G.R. No.

155650 July 20, 2006 On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE,
SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF
PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents.
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Paraaque City under Executive Order No.
903, otherwise known as the Revised Charter of the Manila International Airport
Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by
then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and
2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,3 including the runways and buildings ("Airport
Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA Charter
further provides that no portion of the land transferred to MIAA shall be disposed of
through sale or any other mode unless specifically approved by the President of the
Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued
Opinion No. 061. The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under Section 21 of the
MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the
real estate tax imposed by the City. MIAA then paid some of the real estate tax already
due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from
the City of Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax
delinquency is broken down as follows:
TAX DECLARATION TAXABLE YEAR TAX DUE
E-016-01370 1992-2001 19,558,160.00
E-016-01374 1992-2001 111,689,424.90
levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of
Paraaque threatened to sell at public auction the Airport Lands and Buildings should
MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of
OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No.
061. The OGCC pointed out that Section 206 of the Local Government Code requires
persons exempt from real estate tax to show proof of exemption. The OGCC opined
that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate
tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for
prohibition and injunction, with prayer for preliminary injunction or temporary
restraining order. The petition sought to restrain the City of Paraaque from imposing
real estate tax on, levying against, and auctioning for public sale the Airport Lands and
Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it
beyond the 60-day reglementary period. The Court of Appeals also denied on 27
September 2002 MIAA's motion for reconsideration and supplemental motion for
reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for
review.7
Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at
the Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in
the public market of Barangay La Huerta; and in the main lobby of the Paraaque City
Hall. The City of Paraaque published the notices in the 3 and 10 January 2003 issues
of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines.
The notices announced the public auction sale of the Airport Lands and Buildings to
the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall
Building of Paraaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before
this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary
Restraining Order. The motion sought to restrain respondents the City of
Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City
Treasurer of Paraaque, and the City Assessor of Paraaque ("respondents") from
auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public
auction the Airport Lands and Buildings. Respondents received the TRO on the same
day that the Court issued it. However, respondents received the TRO only at 1:25 p.m.
or three hours after the conclusion of the public auction.

E-016-01375 1992-2001 20,276,058.00 On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the
TRO.

E-016-01376 1992-2001 58,144,028.00 On 29 March 2005, the Court heard the parties in oral arguments. In compliance with
the directive issued during the hearing, MIAA, respondent City of Paraaque, and the
E-016-01377 1992-2001 18,134,614.65 Solicitor General subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and
E-016-01378 1992-2001 111,107,950.40 Buildings in the name of MIAA. However, MIAA points out that it cannot claim
ownership over these properties since the real owner of the Airport Lands and
E-016-01379 1992-2001 4,322,340.00 Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to
devote the Airport Lands and Buildings for the benefit of the general public. Since the
Airport Lands and Buildings are devoted to public use and public service, the
E-016-01380 1992-2001 7,776,436.00 ownership of these properties remains with the State. The Airport Lands and Buildings
are thus inalienable and are not subject to real estate tax by local governments.
*E-016-013-85 1998-2001 6,444,810.00
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA
from the payment of real estate tax. MIAA insists that it is also exempt from real estate
*E-016-01387 1998-2001 34,876,800.00 tax under Section 234 of the Local Government Code because the Airport Lands and
Buildings are owned by the Republic. To justify the exemption, MIAA invokes the
principle that the government cannot tax itself. MIAA points out that the reason for tax
*E-016-01396 1998-2001 75,240.00
exemption of public property is that its taxation would not inure to any public
advantage, since in such a case the tax debtor is also the tax creditor.
GRAND TOTAL P392,435,861.95
Respondents invoke Section 193 of the Local Government Code, which expressly
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for withdrew the tax exemption privileges of "government-owned and-controlled
P4,207,028.75 corporations" upon the effectivity of the Local Government Code. Respondents also
argue that a basic rule of statutory construction is that the express mention of one
person, thing, or act excludes all others. An international airport is not among the
#9476101 for P28,676,480.00 exceptions mentioned in Section 193 of the Local Government Code. Thus,
respondents assert that MIAA cannot claim that the Airport Lands and Buildings are
#9476103 for P49,115.006 exempt from real estate tax.

Page 1 of 35
Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos8 where we held that the Local Government Code has withdrawn the
exemption from real estate tax granted to international airports. Respondents further
argue that since MIAA has already paid some of the real estate tax assessments, it is
now estopped from claiming that the Airport Lands and Buildings are exempt from real
estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of
MIAA are exempt from real estate tax under existing laws. If so exempt, then the real
estate tax assessments issued by the City of Paraaque, and all proceedings taken
pursuant to such assessments, are void. In such event, the other issues raised in this
petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax
imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation,
is not exempt from real estate tax. Respondents claim that the deletion of the phrase
"any government-owned or controlled so exempt by its charter" in Section 234(e) of
the Local Government Code withdrew the real estate tax exemption of government-
owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the
1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt
from real estate tax. However, MIAA is not a government-owned or controlled
corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of
1987 defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of its capital
stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or
non-stock corporation." MIAA is not organized as a stock or non-stock corporation.
MIAA is not a stock corporation because it has no capital stock divided into shares.
MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter 9provides:
SECTION 10. Capital. The capital of the Authority to be contributed by
the National Government shall be increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,] which
may be contributed by the National Government or transferred by it from
any of its agencies, the valuation of which shall be determined jointly with
the Department of Budget and Management and the Commission on Audit
on the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other
liabilities of the Authority at the time of the takeover of the assets and other
properties;
(b) That the amount of P605 million as of December 31, 1986 representing
about seventy percentum (70%) of the unremitted share of the National
Government from 1983 to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended, shall be converted
into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in
the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Page 2 of 35
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital
stock is divided into shares and x x x authorized to distribute to the holders of
such shares dividends x x x." MIAA has capital but it is not divided into shares of
stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock
corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of
the Corporation Code defines a non-stock corporation as "one where no part of its
income is distributable as dividends to its members, trustees or officers." A non-stock
corporation must have members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual
gross operating income to the National Treasury.11 This prevents MIAA from qualifying
as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers." MIAA is not organized for any of these purposes.
MIAA, a public utility, is organized to operate an international and domestic airport for
public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA
within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government instrumentality
is organized as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also corporate powers. Thus,
MIAA exercises the governmental powers of eminent domain,12 police authority13 and
the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of
a corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order."15
Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government machinery
although not integrated with the department framework. The MIAA Charter expressly
states that transforming MIAA into a "separate and autonomous body"16 will make its
operation more "financially viable."17
Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an
agency or instrumentality is deemed a government-owned or controlled corporation.
Examples are the Mactan International Airport Authority, the Philippine Ports Authority,
the University of the Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or
non-stock corporations as required by Section 2(13) of the Introductory Provisions of
the Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not government-owned or
controlled corporations in the strict sense as understood under the Administrative
Code, which is the governing law defining the legal relationship and status of
government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
xxxx
 (o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units.(Emphasis
and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes taxation as one of the powers
of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."18
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The rule
is that a tax is never presumed and there must be clear language in the law imposing
the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax
national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming
the exemption. However, when Congress grants an exemption to a national
government instrumentality from local taxation, such exemption is construed liberally in
favor of the national government instrumentality. As this Court declared in Maceda v.
Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to
the benefit of the government itself or its agencies. In such case the
practical effect of an exemption is merely to reduce the amount of money
that has to be handled by government in the course of its operations. For
these reasons, provisions granting exemptions to government agencies
may be construed liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments taxing each other,
unless a sound and compelling policy requires such transfer of public funds from one
government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express language in
the law empowering local governments to tax national government instrumentalities.
Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
instrumentalities. As this Court held in Basco v. Philippine Amusements and
Gaming Corporation:
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government
over local governments.
"Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254
US 51) and it can be agreed that no state or political subdivision
can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even
to seriously burden it in the accomplishment of them." (Antieau,
Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a tool for regulation" (U.S.
v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to
destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power to
wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
Page 3 of 35
The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. The Civil Code
provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character
stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for
public use or for public service, shall form part of the patrimonial property of
the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the
Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by
the State," are owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the
State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or the Republic of the
Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by
the public for international and domestic travel and transportation. The fact that
the MIAA collects terminal fees and other charges from the public does not remove the
character of the Airport Lands and Buildings as properties for public use. The
operation by the government of a tollway does not change the character of the road as
one for public use. Someone must pay for the maintenance of the road, either the
public indirectly through the taxes they pay the government, or only those among the
public who actually use the road through the toll fees they pay upon using the road.
The tollway system is even a more efficient and equitable manner of taxing the public
for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property
whether it is of public dominion or not. Article 420 of the Civil Code defines property of
public dominion as one "intended for public use." Even if the government collects toll
fees, the road is still "intended for public use" if anyone can use the road under the
same terms and conditions as the rest of the public. The charging of fees, the limitation
on the kind of vehicles that can use the road, the speed restrictions and other
conditions for the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA
charges to airlines, constitute the bulk of the income that maintains the operations of
MIAA. The collection of such fees does not change the character of MIAA as an airport
for public use. Such fees are often termed user's tax. This means taxing those among
the public who actually use a public facility instead of taxing all the public including
those who never use the particular public facility. A user's tax is more equitable a
principle of taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport
of the Philippines for both international and domestic air traffic,"22 are properties of
public dominion because they are intended for public use. As properties of public
dominion, they indisputably belong to the State or the Republic of the
Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are
properties of public dominion. As properties of public dominion, the Airport Lands
and Buildings are outside the commerce of man. The Court has ruled repeatedly
that properties of public dominion are outside the commerce of man. As early as 1915,
this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to
public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the
squares, streets, fountains, and public waters, the promenades, and public
works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal
council of Cavite could not in 1907 withdraw or exclude from public use a
 portion thereof in order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded its authority in
the exercise of its powers by executing a contract over a thing of which it
could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside
the commerce of man may be the object of a contract, and plazas and
streets are outside of this commerce, as was decided by the supreme
court of Spain in its decision of February 12, 1895, which says:
"Communal things that cannot be sold because they are by their very
nature outside of commerce are those for public use, such as the
plazas, streets, common lands, rivers, fountains, etc." (Emphasis
supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to
public use and to be made available to the public in general. They
are outside the commerce of man and cannot be disposed of or even
leased by the municipality to private parties. While in case of war or during
an emergency, town plazas may be occupied temporarily by private
individuals, as was done and as was tolerated by the Municipality of
Pozorrubio, when the emergency has ceased, said temporary occupation
or use must also cease, and the town officials should see to it that the town
plazas should ever be kept open to the public and free from encumbrances
or illegal private constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce
of man, cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance, levy on
execution or auction sale of any property of public dominion is void for being contrary
to public policy. Essential public services will stop if properties of public dominion are
subject to encumbrances, foreclosures and auction sale. This will happen if the City of
Paraaque can foreclose and compel the auction sale of the 600-hectare runway of
the MIAA for non-payment of real estate tax.
26
Before MIAA can encumber the Airport Lands and Buildings, the President must
first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of
the Public Land Law or Commonwealth Act No. 141, which "remains to this day the
existing general law governing the classification and disposition of lands of the public
domain other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts of land of
the public domain as reservations for the use of the Republic of the Philippines or of
any of its branches, or of the inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or purposes when the public
interest requires it, including reservations for highways, rights of way for railroads,
hydraulic power sites, irrigation systems, communal pastures or lequas communales,
public parks, public quarries, public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section
eighty-three shall be non-alienable and shall not be subject to occupation, entry,
sale, lease, or other disposition until again declared alienable under the
provisions of this Act or by proclamation of the President. (Emphasis and
underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and
are inalienable. Since the Airport Lands and Buildings are inalienable in their present
status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public
use, their ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and
to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of
the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government. (1) The President shall have the power to reserve for settlement
or public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved land
shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
Page 4 of 35
There is no question, therefore, that unless the Airport Lands and Buildings are
withdrawn by law or presidential proclamation from public use, they are properties of
public dominion, owned by the Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic.
Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities
like MIAA to hold title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. Whenever real
property of the Government is authorized by law to be conveyed, the deed
of conveyance shall be executed in behalf of the government by the
following:
(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly
vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled
in the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality.
(Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is
clearer because even its executive head cannot sign the deed of conveyance on
behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and
Buildings from the Bureau of Air Transportation of the Department of Transportation
and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. x x x x
The land where the Airport is presently located as well as the surrounding land
area of approximately six hundred hectares, are hereby transferred, conveyed
and assigned to the ownership and administration of the Authority, subject to
existing rights, if any. The Bureau of Lands and other appropriate government
agencies shall undertake an actual survey of the area transferred within one year from
the promulgation of this Executive Order and the corresponding title to be issued in the
name of the Authority. Any portion thereof shall not be disposed through sale or
through any other mode unless specifically approved by the President of the
Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All
existing public airport facilities, runways, lands, buildings and other property,
movable or immovable, belonging to the Airport, and all assets, powers, rights,
interests and privileges belonging to the Bureau of Air Transportation relating to
airport works or air operations, including all equipment which are necessary for the
operation of crash fire and rescue facilities, are hereby transferred to the Authority.
(Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau
of Air Transportation and Transitory Provisions. The Manila International Airport
including the Manila Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the
Republic receiving cash, promissory notes or even stock since MIAA is not a stock
corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the
Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines
for both international and domestic air traffic, is required to provide standards of airport
accommodation and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to
be upgraded to meet the current and future air traffic and other demands of aviation in
Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives
of providing high standards of accommodation and service within the context of
a financially viable operation, will best be achieved by a separate and
autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree
No. 1772, the President of the Philippines is given continuing authority to reorganize
the National Government, which authority includes the creation of new entities,
agencies and instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation
to MIAA was not meant to transfer beneficial ownership of these assets from the
Republic to MIAA. The purpose was merely to reorganize a division in the Bureau
of Air Transportation into a separate and autonomous body. The Republic
remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned
solely by the Republic. No party claims any ownership rights over MIAA's assets
adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not
be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines." This only means that the Republic
retained the beneficial ownership of the Airport Lands and Buildings because under
Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing."
Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the
Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands
and Buildings without the Republic paying MIAA any consideration. Under Section 3 of
the MIAA Charter, the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands
and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal
property owned by the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code,
which prohibits local governments from imposing "[t]axes, fees or charges of any kind
on the National Government, its agencies and instrumentalities x x x." The real
properties owned by the Republic are titled either in the name of the Republic itself or
in the name of agencies or instrumentalities of the National Government. The
Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real property
is transferred to an agency or instrumentality even as the Republic remains the owner
of the real property. Such arrangement does not result in the loss of the tax exemption.
Section 234(a) of the Local Government Code states that real property owned by the
Republic loses its tax exemption only if the "beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government
Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial
use of the Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax. For example, the land area occupied by
hangars that MIAA leases to private corporations is subject to real estate tax. In such a
case, MIAA has granted the beneficial use of such land area for a consideration to
a taxable person and therefore such land area is subject to real estate tax. In Lung
Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from such
taxes. On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are exempt
from real property taxes.29
3. Refutation of Arguments of Minority
Page 5 of 35
The minority asserts that the MIAA is not exempt from real estate tax because Section
193 of the Local Government Code of 1991 withdrew the tax exemption of "all
persons, whether natural or juridical" upon the effectivity of the Code. Section 193
provides:
SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise
provided in this Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions are hereby withdrawn upon
effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues
that since the Local Government Code withdrew the tax exemption of all juridical
persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government
Code that the withdrawn exemptions from realty tax cover not just
GOCCs, but all persons. To repeat, the provisions lay down the explicit
proposition that the withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of GOCCs is only clarificatory or
illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons
recognized under our laws, natural and juridical persons. Obviously,
MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at all.
(Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local
taxation is its status whether MIAA is a juridical person or not. The minority also
insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to
ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government
Code expressly withdrew the tax exemption of all juridical persons "[u]nless
otherwise provided in this Code." Now, Section 133(o) of the Local Government
Code expressly provides otherwise, specifically prohibiting local governments from
imposing any kind of tax on national government instrumentalities. Section 133(o)
states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot
impose any kind of tax on national government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not extend to the national
government, its agencies and instrumentalities, "[u]nless otherwise provided in this
Code" as stated in the saving clause of Section 133. The saving clause refers to
Section 234(a) on the exception to the exemption from real estate tax of real property
owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical
persons are subject to tax by local governments. The minority insists that the juridical
persons exempt from local taxation are limited to the three classes of entities
specifically enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-
profit hospitals and educational institutions. It would be belaboring the obvious why the
MIAA does not fall within any of the exempt entities under Section 193. (Emphasis
supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the
Local Government Code. This theory will result in gross absurdities. It will make the
national government, which itself is a juridical person, subject to tax by local
governments since the national government is not included in the enumeration of
exempt entities in Section 193. Under this theory, local governments can impose any
kind of local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax.
Some of the national government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research
Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion
Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port
Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine
National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which
expressly prohibits local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not distinguish between national
government instrumentalities with or without juridical personalities. Where the law
does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all
national government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not whether MIAA is a
juridical person, but whether it is a national government instrumentality under Section
133(o) of the Local Government Code. Section 133(o) is the specific provision of law
prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless
otherwise provided in this Code." This means that unless the Local Government Code
grants an express authorization, local governments have no power to tax the national
government, its agencies and instrumentalities. Clearly, the rule is local governments
have no power to tax the national government, its agencies and instrumentalities. As
an exception to this rule, local governments may tax the national government, its
agencies and instrumentalities only if the Local Government Code expressly so
provides.
The saving clause in Section 133 refers to the exception to the exemption in Section
234(a) of the Code, which makes the national government subject to real estate tax
when it gives the beneficial use of its real properties to a taxable entity. Section 234(a)
of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate
tax. The exception to this exemption is when the government gives the beneficial use
of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the
national government, its agencies and instrumentalities are subject to any kind of tax
by local governments. The exception to the exemption applies only to real estate tax
and not to any other tax. The justification for the exception to the exemption is that the
real property, although owned by the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the
Local Government Code, the later provisions prevail over Section 133. Thus, the
minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234.
Following an accepted rule of construction, in case of conflict the
subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions attaching
to instrumentalities under Section 133(o) of the Local Government Code
being qualified by Sections 193 and 234 of the same law. (Emphasis
supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on
one hand, and Sections 193 and 234 on the other. No one has urged that there is such
a conflict, much less has any one presenteda persuasive argument that there is such a
conflict. The minority's assumption of an irreconcilable conflict in the statutory
provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section
193 expressly admits its subordination to other provisions of the Code when Section
193 states "[u]nless otherwise provided in this Code." By its own words, Section 193
admits the superiority of other provisions of the Local Government Code that limit the
exercise of the taxing power in Section 193. When a provision of law grants a power
but withholds such power on certain matters, there is no conflict between the grant of
power and the withholding of power. The grantee of the power simply cannot exercise
the power on matters withheld from its power.
Page 6 of 35
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local
Government Units." Section 133 limits the grant to local governments of the power to
tax, and not merely the exercise of a delegated power to tax. Section 133 states that
the taxing powers of local governments "shall not extend to the levy" of any kind of tax
on the national government, its agencies and instrumentalities. There is no clearer
limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing power.
If the taxing power of local governments in Section 193 prevails over the limitations on
such taxing power in Section 133, then local governments can impose any kind of tax
on the national government, its agencies and instrumentalities a gross absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code
pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in
this Code." This exception which is an exception to the exemption of the Republic
from real estate tax imposed by local governments refers to Section 234(a) of the
Code. The exception to the exemption in Section 234(a) subjects real property owned
by the Republic, whether titled in the name of the national government, its agencies or
instrumentalities, to real estate tax if the beneficial use of such property is given to a
taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase
"government-owned or controlled corporation" is not controlling. The minority points
out that Section 2 of the Introductory Provisions of the Administrative Code admits that
its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. Unless the specific words of the text, or
the context as a whole, or a particular statute, shall require a different
meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is
"flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code
recognizes that a statute may require a different meaning than that defined in the
Administrative Code. However, this does not automatically mean that the definition in
the Administrative Code does not apply to the Local Government Code. Section 2 of
the Administrative Code clearly states that "unless the specific words x x x of a
particular statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code, the definition in the
Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining
the phrase "government-owned or controlled corporation" differently from the definition
in the Administrative Code. Indeed, there is none. The Local Government Code is
silent on the definition of the phrase "government-owned or controlled corporation."
The Administrative Code, however, expressly defines the phrase "government-owned
or controlled corporation." The inescapable conclusion is that the Administrative Code
definition of the phrase "government-owned or controlled corporation" applies to the
Local Government Code.
The third whereas clause of the Administrative Code states that the Code
"incorporates in a unified document the major structural, functional and procedural
principles and rules of governance." Thus, the Administrative Code is the governing
law defining the status and relationship of government departments, bureaus, offices,
agencies and instrumentalities. Unless a statute expressly provides for a different
status and relationship for a specific government unit or entity, the provisions of the
Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled
corporation" should apply only to corporations organized under the Corporation Code,
the general incorporation law, and not to corporations created by special charters. The
minority sees no reason why government corporations with special charters should
have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the
Administrative Code refer to those corporations owned by the government or its
instrumentalities which are created not by legislative enactment, but formed and
organized under the Corporation Code through registration with the Securities and
Exchange Commission. In short, these are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital
structure for GOCCs whose full ownership is limited by its charter to the State or
Republic. Such GOCCs are not empowered to declare dividends or alienate their
capital shares.
The contention of the minority is seriously flawed. It is not in accord with the
Constitution and existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or
controlled corporation" does not distinguish between one incorporated under the
Corporation Code or under a special charter. Where the law does not distinguish,
courts should not distinguish.
Second, Congress has created through special charters several government-owned
corporations organized as stock corporations. Prime examples are the Land Bank of
the Philippines and the Development Bank of the Philippines. The special charter40 of
the Land Bank of the Philippines provides:
SECTION 81. Capital. The authorized capital stock of the Bank shall be
nine billion pesos, divided into seven hundred and eighty million common
shares with a par value of ten pesos each, which shall be fully subscribed
by the Government, and one hundred and twenty million preferred shares
with a par value of ten pesos each, which shall be issued in accordance
with the provisions of Sections seventy-seven and eighty-three of this
Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock Par value. The capital stock of
the Bank shall be Five Billion Pesos to be divided into Fifty Million common
shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this
Charter, the National Government shall subscribe to Twenty-Five Million
common shares of stock worth Two Billion Five Hundred Million which shall
be deemed paid for by the Government with the net asset values of the
Bank remaining after the transfer of assets and liabilities as provided in
Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their
special charters are the Philippine Crop Insurance Corporation,42 Philippine
International Trading Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code. All these government-
owned corporations organized under special charters as stock corporations are
subject to real estate tax on real properties owned by them. To rule that they are not
government-owned or controlled corporations because they are not registered with the
Securities and Exchange Commission would remove them from the reach of Section
234 of the Local Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special
charters are those that meet the two conditions prescribed in Section 16, Article XII of
the Constitution. The first condition is that the government-owned or controlled
corporation must be established for the common good. The second condition is that
the government-owned or controlled corporation must meet the test of economic
viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of
economic viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or
controlled corporations" through special charters only if these entities are required to
meet the twin conditions of common good and economic viability. In other words,
Congress has no power to create government-owned or controlled corporations with
special charters unless they are made to comply with the two conditions of common
good and economic viability. The test of economic viability applies only to government-
owned or controlled corporations that perform economic or commercial activities and
need to compete in the market place. Being essentially economic vehicles of the State
for the common good meaning for economic development purposes these
government-owned or controlled corporations with special charters are usually
organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that
every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations.
These instrumentalities are not the "government-owned or controlled corporations"
referred to in Section 16, Article XII of the 1987 Constitution.
Page 7 of 35
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental
or public functions. Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these instrumentalities
perform essential government functions or public services. However, when the
legislature creates through special charters corporations that perform economic or
commercial activities, such entities known as "government-owned or controlled
corporations" must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of
the Philippines and similar government-owned or controlled corporations, which derive
their income to meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to
the Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation becomes
exempt from the test of economic performance. We know what happened in the past.
If a government corporation loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and what is always invoked is the
common good. That is the reason why this year, out of a budget of P115 billion for the
entire government, about P28 billion of this will go into equity infusions to support a
few government financial institutions. And this is all taxpayers' money which could
have been relocated to agrarian reform, to social services like health and education, to
augment the salaries of grossly underpaid public employees. And yet this is all going
down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the
"common good," this becomes a restraint on future enthusiasts for state capitalism to
excuse themselves from the responsibility of meeting the market test so that they
become viable. And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by Commissioner Foz, the
insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST,"
together with the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission,
explains in his textbook The 1987 Constitution of the Republic of the Philippines: A
Commentary:
The second sentence was added by the 1986 Constitutional Commission. The
significant addition, however, is the phrase "in the interest of the common good and
subject to the test of economic viability." The addition includes the ideas that they must
show capacity to function efficiently in business and that they should not go into
activities which the private sector can do better. Moreover, economic viability is more
than financial viability but also includes capability to make profit and generate benefits
not quantifiable in financial terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to
render essential public services regardless of the economic viability of providing such
service. The non-economic viability of rendering such essential public service does not
excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters,
organized essentially for economic or commercial objectives, must meet the test of
economic viability. These are the government-owned or controlled corporations that
are usually organized under their special charters as stock corporations, like the Land
Bank of the Philippines and the Development Bank of the Philippines. These are the
government-owned or controlled corporations, along with government-owned or
controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not
create MIAA to compete in the market place. MIAA does not compete in the market
place because there is no competing international airport operated by the private
sector. MIAA performs an essential public service as the primary domestic and
international airport of the Philippines. The operation of an international airport
requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure
of passengers, screening out those without visas or travel documents, or those with
hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;
 3. The quarantine office of the Department of Health, to enforce health
measures against the spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread
of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to
prevent the entry of terrorists and the escape of criminals, as well as to
secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave Philippine airspace,
as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises such as runway and
buildings for the government personnel, passengers, and airlines, and to
manage the airport operations.
All these agencies of government perform government functions essential to the
operation of an international airport.
MIAA performs an essential public service that every modern State must provide its
citizens. MIAA derives its revenues principally from the mandatory fees and charges
MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every
passenger are regulatory or administrative fees47 and not income from commercial
transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of
the Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated
within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital structure,
MIAA remains a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code. More importantly, as long as MIAA renders
essential public services, it need not comply with the test of economic viability. Thus,
MIAA is outside the scope of the phrase "government-owned or controlled
corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase
"government-owned or controlled corporation" as merely "clarificatory or illustrative."
This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of
"government-owned or controlled corporations." The Administrative Code defines what
constitutes a "government-owned or controlled corporation." To belittle this phrase as
"clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under
Section 2(13) of the Introductory Provisions of the Administrative Code because it is
not organized as a stock or non-stock corporation. Neither is MIAA a government-
owned or controlled corporation under Section 16, Article XII of the 1987 Constitution
because MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and performing essential
public services pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject to any kind
of tax by local governments under Section 133(o) of the Local Government Code. The
exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is
not a taxable entity under the Local Government Code. Such exception applies only if
the beneficial use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use
and thus are properties of public dominion. Properties of public dominion are owned by
the State or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth. (Emphasis
supplied)
Page 8 of 35
The term "ports x x x constructed by the State" includes airports and seaports. The
Airport Lands and Buildings of MIAA are intended for public use, and at the very least
intended for public service. Whether intended for public use or public service, the
Airport Lands and Buildings are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt
from real estate tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative
Code, which governs the legal relation and status of government units, agencies and
offices within the entire government machinery, MIAA is a government instrumentality
and not a government-owned or controlled corporation. Under Section 133(o) of the
Local Government Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to "[t]axes, fees or charges of any kind" by local
governments. The only exception is when MIAA leases its real property to a "taxable
person" as provided in Section 234(a) of the Local Government Code, in which case
the specific real property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable persons like private
parties are subject to real estate tax by the City of Paraaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the State
or the Republic of the Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and seaports, as properties of
public dominion and owned by the Republic. As properties of public dominion owned
by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are
expressly exempt from real estate tax under Section 234(a) of the Local Government
Code. This Court has also repeatedly ruled that properties of public dominion are not
subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of
the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No.
66878. We DECLARE the Airport Lands and Buildings of the Manila International
Airport Authority EXEMPT from the real estate tax imposed by the City of Paraaque.
We declare VOID all the real estate tax assessments, including the final notices of real
estate tax delinquencies, issued by the City of Paraaque on the Airport Lands and
Buildings of the Manila International Airport Authority, except for the portions that the
Manila International Airport Authority has leased to private parties. We also
declare VOID the assailed auction sale, and all its effects, of the Airport Lands and
Buildings of the Manila International Airport Authority.
No costs.
SO ORDERED.
2.
G.R. No. 58168 December 19, 1989
CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA,
LUISA MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz,
FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special
Administratrix of the Estate of the late Genaro F. Magsaysay respondents.
In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the
decision of the Court of Appeals dated July l3, 1981, 1 affirming that of the Court of
First Instance of Zambales and Olongapo City which denied petitioners' motion to
intervene in an annulment suit filed by herein private respondent, and [2] its resolution
dated September 7, 1981, denying their motion for reconsideration.
Petitioners are raising a purely legal question; whether or not respondent Court of
Appeals correctly denied their motion for intervention.
The facts are not controverted.
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix
of the estate of the late Senator Genaro Magsaysay, brought before the then Court of
First Instance of Olongapo an action against Artemio Panganiban, Subic Land
Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register
of Deeds of Zambales. In her complaint, she alleged that in 1958, she and her
husband acquired, thru conjugal funds, a parcel of land with improvements, known as
"Pequena Island", covered by TCT No. 3258; that after the death of her husband, she
discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired
by her husband from his separate capital;" [b] the registration of a Deed of Assignment
dated June 25, 1976 purportedly executed by the late Senator in favor of SUBIC, as a
result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of
SUBIC; and [c] the registration of Deed of Mortgage dated April 28, 1977 in the
amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the
foregoing acts were void and done in an attempt to defraud the conjugal partnership
considering that the land is conjugal, her marital consent to the annotation on TCT No.
3258 was not obtained, the change made by the Register of Deeds of the titleholders
was effected without the approval of the Commissioner of Land Registration and that
the late Senator did not execute the purported Deed of Assignment or his consent
thereto, if obtained, was secured by mistake, violence and intimidation. She further
alleged that the assignment in favor of SUBIC was without consideration and
consequently null and void. She prayed that the Deed of Assignment and the Deed of
Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No.
22431 and to issue a new title in her favor.
On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for
intervention on the ground that on June 20, 1978, their brother conveyed to them one-
half (1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as
assignees of around 41 % of the total outstanding shares of such stocks of SUBIC,
they have a substantial and legal interest in the subject matter of litigation and that
they have a legal interest in the success of the suit with respect to SUBIC.
On July 26, 1979, the court denied the motion for intervention, and ruled that
petitioners have no legal interest whatsoever in the matter in litigation and their being
alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them
to intervene because SUBIC has a personality separate and distinct from its
stockholders.
On appeal, respondent Court of Appeals found no factual or legal justification to
disturb the findings of the lower court. The appellate court further stated that whatever
claims the petitioners have against the late Senator or against SUBIC for that matter
can be ventilated in a separate proceeding, such that with the denial of the motion for
intervention, they are not left without any remedy or judicial relief under existing law.
Petitioners' motion for reconsideration was denied. Hence, the instant recourse.
Petitioners anchor their right to intervene on the purported assignment made by the
late Senator of a certain portion of his shareholdings to them as evidenced by a Deed
of Sale dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with an
interest, protected by law, in the matter of litigation.
Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil.
857,862 & 853 (1927), 3petitioners strongly argue that their ownership of 41.66% of the
entire outstanding capital stock of SUBIC entitles them to a significant vote in the
corporate affairs; that they are affected by the action of the widow of their late brother
for it concerns the only tangible asset of the corporation and that it appears that they
are more vitally interested in the outcome of the case than SUBIC.
Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court
affirms the respondent court's holding that petitioners herein have no legal interest in
the subject matter in litigation so as to entitle them to intervene in the proceedings
below. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v.
Rosal, 4 we held: "As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be
permitted to intervene in a pending action, the party must have a legal interest in the
matter in litigation, or in the success of either of the parties or an interest against both,
or he must be so situated as to be adversely affected by a distribution or other
disposition of the property in the custody of the court or an officer thereof ."
To allow intervention, [a] it must be shown that the movant has legal interest in the
matter in litigation, or otherwise qualified; and [b] consideration must be given as to
whether the adjudication of the rights of the original parties may be delayed or
prejudiced, or whether the intervenor's rights may be protected in a separate
proceeding or not. Both requirements must concur as the first is not more important
than the second. 5
The interest which entitles a person to intervene in a suit between other parties must
be in the matter in litigation and of such direct and immediate character that the
intervenor will either gain or lose by the direct legal operation and effect of the
judgment. Otherwise, if persons not parties of the action could be allowed to intervene,
proceedings will become unnecessarily complicated, expensive and interminable. And
this is not the policy of the law. 6
The words "an interest in the subject" mean a direct interest in the cause of action as
pleaded, and which would put the intervenor in a legal position to litigate a fact alleged
in the complaint, without the establishment of which plaintiff could not recover. 7
Page 9 of 35
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent,
remote, conjectural, consequential and collateral. At the very least, their interest is
purely inchoate, or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the properties and assets thereof
on dissolution, after payment of the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of
the corporation, it does not vest the owner thereof with any legal right or title to any of
the property, his interest in the corporate property being equitable or beneficial in
nature. Shareholders are in no legal sense the owners of corporate property, which is
owned by the corporation as a distinct legal person. 8
Petitioners further contend that the availability of other remedies, as declared by the
Court of appeals, is totally immaterial to the availability of the remedy of intervention.
We cannot give credit to such averment. As earlier stated, that the movant's interest
may be protected in a separate proceeding is a factor to be considered in allowing or
disallowing a motion for intervention. It is significant to note at this juncture that as per
records, there are four pending cases involving the parties herein, enumerated as
follows: [1] Special Proceedings No. 122122 before the CFI of Manila, Branch XXII,
entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving
the validity of the transfer by the late Genaro Magsaysay of one-half of his
shareholdings in Subic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of
Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v. Panganiban, etc.;
Concepcion Labrador, et al. Intervenors", seeking to annul the purported Deed of
Assignment in favor of SUBIC and its annotation at the back of TCT No. 3258 in the
name of respondent's deceased husband; [3] SEC Case No. 001770, filed by
respondent praying, among other things that she be declared in her capacity as the
surviving spouse and administratrix of the estate of Genaro Magsaysay as the sole
subscriber and stockholder of SUBIC. There, petitioners, by motion, sought to
intervene. Their motion to reconsider the denial of their motion to intervene was
granted; [4] SP No. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing
a contingent claim pursuant to Section 5, Rule 86, Revised Rules of
Court. 9 Petitioners' interests are no doubt amply protected in these cases.
Neither do we lend credence to petitioners' argument that they are more interested in
the outcome of the case than the corporation-assignee, owing to the fact that the latter
is willing to compromise with widow-respondent and since a compromise involves the
giving of reciprocal concessions, the only conceivable concession the corporation may
give is a total or partial relinquishment of the corporate assets. 10
Such claim all the more bolsters the contingent nature of petitioners' interest in the
subject of litigation.
The factual findings of the trial court are clear on this point. The petitioners cannot
claim the right to intervene on the strength of the transfer of shares allegedly executed
by the late Senator. The corporation did not keep books and records. 11 Perforce, no
transfer was ever recorded, much less effected as to prejudice third parties. The
transfer must be registered in the books of the corporation to affect third persons. The
law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No
transfer, however, shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred."
And even assuming arguendo that there was a valid transfer, petitioners are
nonetheless barred from intervening inasmuch as their rights can be ventilated and
amply protected in another proceeding.
WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners.
SO ORDERED.
3.
G.R. No. L-31061 August 17, 1976
SULO NG BAYAN INC., plaintiff-appellant,
vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS
& SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF
DEEDS OF BULACAN, defendants-appellees.
The issue posed in this appeal is whether or not plaintiff corporation (non- stock may
institute an action in behalf of its individual members for the recovery of certain parcels
of land allegedly owned by said members; for the nullification of the transfer
certificates of title issued in favor of defendants appellees covering the aforesaid
parcels of land; for a declaration of "plaintiff's members as absolute owners of the
property" and the issuance of the corresponding certificate of title; and for damages.
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de
revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District,
Valenzuela, Bulacan, against defendants-appellees to recover the ownership and
possession of a large tract of land in San Jose del Monte, Bulacan, containing an area
of 27,982,250 square meters, more or less, registered under the Torrens System in the
name of defendants-appellees' predecessors-in-interest. 1 The complaint, as amended
on June 13, 1966, specifically alleged that plaintiff is a corporation organized and
existing under the laws of the Philippines, with its principal office and place of business
at San Jose del Monte, Bulacan; that its membership is composed of natural persons
residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation,
through themselves and their predecessors-in-interest, had pioneered in the clearing
of the fore-mentioned tract of land, cultivated the same since the Spanish regime and
continuously possessed the said property openly and public under concept of
ownership adverse against the whole world; that defendant-appellee Gregorio Araneta,
Inc., sometime in the year 1958, through force and intimidation, ejected the members
of the plaintiff corporation fro their possession of the aforementioned vast tract of land;
that upon investigation conducted by the members and officers of plaintiff corporation,
they found out for the first time in the year 1961 that the land in question "had been
either fraudelently or erroneously included, by direct or constructive fraud, in Original
Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued
on May 11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due
to the fact that "no original survey nor plan whatsoever" appears to have been
submitted as a basis thereof and that the Court of First Instance of Bulacan which
issued the decree of registration did not acquire jurisdiction over the land registration
case because no notice of such proceeding was given to the members of the plaintiff
corporation who were then in actual possession of said properties; that as a
consequence of the nullity of the original title, all subsequent titles derived therefrom,
such as Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and
Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of Title
No. 7573 in the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988
issued in the name of, the National Waterworks & Sewerage Authority (NWSA),
Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc.,
and another transfer certificate of title in the name of Paradise Farms, Inc., are
therefore void. Plaintiff-appellant consequently prayed (1) that Original Certificate of
Title No. 466, as well as all transfer certificates of title issued and derived therefrom,
be nullified; (2) that "plaintiff's members" be declared as absolute owners in common
of said property and that the corresponding certificate of title be issued to plaintiff; and
(3) that defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the
damages therein specified.
On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to
dismiss the amended complaint on the grounds that (1) the complaint states no cause
of action; and (2) the cause of action, if any, is barred by prescription and laches.
Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the
same grounds. Appellee National Waterworks & Sewerage Authority did not file any
motion to dismiss. However, it pleaded in its answer as special and affirmative
defenses lack of cause of action by the plaintiff-appellant and the barring of such
action by prescription and laches.
During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated
October 7, 1966, praying that the case be transferred to another branch of the Court of
First Instance sitting at Malolos, Bulacan, According to defendants-appellees, they
were not furnished a copy of said motion, hence, on October 14, 1966, the lower court
issued an Order requiring plaintiff-appellant to furnish the appellees copy of said
motion, hence, on October 14, 1966, defendant-appellant's motion dated October 7,
1966 and, consequently, prayed that the said motion be denied for lack of notice and
for failure of the plaintiff-appellant to comply with the Order of October 14, 1966.
Similarly, defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a
manifestation information the court that it also did not receive a copy of the afore-
mentioned of appellant. On January 24, 1967, the trial court issued an Order
dismissing the amended complaint.
On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on
the grounds that the court had no jurisdiction to issue the Order of dismissal, because
its request for the transfer of the case from the Valenzuela Branch of the Court of First
Instance to the Malolos Branch of the said court has been approved by the
Department of Justice; that the complaint states a sufficient cause of action because
Page 10 of 35
the subject matter of the controversy in one of common interest to the members of the
corporation who are so numerous that the present complaint should be treated as a
class suit; and that the action is not barred by the statute of limitations because (a) an
action for the reconveyance of property registered through fraud does not prescribe,
and (b) an action to impugn a void judgment may be brought any time. This motion
was denied by the trial court in its Order dated February 22, 1967. From the afore-
mentioned Order of dismissal and the Order denying its motion for reconsideration,
plaintiff-appellant appealed to the Court of Appeals.
On September 3, 1969, the Court of Appeals, upon finding that no question of fact was
involved in the appeal but only questions of law and jurisdiction, certified this case to
this Court for resolution of the legal issues involved in the controversy.
I
Appellant contends, as a first assignment of error, that the trial court acted without
authority and jurisdiction in dismissing the amended complaint when the Secretary of
Justice had already approved the transfer of the case to any one of the two branches
of the Court of First Instance of Malolos, Bulacan.
Appellant confuses the jurisdiction of a court and the venue of cases with the
assignment of cases in the different branches of the same Court of First Instance.
Jurisdiction implies the power of the court to decide a case, while venue the place of
action. There is no question that respondent court has jurisdiction over the case. The
venue of actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the
Revised Rules of Court. The laying of venue is not left to the caprice of plaintiff, but
must be in accordance with the aforesaid provision of the rules. 2The mere fact that a
request for the transfer of a case to another branch of the same court has been
approved by the Secretary of Justice does not divest the court originally taking
cognizance thereof of its jurisdiction, much less does it change the venue of the action.
As correctly observed by the trial court, the indorsement of the Undersecretary of
Justice did not order the transfer of the case to the Malolos Branch of the Bulacan
Court of First Instance, but only "authorized" it for the reason given by plaintiff's
counsel that the transfer would be convenient for the parties. The trial court is not
without power to either grant or deny the motion, especially in the light of a strong
opposition thereto filed by the defendant. We hold that the court a quo acted within its
authority in denying the motion for the transfer the case to Malolos notwithstanding the
authorization" of the same by the Secretary of Justice.
II
Let us now consider the substantive aspect of the Order of dismissal.
In dismissing the amended complaint, the court a quo said:
The issue of lack of cause of action raised in the motions to dismiss refer to the lack of
personality of plaintiff to file the instant action. Essentially, the term 'cause of action' is
composed of two elements: (1) the right of the plaintiff and (2) the violation of such
right by the defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules require that
every action must be prosecuted and defended in the name of the real party in interest
and that all persons having an interest in the subject of the action and in obtaining the
relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the amended
complaint, the people whose rights were alleged to have been violated by being
deprived and dispossessed of their land are the members of the corporation and not
the corporation itself. The corporation has a separate. and distinct personality from its
members, and this is not a mere technicality but a matter of substantive law. There is
no allegation that the members have assigned their rights to the corporation or any
showing that the corporation has in any way or manner succeeded to such rights. The
corporation evidently did not have any rights violated by the defendants for which it
could seek redress. Even if the Court should find against the defendants, therefore,
the plaintiff corporation would not be entitled to the reliefs prayed for, which are
recoveries of ownership and possession of the land, issuance of the corresponding
title in its name, and payment of damages. Neither can such reliefs be awarded to the
members allegedly deprived of their land, since they are not parties to the suit. It
appearing clearly that the action has not been filed in the names of the real parties in
interest, the complaint must be dismissed on the ground of lack of cause of action. 3
Viewed in the light of existing law and jurisprudence, We find that the trial court
correctly dismissed the amended complaint.
It is a doctrine well-established and obtains both at law and in equity that a corporation
is a distinct legal entity to be considered as separate and apart from the individual
stockholders or members who compose it, and is not affected by the personal rights,
obligations and transactions of its stockholders or members. 4 The property of the
corporation is its property and not that of the stockholders, as owners, although they
have equities in it. Properties registered in the name of the corporation are owned by it
as an entity separate and distinct from its members. 5 Conversely, a corporation
ordinarily has no interest in the individual property of its stockholders unless
transferred to the corporation, "even in the case of a one-man corporation. 6 The mere
fact that one is president of a corporation does not render the property which he owns
or possesses the property of the corporation, since the president, as individual, and
the corporation are separate similarities. 7 Similarly, stockholders in a corporation
engaged in buying and dealing in real estate whose certificates of stock entitled the
holder thereof to an allotment in the distribution of the land of the corporation upon
surrender of their stock certificates were considered not to have such legal or
equitable title or interest in the land, as would support a suit for title, especially against
parties other than the corporation. 8
It must be noted, however, that the juridical personality of the corporation, as separate
and distinct from the persons composing it, is but a legal fiction introduced for the
purpose of convenience and to subserve the ends of justice. 9 This separate
personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work
-an injustice, or where necessary to achieve equity. 10
Thus, when "the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, ... the law will regard the corporation as an
association of persons, or in the case of two corporations, merge them into one, the
one being merely regarded as part or instrumentality of the other. 11 The same is true
where a corporation is a dummy and serves no business purpose and is intended only
as a blind, or an alter ego or business conduit for the sole benefit of the
stockholders. 12 This doctrine of disregarding the distinct personality of the corporation
has been applied by the courts in those cases when the corporate entity is used for the
evasion of taxes 13 or when the veil of corporate fiction is used to confuse legitimate
issue of employer-employee relationship, 14 or when necessary for the protection of
creditors, in which case the veil of corporate fiction may be pierced and the funds of
the corporation may be garnished to satisfy the debts of a principal stockholder. 15 The
aforecited principle is resorted to by the courts as a measure protection for third
parties to prevent fraud, illegality or injustice. 16
It has not been claimed that the members have assigned or transferred whatever
rights they may have on the land in question to the plaintiff corporation. Absent any
showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no
personality to bring an action for and in behalf of its stockholders or members for the
purpose of recovering property which belongs to said stockholders or members in their
personal capacities.
It is fundamental that there cannot be a cause of action 'without an antecedent primary
legal right conferred' by law upon a person. 17 Evidently, there can be no wrong without
a corresponding right, and no breach of duty by one person without a corresponding
right belonging to some other person. 18 Thus, the essential elements of a cause of
action are legal right of the plaintiff, correlative obligation of the defendant, an act or
omission of the defendant in violation of the aforesaid legal right. 19 Clearly, no right of
action exists in favor of plaintiff corporation, for as shown heretofore it does not have
any interest in the subject matter of the case which is material and, direct so as to
entitle it to file the suit as a real party in interest.
III
Appellant maintains, however, that the amended complaint may be treated as a class
suit, pursuant to Section 12 of Rule 3 of the Revised Rules of Court.
In order that a class suit may prosper, the following requisites must be present: (1) that
the subject matter of the controversy is one of common or general interest to many
persons; and (2) that the parties are so numerous that it is impracticable to bring them
all before the court. 20
Under the first requisite, the person who sues must have an interest in the controversy,
common with those for whom he sues, and there must be that unity of interest
between him and all such other persons which would entitle them to maintain the
action if suit was brought by them jointly. 21
As to what constitutes common interest in the subject matter of the controversy, it has
been explained in Scott v. Donald 22 thus:
Page 11 of 35
The interest that will allow parties to join in a bill of complaint, or that will enable the
court to dispense with the presence of all the parties, when numerous, except a
determinate number, is not only an interest in the question, but one in common in the
subject Matter of the suit; ... a community of interest growing out of the nature and
condition of the right in dispute; for, although there may not be any privity between the
numerous parties, there is a common title out of which the question arises, and which
lies at the foundation of the proceedings ... [here] the only matter in common among
the plaintiffs, or between them and the defendants, is an interest in the Question
involved which alone cannot lay a foundation for the joinder of parties. There is
scarcely a suit at law, or in equity which settles a Principle or applies a principle to a
given state of facts, or in which a general statute is interpreted, that does not involved
a Question in which other parties are interested. ... (Emphasis supplied )
Here, there is only one party plaintiff, and the plaintiff corporation does not even have
an interest in the subject matter of the controversy, and cannot, therefore, represent its
members or stockholders who claim to own in their individual capacities ownership of
the said property. Moreover, as correctly stated by the appellees, a class suit does not
lie in actions for the recovery of property where several persons claim Partnership of
their respective portions of the property, as each one could alleged and prove his
respective right in a different way for each portion of the land, so that they cannot all
be held to have Identical title through acquisition prescription. 23
Having shown that no cause of action in favor of the plaintiff exists and that the action
in the lower court cannot be considered as a class suit, it would be unnecessary and
an Idle exercise for this Court to resolve the remaining issue of whether or not the
plaintiffs action for reconveyance of real property based upon constructive or implied
trust had already prescribed.
ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the
plaintiff-appellant.
Fernando, C.J., Barredo, Aquino and Concepcion, Jr., JJ., concur.
4.
LUXURIA HOMES, INC., and/or AIDA M. POSADAS, petitioners, vs. HONORABLE
COURT OF APPEALS, JAMES BUILDER CONSTRUCTION and/or
JAIME T. BRAVO, respondents.
DECISION
MARTINEZ, J.:
This petition for review assails the decision of the respondent Court of Appeals
dated March 15, 1996,[1] which affirmed with modification the judgment of default
rendered by the Regional Trial Court of Muntinlupa, Branch 276, in Civil Case No. 92-
2592 granting all the reliefs prayed for in the complaint of private respondent James
Builder Construction and/or Jaime T. Bravo.
As culled from the record, the facts are as follows:
Petitioner Aida M. Posadas and her two (2) minor children co-owned a 1.6
hectare property in Sucat, Muntinlupa, which was occupied by squatters. Petitioner
Posadas entered into negotiations with private respondent Jaime T. Bravo regarding
the development of the said property into a residential subdivision. On May 3, 1989,
she authorized private respondent to negotiate with the squatters to leave the said
property. With a written authorization, respondent Bravo buckled down to work and
started negotiations with the squatters.
Meanwhile, some seven (7) months later, on December 11, 1989, petitioner
Posadas and her two (2) children, through a Deed of Assignment, assigned the said
property to petitioner Luxuria Homes, Inc., purportedly for organizational and tax
avoidance purposes. Respondent Bravo signed as one of the witnesses to the
execution of the Deed of Assignment and the Articles of Incorporation of petitioner
Luxuria Homes, Inc.
Then sometime in 1992, the harmonious and congenial relationship of petitioner
Posadas and respondent Bravo turned sour when the former supposedly could not
accept the management contracts to develop the 1.6 hectare property into a
residential subdivision, the latter was proposing. In retaliation, respondent Bravo
demanded payment for services rendered in connection with the development of the
land. In his statement of account dated 21 August 1991 [2] respondent demanded the
payment of P1,708,489.00 for various services rendered, i.e., relocation of squatters,
preparation of the architectural design and site development plan, survey and fencing.
Petitioner Posadas refused to pay the amount demanded. Thus, in September
1992, private respondents James Builder Construction and Jaime T. Bravo instituted a
complaint for specific performance before the trial court against petitioners Posadas
and Luxuria Homes, Inc. Private respondents alleged therein that petitioner Posadas
asked them to clear the subject parcel of land of squatters for a fee of P1,100,000.00
for which they were partially paid the amount of P461,511.50, leaving a balance
of P638,488.50. They were also supposedly asked to prepare a site development plan
and an architectural design for a contract price of P450,000.00 for which they were
partially paid the amount of P25,000.00, leaving a balance of P425,000.00. And in
anticipation of the signing of the land development contract, they had to construct a
bunkhouse and warehouse on the property which amounted to P300,000.00, and a
hollow blocks factory for P60,000.00. Private respondents also claimed that petitioner
Posadas agreed that private respondents will develop the land into a first class
subdivision thru a management contract and that petitioner Posadas is unjustly
refusing to comply with her obligation to finalize the said management contract.
The prayer in the complaint of the private respondents before the trial court
reads as follows:
WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court
that after hearing/trial judgment be rendered ordering defendant to:
a) Comply with its obligation to deliver/finalize Management Contract of its land in
Sucat, Muntinlupa, Metro Manila and to pay plaintiff its balance in the amount
of P1,708,489.00;
b) Pay plaintiff moral and exemplary damages in the amount of P500,000.00;
c) Pay plaintiff actual damages in the amount of P500,000.00
(Bunkhouse/warehouse P300,000.00, Hollow-block factory P60,000.00, lumber,
cement, etc., P120,000.00, guard P20,000.00);
d) Pay plaintiff attorneys fee of P50,000 plus P700 per appearance in court and 5% of
that which may be awarded by the court to plaintiff re its monetary claims;
e) Pay cost of this suit.[3]
On September 27, 1993, the trial court declared petitioner Posadas in default
and allowed the private respondents to present their evidence ex-parte. On March 8,
1994, it ordered petitioner Posadas, jointly and in solidum with petitioner Luxuria
Homes, Inc., to pay private respondents as follows:
1. x x x the balance of the payment for the various services performed by Plaintiff with
respect to the land covered by TCT NO. 167895 previously No. 158290 in the total
amount of P1,708,489.00.
2. x x x actual damages incurred for the construction of the warehouses/bunks, and for
the materials used in the total sum of P1,500,000.00.
3. Moral and exemplary damages of P500,000.00.
4. Attorneys fee of P50,000.00.
5. And cost of this proceedings.
Defendant Aida Posadas as the Representative of the Corporation Luxuria Homes,
Incorporated, is further directed to execute the management contract she committed to
do, also in consideration of the various undertakings that Plaintiff rendered for her.[4]
Aggrieved by the aforecited decision, petitioners appealed to respondent Court
of Appeals, which, as aforestated, affirmed with modification the decision of the trial
court. The appellate court deleted the award of moral damages on the ground that
respondent James Builder Construction is a corporation and hence could not
experience physical suffering and mental anguish. It also reduced the award of
exemplary damages. The dispositive portion of the decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with the modification
that the award of moral damages is ordered deleted and the award of exemplary
Page 12 of 35
damages to the plaintiffs-appellee should only be in the amount of FIFTY THOUSAND
(P50,000.00) PESOS.[5]
Petitioners motion for reconsideration was denied, prompting the filing of this
petition for review before this Court.
On January 15, 1997, the Third Division of this Court denied due course to this
petition for failing to show convincingly any reversible error on the part of the Court of
Appeals. This Court however deleted the grant of exemplary damages and attorneys
fees. The Court also reduced the trial courts award of actual damages
from P1,500,000.00 to P500,000.00 reasoning that the grant should not exceed the
amount prayed for in the complaint. In the prayer in the complaint respondents asked
for actual damages in the amount of P500,000.00 only.
Still feeling aggrieved with the resolution of this Court, petitioners filed a motion
for reconsideration. On March 17, 1997, this Court found merit in the petitioners
motion for reconsideration and reinstated this petition for review.
From their petition for review and motion for reconsideration before this Court,
we now synthesize the issues as follows:
1. Were private respondents able to present ex-parte sufficient evidence
to substantiate the allegations in their complaint and entitle them to their
prayers?
2. Can petitioner Luxuria Homes, Inc., be held liable to private
respondents for the transactions supposedly entered into between petitioner
Posadas and private respondents?
3. Can petitioners be compelled to enter into a management contract with
private respondents?
Petitioners who were declared in default assert that the private respondents
who presented their evidence ex-parte nonetheless utterly failed to substantiate the
allegations in their complaint and as such cannot be entitled to the reliefs prayed for.
A perusal of the record shows that petitioner Posadas contracted respondents
Bravo to render various services for the initial development of the property as shown
by vouchers evidencing payments made by petitioner Posadas to respondents Bravo
for squatter relocation, architectural design, survey and fencing.
Respondents prepared the architectural design, site development plan and
survey in connection with petitioner Posadas application with the Housing and Land
Regulatory Board (HLRUB) for the issuance of the Development Permit, Preliminary
Approval and Locational Clearance.[6] Petitioner benefited from said services as the
Development Permit and the Locational Clearance were eventually issued by the
HLURB in her favor. Petitioner Posadas is therefore liable to pay for these services
rendered by respondents. The contract price for the survey of the land
is P140,000.00. Petitioner made partial payments totaling P130,000.00 leaving a
payable balance of P10,000.00.
In his testimony,[7] he alleged that the agreed price for the preparation of the site
development plan is P500,000.00 and that the preparation of the architectural designs
is for P450,000, or a total of P950,000.00 for the two contracts. In his
complaint however, respondent Bravo alleged that he was asked to prepare the site
development plan and the architectural designs x x x for a contract price
of P450,000.00 x x x.[8] The discrepancy or inconsistency was never reconciled and
clarified.
We reiterate that we cannot award an amount higher than what was claimed in
the complaint. Consequently for the preparation of both the architectural design and
site development plan, respondent is entitled to the amount of P450,000.00 less partial
payments made in the amount of P25,000.00. In Policarpio v. RTC of Quezon City,
[9]
it was held that a court is bereft of jurisdiction to award, in a judgment by default, a
relief other than that specifically prayed for in the complaint.
As regards the contracts for the ejectment of squatters and fencing, we believe
however that respondents failed to show proof that they actually fulfilled their
commitments therein. Aside from the bare testimony of respondent Bravo, no other
evidence was presented to show that all the squatter were ejected from the
property. Respondent Bravo failed to show how many shanties or structures were
actually occupying the property before he entered the same, to serve as basis for
concluding whether the task was finished or not. His testimony alone that he
successfully negotiated for the ejectment of all the squatters from the property will not
suffice.
Likewise, in the case of fencing, there is no proof that it was accomplished as
alleged. Respondent Bravo claims that he finished sixty percent (60%) of the fencing
project but he failed to present evidence showing the area sought to be fenced and the
actual area fenced by him. We therefore have no basis to determining the veracity
respondents allegations. We cannot assume that the said services rendered for it will
be unfair to require petitioner to pay the full amount claimed in case the respondents
obligations were not completely fulfilled.
For respondents failure to show proof of accomplishment of the aforesaid
services, their claims cannot be granted. In P.T. Cerna Corp. v. Court of Appeals,
[10]
we ruled that in civil cases, the burden of proof rests upon the party who, as
determined by the pleadings or the nature of the case, asserts the affirmative of an
issue. In this case the burden lies on the complainant, who is duty bound to prove the
allegations in the complaint. As this Court has held, he who alleges a fact has the
burden of proving it and A MERE ALLEGATION IS NOT EVIDENCE.
And the rules do not change even if the defendant is declared in default. In the
leading case of Lopez v. Mendezona,[11] this Court ruled that after entry of judgment in
default against a defendant who has neither appeared nor answered, and before final
judgment in favor of the plaintiff, the latter must establish by competent evidence all
the material allegations of his complaint upon which he bases his prayer for
relief. In De los Santos v. De la Cruz[12] this Court declared that a judgment by default
against a defendant does not imply a waiver of rights except that of being heard and of
presenting evidence in his favor. It does not imply admission by the defendant of the
facts and causes of action of the plaintiff, because the codal section requires the latter
to adduce his evidence in support of his allegations as an indispensable condition
before final judgment could be given in his favor. Nor could it be interpreted as an
admission by the defendant that the plaintiffs causes of action finds support in the law
or that the latter is entitled to the relief prayed for.
We explained the rule in judgments by default in Pascua v. Florendo,[13] where
we said that nowhere is it stated that the complainants are automatically entitled to the
relief prayed for, once the defendants are declared in default. Favorable relief can be
granted only after the court has ascertained that the evidence offered and the facts
proven by the presenting party warrant the grant of the same.Otherwise it would be
meaningless to require presentation of evidence if everytime the other party is
declared in default, a decision would automatically be rendered in favor of the non-
defaulting party and exactly according to the tenor of his prayer. In Lim Tanhu v.
Ramolete[14] we elaborated and said that a defaulted defendant is not actually thrown
out of court. The rules see to it that any judgment against him must be in accordance
with law. The evidence to support the plaintiffs cause is, of course, presented in his
absence, but the court is not supposed to admit that which is basically
incompetent. Although the defendant would not be in a position to object, elementary
justice requires that only legal evidence should be considered against him. If the
evidence presented should not be sufficient to justify a judgment for the plaintiff, the
complaint must be dismissed. And if an unfavorable judgment should be justifiable, it
cannot exceed the amount or be different in kind from what is prayed for in the
complaint.
The prayer for actual damages in the amount of P500,000.00, supposedly for
the bunkhouse/warehouse, hollow-block factory, lumber, cement, guard, etc., which
the trial court granted and even increased to P1,500,000.00, and which this Court
would have rightly reduced to the amount prayed for in the complaint, was not
established, as shown upon further review of the record. No receipts or vouchers were
presented by private respondents to show that they actually spent the
amount. In Salas v. Court of Appeals,[15] we said that the burden of proof of the
damages suffered is on the party claiming the same. It his duty to present evidence to
support his claim for actual damages. If he failed to do so, he has only himself to
blame if no award for actual damages is handed down.
In fine, as we declared in PNOC Shipping & Transport Corp. v. Court of
Appeals,[16] basic is the rule that to recover actual damages, the amount of loss must
not only be capable of proof but must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence obtainable of the actual
amount thereof.
We go to the second issue of whether Luxuria Homes, Inc., was a party to the
transactions entered into by petitioner Posadas and private respondents and thus
could be held jointly and severally with petitioner Posadas. Private respondents
Page 13 of 35
contend that petitioner Posadas surreptitiously formed Luxuria Homes, Inc., and
transferred the subject parcel of land to it to evade payment and defraud creditors,
including private respondents. This allegation does not find support in the evidence on
record.
On the contrary we hold that respondents Court of Appeals committed a
reversible error when it upheld the factual finding of the trial court that petitioners
liability was aggravated by the fact that Luxuria Homes, Inc., was formed by petitioner
Posadas after demand for payment had been made, evidently for her to evade
payment of her obligation, thereby showing that the transfer of her property to Luxuria
Homes, Inc., was in fraud of creditors.
We easily glean from the record that private respondents sent demand letters
on 21 August 1991 and 14 September 1991, or more than a year and a half after the
execution of the Deed of Assignment on 11 December 1989, and the issuance of the
Articles of Incorporation of petitioner Luxuria Homes on 26 January 1990. And, the
transfer was made at the time the relationship between petitioner Posadas and private
respondents was supposedly very pleasant. In fact the Deed of Assignment dated 11
December 1989 and the Articles of Incorporation of Luxuria Homes, Inc., issued 26
January 1990 were both signed by respondent Bravo himself as witness. It cannot be
said then that the incorporation of petitioner Luxuria Homes and the eventual transfer
of the subject property to it were in fraud of private respondent as such were done with
the full knowledge of respondent Bravo himself.
Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria
Homes, Inc., as erroneously stated by the lower court. The Articles of Incorporation of
petitioner Luxuria Homes, Inc., clearly show that petitioner Posadas owns
approximately 33% only of the capital stock. Hence petitioner Posadas cannot be
considered as an alter ego of petitioner Luxuria Homes, Inc.
To disregard the separate juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established. It cannot be presumed. This is
elementary. Thus in Bayer-Roxas v. Court of Appeals,[17] we said that the separate
personality of the corporation may be disregarded only when the corporation is used
as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for
the protection of the creditors. Accordingly in Del Rosario v. NLRC,[18] where the
Philsa International Placement and Services Corp. was organized and registered with
the POEA in 1981, several years before the complainant was filed a case in 1985, we
held that this cannot imply fraud.
Obviously in the instant case, private respondents failed to show proof that
petitioner Posadas acted in bad faith. Consequently since private respondents failed to
show that petitioner Luxuria Homes, Inc., was a party to any of the supposed
transactions, not even to the agreement to negotiate with and relocate the squatters, it
cannot be held liable, nay jointly and in solidum, to pay private respondents. In this
case since it was petitioner Aida M. Posadas who contracted respondent Bravo to
render the subject services, only she is liable to pay the amounts adjudged herein.
We now resolved the third and final issue. Private respondents urge the court to
compel petitioners to execute a management contract with them on the basis of the
authorization letter dated May 3, 1989.The full text of Exh D reads:
I hereby certify that we have duly authorized the bearer, Engineer Bravo to negotiate,
in our behalf, the ejectment of squatters from our property of 1.6 hectares, more or
less, in Sucat, Muntinlupa. This authority is extended to him as the representatives of
the Managers, under our agreement for them to undertake the development of said
area and the construction of housing units intended to convert the land into a first class
subdivision.
The aforecited document is nothing more than a to-whom-it-may-concern
authorization letter to negotiate with the squatters. Although it appears that there was
an agreement for the development of the area, there is no showing that same was
never perfected and finalized. Private respondents presented in evidence only drafts of
a proposed management contract with petitioners handwritten marginal notes but the
management contract was not put in its final form. The reason why there was no final
uncorrected draft was because the parties could not agree on the stipulations of said
contract, which even the private respondents admitted as found by the trial court. [19] As
a consequence the management drafts submitted by the private respondents should at
best be considered as mere unaccepted offers. We find no cogent reason, considering
that the parties no longer are in a harmonious relationship, for the execution of a
contract to develop a subdivision.
 It is fundamental that there can be no contract in the true sense in the absence
of the element of agreement, or of mutual assent of the parties. To compel petitioner
Posadas, whether as representatives of petitioners Luxuria Homes or in her personal
capacity, to execute a management contract under the terms and conditions of private
respondents would be to violate the principle of consensuality of
contracts.In Philippine National bank v. Court of Appeals,[20] we held that if the
assent is wanting on the part of one who contracts, his act has no more efficacy than if
it had been done under duress or by a person of unsound mind. In ordering petitioner
Posadas to execute a management contract with private respondents, the trial court in
effect is putting her under duress.
The parties are bound to fulfill the stipulations in a contract only upon its
perfection. At anytime prior to the perfection of a contract, unaccepted offers and
proposals remain as such and cannot be considered as binding commitments; hence
not demandable.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision
dated March 15, 1996, of respondent Honorable Court of Appeals and its Resolution
dated August 12, 1996, are MODIFIED ordering PETITIONER AIDA M. POSADAS to
pay PRIVATE RESPONDENTS the amount of P435,000.00 as balance for the
preparation of the architectural design, site development plan and survey. All other
claims of respondents are hereby DENIED for lack of merit.
SO ORDERED
Melo, Kapunan, and Pardo, JJ., concur.
5.
G.R. No. 75885 May 27, 1987
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO
SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER
RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S.
DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.
NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private
corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1)
Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on
February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration,
takeover, and other orders issued, and acts done, in accordance with said executive
orders by the Presidential Commission on Good Government and/or its
Commissioners and agents, affecting said corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation, initiated all its
misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It
was addressed to three of the agents of the Commission, hereafter simply referred to
as PCGG. It reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential Commission on Good Government,
by authority of the President of the Philippines, you are hereby directed to sequester
the following companies.
1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and
Mariveles Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
Page 14 of 35
7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum disruption of these
companies' business activities.
2. To ensure the continuity of these companies as going concerns, the care and
maintenance of these assets until such time that the Office of the President through
the Commission on Good Government should decide otherwise.
3. To report to the Commission on Good Government periodically.
Further, you are authorized to request for Military/Security Support from the
Military/Police authorities, and such other acts essential to the achievement of this
sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the
PCGG, addressed a letter dated April 18, 1986 to the President and other officers of
petitioner firm, reiterating an earlier request for the production of certain documents, to
wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986
2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973
to 1986
2.5. Minutes of the Executive Committee Meetings from 1973 to 1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to
1986 duly certified by the Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from
1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized signatories for
withdrawals thereof.
10. Schedule of company investments and placements. 2
The letter closed with the warning that if the documents were not submitted within five
days, the officers would be cited for "contempt in pursuance with Presidential
Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security
Services
A third order assailed by petitioner corporation, hereafter referred to simply as
BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member
of the task force assigned to carry out the basic sequestration order. He sent a letter to
BASECO's Vice-President for Finance, 3 terminating the contract for security services
within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS"
and "other civilian security agencies," CAPCOM military personnel having already
been assigned to the area,
(2) Change of Mode of Payment of Entry
Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck
Owners and Contractors," particularly a "Mr. Buddy Ondivilla National Marine
Corporation," advising of the amendment in part of their contracts with BASECO in the
sense that the stipulated charges for use of the BASECO road network were made
payable "upon entry and not anymore subject to monthly billing as was originally
agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer
Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf
of BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter
undertook to introduce improvements costing approximately P210,000.00 on the
BASECO wharf at Engineer Island, allegedly then in poor condition, avowedly to
"optimize its utilization and in return maximize the revenue which would flow into the
government coffers," in consideration of Deltamarine's being granted "priority in using
the improved portion of the wharf ahead of anybody" and exemption "from the
payment of any charges for the use of wharf including the area where it may install its
bagging equipments" "until the improvement remains in a condition suitable for port
operations." 5 It seems however that this contract was never consummated. Capt.
Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised
Deltamarine by letter dated July 30, 1986 that "the new management is not in a
position to honor the said contract" and thus "whatever improvements * * (may be
introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own
risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG
agent, Mayor Melba O. Buenaventura, "to plan and implement progress towards
maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by
conventional methods;" but afterwards, Commissioner Bautista, in representation of
the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at
Mariveles, Bataan, an agreement to this effect having been executed by them on
September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor
Buenaventura was also "authorized to clean and beautify the Company's compound,"
and in this connection, to dispose of or sell "metal scraps" and other materials,
equipment and machineries no longer usable, subject to specified guidelines and
safeguards including audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional
takeover by the PCGG of BASECO, "the Philippine Dockyard Corporation and all their
affiliated companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order
No. 1, empowering the Commission
* * To provisionally takeover in the public interest or to prevent its disposal or
dissipation, business enterprises and properties taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos, until
the transactions leading to such acquisition by the latter can be disposed of by the
appropriate authorities.
A management team was designated to implement the order, headed by Capt.
Siacunco, and was given the following powers:
1. Conducts all aspects of operation of the subject companies;
2. Installs key officers, hires and terminates personnel as
necessary;
3. Enters into contracts related to management and operation of
the companies;
4. Ensures that the assets of the companies are not dissipated
and used effectively and efficiently; revenues are duly accounted
for; and disburses funds only as may be necessary;
5. Does actions including among others, seeking of military
support as may be necessary, that will ensure compliance to this
order;
6. Holds itself fully accountable to the Presidential Commission
on Good Government on all aspects related to this take-over
order.
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza,
Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the
termination of their services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents
which, to repeat, petitioner BASECO would have this Court nullify. More particularly,
BASECO prays that this Court-
1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
Page 15 of 35
2) annul the sequestration order dated April- 14, 1986, and all other orders
subsequently issued and acts done on the basis thereof, inclusive of the takeover
order of July 14, 1986 and the termination of the services of the BASECO
executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and
Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial action, might
be made within the context of Executive Orders Nos. 1 and 2 before March 25,
1986 when the Freedom Constitution was promulgated, under the principle that the
law promulgated by the ruler under a revolutionary regime is the law of the land, it
ceased to be acceptable when the same ruler opted to promulgate the Freedom
Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of
Rights) of the 1973 Constitution was adopted providing, among others, that "No
person shall be deprived of life, liberty and property without due process of law."
(Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as
the Sequestration Order * * and Takeover Order * * issued purportedly under the
authority of said Executive Orders, rests on four fundamental considerations: First, no
notice and hearing was accorded * * (it) before its properties and business were taken
over; Second, the PCGG is not a court, but a purely investigative agency and therefore
not competent to act as prosecutor and judge in the same cause; Third, there is
nothing in the issuances which envisions any proceeding, process or remedy by which
petitioner may expeditiously challenge the validity of the takeover after the same has
been effected; and Fourthly, being directed against specified persons, and in disregard
of the constitutional presumption of innocence and general rules and procedures, they
constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has
apparently already complied with, was issued without court authority and infringed its
constitutional right against self-incrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of
dominion and management of its business affairs by
1) terminating its contract for security services with Fairways & Anchor, without the
consent and against the will of the contracting parties; and amending the mode of
payment of entry fees stipulated in its Lease Contract with National Stevedoring &
Lighterage Corporation, these acts being in violation of the non-impairment clause of
the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with
Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO
premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its
rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment,
machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their
affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP
Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal
Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away from
petitioner's premises at Mariveles * * rolls of cable wires, worth P600,000.00 on May
11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed
to have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and
freeze orders have been engendered by misapprehension, or incomplete
comprehension if not indeed downright ignorance of the law governing these
remedies. It is needful that these misconceptions and doubts be dispelled so that
uninformed and useless debates about them may be avoided, and arguments tainted
b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this
end, this opinion will essay an exposition of the law on the matter. In the process many
of the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit command
of the Provisional Constitution, ordained by Proclamation No. 3, 23 that the President-in
the exercise of legislative power which she was authorized to continue to wield "(until a
legislature is elected and convened under a new Constitution" "shall give priority to
measures to achieve the mandate of the people," among others to (r)ecover ill-gotten
properties amassed by the leaders and supporters of the previous regime and protect
the interest of the people through orders of sequestration or freezing of assets or
accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and
postulates that "vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates
both here and abroad." 25 Upon these premises, the Presidential Commission on Good
Government was created, 26 "charged with the task of assisting the President in regard
to (certain specified) matters," among which was precisely-
* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, whether
located in the Philippines or abroad, including the takeover or sequestration of all
business enterprises and entities owned or controlled by them, during his
administration, directly or through nominees, by taking undue advantage of their public
office and/or using their powers, authority, influence, connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the
fulfillment of its mission, the PCGG was granted "power and authority" to do the
following particular acts, to wit:
1. To sequester or place or cause to be placed under its control or possession any
building or office wherein any ill-gotten wealth or properties may be found, and any
records pertaining thereto, in order to prevent their destruction, concealment or
disappearance which would frustrate or hamper the investigation or otherwise prevent
the Commission from accomplishing its task.
2. To provisionally take over in the public interest or to prevent the disposal or
dissipation, business enterprises and properties taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos, until
the transactions leading to such acquisition by the latter can be disposed of by the
appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any person or
entity that may render moot and academic, or frustrate or otherwise make ineffectual
the efforts of the Commission to carry out its task under this order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to
conduct investigations; require submission of evidence by subpoenae ad
testificandum and duces tecum; administer oaths; punish for contempt. 29 It was given
power also to promulgate such rules and regulations as may be necessary to carry out
the purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and directions
respecting "the recovery of ill-gotten properties amassed by the leaders and
supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence showing that
there are assets and properties purportedly pertaining to former Ferdinand E. Marcos,
and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents or nominees which had been or were acquired
by them directly or indirectly, through or as a result of the improper or illegal use of
funds or properties owned by the government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of their office, authority, influence, connections or relationship, resulting in
their unjust enrichment and causing grave damage and prejudice to the Filipino people
and the Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank accounts, deposits, trust
accounts, shares of stocks, buildings, shopping centers, condominiums, mansions,
Page 16 of 35
residences, estates, and other kinds of real and personal properties in the Philippines
and in various countries of the world." 31
Upon these premises, the President-
1) froze "all assets and properties in the Philippines in which former President Marcos
and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents, or nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close
relatives, subordinates, business associates, duties, agents, or nominees
from transferring, conveying, encumbering, concealing or dissipating said assets or
properties in the Philippines and abroad, pending the outcome of appropriate
proceedings in the Philippines to determine whether any such assets or properties
were acquired by them through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of their official position, authority, relationship, connection or
influence to unjustly enrich themselves at the expense and to the grave damage and
prejudice of the Filipino people and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or otherwise
depleting or concealing such assets and properties or from assisting or taking part in
their transfer, encumbrance, concealment or dissipation under pain of such penalties
as are prescribed by law;" and
4) required "all persons in the Philippines holding such assets or properties, whether
located in the Philippines or abroad, in their names as nominees, agents or trustees, to
make full disclosure of the same to the Commission on Good Government within thirty
(30) days from publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is
empowered, "with the assistance of the Office of the Solicitor General and other
government agencies, * * to file and prosecute all cases investigated by it * * as may
be warranted by its findings." 34 All such cases, whether civil or criminal, are to be filed
"with the Sandiganbayan which shall have exclusive and original jurisdiction
thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for
restitution, reparation of damages, or indemnification for consequential damages,
forfeiture proceedings provided for under Republic Act No. 1379, or any other civil
actions under the Civil Code or other existing laws, in connection with * * (said
Executive Orders Numbered 1 and 2) may be filed separately from and proceed
independently of any criminal proceedings and may be proved by a preponderance of
evidence;" and that, moreover, the "technical rules of procedure and evidence shall not
be strictly applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the
previous regime"; 37
a) more particularly, that ill-gotten wealth (was) accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and close
associates, * * located in the Philippines or abroad, * * (and) business enterprises and
entities (came to be) owned or controlled by them, during * * (the Marcos)
administration, directly or through nominees, by taking undue advantage of their public
office and/or using their powers, authority, influence, Connections or relationship; 38
b) otherwise stated, that "there are assets and properties purportedly pertaining to
former President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates, business associates, dummies, agents or
nominees which had been or were acquired by them directly or indirectly, through or as
a result of the improper or illegal use of funds or properties owned by the Government
of the Philippines or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of their office, authority, influence,
connections or relationship, resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the Republic of the Philippines"; 39
c) that "said assets and properties are in the form of bank accounts. deposits, trust.
accounts, shares of stocks, buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and personal properties in the Philippines
and in various countries of the world;" 40 and
2) that certain "business enterprises and properties (were) taken over by the
government of the Marcos Administration or by entities or persons close to former
President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's
plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above
described factual premises of the Executive Orders and Proclamation No. 3 to be true,
to be demonstrable by competent evidence, the recovery from Marcos, his family and
his dominions of the assets and properties involved, is not only a right but a duty on
the part of Government.
But however plain and valid that right and duty may be, still a balance must be sought
with the equally compelling necessity that a proper respect be accorded and adequate
protection assured, the fundamental rights of private property and free enterprise
which are deemed pillars of a free society such as ours, and to which all members of
that society may without exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as its
necessary components freedom of conscience, freedom of expression, and freedom in
the pursuit of happiness. Along with these freedoms are included economic freedom
and freedom of enterprise within reasonable bounds and under proper control. * *
Evincing much concern for the protection of property, the Constitution distinctly
recognizes the preferred position which real estate has occupied in law for
ages. Property is bound up with every aspect of social life in a democracy as
democracy is conceived in the Constitution. The Constitution realizes the
indispensable role which property, owned in reasonable quantities and used
legitimately, plays in the stimulation to economic effort and the formation and growth of
a solid social middle class that is said to be the bulwark of democracy and the
backbone of every progressive and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be
assumed. They will have to be duly established by adequate proof in each case, in a
proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly
and properly adjudged and consummated; although there are some who maintain that
the fact-that an immense fortune, and "vast resources of the government have been
amassed by former President Ferdinand E. Marcos, his immediate family, relatives,
and close associates both here and abroad," and they have resorted to all sorts of
clever schemes and manipulations to disguise and hide their illicit acquisitions-is within
the realm of judicial notice, being of so extensive notoriety as to dispense with proof
thereof, Be this as it may, the requirement of evidentiary substantiation has been
expressly acknowledged, and the procedure to be followed explicitly laid down, in
Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve
Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such
"ill-gotten wealth" as the evidence at hand may reveal, there is an obvious and
imperative need for preliminary, provisional measures to prevent the concealment,
disappearance, destruction, dissipation, or loss of the assets and properties subject of
the suits, or to restrain or foil acts that may render moot and academic, or effectively
hamper, delay, or negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are:
(1) sequestration; (2) freeze orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances
of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases where
"business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed to
be "ill-gotten" means to place or cause to be placed under its possession or control
said property, or any building or office wherein any such property and any records
pertaining thereto may be found, including "business enterprises and entities,"-for the
purpose of preventing the destruction, concealment or dissipation of, and otherwise
conserving and preserving, the same-until it can be determined, through appropriate
judicial proceedings, whether the property was in truth will- gotten," i.e., acquired
through or as a result of improper or illegal use of or the conversion of funds belonging
to the Government or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of official position, authority
relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State. 44 And this, too, is the sense in
which the term is commonly understood in other jurisdictions. 45
Page 17 of 35
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property alleged
to constitute "ill-gotten wealth" "from transferring, conveying, encumbering or
otherwise depleting or concealing such property, or from assisting or taking part in its
transfer, encumbrance, concealment, or dissipation." 46 In other words, it commands
the possessor to hold the property and conserve it subject to the orders and
disposition of the authority decreeing such freezing. In this sense, it is akin to a
garnishment by which the possessor or ostensible owner of property is enjoined not to
deliver, transfer, or otherwise dispose of any effects or credits in his possession or
control, and thus becomes in a sense an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the
apparent distinction between "ill gotten" "business enterprises and entities" (going
concerns, businesses in actual operation), generally, as to which the remedy of
sequestration applies, it being necessarily inferred that the remedy entails no
interference, or the least possible interference with the actual management and
operations thereof; and "business enterprises which were taken over by the
government government of the Marcos Administration or by entities or persons close
to him," in particular, as to which a "provisional takeover" is authorized, "in the public
interest or to prevent disposal or dissipation of the enterprises." 48 Such a "provisional
takeover" imports something more than sequestration or freezing, more than the
placing of the business under physical possession and control, albeit without or with
the least possible interference with the management and carrying on of the business
itself. In a "provisional takeover," what is taken into custody is not only the physical
assets of the business enterprise or entity, but the business operation as well. It is in
fine the assumption of control not only over things, but over operations or on- going
activities. But, to repeat, such a "provisional takeover" is allowed only as regards
"business enterprises * * taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent
character of the remedies just described. Indeed the law plainly qualifies the remedy of
take-over by the adjective, "provisional." These remedies may be resorted to only for a
particular exigency: to prevent in the public interest the disappearance or dissipation of
property or business, and conserve it pending adjudgment in appropriate proceedings
of the primary issue of whether or not the acquisition of title or other right thereto by
the apparent owner was attended by some vitiating anomaly. None of the remedies is
meant to deprive the owner or possessor of his title or any right to the property
sequestered, frozen or taken over and vest it in the sequestering agency, the
Government or other person. This can be done only for the causes and by the
processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take
over is to be understood and exercised, the language of the executive orders in
question leaves no doubt. Executive Order No. 1 declares that the sequestration of
property the acquisition of which is suspect shall last "until the transactions leading to
such acquisition * * can be disposed of by the appropriate authorities." 49 Executive
Order No. 2 declares that the assets or properties therein mentioned shall remain
frozen "pending the outcome of appropriate proceedings in the Philippines to
determine whether any such assets or properties were acquired" by illegal
means. Executive Order No. 14 makes clear that judicial proceedings are essential for
the resolution of the basic issue of whether or not particular assets are "ill-gotten," and
resultant recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The
Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that sequestration,
freezing or provisional takeover is designed to be an end in itself, that it is the device
through which persons may be deprived of their property branded as "ill-gotten," that it
is intended to bring about a permanent, rather than a passing, transitional state of
affairs. That this is not so is quite explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the
duration of these provisional remedies. Section 26 of its Transitory Provisions, 51 lays
down the relevant rule in plain terms, apart from extending ratification or confirmation
(although not really necessary) to the institution by presidential fiat of the remedy of
sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No.
3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain
operative for not more than eighteen months after the ratification of this Constitution.
However, in the national interest, as certified by the President, the Congress may
extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima
facie case. The order and the list of the sequestered or frozen properties shall forthwith
be registered with the proper court. For orders issued before the ratification of this
Constitution, the corresponding judicial action or proceeding shall be filed within six
months from its ratification. For those issued after such ratification, the judicial action
or proceeding shall be commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or
proceeding is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the
provisional remedy of preliminary attachment, or receivership. 53 By attachment, a
sheriff seizes property of a defendant in a civil suit so that it may stand as security for
the satisfaction of any judgment that may be obtained, and not disposed of, or
dissipated, or lost intentionally or otherwise, pending the action. 54 By receivership,
property, real or personal, which is subject of litigation, is placed in the possession and
control of a receiver appointed by the Court, who shall conserve it pending final
determination of the title or right of possession over it. 55 All these remedies
sequestration, freezing, provisional, takeover, attachment and receivership are
provisional, temporary, designed for-particular exigencies, attended by no character of
permanency or finality, and always subject to the control of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued
by a court is of no moment. The Solicitor General draws attention to the writ of distraint
and levy which since 1936 the Commissioner of Internal Revenue has been by law
authorized to issue against property of a delinquent taxpayer. 56 BASECO itself
declares that it has not manifested "a rigid insistence on sequestration as a purely
judicial remedy * * (as it feels) that the law should not be ossified to a point that makes
it insensitive to change." What it insists on, what it pronounces to be its "unyielding
position, is that any change in procedure, or the institution of a new one, should
conform to due process and the other prescriptions of the Bill of Rights of the
Constitution." 57 It is, to be sure, a proposition on which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of
personal property in replevin suits, sequestration and provisional takeover writs may
issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of
personality, no objection of any significance may be raised to the ex parte issuance of
an order of sequestration, freezing or takeover, given its fundamental character of
temporariness or conditionality; and taking account specially of the constitutionally
expressed "mandate of the people to recover ill-gotten properties amassed by the
leaders and supporters of the previous regime and protect the interest of the
people;" 59 as well as the obvious need to avoid alerting suspected possessors of "ill-
gotten wealth" and thereby cause that disappearance or loss of property precisely
sought to be prevented, and the fact, just as self-evident, that "any transfer,
disposition, concealment or disappearance of said assets and properties would
frustrate, obstruct or hamper the efforts of the Government" at the just recovery
thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership,
there exist a prima facie factual foundation, at least, for the sequestration, freeze or
takeover order, and adequate and fair opportunity to contest it and endeavor to cause
its negation or nullification. 61
Both are assured under the executive orders in question and the rules and regulations
promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of
fairness and due process." 62Executive Order No. 2 declares that with respect to
claims on allegedly "ill-gotten" assets and properties, "it is the position of the new
democratic government that President Marcos * * (and other parties affected) be
afforded fair opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations provides that
sequestration or freeze (and takeover) orders issue upon the authority of at least two
commissioners, based on the affirmation or complaint of an interested party, or motu
proprio when the Commission has reasonable grounds to believe that the issuance
thereof is warranted. 64 A similar requirement is now found in Section 26, Art. XVIII of
the 1987 Constitution, which requires that a "sequestration or freeze order shall be
issued only upon showing of a prima facie case." 65
b. Opportunity to Contest
Page 18 of 35
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by
which a party may seek to set aside a writ of sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a writ of sequestration or
freeze or hold order is directed may request the lifting thereof in writing, either
personally or through counsel within five (5) days from receipt of the writ or order, or in
the case of a hold order, from date of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio
for good cause shown, the Commission may lift the writ or order unconditionally or
subject to such conditions as it may deem necessary, taking into consideration the
evidence and the circumstance of the case. The resolution of the commission may be
appealed by the party concerned to the Office of the President of the Philippines within
fifteen (15) days from receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth"
were not expressly imposed by some rule or regulation as a condition to warrant the
sequestration or freezing of property contemplated in the executive orders in question,
it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails
and official acts which are devoid of rational basis in fact or law, or are whimsical and
capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations as to the
validity and propriety of sequestration, freeze and takeover orders, it should be
dispelled by the fact that these particular remedies and the authority of the PCGG to
issue them have received constitutional approbation and sanction. As already
mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty
of the President to enact "measures to achieve the mandate of the people to * * *
(recover ill- gotten properties amassed by the leaders and supporters of the previous
regime and protect the interest of the people through orders of sequestration or
freezing of assets or accounts." And as also already adverted to, Section 26, Article
XVIII of the 1987 Constitution 67 treats of, and ratifies the "authority to issue
sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's inherent
police power, regarded, as t lie power of promoting the public welfare by restraining
and regulating the use of liberty and property," 68 and as "the most essential, insistent
and illimitable of powers * * in the promotion of general welfare and the public
interest," 69and said to be co-extensive with self-protection and * * not inaptly termed
(also) the'law of overruling necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the
PCGG is not, and was never intended to act as, a judge. Its general function is to
conduct investigations in order to collect evidence establishing instances of "ill-gotten
wealth;" issue sequestration, and such orders as may be warranted by the evidence
thus collected and as may be necessary to preserve and conserve the assets of which
it takes custody and control and prevent their disappearance, loss or dissipation; and
eventually file and prosecute in the proper court of competent jurisdiction all cases
investigated by it as may be warranted by its findings. It does not try and decide, or
hear and determine, or adjudicate with any character of finality or compulsion, cases
involving the essential issue of whether or not property should be forfeited and
transferred to the State because "ill-gotten" within the meaning of the Constitution and
the executive orders. This function is reserved to the designated court, in this case, the
Sandiganbayan. 71 There can therefore be no serious regard accorded to the
accusation, leveled by BASECO, 72 that the PCGG plays the perfidious role of
prosecutor and judge at the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the
record, hereafter to be discussed, the petition cannot succeed. The writs of certiorari
and prohibition prayed for will not be issued.
The facts show that the corporation known as BASECO was owned or controlled by
President Marcos "during his administration, through nominees, by taking undue
advantage of his public office and/or using his powers, authority, or influence, " and
that it was by and through the same means, that BASECO had taken over the
business and/or assets of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities.
12. Organization and Stock Distribution of BASECO
BASECO describes itself in its petition as "a shiprepair and shipbuilding company * *
incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium
of Filipino shipowners and shipping executives. Its main office is at Engineer Island,
Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard
is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its
authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000
shares with a value of P12,000,000.00 have been subscribed, and on said
subscription, the aggregate sum of P3,035,000.00 has been paid by the
incorporators. 74 The same articles Identify the incorporators, numbering fifteen (15),
as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P.
Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8)
Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa,
(12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo
Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be
stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias
Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this
year, 1986, there were twenty (20) stockholders listed in BASECO's Stock and
Transfer Book. 75 Their names and the number of shares respectively held by them are
as follows:
1. Jose A. Rojas 1,248 shares
2. Severino G. de la Cruz 1,248 shares
TOTAL 218,819 shares.
13 Acquisition of NASSCO by BASECO
Barely six months after its incorporation, BASECO acquired from National Shipyard &
Steel Corporation, or NASSCO, a government-owned or controlled corporation, the
latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS),
and except for NASSCO's Engineer Island Shops and certain equipment of the
BNS, consigned for future negotiation all its structures, buildings, shops, quarters,
houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a
"Contract of Purchase and Sale with Chattel Mortgage" executed on February 13,
1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered
to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four
(24) hours from completion of the inventory undertaken pursuant to the contract. The
balance of P41,600,000.00, with interest at seven percent (7%) per annum,
compounded semi-annually, was stipulated to be paid in equal semi-annual
installments over a term of nine (9) years, payment to commence after a grace period
of two (2) years from date of turnover of the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos

3. Emilio T. Yap 2,508 shares Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to
P24,311,550.00, about eight (8) months later. A document to this effect was executed
on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO
by Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines,
4. Jose Fernandez 1,248 shares
as General Manager. 77 This agreement bore, at the top right corner of the first page,
the word "APPROVED" in the handwriting of President Marcos, followed by his usual
full signature. The document recited that a down payment of P5,862,310.00 had been
5. Jose Francisco 128 shares made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-
annual installments over nine (9) years after a grace period of two (2) years, with
interest at 7% per annum.
6. Manuel S. Mendoza 96 shares
15. Acquisition of 300 Hectares from Export Processing Zone Authority

7. Anthony P. Lee 1,248 shares On October 1, 1974, BASECO acquired three hundred (300) hectares of land in
Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00
of which, as set out in the document of sale, P2,000.000.00 was paid upon its
8. Hilario M. Ruiz 32 shares execution, and the balance stipulated to be payable in installments. 78

16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

9. Constante L. Farias 8 shares
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again
with the intervention of President Marcos, acquired ownership of the rest of the assets
10. Fidelity Management, 65,882 shares of NASSCO which had not been included in the first two (2) purchase documents. This
Inc. was accomplished by a deed entitled "Contract of Purchase and Sale," 79which, like
the Memorandum of Agreement dated October 9, 1973 supra also bore at the upper
right-hand corner of its first page, the handwritten notation of President
Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full
11. Trident Management 7,412 shares signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights
and interests over all equipment and facilities including structures, buildings, shops,
quarters, houses, plants and expendable or semi-expendable assets, located at the
12. United Phil. Lines 1,240 shares Engineer Island, known as the Engineer Island Shops, including all the equipment of
the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to
BASECO but retained by BASECO and all other selected equipment and machineries
13. Renato M. Tanseco 8 shares of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed
itself to cooperate with BASECO for the acquisition from the National Government or
other appropriate Government entity of Engineer Island. Consideration for the sale
was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been
14. Fidel Ventura 8 shares made, and the balance was stipulated to be paid at 7% interest per annum in equal
semi annual installments over a term of nine (9) years, to commence after a grace
period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with
15. Metro Bay Drydock 136,370 shares the general manager, Mr. David R. Ines.

17. Loans Obtained

16. Manuel Jacela 1 share
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken
from "the last available Japanese war damage fund of $19,000,000.00," to pay for
17. Jonathan G. Lu 1 share "Japanese made heavy equipment (brand new)." 80On September 3, 1975, it got
another loan also from the NDC in the amount of P30,000,000.00 (id.). And on
January 28, 1976, it got still another loan, this time from the GSIS, in the sum of
P12,400,000.00. 81 The claim has been made that not a single centavo has been paid
18. Jose J. Tanchanco 1 share on these loans. 82

18. Reports to President Marcos

19. Dioscoro Papa 128 shares

In September, 1977, two (2) reports were submitted to President Marcos regarding
BASECO. The first was contained in a letter dated September 5, 1977 of Hilario M.
20. Edward T. Marcelo 4 shares Ruiz, BASECO president. 83 The second was embodied in a confidential memorandum
dated September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine

Page 19 of 35
hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by
affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that
there had been "no orders or demands for ship construction" for some time and
expressed the fear that if that state of affairs persisted, BASECO would not be able to
pay its debts to the Government, which at the time stood at the not inconsiderable
amount of P165,854,000.00. 85 He suggested that, to "save the situation," there be
a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an
entirely new corporation to be created;" and towards this end, he informed Marcos that
BASECO was
* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding
loan to BASECO amounting to P341.165M and assuming and converting a portion of
BASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total of
P83.365M as NDC's equity contribution in the new corporation. LUSTEVECO will
participate by absorbing and converting a portion of the REPACOM loan of Bay
Shipyard and Drydock, Inc., amounting to P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It
opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a Performance
of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan
obligations due chiefly to the fact that "orders to build ships as expected * * did not
materialize."
He advised that five stockholders had "waived and/or assigned their holdings
inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres,
(4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is
already dead and Mr. Jose A. Rojas had a major heart attack," he made the following
quite revealing, and it may be added, quite cynical and indurate recommendation, to
wit
* * (that) their replacements (be effected) so we can register their names in the stock
book prior to the implementation of your instructions to pass a board resolution to
legalize the transfers under SEC regulations;
2. By getting their replacements, the families cannot question us
later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following documents: 88
1. Stock certificates indorsed and assigned in blank with
assignments and waivers; 89
2. The articles of incorporation, the amended articles, and the
by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4)
parcels of land in "Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of
BASECO, covering "Engineer Island";
5. Contract dated October 9, 1973, between NASSCO and
BASECO re-structure and equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between NASSCO and
BASECO re-structure and equipment at Engineer Island, Port
Area Manila;
7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of
land at Mariveles, Bataan;
Page 20 of 35
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's loan
from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of
P12,400,000.00 for the housing facilities for BASECO's rank-
and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured "until such
period when BASECO will have enough orders for ships in order for the company to
meet loan obligations," and that
An LOI may be issued to government agencies using floating equipment, that a
linkage scheme be applied to a certain percent of BASECO's net profit as part of
BASECO's amortization payments to make it justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or
officer of BASECO, yet he has presented a report on BASECO to President Marcos,
and his report demonstrates intimate familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations,
particularly as regards the "spin-off" and the "linkage scheme" relative to "BASECO's
amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary
Geronimo Velasco of the Philippine National Oil Company and Chairman Constante
Farias of the National Development Company, directing them "to participate in the
formation of a new corporation resulting from the spin-off of the shipbuilding
component of BASECO along the following guidelines:
a. Equity participation of government shall be through LUSTEVECO and NDC in the
amount of P115,903,000 consisting of the following obligations of BASECO which are
hereby authorized to be converted to equity of the said new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan &
P52.2M Reparation)
2. LUSTEVECO P32,538,000
(Reparation)
b. Equity participation of government shall be in the form of non-
voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two
(22) days after receiving their president's memorandum, Messrs. Hilario M. Ruiz,
Constante L. Farias and Geronimo Z. Velasco, in representation of their respective
corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20,
1977. 93 In it, they undertook to form a shipbuilding corporation to be known as "PHIL-
ASIA SHIPBUILDING CORPORATION," to bring to realization their president's
instructions. It would seem that the new corporation ultimately formed was actually
named "Philippine Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of
instructions. On February 14, 1978, he issued Letter of Instructions No. 670 addressed
to the Reparations Commission REPACOM the Philippine National Oil Company
(PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National
Development Company (NDC). What is commanded therein is summarized by the
Solicitor General, with pithy and not inaccurate observations as to the effects thereof
(in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through reparations be
transferred to NDC subject to reimbursement by NDC to BASECO (of) the amount of s
allegedly representing the handling and incidental expenses incurred by BASECO in
the installation of said equipment (so instead of NDC getting paid on its loan to
BASECO, it was made to pay BASECO instead the amount of P18.285M); 2) the
shipbuilding equipment procured from reparations through EPZA, now in the
possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to
LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be
invested by LUSTEVECO, acting through PNOC and NDC, as the government's equity
participation in a shipbuilding corporation to be established in partnership with the
private sector.
xxx xxx xxx
And so, through a simple letter of instruction and memorandum, BASECO's loan
obligation to NDC and REPACOM * * in the total amount of P83.365M and BSD's
REPACOM loan of P32.438M were wiped out and converted into non-voting preferred
shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the
actuality of the control by President Marcos of BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President
Marcos not only exercised control over BASECO, but also that he actually owns well
nigh one hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were
218,819 shares of stock outstanding, ostensibly owned by twenty (20)
stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay
Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882
shares; (3) Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240
shares. The first three corporations, among themselves, own an aggregate of 209,664
shares of BASECO stock, or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing
circumstance that found in Malacanang shortly after the sudden flight of President
Marcos, were certificates corresponding to more than ninety-five percent (95%) of all
the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of
assignment of practically all the outstanding shares of stock of the three (3)
corporations above mentioned (which hold 95.82% of all BASECO stock), signed by
the owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc.
which supposedly owns as aforesaid 65,882 shares of BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro
Bay Drydock Corporation which allegedly owns 136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident Management Co.,
Inc. which allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares
of BASECO stock; that is, all but 5 % all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact, assuring this
Court that the BASECO stockholders were still in possession of their respective stock
certificates and had "never endorsed * * them in blank or to anyone else," 100 that
denial is exposed by his own prior and subsequent recorded statements as a mere
gesture of defiance rather than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a
period of 10 days "to SUBMIT, as undertaken by him, * * the certificates of stock
issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of
the petition.' 101 Counsel thereafter moved for extension; and in his motion dated
October 2, 1986, he declared inter alia that "said certificates of stock are in the
possession of third parties, among whom being the respondents themselves * *
and petitioner is still endeavoring to secure copies thereof from them." 102 On the
same day he filed another motion praying that he be allowed "to secure copies of the
Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other
Certificates, of Stock of petitioner's stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not
unreasonably argued that counsel's aforestated motion to secure copies of the stock
certificates "confirms the fact that stockholders of petitioner corporation are not in
possession of * * (their) certificates of stock," and the reason, according to him, was
"that 95% of said shares * * have been endorsed in blank and found in Malacaang
after the former President and his family fled the country." To this manifestation
BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly
insisting that the firm's stockholders had not really assigned their stock. 105
Page 21 of 35
In view of the parties' conflicting declarations, this Court resolved on November 27,
1986 among other things "to require * * the petitioner * * to deposit upon proper receipt
with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in
its possession or accessible to it, mentioned and described in Annex 'P' of its petition,
(and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on
December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in
the premises, that "it will negotiate with the owners (of the BASECO stock in question)
to allow petitioner to borrow from them, if available, the certificates referred to" but that
"it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually
had to confess inability to produce the originals of the stock certificates, putting up the
feeble excuse that while he had "requested the stockholders to allow * * (him) to
borrow said certificates, * * some of * * (them) claimed that they had delivered the
certificates to third parties by way of pledge and/or to secure performance of
obligations, while others allegedly have entrusted them to third parties in view of last
national emergency." 108 He has conveniently omitted, nor has he offered to give the
details of the transactions adverted to by him, or to explain why he had not impressed
on the supposed stockholders the primordial importance of convincing this Court of
their present custody of the originals of the stock, or if he had done so, why the
stockholders are unwilling to agree to some sort of arrangement so that the originals of
their certificates might at the very least be exhibited to the Court. Under the
circumstances, the Court can only conclude that he could not get the originals from the
stockholders for the simple reason that, as the Solicitor General maintains, said
stockholders in truth no longer have them in their possession, these having already
been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the
stockholders and directors of BASECO as of April, 1986 109 were mere "dummies,"
nominees or alter egos of President Marcos; at any rate, that they are no longer
owners of any shares of stock in the corporation, the conclusion cannot be avoided
that said stockholders and directors have no basis and no standing whatever to cause
the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as
prayed for in the petition, would in effect be to restore the assets, properties and
business sequestered and taken over by the PCGG to persons who are "dummies,"
nominees or alter egos of the former president.
From the standpoint of the PCGG, the facts herein stated at some length do indeed
show that the private corporation known as BASECO was "owned or controlled by
former President Ferdinand E. Marcos * * during his administration, * * through
nominees, by taking advantage of * * (his) public office and/or using * * (his) powers,
authority, influence * *," and that NASSCO and other property of the government had
been taken over by BASECO; and the situation justified the sequestration as well as
the provisional takeover of the corporation in the public interest, in accordance with the
terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with
the Sandiganbayan to cause divestment of title thereto from Marcos, and its
adjudication in favor of the Republic pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct;
accordingly, it sustains the acts of sequestration and takeover by the PCGG as being
in accord with the law, and, in view of what has thus far been set out in this opinion,
pronounces to be without merit the theory that said acts, and the executive orders
pursuant to which they were done, are fatally defective in not according to the parties
affected prior notice and hearing, or an adequate remedy to impugn, set aside or
otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge
at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill
of attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without
judicial trial." 111 "Its essence is the substitution of a legislative for a judicial
determination of guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a
determination or declaration of guilt. On the contrary, the executive orders, inclusive of
Executive Order No. 14, make it perfectly clear that any judgment of guilt in the
amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial
tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the
PCGG. In the second place, no punishment is inflicted by the executive orders, as the
merest glance at their provisions will immediately make apparent. In no sense,
therefore, may the executive orders be regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and
Seizures
BASECO also contends that its right against self incrimination and unreasonable
searches and seizures had been transgressed by the Order of April 18, 1986 which
required it "to produce corporate records from 1973 to 1986 under pain of contempt of
the Commission if it fails to do so." The order was issued upon the authority of Section
3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas
requiring * * the production of such books, papers, contracts, records, statements of
accounts and other documents as may be material to the investigation conducted by
the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to
"require all persons in the Philippines holding * * (alleged "ill-gotten") assets or
properties, whether located in the Philippines or abroad, in their names as nominees,
agents or trustees, to make full disclosure of the same * *." The contention lacks merit.
It is elementary that the right against self-incrimination has no application to juridical
persons.
While an individual may lawfully refuse to answer incriminating questions unless
protected by an immunity statute, it does not follow that a corporation, vested with
special privileges and franchises, may refuse to show its hand when charged with an
abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which private
individuals have. * * They are not at all within the privilege against self-
incrimination, although this court more than once has said that the privilege runs very
closely with the 4th Amendment's Search and Seizure provisions. It is also settled that
an officer of the company cannot refuse to produce its records in its possession upon
the plea that they will either incriminate him or may incriminate it." (Oklahoma Press
Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the
benefit of the public. It received certain special privileges and franchises, and holds
them subject to the laws of the state and the limitations of its charter. Its powers are
limited by law. It can make no contract not authorized by its charter. Its rights to act as
a corporation are only preserved to it so long as it obeys the laws of its creation. There
is a reserve right in the legislature to investigate its contracts and find out whether it
has exceeded its powers. It would be a strange anomaly to hold that a state, having
chartered a corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether they had
been abused, and demand the production of the corporate books and papers for that
purpose. The defense amounts to this, that an officer of the corporation which is
charged with a criminal violation of the statute may plead the criminality of such
corporation as a refusal to produce its books. To state this proposition is to answer
it. While an individual may lawfully refuse to answer incriminating questions unless
protected by an immunity statute, it does not follow that a corporation, vested with
special privileges and franchises may refuse to show its hand when charged with an
abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis,
the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14
assures protection to individuals required to produce evidence before the PCGG
against any possible violation of his right against self-incrimination. It gives them
immunity from prosecution on the basis of testimony or information he is compelled to
present. As amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege
against self-incrimination; but no testimony or other information compelled under the
order (or any information directly or indirectly derived from such testimony, or other
information) may be used against the witness in any criminal case, except a
prosecution for perjury, giving a false statement, or otherwise failing to comply with the
order.
The constitutional safeguard against unreasonable searches and seizures finds no
application to the case at bar either. There has been no search undertaken by any
agent or representative of the PCGG, and of course no seizure on the occasion
thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of
the powers that may be wielded by the PCGG with regard to the properties or
businesses placed under sequestration or provisionally taken over. Obviously, it is not
a question to which an answer can be easily given, much less one which will suffice for
every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise
acts of dominion over property sequestered, frozen or provisionally taken over. AS
already earlier stressed with no little insistence, the act of sequestration; freezing or
provisional takeover of property does not import or bring about a divestment of title
over said property; does not make the PCGG the owner thereof. In relation to the
property sequestered, frozen or provisionally taken over, the PCGG is a conservator,
not an owner. Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the sequestration rules where, unlike
Page 22 of 35
cases of receivership, for example, no court exercises effective supervision or can
upon due application and hearing, grant authority for the performance of acts of
dominion.
Equally evident is that the resort to the provisional remedies in question should entail
the least possible interference with business operations or activities so that, in the
event that the accusation of the business enterprise being "ill gotten" be not proven, it
may be returned to its rightful owner as far as possible in the same condition as it was
at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or
business sequestered or provisionally taken over, much like a court-appointed
receiver, 115 such as to bring and defend actions in its own name; receive rents;
collect debts due; pay outstanding debts; and generally do such other acts and things
as may be necessary to fulfill its mission as conservator and administrator. In this
context, it may in addition enjoin or restrain any actual or threatened commission of
acts by any person or entity that may render moot and academic, or frustrate or
otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect
contempt in accordance with the Rules of Court; and seek and secure the assistance
of any office, agency or instrumentality of the government. 116 In the case of
sequestered businesses generally (i.e., going concerns, businesses in current
operation), as in the case of sequestered objects, its essential role, as already
discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of
manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or
Entities or Persons Close to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been
"taken over by the government of the Marcos Administration or by entities or persons
close to former President Marcos," 117 the PCGG is given power and authority, as
already adverted to, to "provisionally take (it) over in the public interest or to prevent * *
(its) disposal or dissipation;" and since the term is obviously employed in reference to
going concerns, or business enterprises in operation, something more than mere
physical custody is connoted; the PCGG may in this case exercise some measure of
control in the operation, running, or management of the business itself. But even in this
special situation, the intrusion into management should be restricted to the minimum
degree necessary to accomplish the legislative will, which is "to prevent the disposal or
dissipation" of the business enterprise. There should be no hasty, indiscriminate,
unreasoned replacement or substitution of management officials or change of policies,
particularly in respect of viable establishments. In fact, such a replacement or
substitution should be avoided if at all possible, and undertaken only when justified by
demonstrably tenable grounds and in line with the stated objectives of the PCGG. And
it goes without saying that where replacement of management officers may be called
for, the greatest prudence, circumspection, care and attention - should accompany that
undertaking to the end that truly competent, experienced and honest managers may
be recruited. There should be no role to be played in this area by rank amateurs, no
matter how wen meaning. The road to hell, it has been said, is paved with good
intentions. The business is not to be experimented or played around with, not run into
the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be
lost sight of the ultimate objective of the whole exercise, which is to turn over the
business to the Republic, once judicially established to be "ill-gotten." Reason dictates
that it is only under these conditions and circumstances that the supervision,
administration and control of business enterprises provisionally taken over may
legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the
PCGG may properly exercise the prerogative to vote sequestered stock of
corporations, granted to it by the President of the Philippines through a Memorandum
dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome
of proceedings to determine the ownership of * * (sequestered) shares of stock," "to
vote such shares of stock as it may have sequestered in corporations at all
stockholders' meetings called for the election of directors, declaration of dividends,
amendment of the Articles of Incorporation, etc." The Memorandum should be
construed in such a manner as to be consistent with, and not contradictory of the
Executive Orders earlier promulgated on the same matter. There should be no
exercise of the right to vote simply because the right exists, or because the stocks
sequestered constitute the controlling or a substantial part of the corporate voting
power. The stock is not to be voted to replace directors, or revise the articles or by-
laws, or otherwise bring about substantial changes in policy, program or practice of the
corporation except for demonstrably weighty and defensible grounds, and always in
the context of the stated purposes of sequestration or provisional takeover, i.e., to
prevent the dispersion or undue disposal of the corporate assets. Directors are not to
be voted out simply because the power to do so exists. Substitution of directors is not
to be done without reason or rhyme, should indeed be shunned if at an possible, and
undertaken only when essential to prevent disappearance or wastage of corporate
property, and always under such circumstances as assure that the replacements are
truly possessed of competence, experience and probity.
In the case at bar, there was adequate justification to vote the incumbent directors out
of office and elect others in their stead because the evidence showed prima facie that
the former were just tools of President Marcos and were no longer owners of any stock
in the firm, if they ever were at all. This is why, in its Resolution of October 28,
1986; 118 this Court declared that
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in
respondents' calling and holding of a stockholders' meeting for the election of directors
as authorized by the Memorandum of the President * * (to the PCGG) dated June 26,
1986, particularly, where as in this case, the government can, through its designated
directors, properly exercise control and management over what appear to be
properties and assets owned and belonging to the government itself and over which
the persons who appear in this case on behalf of BASECO have failed to show any
right or even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the
BASECO Board in the management of the company's affairs should henceforth be
guided and governed by the norms herein laid down. They should never for a moment
allow themselves to forget that they are conservators, not owners of the business; they
are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in
the premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the cancellation or
revision, and the execution of certain contracts, inclusive of the termination of the
employment of some of its executives, 119 this Court cannot, in the present state of
the evidence on record, pass upon them. It is not necessary to do so. The issues
arising therefrom may and will be left for initial determination in the appropriate action.
But the Court will state that absent any showing of any important cause therefor, it will
not normally substitute its judgment for that of the PCGG in these individual
transactions. It is clear however, that as things now stand, the petitioner cannot be
said to have established the correctness of its submission that the acts of the PCGG in
question were done without or in excess of its powers, or with grave abuse of
discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on
October 14, 1986 is lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.
6.
G.R. No. 108734 May 29, 1996
CONCEPT BUILDERS, INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and
Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio
Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr.,
Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino,
Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno
Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.
HERMOSISIMA, JR., J.:p
The corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation. Where
badges of fraud exist; where public convenience is defeated; where a wrong is sought
to be justified thereby, the corporate fiction or the notion of legal entity should come to
naught. The law in these instances will regard the corporation as a mere association of
persons and, in case of two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporation's
subsidiary liability for damages, the corporation may not be heard to say that it has a
personality separate and distinct from the other corporation. The piercing of the
corporate veil comes into play.
This special civil action ostensibly raises the question of whether the National Labor
Relations Commission committed grave abuse of discretion when it issued a "break-
open order" to the sheriff to be enforced against personal property found in the
premises of petitioner's sister company.
Page 23 of 35
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355
Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business.
Private respondents were employed by said company as laborers, carpenters and
riggers.
On November, 1981, private respondents were served individual written notices of
termination of employment by petitioner, effective on November 30, 1981. It was stated
in the individual notices that their contracts of employment had expired and the project
in which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination
of private respondent's employment, the project in which they were hired had not yet
been finished and completed. Petitioner had to engage the services of sub-contractors
whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor
practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month
pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to
reinstate private respondents and to pay them back wages equivalent to one year or
three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed
the motion for reconsideration filed by petitioner on the ground that the said decision
had already become final and executory. 2
On October 16, 1986, the NLRC Research and Information Department made the
finding that private respondents' back wages amounted to P199,800.00. 3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff
to execute the Decision, dated December 19, 1984. The writ was partially satisfied
through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks
and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to
the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter
directing the sheriff to collect from herein petitioner the sum of P117,414.76,
representing the balance of the judgment award, and to reinstate private respondents
to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ
of execution on petitioner through the security guard on duty but the service was
refused on the ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued
a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in his
progress report, dated November 2, 1989:
1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela,
Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc.
(HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the
properties he had levied upon. 4
The said special sheriff recommended that a "break-open order" be issued to enable
him to enter petitioner's premises so that he could proceed with the public auction sale
of the aforesaid personal properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the
Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were
owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.
On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-
Open Order," alleging that HPPI and petitioner corporation were owned by the same
incorporator/stockholders. They also alleged that petitioner temporarily suspended its
business operations in order to evade its legal obligations to them and that private
respondents were willing to post an indemnity bond to answer for any damages which
petitioner and HPPI may suffer because of the issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified
copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner
to the Securities Exchange Commission (SEC) and the General Information Sheet,
dated May 25, 1987, submitted by HPPI to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P 6,999,500.00
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the
President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road
Valenzuela, Metro Manila. 5
On the other hand, the General Information Sheet of HPPI revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
Antonio W. Lim P 400,000.00
Elisa C. Lim 57,700.00
AWL Trading 455,000.00
Dennis S. Cuyegkeng 40,100.00
Page 24 of 35
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the
President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro
Manila. 6
On February 1, 1990, HPPI filed an Opposition to private respondents' motion for
issuance of a break-open order, contending that HPPI is a corporation which is
separate and distinct from petitioner. HPPI also alleged that the two corporations are
engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while
petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private
respondents' motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set
aside the order of the Labor Arbiter, issued a break-open order and directed private
respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction
sale of the properties already levied upon. It dismissed the third-party claim for lack of
merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a
Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered
the execution of its decision despite a third-party claim on the levied property.
Petitioner further contends, that the doctrine of piercing the corporate veil should not
have been applied, in this case, in the absence of any showing that it created HPPI in
order to evade its liability to private respondents. It also contends that HPPI is
engaged in the manufacture and sale of steel, concrete and iron pipes, a business
which is distinct and separate from petitioner's construction business. Hence, it is of no
consequence that petitioner and HPPI shared the same premises, the same President
and the same set of officers and subscribers. 7
We find petitioner's contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate
and distinct from its stockholders and from other corporations to which it may be
connected. 8 But, this separate and distinct personality of a corporation is merely a
fiction created by law for convenience and to promote justice. 9 So, when the notion of
separate juridical personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat the labor laws, 10 this
separate personality of the corporation may be disregarded or the veil of corporate
fiction pierced. 11 This is true likewise when the corporation is merely an adjunct, a
business conduit or an alter ego of another corporation. 12
The conditions under which the juridical entity may be disregarded vary according to
the peculiar facts and circumstances of each case. No hard and fast rule can be
accurately laid down, but certainly, there are some probative factors of identity that will
justify the application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both
corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business. 13
The SEC en banc explained the "instrumentality rule" which the courts have applied in
disregarding the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so
that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the "instrumentality" may be disregarded. The control necessary to
invoke the rule is not majority or even complete stock control but such domination of
instances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal. It must
be kept in mind that the control must be shown to have been exercised at the time the
acts complained of took place. Moreover, the control and breach of duty must
proximately cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty or dishonest and
unjust act in contravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual defendant's
relationship to that operation. 14
Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper
corporation, a sham or a subterfuge is purely one of fact. 15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the Securities and
Exchange Commission on May 15, 1987, stating that its office address is at 355
Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party
claimant, submitted on the same day, a similar information sheet stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casio as the corporate
secretary of both corporations. It would also not be amiss to note that both
corporations had the same president, the same board of directors, the same corporate
officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein
petitioner) and the third-party claimant shared the same address and/or premises.
Page 25 of 35
Under this circumstances, (sic) it cannot be said that the property levied upon by the
sheriff were not of respondents. 16
Clearly, petitioner ceased its business operations in order to evade the payment to
private respondents of back wages and to bar their reinstatement to their former
positions. HPPI is obviously a business conduit of petitioner corporation and its
emergence was skillfully orchestrated to avoid the financial liability that already
attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial
Relations, 17 where we had the occasion to rule:
Respondent court's findings that indeed the Claparols Steel and Nail Plant, which
ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel
Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the
latter finally ceased to operate, were not disputed by petitioner. It is very clear that the
latter corporation was a continuation and successor of the first entity . . . . Both
predecessors and successor were owned and controlled by petitioner Eduardo
Claparols and there was no break in the succession and continuity of the same
business. This "avoiding-the-liability" scheme is very patent, considering that 90% of
the subscribed shares of stock of the Claparols Steel Corporation (the second
corporation) was owned by respondent . . . Claparols himself, and all the assets of the
dissolved Claparols Steel and Nail plant were turned over to the emerging Claparols
Steel Corporation.
It is very obvious that the second corporation seeks the
protective shield of a corporate fiction whose veil in the present
case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation to its
employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property
subject of the execution, private respondents had no other recourse but to apply for a
break-open order after the third-party claim of HPPI was dismissed for lack of merit by
the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of
Execution of Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or
kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned
for a break-open order.
Furthermore, our perusal of the records shows that the twin requirements of due notice
and hearing were complied with. Petitioner and the third-party claimant were given the
opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the
break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-
judicial agencies supported by substantial evidence are binding on this Court and are
entitled to great respect, in the absence of showing of grave abuse of a discretion. 18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC,
dated April 23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.
7.
G.R. No. 100812 June 25, 1999
FRANCISCO MOTORS CORPORATION, petitioner,
vs.
COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA
MANUEL, respondents.
QUISUMBING, J.:
This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to
annul the decision 1 of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the
decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The
procedural antecedents of this petition are as follows:
On January 23, 1985, petitioner filed a complaint 2 against private respondents to
recover three thousand four hundred twelve and six centavos (P3,412.06),
representing the balance of the jeep body purchased by the Manuels from petitioner;
an additional sum of twenty thousand four hundred fifty-four and eighty centavos
(P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and
six thousand pesos (P6,000.00) for cost of suit and attorney's fees. 3 To the original
balance on the price of jeep body were added the costs of repair. 4 In their answer,
private respondents interposed a counterclaim for unpaid legal services by Gregorio
Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the
incorporators, directors and officers of the petitioner. The trial court decided the case
on June 26, 1985, in favor of petitioner in regard to the petitioner's claim for money, but
also allowed the counter-claim of private respondents. Both parties appealed. On April
15, 1991, the Court of Appeals sustained the trial court's decision. 5 Hence, the present
petition.
For our review in particular is the propriety of the permissive counterclaim which
private respondents filed together with their answer to petitioner's complaint for a sum
of money. Private respondent Gregorio Manuel alleged as an affirmative defense that,
while he was petitioner's Assistant Legal Officer, he represented members of the
Francisco family in the intestate estate proceedings of the late Benita Trinidad.
However, even after the termination of the proceedings, his services were not paid.
Said family members, he said, were also incorporators, directors and officers of
petitioner. Hence to petitioner's collection suit, he filed a counter permissive
counterclaim for the unpaid attorney's fees. 6
For failure of petitioner to answer the counterclaim, the trial court declared petitioner in
default on this score, and evidence ex-parte was presented on the counterclaim. The
trial court ruled in favor of private respondents and found that Gregorio Manuel indeed
rendered legal services to the Francisco family in Special Proceedings Number 7803
"In the Matter of Intestate Estate of Benita Trinidad". Said court also found that his
legal services were not compensated despite repeated demands, and thus ordered
petitioner to pay him the amount of fifty thousand (P50,000.00) pesos. 7
Dissatisfied with the trial court's order, petitioner elevated the matter to the Court of
Appeals, posing the following issues:
I.
WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL
AND VOID AS IT NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE
DEFENDANT.
II.
WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE
ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE
CLAIM OF DEFENDANT-APPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-
APPELLANT TO ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM. 8
Petitioner contended that the trial court did not acquire jurisdiction over it because no
summons was validly served on it together with the copy of the answer containing the
permissive counterclaim. Further, petitioner questions the propriety of its being made
party to the case because it was not the real party in interest but the individual
members of the Francisco family concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals held
that a counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11,
of the Rules of Court; and nowhere does it state in the Rules that a party still needed
to be summoned anew if a counterclaim was set up against him. Failure to serve
summons, said respondent court, did not effectively negate trial court's jurisdiction
over petitioner in the matter of the counterclaim. It likewise pointed out that there was
no reason for petitioner to be excused from answering the counterclaim. Court records
showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer
with counterclaim two (2) days prior to his withdrawal as counsel for petitioner.
Moreover when petitioner's new counsel, Jose N. Aquino, entered his appearance,
Page 26 of 35
three (3) days still remained within the period to file an answer to the counterclaim.
Having failed to answer, petitioner was correctly considered in default by the trial
court. 9 Even assuming that the trial court acquired no jurisdiction over petitioner,
respondent court also said, but having filed a motion for reconsideration seeking relief
from the said order of default, petitioner was estopped from further questioning the trial
court's jurisdiction. 10
On the question of its liability for attorney's fees owing to private respondent Gregorio
Manuel, petitioner argued that being a corporation, it should not be held liable therefor
because these fees were owed by the incorporators, directors and officers of the
corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed
that the personality of the corporation, vis-a-vis the individual persons who hired the
services of private respondent, is separate and distinct, 11 hence, the liability of said
individuals did not become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:
However, this distinct and separate personality is merely a fiction created by law for
convenience and to promote justice. Accordingly, this separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases where
it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or where
necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng
Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural
persons and the legal fiction of a separate corporate personality is not a shield for the
commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57
SCRA 408).
In the instant case, evidence shows that the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as directors and
incorporators for whom defendant Gregorio Manuel rendered legal services in the
intestate estate case of their deceased mother. Considering the aforestated principles
and circumstances established in this case, equity and justice demands plaintiff-
appellant's veil of corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are directors of the plaintiff-
appellant corporation. 12
Now before us, petitioner assigns the following errors:
I.
THE COURT OF APPEALS ERRED IN APPLYING THE
DOCTRINE OF PIERCING THE VEIL OF CORPORATE
ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT
THERE WAS JURISDICTION OVER PETITIONER WITH
RESPECT TO THE COUNTERCLAIM. 13
Petitioner submits that respondent court should not have resorted to piercing the veil
of corporate fiction because the transaction concerned only respondent Gregorio
Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no
cause of action by said respondent against petitioner; personal concerns of the heirs
should be distinguished from those involving corporate affairs. Petitioner further
contends that the present case does not fall among the instances wherein the courts
may look beyond the distinct personality of a corporation. According to petitioner, the
services for which respondent Gregorio Manuel seeks to collect fees from petitioner
are personal in nature. Hence, it avers the heirs should have been sued in their
personal capacity, and not involve the corporation. 14
With regard to the permissive counterclaim, petitioner also insists that there was no
proper service of the answer containing the permissive counterclaim. It claims that the
counterclaim is a separate case which can only be properly served upon the opposing
party through summons. Further petitioner states that by nature, a permissive
counterclaim is one which does not arise out of nor is necessarily connected with the
subject of the opposing party's claim. Petitioner avers that since there was no service
of summons upon it with regard to the counterclaim, then the court did not acquire
jurisdiction over petitioner. Since a counterclaim is considered an action independent
from the answer, according to petitioner, then in effect there should be two
simultaneous actions between the same parties: each party is at the same time both
plaintiff and defendant with respect to the other, 15 requiring in each case separate
summonses.
In their Comment, private respondents focus on the two questions raised by petitioner.
They defend the propriety of piercing the veil of corporate fiction, but deny the
necessity of serving separate summonses on petitioner in regard to their permissive
counterclaim contained in the answer.
Private respondents maintain both trial and appellate courts found that respondent
Gregorio Manuel was employed as assistant legal officer of petitioner corporation, and
that his services were solicited by the incorporators, directors and members to handle
and represent them in Special Proceedings No. 7803, concerning the Intestate Estate
of the late Benita Trinidad. They assert that the members of petitioner corporation took
advantage of their positions by not compensating respondent Gregorio Manuel after
the termination of the estate proceedings despite his repeated demands for payment
of his services. They cite findings of the appellate court that support piercing the veil of
corporate identity in this particular case. They assert that the corporate veil may be
disregarded when it is used to defeat public convenience, justify wrong, protect fraud,
and defend crime. It may also be pierced, according to them, where the corporate
entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of
the stockholders or of another corporate entity. In these instances, they aver, the
corporation should be treated merely as an association of individual persons. 16
Private respondents dispute petitioner's claim that its right to due process was violated
when respondents' counterclaim was granted due course, although no summons was
served upon it. They claim that no provision in the Rules of Court requires service of
summons upon a defendant in a counterclaim. Private respondents argue that when
the petitioner filed its complaint before the trial court it voluntarily submitted itself to the
jurisdiction of the court. As a consequence, the issuance of summons on it was no
longer necessary. Private respondents say they served a copy of their answer with
affirmative defenses and counterclaim on petitioner's former counsel, Nicanor G.
Alvarez. While petitioner would have the Court believe that respondents served said
copy upon Alvarez after he had withdrawn his appearance as counsel for the
petitioner, private respondents assert that this contention is utterly baseless. Records
disclose that the answer was received two (2) days before the former counsel for
petitioner withdrew his appearance, according to private respondents. They maintain
that the present petition is but a form of dilatory appeal, to set off petitioner's
obligations to the respondents by running up more interest it could recover from them.
Private respondents therefore claim damages against petitioner. 17
To resolve the issues in this case, we must first determine the propriety of piercing the
veil of corporate fiction.
Basic in corporation law is the principle that a corporation has a separate personality
distinct from its stockholders and from other corporations to which it may be
connected. 18 However, under the doctrine of piercing the veil of corporate entity, the
corporation's separate juridical personality may be disregarded, for example, when the
corporate identity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime. Also, where the corporation is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation, then its distinct personality may be ignored. 19 In these
circumstances, the courts will treat the corporation as a mere aggrupation of persons
and the liability will directly attach to them. The legal fiction of a separate corporate
personality in those cited instances, for reasons of public policy and in the interest of
justice, will be justifiably set aside.
In our view, however, given the facts and circumstances of this case, the doctrine of
piercing the corporate veil has no relevant application here. Respondent court erred in
permitting the trial court's resort to this doctrine. The rationale behind piercing a
corporation's identity in a given case is to remove the barrier between the corporation
from the persons comprising it to thwart the fraudulent and illegal schemes of those
who use the corporate personality as a shield for undertaking certain proscribed
activities. However, in the case at bar, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed. It is the
petitioner as a corporation which is being ordered to answer for the personal liability of
certain individual directors, officers and incorporators concerned. Hence, it appears to
us that the doctrine has been turned upside down because of its erroneous invocation.
Note that according to private respondent Gregorio Manuel his services were solicited
as counsel for members of the Francisco family to represent them in the intestate
proceedings over Benita Trinidad's estate. These estate proceedings did not involve
any business of petitioner.
Page 27 of 35
Note also that he sought to collect legal fees not just from certain Francisco family
members but also from petitioner corporation on the claims that its management had
requested his services and he acceded thereto as an employee of petitioner from
whom it could be deduced he was also receiving a salary. His move to recover unpaid
legal fees through a counterclaim against Francisco Motors Corporation, to offset the
unpaid balance of the purchase and repair of a jeep body could only result from an
obvious misapprehension that petitioner's corporate assets could be used to answer
for the liabilities of its individual directors, officers, and incorporators. Such result if
permitted could easily prejudice the corporation, its own creditors, and even other
stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation
said incorporators, directors and officers of the corporation had incurred, it was
incurred in their personal capacity. When directors and officers of a corporation are
unable to compensate a party for a personal obligation, it is far-fetched to allege that
the corporation is perpetuating fraud or promoting injustice, and be thereby held liable
therefor by piercing its corporate veil. While there are no hard and fast rules on
disregarding separate corporate identity, we must always be mindful of its function and
purpose. A court should be careful in assessing the milieu where the doctrine of
piercing the corporate veil may be applied. Otherwise an injustice, although
unintended, may result from its erroneous application.
The personality of the corporation and those of its incorporators, directors and officers
in their personal capacities ought to be kept separate in this case. The claim for legal
fees against the concerned individual incorporators, officers and directors could not be
properly directed against the corporation without violating basic principles governing
corporations. Moreover, every action including a counterclaim must be
prosecuted or defended in the name of the real party in interest. 20 It is plainly an error
to lay the claim for legal fees of private respondent Gregorio Manuel at the door of
petitioner (FMC) rather than individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioner's allegation, that it
needed to be summoned anew in order for the court to acquire jurisdiction over it, we
agree with respondent court's view to the contrary. Section 4, Rule 11 of the Rules of
Court provides that a counterclaim or cross-claim must be answered within ten (10)
days from service. Nothing in the Rules of Court says that summons should first be
served on the defendant before an answer to counterclaim must be made. The
purpose of a summons is to enable the court to acquire jurisdiction over the person of
the defendant. Although a counterclaim is treated as an entirely distinct and
independent action, the defendant in the counterclaim, being the plaintiff in the original
complaint, has already submitted to the jurisdiction of the court. Following Rule 9,
Section 3 of the 1997 Rules of Civil Procedure, 21 if a defendant (herein petitioner) fails
to answer the counterclaim, then upon motion of plaintiff, the defendant may be
declared in default. This is what happened to petitioner in this case, and this Court
finds no procedural error in the disposition of the appellate court on this particular
issue. Moreover, as noted by the respondent court, when petitioner filed its motion
seeking to set aside the order of default, in effect it submitted itself to the jurisdiction of
the court. As well said by respondent court:
Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show
that upon its request, plaintiff-appellant was granted time to file a motion for
reconsideration of the disputed decision. Plaintiff-appellant did file its motion for
reconsideration to set aside the order of default and the judgment rendered on the
counterclaim.
Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the
counterclaim, as it vigorously insists, plaintiff-appellant is considered to have submitted
to the court's jurisdiction when it filed the motion for reconsideration seeking relief from
the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped from assailing the
jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs.
Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction.
(Balais vs. Balais, 159 SCRA 37). 22
WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby
REVERSED insofar only as it held Francisco Motors Corporation liable for the legal
obligation owing to private respondent Gregorio Manuel; but this decision is without
prejudice to his filing the proper suit against the concerned members of the Francisco
family in their personal capacity. No pronouncement as to costs.1wphi1.nt
SO ORDERED.
Bellosillo, Puno, Mendoza and Buena, JJ., concur.
8. establishments suspected of violating the intellectual property
THIRD DIVISION rights [of PETRON] and of PSPC and Shell International.

2. [That] on the basis of the letter-complaint, I,

WILLIAM C. YAO, SR., LUISA C. YAO, RICHARD C. G.R. No. 168306 together with Agent Angelo Zarzoso, was assigned as the
YAO, WILLIAM C. YAO JR., and ROGER C. YAO, NBI agent on the case.
Petitioners,
Present: 3. [That] prior to conducting the investigation on
the reported illegal activities, he reviewed the certificates of
-versus YNARES-SANTIAGO, trademark registrations issued in favor of [PETRON], PSPC
Chairperson, and Shell International as well as other documents and other
AUSTRIA-MARTINEZ,evidence obtained by the investigative agency authorized by
THE PEOPLE OF THE PHILIPPINES, PETRON CHICO-NAZARIO, and[PETRON], PSPC and Shell International to investigate and
CORPORATION and PILIPINAS SHELL PETROLEUM NACHURA, cause the investigation of persons and establishments
CORP., and its Principal, SHELL INTL PETROLEUM violating the rights of [PETRON], PSPC and Shell
CO. LTD., International, represented by Mr. Bernabe C. Alajar. Certified
Respondents. copies of the foregoing trademark registrations are attached
hereto as Annexes A to :E.

Promulgated: 4. [That] among the establishments

alleged to be unlawfully refilling and unlawfully selling and
June 19, 2007 distributing [Gasul LPG and] Shellane products
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x is Masagana Gas Corporation (MASAGANA). Based on
Securities and Exchange Commission Records, MASAGANA
has its principal office address
DECISION at 9775 Kamagong Street, San
Antonio Village, Makati, Metro Manila. The incorporators and
directors of MASAGANA are William C. Yao, Sr., Luisa
CHICO-NAZARIO, J.: C. Yao, Richard C. Yao, William C. Yao, Jr., and Roger
C. Yao. x x x.

In this Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, 5. I confirmed that MASAGANA is not
petitioners William C. Yao, Sr., Luisa C. Yao, Richard C. Yao, William C. Yao, Jr., and authorized to use [PETRON and] Shellane LPG cylinders and
Roger C. Yao pray for the reversal of the Decision dated 30 September 2004,[2] and its trademarks and tradenames or to be refillers or distributors
Resolution dated 1 June 2005, of the Court of Appeals in CA G.R. SP No. 79256, of [PETRON and] Shellane LPGs.
[3]
affirming the two Orders, both dated 5 June 2003, of the Regional Trial Court (RTC),
Branch 17, Cavite City, relative to Search Warrants No. 2-2003 and No. 3-2003. [4] In 6. I went to MASAGANAs refilling
the said Orders, the RTC denied the petitioners Motion to Quash Search Warrant[5] and station located at Governors
Motion for the Return of the Motor Compressor and Liquified Petroleum Gas (LPG) Drive, Barangay Lapidario, Trece Martires City (sic), Cavite to
Refilling Machine.[6] investigate its activities. I confirmed that MASAGANA is
indeed engaged in the unauthorized refilling, sale and/or
The following are the facts: distribution of [Gasul and] Shellane LPG cylinders. I found out
that MASAGANA delivery trucks with Plate Nos. UMN-971,
Petitioners are incorporators and officers of MASAGANA GAS PEZ-612, WTE-527, XAM-970 and WFC-603 coming in and
CORPORATION (MASAGANA), an entity engaged in the refilling, sale and distribution out of the refilling plant located at the aforementioned
of LPG products. Private respondents Petron Corporation (Petron) and Pilipinas Shell address contained multi-brand LPG cylinders including
Petroleum Corporation (Pilipinas Shell) are two of the largest bulk suppliers and [Gasul and] Shellane. x x x.
producers of LPG in the Philippines. Their LPG products are sold under the marks
GASUL and SHELLANE, respectively. Petron is the registered owner in 7. [That] on 13 February 2003, I
the Philippines of the trademarks GASUL and GASUL cylinders used for its LPG conducted a test-buy accompanied by
products. It is the sole entity in the Philippines authorized to allow refillers and Mr. Bernabe C. Alajar. After asking the purpose of our
distributors to refill, use, sell, and distribute GASUL LPG containers, products and its visit, MASAGANAs guard allowed us to enter the
trademarks. Pilipinas Shell, on the other hand, is the authorized user in MASAGANA refilling plant to purchase GASUL and
the Philippines of the tradename, trademarks, symbols, or designs of its principal, SHELLANE LPGs. x x x. We were issued an order slip which
Shell International Petroleum Company Limited (Shell International), including the we presented to the cashiers office located near the refilling
marks SHELLANE and SHELL device in connection with the production, sale and station. After paying the amount x x x covering the cost of the
distribution of SHELLANE LPGs. It is the only corporation in the Philippines authorized cylinders and their contents, they were issued Cash Invoice
to allow refillers and distributors to refill, use, sell and distribute SHELLANE LPG No. 56210 dated February 13, 2003. We were, thereafter,
containers and products.[7] assisted by the plant attendant in choosing empty GASUL
and SHELLANE 11 kg. cylinders, x x x were brought to the
On 3 April 2003, National Bureau of Investigation (NBI) refilling station [and filled in their presence.] I noticed that no
agent Ritche N. Oblanca (Oblanca) filed two applications for search warrant with the valve seals were placed on the cylinders.
RTC, Branch 17, CaviteCity, against petitioners and other occupants of the
MASAGANA compound located at Governors [That] while inside the refilling plant doing the test-buy, I
Drive, Barangay Lapidario, Trece Martires, Cavite City, for alleged violation of Section noticed that stockpiles of multi-branded cylinders including
155, in relation to Section 170 of Republic Act No. 8293, otherwise known as The GASUL and SHELLANE cylinders were stored near the
Intellectual Property Code of the Philippines.[8] The two applications for search warrant refilling station. I also noticed that the total land area of the
uniformly alleged that per information, belief, and personal verification of Oblanca, the refilling plant is about 7,000 to 10,000 square meters. At the
petitioners are actually producing, selling, offering for sale and/or distributing LPG corner right side of the compound immediately upon entering
products using steel cylinders owned by, and bearing the tradenames, trademarks, the gate is a covered area where the maintenance of the
and devices of Petron and Pilipinas Shell, without authority and in violation of the cylinders is taking place. Located at the back right corner of
rights of the said entities. the compound are two storage tanks while at the left side
also at the corner portion is another storage tank. Several
In his two separate affidavits[9] attached to the two applications for search meters and fronting the said storage tank is where the refilling
warrant, Oblanca alleged: station and the office are located. It is also in this storage
1. [That] on 11 February 2003, the tank where the elevated blue water tank depicting
National Bureau of Investigation (NBI) received a letter- MASAGANA CORP. is located. About eleven (11) refilling
complaint from Atty. Bienvenido I. Somera Jr. pumps and stock piles of multi-branded cylinders
of Villaraza and Angangco, on behalf of among others, including Shellane and GASUL are stored in the refilling
[Petron Corporation (PETRON)] and Pilipinas Shell Petroleum station. At the left side of the entrance gate is the guard
Corporation (PSPC), the authorized representative of Shell house with small door for the pedestrians and at the right is a
International Petroleum Company Limited (Shell International), blue steel gate used for incoming and outgoing vehicles.
requesting assistance in the investigation and, if warranted,
apprehension and prosecution of certain persons and/or 8. [That] on 27 February 2003, I
conducted another test-buy accompanied by

Page 28 of 35
 Mr. Bernabe C. Alajar. x x x After choosing the cylinders, we
were issued an order slip which we presented to the
cashier. Upon payment, Cash Invoice No. 56398 was issued
covering the cost of both GASUL and SHELLANE LPG
cylinders and their contents. x x x Both cylinders were refilled
in our presence and no valve seals were placed on the
cylinders.
Copies of the photographs of the delivery trucks, LPG cylinders and
registration papers were also attached to the aforementioned affidavits.[10]
Bernabe C. Alajar (Alajar), owner of Able Research and Consulting
Services Inc., was hired by Petron and Pilipinas Shell to assist them in carrying out
their Brand Protection Program. Alajar accompanied Oblanca during the surveillance
of and test-buys at the refilling plant of MASAGANA. He also executed two separate
affidavits corroborating the statements of Oblanca. These were annexed to the two
applications for search warrant.[11]
After conducting the preliminary examination on Oblanca and Alajar, and
upon reviewing their sworn affidavits and other attached documents,
Judge Melchor Q.C. Sadang (Judge Sadang), Presiding Judge of the RTC, Branch
17, Cavite City, found probable cause and correspondingly issued Search Warrants
No. 2-2003 and No. 3-2003.[12]The search warrants commanded any peace officer to
make an immediate search of the MASAGANA compound and to seize the following
items:
Under Search Warrant No. 2-2003:
a. Empty/filled LPG cylinder tanks/containers,
bearing the tradename SHELLANE, SHELL (Device)
of Pilipinas Shell Petroleum Corporation and the
trademarks and other devices owned by Shell
International Petroleum Company, Ltd.;
b. Machinery and/or equipment being used or
intended to be used for the purpose of illegally
refilling LPG cylinders belonging to Pilipinas Shell
Petroleum Corporation bearing the
latters tradename as well as the marks belonging to
Shell International Petroleum Company, Ltd.,
enumerated hereunder:
1. Bulk/Bullet LPG storage tanks;
2. Compressor/s (for pneumatic refilling
system);
3. LPG hydraulic pump/s;
4. LPG refilling heads/hoses and
appurtenances or LPG filling assembly;
5. LPG pipeline gate valve or ball valve
and handles and levers;
6. LPG weighing scales; and
7. Seals simulating the shell trademark.
c. Sales invoices, ledgers, journals, official receipts,
purchase orders, and all other books of accounts,
inventories and documents pertaining to the
production, sale and/or distribution of the aforesaid
goods/products.
d. Delivery truck bearing Plate Nos. WTE-527, XAM-
970 and WFC-603, hauling trucks, and/or other
delivery trucks or vehicles or conveyances being
used or intended to be used for the purpose of selling
and/or distributing the above-mentioned counterfeit
products.
Under Search Warrant No. 3-2003:
a. Empty/filled LPG cylinder tanks/containers,
bearing Petron Corporations (Petron) tradename and
its tradename GASUL and other devices owned
and/or used exclusively by Petron;
b. Machinery and/or equipment being used or
intended to be used for the purpose of illegally
refilling LPG cylinders belonging
to Petron enumerated hereunder;
1. Bulk/Bullet LPG storage tanks;
2. Compressor/s (for pneumatic filling
system);
3. LPG hydraulic pump/s;
4. LPG filling heads/hoses and
appurtenances or LPG filling assembly;
5. LPG pipeline gate valve or ball valve
and handles levers;
6. LPG weighing scales; and
Page 29 of 35
7. Seals bearing the Petron mark;
c. Sales invoices, ledgers, journals, official receipts,
purchase orders, and all other books of accounts,
inventories and documents pertaining to the
production, sale and/or distribution of the aforesaid
goods/products; and
d. Delivery trucks bearing Plate Nos. UMN-971, PEZ-
612 and WFC-603, hauling trucks, and/or other
delivery trucks or vehicles or conveyances being
used for the purpose of selling and/or distributing the
above-mentioned counterfeit products.
Upon the issuance of the said search warrants, Oblanca and several
NBI operatives immediately proceeded to the MASAGANA compound and served
the search warrants on petitioners. [13] After searching the premises of MASAGANA,
the following articles described in Search Warrant No. 2-2003 were seized:
a. Thirty-eight (38) filled 11 kg. LPG cylinders,
bearing the tradename of Pilipinas Shell Petroleum
Corporation and the trademarks and other devices
owned by Shell International Petroleum Company,
Ltd.;
b. Thirty-nine (39) empty 11 kg. LPG cylinders,
bearing the tradename of Pilipinas Shell Petroleum
Corporation and the trademarks and other devices
owned by Shell International Petroleum Company,
Ltd.;
c. Eight (8) filled 50 kg. LPG cylinders, bearing
the tradename of Pilipinas Shell Petroleum
Corporation and the trademarks and other devices
owned by Shell International Petroleum Company,
Ltd.;
d. Three (3) empty 50 kg. LPG cylinders, bearing
the tradename of Pilipinas Shell Petroleum
Corporation and the trademarks and other devices
owned by Shell International Petroleum Company,
Ltd.;
e. One (1) set of motor compressor for filling system.
Pursuant to Search Warrant No. 3-2003, the following articles were also
seized:
a. Six (6) filled 11 kg. LPG cylinders without seal,
bearing Petrons tradename and its trademark GASUL
and other devices owned and/or used exclusively
by Petron;
b. Sixty-three (63) empty 11 kg. LPG cylinders,
bearing Petrons tradename and its trademark GASUL
and other devices owned and/or used exclusively
by Petron;
c. Seven (7) tampered 11 kg. LPG cylinders,
bearing Petrons tradename and its trademark GASUL
and other devices owned and/or used exclusively
by Petron;
d. Five (5) tampered 50 kg. LPG cylinders,
bearing Petrons tradename and its trademark GASUL
and other devices owned and/or used exclusively
by Petron with tampered GASUL logo;
e. One (1) set of motor compressor for filling system;
and
f. One (1) set of LPG refilling machine.
On 22 April 2003, petitioners filed with the RTC a Motion to Quash Search
Warrants No. 2-2003 and No. 3-2003[14] on the following grounds:
1. There is no probable cause for the
issuance of the search warrant and the
conditions for the issuance of a search
warrant were not complied with;
 2. Applicant NBI Agent Ritchie
N. Oblanca and his
witness Bernabe C. Alajar do not have
any authority to apply for a search
warrant. Furthermore, they committed
perjury when they alleged in their
sworn statements that they conducted
a test-buy on two occasions;
3. The place to be searched was not
specified in the Search Warrant as the
place has an area of 10,000 square
meters (one hectare) more or less, for
which reason the place to be searched
must be indicated with particularity;
4. The search warrant is characterized
as a general warrant as the items to be
seized as mentioned in the search
warrant are being used in the conduct
of the lawful business of respondents
and the same are not being used in
refilling Shellane and Gasul LPGs.
On 30 April 2003, MASAGANA, as third party claimant, filed with the
RTC a Motion for the Return of Motor Compressor and LPG Refilling Machine. [15] It
claimed that it is the owner of the said motor compressor and LPG refilling
machine; that these items were used in the operation of its legitimate business; and
that their seizure will jeopardize its business interests.
On 5 June 2003, the RTC issued two Orders, one of which denied the
petitioners Motion to Quash Search Warrants No. 2-2003 and No. 3-2003, and the
other one also denied the Motion for the Return of Motor Compressor and LPG
Refilling Machine of MASAGANA, for lack of merit.[16]
With respect to the Order denying the petitioners motion to quash
Search Warrants No. 2-2003 and No. 3-2003, the RTC held that based on the
testimonies of Oblanca and Alajar, as well as the documentary evidence consisting
of receipts, photographs, intellectual property and corporate registration papers,
there is probable cause to believe that petitioners are engaged in the business of
refilling or using cylinders which bear the trademarks or devices
of Petron and Pilipinas Shell in the place sought to be searchedand that such
activity is probably in violation of Section 155 in relation to Section 170 of Republic
Act No. 8293.
It also ruled that Oblanca and Alajar had personal knowledge of the acts
complained of since they were the ones who monitored the activities of and
conducted test-buys on MASAGANA; that the search warrants in question are not
general warrants because the compound searched are solely used and occupied
by MASAGANA, and as such, there was no need to particularize the areas within
the compound that would be searched; and that the items to be seized in the
subject search warrants were sufficiently described with particularity as the same
was limited to cylinder tanks bearing the trademarks GASUL and SHELLANE.
As regards the Order denying the motion of MASAGANA for the return
of its motor compressor and LPG refilling machine, the RTC resolved that
MASAGANA cannot be considered a third party claimant whose rights were
violated as a result of the seizure since the evidence disclosed that petitioners are
stockholders of MASAGANA and that they conduct their business through the same
juridical entity. It maintained that to rule otherwise would result in the misapplication
and debasement of the veil of corporate fiction. It also stated that the veil of
corporate fiction cannot be used as a refuge from liability.
Further, the RTC ratiocinated that ownership by another person or entity
of the seized items is not a ground to order its return; that in seizures pursuant to a
search warrant, what is important is that the seized items were used or intended to
be used as means of committing the offense complained of; that by its very nature,
the properties sought to be returned in the instant case appear to be related to and
intended for the illegal activity for which the search warrants were applied for; and
that the items seized are instruments of an offense.
Petitioners filed Motions for Reconsideration of the assailed Orders,
[17]
but these were denied by the RTC in its Order dated 21 July 2003 for lack of
compelling reasons.[18]
Subsequently, petitioners appealed the two Orders of the RTC to the
Court of Appeals via a special civil action for certiorari under Rule 65 of the Rules of
Court.[19] On 30 September 2004, the Court of Appeals promulgated its Decision
affirming the Orders of the RTC.[20] It adopted in essence the bases and reasons of
the RTC in its two Orders. The decretal portion thereof reads:
Based on the foregoing, this Court finds no reason to
disturb the assailed Orders of the respondent judge. Grave
abuse of discretion has not been proven to exist in this case.
Page 30 of 35
WHEREFORE, the petition is hereby DISMISSED for
lack of merit. The assailed orders both dated June 5, 2003 are
hereby AFFIRMED.
Petitioners filed a Motion for Reconsideration[21] of the Decision of the
Court of Appeals, but this was denied in its Resolution dated 1 June 2005 for lack of
merit.[22]
Petitioners filed the instant petition on the following grounds:
I.
THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT THE PRESIDING JUDGE OF RTC CAVITE CITY HAD
SUFFICIENT BASIS IN DECLARING THE EXISTENCE OF
PROBABLE CAUSE;
II.
THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT NBI AGENT (RITCHIE OBLANCA) CAN APPLY FOR THE
SEARCH WARRANTS NOTHWITHSTANDING HIS LACK OF
AUTHORITY;
III.
THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT THE REQUIREMENT OF GIVING A PARTICULAR
DESCRIPTION OF THE PLACE TO BE SEARCHED WAS
COMPLIED WITH;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT THE APPLICATIONS AND THE SEARCH WARRANTS
THEMSELVES SHOW NO AMBIGUITY OF THE ITEMS TO BE
SEIZED;
V.
THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT THE COMPLAINT IS DIRECTED AGAINST MASAGANA
GAS CORPORATION, ACTING THROUGH ITS OFFICERS
AND DIRECTORS, HENCE MASAGANA GAS CORPORATION
MAY NOT BE CONSIDERED AS THIRD PARTY CLAIMANT
WHOSE RIGHTS WERE VIOLATED AS A RESULT OF THE
SEIZURE.[23]
Apropos the first issue, petitioners allege that Oblanca and Alajar had no
personal knowledge of the matters on which they testified; that Oblanca and Alajar lied
to Judge Sadang when they stated under oath that they were the ones who conducted
the test-buys on two different occasions; that the truth of the matter is
that Oblanca and Alajar never made the purchases personally; that the transactions
were undertaken by other persons namely, Nikko Javier and G. Villanueva as shown
in the Entry/Exit Slips of MASAGANA; and that even if it were true
that Oblanca and Alajar asked Nikko Javier and G. Villanueva to conduct the test-
buys, the information relayed by the latter two to the former was mere hearsay.[24]
Petitioners also contend that if Oblanca and Alajar had indeed used
different names in purchasing the LPG cylinders, they should have mentioned it in
their applications for search warrants and in their testimonies during the preliminary
examination; that it was only after the petitioners had submitted to the RTC the
entry/exit slips showing different personalities who made the purchases
that Oblanca and Alajar explained that they had to use different names in order to
avoid detection; that Alajar is not connected with either of the private respondents;
that Alajar was not in a position to inform the RTC as to the distinguishing trademarks
of SHELLANE and GASUL; that Oblanca was not also competent to testify on the
marks allegedly infringed by petitioners; that Judge Sadang failed to ask probing
questions on the distinguishing marks of SHELLANE and GASUL; that the findings of
the Brand Protection Committee of Pilipinas Shell were not submitted nor presented to
the RTC; that although Judge Sadang examined Oblanca and Alajar, the former did
not ask exhaustive questions; and that the questions Judge Sadang asked were
merely rehash of the contents of the affidavits of Oblanca and Alajar.[25]
These contentions are devoid of merit.
Article III, Section 2, of the present Constitution states the requirements
before a search warrant may be validly issued, to wit:
 Section 2. The right of the people to be secure in
their persons, houses, papers, and effects against unreasonable
searches and seizures of whatever nature and for any purpose
shall be inviolable, and no search warrant or warrant of
arrest shall issue except upon probable cause to be
determined personally by the judge after examination under
oath or affirmation of the complainant and the witnesses he
may produce, and particularly describing the place to be
searched and the persons or things to be seized.
(emphasis supplied).
cylinders including GASUL and SHELLANE LPG cylinders; and that they observed
delivery trucks loaded with GASUL and SHELLANE LPG cylinders coming in and out
of the MASAGANA compound and making deliveries to various retail outlets. These
allegations were corroborated by Alajar in his separate affidavits.
In support of the foregoing statements, Oblanca also submitted the
following documentary and object evidence:
1. Certified true copy of the Certificate of Registration
No. 44046 for SHELL (DEVICE) in the name of Shell
International;

Section 4 of Rule 126 of the Revised Rules on Criminal Procedure, 2. Certified true copy of the Certificate of Registration
provides with more particularity the requisites in issuing a search warrant, viz: No. 41789 for SHELL (DEVICE) in the name of Shell
International;
SEC. 4. Requisites for issuing search warrant. A
search warrant shall not issue except upon probable cause in 3. Certified true copy of the Certificate of Registration
connection with one specific offense to be determined personally No. 37525 for SHELL (DEVICE) in the name of Shell
by the judge after examination under oath or affirmation of the International;
complainant and the witnesses he may produce, and particularly
describing the place to be searched and the things to be seized 4. Certified true copy of the Certificate of Registration
which may be anywhere in the Philippines. No. R-2813 for SHELL in the name of Shell
International;
According to the foregoing provisions, a search warrant can be issued only
upon a finding of probable cause. Probable cause for search warrant means such 5. Certified true copy of the Certificate of Registration
facts and circumstances which would lead a reasonably discreet and prudent man to No. 31443 for SHELLANE in the name of Shell
believe that an offense has been committed and that the objects sought in connection International;
with the offense are in the place to be searched.[26]
6. Certified true copy of the Certificate of Registration
The facts and circumstances being referred thereto pertain to facts, data or No. 57945 for the mark GASUL in the name
information personally known to the applicant and the witnesses he may present. of Petron;
[27]
The applicant or his witnesses must have personal knowledge of the circumstances
surrounding the commission of the offense being complained of. Reliable information 7. Certified true copy of the Certificate of Registration
is insufficient. Mere affidavits are not enough, and the judge must depose in writing the No. C-147 for GASUL CYLINDER CONTAINING
complainant and his witnesses.[28] LIQUEFIED PETROLEUM GAS in the name
of Petron;
Section 155 of Republic Act No. 8293 identifies the acts constituting
trademark infringement, thus: 8. Certified true copy of the Certificate of Registration
No. 61920 for the mark GASUL AND DEVICE in the
SEC. 155. Remedies; Infringement. Any person who name of Petron;
shall, without the consent of the owner of the registered mark:
9. Certified true copy of the Articles of Incorporation
155.1. Use in commerce any reproduction, of Masagana;
counterfeit, copy, or colorable imitation of a registered mark or
the same container or a dominant feature thereof in connection 10. Certified true copy of the By-laws of Masagana;
with the sale, offering for sale, distribution, advertising of any
goods or services including other preparatory steps necessary to 11. Certified true copy of the latest General Information
carry out the sale of any goods or services on or in connection Sheet of Masagana on file with the Securities and
with which such use is likely to cause confusion, or to cause Exchange Commission;
mistake, or to deceive; or
12. Pictures of delivery trucks coming in and out
155.2. Reproduce, counterfeit, copy of Masagana while it
or colorably imitate a registered mark or a dominant feature delivered Gasul and Shellane LPG;
thereof and apply such reproduction, counterfeit, copy or
colorable imitation to labels, signs, prints, packages, wrappers, 13. Cash Invoice No. 56210 dated 13 February
receptacles or advertisements intended to be used in commerce 2003 issued by Masagana for
upon or in connection with the sale, offering for sale, distribution, the Gasul and Shellane LPG purchased by
or advertising of goods or services on or in connection with Agent Oblanca and witness Alajar;
which such use is likely to cause confusion, or to cause mistake,
or to deceive, shall be liable in a civil action for infringement by 14. Pictures of the Shellane and Gasul LPGs covered by
the registrant for the remedies hereinafter set Cash Invoice No. 56210 purchased
forth: Provided, That the infringement takes place at the moment from Masagana by Agent Oblanca and
any of the acts stated in Subsection 155.1 or this subsection are witness Alajar;
committed regardless of whether there is actual sale of goods or
services using the infringing material. 15. Cash Invoice No. 56398 dated 27 February 2003
issued by Masagana for the Gasul and Shellane LPG
purchased by Agent Oblanca and witness Alajar; and
As can be gleaned in Section 155.1, mere unauthorized use of a container
bearing a registered trademark in connection with the sale, distribution or advertising 16. Pictures of the Shellane and Gasul LPGs covered by
of goods or services which is likely to cause confusion, mistake or deception among Cash Invoice No. 56398 purchased
the buyers/consumers can be considered as trademark infringement. from Masagana by Agent Oblanca and witness Alajar.
[30]

In his sworn affidavits,[29] Oblanca stated that before conducting an

investigation on the alleged illegal activities of MASAGANA, he reviewed the
certificates of trademark registrations issued by the Philippine Intellectual Property Extant from the foregoing testimonial, documentary and object evidence is
Office in favor of Petron and Pilipinas Shell; that he confirmed that Oblanca and Alajar have personal knowledge of the fact that petitioners, through
from Petron and Pilipinas Shell that MASAGANA is not authorized to sell, use, refill or MASAGANA, have been using the LPG cylinders bearing the marks GASUL and
distribute GASUL and SHELLANE LPG cylinder containers; that he SHELLANE without permission from Petron and Pilipinas Shell, a probable cause for
and Alajar monitored the activities of MASAGANA in its refilling plant station located trademark infringement. Both Oblanca and Alajar were clear and insistent that they
within its compound at Governors were the very same persons who monitored the activities of MASAGANA; that they
Drive, Barangay Lapidario, Trece Martires, Cavite City; that, using different names, conducted test-buys thereon; and that in order to avoid suspicion, they used different
they conducted two test-buys therein where they purchased LPG cylinders bearing the names during the test-buys. They also personally witnessed the refilling of LPG
trademarks GASUL and SHELLANE; that the said GASUL and SHELLANE LPG cylinders bearing the marks GASUL and SHELLANE inside the MASAGANA refilling
cylinders were refilled in their presence by the MASAGANA employees; that while they plant station and the deliveries of these refilled containers to some outlets using mini-
were inside the MASAGANA compound, he noticed stock piles of multi-branded trucks.

Page 31 of 35

Indeed, the aforesaid facts and circumstances are sufficient to establish
probable cause. It should be borne in mind that the determination of probable cause
does not call for the application of the rules and standards of proof that a judgment of
conviction requires after trial on the merits. As the term implies, probable cause is
concerned with probability, not absolute or even moral certainty. The standards of
judgment are those of a reasonably prudent man, not the exacting calibrations of a
judge after a full blown trial.[31]
The fact that Oblanca and Alajar used different names in the purchase
receipts do not negate personal knowledge on their part. It is a common practice of the
law enforcers such as NBI agents during covert investigations to use different names
in order to conceal their true identities. This is reasonable and understandable so as
not to endanger the life of the undercover agents and to facilitate the lawful arrest or
apprehension of suspected violators of the law.
Petitioners contention that Oblanca and Alajar should have mentioned the
fact that they used different names in their respective affidavits and during the
preliminary examination is puerile. The argument is too vacuous to merit serious
consideration. There is nothing in the provisions of law concerning the issuance of a
search warrant which directly or indirectly mandates that the applicant of the search
warrant or his witnesses should state in their affidavits the fact that they used different
names while conducting undercover investigations, or to divulge such fact during the
preliminary examination. In the light of other more material facts which needed to be
established for a finding of probable cause, it is not difficult to believe
that Oblanca and Alajar failed to mention that they used aliases in entering the
MASAGANA compound due to mere oversight.
It cannot be gainfully said that Oblanca and Alajar are not competent to
testify on the trademarks infringed by the petitioners. As earlier
discussed, Oblanca declared under oath that before conducting an investigation on the
alleged illegal activities of MASAGANA, he reviewed the certificates of trademark
registrations issued by the Philippine Intellectual Property Office in favor
of Petron and Pilipinas Shell. These certifications of trademark registrations were
attached by Oblanca in his applications for the search warrants. Alajar, on the other
hand, works as a private investigator and, in fact, owns a private investigation and
research/consultation firm. His firm was hired and authorized, pursuant to the Brand
Protection Program of Petron and Pilipinas Shell, to verify reports that MASAGANA is
involved in the illegal sale and refill of GASUL and SHELLANE LPG cylinders. [32] As
part of the job, he studied and familiarized himself with the registered trademarks of
GASUL and SHELLANE, and the distinct features of the LPG cylinders bearing the
same trademarks before conducting surveillance and test-buys on MASAGANA. [33] He
also submitted to Oblanca several copies of the same registered trademark
registrations and accompanied Oblanca during the surveillance and test-buys.
As to whether the form and manner of questioning made by
Judge Sadang complies with the requirements of law, Section 5 of Rule 126 of the
Revised Rules on Criminal Procedure, prescribes the rules in the examination of the
complainant and his witnesses when applying for search warrant, to wit:
SEC. 5. Examination of complainant; record.- The
judge must, before issuing the warrant, personally examine in
the form of searching questions and answers, in writing under
oath, the complainant and the witnesses he may produce on
facts personally known to them and attach to the record their
sworn statements, together with the affidavits submitted.
The searching questions propounded to the applicant and the witnesses
depend largely on the discretion of the judge. Although there is no hard-andfast rule
governing how a judge should conduct his investigation, it is axiomatic that the
examination must be probing and exhaustive, not merely routinary, general, peripheral,
perfunctory or pro forma.The judge must not simply rehash the contents of the affidavit
but must make his own inquiry on the intent and justification of the application.[34]
After perusing the Transcript of Stenographic Notes of the preliminary
examination, we found the questions of Judge Sadang to be sufficiently probing, not at
all superficial and perfunctory.[35] The testimonies of Oblanca and Alajar were
consistent with each other and their narration of facts was credible. As correctly found
by the Court of Appeals:
This Court is likewise not convinced that respondent
Judge failed to ask probing questions in his determination of the
existence of probable cause. This Court has thoroughly
examined the Transcript of Stenographic Notes taken during the
investigation conducted by the respondent Judge and found that
respondent Judge lengthily inquired into the circumstances of
the case. For instance, he required the NBI agent to confirm the
contents of his affidavit, inquired as to where the test-buys were
conducted and by whom, verified whether PSPC and PETRON
have registered trademarks or tradenames, required the NBI
witness to explain how the test-buys were conducted and to
describe the LPG cylinders purchased from Masagana Gas
Corporation, inquired why the applications for Search Warrant
were filed in Cavite City considering that Masagana Gas
Corporation was located in Trece Martires, Cavite, inquired
Page 32 of 35
whether the NBI Agent has a sketch of the place and if there
was any distinguishing sign to identify the place to be searched,
and inquired about their alleged tailing and monitoring of the
delivery trucks. x x x.[36]
Since probable cause is dependent largely on the opinion and findings of
the judge who conducted the examination and who had the opportunity to question the
applicant and his witnesses, the findings of the judge deserves great weight. The
reviewing court can overturn such findings only upon proof that the judge disregarded
the facts before him or ignored the clear dictates of reason. [37] We find no compelling
reason to disturb Judge Sadangs findings herein.
Anent the second issue, petitioners argue that Judge Sadang failed to
require Oblanca to show his authority to apply for search warrants; that Oblanca is a
member of the Anti-Organized Crime and not that of the Intellectual Property Division
of the NBI; that all complaints for infringement should be investigated by the
Intellectual Property Division of the NBI; that it is highly irregular that an agent not
assigned to the Intellectual Property Division would apply for a search warrant and
without authority from the NBI Director; that the alleged letter-complaint of
Atty. Bienvenido Somera, Jr. of Villaraza and Angangco Law Office was not produced
in court; that Judge Sadang did not require Oblanca to produce the alleged letter-
complaint which is material and relevant to the determination of the existence of
probable cause; and that Petron and Pilipinas Shell, being two different corporations,
should have issued a board resolution authorizing the Villaraza and Angangco Law
Office to apply for search warrant in their behalf.[38]
We reject these protestations.
The authority of Oblanca to apply for the search warrants in question is
clearly discussed and explained in his affidavit, viz:
[That] on 11 February 2003, the National Bureau of Investigation
(NBI) received a letter-complaint from
Atty. Bienvenido I. Somera, Jr. of Villaraza and Angangco, on
behalf of among others, Petron Corporation (PETRON)
[and Pilipinas Shell Petroleum Corporation (PSPC), the
authorized representative of Shell International Petroleum
Company Limited (SHELL INTERNATIONAL)] requesting
assistance in the investigation and, if warranted, apprehension
and prosecution of certain persons and/or establishments
suspected of violating the intellectual property rights of PETRON
[and of PSPC and Shell International.]
11. [That] on the basis of the letter-complaint, I, together with
Agent Angelo Zarzoso, was assigned as the NBI agent on the
case.[39]
The fact that Oblanca is a member of the Anti-Organized Crime Division
and not that of the Intellectual Property Division does not abrogate his authority to
apply for search warrant. As aptly stated by the RTC and the Court of Appeals, there is
nothing in the provisions on search warrant under Rule 126 of the Revised Rules on
Criminal Procedure, which specifically commands that the applicant law enforcer must
be a member of a division that is assigned or related to the subject crime or offense
before the application for search warrant may be acted upon. The petitioners did not
also cite any law, rule or regulation mandating such requirement. At most, petitioners
may only be referring to the administrative organization and/or internal rule or practice
of the NBI. However, not only did petitioners failed to establish the existence thereof,
but they also did not prove that such administrative organization and/or internal rule
or practice are inviolable.
Neither is the presentation of the letter-complaint of Atty. Somera and board
resolutions from Petron and Pilipinas Shell required or necessary in determining
probable cause. As heretofore discussed, the affidavits of Oblanca and Alajar, coupled
with the object and documentary evidence they presented, are sufficient to establish
probable cause. It can also be presumed that Oblanca, as an NBI agent, is a public
officer who had regularly performed his official duty. [40] He would not have initiated an
investigation on MASAGANA without a proper complaint. Furthermore,
Atty. Somera did not step up to deny his letter-complaint.
Regarding the third issue, petitioners posit that the applications for search
warrants of Oblanca did not specify the particular area to be searched, hence, giving
the raiding team wide latitude in determining what areas they can search. They aver
that the search warrants were general warrants, and are therefore violative of the
Constitution. Petitioners also assert that since the MASAGANA compound is about
10,000.00 square meters with several structures erected on the lot, the search
warrants should have defined the areas to be searched.
The long standing rule is that a description of the place to be searched is
sufficient if the officer with the warrant can, with reasonable effort, ascertain and
identify the place intended and distinguish it from other places in the community. Any
designation or description known to the locality that points out the place to the
exclusion of all others, and on inquiry leads the officers unerringly to it, satisfies the
constitutional requirement.[41]

Moreover, in the determination of whether a search warrant describes the
premises to be searched with sufficient particularity, it has been held that the executing
officers prior knowledge as to the place intended in the warrant is relevant. This would
seem to be especially true where the executing officer is the affiant on whose affidavit
the warrant had been issued, and when he knows that the judge who issued the
warrant intended the compound described in the affidavit.[42]
The search warrants in question commanded any peace officer to make an
immediate search on MASAGANA compound located at Governors
Drive, Barangay Lapidario, Trece Martires, Cavite City. It appears that the raiding team
had ascertained and reached MASAGANA compound without difficulty since
MASAGANA does not have any other offices/plants
in Trece Martires, Cavite City. Moreover, Oblanca, who was with the raiding team, was
already familiar with the MASAGANA compound as he and Alajar had monitored and
conducted test-buys thereat.
Even if there are several structures inside the MASAGANA compound,
there was no need to particularize the areas to be searched because, as correctly
stated by Petronand Pilipinas Shell, these structures constitute the essential and
necessary components of the petitioners business and cannot be treated separately
as they form part of one entire compound. The compound is owned and used solely by
MASAGANA. What the case law merely requires is that, the place to be searched can
be distinguished in relation to the other places in the community. Indubitably, this
requisite was complied with in the instant case.
As to the fourth issue, petitioners asseverate that the search warrants did
not indicate with particularity the items to be seized since the search warrants merely
described the items to be seized as LPG cylinders bearing the trademarks GASUL and
SHELLANE without specifying their sizes.
A search warrant may be said to particularly describe the things to be
seized when the description therein is as specific as the circumstances will ordinarily
allow; or when the description expresses a conclusion of fact not of law by which the
warrant officer may be guided in making the search and seizure; or when the things
described are limited to those which bear direct relation to the offense for which the
warrant is being issued.[43]
While it is true that the property to be seized under a warrant must be
particularly described therein and no other property can be taken thereunder, yet the
description is required to be specific only in so far as the circumstances will ordinarily
allow. The law does not require that the things to be seized must be described in
precise and minute details as to leave no room for doubt on the part of the searching
authorities; otherwise it would be virtually impossible for the applicants to obtain a
search warrant as they would not know exactly what kind of things they are looking for.
Once described, however, the articles subject of the search and seizure need not be
so invariant as to require absolute concordance, in our view, between those seized
and those described in the warrant. Substantial similarity of those articles described as
a class or specie would suffice.[44]
Measured against this standard, we find that the items to be seized under
the search warrants in question were sufficiently described with particularity. The
articles to be confiscated were restricted to the following: (1) LPG cylinders bearing the
trademarks GASUL and SHELLANE; (2) Machines and equipments used or intended
to be used in the illegal refilling of GASUL and SHELLANE cylinders. These machines
were also specifically enumerated and listed in the search warrants; (3) Documents
which pertain only to the production, sale and distribution of the GASUL and
SHELLANE LPG cylinders; and (4) Delivery trucks bearing Plate Nos. WTE-527, XAM-
970 and WFC-603, hauling trucks, and/or other delivery trucks or vehicles or
conveyances being used or intended to be used for the purpose of selling and/or
distributing GASUL and SHELLANE LPG cylinders.[45]
Additionally, since the described items are clearly limited only to those
which bear direct relation to the offense, i.e., violation of section 155 of Republic Act
No. 8293, for which the warrant was issued, the requirement of particularity of
description is satisfied.
Given the foregoing, the indication of the accurate sizes of the GASUL and
SHELLANE LPG cylinders or tanks would be unnecessary.
Finally, petitioners claim that MASAGANA has the right to intervene and to
move for the return of the seized items; that the items seized by the raiding team were
being used in the legitimate business of MASAGANA; that the raiding team had no
right to seize them under the guise that the same were being used in refilling GASUL
and SHELLANE LPG cylinders; and that there being no action for infringement filed
against them and/or MASAGANA from the seizure of the items up to the present, it is
only fair that the seized articles be returned to the lawful owner in accordance
with Section 20 of A.M. No. 02-1-06-SC.
It is an elementary and fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders, directors or officers.
However, when the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the corporation as an
association of persons,or in the case of two corporations merge them into one.[46] In
other words, the law will not recognize the separate corporate existence if the
Page 33 of 35
corporation is being used pursuant to the foregoing unlawful objectives. This non-
recognition is sometimes referred to as the doctrine of piercing the veil of corporate
entity or disregarding the fiction of corporate entity. Where the separate corporate
entity is disregarded, the corporation will be treated merely as an association of
persons and the stockholders or members will be considered as the corporation, that
is, liability will attach personally or directly to the officers and stockholders. [47]
As we now find, the petitioners, as directors/officers of MASAGANA, are
utilizing the latter in violating the intellectual property rights
of Petron and Pilipinas Shell. Thus, petitioners collectively and MASAGANA should be
considered as one and the same person for liability purposes.
Consequently, MASAGANAs third party claim serves no refuge for petitioners.
Even if we were to sustain the separate personality of MASAGANA from
that of the petitioners, the effect will be the same. The law does not require that the
property to be seized should be owned by the person against whom the search
warrants is directed. Ownership, therefore, is of no consequence, and it is sufficient
that the person against whom the warrant is directed has control or possession of the
property sought to be seized.[48] Hence, even if, as petitioners claimed, the properties
seized belong to MASAGANA as a separate entity, their seizure pursuant to the search
warrants is still valid.
Further, it is apparent that the motor compressor, LPG refilling machine and
the GASUL and SHELL LPG cylinders seized were the corpus delicti, the body or
substance of the crime, or the evidence of the commission of trademark infringement.
These were the very instruments used or intended to be used by the petitioners in
trademark infringement. It is possible that, if returned to MASAGANA, these items will
be used again in violating the intellectual property rights of Petron and Pilipinas Shell.
[49]
Thus, the RTC was justified in denying the petitioners motion for their return so as
to prevent the petitioners and/or MASAGANA from using them again in trademark
infringement.
Petitioners reliance on Section 20 of A.M. No. 02-1-06-SC,[50] is not tenable.
As correctly observed by the Solicitor General, A.M. 02-1-06-SC is not applicable in
the present case because it governs only searches and seizures in civil actions for
infringement of intellectual property rights.[51] The offense complained of herein is for
criminal violation of Section 155 in relation to Section 170[52] of Republic Act No. 8293.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 79256, dated 30 September 2004 and 1 June
2005, respectively, are hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
9.
FIRST DIVISION
[G.R. No. 119002. October 19, 2000]
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner,
vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL
FEDERATION, respondents.
DECISION
KAPUNAN, J.:
On June 30 1989, petitioner International Express Travel and Tour Services,
Inc., through its managing director, wrote a letter to the Philippine Football Federation
(Federation), through its president private respondent Henri Kahn, wherein the former
offered its services as a travel agency to the latter.[1] The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of
the Federation to the South East Asian Games in Kuala Lumpur as well as various
other trips to the People's Republic of China and Brisbane. The total cost of the tickets
amounted to P449,654.83. For the tickets received, the Federation made two partial
payments, both in September of 1989, in the total amount of P176,467.50.[2]
On 4 October 1989, petitioner wrote the Federation, through the private
respondent a demand letter requesting for the amount of P265,894.33. [3] On 30
October 1989, the Federation, through the Project Gintong Alay, paid the amount of
P31,603.00.[4]
On 27 December 1989, Henri Kahn issued a personal check in the amount of
P50,000 as partial payment for the outstanding balance of the Federation.
[5]
Thereafter, no further payments were made despite repeated demands.
 This prompted petitioner to file a civil case before the Regional Trial Court of
Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the
Federation and impleaded the Federation as an alternative defendant. Petitioner
sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by
the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.
[6]
Henri Kahn filed his answer with counterclaim. While not denying the allegation
that the Federation owed the amount P207,524.20, representing the unpaid balance
for the plane tickets, he averred that the petitioner has no cause of action against him
either in his personal capacity or in his official capacity as president of the
Federation. He maintained that he did not guarantee payment but merely acted as an
agent of the Federation which has a separate and distinct juridical personality.[7]
On the other hand, the Federation failed to file its answer, hence, was declared
in default by the trial court.[8]
In due course, the trial court rendered judgment and ruled in favor of the
petitioner and declared Henri Kahn personally liable for the unpaid obligation of the
Federation. In arriving at the said ruling, the trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions had it been duly
established that defendant Federation is a corporation. The trouble, however, is that
neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving
the corporate existence of the defendant Federation. In paragraph 2 of its complaint,
plaintiff asserted that "Defendant Philippine Football Federation is a sports association
xxx." This has not been denied by defendant Henri Kahn in his Answer. Being the
President of defendant Federation, its corporate existence is within the personal
knowledge of defendant Henri Kahn. He could have easily denied specifically the
assertion of the plaintiff that it is a mere sports association, if it were a domestic
corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no power to
enter into, or to ratify, a contract. The contract entered into by its officers or agents on
behalf of such association is not binding on, or enforceable against it. The officers or
agents are themselves personally liable.
x x x[9]
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the
plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate
computed from July 5, 1990, the date the complaint was filed, until the principal
obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the
counterclaims of the defendant Henri Kahn are hereby dismissed.
With the costs against defendant Henri Kahn.[10]
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21
December 1994, the respondent court rendered a decision reversing the trial court, the
decretal portion of said decision reads:
WHEREFORE, premises considered, the judgment appealed from is hereby
REVERSED and SET ASIDE and another one is rendered dismissing the complaint
against defendant Henri S. Kahn.[11]
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence
of the Federation. It rationalized that since petitioner failed to prove that Henri Kahn
guaranteed the obligation of the Federation, he should not be held liable for the same
as said entity has a separate and distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer
pleaded that the Federation be held liable for the unpaid obligation. The same was
denied by the appellate court in its resolution of 8 February 1995, where it stated that:
As to the alternative prayer for the Modification of the Decision by expressly declaring
in the dispositive portion thereof the Philippine Football Federation (PFF) as liable for
Page 34 of 35
the unpaid obligation, it should be remembered that the trial court dismissed the
complaint against the Philippine Football Federation, and the plaintiff did not appeal
from this decision. Hence, the Philippine Football Federation is not a party to this
appeal and consequently, no judgment may be pronounced by this Court against the
PFF without violating the due process clause, let alone the fact that the judgment
dismissing the complaint against it, had already become final by virtue of the plaintiff's
failure to appeal therefrom. The alternative prayer is therefore similarly DENIED.[12]
Petitioner now seeks recourse to this Court and alleges that the respondent
court committed the following assigned errors:[13]
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT PETITIONER HAD DEALT WITH THE PHILIPPINE
FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND
IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN
WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A
CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE
FOR THE OBLIGATION OF THE UNINCORPORATED PFF,
HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED
THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL
PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING
THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS
NOT PERSONALLY LIABLE, THE HONORABLE COURT OF
APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS
DECISION THAT THE PFF IS SOLELY LIABLE FOR THE
OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of
the Philippine Football Federation as a juridical person. In the assailed decision, the
appellate court recognized the existence of the Federation. In support of this, the CA
cited Republic Act 3135, otherwise known as the Revised Charter of the Philippine
Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which
said Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604
recognized the juridical existence of national sports associations. This may be gleaned
from the powers and functions granted to these associations. Section 14 of R.A. 3135
provides:
SEC. 14. Functions, powers and duties of Associations. - The National Sports'
Association shall have the following functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes.
3. To purchase, sell, lease or otherwise encumber property both real and personal, for
the accomplishment of their purpose;
4. To affiliate with international or regional sports' Associations after due consultation
with the executive committee;
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of
their purposes and not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National
sports associations shall have the following functions, powers, and duties:
1. Adopt a Constitution and By-Laws for their internal organization and government
which shall be submitted to the Department and any amendment thereto shall take
effect upon approval by the Department:Provided, however, That no team, school,
club, organization, or entity shall be admitted as a voting member of an association
unless 60 per cent of the athletes composing said team, school, club, organization, or
entity are Filipino citizens;
2. Raise funds by donations, benefits, and other means for their purpose subject to the
approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for
the accomplishment of their purpose;
4. Conduct local, interport, and international competitions, other than the Olympic and
Asian Games, for the promotion of their sport;
5. Affiliate with international or regional sports associations after due consultation with
the Department;
xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports associations clearly
indicate that these entities may acquire a juridical personality. The power to purchase,
sell, lease and encumber property are acts which may only be done by persons,
whether natural or artificial, with juridical capacity. However, while we agree with the
appellate court that national sports associations may be accorded corporate status,
such does not automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality,
the State must give its consent either in the form of a special law or a general enabling
act. We cannot agree with the view of the appellate court and the private respondent
that the Philippine Football Federation came into existence upon the passage of these
laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the
Philippine Football Federation. These laws merely recognized the existence of national
sports associations and provided the manner by which these entities may acquire
juridical personality. Section 11 of R.A. 3135 provides:
SEC. 11. National Sports' Association; organization and recognition. - A National
Association shall be organized for each individual sports in the Philippines in the
manner hereinafter provided to constitute the Philippine Amateur Athletic Federation.
Applications for recognition as a National Sports' Association shall be filed with the
executive committee together with, among others, a copy of the constitution and by-
laws and a list of the members of the proposed association, and a filing fee of ten
pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said
association will promote the purposes of this Act and particularly section three
thereof. No application shall be held pending for more than three months after the filing
thereof without any action having been taken thereon by the executive
committee. Should the application be rejected, the reasons for such rejection shall be
clearly stated in a written communication to the applicant. Failure to specify the
reasons for the rejection shall not affect the application which shall be considered as
unacted upon: Provided, however, That until the executive committee herein provided
shall have been formed, applications for recognition shall be passed upon by the duly
elected members of the present executive committee of the Philippine Amateur Athletic
Federation. The said executive committee shall be dissolved upon the organization of
the executive committee herein provided: Provided, further, That the functioning
executive committee is charged with the responsibility of seeing to it that the National
Sports' Associations are formed and organized within six months from and after the
passage of this Act.
Page 35 of 35
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for accreditation or recognition as a
national sports association for each individual sport in the Philippines shall be filed with
the Department together with, among others, a copy of the Constitution and By-Laws
and a list of the members of the proposed association.
The Department shall give the recognition applied for if it is satisfied that the national
sports association to be organized will promote the objectives of this Decree and has
substantially complied with the rules and regulations of the
Department: Provided, That the Department may withdraw accreditation or recognition
for violation of this Decree and such rules and regulations formulated by it.
The Department shall supervise the national sports association: Provided, That the
latter shall have exclusive technical control over the development and promotion of the
particular sport for which they are organized.
Clearly the above cited provisions require that before an entity may be
considered as a national sports association, such entity must be recognized by the
accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135,
and the Department of Youth and Sports Development under P.D. 604. This fact of
recognition, however, Henri Kahn failed to substantiate. In attempting to prove the
juridical existence of the Federation, Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the constitution and by-laws of the
Philippine Football Federation. Unfortunately, the same does not prove that said
Federation has indeed been recognized and accredited by either the Philippine
Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a
national sports association within the purview of the aforementioned laws and does not
have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held
liable for the unpaid obligations of the unincorporated Philippine Football Federation. It
is a settled principal in corporation law that any person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and
becomes personally liable for contract entered into or for other acts performed as such
agent.[14] As president of the Federation, Henri Kahn is presumed to have known about
the corporate existence or non-existence of the Federation. We cannot subscribe to
the position taken by the appellate court that even assuming that the Federation was
defectively incorporated, the petitioner cannot deny the corporate existence of the
Federation because it had contracted and dealt with the Federation in such a manner
as to recognize and in effect admit its existence.[15] The doctrine of corporation by
estoppel is mistakenly applied by the respondent court to the petitioner. The
application of the doctrine applies to a third party only when he tries to escape liability
on a contract from which he has benefited on the irrelevant ground of defective
incorporation.[16] In the case at bar, the petitioner is not trying to escape liability from
the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET
ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil Case
No. 90-53595 is hereby REINSTATED.
SO ORDERED.