Professional Documents
Culture Documents
CORPO 1st Assignment - Atty. Liberato
CORPO 1st Assignment - Atty. Liberato
trust must be manifested with reasonable certainty and stockholders and other corporations to which it may In the case at bar, there is no allegation,
cannot be inferred from loose and vague declarations be connected.[24]Thus, we had previously ruled much less any proof, that the corporate existence of
or from ambiguous circumstances susceptible of other in Magsaysay-Labrador v. Court of Appeals[25] that RISCO has ceased and the corporate property has
interpretations.[23] the interest of the stockholders over the properties of been liquidated and distributed to the
No such reasonable certitude in the creation the corporation is merely inchoate and therefore does stockholders. The records only indicate that, as per
of an express trust obtains in the case at bar. In fact, a not entitle them to intervene in litigation involving Securities and Exchange Commission (SEC)
careful scrutiny of the plain and ordinary meaning of corporate property, to wit: Certification[27] dated June 18, 1997, the SEC merely
the terms used in the Minutes does not offer any suspended RISCOs Certificate of Registration
Here, the interest, if it
indication that the parties thereto intended that exists at all, of petitioners- beginning on September 5, 1988 due to its non-
movants is indirect, contingent,
Aznar, et al., become beneficiaries under an express submission of SEC required reports and its failure to
remote, conjectural,
trust and that RISCO serve as trustor. consequential and collateral. At
the very least, their interest is operate for a continuous period of at least five years.
purely inchoate, or in sheer Verily, Aznar, et al., who are stockholders
expectancy of a right in the
Indeed, we find that Aznar, et al., have no management of the corporation of RISCO, cannot claim ownership over the
and to share in the profits thereof
right to ask for the quieting of title of the properties at properties at issue in this case on the strength of the
and in the properties and assets
issue because they have no legal and/or equitable thereof on dissolution, after
Minutes which, at most, is merely evidence of a loan
payment of the corporate debts
rights over the properties that are derived from the and obligations. agreement between them and the company. There is
previous registered owner which is RISCO, the
matter, that there is another action
no indication or even a suggestion that the ownership pending between the same parties The pertinent Civil Code provision on
for the same cause, or that the
of said properties were transferred to them which prescription which is applicable to the issue at hand is
action is barred by a prior
would require no less that the said properties be judgment or by statute of Article 1144(1), to wit:
limitations, the court shall
registered under their names. For this reason, the dismiss the claim. (Emphasis
supplied.) The following actions
complaint should be dismissed since Aznar, et al., must be brought within ten years
from the time the right of action
have no cause to seek a quieting of title over the
accrues:
In Feliciano v. Canoza,[28] we held:
subject properties.
1. Upon a
written contract;
We have ruled that trial courts
2. Upon an
At most, what Aznar, et al., had was merely have authority and discretion to
obligation created by
dismiss an action on the ground
law;
a right to be repaid the amount loaned to of prescription when the parties
3. Upon a
pleadings or other facts on record
RISCO. Unfortunately, the right to seek repayment or judgment. (Emphasis
show it to be indeed time-barred
supplied.)
reimbursement of their contributions used to purchase x x x; and it may do so on the
basis of a motion to dismiss, or an
the subject properties is already barred by answer which sets up such
ground as an affirmative defense; Moreover, in Nielson & Co., Inc. v. Lepanto
prescription. or even if the ground is alleged
after judgment on the merits, as in Consolidated Mining Co.,[30] we held that the term
a motion for reconsideration; or
even if the defense has not been written contract includes the minutes of the meeting
Section 1, Rule 9 of the Rules of Court
asserted at all, as where no
of the board of directors of a corporation, which
provides that when it appears from the pleadings or statement thereof is found in the
pleadings, or where a defendant minutes were adopted by the parties although not
the evidence on record that the action is already barred has been declared in
default. What is essential only, signed by them, to wit:
by the statute of limitations, the court shall dismiss the
to repeat, is that the facts
claim, to wit: demonstrating the lapse of the
prescriptive period, be Coming now to the question of
otherwise sufficiently and prescription raised by defendant
Defenses and satisfactorily apparent on the Lepanto, it is contended by the
objections not pleaded either in a record; either in the averments latter that the period to be
motion to dismiss or in the of the plaintiffs complaint, or considered for the prescription of
answer are deemed waived. otherwise established by the the claim regarding participation
However, when it appears from evidence.[29] (Emphasis in the profits is only four years,
the pleadings or the evidence on supplied.) because the modification of the
record that the court has no sharing embodied in the
jurisdiction over the subject management contract is merely
verbal, no written document to
that effect having been presented.
This contention is untenable. The Aznar, et al., filed any action for reimbursement or
modification appears in the
refund of their contributions against RISCO or even
minutes of the special meeting of
the Board of Directors of Lepanto against PNB. Instead the suit that Aznar, et al.,
held on August 21, 1940, it
having been made upon the brought before the trial court only on January 28, 1998
authority of its President, and in
said minutes the terms of was one to quiet title over the properties purchased by
modification had been specified.
RISCO with their contributions. It is unmistakable
This is sufficient to have the
agreement considered, for the that their right of action to claim for refund or
purpose of applying the statute of
limitations, as a written contract payment of their contributions had long
even if the minutes were not
signed by the parties (3 A.L.R., prescribed. Thus, it was reversible error for the Court
2d, p. 831). It has been held that a of Appeals to order PNB to pay Aznar, et al., the
writing containing the terms of a
contract if adopted by two amount of their liens based on the Minutes with legal
persons may constitute a contract
in writing even if the same is not interests from the time of PNBs acquisition of the
signed by either of the parties (3
A.L.R., 2d, pp. 812-813). subject properties.
Another authority says that an
unsigned agreement the terms of
which are embodied in a In view of the foregoing, it is unnecessary
document unconditionally
accepted by both parties is a for the Court to pass upon the other issues raised by
written contract (Corbin on
Contracts, Vol. I, p. 85).[31] the parties.
CORONA, C.J.,
CARPIO, DECISION
SECRETARY MARGARITO B. TEVES,
UNDERSECRETARY JOHN P. SEVILLA,
MISSIONER RICARDO ABCEDE OF VELASCO, JR.,
IDENTIAL COMMISSION ON GOOD
MENT (PCGG) IN THEIR CAPACITIES
AND MEMBERS, RESPECTIVELY, OF LEONARDO-DE CASTRO,
ATIZATION COUNCIL,
BRION, CARPIO, J.:
Under Article 69(3) of the Omnibus Investments Under Section 3 of Republic Act No. 5455 or SEC. 8. List of Investment Areas Reserved to
Code of 1981, "no corporation x x x which is not the Foreign Business Regulations Act, which Philippine Nationals [Foreign Investment
a ‘Philippine national’ x x x shall do business x x took effect on 30 September 1968, if the Negative List]. - The Foreign Investment
x in the Philippines x x x without first securing a investment in a domestic enterprise by non- Negative List shall have two 2 component
written certificate from the Board of Investments Philippine nationals exceeds 30% of its lists: A and B:
to the effect that such business or economic outstanding capital stock, such enterprise must
activity x x x would not conflict with the obtain prior approval from the Board of
Constitution or laws of the Philippines."29 Thus, Investments before accepting such investment.
a. List A shall enumerate the areas of foreign investors to what extent they can operate public utilities in the
activities reserved to Philippine nationals by invest in public utilities in the Philippines. Philippines. The following exchange during the
mandate of the Constitution and specific Oral Arguments is revealing:
laws. To repeat, among the areas of investment
covered by the Foreign Investment Negative JUSTICE CARPIO:
b. List B shall contain the areas of activities and List A is the ownership and operation of public
enterprises regulated pursuant to law: utilities, which the Constitution expressly Counsel, I have some
reserves to Filipino citizens and to corporations questions. You are aware of
1. which are defense-related activities, requiring at least 60% owned by Filipino citizens. In other the Foreign Investments Act
prior clearance and authorization from the words, Negative List A of the FIA reserves of 1991, x x x? And the FIA of
Department of National Defense [DND] to the ownership and operation of public 1991 took effect in 1991,
engage in such activity, such as the utilities only to "Philippine nationals," correct? That’s over twenty
manufacture, repair, storage and/or distribution defined in Section 3(a) of the FIA as "(1) a (20) years ago, correct?
of firearms, ammunition, lethal weapons, citizen of the Philippines; x x x or (3) a
military ordinance, explosives, pyrotechnics and corporation organized under the laws of the
Philippines of which at least sixty percent COMMISSIONER GAITE:
similar materials; unless such manufacturing or
repair activity is specifically authorized, with a (60%) of the capital stock outstanding and
substantial export component, to a non- entitled to vote is owned and held by Correct, Your Honor.
Philippine national by the Secretary of National citizens of the Philippines; or (4) a corporation
Defense; or organized abroad and registered as doing JUSTICE CARPIO:
business in the Philippines under the
Corporation Code of which one hundred percent
2. which have implications on public health and (100%) of the capital stock outstanding and And Section 8 of the Foreign
morals, such as the manufacture and entitled to vote is wholly owned by Filipinos or a Investments Act of 1991
distribution of dangerous drugs; all forms of trustee of funds for pension or other employee states that []only Philippine
gambling; nightclubs, bars, beer houses, dance retirement or separation benefits, where the nationals can own and
halls, sauna and steam bathhouses and trustee is a Philippine national and at least sixty operate public utilities[],
massage clinics. (Boldfacing, underscoring and percent (60%) of the fund will accrue to the correct?
italicization supplied) benefit of Philippine nationals."
COMMISSIONER GAITE:
Section 8 of the FIA enumerates the investment Clearly, from the effectivity of the Investment
areas "reserved to Philippine Incentives Act of 1967 to the adoption of the Yes, Your Honor.
nationals." Foreign Investment Negative List Omnibus Investments Code of 1981, to the
A consists of "areas of activities reserved to enactment of the Omnibus Investments Code of
Philippine nationals by mandate of the JUSTICE CARPIO:
1987, and to the passage of the present Foreign
Constitution and specific laws," where Investments Act of 1991, or for more than four
foreign equity participation in any enterprise decades, the statutory definition of the term And the same Foreign
shall be limited to the maximum percentage "Philippine national" has been uniform and Investments Act of 1991
expressly prescribed by the Constitution consistent: it means a Filipino citizen, or a defines a "Philippine national"
and other specific laws. In short, to own and domestic corporation at least 60% of either as a citizen of the
operate a public utility in the Philippines one the voting stock is owned by Filipinos. Philippines, or if it is a
must be a "Philippine national" as defined in Likewise, these same statutes have corporation at least sixty
the FIA. The FIA is abundant notice to uniformly and consistently required that percent (60%) of the voting
only "Philippine nationals" could own and
stock is owned by citizens of must be owned by citizens of Government agencies like the SEC cannot
the Philippines, correct? the Philippines, correct? simply ignore Sections 3(a) and 8 of the FIA
which categorically prescribe that certain
COMMISSIONER GAITE: COMMISSIONER GAITE: economic activities, like the ownership and
operation of public utilities, are reserved to
corporations "at least sixty percent (60%) of the
Correct, Your Honor. Correct, Your Honor. capital stock outstanding and entitled to
vote is owned and held by citizens of the
JUSTICE CARPIO: JUSTICE CARPIO: Philippines." Foreign Investment Negative List A
refers to "activities reserved to Philippine
And, you are also aware that And even prior to that, under nationals by mandate of the Constitution and
under the predecessor law of [the]1967 Investments specific laws." The FIA is the basic statute
the Foreign Investments Act Incentives Act and the regulating foreign investments in the
Philippines. Government agencies tasked with
of 1991, the Omnibus Foreign Company Act of
Investments Act of 1987, the 1968, the same rules applied, regulating or monitoring foreign investments, as
same provisions apply: x x x correct? well as counsels of foreign investors, should
only Philippine nationals can start with the FIA in determining to what extent
own and operate a public a particular foreign investment is allowed in the
COMMISSIONER GAITE: Philippines. Foreign investors and their
utility and the Philippine
national, if it is a corporation, counsels who ignore the FIA do so at their own
x x x sixty percent (60%) of Correct, Your Honor. peril. Foreign investors and their counsels who
the capital stock of that rely on opinions of SEC legal officers that
corporation must be owned obviously contradict the FIA do so also at their
JUSTICE CARPIO:
by citizens of the Philippines, own peril.
correct? So, for the last four (4)
Occasional opinions of SEC legal officers that
decades, x x x, the law has
obviously contradict the FIA should immediately
COMMISSIONER GAITE: been very consistent – only
raise a red flag. There are already numerous
a Philippine national can
opinions of SEC legal officers that cite the
Correct, Your Honor. own and operate a public
definition of a "Philippine national" in Section
utility, and a Philippine
3(a) of the FIA in determining whether a
national, if it is a
JUSTICE CARPIO: particular corporation is qualified to own and
corporation, x x x at least
operate a nationalized or partially nationalized
sixty percent (60%) of the
business in the Philippines. This shows that
And even prior to the voting stock must be
SEC legal officers are not only aware of, but
Omnibus Investments Act of owned by citizens of the
Philippines, correct? also rely on and invoke, the provisions of the
1987, under the Omnibus
FIA in ascertaining the eligibility of a corporation
Investments Act of 1981, the
to engage in partially nationalized industries.
same rules apply: x x x only a COMMISSIONER GAITE: The following are some of such opinions:
Philippine national can own
and operate a public utility
and a Philippine national, if it Correct, Your 1. Opinion of 23 March 1993,
is a corporation, sixty percent Honor.33 (Emphasis supplied) addressed to Mr. Francis F. How;
(60%) of its x x x voting stock,
2. Opinion of 14 April 1993, addressed "companies which have not registered and incentives, (i.e., the activity is not listed in the
to Director Angeles T. Wong of the obtained special incentives under the schemes IPP, and they are not exporting at least 70% of
Philippine Overseas Employment established by those laws." their production) may go ahead and make the
Administration; investments without seeking incentives. They
Both are desperately grasping at straws. The only have to be guided by the Foreign
3. Opinion of 23 November 1993, FIA does not grant tax or fiscal incentives to any Investments Negative List (FINL).
addressed to Messrs. Dominador enterprise. Tax and fiscal incentives to
Almeda and Renato S. Calma; investments are granted separately under the The FINL clearly defines investment areas
Omnibus Investments Code of 1987, not under requiring at least 60% Filipino ownership. All
4. Opinion of 7 December 1993, the FIA. In fact, the FIA expressly repealed other areas outside of this list are fully open to
addressed to Roco Bunag Kapunan Articles 44 to 56 of Book II of the Omnibus foreign investors. (Emphasis supplied)
Migallos & Jardeleza; Investments Code of 1987, which articles
previously regulated foreign investments in V.
nationalized or partially nationalized industries. Right to elect directors, coupled with
5. SEC Opinion No. 49-04, addressed
to Romulo Mabanta Buenaventura beneficial ownership,
Sayoc & De Los Angeles; The FIA is the applicable law regulating foreign translates to effective control.
investments in nationalized or partially
nationalized industries. There is nothing in the The 28 June 2011 Decision declares that the 60
6. SEC-OGC Opinion No. 17-07, FIA, or even in the Omnibus Investments Code
addressed to Mr. Reynaldo G. David; percent Filipino ownership required by the
of 1987 or its predecessor statutes, that states, Constitution to engage in certain economic
and expressly or impliedly, that the FIA or its activities applies not only to voting control of the
predecessor statutes do not apply to enterprises corporation, but also to the beneficial
7. SEC-OGC Opinion No. 03-08, not availing of tax and fiscal incentives under ownership of the corporation. To repeat, we
addressed to Attys. Ruby Rose J. Yusi the Code. The FIA and its predecessor statutes held:
and Rudyard S. Arbolado. apply to investments in all domestic enterprises,
whether or not such enterprises enjoy tax and
fiscal incentives under the Omnibus Mere legal title is insufficient to meet the 60
The SEC legal officers’ occasional but blatant percent Filipino-owned "capital" required in the
disregard of the definition of the term "Philippine Investments Code of 1987 or its predecessor
statutes. The reason is quite obvious – mere Constitution. Full beneficial ownership of 60
national" in the FIA signifies their lack of percent of the outstanding capital stock,
integrity and competence in resolving issues on non-availment of tax and fiscal incentives by
a non-Philippine national cannot exempt it coupled with 60 percent of the voting rights,
the 60-40 ownership requirement in favor of is required. The legal and beneficial ownership
from Section 11, Article XII of the
Filipino citizens in Section 11, Article XII of the of 60 percent of the outstanding capital stock
Constitution. Constitution regulating foreign investments
in public utilities. In fact, the Board of must rest in the hands of Filipino nationals in
Investments’ Primer on Investment Policies in accordance with the constitutional mandate.
The PSE President argues that the term the Philippines,34 which is given out to foreign Otherwise, the corporation is "considered as
"Philippine national" defined in the FIA should investors, provides: non-Philippine national[s]." (Emphasis supplied)
be limited and interpreted to refer to
corporations seeking to avail of tax and fiscal This is consistent with Section 3 of the FIA
PART III. FOREIGN INVESTMENTS WITHOUT
incentives under investment incentives laws and which provides that where 100% of the capital
INCENTIVES
cannot be equated with the term "capital" in stock is held by "a trustee of funds for pension
Section 11, Article XII of the 1987 Constitution. or other employee retirement or separation
Pangilinan similarly contends that the FIA and Investors who do not seek incentives and/or benefits," the trustee is a Philippine national if
its predecessor statutes do not apply to whose chosen activities do not qualify for "at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals." merger and consolidation; and (8) dissolution of interest" in public utilities always lies in the
Likewise, Section 1(b) of the Implementing corporation.37 hands of Filipino citizens. This addresses and
Rules of the FIA provides that "for stocks to be extinguishes Pangilinan’s worry that foreigners,
deemed owned and held by Philippine citizens Since a specific class of shares may have rights owning most of the non-voting shares, will
or Philippine nationals, mere legal title is not and privileges or restrictions different from the exercise greater control over fundamental
enough to meet the required Filipino equity. Full rest of the shares in a corporation, the 60-40 corporate matters requiring two-thirds or
beneficial ownership of the stocks, coupled ownership requirement in favor of Filipino majority vote of all shareholders.
with appropriate voting rights, is essential." citizens in Section 11, Article XII of the
Constitution must apply not only to shares with VI.
Since the constitutional requirement of at least voting rights but also to shares without voting Intent of the framers of the Constitution
60 percent Filipino ownership applies not only to rights. Preferred shares, denied the right to vote
voting control of the corporation but also to the in the election of directors, are anyway still While Justice Velasco quoted in his Dissenting
beneficial ownership of the corporation, it is entitled to vote on the eight specific corporate Opinion38 a portion of the deliberations of the
therefore imperative that such requirement matters mentioned above. Thus, if a Constitutional Commission to support his claim
apply uniformly and across the board to all corporation, engaged in a partially that the term "capital" refers to the total
classes of shares, regardless of nomenclature nationalized industry, issues a mixture of outstanding shares of stock, whether voting or
and category, comprising the capital of a common and preferred non-voting shares, at non-voting, the following excerpts of the
corporation. Under the Corporation Code, least 60 percent of the common shares and deliberations reveal otherwise. It is clear from
capital stock35 consists of all classes of shares at least 60 percent of the preferred non- the following exchange that the term "capital"
issued to stockholders, that is, common shares voting shares must be owned by refers to controlling interest of a corporation,
as well as preferred shares, which may have Filipinos. Of course, if a corporation issues thus:
different rights, privileges or restrictions as only a single class of shares, at least 60 percent
stated in the articles of incorporation.36 of such shares must necessarily be owned by
Filipinos. In short, the 60-40 ownership MR. NOLLEDO. In Sections 3, 9 and 15, the
requirement in favor of Filipino citizens must Committee stated local or Filipino equity and
The Corporation Code allows denial of the right foreign equity; namely, 60-40 in Section 3, 60-
to vote to preferred and redeemable shares, but apply separately to each class of shares,
whether common, preferred non-voting, 40 in Section 9 and 2/3-1/3 in Section 15.
disallows denial of the right to vote in specific
corporate matters. Thus, common shares have preferred voting or any other class of
the right to vote in the election of directors, shares. This uniform application of the 60-40 MR. VILLEGAS. That is right.
while preferred shares may be denied such ownership requirement in favor of Filipino
right. Nonetheless, preferred shares, even if citizens clearly breathes life to the constitutional MR. NOLLEDO. In teaching law, we are always
denied the right to vote in the election of command that the ownership and operation of faced with this question: "Where do we base the
directors, are entitled to vote on the following public utilities shall be reserved exclusively to equity requirement, is it on the authorized
corporate matters: (1) amendment of articles of corporations at least 60 percent of whose capital stock, on the subscribed capital stock, or
incorporation; (2) increase and decrease of capital is Filipino-owned. Applying uniformly the on the paid-up capital stock of a corporation"?
capital stock; (3) incurring, creating or 60-40 ownership requirement in favor of Filipino Will the Committee please enlighten me on
increasing bonded indebtedness; (4) sale, citizens to each class of shares, regardless of this?
lease, mortgage or other disposition of differences in voting rights, privileges and
substantially all corporate assets; (5) investment restrictions, guarantees effective Filipino control
of public utilities, as mandated by the MR. VILLEGAS. We have just had a long
of funds in another business or corporation or discussion with the members of the team from
for a purpose other than the primary purpose for Constitution.
the UP Law Center who provided us a
which the corporation was organized; (6) draft. The phrase that is contained here
adoption, amendment and repeal of by-laws; (7) Moreover, such uniform application to each which we adopted from the UP draft is "60
class of shares insures that the "controlling percent of voting stock."
MR. NOLLEDO. That must be based on the MR. AZCUNA. So if the Davide amendment is intent of the framers of the Constitution to
subscribed capital stock, because unless lost, we are stuck with 60 percent of the capital reserve exclusively to Philippine nationals the
declared delinquent, unpaid capital stock shall to be owned by citizens. "controlling interest" in public utilities.
be entitled to vote.
MR. VILLEGAS. That is right. During the drafting of the 1935 Constitution,
MR. VILLEGAS. That is right. economic protectionism was "the battle-cry of
MR. AZCUNA. But the control can be with the nationalists in the Convention."41 The same
MR. NOLLEDO. Thank you. the foreigners even if they are the minority. battle-cry resulted in the nationalization of the
Let us say 40 percent of the capital is owned public utilities.42 This is also the same intent of
by them, but it is the voting capital, whereas, the framers of the 1987 Constitution who
With respect to an investment by one adopted the exact formulation embodied in the
corporation in another corporation, say, a the Filipinos own the nonvoting shares. So
we can have a situation where the 1935 and 1973 Constitutions on foreign equity
corporation with 60-40 percent equity invests in limitations in partially nationalized industries.
another corporation which is permitted by the corporation is controlled by foreigners
Corporation Code, does the Committee adopt despite being the minority because they
the grandfather rule? have the voting capital. That is the anomaly The OSG, in its own behalf and as counsel for
that would result here. the State,43 agrees fully with the Court’s
interpretation of the term "capital." In its
MR. VILLEGAS. Yes, that is the understanding Consolidated Comment, the OSG explains that
of the Committee. MR. BENGZON. No, the reason we
eliminated the word "stock" as stated in the the deletion of the phrase "controlling interest"
1973 and 1935 Constitutions is that and replacement of the word "stock" with the
MR. NOLLEDO. Therefore, we need additional according to Commissioner Rodrigo, there term "capital" were intended specifically to
Filipino capital? are associations that do not have stocks. extend the scope of the entities qualified to
That is why we say "CAPITAL." operate public utilities to include associations
MR. VILLEGAS. Yes.39 without stocks. The framers’ omission of the
phrase "controlling interest" did not mean the
MR. AZCUNA. We should not eliminate the inclusion of all shares of stock, whether voting
xxxx phrase "controlling interest." or non-voting. The OSG reiterated essentially
the Court’s declaration that the Constitution
MR. AZCUNA. May I be clarified as to that MR. BENGZON. In the case of stock reserved exclusively to Philippine nationals the
portion that was accepted by the Committee. corporations, it is assumed.40 (Boldfacing and ownership and operation of public utilities
underscoring supplied) consistent with the State’s policy to "develop a
self-reliant and independent national
MR. VILLEGAS. The portion accepted by the
Thus, 60 percent of the "capital" assumes, or economy effectively controlled by Filipinos."
Committee is the deletion of the phrase "voting
stock or controlling interest." should result in, a "controlling interest" in the
corporation. As we held in our 28 June 2011 Decision, to
construe broadly the term "capital" as the total
MR. AZCUNA. Hence, without the Davide
The use of the term "capital" was intended to outstanding capital stock, treated as
amendment, the committee report would read:
replace the word "stock" because associations a single class regardless of the actual
"corporations or associations at least sixty
without stocks can operate public utilities as classification of shares, grossly contravenes the
percent of whose CAPITAL is owned by such
long as they meet the 60-40 ownership intent and letter of the Constitution that the
citizens."
requirement in favor of Filipino citizens "State shall develop a self-reliant and
prescribed in Section 11, Article XII of the independent national economy effectively
MR. VILLEGAS. Yes. controlled by Filipinos." We illustrated the
Constitution. However, this did not change the
glaring anomaly which would result in defining
the term "capital" as the total outstanding capital holds his office only during the pleasure of THE PRESIDENT. Commissioner Jamir is
stock of a corporation, treated as a single class another cannot be depended upon to maintain recognized.
of shares regardless of the actual classification an attitude of independence against the latter’s
of shares, to wit: will." Allowing foreign shareholders to elect a MR. JAMIR. Madam President, my proposed
controlling majority of the board, even if all the amendment on lines 20 and 21 is to delete the
Let us assume that a corporation has 100 directors are Filipinos, grossly circumvents the phrase "two thirds of whose voting stock or
common shares owned by foreigners and letter and intent of the Constitution and defeats controlling interest," and instead substitute the
1,000,000 non-voting preferred shares owned the very purpose of our nationalization laws. words "SIXTY PERCENT OF WHOSE
by Filipinos, with both classes of share having a CAPITAL" so that the sentence will read: "No
par value of one peso (₱ 1.00) per share. Under VII. franchise, certificate, or any other form of
the broad definition of the term "capital," such Last sentence of Section 11, Article XII of the authorization for the operation of a public utility
corporation would be considered compliant with Constitution shall be granted except to citizens of the
the 40 percent constitutional limit on foreign Philippines or to corporations or associations
equity of public utilities since the overwhelming The last sentence of Section 11, Article XII of organized under the laws of the Philippines at
majority, or more than 99.999 percent, of the the 1987 Constitution reads: least SIXTY PERCENT OF WHOSE CAPITAL
total outstanding capital stock is Filipino owned. is owned by such citizens."
This is obviously absurd.
The participation of foreign investors in the
governing body of any public utility enterprise xxxx
In the example given, only the foreigners shall be limited to their proportionate share in its
holding the common shares have voting rights capital, and all the executive and managing THE PRESIDENT: Will Commissioner Jamir
in the election of directors, even if they hold only officers of such corporation or association must first explain?
100 shares. The foreigners, with a minuscule be citizens of the Philippines.
equity of less than 0.001 percent, exercise
control over the public utility. On the other hand, MR. JAMIR. Yes, in this Article on National
the Filipinos, holding more than 99.999 percent During the Oral Arguments, the OSG Economy and Patrimony, there were two
of the equity, cannot vote in the election of emphasized that there was never a question on previous sections in which we fixed the Filipino
directors and hence, have no control over the the intent of the framers of the Constitution to equity to 60 percent as against 40 percent for
public utility. This starkly circumvents the intent limit foreign ownership, and assure majority foreigners. It is only in this Section 15 with
of the framers of the Constitution, as well as the Filipino ownership and control of public utilities. respect to public utilities that the committee
clear language of the Constitution, to place the The OSG argued, "while the delegates proposal was increased to two-thirds. I think it
control of public utilities in the hands of disagreed as to the percentage threshold to would be better to harmonize this provision by
Filipinos. x x x adopt, x x x the records show they clearly providing that even in the case of public utilities,
understood that Filipino control of the public the minimum equity for Filipino citizens should
utility corporation can only be and is obtained be 60 percent.
Further, even if foreigners who own more than only through the election of a majority of the
forty percent of the voting shares elect an all- members of the board."
Filipino board of directors, this situation does MR. ROMULO. Madam President.
not guarantee Filipino control and does not in
any way cure the violation of the Constitution. Indeed, the only point of contention during the THE PRESIDENT. Commissioner Romulo is
The independence of the Filipino board deliberations of the Constitutional Commission recognized.
members so elected by such foreign on 23 August 1986 was the extent of majority
shareholders is highly doubtful. As the OSG Filipino control of public utilities. This is evident
from the following exchange: MR. ROMULO. My reason for supporting the
pointed out, quoting Justice George amendment is based on the discussions I have
Sutherland’s words in Humphrey’s Executor v. had with representatives of the Filipino majority
US,44 "x x x it is quite evident that one who
owners of the international record carriers, and x x x x46 THE PRESIDENT. The Commissioner may
the subsequent memoranda they submitted to proceed.
me. x x x While they had differing views on the
percentage of Filipino ownership of capital, it is MS. ROSARIO BRAID. The three major
Their second point is that under the Corporation clear that the framers of the Constitution international record carriers in the Philippines,
Code, the management and control of a intended public utilities to be majority Filipino- which Commissioner Romulo mentioned –
corporation is vested in the board of directors, owned and controlled. To ensure that Filipinos Philippine Global Communications, Eastern
not in the officers but in the board of directors. control public utilities, the framers of the Telecommunications, Globe Mackay Cable –
The officers are only agents of the board. And Constitution approved, as additional safeguard, are 40-percent owned by foreign multinational
they believe that with 60 percent of the equity, the inclusion of the last sentence of Section 11, companies and 60-percent owned by their
the Filipino majority stockholders undeniably Article XII of the Constitution commanding that respective Filipino partners. All three, however,
control the board. Only on important corporate "[t]he participation of foreign investors in the also have management contracts with these
acts can the 40-percent foreign equity exercise governing body of any public utility enterprise foreign companies – Philcom with RCA, ETPI
a veto, x x x. shall be limited to their proportionate share in its with Cable and Wireless PLC, and GMCR with
capital, and all the executive and managing ITT. Up to the present time, the general
x x x x45 officers of such corporation or association must managers of these carriers are foreigners.
be citizens of the Philippines." In other words, While the foreigners in these common carriers
the last sentence of Section 11, Article XII of the are only minority owners, the foreign
MS. ROSARIO BRAID. Madam President. Constitution mandates that (1) the participation multinationals are the ones managing and
of foreign investors in the governing body of the controlling their operations by virtue of their
THE PRESIDENT. Commissioner Rosario Braid corporation or association shall be limited to management contracts and by virtue of their
is recognized. their proportionate share in the capital of such strength in the governing bodies of these
entity; and (2) all officers of the corporation or carriers.47
MS. ROSARIO BRAID. Yes, in the interest of association must be Filipino citizens.
equal time, may I also read from a xxxx
memorandum by the spokesman of the Commissioner Rosario Braid proposed the
Philippine Chamber of Communications on why inclusion of the phrase requiring the managing MR. OPLE. I think a number of us have agreed
they would like to maintain the present equity, I officers of the corporation or association to be to ask Commissioner Rosario Braid to propose
am referring to the 66 2/3. They would prefer to Filipino citizens specifically to prevent an amendment with respect to the operating
have a 75-25 ratio but would settle for 66 2/3. x management contracts, which were designed management of public utilities, and in this
xx primarily to circumvent the Filipinization of amendment, we are associated with Fr. Bernas,
public utilities, and to assure Filipino control of Commissioners Nieva and Rodrigo.
xxxx public utilities, thus: Commissioner Rosario Braid will state this
amendment now.
THE PRESIDENT. Just to clarify, would MS. ROSARIO BRAID. x x x They also like to
Commissioner Rosario Braid support the suggest that we amend this provision by adding Thank you.
proposal of two-thirds rather than the 60 a phrase which states: "THE MANAGEMENT
percent? BODY OF EVERY CORPORATION OR
ASSOCIATION SHALL IN ALL CASES BE MS. ROSARIO BRAID. Madam President.
CONTROLLED BY CITIZENS OF THE
MS. ROSARIO BRAID. I have added a clause PHILIPPINES." I have with me their position THE PRESIDENT. This is still on Section 15.
that will put management in the hands of paper.
Filipino citizens.
MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President. CORPORATIONS AND ASSOCIATIONS MR. RAMA. The body is now ready to vote,
MUST BE CITIZENS OF THE PHILIPPINES." Madam President.
xxxx
MR. BENGZON. Will Commissioner Bernas VOTING
MS. ROSARIO BRAID. Madam President, I read the whole thing again?
propose a new section to read: ‘THE xxxx
MANAGEMENT BODY OF EVERY FR. BERNAS. "THE PARTICIPATION OF
CORPORATION OR ASSOCIATION SHALL IN FOREIGN INVESTORS IN THE GOVERNING The results show 29 votes in favor and none
ALL CASES BE CONTROLLED BY CITIZENS BODY OF ANY PUBLIC UTILITY against; so the proposed amendment is
OF THE PHILIPPINES." ENTERPRISE SHALL BE LIMITED TO THEIR approved.
PROPORTIONATE SHARE IN THE CAPITAL
This will prevent management contracts and THEREOF..." I do not have the rest of the copy.
xxxx
assure control by Filipino citizens. Will the
committee assure us that this amendment will MR. BENGZON. "AND ALL THE EXECUTIVE
insure that past activities such as management AND MANAGING OFFICERS OF SUCH THE PRESIDENT. All right. Can we proceed
contracts will no longer be possible under this CORPORATIONS OR ASSOCIATIONS MUST now to vote on Section 15?
amendment? BE CITIZENS OF THE PHILIPPINES." Is that
correct? MR. RAMA. Yes, Madam President.
xxxx
MR. VILLEGAS. Yes. THE PRESIDENT. Will the chairman of the
FR. BERNAS. Madam President. committee please read Section 15?
MR. BENGZON. Madam President, I think that
THE PRESIDENT. Commissioner Bernas is was said in a more elegant language. We MR. VILLEGAS. The entire Section 15, as
recognized. accept the amendment. Is that all right with amended, reads: "No franchise, certificate, or
Commissioner Rosario Braid? any other form of authorization for the operation
of a public utility shall be granted except to
FR. BERNAS. Will the committee accept a citizens of the Philippines or to corporations or
reformulation of the first part? MS. ROSARIO BRAID. Yes.
associations organized under the laws of the
Philippines at least 60 PERCENT OF WHOSE
MR. BENGZON. Let us hear it. xxxx CAPITAL is owned by such citizens." May I
request Commissioner Bengzon to please
FR. BERNAS. The reformulation will be MR. DE LOS REYES. The governing body continue reading.
essentially the formula of the 1973 Constitution refers to the board of directors and trustees.
which reads: "THE PARTICIPATION OF MR. BENGZON. "THE PARTICIPATION OF
FOREIGN INVESTORS IN THE GOVERNING MR. VILLEGAS. That is right. FOREIGN INVESTORS IN THE GOVERNING
BODY OF ANY PUBLIC UTILITY BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR MR. BENGZON. Yes, the governing body refers ENTERPRISE SHALL BE LIMITED TO THEIR
PROPORTIONATE SHARE IN THE CAPITAL to the board of directors. PROPORTIONATE SHARE IN THE CAPITAL
THEREOF AND..." THEREOF AND ALL THE EXECUTIVE AND
MANAGING OFFICERS OF SUCH
MR. REGALADO. It is accepted. CORPORATIONS OR ASSOCIATIONS MUST
MR. VILLEGAS. "ALL THE EXECUTIVE AND
MANAGING OFFICERS OF SUCH BE CITIZENS OF THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH owned by Filipinos, have no voting rights; (4) 6. For the Honorable Court to declare null and
FRANCHISE, CERTIFICATE OR preferred shares earn only 1/70 of the dividends void all sales of common stocks to foreigners in
AUTHORIZATION BE EXCLUSIVE IN that common shares earn;50 (5) preferred excess of 40 percent of the total subscribed
CHARACTER OR FOR A PERIOD LONGER shares have twice the par value of common common shareholdings; and
THAN TWENTY-FIVE YEARS RENEWABLE shares; and (6) preferred shares constitute
FOR NOT MORE THAN TWENTY-FIVE 77.85% of the authorized capital stock of PLDT 7. For the Honorable Court to direct the
YEARS. Neither shall any such franchise or and common shares only 22.15%. Securities and Exchange Commission and
right be granted except under the condition that Philippine Stock Exchange to require PLDT to
it shall be subject to amendment, alteration, or Despite the foregoing facts, the Court did not make a public disclosure of all of its foreign
repeal by Congress when the common good so decide, and in fact refrained from ruling on the shareholdings and their actual and real
requires. The State shall encourage equity question of whether PLDT violated the 60-40 beneficial owners.
participation in public utilities by the general ownership requirement in favor of Filipino
public." citizens in Section 11, Article XII of the 1987 Other relief(s) just and equitable are likewise
Constitution. Such question indisputably calls prayed for. (Emphasis supplied)
VOTING for a presentation and determination of
evidence through a hearing, which is generally
outside the province of the Court’s jurisdiction, As can be gleaned from his prayer, Gamboa
xxxx clearly asks this Court to compel the SEC to
but well within the SEC’s statutory powers.
Thus, for obvious reasons, the Court limited its perform its statutory duty to investigate whether
The results show 29 votes in favor and 4 decision on the purely legal and threshold issue "the required percentage of ownership of the
against; Section 15, as amended, is on the definition of the term "capital" in Section capital stock to be owned by citizens of the
approved.48 (Emphasis supplied) 11, Article XII of the Constitution and directed Philippines has been complied with [by PLDT]
the SEC to apply such definition in determining as required by x x x the Constitution."51 Such
The last sentence of Section 11, Article XII of the exact percentage of foreign ownership in plea clearly negates SEC’s argument that it was
the 1987 Constitution, particularly the provision PLDT. not impleaded.
on the limited participation of foreign investors
in the governing body of public utilities, is a IX. Granting that only the SEC Chairman was
reiteration of the last sentence of Section 5, PLDT is not an indispensable party; impleaded in this case, the Court has ample
Article XIV of the 1973 Constitution,49 signifying SEC is impleaded in this case. powers to order the SEC’s compliance with its
its importance in reserving ownership and directive contained in the 28 June 2011
control of public utilities to Filipino citizens. Decision in view of the far-reaching implications
In his petition, Gamboa prays, among others: of this case. In Domingo v. Scheer,52 the Court
VIII. dispensed with the amendment of the pleadings
The undisputed facts xxxx to implead the Bureau of Customs considering
(1) the unique backdrop of the case; (2) the
5. For the Honorable Court to issue a utmost need to avoid further delays; and (3) the
There is no dispute, and respondents do not issue of public interest involved. The Court held:
claim the contrary, that (1) foreigners own declaratory relief that ownership of common or
64.27% of the common shares of PLDT, which voting shares is the sole basis in determining
class of shares exercises the sole right to vote foreign equity in a public utility and that any The Court may be curing the defect in this case
in the election of directors, and thus foreigners other government rulings, opinions, and by adding the BOC as party-petitioner. The
control PLDT; (2) Filipinos own only 35.73% of regulations inconsistent with this declaratory petition should not be dismissed because the
PLDT’s common shares, constituting a minority relief be declared unconstitutional and a second action would only be a repetition of the
of the voting stock, and thus Filipinos do not violation of the intent and spirit of the 1987 first. In Salvador, et al., v. Court of Appeals, et
control PLDT; (3) preferred shares, 99.44% Constitution; al., we held that this Court has full powers, apart
from that power and authority which is inherent, of the Constitution. Further, the SEC entered participation of PLDT since defining the term
to amend the processes, pleadings, its special appearance in this case and "capital" in Section 11, Article XII of the
proceedings and decisions by substituting as argued during the Oral Arguments, Constitution does not, in any way, depend on
party-plaintiff the real party-in-interest. The indicating its submission to the Court’s whether PLDT was impleaded. Simply put,
Court has the power to avoid delay in the jurisdiction. It is clear, therefore, that there PLDT is not indispensable for a complete
disposition of this case, to order its exists no legal impediment against the resolution of the purely legal question in this
amendment as to implead the BOC as party- proper and immediate implementation of the case.55 In fact, the Court, by treating the petition
respondent. Indeed, it may no longer be Court’s directive to the SEC. as one for mandamus,56 merely directed the
necessary to do so taking into account the SEC to apply the Court’s definition of the term
unique backdrop in this case, involving as it PLDT is an indispensable party only insofar as "capital" in Section 11, Article XII of the
does an issue of public interest. After all, the the other issues, particularly the factual Constitution in determining whether PLDT
Office of the Solicitor General has represented questions, are concerned. In other words, PLDT committed any violation of the said
the petitioner in the instant proceedings, as well must be impleaded in order to fully resolve the constitutional provision. The dispositive
as in the appellate court, and maintained the issues on (1) whether the sale of 111,415 PTIC portion of the Court’s ruling is addressed
validity of the deportation order and of the shares to First Pacific violates the constitutional not to PLDT but solely to the SEC, which is
BOC’s Omnibus Resolution. It cannot, thus, be limit on foreign ownership of PLDT; (2) whether the administrative agency tasked to enforce
claimed by the State that the BOC was not the sale of common shares to foreigners the 60-40 ownership requirement in favor of
afforded its day in court, simply because only exceeded the 40 percent limit on foreign equity Filipino citizens in Section 11, Article XII of
the petitioner, the Chairperson of the BOC, was in PLDT; and (3) whether the total percentage the Constitution.
the respondent in the CA, and the petitioner in of the PLDT common shares with voting rights
the instant recourse. In Alonso v. Villamor, we complies with the 60-40 ownership requirement Since the Court limited its resolution on the
had the occasion to state: in favor of Filipino citizens under the purely legal issue on the definition of the term
Constitution for the ownership and operation of "capital" in Section 11, Article XII of the 1987
There is nothing sacred about processes or PLDT. These issues indisputably call for an Constitution, and directed the SEC to
pleadings, their forms or contents. Their examination of the parties’ respective evidence, investigate any violation by PLDT of the 60-40
sole purpose is to facilitate the application and thus are clearly within the jurisdiction of the ownership requirement in favor of Filipino
of justice to the rival claims of contending SEC. In short, PLDT must be impleaded, and citizens under the Constitution,57 there is no
parties. They were created, not to hinder and must necessarily be heard, in the proceedings deprivation of PLDT’s property or denial of
delay, but to facilitate and promote, the before the SEC where the factual issues will be PLDT’s right to due process, contrary to
administration of justice. They do not constitute thoroughly threshed out and resolved. Pangilinan and Nazareno’s misimpression. Due
the thing itself, which courts are always striving process will be afforded to PLDT when it
to secure to litigants. They are designed as the Notably, the foregoing issues were left presents proof to the SEC that it complies, as it
means best adapted to obtain that thing. In untouched by the Court. The Court did not claims here, with Section 11, Article XII of the
other words, they are a means to an end. When rule on the factual issues raised by Gamboa, Constitution.
they lose the character of the one and become except the single and purely legal issue on the
the other, the administration of justice is at fault definition of the term "capital" in Section 11, X.
and courts are correspondingly remiss in the Article XII of the Constitution. The Court Foreign Investments in the Philippines
performance of their obvious duty.53 (Emphasis confined the resolution of the instant case to
supplied) this threshold legal issue in deference to the Movants fear that the 28 June 2011 Decision
fact-finding power of the SEC. would spell disaster to our economy, as it may
In any event, the SEC has expressly result in a sudden flight of existing foreign
manifested54 that it will abide by the Court’s Needless to state, the Court can validly, investors to "friendlier" countries and
decision and defer to the Court’s definition properly, and fully dispose of the fundamental simultaneously deterring new foreign investors
of the term "capital" in Section 11, Article XII legal issue in this case even without the to our country. In particular, the PSE claims that
the 28 June 2011 Decision may result in the utilities serve no purpose. Obviously, there can In its Motion for Partial Reconsideration, the
following: (1) loss of more than ₱ 630 billion in never be foreign investments in public utilities if, SEC sought to clarify the reckoning period of
foreign investments in PSE-listed shares; (2) as Dr. Villegas claims, the "solution is to make the application and imposition of appropriate
massive decrease in foreign trading sure that those industries are in the hands of sanctions against PLDT if found violating
transactions; (3) lower PSE Composite Index; state enterprises." Dr. Villegas’s argument that Section 11, Article XII of the
and (4) local investors not investing in PSE- foreign investments in telecommunication Constitution.1avvphi1
listed shares.58 companies like PLDT are badly needed to save
our ailing economy contradicts his own theory As discussed, the Court has directed the SEC
Dr. Bernardo M. Villegas, one of the amici that the solution is for government to take over to investigate and determine whether PLDT
curiae in the Oral Arguments, shared movants’ these companies. Dr. Villegas is barking up the violated Section 11, Article XII of the
apprehension. Without providing specific wrong tree since State ownership of public Constitution. Thus, there is no dispute that it is
details, he pointed out the depressing state of utilities and foreign investments in such only after the SEC has determined PLDT’s
the Philippine economy compared to our industries are diametrically opposed concepts, violation, if any exists at the time of the
neighboring countries which boast of growing which cannot possibly be reconciled. commencement of the administrative case or
economies. Further, Dr. Villegas explained that investigation, that the SEC may impose the
the solution to our economic woes is for the In any event, the experience of our neighboring statutory sanctions against PLDT. In other
government to "take-over" strategic industries, countries cannot be used as argument to decide words, once the 28 June 2011 Decision
such as the public utilities sector, thus: the present case differently for two reasons. becomes final, the SEC shall impose the
First, the governments of our neighboring appropriate sanctions only if it finds after due
JUSTICE CARPIO: countries have, as claimed by Dr. Villegas, hearing that, at the start of the administrative
taken over ownership and control of their case or investigation, there is an existing
strategic public utilities like the violation of Section 11, Article XII of the
I would like also to get from you Dr. Villegas if telecommunications industry. Second, our Constitution. Under prevailing jurisprudence,
you have additional information on whether this Constitution has specific provisions limiting public utilities that fail to comply with the
high FDI59 countries in East Asia have allowed foreign ownership in public utilities which the nationality requirement under Section 11, Article
foreigners x x x control [of] their public utilities, Court is sworn to uphold regardless of the XII and the FIA can cure their deficiencies prior
so that we can compare apples with apples. experience of our neighboring countries. to the start of the administrative case or
investigation.61
DR. VILLEGAS: In our jurisdiction, the Constitution expressly
reserves the ownership and operation of public XII.
Correct, but let me just make a comment. When utilities to Filipino citizens, or corporations or Final Word
these neighbors of ours find an industry associations at least 60 percent of whose
strategic, their solution is not to "Filipinize" or capital belongs to Filipinos. Following Dr. The Constitution expressly declares as State
"Vietnamize" or "Singaporize." Their solution is Villegas’s claim, the Philippines appears to be policy the development of an economy
to make sure that those industries are in the more liberal in allowing foreign investors to own "effectively controlled" by Filipinos. Consistent
hands of state enterprises. So, in these 40 percent of public utilities, unlike in other with such State policy, the Constitution explicitly
countries, nationalization means the Asian countries whose governments own and reserves the ownership and operation of public
government takes over. And because their operate such industries. utilities to Philippine nationals, who are defined
governments are competent and honest in the Foreign Investments Act of 1991 as
enough to the public, that is the solution. x x XI. Filipino citizens, or corporations or associations
x 60 (Emphasis supplied) Prospective Application of Sanctions at least 60 percent of whose capital with voting
rights belongs to Filipinos. The FIA’s
If government ownership of public utilities is the implementing rules explain that "[f]or stocks to
solution, then foreign investments in our public be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title Parity Amendment on 3 July 1974.63 No WHEREFORE, we DENY the motions for
is not enough to meet the required Filipino economic suicide happened when control of reconsideration WITH FINALITY. No further
equity. Full beneficial ownership of the public utilities and mining corporations passed pleadings shall be entertained.
stocks, coupled with appropriate voting to Filipinos’ hands upon expiration of the Parity
rights is essential." In effect, the FIA clarifies, Amendment. SO ORDERED.
reiterates and confirms the interpretation that
the term "capital" in Section 11, Article XII of the Movants’ interpretation of the term "capital"
1987 Constitution refers to shares with voting would bring us back to the same evils spawned
rights, as well as with full beneficial by the Parity Amendment, effectively giving
ownership. This is precisely because the right foreigners parity rights with Filipinos, but
to vote in the election of directors, coupled with this time even without any amendment to
full beneficial ownership of stocks, translates to the present Constitution. Worse, movants’
effective control of a corporation. interpretation opens up our national economy
to effective control not only by Americans but
Any other construction of the term "capital" in also by all foreigners, be they Indonesians,
Section 11, Article XII of the Constitution Malaysians or Chinese, even in the absence
contravenes the letter and intent of the of reciprocal treaty arrangements. At least
Constitution. Any other meaning of the term the Parity Amendment, as implemented by the
"capital" openly invites alien domination of Laurel-Langley Agreement, gave the capital-
economic activities reserved exclusively to starved Filipinos theoretical parity – the same
Philippine nationals. Therefore, respondents’ rights as Americans to exploit natural resources,
interpretation will ultimately result in handing and to own and control public utilities, in the
over effective control of our national economy to United States of America. Here, movants’
foreigners in patent violation of the Constitution, interpretation would effectively mean
making Filipinos second-class citizens in their a unilateral opening up of our national
own country. economy to all foreigners, without any
reciprocal arrangements. That would mean
Filipinos have only to remind themselves of how that Indonesians, Malaysians and Chinese
this country was exploited under the Parity nationals could effectively control our mining
Amendment, which gave Americans the same companies and public utilities while Filipinos,
rights as Filipinos in the exploitation of natural even if they have the capital, could not control
resources, and in the ownership and control of similar corporations in these countries.
public utilities, in the Philippines. To do this the
1935 Constitution, which contained the same 60 The 1935, 1973 and 1987 Constitutions have
percent Filipino ownership and control the same 60 percent Filipino ownership and
requirement as the present 1987 Constitution, control requirement for public utilities like PLOT.
had to be amended to give Americans parity Any deviation from this requirement
rights with Filipinos. There was bitter opposition necessitates an amendment to the Constitution
to the Parity Amendment62 and many Filipinos as exemplified by the Parity Amendment. This
eagerly awaited its expiration. In late 1968, Court has no power to amend the Constitution
PLDT was one of the American-controlled for its power and duty is only to faithfully apply
public utilities that became Filipino-controlled and interpret the Constitution.
when the controlling American stockholders
divested in anticipation of the expiration of the
Republic of the Philippines Sharing Agreement (MPSA) applications of On January 2, 2007, Redmont filed before the
SUPREME COURT petitioners Narra, Tesoro and McArthur. Panel of Arbitrators (POA) of the DENR three
Baguio City (3) separate petitions for the denial of
Petitioner McArthur, through its predecessor-in- petitioners’ applications for MPSA designated
THIRD DIVISION interest Sara Marie Mining, Inc. (SMMI), filed an as AMA-IVB-153, AMA-IVB-154 and MPSA IV-
application for an MPSA and Exploration Permit 1-12.
G.R. No. 195580 April 21, 2014 (EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department In the petitions, Redmont alleged that at least
of Environment and Natural Resources (DENR). 60% of the capital stock of McArthur, Tesoro
NARRA NICKEL MINING AND and Narra are owned and controlled by MBMI
DEVELOPMENT CORP., TESORO MINING Resources, Inc. (MBMI), a 100% Canadian
AND DEVELOPMENT, INC., and MCARTHUR Subsequently, SMMI was issued MPSA-AMA-
IVB-153 covering an area of over 1,782 corporation. Redmont reasoned that since
MINING, INC., Petitioners, MBMI is a considerable stockholder of
vs. hectares in Barangay Sumbiling, Municipality of
Bataraza, Province of Palawan and EPA-IVB-44 petitioners, it was the driving force behind
REDMONT CONSOLIDATED MINES petitioners’ filing of the MPSAs over the areas
CORP., Respondent. which includes an area of 3,720 hectares in
Barangay Malatagao, Bataraza, Palawan. The covered by applications since it knows that it
MPSA and EP were then transferred to can only participate in mining activities through
DECISION Madridejos Mining Corporation (MMC) and, on corporations which are deemed Filipino citizens.
November 6, 2006, assigned to petitioner Redmont argued that given that petitioners’
VELASCO, JR., J.: McArthur.2 capital stocks were mostly owned by MBMI,
they were likewise disqualified from engaging in
mining activities through MPSAs, which are
Before this Court is a Petition for Review on Petitioner Narra acquired its MPSA from Alpha reserved only for Filipino citizens.
Certiorari under Rule 45 filed by Narra Nickel Resources and Development Corporation and
and Mining Development Corp. (Narra), Tesoro Patricia Louise Mining & Development
Mining and Development, Inc. (Tesoro), and Corporation (PLMDC) which previously filed an In their Answers, petitioners averred that they
McArthur Mining Inc. (McArthur), which seeks to application for an MPSA with the MGB, Region were qualified persons under Section 3(aq) of
reverse the October 1, 2010 Decision1 and the IV-B, DENR on January 6, 1992. Through the Republic Act No. (RA) 7942 or the Philippine
February 15, 2011 Resolution of the Court of said application, the DENR issued MPSA-IV-1- Mining Act of 1995 which provided:
Appeals (CA). 12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro, Sec. 3 Definition of Terms. As used in and for
The Facts Municipality of Narra, Palawan. Subsequently, purposes of this Act, the following terms,
PLMDC conveyed, transferred and/or assigned whether in singular or plural, shall mean:
its rights and interests over the MPSA
Sometime in December 2006, respondent application in favor of Narra.
Redmont Consolidated Mines Corp. (Redmont), xxxx
a domestic corporation organized and existing
under Philippine laws, took interest in mining Another MPSA application of SMMI was filed (aq) "Qualified person" means any citizen of the
and exploring certain areas of the province of with the DENR Region IV-B, labeled as MPSA- Philippines with capacity to contract, or a
Palawan. After inquiring with the Department of AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 corporation, partnership, association, or
Environment and Natural Resources (DENR), it hectares in Barangays Malinao and Princesa cooperative organized or authorized for the
learned that the areas where it wanted to Urduja, Municipality of Narra, Province of purpose of engaging in mining, with technical
undertake exploration and mining activities Palawan. SMMI subsequently conveyed, and financial capability to undertake mineral
where already covered by Mineral Production transferred and assigned its rights and interest resources development and duly registered in
over the said MPSA application to Tesoro. accordance with law at least sixty per cent
(60%) of the capital of which is owned by [I]t is clearly established that respondents are In their respective memorandum, petitioners
citizens of the Philippines: Provided, That a not qualified applicants to engage in mining emphasized that they are qualified persons
legally organized foreign-owned corporation activities. On the other hand, [Redmont] having under the law. Also, through a letter, they
shall be deemed a qualified person for purposes filed its own applications for an EPA over the informed the MAB that they had their individual
of granting an exploration permit, financial or areas earlier covered by the MPSA application MPSA applications converted to FTAAs.
technical assistance agreement or mineral of respondents may be considered if and when McArthur’s FTAA was denominated as AFTA-
processing permit. they are qualified under the law. The violation of IVB-0912 on May 2007, while Tesoro’s MPSA
the requirements for the issuance and/or grant application was converted to AFTA-IVB-0813 on
Additionally, they stated that their nationality as of permits over mining areas is clearly May 28, 2007, and Narra’s FTAA was converted
applicants is immaterial because they also established thus, there is reason to believe that to AFTA-IVB-0714 on March 30, 2006.
applied for Financial or Technical Assistance the cancellation and/or revocation of permits
Agreements (FTAA) denominated as AFTA- already issued under the premises is in order Pending the resolution of the appeal filed by
IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and open the areas covered to other qualified petitioners with the MAB, Redmont filed a
and AFTA-IVB-07 for Narra, which are granted applicants. Complaint15 with the Securities and Exchange
to foreign-owned corporations. Nevertheless, Commission (SEC), seeking the revocation of
they claimed that the issue on nationality should xxxx the certificates for registration of petitioners on
not be raised since McArthur, Tesoro and Narra the ground that they are foreign-owned or
are in fact Philippine Nationals as 60% of their WHEREFORE, the Panel of Arbitrators finds the controlled corporations engaged in mining in
capital is owned by citizens of the Philippines. Respondents, McArthur Mining Inc., Tesoro violation of Philippine laws. Thereafter,
They asserted that though MBMI owns 40% of Mining and Development, Inc., and Narra Nickel Redmont filed on September 1, 2008 a
the shares of PLMC (which owns 5,997 shares Mining and Development Corp. as, Manifestation and Motion to Suspend
of Narra),3 40% of the shares of MMC (which DISQUALIFIED for being considered as Foreign Proceeding before the MAB praying for the
owns 5,997 shares of McArthur)4 and 40% of Corporations. Their Mineral Production Sharing suspension of the proceedings on the appeals
the shares of SLMC (which, in turn, owns 5,997 Agreement (MPSA) are hereby x x x filed by McArthur, Tesoro and Narra.
shares of Tesoro),5 the shares of MBMI will not DECLARED NULL AND VOID.6
make it the owner of at least 60% of the capital Subsequently, on September 8, 2008, Redmont
stock of each of petitioners. They added that the filed before the Regional Trial Court of Quezon
best tool used in determining the nationality of a The POA considered petitioners as foreign
corporations being "effectively controlled" by City, Branch 92 (RTC) a Complaint16 for
corporation is the "control test," embodied in injunction with application for issuance of a
Sec. 3 of RA 7042 or the Foreign Investments MBMI, a 100% Canadian company and
declared their MPSAs null and void. In the same temporary restraining order (TRO) and/or writ of
Act of 1991. They also claimed that the POA of preliminary injunction, docketed as Civil Case
DENR did not have jurisdiction over the issues Resolution, it gave due course to Redmont’s
EPAs. Thereafter, on February 7, 2008, the No. 08-63379. Redmont prayed for the deferral
in Redmont’s petition since they are not of the MAB proceedings pending the resolution
enumerated in Sec. 77 of RA 7942. Finally, they POA issued an Order7 denying the Motion for
Reconsideration filed by petitioners. of the Complaint before the SEC.
stressed that Redmont has no personality to
sue them because it has no pending claim or
application over the areas applied for by Aggrieved by the Resolution and Order of the But before the RTC can resolve Redmont’s
petitioners. POA, McArthur and Tesoro filed a joint Notice of Complaint and applications for injunctive reliefs,
Appeal8 and Memorandum of Appeal9 with the the MAB issued an Order on September 10,
Mines Adjudication Board (MAB) while Narra 2008, finding the appeal meritorious. It held:
On December 14, 2007, the POA issued a
Resolution disqualifying petitioners from gaining separately filed its Notice of Appeal10and
MPSAs. It held: Memorandum of Appeal.11 WHEREFORE, in view of the foregoing, the
Mines Adjudication Board hereby REVERSES
and SETS ASIDE the Resolution dated 14
December 2007 of the Panel of Arbitrators of Hence, the petition for review filed by Redmont the "grandfather rule" to determine the
Region IV-B (MIMAROPA) in POA-DENR Case before the CA, assailing the Orders issued by nationality of petitioners. It provided:
Nos. 2001-01, 2007-02 and 2007-03, and its the MAB. On October 1, 2010, the CA rendered
Order dated 07 February 2008 denying the a Decision, the dispositive of which reads: Shares belonging to corporations or
Motions for Reconsideration of the Appellants. partnerships at least 60% of the capital of which
The Petition filed by Redmont Consolidated WHEREFORE, the Petition is PARTIALLY is owned by Filipino citizens shall be considered
Mines Corporation on 02 January 2007 is GRANTED. The assailed Orders, dated as of Philippine nationality, but if the percentage
hereby ordered DISMISSED.17 September 10, 2008 and July 1, 2009 of the of Filipino ownership in the corporation or
Mining Adjudication Board are reversed and set partnership is less than 60%, only the number
Belatedly, on September 16, 2008, the RTC aside. The findings of the Panel of Arbitrators of of shares corresponding to such percentage
issued an Order18 granting Redmont’s the Department of Environment and Natural shall be counted as of Philippine nationality.
application for a TRO and setting the case for Resources that respondents McArthur, Tesoro Thus, if 100,000 shares are registered in the
hearing the prayer for the issuance of a writ of and Narra are foreign corporations is upheld name of a corporation or partnership at least
preliminary injunction on September 19, 2008. and, therefore, the rejection of their applications 60% of the capital stock or capital, respectively,
for Mineral Product Sharing Agreement should of which belong to Filipino citizens, all of the
Meanwhile, on September 22, 2008, Redmont be recommended to the Secretary of the DENR. shares shall be recorded as owned by Filipinos.
filed a Motion for Reconsideration19 of the But if less than 60%, or say, 50% of the capital
September 10, 2008 Order of the MAB. With respect to the applications of respondents stock or capital of the corporation or
Subsequently, it filed a Supplemental Motion for McArthur, Tesoro and Narra for Financial or partnership, respectively, belongs to Filipino
Reconsideration20 on September 29, 2008. Technical Assistance Agreement (FTAA) or citizens, only 50,000 shares shall be recorded
conversion of their MPSA applications to FTAA, as belonging to aliens.24(emphasis supplied)
Before the MAB could resolve Redmont’s the matter for its rejection or approval is left for
Motion for Reconsideration and Supplemental determination by the Secretary of the DENR In determining the nationality of petitioners, the
Motion for Reconsideration, Redmont filed and the President of the Republic of the CA looked into their corporate structures and
before the RTC a Supplemental Complaint21 in Philippines. their corresponding common shareholders.
Civil Case No. 08-63379. Using the grandfather rule, the CA discovered
SO ORDERED.23 that MBMI in effect owned majority of the
common stocks of the petitioners as well as at
On October 6, 2008, the RTC issued an least 60% equity interest of other majority
Order22 granting the issuance of a writ of In a Resolution dated February 15, 2011, the shareholders of petitioners through joint venture
preliminary injunction enjoining the MAB from CA denied the Motion for Reconsideration filed agreements. The CA found that through a "web
finally disposing of the appeals of petitioners by petitioners. of corporate layering, it is clear that one
and from resolving Redmont’s Motion for common controlling investor in all mining
Reconsideration and Supplement Motion for After a careful review of the records, the CA corporations involved x x x is MBMI."25 Thus, it
Reconsideration of the MAB’s September 10, found that there was doubt as to the nationality concluded that petitioners McArthur, Tesoro and
2008 Resolution. of petitioners when it realized that petitioners Narra are also in partnership with, or privies-in-
had a common major investor, MBMI, a interest of, MBMI.
On July 1, 2009, however, the MAB issued a corporation composed of 100% Canadians.
second Order denying Redmont’s Motion for Pursuant to the first sentence of paragraph 7 of Furthermore, the CA viewed the conversion of
Reconsideration and Supplemental Motion for Department of Justice (DOJ) Opinion No. 020, the MPSA applications of petitioners into FTAA
Reconsideration and resolving the appeals filed Series of 2005, adopting the 1967 SEC Rules applications suspicious in nature and, as a
by petitioners. which implemented the requirement of the consequence, it recommended the rejection of
Constitution and other laws pertaining to the petitioners’ MPSA applications by the Secretary
exploitation of natural resources, the CA used of the DENR.
With regard to the settlement of disputes over Small Scale Mining Permit inside the area I.
rights to mining areas, the CA pointed out that earlier applied for an MPSA application which
the POA has jurisdiction over them and that it was eventually transferred to Narra. It also The Court of Appeals erred when it did
also has the power to determine the of agreed with the POA’s estimation that the filing not dismiss the case for mootness
nationality of petitioners as a prerequisite of the of the FTAA applications by petitioners is a despite the fact that the subject matter
Constitution prior the conferring of rights to "co- clear admission that they are "not capable of of the controversy, the MPSA
production, joint venture or production-sharing conducting a large scale mining operation and Applications, have already been
agreements" of the state to mining rights. that they need the financial and technical converted into FTAA applications and
However, it also stated that the POA’s assistance of a foreign entity in their operation, that the same have already been
jurisdiction is limited only to the resolution of the that is why they sought the participation of granted.
dispute and not on the approval or rejection of MBMI Resources, Inc."28 The Decision further
the MPSAs. It stipulated that only the Secretary quoted:
of the DENR is vested with the power to II.
approve or reject applications for MPSA. The filing of the FTAA application on June 15,
2007, during the pendency of the case only The Court of Appeals erred when it did
Finally, the CA upheld the findings of the POA demonstrate the violations and lack of not dismiss the case for lack of
in its December 14, 2007 Resolution which qualification of the respondent corporations to jurisdiction considering that the Panel
considered petitioners McArthur, Tesoro and engage in mining. The filing of the FTAA of Arbitrators has no jurisdiction to
Narra as foreign corporations. Nevertheless, the application conversion which is allowed foreign determine the nationality of Narra,
CA determined that the POA’s declaration that corporation of the earlier MPSA is an admission Tesoro and McArthur.
the MPSAs of McArthur, Tesoro and Narra are that indeed the respondent is not Filipino but
void is highly improper. rather of foreign nationality who is disqualified III.
under the laws. Corporate documents of MBMI
While the petition was pending with the CA, Resources, Inc. furnished its stockholders in The Court of Appeals erred when it did
Redmont filed with the Office of the President their head office in Canada suggest that they not dismiss the case on account of
(OP) a petition dated May 7, 2010 seeking the are conducting operation only through their local Redmont’s willful forum shopping.
cancellation of petitioners’ FTAAs. The OP counterparts.29
rendered a Decision26 on April 6, 2011, wherein IV.
it canceled and revoked petitioners’ FTAAs for The Motion for Reconsideration of the Decision
violating and circumventing the "Constitution x x was further denied by the OP in a
x[,] the Small Scale Mining Law and Resolution30 dated July 6, 2011. Petitioners The Court of Appeals’ ruling that
Environmental Compliance Certificate as well then filed a Petition for Review on Certiorari of Narra, Tesoro and McArthur are
as Sections 3 and 8 of the Foreign Investment the OP’s Decision and Resolution with the CA, foreign corporations based on the
Act and E.O. 584."27 The OP, in affirming the docketed as CA-G.R. SP No. 120409. In the CA "Grandfather Rule" is contrary to law,
cancellation of the issued FTAAs, agreed with Decision dated February 29, 2012, the CA particularly the express mandate of the
Redmont stating that petitioners committed affirmed the Decision and Resolution of the OP. Foreign Investments Act of 1991, as
violations against the abovementioned laws and Thereafter, petitioners appealed the same CA amended, and the FIA Rules.
failed to submit evidence to negate them. The decision to this Court which is now pending with
Decision further quoted the December 14, 2007 a different division. V.
Order of the POA focusing on the alleged
misrepresentation and claims made by Thus, the instant petition for review against the The Court of Appeals erred when it
petitioners of being domestic or Filipino October 1, 2010 Decision of the CA. Petitioners applied the exceptions to the res inter
corporations and the admitted continued mining put forth the following errors of the CA: alios acta rule.
operation of PMDC using their locally secured
VI. 3.) When constitutional issue raised applications to FTAA applications. Petitioners
requires formulation of controlling propound that the CA erred in ruling against
The Court of Appeals erred when it principles to guide the bench, the bar, them since the questioned MPSA applications
concluded that the conversion of the and the public; and were already converted into FTAA applications;
MPSA Applications into FTAA thus, the issue on the prohibition relating to
Applications were of "suspicious 4.) The case is capable of repetition MPSA applications of foreign mining
nature" as the same is based on mere yet evading review.34 corporations is academic. Also, petitioners
conjectures and surmises without any would want us to correct the CA’s finding which
shred of evidence to show the same.31 deemed the aforementioned conversions of
All of the exceptions stated above are present in applications as suspicious in nature, since it is
the instant case. We of this Court note that a based on mere conjectures and surmises and
We find the petition to be without merit. grave violation of the Constitution, specifically not supported with evidence.
Section 2 of Article XII, is being committed by a
This case not moot and academic foreign corporation right under our country’s
nose through a myriad of corporate layering We disagree.
under different, allegedly, Filipino corporations.
The claim of petitioners that the CA erred in not The intricate corporate layering utilized by the The CA’s analysis of the actions of petitioners
rendering the instant case as moot is without Canadian company, MBMI, is of exceptional after the case was filed against them by
merit. character and involves paramount public respondent is on point. The changing of
interest since it undeniably affects the applications by petitioners from one type to
Basically, a case is said to be moot and/or exploitation of our Country’s natural resources. another just because a case was filed against
academic when it "ceases to present a The corresponding actions of petitioners during them, in truth, would raise not a few sceptics’
justiciable controversy by virtue of supervening the lifetime and existence of the instant case eyebrows. What is the reason for such
events, so that a declaration thereon would be raise questions as what principle is to be conversion? Did the said conversion not stem
of no practical use or value."32 Thus, the courts applied to cases with similar issues. No definite from the case challenging their citizenship and
"generally decline jurisdiction over the case or ruling on such principle has been pronounced to have the case dismissed against them for
dismiss it on the ground of mootness."33 by the Court; hence, the disposition of the being "moot"? It is quite obvious that it is
issues or errors in the instant case will serve as petitioners’ strategy to have the case dismissed
The "mootness" principle, however, does accept a guide "to the bench, the bar and the against them for being "moot."
certain exceptions and the mere raising of an public."35 Finally, the instant case is capable of
issue of "mootness" will not deter the courts repetition yet evading review, since the Consider the history of this case and how
from trying a case when there is a valid reason Canadian company, MBMI, can keep on petitioners responded to every action done by
to do so. In David v. Macapagal-Arroyo (David), utilizing dummy Filipino corporations through the court or appropriate government agency: on
the Court provided four instances where courts various schemes of corporate layering and January 2, 2007, Redmont filed three separate
can decide an otherwise moot case, thus: conversion of applications to skirt the petitions for denial of the MPSA applications of
constitutional prohibition against foreign mining petitioners before the POA. On June 15, 2007,
in Philippine soil. petitioners filed a conversion of their MPSA
1.) There is a grave violation of the
Constitution; applications to FTAAs. The POA, in its
Conversion of MPSA applications to FTAA December 14, 2007 Resolution, observed this
applications suspect change of applications while the case
2.) The exceptional character of the was pending before it and held:
situation and paramount public interest
is involved; We shall discuss the first error in conjunction
with the sixth error presented by petitioners The filing of the Financial or Technical
since both involve the conversion of MPSA Assistance Agreement application is a clear
admission that the respondents are not capable the DENR and the President of the Republic of in a remarkable turn of events, MBMI was able
of conducting a large scale mining operation the Philippines.37 to sell/assign all its shares/interest in the
and that they need the financial and technical "holding companies" to DMCI Mining
assistance of a foreign entity in their operation In their Motion for Reconsideration dated Corporation (DMCI), a Filipino corporation and,
that is why they sought the participation of October 26, 2010, petitioners prayed for the in effect, making their respective corporations
MBMI Resources, Inc. The participation of dismissal of the petition asserting that on April fully-Filipino owned.
MBMI in the corporation only proves the fact 5, 2010, then President Gloria Macapagal-
that it is the Canadian company that will provide Arroyo signed and issued in their favor FTAA Again, it is quite evident that petitioners have
the finances and the resources to operate the No. 05-2010-IVB, which rendered the petition been trying to have this case dismissed for
mining areas for the greater benefit and interest moot and academic. However, the CA, in a being "moot." Their final act, wherein MBMI was
of the same and not the Filipino stockholders Resolution dated February 15, 2011 denied able to allegedly sell/assign all its shares and
who only have a less substantial financial stake their motion for being a mere "rehash of their interest in the petitioner "holding companies" to
in the corporation. claims and defenses."38 Standing firm on its DMCI, only proves that they were in fact not
Decision, the CA affirmed the ruling that Filipino corporations from the start. The recent
xxxx petitioners are, in fact, foreign corporations. On divesting of interest by MBMI will not change
April 5, 2011, petitioners elevated the case to us the stand of this Court with respect to the
x x x The filing of the FTAA application on June via a Petition for Review on Certiorari under nationality of petitioners prior the suspicious
15, 2007, during the pendency of the case only Rule 45, questioning the Decision of the CA. change in their corporate structures. The new
demonstrate the violations and lack of Interestingly, the OP rendered a Decision dated documents filed by petitioners are factual
qualification of the respondent corporations to April 6, 2011, a day after this petition for review evidence that this Court has no power to verify.
engage in mining. The filing of the FTAA was filed, cancelling and revoking the FTAAs,
application conversion which is allowed foreign quoting the Order of the POA and stating that The only thing clear and proved in this Court is
corporation of the earlier MPSA is an admission petitioners are foreign corporations since they the fact that the OP declared that petitioner
that indeed the respondent is not Filipino but needed the financial strength of MBMI, Inc. in corporations have violated several mining laws
rather of foreign nationality who is disqualified order to conduct large scale mining operations. and made misrepresentations and falsehood in
under the laws. Corporate documents of MBMI The OP Decision also based the cancellation on their applications for FTAA which lead to the
Resources, Inc. furnished its stockholders in the misrepresentation of facts and the violation revocation of the said FTAAs, demonstrating
their head office in Canada suggest that they of the "Small Scale Mining Law and that petitioners are not beyond going against or
are conducting operation only through their local Environmental Compliance Certificate as well around the law using shifty actions and
counterparts.36 as Sections 3 and 8 of the Foreign Investment strategies. Thus, in this instance, we can say
Act and E.O. 584."39 On July 6, 2011, the OP that their claim of mootness is moot in itself
issued a Resolution, denying the Motion for because their defense of conversion of MPSAs
On October 1, 2010, the CA rendered a Reconsideration filed by the petitioners.
Decision which partially granted the petition, to FTAAs has been discredited by the OP
reversing and setting aside the September 10, Decision.
2008 and July 1, 2009 Orders of the MAB. In Respondent Redmont, in its Comment dated
the said Decision, the CA upheld the findings of October 10, 2011, made known to the Court the Grandfather test
the POA of the DENR that the herein petitioners fact of the OP’s Decision and Resolution. In
are in fact foreign corporations thus a their Reply, petitioners chose to ignore the OP
Decision and continued to reuse their old The main issue in this case is centered on the
recommendation of the rejection of their MPSA issue of petitioners’ nationality, whether Filipino
applications were recommended to the arguments claiming that they were granted
FTAAs and, thus, the case was moot. or foreign. In their previous petitions, they had
Secretary of the DENR. With respect to the been adamant in insisting that they were Filipino
FTAA applications or conversion of the MPSA Petitioners filed a Manifestation and Submission
dated October 19, 2012,40 wherein they corporations, until they submitted their
applications to FTAAs, the CA deferred the Manifestation and Submission dated October
matter for the determination of the Secretary of asserted that the present petition is moot since,
19, 2012 where they stated the alleged change ownership in the corporation or partnership is definition of a "Philippine National" under Sec. 3
of corporate ownership to reflect their Filipino less than 60%, only the number of shares of the FIA does not provide for it. They further
ownership. Thus, there is a need to determine corresponding to such percentage shall be claim that the grandfather rule "has been
the nationality of petitioner corporations. counted as Philippine nationality," pertains to abandoned and is no longer the applicable
the stricter, more stringent grandfather rule. rule."41 They also opined that the last portion of
Basically, there are two acknowledged tests in Sec. 3 of the FIA admits the application of a
determining the nationality of a corporation: the Prior to this recent change of events, petitioners "corporate layering" scheme of corporations.
control test and the grandfather rule. Paragraph were constant in advocating the application of Petitioners claim that the clear and
7 of DOJ Opinion No. 020, Series of 2005, the "control test" under RA 7042, as amended unambiguous wordings of the statute preclude
adopting the 1967 SEC Rules which by RA 8179, otherwise known as the Foreign the court from construing it and prevent the
implemented the requirement of the Constitution Investments Act (FIA), rather than using the court’s use of discretion in applying the law.
and other laws pertaining to the controlling stricter grandfather rule. The pertinent provision They said that the plain, literal meaning of the
interests in enterprises engaged in the under Sec. 3 of the FIA provides: statute meant the application of the control test
exploitation of natural resources owned by is obligatory.
Filipino citizens, provides: SECTION 3. Definitions. - As used in this Act:
We disagree. "Corporate layering" is admittedly
Shares belonging to corporations or allowed by the FIA; but if it is used to
a.) The term Philippine national shall mean a circumvent the Constitution and pertinent laws,
partnerships at least 60% of the capital of which citizen of the Philippines; or a domestic
is owned by Filipino citizens shall be considered then it becomes illegal. Further, the
partnership or association wholly owned by the pronouncement of petitioners that the
as of Philippine nationality, but if the percentage citizens of the Philippines; a corporation
of Filipino ownership in the corporation or grandfather rule has already been abandoned
organized under the laws of the Philippines of must be discredited for lack of basis.
partnership is less than 60%, only the number which at least sixty percent (60%) of the capital
of shares corresponding to such percentage stock outstanding and entitled to vote is wholly
shall be counted as of Philippine nationality. owned by Filipinos or a trustee of funds for Art. XII, Sec. 2 of the Constitution provides:
Thus, if 100,000 shares are registered in the pension or other employee retirement or
name of a corporation or partnership at least separation benefits, where the trustee is a Sec. 2. All lands of the public domain, waters,
60% of the capital stock or capital, respectively, Philippine national and at least sixty percent minerals, coal, petroleum and other mineral oils,
of which belong to Filipino citizens, all of the (60%) of the fund will accrue to the benefit of all forces of potential energy, fisheries, forests
shares shall be recorded as owned by Filipinos. Philippine nationals: Provided, That were a or timber, wildlife, flora and fauna, and other
But if less than 60%, or say, 50% of the capital corporation and its non-Filipino stockholders natural resources are owned by the State. With
stock or capital of the corporation or own stocks in a Securities and Exchange the exception of agricultural lands, all other
partnership, respectively, belongs to Filipino Commission (SEC) registered enterprise, at natural resources shall not be alienated. The
citizens, only 50,000 shares shall be counted as least sixty percent (60%) of the capital stock exploration, development, and utilization of
owned by Filipinos and the other 50,000 shall outstanding and entitled to vote of each of both natural resources shall be under the full control
be recorded as belonging to aliens. corporations must be owned and held by and supervision of the State. The State may
citizens of the Philippines and at least sixty directly undertake such activities, or it may enter
The first part of paragraph 7, DOJ Opinion No. percent (60%) of the members of the Board of into co-production, joint venture or production-
020, stating "shares belonging to corporations Directors, in order that the corporation shall be sharing agreements with Filipino citizens, or
or partnerships at least 60% of the capital of considered a Philippine national. (emphasis corporations or associations at least sixty per
which is owned by Filipino citizens shall be supplied) centum of whose capital is owned by such
considered as of Philippine nationality," pertains citizens. Such agreements may be for a period
to the control test or the liberal rule. On the The grandfather rule, petitioners reasoned, has not exceeding twenty-five years, renewable for
other hand, the second part of the DOJ Opinion no leg to stand on in the instant case since the not more than twenty-five years, and under
which provides, "if the percentage of the Filipino
such terms and conditions as may be provided MR. VILLEGAS: Undue foreign control is Will the Committee please enlighten me on
by law. foreign control which sacrifices national this?
sovereignty and the welfare of the Filipino in the
xxxx economic sphere. MR. VILLEGAS: We have just had a long
discussion with the members of the team from
The President may enter into agreements with MR. BENNAGEN: Why does it have to be the UP Law Center who provided us with a
Foreign-owned corporations involving either qualified still with the word "undue"? Why not draft. The phrase that is contained here which
technical or financial assistance for large-scale simply freedom from foreign control? I think that we adopted from the UP draft is ‘60 percent of
exploration, development, and utilization of is the meaning of independence, because as the voting stock.’
minerals, petroleum, and other mineral oils phrased, it still allows for foreign control.
according to the general terms and conditions MR. NOLLEDO: That must be based on the
provided by law, based on real contributions to MR. VILLEGAS: It will now depend on the subscribed capital stock, because unless
the economic growth and general welfare of the interpretation because if, for example, we retain declared delinquent, unpaid capital stock shall
country. In such agreements, the State shall the 60/40 possibility in the cultivation of natural be entitled to vote.
promote the development and use of local resources, 40 percent involves some control;
scientific and technical resources. (emphasis not total control, but some control. MR. VILLEGAS: That is right.
supplied)
MR. BENNAGEN: In any case, I think in due MR. NOLLEDO: Thank you.
The emphasized portion of Sec. 2 which time we will propose some amendments.
focuses on the State entering into different
types of agreements for the exploration, With respect to an investment by one
MR. VILLEGAS: Yes. But we will be open to corporation in another corporation, say, a
development, and utilization of natural improvement of the phraseology.
resources with entities who are deemed Filipino corporation with 60-40 percent equity invests in
due to 60 percent ownership of capital is another corporation which is permitted by the
pertinent to this case, since the issues are Mr. BENNAGEN: Yes. Corporation Code, does the Committee adopt
centered on the utilization of our country’s the grandfather rule?
natural resources or specifically, mining. Thus, Thank you, Mr. Vice-President.
there is a need to ascertain the nationality of MR. VILLEGAS: Yes, that is the understanding
petitioners since, as the Constitution so xxxx of the Committee.
provides, such agreements are only allowed
corporations or associations "at least 60 percent MR. NOLLEDO: Therefore, we need additional
of such capital is owned by such citizens." The MR. NOLLEDO: In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and Filipino capital?
deliberations in the Records of the 1986
Constitutional Commission shed light on how a foreign equity; namely, 60-40 in Section 3, 60-
citizenship of a corporation will be determined: 40 in Section 9, and 2/3-1/3 in Section 15. MR. VILLEGAS: Yes.42 (emphasis supplied)
Mr. BENNAGEN: Did I hear right that the MR. VILLEGAS: That is right. It is apparent that it is the intention of the
Chairman’s interpretation of an independent framers of the Constitution to apply the
national economy is freedom from undue MR. NOLLEDO: In teaching law, we are always grandfather rule in cases where corporate
foreign control? What is the meaning of undue faced with the question: ‘Where do we base the layering is present.
foreign control? equity requirement, is it on the authorized
capital stock, on the subscribed capital stock, or Elementary in statutory construction is when
on the paid-up capital stock of a corporation’? there is conflict between the Constitution and a
statute, the Constitution will prevail. In this The second case is the Strict Rule or the petitioners Narra, McArthur and Tesoro, since
instance, specifically pertaining to the provisions Grandfather Rule Proper and pertains to the their common investor, the 100% Canadian
under Art. XII of the Constitution on National portion in said Paragraph 7 of the 1967 SEC corporation––MBMI, funded them. However,
Economy and Patrimony, Sec. 3 of the FIA will Rules which states, "but if the percentage of petitioners also claim that there is "doubt" only
have no place of application. As decreed by the Filipino ownership in the corporation or when the stockholdings of Filipinos are less
honorable framers of our Constitution, the partnership is less than 60%, only the number than 60%.43
grandfather rule prevails and must be applied. of shares corresponding to such percentage
shall be counted as of Philippine nationality." The assertion of petitioners that "doubt" only
Likewise, paragraph 7, DOJ Opinion No. 020, Under the Strict Rule or Grandfather Rule exists when the stockholdings are less than
Series of 2005 provides: Proper, the combined totals in the Investing 60% fails to convince this Court. DOJ Opinion
Corporation and the Investee Corporation must No. 20, which petitioners quoted in their petition,
be traced (i.e., "grandfathered") to determine only made an example of an instance where
The above-quoted SEC Rules provide for the the total percentage of Filipino ownership.
manner of calculating the Filipino interest in a "doubt" as to the ownership of the corporation
corporation for purposes, among others, of exists. It would be ludicrous to limit the
determining compliance with nationality Moreover, the ultimate Filipino ownership of the application of the said word only to the
requirements (the ‘Investee Corporation’). Such shares must first be traced to the level of the instances where the stockholdings of non-
manner of computation is necessary since the Investing Corporation and added to the shares Filipino stockholders are more than 40% of the
shares in the Investee Corporation may be directly owned in the Investee Corporation x x x. total stockholdings in a corporation. The
owned both by individual stockholders corporations interested in circumventing our
(‘Investing Individuals’) and by corporations and xxxx laws would clearly strive to have "60% Filipino
partnerships (‘Investing Corporation’). The said Ownership" at face value. It would be senseless
rules thus provide for the determination of for these applying corporations to state in their
In other words, based on the said SEC Rule respective articles of incorporation that they
nationality depending on the ownership of the and DOJ Opinion, the Grandfather Rule or the
Investee Corporation and, in certain instances, have less than 60% Filipino stockholders since
second part of the SEC Rule applies only when the applications will be denied instantly. Thus,
the Investing Corporation. the 60-40 Filipino-foreign equity ownership is in various corporate schemes and layerings are
doubt (i.e., in cases where the joint venture utilized to circumvent the application of the
Under the above-quoted SEC Rules, there are corporation with Filipino and foreign Constitution.
two cases in determining the nationality of the stockholders with less than 60% Filipino
Investee Corporation. The first case is the stockholdings [or 59%] invests in other joint
‘liberal rule’, later coined by the SEC as the venture corporation which is either 60-40% Obviously, the instant case presents a situation
Control Test in its 30 May 1990 Opinion, and Filipino-alien or the 59% less Filipino). Stated which exhibits a scheme employed by
pertains to the portion in said Paragraph 7 of differently, where the 60-40 Filipino- foreign stockholders to circumvent the law, creating a
the 1967 SEC Rules which states, ‘(s)hares equity ownership is not in doubt, the cloud of doubt in the Court’s mind. To
belonging to corporations or partnerships at Grandfather Rule will not apply. (emphasis determine, therefore, the actual participation,
least 60% of the capital of which is owned by supplied) direct or indirect, of MBMI, the grandfather rule
Filipino citizens shall be considered as of must be used.
Philippine nationality.’ Under the liberal Control After a scrutiny of the evidence extant on
Test, there is no need to further trace the record, the Court finds that this case calls for McArthur Mining, Inc.
ownership of the 60% (or more) Filipino the application of the grandfather rule since, as
stockholdings of the Investing Corporation since ruled by the POA and affirmed by the OP, doubt To establish the actual ownership, interest or
a corporation which is at least 60% Filipino- prevails and persists in the corporate ownership participation of MBMI in each of petitioners’
owned is considered as Filipino. of petitioners. Also, as found by the CA, doubt is corporate structure, they have to be
present in the 60-40 Filipino equity ownership of "grandfathered."
As previously discussed, McArthur acquired its On September 9, 2004, the Company and
MPSA application from MMC, which acquired its Olympic Mines & Development Corporation
Development
application from SMMI. McArthur has a capital ("Olympic") entered into a series of agreements
stock of ten million pesos (PhP 10,000,000) including a Property Purchase and
divided into 10,000 common shares at one
Corp. Development Agreement (the Transaction
thousand pesos (PhP 1,000) per share, Documents) with respect to three nickel laterite
MBMI
subscribed to by the following: 44 Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00
properties in Palawan, Philippines (the "Olympic
Properties"). The Transaction Documents
Inc. effectively establish a joint venture between the
me Nationality Number of Shares Amount Subscribed Amount Paid Company and Olympic for purposes of
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
developing the Olympic Properties. The
Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Company holds directly and indirectly an initial
Fernando B. Filipino 1 PhP 1,000.00 60% PhP 1,000.00
interest in the joint venture. Under certain
urces, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60 circumstances and upon achieving certain
Esguerra milestones, the Company may earn up to a
azar Filipino 1 PhP 1,000.00 PhP 1,000.00 100% interest, subject to a 2.5% net revenue
Lauro Salazar Filipino 1 PhP 1,000.00 PhP471,000.00
royalty. (emphasis supplied)
Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
gcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00 Thus, as demonstrated in this first corporation,
HernandoPhP 1,000.00 McArthur, when it is "grandfathered," company
ason American 1 PhP 1,000.00 layering was utilized by MBMI to gain control
wkell Canadian 1 Michael PhP
T. Mason
1,000.00 American PhP 1,000.001 PhP 1,000.00 over McArthur.
PhP 1,000.00It is apparent that MBMI has
more than 60% or more equity interest in
Total 10,000 Kenneth
PhPCawkell Canadian
10,000,000.00 1
PhP 2,708,174.60 PhP 1,000.00 PhP 1,000.00
McArthur, making the latter a foreign
(emphasis supplied) corporation.
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00
- versus -
On April 4, 1984, Natividad Agana was admitted at
certain portions of it.Thus, Dr. Ampil obtained the excruciating pain in her anal region. She consulted vanish.
consent of Atty. Enrique Agana, Natividads husband, both Dr. Ampil and Dr. Fuentes about it. They told
to permit Dr. Juan Fuentes, respondent in G.R. No. her that the pain was the natural consequence of the
Despite Dr. Ampils assurance, the pains intensified,
126467, to perform hysterectomy upon Natividad. surgical operation performed upon her. Dr. Ampil
prompting Natividad to seek treatment at
recommended that Natividad consult an oncologist
the Polymedic General Hospital. While confined
to treat the cancerous nodes which were not
Dr. Fuentes performed and completed the thereat, Dr. Ramon Gutierrez detected the presence
removed during the operation.
hysterectomy. Afterwards, Dr. Ampil took over, of a foreign object in her vagina -- a foul-smelling
completed the operation and closed the incision. gauze measuring 1.5 inches in width. The gauze had
However, the operation appeared to be flawed. In On May 9, 1984, Natividad, accompanied by her badly infected her vaginal vault. A recto-vaginal
the corresponding Record of Operation dated April husband, went to the United States to seek further fistula had formed in her reproductive organ which
11, 1984, the attending nurses entered these treatment. After four (4) months of consultations forced stool to excrete through the vagina. Another
remarks: and laboratory examinations, Natividad was told that surgical operation was needed to remedy the
she was free of cancer. Hence, she was advised to situation. Thus, in October 1984, Natividad
On August 31, 1984, Natividad flew back to On November 12, 1984, Natividad and her husband
announced to
the Philippines, still suffering from pains. Two (2) filed with the Regional Trial Court, Branch
surgeon searched
weeks thereafter, her daughter found a piece of 96, Quezon City a complaint for damages against PSI
done (sic) but to no
gauze protruding from her vagina.Dr. Ampil was (owner of Medical City), Dr. Ampil and Dr. Fuentes.
avail continue for
immediately informed. He proceeded to Natividads
closure.
house where he managed to extract by hand a piece
On February 16, 1986, pending the
of gauze measuring 1.5 inches in width. Dr. Ampil
outcome of the above case, Natividad died. She was
duly substituted by her above-named children (the displaying in the lobby of the Medical City the names representation of the hospital in engaging the
Aganas). and specializations of its accredited physicians, services of Dr. Ampil. And lastly, PSI maintains that
including Dr. Ampil, estopped it from denying the the doctrine of corporate negligence is misplaced
name and those of the other physicians in the public hospital commensurate with its inherent
justifies Atty. Aganas belief that Dr. Ampil was a the hospital has the duty to make a reasonable A That is the duty of the
surgeon, sir.
member of the hospitals staff. It must be stressed effort to monitor and oversee the treatment
that under the doctrine of apparent authority, the prescribed and administered by the physicians
Q As a witness to an untoward
question in every case is whether the principal has practicing in its premises.
incident in the
by his voluntary act placed the agent in such a operating room, was
it not your
situation that a person of ordinary prudence,
obligation, Dr., to
Unfortunately, PSI had been remiss in its
conversant with business usages and the nature of also report to the
duty. It did not conduct an immediate hospital because you
the particular business, is justified in presuming are under the control
investigation on the reported missing gauzes to the
that such agent has authority to perform the and direction of the
great prejudice and agony of its patient. Dr. Jocson, a hospital?
particular act in question.[6] In these cases, the
member of PSIs medical staff, who testified on A The hospital already had the
circumstances yield a positive answer to the
whether the hospital conducted an investigation, record of the two OS
question. missing, sir.
was evasive, thus:
A The hospital left it up to the Precisely, I am asking you if the active step in fixing the negligence committed.This
surgeon who was hospital did a move,
if the hospital did a renders PSI, not only vicariously liable for the
doing the operation,
sir. move. negligence of Dr. Ampil under Article 2180 of the
A I cannot answer that. Civil Code, but also directly liable for its own
reconsideration.
SO ORDERED.
FIRST DIVISION
Tagorio and his parents, Basilio R. Tagorio and Salvador, and the Administrative Officer of
Herminia Tagorio, docketed as Civil Case No. Marymount School, Ricardo Pilao. In its
CHILD LEARNING CENTER, INC. G.R. No.
150920 91-1389. The complaint[1] alleged that during the defense,[2]CLC maintained that there was
and SPOUSES EDGARDO L. LIMON
and SYLVIA S. LIMON, Present: school year 1990-1991, Timothy was a Grade IV nothing defective about the locking mechanism
Petitioners, student at Marymount School, an academic of the door and that the fall of Timothy was not
D
institution
A operated and maintained by Child due to its fault or negligence. CLC further
VI
Learning Center, Inc. (CLC). In the afternoon of maintained that it had exercised the due care and
D
MarchE,5, 1991, between 1 and 2 p.m., Timothy diligence of a good father of a family to ensure
JR.
entered, Cthe boys comfort room at the third floor the safety, well-being and convenience of its
of the .J.
Marymount building to answer the call of students.
(C
nature.haiHe, however, found himself locked After trial, the court a quo found in favor of
rm
insidean)and unable to get out. Timothy started to respondents and ordered petitioners CLC and
,
panic and so he banged and kicked the door and Spouses Limon to pay respondents, jointly and
- versus - QUISUMBING,
YNARES-SANTIAGO, yelled several times for help. When no help severally, P200,253.12 as actual and
CARPIO, and
arrived he decided to open the window to call for compensatory damages, P200,000 as moral
AZCUNA, JJ.
TIMOTHY TAGARIO, assisted by help. In the process of opening the window, damages, P50,000 as exemplary
his parents BASILIO TAGORIO and Promulgated:
HERMINIA TAGORIO, Timothy went right through and fell down three damages, P100,000 as attorneys fees and the
Respondents. November 25, Timothy was hospitalized and given
stories. costs of the suit. The trial court disregarded the
2005
medical treatment for serious multiple physical
x-------------------------------------------------------------------------------------- corporate fiction of CLC and held the Spouses
-----x
injuries. Limon personally liable because they were the
DECISION ones who actually managed the affairs of the
AZCUNA, J.: An action under Article 2176 of the Civil Code CLC.
members of its Board of Directors, namely Petitioners CLC and the Spouses Limon
This petition started with a tort case filed with
Spouses Edgardo and Sylvia Limon, Alfonso appealed the decision to the Court of Appeals.
the Regional Trial Court of Makati by Timothy
Cruz, Carmelo Narciso and Luningning
comfort room located in the petitioners to pay respondent
On September 28, 2001, the Court of third floor of the school actual, moral and exemplary
Appeals[3] affirmed the decision in toto. building on March 5, 1991 was damages, plus attorneys fees;
allegedly defective and that
Petitioners elevated the case to this Court under the same lock set was involved 10. That there
in previous incidents of was an alleged basis in not
Rule 45 of the Rules of Court, after their motion
alleged malfunctioning; awarding petitioners prayer
for reconsideration was denied by Resolution of for moral and exemplary
5. That damages, including attorneys
November 23, 2001.[4] petitioner Child Learning fees.
Center, Inc. allegedly failed to
install iron grills in the
Petitioners question several factual findings of window of the boys comfort
room at the third floor of the Generally, factual findings of the trial
the trial court, which were affirmed by the Court
school building; court, affirmed by the Court of Appeals, are final
of Appeals, namely:[5]
6. That and conclusive and may not be reviewed on
petitioner Child Learning
appeal. The established exceptions are: (1) when
1. That Center, Inc. allegedly failed to
respondent was allegedly exercise the due care of a good the inference made is manifestly mistaken,
trapped inside the boys father of a family in the
selection and supervision of absurd or impossible; (2) when there is grave
comfort room located at the
third floor of the school its employees;
abuse of discretion; (3) when the findings are
building on March 5, 1991;
7. That the grounded entirely on speculations, surmises or
2. That proximate cause of
respondents accident was conjectures; (4) when the judgment of the Court
respondent allegedly banged
and kicked the door of said allegedly not due to his own of Appeals is based on misapprehension of facts;
comfort room several times to contributory negligence;
attract attention and that he (5) when the findings of fact are conflicting; (6)
allegedly yelled thereat for 8. That
when the Court of Appeals, in making its
help which never came; there was an alleged basis to
apply the legal principle of findings, went beyond the issues of the case and
3. That piercing the veil of corporate
entity in resolving the issue of the same is contrary to the admissions of both
respondent was allegedly
forced to open the window of alleged liability of petitioners appellant and appellee; (7) when the findings of
said comfort room to seek Edgardo L. Limon and Sylvia
help; S. Limon; fact are conclusions without citation of specific
factual findings and consider this case as an that CLC failed to provide precautionary
The Court of Appeals held that there
exception to the general rule. measures to avoid harm and injury to its
was no reason to disturb the factual
students in two instances: (1) failure to fix a
assessment:[10]
In every tort case filed under Article defective door knob despite having been notified
2176 of the Civil Code, plaintiff has to prove by a of the problem; and (2) failure to install safety After having perused
the records, We fail to see any
preponderance of evidence: (1) the damages grills on the window where Timothy fell from.
indication of whim or
suffered by the plaintiff; (2) the fault or arbitrariness on the part of the
trial magistrate in his
negligence of the defendant or some other The trial court found that the lock was assessment of the facts of the
person for whose act he must respond; and (3) defective on March 5, 1991:[9] case. That said, We deem it not
to be within Our business to
the connection of cause and effect between the recast the factual conclusions
The door knob was reached by the court below.
fault or negligence and the damages incurred.[7] defective. After the incident of
March 5, 1991, said door knob
was taken off the door of the
Fault, in general, signifies a voluntary toilet where Timothy was in. Petitioners would make much of the
The architect who testified point that no direct evidence was presented to
act or omission which causes damage to the right
during the trial declared that
of another giving rise to an obligation on the part although there were standard prove that the door knob was indeed defective
specifications for door knobs
of the actor to repair such damage. Negligence is on the date in question.
for comfort room[s], and he
the failure to observe for the protection of the designed them according to
The fact, however, that Timothy fell out Nevertheless, the fact is that such window, as
through the window shows that the door could petitioners themselves point out, was Our pronouncement that Timothy
not be opened from the inside. That sufficiently approximately 1.5 meters from the floor, so that climbed out of the window because he could not
points to the fact that something was wrong with it was within reach of a student who finds the get out using the door, negates petitioners other
the door, if not the door knob, under the regular exit, the door, not functioning. contention that the proximate cause of the
principle of res ipsa loquitor. The doctrine of res Petitioners, with the due diligence of a good accident was Timothys own negligence. The
ipsa loquitor applies where (1) the accident was of father of the family, should have anticipated that injuries he sustained from the fall were the
such character as to warrant an inference that it a student, locked in the toilet by a non-working product of a natural and continuous sequence,
would not have happened except for the door, would attempt to use the window to call unbroken by any intervening cause, that
defendants negligence; (2) the accident must for help or even to get out. Considering all the originated from CLCs own negligence.
instrumentality within the exclusive to sustain a finding of liability on petitioners We, however, agree with petitioners
management or control of the person charged part. that there was no basis to pierce CLCs separate
with the negligence complained of; and (3) the corporate personality. To disregard the
accident must not have been due to any Petitioners argument that CLC corporate existence, the plaintiff must prove: (1)
voluntary action or contribution on the part of exercised the due diligence of a good father of a Control by the individual owners, not mere
the person injured.[11] Petitioners are clearly family in the selection and supervision of its majority or complete stock ownership, resulting
answerable for failure to see to it that the doors employees is not decisive. Due diligence in the in complete domination not only of finances but
of their school toilets are at all times in working selection and supervision of employees is of policy and business practice in respect to a
condition. The fact that a student had to go applicable where the employer is being held transaction so that the corporate entity as to this
through the window, instead of the door, shows responsible for the acts or omissions of others transaction had at the time no separate mind,
that something was wrong with the door. under Article 2180 of the Civil Code.[12] In this will or existence of its own; (2) such control must
case, CLCs liability is under Article 2176 of the have been used by the defendant to commit
As to the absence of grills on the Civil Code, premised on the fact of its own fraud or wrong, to perpetuate the violation of a
window, petitioners contend that there was no negligence in not ensuring that all its doors are statutory or other positive legal duty, or a
such requirement under the Building Code. properly maintained. dishonest and unjust act in contravention of the
plaintiffs legal right; and (3) the control and
In the recent case of People vs. Cuevo, G. R. MELENCIO-HERRERA, J., concurring and
No. L-27607, decided by the Court on May 7, dissenting:
1981, the Court, for lack of necessary votes,
affirmed the dismissal of the same charge of I dissent in so far as the Decision states that
estafa, for non-payment of the debt evidenced violation of the terms of a trust receipt does not
by the trust receipt, by the trial court presided by constitute Estafa under Art. 315, par. 1 (b) of
Judge Ruperto Kapunan, Jr. who ruled that "the the Revised Penal Code, for being contrary to
holder of a trust receipt who disposed of the the rulings in People vs. Yu Chai Ho, 53 Phil.
goods covered thereby and in violation of its 874 (1928); PNB vs. Arrozal, 103 Phil. 213
terms, failed to deliver to the bank the proceeds (1958), and Samo vs. People, 5 SCRA 355
of the sale as payment of the debt secured by (1962).
the trust receipt" incurs only civil and not
criminal liability for non-payment of the debt
thus incurred. I reiterate my separate opinion I concur in so far as the Decision holds that
therein supporting the more liberal interpretation petitioner should not be held liable for the crime
that the trust receipt transaction "gives rise only of Estafa considering that in the cases above
to civil liability on the part of the offender" and enumerated, the persons who executed the
holding that the very definition of a trust receipt, trust receipts acted in their own individual
to wit," ' (A) trust receipt is considered as capacities unlike in this case where petitioner
SECOND DIVISION n
cylinder container of one brand with the liquefied
d
petroleum gas of another brand.
A
MANUEL C. ESPIRITU, JR., AUDIE G.R. No. 170891 b
a
LLONA, FREIDA F. ESPIRITU,
d
CARLO F. ESPIRITU, RAFAEL F.
, The Facts and the Case
ESPIRITU, ROLANDO M. MIRABUNA,
HERMILYN A. MIRABUNA, KIM
ROLAND A. MIRABUNA, KAYE J
ANN A. MIRABUNA, KEN RYAN A. J
MIRABUNA, JUANITO P. DE . Respondent Petron Corporation (Petron)
CASTRO, GERONIMA A. ALMONITE
and MANUEL C. DEE, who are the PETRON CORPORATION and sold and distributed liquefied petroleum gas (LPG) in
officers and directors of BICOL GAS
REFILLING PLANT CORPORATION, CARMEN J. DOLOIRAS, doing cylinder tanks that carried its trademark
Petitioners, Present:
Carpio, J., Chairperson, business under the name KRISTINA Promulgated: Gasul.[1] Respondent Carmen J. Doloiras owned and
- versus - Leonardo-De Castro,
operated Kristina Patricia Enterprises (KPE), the
PATRICIA ENTERPRISES,
B exclusive distributor of Gasul LPGs in the whole of
Respondents.
r November 24, 2009
i Sorsogon.[2] Jose Nelson Doloiras (Jose) served as
o KPEs manager.
n
x -------------------------------------------------------------------
,
--------------------- x
D
e Bicol Gas Refilling Plant Corporation (Bicol
l
Gas) was also in the business of selling and
C
DECISION
a distributing LPGs in Sorsogon but theirs carried the
s
trademark Bicol Savers Gas.Petitioner Audie Llona
t ABAD, J.:
i managed Bicol Gas.
l
l
o
,
In the course of trade and competition, any
a This case is about the offense or offenses that arise
from the reloading of the liquefied petroleum gas given distributor of LPGs at times acquired
possession of LPG cylinder tanks belonging to other volume of sales dropped significantly from June to charged the following: Jerome Misal, Jun Leorena,
distributors operating in the same area. They called July 2001. Rolly Mirabena, Audie Llona, and several John and
these captured cylinders. According to Jose, KPEs Jane Does, described as the directors, officers, and
manager, in April 2001 Bicol Gas agreed with KPE for stockholders of Bicol Gas. These directors, officers,
the swapping of captured cylinders since one On August 4, 2001 KPEs Jose saw a and stockholders were eventually identified during
distributor could not refill captured cylinders with its particular Bicol Gas truck on the Maharlika the preliminary investigation.
own brand of LPG. At one time, in the course of Highway. While the truck carried mostly Bicol Savers
implementing this arrangement, KPEs Jose visited LPG tanks, it had on it one unsealed 50-kg Gasul tank
the Bicol Gas refilling plant. While there, he noticed and one 50-kg Shellane tank. Jose followed the truck Subsequently, the provincial prosecutor
several Gasul tanks in Bicol Gas possession. He and when it stopped at a store, he asked the driver, ruled that there was probable cause only for violation
requested a swap but Audie Llona of Bicol Gas replied Jun Leorena, and the Bicol Gas sales representative, of R.A. 623 (unlawfully filling up registered tanks) and
that he first needed to ask the permission of the Bicol Jerome Misal, about the Gasul tank in their that only the four Bicol Gas employees, Mirabena,
Gas owners. That permission was given and they had truck. They said it was empty but, when Jose turned Misal, Leorena, and petitioner Llona, could be
a swap involving around 30 Gasul tanks held by Bicol open its valve, he noted that it was not. Misal and charged. The charge against the other petitioners
Gas in exchange for assorted tanks held by KPE. Leorena then admitted that the Gasul and Shellane who were the stockholders and directors of the
tanks on their truck belonged to a customer who had company was dismissed.
KPEs Jose noticed, however, that Bicol Gas that his manager was a certain Rolly Mirabena.
still had a number of Gasul tanks in its yard. He Dissatisfied, Petron and KPE filed a petition
offered to make a swap for these but Llona declined, for review with the Office of the Regional State
saying the Bicol Gas owners wanted to send those Because of the above incident, KPE filed a Prosecutor, Region V, which initially denied the
tanks to Batangas. Later Bicol Gas told Jose that it complaint[3] for violations of Republic Act (R.A.) 623 petition but partially granted it on motion for
had no more Gasul tanks left in its possession. Jose (illegally filling up registered cylinder tanks), as reconsideration. The Office of the Regional State
observed on almost a daily basis, however, that Bicol amended, and Sections 155 (infringement of trade Prosecutor ordered the filing of additional
Gas trucks which plied the streets of the province marks) and 169.1 (unfair competition) of the informations against the four employees of Bicol Gas
carried a load of Gasul tanks. He noted that KPEs Intellectual Property Code (R.A. 8293). The complaint for unfair competition. It ruled, however, that no
Cruz on behalf of Petron,
case for trademark infringement was present. The owners, the Court of Appeals also ordered the
complied with what the rules
Secretary of Justice denied the appeal of Petron and inclusion of the stockholders of Bicol Gas in the require;
KPE and their motion for reconsideration. various charges, bringing to 16 the number of
forums was substantially achieved. Besides, the Petron Gasul LPG tank found on the Bicol Gas truck
belonged to [a Bicol Gas] customer who had the intent to deceive the public and defraud its
1. Use in commerce
same filled up by BICOL GAS.[11] In other words, the any reproduction, counterfeit, competitor as to what it is selling.[14] Examples of this
copy or colorable imitation of a
customer had that one Gasul LPG tank brought to registered mark or the same would be the acts of an underground shoe
container or a dominant feature
Bicol Gas for refilling and the latter obliged. manufacturer in Malabon producing Nike branded
thereof in connection with the
sale, offering for sale, rubber shoes or the acts of a local shirt company with
distribution, advertising of any
goods or services including other no connection to La Coste, producing and selling
preparatory steps necessary to
R.A. 623, as amended,[12] punishes any shirts that bear the stitched logos of an open-jawed
carry out the sale of any goods or
person who, without the written consent of the services on or in connection with alligator.
which such use is likely to cause
manufacturer or seller of gases contained in duly confusion, or to cause mistake, or
to deceive; or
registered steel cylinders or tanks, fills the steel
2. Reproduce,
cylinder or tank, for the purpose of sale, disposal or Here, however, the allegations in the
counterfeit, copy or colorably
trafficking, other than the purpose for which the imitate a registered mark or a complaint do not show that Bicol Gas painted on its
dominant feature thereof and
manufacturer or seller registered the same. This was apply such reproduction, own tanks Petrons Gasul trademark or a confusingly
counterfeit, copy or colorable
what happened in this case, assuming the allegations imitation to labels, signs, prints, similar version of the same to deceive its customers
of KPEs manager to be true. Bicol Gas employees packages, wrappers, receptacles and cheat Petron. Indeed, in this case, the one tank
or advertisements intended to be
filled up with their firms gas the tank registered to used in commerce upon or in bearing the mark of Petron Gasul found in a truck full
connection with the sale, offering
Petron and bearing its mark without the latters for sale, distribution, or of Bicol Gas tanks was a genuine Petron Gasul tank,
advertising of goods or services
written authority. Consequently, they may be on or in connection with which more of a captured cylinder belonging to
prosecuted for that offense. such use is likely to cause competition. No proof has been shown that Bicol Gas
confusion, or to cause mistake, or
to deceive. has gone into the business of distributing imitation
Petron Gasul LPGs.
But, as for the crime of trademark
KPE and Petron have to show that the
infringement, Section 155 of R.A. 8293 (in relation to
alleged infringer, the responsible officers and staff of
Section 170[13]) provides that it is committed by any As to the charge of unfair competition,
Bicol Gas, used Petrons Gasul trademark or a
person who shall, without the consent of the owner Section 168.3 (a) of R.A. 8293 (also in relation to
confusingly similar trademark on Bicol Gas tanks with
of the registered mark:
their goods with a
Section 170) describes the acts constituting the
appearance, like purpose;
offense as follows: which would
be likely to
influence
purchasers
Essentially, what the law punishes is the act
168.3. In particular, to believe
and without in any way limiting that the of giving ones goods the general appearance of the
the scope of protection against goods
unfair competition, the following goods of another, which would likely mislead the
shall be deemed guilty of unfair offered are
competition: those of a buyer into believing that such goods belong to the
manufacture
latter. Examples of this would be the act of
r or dealer,
(a) other than manufacturing or selling shirts bearing the logo of an
Any person, the actual
who is selling alligator, similar in design to the open-jawed alligator
manufacture
his goods r or dealer, in La Coste shirts, except that the jaw of the alligator
and gives or who
them the in the former is closed, or the act of a producer or
otherwise
general clothes the seller of tea bags with red tags showing the shadow
appearance goods with
of goods of such of a black dog when his competitor is producing or
another appearance selling popular tea bags with red tags showing the
manufacture as shall
r or dealer, deceive the shadow of a black cat.
either as to public and
the goods defraud
themselves another of
or in the his Here, there is no showing that Bicol Gas has
wrapping of legitimate
the packages been giving its LPG tanks the general appearance of
trade, or any
in which they subsequent the tanks of Petrons Gasul. As already stated, the
are vendor of
contained, or such goods truckfull of Bicol Gas tanks that the KPE manager
the devices or any agent arrested on a road in Sorsogon just happened to have
or words of any
thereon, or vendor mixed up with them one authentic Gasul tank that
in any other engaged in belonged to Petron.
feature of selling such
declined the offer to swap cylinders for the reason he took part in the same or gave his consent to its
that the owners wanted to send their captured commission, whether by action or inaction.
The only point left is the question of the
cylinders to Batangas. The Court of Appeals seized on
liability of the stockholders and members of the
this as evidence that the employees of Bicol Gas
board of directors of Bicol Gas with respect to the
acted under the direct orders of its owners and that The finding of the Court of Appeals that the
charge of unlawfully filling up a steel cylinder or tank
the owners of Bicol Gas have full control of the employees could not have committed the crimes
that belonged to Petron. The Court of Appeals ruled
operations of the business.[16] without the consent, [abetment], permission, or
that they should be charged along with the Bicol Gas
participation of the owners of Bicol Gas[18] is a
employees who were pointed to as directly involved
sweeping speculation especially since, as
in overt acts constituting the offense.
The owners of a corporate organization are demonstrated above, what was involved was just
its stockholders and they are to be distinguished one Petron Gasul tank found in a truck filled with
from its directors and officers. The petitioners here, Bicol Gas tanks.Although the KPE manager heard
Bicol Gas is a corporation. As such, it is an
with the exception of Audie Llona, are being charged petitioner Llona say that he was going to consult the
entity separate and distinct from the persons of its
in their capacities as stockholders of Bicol Gas. But owners of Bicol Gas regarding the offer to swap
officers, directors, and stockholders. It has been
the Court of Appeals forgets that in a corporation, additional captured cylinders, no indication was
held, however, that corporate officers or employees,
the management of its business is generally vested in given as to which Bicol Gas stockholders Llona
through whose act, default or omission the
its board of directors, not its consulted. It would be unfair to charge all the
corporation commits a crime, may themselves be
stockholders.[17] Stockholders are basically investors stockholders involved, some of whom were proved
individually held answerable for the crime.[15]
in a corporation. They do not have a hand in running to be minors.[19] No evidence was presented
the day-to-day business operations of the establishing the names of the stockholders who were
corporation unless they are at the same time charged with running the operations of Bicol
Jose claimed in his affidavit that, when he
directors or officers of the corporation. Before a Gas. The complaint even failed to allege who among
negotiated the swapping of captured cylinders with
stockholder may be held criminally liable for acts the stockholders sat in the board of directors of the
Bicol Gas, its manager, petitioner Audie Llona,
committed by the corporation, therefore, it must be company or served as its officers.
claimed that he would be consulting with the owners
shown that he had knowledge of the criminal act
of Bicol Gas about it. Subsequently, Bicol Gas
committed in the name of the corporation and that
The Court of Appeals of course specifically F. Espiritu, Rolando M. Mirabuna, Hermilyn A.
mentioned petitioner stockholder Manuel C. Espiritu, Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A.
Jr. as the registered owner of the truck that the KPE Mirabuna, Ken Ryan A. Mirabuna, Juanito P. De
manager brought to the police for investigation Castro, Geronima A. Almonite and Manuel C. Dee
because that truck carried a tank of Petron Gasul. But are ORDERED excluded from the charge.
The right to recover due and demandable pecuniary loaned to ASB for a period of 48 days with interest at
Ching was arraigned and tried while Casta remained
obligations incurred by juridical persons such as 10.5% which is equivalent to P112,000.00. In
at large. Ching denied liability and claimed that she
corporations cannot be impaired by procedural rules. exchange, ASB through its Business Development
was a mere employee of ASB. She asserted that she
Our rules of procedure governing the litigation of Operation Group manager Ching, issued DBS checks
did not have knowledge as to how much money ASB
criminal actions for violation of Batas Pambansa Blg. no. 0009980577 and 0009980578 for P8,000,000.00
had in the banks. Such responsibility, she claimed
22 (B.P. 22) have given the appearance of impairing and P112,000.00 respectively. The checks, both
belonged to another department.
such substantive rights, and we take the opportunity signed by Ching, were drawn against DBS Bank
herein to assert the necessary clarifications. Makati Head Office branch. ASB, through a letter
On 15 December 2000, petitioner moved[7] that ASB
the case had already been submitted for final liability and ruled that the subject obligation fell
decision.[8] squarely on ASB. Thus, Ching should not be held Petitioner raised the following issues: (1) is a
civilly liable.[10] corporate officer who signed a bouncing check civilly
liability. The MTC ruled that Ching, as a corporate refusal of the MTC to implead ASB and Roxas; and B.P. Blg. 22 is popularly known as the Bouncing
officer of ASB, was civilly liable since she was a in refusing to pierce the corporate veil of ASB and Checks Law. Section 1 of B.P. Blg. 22 provides:
signatory to the checks.[9] hold Roxas liable.
xxx xxx xxx
of appeal on the ground that she should not be held in behalf of ASB. The Court of Appeals ruled that
civilly liable for the bouncing checks because they ASB cannot be impleaded in a B.P. Blg. 22 case since
were contractual obligations of ASB. it is not a natural person and in the case of Roxas, he
B.P. Blg. 22 was enacted to address the
was not the subject of a preliminary investigation.
On 12 July 2005, the RTC rendered its decision rampant issuance of bouncing checks as payment for
Lastly, the Court of Appeals ruled that there was no
sustaining Ching's appeal. The RTC affirmed the pre-existing obligations. The circulation of bouncing
need to pierce the corporate veil of ASB since none of
MTCs ruling which denied the motion to implead checks adversely affected confidence in trade and
the requisites were present.[11]
commerce. The State criminalized such practice act and not his personal act.[19] As we held in Llamado We recognize though the bind entwining
because it was deemed injurious to public v. Court of Appeals:[20] the petitioner. The records clearly show that it is ASB
interests[12] and was found to be pernicious and Petitioner's argument that he is civilly obligated to petitioner. In the various stages
should not be held personally
inimical to public welfare.[13] B.P. Blg. 22 punishes of this case, petitioner has been proceeding from the
liable for the amount of the
the act of making and issuing bouncing checks. It is check because it was a check of
the Pan Asia Finance
the act itself of issuing the checks which is Corporation and he signed the
same in his capacity as
considered malum prohibitum. The law is an offense Treasurer of the corporation, is premise that he is unable to pursue a separate civil
also untenable. The third
against public order and not an offense against action against ASB itself for the recovery of the
paragraph of Section 1 of BP
property.[14] It penalizes the issuance of a check Blg. 22 states: Where the check amounts due from the subject checks. From this
is drawn by a corporation,
without regard to its purpose. It covers all types of company or entity, the person premise, petitioner sought to implead ASB as a
or persons who actually signed
checks.[15] Even checks that were issued as a form of the check in behalf of such defendant to the B.P. Blg. 22 case, even if such case
deposit or guarantee were held to be within the ambit drawer shall be liable under
this Act. is criminal in nature.[22]
of B.P. Blg. 22.[16]
The general rule is that a corporate officer who issues
a bouncing corporate check can only be held civilly What supplied the notion to the petitioner that he was
When a corporate officer issues a worthless unable to pursue a separate civil action against ASB?
liable when he is convicted. In the recent case
check in the corporate name he may be held He cites the Revised Rules on Criminal Procedure,
of Bautista v. Auto Plus Traders Inc.,[21] the Court
personally liable for violating a penal statute.[17] The particularly the provisions involving B.P. Blg. 22
ruled decisively that the civil liability of a corporate
statute imposes criminal penalties on anyone who cases, which state that:
officer in a B.P. Blg. 22 case is extinguished with the
Rule 111, Section 1Institution of
with intent to defraud another of money or property,
criminal liability. We are not inclined through this criminal and civil action.
draws or issues a check on any bank with knowledge
case to revisit so recent a precedent, and the rule xxx
that he has no sufficient funds in such bank to meet
of stare decisis precludes us to discharge Ching of
(b) The criminal action for
the check on presentment.[18] Moreover, the personal violation of Batas Pambansa
any civil liability arising from the B.P. Blg. 22 case
Blg. 22 shall be deemed to
liability of the corporate officer is predicated on the
against her, on account of her acquittal in the criminal include the corresponding civil
principle that he cannot shield himself from liability action. No reservation to file
charge. such civil action separately shall
from his own acts on the ground that it was a corporate be allowed.
Upon filing of the aforesaid joint
criminal and civil actions, the liability. A basic maxim in statutory construction is In theory the B.P. Blg. 22 criminal liability
offended party shall pay in full
that the interpretation of penal laws is strictly of the person who issued the bouncing check in behalf
the filing fees based on the
amount of the check involved, construed against the State and liberally construed of a corporation stands independent of the civil
which shall be considered as the
actual damages claimed. Where against the accused. Nowhere in B.P. Blg. 22 is it liability of the corporation itself, such civil liability
the complainant or information
also seeks to recover liquidated, provided that a juridical person may be impleaded as arising from the Civil Code. B.P. Blg. 22 itself fused
moral, nominal, temperate or
an accused or defendant in the prosecution for this criminal liability of the signer of the check in
exemplary damages, the
offended party shall pay the violations of that law, even in the litigation of the civil behalf of the corporation with the corresponding civil
filing fees based on the amounts
alleged therein. If the amounts aspect thereof. liability of the corporation itself by allowing the
are not so alleged but any of
these damages are subsequently complainant to recover such civil liability not from
awarded by the court, the filing the corporation, but from the person who signed the
fees based on the amount Nonetheless, the substantive right of a creditor to
awarded shall constitute a first recover due and demandable obligations against a check in its behalf. Prior to the amendments to our
lien on the judgment.
debtor-corporation cannot be denied or diminished by rules on criminal procedure, it though clearly was
a rule of procedure. Technically, nothing in Section permissible to pursue the criminal liability against the
1(b) of Rule 11 prohibits the reservation of a separate signatory, while going after the corporation itself for
Where the civil action has been
filed separately and trial thereof civil action against the juridical person on whose the civil liability.
has not yet commenced, it may
be consolidated with the behalf the check was
criminal action upon application
with the court trying the latter issued. What the rules prohibit is the reservation of a However, with the insistence under the
case. If the application is amended rules that the civil and criminal liability
separate civil
granted, the trial of both actions
shall proceed in accordance with attaching to the bounced check be pursued jointly, the
section 2 of this Rule governing
consolidation of the civil and previous option to directly pursue the civil liability
criminal actions.[23]
against the person who incurred the civil obligationthe
adjudged according to their respective standards and just a part, is traceable to the original obligation of the
merits. In the B.P. Blg. 22 case, what the trial court corporation. While the Revised Penal Code imposes
should determine whether or not the signatory had subsidiary civil liability to corporations for criminal
signed the check with knowledge of the insufficiency acts engaged in by their employees in the discharge of
of funds or credit in the bank account, while in the their duties, said subsidiary liability applies only
Let us pursue this point further. B.P. Blg. 22 civil case the trial court should ascertain whether or to felonies,[24] and not to crimes penalized by special
imposes a distinct civil liability on the signatory of the not the obligation itself laws such as B.P. Blg. 22. And nothing in B.P. Blg.
check which is distinct from the civil liability of the is valid and demandable. The litigation of both 22 imposes such subsidiary liability to the corporation
corporation for the amount represented from the questions could, in theory, proceed independently and in whose name the check is actually issued. Clearly
check. The civil liability attaching to the signatory simultaneously without being ultimately conclusive then, should the check signatory be unable to pay the
arises from the wrongful act of signing the check on one or the other. obligation incurred by the corporation, the
despite the insufficiency of funds in the account, complainant would be bereft of remedy unless the
while the civil liability attaching to the corporation right of action to collect on the liability of the
is itself the very obligation covered by the check or corporation is recognized and given flesh.
the consideration for its execution. Yet these civil It might be argued that under the current
liabilities are mistaken to be indistinct. The rules, if the signatory were made liable for the amount
confusion is traceable to the singularity of the of the check by reason of the B.P. Blg. 22 case, such
amount of each. signatory would have the option of recovering the There are two prevailing concerns should
If we conclude, as we should, that under the same amount from the corporation. Yet that prospect civil recovery against the corporation be pursued even
current Rules of Criminal Procedure, the civil action does not ultimately satisfy the ends of justice. If the as the B.P. Blg. 22 case against the signatory remains
that is impliedly instituted in the B.P. Blg. 22 action signatory does not have sufficient assets to answer for extant. First, the possibility that the plaintiff might be
is only the civil liability of the signatory, and not that the amount of the checka distinct possibility awarded the amount of the check in both the B.P. Blg.
of the corporation itself, the distinctness of the cause considering the occasional large-scale transactions 22 case and in the civil action against the corporation.
of action against the signatory and that against the engaged in by corporations the corporation would not
For obvious reasons, that should not be permitted. In a similar vein and for a similar reason, we likewise
Considering that petitioner herein has no chance to find that petitioner should not be barred by
recover the amount of the check through the B.P. Blg. prescription should he file the civil action as the
22 case, we need not contend with that possibility period should not run from the date the checks were
through this case. Nonetheless, as a matter of issued but from the date this decision attains finality.
prudence, it is best we refer the matter to the The courts should not be bound strictly by the statute
Committee on Rules for the formulation of proper of limitations or the doctrine of laches when to do so,
The other concern is over the payment of WHEREFORE, the petition is DENIED, without
filing fees in both the B.P. Blg. 22 case and the civil prejudice to the right of petitioner Jaime U. Gosiaco
action against the corporation. Generally, we see no to pursue an independent civil action against ASB
evil or cause for distress if the plaintiff were made to Holdings Inc. for the amount of the subject checks, in
pay filing fees based on the amount of the check in accordance with the terms of this decision. No
both the B.P. Blg. 22 case and the civil action. After pronouncements as to costs.
all, the plaintiff therein made the deliberate option to
file two separate cases, even if the recovery of the Let a copy of this Decision be REFERRED to the
amounts of the check against the corporation could Committee on Revision of the Rules for the
evidently be pursued through the civil action alone. formulation of the formal rules of procedure to
In Mendoza-Arce v. Office of the the Information despite the absence of probable cause, trials arising from false, fraudulent or groundless
Ombudsman (Visayas),[30] this Court held that the Secretary of Justice acts contrary to law, without charges.[38]
the acts of a quasi-judicial officer may be assailed by authority and/or in excess of authority. Such
In this case, petitioner failed to establish that the
the aggrieved party via a petition for certiorari and resolution may
Secretary of Justice committed grave abuse of
enjoined (a) when necessary to afford adequate likewise be nullified in a petition for certiorari under
discretion in issuing the assailed resolutions. Indeed,
protection to the constitutional rights of the accused; Rule 65 of the Revised Rules of Civil Procedure.[35]
he acted in accord with law and the evidence.
(b) when necessary for the orderly administration of
A preliminary investigation, designed to secure the
justice; (c) when the acts of the officer are without or Section 4 of P.D. No. 115 defines a trust
respondent against hasty, malicious and oppressive
in excess of authority; (d) where the charges are receipt transaction, thus:
prosecution, is an inquiry to determine whether (a) a
manifestly false and motivated by the lust for
crime has been committed; and (b) whether there is Section 4. What
vengeance; and (e) when there is clearly no prima constitutes a trust receipt
probable cause to believe that the accused is guilty
facie case against the accused.[31] The Court also transaction. A trust receipt
thereof. It is a means of discovering the person or transaction, within the meaning
declared that, if the officer conducting a preliminary
of this Decree, is any transaction the goods whether in its original
specified in the trust receipt agreement.[39] The
by and between a person referred or processed form until the
to in this Decree as the entruster, entrustee has complied fully with entrustee is obliged to: (1) hold the goods, documents
and another person referred to in his obligation under the trust or instruments in trust for the entruster and shall
this Decree as entrustee, whereby receipt; or (c) to load, unload,
the entruster, who owns or holds ship or otherwise deal with them dispose of them strictly in accordance with the terms
absolute title or security interests in a manner preliminary or and conditions of the trust receipt; (2) receive the
over certain specified goods, necessary to their sale; or
documents or instruments, proceeds in trust for the entruster and turn over the
releases the same to the 2. In the case of same to the entruster to the extent of the amount
possession of the entrustee upon instruments a) to sell or procure
the latters execution and delivery their sale or exchange; or b) to owing to the entruster or as appears on the trust
to the entruster of a signed deliver them to a principal; or c) receipt; (3) insure the goods for their total value
document called a trust receipt to effect the consummation of
against loss from fire, theft, pilferage or other
wherein the entrustee binds some transactions involving
himself to hold the designated delivery to a depository or casualties; (4) keep said goods or proceeds thereof
goods, documents or instruments register; or d) to effect their whether in money or whatever form, separate and
in trust for the entruster and to sell presentation, collection or
or otherwise dispose of the goods, renewal. capable of identification as property of the entruster;
documents or instruments with (5) return the goods, documents or instruments in the
the obligation to turn over to the The sale of goods,
entruster the proceeds thereof to documents or instruments by a event of non-sale or upon demand of the entruster; and
the extent of the amount owing to person in the business of selling (6) observe all other terms and conditions of the trust
the entruster or as appears in the goods, documents or instruments
trust receipt or the goods, for profit who, at the outset of the receipt not contrary to the provisions of the decree.[40]
documents or instruments transaction, has, as against the
themselvesif they are unsold or buyer, general property rights in The entruster shall be entitled to the proceeds from the
not otherwise disposed of, in such goods, documents or
sale of the goods, documents or instruments released
accordance with the terms and instruments, or who sells the
conditions specified in the trust same to the buyer on credit, under a trust receipt to the entrustee to the extent of
receipt, or for other purposes retaining title or other interest as
the amount owing to the entruster or as appears in the
substantially equivalent to any of security for the payment of the
the following: purchase price, does not trust receipt, or to the return of the goods, documents
constitute a trust receipt or instruments in case of non-sale, and to the
1. In case of goods or transaction and is outside the
documents, (a) to sell the goods purview and coverage of this enforcement of all other rights conferred on him in the
or procure their sale; or (b) to Decree. trust receipt; provided, such are not contrary to the
manufacture or process the goods
with the purpose of ultimate provisions of the document.[41]
sale; Provided, That, in the case An entrustee is one having or taking
of goods delivered under trust possession of goods, documents or instruments under In the case at bar, the transaction between petitioner
receipt for the purpose of
manufacturing or processing a trust receipt transaction, and any successor in and respondent bank falls under the trust receipt
before its ultimate sale, the interest of such person for the purpose of payment transactions envisaged in P.D. No. 115. Respondent
entruster shall retain its title over
agree to return the goods under
bank imported the goods and entrusted the same to in a trust receipt transaction. The first is covered by
this Trust Receipt to the BANK
PBMI under the trust receipts signed by petitioner, as without any need of demand. the provision which refers to money received under
entrustee, with the bank as entruster. The agreement the obligation involving the duty to deliver it
I/we agree to keep the
was as follows: said goods, manufactured (entregarla) to the owner of the merchandise sold.
products or proceeds thereof, The second is covered by the provision which refers
And in consideration whether in the form of money or
thereof, I/we hereby agree to hold bills, receivables, or accounts to merchandise received under the obligation
said goods in trust for the said separate and capable of to return it (devolvera) to the owner.[46] Thus, failure
BANK as its property with liberty identification as property of the
to sell the same within ____days BANK.[42] of the entrustee to turn over the proceeds of the sale
from the date of the execution of of the goods covered by the trust receipts to the
this Trust Receipt and for the
Banks account, but without It must be stressed that P.D. No. 115 is a entruster or to return said goods if they were not
authority to make any other disposed of in accordance with the terms of the trust
declaration by legislative authority that, as a matter of
disposition whatsoever of the said
goods or any part thereof (or the public policy, the failure of person to turn over the receipt is a crime under P.D. No. 115, without need of
proceeds) either by way of proving intent to defraud. The law punishes
proceeds of the sale of the goods covered by a trust
conditional sale, pledge or
receipt or to return said goods, if not sold, is a public dishonesty and abuse of confidence in the handling of
otherwise.
nuisance to be abated by the imposition of penal money or goods to the prejudice of the entruster,
I/we agree to keep the regardless of whether the latter is the owner or not. A
said goods insured to their full sanctions.[43]
value against loss from fire, theft, The Court likewise rules that the issue of mere failure to deliver the proceeds of the sale of the
pilferage or other casualties as goods, if not sold, constitutes a criminal offense that
directed by the BANK, the sum whether P.D. No. 115 encompasses transactions
insured to be payable in case of involving goods procured as a component of a product causes prejudice, not only to another, but more to the
loss to the BANK, with the public interest.[47]
understanding that the BANK is, ultimately sold has been resolved in the affirmative
not to be chargeable with the in Allied Banking Corporation v. Ordoez.[44] The law
storage premium or insurance or The Court rules that although petitioner
applies to goods used by the entrustee in the operation
any other expenses incurred on signed the trust receipts merely as Senior Vice-
said goods. of its machineries and equipment. The non-payment
President of PBMI and had no physical possession of
of the amount covered by the trust receipts or the non-
In case of sale, I/we the goods, he cannot avoid prosecution for violation
further agree to turn over the return of the goods covered by the receipts, if not sold
of P.D. No. 115.
proceeds thereof as soon as or otherwise not disposed of, violate the entrustees
received to the BANK, to apply The penalty clause of the law, Section 13 of
against the relative acceptances obligation to pay the amount or to return the goods to
P.D. No. 115 reads:
(as described above) and for the the entruster.
payment of any other
Section 13. Penalty
indebtedness of mine/ours to the Clause. The failure of an
BANK. In case of non-sale within In Colinares v. Court of Appeals,[45] the
entrustee to turn over the
the period specified herein, I/we Court declared that there are two possible situations
proceeds of the sale of the goods, person who shall defraud another amount does not exceed 200
documents or instruments by any of the means mentioned pesos, provided that in the four
covered by a trust receipt to the hereinbelow shall be punished cases mentioned, the fraud be
extent of the amount owing to the by: committed by any of the
entruster or as appears in the trust following means; xxx
receipt or to return said goods, 1st. The penalty
documents or instruments if they of prision correccional in its
Though the entrustee is a corporation,
were not sold or disposed of in maximum period to prision
accordance with the terms of the mayor in its minimum period, if nevertheless, the law specifically makes the officers,
trust receipt shall constitute the the amount of the fraud is over employees or other officers or persons responsible for
crime of estafa, punishable under 12,000 pesos but does not exceed
the provisions of Article Three 22,000 pesos; and if such amount the offense, without prejudice to the civil liabilities of
hundred and fifteen, paragraph exceeds the latter sum, the such corporation and/or board of directors, officers,
one (b) of Act Numbered Three penalty provided in this
thousand eight hundred and paragraph shall be imposed in its or other officials or employees responsible for the
fifteen, as amended, otherwise maximum period, adding one offense. The rationale is that such officers or
known as the Revised Penal year for each additional 10,000
Code. If the violation or offense pesos; but the total penalty which employees are vested with the authority and
is committed by a corporation, may be imposed shall not exceed responsibility to devise means necessary to ensure
partnership, association or other twenty years. In such cases, and
compliance with the law and, if they fail to do so, are
juridical entities, the penalty in connection with the accessory
provided for in this Decree shall penalties which may be imposed held criminally accountable; thus, they have a
be imposed upon the directors, and for the purpose of the other responsible share in the violations of the law.[48]
officers, employees or other provisions of this Code, the
officials or persons therein penalty shall be termed prision
responsible for the offense, mayor or reclusion temporal, as If the crime is committed by a corporation
without prejudice to the civil the case may be; or other juridical entity, the directors, officers,
liabilities arising from the
criminal offense. 2nd. The penalty employees or other officers thereof responsible for the
of prision correccional in its offense shall be charged and penalized for the crime,
minimum and medium periods, if
The crime defined in P.D. No. 115 is malum precisely because of the nature of the crime and the
the amount of the fraud is over
prohibitum but is classified as estafa under paragraph 6,000 pesos but does not exceed penalty therefor. A corporation cannot be arrested and
1(b), Article 315 of the Revised Penal Code, 12,000 pesos;
imprisoned; hence, cannot be penalized for a crime
or estafa with abuse of confidence. It may be 3rd. The penalty punishable by imprisonment.[49] However, a
committed by a corporation or other juridical entity or of arresto mayor in its maximum
corporation may be charged and prosecuted for a
period to prision correccional in
by natural persons. However, the penalty for the crime its minimum period, if such crime if the imposable penalty is fine. Even if the
is imprisonment for the periods provided in said amount is over 200 pesos but statute prescribes both fine and imprisonment as
does not exceed 6,000 pesos; and
Article 315, which reads: penalty, a corporation may be prosecuted and, if
4th. By arresto found guilty, may be fined.[50]
ARTICLE mayor in its medium and
315. Swindling (estafa). Any maximum periods, if such
A crime is the doing of that which the penal act.[53] Moreover, all parties active in promoting a
code forbids to be done, or omitting to do what it crime, whether agents or not, are
commands. A necessary part of the definition of every principals.[54] Whether such officers or employees are
crime is the designation of the author of the crime benefited by their delictual acts is not a touchstone of
upon whom the penalty is to be inflicted. When a their criminal liability. Benefit is not an operative
criminal statute designates an act of a corporation or fact.
a crime and prescribes punishment therefor, it creates
In this case, petitioner signed the trust
a criminal offense which, otherwise, would not exist
receipts in question. He cannot, thus, hide behind the
and such can be
cloak of the separate corporate personality of
committed only by the corporation. But when a penal
PBMI. In the words of Chief Justice Earl Warren, a
statute does not
corporate officer cannot protect himself behind a
expressly apply to corporations, it does not create an
corporation where he is the actual, present and
offense for which a corporation may be punished. On
efficient actor.[55]
the other hand, if the State, by statute, defines a crime
that may be committed by a corporation but prescribes
IN LIGHT OF ALL THE
the penalty therefor to be suffered by the officers,
FOREGOING, the petition is DENIED for lack of
directors, or employees of such corporation or other
merit. Costs against the petitioner.
persons responsible for the offense, only such
individuals will suffer such penalty.[51] Corporate SO ORDERED.
No pronouncement as to costs.
SO ORDERED.
FIRST DIVISION aired every morning over DZRC-AM which is later date because the school is still searching for the
owned by Filipinas Broadcasting Network, Inc. appropriate instructor.
(FBNI). Expos is heard over Legazpi City, the
Albay municipalities and other Bicol areas.[6] xxx
[G.R. No. 141994. January 17, 2005] In the morning of 14 and 15 December
1989, Rima and Alegre exposed various alleged It is a public knowledge that the Ago Medical and
complaints from students, teachers and parents Educational Center has survived and has been
against Ago Medical and Educational Center- surviving for the past few years since its inception
FILIPINAS BROADCASTING NETWORK, Bicol Christian College of Medicine (AMEC) and because of funds support from foreign foundations.
INC., petitioner, vs. AGO MEDICAL its administrators. Claiming that the broadcasts If you will take a look at the AMEC premises youll
AND EDUCATIONAL CENTER- were defamatory, AMEC and Angelita Ago (Ago), find out that the names of the buildings there are
BICOL CHRISTIAN COLLEGE OF as Dean of AMECs College of Medicine, filed a foreign soundings. There is a McDonald Hall. Why
MEDICINE, (AMEC-BCCM) and complaint for damages[7] against FBNI, Rima not Jose Rizal or Bonifacio Hall? That is a very
ANGELITA F. AGO, respondents. and Alegre on 27 February 1990. Quoted are concrete and undeniable evidence that the support of
portions of the allegedly libelous broadcasts: foreign foundations for AMEC is substantial, isnt it?
With the report which is the basis of the expose in
DECISION DZRC today, it would be very easy for detractors
JUN ALEGRE:
CARPIO, J.: and enemies of the Ago family to stop the flow of
support of foreign foundations who assist the
Let us begin with the less burdensome: if you have medical school on the basis of the latters purpose.
The Case children taking medical course at AMEC-BCCM, But if the purpose of the institution (AMEC) is to
advise them to pass all subjects because if they deceive students at cross purpose with its reason for
fail in any subject they will repeat their year level, being it is possible for these foreign foundations to
This petition for review[1] assails the 4
taking up all subjects including those they have lift or suspend their donations temporarily.[8]
January 1999 Decision[2] and 26 January 2000 passed already. Several students had approached me
Resolution of the Court of Appeals in CA-G.R.
stating that they had consulted with the DECS which
CV No. 40151. The Court of Appeals affirmed xxx
told them that there is no such regulation. If [there] is
with modification the 14 December 1992 no such regulation why is AMEC doing the same?
Decision[3] of the Regional Trial Court of Legazpi
On the other hand, the administrators of AMEC-
City, Branch 10, in Civil Case No. 8236. The
xxx BCCM, AMEC Science High School and the
Court of Appeals held Filipinas Broadcasting
AMEC-Institute of Mass Communication in their
Network, Inc. and its broadcasters Hermogenes
effort to minimize expenses in terms of salary are
Alegre and Carmelo Rima liable for libel and Second: Earlier AMEC students in Physical absorbing or continues to accept rejects. For
ordered them to solidarily pay Ago Medical and Therapy had complained that the course is not example how many teachers in AMEC are former
Educational Center-Bicol Christian College of recognized by DECS. xxx teachers of Aquinas University but were removed
Medicine moral damages, attorneys fees and
because of immorality? Does it mean that the present
costs of suit.
Third: Students are required to take and pay for administration of AMEC have the total definite
the subject even if the subject does not have an moral foundation from catholic administrator of
instructor - such greed for money on the part of Aquinas University. I will prove to you my friends,
The Antecedents AMECs administration. Take the subject Anatomy: that AMEC is a dumping ground, garbage, not
students would pay for the subject upon enrolment merely of moral and physical misfits. Probably
because it is offered by the school. However there they only qualify in terms of intellect. The Dean of
Expos is a radio documentary[4] program would be no instructor for such subject. Students Student Affairs of AMEC is Justita Lola, as the
hosted by Carmelo Mel Rima (Rima) and would be informed that course would be moved to a family name implies. She is too old to work, being
Hermogenes Jun Alegre (Alegre).[5] Expos is
an old woman. Is the AMEC administration unreasonable imposition? What do you expect from On 14 December 1992, the trial court
exploiting the very [e]nterprising or compromising a student who aside from peculiar problems because rendered a Decision[12] finding FBNI and Alegre
and undemanding Lola? Could it be that AMEC is not all students are rich in their struggle to improve liable for libel except Rima. The trial court held
just patiently making use of Dean Justita Lola were their social status are even more burdened with false that the broadcasts are libelous per se. The trial
if she is very old. As in atmospheric situation zero regulations. xxx[9] (Emphasis supplied) court rejected the broadcasters claim that their
visibility the plane cannot land, meaning she is very utterances were the result of straight reporting
old, low pay follows. By the way, Dean Justita Lola The complaint further alleged that AMEC is because it had no factual basis. The
is also the chairman of the committee on scholarship a reputable learning institution. With the broadcasters did not even verify their reports
in AMEC. She had retired from Bicol University a supposed exposs, FBNI, Rima and Alegre before airing them to show good faith. In holding
long time ago but AMEC has patiently made use of transmitted malicious imputations, and as such, FBNI liable for libel, the trial court found that
her. destroyed plaintiffs (AMEC and Ago) reputation. FBNI failed to exercise diligence in the selection
AMEC and Ago included FBNI as defendant for and supervision of its employees.
xxx allegedly failing to exercise due diligence in the In absolving Rima from the charge, the trial
selection and supervision of its employees, court ruled that Rimas only participation was
MEL RIMA: particularly Rima and Alegre. when he agreed with Alegres expos. The trial
On 18 June 1990, FBNI, Rima and Alegre, court found Rimas statement within the bounds
xxx My friends based on the expose, AMEC is a through Atty. Rozil Lozares, filed an of freedom of speech, expression, and of the
dumping ground for moral and physically misfit Answer[10] alleging that the broadcasts against press. The dispositive portion of the decision
people. What does this mean? Immoral and AMEC were fair and true. FBNI, Rima and Alegre reads:
physically misfits as teachers. claimed that they were plainly impelled by a
sense of public duty to report the goings-on in WHEREFORE, premises considered, this court finds
May I say Im sorry to Dean Justita Lola. But this is AMEC, [which is] an institution imbued with for the plaintiff. Considering the degree of
the truth. The truth is this, that your are no longer fit public interest. damages caused by the controversial utterances,
to teach. You are too old. As an aviation, your case which are not found by this court to be really
Thereafter, trial ensued. During the very serious and damaging, and there being no
is zero visibility. Dont insist. presentation of the evidence for the defense, showing that indeed the enrollment of plaintiff
Atty. Edmundo Cea, collaborating counsel of school dropped, defendants Hermogenes Jun
xxx Why did AMEC still absorb her as a teacher, a Atty. Lozares, filed a Motion to Dismiss[11] on Alegre, Jr. and Filipinas Broadcasting Network
dean, and chairman of the scholarship committee at FBNIs behalf. The trial court denied the motion (owner of the radio station DZRC), are hereby
that. The reason is practical cost saving in salaries, to dismiss. Consequently, FBNI filed a separate jointly and severally ordered to pay plaintiff Ago
because an old person is not fastidious, so long as Answer claiming that it exercised due diligence Medical and Educational Center-Bicol Christian
she has money to buy the ingredient of beetle juice. in the selection and supervision of Rima and College of Medicine (AMEC-BCCM) the amount
The elderly can get by thats why she (Lola) was Alegre. FBNI claimed that before hiring a of P300,000.00 moral damages, plus P30,000.00
taken in as Dean. broadcaster, the broadcaster should (1) file an reimbursement of attorneys fees, and to pay the costs
application; (2) be interviewed; and (3) undergo of suit.
xxx an apprenticeship and training program after
passing the interview. FBNI likewise claimed that
it always reminds its broadcasters to observe SO ORDERED. [13] (Emphasis supplied)
xxx On our end our task is to attend to the interests truth, fairness and objectivity in their broadcasts
of students. It is likely that the students would be and to refrain from using libelous and indecent Both parties, namely, FBNI, Rima and
influenced by evil. When they become members of language. Moreover, FBNI requires all Alegre, on one hand, and AMEC and Ago, on the
society outside of campus will be liabilities rather broadcasters to pass the Kapisanan ng mga other, appealed the decision to the Court of
than assets. What do you expect from a doctor who Brodkaster sa Pilipinas (KBP) accreditation test Appeals. The Court of Appeals affirmed the trial
while studying at AMEC is so much burdened with and to secure a KBP permit. courts judgment with modification. The appellate
court made Rima solidarily liable with FBNI and According to the Court of Appeals, these IV. WHETHER FBNI IS SOLIDARILY
Alegre. The appellate court denied Agos claim circumstances cast doubt on the veracity of the LIABLE WITH RIMA AND
for damages and attorneys fees because the broadcasters claim that they were impelled by ALEGRE FOR PAYMENT OF
broadcasts were directed against AMEC, and not their moral and social duty to inform the public MORAL DAMAGES, ATTORNEYS
against her. The dispositive portion of the Court about the students gripes. FEES AND COSTS OF SUIT.
of Appeals decision reads:
The Court of Appeals found Rima also
liable for libel since he remarked that (1) AMEC- The Courts Ruling
WHEREFORE, the decision appealed from is BCCM is a dumping ground for morally and
hereby AFFIRMED, subject to the modification that physically misfit teachers; (2) AMEC obtained the
broadcaster Mel Rima is SOLIDARILY services of Dean Justita Lola to minimize
ADJUDGED liable with FBN[I] and Hermo[g]enes We deny the petition.
expenses on its employees salaries; and (3)
Alegre. AMEC burdened the students with unreasonable This is a civil action for damages as a result
imposition and false regulations.[16] of the allegedly defamatory remarks of Rima and
SO ORDERED.[14] Alegre against AMEC.[17] While AMEC did not
The Court of Appeals held that FBNI failed
point out clearly the legal basis for its complaint,
to exercise due diligence in the selection and
FBNI, Rima and Alegre filed a motion for a reading of the complaint reveals that AMECs
supervision of its employees for allowing Rima
reconsideration which the Court of Appeals cause of action is based on Articles 30 and 33 of
and Alegre to make the radio broadcasts without
denied in its 26 January 2000 Resolution. the Civil Code. Article 30[18] authorizes a
the proper KBP accreditation. The Court of
separate civil action to recover civil liability
Hence, FBNI filed this petition.[15] Appeals denied Agos claim for damages and
arising from a criminal offense. On the other
attorneys fees because the libelous remarks
hand, Article 33[19] particularly provides that the
were directed against AMEC, and not against
injured party may bring a separate civil action for
The Ruling of the Court of Appeals her. The Court of Appeals adjudged FBNI, Rima
damages in cases of defamation, fraud, and
and Alegre solidarily liable to pay AMEC moral
physical injuries. AMEC also invokes Article
damages, attorneys fees and costs of suit.
19[20] of the Civil Code to justify its claim for
The Court of Appeals upheld the trial courts damages. AMEC cites Articles 2176[21] and
ruling that the questioned broadcasts are 2180[22] of the Civil Code to hold FBNI solidarily
Issues
libelous per se and that FBNI, Rima and Alegre liable with Rima and Alegre.
failed to overcome the legal presumption of
malice. The Court of Appeals found Rima and
Alegres claim that they were actuated by their FBNI raises the following issues for
I
moral and social duty to inform the public of the resolution:
.
students gripes as insufficient to justify the Whether the broadcasts are libelous
utterance of the defamatory remarks. I. WHETHER THE BROADCASTS ARE
LIBELOUS;
Finding no factual basis for the imputations
A libel[23] is a public and malicious
against AMECs administrators, the Court of
II. WHETHER AMEC IS ENTITLED TO imputation of a crime, or of a vice or defect, real
Appeals ruled that the broadcasts were made
MORAL DAMAGES; or imaginary, or any act or omission, condition,
with reckless disregard as to whether they were
status, or circumstance tending to cause the
true or false. The appellate court pointed out that
dishonor, discredit, or contempt of a natural or
FBNI, Rima and Alegre failed to present in court III. WHETHER THE AWARD OF
juridical person, or to blacken the memory of one
any of the students who allegedly complained ATTORNEYS FEES IS PROPER;
who is dead.[24]
against AMEC. Rima and Alegre merely gave a and
single name when asked to identify the students.
There is no question that the broadcasts official who refused to disclose any information. for libel or slander. The doctrine of fair comment
were made public and imputed to AMEC defects Alegre simply relied on the words of the students means that while in general every discreditable
or circumstances tending to cause it dishonor, because they were many and not because there imputation publicly made is deemed false, because
discredit and contempt. Rima and Alegres is proof that what they are saying is true. [28] This every man is presumed innocent until his guilt is
remarks such as greed for money on the part of plainly shows Rima and Alegres reckless judicially proved, and every false imputation is
AMECs administrators; AMEC is a dumping disregard of whether their report was true or not. deemed malicious, nevertheless, when the
ground, garbage of xxx moral and physical discreditable imputation is directed against a public
misfits; and AMEC students who graduate will be Contrary to FBNIs claim, the broadcasts person in his public capacity, it is not necessarily
liabilities rather than assets of the society are were not the result of straight reporting. actionable. In order that such discreditable
libelous per se. Taken as a whole, the Significantly, some courts in the United States imputation to a public official may be actionable,
broadcasts suggest that AMEC is a money- apply the privilege of neutral reportage in libel it must either be a false allegation of fact or a
making institution where physically and morally cases involving matters of public interest or comment based on a false supposition. If the
unfit teachers abound. public figures. Under this privilege, a republisher comment is an expression of opinion, based on
who accurately and disinterestedly reports established facts, then it is immaterial that the
However, FBNI contends that the certain defamatory statements made against opinion happens to be mistaken, as long as it might
broadcasts are not malicious. FBNI claims that public figures is shielded from liability, regardless reasonably be inferred from the facts.[32] (Emphasis
Rima and Alegre were plainly impelled by their of the republishers subjective awareness of the supplied)
civic duty to air the students gripes. FBNI alleges truth or falsity of the accusation.[29] Rima and
that there is no evidence that ill will or spite Alegre cannot invoke the privilege of neutral
motivated Rima and Alegre in making the reportage because unfounded comments True, AMEC is a private learning institution
broadcasts. FBNI further points out that Rima abound in the broadcasts. Moreover, there is no whose business of educating students is
and Alegre exerted efforts to obtain AMECs side existing controversy involving AMEC when the genuinely imbued with public interest. The
and gave Ago the opportunity to defend AMEC broadcasts were made. The privilege of neutral welfare of the youth in general and AMECs
and its administrators. FBNI concludes that since reportage applies where the defamed person is students in particular is a matter which the public
there is no malice, there is no libel. a public figure who is involved in an existing has the right to know. Thus, similar to the
controversy, and a party to that controversy newspaper articles in Borjal, the subject
FBNIs contentions are untenable. makes the defamatory statement.[30] broadcasts dealt with matters of public interest.
However, unlike in Borjal, the questioned
Every defamatory imputation is presumed However, FBNI argues vigorously that broadcasts are not based on established facts.
malicious.[25] Rima and Alegre failed to show malice in law does not apply to this case. The record supports the following findings of the
adequately their good intention and justifiable Citing Borjal v. Court of Appeals,[31] FBNI trial court:
motive in airing the supposed gripes of the contends that the broadcasts fall within the
students. As hosts of a documentary or public coverage of qualifiedly privileged
affairs program, Rima and Alegre should have xxx Although defendants claim that they were
communications for being commentaries on motivated by consistent reports of students and
presented the public issues free matters of public interest. Such being the case,
from inaccurate and misleading parents against plaintiff, yet, defendants have not
AMEC should prove malice in fact or actual presented in court, nor even gave name of a single
information.[26] Hearing the students alleged malice. Since AMEC allegedly failed to prove
complaints a month before the expos,[27] they student who made the complaint to them, much less
actual malice, there is no libel. present written complaint or petition to that effect.
had sufficient time to verify their sources and
information. However, Rima and Alegre hardly FBNIs reliance on Borjal is misplaced. To accept this defense of defendants is too
made a thorough investigation of the students In Borjal, the Court elucidated on the doctrine of dangerous because it could easily give license to the
alleged gripes. Neither did they inquire about nor fair comment, thus: media to malign people and establishments based on
confirm the purported irregularities in AMEC from flimsy excuses that there were reports to them
the Department of Education, Culture and although they could not satisfactorily establish it.
[F]air commentaries on matters of public interest are Such laxity would encourage careless and
Sports. Alegre testified that he merely went to privileged and constitute a valid defense in an action
AMEC to verify his report from an alleged AMEC
irresponsible broadcasting which is inimical to charges laboratory fees even if there are no B. PUBLIC AFFAIRS, PUBLIC ISSUES AND
public interests. laboratories in the school. No evidence was COMMENTARIES
presented to prove the bases for these claims, at least
Secondly, there is reason to believe that defendant in order to give semblance of good faith. 1. x x x
radio broadcasters, contrary to the mandates of their
duties, did not verify and analyze the truth of the As for the allegation that plaintiff is the dumping 4. Public affairs program shall present
reports before they aired it, in order to prove that ground for misfits, and immoral teachers, public issues free from personal
they are in good faith. defendant[s] singled out Dean Justita Lola who is bias, prejudice and inaccurate and
said to be so old, with zero visibility already. Dean misleading information. x x x
Alegre contended that plaintiff school had no permit Lola testified in court last Jan. 21, 1991, and was Furthermore, the station shall strive
and is not accredited to offer Physical Therapy found to be 75 years old. xxx Even older people to present balanced discussion of
courses. Yet, plaintiff produced a certificate coming prove to be effective teachers like Supreme Court issues. x x x.
from DECS that as of Sept. 22, 1987 or more than 2 Justices who are still very much in demand as law
years before the controversial broadcast, professors in their late years. Counsel for defendants
is past 75 but is found by this court to be still very xxx
accreditation to offer Physical Therapy course had
already been given the plaintiff, which certificate is sharp and effective. So is plaintiffs counsel.
signed by no less than the Secretary of Education 7. The station shall be responsible at all
and Culture herself, Lourdes R. Quisumbing (Exh. Dr. Lola was observed by this court not to be times in the supervision of public
C-rebuttal). Defendants could have easily known this physically decrepit yet, nor mentally infirmed, but is affairs, public issues and
were they careful enough to verify. And yet, still alert and docile. commentary programs so that they
defendants were very categorical and sounded too conform to the provisions and
positive when they made the erroneous report that standards of this code.
The contention that plaintiffs graduates become
plaintiff had no permit to offer Physical Therapy liabilities rather than assets of our society is a mere
courses which they were offering. conclusion. Being from the place himself, this court 8. It shall be the responsibility of the
is aware that majority of the medical graduates of newscaster, commentator, host and
The allegation that plaintiff was getting tremendous plaintiffs pass the board examination easily and announcer to protect public
aids from foreign foundations like Mcdonald become prosperous and responsible professionals.[33] interest, general welfare and good
Foundation prove not to be true also. The truth is order in the presentation of public
there is no Mcdonald Foundation existing. Although affairs and public
Had the comments been an expression of issues.[36](Emphasis supplied)
a big building of plaintiff school was given the name opinion based on established facts, it is
Mcdonald building, that was only in order to honor immaterial that the opinion happens to be
the first missionary in Bicol of plaintiffs religion, as mistaken, as long as it might reasonably be The broadcasts fail to meet the standards
explained by Dr. Lita Ago. Contrary to the claim of inferred from the facts.[34] However, the prescribed in the Radio Code, which lays down
defendants over the air, not a single centavo appears comments of Rima and Alegre were not backed the code of ethical conduct governing
to be received by plaintiff school from the up by facts. Therefore, the broadcasts are not practitioners in the radio broadcast industry. The
aforementioned McDonald Foundation which does privileged and remain libelous per se. Radio Code is a voluntary code of conduct
not exist. imposed by the radio broadcast industry on its
The broadcasts also violate the Radio own members. The Radio Code is a public
Defendants did not even also bother to prove their Code[35] of the Kapisanan ng mga Brodkaster sa warranty by the radio broadcast industry that
claim, though denied by Dra. Ago, that when Pilipinas, Ink. (Radio Code). Item I(B) of the radio broadcast practitioners are subject to a
medical students fail in one subject, they are made to Radio Code provides: code by which their conduct are measured for
repeat all the other subject[s], even those they have lapses, liability and sanctions.
already passed, nor their claim that the school
The public has a right to expect and other form of defamation and claim for moral [I]t is an accepted doctrine that the award thereof as
demand that radio broadcast practitioners live up damages.[44] an item of damages is the exception rather than the
to the code of conduct of their profession, just like rule, and counsels fees are not to be awarded every
other professionals. A professional code of Moreover, where the broadcast is time a party wins a suit. The power of the court to
conduct provides the standards for determining libelous per se, the law implies damages.[45] In award attorneys fees under Article 2208 of the
whether a person has acted justly, honestly and such a case, evidence of an honest mistake or Civil Code demands factual, legal and equitable
with good faith in the exercise of his rights and the want of character or reputation of the party justification, without which the award is a
performance of his duties as required by Article libeled goes only in mitigation of conclusion without a premise, its basis being
19[37] of the Civil Code. A professional code of damages.[46] Neither in such a case is the plaintiff improperly left to speculation and conjecture. In
conduct also provides the standards for required to introduce evidence of actual all events, the court must explicitly state in the text
determining whether a person who willfully damages as a condition precedent to the of the decision, and not only in the decretal portion
causes loss or injury to another has acted in a recovery of some damages.[47] In this case, the thereof, the legal reason for the award of attorneys
manner contrary to morals or good customs broadcasts are libelous per se. Thus, AMEC is fees.[51](Emphasis supplied)
under Article 21[38] of the Civil Code. entitled to moral damages.
I However, we find the award of P300,000 While it mentioned about the award of
I moral damages unreasonable. The record attorneys fees by stating that it lies within the
. shows that even though the broadcasts were discretion of the court and depends upon the
Whether AMEC is entitled to moral damages libelous per se, AMEC has not suffered any circumstances of each case, the Court of
substantial or material damage to its reputation. Appeals failed to point out any circumstance to
Therefore, we reduce the award of moral justify the award.
FBNI contends that AMEC is not entitled to damages from P300,000 to P150,000.
I
moral damages because it is a corporation.[39] V
A juridical person is generally not entitled to .
III. Whether FBNI is solidarily liable with Rima
moral damages because, unlike a natural
person, it cannot experience physical suffering or Whether the award of attorneys fees is and Alegre
proper for moral damages, attorneys fees
such sentiments as wounded feelings, serious
and costs of suit
anxiety, mental anguish or moral shock.[40] The
Court of Appeals cites Mambulao Lumber Co.
v. PNB, et al.[41] to justify the award of moral FBNI contends that since AMEC is not
damages. However, the Courts statement entitled to moral damages, there is no basis for FBNI contends that it is not solidarily liable
in Mambulao that a corporation may have a the award of attorneys fees. FBNI adds that the with Rima and Alegre for the payment of
good reputation which, if besmirched, may also instant case does not fall under the enumeration damages and attorneys fees because it
be a ground for the award of moral damages is in Article 2208[48] of the Civil Code. exercised due diligence in the selection and
an obiter dictum.[42] supervision of its employees, particularly Rima
The award of attorneys fees is not proper and Alegre. FBNI maintains that its broadcasters,
Nevertheless, AMECs claim for moral because AMEC failed to justify satisfactorily its including Rima and Alegre, undergo a very
damages falls under item 7 of Article 2219[43] of claim for attorneys fees. AMEC did not adduce regimented process before they are allowed to
the Civil Code. This provision expressly evidence to warrant the award of attorneys fees. go on air. Those who apply for broadcaster are
authorizes the recovery of moral damages in Moreover, both the trial and appellate courts subjected to interviews, examinations and an
cases of libel, slander or any other form of failed to explicitly state in their respective apprenticeship program.
defamation. Article 2219(7) does not qualify decisions the rationale for the award of attorneys
whether the plaintiff is a natural or juridical fees.[49] In Inter-Asia Investment Industries, FBNI further argues that Alegres age and
person. Therefore, a juridical person such as a Inc. v. Court of Appeals,[50] we held that: lack of training are irrelevant to his competence
corporation can validly complain for libel or any as a broadcaster. FBNI points out that the minor
deficiencies in the KBP accreditation of Rima and FBNI did not authorize and ratify the defamatory WHEREFORE, we DENY the instant
Alegre do not in any way prove that FBNI did not broadcasts. petition. We AFFIRM the Decision of 4 January
exercise the diligence of a good father of a family 1999 and Resolution of 26 January 2000 of the
in selecting and supervising them. Rimas Moreover, there is insufficient evidence on Court of Appeals in CA-G.R. CV No. 40151 with
accreditation lapsed due to his non-payment of record that FBNI exercised due diligence in the MODIFICATION that the award of moral
the KBP annual fees while Alegres accreditation the selection and supervision of its damages is reduced from P300,000 to P150,000
card was delayed allegedly for reasons employees, particularly Rima and Alegre. FBNI and the award of attorneys fees is deleted. Costs
attributable to the KBP Manila Office. FBNI merely showed that it exercised diligence in against petitioner.
claims that membership in the KBP is merely the selection of its broadcasters without
voluntary and not required by any law or introducing any evidence to prove that it SO ORDERED.
government regulation. observed the same diligence in
the supervision of Rima and Alegre. FBNI did
FBNIs arguments do not persuade us. not show how it exercised diligence in
supervising its broadcasters. FBNIs alleged
The basis of the present action is a tort. constant reminder to its broadcasters to observe
Joint tort feasors are jointly and severally liable truth, fairness and objectivity and to refrain from
for the tort which they commit.[52] Joint tort using libelous and indecent language is not
feasors are all the persons who command, enough to prove due diligence in the supervision
instigate, promote, encourage, advise, of its broadcasters. Adequate training of the
countenance, cooperate in, aid or abet the broadcasters on the industrys code of conduct,
commission of a tort, or who approve of it after it sufficient information on libel laws, and
is done, if done for their benefit.[53] Thus, AMEC continuous evaluation of the broadcasters
correctly anchored its cause of action against performance are but a few of the many ways of
FBNI on Articles 2176 and 2180 of the Civil showing diligence in the supervision of
Code. broadcasters.
As operator of DZRC-AM and employer of FBNI claims that it has taken all the
Rima and Alegre, FBNI is solidarily liable to pay precaution in the selection of Rima and Alegre
for damages arising from the libelous as broadcasters, bearing in mind their
broadcasts. As stated by the Court of Appeals, qualifications. However, no clear and convincing
recovery for defamatory statements published by evidence shows that Rima and Alegre underwent
radio or television may be had from the owner of FBNIs regimented process of application.
the station, a licensee, the operator of the Furthermore, FBNI admits that Rima and Alegre
station, or a person who procures, or had deficiencies in their KBP
participates in, the making of the defamatory accreditation,[56] which is one of FBNIs
statements.[54] An employer and employee are requirements before it hires a broadcaster.
solidarily liable for a defamatory statement by the Significantly, membership in the KBP, while
employee within the course and scope of his or voluntary, indicates the broadcasters strong
her employment, at least when the employer commitment to observe the broadcast industrys
authorizes or ratifies the defamation.[55] In this rules and regulations. Clearly, these
case, Rima and Alegre were clearly performing circumstances show FBNIs lack of diligence in
their official duties as hosts of FBNIs radio selecting and supervising Rima and Alegre.
program Expos when they aired the broadcasts. Hence, FBNI is solidarily liable to pay damages
FBNI neither alleged nor proved that Rima and together with Rima and Alegre.
Alegre went beyond the scope of their work at
that time. There was likewise no showing that
Republic of the Philippines
This is a petition for review Petitioner and NS Electronics (Philippines),
Supreme Court
Manila on certiorari under Rule 45 of the Rules of Court Inc., the predecessor-in-interest of respondent TEC,
seeking the reversal of the Decision[1] of the Court of were parties to two separate contracts denominated as
THIRD DIVISION Appeals (CA) dated June 18, 1997 and its Agreements for the Sale of Electric Energy under the
NACHURA, J.: a court order, for repeated violation of the terms and
On September 28, 1987, a team of referred the demand letter to Ultra[9] which, in turn, reconnection, or on June 7, 1988, petitioner
petitioners inspectors conducted a surprise inspection informed TEC that its Executive Vice-President had conducted a scheduled inspection of the questioned
of the electric meters installed at the DCIM building, met with petitioners representative. Ultra further meters and found them to have been tampered
witnessed by Ultras[6]representative, Mr. Willie intimated that assuming that there was tampering of anew.[12]
Abangan. The two meters covered by account the meters, petitioners assessment was Meanwhile, on April 25, 1988, petitioner
numbers 09341-1322-16 and 09341-1812-13, excessive.[10] For failure of TEC to pay the differential conducted another inspection, this time, in TECs NS
were found to be allegedly tampered with and did not billing, petitioner disconnected the electricity supply Building. The inspection allegedly revealed that the
register the actual power consumption in the to the DCIM building on April 29, 1988. electric meters were not registering the correct power
building. The results of the inspection were reflected consumption. Petitioner, thus, sent a letter dated June
in the Service Inspection Reports[7] prepared by the TEC demanded from petitioner the 18, 1988 demanding payment of P280,813.72
team. reconnection of electrical service, claiming that it had representing the differential billing.[13] TEC denied
nothing to do with the alleged tampering but the latter petitioners allegations and claim in a letter dated June
In a letter dated November 25, 1987, refused to heed the demand. Hence, TEC filed a 29, 1988.[14] Petitioner, thus, sent TEC another letter
petitioner informed TEC of the results of the complaint on May 27, 1988 before the Energy demanding payment of the aforesaid amount, with a
inspection and demanded from the latter the payment Regulatory Board (ERB) praying that electric power warning that the electric service would be
of P7,040,401.01 representing its unregistered be restored to the DCIM building.[11] The ERB disconnected in case of continued refusal to pay the
consumption from February 10, immediately ordered the reconnection of the service differential billing.[15] To avert the impending
1986 until September 28, 1987, as a result of the but petitioner complied with it only on October 12, disconnection of electrical service, TEC paid the
alleged tampering of the meters.[8] TEC received the 1988 after TEC paid P1,000,000.00, under above amount, under protest.[16]
letters on January 7, 1988.Since Ultra was in protest. The complaint before the ERB was later
possession of the subject building during the covered withdrawn as the parties deemed it best to have the
the said
On January 13, 1989, TEC and TPC filed a 1992, the trial court rendered a Decision in favor of amount
shall have
complaint for damages against petitioner and respondents TEC and TPC, and against respondent been fully
paid;
Ultra[17] before the Regional Trial Court (RTC) Ultra and petitioner. The pertinent portion of the (2) O
rdering
of Pasig. The case was raffled to Branch 162 and was decision reads: defendant
Meralco to
docketed as Civil Case No. 56851.[18] Upon the filing pay to
WHEREFORE, judgment is plaintiff
of the parties answer to the complaint, pre-trial was hereby rendered in this case in TEC the
favor of the plaintiffs and against amount
scheduled. the defendants as follows: of P280,81
3.72 as
(1) O actual
rdering damages
At the pre-trial, the parties agreed to limit both with legal
defendants rate of
the issues, as follows: Meralco interest
and also
ULTRA from Janua
1. Whether or not the Electronics ry 19,
defendant Meralco is liable for Instrument 1989;
the plaintiffs disconnection of s, Inc. to (3) O
electric service jointly and rdering
at DCIM Building. severally defendant
reimburse Meralco to
2. Whether or not the plaintiff pay to
plaintiff is liable for (sic) the TEC actual plaintiff
defendant for the differential damages in TPC the
billings in the amount the amount amount
of P7,040,401.01. of ONE of P150,00
MILLION 0.00 as
3. Whether or not the PESOS actual
plaintiff is liable to defendant for with legal damages
exemplary damages.[19] rate of with
interest interest at
from the legal rate
date of the from Janua
For failure of the parties to reach an amicable filing of ry 19,
this case 1989;
settlement, trial on the merits ensued. On June 17, on January (4) C
19, ondemning
1989 until defendant
Meralco to
pay both tampering the meter installations. The deformed
plaintiffs
moral condition of the meter seal and the existence of an Ultra and petitioner appealed to the CA
damages in
the amount opening in the wire duct leading to the transformer which affirmed the RTC decision, with a modification
pf P500,00
0.00; vault did not, in themselves, prove the alleged of the amount of actual damages and interest
(5) C
ondemning tampering, especially since access to the transformer thereon. The dispositive portion of the CA decision
defendant
Meralco to was given only to petitioners employees.[21] The dated June 18, 1997, states:
pay both
plaintiffs sudden drop in TECs (or Ultras) electric consumption
corrective WHEREFORE, this
and/or did not, per se, show meter tampering. The delay in Court renders judgment
exemplary affirming in toto the Decision
damages in the sending of notice of the results of the inspection rendered by the trial court with
the amount the slight modification that the
of P200,00 was likewise viewed by the court as evidence of interest at legal rate shall be
0.00; computed from January 13, 1989
(6) O inefficiency and arbitrariness on the part of and that Meralco shall pay
rdering plaintiff T.E.A.M. Electronics
defendant petitioner. More importantly, petitioners act of Corporation and Technology
Meralco to Electronics Assembly and
pay disconnecting the DCIM buildings electric supply Management Pacific Corporation
attorneys the sum of P150,000.00 per
fees in the constituted bad faith and thus makes it liable for month for five (5) months for
amount actual damages incurred when it
of P200,00 was compelled to lease a
damages.[22] The court further denied petitioners
0.00 generator set with interest at the
claim of differential billing primarily on the ground of legal rate from the above-stated
Costs against date.
defendant Meralco.
equitable negligence.[23] Considering that TEC and
SO ORDERED.[24]
SO
TPC paid P1,000,000.00 to avert the disconnection of
ORDERED.[
20]
electric power; and because Ultra manifested to settle
The appellate court agreed with the RTCs
the claims of petitioner, the court imposed solidary
conclusion. In addition, it considered petitioner
The trial court found the evidence of
liability on both Ultra and petitioner for the payment
negligent for failing to discover the alleged defects in
petitioner insufficient to prove that TEC was guilty of
of the P1,000,000.00.
this electric meter in
the electric meters; in belatedly notifying TEC and its DCIM Building. 14. In not declaring
that petitioner is entitled to the
TPC of the results of the inspection; and in 6. In finding that there was no differential bill.
notice of disconnection.
disconnecting the electric power without prior notice. 15. In not declaring
7. In finding that petitioner that respondents are liable to
MERALCO was negligent in petitioner for exemplary
informing TEC of the alleged damages, attorneys fee and
Petitioner now comes before this Court in this petition tampering. expenses for litigation.[25]
1. In finding that the issue in the 9. In follows: 1) whether or not TEC tampered with the
case is whether there was declaring that petitioner
deliberate tampering of the MERALCO estopped from electric meters installed at its DCIM and NS
metering installations at the claiming any tampering of the
building owned by TEC. meters. buildings; 2) If so, whether or not it is liable for the
2. In not finding that the issue is: 10. In finding that the differential billing as computed by petitioner; and 3)
whether or not, based on the method employed by
tampered meters, whether or not MERALCO to as certain (sic) the whether or not petitioner was justified in
petitioner is entitled to correct amount of electricity
differential billing, and if so, how consumed is questionable; disconnecting the electric power supply in TECs
much.
11. In declaring that DCIM building.
3. In declaring that petitioner ME MERALCO all throughout its
RALCO had the burden of proof dealings with TEC took on an
to show by clear and convincing attitude which is oppressive,
evidence that with respect to the wanton and reckless. Petitioner insists that the tampering of the electric
tampered meters that TEC and/or
TPC authored their tampering. 12. In declaring that meters installed at the DCIM and NS buildings owned
MERALCO acted arbitrarily in
4. In finding that petitioner inspecting TECs DCIM building by respondent TEC has been established by
Meralco should not have held and the NS building.
TEC and/or TPC responsible for overwhelming evidence, as specifically shown by the
the acts of Ultra. 13. In declaring that
respondents TEC and TPC are
shorting devices found during the inspection. Thus,
5. In finding that TEC should not entitled to the damages which it
be held liable for the tampering of awarded.
1985s 87,600 recorded
says petitioner, tampering of the meter is no longer an saw that the meter seal was deformed. In addition, consumption, the same dropped
to 18,600 kwh/month or a
issue. petitioner, through the Supervising Engineer of its difference-drop of 69,000
kwh/month. Surely, a drop of
Special Billing Analysis Department,[27] claimed that 53,700 could be equally
categorized as a sudden
It is obvious that petitioner wants this Court to revisit there was a sudden and unexplainable drop in TECs drop amounting to 69,000 which,
incidentally, the Meralco claimed
the factual findings of the lower courts. Well- electrical consumption starting February 10, as unexplainable. x x x.[29]
established is the doctrine that under Rule 45 of the 1986. On the basis of the foregoing, petitioner
Rules of Court, only questions of law, not of fact, may concluded that the electric meters were tampered The witnesses for petitioner who testified
be raised before the Court. We would like to stress with. on the alleged tampering of the electric meters,
that this Court is not a trier of facts and may not re- However, contrary to petitioners claim that there was declared that tampering is committed by consumers to
examine and weigh anew the respective evidence of a drastic and unexplainable drop in TECs electric prevent the meter from registering the correct amount
the parties. Factual findings of the trial court, consumption during the affected period, the Pattern of of electric consumption, and result in a reduced
especially those affirmed by the Court of Appeals, are TECs Electrical Consumption[28] shows that the monthly electric bill, while continuing to enjoy the
binding on this Court.[26] sudden drop is not peculiar to the said same power supply. Only the registration of actual
period. Noteworthy is the observation of the RTC in electric energy consumption, not the supply of
Looking at the record, we note that petitioner claims this wise: electricity, is affected when a meter is tampered
to have discovered three incidences of meter- with.[30] The witnesses claimed that after the
In fact, in Account No. 09341-
tampering; twice in the DCIM building on September 1812-13 (heretofore referred as inspection, the tampered electric meters were
Account/Meter No. 2), as
28, 1987 and June 7, 1988; and once in the NS evidenced by Exhibits 35 and 35- corrected, so that they would register the correct
A, there was likewise a sudden
building on April 24, 1988. drop of electrical consumption consumption of TEC. Logically, then, after the
from the year 1984 which
The first instance was supposedly discovered recorded an average 141,300 correction of the allegedly tampered meters, the
kwh/month to 1985 which
on September 28, 1987. The inspector allegedly recorded an average kwh/month customers registered consumption would go up.
at 87,600 or a difference-drop
found the presence of a short circuiting device and of 53,700 kwh/month; from
In this case, the period claimed to have been 22,200 kwh on the respective accounts. These figures jeopardize itself in the eyes of petitioner.[34] If it is true
affected by the tampered electric meters is from clearly show that there was no palpably drastic that there was evidence of tampering found
February 1986 until September 1987. Based on difference between the consumption before and after on September 28, 1987 and again on June 7, 1988, the
petitioners Billing Record[31](for the DCIM building), the inspection, casting a cloud of doubt over better view would be that the defective meters were
TECs monthly electric consumption on Account No. petitioners claim of meter-tampering. Indeed, Ultras not actually corrected after the first inspection. If so,
9341-1322-16 was between 4,500 and 27,000 explanation that the corporation was losing; thus, it then Manila Electric Company v. Macro Textile Mills
kwh.[32] Account No. 9341-1812-13 showed a had lesser consumption of electric power appear to be Corporation[35] would apply, where we said that we
monthly consumption between 9,600 and 34,200 the more plausible reason for the drop in electric cannot sanction a situation wherein the defects in the
kwh.[33] It is interesting to note that, after correction consumption. electric meter are allowed to continue indefinitely
of the allegedly tampered meters, TECs monthly until suddenly, the public utilities demand payment
electric consumption from October 1987 to February Petitioner likewise claimed that when the for the unrecorded electricity utilized when they could
1988 (the last month that Ultra occupied the DCIM subject meters were again inspected on June 7, 1988, have remedied the situation immediately. Petitioners
building) was between 8,700 and 24,300 kwh in its they were found to have been tampered anew. The failure to do so may encourage neglect of public
first account, and 16,200 to 46,800 kwh on the second Court notes that prior to the inspection, TEC was utilities to the detriment of the consuming public.
account. informed about it; and months before the inspection, Corollarily, it must be underscored that petitioner has
there was an unsettled controversy between TEC and the imperative duty to make a reasonable and proper
Even more revealing is the fact that TECs petitioner, brought about by the disconnection of inspection of its apparatus and equipment to ensure
meters registered 9,300 kwh and 19,200 kwh electric power and the non-payment of differential that they do not malfunction, and the due diligence to
consumption on the first and second accounts, billing. We are more disposed to accept the trial discover and repair defects therein. Failure to perform
respectively, a month prior to the inspection. On the courts conclusion that it is hard to believe that a such duties constitutes negligence.[36] By reason of
first month after the meters were corrected, TECs customer previously apprehended for tampered said negligence, public utilities run the risk of
electric consumption registered at 9,300 kwh and meters and assessed P7 million would further
forfeiting amounts originally due from their answer to the urgent need to put an end to illegal Petitioner, in the instant case, resorted to the remedy
customers.[37] activities that prejudice the economic well-being of of disconnection without prior notice. While it is true
As to the alleged tampering of the electric meter in both the companies concerned and the consuming that petitioner sent a demand letter to TEC for the
TECs NS building, suffice it to state that the public.[41] P.D. 401 granted the electric companies the payment of differential billing, it did not include any
allegation was not proven, considering that the meters right to conduct inspections of electric meters and the notice that the electric supply would be
therein were enclosed in a metal cabinet the metal seal criminal prosecution[42] of erring consumers who disconnected. In fine, petitioner abused the remedies
of which was unbroken, with petitioner having sole were found to have tampered with their electric granted to it under P.D. 401 and Revised General
access to the said meters.[38] meters. It did not expressly provide for more Order No. 1 by outrightly depriving TEC of electrical
expedient remedies such as the charging of services without first notifying it of the impending
In view of the negative finding on the alleged differential billing and immediate disconnection disconnection. Accordingly, the CA did not err in
tampering of electric meters on TECs DCIM and NS against erring consumers. Thus, electric companies affirming the RTC decision.
buildings, petitioners claim of differential billing was found a creative way of availing themselves of such
correctly denied by the trial and appellate courts. With remedies by inserting into their service contracts (or As to the damages awarded by the CA, we deem it
greater reason, therefore, could petitioner not exercise agreements for the sale of electric energy) a provision proper to modify the same. Actual damages are
the right of immediate disconnection. for differential billing with the option of compensation for an injury that will put the injured
disconnection upon non-payment by the erring party in the position where it was before the
The law in force at the time material to this consumer. The Court has recognized the validity of injury. They pertain to such injuries or losses that are
controversy was Presidential Decree (P.D.) No. such stipulations.[43] However, recourse to differential actually sustained and susceptible of
401[39] issued on March 1, 1974.[40] The decree billing with disconnection was subject to the prior measurement. Except as provided by law or by
penalized unauthorized installation of water, requirement of a 48-hour written notice of stipulation, a party is entitled to adequate
electrical or telephone connections and such acts as disconnection.[44] compensation only for such pecuniary loss as is duly
the use of tampered electrical meters. It was issued in proven. Basic is the rule that to recover actual
damages, not only must the amount of loss be capable acknowledge any culpability and liability, and absent before a disconnection of electrical supply can be
of proof; it must also be actually proven with a any tampered meter, it is absurd to make the lawful effected by a public utility, the requisites of law must
reasonable degree of certainty, premised upon occupant liable. It was petitioner who received the P1 be complied with we affirm the award of P200,000.00
competent proof or the best evidence obtainable.[45] million; thus, it alone should be held liable for the as exemplary damages. With the award of exemplary
Respondent TEC sufficiently established, and return of the amount. damages, the award of attorneys fees is likewise
petitioner in fact admitted, that the former TEC also sufficiently established its claim proper, pursuant to Article 2208[48] of the Civil
paid P1,000,000.00 and P280,813.72 under protest, for the reimbursement of the amount paid as rentals Code. It is obvious that TEC needed the services of a
the amounts representing a portion of the latters claim for the generator set it was constrained to rent by lawyer to argue its cause through three levels of the
of differential billing. With the finding that no reason of the illegal disconnection of electrical judicial hierarchy. Thus, the award of P200,000.00 is
tampering was committed and, thus, no differential service. The official receipts and purchase orders in order.[49]
billing due, the aforesaid amounts should be returned submitted by TEC as evidence sufficiently show that
by petitioner, with interest, as ordered by the Court of such rentals were indeed made. However, the amount We, however, deem it proper to delete the
Appeals and pursuant to the guidelines set forth by the of P150,000.00 per month for five months, awarded award of moral damages. TECs claim was premised
Court.[46] by the CA, is excessive. Instead, a total sum allegedly on the damage to its goodwill and
of P150,000.00, as found by the RTC, is proper. reputation.[50] As a rule, a corporation is not entitled
However, despite the appellate courts conclusion that to moral damages because, not being a natural person,
no tampering was committed, it held Ultra solidarily As to the payment of exemplary damages it cannot experience physical suffering or sentiments
liable with petitioner for P1,000,000.00, only because and attorneys fees, we find no cogent reason to disturb like wounded feelings, serious anxiety, mental
the former, as occupant of the building, promised to the same. Exemplary damages are imposed by way of anguish and moral shock. The only exception to this
settle the claims of the latter. This ruling is example or correction for the public good in addition rule is when the corporation has a reputation that is
erroneous. Ultras promise was conditioned upon the to moral, temperate, liquidated, or compensatory debased, resulting in its humiliation in the business
finding of defect or tampering of the meters. It did not damages.[47] In this case, to serve as an example that realm.[51] But in such a case, it is imperative for the
claimant to present proof to justify the award. It is
hereby DELETED.
SO ORDERED.
SECOND DIVISION
HERMAN C. CRYSTAL, LAMBERTO G.R. No. 172428 affirmed the 8 June 2001 decision of the Regional states that the spouses are jointly and severally liable
C. CRYSTAL, ANN GEORGIA C.
Trial Court, Branch 5, of Cebu City.[4] with CCCC. It appears that before the original loan
SOLANTE, and DORIS C. Present:
MAGLASANG, as Heirs of could be granted, BPI-Cebu City required CCCC to
Deceased SPOUSES
RAYMUNDO QUISUMBING, J., The facts, as culled from the records, follow. put up a security.
I. CRYSTAL and DESAMPARADOS Chairperson,
C. CRYSTAL, CARPIO MORALES,
Petitioners, TINGA, On 28 March 1978, spouses Raymundo and
VEL
Desamparados Crystal obtained a P300,000.00 loan
ASCO, JR., However, CCCC had no real property to offer as
and in behalf of the Cebu Contractors Consortium Co.
B security for the loan; hence, the spouses executed a
(CCCC)R from the Bank of the Philippine Islands-
I real estate mortgage[8] over their own real property
ButuanObranch (BPI-Butuan). The loan was secured
on 22 September 1977.[9] On 3 October 1977, they
by a Nchattel mortgage on heavy equipment and
, executed another real estate mortgage over the same
machinery of CCCC. On the same date, the spouses
J lot in favor of BPI-Cebu City, to secure an additional
executed
J in favor of BPI-Butuan a Continuing
. loan of P20,000.00 of CCCC.[10]
- versus - Suretyship[5] where they bound themselves as surety
Promulgated: of CCCC in the aggregate principal sum of not CCCC failed to pay its loans to both BPI-Butuan
November 28, 2008
BANK OF THE PHILIPPINE ISLANDS, exceeding P300,000.00.Thereafter, or on 29 March and BPI-Cebu City when they became due. CCCC, as
Respondent.
1979, Raymundo Crystal executed a promissory well as the spouses, failed to pay their obligations
x--------------------------------------------------------------
--------------x note[6] for the amount of P300,000.00, also in favor of despite demands. Thus, BPI resorted to the
on 7 July 1981, Insular Bank of Asia and America exhausted CCCCs properties first, stressing that they BPI-Makati as FCDU SA 76/0035, at the request
(IBAA), through its Vice-President for Legal and are mere guarantors of the renewed loans. They also of Desamparados Crystal. FCDU SA 76/0035 was
Corporate Affairs, offered to buy the lot subject of prayed that they be awarded moral and exemplary thus closed, but DesamparadosCrystal failed to
the two (2) real damages, attorneys fees, litigation expenses and cost surrender the passbook because it was lost. The
of suit. Subsequently, the spouses filed an amended transferred FCSA in BPI-Makati was the one used as
complaint,[16] additionally alleging that CCCC had security for CCCCs P450,000.00 loan from BPI-
estate mortgages and to pay directly the spouses opened and maintained a foreign currency savings Makati. CCCC was no longer allowed to withdraw
indebtedness in exchange for the release of the account (FCSA-197) with bpi, Makati branch (BPI- from FCDU SA No. 197 because it was already
mortgages. BPI rejected IBAAs offer to pay.[13] Makati), and that said FCSA was used as security closed.
BPI filed a complaint for sum of money against Makati. The P450,000.00 loan was allegedly paid,
CCCC and the spouses before and thereafter the spouses demanded the return of the
the Regional Trial Court of Butuan City (RTC Butua FCSA passbook. BPI rejected the demand; thus, the The spouses appealed the decision of the trial court to
n), seeking to recover the deficiency of the loan of spouses were unable to withdraw from the said the Court of Appeals, but their appeal was
CCCC and the spouses with BPI-Butuan. The trial account to pay for their other obligations to BPI. dismissed.[18] The spouses moved for the
court ruled in favor of BPI. Pursuant to the decision, The trial court dismissed the spouses complaint and reconsideration of the decision, but the Court of
BPI instituted extrajudicial foreclosure of the spouses ordered them to pay moral and exemplary damages Appeals also denied their motion for
mortgaged property.[14] and attorneys fees to BPI.[17] It ruled that since the reconsideration.[19] Hence, the present petition.
On 10 April 1985, the spouses filed an severally, they are solidarily liable for the loans; Before the Court, petitioners who are the heirs of the
action for Injunction With Damages, With A Prayer hence, BPI can validly foreclose the two real estate spouses argue that the failure of the spouses to pay the
For A Restraining Order and/ or Writ of Preliminary mortgages. Moreover, being guarantors-mortgagors, BPI-Cebu City loan of P120,000.00 was due
Injunction.[15] The spouses claimed that the the spouses are not entitled to the benefit of to BPIs illegal refusal to accept payment for the loan
exhaustion. Anent the FCSA, the trial court found that unless the P300,000.00 loan from BPI-Butuan would
also be paid. Consequently, in view of BPIs unjust obligation so requires.[24] Thus, when the obligor
refusal to accept payment of the BPI-Cebu City loan, In any event, the promissory note is the controlling undertakes to be jointly and severally liable, it means
the loan obligation of the spouses was extinguished, repository of the obligation of the spouses. Under the that the obligation is solidary,[25] such as in this
petitioners contend. promissory note, the spouses defined the parameters case. By stating I/we promise to pay, jointly and
may fulfill the spouses obligation. Thus, it is clear that other words, the surety is directly and equally bound
the spouses alone bear responsibility for the same. with the principal. The surety therefore becomes
We do not agree. Moral damages are meant to because of its good will and good reputation must
compensate the claimant for any physical suffering, protect and defend the same against any unwarranted Nevertheless, in the more recent cases of ABS-CBN
mental anguish, fright, serious anxiety, besmirched suit such as the case at bench.[33] In holding that BPI Corp. v. Court of Appeals, et al.,[37] and Filipinas
reputation, wounded feelings, moral shock, social is entitled to moral damages, the Court of Broadcasting Network, Inc. v. Ago Medical and
humiliation and similar injuries unjustly Appeals relied on the case of People v. Educational Center-Bicol Christian College of
caused.[30] Such damages, to be recoverable, must be Manero,[34] wherein the Court ruled that [i]t is only Medicine (AMEC-BCCM),[38] the Court held that the
the proximate result of a wrongful act or omission the when a juridical person has a good reputation that is statements in Manero and Mambulao were
factual basis for which is satisfactorily established by debased, resulting in social humiliation, that moral mere obiter dicta, implying that the award of moral
the aggrieved party.[31] There being no wrongful or damages may be awarded.[35] damages to corporations is not a hard and fast
unjust act on the part of BPI in demanding payment rule. Indeed, while the Court may allow the grant of
from them and in seeking the foreclosure of the chattel moral damages to corporations, it is not automatically
granted; there must still be proof of the existence of on account of the single suit alone. Hence, the award damages to Bank of the Philippine Islands
the factual basis of the damage and its causal relation of moral damages should be deleted. is DELETED.
damages, though incapable of pecuniary estimation, The awards of exemplary damages and attorneys fees, Costs against the petitioners.
are in the category of an award designed to however, are proper. Exemplary damages, on the
compensate the claimant for actual injury suffered other hand, are imposed by way of example or SO ORDERED.
and not to impose a penalty on the wrongdoer.[39] correction for the public good, when the party to a
The spouses complaint against BPI proved to be malevolent manner, while attorneys fees are allowed
unfounded, but it does not automatically entitle BPI to when exemplary damages are awarded and when the
moral damages. Although the institution of a clearly party to a suit is compelled to incur expenses to
unfounded civil suit can at times be a legal protect his interest.[41] The spouses instituted their
justification for an award of attorney's fees, such its interest. For these reasons, BPI is entitled to the
filing, however, has almost invariably been held not awards of exemplary damages and attorneys fees.
rationale for the rule is that the law could not have
Otherwise, moral damages must every time be WHEREFORE, the petition is DENIED. The
awarded in favor of the prevailing defendant against Decision and Resolution of the Court of Appeals
an unsuccessful plaintiff.[40] BPI may have been dated 24 October 2005 and 31 March 2006,
inconvenienced by the suit, but we do not see how it respectively, are hereby AFFIRMED, with the
could have possibly suffered besmirched reputation MODIFICATION that the award of moral
epublic of the Philippines 16, 2005,2 whereby the Court of Appeals (CA) After trial, on November 28, 2001, the RTC
SUPREME COURT upheld the order of the Regional Trial Court rendered its decision in favor of the
Manila (RTC), Branch 80, in Quezon City that directed plaintiffs,5 viz:
the garnishment of public funds amounting to ₱
FIRST DIVISION 16,370,191.74 belonging to the UP to satisfy the Wherefore, in the light of the foregoing,
writ of execution issued to enforce the already judgment is hereby rendered in favor of the
final and executory judgment against the UP. plaintiff and against the defendants ordering the
G.R. No. 171182 August 23, 2012
latter to pay plaintiff, jointly and severally, the
Antecedents following, to wit:
UNIVERSITY OF THE PHILIPPINES, JOSE V.
ABUEVA, RAUL P. DE GUZMAN, RUBEN P.
ASPIRAS, EMMANUEL P. BELLO, On August 30, 1990, the UP, through its then 1. ₱ 503,462.74 amount of the third
WILFREDO P. DAVID, CASIANO S. ABRIGO, President Jose V. Abueva, entered into a billing, additional accomplished work
and JOSEFINA R. LICUANAN,Petitioners, General Construction Agreement with and retention money
vs. respondent Stern Builders Corporation (Stern
HON. AGUSTIN S. DIZON, his capacity as Builders), represented by its President and 2. ₱ 5,716,729.00 in actual damages
Presiding Judge of the Regional Trial Court General Manager Servillano dela Cruz, for the
of Quezon City, Branch 80, STERN construction of the extension building and the
renovation of the College of Arts and Sciences 3. ₱ 10,000,000.00 in moral damages
BUILDERS, INC., and SERVILLANO DELA
CRUZ, Respondents. Building in the campus of the University of the
Philippines in Los Baños (UPLB).3 4. ₱ 150,000.00 and ₱ 1,500.00 per
appearance as attorney’s fees; and
DECISION
In the course of the implementation of the
contract, Stern Builders submitted three 5. Costs of suit.
BERSAMIN, J.: progress billings corresponding to the work
accomplished, but the UP paid only two of the SO ORDERED.
Trial judges should not immediately issue writs billings. The third billing worth ₱ 273,729.47
of execution or garnishment against the was not paid due to its disallowance by the
Government or any of its subdivisions, agencies Commission on Audit (COA). Despite the lifting Following the RTC’s denial of its motion for
and instrumentalities to enforce money of the disallowance, the UP failed to pay the reconsideration on May 7, 2002,6 the UP filed a
judgments.1 They should bear in mind that the billing, prompting Stern Builders and dela Cruz notice of appeal on June 3, 2002.7 Stern
primary jurisdiction to examine, audit and settle to sue the UP and its co-respondent officials to Builders and dela Cruz opposed the notice of
all claims of any sort due from the Government collect the unpaid billing and to recover various appeal on the ground of its filing being belated,
or any of its subdivisions, agencies and damages. The suit, entitled Stern Builders and moved for the execution of the decision.
instrumentalities pertains to the Commission on Corporation and Servillano R. Dela Cruz v. The UP countered that the notice of appeal was
Audit (COA) pursuant to Presidential Decree University of the Philippines Systems, Jose V. filed within the reglementary period because the
No. 1445 (Government Auditing Code of the Abueva, Raul P. de Guzman, Ruben P. Aspiras, UP’s Office of Legal Affairs (OLS) in Diliman,
Philippines). Emmanuel P. Bello, Wilfredo P. David, Casiano Quezon City received the order of denial only
S. Abrigo, and Josefina R. Licuanan, was on May 31, 2002. On September 26, 2002, the
docketed as Civil Case No. Q-93-14971 of the RTC denied due course to the notice of appeal
The Case for having been filed out of time and granted the
Regional Trial Court in Quezon City (RTC).4
private respondents’ motion for execution.8
On appeal by the University of the Philippines
and its then incumbent officials (collectively, the The RTC issued the writ of execution on
UP) is the decision promulgated on September October 4, 2002,9 and the sheriff of the RTC
served the writ of execution and notice of of which, the decision dated November 28, been granted and despite the writ of execution
demand upon the UP, through its counsel, on 2001 had already become final and executory. having already issued. On June 11, 2003, the
October 9, 2002.10 The UP filed an urgent "Settled is the rule that the perfection of an RTC granted another motion for execution filed
motion to reconsider the order dated September appeal in the manner and within the period on May 9, 2003 (although the RTC had already
26, 2002, to quash the writ of execution dated permitted by law is not only mandatory but issued the writ of execution on October 4,
October 4, 2002, and to restrain the jurisdictional, and failure to perfect that appeal 2002).21
proceedings.11 However, the RTC denied the renders the challenged judgment final and
urgent motion on April 1, 2003.12 executory. This is not an empty procedural rule On June 23, 2003 and July 25, 2003,
but is grounded on fundamental considerations respectively, the sheriff served notices of
On June 24, 2003, the UP assailed the denial of of public policy and sound practice." (Ram’s garnishment on the UP’s depository banks,
due course to its appeal through a petition Studio and Photographic Equipment, Inc. vs. namely: Land Bank of the Philippines (Buendia
for certiorari in the Court of Appeals (CA), Court of Appeals, 346 SCRA 691, 696). Indeed, Branch) and the Development Bank of the
docketed as CA-G.R. No. 77395.13 Atty. Nolasco received the order of denial of the Philippines (DBP), Commonwealth
Motion for Reconsideration on May 17, 2002 but Branch.22 The UP assailed the garnishment
filed a Notice of Appeal only on June 3, 3003. through an urgent motion to quash the notices
On February 24, 2004, the CA dismissed the As such, the decision of the lower court ipso
petition for certiorari upon finding that the UP’s of garnishment;23 and a motion to quash the writ
facto became final when no appeal was of execution dated May 9, 2003.24
notice of appeal had been filed late,14 stating: perfected after the lapse of the reglementary
period. This procedural caveat cannot be trifled
Records clearly show that petitioners received a with, not even by the High Court.15 On their part, Stern Builders and dela Cruz filed
copy of the Decision dated November 28, 2001 their ex parte motion for issuance of a release
and January 7, 2002, thus, they had until order.25
The UP sought a reconsideration, but the CA
January 22, 2002 within which to file their denied the UP’s motion for reconsideration on
appeal. On January 16, 2002 or after the lapse April 19, 2004.16 On October 14, 2003, the RTC denied the UP’s
of nine (9) days, petitioners through their urgent motion to quash, and granted Stern
counsel Atty. Nolasco filed a Motion for Builders and dela Cruz’s ex parte motion for
Reconsideration of the aforesaid decision, On May 11, 2004, the UP appealed to the Court issuance of a release order.26
hence, pursuant to the rules, petitioners still had by petition for review on certiorari (G.R. No.
six (6) remaining days to file their appeal. As 163501).
The UP moved for the reconsideration of the
admitted by the petitioners in their petition order of October 14, 2003, but the RTC denied
(Rollo, p. 25), Atty. Nolasco received a copy of On June 23, 2004, the Court denied the petition the motion on November 7, 2003.27
the Order denying their motion for for review.17 The UP moved for the
reconsideration on May 17, 2002, thus, reconsideration of the denial of its petition for
petitioners still has until May 23, 2002 (the review on August 29, 2004,18 but the Court On January 12, 2004, Stern Builders and dela
remaining six (6) days) within which to file their denied the motion on October 6, 2004.19 The Cruz again sought the release of the garnished
appeal. Obviously, petitioners were not able to denial became final and executory on funds.28 Despite the UP’s opposition,29 the RTC
file their Notice of Appeal on May 23, 2002 as it November 12, 2004.20 granted the motion to release the garnished
was only filed on June 3, 2002. funds on March 16, 2004.30 On April 20, 2004,
however, the RTC held in abeyance the
In the meanwhile that the UP was exhausting enforcement of the writs of execution issued on
In view of the said circumstances, We are of the the available remedies to overturn the denial of October 4, 2002 and June 3, 2003 and all the
belief and so holds that the Notice of Appeal due course to the appeal and the issuance of ensuing notices of garnishment, citing Section
filed by the petitioners was really filed out of the writ of execution, Stern Builders and dela 4, Rule 52, Rules of Court, which provided that
time, the same having been filed seventeen (17) Cruz filed in the RTC their motions for execution the pendency of a timely motion for
days late of the reglementary period. By reason despite their previous motion having already
reconsideration stayed the execution of the Presidential Decree No. 1445 to the effect that already delivered to the sheriff Manager’s
judgment.31 "revenue funds shall not be paid out of any Check No. 811941 for ₱ 16,370,191.74
public treasury or depository except in representing the garnished funds payable to the
On December 21, 2004, the RTC, through pursuance of an appropriation law or other order of Stern Builders and dela Cruz as its
respondent Judge Agustin S. Dizon, authorized specific statutory authority;" and that the order compliance with the RTC’s order dated
the release of the garnished funds of the of garnishment clashed with the ruling in December 21, 2004.46 However, the RTC
UP,32 to wit: University of the Philippines Board of Regents directed in the same order that Stern Builders
v. Ligot-Telan37 to the effect that the funds and dela Cruz should not encash the check or
belonging to the UP were public funds. withdraw its amount pending the final resolution
WHEREFORE, premises considered, there of the UP’s petition for certiorari, to wit:47
being no more legal impediment for the release
of the garnished amount in satisfaction of the On January 19, 2005, the CA issued a
judgment award in the instant case, let the temporary restraining order (TRO) upon To enable the money represented in the check
amount garnished be immediately released by application by the UP.38 in question (No. 00008119411) to earn interest
the Development Bank of the Philippines, during the pendency of the defendant University
Commonwealth Branch, Quezon City in favor of On March 22, 2005, Stern Builders and dela of the Philippines application for a writ of
the plaintiff. Cruz filed in the RTC their amended motion for injunction with the Court of Appeals the same
sheriff’s assistance to implement the release may now be deposited by the plaintiff at the
order dated December 21, 2004, stating that the garnishee Bank (Development Bank of the
SO ORDERED. Philippines), the disposition of the amount
60-day period of the TRO of the CA had already
lapsed.39 The UP opposed the amended motion represented therein being subject to the final
The UP was served on January 3, 2005 with the and countered that the implementation of the outcome of the case of the University of the
order of December 21, 2004 directing DBP to release order be suspended.40 Philippines et al., vs. Hon. Agustin S. Dizon et
release the garnished funds.33 al., (CA G.R. 88125) before the Court of
Appeals.
On May 3, 2005, the RTC granted the amended
On January 6, 2005, Stern Builders and dela motion for sheriff’s assistance and directed the
Cruz moved to cite DBP in direct contempt of sheriff to proceed to the DBP to receive the Let it be stated herein that the plaintiff is not
court for its non-compliance with the order of check in satisfaction of the judgment.41 authorized to encash and withdraw the amount
release.34 represented in the check in question and enjoy
the same in the fashion of an owner during the
The UP sought the reconsideration of the order pendency of the case between the parties
Thereupon, on January 10, 2005, the UP of May 3, 2005.42
brought a petition for certiorari in the CA to before the Court of Appeals which may or may
challenge the jurisdiction of the RTC in issuing not be resolved in plaintiff’s favor.
the order of December 21, 2004 (CA-G.R. CV On May 16, 2005, DBP filed a motion to consign
No. 88125).35 Aside from raising the denial of the check representing the judgment award and With the end in view of seeing to it that the
due process, the UP averred that the RTC to dismiss the motion to cite its officials in check in question is deposited by the plaintiff at
committed grave abuse of discretion amounting contempt of court.43 the Development Bank of the Philippines
to lack or excess of jurisdiction in ruling that (garnishee bank), Branch Sheriff Herlan
there was no longer any legal impediment to the On May 23, 2005, the UP presented a motion to Velasco is directed to accompany and/or escort
release of the garnished funds. The UP argued withhold the release of the payment of the the plaintiff in making the deposit of the check in
that government funds and properties could not judgment award.44 question.
be seized by virtue of writs of execution or
garnishment, as held in Department of On July 8, 2005, the RTC resolved all the SO ORDERED.
Agriculture v. National Labor Relations pending matters,45 noting that the DBP had
Commission,36 and citing Section 84 of
On September 16, 2005, the CA promulgated 1995 and prior years documented On January 30, 2006, Judge Dizon of the RTC
its assailed decision dismissing the UP’s accounts payable and all (Branch 80) denied Stern Builders and dela
petition for certiorari, ruling that the UP had undocumented accounts regardless of Cruz’s motion to withdraw the deposit, in
been given ample opportunity to contest the the year they were incurred shall be consideration of the UP’s intention to appeal to
motion to direct the DBP to deposit the check in reverted to the Cumulative Result of the CA,50 stating:
the name of Stern Builders and dela Cruz; and Operations of the National
that the garnished funds could be the proper Government (CROU). This shall apply Since it appears that the defendants are
subject of garnishment because they had been to accounts payable of all funds, intending to file a petition for review of the Court
already earmarked for the project, with the UP except fiduciary funds, as long as the of Appeals resolution in CA-G.R. No. 88125
holding the funds only in a fiduciary purpose for which the funds were within the reglementary period of fifteen (15)
capacity,48 viz: created have not been accomplished days from receipt of resolution, the Court
and accounts payable under foreign agrees with the defendants stand that the
Petitioners next argue that the UP funds may assisted projects for the duration of the granting of plaintiffs’ subject motion is
not be seized for execution or garnishment to said project. In this regard, the premature.
satisfy the judgment award. Citing Department Department of Budget and
of Agriculture vs. NLRC, University of the Management issued Joint-Circular No.
99-6 4.0 (4.3) Procedural Guidelines Let it be stated that what the Court meant by its
Philippines Board of Regents vs. Hon. Ligot- Order dated July 8, 2005 which states in part
Telan, petitioners contend that UP deposits at which provides that all accounts
payable that reverted to the CROU that the "disposition of the amount represented
Land Bank and the Development Bank of the therein being subject to the final outcome of the
Philippines, being government funds, may not may be considered for payment upon
determination thru administrative case of the University of the Philippines, et. al.,
be released absent an appropriations bill from vs. Hon. Agustin S. Dizon et al., (CA G.R. No.
Congress. process, of the existence, validity and
legality of the claim. Thus, the 88125 before the Court of Appeals) is that the
allegation of the defendants that judgment or resolution of said court has to be
The argument is specious. UP entered into a considering no appropriation for the final and executory, for if the same will still be
contract with private respondents for the payment of any amount awarded to elevated to the Supreme Court, it will not attain
expansion and renovation of the Arts and plaintiffs appellee the funds of finality yet until the highest court has rendered
Sciences Building of its campus in Los Baños, defendant-appellants may not be its own final judgment or resolution.51
Laguna. Decidedly, there was already an seized pursuant to a writ of execution
appropriations earmarked for the said project. issued by the regular court is However, on January 22, 2007, the UP filed
The said funds are retained by UP, in a fiduciary misplaced. Surely when the an Urgent Application for A Temporary
capacity, pending completion of the construction defendants and the plaintiff entered Restraining Order and/or A Writ of Preliminary
project. into the General Construction of Injunction,52 averring that on January 3, 2007,
Agreement there is an amount already Judge Maria Theresa dela Torre-Yadao (who
We agree with the trial Court [sic] allocated by the latter for the said had meanwhile replaced Judge Dizon upon the
observation on this score: project which is no longer subject of latter’s appointment to the CA) had issued
future appropriation."49 another order allowing Stern Builders and dela
"4. Executive Order No. 109 (Directing Cruz to withdraw the deposit,53 to wit:
all National Government Agencies to After the CA denied their motion for
Revert Certain Accounts Payable to reconsideration on December 23, 2005, the It bears stressing that defendants’ liability for
the Cumulative Result of Operations of petitioners appealed by petition for review. the payment of the judgment obligation has
the National Government and for Other become indubitable due to the final and
Purposes) Section 9. Reversion of Matters Arising During the Pendency of the executory nature of the Decision dated
Accounts Payable, provides that, all Petition November 28, 2001. Insofar as the payment of
the [sic] judgment obligation is concerned, the it should be noted that neither the Court of immediate release of the garnished amount
Court believes that there is nothing more the Appeals nor the Supreme Court issued a despite the pendency of the petition for review
defendant can do to escape liability. It is preliminary injunction enjoining the release or in this Court.
observed that there is nothing more the withdrawal of the garnished amount. In fact, in
defendant can do to escape liability. It is its present petition for review before the The UP filed a second supplemental
observed that defendant U.P. System had Supreme Court, U.P. System has not prayed for petition59 after the RTC (Judge Yadao) denied
already exhausted all its legal remedies to the issuance of a writ of preliminary injunction. the UP’s motion for the redeposit of the
overturn, set aside or modify the decision (dated Thus, the Court doubts whether such writ is withdrawn amount on April 10, 2007,60 to wit:
November 28, 2001( rendered against it. The forthcoming.
way the Court sees it, defendant U.P. System’s
petition before the Supreme Court concerns This resolves defendant U.P. System’s Urgent
The Court honestly believes that if defendants’ Motion to Redeposit Judgment Award praying
only with the manner by which said judgment petition assailing the Order of this Court dated
award should be satisfied. It has nothing to do that plaintiffs be directed to redeposit the
December 31, 2004 granting the motion for the judgment award to DBP pursuant to the
with the legality or propriety thereof, although it release of the garnished amount was
prays for the deletion of [sic] reduction of the Temporary Restraining Order issued by the
meritorious, the Court of Appeals would have Supreme Court. Plaintiffs opposed the motion
award of moral damages. issued a writ of injunction enjoining the same. and countered that the Temporary Restraining
Instead, said appellate court not only refused to Order issued by the Supreme Court has
It must be emphasized that this Court’s finding, issue a wit of preliminary injunction prayed for become moot and academic considering that
i.e., that there was sufficient appropriation by U.P. System but denied the petition, as the act sought to be restrained by it has already
earmarked for the project, was upheld by the well.54 been performed. They also alleged that the
Court of Appeals in its decision dated redeposit of the judgment award was no longer
September 16, 2005. Being a finding of fact, the The UP contended that Judge Yadao thereby feasible as they have already spent the same.
Supreme Court will, ordinarily, not disturb the effectively reversed the January 30, 2006 order
same was said Court is not a trier of fact. Such of Judge Dizon disallowing the withdrawal of the
being the case, defendants’ arguments that It bears stressing, if only to set the record
garnished amount until after the decision in the straight, that this Court did not – in its Order
there was no sufficient appropriation for the case would have become final and executory.
payment of the judgment obligation must fail. dated January 3, 2007 (the implementation of
which was restrained by the Supreme Court in
Although the Court issued a TRO on January its Resolution dated January 24, 2002) – direct
While it is true that the former Presiding Judge 24, 2007 to enjoin Judge Yadao and all persons that that garnished amount "be deposited with
of this Court in its Order dated January 30, 2006 acting pursuant to her authority from enforcing the garnishee bank (Development Bank of the
had stated that: her order of January 3, 2007,55 it appears that Philippines)". In the first place, there was no
on January 16, 2007, or prior to the issuance of need to order DBP to make such deposit, as the
Let it be stated that what the Court meant by its the TRO, she had already directed the DBP to garnished amount was already deposited in the
Order dated July 8, 2005 which states in part forthwith release the garnished amount to Stern account of plaintiffs with the DBP as early as
that the "disposition of the amount represented Builders and dela Cruz; 56 and that DBP had May 13, 2005. What the Court granted in its
therein being subject to the final outcome of the forthwith complied with the order on January 17, Order dated January 3, 2007 was plaintiff’s
case of the University of the Philippines, et. al., 2007 upon the sheriff’s service of the order of motion to allow the release of said deposit. It
vs. Hon. Agustin S. Dizon et al., (CA G.R. No. Judge Yadao.57 must be recalled that the Court found plaintiff’s
88125 before the Court of Appeals) is that the motion meritorious and, at that time, there was
judgment or resolution of said court has to be These intervening developments impelled the no restraining order or preliminary injunction
final and executory, for if the same will still be UP to file in this Court a supplemental petition from either the Court of Appeals or the Supreme
elevated to the Supreme Court, it will not attain on January 26, 2007,58alleging that the RTC Court which could have enjoined the release of
finality yet until the highest court has rendered (Judge Yadao) gravely erred in ordering the plaintiffs’ deposit. The Court also took into
its own final judgment or resolution. account the following factors:
a) the Decision in this case had long After a careful and thorough study of the EARMARKED FOR THE CONSTRUCTION
been final and executory after it was arguments advanced by the parties, the Court is PROJECT; AND THUS, THERE IS NO NEED
rendered on November 28, 2001; of the considered opinion that there is no legal FOR FURTHER APPROPRIATIONS.
basis to grant defendant U.P. System’s motion
b) the propriety of the dismissal of U.P. to redeposit the judgment amount. Granting II
System’s appeal was upheld by the said motion is not only contrary to law, but it will
Supreme Court; also render this Court’s final executory
judgment nugatory. Litigation must end and THE COURT OF APPEALS COMMITTED
terminate sometime and somewhere, and it is GRAVE ERROR IN ALLOWING
c) a writ of execution had been issued; essential to an effective administration of justice GARNISHMENT OF A STATE UNIVERSITY’S
that once a judgment has become final the FUNDS IN VIOLATION OF ARTICLE XIV,
d) defendant U.P. System’s deposit issue or cause involved therein should be laid to SECTION 5(5) OF THE CONSTITUTION.
with DBP was garnished pursuant to a rest. This doctrine of finality of judgment is
lawful writ of execution issued by the grounded on fundamental considerations of III
Court; and public policy and sound practice. In fact, nothing
is more settled in law than that once a judgment IN THE ALTERNATIVE, THE UNIVERSITY
e) the garnished amount had already attains finality it thereby becomes immutable INVOKES EQUITY AND THE REVIEW
been turned over to the plaintiffs and and unalterable. It may no longer be modified in POWERS OF THIS HONORABLE COURT TO
deposited in their account with DBP. any respect, even if the modification is meant to MODIFY, IF NOT TOTALLY DELETE THE
correct what is perceived to be an erroneous AWARD OF ₱ 10 MILLION AS MORAL
conclusion of fact or law, and regardless of DAMAGES TO RESPONDENTS.
The garnished amount, as discussed in the whether the modification is attempted to be
Order dated January 16, 2007, was already made by the court rendering it or by the highest
owned by the plaintiffs, having been delivered to court of the land. IV
them by the Deputy Sheriff of this Court
pursuant to par. (c), Section 9, Rule 39 of the THE RTC-BRANCH 80 COMMITTED GRAVE
1997 Rules of Civil Procedure. Moreover, the WHEREFORE, premises considered, finding
defendant U.P. System’s Urgent Motion to ERROR IN ORDERING THE IMMEDIATE
judgment obligation has already been fully RELEASE OF THE JUDGMENT AWARD IN
satisfied as per Report of the Deputy Sheriff. Redeposit Judgment Award devoid of merit, the
same is hereby DENIED. ITS ORDER DATED 3 JANUARY 2007 ON
THE GROUND OF EQUITY AND JUDICIAL
Anent the Temporary Restraining Order issued COURTESY.
by the Supreme Court, the same has become SO ORDERED.
functus oficio, having been issued after the V
garnished amount had been released to the Issues
plaintiffs. The judgment debt was released to
the plaintiffs on January 17, 2007, while the THE RTC-BRANCH 80 COMMITTED GRAVE
The UP now submits that: ERROR IN ORDERING THE IMMEDIATE
Temporary Restraining Order issued by the
Supreme Court was received by this Court on RELEASE OF THE JUDGMENT AWARD IN
February 2, 2007. At the time of the issuance of I ITS ORDER DATED 16 JANUARY 2007 ON
the Restraining Order, the act sought to be THE GROUND THAT PETITIONER
restrained had already been done, thereby THE COURT OF APPEALS COMMITTED UNIVERSITY STILL HAS A PENDING MOTION
rendering the said Order ineffectual. GRAVE ERROR IN DISMISSING THE FOR RECONSIDERATION OF THE ORDER
PETITION, ALLOWING IN EFFECT THE DATED 3 JANUARY 2007.
GARNISHMENT OF UP FUNDS, WHEN IT
RULED THAT FUNDS HAVE ALREADY BEEN VI
THE RTC-BRANCH 80 COMMITTED GRAVE not entirely deleted, due to its being 150,000.00 plus ₱ 1,500.00 per appearance
ERROR IN NOT ORDERING THE REDEPOSIT unconscionable, inequitable and detrimental to could be granted despite the finality of the
OF THE GARNISHED AMOUNT TO THE DBP public service. judgment of the RTC.
IN VIOLATION OF THE CLEAR LANGUAGE
OF THE SUPREME COURT RESOLUTION In contrast, Stern Builders and dela Cruz aver Ruling
DATED 24 JANUARY 2007. that the petition for review was fatally defective
for its failure to mention the other cases upon The petition for review is meritorious.
The UP argues that the amount earmarked for the same issues pending between the parties
the construction project had been purposely set (i.e., CA-G.R. No. 77395 and G.R No. 163501);
aside only for the aborted project and did not that the UP was evidently resorting to forum I.
include incidental matters like the awards of shopping, and to delaying the satisfaction of the UP’s funds, being government funds,
actual damages, moral damages and attorney’s final judgment by the filing of its petition for are not subject to garnishment
fees. In support of its argument, the UP cited review; that the ruling in Commissioner of Public
Article 12.2 of the General Construction Works v. San Diego had no application because The UP was founded on June 18, 1908 through
Agreement, which stipulated that no deductions there was an appropriation for the project; that Act 1870 to provide advanced instruction in
would be allowed for the payment of claims, the UP retained the funds allotted for the project literature, philosophy, the sciences, and arts,
damages, losses and expenses, including only in a fiduciary capacity; that the contract and to give professional and technical training
attorney’s fees, in case of any litigation arising price had been meanwhile adjusted to ₱ to deserving students.63 Despite its
out of the performance of the work. The UP 22,338,553.25, an amount already more than establishment as a body corporate,64 the UP
insists that the CA decision was inconsistent sufficient to cover the judgment award; that the remains to be a "chartered
with the rulings in Commissioner of Public UP’s prayer to reduce or delete the award of institution"65 performing a legitimate government
Highways v. San Diego61 and Department of damages had no factual basis, because they function. It is an institution of higher learning,
Agriculture v. NLRC62 to the effect that had been gravely wronged, had been deprived not a corporation established for profit and
government funds and properties could not be of their source of income, and had suffered declaring any dividends.66 In enacting Republic
seized under writs of execution or garnishment untold miseries, discomfort, humiliation and Act No. 9500 (The University of the Philippines
to satisfy judgment awards. sleepless years; that dela Cruz had even been Charter of 2008), Congress has declared the
constrained to sell his house, his equipment and UP as the national university67 "dedicated to the
Furthermore, the UP contends that the CA the implements of his trade, and together with search for truth and knowledge as well as the
contravened Section 5, Article XIV of the his family had been forced to live miserably development of future leaders."68
Constitution by allowing the garnishment of UP because of the wrongful actuations of the UP;
funds, because the garnishment resulted in a and that the RTC correctly declared the Court’s Irrefragably, the UP is a government
substantial reduction of the UP’s limited budget TRO to be already functus officio by reason of instrumentality,69 performing the State’s
allocated for the remuneration, job satisfaction the withdrawal of the garnished amount from constitutional mandate of promoting quality and
and fulfillment of the best available teachers; the DBP. accessible education.70 As a government
that Judge Yadao should have exhibited judicial instrumentality, the UP administers special
courtesy towards the Court due to the pendency The decisive issues to be considered and funds sourced from the fees and income
of the UP’s petition for review; and that she passed upon are, therefore: enumerated under Act No. 1870 and Section 1
should have also desisted from declaring that of Executive Order No. 714,71 and from the
the TRO issued by this Court had become (a) whether the funds of the UP were the proper yearly appropriations, to achieve the purposes
functus officio. subject of garnishment in order to satisfy the laid down by Section 2 of Act 1870, as
judgment award; and (b) whether the UP’s expanded in Republic Act No. 9500.72 All the
Lastly, the UP states that the awards of actual prayer for the deletion of the awards of actual funds going into the possession of the UP,
damages of ₱ 5,716,729.00 and moral damages of ₱ 5,716,729.00, moral damages of including any interest accruing from the deposit
damages of ₱ 10 million should be reduced, if ₱ 10,000,000.00 and attorney’s fees of ₱ of such funds in any banking institution,
constitute a "special trust fund," the conceded by the mere fact that the state has unjustifiably ignored the legal restriction
disbursement of which should always be allowed itself to be sued. When the state does imposed on the trust funds of the Government
aligned with the UP’s mission and waive its sovereign immunity, it is only giving and its agencies and instrumentalities to be
purpose,73 and should always be subject to the plaintiff the chance to prove, if it can, that used exclusively to fulfill the purposes for which
auditing by the COA.74 the defendant is liable. the trusts were created or for which the funds
were received except upon express
Presidential Decree No. 1445 defines a "trust Also, in Republic v. Villasor,81 where the authorization by Congress or by the head of a
fund" as a fund that officially comes in the issuance of an alias writ of execution directed government agency in control of the funds, and
possession of an agency of the government or against the funds of the Armed Forces of the subject to pertinent budgetary laws, rules and
of a public officer as trustee, agent or Philippines to satisfy a final and executory regulations.83
administrator, or that is received for the judgment was nullified, the Court said:
fulfillment of some obligation.75 A trust fund may Indeed, an appropriation by Congress was
be utilized only for the "specific purpose for xxx The universal rule that where the State required before the judgment that rendered the
which the trust was created or the funds gives its consent to be sued by private parties UP liable for moral and actual damages
received."76 either by general or special law, it may limit (including attorney’s fees) would be satisfied
claimant’s action "only up to the completion of considering that such monetary liabilities were
The funds of the UP are government funds that proceedings anterior to the stage of execution" not covered by the "appropriations earmarked
are public in character. They include the income and that the power of the Courts ends when the for the said project." The Constitution strictly
accruing from the use of real property ceded to judgment is rendered, since government funds mandated that "(n)o money shall be paid out of
the UP that may be spent only for the and properties may not be seized under writs of the Treasury except in pursuance of an
attainment of its institutional execution or garnishment to satisfy such appropriation made by law."84
objectives.77 Hence, the funds subject of this judgments, is based on obvious considerations
action could not be validly made the subject of of public policy. Disbursements of public funds II
the RTC’s writ of execution or garnishment. The must be covered by the corresponding COA must adjudicate private respondents’
adverse judgment rendered against the UP in a appropriation as required by law. The functions claim
suit to which it had impliedly consented was not and public services rendered by the State before execution should proceed
immediately enforceable by execution against cannot be allowed to be paralyzed or disrupted
the UP,78 because suability of the State did not by the diversion of public funds from their The execution of the monetary judgment
necessarily mean its liability.79 legitimate and specific objects, as appropriated against the UP was within the primary
by law. jurisdiction of the COA. This was expressly
A marked distinction exists between suability of provided in Section 26 of Presidential Decree
the State and its liability. As the Court succinctly The UP correctly submits here that the No. 1445, to wit:
stated in Municipality of San Fernando, La garnishment of its funds to satisfy the judgment
Union v. Firme:80 awards of actual and moral damages (including Section 26. General jurisdiction. - The authority
attorney’s fees) was not validly made if there and powers of the Commission shall extend to
A distinction should first be made between was no special appropriation by Congress to and comprehend all matters relating to auditing
suability and liability. "Suability depends on the cover the liability. It was, therefore, legally procedures, systems and controls, the keeping
consent of the state to be sued, liability on the unwarranted for the CA to agree with the RTC’s of the general accounts of the Government, the
applicable law and the established facts. The holding in the order issued on April 1, 2003 that preservation of vouchers pertaining thereto for a
circumstance that a state is suable does not no appropriation by Congress to allocate and period of ten years, the examination and
necessarily mean that it is liable; on the other set aside the payment of the judgment awards inspection of the books, records, and papers
hand, it can never be held liable if it does not was necessary because "there (were) already relating to those accounts; and the audit and
first consent to be sued. Liability is not an appropriations (sic) earmarked for the said settlement of the accounts of all persons
project."82 The CA and the RTC thereby
respecting funds or property received or held by deposited garnished amount; (b) the order action ‘only up to the completion of proceedings
them in an accountable capacity, as well as the Judge Yadao issued on January 16, 2007 anterior to the stage of execution’ and that the
examination, audit, and settlement of all debts directing DBP to forthwith release the garnish power of the Court ends when the judgment is
and claims of any sort due from or owing to the amount to Stern Builders and dela Cruz; (c) the rendered, since government funds and
Government or any of its subdivisions, agencies sheriff’s report of January 17, 2007 manifesting properties may not be seized under writs of
and instrumentalities. The said jurisdiction the full satisfaction of the writ of execution; and execution or garnishment to satisfy such
extends to all government-owned or controlled (d) the order of April 10, 2007 deying the UP’s judgments, is based on obvious considerations
corporations, including their subsidiaries, and motion for the redeposit of the withdrawn of public policy. Disbursements of public funds
other self-governing boards, commissions, or amount. Hence, such orders and issuances must be covered by the corresponding
agencies of the Government, and as herein should be struck down without exception. appropriation as required by law. The functions
prescribed, including non governmental entities and public services rendered by the State
subsidized by the government, those funded by Nothing extenuated Judge Yadao’s successive cannot be allowed to be paralyzed or disrupted
donations through the government, those violations of Presidential Decree No. 1445. She by the diversion of public funds from their
required to pay levies or government share, and was aware of Presidential Decree No. 1445, legitimate and specific objects, as appropriated
those for which the government has put up a considering that the Court circulated to all by law.
counterpart fund or those partly funded by the judges its Administrative Circular No. 10-
government. 2000,86 issued on October 25, 2000, enjoining Moreover, it is settled jurisprudence that
them "to observe utmost caution, prudence and upon determination of State liability, the
It was of no moment that a final and executory judiciousness in the issuance of writs of prosecution, enforcement or satisfaction
decision already validated the claim against the execution to satisfy money judgments against thereof must still be pursued in accordance
UP. The settlement of the monetary claim was government agencies and local government with the rules and procedures laid down in
still subject to the primary jurisdiction of the units" precisely in order to prevent the P.D. No. 1445, otherwise known as the
COA despite the final decision of the RTC circumvention of Presidential Decree No. 1445, Government Auditing Code of the
having already validated the claim.85 As such, as well as of the rules and procedures of the Philippines (Department of Agriculture v.
Stern Builders and dela Cruz as the claimants COA, to wit: NLRC, 227 SCRA 693, 701-02 1993 citing
had no alternative except to first seek the Republic vs. Villasor, 54 SCRA 84 1973). All
approval of the COA of their monetary claim. In order to prevent possible circumvention money claims against the Government must
of the rules and procedures of the first be filed with the Commission on Audit
On its part, the RTC should have exercised Commission on Audit, judges are hereby which must act upon it within sixty days.
utmost caution, prudence and judiciousness in enjoined to observe utmost caution, Rejection of the claim will authorize the
dealing with the motions for execution against prudence and judiciousness in the issuance claimant to elevate the matter to the
the UP and the garnishment of the UP’s funds. of writs of execution to satisfy money Supreme Court on certiorari and in effect,
The RTC had no authority to direct the judgments against government agencies sue the State thereby (P.D. 1445, Sections
immediate withdrawal of any portion of the and local government units. 49-50).
garnished funds from the depository banks of
the UP. By eschewing utmost caution, prudence Judges should bear in mind that in However, notwithstanding the rule that
and judiciousness in dealing with the execution Commissioner of Public Highways v. San Diego government properties are not subject to levy
and garnishment, and by authorizing the (31 SCRA 617, 625 1970), this Court explicitly and execution unless otherwise provided for by
withdrawal of the garnished funds of the UP, the stated: statute (Republic v. Palacio, 23 SCRA 899
RTC acted beyond its jurisdiction, and all its 1968; Commissioner of Public Highways v. San
orders and issuances thereon were void and of Diego, supra) or municipal ordinance
no legal effect, specifically: (a) the order Judge "The universal rule that where the State gives (Municipality of Makati v. Court of Appeals, 190
Yadao issued on January 3, 2007 allowing its consent to be sued by private parties either SCRA 206 1990), the Court has, in various
Stern Builders and dela Cruz to withdraw the by general or special law, it may limit claimant’s instances, distinguished between government
funds and properties for public use and those she did not need any writ of injunction from a unappealable, the prevailing party should not be
not held for public use. Thus, in Viuda de Tan superior court to compel her obedience to the deprived of the fruits of victory by some
Toco v. Municipal Council of Iloilo (49 Phil 52 law. The Court is disturbed that an experienced subterfuge devised by the losing party.
1926, the Court ruled that "where property of a judge like her should look at public laws like Unjustified delay in the enforcement of such
municipal or other public corporation is sought Presidential Decree No. 1445 dismissively judgment sets at naught the role and purpose of
to be subjected to execution to satisfy instead of loyally following and unquestioningly the courts to resolve justiciable controversies
judgments recovered against such corporation, implementing them. That she did so turned her with finality.89Indeed, all litigations must at some
the question as to whether such property is court into an oppressive bastion of mindless time end, even at the risk of occasional errors.
leviable or not is to be determined by the usage tyranny instead of having it as a true haven for
and purposes for which it is held." The following the seekers of justice like the UP. But the doctrine of immutability of a final
can be culled from Viuda de Tan Toco v. judgment has not been absolute, and has
Municipal Council of Iloilo: III admitted several exceptions, among them: (a)
Period of appeal did not start without the correction of clerical errors; (b) the so-called
1. Properties held for public uses – and effective nunc pro tunc entries that cause no prejudice to
generally everything held for governmental service of decision upon counsel of record; any party; (c) void judgments; and (d) whenever
purposes – are not subject to levy and sale Fresh-period rule announced in circumstances transpire after the finality of the
under execution against such corporation. Neypes v. Court of Appeals decision that render its execution unjust and
The same rule applies to funds in the hands can be given retroactive application inequitable.90 Moreover, in Heirs of Maura So v.
of a public officer and taxes due to a Obliosca,91 we stated that despite the absence
municipal corporation. The UP next pleads that the Court gives due of the preceding circumstances, the Court is not
course to its petition for review in the name of precluded from brushing aside procedural
2. Where a municipal corporation owns in its equity in order to reverse or modify the adverse norms if only to serve the higher interests of
proprietary capacity, as distinguished from its judgment against it despite its finality. At stake justice and equity. Also, in Gumaru v. Quirino
public or government capacity, property not in the UP’s plea for equity was the return of the State College,92 the Court nullified the
used or used for a public purpose but for quasi- amount of ₱ 16,370,191.74 illegally garnished proceedings and the writ of execution issued by
private purposes, it is the general rule that such from its trust funds. Obstructing the plea is the the RTC for the reason that respondent state
property may be seized and sold under finality of the judgment based on the supposed college had not been represented in the
execution against the corporation. tardiness of UP’s appeal, which the RTC litigation by the Office of the Solicitor General.
declared on September 26, 2002. The CA
3. Property held for public purposes is not upheld the declaration of finality on February We rule that the UP’s plea for equity warrants
subject to execution merely because it is 24, 2004, and the Court itself denied the UP’s the Court’s exercise of the exceptional power to
temporarily used for private purposes. If the petition for review on that issue on May 11, disregard the declaration of finality of the
public use is wholly abandoned, such property 2004 (G.R. No. 163501). The denial became judgment of the RTC for being in clear violation
becomes subject to execution. final on November 12, 2004. of the UP’s right to due process.
This Administrative Circular shall take effect It is true that a decision that has attained finality Both the CA and the RTC found the filing on
immediately and the Court Administrator shall becomes immutable and unalterable, and June 3, 2002 by the UP of the notice of appeal
see to it that it is faithfully implemented. cannot be modified in any respect,87 even if the to be tardy. They based their finding on the fact
modification is meant to correct erroneous that only six days remained of the UP’s
conclusions of fact and law, and whether the reglementary 15-day period within which to file
Although Judge Yadao pointed out that neither modification is made by the court that rendered the notice of appeal because the UP had filed a
the CA nor the Court had issued as of then any it or by this Court as the highest court of the motion for reconsideration on January 16, 2002
writ of preliminary injunction to enjoin the land.88 Public policy dictates that once a vis-à-vis the RTC’s decision the UP received on
release or withdrawal of the garnished amount, judgment becomes final, executory and January 7, 2002; and that because the denial of
the motion for reconsideration had been served must be made upon such counsel.95 Service on However, equity calls for the retroactive
upon Atty. Felimon D. Nolasco of the UPLB the party or the party’s employee is not effective application in the UP’s favor of the fresh-period
Legal Office on May 17, 2002, the UP had only because such notice is not notice in law.96 This rule that the Court first announced in mid-
until May 23, 2002 within which to file the notice is clear enough from Section 2, second September of 2005 through its ruling in Neypes
of appeal. paragraph, of Rule 13, Rules of Court, which v. Court of Appeals,98 viz:
explicitly states that: "If any party has appeared
The UP counters that the service of the denial by counsel, service upon him shall be made To standardize the appeal periods provided in
of the motion for reconsideration upon Atty. upon his counsel or one of them, unless service the Rules and to afford litigants fair opportunity
Nolasco was defective considering that its upon the party himself is ordered by the court. to appeal their cases, the Court deems it
counsel of record was not Atty. Nolasco of the Where one counsel appears for several parties, practical to allow a fresh period of 15 days
UPLB Legal Office but the OLS in Diliman, he shall only be entitled to one copy of any within which to file the notice of appeal in the
Quezon City; and that the period of appeal paper served upon him by the opposite side." Regional Trial Court, counted from receipt of the
should be reckoned from May 31, 2002, the As such, the period to appeal resumed only on order dismissing a motion for a new trial or
date when the OLS received the order. The UP June 1, 2002, the date following the service on motion for reconsideration.
submits that the filing of the notice of appeal on May 31, 2002 upon the OLS in Diliman of the
June 3, 2002 was well within the reglementary copy of the decision of the RTC, not from the
date when the UP was notified.97 The retroactive application of the fresh-period
period to appeal. rule, a procedural law that aims "to regiment or
make the appeal period uniform, to be counted
We agree with the submission of the UP. Accordingly, the declaration of finality of the from receipt of the order denying the motion for
judgment of the RTC, being devoid of factual new trial, motion for reconsideration (whether
and legal bases, is set aside. full or partial) or any final order or
Firstly, the service of the denial of the motion for
reconsideration upon Atty. Nolasco of the UPLB resolution,"99 is impervious to any serious
Legal Office was invalid and ineffectual because Secondly, even assuming that the service upon challenge. This is because there are no vested
he was admittedly not the counsel of record of Atty. Nolasco was valid and effective, such that rights in rules of procedure.100 A law or
the UP. The rule is that it is on the counsel and the remaining period for the UP to take a timely regulation is procedural when it prescribes rules
not the client that the service should be made.93 appeal would end by May 23, 2002, it would still and forms of procedure in order that courts may
not be correct to find that the judgment of the be able to administer justice.101 It does not come
RTC became final and immutable thereafter due within the legal conception of a retroactive law,
That counsel was the OLS in Diliman, Quezon to the notice of appeal being filed too late on or is not subject of the general rule prohibiting
City, which was served with the denial only on June 3, 2002. the retroactive operation of statues, but is given
May 31, 2002. As such, the running of the retroactive effect in actions pending and
remaining period of six days resumed only on undetermined at the time of its passage without
June 1, 2002,94 rendering the filing of the UP’s In so declaring the judgment of the RTC as final
against the UP, the CA and the RTC applied the violating any right of a person who may feel that
notice of appeal on June 3, 2002 timely and well he is adversely affected.
within the remaining days of the UP’s period to rule contained in the second paragraph of
appeal. Section 3, Rule 41 of the Rules of Court to the
effect that the filing of a motion for We have further said that a procedural rule that
reconsideration interrupted the running of the is amended for the benefit of litigants in
Verily, the service of the denial of the motion for period for filing the appeal; and that the period furtherance of the administration of justice shall
reconsideration could only be validly made upon resumed upon notice of the denial of the motion be retroactively applied to likewise favor actions
the OLS in Diliman, and no other. The fact that for reconsideration. For that reason, the CA and then pending, as equity delights in
Atty. Nolasco was in the employ of the UP at the RTC might not be taken to task for strictly equality.102 We may even relax stringent
the UPLB Legal Office did not render the adhering to the rule then prevailing. procedural rules in order to serve substantial
service upon him effective. It is settled that justice and in the exercise of this Court’s equity
where a party has appeared by counsel, service jurisdiction.103 Equity jurisdiction aims to do
complete justice in cases where a court of law is law should be made in the decision rendered by stated, the Constitution and the Rules of Court
unable to adapt its judgments to the special any court, to wit: require not only that a decision should state the
circumstances of a case because of the ultimate facts but also that it should specify the
inflexibility of its statutory or legal jurisdiction.104 Section 14. No decision shall be rendered by supporting evidentiary facts, for they are what
any court without expressing therein clearly and are called the findings of fact.
It is cogent to add in this regard that to deny the distinctly the facts and the law on which it is
benefit of the fresh-period rule to the UP would based. The importance of the findings of fact and of law
amount to injustice and absurdity – injustice, cannot be overstated. The reason and purpose
because the judgment in question was issued No petition for review or motion for of the Constitution and the Rules of Court in that
on November 28, 2001 as compared to the reconsideration of a decision of the court shall regard are obviously to inform the parties why
judgment in Neypes that was rendered in 1998; be refused due course or denied without stating they win or lose, and what their rights and
absurdity, because parties receiving notices of the legal basis therefor. obligations are. Only thereby is the demand of
judgment and final orders issued in the year due process met as to the parties. As Justice
1998 would enjoy the benefit of the fresh-period Isagani A. Cruz explained in Nicos Industrial
rule but the later rulings of the lower courts like Implementing the constitutional provision in civil Corporation v. Court of Appeals:108
that herein would not.105 actions is Section 1 of Rule 36, Rules of Court,
viz:
It is a requirement of due process that the
Consequently, even if the reckoning started parties to a litigation be informed of how it was
from May 17, 2002, when Atty. Nolasco Section 1. Rendition of judgments and final decided, with an explanation of the factual and
received the denial, the UP’s filing on June 3, orders. — A judgment or final order determining legal reasons that led to the conclusions of the
2002 of the notice of appeal was not tardy the merits of the case shall be in writing court. The court cannot simply say that
within the context of the fresh-period rule. For personally and directly prepared by the judge, judgment is rendered in favor of X and against
the UP, the fresh period of 15-days counted stating clearly and distinctly the facts and the Y and just leave it at that without any
from service of the denial of the motion for law on which it is based, signed by him, and justification whatsoever for its action. The losing
reconsideration would end on June 1, 2002, filed with the clerk of the court. (1a) party is entitled to know why he lost, so he may
which was a Saturday. Hence, the UP had until appeal to a higher court, if permitted, should he
the next working day, or June 3, 2002, a The Constitution and the Rules of Court believe that the decision should be reversed. A
Monday, within which to appeal, conformably apparently delineate two main essential parts of decision that does not clearly and distinctly
with Section 1 of Rule 22, Rules of Court, which a judgment, namely: the body and the decretal state the facts and the law on which it is based
holds that: "If the last day of the period, as thus portion. Although the latter is the controlling leaves the parties in the dark as to how it was
computed, falls on a Saturday, a Sunday, or a part,106 the importance of the former is not to be reached and is especially prejudicial to the
legal holiday in the place where the court sits, lightly regarded because it is there where the losing party, who is unable to pinpoint the
the time shall not run until the next working court clearly and distinctly states its findings of possible errors of the court for review by a
day." fact and of law on which the decision is based. higher tribunal.
To state it differently, one without the other is
IV ineffectual and useless. The omission of either Here, the decision of the RTC justified the grant
Awards of monetary damages, inevitably results in a judgment that violates the of actual and moral damages, and attorney’s
being devoid of factual and legal bases, letter and the spirit of the Constitution and the fees in the following terse manner, viz:
did not attain finality and should be deleted Rules of Court.
xxx The Court is not unmindful that due to
Section 14 of Article VIII of the Constitution The term findings of fact that must be found in defendants’ unjustified refusal to pay their
prescribes that express findings of fact and of the body of the decision refers to statements of outstanding obligation to plaintiff, the same
fact, not to conclusions of law.107 Unlike in suffered losses and incurred expenses as he
pleadings where ultimate facts alone need to be
was forced to re-mortgage his house and lot consequence of which was to render the award to that effect. It was only under the present Civil
located in Quezon City to Metrobank (Exh. of moral damages incapable of attaining finality. Code that the right to collect attorney’s fees in
"CC") and BPI Bank just to pay its monetary In addition, the grant of moral damages in that the cases mentioned in Article 2208115 of the
obligations in the form of interest and penalties manner contravened the law that permitted the Civil Code came to be
incurred in the course of the construction of the recovery of moral damages as the means to recognized.116 Nonetheless, with attorney’s fees
subject project.109 assuage "physical suffering, mental anguish, being allowed in the concept of actual
fright, serious anxiety, besmirched reputation, damages,117 their amounts must be factually
The statement that "due to defendants’ wounded feelings, moral shock, social and legally justified in the body of the decision
unjustified refusal to pay their outstanding humiliation, and similar injury."111 The and not stated for the first time in the decretal
obligation to plaintiff, the same suffered losses contravention of the law was manifest portion.118 Stating the amounts only in the
and incurred expenses as he was forced to re- considering that Stern Builders, as an artificial dispositive portion of the judgment is not
mortgage his house and lot located in Quezon person, was incapable of experiencing pain and enough;119 a rendition of the factual and legal
City to Metrobank (Exh. "CC") and BPI Bank moral sufferings.112 Assuming that in granting justifications for them must also be laid out in
just to pay its monetary obligations in the form the substantial amount of ₱ 10,000,000.00 as the body of the decision.120
of interest and penalties incurred in the course moral damages, the RTC might have had in
of the construction of the subject project" was mind that dela Cruz had himself suffered mental That the attorney’s fees granted to the private
only a conclusion of fact and law that did not anguish and anxiety. If that was the case, then respondents did not satisfy the foregoing
comply with the constitutional and statutory the RTC obviously disregarded his separate requirement suffices for the Court to undo
prescription. The statement specified no and distinct personality from that of Stern them.121 The grant was ineffectual for being
detailed expenses or losses constituting the ₱ Builders.113 Moreover, his moral and emotional contrary to law and public policy, it being clear
5,716,729.00 actual damages sustained by sufferings as the President of Stern Builders that the express findings of fact and law were
Stern Builders in relation to the construction were not the sufferings of Stern Builders. Lastly, intended to bring the case within the exception
project or to other pecuniary hardships. The the RTC violated the basic principle that moral and thereby justify the award of the attorney’s
omission of such expenses or losses directly damages were not intended to enrich the fees. Devoid of such express findings, the
indicated that Stern Builders did not prove them plaintiff at the expense of the defendant, but to award was a conclusion without a premise, its
at all, which then contravened Article 2199, Civil restore the plaintiff to his status quo ante as basis being improperly left to speculation and
Code, the statutory basis for the award of actual much as possible. Taken together, therefore, all conjecture.122
damages, which entitled a person to an these considerations exposed the substantial
adequate compensation only for such pecuniary amount of ₱ 10,000,000.00 allowed as moral
damages not only to be factually baseless and Nonetheless, the absence of findings of fact and
loss suffered by him as he has duly proved. As of any statement of the law and jurisprudence
such, the actual damages allowed by the RTC, legally indefensible, but also to be
unconscionable, inequitable and unreasonable. on which the awards of actual and moral
being bereft of factual support, were speculative damages, as well as of attorney’s fees, were
and whimsical. Without the clear and distinct based was a fatal flaw that invalidated the
findings of fact and law, the award amounted Like the actual and moral damages, the ₱ decision of the RTC only as to such awards. As
only to an ipse dixit on the part of the 150,000.00, plus ₱ 1,500.00 per appearance, the Court declared in Velarde v. Social Justice
RTC,110 and did not attain finality. granted as attorney’s fees were factually Society,123 the failure to comply with the
unwarranted and devoid of legal basis. The constitutional requirement for a clear and
There was also no clear and distinct statement general rule is that a successful litigant cannot distinct statement of the supporting facts and
of the factual and legal support for the award of recover attorney’s fees as part of the damages law "is a grave abuse of discretion amounting to
moral damages in the substantial amount of ₱ to be assessed against the losing party because lack or excess of jurisdiction" and that
10,000,000.00. The award was thus also of the policy that no premium should be placed "(d)ecisions or orders issued in careless
speculative and whimsical. Like the actual on the right to litigate.114 Prior to the effectivity of disregard of the constitutional mandate are a
damages, the moral damages constituted the present Civil Code, indeed, such fees could patent nullity and must be struck down as
another judicial ipse dixit, the inevitable be recovered only when there was a stipulation void."124 The other item granted by the RTC
(i.e., ₱ 503,462.74) shall stand, subject to the
action of the COA as stated herein.
SO ORDERED.
SECOND DIVISION to attend a pre-bidding conference to discuss released thirty (30) days after
the conditions, propose scheme and acceptance of the completed
[G.R. No. 128066. June 19, 2000] specifications that would best suit the needs of project and upon posting of
PUREFOODS. Out of the eight (8) prospective Guarantee Bond in an
bidders who attended the pre-bidding amount equivalent to twenty
JARDINE DAVIES INC., petitioner, vs. conference, only three (3) bidders, namely, percent (20%) of the contract
COURT OF APPEALS and FAR EAST MILLS respondent FAR EAST MILLS SUPPLY price. The Guarantee Bond
SUPPLY CORPORATION, respondents. CORPORATION (hereafter FEMSCO), shall be valid for one (1) year
MONARK and ADVANCE POWER submitted from completion and
[G.R. No. 128069 June 19, 2000] bid proposals and gave bid bonds equivalent to acceptance of project. The
5% of their respective bids, as required. contract price includes future
PURE FOODS CORPORATION, petitioner, increase/s in costs of
vs. COURT OF APPEALS and FAR EAST Thereafter, in a letter dated 12 December 1992 materials and labor;
MILLS SUPPLY addressed to FEMSCO President Alfonso Po,
CORPORATION, respondents. PUREFOODS confirmed the award of the 2. The project shall be
contract to FEMSCO - undertaken pursuant to the
DECISION attached specifications. It is
Gentlemen: understood that any item
required to complete the
BELLOSILLO, J.: project, and those not
This will confirm that Pure included in the list of items
This is rather a simple case for specific Foods Corporation has shall be deemed included and
performance with damages which could have awarded to your firm the covered and shall be
been resolved through mediation and project: Supply and performed;
conciliation during its infancy stage had the Installation of two (2) units of
parties been earnest in expediting the disposal 1500 KW/unit Generator Sets
at the Processed Meats Plant, 3. All materials shall be brand
of this case. They opted however to resort to full new;
court proceedings and denied themselves the Bo. San Roque, Marikina,
benefits of alternative dispute resolution, thus based on your proposal
making the process more arduous and long- number PC 28-92 dated 4. The project shall
drawn. November 20, 1992, subject commence immediately and
to the following basic terms must be completed within
and conditions: twenty (20) working days after
The controversy started in 1992 at the height of the delivery of Generator Set
the power crisis which the country was then to Marikina Plant, penalty
experiencing. To remedy and curtail further 1. Lump sum contract
of P6,137,293.00 (VAT equivalent to 1/10 of 1% of
losses due to the series of power failures, the purchase price for every
petitioner PURE FOODS CORPORATION included), for the supply of
materials and labor for the day of delay;
(hereafter PUREFOODS) decided to install two
(2) 1500 KW generators in its food processing local portion and the labor for
plant in San Roque, Marikina City. the imported materials, 5. The Contractor shall put up
payable by progress billing Performance Bond equivalent
twice a month, with ten to thirty (30%) of the contract
Sometime in November 1992 a bidding for the percent (10%) retention. The price, and shall procure All
supply and installation of the generators was retained amount shall be Risk Insurance equivalent to
held. Several suppliers and dealers were invited
the contract price upon PUREFOODS already awarded the project and court dismissed the counterclaim filed by
commencement of the entered into a contract with JARDINE NELL, a PUREFOODS for lack of factual and legal
project. The All Risk division of Jardine Davies, Inc. (hereafter basis.
Insurance Policy shall be JARDINE), which incidentally was not one of
endorsed in favor of and shall the bidders. Both FEMSCO and PUREFOODS appealed to
be delivered to Pure Foods the Court of Appeals. FEMSCO appealed the
Corporation; FEMSCO thus wrote PUREFOODS to honor its 27 June 1994 Resolution of the trial court which
contract with the former, and to JARDINE to granted the Demurrer to Evidence filed by
6. Warranty of one (1) year cease and desist from delivering and installing JARDINE resulting in the dismissal of the
against defective material the two (2) generators at PUREFOODS. Its complaint against it, while PUREFOODS
and/or workmanship. demand letters unheeded, FEMSCO sued both appealed the 28 July 1994 Decision of the same
PUREFOODS and JARDINE: PUREFOODS for court which ordered it to pay FEMSCO.
Once finalized, we shall ask reneging on its contract, and JARDINE for its
you to sign the formal unwarranted interference and inducement. Trial On 14 August 1996 the Court of Appeals
contract embodying the ensued. After FEMSCO presented its evidence, affirmed in toto the 28 July 1994 Decision of the
foregoing terms and JARDINE filed a Demurrer to Evidence. trial court.[3] It also reversed the 27 June 1994
conditions. Resolution of the lower court and ordered
On 27 June 1994 the Regional Trial Court of JARDINE to pay FEMSCO damages for
Immediately, FEMSCO submitted the required Pasig, Br. 68,[1] granted JARDINEs Demurrer to inducing PUREFOODS to violate the latters
performance bond in the amount Evidence. The trial court concluded that "[w]hile contract with FEMSCO. As such, JARDINE was
of P1,841,187.90 and contractors all-risk it may seem to the plaintiff that by the actions of ordered to pay FEMSCO P2,000,000.00 for
insurance policy in the amount the two defendants there is something moral damages. In addition, PUREFOODS was
of P6,137,293.00 which PUREFOODS through underhanded going on, this is all a matter of also directed to pay FEMSCO P2,000,000.00 as
its Vice President Benedicto G. Tope perception, and unsupported by hard evidence, moral damages and P1,000,000.00 as
acknowledged in a letter dated 18 December mere suspicions and suppositions would not exemplary damages as well as 20% of the total
1992. FEMSCO also made arrangements with stand up very well in a court of amount due as attorney's fees.
its principal and started the PUREFOODS law."[2] Meanwhile trial proceeded as regards
project by purchasing the necessary materials. the case against PUREFOODS. On 31 January 1997 the Court of Appeals
PUREFOODS on the other hand returned denied for lack of merit the separate motions for
FEMSCOs Bidders Bond in the amount On 28 July 1994 the trial court rendered a reconsideration filed by PUREFOODS and
of P1,000,000.00, as requested. decision ordering PUREFOODS: (a) to JARDINE. Hence, these two (2) petitions for
indemnify FEMSCO the sum of P2,300,000.00 review filed by PUREFOODS and JARDINE
Later, however, in a letter dated 22 December representing the value of engineering services it which were subsequently consolidated.
1992, PUREFOODS through its Senior Vice rendered; (b) to pay FEMSCO the sum of
President Teodoro L. Dimayuga unilaterally US$14,000.00 or its peso equivalent, PUREFOODS maintains that the conclusions of
canceled the award as "significant factors were and P900,000.00 representing contractor's both the trial court and the appellate court are
uncovered and brought to (their) attention which mark-up on installation work, considering that it premised on a misapprehension of facts. It
dictate (the) cancellation and warrant a total would be impossible to compel PUREFOODS to argues that its 12 December 1992 letter to
review and re-bid of (the) project." honor, perform and fulfill its contractual FEMSCO was not an acceptance of the latter's
Consequently, FEMSCO protested the obligations in view of PUREFOOD's contract bid proposal and award of the project but more
cancellation of the award and sought a meeting with JARDINE and noting that construction had of a qualified acceptance constituting a counter-
with PUREFOODS. However, on 26 March already started thereon; (c) to pay attorneys offer which required FEMSCO's
1993, before the matter could be resolved, fees in an amount equivalent to 20% of the total express conforme. Since PUREFOODS never
amount due; and, (d) to pay the costs. The trial
received FEMSCOs conforme, PUREFOODS Contracts are perfected by mere consent, upon tenor of the letter, i.e., "This will confirm that
was very well within reason to revoke its the acceptance by the offeree of the offer made Pure Foods has awarded to your firm
qualified acceptance or counter-offer. Hence, no by the offeror. From that moment, the parties (FEMSCO) the project," could not be more
contract was perfected between PUREFOODS are bound not only to the fulfillment of what has categorical. While the same letter enumerated
and FEMSCO. PUREFOODS also contends been expressly stipulated but also to all the certain "basic terms and conditions," these
that it was never in bad faith when it dealt with consequences which, according to their nature, conditions were imposed on the performance of
FEMSCO. Hence moral and exemplary may be in keeping with good faith, usage and the obligation rather than on the perfection of
damages should not have been awarded. law.[6] To produce a contract, the acceptance the contract. Thus, the first "condition" was
must not qualify the terms of the offer. However, merely a reiteration of the contract price and
Corollarily, JARDINE asserts that the records the acceptance may be express or billing scheme based on the Terms and
are bereft of any showing that it had prior implied.[7] For a contract to arise, the Conditions of Bidding and the bid or previous
knowledge of the supposed contract between acceptance must be made known to the offeror. offer of respondent FEMSCO. The second and
PUREFOODS and FEMSCO, and that it Accordingly, the acceptance can be withdrawn third "conditions" were nothing more than
induced PUREFOODS to violate the latters or revoked before it is made known to the general statements that all items and materials
alleged contract with FEMSCO. Moreover, offeror. including those excluded in the list but
JARDINE reasons that FEMSCO, an artificial necessary to complete the project shall be
person, is not entitled to moral damages. But In the instant case, there is no issue as regards deemed included and should be brand new.
granting arguendothat the award of moral the subject matter of the contract and the cause The fourth "condition" concerned the completion
damages is proper, P2,000,000.00 is extremely of the obligation. The controversy lies in the of the work to be done, i.e., within twenty (20)
excessive. consent - whether there was an acceptance of days from the delivery of the generator set, the
the offer, and if so, if it was communicated, purchase of which was part of the contract. The
thereby perfecting the contract. fifth "condition" had to do with the putting up of
In the main, these consolidated cases present a performance bond and an all-risk insurance,
two (2) issues: first, whether there existed a both of which should be given upon
perfected contract between PUREFOODS and To resolve the dispute, there is a need to commencement of the project. The sixth
FEMSCO; and second, granting there existed a determine what constituted the offer and the "condition" related to the standard warranty of
perfected contract, whether there is any acceptance. Since petitioner PUREFOODS one (1) year. In fine, the enumerated "basic
showing that JARDINE induced or connived started the process of entering into the contract terms and conditions" were prescriptions on
with PUREFOODS to violate the latter's contract by conducting a bidding, Art. 1326 of the Civil how the obligation was to be performed and
with FEMSCO. Code, which provides that "[a]dvertisements for implemented. They were far from being
bidders are simply invitations to make conditions imposed on the perfection of the
A contract is defined as "a juridical convention proposals," applies. Accordingly, the Terms and contract.
manifested in legal form, by virtue of which one Conditions of the Bidding disseminated by
or more persons bind themselves in favor of petitioner PUREFOODS constitutes the
"advertisement" to bid on the project. The bid In Babasa v. Court of Appeals[8] we
another or others, or reciprocally, to the distinguished between a condition imposed on
fulfillment of a prestation to give, to do, or not to proposals or quotations submitted by the
prospective suppliers including respondent the perfection of a contract and a condition
do."[4] There can be no contract unless the imposed merely on the performance of an
following requisites concur: (a) consent of the FEMSCO, are the offers. And, the reply of
petitioner PUREFOODS, the acceptance or obligation. While failure to comply with the first
contracting parties; (b) object certain which is condition results in the failure of a contract,
the subject matter of the contract; and, (c) rejection of the respective offers.
failure to comply with the second merely gives
cause of the obligation which is established.[5] A the other party options and/or remedies to
contract binds both contracting parties and has Quite obviously, the 12 December 1992 letter of protect his interests.
the force of law between them. petitioner PUREFOODS to FEMSCO
constituted acceptance of respondent
FEMSCOs offer as contemplated by law. The
We thus agree with the conclusion of be express or implied,[10] and this can be subsequent inking of a
respondent appellate court which affirmed the inferred from the contemporaneous and contract between defendant
trial court - subsequent acts of the contracting parties. Purefoods and erstwhile co-
defendant Jardine. It is very
As can be inferred from the Accordingly, for all intents and purposes, the evident that Purefoods
actual phrase used in the first contract at that point has been perfected, and thought that by the expedient
portion of the letter, the respondent FEMSCO's conforme would only be means of merely writing a
decision to award the contract a mere surplusage. The discussion of the price letter would automatically
has already been made. The of the project two (2) months after the 12 cancel or nullify the existing
letter only serves as a December 1992 letter can be deemed as contract entered into by both
confirmation of such decision. nothing more than a pressure being exerted by parties after a process of
Hence, to the Courts mind, petitioner PUREFOODS on respondent bidding. This, to the Courts
there is already an FEMSCO to lower the price even after the mind, is a flagrant violation of
acceptance made of the offer contract had been perfected. Indeed from the the express provisions of the
received by Purefoods. facts, it can easily be surmised that petitioner law and is contrary to fair and
Notwithstanding the terms PUREFOODS was haggling for a lower price just dealings to which every
and conditions enumerated even after agreeing to the earlier quotation, and man is due.[11]
therein, the offer has been was threatening to unilaterally cancel the
accepted and/or amplified the contract, which it eventually did. Petitioner This Court has awarded in the past moral
details of the terms and PUREFOODS also makes an issue out of the damages to a corporation whose reputation has
conditions contained in the absence of a purchase order (PO). Suffice it to been besmirched.[12] In the instant case,
Terms and Conditions of say that purchase orders or POs do not make or respondent FEMSCO has sufficiently shown
Bidding given out by break a contract. Thus, even the tenor of the that its reputation was tarnished after it
Purefoods to prospective subsequent letter of petitioner immediately ordered equipment from its
bidders.[9] PUREFOODS, i.e., "Pure Foods Corporation is suppliers on account of the urgency of the
hereby canceling the award to your company of project, only to be canceled later. We thus
But even granting arguendo that the 12 the project," presupposes that the contract has sustain respondent appellate court's award of
December 1992 letter of petitioner been perfected. For, there can be no moral damages. We however reduce the award
PUREFOODS constituted a "conditional cancellation if the contract was not perfected in from P2,000,000.00 to P1,000,000.00, as moral
counter-offer," respondent FEMCO's the first place. damages are never intended to enrich the
submission of the performance bond and recipient. Likewise, the award of exemplary
contractor's all-risk insurance was an implied Petitioner PUREFOODS also argues that it was damages by way of example for the public good
acceptance, if not a clear indication of its never in bad faith. On the contrary, it believed in is excessive and should be reduced
acquiescence to, the "conditional counter-offer," good faith that no such contract was perfected. to P100,000.00.
which expressly stated that the performance We are not convinced. We subscribe to the
bond and the contractor's all-risk insurance factual findings and conclusions of the trial court Petitioner JARDINE maintains on the other
should be given upon the commencement of the which were affirmed by the appellate court - hand that respondent appellate court erred in
contract. Corollarily, the acknowledgment ordering it to pay moral damages to respondent
thereof by petitioner PUREFOODS, not to Hence, by the unilateral FEMSCO as it supposedly induced
mention its return of FEMSCO's bidder's bond, cancellation of the contract, PUREFOODS to violate the contract with
was a concrete manifestation of its knowledge the defendant (petitioner FEMSCO. We agree. While it may seem that
that respondent FEMSCO indeed consented to PURE FOODS) has acted petitioners PUREFOODS and JARDINE
the "conditional counter-offer." After all, as with bad faith and this was connived to deceive respondent FEMSCO, we
earlier adverted to, an acceptance may either further aggravated by the find no specific evidence on record to support
such perception. Likewise, there is no showing SO ORDERED.
whatsoever that petitioner JARDINE induced
petitioner PUREFOODS. The similarity in the
design submitted to petitioner PUREFOODS by
both petitioner JARDINE and respondent
FEMSCO, and the tender of a lower quotation
by petitioner JARDINE are insufficient to show
that petitioner JARDINE indeed induced
petitioner PUREFOODS to violate its contract
with respondent FEMSCO.