HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J.

injunction, and prayed that, pending final disposition of the

BROOKS and KARL BECK, petitioners, present case, a writ of preliminary injunction be issued
vs. restraining Respondents-Prosecutors, their agents and /or
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF representatives from using the effects seized as
JUSTICE; JOSE LUKBAN, in his capacity as Acting Director, aforementioned or any copies thereof, in the deportation
National Bureau of Investigation; SPECIAL PROSECUTORS cases already adverted to, and that, in due course, thereafter,
PEDRO D. CENZON, EFREN I. PLANA and MANUEL decision be rendered quashing the contested search warrants
VILLAREAL, JR. and ASST. FISCAL MANASES G. REYES; and declaring the same null and void, and commanding the
JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE respondents, their agents or representatives to return to
ROMAN CANSINO, Municipal Court of Manila; JUDGE petitioners herein, in accordance with Section 3, Rule 67, of
HERMOGENES CALUAG, Court of First Instance of Rizal- the Rules of Court, the documents, papers, things and cash
Quezon City Branch, and JUDGE DAMIAN JIMENEZ, moneys seized or confiscated under the search warrants in
Municipal Court of Quezon City, respondents. question.

CONCEPCION, C.J.: In their answer, respondents-prosecutors alleged, 6 (1) that

the contested search warrants are valid and have been issued
Upon application of the officers of the government named on in accordance with law; (2) that the defects of said warrants, if
the margin1 — hereinafter referred to as Respondents- any, were cured by petitioners' consent; and (3) that, in any
Prosecutors — several judges2 — hereinafter referred to as event, the effects seized are admissible in evidence against
Respondents-Judges — issued, on different dates,3 a total of herein petitioners, regardless of the alleged illegality of the
42 search warrants against petitioners herein4 and/or the aforementioned searches and seizures.
corporations of which they were officers,5 directed to the any
peace officer, to search the persons above-named and/or the On March 22, 1962, this Court issued the writ of preliminary
premises of their offices, warehouses and/or residences, and injunction prayed for in the petition. However, by resolution
to seize and take possession of the following personal dated June 29, 1962, the writ was partially lifted or dissolved,
property to wit: insofar as the papers, documents and things seized from the
offices of the corporations above mentioned are concerned;
Books of accounts, financial records, vouchers, but, the injunction was maintained as regards the papers,
correspondence, receipts, ledgers, journals, portfolios, credit documents and things found and seized in the residences of
journals, typewriters, and other documents and/or papers petitioners herein.7
showing all business transactions including disbursements
receipts, balance sheets and profit and loss statements and Thus, the documents, papers, and things seized under the
Bobbins (cigarette wrappers). alleged authority of the warrants in question may be split into
two (2) major groups, namely: (a) those found and seized in
as "the subject of the offense; stolen or embezzled and the offices of the aforementioned corporations, and (b) those
proceeds or fruits of the offense," or "used or intended to be found and seized in the residences of petitioners herein.
used as the means of committing the offense," which is
described in the applications adverted to above as "violation As regards the first group, we hold that petitioners herein
of Central Bank Laws, Tariff and Customs Laws, Internal have no cause of action to assail the legality of the contested
Revenue (Code) and the Revised Penal Code." warrants and of the seizures made in pursuance thereof, for
the simple reason that said corporations have their respective
Alleging that the aforementioned search warrants are null personalities, separate and distinct from the personality of
and void, as contravening the Constitution and the Rules of herein petitioners, regardless of the amount of shares of
Court — because, inter alia: (1) they do not describe with stock or of the interest of each of them in said corporations,
particularity the documents, books and things to be seized; and whatever the offices they hold therein may be.8 Indeed, it
(2) cash money, not mentioned in the warrants, were actually is well settled that the legality of a seizure can be contested
seized; (3) the warrants were issued to fish evidence against only by the party whose rights have been impaired thereby,9
the aforementioned petitioners in deportation cases filed and that the objection to an unlawful search and seizure is
against them; (4) the searches and seizures were made in an purely personal and cannot be availed of by third parties. 10
illegal manner; and (5) the documents, papers and cash Consequently, petitioners herein may not validly object to the
money seized were not delivered to the courts that issued the use in evidence against them of the documents, papers and
warrants, to be disposed of in accordance with law — on things seized from the offices and premises of the
March 20, 1962, said petitioners filed with the Supreme Court corporations adverted to above, since the right to object to
this original action for certiorari, prohibition, mandamus and the admission of said papers in evidence belongs exclusively

Page 1 of 59
to the corporations, to whom the seized effects belong, and
may not be invoked by the corporate officers in proceedings Two points must be stressed in connection with this
against them in their individual capacity. 11 Indeed, it has constitutional mandate, namely: (1) that no warrant shall issue
been held: but upon probable cause, to be determined by the judge in
the manner set forth in said provision; and (2) that the
. . . that the Government's action in gaining possession of warrant shall particularly describe the things to be seized.
papers belonging to the corporation did not relate to nor did
it affect the personal defendants. If these papers were None of these requirements has been complied with in the
unlawfully seized and thereby the constitutional rights of or contested warrants. Indeed, the same were issued upon
any one were invaded, they were the rights of the corporation applications stating that the natural and juridical person
and not the rights of the other defendants. Next, it is clear therein named had committed a "violation of Central Ban
that a question of the lawfulness of a seizure can be raised Laws, Tariff and Customs Laws, Internal Revenue (Code) and
only by one whose rights have been invaded. Certainly, such a Revised Penal Code." In other words, no specific offense had
seizure, if unlawful, could not affect the constitutional rights been alleged in said applications. The averments thereof with
of defendants whose property had not been seized or the respect to the offense committed were abstract. As a
privacy of whose homes had not been disturbed; nor could consequence, it was impossible for the judges who issued the
they claim for themselves the benefits of the Fourth warrants to have found the existence of probable cause, for
Amendment, when its violation, if any, was with reference to the same presupposes the introduction of competent proof
the rights of another. Remus vs. United States (C.C.A.)291 F. that the party against whom it is sought has performed
501, 511. It follows, therefore, that the question of the particular acts, or committed specific omissions, violating a
admissibility of the evidence based on an alleged unlawful given provision of our criminal laws. As a matter of fact, the
search and seizure does not extend to the personal applications involved in this case do not allege any specific
defendants but embraces only the corporation whose acts performed by herein petitioners. It would be the legal
property was taken. . . . (A Guckenheimer & Bros. Co. vs. heresy, of the highest order, to convict anybody of a
United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.) "violation of Central Bank Laws, Tariff and Customs Laws,
Internal Revenue (Code) and Revised Penal Code," — as
With respect to the documents, papers and things seized in alleged in the aforementioned applications — without
the residences of petitioners herein, the aforementioned reference to any determinate provision of said laws or
resolution of June 29, 1962, lifted the writ of preliminary
injunction previously issued by this Court, 12 thereby, in To uphold the validity of the warrants in question would be to
effect, restraining herein Respondents-Prosecutors from wipe out completely one of the most fundamental rights
using them in evidence against petitioners herein. guaranteed in our Constitution, for it would place the sanctity
of the domicile and the privacy of communication and
In connection with said documents, papers and things, two correspondence at the mercy of the whims caprice or passion
(2) important questions need be settled, namely: (1) whether of peace officers. This is precisely the evil sought to be
the search warrants in question, and the searches and remedied by the constitutional provision above quoted — to
seizures made under the authority thereof, are valid or not, outlaw the so-called general warrants. It is not difficult to
and (2) if the answer to the preceding question is in the imagine what would happen, in times of keen political strife,
negative, whether said documents, papers and things may be when the party in power feels that the minority is likely to
used in evidence against petitioners herein.1äwphï1.ñët wrest it, even though by legal means.

Petitioners maintain that the aforementioned search warrants Such is the seriousness of the irregularities committed in
are in the nature of general warrants and that accordingly, the connection with the disputed search warrants, that this Court
seizures effected upon the authority there of are null and deemed it fit to amend Section 3 of Rule 122 of the former
void. In this connection, the Constitution 13 provides: Rules of Court 14 by providing in its counterpart, under the
Revised Rules of Court 15 that "a search warrant shall not
The right of the people to be secure in their persons, houses, issue but upon probable cause in connection with one
papers, and effects against unreasonable searches and specific offense." Not satisfied with this qualification, the
seizures shall not be violated, and no warrants shall issue but Court added thereto a paragraph, directing that "no search
upon probable cause, to be determined by the judge after warrant shall issue for more than one specific offense."
examination under oath or affirmation of the complainant
and the witnesses he may produce, and particularly The grave violation of the Constitution made in the
describing the place to be searched, and the persons or application for the contested search warrants was
things to be seized.

Page 2 of 59
compounded by the description therein made of the effects that it cannot profit by their wrong will that wrong be
to be searched for and seized, to wit: repressed.18

Books of accounts, financial records, vouchers, journals, In fact, over thirty (30) years before, the Federal Supreme
correspondence, receipts, ledgers, portfolios, credit journals, Court had already declared:
typewriters, and other documents and/or papers showing all
business transactions including disbursement receipts, If letters and private documents can thus be seized and held
balance sheets and related profit and loss statements. and used in evidence against a citizen accused of an offense,
the protection of the 4th Amendment, declaring his rights to
Thus, the warrants authorized the search for and seizure of be secure against such searches and seizures, is of no value,
records pertaining to all business transactions of petitioners and, so far as those thus placed are concerned, might as well
herein, regardless of whether the transactions were legal or be stricken from the Constitution. The efforts of the courts
illegal. The warrants sanctioned the seizure of all records of and their officials to bring the guilty to punishment,
the petitioners and the aforementioned corporations, praiseworthy as they are, are not to be aided by the sacrifice
whatever their nature, thus openly contravening the explicit of those great principles established by years of endeavor
command of our Bill of Rights — that the things to be seized and suffering which have resulted in their embodiment in the
be particularly described — as well as tending to defeat its fundamental law of the land.19
major objective: the elimination of general warrants.
This view was, not only reiterated, but, also, broadened in
Relying upon Moncado vs. People's Court (80 Phil. 1), subsequent decisions on the same Federal Court. 20 After
Respondents-Prosecutors maintain that, even if the searches reviewing previous decisions thereon, said Court held, in
and seizures under consideration were unconstitutional, the Mapp vs. Ohio (supra.):
documents, papers and things thus seized are admissible in
evidence against petitioners herein. Upon mature . . . Today we once again examine the Wolf's constitutional
deliberation, however, we are unanimously of the opinion documentation of the right of privacy free from unreasonable
that the position taken in the Moncado case must be state intrusion, and after its dozen years on our books, are led
abandoned. Said position was in line with the American by it to close the only courtroom door remaining open to
common law rule, that the criminal should not be allowed to evidence secured by official lawlessness in flagrant abuse of
go free merely "because the constable has blundered," 16 that basic right, reserved to all persons as a specific
upon the theory that the constitutional prohibition against guarantee against that very same unlawful conduct. We hold
unreasonable searches and seizures is protected by means that all evidence obtained by searches and seizures in
other than the exclusion of evidence unlawfully obtained, 17 violation of the Constitution is, by that same authority,
such as the common-law action for damages against the inadmissible in a State.
searching officer, against the party who procured the
issuance of the search warrant and against those assisting in Since the Fourth Amendment's right of privacy has been
the execution of an illegal search, their criminal punishment, declared enforceable against the States through the Due
resistance, without liability to an unlawful seizure, and such Process Clause of the Fourteenth, it is enforceable against
other legal remedies as may be provided by other laws. them by the same sanction of exclusion as it used against the
Federal Government. Were it otherwise, then just as without
However, most common law jurisdictions have already given the Weeks rule the assurance against unreasonable federal
up this approach and eventually adopted the exclusionary searches and seizures would be "a form of words," valueless
rule, realizing that this is the only practical means of and underserving of mention in a perpetual charter of
enforcing the constitutional injunction against unreasonable inestimable human liberties, so too, without that rule the
searches and seizures. In the language of Judge Learned freedom from state invasions of privacy would be so
Hand: ephemeral and so neatly severed from its conceptual nexus
with the freedom from all brutish means of coercing evidence
As we understand it, the reason for the exclusion of evidence as not to permit this Court's high regard as a freedom
competent as such, which has been unlawfully acquired, is "implicit in the concept of ordered liberty." At the time that
that exclusion is the only practical way of enforcing the the Court held in Wolf that the amendment was applicable to
constitutional privilege. In earlier times the action of trespass the States through the Due Process Clause, the cases of this
against the offending official may have been protection Court as we have seen, had steadfastly held that as to federal
enough; but that is true no longer. Only in case the officers the Fourth Amendment included the exclusion of the
prosecution which itself controls the seizing officials, knows evidence seized in violation of its provisions. Even Wolf
"stoutly adhered" to that proposition. The right to when

Page 3 of 59
conceded operatively enforceable against the States, was not this fishing expedition is indicative of the absence of evidence
susceptible of destruction by avulsion of the sanction upon to establish a probable cause.
which its protection and enjoyment had always been deemed
dependent under the Boyd, Weeks and Silverthorne Cases. Moreover, the theory that the criminal prosecution of those
Therefore, in extending the substantive protections of due who secure an illegal search warrant and/or make
process to all constitutionally unreasonable searches — state unreasonable searches or seizures would suffice to protect
or federal — it was logically and constitutionally necessarily the constitutional guarantee under consideration, overlooks
that the exclusion doctrine — an essential part of the right to the fact that violations thereof are, in general, committed By
privacy — be also insisted upon as an essential ingredient of agents of the party in power, for, certainly, those belonging
the right newly recognized by the Wolf Case. In short, the to the minority could not possibly abuse a power they do not
admission of the new constitutional Right by Wolf could not have. Regardless of the handicap under which the minority
tolerate denial of its most important constitutional privilege, usually — but, understandably — finds itself in prosecuting
namely, the exclusion of the evidence which an accused had agents of the majority, one must not lose sight of the fact
been forced to give by reason of the unlawful seizure. To hold that the psychological and moral effect of the possibility 21 of
otherwise is to grant the right but in reality to withhold its securing their conviction, is watered down by the pardoning
privilege and enjoyment. Only last year the Court itself power of the party for whose benefit the illegality had been
recognized that the purpose of the exclusionary rule to "is to committed.
deter — to compel respect for the constitutional guaranty in
the only effectively available way — by removing the In their Motion for Reconsideration and Amendment of the
incentive to disregard it" . . . . Resolution of this Court dated June 29, 1962, petitioners
allege that Rooms Nos. 81 and 91 of Carmen Apartments,
The ignoble shortcut to conviction left open to the State House No. 2008, Dewey Boulevard, House No. 1436,
tends to destroy the entire system of constitutional restraints Colorado Street, and Room No. 304 of the Army-Navy Club,
on which the liberties of the people rest. Having once should be included among the premises considered in said
recognized that the right to privacy embodied in the Fourth Resolution as residences of herein petitioners, Harry S.
Amendment is enforceable against the States, and that the Stonehill, Robert P. Brook, John J. Brooks and Karl Beck,
right to be secure against rude invasions of privacy by state respectively, and that, furthermore, the records, papers and
officers is, therefore constitutional in origin, we can no longer other effects seized in the offices of the corporations above
permit that right to remain an empty promise. Because it is referred to include personal belongings of said petitioners
enforceable in the same manner and to like effect as other and other effects under their exclusive possession and
basic rights secured by its Due Process Clause, we can no control, for the exclusion of which they have a standing under
longer permit it to be revocable at the whim of any police the latest rulings of the federal courts of federal courts of the
officer who, in the name of law enforcement itself, chooses to United States. 22
suspend its enjoyment. Our decision, founded on reason and
truth, gives to the individual no more than that which the We note, however, that petitioners' theory, regarding their
Constitution guarantees him to the police officer no less than alleged possession of and control over the aforementioned
that to which honest law enforcement is entitled, and, to the records, papers and effects, and the alleged "personal" nature
courts, that judicial integrity so necessary in the true thereof, has Been Advanced, not in their petition or amended
administration of justice. (emphasis ours.) petition herein, but in the Motion for Reconsideration and
Amendment of the Resolution of June 29, 1962. In other
Indeed, the non-exclusionary rule is contrary, not only to the words, said theory would appear to be readjustment of that
letter, but also, to the spirit of the constitutional injunction followed in said petitions, to suit the approach intimated in
against unreasonable searches and seizures. To be sure, if the the Resolution sought to be reconsidered and amended.
applicant for a search warrant has competent evidence to Then, too, some of the affidavits or copies of alleged
establish probable cause of the commission of a given crime affidavits attached to said motion for reconsideration, or
by the party against whom the warrant is intended, then there submitted in support thereof, contain either inconsistent
is no reason why the applicant should not comply with the allegations, or allegations inconsistent with the theory now
requirements of the fundamental law. Upon the other hand, if advanced by petitioners herein.
he has no such competent evidence, then it is not possible for
the Judge to find that there is probable cause, and, hence, no Upon the other hand, we are not satisfied that the allegations
justification for the issuance of the warrant. The only possible of said petitions said motion for reconsideration, and the
explanation (not justification) for its issuance is the necessity contents of the aforementioned affidavits and other papers
of fishing evidence of the commission of a crime. But, then, submitted in support of said motion, have sufficiently
established the facts or conditions contemplated in the cases

Page 4 of 59
relied upon by the petitioners; to warrant application of the
views therein expressed, should we agree thereto. At any rate, On the strength of the above sequestration order, Mr. Jose M.
we do not deem it necessary to express our opinion thereon, Balde, acting for the PCGG, addressed a letter dated April 18,
it being best to leave the matter open for determination in 1986 to the President and other officers of petitioner firm,
appropriate cases in the future. reiterating an earlier request for the production of certain
documents such as Stock Transfer Book and other Legal
We hold, therefore, that the doctrine adopted in the documents (Articles of Incorporation, By-Laws, etc.)
Moncado case must be, as it is hereby, abandoned; that the
warrants for the search of three (3) residences of herein Orders were also issued in connection with the sequestration
petitioners, as specified in the Resolution of June 29, 1962, and takeover, such as termination of Contract for Security
are null and void; that the searches and seizures therein made Services and abortion of contract for Improvement of Wharf
are illegal; that the writ of preliminary injunction heretofore at Engineer Island; Change of Mode of Payment of Entry
issued, in connection with the documents, papers and other Charges; Operation of Sesiman Rock Quarry, Mariveles, Bataa;
effects thus seized in said residences of herein petitioners is disposal of scrap, etc.; and the provisional takeover by the
hereby made permanent; that the writs prayed for are PCGG of BASECO, “the Philippine Dockyard Corporation and
granted, insofar as the documents, papers and other effects all their affiliated companies.”
so seized in the aforementioned residences are concerned;
that the aforementioned motion for Reconsideration and While BASECO concedes that “sequestration without
Amendment should be, as it is hereby, denied; and that the resorting to judicial action, might be made within the context
petition herein is dismissed and the writs prayed for denied, of Executive Orders Nos. 1 and 2 before March 25, 1986 when
as regards the documents, papers and other effects seized in the Freedom Constitution was promulgated, under the
the twenty-nine (29) places, offices and other premises principle that the law promulgated by the ruler under a
enumerated in the same Resolution, without special revolutionary regime is the law of the land, it ceased to be
pronouncement as to costs. acceptable when the same ruler opted to promulgate the
Freedom Constitution on March 25, 1986 wherein under
It is so ordered. Section I of the same,y Article IV (Bill of Rights) of the 1973
Constitution was adopted providing, among others, that “No
person shall be deprived of life, liberty and property without
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), due process of law.” (Const., Art. I V, Sec. 1).”
petitioner,
vs. It declares that its objection to the constitutionality of the
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, Executive Orders “as well as the Sequestration Order * * and
CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY Takeover Order * * issued purportedly under the authority of
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, said Executive Orders, rests on four fundamental
COMMISSIONER RAUL R. DAZA, COMMISSIONER considerations: First, no notice and hearing was accorded * *
QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., (it) before its properties and business were taken over;
respondents. Second, the PCGG is not a court, but a purely investigative
agency and therefore not competent to act as prosecutor and
FACTS judge in the same cause; Third, there is nothing in the
issuances which envisions any proceeding, process or remedy
Challenged in this special civil action of certiorari and by which petitioner may expeditiously challenge the validity
prohibition by a private corporation known as the Bataan of the takeover after the same has been effected; and
Shipyard and Engineering Co., Inc. are: (1) Executive Orders Fourthly, being directed against specified persons, and in
Numbered 1 and 2, promulgated by President Corazon C. disregard of the constitutional presumption of innocence and
Aquino on February 28, 1986 and March 12, 1986, general rules and procedures, they constitute a Bill of
respectively, and (2) the sequestration, takeover, and other Attainder.”
orders issued, and acts done, in accordance with said
executive orders by the Presidential Commission on Good It argues that the order to produce corporate records from
Government and/or its Commissioners and agents, affecting 1973 to 1986, which it has apparently already complied with,
said corporation. was issued without court authority and infringed its
constitutional right against self-incrimination, and
The sequestration order which, in the view of the petitioner unreasonable search and seizure. 14
corporation, initiated all its misery was issued on April 14,
1986 by Commissioner Mary Concepcion Bautista.

Page 5 of 59
BASECO further contends that the PCGG had unduly bring and defend actions in its own name; receive rents;
interfered with its right of dominion and management of its collect debts due; pay outstanding debts; and generally do
business affairs. such other acts and things as may be necessary to fulfill its
mission as conservator and administrator.
ISSUE
Powers over Business Enterprises Taken Over by Marcos or
Whether or not the sequestration order dated April 14, 1986, Entities or Persons Close to him; Limitations Thereon – Now,
and all other orders subsequently issued and acts done on in the special instance of a business enterprise shown by
the basis thereof, inclusive of the takeover order of July 14, evidence to have been “taken over by the government of the
1986 and the termination of the services of the BASECO Marcos Administration or by entities or persons close to
executives are valid; former President Marcos,” the PCGG is given power and
authority, as already adverted to, to “provisionally take (it)
DECISION over in the public interest or to prevent * * (its) disposal or
dissipation;” and since the term is obviously employed in
Yes. The petition cannot succeed. The writs of certiorari and reference to going concerns, or business enterprises in
prohibition prayed for will not be issued. Other evidence operation, something more than mere physical custody is
submitted to the Court by the Solicitor General proves that connoted; the PCGG may in this case exercise some measure
President Marcos not only exercised control over BASECO, of control in the operation, running, or management of the
but also that he actually owns well nigh one hundred percent business itself. But even in this special situation, the intrusion
of its outstanding stock. into management should be restricted to the minimum
degree necessary to accomplish the legislative will, which is
Executive Orders Not a Bill of Attainder – In the first place, “to prevent the disposal or dissipation” of the business
nothing in the executive orders can be reasonably construed enterprise.
as a determination or declaration of guilt. On the contrary,
the executive orders, inclusive of Executive Order No. 14, Voting of Sequestered Stock; Conditions Therefor – So, too, it
make it perfectly clear that any judgment of guilt in the is within the parameters of these conditions and
amassing or acquisition of “ill-gotten wealth” is to be handed circumstances that the PCGG may properly exercise the
down by a judicial tribunal, in this case, the Sandiganbayan, prerogative to vote sequestered stock of corporations,
upon complaint filed and prosecuted by the PCGG. In the granted to it by the President of the Philippines through a
second place, no punishment is inflicted by the executive Memorandum dated June 26, 1986. In the case at bar, there
orders, as the merest glance at their provisions will was adequate justification to vote the incumbent directors
immediately make apparent. In no sense, therefore, may the out of office and elect others in their stead because the
executive orders be regarded as a bill of attainder. evidence showed prima facie that the former were just tools
of President Marcos and were no longer owners of any stock
No Violation of Right against Self-Incrimination and in the firm, if they ever were at all.
Unreasonable Searches and Seizures – It is elementary that
the right against self-incrimination has no application to No Sufficient Showing of Other Irregularities -As to the other
juridical persons. While an individual may lawfully refuse to irregularities complained of by BASECO, i.e., the cancellation
answer incriminating questions unless protected by an or revision, and the execution of certain contracts, inclusive of
immunity statute, it does not follow that a corporation, vested the termination of the employment of some of its executives,
with special privileges and franchises, may refuse to show its this Court cannot, in the present state of the evidence on
hand when charged with an abuse ofsuchprivileges * * record, pass upon them. It is not necessary to do so. The
issues arising therefrom may and will be left for initial
Scope and Extent of Powers of the PCGG – PCGG cannot determination in the appropriate action.
exercise acts of dominion over property sequestered, frozen
or provisionally taken over. AS already earlier stressed with no WHEREFORE, the petition is dismissed. The temporary
little insistence, the act of sequestration; freezing or restraining order issued on October 14, 1986 is lifted.
provisional takeover of property does not import or bring
about a divestment of title over said property; does not make
the PCGG the owner thereof.
FILIPINAS BROADCASTING NETWORK, INC., petitioner,
The PCGG may thus exercise only powers of administration vs.
over the property or business sequestered or provisionally
taken over, much like a court-appointed receiver, such as to

Page 6 of 59
 AGO MEDICAL AND EDUCATIONAL CENTER-BICOL Third: Students are required to take and pay for the subject
CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and even if the subject does not have an instructor - such greed
ANGELITA F. AGO, respondents. for money on the part of AMEC’s administration. Take the
subject Anatomy: students would pay for the subject upon
enrolment because it is offered by the school. However there
The Case would be no instructor for such subject. Students would be
informed that course would be moved to a later date because
This petition for review1 assails the 4 January 1999 Decision2 the school is still searching for the appropriate instructor.
and 26 January 2000 Resolution of the Court of Appeals in
CA-G.R. CV No. 40151. The Court of Appeals affirmed with xxx
modification the 14 December 1992 Decision3 of the
Regional Trial Court of Legazpi City, Branch 10, in Civil Case It is a public knowledge that the Ago Medical and Educational
No. 8236. The Court of Appeals held Filipinas Broadcasting Center has survived and has been surviving for the past few
Network, Inc. and its broadcasters Hermogenes Alegre and years since its inception because of funds support from
Carmelo Rima liable for libel and ordered them to solidarily foreign foundations. If you will take a look at the AMEC
pay Ago Medical and Educational Center-Bicol Christian premises you’ll find out that the names of the buildings there
College of Medicine moral damages, attorney’s fees and costs are foreign soundings. There is a McDonald Hall. Why not
of suit. Jose Rizal or Bonifacio Hall? That is a very concrete and
undeniable evidence that the support of foreign foundations
The Antecedents for AMEC is substantial, isn’t it? With the report which is the
basis of the expose in DZRC today, it would be very easy for
"Exposé" is a radio documentary4 program hosted by detractors and enemies of the Ago family to stop the flow of
Carmelo ‘Mel’ Rima ("Rima") and Hermogenes ‘Jun’ Alegre support of foreign foundations who assist the medical school
("Alegre").5 Exposé is aired every morning over DZRC-AM on the basis of the latter’s purpose. But if the purpose of the
which is owned by Filipinas Broadcasting Network, Inc. institution (AMEC) is to deceive students at cross purpose
("FBNI"). "Exposé" is heard over Legazpi City, the Albay with its reason for being it is possible for these foreign
municipalities and other Bicol areas.6 foundations to lift or suspend their donations temporarily.8

In the morning of 14 and 15 December 1989, Rima and xxx

Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational On the other hand, the administrators of AMEC-BCCM, AMEC
Center-Bicol Christian College of Medicine ("AMEC") and its Science High School and the AMEC-Institute of Mass
administrators. Claiming that the broadcasts were Communication in their effort to minimize expenses in terms
defamatory, AMEC and Angelita Ago ("Ago"), as Dean of of salary are absorbing or continues to accept "rejects". For
AMEC’s College of Medicine, filed a complaint for damages7 example how many teachers in AMEC are former teachers of
against FBNI, Rima and Alegre on 27 February 1990. Quoted Aquinas University but were removed because of immorality?
are portions of the allegedly libelous broadcasts: Does it mean that the present administration of AMEC have
the total definite moral foundation from catholic
JUN ALEGRE: administrator of Aquinas University. I will prove to you my
friends, that AMEC is a dumping ground, garbage, not merely
Let us begin with the less burdensome: if you have children of moral and physical misfits. Probably they only qualify in
taking medical course at AMEC-BCCM, advise them to pass all terms of intellect. The Dean of Student Affairs of AMEC is
subjects because if they fail in any subject they will repeat Justita Lola, as the family name implies. She is too old to
their year level, taking up all subjects including those they work, being an old woman. Is the AMEC administration
have passed already. Several students had approached me exploiting the very [e]nterprising or compromising and
stating that they had consulted with the DECS which told undemanding Lola? Could it be that AMEC is just patiently
them that there is no such regulation. If [there] is no such making use of Dean Justita Lola were if she is very old. As in
regulation why is AMEC doing the same? atmospheric situation – zero visibility – the plane cannot land,
meaning she is very old, low pay follows. By the way, Dean
xxx Justita Lola is also the chairman of the committee on
scholarship in AMEC. She had retired from Bicol University a
Second: Earlier AMEC students in Physical Therapy had long time ago but AMEC has patiently made use of her.
complained that the course is not recognized by DECS. xxx
xxx

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 be interviewed; and (3) undergo an apprenticeship and
MEL RIMA: training program after passing the interview. FBNI likewise
claimed that it always reminds its broadcasters to "observe
xxx My friends based on the expose, AMEC is a dumping truth, fairness and objectivity in their broadcasts and to
ground for moral and physically misfit people. What does this refrain from using libelous and indecent language."
mean? Immoral and physically misfits as teachers. Moreover, FBNI requires all broadcasters to pass the
Kapisanan ng mga Brodkaster sa Pilipinas ("KBP")
May I say I’m sorry to Dean Justita Lola. But this is the truth. accreditation test and to secure a KBP permit.
The truth is this, that your are no longer fit to teach. You are
too old. As an aviation, your case is zero visibility. Don’t insist. On 14 December 1992, the trial court rendered a Decision12
finding FBNI and Alegre liable for libel except Rima. The trial
xxx Why did AMEC still absorb her as a teacher, a dean, and court held that the broadcasts are libelous per se. The trial
chairman of the scholarship committee at that. The reason is court rejected the broadcasters’ claim that their utterances
practical cost saving in salaries, because an old person is not were the result of straight reporting because it had no factual
fastidious, so long as she has money to buy the ingredient of basis. The broadcasters did not even verify their reports
beetle juice. The elderly can get by – that’s why she (Lola) was before airing them to show good faith. In holding FBNI liable
taken in as Dean. for libel, the trial court found that FBNI failed to exercise
diligence in the selection and supervision of its employees.
xxx
In absolving Rima from the charge, the trial court ruled that
xxx On our end our task is to attend to the interests of Rima’s only participation was when he agreed with Alegre’s
students. It is likely that the students would be influenced by exposé. The trial court found Rima’s statement within the
evil. When they become members of society outside of "bounds of freedom of speech, expression, and of the press."
campus will be liabilities rather than assets. What do you The dispositive portion of the decision reads:
expect from a doctor who while studying at AMEC is so much
burdened with unreasonable imposition? What do you expect WHEREFORE, premises considered, this court finds for the
from a student who aside from peculiar problems – because plaintiff. Considering the degree of damages caused by the
not all students are rich – in their struggle to improve their controversial utterances, which are not found by this court to
social status are even more burdened with false regulations. be really very serious and damaging, and there being no
xxx9 (Emphasis supplied) showing that indeed the enrollment of plaintiff school
dropped, defendants Hermogenes "Jun" Alegre, Jr. and
The complaint further alleged that AMEC is a reputable Filipinas Broadcasting Network (owner of the radio station
learning institution. With the supposed exposés, FBNI, Rima DZRC), are hereby jointly and severally ordered to pay
and Alegre "transmitted malicious imputations, and as such, plaintiff Ago Medical and Educational Center-Bicol Christian
destroyed plaintiffs’ (AMEC and Ago) reputation." AMEC and College of Medicine (AMEC-BCCM) the amount of
Ago included FBNI as defendant for allegedly failing to ₱300,000.00 moral damages, plus ₱30,000.00 reimbursement
exercise due diligence in the selection and supervision of its of attorney’s fees, and to pay the costs of suit.
employees, particularly Rima and Alegre.
SO ORDERED. 13 (Emphasis supplied)
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil
Lozares, filed an Answer10 alleging that the broadcasts Both parties, namely, FBNI, Rima and Alegre, on one hand,
against AMEC were fair and true. FBNI, Rima and Alegre and AMEC and Ago, on the other, appealed the decision to
claimed that they were plainly impelled by a sense of public the Court of Appeals. The Court of Appeals affirmed the trial
duty to report the "goings-on in AMEC, [which is] an court’s judgment with modification. The appellate court made
institution imbued with public interest." Rima solidarily liable with FBNI and Alegre. The appellate
court denied Ago’s claim for damages and attorney’s fees
Thereafter, trial ensued. During the presentation of the because the broadcasts were directed against AMEC, and not
evidence for the defense, Atty. Edmundo Cea, collaborating against her. The dispositive portion of the Court of Appeals’
counsel of Atty. Lozares, filed a Motion to Dismiss11 on decision reads:
FBNI’s behalf. The trial court denied the motion to dismiss.
Consequently, FBNI filed a separate Answer claiming that it WHEREFORE, the decision appealed from is hereby
exercised due diligence in the selection and supervision of AFFIRMED, subject to the modification that broadcaster Mel
Rima and Alegre. FBNI claimed that before hiring a Rima is SOLIDARILY ADJUDGED liable with FBN[I] and
broadcaster, the broadcaster should (1) file an application; (2) Hermo[g]enes Alegre.

Page 8 of 59
 II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
SO ORDERED.14
III. WHETHER THE AWARD OF ATTORNEY’S FEES IS PROPER;
FBNI, Rima and Alegre filed a motion for reconsideration and
which the Court of Appeals denied in its 26 January 2000
Resolution. IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND
ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEY’S
Hence, FBNI filed this petition.15 FEES AND COSTS OF SUIT.

The Ruling of the Court of Appeals The Court’s Ruling

The Court of Appeals upheld the trial court’s ruling that the We deny the petition.
questioned broadcasts are libelous per se and that FBNI, Rima
and Alegre failed to overcome the legal presumption of This is a civil action for damages as a result of the allegedly
malice. The Court of Appeals found Rima and Alegre’s claim defamatory remarks of Rima and Alegre against AMEC.17
that they were actuated by their moral and social duty to While AMEC did not point out clearly the legal basis for its
inform the public of the students’ gripes as insufficient to complaint, a reading of the complaint reveals that AMEC’s
justify the utterance of the defamatory remarks. cause of action is based on Articles 30 and 33 of the Civil
Code. Article 3018 authorizes a separate civil action to
Finding no factual basis for the imputations against AMEC’s recover civil liability arising from a criminal offense. On the
administrators, the Court of Appeals ruled that the broadcasts other hand, Article 3319 particularly provides that the injured
were made "with reckless disregard as to whether they were party may bring a separate civil action for damages in cases
true or false." The appellate court pointed out that FBNI, Rima of defamation, fraud, and physical injuries. AMEC also invokes
and Alegre failed to present in court any of the students who Article 1920 of the Civil Code to justify its claim for damages.
allegedly complained against AMEC. Rima and Alegre merely AMEC cites Articles 217621 and 218022 of the Civil Code to
gave a single name when asked to identify the students. hold FBNI solidarily liable with Rima and Alegre.
According to the Court of Appeals, these circumstances cast
doubt on the veracity of the broadcasters’ claim that they I.
were "impelled by their moral and social duty to inform the
public about the students’ gripes." Whether the broadcasts are libelous

The Court of Appeals found Rima also liable for libel since he A libel23 is a public and malicious imputation of a crime, or of
remarked that "(1) AMEC-BCCM is a dumping ground for a vice or defect, real or imaginary, or any act or omission,
morally and physically misfit teachers; (2) AMEC obtained the condition, status, or circumstance tending to cause the
services of Dean Justita Lola to minimize expenses on its dishonor, discredit, or contempt of a natural or juridical
employees’ salaries; and (3) AMEC burdened the students person, or to blacken the memory of one who is dead.24
with unreasonable imposition and false regulations."16
There is no question that the broadcasts were made public
The Court of Appeals held that FBNI failed to exercise due and imputed to AMEC defects or circumstances tending to
diligence in the selection and supervision of its employees for cause it dishonor, discredit and contempt. Rima and Alegre’s
allowing Rima and Alegre to make the radio broadcasts remarks such as "greed for money on the part of AMEC’s
without the proper KBP accreditation. The Court of Appeals administrators"; "AMEC is a dumping ground, garbage of xxx
denied Ago’s claim for damages and attorney’s fees because moral and physical misfits"; and AMEC students who
the libelous remarks were directed against AMEC, and not graduate "will be liabilities rather than assets" of the society
against her. The Court of Appeals adjudged FBNI, Rima and are libelous per se. Taken as a whole, the broadcasts suggest
Alegre solidarily liable to pay AMEC moral damages, that AMEC is a money-making institution where physically
attorney’s fees and costs of suit.1awphi1.nét and morally unfit teachers abound.

Issues However, FBNI contends that the broadcasts are not

malicious. FBNI claims that Rima and Alegre were plainly
FBNI raises the following issues for resolution: impelled by their civic duty to air the students’ gripes. FBNI
alleges that there is no evidence that ill will or spite motivated
I. WHETHER THE BROADCASTS ARE LIBELOUS; Rima and Alegre in making the broadcasts. FBNI further
points out that Rima and Alegre exerted efforts to obtain

Page 9 of 59
AMEC’s side and gave Ago the opportunity to defend AMEC [F]air commentaries on matters of public interest are
and its administrators. FBNI concludes that since there is no privileged and constitute a valid defense in an action for libel
malice, there is no libel. or slander. The doctrine of fair comment means that while in
general every discreditable imputation publicly made is
FBNI’s contentions are untenable. deemed false, because every man is presumed innocent until
his guilt is judicially proved, and every false imputation is
Every defamatory imputation is presumed malicious.25 Rima deemed malicious, nevertheless, when the discreditable
and Alegre failed to show adequately their good intention imputation is directed against a public person in his public
and justifiable motive in airing the supposed gripes of the capacity, it is not necessarily actionable. In order that such
students. As hosts of a documentary or public affairs discreditable imputation to a public official may be
program, Rima and Alegre should have presented the public actionable, it must either be a false allegation of fact or a
issues "free from inaccurate and misleading information."26 comment based on a false supposition. If the comment is an
Hearing the students’ alleged complaints a month before the expression of opinion, based on established facts, then it is
exposé,27 they had sufficient time to verify their sources and immaterial that the opinion happens to be mistaken, as long
information. However, Rima and Alegre hardly made a as it might reasonably be inferred from the facts.32 (Emphasis
thorough investigation of the students’ alleged gripes. supplied)
Neither did they inquire about nor confirm the purported
irregularities in AMEC from the Department of Education, True, AMEC is a private learning institution whose business of
Culture and Sports. Alegre testified that he merely went to educating students is "genuinely imbued with public interest."
AMEC to verify his report from an alleged AMEC official who The welfare of the youth in general and AMEC’s students in
refused to disclose any information. Alegre simply relied on particular is a matter which the public has the right to know.
the words of the students "because they were many and not Thus, similar to the newspaper articles in Borjal, the subject
because there is proof that what they are saying is true."28 broadcasts dealt with matters of public interest. However,
This plainly shows Rima and Alegre’s reckless disregard of unlike in Borjal, the questioned broadcasts are not based on
whether their report was true or not. established facts. The record supports the following findings
of the trial court:
Contrary to FBNI’s claim, the broadcasts were not "the result
of straight reporting." Significantly, some courts in the United xxx Although defendants claim that they were motivated by
States apply the privilege of "neutral reportage" in libel cases consistent reports of students and parents against plaintiff,
involving matters of public interest or public figures. Under yet, defendants have not presented in court, nor even gave
this privilege, a republisher who accurately and name of a single student who made the complaint to them,
disinterestedly reports certain defamatory statements made much less present written complaint or petition to that effect.
against public figures is shielded from liability, regardless of To accept this defense of defendants is too dangerous
the republisher’s subjective awareness of the truth or falsity because it could easily give license to the media to malign
of the accusation.29 Rima and Alegre cannot invoke the people and establishments based on flimsy excuses that there
privilege of neutral reportage because unfounded comments were reports to them although they could not satisfactorily
abound in the broadcasts. Moreover, there is no existing establish it. Such laxity would encourage careless and
controversy involving AMEC when the broadcasts were made. irresponsible broadcasting which is inimical to public
The privilege of neutral reportage applies where the defamed interests.
person is a public figure who is involved in an existing
controversy, and a party to that controversy makes the Secondly, there is reason to believe that defendant radio
defamatory statement.30 broadcasters, contrary to the mandates of their duties, did
not verify and analyze the truth of the reports before they
However, FBNI argues vigorously that malice in law does not aired it, in order to prove that they are in good faith.
apply to this case. Citing Borjal v. Court of Appeals,31 FBNI
contends that the broadcasts "fall within the coverage of Alegre contended that plaintiff school had no permit and is
qualifiedly privileged communications" for being not accredited to offer Physical Therapy courses. Yet, plaintiff
commentaries on matters of public interest. Such being the produced a certificate coming from DECS that as of Sept. 22,
case, AMEC should prove malice in fact or actual malice. Since 1987 or more than 2 years before the controversial broadcast,
AMEC allegedly failed to prove actual malice, there is no libel. accreditation to offer Physical Therapy course had already
been given the plaintiff, which certificate is signed by no less
FBNI’s reliance on Borjal is misplaced. In Borjal, the Court than the Secretary of Education and Culture herself, Lourdes
elucidated on the "doctrine of fair comment," thus: R. Quisumbing (Exh. C-rebuttal). Defendants could have easily
known this were they careful enough to verify. And yet,

Page 10 of 59
defendants were very categorical and sounded too positive The broadcasts also violate the Radio Code35 of the
when they made the erroneous report that plaintiff had no Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio Code").
permit to offer Physical Therapy courses which they were Item I(B) of the Radio Code provides:
offering.
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
The allegation that plaintiff was getting tremendous aids from
foreign foundations like Mcdonald Foundation prove not to 1. x x x
be true also. The truth is there is no Mcdonald Foundation
existing. Although a big building of plaintiff school was given 4. Public affairs program shall present public issues free from
the name Mcdonald building, that was only in order to honor personal bias, prejudice and inaccurate and misleading
the first missionary in Bicol of plaintiffs’ religion, as explained information. x x x Furthermore, the station shall strive to
by Dr. Lita Ago. Contrary to the claim of defendants over the present balanced discussion of issues. x x x.
air, not a single centavo appears to be received by plaintiff
school from the aforementioned McDonald Foundation which xxx
does not exist.
7. The station shall be responsible at all times in the
Defendants did not even also bother to prove their claim, supervision of public affairs, public issues and commentary
though denied by Dra. Ago, that when medical students fail programs so that they conform to the provisions and
in one subject, they are made to repeat all the other standards of this code.
subject[s], even those they have already passed, nor their
claim that the school charges laboratory fees even if there are 8. It shall be the responsibility of the newscaster,
no laboratories in the school. No evidence was presented to commentator, host and announcer to protect public interest,
prove the bases for these claims, at least in order to give general welfare and good order in the presentation of public
semblance of good faith. affairs and public issues.36 (Emphasis supplied)

As for the allegation that plaintiff is the dumping ground for The broadcasts fail to meet the standards prescribed in the
misfits, and immoral teachers, defendant[s] singled out Dean Radio Code, which lays down the code of ethical conduct
Justita Lola who is said to be so old, with zero visibility governing practitioners in the radio broadcast industry. The
already. Dean Lola testified in court last Jan. 21, 1991, and Radio Code is a voluntary code of conduct imposed by the
was found to be 75 years old. xxx Even older people prove to radio broadcast industry on its own members. The Radio
be effective teachers like Supreme Court Justices who are still Code is a public warranty by the radio broadcast industry that
very much in demand as law professors in their late years. radio broadcast practitioners are subject to a code by which
Counsel for defendants is past 75 but is found by this court to their conduct are measured for lapses, liability and sanctions.
be still very sharp and effective.l^vvphi1.net So is plaintiffs’
counsel. The public has a right to expect and demand that radio
broadcast practitioners live up to the code of conduct of their
Dr. Lola was observed by this court not to be physically profession, just like other professionals. A professional code
decrepit yet, nor mentally infirmed, but is still alert and docile. of conduct provides the standards for determining whether a
person has acted justly, honestly and with good faith in the
The contention that plaintiffs’ graduates become liabilities exercise of his rights and performance of his duties as
rather than assets of our society is a mere conclusion. Being required by Article 1937 of the Civil Code. A professional
from the place himself, this court is aware that majority of the code of conduct also provides the standards for determining
medical graduates of plaintiffs pass the board examination whether a person who willfully causes loss or injury to
easily and become prosperous and responsible another has acted in a manner contrary to morals or good
professionals.33 customs under Article 2138 of the Civil Code.

Had the comments been an expression of opinion based on II.

established facts, it is immaterial that the opinion happens to
be mistaken, as long as it might reasonably be inferred from Whether AMEC is entitled to moral damages
the facts.34 However, the comments of Rima and Alegre were
not backed up by facts. Therefore, the broadcasts are not FBNI contends that AMEC is not entitled to moral damages
privileged and remain libelous per se. because it is a corporation.39

Page 11 of 59
A juridical person is generally not entitled to moral damages [I]t is an accepted doctrine that the award thereof as an item
because, unlike a natural person, it cannot experience of damages is the exception rather than the rule, and
physical suffering or such sentiments as wounded feelings, counsel’s fees are not to be awarded every time a party wins
serious anxiety, mental anguish or moral shock.40 The Court a suit. The power of the court to award attorney’s fees under
of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to Article 2208 of the Civil Code demands factual, legal and
justify the award of moral damages. However, the Court’s equitable justification, without which the award is a
statement in Mambulao that "a corporation may have a good conclusion without a premise, its basis being improperly left
reputation which, if besmirched, may also be a ground for the to speculation and conjecture. In all events, the court must
award of moral damages" is an obiter dictum.42 explicitly state in the text of the decision, and not only in the
decretal portion thereof, the legal reason for the award of
Nevertheless, AMEC’s claim for moral damages falls under attorney’s fees.51 (Emphasis supplied)
item 7 of Article 221943 of the Civil Code. This provision
expressly authorizes the recovery of moral damages in cases While it mentioned about the award of attorney’s fees by
of libel, slander or any other form of defamation. Article stating that it "lies within the discretion of the court and
2219(7) does not qualify whether the plaintiff is a natural or depends upon the circumstances of each case," the Court of
juridical person. Therefore, a juridical person such as a Appeals failed to point out any circumstance to justify the
corporation can validly complain for libel or any other form of award.
defamation and claim for moral damages.44
IV.
Moreover, where the broadcast is libelous per se, the law
implies damages.45 In such a case, evidence of an honest Whether FBNI is solidarily liable with Rima and Alegre for
mistake or the want of character or reputation of the party moral damages, attorney’s fees and costs of suit
libeled goes only in mitigation of damages.46 Neither in such
a case is the plaintiff required to introduce evidence of actual FBNI contends that it is not solidarily liable with Rima and
damages as a condition precedent to the recovery of some Alegre for the payment of damages and attorney’s fees
damages.47 In this case, the broadcasts are libelous per se. because it exercised due diligence in the selection and
Thus, AMEC is entitled to moral damages. supervision of its employees, particularly Rima and Alegre.
FBNI maintains that its broadcasters, including Rima and
However, we find the award of ₱300,000 moral damages Alegre, undergo a "very regimented process" before they are
unreasonable. The record shows that even though the allowed to go on air. "Those who apply for broadcaster are
broadcasts were libelous per se, AMEC has not suffered any subjected to interviews, examinations and an apprenticeship
substantial or material damage to its reputation. Therefore, program."
we reduce the award of moral damages from ₱300,000 to
₱150,000. FBNI further argues that Alegre’s age and lack of training are
irrelevant to his competence as a broadcaster. FBNI points
III. out that the "minor deficiencies in the KBP accreditation of
Rima and Alegre do not in any way prove that FBNI did not
Whether the award of attorney’s fees is proper exercise the diligence of a good father of a family in selecting
and supervising them." Rima’s accreditation lapsed due to his
FBNI contends that since AMEC is not entitled to moral non-payment of the KBP annual fees while Alegre’s
damages, there is no basis for the award of attorney’s fees. accreditation card was delayed allegedly for reasons
FBNI adds that the instant case does not fall under the attributable to the KBP Manila Office. FBNI claims that
enumeration in Article 220848 of the Civil Code. membership in the KBP is merely voluntary and not required
by any law or government regulation.
The award of attorney’s fees is not proper because AMEC
failed to justify satisfactorily its claim for attorney’s fees. FBNI’s arguments do not persuade us.
AMEC did not adduce evidence to warrant the award of
attorney’s fees. Moreover, both the trial and appellate courts The basis of the present action is a tort. Joint tort feasors are
failed to explicitly state in their respective decisions the jointly and severally liable for the tort which they commit.52
rationale for the award of attorney’s fees.49 In Inter-Asia Joint tort feasors are all the persons who command, instigate,
Investment Industries, Inc. v. Court of Appeals ,50 we held promote, encourage, advise, countenance, cooperate in, aid
that: or abet the commission of a tort, or who approve of it after it
is done, if done for their benefit.53 Thus, AMEC correctly

Page 12 of 59
anchored its cause of action against FBNI on Articles 2176 WHEREFORE, we DENY the instant petition. We AFFIRM the
and 2180 of the Civil Code.1a\^/phi1.net Decision of 4 January 1999 and Resolution of 26 January 2000
of the Court of Appeals in CA-G.R. CV No. 40151 with the
As operator of DZRC-AM and employer of Rima and Alegre, MODIFICATION that the award of moral damages is reduced
FBNI is solidarily liable to pay for damages arising from the from ₱300,000 to ₱150,000 and the award of attorney’s fees
libelous broadcasts. As stated by the Court of Appeals, is deleted. Costs against petitioner.
"recovery for defamatory statements published by radio or
television may be had from the owner of the station, a
licensee, the operator of the station, or a person who
procures, or participates in, the making of the defamatory EDWARD C. ONG, petitioner,
statements."54 An employer and employee are solidarily vs.
liable for a defamatory statement by the employee within the THE COURT OF APPEALS AND THE PEOPLE OF THE
course and scope of his or her employment, at least when the PHILIPPINES, respondents.
employer authorizes or ratifies the defamation.55 In this case,
Rima and Alegre were clearly performing their official duties CARPIO, J.:
as hosts of FBNI’s radio program Exposé when they aired the
broadcasts. FBNI neither alleged nor proved that Rima and The Case
Alegre went beyond the scope of their work at that time.
There was likewise no showing that FBNI did not authorize Petitioner Edward C. Ong ("petitioner") filed this petition for
and ratify the defamatory broadcasts. review on certiorari1 to nullify the Decision2 dated 27
October 1994 of the Court of Appeals in CA-G.R. C.R. No.
Moreover, there is insufficient evidence on record that FBNI 14031, and its Resolution3 dated 18 April 1995, denying
exercised due diligence in the selection and supervision of its petitioner's motion for reconsideration. The assailed Decision
employees, particularly Rima and Alegre. FBNI merely showed affirmed in toto petitioner's conviction4 by the Regional Trial
that it exercised diligence in the selection of its broadcasters Court of Manila, Branch 35,5 on two counts of estafa for
without introducing any evidence to prove that it observed violation of the Trust Receipts Law,6 as follows:
the same diligence in the supervision of Rima and Alegre.
FBNI did not show how it exercised diligence in supervising WHEREFORE, judgment is rendered: (1) pronouncing accused
its broadcasters. FBNI’s alleged constant reminder to its EDWARD C. ONG guilty beyond reasonable doubt on two
broadcasters to "observe truth, fairness and objectivity and to counts, as principal on both counts, of ESTAFA defined under
refrain from using libelous and indecent language" is not No. 1 (b) of Article 315 of the Revised Penal Code in relation
enough to prove due diligence in the supervision of its to Section 13 of Presidential Decree No. 115, and penalized
broadcasters. Adequate training of the broadcasters on the under the 1st paragraph of the same Article 315, and
industry’s code of conduct, sufficient information on libel sentenced said accused in each count to TEN (10) YEARS of
laws, and continuous evaluation of the broadcasters’ prision mayor, as minimum, to TWENTY (20) YEARS of
performance are but a few of the many ways of showing reclusion temporal, as maximum;
diligence in the supervision of broadcasters.
(2) ACQUITTING accused BENITO ONG of the crime charged
FBNI claims that it "has taken all the precaution in the against him, his guilt thereof not having been established by
selection of Rima and Alegre as broadcasters, bearing in mind the People beyond reasonable doubt;
their qualifications." However, no clear and convincing
evidence shows that Rima and Alegre underwent FBNI’s (3) Ordering accused Edward C. Ong to pay private
"regimented process" of application. Furthermore, FBNI complainant Solid Bank Corporation the aggregate sum of
admits that Rima and Alegre had deficiencies in their KBP P2,976,576.37 as reparation for the damages said accused
accreditation,56 which is one of FBNI’s requirements before it caused to the private complainant, plus the interest thereon
hires a broadcaster. Significantly, membership in the KBP, at the legal rate and the penalty of 1% per month, both
while voluntary, indicates the broadcaster’s strong interest and penalty computed from July 15, 1991, until the
commitment to observe the broadcast industry’s rules and principal obligation is fully paid;
regulations. Clearly, these circumstances show FBNI’s lack of
diligence in selecting and supervising Rima and Alegre. (4) Ordering Benito Ong to pay, jointly and severally with
Hence, FBNI is solidarily liable to pay damages together with Edward C. Ong, the private complainant the legal interest and
Rima and Alegre. the penalty of 1% per month due and accruing on the unpaid
amount of P1,449,395.71, still owing to the private offended

Page 13 of 59
under the trust receipt Exhibit C, computed from July 15, That on or about July 6, 1990, in the City of Manila,
1991, until the said unpaid obligation is fully paid; Philippines, the said accused, representing ARMAGRI
International Corporation, did then and there willfully,
(5) Ordering accused Edward C. Ong to pay the costs of these unlawfully and feloniously defraud the SOLIDBANK
two actions. Corporation represented by its Accountant, DEMETRIO
LAZARO, a corporation duly organized and existing under the
SO ORDERED.7 laws of the Philippines located at Juan Luna Street, Binondo,
this City, in the following manner, to wit: the said accused
The Charge received in trust from said SOLIDBANK Corporation the
following goods, to wit:
Assistant City Prosecutor Dina P. Teves of the City of Manila
charged petitioner and Benito Ong with two counts of estafa 125 pcs. Rear diff. assy RNZO 49"
under separate Informations dated 11 October 1991.
50 pcs. Front & Rear diff assy. Isuzu Elof
In Criminal Case No. 92-101989, the Information indicts
petitioner and Benito Ong of the crime of estafa committed 85 units 1-Beam assy. Isuzu Spz
as follows:
all valued at P2,532,500.00 specified in a Trust Receipt
That on or about July 23, 1990, in the City of Manila, Agreement and covered by a Domestic Letter of Credit No.
Philippines, the said accused, representing ARMAGRI DOM GD 90-006 in favor of the Metropole Industrial Sales
International Corporation, conspiring and confederating with address at P.O. Box AC 219, Quezon City; under the
together did then and there willfully, unlawfully and express obligation on the part of the said accused to account
feloniously defraud the SOLIDBANK Corporation represented for said goods to Solidbank Corporation and/or remit the
by its Accountant, DEMETRIO LAZARO, a corporation duly proceeds of the sale thereof within the period specified in the
organized and existing under the laws of the Philippines Agreement or return the goods, if unsold immediately or
located at Juan Luna Street, Binondo, this City, in the upon demand; but said accused, once in possession of said
following manner, to wit: the said accused received in trust goods, far from complying with the aforesaid obligation
from said SOLIDBANK Corporation the following, to wit: failed and refused and still fails and refuses to do so despite
repeated demands made upon him to that effect and with
10,000 bags of urea intent to defraud, willfully, unlawfully and feloniously
misapplied, misappropriated and converted the same or the
valued at P2,050,000.00 specified in a Trust Receipt value thereof to his own personal use and benefit, to the
Agreement and covered by a Letter of Credit No. DOM GD damage and prejudice of the said Solidbank Corporation in
90-009 in favor of the Fertiphil Corporation; under the the aforesaid amount of P2,532,500.00 Philippine Currency.
express obligation on the part of the said accused to account
for said goods to Solidbank Corporation and/or remit the Contrary to law.
proceeds of the sale thereof within the period specified in the
Agreement or return the goods, if unsold immediately or Arraignment and Plea
upon demand; but said accused, once in possession of said
goods, far from complying with the aforesaid obligation With the assistance of counsel, petitioner and Benito Ong
failed and refused and still fails and refuses to do so despite both pleaded not guilty when arraigned. Thereafter, trial
repeated demands made upon him to that effect and with ensued.
intent to defraud, willfully, unlawfully and feloniously
misapplied, misappropriated and converted the same or the Version of the Prosecution
value thereof to his own personal use and benefit, to the
damage and prejudice of the said Solidbank Corporation in The prosecution's evidence disclosed that on 22 June 1990,
the aforesaid amount of P2,050,000.00 Philippine Currency. petitioner, representing ARMAGRI International Corporation8
("ARMAGRI"), applied for a letter of credit for P2,532,500.00
Contrary to law. with SOLIDBANK Corporation ("Bank") to finance the
purchase of differential assemblies from Metropole Industrial
In Criminal Case No. 92-101990, the Information likewise Sales. On 6 July 1990, petitioner, representing ARMAGRI,
charges petitioner of the crime of estafa committed as executed a trust receipt9 acknowledging receipt from the
follows: Bank of the goods valued at P2,532,500.00.

Page 14 of 59
On 12 July 1990, petitioner and Benito Ong, representing The Court of Appeals held that although petitioner is neither
ARMAGRI, applied for another letter of credit for a director nor an officer of ARMAGRI, he certainly comes
P2,050,000.00 to finance the purchase of merchandise from within the term "employees or other x x x persons therein
Fertiphil Corporation. The Bank approved the application, responsible for the offense" in Section 13 of the Trust
opened the letter of credit and paid to Fertiphil Corporation Receipts Law. The Court of Appeals explained as follows:
the amount of P2,050,000.00. On 23 July 1990, petitioner,
signing for ARMAGRI, executed another trust receipt10 in It is not disputed that appellant transacted with the Solid
favor of the Bank acknowledging receipt of the merchandise. Bank on behalf of ARMAGRI. This is because the Corporation
cannot by itself transact business or sign documents it being
Both trust receipts contained the same stipulations. Under the an artificial person. It has to accomplish these through its
trust receipts, ARMAGRI undertook to account for the goods agents. A corporation has a personality distinct and separate
held in trust for the Bank, or if the goods are sold, to turn from those acting on its behalf. In the fulfillment of its
over the proceeds to the Bank. ARMAGRI also undertook the purpose, the corporation by necessity has to employ persons
obligation to keep the proceeds in the form of money, bills or to act on its behalf.
receivables as the separate property of the Bank or to return
the goods upon demand by the Bank, if not sold. In addition, Being a mere artificial person, the law (Section 13, P.D. 115)
petitioner executed the following additional undertaking recognizes the impossibility of imposing the penalty of
stamped on the dorsal portion of both trust receipts: imprisonment on the corporation itself. For this reason, it is
the officers or employees or other persons whom the law
I/We jointly and severally agreed to any increase or decrease holds responsible.16
in the interest rate which may occur after July 1, 1981, when
the Central Bank floated the interest rates, and to pay The Court of Appeals ruled that what made petitioner liable
additionally the penalty of 1% per month until the amount/s was his failure to account to the entruster Bank what he
or installment/s due and unpaid under the trust receipt on undertook to perform under the trust receipts. The Court of
the reverse side hereof is/are fully paid.11 Appeals held that ARMAGRI, which petitioner represented,
could not itself negotiate the execution of the trust receipts,
Petitioner signed alone the foregoing additional undertaking go to the Bank to receive, return or account for the entrusted
in the Trust Receipt for P2,253,500.00, while both petitioner goods. Based on the representations of petitioner, the Bank
and Benito Ong signed the additional undertaking in the accepted the trust receipts and, consequently, expected
Trust Receipt for P2,050,000.00. petitioner to return or account for the goods entrusted.17

When the trust receipts became due and demandable, The Court of Appeals also ruled that the prosecution need
ARMAGRI failed to pay or deliver the goods to the Bank not prove that petitioner is occupying a position in ARMAGRI
despite several demand letters.12 Consequently, as of 31 May in the nature of an officer or similar position to hold him the
1991, the unpaid account under the first trust receipt "person(s) therein responsible for the offense." The Court of
amounted to P1,527,180.66,13 while the unpaid account Appeals held that petitioner's admission that his participation
under the second trust receipt amounted to P1,449,395.71.14 was merely incidental still makes him fall within the purview
of the law as one of the corporation's "employees or other
Version of the Defense officials or persons therein responsible for the offense."
Incidental or not, petitioner was then acting on behalf of
After the prosecution rested its case, petitioner and Benito ARMAGRI, carrying out the corporation's decision when he
Ong, through counsel, manifested in open court that they signed the trust receipts.
were waiving their right to present evidence. The trial court
then considered the case submitted for decision.15 The Court of Appeals further ruled that the prosecution need
not prove that petitioner personally received and
The Ruling of the Court of Appeals misappropriated the goods subject of the trust receipts.
Evidence of misappropriation is not required under the Trust
Petitioner appealed his conviction to the Court of Appeals. Receipts Law. To establish the crime of estafa, it is sufficient
On 27 October 1994, the Court of Appeals affirmed the trial to show failure by the entrustee to turn over the goods or the
court's decision in toto. Petitioner filed a motion for proceeds of the sale of the goods covered by a trust receipt.
reconsideration but the same was denied by the Court of Moreover, the bank is not obliged to determine if the goods
Appeals in the Resolution dated 18 April 1995. came into the actual possession of the entrustee. Trust
receipts are issued to facilitate the purchase of merchandise.
To obligate the bank to examine the fact of actual possession

Page 15 of 59
by the entrustee of the goods subject of every trust receipt receipt or to return said goods, documents or instruments if
will greatly impede commercial transactions. they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa,
Hence, this petition. punishable under the provisions of Article Three Hundred and
Fifteen, Paragraph One (b), of Act Numbered Three Thousand
The Issues Eight Hundred and Fifteen, as amended, otherwise known as
the Revised Penal Code. If the violation or offense is
Petitioner seeks to reverse his conviction by contending that committed by a corporation, partnership, association or other
the Court of Appeals erred: juridical entities, the penalty provided for in this Decree shall
be imposed upon the directors, officers, employees or other
1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT officials or persons therein responsible for the offense,
PETITIONER ACTED AS AGENT AND SIGNED FOR THE without prejudice to the civil liabilities arising from the
ENTRUSTEE CORPORATION, PETITIONER WAS NECESSARILY criminal offense. (Emphasis supplied)
THE ONE RESPONSIBLE FOR THE OFFENSE; AND
The Trust Receipts Law is violated whenever the entrustee
2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT fails to: (1) turn over the proceeds of the sale of the goods, or
ALLEGED IN THE INFORMATION. (2) return the goods covered by the trust receipts if the goods
are not sold.18 The mere failure to account or return gives
The Ruling of the Court rise to the crime which is malum prohibitum.19 There is no
requirement to prove intent to defraud.20
The Court sustains the conviction of petitioner.
The Trust Receipts Law recognizes the impossibility of
First Assigned Error: Petitioner comes imposing the penalty of imprisonment on a corporation.
within the purview of Section 13 of the Trust Receipts Law. Hence, if the entrustee is a corporation, the law makes the
officers or employees or other persons responsible for the
Petitioner contends that the Court of Appeals erred in finding offense liable to suffer the penalty of imprisonment. The
him liable for the default of ARMAGRI, arguing that in signing reason is obvious: corporations, partnerships, associations
the trust receipts, he merely acted as an agent of ARMAGRI. and other juridical entities cannot be put to jail. Hence, the
Petitioner asserts that nowhere in the trust receipts did he criminal liability falls on the human agent responsible for the
assume personal responsibility for the undertakings of violation of the Trust Receipts Law.
ARMAGRI which was the entrustee.
In the instant case, the Bank was the entruster while
Petitioner's arguments fail to persuade us. ARMAGRI was the entrustee. Being the entrustee, ARMAGRI
was the one responsible to account for the goods or its
The pivotal issue for resolution is whether petitioner comes proceeds in case of sale. However, the criminal liability for
within the purview of Section 13 of the Trust Receipts Law violation of the Trust Receipts Law falls on the human agent
which provides: responsible for the violation. Petitioner, who admits being the
agent of ARMAGRI, is the person responsible for the offense
x x x . If the violation is committed by a corporation, for two reasons. First, petitioner is the signatory to the trust
partnership, association or other juridical entities, the penalty receipts, the loan applications and the letters of credit.
provided for in this Decree shall be imposed upon the Second, despite being the signatory to the trust receipts and
directors, officers, employees or other officials or persons the other documents, petitioner did not explain or show why
therein responsible for the offense, without prejudice to the he is not responsible for the failure to turn over the proceeds
civil liabilities arising from the offense. (Emphasis supplied) of the sale or account for the goods covered by the trust
receipts.
We hold that petitioner is a person responsible for violation
of the Trust Receipts Law. The Bank released the goods to ARMAGRI upon execution of
the trust receipts and as part of the loan transactions of
The relevant penal provision of the Trust Receipts Law reads: ARMAGRI. The Bank had a right to demand from ARMAGRI
payment or at least a return of the goods. ARMAGRI failed to
SEC. 13. Penalty Clause. - The failure of the entrustee to turn pay or return the goods despite repeated demands by the
over the proceeds of the sale of the goods, documents or Bank.
instruments covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in the trust

Page 16 of 59
It is a well-settled doctrine long before the enactment of the
Trust Receipts Law, that the failure to account, upon demand, True, petitioner acted on behalf of ARMAGRI. However, it is a
for funds or property held in trust is evidence of conversion well-settled rule that the law of agency governing civil cases
or misappropriation.21 Under the law, mere failure by the has no application in criminal cases. When a person
entrustee to account for the goods received in trust participates in the commission of a crime, he cannot escape
constitutes estafa. The Trust Receipts Law punishes punishment on the ground that he simply acted as an agent
dishonesty and abuse of confidence in the handling of money of another party.26 In the instant case, the Bank accepted the
or goods to the prejudice of public order.22 The mere failure trust receipts signed by petitioner based on petitioner's
to deliver the proceeds of the sale or the goods if not sold representations. It is the fact of being the signatory to the
constitutes a criminal offense that causes prejudice not only two trust receipts, and thus a direct participant to the crime,
to the creditor, but also to the public interest.23 Evidently, the which makes petitioner a person responsible for the offense.
Bank suffered prejudice for neither money nor the goods
were turned over to the Bank. Petitioner could have raised the defense that he had nothing
to do with the failure to account for the proceeds or to return
The Trust Receipts Law expressly makes the corporation's the goods. Petitioner could have shown that he had severed
officers or employees or other persons therein responsible for his relationship with ARMAGRI prior to the loss of the
the offense liable to suffer the penalty of imprisonment. In proceeds or the disappearance of the goods. Petitioner,
the instant case, petitioner signed the two trust receipts on however, waived his right to present any evidence, and thus
behalf of ARMAGRI 24 as the latter could only act through its failed to show that he is not responsible for the violation of
agents. When petitioner signed the trust receipts, he the Trust Receipts Law.
acknowledged receipt of the goods covered by the trust
receipts. In addition, petitioner was fully aware of the terms There is no dispute that on 6 July 1990 and on 23 July 1990,
and conditions stated in the trust receipts, including the petitioner signed the two trust receipts27 on behalf of
obligation to turn over the proceeds of the sale or return the ARMAGRI. Petitioner, acting on behalf of ARMAGRI, expressly
goods to the Bank, to wit: acknowledged receipt of the goods in trust for the Bank.
ARMAGRI failed to comply with its undertakings under the
Received, upon the TRUST hereinafter mentioned from trust receipts. On the other hand, petitioner failed to explain
SOLIDBANK CORPORATION (hereafter referred to as the and communicate to the Bank what happened to the goods
BANK), the following goods and merchandise, the property of despite repeated demands from the Bank. As of 13 May 1991,
said BANK specified in the bill of lading as follows: x x x and the unpaid account under the first and second trust receipts
in consideration thereof, I/we hereby agree to hold said amounted to P1,527,180.60 and P1,449,395.71, respectively.28
goods in Trust for the said BANK and as its property with
liberty to sell the same for its account but without authority Second Assigned Error: Petitioner's conviction under the
to make any other disposition whatsoever of the said goods allegations in the two Informations for Estafa.
or any part thereof (or the proceeds thereof) either by way of
conditional sale, pledge, or otherwise. Petitioner argues that he cannot be convicted on a new set of
facts not alleged in the Informations. Petitioner claims that
In case of sale I/we agree to hand the proceeds as soon as the trial court's decision found that it was ARMAGRI that
received to the BANK to apply against the relative acceptance transacted with the Bank, acting through petitioner as its
(as described above) and for the payment of any other agent. Petitioner asserts that this contradicts the specific
indebtedness of mine/ours to SOLIDBANK CORPORATION. allegation in the Informations that it was petitioner who was
constituted as the entrustee and was thus obligated to
xxx xxx xxx. account for the goods or its proceeds if sold. Petitioner
maintains that this absolves him from criminal liability.
I/we agree to keep said goods, manufactured products, or
proceeds thereof, whether in the form of money or bills, We find no merit in petitioner's arguments.
receivables, or accounts, separate and capable of
identification as the property of the BANK. Contrary to petitioner's assertions, the Informations explicitly
allege that petitioner, representing ARMAGRI, defrauded the
I/we further agree to return the goods, documents, or Bank by failing to remit the proceeds of the sale or to return
instruments in the event of their non-sale, upon demand or the goods despite demands by the Bank, to the latter's
within ____ days, at the option of the BANK. prejudice. As an essential element of estafa with abuse of
confidence, it is sufficient that the Informations specifically
xxx xxx xxx. (Emphasis supplied)25 allege that the entrustee received the goods. The

Page 17 of 59
Informations expressly state that ARMAGRI, represented by only in the imposition of the maximum term of the
petitioner, received the goods in trust for the Bank under the indeterminate sentence.32 Since the penalty prescribed in
express obligation to remit the proceeds of the sale or to Article 315 is prision correccional maximum to prision mayor
return the goods upon demand by the Bank. There is no need minimum, the penalty next lower in degree would be prision
to allege in the Informations in what capacity petitioner correccional minimum to medium. Thus, the minimum term
participated to hold him responsible for the offense. Under of the indeterminate penalty should be anywhere within 6
the Trust Receipts Law, it is sufficient to allege and establish months and 1 day to 4 years and 2 months.33
the failure of ARMAGRI, whom petitioner represented, to
remit the proceeds or to return the goods to the Bank. Accordingly, the Court finds a need to modify in part the
penalties imposed by the trial court. The minimum penalty for
When petitioner signed the trust receipts, he claimed he was each count of estafa should be reduced to four (4) years and
representing ARMAGRI. The corporation obviously acts only two (2) months of prision correccional.
through its human agents and it is the conduct of such
agents which the law must deter.29 The existence of the As for the civil liability arising from the criminal offense, the
corporate entity does not shield from prosecution the agent question is whether as the signatory for ARMAGRI, petitioner
who knowingly and intentionally commits a crime at the is personally liable pursuant to the provision of Section 13 of
instance of a corporation.30 the Trust Receipts Law.

Penalty for the crime of Estafa. In Prudential Bank v. Intermediate Appellate Court,34 the
Court discussed the imposition of civil liability for violation of
The penalty for the crime of estafa is prescribed in Article 315 the Trust Receipts Law in this wise:
of the Revised Penal Code, as follows:
It is clear that if the violation or offense is committed by a
1st. The penalty of prision correccional in its maximum period corporation, partnership, association or other juridical
to prision mayor in its minimum period, if the amount of the entities, the penalty shall be imposed upon the directors,
fraud is over 12,000 pesos but does not exceed 22,000 pesos; officers, employees or other officials or persons responsible
and if such amount exceeds the latter sum, the penalty for the offense. The penalty referred to is imprisonment, the
provided in this paragraph shall be imposed in its maximum duration of which would depend on the amount of the fraud
period, adding one year for each additional 10,000 pesos; but as provided for in Article 315 of the Revised Penal Code. The
the total penalty which may be imposed should not exceed reason for this is obvious: corporation, partnership,
twenty years. x x x . association or other juridical entities cannot be put in jail.
However, it is these entities which are made liable for the civil
In the instant case, the amount of the fraud in Criminal Case liabilities arising from the criminal offense. This is the import
No. 92-101989 is P1,527,180.66. In Criminal Case No. 92- of the clause 'without prejudice to the civil liabilities arising
101990, the amount of the fraud is P1,449,395.71. Since the from the criminal offense'. (Emphasis supplied)
amounts of the fraud in each estafa exceeds P22,000.00, the
penalty of prision correccional maximum to prision mayor In Prudential Bank, the Court ruled that the person signing
minimum should be imposed in its maximum period as the trust receipt for the corporation is not solidarily liable
prescribed in Article 315 of the Revised Penal Code. The with the entrustee-corporation for the civil liability arising
maximum indeterminate sentence should be taken from this from the criminal offense. He may, however, be personally
maximum period which has a duration of 6 years, 8 months liable if he bound himself to pay the debt of the corporation
and 21 days to 8 years. One year is then added for each under a separate contract of surety or guaranty.
additional P10,000.00, but the total penalty should not
exceed 20 years. Thus, the maximum penalty for each count In the instant case, petitioner did not sign in his personal
of estafa in this case should be 20 years. capacity the solidary guarantee clause 35 found on the dorsal
portion of the trust receipts. Petitioner placed his signature
Under the Indeterminate Sentence Law, the minimum after the typewritten words "ARMCO INDUSTRIAL
indeterminate sentence can be anywhere within the range of CORPORATION" found at the end of the solidary guarantee
the penalty next lower in degree to the penalty prescribed by clause. Evidently, petitioner did not undertake to guaranty
the Code for the offense. The minimum range of the penalty personally the payment of the principal and interest of
is determined without first considering any modifying ARMAGRI's debt under the two trust receipts.
circumstance attendant to the commission of the crime and
without reference to the periods into which it may be In contrast, petitioner signed the stamped additional
subdivided.31 The modifying circumstances are considered undertaking without any indication he was signing for

Page 18 of 59
ARMAGRI. Petitioner merely placed his signature after the Chin and Renato B. Mallari, on the one hand, and intervenor
additional undertaking. Clearly, what petitioner signed in his University of the Philippines (UP), on the other.
personal capacity was the stamped additional undertaking to
pay a monthly penalty of 1% of the total obligation in case of The case at bar is another crass attempt to grab part of the
ARMAGRI's default. Diliman Campus of the University of the Philippines. Over and
over again, this Court has ruled that the title of UP over its
In the additional undertaking, petitioner bound himself to pay Diliman Campus is indefeasible and beyond dispute. We
"jointly and severally" a monthly penalty of 1% in case of cannot deviate from this ruling.
ARMAGRI's default. 35 Thus, petitioner is liable to the Bank
for the stipulated monthly penalty of 1% on the outstanding The facts reveal that on December 9, 1993, Maria Destura
amount of each trust receipt. The penalty shall be computed filed a complaint before the Regional Trial Court of Quezon
from 15 July 1991, when petitioner received the demand City against her husband, Pedro Destura, together with Jorge
letter, 36 until the debt is fully paid. Chin and Renato Mallari. The complaint sought the
annulment of the memorandum of agreement (MOA) dated
WHEREFORE, the assailed Decision is AFFIRMED with March 26, 1992 executed by Chin and Mallari as first parties,
MODIFICATION. In Criminal Case No. 92-101989 and in Pedro Destura as second party, and Jaime Lumansag, Jr. as
Criminal Case No. 92-101990, for each count of estafa, third party, over Lot Nos. 588-A and 588-B located in Barrio
petitioner EDWARD C. ONG is sentenced to an indeterminate Culiat, Quezon City, covered by TCT No. 52928 and TCT No.
penalty of imprisonment from four (4) years and two (2) 52929. It alleged that Chin and Mallari were former agents of
months of prision correctional as MINIMUM, to twenty (20) Pedro Destura, authorized to sell Lot Nos. 588-A and 588-B,
years of reclusion temporal as MAXIMUM. Petitioner is then covered by TCT No. 36048; that when Destura came
ordered to pay SOLIDBANK CORPORATION the stipulated from Canada, he discovered that the title to the land has
penalty of 1% per month on the outstanding balance of the been transferred to Chin and Mallari in whose names TCT No.
two trust receipts to be computed from 15 July 1991 until the 52928 and TCT No. 52929 were registered; that Chin and
debt is fully paid. Mallari executed the MOA subject of the complaint to
appease Destura; that the MOA stated that Chin and Mallari
had a buyer of the lots and they promised to pay Destura one
G.R. No. 133547 November 11, 2003 hundred million pesos (₱100,000,000.00) upon finality of the
sale; that the sale did not materialize and the payment of the
Heirs of Antonio Pael and Andrea Alcantara and Crisanto promised amount has become uncertain, to the prejudice of
Pael, Petitioners, the Destura spouses. The complaint also sought the
vs. annulment of TCT No. 52928 and TCT No. 52929 as they were
Court of Appeals, Jorge H. Chin and Renato B. Mallari, allegedly obtained through fraudulent means. It prayed that
Respondents. the Register of Deeds issue a new title in the name of the
Destura spouses.1
x-----------------------x
The case was dismissed against Pedro Destura after he and
G.R. No. 133843 November 11, 2003 his wife entered into an amicable settlement.

Maria Destura, Petitioner, Chin and Mallari, meanwhile, were declared in default for
vs. failure to file their Answer.2
Court of Appeals, Jorge H. Chin and Renato Mallari,
Respondents. On January 24, 1995, the trial court rendered a judgment by
default.1âwphi1 The trial court nullified the MOA in question.
RESOLUTION It ruled:

PUNO, J.: On the issue of the memorandum of agreement, it is to be

noted that under its express terms the payment of the
This treats of the Report submitted to this Court by the P100,000,000.00 to Pedro Destura depended on the sale of
Former Special Fourth Division of the Court of Appeals, dated the properties covered by Transfer Certificates of Title Nos.
July 30, 2003, pursuant to our Resolution, dated December 7, 52928 and 52929 to the alleged ready buyer of the third
2001, directing said court to receive evidence on the party, Jaime B. Lumansag, Jr. Since no sale materialized in
conflicting claims over the subject properties covered by TCT accordance therewith because the buyer backed out of the
Nos. 52928 and 52929 between private respondents Jorge H. transactions, the agreement lost its efficacy. Pursuant to Art.

Page 19 of 59
1181, Civil Code, upon the non-fulfillment of the condition, 10792, LRC Record No. 7672, entitled Spouses Antonio Pael
the obligation of the defendants under the memorandum of and Andrea Alcantara, et al., Applicants, Petition of Extra-
agreement did not take effect and Destura ceased to be judicial Settlement had been made in the Official Gazette.
bound thereby. This contradicted the alleged certificate of publication of
notice of initial hearing.
That the fulfillment of the condition, i.e., the payment of the
₱100,000,000.00 to Destura, already became uncertain and The sale appears to have been made in 1978. But if that was
indefinite is also established competently and conclusively. As so, then it was fictitious, since the defendants willingly
a consequence, the memorandum of agreement should be accepted appointments as the agents of Pedro Destura with
nullified because it was made to depend upon a condition authority to sell the property in his behalf only in 1990. Their
that was void for being dependent upon the sole will of the act of accepting the appointment was a declaration against
debtors.3 interest, in that they thereby admitted quite expressly the
ownership of the property on the part of the Desturas as late
The trial court likewise nullified TCT No. 52928 and TCT No. as 1990, in effect debunking the alleged sale in 1978 in their
52929. It found: favor. It is additionally relevant to note that this fact of
Destura’s ownership was further confirmed by the fact that
Concerning the validity of the transfers of the certificates of the defendants caused the transfer of the certificates in their
title into the names of defendants Mallari and Chin, the names only in 1992.4
records competently and credibly show that highly suspicious
circumstances attended such transfers of registered The trial court then ordered the Register of Deeds of Quezon
ownership resulting in the issuance of Transfer Certificates of City to "cancel Transfer Certificates of Title Nos. 52928 and
Title Nos. 52928 and 52929. The transfers were by virtue of 52929 in the names of Jorge Chin and Renato B. Mallari and
two deeds of sale covering the land described in Transfer the transfer certificates of title from which said certificates
Certificate of Title No. 36048 which appear to have been were derived until but not including Transfer Certificate of
executed on the same date of December 10, 1978. The Title No. 36048, and thereafter reinstate Transfer Certificate of
vendors in the first deed of sale were the spouses Luis and Title No. 36048 in the names of Spouses Antonio Pael and
Leony Menor and those in the other were Roberto Pael, Andrea Alcantara and Crisanto Pael."5
Crisanto Pael, and Teofila Pael. The deeds were supposedly
notarized by a certain Catalino C. Manalaysay. Yet, as certified On February 13, 1995, Atty. Oliver Lozano, counsel for Chin
to by the Chief of the Archives Division, Records Management and Mallari, filed a notice of appeal.6 The following day, the
and Archives Office, no copy of the first deed of sale, Exhibit trial court approved the notice of appeal and forwarded the
U, was available at said office because the latest notarial records to the Court of Appeals.7
record on file under the name of Catalino C. Manalaysay was
for the year 1964. A week later, Atty. Lozano filed a motion for new trial and a
supplemental motion.8
Another document submitted to support the transfer of the
property to the defendants was a deed of extra-judicial On August 28, 1995, the trial court denied the motion for new
settlement of estate with waiver made and entered in among trial for lack of merit. It also dismissed the appeal previously
Crisanto, Roberto, Teofila, and Cresencia, all surnamed Pael, allowed on the ground of abandonment. The trial court’s
under date of December 27, 1965, by which the alleged heirs decision was thus declared final and executory.9
of Antonio Pael and Andrea Alcantara divided and
adjudicated among themselves the property covered by In September 1997, Chin and Mallari, assisted by new counsel,
Transfer Certificate of Title No. 36048. Again the Chief of the Atty. Samuel Alentaje, filed before the Court of Appeals a
Archives Division, Records Management and Archives Office, Petition for Annulment of Judgment. They claimed that the
certified that no copy of the document was available at said gross negligence of their former counsel, Atty. Lozano,
office because the notary public before whom the document constituted extrinsic fraud which prevented them from
appeared to have been acknowledged, one Catalino E. presenting their case before the trial court. They also assailed
Dumlao, had no records thereat for the period from January, the trial court’s order cancelling their title and upholding the
1964 to December 18, 1967. title of the Paels who were not parties to the case.10

There was, moreover, a certification issued on September 2, On April 29, 1998, the Court of Appeals rendered a
1992 by the Chief, Official Gazette Publication, National decision11 in favor of Chin and Mallari. It annulled the
Printing Office, attested (sic) that there were no records in decision of the trial court upon finding that the gross and
said office showing that a publication of LRC Case No. N- reckless negligence of their former counsel which caused

Page 20 of 59
them to be declared in default and which later led to the contributed to the commission of such fraud and negligence
dismissal of their appeal and finality of the judgment of their counsel.
amounted to extrinsic fraud. Further, the appellate court
reversed the order of the trial court canceling TCT No. 52928 3. The Honorable Court of Appeals gravely erred in not
and TCT No. 52929 and reinstating TCT No. 36048 registered holding that the revival of the title in favor of Antonio Pael
in the name of the Paels. It also rejected Maria Destura’s and Andrea Alcantara and Crisanto Pael, even if they are not
claim over the property. It instead upheld the validity of the parties to the case below, was a logical consequence of the
sale of 70% of the property by a certain Luis and Leony default judgment.
Menor and 30% thereof by the Paels to Chin and Mallari. The
dispositive portion of the decision reads: 4. The Honorable Court of Appeals gravely erred in not
holding that since the default judgment had already long
WHEREFORE, premises considered, the decision dated become final and executory, consequently the reinstatement
January 24, 1995 and the Order dated August 28, 1995, both of the titles of private respondent and the declaration as null
issued in Civil Case No. Q-93-18569, are hereby ANNULLED and void of the title in the names of Antonio Pael and Andrea
and SET ASIDE, and accordingly judgment is issued: Alcantara and Crisanto Pael were erroneous and improper.

a) DECLARING as valid the memorandum of agreement dated 5. The Honorable Court of Appeals gravely erred when in its
March 26, 1992; decision it adjudicated the case on the merits, which is
procedurally flawed.13
b) DECLARING as null and void both the cancellation of the
titles, Transfer Certificates of Title Nos. 52928 and 52929 of Destura raised the following errors in G.R. No. 133843:
petitioners Jorge H. Chin and Renato B. Mallari over the
subject property and the reinstatement of the title Transfer 1. The ruling of the respondent Court of Appeals that private
Certificate No. 36048, in the names of Antonio Pael, Andrea respondents are not bound by the negligence and
Alcantara and Crisanto Pael; incompetence of their counsel is erroneous and contrary to
law and jurisprudence.
c) DECLARING the petitioners as the true and absolute
owners of the subject property and ORDERING the Register 2. The ruling of the respondent Court of Appeals that the
of Deeds of Quezon City to REINSTATE the aforementioned gross negligence of counsel for private respondents
titles, TCT Nos. 52928 and 52929 in favor of petitioners Jorge constitutes "extrinsic fraud" is likewise erroneous and contrary
H. Chin and Renato B. Mallari; to law and jurisprudence.

xxx xxx x x x12 3. Granting for the sake of argument, that there is basis to
annul the questioned decision, the action of respondent
The case was elevated to this Court by the Heirs of Pael and Court of Appeals in adjudicating the merits of the case is
by Maria Destura via separate petitions for review. contrary to Section 7, Rule 47 of the Rules of Court.

The Heirs of Pael argued in G.R. No. 133547: 4. The findings of the respondent Court of Appeals that the
interest of the private respondent in the subject property over
1. The Honorable Court of Appeals gravely misappreciated, that of petitioner is not borne out by any evidence in the
ignored, misapplied and/or overlooked the fact that under records of the case in the trial court.14
the facts and circumstances of this case, the annulment of
judgment is improper as there was no extrinsic fraud or On February 10, 2000, this Court rendered a Decision denying
reckless and gross negligence committed by private both petitions and affirming the title of Chin and Mallari over
respondents’ former counsel, Atty. Oliver Lozano, hence, the the property.
assailed decision of the appellate court should be stricken
down for being without credible basis. The Heirs of Pael and Destura filed separate motions for
reconsideration. During their pendency, the University of the
2. The Honorable Court of Appeals seriously erred in not Philippines (UP) filed a motion for intervention,15 alleging
holding that assuming arguendo that extrinsic fraud and that the properties covered by TCT Nos. 52928 and 52929 in
gross and reckless negligence were committed by Atty. the names of Chin and Mallari form part of its Diliman
Lozano, private respondents were bound by said extrinsic Campus, registered in the name of UP under TCT No. 9462.
fraud and gross and reckless negligence as they themselves

Page 21 of 59
On December 7, 2001, this Court denied the motions for survey over the properties covered by TCT Nos. 52928 and
reconsideration of Destura and the Heirs of Pael, but granted 52929 in the names of Jorge H. Chin and Renato B. Mallari be
the motion for intervention filed by UP. The Court remanded adopted as it appears from the record that the properties of
the case to the Court of Appeals for reception of evidence on U.P. under TCT No. 9462 overlap the properties of Chin and
the conflicting claims over the property in question by Chin Mallari, hence, the same should be returned to Chin and
and Mallari as against UP.16 Mallari, the true and absolute owners thereof.

On July 30, 2003, the Former Special Fourth Division of the 5. The aforementioned decision of this court dated April 29,
Court of Appeals submitted its Report recommending that 1998 and the decision of the Supreme Court dated February
this Court recognize the better rights of Chin and Mallari over 10, 2000 in G.R. Nos. 133547 and 133843 which categorically
the property as against the claim of UP. It made the following ruled that petitioners Chin and Mallari are the true and
observations: absolute owners of the subject properties and its resolution
dated December 7, 2001 remanding the cases to this court
It is the view of this court that petitioners have successfully for reception of evidence to determine the conflicting
refuted U.P.’s assertion of ownership over the subject boundary claims of petitioners Chin and Mallari and
properties, more particularly, the two (2) parcels of land intervenor U.P.
denominated as Lot No. 588-A consisting of 518,455 square
meters, and Lot 588-B, comprising 261,022 square meters, or 6. The findings of Geodetic Engineer Mauro Gabriel in the
a total of 779,477 square meters, or 77.9477 hectares. The narrative report dated February 20, 1995 on the verification
preponderance of evidence supports the claim of petitioners survey of the subject properties which he submitted to the
Chin and Mallari over the subject properties covered by TCT Regional Technical Director, DENR-NCR, who then found that
Nos. 52928 and 52929, as shown by the following: the properties of U.P. overlap the properties of the Paels
identified as Lot 588-A and Lot 588-B, Psd-1006, and
1. The April 29, 1998 decision of this court and the February recommended that said properties be excluded from the
10, 2000 decision of the Supreme Court in G.R. Nos. 133547 properties claimed by U.P. under its TCT No. 9462, thus:
and 133843 which plainly and categorically stated that
petitioners Chin and Mallari are the true and absolute owners "x x x xxx xxx
of the subject properties.
In order to correct whatever mislead (sic) that had been (sic)
2. The December 7, 2001 resolution of the Supreme Court transpired by the previous preparation of the Deed of
itself which remanded the instant cases to this court for Conveyance is to exclude properties and rights that had been
reception of evidence merely to determine the conflicting long existing before the transfer of ownership from the
boundary claims of the parties, petitioners and intervenor U.P. Commonwealth Government of the Philippines to University
of the Philippines. That is to exclude the private property of
3. The verification survey report dated January 16, 2003 the Paels, the survey plan, Psd-1006 from lot 42-C, Pcs-13
submitted to the RTC, Branch 99, Quezon City, which found (8th parcel of land) covered by T.C.T. No. 9462 (U.P.).
that "the property of Jorge Chin and Renato Mallari described
on TCT Nos. 52928 and 52929 falls inside and is entirely In view of the foregoing, I am recommending that the long
within the property covered by TCT Nos. RT-107359 (192689), existing private property of Antonio Pael, et al. (now Jorge H.
RT-107350 (192686), RT-58201 (192687), RT-57441 (192688) Chin & Renato B. Mallari) identified as lots 588-A & 588-B,
PR-32309, registered in the name of the University of the Psd-1006 be respected and that lot 42-C, Pcs-13 be amended
Philippines." in order to exclude the private rights from University of the
Philippines properties, upon approval and confirmation of the
4. The findings of Atty. Virgilio B. Tiongson, Assistant Regional proper legal authorities concerned." (emphases supplied)17
Executive Director for Legal Services and Public Affairs, DENR-
NCR, in his memorandum dated January 14, 2003, that since The Court of Appeals further found that the certificate of title
the verification and survey report found that the properties of held by Chin and Mallari originated from OCT No. 730
Chin and Mallari, covered by TCT Nos. 52928 and 52929, registered on May 5, 1914, while that of UP originated from
"fall(s) inside the property covered by the titles of the OCT No. 735 which was allegedly registered on a later date,
University of the Philippines," then there is an apparent July 6, 1914. It declared:
overlapping of the titles. His findings refuted the Tiburcio and
other cases cited by U.P. which were found to be inapplicable This court, after a studied and judicious examination and
and irrelevant to the claim of Chin and Mallari. Atty. Tiongson appreciation of the totality of the evidence submitted by
recommended that the report on the verification/relocation petitioners Chin and Mallari and intervenor U.P., finds that

Page 22 of 59
petitioners’ TCT Nos. 52928 and 52929 originated from OCT owners of a parcel of land consisting of Lot Nos. 588-A and
No. 730 which was registered on May 5, 1914. On the other 588-B of subdivision Plan Psd-1006, located in Barrio Culiat,
hand, the court finds that intervenor U.P. has failed to Quezon City and covered by TCT No. 36048. They sought to
sufficiently establish that its TCT No. RT-107350 (192689) nullify the title of UP, TCT No. 9462, which also covered said
similarly originated from the same OCT No. 730. For one, parcel of land. After the complainants rested their case, UP
intervenor failed to submit authenticated or certified copies filed a demurrer to evidence which was denied by the trial
of the TCT of the Commonwealth of the Philippines which court. UP then went to the Court of Appeals via a petition for
covers the parcels of land sold to U.P. and which thereafter prohibition to restrain the trial court from proceeding with
secured its TCT No. 9462. To note once more, in her report to Civil Case No. Q-31619. UP contended that the question of
the LRA Verification Committee (Exh. "3"), Atty. Edelwina C. the validity of the certificate of title of the land in dispute has
Pastoral lamented that because of "the loss of said been put to rest in three cases decided by the Supreme Court
documents, it is difficult to establish the link and determine as early as 1959. The Court of Appeals granted the petition
the manner of transfer of the lot in question owned by the for prohibition and permanently enjoined the trial court from
Tuasons from OCT No. 730 to TCT No. 2681, TCT No. 6075 & hearing and proceeding with Civil Case No. Q-31619. It cited
TCT No. 26550, and to the Commonwealth of the Philippines the findings of this Court in prior cases that the land in
leading to the issuance of TCT No. 36048 in the name of the question covered by OCT No. 730 was originally owned by
latter." Moreover, the TCTs presented by intervenor U.P. to the Tuasons who sold the same to UP. OCT No. 730 was
prove its ownership of the lands allegedly conveyed to it by cancelled and TCT No. 9462 was later issued and registered in
the Commonwealth of the Philippines (marked as Exhs. "1," the name of UP. It held that as early as 1959, this Court has
"2," "3," "4," "5" and "6"), uniformly show that the OCT No. declared that the decree of registration with respect to the
730 which, U.P. claims, was the root of said TCTs was land covered by OCT No. 730 had become conclusive and
registered on May 3, 1914. This date appears, however, to fall binding against the whole world. Upholding the validity of
on a Sunday, which casts doubts on U.P.’s claim. This court, UP’s title over the property, the Court of Appeals ruled that
therefore, finds that in line with its observations on the cases Pael’s complaint lacked legal basis. Pael filed before this
cited by U.P., the latter’s TCT, which overlaps that of Court a petition docketed as G.R. No. 97277 entitled "Roberto
petitioners, originated from another title - OCT No. 735 - Pael, et al. vs. University of the Philippines" to review the
which was registered on July 6, 1914 (see Galvez vs. Tuason, decision of the Court of Appeals. The petition was denied by
supra).18 this Court on April 15, 1991 for late filing. Entry of judgrnent
was made on August 15, 1991. The ruling in this case is final
We rule in favor of intervenor UP. and binds the Paels and all their successors-in-interest which
include Chin and Mallari.
The facts show that Chin and Mallari and the Desturas trace
their claim of ownership over the property to the Paels. The Nonetheless, despite the above decision, Chin and Mallari
Desturas allegedly purchased the property from the Paels filed another Petition against UP for Quieting of Title before
through their agent, a certain Lutgarda Marilao. Chin and the Regional Trial Court of Quezon City. The petition filed on
Mallari claim that they bought 70% of the property from February 5, 1995 alleged that Chin and Mallari were the
spouses Luis and Leony Menor, and 30% thereof directly from individual owners of Lot Nos. 588-A and 588-B located in
the Paels. The Menor spouses, in turn, allegedly acquired the Barrio Culiat, Quezon City and covered by TCT No. 52928 and
70% also from the Paels. TCT No. 52929. They claimed to have derived their titles from
TCT No. 36048 registered under the name of Spouses
The disputed property, however, is part of the UP Diliman Antonio Pael and Andrea Alcantara and their son Crisanto
Campus, covered by TCT No. 9462. It was established, after Pael. They alleged that based on official records and entries in
the survey conducted by the Department of Environment and the land registration offices of the government, there appears
Natural Resources, National Capital Region (DENR-NCR) that to be two TCT No. 36048 in existence -- one registered in the
the property claimed by Chin and Mallari overlaps the name of the Commonwealth Government and another
property covered by UP’s title. The superiority of UP’s title registered in the name of the Paels. The Commonwealth
over that of the Paels has been recognized by the courts in an Government’s title was later cancelled and TCT No. 9462 was
earlier case filed by Roberto Pael, et al. against UP. issued and registered in the name of UP. They averred that
this created a cloud on the title of the Paels from whom they
Roberto Pael, et al., previously filed before the Court of First derived their titles, hence the Petition for Quieting of Title.
Instance of Quezon City, Branch 52 a complaint against UP During the course of the proceedings, Chin and Mallari filed a
for declaration of nullity and damages docketed as Civil Case "Motion to Order for Relocation and Verification Survey."
No. Q-31629. The complainants alleged that they were the They alleged that there was a need to define in an
heirs of Antonio Pael and Andrea Alcantara, the registered appropriate sketch plan the relative locations of the individual

Page 23 of 59
properties of the parties for the purpose of determining years before they woke up to invoke what they claim to be
whether their lots were within the perimeter area of UP’s erroneous when the court decreed in 1914 the registration of
property. The trial court granted the motion. UP filed a the land in the name of defendants’ predecessor-in-interest.
petition for certiorari before the Court of Appeals to set aside Evidently, this cannot be done for under our law and
the order of the trial court granting the motion. The appellate jurisprudence, a decree of registration can only be set aside
court dismissed the petition after finding no grave abuse of within one year after entry on the ground of fraud provided
discretion on the part of the trial court. UP filed a petition for no innocent purchaser for value has acquired the property.23
review before the Supreme Court docketed as G.R. No.
127537 entitled "University of the Philippines vs. Hon. Felix M. Thus, this Court held that the decree of registration in the
De Guzman, etc., Jorge H. Chin and Renato B. Mallari." The name of the predecessor-in-interest of PHHC and UP, as well
petition was denied on March 19, 1997 as it was filed late. as the titles issued pursuant thereto have become
Entry of judgment was made on August 4, 1997. Hence, in an incontrovertible.
Order dated August 2, 2002, the Quezon City RTC ordered
the DENR-NCR to conduct a relocation and verification survey This Court again affirmed the validity and indefeasibility of
of the properties covered by TCT Nos. 52928 and 52929.19 UP’s title in the case of Galvez vs. Tuason,24 where Maximo
The Verification Survey Report dated January 16, 2003 of the Galvez and the heirs of Eladio Tiburcio sought the recovery of
DENR-NCR survey team revealed that "the property of Jorge a parcel of land in Quezon City registered under the names of
Chin and Renato Mallari described in TCT Nos. 52928 and Mariano Severo, Maria Teresa Eriberta, Juan Jose, Demetrio
52929 falls inside and is entirely within the property covered Asuncion, Augusto Huberto, all surnamed Tuason y de la Paz,
by TCT Nos. RT-107350 (192689), RT-107360 (192689), RT- UP, and PHHC. This is the same land subject of the
58201 (192687) and RT 57441 (192688) PR32309 registered in controversy in Tiburcio vs. PHHC. This Court held in Galvez
the name of the University of the Philippines,"20 confirming that the question of ownership of the disputed land has been
its initial findings that there was an overlapping of titles.21 thrice settled definitely and conclusively by the courts: first, in
the proceedings for the registration of the property in the
It is judicial notice that the legitimacy of UP’s title has been name of the Tuasons; second, in the application filed by
settled in several other cases decided by this Court. The case Marcelino Tiburcio with the Court of First Instance of Rizal for
of Tiburcio, et al. vs. People’s Homesite & Housing Corp. registration of the disputed property in his name which was
(PHHC), et al.22 was an action for reconveyance of a 430- dismissed by said court; and third, in the action for
hectare lot in Quezon City, filed by the heirs of Eladio Tiburcio reconveyance filed by the heirs of Eladio Tiburcio against
against PHHC and UP. A portion of the disputed land was PHHC and UP which was also dismissed by the court, which
covered by TCT No. 1356 registered in the name of PHHC and dismissal was affirmed by this Court in Tiburcio vs. PHHC. We
another portion was covered by TCT No. 9462 registered in held that the issue of ownership of the property was already
the name of UP. Affirming the validity of TCT No. 1356 and beyond review.
TCT No. 9462, this Court ruled:
The rulings in Tiburcio vs. PHHC and Galvez vs. Tuason were
x x x the land in question has been placed under the reiterated by this Court in PHHC vs. Mencias25 and Varsity
operation of the Torrens system since 1914 when it has been Hills vs. Mariano.26
originally registered in the name of defendant’s predecessor-
in-interest. It further appears that sometime in 1955 In upholding the alleged right of Chin and Mallari over the
defendant People’s Homesite & Housing Corporation property in dispute, the Court of Appeals relied heavily on the
acquired from the original owner a parcel of land embracing Decision of this Court dated February 10, 2000 that Chin and
practically all of plaintiff’s property for which Transfer Mallari are its true and absolute owners. It should be
Certificate of Title No. 1356 was issued in its favor, while emphasized, however, that our February 10, 2000 Decision
defendant University of the Philippines likewise acquired from involved only the conflicting claims of Chin and Mallari as
the same owner another portion of land which embraces the against Maria Destura and the Heirs of Pael. Our Decision
remainder of the property for which Transfer Certificate of upholding the superior rights of Chin and Mallari over those
Title No. 9462 was issued in its favor. It is, therefore, clear that of the petitioners was based on its findings on the sale of the
the land in question has been registered in the name of property by the Paels and a certain Menor to Chin and
defendant’s predecessor-in-interest since 1914 under the Mallari. Thus, this Court held:
Torrens system and that notwithstanding what they now
claim that the original title lacked the essential requirements On the other hand, the records show that private respondents
prescribed by law for their validity, they have never taken any are the owners of the subject property by virtue of the sale to
step to nullify said title until 1957 when they instituted the them by the Menors and the Paels as early as December 10,
present action. In other words, they allowed a period of 43 1978. As above stated, the Paels sold 70% of the total land

Page 24 of 59
area of the property to the spouses Luis and Leony Menor.
The Menors, in turn, sold to private respondents the same Finally, it should be emphasized that this Court’s Decision in
70%, while the remaining 30% was sold by the surviving heirs Tiburcio, et al. vs. PHHC, as well as in the subsequent cases
of the Paels to private respondents. x x x.27 upholding the validity and indefeasibility of the certificate of
title covering the UP Diliman Campus, precludes the courts
UP was then not a party in the case and its right over the from looking anew into the validity of UP’s title. Thus, the
property was not considered when this Court rendered its appellate court’s discourse in the case at bar as regards the
decision. It was only after the petitioners filed a motion for origin of UP’s certificate of title, whether it came from OCT
reconsideration that UP intervened and claimed that the 730 or OCT 735 is intolerable, to say the least. The rule is that
property subject of this case is within its premises and is titled material facts or questions which were in issue in a former
to its name. Our Decision, therefore, should not bind UP and action and were there admitted or judicially determined are
our initial ruling as regards the rights of the original parties to conclusively settled by a judgment rendered therein and that
the case should not prejudice the rights of UP. The remand of such facts or questions become res judicata and may not
the case to the Court of Appeals was precisely intended to again be litigated in a subsequent action between the same
determine the veracity of the allegation of UP that the parties or their privies, regardless of the form the issue may
contested property is indeed within its premises. And this fact take in the subsequent action, whether the subsequent action
was affirmed in the Verification Survey Report of the DENR- involves the same or a different form of proceedings, or
NCR Survey Team which found that Lot Nos. 588-A and 588-B whether the second action is upon the same or a different
overlap the property of UP. Needless to stress, Chin and cause of action, subject matter, claim or demand, as the
Mallari are precluded from claiming ownership of the land in earlier action. In such cases, it is also immaterial that the two
dispute as the issue of ownership by UP has long been settled actions are based on different grounds, or tried on different
in numerous decisions by this Court, and have therefore theories, or instituted for different purposes, and seek
become incontestable. different reliefs. By the same token, whatever is once
irrevocably established as the controlling legal principle or
Contrary to the opinion of the Court of Appeals, the rulings of decision continues to be the law of the case between the
this Court in the various cases questioning the validity of UP’s same parties in the same case, whether correct on general
title, especially in G.R. No. 97277 entitled "Roberto Pael, et al. principles or not, so long as the facts on which such decision
vs. University of the Philippines," apply to the case at bar and was predicated continue to be the facts of the case before the
constitute res judicata in the concept of conclusiveness of court.30
judgment. There is conclusiveness of judgment when,
between the first case where the judgment was rendered and IN VIEW OF THE FOREGOING, the Decision dated February
the second case where such judgment is invoked, there is 10, 2000 is SET ASIDE insofar as it declares private
identity of parties, not of causes of action. The judgment is respondents Jorge H. Chin and Renato B. Mallari as the true
conclusive in the second case, only as to those matters and absolute owners of Lot Nos. 588-A and 588-B. The title of
actually and directly controverted and determined, and not as intervenor UP over the disputed property is upheld. Thus, the
to matters merely involved therein.28 Registry of Deeds in Quezon City is ordered to cancel TCT
Nos. 52928 and 52929 in the names of private respondents
G.R. No. 97277 involved an action by the Paels to nullify the Jorge H. Chin and Renato B. Mallari, and Civil Case No. Q-95-
title of UP over Lot Nos. 588-A and 588-B which they claim to 22961 filed by private respondents against intervenor UP
be likewise registered in their name. The appellate court before the Regional Trial Court of Quezon City, Branch 99, for
affirmed the validity of UP’s title and held that Pael’s quieting of title is hereby dismissed.
complaint lacked legal basis. It is admitted in this case that
Chin and Mallari derived their title to Lot Nos. 588-A and 588-
B from the Paels. The ruling in the former case, therefore,
insofar as the superiority of UP’s title is concerned, is
conclusive in the case at bar. It has been said that the
foundation principle upon which the doctrine of res judicata ANITA MANGILA, petitioner,
rests is that parties should not be permitted to litigate the vs.
same issue more than once; that when a right or fact has COURT OF APPEALS and LORETA GUINA, respondents.
been judicially tried and determined by a court of competent
jurisdiction, or an opportunity for such trial has been given, CARPIO, J.:
the judgment of the court, so long as it remains unreversed,
should be conclusive upon the parties and those in privity The Case
with them in law or estate.29

Page 25 of 59
This is a petition fore review on certiorari under Rule 45 of the The trial court granted the request of its sheriff for assistance
Rules of Court, seeking to set aside the Decision1 of the Court from their counterparts in RTC, Pampanga. Thus, on October
of Appeals affirming the Decision2 of the Regional Trial Court, 28, 1988, Sheriff Alfredo San Miguel of RTC Pampanga served
Branch 108, Pasay City. The trial court upheld the writ of on petitioner’s household help in San Fernando, Pampanga,
attachment and the declaration of default on petitioner while the Notice of Levy with the Order, Affidavit and Bond.7
ordering her to pay private respondent P109,376.95 plus 18
percent interest per annum, 25 percent attorney’s fees and On November 7, 1988, petitioner filed an Urgent Motion to
costs of suit. Discharge Attachment8 without submitting herself to the
jurisdiction of the trial court. She pointed out that up to then,
The Facts she had not been served a copy of the Complaint and the
summons. Hence, petitioner claimed the court had not
Petitioner Anita Mangila ("petitioner" for brevity) is an acquired jurisdiction over her person.9
exporter of sea foods and doing business under the name
and style of Seafoods Products. Private respondent Loreta In the hearing of the Urgent Motion to Discharge Attachment
Guina ("private respondent" for brevity) is the President and on November 11, 1988, private respondent sought and was
General Manager of Air Swift International, a single registered granted a re-setting to December 9, 1988. On that date,
proprietorship engaged in the freight forwarding business. private respondent’s counsel did not appear, so the Urgent
Motion to Discharge Attachment was deemed submitted for
Sometime in January 1988, petitioner contracted the freight resolution.10
forwarding services of private respondent for shipment of
petitioner’s products, such as crabs, prawns and assorted The trial court granted the Motion to Discharge Attachment
fishes, to Guam (USA) where petitioner maintains an outlet. on January 13, 1989 upon filing of petitioner’s counter-bond.
Petitioner agreed to pay private respondent cash on delivery. The trial court, however, did not rule on the question of
Private respondent’s invoice stipulates a charge of 18 percent jurisdiction and on the validity of the writ of preliminary
interest per annum on all overdue accounts. In case of suit, attachment.
the same invoice stipulates attorney’s fees equivalent to 25
percent of the amount due plus costs of suit.3 On December 26, 1988, private respondent applied for an
alias summons, which the trial court issued on January 19,
On the first shipment, petitioner requested for seven days 1989.11 It was only on January 26, 1989 that summons was
within which to pay private respondent. However, for the next finally served on petitioner.12
three shipments, March 17, 24 and 31, 1988, petitioner failed
to pay private respondent shipping charges amounting to On February 9, 1989, petitioner filed a Motion to Dismiss the
P109, 376.95.4 Complaint on the ground of improper venue. Private
respondent’s invoice for the freight forwarding service
Despite several demands, petitioner never paid private stipulates that "if court litigation becomes necessary to
respondent. Thus, on June 10, 1988, private respondent filed enforce collection xxx the agreed venue for such action is
Civil Case No. 5875 before the Regional Trial Court of Pasay Makati, Metro Manila."13 Private respondent filed an
City for collection of sum of money. Opposition asserting that although "Makati" appears as the
stipulated venue, the same was merely an inadvertence by
On August 1, 1988, the sheriff filed his Sheriff’s Return the printing press whose general manager executed an
showing that summons was not served on petitioner. A affidavit14 admitting such inadvertence. Moreover, private
woman found at petitioner’s house informed the sheriff that respondent claimed that petitioner knew that private
petitioner transferred her residence to Sto. Niño, Guagua, respondent was holding office in Pasay City and not in
Pampanga. The sheriff found out further that petitioner had Makati.15 The lower court, finding credence in private
left the Philippines for Guam.5 respondent’s assertion, denied the Motion to Dismiss and
gave petitioner five days to file her Answer. Petitioner filed a
Thus, on September 13, 1988, construing petitioner’s Motion for Reconsideration but this too was denied.
departure from the Philippines as done with intent to defraud
her creditors, private respondent filed a Motion for Petitioner filed her Answer16 on June 16, 1989, maintaining
Preliminary Attachment. On September 26, 1988, the trial her contention that the venue was improperly laid.
court issued an Order of Preliminary Attachment6 against
petitioner. The following day, the trial court issued a Writ of On June 26, 1989, the trial court issued an Order setting the
Preliminary Attachment. pre-trial for July 18, 1989 at 8:30 a.m. and requiring the
parties to submit their pre-trial briefs. Meanwhile, private

Page 26 of 59
respondent filed a Motion to Sell Attached Properties but the Appeals upheld the validity of the issuance of the writ of
trial court denied the motion. attachment and sustained the filing of the action in the RTC
of Pasay. The Court of Appeals also affirmed the declaration
On motion of petitioner, the trial court issued an Order of default on petitioner and concluded that the trial court did
resetting the pre-trial from July 18, 1989 to August 24, 1989 not commit any reversible error.
at 8:30 a.m..
Petitioner filed a Motion for Reconsideration on January 5,
On August 24, 1989, the day of the pre-trial, the trial court 1996 but the Court of Appeals denied the same in a
issued an Order17 terminating the pre-trial and allowing the Resolution dated May 20, 1996.
private respondent to present evidence ex-parte on
September 12, 1989 at 8:30 a.m.. The Order stated that when Hence, this petition.
the case was called for pre-trial at 8:31 a.m., only the counsel
for private respondent appeared. Upon the trial court’s The Issues
second call 20 minutes later, petitioner’s counsel was still
nowhere to be found. Thus, upon motion of private The issues raised by petitioner may be re-stated as follows:
respondent, the pre-trial was considered terminated.
I.
On September 12, 1989, petitioner filed her Motion for
Reconsideration of the Order terminating the pre-trial. WHETHER RESPONDENT COURT ERRED IN NOT HOLDING
Petitioner explained that her counsel arrived 5 minutes after THAT THE WRIT OF ATTACHMENT WAS IMPROPERLY ISSUED
the second call, as shown by the transcript of stenographic AND SERVED;
notes, and was late because of heavy traffic. Petitioner claims
that the lower court erred in allowing private respondent to II.
present evidence ex-parte since there was no Order
considering the petitioner as in default. Petitioner contends WHETHER THERE WAS A VALID DECLARATION OF DEFAULT;
that the Order of August 24, 1989 did not state that
petitioner was declared as in default but still the court III.
allowed private respondent to present evidence ex-parte.18
WHETHER THERE WAS IMPROPER VENUE.
On October 6, 1989, the trial court denied the Motion for
Reconsideration and scheduled the presentation of private IV.
respondent’s evidence ex-parte on October 10,
1989.1âwphi1.nêt WHETHER RESPONDENT COURT ERRED IN DECLARING THAT
PETITIONER IS OBLIGED TO PAY P109, 376.95, PLUS
On October 10, 1989, petitioner filed an Omnibus Motion ATTORNEY’S FEES.20
stating that the presentation of evidence ex-parte should be
suspended because there was no declaration of petitioner as The Ruling of the Court
in default and petitioner’s counsel was not absent, but merely
late. Improper Issuance and Service of Writ of Attachment

On October 18, 1989, the trial court denied the Omnibus Petitioner ascribes several errors to the issuance and
Motion.19 implementation of the writ of attachment. Among petitioner’s
arguments are: first, there was no ground for the issuance of
On November 20, 1989, the petitioner received a copy of the the writ since the intent to defraud her creditors had not
Decision of November 10, 1989, ordering petitioner to pay been established; second, the value of the properties levied
respondent P109,376.95 plus 18 percent interest per annum, exceeded the value of private respondent’s claim. However,
25 percent attorney’s fees and costs of suit. Private the crux of petitioner’s arguments rests on the question of
respondent filed a Motion for Execution Pending Appeal but the validity of the writ of attachment. Because of failure to
the trial court denied the same. serve summons on her before or simultaneously with the
writ’s implementation, petitioner claims that the trial court
The Ruling of the Court of Appeals had not acquired jurisdiction over her person and thus the
service of the writ is void.
On December 15, 1995, the Court of Appeals rendered a
decision affirming the decision of the trial court. The Court of

Page 27 of 59
As a preliminary note, a distinction should be made between In the instant case, the Writ of Preliminary Attachment was
issuance and implementation of the writ of attachment. It is issued on September 27, 1988 and implemented on October
necessary to distinguish between the two to determine when 28, 1988. However, the alias summons was served only on
jurisdiction over the person of the defendant should be January 26, 1989 or almost three months after the
acquired to validly implement the writ. This distinction is implementation of the writ of attachment.
crucial in resolving whether there is merit in petitioner’s
argument. The trial court had the authority to issue the Writ of
Attachment on September 27 since a motion for its issuance
This Court has long settled the issue of when jurisdiction over can be filed "at the commencement of the action." However,
the person of the defendant should be acquired in cases on the day the writ was implemented, the trial court should
where a party resorts to provisional remedies. A party to a have, previously or simultaneously with the implementation
suit may, at any time after filing the complaint, avail of the of the writ, acquired jurisdiction over the petitioner. Yet, as
provisional remedies under the Rules of Court. Specifically, was shown in the records of the case, the summons was
Rule 57 on preliminary attachment speaks of the grant of the actually served on petitioner several months after the writ
remedy "at the commencement of the action or at any time had been implemented.
thereafter."21 This phrase refers to the date of filing of the
complaint which is the moment that marks "the Private respondent, nevertheless, claims that the prior or
commencement of the action." The reference plainly is to a contemporaneous service of summons contemplated in
time before summons is served on the defendant, or even Section 5 of Rule 57 provides for exceptions. Among such
before summons issues. exceptions are "where the summons could not be served
personally or by substituted service despite diligent efforts or
In Davao Light & Power Co., Inc. v. Court of Appeals,22 this where the defendant is a resident temporarily absent
Court clarified the actual time when jurisdiction should be therefrom x x x." Private respondent asserts that when she
had: commenced this action, she tried to serve summons on
petitioner but the latter could not be located at her
"It goes without saying that whatever be the acts done by the customary address in Kamuning, Quezon City or at her new
Court prior to the acquisition of jurisdiction over the person address in Guagua, Pampanga.24 Furthermore, respondent
of defendant - issuance of summons, order of attachment claims that petitioner was not even in Pampanga; rather, she
and writ of attachment - these do not and cannot bind and was in Guam purportedly on a business trip.
affect the defendant until and unless jurisdiction over his
person is eventually obtained by the court, either by service Private respondent never showed that she effected
on him of summons or other coercive process or his substituted service on petitioner after her personal service
voluntary submission to the court’s authority. Hence, when failed. Likewise, if it were true that private respondent could
the sheriff or other proper officer commences not ascertain the whereabouts of petitioner after a diligent
implementation of the writ of attachment, it is essential that inquiry, still she had some other recourse under the Rules of
he serve on the defendant not only a copy of the applicant’s Civil Procedure.
affidavit and attachment bond, and of the order of
attachment, as explicitly required by Section 5 of Rule 57, but The rules provide for certain remedies in cases where
also the summons addressed to said defendant as well as a personal service could not be effected on a party. Section 14,
copy of the complaint xxx." (Emphasis supplied.) Rule 14 of the Rules of Court provides that whenever the
defendant’s "whereabouts are unknown and cannot be
Furthermore, we have held that the grant of the provisional ascertained by diligent inquiry, service may, by leave of court,
remedy of attachment involves three stages: first, the court be effected upon him by publication in a newspaper of
issues the order granting the application; second, the writ of general circulation x x x." Thus, if petitioner’s whereabouts
attachment issues pursuant to the order granting the writ; could not be ascertained after the sheriff had served the
and third, the writ is implemented. For the initial two stages, it summons at her given address, then respondent could have
is not necessary that jurisdiction over the person of the immediately asked the court for service of summons by
defendant be first obtained. However, once the publication on petitioner.25
implementation of the writ commences, the court must have
acquired jurisdiction over the defendant for without such Moreover, as private respondent also claims that petitioner
jurisdiction, the court has no power and authority to act in was abroad at the time of the service of summons, this made
any manner against the defendant. Any order issuing from petitioner a resident who is temporarily out of the country.
the Court will not bind the defendant.23 This is the exact situation contemplated in Section 16,26 Rule

Page 28 of 59
14 of the Rules of Civil Procedure, providing for service of action could be instituted. We therefore agree with private
summons by publication. respondent that Makati is not the only venue where this case
could be filed.
In conclusion, we hold that the alias summons belatedly
served on petitioner cannot be deemed to have cured the Nevertheless, we hold that Pasay is not the proper venue for
fatal defect in the enforcement of the writ. The trial court this case.
cannot enforce such a coercive process on petitioner without
first obtaining jurisdiction over her person. The preliminary Under the 1997 Rules of Civil Procedure, the general rule is
writ of attachment must be served after or simultaneous with venue in personal actions is "where the defendant or any of
the service of summons on the defendant whether by the defendants resides or may be found, or where the
personal service, substituted service or by publication as plaintiff or any of the plaintiffs resides, at the election of the
warranted by the circumstances of the case.27 The plaintiff."33 The exception to this rule is when the parties
subsequent service of summons does not confer a retroactive agree on an exclusive venue other than the places mentioned
acquisition of jurisdiction over her person because the law in the rules. But, as we have discussed, this exception is not
does not allow for retroactivity of a belated service. applicable in this case. Hence, following the general rule, the
instant case may be brought in the place of residence of the
Improper Venue plaintiff or defendant, at the election of the plaintiff (private
respondent herein).
Petitioner assails the filing of this case in the RTC of Pasay
and points to a provision in private respondent’s invoice In the instant case, the residence of private respondent
which contains the following: (plaintiff in the lower court) was not alleged in the complaint.
Rather, what was alleged was the postal address of her sole
"3. If court litigation becomes necessary to enforce collection, proprietorship, Air Swift International. It was only when
an additional equivalent (sic) to 25% of the principal amount private respondent testified in court, after petitioner was
will be charged. The agreed venue for such action is Makati, declared in default, that she mentioned her residence to be in
Metro Manila, Philippines."28 Better Living Subdivision, Parañaque City.

Based on this provision, petitioner contends that the action In the earlier case of Sy v. Tyson Enterprises, Inc.,34 the
should have been instituted in the RTC of Makati and to do reverse happened. The plaintiff in that case was Tyson
otherwise would be a ground for the dismissal of the case. Enterprises, Inc., a corporation owned and managed by
Dominador Ti. The complaint, however, did not allege the
We resolve to dismiss the case on the ground of improper office or place of business of the corporation, which was in
venue but not for the reason stated by petitioner. Binondo, Manila. What was alleged was the residence of
Dominador Ti, who lived in San Juan, Rizal. The case was filed
The Rules of Court provide that parties to an action may in the Court of First Instance of Rizal, Pasig. The Court there
agree in writing on the venue on which an action should be held that the evident purpose of alleging the address of the
brought.29 However, a mere stipulation on the venue of an corporation’s president and manager was to justify the filing
action is not enough to preclude parties from bringing a case of the suit in Rizal, Pasig instead of in Manila. Thus, the Court
in other venues.30 The parties must be able to show that such ruled that there was no question that venue was improperly
stipulation is exclusive. Thus, absent words that show the laid in that case and held that the place of business of Tyson
parties’ intention to restrict the filing of a suit in a particular Enterpises, Inc. is considered as its residence for purposes of
place, courts will allow the filing of a case in any venue, as venue. Furthermore, the Court held that the residence of its
long as jurisdictional requirements are followed. Venue president is not the residence of the corporation because a
stipulations in a contract, while considered valid and corporation has a personality separate and distinct from that
enforceable, do not as a rule supersede the general rule set of its officers and stockholders.
forth in Rule 4 of the Revised Rules of Court.31 In the absence
of qualifying or restrictive words, they should be considered In the instant case, it was established in the lower court that
merely as an agreement on additional forum, not as limiting petitioner resides in San Fernando, Pampanga35 while private
venue to the specified place.32 respondent resides in Parañaque City.36 However, this case
was brought in Pasay City, where the business of private
In the instant case, the stipulation does not limit the venue respondent is found. This would have been permissible had
exclusively to Makati. There are no qualifying or restrictive private respondent’s business been a corporation, just like the
words in the invoice that would evince the intention of the case in Sy v. Tyson Enterprises, Inc. However, as admitted by
parties that Makati is the "only or exclusive" venue where the private respondent in her Complaint37 in the lower court, her

Page 29 of 59
business is a sole proprietorship, and as such, does not have a proceeding. Obviously, this objective will not be attained if
separate juridical personality that could enable it to file a suit the plaintiff is given unrestricted freedom to choose where to
in court.38 In fact, there is no law authorizing sole file the complaint or petition.47
proprietorships to file a suit in court.39
We find no reason to rule on the other issues raised by
A sole proprietorship does not possess a juridical personality petitioner.
separate and distinct from the personality of the owner of the
enterprise.40 The law merely recognizes the existence of a WHEREFORE, the petition is GRANTED on the grounds of
sole proprietorship as a form of business organization improper venue and invalidity of the service of the writ of
conducted for profit by a single individual and requires its attachment. The decision of the Court of Appeals and the
proprietor or owner to secure licenses and permits, register order of respondent judge denying the motion to dismiss are
its business name, and pay taxes to the national REVERSED and SET ASIDE. Civil Case No. 5875 is hereby
government.41 The law does not vest a separate legal dismissed without prejudice to refiling it in the proper venue.
personality on the sole proprietorship or empower it to file or The attached properties of petitioner are ordered returned to
defend an action in court.42 her immediately.

Thus, not being vested with legal personality to file this case,
the sole proprietorship is not the plaintiff in this case but G.R. No. 221813
rather Loreta Guina in her personal capacity. In fact, the
complaint in the lower court acknowledges in its caption that MARICALUM MINING CORPORATION, Petitioner
the plaintiff and defendant are Loreta Guina and Anita vs.
Mangila, respectively. The title of the petition before us does ELY G. FLORENTINO, GLENN BUENVIAJE, RUDY J. GOMEZ,
not state, and rightly so, Anita Mangila v. Air Swift represented by his heir THELMA GOMEZ, ALEJANDRO H.
International, but rather Anita Mangila v. Loreta Guina. SITCHON, NENET ARITA, FERNANDO SIGUAN, DENNIS
Logically then, it is the residence of private respondent Guina, ABELIDA, NOEL S. ACCOLADOR,WILFREDO TAGANILE,
the proprietor with the juridical personality, which should be SR., MARTIR S. AGSOY, SR., MELCHOR APUCA Y,
considered as one of the proper venues for this case. DOMINGO LA VIDA, JESUS MOSQUEDA, RUELITO A.
VILLARMIA, SOFRONIO M. A YON, EFREN T. GENISE,
All these considered, private respondent should have filed ALQUIN A. FRANCO, PABLO L. ALEMAN, PEPITO G.
this case either in San Fernando, Pampanga (petitioner’s HEPRIANA, ELIAS S. TRESPECES, EDGAR SOBRINO,
residence) or Parañaque (private respondent’s residence). Respondents
Since private respondent (complainant below) filed this case
in Pasay, we hold that the case should be dismissed on the x-----------------------x
ground of improper venue.
G.R. No. 222723
Although petitioner filed an Urgent Motion to Discharge
Attachment in the lower court, petitioner expressly stated that ELY FLORENTINO, GLENN BUENVIAJE, RUDY J. GOMEZ,
she was filing the motion without submitting to the represented by his heir THELMA GOMEZ, FERNANDO
jurisdiction of the court. At that time, petitioner had not been SIGUAN, DENNIS ABELIDA, NOEL S.
served the summons and a copy of the complaint.43 ACCOLADOR,WILFREDO TAGANILE, SR., MARTIR S.
Thereafter, petitioner timely filed a Motion to Dismiss44 on AGSOY, SR., MELCHOR APUCA Y, DOMINGO LA VIDA,
the ground of improper venue. Rule 16, Section 1 of the Rules JESUS MOSQUEDA, RUELITO A. VILLARMIA, SOFRONIO
of Court provides that a motion to dismiss may be filed M. A YON, EFREN T. GENISE, ALQUIN A. FRANCO, PABLO
"[W]ithin the time for but before filing the answer to the L. ALEMAN, PEPITO G. HEPRIANA, ELIAS S. TRESPECES,
complaint or pleading asserting a claim." Petitioner even EDGAR SOBRINO, ALEJANDRO H. SITCHON, NENET
raised the issue of improper venue in his Answer45 as a ARITA, WELILMO T. NERI, ERLINDA FERNANDEZ, and
special and affirmative defense. Petitioner also continued to EDGARDO PENAFLORIDA, Petitioners
raise the issue of improper venue in her Petition for Review46 vs.
before this Court. We thus hold that the dismissal of this case NATIONAL LABOR RELATIONS COMMISSION – 7th
on the ground of improper venue is warranted. DIVISION, CEBU CITY, "G" HOLDINGS, INC., and
TEODORO G. BERNARDINO, ROLANDO DEGOJAS,
The rules on venue, like other procedural rules, are designed MARICALUM MINING CORPORATION. Respondents
to insure a just and orderly administration of justice or the
impartial and evenhanded determination of every action and DECISION

Page 30 of 59
 On October 2, 1992, the National Government thru the Asset
GESMUNDO, J.: Privatization Trust (APT) executed a Purchase and Sale
Agreement (PSA) with G Holdings, a domestic corporation
A subsidiary company's separate corporate personality may primarily engaged in the business of owning and holding
be disregarded only when the evidence shows that such shares of stock of different companies. G Holding bought
separate personality was being used by its parent or holding 90% of Maricalum Mining's shares and financial claims in the
corporation to perpetrate a fraud or evade an existing form of company notes. In exchange, the PSA obliged G
obligation. Concomitantly, employees of a corporation have Holdings to pay APT the amount of ₱673,161,280.00, with a
no cause of action for labor-related claims against another down payment of ₱98,704,000.00 and with the balance
unaffiliated corporation, which does not exercise control over divided into four tranches payable in installment over a
them. period of ten years.7 Concomitantly, G Holdings also
assumed Maricalum Mining's liabilities in the form of
The subjects of the instant consolidated cases are two (2) company notes. The said financial liabilities were converted
petitions for appeal by certiorari filed by the following into three (3) Promissory Notes (PNs) totaling
petitioners: ₱550,000,000.00 (₱114,715,360.00, ₱186,550,560.00 and
₱248,734,080.00), which were secured by mortgages over
1) Maricalum Mining Corporation (Maricalum Mining) m G.R. some of Maricalum Mining's properties.8 These PNs obliged
No. 221813; and Maricalum Mining to pay G Holdings the stipulated amount
of ₱550,000,000.00.
2) Ely Florentino, Glenn Buenviaje, Rudy J. Gomez, 1 Fernando
Siguan, Dennis Abelida, Noel S. Acollador, Wilfredo C. Upon the signing of the PSA and paying the stipulated down
Taganile, Sr., Martir S. Agsoy, Sr., Melchor B. Apucay, payment, G Holdings immediately took physical possession of
Domingo Lavida, Jesus Mosqueda, Ruelito A. Villarmia, Maricalum Mining's Sipalay Mining Complex, as well as its
Sofronio M. Ayon, Efren T. Genise, Alquin A. Franco, Pabio L. facilities, and took full control of the latter's management and
Aleman, Pepito G. Hepriana, Elias S. Trespeces, Edgar M. operations.9
Sobrino, Alejandro H. Sitchon, Nenet Arita, Dr. Welilmo T.
Neri, Erlinda L. Fernandez, and Edgardo S. Pefiaflorida On January 26, 1999, the Sipalay General Hospital, Inc.
(complainants) in G.R. No. 222723. (Sipalay Hospital) was duly incorporated to provide medical
services and facilities to the general public. 10
Both of these petitions are assailing the propriety of the
October 29, 2014 Decision2 of the Court of Appeals (CA) in Afterwards, some of Maricalum Mining's employees retired
CA-G.R. SP No. 06835. The CA upheld the November 29, 2011 and formed several manpower cooperatives, 11 as follow:
Decision3 and January 31, 2012 Resolution4 of the National
Labor Relations Commission (NLRC) in NLRC Case No. VAC-
05-000412-11. In the present petitions, complainants seek to
reinstate the April 20, 2011 Decision 5 of the Labor Arbiter
(LA) in consolidated cases NLRC RAB VI CASE No. 09-10755-
10, NLRC RAB VI CASE No. 12-10915-10, NLRC RAB VI CASE
No. 12-10916-10 and NLRC RAB VI CASE No. 12-10917-10,
which granted their joint complaints for monetary claims
against G Holdings, Inc. (G Holdings); while Maricalum Mining
seeks to have the case remanded to the LA for proper
computation of its total monetary liability to the
complainants. In 2000, each of the said cooperatives executed identical sets
of Memorandum of Agreement 12 with Maricalum Mining
The Antecedents wherein they undertook, among others, to provide the latter
with a steady supply of workers, machinery and equipment
The dispute traces its roots back to when the Philippine for a monthly fee.
National Bank (PNB, a former government-owned-and-
controlled corporation) and the Development Bank of the On June 1, 2001, Maricalum Mining's Vice President and
Philippines (DBP) transferred its ownership of Maricalum Resident Manager Jesus H. Bermejo wrote a Memorandum 13
Mining to the National Government for disposition or to the cooperatives informing them that Maricalum Mining
privatization because it had become a non-performing asset.6 has decided to stop its mining and milling operations
effective July 1, 2001 in order to avert continuing losses

Page 31 of 59
brought about by the low metal prices and high cost of Holdings; Maricalum Mining's assets have been exposed to
production. pilferage by some of its rank-and-file employees whose
claims for collective bargaining benefits were undergoing
In July 2001, the properties of Maricalum Mining, which had litigation; the Sipalay Hospital is purportedly "among the
been mortgaged to secure the PNs, were extrajudicially assets" of Maricalum Mining acquired by G Holdings; the
foreclosed and eventually sold to G Holdings as the highest payrolls for their wages were supposedly prepared by G
bidder on December 3, 2001. 14 Holdings' accounting department; since the second half of
April 2007, they have not been paid their salary; and some of
On September 23, 2010, some of Maricalum Mining's their services were dismissed without any due process.
workers, including complainants, and some of Sipalay General
Hospital's employees jointly filed a Complaint15 with the LA Based on these factual claims, complainants posited that: the
against G Holdings, its president, and officer-in-charge, and manpower cooperatives were mere alter egos of G Holdings
the cooperatives and its officers for illegal dismissal, organized to subvert the "tenurial rights" of the complainants;
underpayment and nonpayment of salaries, underpayment of G Holdings implemented a retrenchment scheme to dismiss
overtime pay, underpayment of premium pay for holiday, the caretakers it hired before the foreclosure of Maricalum
nonpayment of separation pay, underpayment of holiday pay, Mining's assets; and G Holdings was their employer because
nonpayment of service incentive leave pay, nonpayment of it allegedly had the power to hire, pay wages, control working
vacation and sick leave, nonpayment of 13th month pay, methods and dismiss them.
moral and exemplary damages, and attorneys fees.
Correspondingly, G Holdings filed its Position Paper23
On December 2, 2010, complainants and CeMPC Chairman maintaining that: it was Maricalum Mining who entered into
Alejandro H. Sitchon surprisingly filed his complaint for illegal an agreement with the manpower corporations for the
dismissal and corresponding monetary claims with the LA employment of complainants' services for auxiliary or
against G Holdings, its officer-in-charge and CeMPC. 16 seasonal mining activities; the manpower cooperatives were
the ones who paid the wages, deducted social security
Thereafter, the complaints were consolidated by the LA. contributions, withheld taxes, provided medical benefits and
had control over the working means and methods of
During the hearings, complainants presented the affidavits of complainants; despite Maricalum Mining's decision to stop its
Alejandro H. Sitchon and Dennis Abelida which attested that, mining and milling operations, complainants still continued
prior to the formation of the manpower cooperatives, their to render their services for the orderly winding down of the
services were terminated by Maricalum Mining as part of its mines' operations; Maricalum Mining should have been
retrenchment program. 17 They claimed that, in 1999, they impleaded because it is supposed to be the indispensable
were called by the top executives of Maricalum Mining and G party in the present suit; (e) Marical um Mining, as well as the
Holdings and informed that they will have to form a manpower cooperatives, each have distinct legal personalities
cooperative for the purpose of providing manpower services and that their individual corporate liabilities cannot be
in view of the retrenchment program. Thus, they were imposed upon each other; and there was no employer-
"rehired" only after their respective manpower cooperative employee relationship between G Holdings and
services were formed. Moreover, they also submitted the complainants.
following documents: (a) Cash Vouchers 18 representing
payments to the manpower cooperatives; (b) a Payment Likewise, the manpower cooperatives jointly filed their
Schedule19 representing G Holdings' payment of social Position Paper24 arguing that: complainants had exhibited a
security contributions in favor of some Sipalay Hospital favorable response when they were properly briefed of the
employees (c) Termination Letters 20 written by nature and benefits of working under a cooperative setup;
representatives of G Holdings, which were addressed to complainants received their fair share of benefits;
complainants including those employed by Sipalay Hospital; complainants were entitled to cast their respective votes in
and (d) Caretaker Schedules21 prepared by G Holdings to deciding the affairs of their respective cooperatives;
prove the existence of employment relations. complainants, as member of the cooperatives, are also co-
owners of the said cooperative and they cannot bargain for
After the hearings were concluded, complainants presented higher labor benefits with other co-owners; and the LA has no
their Position Paper22 claiming that: they have not received jurisdiction over the case because there is no employer-
any increase in wages since they were allegedly rehired; employee relationship between a cooperative and its
except for Sipalay Hospital's employees, they worked as an members.
augmentation force to the security guards charged with
securing Maricalum Mining's assets which were acquired by G The LA Ruling

Page 32 of 59
 THOUSAND EIGHT HUNDRED THIRTY-FIVE and 50/100
In its decision dated April 28, 2011, the LA ruled in favor of PESOS (₱5,343,835.50).
complainants.1awp++i1 It held that G Holdings is guilty of
labor-only contracting with the manpower cooperatives The other claims are DISMISSED for lack of merit.
thereby making all of them solidarily and directly liable to
complainants. The LA reasoned that: G Holdings connived Further, the complaints against respondents SIP ALA Y
with Marcalum Mining in orchestrating the formation of INTEGRATED MULTI-PURPOSE COOPERATIVE, ALLIED
manpower cooperatives to circumvent complainants' labor SERVICES MULTI-COOPERATIVE, SAN JOSE MULTI-PURPOSE
standards rights; it is highly unlikely that complainants COOPERATIVE, CANSIBIT MULTI-PURPOSE COOPERATIVE,
(except Sipalay Hospital's employees) would spontaneously and CENTENNIAL MULTI-PURPOSE COOPERATIVE, being
form manpower cooperatives on their own and in unison mere agents of respondent "G" HOLDINGS, INC., are hereby
without the guidance of G Holdings and Maricalum Mining; DISMISSED.
and complainants effectively became the employees of G
Holdings because their work had changed from assisting in SO ORDERED.25
the mining operations to safeguarding the properties in the
Sipalay Mining Complex, which had already been acquired by The parties filed their respective appeals to the NLRC.
G Holding. On the other hand, the LA denied the claims of
complainants Nenet Arita and Domingo Lavida for lack of On July 18, 2011, Marical um Mining filed its Appeal-in-
factual basis. The fallo of the LA decision reads: Intervention 26 seeking to: (a) reverse and set aside the Labor
Arbiter's Decision; (b) declare Mari cal um Mining as the true
WHEREFORE, premises considered, judgment is hereby and proper party-in-interest; (c) remand the case back to the
rendered DIRECTING respondent "G" HOLDINGS, INC. to pay Labor Arbiter for proper computation of the money claims of
complainants as follows: the complainants; and (d) give Maricalum Mining the
opportunity to settle with the complainants.

The NLRC Ruling

In its decision dated November 29, 2011, the NLRC modified

the LA ruling. It held that Dr. Welilmo T. Neri, Erlinda L.
Fernandez and Edgar M. Sobrino are not entitled to the
monetary awards because they were not able to establish the
fact of their employment relationship with G Holdings or
Maricalum Mining because Sipalay Hospital has a separate
and distinct corporate personality. As to the remaining
complainants, it found that no evidence was adduced to
prove that the salaries/wages and the 13th month pay had
been paid.

However, the NLRC imposed the liability of paying the

monetary awards imposed by the LA against Maricalum
Mining, instead of G Holdings, based on the following
observations that: it was Maricalum Mining-not G Holdings-
who entered into service contracts by way of a Memorandum
of Agreement with each of the manpower cooperatives;
complainants continued rendering their services at the
insistence of Maricalum Mining through their cooperatives;
Maricalum Mining never relinquished possession over the
Sipalay Mining Complex; Maricalum Mining continuously
availed of the services of complainants through their
respective manpower cooperatives; in G Holdings, Inc. v.
National Mines and Allied Workers Union Local 103
and the amount of ₱485,803.23 as attorney's fees, or the total (NAMAWU), et al. 27 (NAMA WU Case), the Court already
amount of FIVE MILLION THREE HUNDRED FORTY-THREE held that G Holdings and Maricalum Mining have separate

Page 33 of 59
and distinct corporate personalities. The dispositive portion of on the appellate courts when they are supported by
the NLRC ruling states: substantial evidence. Thus, it maintained that it cannot review
and re-evaluate the evidence all over again because there
WHEREFORE, premises considered, the Decision rendered by was no showing that the NLRC's findings of facts were
the Labor Arbiter on 20 April 2011 is hereby MODIFIED, to reached arbitrarily. The decretal portion of the CA decision
wit: states:

1) the monetary award adjudged to complainants Jessie WHEREFORE, premises considered, the instant petition for
Magallanes, Rogelio E. Fulo, Salvador J. Arceo, Freddie certiorari is DENIED, and the assailed Decision dated 29
Masicampo, Welilmo Neri, Erlinda Fernandez and Edgar December 2011 and two Resolutions both dated 31 January
Sobrino are CANCELLED; 2012 of the National Labor Relations Commission are hereby
AFFIRMED in all respects.
2) the award of ten percent (10%) attorney's fees is
ADJUSTED commensurate to the award of unpaid Costs against petitioners.
salaries/wages and 13th month pay of the remaining
complainants; SO ORDERED.30

3) the directive for respondent "G" Holdings, Inc. to pay Hence, these consolidated petitions essentially raising the
complainants the monetary awards adjudged by the Labor following issues:
Arbiter is CANCELLED;
I
4) it is intervenor that is, accordingly, directed to pay the
remaining complainants their respective monetary WHETHER THE COURT OF APPEALS ERRED IN REFUSING TO
awards.1âwphi1 RE-EVALUATE THE FACTS AND IN FINDING NO GRAVE
ABUSE OF DISCRETION ON THE PART OF THE NLRC;
In all other respects the Decision STANDS.
II
SO ORDERED.28
WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING
Complainants and Maricalum Mining filed their respective THE NLRC'S FINDING OF SUBSTANTIAL EVIDENCE IN
motions for reconsideration before the NLRC. On January 31, GRANTING THE COMPLAINANTS' MONETARY AWARD AS
2012, it issued a resolution modifying its previous decision. WELL AS ITS REFUSAL TO REMAND THE CASE BACK TO THE
The dispositive portion of the NLRC resolution state: LABOR ARBITER FOR RE-COMPUTATION OF SUCH AWARD;

WHEREFORE, premises considered, intervenor's Motion for III

Reconsideration is only PARTIALLY GRANTED. The Decision
promulgated by the Commission on 29 November 2011 WHETHER THE COURT OF APPEALS ERRED IN
modifying the Labor Arbiter's decision as stated therein, is DISREGARDING THAT THE NLRC ALLOWED MARICALUM
further MODIFIED to the effect that the monetary awards MINING TO INTERVENE IN THE CASE ONLY ON APPEAL;
adjudged in favor of complainants Wilfredo Taganile and
Bartholomew T. Jamboy are CANCELLED. IV

SO ORDERED.29 WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING

THE NLRC'S RULING WHICH ALLOWED THE PIERCING OF THE
Undaunted, the parties filed their respective petitions for CORPORA TE VEIL AGAINST MARICALUM MINING BUT NOT
certiorari before the CA. AGAINST SIPALAY HOSPITAL.

The CA Ruling Complainants argue that the CA committed several reversible

errors because: (a) it refused to re-evaluate the facts of the
In its decision dated October 29, 2014, the CA denied the case even if the factual findings of the NLRC and the LA were
petitions and affirmed the decision of the NLRC. It conflicting; (b) it failed to consider that G Holdings had
ratiocinated that factual issues are not fit subjects for review already acquired all of Maricalum Mining's assets and that
via the extraordinary remedy of certiorari. The CA emphasized Teodoro G. Bernardino (Bernardino) was now the president
that the NLRC's factual findings are conclusive and binding and controlling stockholder of both corporations; (c) it failed

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to take into account that Maricalum Mining was allowed to complainants do not prove the employment relationship with
intervene only on appeal even though it was not a real party- G Holdings because the signatories thereto were either from
in-interest; (d) it failed to appreciate the LA' s findings that Maricalum Mining or the manpower cooperatives; (i) this
Maricalum Mining could not have hired complainants Court's pronouncements in the NAMA WU Case and in
because G Holdings had already acquired in an auction sale Republic v. G Holdings, Inc. 31 prove that Maricalum Mining
all the assets in the Sipalay Mining Complex; (e) it failed to never relinquished possession of the Sipalay Mining Complex
consider that all resident managers of the Sipalay Mining in favor of G Holdings; and (j) Dr. Welilmo T. Neri, Erlinda L.
Complex were employed by G Holdings; (f) the foreclosure of Fernandez, Edgar M. Sobrino and Wilfredo C. Taganile, Sr.
the assets in the Sipalay Mining Complex was intended to were employees of the Sipalay Hospital, which is a separate
bring the said properties outside the reach of complainants; business entity, and were not members in any of the
(g) the Sipalay Hospital had been existing as a hospital for manpower cooperatives, which entered into a labor-only
Maricalum Mining's employees long before G Holdings arrangement with Maricalum Mining.
arrived; (h) Dr. Welilmo T. Neri, Erlinda L. Fernandez, Edgar M.
Sobrino and Wilfredo C. Taganile, Sr. were all hired by The Court's Ruling
Maricalum Mining but were dismissed by G Holdings; (i)
Sipalay Hospital existed without a board of directors and its It is basic that only pure questions of law should be raised in
employees were receiving orders from Maricalum Mining petitions for review on certiorari under Rule 45 of the Rules of
and, later on, replaced by G Holdings' officer-in-charge; and Court.32 It will not entertain questions of fact as the factual
(j) Maricalum Mining and G Holdings controlled the affairs of findings of appellate courts are final, binding or conclusive on
Sipalay Hospital. the parties and upon this court when supported by
substantial evidence.33 In labor cases, however, the Court has
Maricalum Mining contends that the CA committed grave to examine the CA' s Decision from the prism of whether the
abuse of discretion because the monetary awards were latter had correctly determined the presence or absence of
improperly computed. It claims that complainants had grave abuse of discretion in the NLRC's Decision.34
stopped rendering their services since September 23, 2010,
hence, their monetary claims covering the second half of April In this case, the principle that this Court is not a trier of facts
2007 up to July 2007 have already prescribed as provided applies with greater force in labor cases. 35 Grave abuse must
pursuant to Article 291 of the Labor Code. Moreover, it also have attended the evaluation of the facts and evidence
stressed that the NLRC should have remanded the case to the presented by the parties.36 This Court is keenly aware that
LA for the determination of the manpower cooperatives' net the CA undertook a Rule 65 review-not a review on appeal-of
surpluses and how these amounts were distributed to their the NLRC decision challenged before it. 37 It follows that this
members to aid the proper determination of the total amount Court will not re-examine conflicting evidence, reevaluate the
of the monetary award. Finally, Maricalum Mining avers that credibility of witnesses, or substitute the findings of fact of
the awards in favor of some of the complainants are the NLRC, an administrative body that has expertise in its
"improbable" and completely unfounded. specialized field. 38 It may only examine the facts only for the
purpose of resolving allegations and determining the
On the other hand, G Holdings argues that piercing the existence of grave abuse of discretion. 39 Accordingly, with
corporate veil of Maricalum Mining is not proper because: (a) these procedural guidelines, the Court will now proceed to
it did not acquire all of Maricalum Mining's assets; (b) it is determine whether or not the CA had committed any
primarily engaged in the business of owning and holding reversible error in affirming the NLRC's Decision.
shares of stocks of different companies-not participating in
the operations of its subsidiaries; (c) Maricalum Mining, the Propriety of the Monetary Awards
actual employers of complainants, had already manifested its
willingness to settle the correct money claims; (d) Bernardino Ordinarily, when there is sufficient evidence before the Court
is not a controlling stockholder of Maricalum Mining because to enable it to resolve fundamental issues, it will dispense
the latter's corporate records show that almost all of its with the regular procedure of remanding the case to the
shares of stock are owned by the APT; ( e) Joost Pekelharing- lower court or appropriate tribunal in order to avoid a further
not Bernardino-is G Holdings' president; (f) in the NAMA WU delay in the resolution of the case.40 A remand is only
Case, it was already held that control over Maricalum Mining necessary when the proceedings below are grossly
was exercised by the APT and not G Holdings; (g) the NLRC inadequate to settle factual issues.41 This is in line with the
did not commit any grave abuse of discretion when it allowed Court's power to issue a process in order to enforce its own
Maricalum Mining to intervene after the LA's decision was decrees and thus avoid circuitous actions and vexatious
promulgated; (h) the cash vouchers, payment schedule, litigation.42
termination letters and caretaker schedules presented by

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In the case at bench, Maricalum Mining is seeking to have the the cooperative members perform the work vital to the
case remanded because the LA allegedly miscomputed the operation of the Sipalay Mining Complex, the they were
amount of the monetary awards. However, it failed to offer being contracted in a labor-only arrangement. Moreover, the
any reasonable argument or explanation why the proceedings burden of proving the supposed status of the contractor rests
conducted before the NLRC or LA were "grossly inadequate on the principal47 and Maricalum Mining, being the principal,
to settle factual issues," especially as regards the computation also failed to present any evidence before the NLRC that each
of monetary awards. Its bare allegations - that the monetary of the manpower cooperatives had an independent viable
awards were improperly computed because prescribed claims business.
have been granted, that the net surpluses of the manpower
cooperative were not properly distributed, and that the Propriety of Maricalum Mining's Intervention
awards in favor of some of the complainants were
improbable - do not warrant the invocation of this Court's Intervention is a remedy by which a third party, who is not
power to have the case remanded back to the LA. Bare and originally imp leaded in a proceeding, becomes a litigant for
unsubstantiated allegations do not constitute substantial purposes of protecting his or her right or interest that may be
evidence and have no probative value.43 affected by the proceedings.48 The factors that should be
reckoned in determining whether or not to allow intervention
Besides, it is not imperative for the Court to remand the case are whether intervention will unduly delay or prejudice the
to the LA for the determination of the amounts of net adjudication of the rights of the original parties and whether
surpluses that each of the manpower cooperatives had the intervenors rights may be fully protected in a separate
received from Maricalum Mining. The records show that proceeding. 49 A motion to intervene may be entertained or
Maricalum Mining was guilty of entering into a labor-only allowed even if filed after judgment was rendered by the trial
contracting arrangement with the manpower cooperatives, court, especially in cases where the intervenors are
thus, all of them are solidarily liable to the complainants by indispensable parties.50 Parties may be added by order of the
virtue of Article 10644 of the Labor Code. In DOLE Philippines, court on motion of the party or on its own initiative at any
Inc. v. Esteva, et al. 45 it was ruled that a cooperative, despite stage of the action and/or at such times as are just.51
having a personality separate from its members, 46 is
engaged in a labor-only contracting arrangement based on In this case, it was never contested by complainants that it
the following indicators: was Maricalum Mining-not G Holdings-who executed several
sets of memorandum of agreement with the manpower
1) The cooperative had a measly paid-up capital of ₱6,600.00 cooperatives. The contractual connection between Maricalum
and had only managed to increase the same by continually Mining and the manpower cooperatives is crucial to the
engaging in labor-only contracting with its client; determination of labor-related liabilities especially when it
involves a labor-only contracting arrangement. Accordingly,
2) The cooperative did not carry out an independent business Maricalum Mining will eventually be held solidarily liable with
from its client and its own office and equipment were mainly the manpower cooperatives. In other words, it stands to be
used for administrative purposes; injured by the incontrovertible fact that it entered into a
labor-only arrangement with the manpower cooperatives.
3) The cooperative's members had to undergo instructions Thus, Maricalum Mining is an indispensable party and worthy
and pass the training provided by the client's personnel of being allowed to intervene in this case.52
before they could start working alongside regular employees;
In order to properly analyze G Holdings's role in the instant
4) The cooperative was not engaged to perform a specific dispute, the Court must discuss its peculiar relationship (or
and special job or service; and lack thereof) with Maricalum Mining and Sipalay Hospital.

5) The cooperative's members performed activities directly G Holdings and Maricalum Mining
related and vital to the principal business of its client.
The doctrine of piercing the corporate veil applies only in
Here, the virtually identical sets of memorandum of three (3) basic areas, namely: (a) defeat of public convenience
agreement with the manpower cooperatives state among as when the corporate fiction is used as a vehicle for the
others that: (a) the services covered shall consist of operating evasion of an existing obligation; (b) fraud cases or when the
loading, drilling and various auxiliary equipments; and (b) the corporate entity is used to justify a wrong, protect fraud, or
cooperative members shall abide by the norms and standards defend a crime; or (c) alter ego cases, where a corporation is
of the Maricalum Mining. These services and guidelines are merely a farce since it is a mere alter ego or business conduit
essential to the operations of Maricalum Mining. Thus, since of a person, or where the corporation is so organized and

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controlled and its affairs are so conducted as to make it corporate fiction may be allowed only if the following
merely an instrumentality, agency, conduit or adjunct of elements concur:
another corporation. 53 This principle is basically applied only
to determine established liability. 54 However, piercing of the 1) Control-not mere stock control, but complete domination-
veil of corporate fiction is frowned upon and must be done not only of finances, but of policy and business practice in
with caution. 55 This is because a corporation is invested by respect to the transaction attacked, must have been such that
law with a personality separate and distinct from those of the the corporate entity as to this transaction had at the time no
persons composing it as well as from that of any other legal separate mind, will or existence of its own;
entity to which it may be related. 56
2) Such control must have been used by the defendant to
A parent57 or holding company58 is a corporation which commit a fraud or a wrong, to perpetuate the violation of a
owns or is organized to own a substantial portion of another statutory or other positive legal duty, or a dishonest and an
company's voting59 shares of stock enough to control60 or unjust act in contravention of plaintiffs legal right; and
influence the latter's management, policies or affairs thru
election of the latter's board of directors or otherwise. 3) The said control and breach of duty must have proximately
However, the term "holding company" is customarily used caused the injury or unjust loss complained of.70
interchangeably with the term "investment company" which,
in turn, is defined by Section 4 (a) of Republic Act (R.A.) No. The elements of the alter ego theory were discussed in
262961 as "any issuer (corporation) which is or holds itself out Philippine National Bank v. Hydro Resources Contractors
as being engaged primarily, or proposes to engage primarily, Corporation, 71 to wit:
in the business of investing, reinvesting, or trading in
securities." The first prong is the "instrumentality" or "control" test. This
test requires that the subsidiary be completely under the
In other words, a "holding company" is organized and is control and domination of the parent. It examines the parent
basically conducting its business by investing substantially in corporation's relationship with the subsidiary. It inquires
the equity securities62 of another company for the purposes whether a subsidiary corporation is so organized and
of controlling their policies (as opposed to directly engaging controlled and its affairs are so conducted as to make it a
in operating activities) and "holding" them in a conglomerate mere instrumentality or agent of the parent corporation such
or umbrella structure along with other subsidiaries. that its separate existence as a distinct corporate entity will
Significantly, the holding company itself-being a separate be ignored. It seeks to establish whether the subsidiary
entity-does not own the assets of and does not answer for corporation has no autonomy and the parent corporation,
the liabilities of the subsidiary63 or affiliate. 64 The though acting through the subsidiary in form and
management of the subsidiary or affiliate still rests in the appearance, "is operating the business directly for itself."
hands of its own board of directors and corporate officers. It
is in keeping with the basic rule a corporation is a juridical The second prong is the "fraud" test. This test requires that
entity which is vested with a legal personality separate and the parent corporation's conduct in using the subsidiary
distinct from those acting for and in its behalf and, in general, corporation be unjust, fraudulent or wrongful. It examines the
from the people comprising it.65 The corporate form was relationship of the plaintiff to the corporation. It recognizes
created to allow shareholders to invest without incurring that piercing is appropriate only if the parent corporation
personal liability for the acts of the corporation. 66 uses the subsidiary in a way that harms the plaintiff creditor.
As such, it requires a showing of "an element of injustice or
While the veil of corporate fiction may be pierced under fundamental unfairness."
certain instances, mere ownership of a subsidiary does not
justify the imposition of liability on the parent company. 67 It The third prong is the "harm" test. This test requires the
must further appear that to recognize a parent and a plaintiff to show that the defendant's control, exerted in a
subsidiary as separate entities would aid in the fraudulent, illegal or otherwise unfair manner toward it,
consummation of a wrong.68 Thus, a holding corporation has caused the harm suffered. A causal connection between the
a separate corporate existence and is to be treated as a fraudulent conduct committed through the instrumentality of
separate entity; unless the facts show that such separate the subsidiary and the injury suffered or the damage incurred
corporate existence is a mere sham, or has been used as an by the plaintiff should be established. The plaintiff must prove
instrument for concealing the truth.69 that, unless the corporate veil is pierced, it will have been
treated unjustly by the defendant's exercise of control and
In the case at bench, complainants mainly harp their cause on improper use of the corporate form and, thereby, suffer
the alter ego theory. Under this theory, piercing the veil of damages.

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 6) The parent corporation pays the salaries and other
To summarize, piercing the corporate veil based on the alter expenses or losses of the subsidiary;
ego theory requires the concurrence of three elements:
control of the corporation by the stockholder or parent 7) The subsidiary has substantially no business except with
corporation, fraud or fundamental unfairness imposed on the the parent corporation or no assets except those conveyed to
plaintiff, and harm or damage caused to the plaintiff by the or by the parent corporation;
fraudulent or unfair act of the corporation. The absence of
any of these elements prevents piercing the corporate veil. 8) In the papers of the parent corporation or in the
(emphases and underscoring supplied) statements of its officers, the subsidiary is described as a
department or division of the parent corporation, or its
Again, all these three elements must concur before the business or financial responsibility is referred to as the parent
corporate veil may be pierced under the alter ego theory. corporation's own;
Keeping in mind the parameters, guidelines and indicators for
proper piercing of the corporate veil, the Court now proceeds 9) The parent corporation uses the property of the subsidiary
to determine whether Maricalum Mining's corporate veil may as its own;
be pierced in order to allow complainants to enforce their
monetary awards against G Holdings. 10) The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take their
I. Control or Instrumentality Test orders from the parent corporation; and

In Concept Builders, Inc. v. National Labor Relations 11) The formal legal requirements of the subsidiary are not
Commission, et al., 72 the Court first laid down the first set of observed.
probative factors of identity that will justify the application of
the doctrine of piercing the corporate veil, viz: In the instant case, there is no doubt that G Holdings-being
the majority and controlling stockholder-had been exercising
1) Stock ownership by one or common ownership of both significant control over Maricalum Mining. This is because this
corporations. Court had already upheld the validity and enforceability of
the PSA between the APT and G Holdings. It was stipulated in
2) Identity of directors and officers. the PSA that APT shall transfer 90% of Mari cal um Mining's
equity securities to G Holdings and it establishes the presence
3) The manner of keeping corporate books and records. of absolute control of a subsidiary's corporate affairs.
Moreover, the Court evinces its observation that Maricalum
4) Methods of conducting the business. Mining's corporate name appearing on the heading of the
cash vouchers issued in payment of the services rendered by
Later, in Philippine National Bank v. Ritratto Group Inc., et the manpower cooperatives is being superimposed with G
al.,73 the Court expanded the aforementioned probative Holding's corporate name. Due to this observation, it can be
factors and enumerated a combination of any of the reasonably inferred that G Holdings is paying for Mari cal um
following common circumstances that may also render a Mining's salary expenses. Hence, the presence of both
subsidiary an instrumentality, to wit: circumstances of dominant equity ownership and provision
for salary expenses may adequately establish that Maricalum
1) The parent corporation owns all or most of the capital Mining is an instrumentality of G Holdings.
stock of the subsidiary;
However, mere presence of control and full ownership of a
2) The parent and subsidiary corporations have common parent over a subsidiary is not enough to pierce the veil of
directors or officers; corporate fiction. It has been reiterated by this Court time
and again that mere ownership by a single stockholder or by
3) The parent corporation finances the subsidiary; another corporation of all or nearly all of the capital stock of
a corporation is not of itself sufficient ground for
4) The parent corporation subscribes to all the capital stock of disregarding the separate corporate personality.74
the subsidiary or otherwise causes its incorporation;
II. Fraud Test
5) The subsidiary has grossly inadequate capital;
The corporate veil may be lifted only if it has been used to
shield fraud, defend crime, justify a wrong, defeat public

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convenience, insulate bad faith or perpetuate injustice.75 To association with a corporation, which makes loans to them
aid in the determination of the presence or absence of fraud, without adequate security);
the following factors in the "Totality of Circumstances Test"76
may be considered, viz: 15) Disregard of legal formalities and failure to maintain
proper arm's length relationships among related entities;
1) Commingling of funds and other assets of the corporation
with those of the individual shareholders; 16) Use of a corporate entity as a conduit to procure labor,
services or merchandise for another person or entity;
2) Diversion of the corporation's funds or assets to non-
corporate uses (to the personal uses of the corporation's 17) Diversion of corporate assets from the corporation by or
shareholders); to a stockholder or other person or entity to the detriment of
creditors, or the manipulation of assets and liabilities between
3) Failure to maintain the corporate formalities necessary for entities to concentrate the assets in one and the liabilities in
the issuance of or subscription to the corporation's stock, another;
such as formal approval of the stock issue by the board of
directors; 18) Contracting by the corporation with another person with
the intent to avoid the risk of nonperformance by use of the
4) An individual shareholder representing to persons outside corporate entity; or the use of a corporation as a subterfuge
the corporation that he or she is personally liable for the for illegal transactions; and
debts or other obligations of the corporation;
19) The formation and use of the corporation to assume the
5) Failure to maintain corporate minutes or adequate existing liabilities of another person or entity.
corporate records;
Aside from the aforementioned circumstances, it must be
6) Identical equitable ownership in two entities; determined whether the transfer of assets from Maricalum
Mining to G Holdings is enough to invoke the equitable
7) Identity of the directors and officers of two entities who are remedy of piercing the corporate veil. The same issue was
responsible for supervision and management (a partnership resolved in Y-1 Leisure Phils., Inc., et al. v. Yu77 where this
or sole proprietorship and a corporation owned and Court applied the "Nell Doctrine"78 regarding the transfer of
managed by the same parties); all the assets of one corporation to another. It was discussed
in that case that as a general rule that where one corporation
8) Failure to adequately capitalize a corporation for the sells or otherwise transfers all of its assets to another
reasonable risks of the corporate undertaking; corporation, the latter is not liable for the debts and liabilities
of the transferor, except:
9) Absence of separately held corporate assets;
1) Where the purchaser expressly or impliedly agrees to
10) Use of a corporation as a mere shell or conduit to operate assume such debts;
a single venture or some particular aspect of the business of
an individual or another corporation; 2) Where the transaction amounts to a consolidation or
merger of the corporations;
11) Sole ownership of all the stock by one individual or
members of a single family; 3) Where the purchasing corporation is merely a continuation
of the selling corporation; and
12) Use of the same office or business location by the
corporation and its individual shareholder(s); 4) Where the transaction is entered into fraudulently in order
to escape liability for such debts.
13) Employment of the same employees or attorney by the
corporation and its shareholder(s); If any of the above-cited exceptions are present, then the
transferee corporation shall assume the liabilities of the
14) Concealment or misrepresentation of the identity of the transferor. 79
ownership, management or financial interests in the
corporation, and concealment of personal business activities In this case, G Holdings cannot be held liable for the
of the shareholders (sole shareholders do not reveal the satisfaction of labor-related claims against Maricalum Mining
under the fraud test for the following reasons:

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 collectively insufficient to cover the whole amount of its
First, the transfer of some Maricalum Mining's assets in favor liability subject in the instant litigation.
G Holdings was by virtue of the PSA as part of an official
measure to dispose of the government's non-performing Third, G Holdings purchased Mari cal um Mining's shares
assets-not to evade its monetary obligations to the from the APT not for the purpose of continuing the latter's
complainants. Even before complainants' monetary claims existence and operations but for the purpose of investing in
supposedly existed in 2007, some of Maricalum Mining's the mining industry without having to directly engage in the
assets had already been validly extrajudicially foreclosed and management and operation of mining. As discussed earlier, a
eventually sold to G Holdings in 2001. Thus, G Holdings could holding company's primary business is merely to invest in the
not have devised a scheme to avoid a non-existent equity of another corporation for the purpose of earning
obligation. No fraud could be attributed to G Holdings from the latter's endeavors. It generally does not undertake
because the transfer of assets was pursuant to a previously to engage in the daily operating activities of its subsidiaries
perfected valid contract. that, in turn, have their own separate sets of directors and
officers. Thus, there should be proof that a holding company
Settled is the rule that where one corporation sells or had indeed fraudulently used the separate corporate
otherwise transfers all its assets to another corporation for personality of its subsidiary to evade an obligation before it
value, the latter is not, by that fact alone, liable for the debts can be held liable. Since G Holdings is a holding company,
and liabilities of the transferor. 80 In other words, control or the corporate veil of its subsidiaries may only be pierced
ownership of substantially all of a subsidiary's assets is not by based on fraud or gross negligence amounting to bad faith.
itself an indication of a holding company's fraudulent intent
to alienate these assets in evading labor-related claims or Lastly, no clear and convincing evidence was presented by the
liabilities. As discussed earlier, the PSA was not designed to complainants to conclusively prove the presence of fraud on
evade the monetary claims of the complainants. Although the part of G Holdings. Although the quantum of evidence
there was proof that G Holdings has an office in Maricalum needed to establish a claim for illegal dismissal in labor cases
Mining's premises and that that some of their assets have is substantial evidence,86 the quantum need to establish the
been commingled due to the PSA's unavoidable presence of fraud is clear and convincing evidence.87 Thus, to
consequences, there was no fraudulent diversion of corporate disregard the separate juridical personality of a corporation,
assets to another corporation for the sole purpose of evading the wrongdoing must be established clearly and
complainants' claim. convincingly-it cannot be presumed.88

Besides, it is evident that the alleged continuing depletion of Here, the complainants did not satisfy the requisite quantum
Maricalum Mining's assets is due to its disgruntled of evidence to prove fraud on the part of G Holdings. They
employees' own acts of pilferage, which was beyond the merely offered allegations and suppositions that, since
control of G Holdings. More so, complainants also failed to Maricalum Mining's assets appear to be continuously
present any clear and convincing evidence that G Holdings depleting and that the same corporation is a subsidiary, G
was grossly negligent and failed to exercise the required Holdings could have been guilty of fraud. As emphasized
degree of diligence in ensuring that Maricalum Mining's earlier, bare allegations do not prove anything. There must be
assets would be protected from pilferage. 81 Hence, no fraud proof that fraud-not the inevitable effects of a previously
can be imputed against G Holdings considering that there is executed and valid contract such as the PSA-was the cause of
no evidence in the records that establishes it systematically the latter's total asset depletion. To be clear, the presence of
tried to alienate Maricalum Mining's assets to escape the control per se is not enough to justify the piercing of the
liabilities to complainants. corporate veil.

Second, it was not proven that all of Maricalum Mining's III. Harm or Casual Connection Test
assets were transferred to G Holdings or were totally
depleted. Complainants never offered any evidence to In WPM International Trading, Inc., et al. v. Labayen,89 the
establish that Maricalum Mining had absolutely no Court laid down the criteria for the harm or casual connection
substantial assets to cover for their monetary claims. Their test, to wit:
allegation that their claims will be reduced to a mere "paper
victory" has not confirmed with concrete proof. At the very In this connection, we stress that the control necessary to
least, substantial evidence should be adduced that the invoke the instrumentality or alter ego rule is not majority or
subsidiary company's "net realizable value"82 of "current even complete stock control but such domination of finances,
assets" 83 and "fair value" 84 of "non-current assets" 85 are policies and practices that the controlled corporation has, so
to speak, no separate mind, will or existence of its own, and is

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but a conduit for its principal. The control must be shown to employees. This lack of stockholding or contractual
have been exercised at the time the acts complained of took connection signifies that Sipalay Hospital is not affiliated93
place. Moreover, the control and breach of duty must with G Holdings. Thus, due to this absence of affiliation, the
proximately cause the injury or unjust loss for which the Court must apply the tests used to determine the existence of
complaint is made. (emphases and underscoring supplied) an employee-employer relationship; rather than piercing the
corporate veil.
Proximate cause is defined as that cause, which, in natural
and continuous sequence, unbroken by any efficient Under the four-fold test, the employer-employee relationship
intervening cause, produces the injury, and without which the is determined if the following are present: a) the selection and
result would not have occurred.90 More comprehensively, the engagement of the employee; b) the payment of wages; c)
proximate legal cause is that "acting first and producing the the power of dismissal; and d) the power to control the
injury, either immediately or by setting other events in employee's conduct, or the so-called "control test."94 Here,
motion, all constituting a natural and continuous chain of the "control test" is the most important and crucial among
events, each having a close causal connection with its the four tests. 95 However, in cases where there is no written
immediate predecessor, the final event in the chain agreement to base the relationship on and where the various
immediately effecting the injury as a natural and probable tasks performed by the worker bring complexity to the
result of the cause which first acted, under such relationship with the employer, the better approach would
circumstances that the person responsible for the first event therefore be to adopt a two-tiered test involving: a) the
should, as an ordinary prudent and intelligent person, have putative employer's power to control the employee with
reasonable ground to expect at the moment of his act or respect to the means and methods by which the work is to be
default that an injury to some person might probably result accomplished; and b) the underlying economic realities of the
therefrom."91 Hence, for an act or event to be considered as activity or relationship.96
proximate legal cause, it should be shown that such act or
event had indeed caused injury to another. In applying the second tier, the determination of the
relationship between employer and employee depends upon
In the case at bench, complainants have not yet even suffered the circumstances of the whole economic activity (economic
any monetary injury. They have yet to enforce their claims reality or multi-factor test), such as: a) the extent to which the
against Maricalum Mining. It is apparent that complainants services performed are an integral part of the employer's
are merely anxious that their monetary awards will not be business; b) the extent of the worker's investment in
satisfied because the assets of Maricalum Mining were equipment and facilities; c) the nature and degree of control
allegedly transferred surreptitiously to G Holdings. However, exercised by the employer; d) the worker's opportunity for
as discussed earlier, since complainants failed to show that G profit and loss; e) the amount of initiative, skill, judgment or
Holdings's mere exercise of control had a clear hand in the foresight required for the success of the claimed independent
depletion of Maricalum Mining's assets, no proximate cause enterprise; f) the permanency and duration of the relationship
was successfully established. The transfer of assets was between the worker and the employer; and g) the degree of
pursuant to a valid and legal PSA between G Holdings and dependency of the worker upon the employer for his
APT. continued employment in that line of business. 97 Under all
of these tests, the burden to prove by substantial evidence all
Accordingly, complainants failed to satisfy the second and of the elements or factors is incumbent on the employee for
third tests to justify the application of the alter ego theory. he or she is the one claiming the existence of an employment
This inevitably shows that the CA committed no reversible relationship.98
error in upholding the NLRC's Decision declaring Maricalum
Mining as the proper party liable to pay the monetary awards In light of the present circumstances, the Court must apply
in favor of complainants. the four-fold test for lack of relevant data in the case records
relating to the underlying economic realities of the activity or
G Holdings and Sipalay Hospital relationship of Sipalay Hospital's employees.

Sipalay Hospital was incorporated by Romulo G. Zafra, To prove the existence of their employment relationship with
Eleanore B. Gutierrez, Helen Grace B. Fernandez, Evelyn B. G Holdings, complainants Dr. Welilmo T. Neri, Erlinda L.
Badajos and Helen Grace L. Arbolario. 92 However, there is Fernandez, Edgar M. Sobrino and Wilfredo C. Taganile, Sr.
absence of indication that G Holdings subsequently acquired presented the following documents:
the controlling interests of Sipalay Hospital. There is also no
evidence that G Holdings entered into a contract with Sipalay 1) Affidavit99 of Dr. Welilmo T. Neri attesting among others
Hospital to provide medical services for its officers and that he was the Medical Director of Sipalay Hospital which is

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allegedly owned and operated by G Holdings/Maricalum Fernandez, Edgar M. Sobrino and Wilfredo C. Taganile, Sr.
Mining; with G Holdings.

2) Several cash vouchers 100 issued by G Holdings!Maricalum Under the control test, an employer-employee relationship
Mining representing Dr. Welilmo T. Neri's payment for exists where the person for whom the services are performed
services rendered to "various" personnel; reserves the right to control not only the end achieved, but
also the manner and means to be used in reaching that end.
3) Schedules of social security premium payments101 in favor 106 As applied in the healthcare industry, an employment
of Dr. Welilmo T. Neri, Edgar M. Sobrino and Wilfredo C. relationship exists between a physician and a hospital if the
Taganile, Sr. stamped paid by G Holdings; hospital controls both the means and the details of the
process by which the physician is to accomplish his task. 107
4) Notice of termination102 dated July 3, 2010 issued by But where a person who works for another performs his job
Rolando G. Degojas (OIC of G-Holdings Inc.) issued to Dr. more or less at his own pleasure, in the manner he sees fit,
Welilmo T. Neri and some of his companions who are not not subject to definite hours or conditions of work, and is
complainants in this case; compensated according to the result of his efforts and not
the amount thereof, no employer-employee relationship
5) Notice of termination103 addressed to Dr. Welilmo T. Neri, exists. 108
Erlinda L. Fernandez, Edgar M. Sobrino and some of their co-
employees who are not complainants in this case with a A corporation may only exercise its powers within the
collatilla stating that the services of Dr. Welilmo T. Neri and definitions provided by law and its articles of incorporation.
nurse Erlinda L. Fernandez will be engaged on per call basis; 109 Accordingly, in order to determine the presence or
and absence of an employment relationship between G Holdings
and the employees of Sipalay Hospital by using the control
6) A "Statement of Unpaid Salaries of Employees of G test, the Court deems it essential to examine the salient
Holdings, Inc. Assigned to the Sipalay General Hospital" 104 portion of Sipalay Hospital's Articles of Incorporation
prepared by Dr. Welilmo T. Neri which included his own along imparting its 'primary purpose,' 110 to wit:
with complainants Erlinda L. Fernandez, Wilfredo C. Taganile,
[Sr.] and Edgar M. [Sobrino]. To own, manage, lease or operate hospitals or clinics offering
and providing medical services and facilities to the general
A perusal of the aforementioned documents fails to show public, provided that purely professional, medical or surgical
that the services of complainants Dr. Welilmo T. Neri, Erlinda services shall be performed by duly qualified physicians or
L. Fernandez, Edgar M. Sobrino and Wilfredo C. Taganile, Sr. surgeons who may or may not be connected with the
were indeed selected and engaged by either Maricalum corporation and who shall be freely and individually
Mining or G Holdings. This gap in evidence clearly shows that contracted by patients. (emphasis supplied)
the first factor of the four-fold test, or the selection and
engagement of the employee, was not satisfied and not It is immediately apparent that Sipalay Hospital, even if its
supported by substantial evidence. facilities are located inside the Sipalay Mining Complex, does
not limit its medical services only to the employees and
However, the same cannot be said as to the second and third officers of Maricalum Mining and/or G Holdings. Its act of
factors of the four-fold test (the payment of wages and the holding out services to the public reinforces the fact of its
power of dismissal). Since substantial evidence is defined as independence from either Maricalum Mining or G Holdings
that amount of relevant evidence which a reasonable mind because it is free to deal with any client without any legal or
might accept as adequate to justify a conclusion, 105 the cash contractual restriction. Moreover, G Holdings is a holding
vouchers, social security payments and notices of termination company primarily engaged in investing substantially in the
are reasonable enough to draw an inference that G Holdings stocks of another company-not in directing and managing
and Maricalum Mining may have had a hand in the the latter's daily business operations. Because of this
complainants' payment of salaries and dismissal. corporate attribute, the Court can reasonably draw an
inference that G Holdings does not have a considerable
Notwithstanding the absence of the first factor and the ability to control means and methods of work of Sipalay
presence of the second and third factors of the four-fold test, Hospital employees. Markedly, the records are simply bereft
the Court still deems it best to examine the fourth factor-the of any evidence that G Holdings had, in fact, used its
presence of control-in order to determine the employment ownership to control the daily operations of Sipalay Hospital
connection of complainants Dr. Welilmo T. Neri, Erlinda L. as well as the working methods of the latter's employees.
There is no evidence showing any subsequent transfer of

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shares from the original incorporators of Sipalay Hospital to G On October 8, 2010, BCDA filed a petition for review with the
Holdings. Worse, it appears that complainants Dr. Welilmo T. CTA in order to preserve its right to pursue its claim for
Neri, Erlinda L. Fernandez, Wilfredo C. Taganile, Sr. and Edgar refund of the Creditable Withholding Tax (CWT) in the
M. Sobrino are trying to derive their employment connection amount of Php122,079,442.53, which was paid under protest
with G Holdings merely on an assumed premise that the from March 19, 2008 to October 8, 2008. The CWT which
latter owns the controlling stocks of Maricalum Mining. BCDA paid under protest was in connection with its sale of
the BCDA-allocated units as its share in the Serendra Project
On this score, the CA committed no reversible error in pursuant to the Joint Development Agreement with Ayala
allowing the NLRC to delete the monetary awards of Dr. Land, Inc.[4]
Welilmo T. Neri, Erlinda L. Fernandez, Wilfredo C. Taganile, Sr.
and Edgar M. Sobrino imposed by the Labor Arbiter against G The petition for review was filed with a Request for Exemption
Holdings. from the Payment of Filing Fees in the amount of
Php1,209,457.90.[5]
Conclusion
On October 20, 2010, the CTA First Division denied BCDA's
A holding company may be held liable for the acts of its Request for Exemption and ordered it to pay the filing fees
subsidiary only when it is adequately proven that: a) there within five days from notice.[6]
was control over the subsidiary; (b) such control was used to
protect a fraud (or gross negligence amounting to bad faith) BCDA moved for reconsideration which was denied by the
or evade an obligation; and c) fraud was the proximate cause CTA First Division on February 8, 2011. BCDA was once again
of another's existing injury. Further, an employee is duly- ordered to pay the filing fees within five days from notice,
burdened to prove the crucial test or factor of control thru otherwise, the petition for review will be dismissed.[7]
substantial evidence in order to establish the existence of an
employment relationship-especially as against an unaffiliated BCDA filed a petition for review with the CTA En Banc on
corporation alleged to be exercising control. February 25, 2011, which petition was returned and not
deemed filed without the payment of the correct legal fees.
In this case, complainants have not successfully proven that G BCDA once again emphasized its position that it is exempt
Holdings fraudulently exercised its control over Maricalum from the payment of such fees.[8]
Mining to fraudulently evade any obligation. They also fell
short of proving that G Holdings had exercised operational On March 28, 2011, the petition before the CTA First Division
control over the employees of Sipalay Hospital. Due to these was dismissed. BCDA attempted to tile its Motion for
findings, the Court sees no reversible error on the part of the Reconsideration, however, the Officer-In-Charge of the First
CA, which found no grave abuse of discretion and affirmed in Division refused to receive the checks for the payment of the
toto the factual findings and legal conclusions of the NLRC. filing fees, and the Motion for Reconsideration. BCDA then
filed its Motion for Reconsideration by registered mail.[9]

Subsequently, BCDA filed a manifestation stating the

BASES CONVERSION AND DEVELOPMENT AUTHORITY, incidents relating to the tiling of its Motion for
PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, Reconsideration. The CTA First Division, on April 26, 2011,
RESPONDENT. issued its Resolution,[10] the dispositive portion of which
states:
This petition for review on certiorari[1] under Rule 45 of the
Rules of Court seeks to reverse and set aside the Decision[2] WHEREFORE, finding no reason to deny receipt of the
dated August 29, 2012 and Resolution[3] dated February 12, supposed Motion for Reconsideration of the [BCDA] on the
2013 of the Court of Tax Appeals (CTA) En Banc in CTA EB dismissal of its Petition for Review, the Executive Clerk of
Case No. 797, which affirmed the CTA First Division's Court III of this Division, Atty. Margarette Y. Guzman, is
dismissal of the case filed by herein petitioner Bases hereby DIRECTED to allow petitioner BCDA to file the same,
Conversion and Development Authority (BCDA) on the or to accept said pleading which was allegedly mailed
ground that the latter failed to pay docket fees as required through registered mail, upon receipt thereof, and to
under Rule 141 of the Rules of Court. commence the procedure in paying the prescribed docket
The Facts fees, subject to the caveat herein stated, should petitioner
BCDA decide to pursue its case.
The facts, as summarized by the CTA En Banc, read as follows:
SO ORDERED.[11]

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 The petition is impressed with merit.
On May 17, 2011, BCDA moved for reconsideration of the
Resolution dated April 26, 2011 and prayed that it be allowed BCDA is a government instrumentality vested with corporate
to pay the prescribed docket fees of Php1,209,457.90 without powers. As such, it is exempt from the payment of docket
qualification. On June 9, 2011, the CTA First Division denied fees.
both motions for reconsideration.[12] At the crux of the present pet1t1on is the issue of whether or
not BCDA is a government instrumentality or a government-
On June 28, 2011, BCDA filed a petition for review with the owned and – controlled corporation (GOCC). [fit is an
CTA En Banc but the same was dismissed. In its assailed instrumentality, it is exempt from the payment of docket fees.
Decision[13] dated August 29, 2012, it adopted and affirmed lf it is a GOCC, it is not exempt and as such non-payment
the findings of the First Division, to wit: thereof would mean that the tax court did not acquire
jurisdiction over the case and properly dismissed it for BCDA's
BCDA fails to raise any new and substantial arguments, and failure to settle the fees on time.
no cogent reason exists to warrant a consideration of the
Court's Resolution dated March 28, 2011 dismissing its BCDA is a government instrumentality vested with corporate
Petition for Review. powers. As such, it is exempt from the payment of docket
fees required under Section 21, Rule 141 of the Rules or
It must be emphasized that payment in full of docket fees Court, to wit:
within the prescribed period is mandatory. It is an essential
requirement without which the decision appealed from would RULE 141
become final and executory as if no appeal had been filed. To LEGAL FEES
repeat, in both original and appellate cases, the court
acquires jurisdiction over the case only upon the payment of SEC. 1. Payment of fees. – Upon the filing of the pleading or
the prescribed docket fees. other application which initiates an action or proceeding, the
fees prescribed therefor shall be paid in full.
In this case, due to BCDA's non-payment of the prescribed
legal fees within the prescribed period, this Court has not xxxx
acquired jurisdiction over the case. Consequently, it is as if no
appeal was ever filed with this Court.[14] SEC. 21. Government exempt. – The Republic of the
Philippines, its agencies and instrumentalities, are exempt
Undeterred, BCDA filed a Motion[15] for Reconsideration but from paying the legal fees provided in this rule. Local
was likewise denied by the CTA En Banc in the assailed governments and government-owned or controlled
Resolution[16] dated February 12, 2013. corporations with or without independent charters are not
exempt from paying such fees. (Emphasis Ours)
Hence, this petition.
Section 2(10) and (13) of the Introductory Provisions of the
The Issues Administrative Code of 1987 provides for the definition of a
government "instrumentality" and a "GOCC", to wit:
I.
SEC. 2. General Terms Defined. x x x x
THE CTA EN BANC ERRED IN AFFIRMING THE CTA FIRST
DIVISION'S RULING THAT BCDA IS NOT A GOVERNMENT (10) Instrumentality refers to any agency of the National
INSTRUMENTALITY, HENCE, NOT EXEMPT FROM PAYMENT Government. not integrated within the department
OF LEGAL FEES. framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
II. administering special funds, and enjoying operational
autonomy, usually through a charter. x x x.
THE CTA EN BANC ERRED IN AFFIRMING CTA FIRST
DIVISION'S RESOLUTION DISMISSING BCDA'S PETITION FOR xxxx
REVIEW FOR NON-PAYMENT OF THE PRESCRIBED LEGAL
FEES WITHIN THE REGLEMENTARY PERIOD. (13) Government-owned or controlled corporation refers to
any agency organized as a stock or non-stock corporation,
Ruling of the Court vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the

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Government directly or through its instrumentalities either The Authority is actually a national government
wholly, or, where applicable as in the case of stock instrumentality which is define as an agency of the national
corporations, to the extent of at least fifty-one (51) percent of government, not integrated within the department
its capital stock: x x x. (Emphasis Ours) framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
The grant of these corporate powers is likewise stated in administering special funds and enjoying operational
Section 3 of Republic Act (R.A.) No. 7227; also known as The autonomy, usually through a charter. When the law vests in a
Bases Conversion and Development Act of 1992 which government instrumentality corporate powers, the
provides for BCDA's manner of creation, to wit: instrumentality does not become a corporation. Unless the
government instrumentality is organized as a stock or non-
Sec. 3. Creation of the Bases Conversion and Development stock corporation, it remains a government instrumentality
Authority. - There is hereby created a body corporate to be exercising not only governmental but also corporate powers.
known as the Bases Conversion and Development Authority, [20]
which shall have the attribute of perpetual succession and
shall be vested with the powers of a corporation. (Emphasis As previously mentioned, in order to qualify as a GOCC, one
Ours) must be organized either as a stock or non-stock corporation.
Section 3[21] of the Corporation Code defines a stock
From the foregoing, it is clear that a government corporation as one whose "capital stock is divided into shares
instrumentality may be endowed with corporate powers and and x x x authorized to distribute to the holders of such
at the same time retain its classification as a government shares dividends x x x.''
"instrumentality" for all other purposes.
Section 6 of R.A. No. 7227 provides for BCDA's capitalization,
In the 2006 case of Manila International Airport Authority v. to wit:
CA,[17] the Court, speaking through Associate Justice Antonio
T. Carpio, explained in this wise: Sec. 6. Capitalization. – The Conversion Authority shall have
an authorized capital of One hundred billion pesos
Many government instrumentalities are vested with corporate (P100,000,000,000.00) which may be fully subscribed by the
powers but they do not become stock or non-stock Republic of the Philippines and shall either be paid up from
corporations, which is a necessary condition before an agency the proceeds of the sales of its land assets as provided for in
or instrumentality is deemed a [GOCC]. Examples are the Section 8 of this Act or by transferring to the Conversion
Mactan International Airport Authority, the Philippine Ports Authority properties valued in such amount.
Authority, the University of the Philippines and Bangko
Sentral ng Pilipinas. All these government instrumentalities An initial operating capital in the amount of seventy million
exercise corporate powers but they are not organized as pesos (P70,000,000.00) is hereby authorized to be
stock or non-stock corporations as required by Section 2 (13) appropriated out of any funds in the National Treasury not
of the Introductory Provisions of the Administrative Code. otherwise appropriated which shall be covered by preferred
These government instrumentalities arc sometimes loosely shares of the Conversion Authority retireable within two (2)
called government corporate entities. However, they are not years.
[GOCCs] in the strict sense as understood under the
Administrative Code, which is the governing law defining the Based on the foregoing, it is clear that BCDA has an
legal relationship or status of government entities.[18] authorized capital of Php100 Billion, however, it is not divided
into shares of stock. BCDA has no voting shares. There is
Moreover, in the 2007 case of Philippine Fisheries likewise no provision which authorizes the distribution of
Development Authority v. CA,[19] the Court reiterated that a dividends and allotments of surplus and profits to BCDA's
government instrumentality retains its classification as such stockholders. Hence, BCDA is not a stock corporation.
albeit having been endowed with some if not all corporate
powers. The relevant portion of said decision reads as follows: Section 8 of R.A. No. 7227 provides an enumeration of
BCDA's purposes and their corresponding percentage shares
Indeed, the Authority is not a GOCC but an instrumentality of in the sales proceeds of BCDA. Section 8 likewise states that
the government. The Authority has a capital stock but it is not after distribution of the proceeds acquired from BCDA's
divided into shares of stocks. Also, it has no stockholders or activities, the balance, if any, shall accrue and be remitted to
voting shares. Hence, it is not a stock corporation. Neither is it the National Treasury, to wit:
a non-stock corporation because it has no members.

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Sec. 8. Funding Scheme.—The capital of the Conversion of the proceeds from BCDA's activities will be allotted to its
Authority shall come from the sales proceeds and/or transfers stockholders.
of certain Metro Manila military camps, including all lands
covered by Proclamation No. 423, series of 1957, commonly BCDA also does not qualify as a non-stock corporation
known as Fort Bonifacio and Villamor (Nicholas) Air Base x x x. because it is not organized for any of the purposes
mentioned under Section 88 of the Corporation Code, to wit:
xxxx
Sec. 88. Purposes. – Non-stock corporations may be formed
The President is hereby authorized to sell the above lands, in or organized tor charitable, religious, educational,
whole or in part, which are hereby declared alienable and professional, cultural, fraternal, literary, scientific, social, civic
disposable pursuant to the provisions of existing laws and service, or similar purposes, like trade industry, agricultural
regulations governing sales of government properties: and like chambers, or any combination thereof: subject to the
provided, that no sale or disposition of such lands will be special provisions of this Title governing particular classes of
undertaken until a development plan embodying projects for non-stock corporations.
conversion shall be approved by the President in accordance
with paragraph (b), Sec. 4, of this Act. However, six (6) months A cursory reading of Section 4 of R.A. No. 7227 shows that
after approval of this Act, the President shall authorize the BCDA is organized for a specific purpose - to own, hold
Conversion Authority to dispose of certain areas in Fort and/or administer the military reservations in the country and
Bonifacio and Villamor as the latter so determines. The implement its conversion to other productive uses, to wit:
Conversion Authority shall provide the President a report on
any such disposition or plan for disposition within one (1) Sec. 4. Purposes of the Conversion Authority. — The
month from such disposition or preparation of such plan. The Conversion Authority shall have the following purposes:
proceeds from any sale, after deducting all expenses related
to the sale, of portions of Metro Manila military camps as (a) To own, hold and/or administer the military reservations of
authorized under this Act, shall be used for the following John Hay Air Station, Wallace Air Station, O'Donnell
purposes with their corresponding percent shares of Transmitter Station, San Miguel Naval Communications
proceeds: Station. Mt. Sta. Rita Station (Hermosa, Bataan) and those
portions of Metro Manila military camps which may be
(1) Thirty-two and five-tenths percent (35.5%) — To finance transferred to it by the President:
the transfer of the AFP military camps and the construction of
new camps, the self-reliance and modernization program of (b) To adopt, prepare and implement a comprehensive and
the AFP, the concessional and long-term housing loan detailed development plan embodying a list of projects
assistance and livelihood assistance to AFP officers and including but not limited to those provided in the Legislative-
enlisted men and their families, and the rehabilitation and Executive Bases Council (LEBC) framework plan for the sound
expansion of the AFP's medical facilities; and balanced conversion of the Clark and Subic military
reservations and their extensions consistent with ecological
(2) Fifty percent (50%) — To finance the conversion and the and environmental standards, into other productive uses to
commercial uses of the Clark and subic military reservations promote the economic and social development of Central
and their extentions; Luzon in particular and the country in general;

(3) Five Percent (5%) — To finance the concessional and long- (c) To encourage the active participation of the private sector
term housing loan assistance for the homeless of Metro in transforming the Clark and Subic military reservations and
Manila, Olongapo City, Angeles City and other affected their extensions into other productive uses;
municipalities contiguous to the base areas as mandated
herein: and (d) To serve as the holding company of subsidiary companies
created pursuant to Section 16 of this Act and to invest in
(4) The balance shall accrue and be remitted to the National Special Economic Zones declared under Sections 12 and 15 of
Treasury to be appropriated thereafter by Congress for the this Act;
sole purpose of financing programs and projects vital for the
economic upliftment of the Filipino people. (Emphasis Ours) (e) To manage and operate through private sector companies
developmental projects outside the jurisdiction of subsidiary
The remaining balance, if any, from the proceeds of BCDA's companies and Special Economic Zones declared by
activities shall be remitted to the National Treasury. The presidential proclamations and established under this Act;
National Treasury is not a stockholder of BCDA Hence, none

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(f) To establish a mechanism in coordination with the Antecedent Facts
appropriate local government units to effect meaningful
consultation regarding the plans, programs and projects A Special Audit Team from COA Regional Office No. VIII
within the regions where such plans, programs and/or project audited the accounts of LMWD. Subsequently, LMWD
development are part of the conversion of the Clark and received a letter from COA dated 19 July 1999 requesting
Subic military reservations and their extensions and the payment of auditing fees. As General Manager of LMWD,
surrounding communities as envisioned in this Act; and petitioner sent a reply dated 12 October 1999 informing
COA’s Regional Director that the water district could not pay
(g) To plan, program and undertake the readjustment, the auditing fees. Petitioner cited as basis for his action
relocation, or resettlement of population within the Clark and Sections 6 and 20 of Presidential Decree 198 ("PD 198")2 , as
Subic military reservations and their extensions as may be well as Section 18 of Republic Act No. 6758 ("RA 6758"). The
deemed necessary and beneficial by the Conversion Regional Director referred petitioner’s reply to the COA
Authority, in coordination with the appropriate government Chairman on 18 October 1999.
agencies and local government units. (Emphases Ours)
On 19 October 1999, petitioner wrote COA through the
From the foregoing, it is clear that BCDA is neither a stock nor Regional Director asking for refund of all auditing fees LMWD
a non-stock corporation. BCDA is a government previously paid to COA.
instrumentality vested with corporate powers. Under Section
21,[22] Rule 141 of the Rules of Court, agencies and On 16 March 2000, petitioner received COA Chairman Celso
instrumentalities of the Republic of the Philippines are D. Gangan’s Resolution dated 3 January 2000 denying his
exempt from paying legal or docket fees. Hence, BCDA is requests. Petitioner filed a motion for reconsideration on 31
exempt from the payment of docket fees. March 2000, which COA denied on 30 January 2001.

WHEREFORE, premises considered, the present petition is On 13 March 2001, petitioner filed this instant petition.
GRANTED. The Decision dated August 29, 2012 and Attached to the petition were resolutions of the Visayas
Resolution dated February 12, 2013 of the CTA En Banc are Association of Water Districts (VAWD) and the Philippine
hereby REVERSED and SET ASIDE. Association of Water Districts (PAWD) supporting the
petition.
Let this case be remanded to the Court of Tax Appeals for
further proceedings regarding Bases conversion and The Ruling of the Commission on Audit
Development Authority's claim for refund of the Creditable
Withholding Tax (CWT) in the amount of P122,079,442.53 The COA ruled that this Court has already settled COA’s audit
which the latter paid under protest from March 19, 2008 to jurisdiction over local water districts in Davao City Water
October 8, 2008. District v. Civil Service Commission and Commission on
Audit,3 as follows:

ENGR. RANULFO C. FELICIANO, in his capacity as General The above-quoted provision [referring to Section 3(b) PD
Manager of the Leyte Metropolitan Water District 198] definitely sets to naught petitioner’s contention that
(LMWD), Tacloban City, petitioner, they are private corporations. It is clear therefrom that the
vs. power to appoint the members who will comprise the
COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, members of the Board of Directors belong to the local
Commissioners RAUL C. FLORES and EMMANUEL M. executives of the local subdivision unit where such districts
DALMAN, and Regional Director of COA Region VIII, are located. In contrast, the members of the Board of
respondents. Directors or the trustees of a private corporation are elected
from among members or stockholders thereof. It would not
This is a petition for certiorari1 to annul the Commission on be amiss at this point to emphasize that a private corporation
Audit’s ("COA") Resolution dated 3 January 2000 and the is created for the private purpose, benefit, aim and end of its
Decision dated 30 January 2001 denying the Motion for members or stockholders. Necessarily, said members or
Reconsideration. The COA denied petitioner Ranulfo C. stockholders should be given a free hand to choose who will
Feliciano’s request for COA to cease all audit services, and to compose the governing body of their corporation. But this is
stop charging auditing fees, to Leyte Metropolitan Water not the case here and this clearly indicates that petitioners
District ("LMWD"). The COA also denied petitioner’s request are not private corporations.
for COA to refund all auditing fees previously paid by LMWD.

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The COA also denied petitioner’s request for COA to stop general accounts of the Government and, for such period as
charging auditing fees as well as petitioner’s request for COA may be provided by law, preserve the vouchers and other
to refund all auditing fees already paid. supporting papers pertaining thereto. (Emphasis supplied)

The Issues The COA’s audit jurisdiction extends not only to government
"agencies or instrumentalities," but also to "government-
Petitioner contends that COA committed grave abuse of owned and controlled corporations with original charters" as
discretion amounting to lack or excess of jurisdiction by well as "other government-owned or controlled corporations"
auditing LMWD and requiring it to pay auditing fees. without original charters.
Petitioner raises the following issues for resolution:
Whether LWDs are Private or Government-Owned
1. Whether a Local Water District ("LWD") created under PD and Controlled Corporations with Original Charters
198, as amended, is a government-owned or controlled
corporation subject to the audit jurisdiction of COA; Petitioner seeks to revive a well-settled issue. Petitioner asks
for a re-examination of a doctrine backed by a long line of
2. Whether Section 20 of PD 198, as amended, prohibits cases culminating in Davao City Water District v. Civil Service
COA’s certified public accountants from auditing local water Commission5 and just recently reiterated in De Jesus v.
districts; and Commission on Audit.6 Petitioner maintains that LWDs are
not government-owned and controlled corporations with
3. Whether Section 18 of RA 6758 prohibits the COA from original charters. Petitioner even argues that LWDs are private
charging government-owned and controlled corporations corporations. Petitioner asks the Court to consider certain
auditing fees. interpretations of the applicable laws, which would give a
"new perspective to the issue of the true character of water
The Ruling of the Court districts."7

The petition lacks merit. Petitioner theorizes that what PD 198 created was the Local
Waters Utilities Administration ("LWUA") and not the LWDs.
The Constitution and existing laws4 mandate COA to audit all Petitioner claims that LWDs are created "pursuant to" and not
government agencies, including government-owned and created directly by PD 198. Thus, petitioner concludes that PD
controlled corporations ("GOCCs") with original charters. An 198 is not an "original charter" that would place LWDs within
LWD is a GOCC with an original charter. Section 2(1), Article the audit jurisdiction of COA as defined in Section 2(1), Article
IX-D of the Constitution provides for COA’s audit jurisdiction, IX-D of the Constitution. Petitioner elaborates that PD 198
as follows: does not create LWDs since it does not expressly direct the
creation of such entities, but only provides for their formation
SECTION 2. (1) The Commission on Audit shall have the on an optional or voluntary basis.8 Petitioner adds that the
power, authority and duty to examine, audit, and settle all operative act that creates an LWD is the approval of the
accounts pertaining to the revenue and receipts of, and Sanggunian Resolution as specified in PD 198.
expenditures or uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or any of its Petitioner’s contention deserves scant consideration.
subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original We begin by explaining the general framework under the
charters, and on a post-audit basis: (a) constitutional bodies, fundamental law. The Constitution recognizes two classes of
commissions and offices that have been granted fiscal corporations. The first refers to private corporations created
autonomy under this Constitution; (b) autonomous state under a general law. The second refers to government-owned
colleges and universities; (c) other government-owned or or controlled corporations created by special charters. Section
controlled corporations and their subsidiaries; and (d) such 16, Article XII of the Constitution provides:
non-governmental entities receiving subsidy or equity,
directly or indirectly, from or through the government, which Sec. 16. The Congress shall not, except by general law,
are required by law or the granting institution to submit to provide for the formation, organization, or regulation of
such audit as a condition of subsidy or equity. However, private corporations. Government-owned or controlled
where the internal control system of the audited agencies is corporations may be created or established by special
inadequate, the Commission may adopt such measures, charters in the interest of the common good and subject to
including temporary or special pre-audit, as are necessary the test of economic viability.
and appropriate to correct the deficiencies. It shall keep the

Page 48 of 59
The Constitution emphatically prohibits the creation of
private corporations except by a general law applicable to all Unlike private corporations, which derive their legal existence
citizens.9 The purpose of this constitutional provision is to and power from the Corporation Code, LWDs derive their
ban private corporations created by special charters, which legal existence and power from PD 198. Sections 6 and 25 of
historically gave certain individuals, families or groups special PD 19814 provide:
privileges denied to other citizens.10
Section 6. Formation of District. — This Act is the source of
In short, Congress cannot enact a law creating a private authorization and power to form and maintain a district. For
corporation with a special charter. Such legislation would be purposes of this Act, a district shall be considered as a quasi-
unconstitutional. Private corporations may exist only under a public corporation performing public service and supplying
general law. If the corporation is private, it must necessarily public wants. As such, a district shall exercise the powers,
exist under a general law. Stated differently, only corporations rights and privileges given to private corporations under
created under a general law can qualify as private existing laws, in addition to the powers granted in, and
corporations. Under existing laws, that general law is the subject to such restrictions imposed, under this Act.
Corporation Code,11 except that the Cooperative Code
governs the incorporation of cooperatives.12 (a) The name of the local water district, which shall include
the name of the city, municipality, or province, or region
The Constitution authorizes Congress to create government- thereof, served by said system, followed by the words "Water
owned or controlled corporations through special charters. District".
Since private corporations cannot have special charters, it
follows that Congress can create corporations with special (b) A description of the boundary of the district. In the case of
charters only if such corporations are government-owned or a city or municipality, such boundary may include all lands
controlled. within the city or municipality. A district may include one or
more municipalities, cities or provinces, or portions thereof.
Obviously, LWDs are not private corporations because they
are not created under the Corporation Code. LWDs are not (c) A statement completely transferring any and all
registered with the Securities and Exchange Commission. waterworks and/or sewerage facilities managed, operated by
Section 14 of the Corporation Code states that "[A]ll or under the control of such city, municipality or province to
corporations organized under this code shall file with the such district upon the filing of resolution forming the district.
Securities and Exchange Commission articles of incorporation
x x x." LWDs have no articles of incorporation, no (d) A statement identifying the purpose for which the district
incorporators and no stockholders or members. There are no is formed, which shall include those purposes outlined in
stockholders or members to elect the board directors of Section 5 above.
LWDs as in the case of all corporations registered with the
Securities and Exchange Commission. The local mayor or the (e) The names of the initial directors of the district with the
provincial governor appoints the directors of LWDs for a fixed date of expiration of term of office for each.
term of office. This Court has ruled that LWDs are not created
under the Corporation Code, thus: (f) A statement that the district may only be dissolved on the
grounds and under the conditions set forth in Section 44 of
From the foregoing pronouncement, it is clear that what has this Title.
been excluded from the coverage of the CSC are those
corporations created pursuant to the Corporation Code. (g) A statement acknowledging the powers, rights and
Significantly, petitioners are not created under the said code, obligations as set forth in Section 36 of this Title.
but on the contrary, they were created pursuant to a special
law and are governed primarily by its provision.13 (Emphasis Nothing in the resolution of formation shall state or infer that
supplied) the local legislative body has the power to dissolve, alter or
affect the district beyond that specifically provided for in this
LWDs exist by virtue of PD 198, which constitutes their special Act.
charter. Since under the Constitution only government-
owned or controlled corporations may have special charters, If two or more cities, municipalities or provinces, or any
LWDs can validly exist only if they are government-owned or combination thereof, desire to form a single district, a similar
controlled. To claim that LWDs are private corporations with a resolution shall be adopted in each city, municipality and
special charter is to admit that their existence is province.
constitutionally infirm.

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xxx MR. ROMULO. That is correct. Mr. Presiding Officer.

Sec. 25. Authorization. — The district may exercise all the MR. FOZ. With that understanding and clarification, the
powers which are expressly granted by this Title or which are Committee accepts the amendment.
necessarily implied from or incidental to the powers and
purposes herein stated. For the purpose of carrying out the MR. NATIVIDAD. Mr. Presiding Officer, so those created by
objectives of this Act, a district is hereby granted the power of the general corporation law are out.
eminent domain, the exercise thereof shall, however, be
subject to review by the Administration. (Emphasis supplied) MR. ROMULO. That is correct. (Emphasis supplied)

Clearly, LWDs exist as corporations only by virtue of PD 198, Again, in Davao City Water District v. Civil Service
which expressly confers on LWDs corporate powers. Section 6 Commission,16 the Court reiterated the meaning of the
of PD 198 provides that LWDs "shall exercise the powers, phrase "government-owned and controlled corporations with
rights and privileges given to private corporations under original charters" in this wise:
existing laws." Without PD 198, LWDs would have no
corporate powers. Thus, PD 198 constitutes the special By "government-owned or controlled corporation with
enabling charter of LWDs. The ineluctable conclusion is that original charter," We mean government owned or controlled
LWDs are government-owned and controlled corporations corporation created by a special law and not under the
with a special charter. Corporation Code of the Philippines. Thus, in the case of
Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA
The phrase "government-owned and controlled corporations 79, 82), We held:
with original charters" means GOCCs created under special
laws and not under the general incorporation law. There is no "The Court, in National Service Corporation (NASECO) v.
difference between the term "original charters" and "special National Labor Relations Commission, G.R. No. 69870,
charters." The Court clarified this in National Service promulgated on 29 November 1988, quoting extensively from
Corporation v. NLRC15 by citing the deliberations in the the deliberations of the 1986 Constitutional Commission in
Constitutional Commission, as follows: respect of the intent and meaning of the new phrase ‘with
original charter,’ in effect held that government-owned and
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed. controlled corporations with original charter refer to
corporations chartered by special law as distinguished from
Commissioner Romulo is recognized. corporations organized under our general incorporation
statute — the Corporation Code. In NASECO, the company
MR. ROMULO. Mr. Presiding Officer, I am amending my involved had been organized under the general incorporation
original proposed amendment to now read as follows: statute and was a subsidiary of the National Investment
"including government-owned or controlled corporations Development Corporation (NIDC) which in turn was a
WITH ORIGINAL CHARTERS." The purpose of this amendment subsidiary of the Philippine National Bank, a bank chartered
is to indicate that government corporations such as the GSIS by a special statute. Thus, government-owned or controlled
and SSS, which have original charters, fall within the ambit of corporations like NASECO are effectively, excluded from the
the civil service. However, corporations which are subsidiaries scope of the Civil Service." (Emphasis supplied)
of these chartered agencies such as the Philippine Airlines,
Manila Hotel and Hyatt are excluded from the coverage of Petitioner’s contention that the Sangguniang Bayan
the civil service. resolution creates the LWDs assumes that the Sangguniang
Bayan has the power to create corporations. This is a patently
THE PRESIDING OFFICER (Mr. Trenas). What does the baseless assumption. The Local Government Code17 does not
Committee say? vest in the Sangguniang Bayan the power to create
corporations.18 What the Local Government Code empowers
MR. FOZ. Just one question, Mr. Presiding Officer. By the term the Sangguniang Bayan to do is to provide for the
"original charters," what exactly do we mean? establishment of a waterworks system "subject to existing
laws." Thus, Section 447(5)(vii) of the Local Government Code
MR. ROMULO. We mean that they were created by law, by an provides:
act of Congress, or by special law.
SECTION 447. Powers, Duties, Functions and Compensation.
MR. FOZ. And not under the general corporation law. — (a) The sangguniang bayan, as the legislative body of the
municipality, shall enact ordinances, approve resolutions and

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appropriate funds for the general welfare of the municipality requiring instead a "general law" to create private
and its inhabitants pursuant to Section 16 of this Code and in corporations. In contrast, the same Section 16 states that
the proper exercise of the corporate powers of the "Government-owned or controlled corporations may be
municipality as provided for under Section 22 of this Code, created or established by special charters." Thus, the
and shall: Constitution permits Congress to create a GOCC with a
special charter. There is, however, no prohibition on Congress
xxx to create several GOCCs of the same class under one special
enabling charter.
(vii) Subject to existing laws, provide for the establishment,
operation, maintenance, and repair of an efficient waterworks The rationale behind the prohibition on private corporations
system to supply water for the inhabitants; regulate the having special charters does not apply to GOCCs. There is no
construction, maintenance, repair and use of hydrants, danger of creating special privileges to certain individuals,
pumps, cisterns and reservoirs; protect the purity and families or groups if there is one special law creating each
quantity of the water supply of the municipality and, for this GOCC. Certainly, such danger will not exist whether one
purpose, extend the coverage of appropriate ordinances over special law creates one GOCC, or one special enabling law
all territory within the drainage area of said water supply and creates several GOCCs. Thus, Congress may create GOCCs
within one hundred (100) meters of the reservoir, conduit, either by special charters specific to each GOCC, or by one
canal, aqueduct, pumping station, or watershed used in special enabling charter applicable to a class of GOCCs, like
connection with the water service; and regulate the PD 198 which applies only to LWDs.
consumption, use or wastage of water;
Petitioner also contends that LWDs are private corporations
x x x. (Emphasis supplied) because Section 6 of PD 19821 declares that LWDs "shall be
considered quasi-public" in nature. Petitioner’s rationale is
The Sangguniang Bayan may establish a waterworks system that only private corporations may be deemed "quasi-public"
only in accordance with the provisions of PD 198. The and not public corporations. Put differently, petitioner
Sangguniang Bayan has no power to create a corporate entity rationalizes that a public corporation cannot be deemed
that will operate its waterworks system. However, the "quasi-public" because such corporation is already public.
Sangguniang Bayan may avail of existing enabling laws, like Petitioner concludes that the term "quasi-public" can only
PD 198, to form and incorporate a water district. Besides, apply to private corporations. Petitioner’s argument is
even assuming for the sake of argument that the inconsequential.
Sangguniang Bayan has the power to create corporations, the
LWDs would remain government-owned or controlled Petitioner forgets that the constitutional criterion on the
corporations subject to COA’s audit jurisdiction. The exercise of COA’s audit jurisdiction depends on the
resolution of the Sangguniang Bayan would constitute an government’s ownership or control of a corporation. The
LWD’s special charter, making the LWD a government-owned nature of the corporation, whether it is private, quasi-public,
and controlled corporation with an original charter. In any or public is immaterial.
event, the Court has already ruled in Baguio Water District v.
Trajano19 that the Sangguniang Bayan resolution is not the The Constitution vests in the COA audit jurisdiction over
special charter of LWDs, thus: "government-owned and controlled corporations with
original charters," as well as "government-owned or
While it is true that a resolution of a local sanggunian is still controlled corporations" without original charters. GOCCs
necessary for the final creation of a district, this Court is of the with original charters are subject to COA pre-audit, while
opinion that said resolution cannot be considered as its GOCCs without original charters are subject to COA post-
charter, the same being intended only to implement the audit. GOCCs without original charters refer to corporations
provisions of said decree. created under the Corporation Code but are owned or
controlled by the government. The nature or purpose of the
Petitioner further contends that a law must create directly corporation is not material in determining COA’s audit
and explicitly a GOCC in order that it may have an original jurisdiction. Neither is the manner of creation of a
charter. In short, petitioner argues that one special law cannot corporation, whether under a general or special law.
serve as enabling law for several GOCCs but only for one
GOCC. Section 16, Article XII of the Constitution mandates The determining factor of COA’s audit jurisdiction is
that "Congress shall not, except by general law,"20 provide government ownership or control of the corporation. In
for the creation of private corporations. Thus, the Constitution Philippine Veterans Bank Employees Union-NUBE v.
prohibits one special law to create one private corporation, Philippine Veterans Bank,22 the Court even ruled that the

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criterion of ownership and control is more important than the
issue of original charter, thus: Petitioner does not allege that some entity other than the
government owns or controls LWDs. Instead, petitioner
This point is important because the Constitution provides in advances the theory that the "Water District’s owner is the
its Article IX-B, Section 2(1) that "the Civil Service embraces all District itself."28 Assuming for the sake of argument that an
branches, subdivisions, instrumentalities, and agencies of the LWD is "self-owned,"29 as petitioner describes an LWD, the
Government, including government-owned or controlled government in any event controls all LWDs. First, government
corporations with original charters." As the Bank is not owned officials appoint all LWD directors to a fixed term of office.
or controlled by the Government although it does have an Second, any per diem of LWD directors in excess of P50 is
original charter in the form of R.A. No. 3518,23 it clearly does subject to the approval of the Local Water Utilities
not fall under the Civil Service and should be regarded as an Administration, and directors can receive no other
ordinary commercial corporation. Section 28 of the said law compensation for their services to the LWD.30 Third, the
so provides. The consequence is that the relations of the Bank Local Water Utilities Administration can require LWDs to
with its employees should be governed by the labor laws, merge or consolidate their facilities or operations.31 This
under which in fact they have already been paid some of their element of government control subjects LWDs to COA’s audit
claims. (Emphasis supplied) jurisdiction.

Certainly, the government owns and controls LWDs. The Petitioner argues that upon the enactment of PD 198, LWDs
government organizes LWDs in accordance with a specific became private entities through the transfer of ownership of
law, PD 198. There is no private party involved as co-owner in water facilities from local government units to their respective
the creation of an LWD. Just prior to the creation of LWDs, water districts as mandated by PD 198. Petitioner is grasping
the national or local government owns and controls all their at straws. Privatization involves the transfer of government
assets. The government controls LWDs because under PD 198 assets to a private entity. Petitioner concedes that the owner
the municipal or city mayor, or the provincial governor, of the assets transferred under Section 6 (c) of PD 198 is no
appoints all the board directors of an LWD for a fixed term of other than the LWD itself.32 The transfer of assets mandated
six years.24 The board directors of LWDs are not co-owners by PD 198 is a transfer of the water systems facilities
of the LWDs. LWDs have no private stockholders or members. "managed, operated by or under the control of such city,
The board directors and other personnel of LWDs are municipality or province to such (water) district."33 In short,
government employees subject to civil service laws25 and the transfer is from one government entity to another
anti-graft laws.26 government entity. PD 198 is bereft of any indication that the
transfer is to privatize the operation and control of water
While Section 8 of PD 198 states that "[N]o public official systems.
shall serve as director" of an LWD, it only means that the
appointees to the board of directors of LWDs shall come Finally, petitioner claims that even on the assumption that the
from the private sector. Once such private sector government owns and controls LWDs, Section 20 of PD 198
representatives assume office as directors, they become prevents COA from auditing LWDs. 34 Section 20 of PD 198
public officials governed by the civil service law and anti-graft provides:
laws. Otherwise, Section 8 of PD 198 would contravene
Section 2(1), Article IX-B of the Constitution declaring that the Sec. 20. System of Business Administration. — The Board
civil service includes "government-owned or controlled shall, as soon as practicable, prescribe and define by
corporations with original charters." resolution a system of business administration and
accounting for the district, which shall be patterned upon and
If LWDs are neither GOCCs with original charters nor GOCCs conform to the standards established by the Administration.
without original charters, then they would fall under the term Auditing shall be performed by a certified public accountant
"agencies or instrumentalities" of the government and thus not in the government service. The Administration may,
still subject to COA’s audit jurisdiction. However, the stark however, conduct annual audits of the fiscal operations of the
and undeniable fact is that the government owns LWDs. district to be performed by an auditor retained by the
Section 4527 of PD 198 recognizes government ownership of Administration. Expenses incurred in connection therewith
LWDs when Section 45 states that the board of directors may shall be borne equally by the water district concerned and the
dissolve an LWD only on the condition that "another public Administration.35 (Emphasis supplied)
entity has acquired the assets of the district and has assumed
all obligations and liabilities attached thereto." The Petitioner argues that PD 198 expressly prohibits COA
implication is clear that an LWD is a public and not a private auditors, or any government auditor for that matter, from
entity. auditing LWDs. Petitioner asserts that this is the import of the

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second sentence of Section 20 of PD 198 when it states that it from the jurisdiction of the Commission on Audit, it being a
"[A]uditing shall be performed by a certified public private organization.
accountant not in the government service."36
So these are the fetuses of future abuse that we are slaying
PD 198 cannot prevail over the Constitution. No amount of right here with this additional section.
clever legislation can exclude GOCCs like LWDs from COA’s
audit jurisdiction. Section 3, Article IX-C of the Constitution May I repeat the amendment, Madam President: NO LAW
outlaws any scheme or devise to escape COA’s audit SHALL BE PASSED EXEMPTING ANY ENTITY OF THE
jurisdiction, thus: GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE
WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS,
Sec. 3. No law shall be passed exempting any entity of the FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.
Government or its subsidiary in any guise whatever, or any
investment of public funds, from the jurisdiction of the THE PRESIDENT: May we know the position of the Committee
Commission on Audit. (Emphasis supplied) on the proposed amendment of Commissioner Ople?

The framers of the Constitution added Section 3, Article IX-D MR. JAMIR: If the honorable Commissioner will change the
of the Constitution precisely to annul provisions of number of the section to 4, we will accept the amendment.
Presidential Decrees, like that of Section 20 of PD 198, that
exempt GOCCs from COA audit. The following exchange in MR. OPLE: Gladly, Madam President. Thank you.
the deliberations of the Constitutional Commission elucidates
this intent of the framers: MR. DE CASTRO: Madam President, point of inquiry on the
new amendment.
MR. OPLE: I propose to add a new section on line 9, page 2 of
the amended committee report which reads: NO LAW SHALL THE PRESIDENT: Commissioner de Castro is recognized.
BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT
OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY MR. DE CASTRO: Thank you. May I just ask a few questions of
INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION Commissioner Ople.
OF THE COMMISSION ON AUDIT.
Is that not included in Section 2 (1) where it states: "(c)
May I explain my reasons on record. government-owned or controlled corporations and their
subsidiaries"? So that if these government-owned and
We know that a number of entities of the government took controlled corporations and their subsidiaries are subjected
advantage of the absence of a legislature in the past to to the audit of the COA, any law exempting certain
obtain presidential decrees exempting themselves from the government corporations or subsidiaries will be already
jurisdiction of the Commission on Audit, one notable example unconstitutional.
of which is the Philippine National Oil Company which is
really an empty shell. It is a holding corporation by itself, and So I believe, Madam President, that the proposed
strictly on its own account. Its funds were not very impressive amendment is unnecessary.
in quantity but underneath that shell there were billions of
pesos in a multiplicity of companies. The PNOC — the empty MR. MONSOD: Madam President, since this has been
shell — under a presidential decree was covered by the accepted, we would like to reply to the point raised by
jurisdiction of the Commission on Audit, but the billions of Commissioner de Castro.
pesos invested in different corporations underneath it were
exempted from the coverage of the Commission on Audit. THE PRESIDENT: Commissioner Monsod will please proceed.

Another example is the United Coconut Planters Bank. The MR. MONSOD: I think the Commissioner is trying to avoid the
Commission on Audit has determined that the coconut levy is situation that happened in the past, because the same
a form of taxation; and that, therefore, these funds attributed provision was in the 1973 Constitution and yet somehow a
to the shares of 1,400,000 coconut farmers are, in effect, law or a decree was passed where certain institutions were
public funds. And that was, I think, the basis of the PCGG in exempted from audit. We are just reaffirming, emphasizing,
undertaking that last major sequestration of up to 94 percent the role of the Commission on Audit so that this problem will
of all the shares in the United Coconut Planters Bank. The never arise in the future.37
charter of the UCPB, through a presidential decree, exempted

Page 53 of 59
There is an irreconcilable conflict between the second explicitly PROHIBITING: (1) COA officials and employees from
sentence of Section 20 of PD 198 prohibiting COA auditors receiving salaries, honoraria, bonuses, allowances or other
from auditing LWDs and Sections 2(1) and 3, Article IX-D of emoluments from any government entity, local government
the Constitution vesting in COA the power to audit all GOCCs. unit, GOCCs and government financial institutions, except
We rule that the second sentence of Section 20 of PD 198 is such compensation paid directly by the COA out of its
unconstitutional since it violates Sections 2(1) and 3, Article appropriations and contributions, and (2) government
IX-D of the Constitution. entities, including GOCCs, government financial institutions
and local government units from assessing or billing other
On the Legality of COA’s government entities, GOCCs, government financial
Practice of Charging Auditing Fees institutions or local government units for services rendered
by the latter’s officials and employees as part of their regular
Petitioner claims that the auditing fees COA charges LWDs for functions for purposes of paying additional compensation to
audit services violate the prohibition in Section 18 of RA said officials and employees.
6758,38 which states:
xxx
Sec. 18. Additional Compensation of Commission on Audit
Personnel and of other Agencies. – In order to preserve the The first aspect of the strategy is directed to the COA itself,
independence and integrity of the Commission on Audit while the second aspect is addressed directly against the
(COA), its officials and employees are prohibited from GOCCs and government financial institutions. Under the first,
receiving salaries, honoraria, bonuses, allowances or other COA personnel assigned to auditing units of GOCCs or
emoluments from any government entity, local government government financial institutions can receive only such
unit, government-owned or controlled corporations, and salaries, allowances or fringe benefits paid directly by the
government financial institutions, except those compensation COA out of its appropriations and contributions. The
paid directly by COA out of its appropriations and contributions referred to are the cost of audit services earlier
contributions. mentioned which cannot include the extra emoluments or
benefits now claimed by petitioners. The COA is further
Government entities, including government-owned or barred from assessing or billing GOCCs and government
controlled corporations including financial institutions and financial institutions for services rendered by its personnel as
local government units are hereby prohibited from assessing part of their regular audit functions for purposes of paying
or billing other government entities, including government- additional compensation to such personnel. x x x. (Emphasis
owned or controlled corporations including financial supplied)
institutions or local government units for services rendered
by its officials and employees as part of their regular In Tejada, the Court explained the meaning of the word
functions for purposes of paying additional compensation to "contributions" in Section 18 of RA 6758, which allows COA to
said officials and employees. (Emphasis supplied) charge GOCCs the cost of its audit services:

Claiming that Section 18 is "absolute and leaves no doubt,"39 x x x the contributions from the GOCCs are limited to the cost
petitioner asks COA to discontinue its practice of charging of audit services which are based on the actual cost of the
auditing fees to LWDs since such practice allegedly violates audit function in the corporation concerned plus a reasonable
the law. rate to cover overhead expenses. The actual audit cost shall
include personnel services, maintenance and other operating
Petitioner’s claim has no basis. expenses, depreciation on capital and equipment and out-of-
pocket expenses. In respect to the allowances and fringe
Section 18 of RA 6758 prohibits COA personnel from benefits granted by the GOCCs to the COA personnel
receiving any kind of compensation from any government assigned to the former’s auditing units, the same shall be
entity except "compensation paid directly by COA out of its directly defrayed by COA from its own appropriations x x x.
appropriations and contributions." Thus, RA 6758 itself 41
recognizes an exception to the statutory ban on COA
personnel receiving compensation from GOCCs. In Tejada v. COA may charge GOCCs "actual audit cost" but GOCCs must
Domingo,40 the Court declared: pay the same directly to COA and not to COA auditors.
Petitioner has not alleged that COA charges LWDs auditing
There can be no question that Section 18 of Republic Act No. fees in excess of COA’s "actual audit cost." Neither has
6758 is designed to strengthen further the policy x x x to petitioner alleged that the auditing fees are paid by LWDs
preserve the independence and integrity of the COA, by

Page 54 of 59
directly to individual COA auditors. Thus, petitioner’s petitioner by giving support to the community and its works.
contention must fail. [7]

WHEREFORE, the Resolution of the Commission on Audit In 1997, during a doctor's appointment, Purificacion then
dated 3 January 2000 and the Decision dated 30 January 2001 accompanied by Mother Concepcion, discovered that she has
denying petitioner’s Motion for Reconsideration are been suffering from lung cancer. Considering the restrictions
AFFIRMED. The second sentence of Section 20 of Presidential in her movement, Purificacion requested Mother Concepcion
Decree No. 198 is declared VOID for being inconsistent with to take care of her in her house, to which the latter agreed.[8]
Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.
In October 1999, Purificacion called Mother Concepcion and
handed her a handwritten letter dated October 1999. Therein,
THE MISSIONARY SISTERS OF OUR LADY OF FATIMA Purificacion stated that she is donating her house and lot at F.
(PEACH SISTERS OF LAGUNA), REPRESENTED BY REV. Mercado Street and Riceland at Banlic, both at Calamba,
MOTHER MA. CONCEPCION R. REALON, ET AL., Laguna, to the petitioner through Mother Concepcion. On the
PETITIONERS, VS. AMANDO V. ALZONA, ET AL., same occasion, Purificacion introduced Mother Concepcion
RESPONDENTS. to her nephew, Francisco Del Mundo (Francisco), and niece,
Ma. Lourdes Alzona Aguto-Africa (Lourdes). Purificacion,
Before this Court is a petition for review on certiorari[1] under instructed Francisco to give a share of the harvest to Mother
Rule 45 of the Rules of Court seeking to annul and set aside Concepcion, and informed Lourdes that she had given her
the Decision[2] dated January 7, 2016 of the Court of Appeals house to Mother Concepcion.[9]
(CA) in CA-G.R. CV No. 101944, and its Resolution[3] dated
April 19, 2016, denying the motion for reconsideration Sometime in August 2001, at the request of Purificacion,
thereof. The assailed decision partly granted the respondents' Mother Concepcion went to see Atty. Nonato Arcillas (Atty.
appeal and set aside the Decision[4] dated August 14, 2013 of Arcillas) in Los Baños, Laguna. During their meeting, Atty.
the Regional Trial Court (RTC) of Calamba City, Branch 92 in Arcillas asked Mother Concepcion whether their group is
Civil Case No. 3250-02-C. registered with the SEC, to which the latter replied in the
negative. Acting on the advice given by Atty. Arcillas, Mother
The Antecedent Facts Concepcion went to SEC and filed the corresponding
registration application on August 28, 2001.[10]
The Missionary Sisters of Our Lady of Fatima (petitioner),
otherwise known as the Peach Sisters of Laguna, is a religious On August 29, 2001, Purificacion executed a Deed of
and charitable group established under the patronage of the Donation Inter Vivos (Deed) in favor of the petitioner,
Roman Catholic Bishop of San Pablo on May 30, 1989. Its conveying her properties covered by TCT Nos. T-67820 and
primary mission is to take care of the abandoned and T-162375, and her undivided share in the property covered
neglected elderly persons. The petitioner came into being as by TCT No. T-162380. The Deed was notarized by Atty.
a corporation by virtue of a Certificate issued by the Arcillas and witnessed by Purificacion's nephews Francisco
Securities and Exchange Commission (SEC) on August 31, and Diosdado Alzona, and grandnephew, Atty. Fernando M.
2001.[5] Mother Ma. Concepcion R. Realon (Mother Alonzo. The donation was accepted on even date by Mother
Concepcion) is the petitioner's Superior General. Concepcion for and in behalf of the petitioner.[11]

The respondents, on the other hand, are the legal heirs of the Thereafter, Mother Concepcion filed an application before the
late Purificacion Y. Alzona (Purificacion). Bureau of Internal Revenue (BIR) that the petitioner be
exempted from donor's tax as a religious organization. The
The facts giving rise to the instant controversy follow: application was granted by the BIR through a letter dated
January 14, 2002 of Acting Assistant Commissioner, Legal
Purificacion, a spinster, is the registered owner of parcels of Service, Milagros Regalado.[12]
land covered by Transfer Certificate of Title (TCT) Nos. T-
57820* and T-162375; and a co-owner of another property Subsequently, the Deed, together with the owner's duplicate
covered by TCT No. T-162380, all of which are located in copies of TCT Nos. T-57820, T-162375, and T-162380, and the
Calamba City, Laguna.[6] exemption letter from the BIR was presented for registration.
The Register of Deeds, however, denied the registration on
In 1996, Purificacion, impelled by her unmaterialized desire to account of the Affidavit of Adverse Claim dated September
be nun, decided to devote the rest of her life in helping 26, 2001 filed by the brother of Purificacion, respondent
others. In the same year, she then became a benefactor of the Amando Y. Alzona (Amando).[13]

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 respondents'] prayer for the award of moral and exemplary
On October 30, 2001, Purificacion died without any issue, and damages as well as attorney's fees is nevertheless DENIED.
survived only by her brother of full blood, Amando, who
nonetheless died during the pendency of this case and is now SO ORDERED.[23]
represented and substituted by his legal heirs, joined as
herein respondents.[14] In so ruling, the CA, citing the case of Seventh Day Adventist
Conference Church of Southern Phils., Inc. v. Northeastern
On April 9, 2002, Amando filed a Complaint before the RTC, Mindanao Mission of Seventh Day Adventist, Inc.,[24] held
seeking to annul the Deed executed between Purificacion and that the petitioner cannot be considered as a de facto
the petitioner, on the ground that at the time the donation corporation considering that at the time of the donation,
was made, the latter was not registered with the SEC and there was no bona fide attempt on its part to incorporate.[25]
therefore has no juridical personality and cannot legally As an unregistered corporation, the CA concluded that the
accept the donation.[15] petitioner cannot exercise the powers, rights, and privileges
expressly granted by the Corporation Code. Ultimately, bereft
After trial, on August 14, 2013, the RTC rendered its of juridical personality, the CA ruled that the petitioner
Decision[16] finding no merit in the complaint, thus ruling: cannot enter into a contract of Donation with Purificacion.[26]

WHEREFORE, the instant case is hereby DISMISSED with costs Finally, the CA denied the respondents' claim for actual
against the [respondents]. The Compulsory counterclaim of damages and attorney's fees for failure to substantiate the
the [petitioner] is likewise dismissed for lack of evidence. same.[27]

SO ORDERED.[17] The petitioner sought a reconsideration of the Decision dated

January 7, 2016, but the CA denied it in its Resolution[28]
In its decision, the RTC held that all the essential elements of dated April 19, 2016.
a donation are present. The RTC set aside the allegation by
the respondents relating to the incapacity of the parties to In the instant petition, the petitioner submits the following
enter into a donation.[18] arguments in support of its position:

In the case of Purificacion, the RTC held that apart from the The Donation Inter Vivos is valid and binding against the
self-serving allegations by the respondents, the records are parties therein [Purificacion] and the [petitioner] and their
bereft of evidence to prove that she did not possess the respective successors in interest:
proper mental faculty in making the donation; as such the
presumption that every person is of sound mind stands.[19] 1.) The [petitioner] has the requisite legal personality to
accept donations as a religious institution under the Roman
On the capacity of the donee, the RTC held that at the time of Catholic Bishop of San Pablo authorized to receive donations;
the execution of the Deed, the petitioner was a de facto 2.) The [petitioner] has the requisite legal capacity to accept
corporation and as such has the personality to be a the donation as it may be considered a de facto corporation.
beneficiary and has the power to acquire and possess 3.) Regardless of the absence of the Certificate of Registration
property. Further then, the petitioner's incapacity cannot be of [petitioner] at the time of the execution of the Deed of
questioned or assailed in the instant case as it constitutes a Donation, the same is still valid and binding having been
collateral attack which is prohibited by the Corporation Code accepted by a representative of the [petitioner] while the
of the Philippines.[20] In this regard, the RTC found that the latter was still waiting for the issuance of the Certificate of
recognition by the petitioner of Mother Concepcion's Registration and which acceptance of the donation was duly
authority is sufficient to vest the latter of the capacity to ratified by the corporation.
accept the donation.[21] 4.) The intestate estate of Purificacion is estopped from
questioning the legal personality of [the petitioner].
Acting on the appeal filed by the respondents, the CA
rendered the herein assailed Decision[22] on January 7, 2016, The Respondents lack the requisite legal capacity to question
the dispositive portion of which reads: the legality of the deed of donation.[29]

WHEREFORE, the appeal is PARTLY GRANTED. The assailed In sum, the issue to be resolved by this Court in the instant
August 14, 2013 Decision of the RTC, Branch 92, Calamba City case is whether or not the Deed executed by Purificacion in
in Civil Case No. 3250-02 is SET ASIDE by declaring as VOID favor of the petitioner is valid and binding. In relation to this,
the deed of Donation dated August 14, 2013. [The the Court is called upon to determine the legal capacity of

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the petitioner, as donee, to accept the donation, and the give, out of liberality the subject house and lot, which she
authority Mother Concepcion to act on behalf of the owned, to the petitioner. This act, was then contained in a
petitioner in accepting the donation. public document, the deed having been acknowledged
before Atty. Arcillas, a Notary Public.[36] The acceptance of
Ruling of the Court the donation is made on the same date that the donation was
made and contained in the same instrument as manifested by
The petition is meritorious. Mother Concepcion's signature.[37] In fine, the remaining
issue to be resolved is the capacity of the petitioner as donee
The petitioner argues that it has the requisite legal to accept the donation, and the authority of Mother
personality to accept the donation as a religious institution Concepcion to act on its behalf for this purpose.
organized under the Roman Catholic Bishop of San Pablo, a
corporation sole.[30] Under Article 737 of the Civil Code, "[t]he donor's capacity
shall be determined as of the time of the making of the
Regardless, the petitioner contends that it is a de facto donation." By analogy, the legal capacity or the personality of
corporation and therefore possessed of the requisite the donee, or the authority of the latter's representative, in
personality to enter into a contract of donation. certain cases, is determined at the time of acceptance of the
donation.
Assuming further that it cannot be considered as a de facto
corporation, the petitioner submits that the acceptance by Article 738, in relation to Article 745, of the Civil Code
Mother Concepcion while the religious organization is still in provides that all those who are not specifically disqualified by
the process of incorporation is valid as it then takes the form law may accept donations either personally or through an
of a pre-incorporation contract governed by the rules on authorized representative with a special power of attorney for
agency. The petitioner argues that their subsequent the purpose or with a general and sufficient power.
incorporation and acceptance perfected the subject contract
of donation.[31] The Court finds that for the purpose of accepting the
donation, the petitioner is deemed vested with personality to
Ultimately, the petitioner argues that the intestate estate of accept, and Mother Concepcion is clothed with authority to
Purificacion is estopped from questioning its legal personality act on the latter's behalf.
considering the record is replete of evidence to prove that
Purificacion at the time of the donation is fully aware of its At the outset, it must be stated that as correctly pointed out
status and yet was still resolved into giving her property.[32] by the CA, the RTC erred in holding that the petitioner is a de
facto corporation.
In response, the respondents submit that juridical personality
to enter into a contract of donation is vested only upon the Jurisprudence settled that "[t]he filing of articles of
issuance of a Certificate of Incorporation from SEC.[33] incorporation and the issuance of the certificate of
Further, the respondents posit that the petitioner cannot even incorporation are essential for the existence of a de facto
be considered as a de facto corporation considering that for corporation."[38] In fine, it is the act of registration with SEC
more than 20 years, there was never any attempt on its part through the issuance of a certificate of incorporation that
to incorporate, which decision came only after Atty. Arcillas, marks the beginning of an entity's corporate existence.[39]
suggestion.[34]
Petitioner filed its Articles of Incorporation and by-laws on
In order that a donation of an immovable property be valid, August 28, 2001. However, the SEC issued the corresponding
the following elements must be present: (a) the essential Certificate of Incorporation only on August 31, 2001, two (2)
reduction of the patrimony of the donor; (b) the increase in days after Purificacion executed a Deed of Donation on
the patrimony of the donee; (c) the intent to do an act of August 29, 2001. Clearly, at the time the donation was made,
liberality or animus donandi; (d) the donation must be the Petitioner cannot be considered a corporation de facto.
contained in a public document; and e) that the acceptance [40]
thereof be made in the same deed or in a separate public
instrument; if acceptance is made in a separate instrument, Rather, a review of the attendant circumstances reveals that it
the donor must be notified thereof in an authentic form, to calls for the application of the doctrine of corporation by
be noted in both instruments.[35] estoppel as provided for under Section 21 of the Corporation
Code, viz.:
There is no question that the true intent of Purificacion, the
donor and the owner of the properties in question, was to

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Sec. 21. Corporation by estoppel. - All persons who assume to
act as a corporation knowing it to be without authority to do In this case, while the underlying contract which is sought to
so shall be liable as general partners for all debts, liabilities be enforced is that of a donation, and thus rooted on
and damages incurred or arising as a result thereof: Provided, liberality, it cannot be said that Purificacion, as the donor
however, That when any such ostensible corporation is sued failed to acquire any benefit therefrom so as to prevent the
on any transaction entered by it as a corporation or on any application of the doctrine of corporation by estoppel.[45] To
tort committed by it as such, it shall not be allowed to use as recall, the subject properties were given by Purificacion, as a
a defense its lack of corporate personality. token of appreciation for the services rendered to her during
her illness.[46] In fine, the subject deed partakes of the nature
One who assumes an obligation to an ostensible corporation of a remuneratory or compensatory donation, having been
as such, cannot resist performance thereof on the ground made "for the purpose of rewarding the donee for past
that there was in fact no corporation. (Emphasis Ours) services, which services do not amount to a demandable
debt."[47]
The doctrine of corporation by estoppel is founded on
principles of equity and is designed to prevent injustice and As elucidated by the Court in Pirovano, et al. v. De La Rama
unfairness. It applies when a non-existent corporation enters Steamship Co.:[48]
into contracts or dealings with third persons.[41] In which
case, the person who has contracted or otherwise dealt with In donations made to a person for services rendered to the
the non-existent corporation is estopped to deny the latter's donor, the donor's will is moved by acts which directly benefit
legal existence in any action leading out of or involving such him. The motivating cause is gratitude, acknowledgment of a
contract or dealing. While the doctrine is generally applied to favor, a desire to compensate. A donation made to one who
protect the sanctity of dealings with the public,[42] nothing saved the donor's life, or a lawyer who renounced his fees for
prevents its application in the reverse, in fact the very services rendered to the donor, would fall under this class of
wording of the law which sets forth the doctrine of donations.[49]
corporation by estoppel permits such interpretation. Such
that a person who has assumed an obligation in favor of a Therefore, under the premises, past services constitutes
non-existent corporation, having transacted with the latter as consideration, which in tum can be regarded as "benefit" on
if it was duly incorporated, is prevented from denying the the part of the donor, consequently, there exists no obstacle
existence of the latter to avoid the enforcement of the to the application of the doctrine of corporation by estoppel;
contract. although strictly speaking, the petitioner did not perform
these services on the expectation of something in return.
Jurisprudence dictates that the doctrine of corporation by
estoppel applies for as long as there is no fraud and when the Precisely, the existence of the petitioner as a corporate entity
existence of the association is attacked for causes attendant is upheld in this case for the purpose of validating the Deed
at the time the contract or dealing sought to be enforced was to ensure that the primary objective for which the donation
entered into, and not thereafter.[43] was intended is achieved, that is, to convey the property for
the purpose of aiding the petitioner in the pursuit of its
In this controversy, Purificacion dealt with the petitioner as if charitable objectives.
it were a corporation. This is evident from the fact that
Purificacion executed two (2) documents conveying her Further, apart from the foregoing, the subsequent act by
properties in favor of the petitioner – first, on October 11, Purificacion of re-conveying the property in favor of the
1999 via handwritten letter, and second, on August 29, 2001 petitioner is a ratification by conduct of the otherwise
through a Deed; the latter having been executed the day after defective donation.[50]
the petitioner filed its application for registration with the
SEC.[44] Express or implied ratification is recognized by law as a
means to validate a defective contract.[51] Ratification
The doctrine of corporation by estoppel rests on the idea that cleanses or purges the contract from its defects from
if the Court were to disregard the existence of an entity which constitution or establishment, retroactive to the day of its
entered into a transaction with a third party, unjust creation. By ratification, the infirmity of the act is obliterated
enrichment would result as some form of benefit have thereby making it perfectly valid and enforceable.[52]
already accrued on the part of one of the parties. Thus, in that
instance, the Court affords upon the unorganized entity The principle and essence of implied ratification require that
corporate fiction and juridical personality for the sole purpose the principal has full knowledge at the time of ratification of
of upholding the contract or transaction. all the material facts and circumstances relating to the act

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sought to be ratified or validated.[53] Also, it is important that Anent the authority of Mother Concepcion to act as
the act constituting the ratification is unequivocal in that it is representative for and in behalf of the petitioner, the Court
performed without the slightest hint of objection or protest similarly upholds the same. Foremost, the authority of Mother
from the donor or the donee, thus producing the inevitable Concepcion was never questioned by the petitioner. In fact,
conclusion that the donation and its acceptance were in fact the latter affirms and supports the authority of Mother
confirmed and ratified by the donor and the donee.[54] Concepcion to accept the donation on their behalf; as she is,
after all the congregation's Superior General.[60]
In this controversy, while the initial conveyance is defective, Furthermore, the petitioner's avowal of Mother Concepcion's
the genuine intent of Purificacion to donate the subject authority after their SEC registration is a ratification of the
properties in favor of the petitioner is indubitable. Also, while latter's authority to accept the subject donation as the
the petitioner is yet to be incorporated, it cannot be said that petitioner's representative.[61]
the initial conveyance was tainted with fraud or
misrepresentation. Contrarily, Purificacion acted with full In closing, it must be emphasized that the Court is both of
knowledge of circumstances of the Petitioner. This is evident law and of justice. Thus, the Court's mission and purpose is to
from Purificacion's act of referring Mother Concepcion to apply the law with justice.[62]
Atty. Arcillas, who, in turn, advised the petitioner to apply for
registration. Further, with the execution of two (2) documents Donation is an expression of our social conscience, an act
of conveyance in favor of the petitioner, it is clear that what rooted purely on the goodness of one's heart and intent to
Purificacion intended was for the sisters comprising the contribute.
petitioner to have ownership of her properties to aid them in
the pursuit of their charitable activities, as a token of Purificacion, the donor is worthy of praise for her works of
appreciation for the services they rendered to her during her charity. Likewise, the petitioner is worthy of admiration for
illness.[55] To put it differently, the reference to the petitioner with or without the promise of reward or consideration, the
was merely a descriptive term used to refer to the sisters Court is certain that it is impelled by sincere desire to help the
comprising the congregation collectively. Accordingly, the petitioner in overcoming her illness.
acceptance of Mother Concepcion for the sisters comprising
the congregation is sufficient to perfect the donation and It is unfortunate that the will of a person moved by the desire
transfer title to the property to the petitioner. Ultimately, the to reciprocate the goodness shown to her during the lowest
subsequent incorporation of the petitioner and its affirmation and culminating points of her life is questioned and herein
of Mother Concepcion's authority to accept on its behalf sought to be nullified on strict legality, when the intent of the
cured whatever defect that may have attended the donor to give is beyond question.
acceptance of the donation.
The promotion of charitable works is a laudable objective.
The Deed sought to be enforced having been validly entered While not mentioned in the Constitution, the Court
into by Purificacion, the respondents' predecessor-in-interest, recognizes benevolent giving as an important social fabric
binds the respondents who succeed the latter as heirs.[56] that eliminates inequality. As such, charitable giving must be
Simply, as they claim interest in their capacity as Purificacion's encouraged through support from society and the Court.
heirs, the respondents are considered as "privies" to the
subject Deed; or are "those between whom an action is WHEREFORE, in consideration of the foregoing disquisitions,
binding although they are not literally parties to the said the instant petition for review on certiorari is GRANTED.
action."[57] As discussed in Constantino, et al. v. Heirs of Accordingly, the Decision dated January 7, 2016 and
Pedro Constantino, Jr.:[58] Resolution dated April 19, 2016 of the Court of Appeals in
CA-G.R. CV No. 101944, are hereby REVERSED and SET ASIDE.
[p]rivity in estate denotes the privity between assignor and
assignee, donor and donee, grantor and grantee, joint tenant
for life and remainderman or reversioner and their respective
assignees, vendor by deed of warranty and a remote vendee
or assignee. A privy in estate is one, it has been said, who
derives his title to the property in question by purchase; one
who takes by conveyance. In fine, respondents, as successors-
in-interest, derive their right from and are in the same
position as their predecessor in whose shoes they now stand.
[59]

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