfully intended to circumvent that fundamental law by not revealing in the articles of
incorporation that Baylon was a mere trustee of his American co-incorporation and that for that reason the subscribed capital
stock of the corporation was wholly American? For the mere formation of the corporation such revelation was not essential, and
the Corporation Law does not require it. Defendant was, therefore, under no obligation to make it. In the absence of such
obligation and of the allege wrongful intent, defendant cannot be legally convicted of the crime with which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing in the name
of Baylon was an indispensable preparatory step to the subversion of the constitutional prohibition and the laws implementing
the policy expressed therein. This view is not correct. For a corporation to be entitled to operate a public utility it is not
necessary that it be organized with 60 per cent of its capital owned by Filipinos from the start. A corporation formed with capital
that is entirely alien may subsequently change the nationality of its capital through transfer of shares to Filipino citizens.
conversely, a corporation originally formed with Filipino capital may subsequently change the national status of said capital
through transfer of shares to foreigners. What need is there then for a corporation that intends to operate a public utility to
have, at the time of its formation, 60 per cent of its capital owned by Filipinos alone? That condition may anytime be attained
thru the necessary transfer of stocks. The moment for determining whether a corporation is entitled to operate as a public
utility is when it applies for a franchise, certificate, or any other form of authorization for that purpose. And that can be done
after the corporation has already come into being and not while it is still being formed. And at that moment, the corporation
must show that it has complied not only with the requirement of the Constitution as to the nationality of its capital, but also
with the requirements of the Civil Aviation Law if it is a common carrier by air, the Revised Administrative Code if it is a common
carrier by water, and the Public Service Law if it is a common carrier by land or other kind of public service.
Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime" under article 59 of the
Revised Penal Code. It not being possible to suppose that defendant had intended to commit a crime for the simple reason that
the alleged constitutional prohibition which he is charged for having tried to circumvent does not exist, conviction under that
article is out of the question.
Page 98 of 108
The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of the crime charged.
The majority of the court, however, are also of the opinion that, even supposing that the act imputed to the defendant
constituted falsification at the time it was perpetrated, still with the approval of the Party Amendment to the Constitution in
March, 1947, which placed Americans on the same footing as Filipino citizens with respect to the right to operate public utilities
in the Philippines, thus doing away with the prohibition in section 8, Article XIV of the Constitution in so far as American citizens
are concerned, the said act has ceased to be an offense within the meaning of the law, so that defendant can no longer be held
criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha acquitted, with costs de
oficio.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Jugo, Bautista Angelo, and Labrador, JJ., concur.
G.R. No. L-22619 December 2, 1924
NATIONAL COAL COMPANY, plaintiff-appellee,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
Attorney-General Villa-Real for appellant.

Perfecto J. Salas Rodriguez for appellee.
JOHNSON, J.:
This action was brought in the Court of First Instance of the City of Manila on the 17th day of July, 1923, for the purpose of
recovering the sum of P12,044.68, alleged to have been paid under protest by the plaintiff company to the defendant, as specific
tax on 24,089.3 tons of coal. Said company is a corporation created by Act No. 2705 of the Philippine Legislature for the purpose
of developing the coal industry in the Philippine Islands and is actually engaged in coal mining on reserved lands belonging to the
Government. It claimed exemption from taxes under the provision of sections 14 and 15 of Act No. 2719, and prayed for a
judgment ordering the defendant to refund to the plaintiff said sum of P12,044.68, with legal interest from the date of the
presentation of the complaint, and costs against the defendant.
The defendant answered denying generally and specifically all the material allegations of the complaint, except the legal
existence and personality of the plaintiff. As a special defense, the defendant alleged (a) that the sum of P12,044.68 was paid by
the plaintiff without protests, and (b) that said sum was due and owing from the plaintiff to the Government of the Philippine
Islands under the provisions of section 1496 of the Administrative Code and prayed that the complaint be dismissed, with costs
against the plaintiff.
Upon the issue thus presented, the case was brought on for trial. After a consideration of the evidence adduced by both parties,
the Honorable Pedro Conception, judge, held that the words "lands owned by any person, etc.," in section 15 of Act No. 2719
should be understood to mean "lands held in lease or usufruct," in harmony with the other provision of said Act; that the coal
lands possessed by the plaintiff, belonging to the Government, fell within the provisions of section 15 of Act No. 2719; and that a
tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom, as provided in said section, was the only tax which
should be collected from the plaintiff; and sentenced the defendant to refund to the plaintiff the sum of P11,081.11 which is the
difference between the amount collected under section 1496 of the Administrative Code and the amount which should have
been collected under the provisions of said section 15 of Act No. 2719. From that sentence the defendant appealed, and now
makes the following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal lands owned by persons and
corporations.
II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section 1496 of the Administrative
Code.
The question confronting us in this appeal is whether the plaintiff is subject to the taxes under section 15 of Act No. 2719, or to
the specific taxes under section 1496 of the Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the purpose of developing the coal
industry in the Philippine Island, in harmony with the general plan of the Government to encourage the development of the
natural resources of the country, and to provided facilities therefor. By said Act, the company was granted the general powers of
a corporation "and such other powers as may be necessary to enable it to prosecute the business of developing coal deposits in
the Philippine Island and of mining, extracting, transporting and selling the coal contained in said deposits." (Sec. 2, Act No.
Page 99 of 108
2705.) By the same law (Act No. 2705) the Government of the Philippine Islands is made the majority stockholder, evidently in
order to insure proper government supervision and control, and thus to place the Government in a position to render all
possible encouragement, assistance and help in the prosecution and furtherance of the company's business.
On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal Company, the Philippine Legislature
passed Act No. 2719 "to provide for the leasing and development of coal lands in the Philippine Islands." On October 18, 1917,
upon petition of the National Coal Company, the Governor-General, by Proclamation No. 39, withdrew "from settlement, entry,
sale or other disposition, all coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and
the Island of Polillo, Province of Tayabas." Almost immediately after the issuance of said proclamation the National Coal
Company took possession of the coal lands within the said reservation, with an area of about 400 hectares, without any further
formality, contract or lease. Of the 30,000 shares of stock issued by the company, the Government of the Philippine Islands is
the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the land from which it has mined the
coal in question and is therefore subject to the provisions of section 15 of Act No. 2719 and not to the provisions of the section
1496 of the Administrative Code. That contention of the plaintiff leads us to an examination of the evidence upon the question
of the ownership of the land from which the coal in question was mined. Was the plaintiff the owner of the land from which the
coal in question was mined? If the evidence shows the affirmative, then the judgment should be affirmed. If the evidence shows
that the land does not belong to the plaintiff, then the judgment should be reversed, unless the plaintiff's rights fall under
section 3 of said Act.
The only witness presented by the plaintiff upon the question of the ownership of the land in question was Mr. Dalmacio Costas,
who stated that he was a member of the board of directors of the plaintiff corporation; that the plaintiff corporation took
possession of the land in question by virtue of the proclamation of the Governor-General, known as Proclamation No. 39 of the
year 1917; that no document had been issued in favor of the plaintiff corporation; that said corporation had received no
permission from the Secretary of Agriculture and Natural Resources; that it took possession of said lands covering an area of
about 400 hectares, from which the coal in question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the 18th day of October, 1917,
and provided: "Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw from settlement, entry, sale, or other
disposition, all coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of
Polillo, Province of Tayabas." It will be noted that said proclamation only provided that all coal-bearing public lands within said
province and island should be withdrawn from settlement, entry, sale, or other disposition. There is nothing in said proclamation
which authorizes the plaintiff or any other person to enter upon said reversations and to mine coal, and no provision of law has
been called to our attention, by virtue of which the plaintiff was entitled to enter upon any of the lands so reserved by said
proclamation without first obtaining permission therefor.
The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does not make it a
public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the provisions of the Corporation Law,
in so far as they are not inconsistent with said Act (No. 2705). No provisions of Act No. 2705 are found to be inconsistent with
the provisions of the Corporation Law. As a private corporation, it has no greater rights, powers or privileges than any other
corporation which might be organized for the same purpose under the Corporation Law, and certainly it was not the intention of
the Legislature to give it a preference or right or privilege over other legitimate private corporations in the mining of coal. While
it is true that said proclamation No. 39 withdrew "from settlement, entry, sale, or other disposition of coal-bearing public lands
within the Province of Zamboanga . . . and the Island of Polillo," it made no provision for the occupation and operation by the
plaintiff, to the exclusion of other persons or corporations who might, under proper permission, enter upon the operate coal
mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine Island in "an Act
for the leasing and development of coal lands in the Philippine Islands" (Act No. 2719), made liberal provision. Section 1 of said
Act provides: "Coal-bearing lands of the public domain in the Philippine Island shall not be disposed of in any manner except as
provided in this Act," thereby giving a clear indication that no "coal-bearing lands of the public domain" had been disposed of by
virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof found in Act
No. 2822, which authorizes the National Coal Company to enter upon any of the reserved coal lands without first having
obtained permission from the Secretary of Agriculture and Natural Resources.lawphi1.net
The following propositions are fully sustained by the facts and the law:
Page 100 of 108

(1) The National Coal Company is an ordinary private corporation organized under Act No. 2705, and has no greater powers nor
privileges than the ordinary private corporation, except those mentioned, perhaps, in section 10 of Act No. 2719, and they do
not change the situation here.
(2) It mined on public lands between the month of July, 1920, and the months of March, 1922, 24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes under the provisions of article 1946 of
the Administrative Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of October, 1917, by authority of section 1
of Act No. 926, withdrawing from settlement, entry, sale, or other dispositon all coal-bearing public lands within the Province of
Zamboanga and the Island of Polillo, was not a reservation for the benefit of the National Coal Company, but for any person or
corporation of the Philippine Islands or of the United States.
(6) That the National Coal Company entered upon said land and mined said coal, so far as the record shows, without any lease or
other authority from either the Secretary of Agriculture and Natural Resources or any person having the power to grant a leave
or authority.
From all of the foregoing facts we find that the issue is well defined between the plaintiff and the defendant. The plaintiff
contends that it was liable only to pay the internal revenue and other fees and taxes provided for under section 15 of Act No.
2719; while the defendant contends, under the facts of record, the plaintiff is obliged to pay the internal revenue duty provided
for in section 1496 of the Administrative Code. That being the issue, an examination of the provisions of Act No. 2719 becomes
necessary.
An examination of said Act (No. 2719) discloses the following facts important for consideration here:
First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in any manner except as
provided in this Act." Second. Provisions for leasing by the Secretary of Agriculture and Natural Resources of "unreserved,
unappropriated coal-bearing public lands," and the obligation to the Government which shall be imposed by said Secretary upon
the lessee.lawphi1.net
Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any person, firm, association or
corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax upon unreserved, unappropriated
coal-bearing public lands which may be leased by the Secretary of Agriculture and Natural Resources; and, second, that said Act
(No. 2719) provides an internal revenue duty and tax imposed upon any person, firm, association or corporation, who may be
the owner of "coal-bearing lands." A reading of said Act clearly shows that the tax imposed thereby is imposed upon two classes
of persons only — lessees and owners.
The lower court had some trouble in determining what was the correct interpretation of section 15 of said Act, by reason of
what he believed to be some difference in the interpretation of the language used in Spanish and English. While there is some
ground for confusion in the use of the language in Spanish and English, we are persuaded, considering all the provisions of said
Act, that said section 15 has reference only to persons, firms, associations or corporations which had already, prior to the
existence of said Act, become the owners of coal lands. Section 15 cannot certainty refer to "holders or lessees of coal lands' for
the reason that practically all of the other provisions of said Act has reference to lessees or holders. If section 15 means that the
persons, firms, associations, or corporation mentioned therein are holders or lessees of coal lands only, it is difficult to
understand why the internal revenue duty and tax in said section was made different from the obligations mentioned in section
3 of said Act, imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor an owner of coal-bearing lands, and
is, therefore, not subject to any other provisions of Act No. 2719. But, is the plaintiff subject to the provisions of section 1496 of
the Administrative Code?
Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected, per metric ton, fifty
centavos." Said section (1496) is a part of article, 6 which provides for specific taxes. Said article provides for a specific internal
revenue tax upon all things manufactured or produced in the Philippine Islands for domestic sale or consumption, and upon
things imported from the United States or foreign countries. It having been demonstrated that the plaintiff has produced coal in
the Philippine Islands and is not a lessee or owner of the land from which the coal was produced, we are clearly of the opinion,
and so hold, that it is subject to pay the internal revenue tax under the provisions of section 1496 of the Administrative Code,
Page 101 of 108
and is not subject to the payment of the internal revenue tax under section 15 of Act No. 2719, nor to any other provisions of
said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from all responsibility under
the complaint. And, without any finding as to costs, it is so ordered.
Street, Malcolm, Avanceña, Villamor, Ostrand and Romualdez, JJ., concur.
G.R. No. L-2832 November 24, 1906
REV. JORGE BARLIN, in his capacity as apostolic administrator of this vacant bishopric and legal representative of the general
interests of the Roman Catholic Apostolic Church in the diocese of Nueva Caceres,Plaintiff-Appellee, vs. P. VICENTE RAMIREZ,
ex-rector of the Roman Catholic Apostolic Parochial Church of Lagonoy, AND THE MUNICIPALITY OF LAGONOY,Defendants-
Appellants.
Manly & Gallup for appellants.

Leoncio Imperial and Chicote, Miranda & Sierra for appellee.
WILLARD, J.:
There had been priests of the Roman Catholic Church in the pueblo of Lagonoy, in the Province of Ambos Camarines, since 1839.
On the 13th of January, 1869, the church and convent were burned. They were rebuilt between 1870 and 1873. There was
evidence that this was done by the order of the provincial governor. The labor necessary for this reconstruction was performed
by the people of the pueblo the direction of the cabeza de barangay. Under the law then in force, each man in the pueblo was
required to work for the government, without compensation, for forty days every year. The time spent in the reconstruction of
these buildings was counted as a part of the forty days. The material necessary was brought and paid for in part by the parish
priest from the funds of the church and in part was donated by certain individuals of the pueblo. After the completion of the
church it was always administered, until November 14, 1902, by a priest of a Roman Catholic Communion and all the people of
the pueblo professed that faith and belonged to that church.
The defendant, Ramirez, having been appointed by the plaintiff parish priest, took possession of the church on the 5th of July,
1901. he administered it as such under the orders of his superiors until the 14th day of November, 1902. His successor having
been then appointed, the latter made a demand on this defendant for the delivery to him of the church, convent, and cemetery,
and the sacred ornaments, books, jewels, money, and other property of the church. The defendant, by a written document of
that date, refused to make such delivery. That document is as follows:
At 7 o'clock last night I received through Father Agripino Pisino your respected order of the 12th instant, wherein I am advised of
the appointment of Father Pisino as acting parish priest of this town, and directed to turn over to him this parish and to report
to you at the vicarage. In reply thereto, I have the honor to inform you that the town of Lagonoy, in conjunction with the parish
priest thereof, has seen fit to sever connection with the Pope at Rome and his representatives in these Islands, and join the
Filipino Church, the head of which is at Manila. This resolution of the people was reduced to writing and triplicate copies made,
of which I beg to inclose a copy herewith.
For this reason I regret to inform you that I am unable to obey your said order by delivering to Father Agripino Pisino the parish
property of Lagonoy which, as I understand, is now outside of the control of the Pope and his representatives in these Islands.
May God guard you many years.
Lagonoy, November 14, 1902.

(Signed) VICENTE RAMIREZ.
RT. REV. VICAR OF THIS DISTRICT.
The document, a copy of which is referred to in this letter, is as follows:
LAGONOY, November, 9, 1902.
The municipality of this town and some of its most prominent citizens having learned through the papers from the capital of
these Islands of the constitution of the Filipino National Church, separate from the control of the Pope at Rome by reason of the
fact that the latter has refused to either recognize or grant the rights to the Filipino clergy which have many times been urged,
and it appearing to us that the reasons advanced why such offices should be given to the Filipino clergy are evidently well-
founded, we have deemed it advisable to consult with the parish priest of this town as to whether it would be advantageous to
join the said Filipino Church and to separate from the control of the Pope as long as he continues to ignore the rights of the said
Page 102 of 108
Filipino clergy, under the conditions that there will be no change in the articles of faith, and that the sacraments and other
dogmas will be recognized and particularly that of the immaculate conception of the mother of our Lord. But the moment the
Pope at Rome recognizes and grants the rights heretofore denied to the Filipino clergy we will return to his control. In view of
this, and subject to this condition, the reverend parish priest, together with the people of the town, unanimously join in
declaring that from this date they separate themselves from the obedience and control of the Pope and join the Filipino National
Church. This assembly and the reverend parish priest have accordingly adopted this resolution written in triplicate, and resolved
to send a copy thereof to the civil government of this province for its information, and do sign the same below. Vicente Ramirez,
Francisco Israel, Ambrosio Bocon, Florentino Relloso, Macario P. Ledesma, Cecilio Obias, Balbino Imperial, Juan Preseñada,
Fernando Deudor, Mauricio Torres, Adriano Sabater.
At the meeting at which the resolution spoken of in this document was adopted, there were present about 100 persons of the
pueblo. There is testimony in the case that the population of the pueblo was at that time 9,000 and that all but 20 of the
inhabitants were satisfied with the action there taken. Although it is of no importance in the case, we are inclined to think that
the testimony to this effect merely means that about 100 of the principal men of the town were in favor of the resolution and
about 20 of such principal men were opposed to it. After the 14th of November, the defendant, Ramirez, continued in the
possession of the church and other property and administered the same under the directions of his superior, the Obispo
Maximo of the Independent Filipino Church. The rites and ceremonies and the manner of worship were the same after the 14th
day of November as they were before, but the relations between the Roman Catholic Church and the defendant had been
entirely severed.
In January, 1904, the plaintiff brought this action against the defendant, Ramirez, alleging in his amended complaint that the
Roman Catholic Church was the owner of the church building, the convent, cemetery, the books, money, and other property
belonging thereto, and asking that it be restored to the possession thereof and that the defendant render an account of the
property which he had received and which was retained by him, and for other relief.
The answer of the defendant, Ramirez, in addition to a general denial of the allegation of the complaint, admitted that he was in
the possession and administration of the property described therein with the authority of the municipality of Lagonoy and of the
inhabitants of the same, who were the lawful owners of the said property. After this answer had been presented, and on the 1st
day of November, 1904, the municipality of Lagonoy filed a petition asking that it be allowed to intervene in the case and join
with the defendant, Ramirez, as a defendant therein. This petition been granted, the municipality of the 1st day of December
filed an answer in which it alleged that the defendant, Ramirez, was in possession of the property described in the complaint
under the authority and with the consent of the municipality of Lagonoy and that such municipality was the owner thereof.
Plaintiff answered this complaint, or answer in intervention, and the case was tried and final judgment in entered therein in
favor of the plaintiff and against the defendants. The defendants then brought the case here by a bill of exceptions.
That the person in the actual possession of the church and other property described in the complaint is the defendant, Ramirez,
is plainly established by the evidence. It does not appear that the municipality, as a corporate body, ever took any action in
reference to this matter until they presented their petition for intervention in this case. In fact, the witnesses for the defense,
when they speak of the ownership of the buildings, say that they are owned by the people of the pueblo, and one witness, the
president, said that the municipality as a corporation had nothing whatever to do with the matter. That the resolution adopted
on the 14th of November, and which has been quoted above, was not the action of the municipality, as such, is apparent from
an inspection thereof.
The witnesses for the defenses speak of a delivery of the church by the people of the pueblo to the defendant, Ramirez, but
there is no evidence in the case of any such delivery. Their testimony in regard to the delivery always refers to the action taken
on the 14th of November, a record of which appears that in the document above quoted. It is apparent that the action taken
consisted simply in separating themselves from the Roman Catholic Church, and nothing is said therein in reference to the
material property then in possession of the defendant, Ramirez.
There are several grounds upon which this judgment must be affirmed.
(1) As to the defendant, Ramirez, it appears that he took possession of the property as the servant or agent of the plaintiff. The
only right which he had to the possession at the time he took it, was the right which was given to him by the plaintiff, and he
took possession under the agreement to return that possession whenever it should be demanded of him. Under such
circumstances he will not be allowed, when the return of such possession is demanded by him the plaintiff, to say that the
plaintiff is not the owner of the property and is not entitled to have it delivered back to him. The principle of law that a tenant
can not deny his landlord's title, which is found in section 333, paragraph 2, of the Code of Civil Procedure, and also in the
Spanish law, is applicable to a case of this kind. An answer of the defendant, Ramirez, in which he alleged that he himself was
the owner of the property at the time he received it from the plaintiff, or in which he alleged that the pueblo was the owner of
the property at that time, would constitute no defense. There is no claim made by him that since the delivery of the possession
Page 103 of 108
of the property to him by the plaintiff he has acquired the title thereto by other means, nor does he is own behalf make any
claim whatever either to the property or to the possession thereof.
(2) The municipality of Lagonoy, in its answer, claims as such, to be the owner of the property. As we have said before, the
evidence shows that it never was in the physical possession of the property. But waiving this point and assuming that the
possession of Ramirez, which he alleges in his answer is the possession of the municipality, gives the municipality the rights of a
possessor, the question still arises, Who has the better right to the present possession of the property? The plaintiff, in 1902,
had been in the lawful possession thereof for more than thirty years and during all that time its possession had never been
questioned or disturbed. That possession has been taken away from it and it has the right now to recover the possession from
the persons who have so deprived it of such possession, unless the latter can show that they have a better right thereto. This
was the preposition which was discussed and settled in the case of Bishop of Cebu vs. Mangaron, 1 No. 1748, decided June 1,
1906. That decision holds that as against one who has been in possession for the length of the plaintiff has been in possession,
and who had been deprived of his possession, and who can not produce any written evidence of title, the mere fact that the
defendant is in possession does not entitle the defendant to retain that possession. In order that he may continue in possession,
he must show a better right thereto.
The evidence in this case does not show that the municipality has, as such, any right of whatever in the property in question. It
has produced no evidence of ownership. Its claim of ownership is rested in its brief in this court upon the following propositions:
That the property in question belonged prior to the treaty of Paris to the Spanish Government; that by the treaty of Paris the
ownership thereof passed to the Government of the United States; that by section 12 of the act of Congress of July 1, 1902, such
property was transferred to the Government of the Philippine Islands, and that by the circular of that Government, dated
November 11, 1902, the ownership and the right to the possession of this property passed to the municipality of Lagonoy. If, for
the purposes of the argument, we should admit that the other propositions are true, there is no evidence whatever to support
the last proposition, namely that the Government of the Philippine Islands has transferred the ownership of this church to the
municipality of Lagonoy. We have found no circular of the date above referred to. The one of February 10, 1903, which is
probably the one intended, contains nothing that indicates any such transfer. As to the municipality of Lagonoy, therefore, it is
very clear that it has neither title, ownership, nor right of possession.
(3) We have said that it would have no such title or ownership ever admitting that the Spanish Government was the owner of
the property and it has passed by the treaty of Paris to the American Government. But this assumption is not true. As a matter
of law, the Spanish Government at the time the treaty of peace was signed, was not the owner of this property, nor of any other
property like it, situated in the Philippine Islands.
It does not admit of doubt that from the earliest times the parish churches in the Philippine Islands were built by the Spanish
Government. Law 2, title 2, book 1, of the Compilation of the Laws of the Indies is, in part, as follows:
Having erected all the churches, cathedrals, and parish houses of the Spaniards and natives of our Indian possessions from their
discovery at the cost and expense of our royal treasury, and applied for their service and maintenance the part of the tithes
belonging to us by apostolic concession according to the division we have made.
Law 3 of the same title to the construction of parochial churches such as the one in question. That law is as follows:
The parish churches which was erected in Spanish towns shall be of durable and decent construction. Their costs shall be divided
and paid in three parts: One by our royal treasury, another by the residents and Indian encomenderos of the place where such
churches are constructed, and the other part by the Indians who abide there; and if within the limits of a city, village, or place
there should be any Indians incorporated to our royal crown, we command that for our part there be contributed the same
amount as the residents and encomenderos, respectively, contribute; and the residents who have no Indians shall also
contribute for this purpose in accordance with their stations and wealth, and that which is so given shall be deducted from the
share of the Indians should pay.
Law 11 of the same title is as follows:
We command that the part of the tithes which belongs to the fund for the erection of churches shall be given to their
superintendents to be expended for those things necessary for these churches with the advice of the prelates and officials, and
by their warrants, and not otherwise. And we request and charge the archbishops and bishops not to interfere in the collection
and disbursement thereof, but to guard these structures.
Law 4, title 3, book 6, is as follows:
In all settlements, even though the Indians are few, there shall be erected a church where mass can be decently held, and it shall
have a donor with a key, notwithstanding the fact that it be the subject to or separate from a parish.
Page 104 of 108

Not only were all the parish churches in the Philippines erected by the King and under his direction, but it was made unlawful to
erect a church without the license of the King. This provision is contained in Law 2, title 6, book 1, which is as follows:
Whereas it is our intention to erect, institute, found, and maintain all cathedrals, parish churches, monasteries, votive hospitals,
churches, and religious and pious establishments where they are necessary for the teaching, propagation, and preaching of the
doctrine of our sacred Roman Catholic faith, and to aid to this effect with out royal treasury whenever possible, and to receive
information of such places where they should be founded and are necessary, and the ecclesiastical patronage of all our Indies
belonging to us:
We command that there shall not be erected, instituted, founded, or maintained any cathedral, parish church, monastery,
hospital, or votive churches, or other pious or religious establishment without our express permission as is provided in Law 1,
title 2, and Law 1, title 3, of this book, notwithstanding any permission heretofore given by our viceroy or other ministers, which
in this respect we revoke and make null, void, and of no effect.
By agreement at an early date between the Pope and the Crown of Spain, all tithes in the Indies were given by the former to the
latter and the disposition made the King of the fund thus created is indicated by Law 1, title 16, book 1, which is as follows:
Whereas the ecclesiastical tithes from the Indies belong to us by the apostolic concessions of the supreme pontiffs, we
command the officials of our royal treasury of those provinces to collect and cause to be collected all tithes due and to become
due from the crops and flocks of the residents in the manner in which it has been the custom to pay the same, and from these
tithes the churches shall be provided with competent persons of good character to serve them and with all ornaments and
things which may be necessary for divine worship, to the end that these churches may be well served and equipped, and we
shall be informed of God, our Lord; this order shall be observed where the contrary has not already been directed by us in
connection with the erection of churches.
That the condition of things existing by virtue of the Laws of the Indies was continued to the present time is indicated by the
royal order of the 31st of January, 1856, and by the royal order of the 13th of August, 1876, both relating to the construction
and repair of churches, there being authority for saying that the latter order was in force in the Philippines.
This church, and other churches similarly situated in the Philippines, having been erected by the Spanish Government, and under
its direction, the next question to be considered is, To whom did these churches belong?
Title 28 of the third partida is devoted to the ownership of things and, after discussing what can be called public property and
what can be called private property, speaks, in Law 12, of those things which are sacred, religious, or holy. That law is as follows:
Law XII. - HOW SACRED OR RELIGIOUS THINGS CAN NOT BE OWNED BY ANY PERSON.
No sacred, religious, or holy thing, devoted to the service of God, can be the subject of ownership by any man, nor can it be
considered as included in his property holdings. Although the priests may have such things in their possession, yet they are not
the owners thereof. They, hold them thus as guardians or servants, or because they have the care of the same and serve God in
or without them. Hence they were allowed to take from the revenues of the church and lands what was reasonably necessary
for their support; the balance, belonging to God, was to be devoted to pious purposes, such as the feeding and clothing of the
poor, the support of orphans, the marrying of poor virgins to prevent their becoming evil women because of their poverty, and
for the redemption of captives and the repairing of the churches, and the buying of chalices, clothing, books, and others things
which they might be in need of, and other similar charitable purposes.
And then taking up for consideration the first of the classes in to which this law has divided these things, it defines in Law 13,
title 28, third partida, consecrated things. That law is as follows:
Sacred things, we say, are those which are consecrated by the bishops, such as churches, the altars therein, crosses, chalices,
censers, vestments, books, and all other things which are in tended for the service of the church, and the title to these things
can not be alienated except in certain specific cases as we have already shown in the first partida of this book by the laws
dealing with this subject. We say further that even where a consecrated church is razed, the ground upon which it formerly
stood shall always be consecrated ground. But if any consecrated church should fall into the hands of the enemies of our faith it
shall there and then cease to be sacred as long as the enemy has it under control, although once recovered by the Christians, it
will again become sacred, reverting to its condition before the enemy seized it and shall have all the right and privileges formerly
belonging to it.
That the principles of the partida in reference to churches still exist is indicated by Sanchez Roman, whose work on the Civil Law
contains the following statement:
Page 105 of 108

First Group. Spiritual and corporeal or ecclesiastical. A. Spiritual. - From early times distinction has been made by authors and by
law between things governed by divine law, called divine, and those governed by human law, called human, and although the
former can not be the subject of civil juridical relations, their nature and species should be ascertained either to identify them
and exclude them from such relations or because they furnish a complete explanation of the foregoing tabulated statement, or
finally because the laws of the partida deal with them.
Divine things are those which are either directly or indirectly established by God for his service and sanctification of men and
which are governed by divine or canonical laws. This makes it necessary to divide them into spiritual things, which are those
which have a direct influence on the religious redemption of man such as the sacrament, prayers, fasts, indulgences, etc., and
corporeal or ecclesiastical, which are those means more or less direct for the proper religious salvation of man.
7. First Group. Divine things. B. Corporeal or ecclesiastical things (sacred, religious, holy, and temporal belonging to the church). -
Corporeal or ecclesiastical things are so divided.
( a) Sacred things are those devoted to God, religion, and worship in general, such as temples, altars, ornaments, etc. These
things can not be alienated except for some pious purpose and in such cases as are provided for in the laws, according to which
their control pertains to the ecclesiastical authorities, and in so far as their use is concerned, to the believers and the clergy. (2
Derecho Civil Español, Sanchez Roman, p. 480; 8 Manresa, Commentaries on the Spanish Civil Code, p. 636; 3 Alcubilla,
Diccionario de la Administracion Española, p. 486.)
The partidas defined minutely what things belonged to the public in general and what belonged to private persons. In the first
group churches are not named. The present Civil Code declares in article 338 that property is of public or private ownership.
Article 339, which defines public property, is as follows:
Property of public ownership is -
1. That destined to the public use, such as roads, canals, rivers, torrents, ports, and bridges constructed by the State, and banks,
shores, roadsteads, and that of similar character.
2. That belonging exclusively to the state without being for public use and which is destined to some public service, or to the
development of the national wealth, such as walls, fortresses, and other works for the defense of the territory, and mines, until
their concession has been granted.
The code also defines the property of provinces and of pueblos, and in defining what property is of public use, article 344
declares as follows:
Property for public use in provinces and in towns comprises the provincial and town roads, the squares, streets, fountains, and
public waters, the promenades, and public works of general service supported by the said towns or provinces.
All other property possessed by either is patrimonial, and shall be governed by the provisions of this code, unless otherwise
prescribe in special laws.
It will be noticed that in either one of these articles is any mention made of churches. When the Civil Code undertook to define
those things in a pueblo which were for the common use of the inhabitants of the pueblo, or which belonged to the State, while
it mentioned a great many other things, it did not mention churches.
It has been said that article 25 of the Regulations for the Execution of the Mortgage Law indicates that churches belong to the
State and are public property. That article is as follows:
There shall be excepted from the record required by article 2 of the law:
First. Property which belongs exclusively to the eminent domain of the State, and which is for the use of all, such as the shores
of the sea, islands, rivers and their borders, wagon roads, and the roads of all kinds, with the exception of railroads; streets,
parks, public promenades, and commons of towns, provided they are not lands of common profit to the inhabitants; walls of
cities and parks, ports, and roadsteads, and any other analogous property during the time they are in common and general use,
always reserving the servitudes established by law on the shores of the sea and borders of navigable rivers.
Second. Public temples dedicated to the Catholic faith.
A reading of this article shows that far from proving that churches belong to the State and to the eminent domain thereof, it
proves the contrary, for, if they had belonged to the State, they would have been included in the first paragraph instead of being
placed in a paragraph by themselves.
Page 106 of 108

The truth is that, from the earliest times down to the cession of the Philippines to the United States, churches and other
consecrated objects were considered outside of the commerce of man. They were not public property, nor could they be
subjects of private property in the sense that any private person could the owner thereof. They constituted a kind of property
distinctive characteristic of which was that it was devoted to the worship of God.
But, being material things was necessary that some one should have the care and custody of them and the administration
thereof, and the question occurs, To whom, under the Spanish law, was intrusted that possession and administration? For the
purposes of the Spanish law there was only one religion. That was the religion professed by the Roman Catholic Church. It was
for the purposes of that religion and for the observance of its rites that this church and all other churches in the Philippines were
erected. The possession of the churches, their care and custody, and the maintenance of religious worship therein were
necessarily, therefore, intrusted to that body. It was, by virtue of the laws of Spain, the only body which could under any
circumstances have possession of, or any control over, any church dedicated to the worship of God. By virtue of those laws this
possession and right of control were necessarily exclusive. It is not necessary or important to give any name to this right of
possession and control exercised by the Roman Catholic Church in the church buildings of the Philippines prior to 1898. It is not
necessary to show that the church as a juridical person was the owner of the buildings. It is sufficient to say that this right to the
exclusive possession and control of the same, for the purposes of its creation, existed.
The right of patronage, existing in the King of Spain with reference to the churches in the Philippines, did not give him any right
to interfere with the material possession of these buildings.
Title 6 of book 1 of the Compilation of the laws of the Indies treats Del Patronazgo Real de las Indias. There is nothing in any one
of the fifty-one laws which compose this title which in any way indicates that the King of Spain was the owner of the churches in
the Indies because he had constructed them. These laws relate to the right of presentation to ecclesiastical charges and offices.
For example, Law 49 of the title commences as follows:
Because the patronage and right of presentation of all archbishops, bishops, dignitaries, prevents, curates, and doctrines and all
other beneficiaries and ecclesiastical offices whatsoever belong to us, no other person can obtain or possess the same without
our presentation as provided in Law 1 and other laws of this title.
Title 15 of the first partida treats of the right of patronage vesting in private persons, but there is nothing in any one of its fifteen
laws which in any way indicates that the private patron is the owner of the church.
When it is said that this church never belonged to the Crown of Spain, it is not intended to say that the Government and had no
power over it. It may be that by virtue of that power of eminent domain which is necessarily resides in every government, it
might have appropriated this church and other churches, and private property of individuals. But nothing of this kind was ever
attempted in the Philippines.
It, therefore, follows that in 1898, and prior to the treaty of Paris, the Roman Catholic Church had by law the exclusive right to
the possession of this church and it had the legal right to administer the same for the purposes for which the building was
consecrated. It was then in the full and peaceful possession of the church with the rights aforesaid. That these rights were fully
protected by the treaty of Paris is very clear. That treaty, in article 8, provides, among other things, as follows:
And it is hereby declared that the relinquishment or cession, as the case may be, to which the preceding paragraph refers, can
not in any respect impair the property or rights which by law belong to the peaceful possession of property of all kinds, or
provinces, municipalities, public or private establishments, ecclesiastical or civic bodies, or any other associations having legal
capacity to acquire and possess property in the aforesaid territories renounced or ceded, or of private individuals, or whatsoever
nationality such individuals may be.
It is not necessary, however, to invoke the provisions of that treaty. Neither the Government of the United States, nor the
Government of these Islands, has ever attempted in any way to interfere with the rights which the Roman Catholic Church had
in this building when Spanish sovereignty ceased in the Philippines. Any interference that has resulted has been caused by
private individuals, acting without any authority from the Government.
No point is made in the brief of the appellant that any distinction should be made between the church and the convent. The
convent undoubtedly was annexed to the church and, as to it, the provisions of Law 19, title 2, book 1, of the Compilation of the
Laws of the Indies would apply. That law is as follows:
We command that the Indians of each town or barrio shall construct such houses as may be deemed sufficient in which the
priests of such towns or barrios may live comfortably adjoining the parish church of the place where that may be built for the
benefit of the priests in charge of such churches and engaged in the education and conversion of their Indian parishioners, and
they shall not be alienated or devoted to any other purpose.
Page 107 of 108

The evidence in this case makes no showing in regard to the cemetery. It is always mentioned in connection with the church and
convent and no point is made by the possession of the church and convent, he is not also entitled to recover possession of the
cemetery. So, without discussing the question as to whether the rules applicable to churches are all respects applicable to
cemeteries, we hold for the purpose of this case that the plaintiff has the same right to the cemetery that he has to the church.
(4) It is suggested by the appellant that the Roman Catholic Church has no legal personality in the Philippine Islands. This
suggestion, made with reference to an institution which antedates by almost a thousand years any other personality in Europe,
and which existed "when Grecian eloquence still flourished in Antioch, and when idols were still worshiped in the temple of
Mecca," does not require serious consideration. In the preamble to the budget relating to ecclesiastical obligations, presented
by Montero Rios to the Cortes on the 1st of October 1871, speaking of the Roman Catholic Church, he says:
Persecuted as an unlawful association since the early days of its existence up to the time of Galieno, who was the first of the
Roman emperors to admit it among the juridicial entities protected by the laws of the Empire, it existed until then by the mercy
and will of the faithful and depended for such existence upon pious gifts and offerings. Since the latter half of the third century,
and more particularly since the year 313, when Constantine, by the edict of Milan, inaugurated an era of protection for the
church, the latter gradually entered upon the exercise of such rights as were required for the acquisition, preservation, and
transmission of property the same as any other juridical entity under the laws of the Empire. (3 Dictionary of Spanish
Administration, Alcubilla, p. 211. See also the royal order of the 4th of December, 1890, 3 Alcubilla, 189.)
The judgment of the court below is affirmed, with the costs of this instance against the appellant. After the expiration of twenty
days from the date hereof let judgment be entered in accordance herewith, and ten days thereafter the record be remanded to
the court below for execution. So ordered. Arellano, C.J., Torres, Mapa and Tracey, JJ., concur.
Johnson, J., reserves his vote.
Page 108 of 108

Case 1 Corporation Law Introduction and General Full Text

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ASTIBE, MARIA JENNIFER C.

CORPORATION LAW- INTRODUCTION AND GENERAL

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

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

[G.R. No. 125469. October 27, 1997]

This Order shall take effect immediately.

(2) The issuer or registrant - -

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

(iv) had been engaged or is engaged or is about to engaged in fraudulent transactions;

(v) is in any was dishonest of is not of good repute; or

[G.R. No. 142936. April 17, 2002]

a) Construction of one (1) power house building;

a) Supply of electrical devices;

b) Extra mechanical works;

c) Extra fabrication works;

d) Supply of materials and consumable items;

e) Electrical shop repair;

) Supply of parts and related works for turbine generator;

g) Supply of electrical equipment for machinery;

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

2. The sum of P102,724.76 as attorneys fees; and,

Manila, Philippines, September 4, 1986.

'(SGD) ERNESTO S. TENGCO

The Petition is meritorious.

G.R. No. L-48930 February 23, 1944

ANTONIO VAZQUEZ, petitioner,

G.R. No. L-48931 February 23, 1944

FRANCISCO DE BORJA, petitioner,

Yulo, C.J., Moran, Horrilleno and Bocobo, JJ., concur.

WENSHA SPA CENTER, INC. and/or XU ZHI G.R. No. 185122

Hence, the fallo of the CA decision reads:

V. GROUNDS FOR THE ALLOWANCE OF THE PETITION

THE COURTS RULING:

TO ALL EMPLOYEES OF WENSHA SPA CENTER

ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY OF THE COMPANY.

(SGD.) THE MANAGEMENT [Italics were in red letters.][29]

[G.R. No. 155472. July 8, 2004]

Alberto C. Nograles President/Director

Sec. 26 of the Corporation Code provides, thus:

G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner,

GUTIERREZ, JR., J.:

xxx xxx xxx

We first resolve G.R. No. 84197.

Petitioner Pioneer Insurance and Surety Corporation avers that:

The petitioner questions the following findings of the appellate court:

xxx xxx xxx

Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

The following is averred under oath by Pioneer in the original complaint:

We find no cogent reason to reverse or modify these findings.

We now discuss the merits of G.R. No. 84157.

Petitioner Jacob S. Lim poses the following issues:

We first state the principles.

Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.

Feliciano, J., took no part.

[G.R. No. 136448. November 3, 1999]

Hence, petitioner brought this recourse before this Court. [14]

The Petition is devoid of merit.

Third Issue: Validity of Attachment

G.R. No. 15574 September 17, 1919

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

Ross and Lawrence for petitioner.