THIRD DIVISION

BERNADETH LONDONIO AND JOAN

CORCORO,
Petitioners,

- versus -

G.R. No. 191459

Present:
CARPIO MORALES,
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.
Promulgated:
January 17, 2011

BIO RESEARCH, INC. AND WILSON Y.

ANG,
Respondents.
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
CARPIO MORALES, J.:
Petitioners Bernadeth E. Londonio (Bernadeth) and Joan T. Corcoro (Joan) were hired by
respondent Bio Research Inc. (Bio Research) as graphic/visual artists on February 12 and October
19, 2004, respectively.
In a Memorandum dated April 30, 2005 which petitioners received on May 7, 2005, [1] Bio
Research informed its employees including petitioners that pursuant to its plan to reduce the
workforce in order to prevent losses, it would be severing their employment with the
company. On May 9, 2005, Bio Research filed an Establishment Termination Report[2] with the
Department of Labor and Employment (DOLE) stating that it was retrenching 18 of its employees
including petitioners due to redundancy and to prevent losses.
Bernadeth and Joan were in fact retrenched on May 26 and May 18, 2005, respectively.
Joan accepted her retrenchment pay in the sum of P9,990.14 and executed a Quitclaim and
Waiver[3] reading:
FOR AND IN CONSIDERATION OF THE SUM OF NINE THOUSAND NINE
HUNDRED NINETY PESOS & 14/100 (P9,990.14), as financial assistance, receipt
whereof in settlement of my claims, I x x x do hereby release/discharge xxx with
principal office at x x x and/or its officers, from any or all claims/liabilities by way of
unpaid wages, overtime pay, separation pay, retirement benefits, 13th month, or

otherwise as may be due me incident to my past employment with the said x x x. I

hereby state further that I have no more claim or cause of action of whatsoever nature
whether past, present or contingent, including my alleged right for continued
employment with xxx, and/or any of its officers.
This QUITCLAIM AND WAIVER may be used to secure dismissal of any complaint
or action already filed or may be subsequently filed either by myself, my heirs and
successors in interests.
I have executed this QUITCLAIM AND WAIVER voluntarily and of my own freewill
and I understand the legal and factual consequences.

Bernadeth refused to accept hers.

Petitioners later filed a complaint for illegal dismissal, moral and exemplary damages and
attorneys fees against respondent Bio Research and its co-respondent President/CEO Wilson Y.
Ang (Ang). Petitioners claimed that their dismissal was done in bad faith and tainted with malice,
being retaliatory in nature, following the filing by Bernadeth of a complaint against Jose Ang, Jr.
(Jose), one of Bio Researchs managers, for a sexual harassment incident that occurred in his office
on February 19, 2005.
In support of their claim that their dismissal was retaliatory in nature, petitioners alleged
that soon after the filing by Bernadeth of the sexual harassment complaint,[4]several members of
the management approached Joan, to whom Bernadeth had poured her heart out after the incident,
urging her to convince her friend Bernadeth to drop the complaint, to which she (Joan) paid no
heed as she expressed support for Bernadeths cause.
Petitioners added that an administrative investigation[5] of the sexual harassment complaint
was in fact conducted by Bio Research but before it could be resolved, Jose resigned on April 15,
2005.[6]
To refute Bio Researchs claim that it had been incurring business losses, Joan cited the
recommendation for her regularization on April 12, 2005, 18 days before she received a copy of
the Memorandum of April 30, 2005.
Bio Research, disclaiming that the sexual harassment case had anything to do with its
decision to terminate the services of petitioners, maintained that financial reverses prompted it to
take such drastic action. It went on to stress that as Joan had already received her separation pay
and had in fact signed a waiver and quitclaim in its favor, she is estopped from challenging the
validity of her dismissal.

By Decision of March 31, 2006,[7] the Labor Arbiter (LA) ruled in favor of petitioners, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is entered finding that
complainants were illegally dismissed by respondents in bad faith, ORDERING
respondents BIO RESEARCH CORP. and/or WILSON ANG (President/Manager), to
reinstate complainants to their former positions, without loss of seniority rights and
benefits, and pay them full backwages from date of illegal dismissal/illegal
retrenchments of complainants, Bernadette Londonio on 05/26/2005, Joan Corcoro is
05/18/2005, until actually reinstated, and to pay them moral and exemplary damages
in the combined amount of P125,000.00 each, plus to pay them 10% of the total award
as attorneys fees. Complainants full backwages, as of date of this decision is shown
hereunder:
Bernadette Londonio
1) Basic

P95,000.00

2) 13th month pay

3) 5 days SILP

P7,307.69
P1,314.16

4) COLA

P15,208.33

Total FB

P118,830.18

(05/26/2005-03/31/2006 10
months x P9,500)
(1/12 P95,000.00)
(P9,500.00/30=P316.66 x 5 x
.83 year)
(P50.00 X 365/12 P1,520.00 X
10months)

Joan Corcoro
1) Basic

P93,600.00

2) 13th month pay

3) 5 days SILP

P7,800.00
P1,290.00

4) COLA

P15,816.66

Total FB

P118,506.66

(05/18/2005 03/31/2006 10.4

months x P9,000)
(1/12 P93,600.00)
(P9,000.00/30 = P300.00 X 5
X .86 YEAR)
(P50.00 X 365/12+p1,520.00
X 10.4 Months)

In finding against Bio Research, the LA held that it failed to prove financial losses to justify its
call for the retrenchment of petitioners, and to use fair and reasonable criteria to ascertain who to
dismiss or retain; and that Bio Research failed to comply with the requirements of Article 283 of
the Labor Code that notice should be given to the DOLE and employees concerned at least a
month before the intended retrenchment.
Finally, the LA held that since Joans receipt of her salary for the period April 11, 2005
April 18, 2005, the amount which was lumped with her retrenchment pay, was conditioned on
her signing the quitclaim, the execution thereof was done through force, hence, not valid.

On appeal by respondents, the National Labor Relations Commission (NLRC), by

Resolution of February 18, 2008,[8] affirmed the LAs decision. And it denied respondents
reconsideration of its decision by Resolution of May 30, 2008.
The Court of Appeals to which respondents assailed the NLRC resolutions by
certiorari, sustained the ratio decidendi behind the NLRC decision in favor of petitioners, by
Decision of May 27, 2009.[9] Specifically with respect to Joan, however, it pronounced that she
could no longer question the legality of her dismissal in light of her execution of the quitclaim
and waiver.
Further, the appellate court departed from the NLRC ruling holding respondent Ang
solidarily liable with Bio Research for the money claims of petitioners, the latter having failed to
show that Ang was impelled by malice and bad faith in dismissing them. Thus the appellate court
held:
Settled is the rule in this jurisdiction that a corporation is invested by law with
a legal personality separate and distinct from those acting for and in behalf and, in
general, from the people comprising it. Thus, obligations incurred by corporate officers
acting as corporate agents are not theirs but the direct accountabilities of the
corporation they represent. True, solidary liabilities may at times be incurred by
corporate officers, but only when exceptional circumstances so warrant. For instance,
in labor cases, corporate directors and officers may be held solidarily liable with the
corporation for the termination of employment if done with malice or in bad faith.[10]

Finally, the appellate court deleted the award of moral and exemplary damages. [11]
The appellate court thus disposed:
WHEREFORE, the instant petition for certiorari is PARTIALLY GRANTED.
The assailed Resolutions of the public respondent National Labor Relations
Commission, in NLRC NCR-06-05472(05) CA No. 050702-06, are AFFIRMED with
the following MODIFICATIONS: (1) petitioner Wilson Y. Ang is ABSOLVED from
any liability adjudged against co-petitioner Bio Research, Inc.; (2) the awards of moral
and exemplary damages in favor of the private respondents Bernadeth E. Londonio
and Joan Corcoro are DELETED; and (3) the complaint for illegal dismissal insofar as
private respondent Joan Corcoro is concerned is DISMISSED.
SO ORDERED.[12] (underscoring supplied)

Petitioners Motion for Reconsideration of the appellate courts decision having been
denied,[13] they filed the present petition for review on certiorari, contending that

. . . petitioner [Joan] is not barred to question the validity of her dismissal

notwithstanding the execution of a waiver and quitclaim;
. . . they are entitled to the award of damages; and
. . . Wilson Y. Ang is solidarily liable with Bio Research.

Absent any showing that the appellate court ignored, misconstrued and misapplied facts and
circumstances of substance, its affirmance of the NLRC decision holding that petitioners were
illegally dismissed stands. It is settled that where the Labor Arbiter, the NLRC and the Court of
Appeals all concur in their factual findings and it does not appear that they acted with grave abuse
of discretion or otherwise acted without jurisdiction or in excess of the same, this Court is bound
by the said findings.[14] The Labor Arbiter and the NLRC, being the most equipped and having
acquired expertise in the specific matters entrusted to their jurisdiction, their findings of fact are
accorded not only respect but even finality if they are supported by substantial evidence, or that
amount of relevant evidence which a reasonable mind might accept as adequate to justify a
conclusion.[15]
Verily, in determining that petitioners were illegally retrenched, the appellate court pointed
out that not only did Bio Research fail to submit in evidence its audited financial statements to
show its financial condition prior to and at the time it enforced its retrenchment program; it also
failed to show that it adopted fair and reasonable standards in ascertaining who would be retained
or dismissed among it employees.[16]
It is, however, with respect to the appellate courts ruling that Joan is, on account of her execution
of the waiver and quitclaim, estopped from questioning her dismissal that this Court takes
exception.
An employees execution of a final settlement and receipt of amounts agreed upon do not
foreclose his right to pursue a claim for illegal dismissal. [17] For, as reflected above, Joan was
illegally retrenched. She is thus entitled to reinstatement without loss of seniority rights and
privileges, as well as to payment of full backwages from the time of her separation until actual
reinstatement, less the amount of P9,990.14 which she received as retrenchment pay.
Respecting the appellate courts freeing Ang from liability, the same is in order. Corporate
officers, absent any evidence that they have exceeded their authority, are not personally liable for
their official acts. For a corporation has, by legal fiction a personality separate and distinct from
its officers, stockholders and members. In cases of illegal dismissal, this fictional veil may be

pierced and its directors and officers held solidarily liable with it, where the dismissals of its
employees are done with malice or in bad faith, which was not proven to be the case here. [18]
As for the deletion by the appellate court of the award of moral and exemplary damages,
the same is in order too, petitioners having failed to substantiate their claim that their dismissal
was made in bad faith.
WHEREFORE, the challenged Decision and Resolution of the Court of Appeals
are AFFIRMED with the MODIFICATION in that petitioner Joan Corcoro is ordered reinstated
to her former position, without loss of seniority rights and with full backwages from the time of
the termination of her employment until reinstated less the amount of P9,990.14, or if
reinstatement is not possible, the payment of separation pay equivalent to one half month salary
for every year of service.
The Decision is, in all other respects, including the reinstatement of Bernadeth
Londonio, AFFIRMED.
SO ORDERED.

FIRST DIVISION
BENITO ARATEA and PONCIANA
CANONIGO,
Petitioners,

- versus -

G.R. No. 170284

Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

ESMERALDO P. SUICO and COURT Promulgated:

OF APPEALS, Cebu City,
Respondents.
March 16, 2007
x----------------------------------------------------x

DECISION
GARCIA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks the reversal and
setting aside of the decision[1] dated 5 May 2005 of the Court of Appeals (CA)-Cebu City, as
reiterated in its resolution[2] of 23 September 2005, in CA-G.R. CV No. 60174 which affirmed an
earlier decision of the Regional Trial Court (RTC) of Cebu City, Branch 24, in an action for a
sum of money and damages thereat instituted by the herein private respondent Esmeraldo P. Suico
(Suico) against, among others, the herein petitioners Benito Aratea (Aratea) and Ponciana
Canonigo (Canonigo).
The facts:
Petitioners Aratea and Canonigo are the controlling stockholders of Samar Mining
Development Corporation (SAMDECO), a domestic corporation engaged in mining operations
in San Isidro, Wright, Western Samar. On the other hand, private respondent Suico is a
businessman engaged in export and general merchandise.
Sometime in 1989, Suico entered into a Memorandum of Agreement (MOA) with
SAMDECO. Armed with the proper board resolution, Aratea and Canonigo signed the MOA as
the duly authorized representatives of the corporation. Under the MOA, Suico would extend
loans and cash advances to SAMDECO in exchange for the grant of
the exclusive right to market fifty percent (50%) of the total coal extracted by SAMDECO from
its mining sites in San Isidro, Wright, Western Samar.

Suico was enticed into the aforementioned financing scheme because Aratea and Canonigo
assured him that the money he would lend to SAMDECO would easily be paid with five percent
(5%) monthly interest as the coals in said sites is easier to gather because it is excavated from
open-pit mines. Aratea and Canonigo also promised to Suico that the loan the latter would extend
to SAMDECO could easily be paid from the profits of his fifty percent (50%) share of the coal
produced. Also reserved in favor of Suico was the right of first priority to operate the mining
facilities in the event SAMDECO becomes incapable of coping with the work demands. By way
of further incentive, Suico was actually appointed SAMDECOs Vice-President for
Administration.
Pursuant to the same MOA, Suico started releasing loans and cash advances to
SAMDECO, still through Aratea and Suico. SAMDECO started operations in its mining sites to
gather the coal. As agreed in the MOA, fifty percent (50%) of the coals produced were offered
by Suico to different buyers. However, SAMDECO, again through Aratea and Canonigo,
prevented the full implementation of the marketing arrangement by not accepting the prices
offered by Suicos coal buyers even though such prices were competitive and fair enough, giving
no other explanation for such refusal other than saying that the price was too low. Aratea and
Canonigo did not also set any criterion or standard with which any price offer would be measured
against. Because he failed to close any sale of his 50% share of the coal-produce and gain profits
therefrom, Suico could not realize payment of the loans and advances he extended to SAMDECO.
SAMDECO, on the other hand, successfully disposed of its 50% share of the coalproduce. Even with said coal sales, however, SAMDECO absolutely made no payment of its loan
obligations to Suico, despite demands.
Aratea and Canonigo eventually sold the mining rights and passed on the operations of
SAMDECO to Southeast Pacific Marketing, Inc. (SPMI). They also sold their shares in
SAMDECO to SPMIs President, Arturo E. Dy without notice to, or consent of Suico, in violation
of the MOA.
Hence, in the RTC of Cebu City, Suico filed a complaint for a Sum of Money and Damages
against SAMDECO, Aratea, Canonigo, and Seiko Philippines, Inc. (SEIKO, which was later
substituted by SPMI and Arturo E. Dy). The complaint was docketed as Civil Case No. CEB10618 and raffled to Branch 24 of the court.
On 5 January 1998, the trial court came out with its decision rendering judgment for Suico
as follows:
WHEREFORE, finding that the plaintiff has meritorious cause of action against
the defendants, this Court hereby orders all the defendants SAMDECO, SPMI, Dy,

SEIKO, Benito Aratea, Ponciana Canonigo to solidarily pay the plaintiff the principal
obligation of P3.5 million plus 5% interest per month reckoned from March 1989 until
fully paid; while defendants Aratea & Canonigo should solidarily pay plaintiff the
balance on the principal amounting to P978,440.00 plus 5% interest per month reckoned
from March 1989 until fully paid. In addition all defendants are hereby ordered
solidarily to pay plaintiff P2,000,000.00 million (sic) as moral damages, P500,000.00
as exemplary damages, P250,000.00 as attorneys fees, and P100,000.00 as litigation
expenses. All counterclaims and cross-claims are hereby dismissed.
SO ORDERED.

On 9 February 1998, SAMDECO, SPMI, Dy, and SEIKO filed their common notice of
appeal, while Aratea and Canonigo filed theirs on 16 February 1998. All appeals were docketed
in CA-Cebu City as CA-G.R. CV No. 60174.
After review of the records of the case, CA-Cebu City, in its decision of 5 May 2005,
dismissed the appeal and affirmed the appealed decision of the trial court, to wit::
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered
by us DISMISSING the appeal filed in this case and AFFIRMING the decision dated
January 5, 1998 of the RTC of Cebu City, Branch 24 in Civil Case No. CEB-10618.
SO ORDERED.

Petitioners Aratea and Canonigo filed their common motion for reconsideration but the
same was denied by the appellate court in its resolution of 23 September 2005.
Hence, this recourse by the two on the following assigned errors:
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN
FINDING AGAINST THE DEFENDANTS-APPELLANTS BENITO ARATEA AND
PONCIANA CANONIGO AND CONDEMNING THEM TO PAY JOINTLY AND
SEVERALLY THE LOANS, CASH ADVANCES AND CAPITAL INFUSION
MADE BY PLAINTIFF TO DEFENDANT-APPELLANT SAMDECO.
THE COURT OF APPEALS OVERLOOKED AND MISINTERPRETED SOME
FACTS OR CIRCUMSTANCES AND COMMITTED SOME MISAPPREHENSION
OF THE FACTS AND THE APPLICABLE LAW/S WHICH HAD ADVERSELY
AFFECTED THE RESULT OF THE CASE.

We DENY.

The Court notes that petitioners Aratea and Canonigo do not assail the decisions of the two
courts below insofar as their co-defendants in the court of origin, namely: SAMDECO; SPMI;
Dy; and SEIKO, were held liable to Suico. As it were, petitioners take exception from both
decisions only, insofar as they are held personally and solidarily liable with their codefendants. They strongly assert that the records of this case clearly show that the loans, cash
advances and capital infusion made by xxx Suico to SAMDECO are the sole and exclusive
liability and/or responsibility of SAMDECO and/or its transferee/s.[3] Relying heavily on the
allegations in Suicos complaint in Civil Case No. CEB-10618, whereunder they were referred to
as mere representatives/agents of SAMDECO, petitioners seek to be declared free from any
liability which their co-defendants in the suit may be adjudged liable for.
We must first stress that petitioners personal and solidary liability depends on whether the
Court finds SAMDECOs monetary obligations on account of the loans and cash advances made
to it by Suico are due and demandable as borne by the evidence.
After carefully and thoroughly reviewing the records of the proceedings before the trial
court, we find no cogent reason to depart from the factual findings of both the trial and appellate
courts holding all defendants liable for said loans and cash advances.
However, in determining whether SAMDECOs stockholders and/or representatives
(petitioners Aratea and Canonigo) may be held solidarily liable with SAMDECOs obligations,
the Court must determine whether, upon the same facts found by the two courts below, there is
basis to pierce the veil of corporate fiction and hold SAMDECOsstockholders and/or officers
personally and solidarily liable with the corporation.
Prudential Bank v. Alviar[4] stated:
Well-settled is the rule that a corporation has a personality separate and distinct
from that of its officers and stockholders. Officers of a corporation are not personally
liable for their acts as such officers unless it is shown that they have exceeded their
authority. However, the legal fiction that a corporation has a personality separate and
distinct from stockholders and members may be disregarded if it is used as a means to
perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, or to confuse legitimate issues.

SAMDECO must generally be treated as separate and distinct entity from petitioners
Aratea and Canonigo unless there are facts and circumstances that would justify the Court to
pierce the veil of corporate fiction and treat them as one and the same. From the facts, as found
by the trial court and reechoed by the appellate court, the Court has no reason to doubt that Suico
was very well aware that he was dealing with SAMDECO and that Aratea and Canonigo were
mere authorized representatives acting for and in behalf of the corporation. In fact, Suico took

note that Aratea and Canonigo were duly authorized by the corresponding board resolution. There
were no indications whatsoever that Suico was misled to believe that the loans and cash advances
were initially intended for the personal benefit of Aratea and/or Canonigo, and that the
corporation was only used thereafter for the purpose of hiding behind the veil of corporate fiction
to evade personal liability. The evidence sufficiently established that all loans and cash advances
were used for the mining operations of SAMDECO, and there were neither allegations nor proofs
to the contrary. Absent any proof of fraud or double dealing, therefore, the doctrine on piercing
the veil of corporate entity would not apply.
Considering that the veil of corporate fiction cannot be pierced in this case but the evidence
indisputably established that Suico released loans and cash advances in favor of SAMDECO,
which loans and cash advances remain unpaid to the present, to Suicos damage and prejudice,
may Aratea and Canonigo, as SAMDECOs controlling stockholders and/or representatives, be
nonetheless held personally and solidarily liable with SAMDECO and its successors-in-interest
for obligations the corporation incurred under the facts herein obtaining?
We rule in the affirmative.
In MAM Realty Development Corporation v. NLRC,[5] the Court stated:
A corporation is a juridical entity with legal personality separate and distinct
from those acting for and in its behalf and, in general, from the people comprising
it. The general rule is that obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. There are times, however, when
solidary liabilities may be incurred but only when exceptional circumstances warrant
such as in the following cases:
1. When directors and trustees or, in appropriate cases, the officers of a
corporation:
(a) vote for or assent to patently unlawful acts of the
corporation;
(b) act in bad faith or with gross negligence in directing the
corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;[6]
2. When a director or officer has consented to the issuance of watered
stocks or who, having knowledge thereof, did not forthwith file
with the corporate secretary his written objection thereto;[7]
3. When a director, trustee or officer has contractually agreed or stipulated
to hold himself personally and solidarily liable with the
corporation;[8] or

4. When a director, trustee or officer is made, by specific provision of law,

personally liable for his corporate action.[9]
In labor cases, particularly, corporate directors and officers are solidarily liable with the
corporation for the termination of employment of corporate employees done with
malice or in bad faith. (Emphasis supplied.)

Petitioners Aratea and Canonigo, despite having separate and distinct personalities from
SAMDECO may be held personally liable for the loans and advances made by Suico to
SAMDECO which they represent on account of their bad faith in carrying out the business of the
corporation. In the words of the trial court:
As evidenced by the transcripts of the direct examination of [respondent Suico]
(TSN, Arnejo, 10 August 1995, pp. 20-21), [petitioners] Canonigo, Aratea and
SAMDECO prevented the full implementation of the marketing agreement concerning
the coal produced from the mining site, specifically called the Arizona project, by not
agreeing to the price of the coal offered by the buyers procured by [Suico] even though
the prices offered were competitive and fair enough. [Petitioners] Canonigo, Aratea and
SAMDECO made no explanation as to why they did not accept the offered price save
to say that they were low. They also did not set any criterion or standard against which
any offered price would be measured. By not acquiescing in to the proffered price,
[respondent] Suico was not able to obtain his share of 50% of the profits from the sale
of the coal produced by the mining site.
On the other hand, the [petitioners] were able to sell coal produced in the mining
site in question. Hence, this undoubtedly exhibits their bad faith, malice and wanton
disregard of the [respondents] rights in not complying with their part of the
covenant. While the [petitioners] were able to market their share of the coal, they
precluded the [respondent] from marketing his. xxx.
Moreover, notwithstanding the unequivocal language of Title 4, paragraph 1,
[petitioners] Canonigo and Aratea further violated the [respondents] rights when they
without informing [respondent] sold their shares of SAMDECO to defendants Dy and
SPMI thereby vesting on the latter the right to operate SAMDECOs coal mining area
as evidence by the Memorandum of Agreement labeled Exhibits B. Title 4, paragraph
1 of Exhibit A expressly states that [respondent] Suico had the right of first priority in
acquiring the coal area of SAMDECO. The most prudent action for [petitioners] would
have been to first offer to sell SAMDECO to [respondent] as what was stipulated under
the contract prior to entering into an agreement with defendants SPMI and Dy. xxx.
(Words in brackets supplied.)

Petitioners Aratea and Canonigo acted in bad faith when they, as officers of SAMDECO,
unreasonably prevented Suico from selling his part of the coal-produce of the mining site, in gross

violation of their MOA. This resulted in Suico not being unable to realize profits from his 50%
share of the coal-produce, from which Suico could obtain part of the payment for the loans and
advances he made in favor of SAMDECO. Moreover, petitioners also acted in bad faith when
they sold, transferred and assigned their proprietary rights over the mining area in favor of SPMI
and Dy, thereby causing SAMDECO to grossly violate its MOA with Suico. Suico suffered grave
injustice because he was prevented from acquiring the opportunity to obtain payment of his loans
and cash advances, while petitioners Aratea and Canonigo profited from the sale of their
shareholdings in SAMDECO in favor of SPMI and Dy. These facts duly established Aratea and
Canonigos personal liability as officers/stockholders of SAMDECO and their solidary liability
with SAMDECO for its obligations in favor of Suico for the loans and cash advances received by
the corporation.
WHEREFORE, the instant petition is DENIED and the assailed CA decision and
resolution are AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
FIRST DIVISION

PHILIPPINE NATIONAL BANK,

Petitioner,

G.R. No. 171805

- versus MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L.

AZNAR (deceased), represented by his heirs;
RAMON A. BARCENILLA; ROSARIO T.
BARCENILLA; JOSE B. ENAD (deceased),
represented by his heirs; and RICARDO GABUYA
(deceased), represented by his heirs,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - x
MERELO B. AZNAR and MATIAS B. AZNAR III,
Petitioners,

G.R. No. 172021

Present:
CORONA, C.J.,

- versus -

Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,

PHILIPPINE NATIONAL BANK,

Respondent.

PERALTA,* and
PEREZ, JJ.
Promulgated:
May 30, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court are two petitions for review on certiorari under Rule 45 of the Rules of
Court both seeking to annul and set aside the Decision[1] dated September 29, 2005 as well as the
Resolution[2] dated March 6, 2006 of the Court of Appeals in CA-G.R. CV No. 75744,
entitled Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased) represented by his heirs,
Ramon A. Barcenilla (deceased) represented by his heirs, Rosario T. Barcenilla, Jose B. Enad

(deceased) represented by his heirs, and Ricardo Gabuya (deceased) represented by his heirs v.
Philippine National Bank, Jose Garrido and Register of Deeds of Cebu City. The September 29,
2005 Decision of the Court of Appeals set aside the Decision[3] dated November 18, 1998 of the
Regional Trial Court (RTC) of Cebu City, Branch 17, in Civil Case No. CEB21511. Furthermore, it ordered the Philippine National Bank (PNB) to pay Merelo B. Aznar;
Matias B. Aznar III; Jose L. Aznar (deceased), represented by his heirs; Ramon A. Barcenilla
(deceased), represented by his heirs; Rosario T. Barcenilla; Jose B. Enad (deceased), represented
by his heirs; and Ricardo Gabuya (deceased), represented by his heirs (Aznar, et al.), the amount
of their lien based on the Minutes of the Special Meeting of the Board of Directors [4] (Minutes)
of the defunct Rural Insurance and Surety Company, Inc. (RISCO) duly annotated on the titles of
three parcels of land, plus legal interests from the time of PNBs acquisition of the subject
properties until the finality of the judgment but dismissing all other claims of Aznar, et al. On the
other hand, the March 6, 2006 Resolution of the Court of Appeals denied the Motion for
Reconsideration subsequently filed by each party.
The facts of this case, as stated in the Decision dated September 29, 2005 of the Court of
Appeals, are as follows:
In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to
rehabilitate RISCO, they contributed a total amount of P212,720.00 which was used in
the purchase of the three (3) parcels of land described as follows:
A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate,
G.L.R.O.
Record
No.
3732)
situated
in
the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx
containing an area of SEVENTY[-]EIGHT THOUSAND ONE HUNDRED
EIGHTY[-]FIVE SQUARE METERS (78,185) more or less. x x x covered by
Transfer Certificate of Title No. 8921 in the name of Rural Insurance &
Surety Co., Inc.;
A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O.
Record
No.
3732),
situated
in
the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx
containing an area of THREE HUNDRED TWENTY[-]NINE THOUSAND FIVE
HUNDRED FORTY[-]SEVEN SQUARE METERS (329,547), more or less. xxx
covered by Transfer Certificate of Title No. 8922 in the name of Rural
Insurance & Surety Co., Inc. and
A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988),
situated in the District of Lahug, City of Cebu, Island of Cebu. xxx
containing an area ofFIFTY[-]FIVE THOUSAND SIX HUNDRED FIFTY[]THREE (55,653) SQUARE METERS, more or less. covered by Transfer
Certificate of Title No. 24576 in the name of Rural Insurance & Surety Co.,
Inc.

After the purchase of the above lots, titles were issued in the name of RISCO.
The amount contributed by plaintiffs constituted as liens and encumbrances on the
aforementioned properties as annotated in the titles of said lots. Such annotation was
made pursuant to the Minutes of the Special Meeting of the Board of Directors of
RISCO (hereinafter referred to as the Minutes) on March 14, 1961, pertinent portion
of which states:
xxxx
3. The President then explained that in a special meeting of the
stockholders previously called for the purpose of putting up certain
amount of P212,720.00 for the rehabilitation of the Company, the
following stockholders contributed the amounts indicated opposite their
names:
CONTRIBUTED SURPLUS

MERELO B. AZNAR

P50,000.00

MATIAS B. AZNAR

50,000.00

JOSE L. AZNAR

27,720.00

RAMON A. BARCENILLA

25,000.00

ROSARIO T. BARCENILLA

25,000.00

JOSE B. ENAD

17,500.00

RICARDO GABUYA

17,500.00
212,720.00

xxxx
And that the respective contributions above-mentioned shall
constitute as their lien or interest on the property described above, if
and when said property are titled in the name of RURAL INSURANCE &
SURETY CO., INC., subject to registration as their adverse claim in
pursuance of the Provisions of Land Registration Act, (Act No. 496, as
amended) until such time their respective contributions are refunded to
them completely.
xxxx

Thereafter, various subsequent annotations were made on the same titles,

including the Notice of Attachment and Writ of Execution both dated August 3, 1962
in favor of herein defendant PNB, to wit:
On TCT No. 8921 for Lot 3597:
Entry No. 7416-V-4-D.B. Notice of Attachment By the Provincial Sheriff of
Cebu, Civil Case No. 47725, Court of First Instance of Manila, entitled
Philippine National Bank, Plaintiff, versus Iluminada Gonzales, et al.,
Defendants, attaching all rights, interest and participation of the
defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of
the two parcels of land covered by T.C.T. Nos. 8921, Attachment No. 330
and 185.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 7417-V-4-D.B. Writ of Execution By the Court of First Instance
of Manila, commanding the Provincial Sheriff of Cebu, of the lands and
buildings of the defendants, to make the sum of Seventy[-]One Thousand
Three Hundred Pesos (P71,300.00) plus interest etc., in connection with
Civil Case No. 47725, File No. T-8021.
Date of Instrument July 21, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 7512-V-4-D.B. Notice of Attachment By the Provincial Sheriff
of Cebu, Civil Case Nos. IV-74065, 73929, 74129, 72818, in the Municipal
Court of the City of Manila, entitled Jose Garrido, Plaintiff, versus Rural
Insurance & Surety Co., Inc., et als., Defendants, attaching all rights,
interests and participation of the defendants, to the parcels of land
covered by T.C.T. Nos. 8921 & 8922 Attachment No. 186, File No. T-8921.
Date of the Instrument August 16, 1962.
Date of Inscription August 16, 1962, 2:50 P.M.
Entry No. 7513-V-4-D.B. Writ of Execution By the Municipal Court of the
City of Manila, commanding the Provincial Sheriff of Cebu, of the lands
and buildings of the defendants, to make the sum of Three Thousand
Pesos (P3,000.00), with interest at 12% per annum from July 20, 1959, in
connection with Civil Case Nos. IV-74065, 73929, 74613 annotated
above.
File No. T-8921

Date of the Instrument August 11, 1962.

Date of the Inscription August 16, 1962, 2:50 P.M.
On TCT No. 8922 for Lot 7380:
(Same as the annotations on TCT 8921)
On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c per court order):
Entry No. 1660-V-7-D.B. Notice of Attachment by the Provincial Sheriff of
Cebu, Civil Case No. 47725, Court of First Instance of Manila, entitled
Philippine National Bank, Plaintiff, versus, Iluminada Gonzales, et al.,
Defendants, attaching all rights, interest, and participation of the
defendants Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of
the parcel of land herein described.
Attachment No. 330 & 185.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 1661-V-7-D.B. Writ of Execution by the Court of First Instance
of Manila commanding the Provincial Sheriff of Cebu, of the lands and
buildings of the defendants to make the sum of Seventy[-]One Thousand
Three Hundred Pesos (P71,300.00), plus interest, etc., in connection with
Civil Case No. 47725.
File No. T-8921.
Date of the Instrument July 21, 1962.
Date of the Inscription August 3, 1962 3:00 P.M.
Entry No. 1861-V-7-D.B. - Notice of Attachment By the Provincial Sheriff
of Cebu, Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871, in the
Municipal Court of the City of Manila, entitled Jose Garrido, Plaintiff,
versus Rural Insurance & Surety Co., Inc., et als., Defendants, attaching
all rights, interest and participation of the defendants, to the parcel of
land herein described.
Attachment No. 186.
File No. T-8921.
Date of the Instrument August 16, 1962.
Date of the Instription August 16, 1962 2:50 P.M.

Entry No. 1862-V-7-D.B. Writ of Execution by the Municipal Court of

Manila, commanding the Provincial Sheriff of Cebu, of the lands and
buildings of the Defendants, to make the sum of Three Thousand Pesos
(P3,000.00), with interest at 12% per annum from July 20, 1959, in
connection with Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871
annotated above.
File No. T-8921.
Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962 at 2:50 P.M.
As a result, a Certificate of Sale was issued in favor of Philippine National Bank,
being the lone and highest bidder of the three (3) parcels of land known as Lot Nos.
3597 and 7380, covered by T.C.T. Nos. 8921 and 8922, respectively, both situated at
Talisay, Cebu, and Lot No. 1328-C covered by T.C.T. No. 24576 situated at Cebu City,
for the amount of Thirty-One Thousand Four Hundred Thirty Pesos (P31,430.00).
Thereafter, a Final Deed of Sale dated May 27, 1991 in favor of the Philippine National
Bank was also issued and Transfer Certificate of Title No. 24576 for Lot 1328-C
(corrected to 1323-C) was cancelled and a new certificate of title, TCT 119848 was
issued in the name of PNB on August 26, 1991.
This prompted plaintiffs-appellees to file the instant complaint seeking the
quieting of their supposed title to the subject properties, declaratory relief,
cancellation of TCT and reconveyance with temporary restraining order and
preliminary injunction. Plaintiffs alleged that the subsequent annotations on the titles
are subject to the prior annotation of their liens and encumbrances. Plaintiffs further
contended that the subsequent writs and processes annotated on the titles are all null
and void for want of valid service upon RISCO and on them, as stockholders. They
argued that the Final Deed of Sale and TCT No. 119848 are null and void as these were
issued only after 28 years and that any right which PNB may have over the properties
had long become stale.
Defendant PNB on the other hand countered that plaintiffs have no right of
action for quieting of title since the order of the court directing the issuance of titles
to PNB had already become final and executory and their validity cannot be attacked
except in a direct proceeding for their annulment. Defendant further asserted that
plaintiffs, as mere stockholders of RISCO do not have any legal or equitable right over
the properties of the corporation. PNB posited that even if plaintiffs monetary lien had
not expired, their only recourse was to require the reimbursement or refund of their
contribution.[5]

Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings[6] on October 5,
1998. Thus, the trial court rendered the November 18, 1998 Decision, which ruled against PNB
on the basis that there was an express trust created over the subject properties whereby RISCO
was the trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui que
trust. The dispositive portion of the said ruling reads:
WHEREFORE, judgment is hereby rendered as follows:

a)

Declaring the Minutes of the Special Meeting of the Board of Directors of RISCO
approved on March 14, 1961 (Annex E, Complaint) annotated on the titles to subject
properties on May 15, 1962 as an express trust whereby RISCO was a mere trustee and
the above-mentioned stockholders as beneficiaries being the true and lawful owners of
Lots 3597, 7380 and 1323;

b) Declaring all the subsequent annotations of court writs and processes, to wit: Entry No.
7416-V-4-D.B., 7417-V-4-D.B., 7512-V-4-D.B., and 7513-V-4-D.B. in TCT No. 8921
for Lot 3597 and TCT No. 8922 for Lot 7380; Entry No. 1660-V-7-D.B., Entry No.
1661-V-7-D.B., Entry No. 1861-V-7-D.B., Entry No. 1862-V-7-D.B., Entry No. 4329V-7-D.B., Entry No. 3761-V-7-D.B. and Entry No. 26522 v. 34, D.B. on TCT No.
24576 for Lot 1323-C, and all other subsequent annotations thereon in favor of third
persons, as null and void;
c) Directing the Register of Deeds of the Province of Cebu and/or the Register of Deeds
of Cebu City, as the case may be, to cancel all these annotations mentioned in paragraph
b) above the titles;
d) Directing the Register of Deeds of the Province of Cebu to cancel and/or annul TCTs
Nos. 8921 and 8922 in the name of RISCO, and to issue another titles in the names of
the plaintiffs; and
e)

Directing Philippine National Bank to reconvey TCT No. 119848 in favor of the
plaintiffs.[7]

PNB appealed the adverse ruling to the Court of Appeals which, in its September 29, 2005
Decision, set aside the judgment of the trial court. Although the Court of Appeals agreed with
the trial court that a judgment on the pleadings was proper, the appellate court opined that the
monetary contributions made by Aznar, et al., to RISCO can only be characterized as a
loan secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB to
pay Aznar, et al., the amount of their contributions plus legal interest from the time of
acquisition of the property until finality of judgment. The dispositive portion of the decision
reads:
WHEREFORE, premises considered, the assailed Judgment is hereby SET ASIDE.

A new judgment is rendered ordering Philippine National Bank to pay plaintiffsappellees the amount of their lien based on the Minutes of the Special Meeting of the
Board of Directors duly annotated on the titles, plus legal interests from the time of
appellants acquisition of the subject properties until the finality of this judgment.
All other claims of the plaintiffs-appellees are hereby DISMISSED.[8]

Both parties moved for reconsideration but these were denied by the Court of
Appeals. Hence, each party filed with this Court their respective petitions for review
on certiorari under Rule 45 of the Rules of Court, which were consolidated in a
Resolution[9] dated October 2, 2006.
In PNBs petition, docketed as G.R. No. 171805, the following assignment of errors were
raised:
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS OF THE TRIAL COURT
THAT A JUDGMENT ON THE PLEADINGS WAS WARRANTED DESPITE THE EXISTENCE OF
GENUINE ISSUES OF FACTS ALLEGED IN PETITIONER PNBS ANSWER.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF
RESPONDENTS TO REFUND OR REPAYMENT OF THEIR CONTRIBUTIONS HAD NOT
PRESCRIBED AND/OR THAT THE MINUTES OF THE SPECIAL MEETING OF THE BOARD
OF DIRECTORS OF RISCO CONSTITUTED AS AN EFFECTIVE ADVERSE CLAIM.
III
THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE DISMISSAL OF THE
COMPLAINT ON GROUNDS OF RES JUDICATA AND LACK OF CAUSE OF ACTION
ALLEGED BY PETITIONER IN ITS ANSWER.[10]

On the other hand, Aznar, et al.s petition, docketed as G.R. No. 172021, raised the
following issue:
THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS
MADE BY THE STOCKHOLDERS OF RISCO WERE MERELY A LOAN SECURED BY
THEIR LIEN OVER THE PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND,
RATHER THAN AN EXPRESS TRUST.[11]

Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment on the
pleadings was not proper because its Answer,[12] which it filed during the trial court proceedings
of this case, tendered genuine issues of fact since it did not only deny material allegations in
Aznar, et al.s Complaint[13] but also set up special and affirmative defenses. Furthermore, PNB

maintains that, by virtue of the trial courts judgment on the pleadings, it was denied its right to
present evidence and, therefore, it was denied due process.
The contention is meritorious.
The legal basis for rendering a judgment on the pleadings can be found in Section 1, Rule
34 of the Rules of Court which states that [w]here an answer fails to tender an issue, or
otherwise admits the material allegations of the adverse partys pleading, the court may, on
motion of that party, direct judgment on such pleading. x x x.
Judgment on the pleadings is, therefore, based exclusively upon the allegations appearing
in the pleadings of the parties and the annexes, if any, without consideration of any
evidence aliunde.[14] However, when it appears that not all the material allegations of the
complaint were admitted in the answer for some of them were either denied or disputed, and
the defendant has set up certain special defenses which, if proven, would have the effect of
nullifying plaintiffs main cause of action, judgment on the pleadings cannot be rendered.[15]
In the case at bar, the Court of Appeals justified the trial courts resort to a judgment on
the pleadings in the following manner:
Perusal of the complaint, particularly, Paragraph 7 thereof reveals:
7. That in their desire to rehabilitate RISCO, the above-named
stockholders contributed a total amount of PhP212,720.00 which was
used in the purchase of the above-described parcels of land, which
amount constituted liens and encumbrances on subject properties in
favor of the above-named stockholders as annotated in the titles
adverted to above, pursuant to the Minutes of the Special Meeting of the
Board of Directors of RISCO approved on March 14, 1961, a copy of which
is hereto attached as Annex E.
On the other hand, defendant in its Answer, admitted the aforequoted allegation with
the qualification that the amount put up by the stockholders was used as part payment
for the properties. Defendant further averred that plaintiffs liens and encumbrances
annotated on the titles issued to RISCO constituted as loan from the stockholders to
pay part of the purchase price of the properties and was a personal obligation of RISCO
and was thus not a claim adverse to the ownership rights of the corporation. With
these averments, We do not find error on the part of the trial court in rendering a
judgment on the pleadings. For one, the qualification made by defendant in its answer
is not sufficient to controvert the allegations raised in the complaint. As to defendants
contention that the money contributed by plaintiffs was in fact a loan from the
stockholders, reference can be made to the Minutes of the Special Meeting of the
Board of Directors, from which plaintiffs-appellees anchored their complaint, in order
to ascertain the true nature of their claim over the properties. Thus, the issues raised

by the parties can be resolved on the basis of their respective pleadings and the
annexes attached thereto and do not require further presentation of
evidence aliunde.[16]

However, a careful reading of Aznar, et al.s Complaint and of PNBs Answer would reveal
that both parties raised several claims and defenses, respectively, other than what was cited by
the Court of Appeals, which requires the presentation of evidence for resolution, to wit:
Complaint (Aznar, et al.)

Answer (PNB)

11. That these subsequent annotations on the

titles of the properties in question are subject
to the prior annotation of liens and
encumbrances
of
the
above-named
stockholders per Entry No. 458-V-7-D.B.
inscribed on TCT No. 24576 on May 15,
1962 and per Entry No. 6966-V-4-D.B. on TCT
No. 8921 and TCT No. 8922 on May 15, 1962;

10) Par. 11 is denied as the loan from the

stockholders to pay part of the purchase price
of the properties was a personal obligation of
RISCO and was thus not a claim adverse to the
ownership rights of the corporation;

12. That these writs and processes annotated 11) Par. 12 is denied as in fact notice to RISCO
on the titles are all null and void for total want had been sent to its last known address at Plaza
of valid service upon RISCO and the above- Goite, Manila;
named stockholders considering that as early as
sometime in 1958, RISCO ceased operations as
earlier stated, and as early as May 15, 1962, the
liens and encumbrances of the above-named
stockholders were annotated in the titles of
subject properties;
13. That more particularly, the Final Deed of
Sale (Annex G) and TCT No. 119848 are null and
void as these were issued only after 28 years
and 5 months (in the case of the Final Deed of
Sale) and 28 years, 6 months and 29 days (in the
case of TCT 119848) from the invalid auction
sale on December 27, 1962, hence, any right, if
any, which PNB had over subject properties had
long become stale;

12) Par. 13 is denied for no law requires the

final deed of sale to be executed immediately
after the end of the redemption period.
Moreover, another court of competent
jurisdiction has already ruled that PNB was
entitled to a final deed of sale;

14. That plaintiffs continue to have possession

of subject properties and of their
corresponding titles, but they never received
any process concerning the petition filed by
PNB to have TCT 24576 over Lot 1323-C
surrendered and/or cancelled;

13) Par. 14 is denied as plaintiffs are not in

actual possession of the land and if they were,
their possession was as trustee for the creditors
of RISCO like PNB;

15. That there is a cloud created on the 14) Par. 15 is denied as the court orders
aforementioned titles of RISCO by reason of the directing the issuance of titles to PNB in lieu of
annotate writs, processes and proceedings TCT 24576 and TCT 8922 are valid judgments
caused by Jose Garrido and PNB which were

apparently valid or effective, but which are in which cannot be set aside in a collateral
truth and in fact invalid and ineffective, and proceeding like the instant case.[18]
prejudicial to said titles and to the rights of the
plaintiffs, which should be removed and the
titles quieted.[17]

Furthermore, apart from refuting the aforecited material allegations made by Aznar, et
al., PNB also indicated in its Answer the special and affirmative defenses of (a) prescription;
(b) res judicata; (c) Aznar, et al., having no right of action for quieting of title; (d) Aznar, et al.s
lien being ineffective and not binding to PNB; and (e) Aznar, et al.s having no personality to file
the suit.[19]
From the foregoing, it is indubitably clear that it was error for the trial court to render a
judgment on the pleadings and, in effect, resulted in a denial of due process on the part of PNB
because it was denied its right to present evidence. A remand of this case would ordinarily be
the appropriate course of action. However, in the interest of justice and in order to expedite the
resolution of this case which was filed with the trial court way back in 1998, the Court finds it
proper to already resolve the present controversy in light of the existence of legal grounds that
would dispose of the case at bar without necessity of presentation of further evidence on the
other disputed factual claims and defenses of the parties.
A thorough and comprehensive scrutiny of the records would reveal that this case should
be dismissed because Aznar, et al., have no title to quiet over the subject properties and their
true cause of action is already barred by prescription.
At the outset, the Court agrees with the Court of Appeals that the agreement contained
in the Minutes of the Special Meeting of the RISCO Board of Directors held on March 14, 1961
was a loan by the therein named stockholders to RISCO. We quote with approval the following
discussion from the Court of Appeals Decision dated September 29, 2005:
Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim,
showed that their contributions shall constitute as lien or interest on the property if
and when said properties are titled in the name of RISCO, subject to registration of
their adverse claim under the Land Registration Act, until such time their respective
contributions are refunded to them completely.
It is a cardinal rule in the interpretation of contracts that if the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulation shall control. When the language of the contract
is explicit leaving no doubt as to the intention of the drafters thereof, the courts may
not read into it any other intention that would contradict its plain import.

The term lien as used in the Minutes is defined as a discharge on property

usually for the payment of some debt or obligation. A lien is a qualified right or a
proprietary interest which may be exercised over the property of another. It is a right
which the law gives to have a debt satisfied out of a particular thing. It signifies a legal
claim or charge on property; whether real or personal, as a collateral or security for
the payment of some debt or obligation. Hence, from the use of the word lien in the
Minutes, We find that the money contributed by plaintiffs-appellees was in the nature
of a loan, secured by their liens and interests duly annotated on the titles. The
annotation of their lien serves only as collateral and does not in any way vest
ownership of property to plaintiffs.[20] (Emphases supplied.)

We are not persuaded by the contention of Aznar, et al., that the language of the subject
Minutes created an express trust.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested
in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary. Trust relations between parties may either be express or implied. An
express trust is created by the intention of the trustor or of the parties. An implied trust comes
into being by operation of law.[21]
Express trusts, sometimes referred to as direct trusts, are intentionally created by the
direct and positive acts of the settlor or the trustor - by some writing, deed, or will or oral
declaration. It is created not necessarily by some written words, but by the direct and positive
acts of the parties.[22] This is in consonance with Article 1444 of the Civil Code, which states that
[n]o particular words are required for the creation of an express trust, it being sufficient that a
trust is clearly intended.
In other words, the creation of an express trust must be manifested with reasonable
certainty and cannot be inferred from loose and vague declarations or from ambiguous
circumstances susceptible of other interpretations.[23]
No such reasonable certitude in the creation of an express trust obtains in the case at
bar. In fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes
does not offer any indication that the parties thereto intended that Aznar, et al., become
beneficiaries under an express trust and that RISCO serve as trustor.
Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the
properties at issue because they have no legal and/or equitable rights over the properties that
are derived from the previous registered owner which is RISCO, the pertinent provision of the
law is Section 2 of the Corporation Code (Batas Pambansa Blg. 68), which states that [a]
corporation is an artificial being created by operation of law, having the right of succession and
the powers, attributes and properties expressly authorized by law or incident to its existence.

As a consequence thereof, a corporation has a personality separate and distinct from

those of its stockholders and other corporations to which it may be connected. [24]Thus, we had
previously ruled in Magsaysay-Labrador v. Court of Appeals[25] that the interest of the
stockholders over the properties of the corporation is merely inchoate and therefore does not
entitle them to intervene in litigation involving corporate property, to wit:
Here, the interest, if it exists at all, of petitioners-movants is indirect,
contingent, remote, conjectural, consequential and collateral. At the very least, their
interest is purely inchoate, or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the properties and assets thereof
on dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the
property of the corporation, it does not vest the owner thereof with any legal right or
title to any of the property, his interest in the corporate property being equitable or
beneficial in nature. Shareholders are in no legal sense the owners of corporate
property, which is owned by the corporation as a distinct legal person. [26]

In the case at bar, there is no allegation, much less any proof, that the corporate existence
of RISCO has ceased and the corporate property has been liquidated and distributed to the
stockholders. The records only indicate that, as per Securities and Exchange Commission (SEC)
Certification[27] dated June 18, 1997, the SEC merely suspended RISCOs Certificate of
Registration beginning on September 5, 1988 due to its non-submission of SEC required reports
and its failure to operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the
properties at issue in this case on the strength of the Minutes which, at most, is merely evidence
of a loan agreement between them and the company. There is no indication or even a
suggestion that the ownership of said properties were transferred to them which would require
no less that the said properties be registered under their names. For this reason, the complaint
should be dismissed since Aznar, et al., have no cause to seek a quieting of title over the subject
properties.
At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to
RISCO. Unfortunately, the right to seek repayment or reimbursement of their contributions used
to purchase the subject properties is already barred by prescription.
Section 1, Rule 9 of the Rules of Court provides that when it appears from the pleadings
or the evidence on record that the action is already barred by the statute of limitations, the
court shall dismiss the claim, to wit:
Defenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived. However, when it appears from the pleadings or the
evidence on record that the court has no jurisdiction over the subject matter, that

there is another action pending between the same parties for the same cause, or that
the action is barred by a prior judgment or by statute of limitations, the court shall
dismiss the claim. (Emphasis supplied.)

In Feliciano v. Canoza,[28] we held:

We have ruled that trial courts have authority and discretion to dismiss an action on
the ground of prescription when the parties pleadings or other facts on record show
it to be indeed time-barred x x x; and it may do so on the basis of a motion to dismiss,
or an answer which sets up such ground as an affirmative defense; or even if the
ground is alleged after judgment on the merits, as in a motion for reconsideration; or
even if the defense has not been asserted at all, as where no statement thereof is
found in the pleadings, or where a defendant has been declared in default. What is
essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive
period, be otherwise sufficiently and satisfactorily apparent on the record; either in
the averments of the plaintiffs complaint, or otherwise established by the
evidence.[29] (Emphasis supplied.)

The pertinent Civil Code provision on prescription which is applicable to the issue at hand
is Article 1144(1), to wit:
The following actions must be brought within ten years from the time the right
of action accrues:
1.
2.
3.

Upon a written contract;

Upon an obligation created by law;
Upon a judgment. (Emphasis supplied.)

Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,[30] we held that the term
written contract includes the minutes of the meeting of the board of directors of a corporation,
which minutes were adopted by the parties although not signed by them, to wit:
Coming now to the question of prescription raised by defendant Lepanto, it is contended
by the latter that the period to be considered for the prescription of the claim regarding
participation in the profits is only four years, because the modification of the sharing
embodied in the management contract is merely verbal, no written document to that
effect having been presented. This contention is untenable. The modification appears in
the minutes of the special meeting of the Board of Directors of Lepanto held on August
21, 1940, it having been made upon the authority of its President, and in said minutes
the terms of modification had been specified. This is sufficient to have the agreement
considered, for the purpose of applying the statute of limitations, as a written contract
even if the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been

held that a writing containing the terms of a contract if adopted by two persons may
constitute a contract in writing even if the same is not signed by either of the parties (3
A.L.R., 2d, pp. 812-813). Another authority says that an unsigned agreement the terms
of which are embodied in a document unconditionally accepted by both parties is a
written contract (Corbin on Contracts, Vol. I, p. 85).[31]

Applied to the case at bar, the Minutes which was approved on March 14, 1961 is
considered as a written contract between Aznar, et al., and RISCO for the reimbursement of the
contributions of the former. As such, the former had a period of ten (10) years from 1961 within
which to enforce the said written contract. However, it does not appear that Aznar, et al., filed
any action for reimbursement or refund of their contributions against RISCO or even against
PNB. Instead the suit that Aznar, et al., brought before the trial court only on January 28, 1998
was one to quiet title over the properties purchased by RISCO with their contributions. It is
unmistakable that their right of action to claim for refund or payment of their contributions had
long prescribed. Thus, it was reversible error for the Court of Appeals to order PNB to pay
Aznar, et al., the amount of their liens based on the Minutes with legal interests from the time of
PNBs acquisition of the subject properties.
In view of the foregoing, it is unnecessary for the Court to pass upon the other issues raised
by the parties.
WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of
merit. The petition of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil
Case No. CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No costs. SO ORDERED.

SECOND DIVISION
[G.R. No. 150763. July 2, 2004]
RURAL BANK OF MAKATI, INC., ESTEBAN S. SILVA and MAGDALENA V.
LANDICHO, petitioners, vs. MUNICIPALITY OF MAKATI and ATTY. VICTOR A. L.
VALERO, respondents.
DECISION
QUISUMBING, J.:

In its decision dated July 17, 2001, in CA-G.R. CV No. 58214, the Court of Appeals
affirmed the decision dated October 22, 1996 of the Regional Trial Court of Makati City,
Branch 134, in Civil Case No. 91-2866 dismissing petitioners complaint for recovery of a
sum of money and damages. Petitioners now assail said CA decision as well as the
Resolution dated November 9, 2001, which denied their Motion for Reconsideration.
[1]

[2]

[3]

The facts are as follows:

Sometime in August 1990, Atty. Victor A.L. Valero, then the municipal attorney of
the Municipality of Makati, upon request of the municipal treasurer, went to the Rural Bank
of Makati to inquire about the banks payments of taxes and fees to the municipality. He was
informed, however, by petitioner Magdalena V. Landicho, corporate secretary of the bank,
that the bank was exempt from paying taxes under Republic Act No. 720, as amended.
[4]

On November 19, 1990, the municipality lodged a complaint with the Prosecutors Office,
charging petitioners Esteban S. Silva, president and general manager of the bank and
Magdalena V. Landicho for violation of Section 21(a), Chapter II, Article 3 in relation to
Sections 105 and 169 of the Metropolitan Tax Code.
On April 5, 1991, an Information docketed as Criminal Case No. 140208, for violation of
Municipal Ordinance Nos. 122 and 39 for non-payment of the mayors permit fee, was filed
with the Metropolitan Trial Court (MeTC) of Makati against petitioners. Another Information,
docketed as Criminal Case No. 140209, for non-payment of annual business tax, in violation
of Metro Manila Commission Ordinance No. 82-03, Section 21(a), Chapter II, Article 3, was
likewise filed with the MeTC.
While said cases were pending with the municipal court, respondent municipality
ordered the closure of the bank. This prompted petitioners to pay, under protest, the mayors
permit fee and the annual fixed tax in the amount of P82,408.66.
On October 18, 1991, petitioners filed with the RTC of Makati a Complaint for Sum of
Money and Damages, docketed as Civil Case No. 91-2866. Petitioners alleged that they
were constrained to pay the amount of P82,408.66 because of the closure order, issued
despite the pendency of Criminal Cases Nos. 140208-09 and the lack of any notice or
assessment of the fees to be paid. They averred that the collection of the taxes/fees was
oppressive, arbitrary, unjust and illegal. Additionally, they alleged that respondent Atty.
Valero had no power to enforce laws and ordinances, thus his action in enforcing the
collection of the permit fees and business taxes was ultra vires. Petitioners claimed that the
bank lost expected earnings in the amount of P19,778. Petitioners then assailed the
municipal ordinances of Makati as invalid for want of the requisite publication.

In its Answer, respondent municipality asserted that petitioners payment of P82,408.66

was for a legal obligation because the payment of the mayors permit fee as well as the
municipal business license was required of all business concerns. According to respondent,
said requirement was in furtherance of the police power of the municipality to regulate
businesses.
For his part, Atty. Valero filed an Answer claiming that there was no coercion committed
by the municipality, that payment was a legal obligation of the bank, and that its claim of
exemption had no legal basis. He further alleged that petitioners action was clearly intended
to harass and humiliate him and as counterclaim, he asked for moral and other damages.
On October 22, 1996, the RTC decided Civil Case No. 91-2866 as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing the complaint.
On the counterclaim, the plaintiffs are hereby ordered jointly and severally to pay to defendant
Victor Valero the sum of P200,000.00 as moral damages and the amount of P50,000.00 as
attorneys fees.
The counterclaim of defendant Municipality is dismissed.
Cost against the plaintiffs.
SO ORDERED.

[5]

In finding for respondents, the RTC ruled that the bank was engaged in business as a
rural bank. Hence, it should secure the necessary permit and business license, as well as
pay the corresponding charges and fees. It found that the municipality had authority to
impose licenses and permit fees on persons engaging in business, under its police power
embodied under the general welfare clause. Also, the RTC declared unmeritorious
petitioners claim for exemption under Rep. Act No. 720 since said exemption had been
withdrawn by Executive Order No. 93 and the Rural Bank Act of 1992. These statutes no
longer exempted rural banks from paying corporate income taxes and local taxes, fees and
charges. It also found petitioners claim of lack of publication of MMC Ordinance Nos. 82-03
and Municipal Ordinance No. 122 to be mere allegations unsupported by clear and
convincing evidence.
[6]

[7]

In awarding damages to Atty. Valero, the RTC found that he had been maliciously
impleaded as defendant. It noted that Atty. Valero, as a municipal legal officer, was tasked
to enforce municipal ordinances. In short, he was merely an agent of the local chief
executive and should not be faulted for performing his assigned task.
Petitioners seasonably moved for reconsideration, but this was denied by the RTC in its
Order dated January 10, 1997.
[8]

Petitioners appealed to the Court of Appeals in CA-G.R. CV No. 58214. The appellate
court sustained the lower court in this wise:
WHEREFORE, premises considered, the appealed decision is hereby AFFIRMED in toto.

SO ORDERED.

[9]

The Court of Appeals found the order of closure of the bank valid and justified since the
bank was operating without any permit and without having paid the requisite permit fee.
Thus, declared the Court of Appeals, it is not merely a matter of enforcement and collection
of fees, as the appellants would have it, but a violation of the municipalitys authority to
regulate the businesses operating within its territory.
[10]

The appellate court also brushed aside petitioners claim that the general welfare clause
is limited only to legislative action. It declared that the exercise of police power by the
municipality was mandated by the general welfare clause, which authorizes the local
government units to enact ordinances, not only to carry into effect and discharge such duties
as are conferred upon them by law, but also those for the good of the municipality and its
inhabitants. This mandate includes the regulation of useful occupations and enterprises.
Petitioner moved for reconsideration, but
Resolution of November 9, 2001 denied the same.

the

appellate

court

in

its

[11]

Hence, this instant petition alleging that the Honorable Court of Appeals seriously erred
in:
1) .HOLDING THAT THE CLOSURE BY THE APPELLEE, VICTOR VALERO, OF THE
APPELLANT BANK WAS A LEGITIMATE EXERCISE OF POLICE POWER BY THE
MUNICIPALITY OF MAKATI;
2) .NOT CONSIDERING THE FACT THAT MAKATI ORDINANCE 122 REQUIRING
MAYORS PERMIT FOR OPERATION OF AN ESTABLISHMENT AND MMC
ORDINANCE NO. 82-03 WERE ADMITTED AS NOT PUBLISHED AS REQUIRED
IN TAADA, ET AL., vs. TUVERA, NO. L-63915, DECEMBER 29, 1986 AND THAT
NO TAX ASSESSMENT WAS PRESENTED TO THE BANK;
3) .AWARDING MORAL DAMAGES TO APPELLEE VICTOR VALERO IN THE
AMOUNT OF P200,000.00 AND ATTORNEYS FEES IN THE SUM OF P50,000.00;
4) .NOT AWARDING TO THE APPELLANT BANK, THE AMOUNT OF P57,854.00
REPRESENTING THE AMOUNT UNJUSTLY AND ILLEGALLY COLLECTED
FROM THE APPELLANT BANK;
5) .NOT AWARDING THE AMOUNT OF P10,413.75 YEARLY REPRESENTING THE
UNREALIZED PROFIT WHICH THE APPELLANT BANK IS BEING DEPRIVED OF
IN THE USE OF THE AFORESAID AMOUNT PLUS LEGAL INTEREST ALLOWED
IN JUDGMENT FROM THE TIME OF THE EXTRAJUDICIAL DEMAND. (DEMAND
LETTER, DATED OCTOBER 4, 1991, EXHIBIT O FOR THE APPELLANTS);
6) .NOT GRANTING TO APPELLANTS ESTEBAN S. SILVA
AND MAGDALENA LANDICHO MORAL DAMAGES IN THE AMOUNT OF
P15,000.00;

7) .NOT AWARDING TO APPELLANTS, P1,000,000.00 EXEMPLARY DAMAGES; 25%

OF THE APPELLANTS CLAIM AS AND FOR ATTORNEYS FEE AND COSTS OF
SUIT.
[12]

Essentially, the following are the relevant issues for our resolution:
1. Whether or not petitioner bank is liable to pay the business taxes and mayors permit
fees imposed by respondent;
2. Whether or not the closure of petitioner bank is valid;
3. Whether or not petitioners are entitled to an award of unrealized profit and damages;
4. Whether or not respondent Atty. Victor Valero is entitled to damages.
On the first issue, petitioner bank claims that of the P82,408.66 it paid under protest, it
is actually liable only for the amount of P24,154, representing taxes, fees and charges due
beginning 1987, or after the issuance of E.O. No. 93. Prior to said year, it was exempt from
paying any taxes, fees, and charges by virtue of Rep. Act No. 720.
We find the banks claim for refund untenable now.
Section 14 of Rep. Act No. 720, as amended by Republic Act No. 4106, approved
on July 19, 1964, had exempted rural banks with net assets not exceeding one million pesos
(P1,000,000) from the payment of all taxes, charges and fees. The records show that as
of December 29, 1986, petitioner banks net assets amounted only to P745,432.29 or
below the one million ceiling provided for in Section 14 of the old Rural Banking Act. Hence,
under Rep. Act No. 720, petitioner bank could claim to be exempt from payment of all taxes,
charges and fees under the aforementioned provision.
[13]

[14]

However, on December 17, 1986, Executive Order No. 93 was issued by then President
Corazon Aquino, withdrawing all tax and duty incentives with certain exceptions. Notably,
not included among the exceptions were those granted to rural banks under Rep. Act No.
720. With the passage of said law, petitioner could no longer claim any exemption from
payment of business taxes and permit fees.
Now, as to the refund of P57,854 claimed by petitioners allegedly because of
overpayment of taxes and fees, we note that petitioners have not adequately substantiated
their claim. As found by the Court of Appeals:
As to the computation of the payable fees, the plaintiffs-appellants claim an overpayment and pray
for a refund. It is not clearly shown from their argument that such overpayment exists. And from
their initial complaint, they even asked for the refund of the whole P82,408.66 paid, which
complaint was instituted in 1991. They claim having paid the fees and charges due since 1991,
which is irrelevant, since the P82,408.66 was paid for the period before 1991, and thus no
deduction can be made for payments after that period. It is not clear where their computation
of P57,854.00 owed them came from, and lacking solid support, their prayer for a partial refund
must fail. Plaintiffs-appellants have failed to show that the payment of fees and charges even
covered the period before their exemption was withdrawn.
[15]

Factual findings of the Court of Appeals, which are supported on record, are binding and
conclusive upon this Court. As repeatedly held, such findings will not be disturbed unless
they are palpably unsupported by the evidence on record or unless the judgment itself is
based on misapprehension of facts. Moreover, in a petition for review, only questions of
law are properly raised. On this score, the refund sought by petitioners could not be
entertained much less granted.
[16]

Anent the second issue, petitioner bank claims that the closure of respondent bank was
an improper exercise of police power because a municipal corporation has no inherent but
only delegated police power, which must be exercised not by the municipal mayor but by
the municipal council through the enactment of ordinances. It also assailed the Court of
Appeals for invoking the General Welfare Clause embodied in Section 16 of the Local
Government Code of 1991, which took effect in 1992, when the closure of the bank was
actually done on July 31, 1991.
[17]

[18]

Indeed the Local Government Code of 1991 was not yet in effect when the municipality
ordered petitioner banks closure on July 31, 1991. However, the general welfare clause
invoked by the Court of Appeals is not found on the provisions of said law alone. Even under
the old Local Government Code (Batas Pambansa Blg. 337) which was then in effect, a
general welfare clause was provided for in Section 7 thereof. Municipal corporations are
agencies of the State for the promotion and maintenance of local self-government and as
such are endowed with police powers in order to effectively accomplish and carry out the
declared objects of their creation. The authority of a local government unit to exercise
police power under a general welfare clause is not a recent development. This was already
provided for as early as the Administrative Code of 1917. Since then it has been reenacted
and implemented by new statutes on the matter. Thus, the closure of the bank was a valid
exercise of police power pursuant to the general welfare clause contained in and restated
by B.P. Blg. 337, which was then the law governing local government units. No reversible
error arises in this instance insofar as the validity of respondent municipalitys exercise of
police power for the general welfare is concerned.
[19]

[20]

[21]

The general welfare clause has two branches. The first, known as the general legislative
power, authorizes the municipal council to enact ordinances and make regulations not
repugnant to law, as may be necessary to carry into effect and discharge the powers and
duties conferred upon the municipal council by law. The second, known as the police power
proper, authorizes the municipality to enact ordinances as may be necessary and proper
for the health and safety, prosperity, morals, peace, good order, comfort, and convenience
of the municipality and its inhabitants, and for the protection of their property.
[22]

In the present case, the ordinances imposing licenses and requiring permits for any
business establishment, for purposes of regulation enacted by the municipal council
of Makati, fall within the purview of the first branch of the general welfare clause. Moreover,
the ordinance of the municipality imposing the annual business tax is part of the power of
taxation vested upon local governments as provided for under Section 8 of B.P. Blg. 337, to
wit:
[23]

Sec. 8. Authority to Create Sources of Revenue. (1) Each local government unit shall have the
power to create its own sources of revenue and to levy taxes, subject to such limitations as may be
provided by law.
...
Implementation of these ordinances is vested in the municipal mayor, who is the chief
executive of the municipality as provided for under the Local Government Code, to wit:
Sec. 141. Powers and Duties.
(1) The mayor shall be the chief executive of the municipal government and shall exercise such
powers, duties and functions as provided in this Code and other laws.
(2) He shall:
(k) Grant licenses and permits in accordance with existing laws or municipal ordinances
and revoke them for violation of the conditions upon which they have been granted;
(o) Enforce laws, municipal ordinances and resolutions and issue necessary orders for their faithful
and proper enforcement and execution;
(p) Ensure that all taxes and other revenues of the municipality are collected, and that
municipal funds are spent in accordance with law, ordinances and regulations;
(t) Cause to be instituted judicial proceedings in connection with the violation of ordinances, for
the collection of taxes, fees and charges, and for the recovery of property and funds of the
municipality, and otherwise to protect the interest of the municipality; (Emphasis supplied)
[24]

Consequently, the municipal mayor, as chief executive, was clothed with authority to
create a Special Task Force headed by respondent Atty. Victor A.L. Valero to enforce and
implement said ordinances and resolutions and to file appropriate charges and prosecute
violators. Respondent Valero could hardly be faulted for performing his official duties under
the cited circumstances.
[25]

Petitioners contend that MMC Ordinance No. 82-03 and Municipal Ordinance No. 122
are void for lack of publication. This again raises a factual issue, which this Court may not
look into. As repeatedly held, this Court is not a trier of facts. Besides, both the Court of
Appeals and the trial court found lack of sufficient evidence on this point to support
petitioners claim, thus:
[26]

And finally the matter of the lack of publication is once again alleged by the plaintiffs-appellants,
claiming that the matter was skirted by the trial court. This argument must fail, in the light of the
trial courts squarely finding lack of evidence to support the allegation of the plaintiffsappellants. We quote from the trial courts decision:
The contention that MMC Ordinance No. 82-03 and Municipal Ordinance No. 122 of Makati are
void as they were not publishced (sic) is untenable. The mere allegation of the plaintiff is not

sufficient to declare said ordinances void. The plaintiffs failed to adduce clear, convincing and
competent evidence to prove said Ordinances void. Moreover, in this jurisdiction, an ordinance is
presumed to be valid unless declared otherwise by a Court in an appropriate proceeding where the
validity of the ordinance is directly put in issue.
[27]

On the issue of the closure of the bank, we find that the bank was not engaged in any
illegal or immoral activities to warrant its outright closure. The appropriate remedies to
enforce payment of delinquent taxes or fees are provided for in Section 62 of the Local Tax
Code, to wit:
SEC. 62. Civil Remedies. The civil remedies available to enforce payment of delinquent taxes shall
be by distraint of personal property, and by legal action. Either of these remedies or both
simultaneously may be pursued at the discretion of the proper authority.
The payment of other revenues accruing to local governments shall be enforced by legal action.

[28]

Said Section 62 did not provide for closure. Moreover, the order of closure violated
petitioners right to due process, considering that the records show that the bank exercised
good faith and presented what it thought was a valid and legal justification for not paying
the required taxes and fees. The violation of a municipal ordinance does not empower a
municipal mayor to avail of extrajudicial remedies. It should have observed due process
before ordering the banks closure.
[29]

Finally, on the issue of damages, we agree with both the trial and the appellate courts
that the bank is not entitled to any damages. The award of moral damages cannot be
granted to a corporation, it being an artificial person that exists only in legal contemplation
and cannot, therefore, experience physical suffering and mental anguish, which can be
experienced only by one having a nervous system. There is also no sufficient basis for the
award of exemplary damages. There being no moral damages, exemplary damages could
not be awarded also. As to attorneys fees, aside from lack of adequate support and proof
on the matter, these fees are not recoverable as a matter of right but depend on the sound
discretion of the courts.
[30]

[31]

Under the circumstances of this case, the award of damages to Atty. Valero is also
baseless. We cannot ascribe any illegal motive or malice to the bank for impleading Atty.
Valero as an officer of respondent municipality. The bank filed the case against respondent
municipality in the honest belief that it is exempt from paying taxes and fees. Since Atty.
Valero was the official charged with the implementation of the ordinances of respondent
municipality, he was rightly impleaded as a necessary party in the case.
WHEREFORE, the assailed Decision dated July 17, 2001, of the Court of Appeals in
CA-G.R. CV No. 58214 is AFFIRMED with MODIFICATIONS, so that (1) the order denying
any claim for refunds and fees allegedly overpaid by the bank, as well as the denial of any
award for damages and unrealized profits, is hereby SUSTAINED; (2) the order decreeing
the closure of petitioner bank is SET ASIDE; and (3) the award of moral damages and
attorneys fees to Atty. Victor A.L. Valero is DELETED. No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 75885 May 27, 1987
BATAAN
SHIPYARD
&
ENGINEERING
CO.,
INC.
(BASECO),
petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA,
COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,
COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B.
SIACUNCO, et al., respondents.
NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private corporation known as the
Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated
by President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the
sequestration, takeover, and other orders issued, and acts done, in accordance with said executive
orders by the Presidential Commission on Good Government and/or its Commissioners and agents,
affecting said corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation, initiated all its misery was
issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the
agents of the Commission, hereafter simply referred to as PCGG. It reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential Commission on Good Government, by
authority of the President of the Philippines, you are hereby directed to sequester the
following companies.
1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island
Shipyard and Mariveles Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.

7. New Trident Management

8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum disruption of these companies'
business activities.
2. To ensure the continuity of these companies as going concerns, the care and
maintenance of these assets until such time that the Office of the President through the
Commission on Good Government should decide otherwise.
3. To report to the Commission on Good Government periodically.
Further, you are authorized to request for Military/Security Support from the
Military/Police authorities, and such other acts essential to the achievement of this
sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed
a letter dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier
request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986
2.4. Minutes of the Regular and Special Meetings of the Board of Directors
from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings from 1973 to 1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to
1986 duly certified by the Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from
1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.

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

7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized signatories for
withdrawals thereof.
10. Schedule of company investments and placements.

The letter closed with the warning that if the documents were not submitted within five days, the officers
would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued
on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the
basic sequestration order. He sent a letter to BASECO's Vice-President for Finance, 3 terminating the
contract for security services within the Engineer Island compound between BASECO and "Anchor and
FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been
assigned to the area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and
Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the
amendment in part of their contracts with BASECO in the sense that the stipulated charges for use of
the BASECO road network were made payable "upon entry and not anymore subject to monthly billing
as was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with
Deltamarine Integrated Port Services, Inc., in virtue of which the latter undertook to introduce
improvements costing approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly
then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which
would flow into the government coffers," in consideration of Deltamarine's being granted "priority in
using the improved portion of the wharf ahead of anybody" and exemption "from the payment of any
charges for the use of wharf including the area where it may install its bagging equipments" "until the
improvement remains in a condition suitable for port operations." 5 It seems however that this contract
was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team,"
advised Deltamarine by letter dated July 30, 1986 that "the new management is not in a position to
honor the said contract" and thus "whatever improvements * * (may be introduced) shall be deemed
unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan

By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor
Melba O. Buenaventura, "to plan and implement progress towards maximizing the continuous
operation of the BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards,
Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to
operate the quarry, located at Mariveles, Bataan, an agreement to this effect having been executed
by them on September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was
also "authorized to clean and beautify the Company's compound," and in this connection, to dispose of
or sell "metal scraps" and other materials, equipment and machineries no longer usable, subject to
specified guidelines and safeguards including audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the
PCGG of BASECO, "the Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz
invoked the provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission
* * To provisionally takeover in the public interest or to prevent its disposal or dissipation,
business enterprises and properties taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos, until the
transactions leading to such acquisition by the latter can be disposed of by the appropriate
authorities.
A management team was designated to implement the order, headed by Capt. Siacunco, and was
given the following powers:
1. Conducts all aspects of operation of the subject companies;
2. Installs key officers, hires and terminates personnel as necessary;
3. Enters into contracts related to management and operation of the companies;
4. Ensures that the assets of the companies are not dissipated and used effectively and
efficiently; revenues are duly accounted for; and disburses funds only as may be
necessary;
5. Does actions including among others, seeking of military support as may be necessary,
that will ensure compliance to this order;
6. Holds itself fully accountable to the Presidential Commission on Good Government on
all aspects related to this take-over order.
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez,
Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the
PCGG. 10

2. Petitioner's Plea and Postulates

It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat,
petitioner BASECO would have this Court nullify. More particularly, BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and
acts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of
the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be made within
the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution
was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime
is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom
Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the
1973 Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty
and property without due process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration
Order * * and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests
on four fundamental considerations: First, no notice and hearing was accorded * * (it) before its
properties and business were taken over; Second, the PCGG is not a court, but a purely investigative
agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is
nothing in the issuances which envisions any proceeding, process or remedy by which petitioner may
expeditiously challenge the validity of the takeover after the same has been effected;
and Fourthly, being directed against specified persons, and in disregard of the constitutional
presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already
complied with, was issued without court authority and infringed its constitutional right against selfincrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of dominion and
management of its business affairs by
1) terminating its contract for security services with Fairways & Anchor, without the consent and against
the will of the contracting parties; and amending the mode of payment of entry fees stipulated in its
Lease Contract with National Stevedoring & Lighterage Corporation, these acts being in violation of the
non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine
Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at
Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other
materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated
companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza;
GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors;

20

8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at
Mariveles * * rolls of cable wires, worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been
buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders
have been engendered by misapprehension, or incomplete comprehension if not indeed downright
ignorance of the law governing these remedies. It is needful that these misconceptions and doubts be
dispelled so that uninformed and useless debates about them may be avoided, and arguments tainted
b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion
will essay an exposition of the law on the matter. In the process many of the objections raised by
BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit command of the
Provisional Constitution, ordained by Proclamation No. 3, 23 that the President-in the exercise of
legislative power which she was authorized to continue to wield "(until a legislature is elected and
convened under a new Constitution" "shall give priority to measures to achieve the mandate of the
people," among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the
previous regime and protect the interest of the people through orders of sequestration or freezing of
assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that
"vast resources of the government have been amassed by former President Ferdinand E. Marcos, his
immediate family, relatives, and close associates both here and abroad." 25 Upon these premises, the
Presidential Commission on Good Government was created, 26 "charged with the task of assisting the
President in regard to (certain specified) matters," among which was precisely-

* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E.

Marcos, his immediate family, relatives, subordinates and close associates, whether
located in the Philippines or abroad, including the takeover or sequestration of all
business enterprises and entities owned or controlled by them, during his administration,
directly or through nominees, by taking undue advantage of their public office and/or using
their powers, authority, influence, connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its
mission, the PCGG was granted "power and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under its control or possession any building
or office wherein any ill-gotten wealth or properties may be found, and any records
pertaining thereto, in order to prevent their destruction, concealment or disappearance
which would frustrate or hamper the investigation or otherwise prevent the Commission
from accomplishing its task.
2. To provisionally take over in the public interest or to prevent the disposal or dissipation,
business enterprises and properties taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos, until the
transactions leading to such acquisition by the latter can be disposed of by the appropriate
authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any person or
entity that may render moot and academic, or frustrate or otherwise make ineffectual the
efforts of the Commission to carry out its task under this order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to conduct
investigations; require submission of evidence by subpoenae ad testificandum and duces
tecum; administer oaths; punish for contempt. 29 It was given power also to promulgate such rules and
regulations as may be necessary to carry out the purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery
of ill-gotten properties amassed by the leaders and supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence showing that there
are assets and properties purportedly pertaining to former Ferdinand E. Marcos, and/or
his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents or nominees which had been or were acquired by them
directly or indirectly, through or as a result of the improper or illegal use of funds or
properties owned by the government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of their office, authority, influence, connections or relationship, resulting in their
unjust enrichment and causing grave damage and prejudice to the Filipino people and
the Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts,
shares of stocks, buildings, shopping centers, condominiums, mansions, residences,
estates, and other kinds of real and personal properties in the Philippines and in various
countries of the world." 31

Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President Marcos
and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents, or nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives,
subordinates, business associates, duties, agents, or nominees from transferring,
conveying, encumbering, concealing or dissipating said assets or properties in the
Philippines and abroad, pending the outcome of appropriate proceedings in the
Philippines to determine whether any such assets or properties were acquired by them
through or as a result of improper or illegal use of or the conversion of funds belonging to
the Government of the Philippines or any of its branches, instrumentalities, enterprises,
banks or financial institutions, or by taking undue advantage of their official position,
authority, relationship, connection or influence to unjustly enrich themselves at the
expense and to the grave damage and prejudice of the Filipino people and the Republic
of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or otherwise
depleting or concealing such assets and properties or from assisting or taking part in their
transfer, encumbrance, concealment or dissipation under pain of such penalties as are
prescribed by law;" and
4) required "all persons in the Philippines holding such assets or properties, whether
located in the Philippines or abroad, in their names as nominees, agents or trustees, to
make full disclosure of the same to the Commission on Good Government within thirty
(30) days from publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with
the assistance of the Office of the Solicitor General and other government agencies, * * to file and
prosecute all cases investigated by it * * as may be warranted by its findings." 34 All such cases, whether
civil or criminal, are to be filed "with the Sandiganbayanwhich shall have exclusive and original
jurisdiction thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution,
reparation of damages, or indemnification for consequential damages, forfeiture proceedings provided
for under Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws,
in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and
proceed independently of any criminal proceedings and may be proved by a preponderance of
evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly
applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the
previous regime"; 37
a) more particularly, that ill-gotten wealth (was) accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates,
* * located in the Philippines or abroad, * * (and) business enterprises and entities (came

to be) owned or controlled by them, during * * (the Marcos) administration, directly or

through nominees, by taking undue advantage of their public office and/or using their
powers, authority, influence, Connections or relationship; 38
b) otherwise stated, that "there are assets and properties purportedly pertaining to former
President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their
close relatives, subordinates, business associates, dummies, agents or nominees which
had been or were acquired by them directly or indirectly, through or as a result of the
improper or illegal use of funds or properties owned by the Government of the Philippines
or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by
taking undue advantage of their office, authority, influence, connections or relationship,
resulting in their unjust enrichment and causing grave damage and prejudice to the
Filipino people and the Republic of the Philippines"; 39
c) that "said assets and properties are in the form of bank accounts. deposits, trust.
accounts, shares of stocks, buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and personal properties in the Philippines and
in various countries of the world;" 40 and
2) that certain "business enterprises and properties (were) taken over by the government
of the Marcos Administration or by entities or persons close to former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's plan "to recover
all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above described factual
premises of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent
evidence, the recovery from Marcos, his family and his dominions of the assets and properties involved,
is not only a right but a duty on the part of Government.
But however plain and valid that right and duty may be, still a balance must be sought with the equally
compelling necessity that a proper respect be accorded and adequate protection assured, the
fundamental rights of private property and free enterprise which are deemed pillars of a free society
such as ours, and to which all members of that society may without exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary
components freedom of conscience, freedom of expression, and freedom in the pursuit
of happiness. Along with these freedoms are included economic freedom and freedom of
enterprise within reasonable bounds and under proper control. * * Evincing much concern
for the protection of property, the Constitution distinctly recognizes the preferred position
which real estate has occupied in law for ages. Property is bound up with every aspect of
social life in a democracy as democracy is conceived in the Constitution. The Constitution
realizes the indispensable role which property, owned in reasonable quantities and used
legitimately, plays in the stimulation to economic effort and the formation and growth of a
solid social middle class that is said to be the bulwark of democracy and the backbone of
every progressive and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have
to be duly established by adequate proof in each case, in a proper judicial proceeding, so that the
recovery of the ill-gotten wealth may be validly and properly adjudged and consummated; although
there are some who maintain that the fact-that an immense fortune, and "vast resources of the
government have been amassed by former President Ferdinand E. Marcos, his immediate family,
relatives, and close associates both here and abroad," and they have resorted to all sorts of clever
schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial
notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the
requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be
followed explicitly laid down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth"
as the evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional
measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the assets
and properties subject of the suits, or to restrain or foil acts that may render moot and academic, or
effectively hamper, delay, or negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1)
sequestration; (2) freeze orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten
wealth." The remedy of "provisional takeover" is peculiar to cases where "business enterprises and
properties (were) taken over by the government of the Marcos Administration or by entities or persons
close to former President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten"
means to place or cause to be placed under its possession or control said property, or any building or
office wherein any such property and any records pertaining thereto may be found, including "business
enterprises and entities,"-for the purpose of preventing the destruction, concealment or dissipation of,
and otherwise conserving and preserving, the same-until it can be determined, through appropriate
judicial proceedings, whether the property was in truth will- gotten," i.e., acquired through or as a result
of improper or illegal use of or the conversion of funds belonging to the Government or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage
of official position, authority relationship, connection or influence, resulting in unjust enrichment of the
ostensible owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which
the term is commonly understood in other jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property alleged to constitute "illgotten wealth" "from transferring, conveying, encumbering or otherwise depleting or concealing such
property, or from assisting or taking part in its transfer, encumbrance, concealment, or dissipation." 46 In
other words, it commands the possessor to hold the property and conserve it subject to the orders and
disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which
the possessor or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose

of any effects or credits in his possession or control, and thus becomes in a sense an involuntary
depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction
between "ill gotten" "business enterprises and entities" (going concerns, businesses in actual
operation), generally, as to which the remedy of sequestration applies, it being necessarily inferred that
the remedy entails no interference, or the least possible interference with the actual management and
operations thereof; and "business enterprises which were taken over by the government government
of the Marcos Administration or by entities or persons close to him," in particular, as to which a
"provisional takeover" is authorized, "in the public interest or to prevent disposal or dissipation of the
enterprises." 48 Such a "provisional takeover" imports something more than sequestration or freezing,
more than the placing of the business under physical possession and control, albeit without or with the
least possible interference with the management and carrying on of the business itself. In a "provisional
takeover," what is taken into custody is not only the physical assets of the business enterprise or entity,
but the business operation as well. It is in fine the assumption of control not only over things, but over
operations or on- going activities. But, to repeat, such a "provisional takeover" is allowed only as
regards "business enterprises * * taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent character of the
remedies just described. Indeed the law plainly qualifies the remedy of take-over by the adjective,
"provisional." These remedies may be resorted to only for a particular exigency: to prevent in the public
interest the disappearance or dissipation of property or business, and conserve it pending adjudgment
in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right
thereto by the apparent owner was attended by some vitiating anomaly. None of the remedies is meant
to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken
over and vest it in the sequestering agency, the Government or other person. This can be done only
for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to be
understood and exercised, the language of the executive orders in question leaves no doubt. Executive
Order No. 1 declares that the sequestration of property the acquisition of which is suspect shall
last "until the transactions leading to such acquisition * * can be disposed of by the appropriate
authorities." 49 Executive Order No. 2 declares that the assets or properties therein mentioned shall
remain frozen "pending the outcome of appropriate proceedings in the Philippines to determine whether
any such assets or properties were acquired" by illegal means. Executive Order No. 14 makes clear
that judicial proceedings are essential for the resolution of the basic issue of whether or not particular
assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or
provisional takeover is designed to be an end in itself, that it is the device through which persons may
be deprived of their property branded as "ill-gotten," that it is intended to bring about a permanent,
rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the
governing rules.

Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these
provisional remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plain
terms, apart from extending ratification or confirmation (although not really necessary) to the institution
by presidential fiat of the remedy of sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3
dated March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain operative
for not more than eighteen months after the ratification of this Constitution. However, in
the national interest, as certified by the President, the Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case.
The order and the list of the sequestered or frozen properties shall forthwith be registered
with the proper court. For orders issued before the ratification of this Constitution, the
corresponding judicial action or proceeding shall be filed within six months from its
ratification. For those issued after such ratification, the judicial action or proceeding shall
be commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or
proceeding is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy
of preliminary attachment, or receivership. 53 By attachment, a sheriff seizes property of a defendant in
a civil suit so that it may stand as security for the satisfaction of any judgment that may be obtained,
and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. 54 By
receivership, property, real or personal, which is subject of litigation, is placed in the possession and
control of a receiver appointed by the Court, who shall conserve it pending final determination of the
title or right of possession over it. 55 All these remedies sequestration, freezing, provisional, takeover,
attachment and receivership are provisional, temporary, designed for-particular exigencies, attended
by no character of permanency or finality, and always subject to the control of the issuing court or
agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of
no moment. The Solicitor General draws attention to the writ of distraint and levy which since 1936 the
Commissioner of Internal Revenue has been by law authorized to issue against property of a delinquent
taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence on sequestration as
a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it
insensitive to change." What it insists on, what it pronounces to be its "unyielding position, is that any
change in procedure, or the institution of a new one, should conform to due process and the other
prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which there
can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of personal property
in replevinsuits, sequestration and provisional takeover writs may issue ex parte. 58 And as in
preliminary attachment, receivership, and delivery of personality, no objection of any significance may
be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its
fundamental character of temporariness or conditionality; and taking account specially of the

constitutionally expressed "mandate of the people to recover ill-gotten properties amassed by the
leaders and supporters of the previous regime and protect the interest of the people;" 59 as well as the
obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that
disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident,
that "any transfer, disposition, concealment or disappearance of said assets and properties would
frustrate, obstruct or hamper the efforts of the Government" at the just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there exist a prima
facie factual foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair
opportunity to contest it and endeavor to cause its negation or nullification. 61
Both are assured under the executive orders in question and the rules and regulations promulgated by
the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due
process." 62Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets
and properties, "it is the position of the new democratic government that President Marcos * * (and
other parties affected) be afforded fair opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations provides that sequestration or
freeze (and takeover) orders issue upon the authority of at least two commissioners, based on
the affirmation or complaint of an interested party, or motu proprio when the Commission has
reasonable grounds to believe that the issuance thereof is warranted. 64 A similar requirement is now
found in Section 26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze
order shall be issued only upon showing of a prima facie case." 65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may
seek to set aside a writ of sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a writ of sequestration or
freeze or hold order is directed may request the lifting thereof in writing, either personally
or through counsel within five (5) days from receipt of the writ or order, or in the case of
a hold order, from date of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for
good cause shown, the Commission may lift the writ or order unconditionally or subject
to such conditions as it may deem necessary, taking into consideration the evidence and
the circumstance of the case. The resolution of the commission may be appealed by the
party concerned to the Office of the President of the Philippines within fifteen (15) days
from receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not
expressly imposed by some rule or regulation as a condition to warrant the sequestration or freezing of
property contemplated in the executive orders in question, it would nevertheless be exigible in this
jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis in fact
or law, or are whimsical and capricious, are condemned and struck down. 66

9. Constitutional Sanction of Remedies

If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety
of sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular
remedies and the authority of the PCGG to issue them have received constitutional approbation and
sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the power and
duty of the President to enact "measures to achieve the mandate of the people to * * * (recover illgotten properties amassed by the leaders and supporters of the previous regime and protect the interest
of the people through orders of sequestration or freezing of assets or accounts." And as also already
adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of, and ratifies the "authority to
issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's inherent police power,
regarded, as t lie power of promoting the public welfare by restraining and regulating the use of liberty
and property," 68 and as "the most essential, insistent and illimitable of powers * * in the promotion of
general welfare and the public interest," 69and said to be co-extensive with self-protection and * * not
inaptly termed (also) the'law of overruling necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the PCGG is not,
and was never intended to act as, a judge. Its general function is to conduct investigations in order
to collect evidenceestablishing instances of "ill-gotten wealth;" issue sequestration, and such orders as
may be warranted by the evidence thus collected and as may be necessary to preserve and conserve
the assets of which it takes custody and control and prevent their disappearance, loss or dissipation;
and eventually file and prosecute in the proper court of competent jurisdiction all cases investigated by
it as may be warranted by its findings. It does not try and decide, or hear and determine, or adjudicate
with any character of finality or compulsion, cases involving the essential issue of whether or not
property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the
Constitution and the executive orders. This function is reserved to the designated court, in this case,
the Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation, leveled
by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and judge at the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter
to be discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not
be issued.
The facts show that the corporation known as BASECO was owned or controlled by President Marcos
"during his administration, through nominees, by taking undue advantage of his public office and/or
using his powers, authority, or influence, " and that it was by and through the same means, that
BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co.,
Inc., and other government-owned or controlled entities.
12. Organization and Stock Distribution of BASECO
BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a
domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping
executives. Its main office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard
is housed, and its main shipyard is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose
that its authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares

with a value of P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of
P3,035,000.00 has been paid by the incorporators. 74 The same articles Identify the incorporators,
numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4)
Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias
Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13)
Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely:
(1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw
Torres, and (6) Rodolfo Torres. As of this year, 1986, there were twenty (20) stockholders listed in
BASECO's Stock and Transfer Book. 75 Their names and the number of shares respectively held by
them are as follows:
1. Jose A. Rojas

1,248 shares

2. Severino G. de la Cruz

1,248 shares

3. Emilio T. Yap

2,508 shares

4. Jose Fernandez

1,248 shares

5. Jose Francisco

128 shares

6. Manuel S. Mendoza

96 shares

7. Anthony P. Lee

1,248 shares

8. Hilario M. Ruiz

32 shares

9. Constante L. Farias

8 shares

10. Fidelity Management, Inc.

65,882 shares

11. Trident Management

7,412 shares

12. United Phil. Lines

1,240 shares

13. Renato M. Tanseco

8 shares

14. Fidel Ventura

8 shares

15. Metro Bay Drydock

136,370 shares

16. Manuel Jacela

1 share

17. Jonathan G. Lu

1 share

18. Jose J. Tanchanco

1 share

19. Dioscoro Papa

128 shares

20. Edward T. Marcelo

4 shares

TOTAL

218,819 shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel
Corporation, or NASSCO, a government-owned or controlled corporation, the latter's shipyard at
Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except for NASSCO's
Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation all its
structures, buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit.
This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on February
13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to NASSCO
a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of
the inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at
seven percent (7%) per annum, compounded semi-annually, was stipulated to be paid in equal semiannual installments over a term of nine (9) years, payment to commence after a grace period of two (2)
years from date of turnover of the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00,
about eight (8) months later. A document to this effect was executed on October 9, 1973, entitled
"Memorandum Agreement," and was signed for NASSCO by Arturo Pacificador, as Presiding Officer
of the Board of Directors, and David R. Ines, as General Manager. 77 This agreement bore, at the top
right corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed
by his usual full signature. The document recited that a down payment of P5,862,310.00 had been
made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-annual installments
over nine (9) years after a grace period of two (2) years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the
Export Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document
of sale, P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in
installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention
of President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been
included in the first two (2) purchase documents. This was accomplished by a deed entitled "Contract
of Purchase and Sale," 79which, like the Memorandum of Agreement dated October 9, 1973 supra also
bore at the upper right-hand corner of its first page, the handwritten notation of President
Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred
to BASECO were NASSCO's "ownership and all its titles, rights and interests over all equipment and
facilities including structures, buildings, shops, quarters, houses, plants and expendable or semiexpendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all
the equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to
BASECO but retained by BASECO and all other selected equipment and machineries of NASSCO at
J. Panganiban Smelting Plant." In the same deed, NASSCO committed itself to cooperate with
BASECO for the acquisition from the National Government or other appropriate Government entity of
Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of
P1,000,000.00 appears to have been made, and the balance was stipulated to be paid at 7% interest
per annum in equal semi annual installments over a term of nine (9) years, to commence after a grace

period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general
manager, Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last
available Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavy equipment
(brand new)." 80On September 3, 1975, it got another loan also from the NDC in the amount of
P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in the
sum of P12,400,000.00. 81 The claim has been made that not a single centavo has been paid on these
loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first
was contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second
was embodied in a confidential memorandum dated September 16, 1977 of Capt. A.T.
Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a
Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been
"no orders or demands for ship construction" for some time and expressed the fear that if that state of
affairs persisted, BASECO would not be able to pay its debts to the Government, which at the time
stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save the
situation," there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an
entirely new corporation to be created;" and towards this end, he informed Marcos that BASECO was

* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan
to BASECO amounting to P341.165M and assuming and converting a portion of
BASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total of
P83.365M as NDC's equity contribution in the new corporation. LUSTEVECO will
participate by absorbing and converting a portion of the REPACOM loan of Bay Shipyard
and Drydock, Inc., amounting to P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the
following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission
FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due
chiefly to the fact that "orders to build ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1)
Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee.
Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart
attack," he made the following quite revealing, and it may be added, quite cynical and indurate
recommendation, to wit:
* * (that) their replacements (be effected) so we can register their names in the stock book
prior to the implementation of your instructions to pass a board resolution to legalize the
transfers under SEC regulations;
2. By getting their replacements, the families cannot question us later on; and
3. We will owe no further favors from them.

87

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

88

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

89

2. The articles of incorporation, the amended articles, and the by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer
Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer
Island";
5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and
equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and
equipment at Engineer Island, Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land
at Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of
P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing
facilities for BASECO's rank-and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when
BASECO will have enough orders for ships in order for the company to meet loan obligations," and that

An LOI may be issued to government agencies using floating equipment, that a linkage
scheme be applied to a certain percent of BASECO's net profit as part of BASECO's
amortization payments to make it justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO,
yet he has presented a report on BASECO to President Marcos, and his report demonstrates intimate
familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards
the "spin-off" and the "linkage scheme" relative to "BASECO's amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of
the Philippine National Oil Company and Chairman Constante Farias of the National Development
Company, directing them "to participate in the formation of a new corporation resulting from the spinoff of the shipbuilding component of BASECO along the following guidelines:
a. Equity participation of government shall be through LUSTEVECO and NDC in the
amount of P115,903,000 consisting of the following obligations of BASECO which are
hereby authorized to be converted to equity of the said new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)
2. LUSTEVECO P32,538,000 (Reparation)
b. Equity participation of government shall be in the form of non- voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after
receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo
Z. Velasco, in representation of their respective corporations, executed a PRE-INCORPORATION
AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding corporation to be
known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's
instructions. It would seem that the new corporation ultimately formed was actually named "Philippine
Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February
14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations Commission
REPACOM the Philippine National Oil Company (PNOC), the Luzon Stevedoring Company
(LUSTEVECO), and the National Development Company (NDC). What is commanded therein is
summarized by the Solicitor General, with pithy and not inaccurate observations as to the effects thereof
(in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through reparations be
transferred to NDC subject to reimbursement by NDC to BASECO (of) the amount of s

allegedly representing the handling and incidental expenses incurred by BASECO in the
installation of said equipment (so instead of NDC getting paid on its loan to BASECO, it
was made to pay BASECO instead the amount of P18.285M); 2) the shipbuilding
equipment procured from reparations through EPZA, now in the possession of BASECO
and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through
PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by LUSTEVECO,
acting through PNOC and NDC, as the government's equity participation in a shipbuilding
corporation to be established in partnership with the private sector.
xxx xxx xxx
And so, through a simple letter of instruction and memorandum, BASECO's loan
obligation to NDC and REPACOM * * in the total amount of P83.365M and BSD's
REPACOM loan of P32.438M were wiped out and converted into non-voting preferred
shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control
by President Marcos of BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos not
only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of
its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of
stock outstanding, ostensibly owned by twenty (20) stockholders. 96 Four of these twenty are juridical
persons: (1) Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management,
Inc., 65,882 shares; (3) Trident Management,7,412 shares; and (4) United Phil. Lines, 1,240 shares.
The first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO
stock, or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in
Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding to more
than ninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed in blank,
together with deeds of assignment of practically all the outstanding shares of stock of the three (3)
corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof
although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc.
which supposedly owns as aforesaid 65,882 shares of BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro
Bay Drydock Corporation which allegedly owns 136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc.
which allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and

4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of

BASECO stock; that is, all but 5 % all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the
BASECO stockholders were still in possession of their respective stock certificates and had "never
endorsed * * them in blank or to anyone else," 100 that denial is exposed by his own prior and
subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual
declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days
"to SUBMIT, as undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO
as of April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for extension;
and in his motion dated October 2, 1986, he declared inter alia that "said certificates of stock are in the
possession of third parties, among whom being the respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from them." 102 On the same day he filed another motion praying
that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock,
Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of
respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that
counsel's aforestated motion to secure copies of the stock certificates "confirms the fact that
stockholders of petitioner corporation are not in possession of * * (their) certificates of stock," and the
reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in
Malacaang after the former President and his family fled the country." To this manifestation BASECO's
counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting that the firm's
stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other
things "to require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the
originals of the stock certificates alleged to be in its possession or accessible to it, mentioned and
described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from notice." 106 In
a motion filed on December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in
the premises, that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner
to borrow from them, if available, the certificates referred to" but that "it needs a more sufficient time
therefor" (sic). BASECO's counsel however eventually had to confess inability to produce the originals
of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to
allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the
certificates to third parties by way of pledge and/or to secure performance of obligations, while others
allegedly have entrusted them to third parties in view of last national emergency." 108 He has
conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to
explain why he had not impressed on the supposed stockholders the primordial importance of
convincing this Court of their present custody of the originals of the stock, or if he had done so, why the
stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates
might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude
that he could not get the originals from the stockholders for the simple reason that, as the Solicitor
General maintains, said stockholders in truth no longer have them in their possession, these having
already been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the stockholders
and directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of

President Marcos; at any rate, that they are no longer owners of any shares of stock in the corporation,
the conclusion cannot be avoided that said stockholders and directors have no basis and no standing
whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO,
as prayed for in the petition, would in effect be to restore the assets, properties and business
sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of
the former president.
From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the
private corporation known as BASECO was "owned or controlled by former President Ferdinand E.
Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) public office
and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the
government had been taken over by BASECO; and the situation justified the sequestration as well as
the provisional takeover of the corporation in the public interest, in accordance with the terms of
Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to
cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to
Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it
sustains the acts of sequestration and takeover by the PCGG as being in accord with the law, and, in
view of what has thus far been set out in this opinion, pronounces to be without merit the theory that
said acts, and the executive orders pursuant to which they were done, are fatally defective in not
according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside
or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge at the same
time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill of
attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial
trial." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a determination or
declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it
perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be
handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and
prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as
the merest glance at their provisions will immediately make apparent. In no sense, therefore, may the
executive orders be regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches and seizures
had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records
from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued
upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue
subpoenas requiring * * the production of such books, papers, contracts, records, statements of
accounts and other documents as may be material to the investigation conducted by the Commission,
" and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the
Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or
abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The
contention lacks merit.

It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless
protected by an immunity statute, it does not follow that a corporation, vested with special
privileges and franchises, may refuse to show its hand when charged with an abuse
ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which private
individuals have. * * They are not at all within the privilege against selfincrimination, although this court more than once has said that the privilege runs very
closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an
officer of the company cannot refuse to produce its records in its possession upon the
plea that they will either incriminate him or may incriminate it." (Oklahoma Press
Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the
benefit of the public. It received certain special privileges and franchises, and holds them
subject to the laws of the state and the limitations of its charter. Its powers are limited by
law. It can make no contract not authorized by its charter. Its rights to act as a corporation
are only preserved to it so long as it obeys the laws of its creation. There is a reserve right
in the legislature to investigate its contracts and find out whether it has exceeded its
powers. It would be a strange anomaly to hold that a state, having chartered a corporation
to make use of certain franchises, could not, in the exercise of sovereignty, inquire how
these franchises had been employed, and whether they had been abused, and demand
the production of the corporate books and papers for that purpose. The defense amounts
to this, that an officer of the corporation which is charged with a criminal violation of the
statute may plead the criminality of such corporation as a refusal to produce its books. To
state this proposition is to answer it. While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises may refuse to show its hand
when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed.,
771, 780 [emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures
protection to individuals required to produce evidence before the PCGG against any possible violation
of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony
or information he is compelled to present. As amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege against
self-incrimination; but no testimony or other information compelled under the order (or
any information directly or indirectly derived from such testimony, or other information)
may be used against the witness in any criminal case, except a prosecution for perjury,
giving a false statement, or otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no application to the
case at bar either. There has been no search undertaken by any agent or representative of the PCGG,
and of course no seizure on the occasion thereof.

24. Scope and Extent of Powers of the PCGG

One other question remains to be disposed of, that respecting the scope and extent of the powers that
may be wielded by the PCGG with regard to the properties or businesses placed under sequestration
or provisionally taken over. Obviously, it is not a question to which an answer can be easily given, much
less one which will suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of
dominion over property sequestered, frozen or provisionally taken over. AS already earlier stressed
with no little insistence, the act of sequestration; freezing or provisional takeover of property does not
import or bring about a divestment of title over said property; does not make the PCGG the owner
thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a
conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially
true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for
example, no court exercises effective supervision or can upon due application and hearing, grant
authority for the performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question should entail the least possible
interference with business operations or activities so that, in the event that the accusation of the
business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as far as
possible in the same condition as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or business sequestered
or provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend
actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such
other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this
context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person
or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to
carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek
and secure the assistance of any office, agency or instrumentality of the government. 116 In the case
of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the
case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker,
"watchdog" or overseer. It is not that of manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close
to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been "taken over by
the government of the Marcos Administration or by entities or persons close to former President
Marcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally take (it)
over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously
employed in reference to going concerns, or business enterprises in operation, something more than
mere physical custody is connoted; the PCGG may in this case exercise some measure of control in
the operation, running, or management of the business itself. But even in this special situation, the
intrusion into management should be restricted to the minimum degree necessary to accomplish the
legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should
be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change
of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution

should be avoided if at all possible, and undertaken only when justified by demonstrably tenable
grounds and in line with the stated objectives of the PCGG. And it goes without saying that where
replacement of management officers may be called for, the greatest prudence, circumspection, care
and attention - should accompany that undertaking to the end that truly competent, experienced and
honest managers may be recruited. There should be no role to be played in this area by rank amateurs,
no matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The
business is not to be experimented or played around with, not run into the ground, not driven to
bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the
whole exercise, which is to turn over the business to the Republic, once judicially established to be "illgotten." Reason dictates that it is only under these conditions and circumstances that the supervision,
administration and control of business enterprises provisionally taken over may legitimately be
exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly
exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the
Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG,
"pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock,"
"to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings
called for the election of directors, declaration of dividends, amendment of the Articles of Incorporation,
etc." The Memorandum should be construed in such a manner as to be consistent with, and not
contradictory of the Executive Orders earlier promulgated on the same matter. There should be no
exercise of the right to vote simply because the right exists, or because the stocks sequestered
constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted
to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in
policy, program or practice of the corporation except for demonstrably weighty and defensible grounds,
and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent
the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply
because the power to do so exists. Substitution of directors is not to be done without reason or rhyme,
should indeed be shunned if at an possible, and undertaken only when essential to prevent
disappearance or wastage of corporate property, and always under such circumstances as assure that
the replacements are truly possessed of competence, experience and probity.
In the case at bar, there was adequate justification to vote the incumbent directors out of office and
elect others in their stead because the evidence showed prima facie that the former were just tools of
President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is
why, in its Resolution of October 28, 1986; 118 this Court declared that
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in
respondents' calling and holding of a stockholders' meeting for the election of directors
as authorized by the Memorandum of the President * * (to the PCGG) dated June 26,
1986, particularly, where as in this case, the government can, through its designated
directors, properly exercise control and management over what appear to be properties
and assets owned and belonging to the government itself and over which the persons
who appear in this case on behalf of BASECO have failed to show any right or even any
shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the
management of the company's affairs should henceforth be guided and governed by the norms herein
laid down. They should never for a moment allow themselves to forget that they are conservators, not

owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and
rectitude is, in the premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the
execution of certain contracts, inclusive of the termination of the employment of some of its
executives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It is
not necessary to do so. The issues arising therefrom may and will be left for initial determination in the
appropriate action. But the Court will state that absent any showing of any important cause therefor, it
will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clear
however, that as things now stand, the petitioner cannot be said to have established the correctness of
its submission that the acts of the PCGG in question were done without or in excess of its powers, or
with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986
is lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-22973

January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of
Camarines Norte,defendants-appellees.
ANGELES, J.:
An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil
Case No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National
Bank and Anacleto Heraldo, defendants", dismissing the complaint against both defendants
and sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the
sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961
until fully paid, and the costs of suit.
In seeking the reversal of the decision, the plaintiff advances several propositions in its brief
which may be restated as follows:
1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87
and not P58,213.51 as concluded by the court a quo; hence, the proceeds of the
foreclosure sale of its real property alone in the amount of P56,908.00 on that date, added
to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient to
liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattels
unlawful;
2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the
additional sum of P298.54 as expenses of the foreclosure sale;
3. That the subsequent foreclosure sale of its chattels is null and void, not only because
it had already settled its indebtedness to the PNB at the time the sale was effected, but
also for the reason that the said sale was not conducted in accordance with the provisions
of the Chattel Mortgage Law and the venue agreed upon by the parties in the mortgage
contract;
4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and
5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter
disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof after
the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said
properties, the PNB is liable to plaintiff for damages and attorney's fees.

The antecedent facts of the case, as found by the trial court, are as follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga
Branch of defendant PNB and the former offered real estate, machinery, logging and
transportation equipments as collaterals. The application, however, was approved for a
loan of P100,000 only. To secure the payment of the loan, the plaintiff mortgaged to
defendant PNB a parcel of land, together with the buildings and improvements existing
thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of
Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land records
of said province, as well as various sawmill equipment, rolling unit and other fixed assets
of the plaintiff, all situated in its compound in the aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for
which the plaintiff signed a promissory note wherein it promised to pay to the PNB the
said sum in five equal yearly installments at the rate of P6,528.40 beginning July 31,
1957, and every year thereafter, the last of which would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as part of the approved
loan granted to the plaintiff and so on the said date, the latter executed another
promissory note wherein it agreed to pay to the former the said sum in five equal yearly
installments at the rate of P3,679.64 beginning July 31, 1957, and ending on July 31,
1961.
The plaintiff failed to pay the amortization on the amounts released to and received by it.
Repeated demands were made upon the plaintiff to pay its obligation but it failed or
otherwise refused to do so. Upon inspection and verification made by employees of the
PNB, it was found that the plaintiff had already stopped operation about the end of 1957
or early part of 1958.
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines
Norte requesting him to take possession of the parcel of land, together with the
improvements existing thereon, covered by Transfer Certificate of Title No. 381 of the
land records of Camarines Norte, and to sell it at public auction in accordance with the
provisions of Act No. 3135, as amended, for the satisfaction of the unpaid obligation of
the plaintiff, which as of September 22, 1961, amounted to P57,646.59, excluding
attorney's fees. In compliance with the request, on October 16, 1961, the Provincial
Sheriff of Camarines Norte issued the corresponding notice of extra-judicial sale and sent
a copy thereof to the plaintiff. According to the notice, the mortgaged property would be
sold at public auction at 10:00 a.m. on November 21, 1961, at the ground floor of the
Court House in Daet, Camarines Norte.
On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell
them at public auction also on November 21, 1961, for the satisfaction of the sum of
P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's fees
equivalent to 10% of the amount due and the costs and expenses of the sale. On the
same day, the PNB sent notice to the plaintiff that the former was foreclosing
extrajudicially the chattels mortgaged by the latter and that the auction sale thereof would

be held on November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines
Norte, where the mortgaged chattels were situated.
On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of
the chattels mortgaged by the plaintiff and made an inventory thereof in the presence of
a PC Sergeant and a policeman of the municipality of Jose Panganiban. On November
9, 1961, the said Deputy Sheriff issued the corresponding notice of public auction sale of
the mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's
compound situated in the municipality of Jose Panganiban, Province of Camarines Norte.
On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail
matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff of
Camarines Norte, protesting against the foreclosure of the real estate and chattel
mortgages on the grounds that they could not be effected unless a Court's order was
issued against it (plaintiff) for said purpose and that the foreclosure proceedings,
according to the terms of the mortgage contracts, should be made in Manila. In said letter
to the Naga Branch of the PNB, it was intimated that if the public auction sale would be
suspended and the plaintiff would be given an extension of ninety (90) days, its obligation
would be settled satisfactorily because an important negotiation was then going on for
the sale of its "whole interest" for an amount more than sufficient to liquidate said
obligation.
The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a
request for extension of the foreclosure sale of the mortgaged chattels and so it advised
the Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and
place. A copy of said advice was sent to the plaintiff for its information and guidance.
The foreclosure sale of the parcel of land, together with the buildings and improvements
thereon, covered by Transfer Certificate of Title No. 381, was, however, held on
November 21, 1961, and the said property was sold to the PNB for the sum of
P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one
year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of sale
in favor of the PNB and a copy thereof was sent to the plaintiff.
In a letter dated December 14, 1961 (but apparently posted several days later), the
plaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full
settlement of the balance of the obligation of the plaintiff after the application thereto of
the sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel of land
described in Transfer Certificate of Title No. 381. In the said letter, the plaintiff reiterated
its request that the foreclosure sale of the mortgaged chattels be discontinued on the
grounds that the mortgaged indebtedness had been fully paid and that it could not be
legally effected at a place other than the City of Manila.
In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of
Camarines Norte that it had fully paid its obligation to the PNB, and enclosed therewith
a copy of its letter to the latter dated December 14, 1961.

On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff
acknowledging the remittance of P738.59 with the advice, however, that as of that date
the balance of the account of the plaintiff was P9,161.76, to which should be added the
expenses of guarding the mortgaged chattels at the rate of P4.00 a day beginning
December 19, 1961. It was further explained in said letter that the sum of P57,646.59,
which was stated in the request for the foreclosure of the real estate mortgage, did not
include the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was
advised that the foreclosure sale scheduled on the 21st of said month would be stopped
if a remittance of P9,161.76, plus interest thereon and guarding fees, would be made.
On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00
a.m. and they were awarded to the PNB for the sum of P4,200 and the corresponding
bill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo.
In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB
advised the plaintiff giving it priority to repurchase the chattels acquired by the former at
public auction. This offer was reiterated in a letter dated January 3, 1962, of the Attorney
of the Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its right
of redemption and that it apply for the condonation of the attorney's fees. The plaintiff did
not follow the advice but on the contrary it made known of its intention to file appropriate
action or actions for the protection of its interests.
On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff
in Jose Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security
Guard of the premises, that the properties therein had been auctioned and bought by the
PNB, which in turn sold them to Mariano Bundok. Upon being advised that the purchaser
would take delivery of the things he bought, Salgado was at first reluctant to allow any
piece of property to be taken out of the compound of the plaintiff. The employees of the
PNB explained that should Salgado refuse, he would be exposing himself to a litigation
wherein he could be held liable to pay big sum of money by way of damages.
Apprehensive of the risk that he would take, Salgado immediately sent a wire to the
President of the plaintiff in Manila, asking advice as to what he should do. In the
meantime, Mariano Bundok was able to take out from the plaintiff's compound two
truckloads of equipment.
In the afternoon of the same day, Salgado received a telegram from plaintiff's President
directing him not to deliver the "chattels" without court order, with the information that the
company was then filing an action for damages against the PNB. On the following day,
May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit
them to take out any equipment from inside the compound of the plaintiff. Thru the
intervention, however, of the local police and PC soldiers, the trucks of Mariano Bundok
were able finally to haul the properties originally mortgaged by the plaintiff to the PNB,
which were bought by it at the foreclosure sale and subsequently sold to Mariano
Bundok.
Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated
in the first paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the
defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum from

December 22, 1961 (day following the date of the questioned foreclosure of plaintiff's chattels)
until fully paid, and the costs. Mambulao Lumber Company interposed the instant appeal.
We shall discuss the various points raised in appellant's brief in seriatim.
The first question Mambulao Lumber Company poses is that which relates to the amount of its
indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It
is contended that its obligation under the terms of the two promissory notes it had executed in
favor of the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real
property was effected, and not P58,213.51 as found by the trial court.
There is merit to this claim. Examining the terms of the promissory note executed by the
appellant in favor of the PNB, we find that the agreed interest on the loan of P43,000.00
P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit C-3), and
P15,500.00 released on October 19, 1956, as per promissory note of the same date (Exhibit
C-4) was six per cent (6%) per annum from the respective date of said notes "until paid". In
the statement of account of the appellant as of September 22, 1961, submitted by the PNB, it
appears that in arriving at the total indebtedness of P57,646.59 as of that date, the PNB had
compounded the principal of the loan and the accrued 6% interest thereon each time the yearly
amortizations became due, and on the basis of these compounded amounts charged additional
delinquency interest on them up to September 22, 1961; and to this erroneously computed total
of P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to
November 21 of the same year. In effect, the PNB has claimed, and the trial court has
adjudicated to it, interest on accrued interests from the time the various amortizations of the
loan became due until the real estate mortgage executed to secure the loan was extra-judicially
foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly
provides that in computing the interest on any obligation, promissory note or other instrument
or contract, compound interest shall not be reckoned, except by agreement, or in default
thereof, whenever the debt is judicially claimed. This is also the clear mandate of Article 2212
of the new Civil Code which provides that interest due shall earn legal interest only from the
time it is judicially demanded, and of Article 1959 of the same code which ordains that interest
due and unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the
interest due and unpaid, which as added principal shall earn new interest; but such stipulation
is nowhere to be found in the terms of the promissory notes involved in this case. Clearly
therefore, the trial court fell into error when it awarded interest on accrued interests, without any
agreement to that effect and before they had been judicially demanded.
Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in
favor of the PNB. With respect to the amount of P298.54 allowed as expenses of the extrajudicial sale of the real property, appellant maintains that the same has no basis, factual or
legal, and should not have been awarded. It likewise decries the award of attorney's fees which,
according to the appellant, should not be deducted from the proceeds of the sale of the real
property, not only because there is no express agreement in the real estate mortgage contract
to pay attorney's fees in case the same is extra-judicially foreclosed, but also for the reason
that the PNB neither spent nor incurred any obligation to pay attorney's fees in connection with
the said extra-judicial foreclosure under consideration.

There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this
respect, the trial court said:
The parcel of land, together with the buildings and improvements existing thereon
covered by Transfer Certificate of Title No. 381, was sold for P56,908. There was,
however, no evidence how much was the expenses of the foreclosure sale although from
the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for
advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his
commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a total of P298.54.
There is really no evidence of record to support the conclusion that the PNB is entitled to the
amount awarded as expenses of the extra-judicial foreclosure sale. The court below committed
error in applying the provisions of the Rules of Court for purposes of arriving at the amount
awarded. It is to be borne in mind that the fees enumerated under paragraphs k and n, Section
7, of Rule 130 (now Rule 141) are demandable, only by a sheriff serving processes of the court
in connection with judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in
cases of extra-judicial foreclosure of mortgages under Act 3135. The law applicable is Section
4 of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of
P5.00 for each day of actual work performed in addition to his expenses in connection with the
foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case, that it actually
spent any amount in connection with the said foreclosure sale. Neither may expenses for
publication of the notice be legally allowed in the absence of evidence on record to support it. 1It
is true, as pointed out by the appellee bank, that courts should take judicial notice of the fees
provided for by law which need not be proved; but in the absence of evidence to show at least
the number of working days the sheriff concerned actually spent in connection with the extrajudicial foreclosure sale, the most that he may be entitled to, would be the amount of P10.00
as a reasonable allowance for two day's work one for the preparation of the necessary
notices of sale, and the other for conducting the auction sale and issuance of the corresponding
certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses
of the sale should be set aside.
But the claim of the appellant that the real estate mortgage does not provide for attorney's fees
in case the same is extra-judicially foreclosed, cannot be favorably considered, as would readily
be revealed by an examination of the pertinent provision of the mortgage contract. The parties
to the mortgage appear to have stipulated under paragraph (c) thereof, inter alia:
. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the
Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as
amended, to sign all documents and to perform all acts requisite and necessary to
accomplish said purpose and to appoint its substitute as such attorney-in-fact with the
same powers as above specified. In case of judicial foreclosure, the Mortgagor hereby
consents to the appointment of the Mortgagee or any of its employees as receiver,
without any bond, to take charge of the mortgaged property at once, and to hold
possession of the same and the rents, benefits and profits derived from the mortgaged
property before the sale, less the costs and expenses of the receivership; the Mortgagor
hereby agrees further that in all cases, attorney's fees hereby fixed at Ten Per cent (10%)
of the total indebtedness then unpaid which in no case shall be less than P100.00
exclusive of all fees allowed by law, and the expenses of collection shall be the obligation

of the Mortgagor and shall with priority, be paid to the Mortgagee out of any sums realized
as rents and profits derived from the mortgaged property or from the proceeds realized
from the sale of the said property and this mortgage shall likewise stand as security
therefor. . . .
We find the above stipulation to pay attorney's fees clear enough to cover both cases of
foreclosure sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all
cases" appears to be part of the second sentence, a reading of the whole context of the
stipulation would readily show that it logically refers to extra-judicial foreclosure found in the
first sentence and to judicial foreclosure mentioned in the next sentence. And the ambiguity in
the stipulation suggested and pointed out by the appellant by reason of the faulty sentence
construction should not be made to defeat the otherwise clear intention of the parties in the
agreement.
It is suggested by the appellant, however, that even if the above stipulation to pay attorney's
fees were applicable to the extra-judicial foreclosure sale of its real properties, still, the award
of P5,821.35 for attorney's fees has no legal justification, considering the circumstance that the
PNB did not actually spend anything by way of attorney's fees in connection with the sale. In
support of this proposition, appellant cites authorities to the effect: (1) that when the mortgagee
has neither paid nor incurred any obligation to pay an attorney in connection with the
foreclosure sale, the claim for such fees should be denied; 2 and (2) that attorney's fees will not
be allowed when the attorney conducting the foreclosure proceedings is an officer of the
corporation (mortgagee) who receives a salary for all the legal services performed by him for
the corporation. 3 These authorities are indeed enlightening; but they should not be applied in
this case. The very same authority first cited suggests that said principle is not absolute, for
there is authority to the contrary. As to the fact that the foreclosure proceeding's were handled
by an attorney of the legal staff of the PNB, we are reluctant to exonerate herein appellant from
the payment of the stipulated attorney's fees on this ground alone, considering the express
agreement between the parties in the mortgage contract under which appellant became liable
to pay the same. At any rate, we find merit in the contention of the appellant that the award of
P5,821.35 in favor of the PNB as attorney's fees is unconscionable and unreasonable,
considering that all that the branch attorney of the said bank did in connection with the
foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines
Norte requesting the latter to sell the same in accordance with the provisions of Act 3135.
The principle that courts should reduce stipulated attorney's fees whenever it is found under
the circumstances of the case that the same is unreasonable, is now deeply rooted in this
jurisdiction to entertain any serious objection to it. Thus, this Court has explained:
But the principle that it may be lawfully stipulated that the legal expenses involved in the
collection of a debt shall be defrayed by the debtor does not imply that such stipulations
must be enforced in accordance with the terms, no matter how injurious or oppressive
they may be. The lawful purpose to be accomplished by such a stipulation is to permit
the creditor to receive the amount due him under his contract without a deduction of the
expenses caused by the delinquency of the debtor. It should not be permitted for him to
convert such a stipulation into a source of speculative profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stands upon an entirely different
footing from contracts for the payment of compensation for any other services. By
express provision of section 29 of the Code of Civil Procedure, an attorney is not entitled
in the absence of express contract to recover more than a reasonable compensation for
his services; and even when an express contract is made the court can ignore it and limit
the recovery to reasonable compensation if the amount of the stipulated fee is found by
the court to be unreasonable. This is a very different rule from that announced in section
1091 of the Civil Code with reference to the obligation of contracts in general, where it is
said that such obligation has the force of law between the contracting parties. Had the
plaintiff herein made an express contract to pay his attorney an uncontingent fee of
P2,115.25 for the services to be rendered in reducing the note here in suit to judgment,
it would not have been enforced against him had he seen fit to oppose it, as such a fee
is obviously far greater than is necessary to remunerate the attorney for the work involved
and is therefore unreasonable. In order to enable the court to ignore an express contract
for an attorney's fees, it is not necessary to show, as in other contracts, that it is contrary
to morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable. 4
Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever
the fees stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is
primarily a court officer charged with the duty of assisting the court in administering impartial
justice between the parties, and hence, the fees should be subject to judicial control. Nor should
it be ignored that sound public policy demands that courts disregard stipulations for counsel
fees, whenever they appear to be a source of speculative profit at the expense of the debtor or
mortgagor. 5 And it is not material that the present action is between the debtor and the creditor,
and not between attorney and client. As court have power to fix the fee as between attorney
and client, it must necessarily have the right to say whether a stipulation like this, inserted in a
mortgage contract, is valid. 6
In determining the compensation of an attorney, the following circumstances should be
considered: the amount and character of the services rendered; the responsibility imposed; the
amount of money or the value of the property affected by the controversy, or involved in the
employment; the skill and experience called for in the performance of the service; the
professional standing of the attorney; the results secured; and whether or not the fee is
contingent or absolute, it being a recognized rule that an attorney may properly charge a much
larger fee when it is to be contingent than when it is not. 7 From the stipulation in the mortgage
contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness,
irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is
perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but, surely, it
is unreasonable when, as in this case, the mortgage was foreclosed extra-judicially, and all that
the attorney did was to file a petition for foreclosure with the sheriff concerned. It is to be
assumed though, that the said branch attorney of the PNB made a study of the case before
deciding to file the petition for foreclosure; but even with this in mind, we believe the amount of
P5,821.35 is far too excessive a fee for such services. Considering the above circumstances
mentioned, it is our considered opinion that the amount of P1,000.00 would be more than
sufficient to compensate the work aforementioned.

The next issue raised deals with the claim that the proceeds of the sale of the real properties
alone together with the amount it remitted to the PNB later was more than sufficient to liquidate
its total obligation to herein appellee bank. Again, we find merit in this claim. From the foregoing
discussion of the first two errors assigned, and for purposes of determining the total obligation
of herein appellant to the PNB as of November 21, 1961 when the real estate mortgage was
foreclosed, we have the following illustration in support of this conclusion:1wph1.t
A. I.

Principal Loan
(a) Promissory note dated August 2, 1956

P27,500.00

(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961
(b) Promissory note dated October 19, 1956

8,751.78
P15,500.00

(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961
II. Sheriff's fees [for two (2) day's work]

4,734.08
10.00

III. Attorney's fee

1,000.00
Total obligation as of Nov. 21, 1961 P57,495.86

B. I.

Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21,
1961

II. Additional amount remitted to the PNB on Dec. 18, 1961

P56,908.00
738.59

Total amount of Payment made to PNB as of Dec. 18, 1961 P57,646.59

Deduct: Total obligation to the PNB P57,495.86
Excess Payment to the PNB

P 150.73
========

From the foregoing illustration or computation, it is clear that there was no further necessity to
foreclose the mortgage of herein appellant's chattels on December 21, 1961; and on this ground
alone, we may declare the sale of appellant's chattels on the said date, illegal and void. But we
take into consideration the fact that the PNB must have been led to believe that the stipulated
10% of the unpaid loan for attorney's fees in the real estate mortgage was legally maintainable,
and in accordance with such belief, herein appellee bank insisted that the proceeds of the sale
of appellant's real property was deficient to liquidate the latter's total indebtedness. Be that as
it may, however, we still find the subsequent sale of herein appellant's chattels illegal and
objectionable on other grounds.

That appellant vigorously objected to the foreclosure of its chattel mortgage after the
foreclosure of its real estate mortgage on November 21, 1961, can not be doubted, as shown
not only by its letter to the PNB on November 19, 1961, but also in its letter to the provincial
sheriff of Camarines Norte on the same date. These letters were followed by another letter to
the appellee bank on December 14, 1961, wherein herein appellant, in no uncertain terms,
reiterated its objection to the scheduled sale of its chattels on December 21, 1961 at Jose
Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full its
total obligation to the PNB by the sale of the real estate and its subsequent remittance of the
amount of P738.59; and (2) that the contemplated sale at Jose Panganiban would violate their
agreement embodied under paragraph (i) in the Chattel Mortgage which provides as follows:
(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the
parties hereto agree that the corresponding complaint for foreclosure or the petition for
sale should be filed with the courts or the sheriff of the City of Manila, as the case may
be; and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%)
of the total indebtedness then unpaid but in no case shall it be less than P100.00,
exclusive of all costs and fees allowed by law and of other expenses incurred in
connection with the said foreclosure. [Emphasis supplied]
Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter
disregard of the objection of herein appellant to the sale of its chattels at Jose Panganiban,
Camarines Norte and not in the City of Manila as agreed upon, the PNB proceeded with the
foreclosure sale of said chattels. The trial court, however, justified said action of the PNB in the
decision appealed from in the following rationale:
While it is true that it was stipulated in the chattel mortgage contract that a petition for the
extra-judicial foreclosure thereof should be filed with the Sheriff of the City of Manila,
nevertheless, the effect thereof was merely to provide another place where the mortgage
chattel could be sold in addition to those specified in the Chattel Mortgage Law. Indeed,
a stipulation in a contract cannot abrogate much less impliedly repeal a specific provision
of the statute. Considering that Section 14 of Act No. 1508 vests in the mortgagee the
choice where the foreclosure sale should be held, hence, in the case under
consideration, the PNB had three places from which to select, namely: (1) the place of
residence of the mortgagor; (2) the place of the mortgaged chattels were situated; and
(3) the place stipulated in the contract. The PNB selected the second and, accordingly,
the foreclosure sale held in Jose Panganiban, Camarines Norte, was legal and valid.
To the foregoing conclusion, We disagree. While the law grants power and authority to the
mortgagee to sell the mortgaged property at a public place in the municipality where the
mortgagor resides or where the property is situated, 8 this Court has held that the sale of a
mortgaged chattel may be made in a place other than that where it is found, provided that the
owner thereof consents thereto; or that there is an agreement to this effect between the
mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed to have the sale
of the mortgaged chattels in the City of Manila, which, any way, is the residence of the
mortgagor, it cannot be rightly said that mortgagee still retained the power and authority to
select from among the places provided for in the law and the place designated in their
agreement over the objection of the mortgagor. In providing that the mortgaged chattel may be
sold at the place of residence of the mortgagor or the place where it is situated, at the option of

the mortgagee, the law clearly contemplated benefits not only to the mortgagor but to the
mortgagee as well. Their right arising thereunder, however, are personal to them; they do not
affect either public policy or the rights of third persons. They may validly be waived. So, when
herein mortgagor and mortgagee agreed in the mortgage contract that in cases of both judicial
and extra-judicial foreclosure under Act 1508, as amended, the corresponding complaint for
foreclosure or the petition for sale should be filed with the courts or the Sheriff of Manila, as the
case may be, they waived their corresponding rights under the law. The correlative obligation
arising from that agreement have the force of law between them and should be complied with
in good faith. 10
By said agreement the parties waived the legal venue, and such waiver is valid and
legally effective, because it, was merely a personal privilege they waived, which is not
contrary, to public policy or to the prejudice of third persons. It is a general principle that
a person may renounce any right which the law gives unless such renunciation is
expressly prohibited or the right conferred is of such nature that its renunciation would
be against public policy. 11
On the other hand, if a place of sale is specified in the mortgage and statutory
requirements in regard thereto are complied with, a sale is properly conducted in that
place. Indeed, in the absence of a statute to the contrary, a sale conducted at a place
other than that stipulated for in the mortgage is invalid, unless the mortgagor consents to
such sale. 12
Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should
make a return of his doings which shall particularly describe the articles sold and the amount
received from each article. From this, it is clear that the law requires that sale be made article
by article, otherwise, it would be impossible for him to state the amount received for each item.
This requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he
sold the chattels in question in bulk, notwithstanding the fact that the said chattels consisted of
no less than twenty different items as shown in the bill of sale. 13 This makes the sale of the
chattels manifestly objectionable. And in the absence of any evidence to show that the
mortgagor had agreed or consented to such sale in gross, the same should be set aside.
It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not
in accordance with its terms, or where the proceedings as to the sale of foreclosure do not
comply with the statute. 14 This rule applies squarely to the facts of this case where, as earlier
shown, herein appellee bank insisted, and the appellee deputy sheriff of Camarines Norte
proceeded with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in
utter disregard of the valid objection of the mortgagor thereto for the reason that it is not the
place of sale agreed upon in the mortgage contract; and the said deputy sheriff sold all the
chattels (among which were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring
Hall Safe, and Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular
saws etc.) as a single lot in violation of the requirement of the law to sell the same article by
article. The PNB has resold the chattels to another buyer with whom it appears to have actively
cooperated in subsequently taking possession of and removing the chattels from appellant
compound by force, as shown by the circumstance that they had to take along PC soldiers and
municipal policemen of Jose Panganiban who placed the chief security officer of the premises
in jail to deprive herein appellant of its possession thereof. To exonerate itself of any liability for

the breach of peace thus committed, the PNB would want us to believe that it was the
subsequent buyer alone, who is not a party to this case, that was responsible for the forcible
taking of the property; but assuming this to be so, still the PNB cannot escape liability for the
conversion of the mortgaged chattels by parting with its interest in the property. Neither would
its claim that it afterwards gave a chance to herein appellant to repurchase or redeem the
chattels, improve its position, for the mortgagor is not under obligation to take affirmative steps
to repossess the chattels that were converted by the mortgagee. 15 As a consequence of the
said wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have
to declare that herein appellant is entitled to collect from them, jointly and severally, the full
value of the chattels in question at the time they were illegally sold by them. To this effect was
the holding of this Court in a similar situation. 16
The effect of this irregularity was, in our opinion to make the plaintiff liable to the
defendant for the full value of the truck at the time the plaintiff thus carried it off to be
sold; and of course, the burden is on the defendant to prove the damage to which he was
thus subjected. . . .
This brings us to the problem of determining the value of the mortgaged chattels at the time of
their sale in 1961. The trial court did not make any finding on the value of the chattels in the
decision appealed from and denied altogether the right of the appellant to recover the same.
We find enough evidence of record, however, which may be used as a guide to ascertain their
value. The record shows that at the time herein appellant applied for its loan with the PNB in
1956, for which the chattels in question were mortgaged as part of the security therefore, herein
appellant submitted a list of the chattels together with its application for the loan with a stated
value of P107,115.85. An official of the PNB made an inspection of the chattels in the same
year giving it an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same
chattels with some additional equipment acquired by herein appellant with part of the proceeds
of the loan were reappraised in a re-inspection conducted by the same official in 1958, in the
report of which he gave all the chattels an appraised value of P26,850.00 and a market value
of P48,200.00. 18 Another re-inspection report in 1959 gave the appraised value as P19,400.00
and the market value at P25,600.00. 19 The said official of the PNB who made the foregoing
reports of inspection and re-inspections testified in court that in giving the values appearing in
the reports, he used a conservative method of appraisal which, of course, is to be expected of
an official of the appellee bank. And it appears that the values were considerably reduced in all
the re-inspection reports for the reason that when he went to herein appellant's premises at the
time, he found the chattels no longer in use with some of the heavier equipments dismantled
with parts thereof kept in the bodega; and finding it difficult to ascertain the value of the
dismantled chattels in such condition, he did not give them anymore any value in his reports.
Noteworthy is the fact, however, that in the last re-inspection report he made of the chattels in
1961, just a few months before the foreclosure sale, the same inspector of the PNB reported
that the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed
free from rains" 20 showing that although they were no longer in use at the time, they were kept
in a proper place and not exposed to the elements. The President of the appellant company,
on the other hand, testified that its caterpillar (tractor) alone is worth P35,000.00 in the market,
and that the value of its two trucks acquired by it with part of the proceeds of the loan and
included as additional items in the mortgaged chattels were worth no less than P14,000.00. He
likewise appraised the worth of its Murphy engine at P16,000.00 which, according to him, when
taken together with the heavy equipments he mentioned, the sawmill itself and all other

equipment forming part of the chattels under consideration, and bearing in mind the current
cost of equipments these days which he alleged to have increased by about five (5) times,
could safely be estimated at P120,000.00. This testimony, except for the appraised and market
values appearing in the inspection and re-inspection reports of the PNB official earlier
mentioned, stand uncontroverted in the record; but We are not inclined to accept such
testimony at its par value, knowing that the equipments of herein appellant had been idle and
unused since it stopped operating its sawmill in 1958 up to the time of the sale of the chattels
in 1961. We have no doubt that the value of chattels was depreciated after all those years of
inoperation, although from the evidence aforementioned, We may also safely conclude that the
amount of P4,200.00 for which the chattels were sold in the foreclosure sale in question was
grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of
P42,850.00 and the market value of P85,700.00 originally given by the PNB official were
admittedly conservative; that two 6 x 6 trucks subsequently bought by the appellant company
had thereafter been added to the chattels; and that the real value thereof, although depreciated
after several years of inoperation, was in a way maintained because the depreciation is off-set
by the marked increase in the cost of heavy equipment in the market, it is our opinion that the
market value of the chattels at the time of the sale should be fixed at the original appraised
value of P42,850.00.
Herein appellant's claim for moral damages, however, seems to have no legal or factual basis.
Obviously, an artificial person like herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. 21 A corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages. The same cannot
be considered under the facts of this case, however, not only because it is admitted that herein
appellant had already ceased in its business operation at the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the
chattels could have upon its reputation or business standing would undoubtedly be the same
whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is
the place agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in
proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila
as provided for in the mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00,
herein appellant should be awarded exemplary damages in the sum of P10,000.00. The
circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein
appellant.
WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from
should be, as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the
province of Camarines Norte are ordered to pay, jointly and severally, to Mambulao Lumber
Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to
the PNB, P42,850.00 the value of the chattels at the time of the sale with interest at the rate of
6% per annum from December 21, 1961, until fully paid, P10,000.00 in exemplary damages,
and P3,000.00 as attorney's fees. Costs against both appellees.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-31061 August 17, 1976
SULO NG BAYAN INC., plaintiff-appellant,
vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS &
SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF
BULACAN, defendants-appellees.
Hill & Associates Law Offices for appellant.
Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.
Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.
Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government
Corporate Counsel for appellee National Waterworks & Sewerage Authority.
Candido G. del Rosario for appellee Hacienda Caretas, Inc.
ANTONIO, J.:
The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute
an action in behalf of its individual members for the recovery of certain parcels of land
allegedly owned by said members; for the nullification of the transfer certificates of title
issued in favor of defendants appellees covering the aforesaid parcels of land; for a
declaration of "plaintiff's members as absolute owners of the property" and the issuance of
the corresponding certificate of title; and for damages.
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de
revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela,
Bulacan, against defendants-appellees to recover the ownership and possession of a large
tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 square
meters, more or less, registered under the Torrens System in the name of defendantsappellees' predecessors-in-interest. 1 The complaint, as amended on June 13, 1966,
specifically alleged that plaintiff is a corporation organized and existing under the laws of
the Philippines, with its principal office and place of business at San Jose del Monte,
Bulacan; that its membership is composed of natural persons residing at San Jose del
Monte, Bulacan; that the members of the plaintiff corporation, through themselves and their
predecessors-in-interest, had pioneered in the clearing of the fore-mentioned tract of land,
cultivated the same since the Spanish regime and continuously possessed the said property
openly and public under concept of ownership adverse against the whole world; that

defendant-appellee Gregorio Araneta, Inc., sometime in the year 1958, through force and
intimidation, ejected the members of the plaintiff corporation fro their possession of the
aforementioned vast tract of land; that upon investigation conducted by the members and
officers of plaintiff corporation, they found out for the first time in the year 1961 that the land
in question "had been either fraudelently or erroneously included, by direct or constructive
fraud, in Original Certificate of Title No. 466 of the Land of Records of the province of
Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and devoid of legal
efficacy due to the fact that "no original survey nor plan whatsoever" appears to have been
submitted as a basis thereof and that the Court of First Instance of Bulacan which issued
the decree of registration did not acquire jurisdiction over the land registration case because
no notice of such proceeding was given to the members of the plaintiff corporation who were
then in actual possession of said properties; that as a consequence of the nullity of the
original title, all subsequent titles derived therefrom, such as Transfer Certificate of Title No.
4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was subsequently
cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta, Inc.,
Transfer Certificate of Title No. 4988 issued in the name of, the National Waterworks &
Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986 issued in the name of
Hacienda Caretas, Inc., and another transfer certificate of title in the name of Paradise
Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that Original
Certificate of Title No. 466, as well as all transfer certificates of title issued and derived
therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in
common of said property and that the corresponding certificate of title be issued to plaintiff;
and (3) that defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the
damages therein specified.
On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss
the amended complaint on the grounds that (1) the complaint states no cause of action; and
(2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc.
and Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee
National Waterworks & Sewerage Authority did not file any motion to dismiss. However, it
pleaded in its answer as special and affirmative defenses lack of cause of action by the
plaintiff-appellant and the barring of such action by prescription and laches.
During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated
October 7, 1966, praying that the case be transferred to another branch of the Court of First
Instance sitting at Malolos, Bulacan, According to defendants-appellees, they were not
furnished a copy of said motion, hence, on October 14, 1966, the lower court issued an
Order requiring plaintiff-appellant to furnish the appellees copy of said motion, hence, on
October 14, 1966, defendant-appellant's motion dated October 7, 1966 and, consequently,
prayed that the said motion be denied for lack of notice and for failure of the plaintiffappellant to comply with the Order of October 14, 1966. Similarly, defendant-appellee
paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that
it also did not receive a copy of the afore-mentioned of appellant. On January 24, 1967, the
trial court issued an Order dismissing the amended complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the
grounds that the court had no jurisdiction to issue the Order of dismissal, because its request
for the transfer of the case from the Valenzuela Branch of the Court of First Instance to the
Malolos Branch of the said court has been approved by the Department of Justice; that the
complaint states a sufficient cause of action because the subject matter of the controversy
in one of common interest to the members of the corporation who are so numerous that the
present complaint should be treated as a class suit; and that the action is not barred by the
statute of limitations because (a) an action for the reconveyance of property registered
through fraud does not prescribe, and (b) an action to impugn a void judgment may be
brought any time. This motion was denied by the trial court in its Order dated February 22,
1967. From the afore-mentioned Order of dismissal and the Order denying its motion for
reconsideration, plaintiff-appellant appealed to the Court of Appeals.
On September 3, 1969, the Court of Appeals, upon finding that no question of fact was
involved in the appeal but only questions of law and jurisdiction, certified this case to this
Court for resolution of the legal issues involved in the controversy.
I
Appellant contends, as a first assignment of error, that the trial court acted without authority
and jurisdiction in dismissing the amended complaint when the Secretary of Justice had
already approved the transfer of the case to any one of the two branches of the Court of
First Instance of Malolos, Bulacan.
Appellant confuses the jurisdiction of a court and the venue of cases with the assignment
of cases in the different branches of the same Court of First Instance. Jurisdiction implies
the power of the court to decide a case, while venue the place of action. There is no question
that respondent court has jurisdiction over the case. The venue of actions in the Court of
First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying
of venue is not left to the caprice of plaintiff, but must be in accordance with the aforesaid
provision of the rules. 2The mere fact that a request for the transfer of a case to another
branch of the same court has been approved by the Secretary of Justice does not divest
the court originally taking cognizance thereof of its jurisdiction, much less does it change
the venue of the action. As correctly observed by the trial court, the indorsement of the
Undersecretary of Justice did not order the transfer of the case to the Malolos Branch of the
Bulacan Court of First Instance, but only "authorized" it for the reason given by plaintiff's
counsel that the transfer would be convenient for the parties. The trial court is not without
power to either grant or deny the motion, especially in the light of a strong opposition thereto
filed by the defendant. We hold that the court a quo acted within its authority in denying the
motion for the transfer the case to Malolos notwithstanding the authorization" of the same
by the Secretary of Justice.
II
Let us now consider the substantive aspect of the Order of dismissal.
In dismissing the amended complaint, the court a quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the
lack of personality of plaintiff to file the instant action. Essentially, the term
'cause of action' is composed of two elements: (1) the right of the plaintiff and
(2) the violation of such right by the defendant. (Moran, Vol. 1, p. 111). For these
reasons, the rules require that every action must be prosecuted and defended
in the name of the real party in interest and that all persons having an interest
in the subject of the action and in obtaining the relief demanded shall be joined
as plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights
were alleged to have been violated by being deprived and dispossessed of their
land are the members of the corporation and not the corporation itself. The
corporation has a separate. and distinct personality from its members, and this
is not a mere technicality but a matter of substantive law. There is no allegation
that the members have assigned their rights to the corporation or any showing
that the corporation has in any way or manner succeeded to such rights. The
corporation evidently did not have any rights violated by the defendants for
which it could seek redress. Even if the Court should find against the
defendants, therefore, the plaintiff corporation would not be entitled to the reliefs
prayed for, which are recoveries of ownership and possession of the land,
issuance of the corresponding title in its name, and payment of damages.
Neither can such reliefs be awarded to the members allegedly deprived of their
land, since they are not parties to the suit. It appearing clearly that the action
has not been filed in the names of the real parties in interest, the complaint must
be dismissed on the ground of lack of cause of action. 3
Viewed in the light of existing law and jurisprudence, We find that the trial court correctly
dismissed the amended complaint.
It is a doctrine well-established and obtains both at law and in equity that a corporation is a
distinct legal entity to be considered as separate and apart from the individual stockholders
or members who compose it, and is not affected by the personal rights, obligations and
transactions of its stockholders or members. 4 The property of the corporation is its property
and not that of the stockholders, as owners, although they have equities in it. Properties
registered in the name of the corporation are owned by it as an entity separate and distinct
from its members. 5 Conversely, a corporation ordinarily has no interest in the individual
property of its stockholders unless transferred to the corporation, "even in the case of a oneman corporation. 6 The mere fact that one is president of a corporation does not render the
property which he owns or possesses the property of the corporation, since the president,
as individual, and the corporation are separate similarities. 7 Similarly, stockholders in a
corporation engaged in buying and dealing in real estate whose certificates of stock entitled
the holder thereof to an allotment in the distribution of the land of the corporation upon
surrender of their stock certificates were considered not to have such legal or equitable title
or interest in the land, as would support a suit for title, especially against parties other than
the corporation. 8
It must be noted, however, that the juridical personality of the corporation, as separate and
distinct from the persons composing it, is but a legal fiction introduced for the purpose of

convenience and to subserve the ends of justice. 9 This separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is
used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary
to achieve equity. 10
Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, ... the law will regard the corporation as an association of
persons, or in the case of two corporations, merge them into one, the one being merely
regarded as part or instrumentality of the other. 11 The same is true where a corporation is
a dummy and serves no business purpose and is intended only as a blind, or an alter ego
or business conduit for the sole benefit of the stockholders. 12 This doctrine of disregarding
the distinct personality of the corporation has been applied by the courts in those cases
when the corporate entity is used for the evasion of taxes 13 or when the veil of corporate
fiction is used to confuse legitimate issue of employer-employee relationship, 14 or when
necessary for the protection of creditors, in which case the veil of corporate fiction may be
pierced and the funds of the corporation may be garnished to satisfy the debts of a principal
stockholder. 15 The aforecited principle is resorted to by the courts as a measure protection
for third parties to prevent fraud, illegality or injustice. 16
It has not been claimed that the members have assigned or transferred whatever rights they
may have on the land in question to the plaintiff corporation. Absent any showing of interest,
therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action
for and in behalf of its stockholders or members for the purpose of recovering property which
belongs to said stockholders or members in their personal capacities.
It is fundamental that there cannot be a cause of action 'without an antecedent primary legal
right conferred' by law upon a person. 17 Evidently, there can be no wrong without a
corresponding right, and no breach of duty by one person without a corresponding right
belonging to some other person. 18 Thus, the essential elements of a cause of action are
legal right of the plaintiff, correlative obligation of the defendant, an act or omission of the
defendant in violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor
of plaintiff corporation, for as shown heretofore it does not have any interest in the subject
matter of the case which is material and, direct so as to entitle it to file the suit as a real
party in interest.
III
Appellant maintains, however, that the amended complaint may be treated as a class suit,
pursuant to Section 12 of Rule 3 of the Revised Rules of Court.
In order that a class suit may prosper, the following requisites must be present: (1) that the
subject matter of the controversy is one of common or general interest to many persons;
and (2) that the parties are so numerous that it is impracticable to bring them all before the
court. 20
Under the first requisite, the person who sues must have an interest in the controversy,
common with those for whom he sues, and there must be that unity of interest between him

and all such other persons which would entitle them to maintain the action if suit was brought
by them jointly. 21
As to what constitutes common interest in the subject matter of the controversy, it has been
explained in Scott v. Donald 22 thus:
The interest that will allow parties to join in a bill of complaint, or that will enable
the court to dispense with the presence of all the parties, when numerous,
except a determinate number, is not only an interest in the question, but one in
common in the subject Matter of the suit; ... a community of interest growing out
of the nature and condition of the right in dispute; for, although there may not
be any privity between the numerous parties, there is a common title out of
which the question arises, and which lies at the foundation of the proceedings
... [here] the only matter in common among the plaintiffs, or between them and
the defendants, is an interest in the Question involved which alone cannot lay
a foundation for the joinder of parties. There is scarcely a suit at law, or in equity
which settles a Principle or applies a principle to a given state of facts, or in
which a general statute is interpreted, that does not involved a Question in
which other parties are interested. ... (Emphasis supplied )
Here, there is only one party plaintiff, and the plaintiff corporation does not even have an
interest in the subject matter of the controversy, and cannot, therefore, represent its
members or stockholders who claim to own in their individual capacities ownership of the
said property. Moreover, as correctly stated by the appellees, a class suit does not lie in
actions for the recovery of property where several persons claim Partnership of their
respective portions of the property, as each one could alleged and prove his respective right
in a different way for each portion of the land, so that they cannot all be held to have Identical
title through acquisition prescription. 23
Having shown that no cause of action in favor of the plaintiff exists and that the action in the
lower court cannot be considered as a class suit, it would be unnecessary and an Idle
exercise for this Court to resolve the remaining issue of whether or not the plaintiffs action
for reconveyance of real property based upon constructive or implied trust had already
prescribed.
ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiffappellant.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 85266 January 30, 1990
PHILIPPINE VETERANS INVESTMENT DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS and VIOLETA MONTELIBANO BORRES, respondents.
The Government Corporate Counsel for petitioner.
Ricardo P.C. Castro, Jr. for private respondent.
CRUZ, J.:
The concept of piercing the veil of corporate fiction is a mystique to many people, especially
the layman. But it is not as esoteric as all that as this case will demonstrate.
This case arose when Violeta M. Borres, private respondent herein, was injured in an
accident that was later held by the trial and respondent courts to be due to the negligence
of Phividec Railways, Inc. (PRI). 1 The accident occurred on March 29, 1979. On May 25,
1979, petitioner Philippine Veterans Investment Development Corporation (PHIVIDEC) sold
all its rights and interests in the PRI to the Philippine Sugar Commission (PHILSUCOM).
Two days later, PHILSUCOM caused the creation of a wholly-owned subsidiary, the Panay
Railways, Inc., to operate the railway assets acquired from PHIVIDEC. On January 21,
1980, Borres filed a complaint for damages against PRI and Panay Railways Inc. (Panay
), 2 whereupon the latter filed with leave of court a third-party complaint against the herein
petitioner. 3 It alleged that upon the sale to PHILSUCOM of PRI, the corporate name of PRI
was changed to Panay Railways, Inc. It disclaimed liability on the ground that in the
Agreement concluded between PHIVIDEC and PHILSUCOM, it was provided that:
D. With the exception of the Liabilities and Contracts specified in Annexes 4
and 5 of the preceding paragraph, PHIVIDEC hereby holds PHILSUCOM
harmless from and against any action, claim or liability that may arise out of or
result from acts or omissions, contracts or transactions prior to the turn-over.
After trial, Judge Ricardo M. Ilarde of the Regional Trial Court of Iloilo held Phividec
Railways, Inc. negligent and so liable to the plaintiff for damages. It also held that as PRI
was a wholly-owned subsidiary of PHIVIDEC, the latter should answer for PRI's liability. The
decision was affirmed on appeal by the respondent court, 4 which is now faulted for grave
abuse of discretion in this petition.
The sole issue raised in this petition is the ruling of the Court of Appeals that:

Thus, the piercing of the veil of corporate fiction is called for in the case at bar.
When PRI was sold by PHIVIDEC to PHILSUCOM on May 25, 1979, the legal
fiction of PRI as a separate corporate entity from PHIVIDEC disappeared
pursuant to and in view of the representations and warranties contained in the
agreement of sale between PHIVIDEC and PHILSUCOM, particularly the
stipulation already quoted above, by virtue of which PHIVIDEC held
PHILSUCOM harmless from any claim or liability arising out of any act or
transaction "prior to the turn-over." By virtue of this provision, PHIVIDEC had
expressly assumed liability for any claim arising before the turn-over of PRI to
PHILSUCOM. And since the accident in question took place before said turnover and since after said turn-over PRI ceased to exist (in the sense that its
railways operations were taken over by PHILSUCOM thru the Panay RW) the
only logical conclusion is that PHIVIDEC should be solely liable for the damages
to the plaintiff in the case at bar. Indeed, applying the Koppel precedent just
cited, PHIVIDEC cannot hide behind the veil of corporate fiction in order to
evade this liability, nor could the veil of corporate fiction be made a shield to
confuse claimants such as plaintiff-appellee.
It is the position of the petitioner that PHIVIDEC and PRI are entirely distinct and separate
corporations although the latter is its subsidiary. The transfer of the shares of stock of PRI
to PHILSUCOM did not divest PRI of its juridical personality or of its capacity to direct its
own affairs and conduct its own business under the control of its own board of directors. By
the same token, it is answerable for its own obligations, which cannot be passed on to the
petitioner as its own liability. To support this stand, the petitioner invokes the case of E.J.
Nell v. Pacific Farms,5 which, however, it has not accurately quoted.
We must sustain the respondents.
In Koppel v. Yatco, 6 the Court, citing Fletcher, declared that the veil of corporate fiction may
be pierced when it is used to defeat public convenience, justify wrong, protect fraud, or
defend crime. 7 It added that when the corporation is the mere alter ego or business conduit
of a person it may be disregarded, "to prevent injustice, or the distortion or hiding of the
truth, or to let in a just defense." 8
The rule is that:
Where it appears that two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to
protect the rights of third persons, disregard the legal fiction that two
corporations are distinct entities, and treat them as identical. 9
In Yutivo Sons Hardware Co. v. Court of Tax Appeals, 10 this Court held:
It is an elementary and fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders and from
other corporations to which it may be connected. However, "when the notion of
legal entity is used to defeat public convenience, justify wrong, protect fraud or

defend crime," the law will regard the corporation as an association of persons,
or in the case of two corporations merge them into one. ... Another rule is that,
when the corporation is the "mere alter ego or business conduit of a person, it
may be disregarded."
In Commissioner of Internal Revenue v. Norton and Harrison Co., 11 this Court likewise ruled
that where a corporation is merely an adjunct, business conduit or alter ego of another
corporation the fiction of separate and distinct corporate entities should be disregarded.
In fact, contrary to the suggestion in the petition, what the Court said in the Nell Case was:
Generally where one corporation sells or otherwise transfers all of its assets to
another corporation, the latter is not liable for the debts and liabilities of the
transferor, except: (1) where the purchaser expressly or impliedly agrees to
assume such 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 entered
into fraudulently in order to escape liability for such debts.
Moreover, as correctly pointed out by the respondent court:
Besides, PHIVIDEC'S act of selling PRI to PHILSUCOM shows that PHVIDEC
had complete control of PRI's business. This circumstance renders applicable
the rule cited by third-party plaintiff-appellee (Costan v. Manila Electric, 24 F
2nd 383) that if a parent- holding company (PHIVIDEC in the present case)
assumes complete control of the operations of its subsidiary's business, the
separate corporate existence of the subsidiary must be disregarded, such that
the holding company will be responsible for the negligence of the employees of
the subsidiary as if it were the holding company's own employees.
It is clear from the evidence of record that by virtue of the agreement between PHIVIDEC
and PHILSUCOM, particularly the stipulation exempting the latter from any "claim or liability
arising out of any act or transaction" prior to the turn-over, PHIVIDEC had expressly
assumed liability for any claim against PRI. Since the accident happened before that
agreement and PRI ceased to exist after the turn-over, it should follow that PHIVIDEC
cannot evade its liability for the injuries sustained by the private respondent.
A contrary conclusion would leave the private respondent without any recourse for her
legitimate claim. In the interest of justice and equity, and to prevent the veil of corporate
fiction from denying her the reparation to which she is entitled, that veil must be pierced and
PHIVIDEC and PRI regarded as one and the same entity.
WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED, with
costs against the petitioner. It is so ordered.

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION

DONNINA C. HALLEY,
Petitioner,

G.R. No. 157549

Present:

-versus-

CARPIO MORALES, Chairperson,

BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.
Promulgated:

PRINTWELL, INC.,
May 30, 2011
Respondent.
x-----------------------------------------------------------------------------------------x
DECISION

BERSAMIN, J:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their
unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability,
because the veil may be lifted to avoid defrauding corporate creditors.
Weaffirm with modification the decisionpromulgated on August 14, 2002,[1]whereby the
Court of Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City
(RTC),[2]ordering the defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the
principal sum of P291,342.76 plus interest.
Antecedents
The petitioner wasan incorporator and original director of Business Media Philippines, Inc.
(BMPI), which, at its incorporation on November 12, 1987, [3]had an authorized capital stock
of P3,000,000.00 divided into 300,000 shares each with a par value of P10.00,of which 75,000
were initially subscribed, to wit:

Subscriber
Donnina C. Halley
Roberto V. Cabrera, Jr.
Albert T. Yu
Zenaida V. Yu
Rizalino C. Vineza
TOTAL

No. of shares Total subscription

Amount paid
35,000
P 350,000.00
P87,500.00
18,000
P 180,000.00
P45,000.00
18,000
P 180,000.00
P45,000.00
2,000
P 20,000.00
P5,000.00
2,000
P 20,000.00
P5,000.00
75,000
P750,000.00
P187,500.00

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for

the printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that
BMPI published and sold. For that purpose, Printwell extended 30-day credit accommodations to
BMPI.
In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several
orders on credit, evidenced byinvoices and delivery receipts totalingP316,342.76.Considering
that BMPI paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection
of the unpaid balance of P291,342.76 in the RTC.[4]
On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all
the original stockholders and incorporators to recover on theirunpaid subscriptions, as follows: [5]
Name
Donnina C. Halley
Roberto V. Cabrera, Jr.
Albert T. Yu
Zenaida V. Yu
Rizalino C. Vieza
TOTAL

Unpaid Shares
P 262,500.00
P135,000.00
P135,000.00
P15,000.00
P15,000.00
P 562,500.00

The defendants filed a consolidated answer,[6]averring that they all had paid their subscriptions in
full; that BMPI had a separate personality from those of its stockholders; thatRizalino C. Vieza
had assigned his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors
and stockholders of BMPI had resolved to dissolve BMPI during the annual meetingheld on
February 5, 1990.
To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI
official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223,
andOR no. 227,to wit:
Receipt No.

Date

Name

Amount

217
218
220
221
222
223
227

November 5, 1987
May 13, 1988
May 13, 1988
November 5, 1987
November 5, 1987
May 13, 1988
May 13, 1988

Albert T. Yu
Albert T. Yu
Roberto V. Cabrera, Jr.
Roberto V. Cabrera, Jr.
Zenaida V. Yu
Zenaida V. Yu
Donnina C. Halley

P 45,000.00
P 135,000.00
P 135,000.00
P 45,000.00
P 5,000.00
P 15,000.00
P 262,500.00

In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report

dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the
BIR);[7](b) BMPIbalance sheet[8] and income statement[9]as of December 31, 1988; (c) BMPI
income tax return for the year 1988 (stamped received by the BIR);[10](d) journal vouchers;[11](e)
cash deposit slips;[12] and(f)Bank of the Philippine Islands (BPI) savings account passbookin the
name of BMPI.[13]
Ruling of the RTC

On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation
of payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and
observingthat the defendants had used BMPIs corporate personality to evade payment and create
injustice, viz:
The claim of individual defendants that they have fully paid their subscriptions to
defend[a]nt corporation, is not worthy of consideration, because:
a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that
the alleged payment made on May 13, 1988 amounting to P135,000.00, is
covered by Official Receipt No. 218 (Exh. 2), whereas the alleged payment made
earlier on November 5, 1987, amounting to P5,000.00, is covered by Official
Receipt No. 222 (Exh. 3). This is cogent proof that said receipts were belatedly
issued just to suit their theory since in the ordinary course of business, a receipt
issued earlier must have serial numbers lower than those issued on a later date.
But in the case at bar, the receipt issued on November 5, 1987 has serial numbers
(222) higher than those issued on a later date (May 13, 1988).
b) The claim that since there was no call by the Board of Directors of defendant
corporation for the payment of unpaid subscriptions will not be a valid excuse to
free individual defendants from liability. Since the individual defendants are
members of the Board of Directors of defendantcorporation, it was within their
exclusive power to prevent the fulfillment of the condition, by simply not making
a call for the payment of the unpaid subscriptions. Their inaction should not work
to their benefit and unjust enrichment at the expense of plaintiff.

Assuming arguendo that the individual defendants have paid their unpaid
subscriptions, still, it is very apparent that individual defendants merely used the
corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate
personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc.
vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).[14]
Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to
Printwell pro rata, thusly:
Defendant Business Media, Inc. is a registered corporation (Exhibits A, A-1 to A9), and, as appearing from the Articles of Incorporation, individual defendants have the
following unpaid subscriptions:
Names Unpaid Subscription
Donnina C. Halley P262,500.00
Roberto V. Cabrera, Jr. 135.000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
-------------------Total P562,500.00
and it is an established doctrine that subscriptions to the capital stock of a corporation
constitute a fund to which creditors have a right to look for satisfaction of their claims
(Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a
corporation has no legal capacity to release a subscriber to its capital stock from the
obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs.
Poizat, 37 Phil. 802).
The liability of the individual stockholders in the instant case shall be pro-rated as
follows:
Names Amount
Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Rizalino V. Vineza 8,579.00
-----------------Total P321,342.75[15]

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as
principal, with interest thereon at 20% per annum, from date of default, until fully paid,
plus P30,000.00 as attorneys fees, plus costs of suit.

Defendants counterclaims are ordered dismissed for lack of merit.

SO ORDERED.[16]

Ruling of the CA

All the defendants, except BMPI, appealed.

Spouses Donnina and Simon Halley, andRizalinoVieza defined the following errors
committed by the RTC, as follows:
I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS
LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION.
II.
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE
EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY,
THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT
APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED,
NO SUCH UNPAID SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:

I.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO
DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YUS
EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY
APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING
THEM.
II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES
ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE
CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE
FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR
RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS
MEDIA PHILS., INC.

Roberto V. Cabrera, Jr. argued:

I.

IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE

DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN
ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES
THAT WOULD JUSTIFY RESORT THERETO.
II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT
INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFFAPPELLEES CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION.
NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL
SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL
DEFENDANTS.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants resort to the corporate
personality would createan injustice becausePrintwell would thereby be at a loss against whom it
would assert the right to collect, viz:
Settled is the rule that when the veil of corporate fiction is used as a means of
perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievements or perfection of monopoly
or generally the perpetration of knavery or crime, the veil with which the law covers
and isolates the corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of individuals (First
Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under
this doctrine, the corporate existence may be disregarded where the entity is formed or
used for non-legitimate purposes, such as to evade a just and due obligations or to justify
wrong (Claparols vs. CIR, 65 SCRA 613).
In the case at bench, it is undisputed that BMPI made several orders on credit from
appellee PRINTWELL involving the printing of business magazines, wrappers and
subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which
facts were never denied by appellants stockholders that they owe appellee the amount
of P291,342.76. The said goods were delivered to and received by BMPI but it failed
to pay its overdue account to appellee as well as the interest thereon, at the rate of 20%
per annum until fully paid. It was also during this time that appellants stockholders were
in charge of the operation of BMPI despite the fact that they were not able to pay their
unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of
the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in
order to protect its right can collect from the appellants stockholders regarding their
unpaid subscriptions. To deny appellee from recovering from appellants would place
appellee in a limbo on where to assert their right to collect from BMPI since the
stockholders who are appellants herein are availing the defense of corporate fiction to
evade payment of its obligations.[17]

Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which
corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate
debts, stating thus:
It is an established doctrine that subscription to the capital stock of a corporation
constitute a fund to which creditors have a right to look up to for satisfaction of their
claims, and that the assignee in insolvency can maintain an action upon any unpaid
stock subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok
Sawmill, 23 SCRA 1366).
Premised on the above-doctrine, an inference could be made that the funds, which
consists of the payment of subscriptions of the stockholders, is where the creditors can
claim monetary considerations for the satisfaction of their claims. If these funds which
ought to be fully subscribed by the stockholders were not paid or remain an unpaid
subscription of the corporation then the creditors have no other recourse to collect from
the corporation of its liability. Such occurrence was evident in the case at bar wherein
the appellants as stockholders failed to fully pay their unpaid subscriptions, which left
the creditors helpless in collecting their claim due to insufficiency of funds of the
corporation. Likewise, the claim of appellants that they already paid the unpaid
subscriptions could not be given weight because said payment did not reflect in the
Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the
appellants stockholders. For it is a rule that a stockholder may be sued directly by
creditors to the extent of their unpaid subscriptions to the corporation (Keller vs. COB
Marketing, 141 SCRA 86).
Moreover, a corporation has no power to release a subscription or its capital stock,
without valuable consideration for such releases, and as against creditors, a reduction
of the capital stock can take place only in the manner and under the conditions
prescribed by the statute or the charter or the Articles of Incorporation. (PNB vs. Bitulok
Sawmill, 23 SCRA 1366).[18]

The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full
payment of the subscriptions to the capital stock unworthy of consideration; andheld that the veil
of corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to
confuse legitimate issues, to wit:
Finally, appellants SPS YU, argued that the fact of full payment for the unpaid
subscriptions was incontrovertibly established by competent testimonial and
documentary evidence, namely Exhibits 1, 2, 3 & 4, which were never disputed by
appellee, clearly shows that they should not be held liable for payment of the said unpaid
subscriptions of BMPI.
The reliance is misplaced.

We are hereby reproducing the contents of the above-mentioned exhibits, to wit:

Exh: 1 YU Official Receipt No. 217 dated November 5, 1987 amounting
to P45,000.00 allegedly representing the initial payment of subscriptions of
stockholder Albert Yu.
Exh: 2 YU Official Receipt No. 218 dated May 13, 1988 amounting
to P135,000.00 allegedly representing full payment of balance of subscriptions of
stockholder Albert Yu. (Record p. 352).
Exh: 3 YU Official Receipt No. 222 dated November 5, 1987 amounting
to P5,000.00 allegedly representing the initial payment of subscriptions of
stockholder Zenaida Yu.
Exh: 4 YU Official Receipt No. 223 dated May 13, 1988 amounting
to P15,000.00 allegedly representing the full payment of balance of subscriptions
of stockholder Zenaida Yu. (Record p. 353).
Based on the above exhibits, we are in accord with the lower courts findings that
the claim of the individual appellants that they fully paid their subscription to the
defendant BMPI is not worthy of consideration, because, in the case of appellants SPS.
YU, there is an inconsistency regarding the issuance of the official receipt since the
alleged payment made on May 13, 1988 amounting to P135,000.00 was covered by
Official Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier
on November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222
(Record, p. 353). Such issuance is a clear indication that said receipts were belatedly
issued just to suit their claim that they have fully paid the unpaid subscriptions since in
the ordinary course of business, a receipt is issued earlier must have serial numbers
lower than those issued on a later date. But in the case at bar, the receipt issued
on November 5, 1987 had a serial number (222) higher than those issued on May 13,
1988 (218). And even assuming arguendo that the individual appellants have paid their
unpaid subscriptions, still, it is very apparent that the veil of corporate fiction may be
pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues.
(Jacinto vs. Court of Appeals, 198 SCRA 211).[19]

Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for
reconsideration.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following
for our consideration and resolution, to wit:

I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION
THAT DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE
JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF
RESPONDENTS MEMORANDUM ADOPTING THE SAME AS THE REASON
FOR THE DECISION
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE
REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING
OF THE VEIL OF CORPORATE FICTION
III.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST
FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN
SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of
Printwell; and submits that the RTCthereby violatedthe requirement imposed in Section 14,
Article VIII of the Constitution[20] as well as in Section 1,Rule 36 of the Rules of Court,[21]to the
effect that a judgment or final order of a court should state clearly and distinctly the facts and the
law on which it is based. The petitioner claims that the RTCs violation indicated that the RTC
did not analyze the case before rendering its decision, thus denying her the opportunity to analyze
the decision; andthat a suspicion of partiality arose from the fact that the RTC decision was but a
replica of Printwells memorandum.She cites Francisco v. Permskul,[22] in which the Court has
stated that the reason underlying the constitutional requirement, that every decision should clearly
and distinctly state the facts and the law on which it is based, is to inform the reader of how the
court has reached its decision and thereby give the losing party an opportunity to study and
analyze the decision and enable such party to appropriately assign the errors committed therein
on appeal.
On the second and third errors, the petitioner maintains that the CA and the RTC erroneously
pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as
stockholder of BMPI, had any hand in transacting with Printwell; thatthe CA and the RTC failed
to appreciate the evidence that she had fully paid her subscriptions; and the CA and the
RTCwrongly relied on the articles of incorporation in determining the current list of unpaid
subscriptions despite the articles of incorporationbeing at best reflectiveonly of the preincorporation status of BMPI.

As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of
disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that
separated them; and (b) the application of the trust fund doctrine.
Ruling

The petition for review fails.

I
The RTC did not violate
the Constitution and the Rules of Court

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell
in writing its decision, and did not analyze the records on its own, thereby manifesting a bias in
favor of Printwell, is unfounded.
It is noted that the petition for review merely generally alleges that starting from its page
5, the decision of the RTC copied verbatim the allegations of herein Respondents in its
Memorandum before the said court, as if the Memorandum was the draft of the Decision of the
Regional Trial Court of Pasig,[23]but fails to specify either the portions allegedly lifted verbatim
from the memorandum, or why she regards the decision as copied. The omission renders
thepetition for review insufficient to support her contention, considering that the mere similarityin
language or thought between Printwells memorandum and the trial courts decisiondid not
necessarily justify the conclusion that the RTC simply lifted verbatim or copied from
thememorandum.
It is to be observed in this connection that a trial or appellate judge may occasionally viewa
partys memorandum or brief as worthy of due consideration either entirely or partly. When he
does so, the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of
it he deems suitable,and yet not be guilty of the accusation of lifting or copying from the
memorandum.[24] This isbecause ofthe avowed objective of the memorandum to contribute in the
proper illumination and correct determination of the controversy.Nor is there anything untoward
in the congruence of ideas and views about the legal issues between himself and the party drafting
the memorandum.The frequency of similarities in argumentation, phraseology, expression, and
citation of authorities between the decisions of the courts and the memoranda of the parties, which
may be great or small, can be fairly attributable tothe adherence by our courts of law and the legal
profession to widely knownor universally accepted precedents set in earlier judicial actions with
identical factual milieus or posing related judicial dilemmas.

We also do not agree with the petitioner that the RTCs manner of writing the
decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign errors on
appeal. The contrary appears, considering that she was able to impute and assignerrors to the
RTCthat she extensively discussed in her appeal in the CA, indicating her thorough analysis ofthe
decision of the RTC.
Our own readingof the trial courts decision persuasively shows that the RTC did comply
with the requirements regarding the content and the manner of writing a decision prescribed in
the Constitution and the Rules of Court. The decision of the RTC contained clear and distinct
findings of facts, and stated the applicablelaw and jurisprudence, fully explaining why the
defendants were being held liable to the plaintiff. In short, the reader was at once informed of the
factual and legal reasons for the ultimate result.
II
Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons,
namely: (a) to reach the unpaid subscriptions because it appeared that such subscriptions were
the remaining visible assets of BMPI; and (b) to avoid multiplicity of suits.[25]
The petitionersubmits that she had no participation in the transaction between BMPI and
Printwell;that BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on
its obligation to pay. Hence, she should not be personally liable.
We rule against the petitioners submission.
Although a corporation has a personality separate and distinct from those of its
stockholders, directors, or officers,[26]such separate and distinct personality is merely a fiction
created by law for the sake of convenience and to promote the ends of justice. [27]The corporate
personality may be disregarded, and the individuals composing the corporation will be treated as
individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality;as a
justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of
the stockholders.[28] As a general rule, a corporation is looked upon as a legal entity, unless and
until sufficient reason to the contrary appears. Thus,the courts always presume good faith, andfor
that reason accord prime importance to the separate personality of the corporation, disregarding
the corporate personality only after the wrongdoing is first clearly and convincingly
established.[29]It thus behooves the courts to be careful in assessing the milieu where the piercing
of the corporate veil shall be done.[30]

Although nowhere in Printwells amended complaint or in the testimonies Printwell offered

can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege
onits obligation to pay; or that sheinduced Printwell to extend the credit accommodation by
misrepresenting the solvency of BMPI toPrintwell, her personal liability, together with that of her
co-defendants, remainedbecause the CA found her and the other defendant stockholders to be in
charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred,
to wit:
In the case at bench, it is undisputed that BMPI made several orders on credit from
appellee PRINTWELL involving the printing of business magazines, wrappers and
subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which
facts were never denied by appellants stockholders that they owe(d) appellee the
amount of P291,342.76. The said goods were delivered to and received by BMPI but it
failed to pay its overdue account to appellee as well as the interest thereon, at the rate
of 20% per annum until fully paid. It was also during this time that appellants
stockholders were in charge of the operation of BMPI despite the fact that they were
not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said
transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its
liability, hence appellee in order to protect its right can collect from the appellants
stockholders regarding their unpaid subscriptions. To deny appellee from recovering
from appellants would place appellee in a limbo on where to assert their right to collect
from BMPI since the stockholders who are appellants herein are availing the defense of
corporate fiction to evade payment of its obligations.[31]
It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its
obligations to pay, and whether or not she induced Printwell to transact with BMPI were not
gooddefensesin the suit.
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions

Both the RTC and the CA applied the trust fund doctrineagainst the defendant
stockholders, including the petitioner.
The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had
already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower
courts erred in disregarding the evidence on the complete payment of the subscription, like
receipts, income tax returns, and relevant financial statements.

The petitioners argumentis devoid of substance.

The trust fund doctrineenunciates a
xxx rule that the property of a corporation is a trust fund for the payment of creditors, but
such property can be called a trust fund only by way of analogy or metaphor. As between the
corporation itself and its creditors it is a simple debtor, and as between its creditors and
stockholders its assets are in equity a fund for the payment of its debts. [32]

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,[33]was
adopted in our jurisdiction in Philippine Trust Co. v. Rivera,[34]where thisCourt declared that:
It is established doctrine that subscriptions to the capital of a corporation constitute
a fund to which creditors have a right to look for satisfaction of their claims and that
the assignee in insolvency can maintain an action upon any unpaid stock subscription
in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802)
xxx[35]

We clarify that the trust fund doctrineis not limited to reaching the stockholders unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only
the capital stock, but also other property and assets generally regarded in equity as a trust fund
for the payment of corporate debts.[36]All assets and property belonging to the corporation held in
trust for the benefit of creditors thatwere distributed or in the possession of the stockholders,
regardless of full paymentof their subscriptions, may be reached by the creditor in satisfaction of
its claim.
Also, under the trust fund doctrine,a corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his shares, in whole or in
part,[37] without a valuable consideration,[38] or fraudulently, to the prejudice of creditors.[39]The
creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the
shoes of the corporation for the satisfaction of its debt.[40]To make out a prima facie case in a suit
against stockholders of an insolvent corporation to compel them to contribute to the payment of
its debts by making good unpaid balances upon their subscriptions, it is only necessary to establish
that thestockholders have not in good faith paid the par value of the stocks of the corporation. [41]
The petitionerposits that the finding of irregularity attending the issuance of the receipts
(ORs) issued to the other stockholders/subscribers should not affect her becauseher receipt did
not suffer similar irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in
her favor,we still cannot sustain the petitioners defense of full payment of her subscription.
In civil cases, theparty who pleads payment has the burden of proving it, that even where
the plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to
prove payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears
the burden of showing with legal certainty that the obligation has been discharged by payment.[42]
Apparently, the petitioner failed to discharge her burden.
A receipt is the written acknowledgment of the fact of payment in money or other
settlement between the seller and the buyer of goods, thedebtor or thecreditor, or theperson
rendering services, and theclient or thecustomer.[43]Althougha receipt is the best evidence of the
fact of payment, it isnot conclusive, but merely presumptive;nor is it exclusive
evidence,considering thatparole evidence may also establishthe fact of payment. [44]
The petitioners ORNo. 227,presentedto prove the payment of the balance of her
subscription, indicated that her supposed payment had beenmade by means of a check. Thus, to
discharge theburden to prove payment of her subscription, she had to adduce evidence
satisfactorily proving that her payment by check wasregardedas payment under the law.
Paymentis defined as the delivery of money.[45]Yet, because a check is not money and only
substitutes for money, the delivery of a check does not operate as payment and does not discharge
the obligation under a judgment.[46] The delivery of a bill of exchange only produces the fact of
payment when the bill has been encashed.[47]The following passage fromBank of Philippine
Islands v. Royeca[48]is enlightening:
Settled is the rule that payment must be made in legal tender. A check is not legal
tender and, therefore, cannot constitute a valid tender of payment. Since a
negotiable instrument is only a substitute for money and not money, the delivery
of such an instrument does not, by itself, operate as payment. Mere delivery of
checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document
is actually realized.
To establish their defense, the respondents therefore had to present proof, not
only that they delivered the checks to the petitioner, but also that the checks were
encashed. The respondents failed to do so. Had the checks been actually encashed,
the respondents could have easily produced the cancelled checks as evidence to
prove the same. Instead, they merely averred that they believed in good faith that
the checks were encashed because they were not notified of the dishonor of the
checks and three years had already lapsed since they issued the checks.

Because of this failure of the respondents to present sufficient proof of payment,

it was no longer necessary for the petitioner to prove non-payment, particularly proof
that the checks were dishonored. The burden of evidence is shifted only if the party
upon whom it is lodged was able to adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioners mere submission of the receipt issued in exchange of
the check did not satisfactorily establish her allegation of full payment of her subscription. Indeed,
she could not even inform the trial court about the identity of her drawee bank, [49]and about
whether the check was cleared and its amount paid to BMPI. [50]In fact, she did not present the
check itself.
Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit
presented, had no bearing on the issue of payment of the subscription because they did not by
themselves prove payment. ITRsestablish ataxpayers liability for taxes or a taxpayers claim for
refund. In the same manner, the deposit slips and entries in the passbook issued in the name of
BMPI were hardly relevant due to their not reflecting the alleged payments.
It is notable, too, that the petitioner and her co-stockholders did not support their allegation
of complete payment of their respective subscriptions with the stock and transfer book of BMPI.
Indeed, books and records of a corporation (including the stock and transfer book) are admissible
in evidence in favor of or against the corporation and its members to prove the corporate acts, its
financial status and other matters (like the status of the stockholders), and are ordinarily the best
evidence of corporate acts and proceedings.[51]Specifically, a stock and transfer book is necessary
as a measure of precaution, expediency, and convenience because it provides the only certain and
accurate method of establishing the various corporate acts and transactions and of showing the
ownership of stock and like matters.[52]That she tendered no explanation why the stock and
transfer book was not presented warrants the inference that the book did not reflect the actual
payment of her subscription.
Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a
certificate covering her subscription might have been a reliable evidence of full payment of the
subscriptions, considering that under Section 65 of the Corporation Code a certificate of stock
issues only to a subscriber who has fully paid his subscription. The lack of any explanation for
the absence of a stock certificate in her favor likewise warrants an unfavorable inference on the
issue of payment.
Lastly, the petitioner maintains that both lower courts erred in relying on the articles of
incorporationas proof of the liabilities of the stockholders subscribing to BMPIs stocks, averring
that the articles of incorporationdid not reflect the latest subscription status of BMPI.

Although the articles of incorporation may possibly reflect only the pre-incorporation
status of a corporation, the lower courts reliance on that document to determine whether the
original subscribersalready fully paid their subscriptions or not was neither unwarranted nor
erroneous. As earlier explained, the burden of establishing the fact of full payment belonged not
to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the
defendants, averredfull payment of their subscriptions as a defense. Their failure to substantiate
their averment of full payment, as well as their failure to counter the reliance on the recitals found
in the articles of incorporation simply meant their failure or inability to satisfactorily prove their
defense of full payment of the subscriptions.
To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate
obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPIs
creditor,had a right to reachher unpaid subscription in satisfaction of its claim.
IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to
their shares in the capital stock of BMPI); and held the petitionerpersonally liable onlyin the
amount of P149,955.65.
We do not agree. The RTC lacked the legal and factual support for its prorating the liability.
Hence, we need to modify the extent of the petitioners personal liability to Printwell. The
prevailing rule is that a stockholder is personally liable for the financial obligations of the
corporation to the extent of his unpaid subscription.[53]In view ofthe petitioners unpaid
subscription being worth P262,500.00, shewas liable up to that amount.
Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed
at 12% per annum from the date the amended complaint was filed on February 8, 1990 until the
obligation (i.e., to the extent of the petitioners personal liability of P262,500.00) is fully paid.[54]
Lastly, we find no basis togrant attorneys fees, the award for which must be supported by
findings of fact and of law as provided under Article 2208 of the Civil Code[55]incorporated in the
body of decision of the trial court. The absence of the requisite findings from the RTC decision
warrants the deletion of the attorneys fees.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with

modification the decision promulgated on August 14, 2002by ordering the petitionerto pay to
Printwell, Inc. the sum of P262,500.00, plus interest of 12% per annum to be computed from
February 8, 1990 until full payment.
The petitioner shall paycost of suit in this appeal.
SO ORDERED.