certificate or certificates of stocks covering the 33,002 shares issued in the name of
Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as
lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is
immaterial" as far as it is concerned as to "who is entitled to the possession of the stock
certificates in question; appellant opposed the petition of the ancillary administrator
because the said stock certificates are in existence, they are today in the possession of
the domiciliary administrator, the County Trust Company, in New York, U.S.A...."4
From such an order, an appeal was taken to this Court not by the domiciliary
administrator, the County Trust Company of New York, but by the Philippine corporation,
the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged
order represents a response and expresses a policy, to paraphrase Frankfurter, arising
out of a specific problem, addressed to the attainment of specific ends by the use of
specific remedies, with full and ample support from legal doctrines of weight and
significance.
As is true of many problems confronting the judiciary, such a response was called for by
the realities of the situation. What cannot be ignored is that conduct bordering on wilful
defiance, if it had not actually reached it, cannot without undue loss of judicial prestige,
be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness
as to preclude such a solution, the more so as deeper reflection would make clear its
being buttressed by indisputable principles and supported by the strongest policy
considerations.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated,
Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among
others, two stock certificates covering 33,002 shares of appellant, the certificates being
in the possession of the County Trust Company of New York, which as noted, is the
domiciliary administrator of the estate of the deceased. 2 Then came this portion of the
appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary
administration proceedings in the Court of First Instance of Manila; Lazaro A. Marquez
was appointed ancillary administrator, and on January 22, 1963, he was substituted by
the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in
New York and the ancillary administrator in the Philippines as to which of them was
entitled to the possession of the stock certificates in question. On January 27, 1964, the
Court of First Instance of Manila ordered the domiciliary administrator, County Trust
Company, to "produce and deposit" them with the ancillary administrator or with the Clerk
of Court. The domiciliary administrator did not comply with the order, and on February 11,
1964, the ancillary administrator petitioned the court to "issue an order declaring the
It can truly be said then that the result arrived at upheld and vindicated the honor of the
judiciary no less than that of the country. Through this challenged order, there is thus
dispelled the atmosphere of contingent frustration brought about by the persistence of
the domiciliary administrator to hold on to the stock certificates after it had, as admitted,
voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance
through counsel on June 27, 1963, and filing a petition for relief from a previous order of
March 15, 1963.
It is its view, therefore, that under the circumstances, the stock certificates cannot be
declared or considered as lost. Moreover, it would allege that there was a failure to
observe certain requirements of its by-laws before new stock certificates could be issued.
Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged
order constitutes an emphatic affirmation of judicial authority sought to be emasculated
by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a
court decree. How, then, can this order be stigmatized as illegal?
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to
what was decreed. For without it, what it had been decided would be set at naught and
nullified. Unless such a blatant disregard by the domiciliary administrator, with residence
abroad, of what was previously ordained by a court order could be thus remedied, it
would have entailed, insofar as this matter was concerned, not a partial but a well-nigh
complete paralysis of judicial authority.
matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by the
appellee, that the said stock certificates are in existence and are today in the possession
of the domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower court. That certainly
does not suffice to call for the reversal of the appealed order. Since there is a refusal,
persistently adhered to by the domiciliary administrator in New York, to deliver the shares
of stocks of appellant corporation owned by the decedent to the ancillary administrator in
the Philippines, there was nothing unreasonable or arbitrary in considering them as lost
and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task
incumbent under the law on the ancillary administrator could be discharged and his
responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to
depend on the uncontrolled discretion of the party or entity, in this case domiciled
abroad, which thus far has shown the utmost persistence in refusing to yield obedience.
Certainly, appellant would not be heard to contend in all seriousness that a judicial
decree could be treated as a mere scrap of paper, the court issuing it being powerless to
remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not
correspond exactly with the facts. To be more blunt, the quality of truth may be lacking in
such a conclusion arrived at. It is to be remembered however, again to borrow from
Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends
have played an important part in its development."11
Speaking of the common law in its earlier period, Cardozo could state fictions "were
devices to advance the ends of justice, [even if] clumsy and at times offensive." 12 Some
of them have persisted even to the present, that eminent jurist, noting "the quasi
contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the
empire of "as if" today."13 He likewise noted "a class of fictions of another order, the fiction
which is a working tool of thought, but which at times hides itself from view till reflection
and analysis have brought it to the light."14
What cannot be disputed, therefore, is the at times indispensable role that fictions as
such played in the law. There should be then on the part of the appellant a further
refinement in the catholicity of its condemnation of such judicial technique. If ever an
occasion did call for the employment of a legal fiction to put an end to the anomalous
situation of a valid judicial order being disregarded with apparent impunity, this is it. What
is thus most obvious is that this particular alleged error does not carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its
invoking one of the provisions of its by-laws which would set forth the procedure to be
2
certain specific purposes, the extent of whose existence, powers and liberties is fixed by
its charter."19 Dean Pound's terse summary, a juristic person, resulting from an
association of human beings granted legal personality by the state, puts the matter
neatly.20
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to
quote from Friedmann, "is the reality of the group as a social and legal entity,
independent of state recognition and concession."21 A corporation as known to Philippine
jurisprudence is a creature without any existence until it has received the imprimatur of
the state according to law. It is logically inconceivable therefore that it will have rights and
privileges of a higher priority than that of its creator. More than that, it cannot legitimately
refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary,
whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of
persuasive authority in our jurisdiction, comes more often within the ken of the judiciary
than the other two coordinate branches. It institutes the appropriate court action to
enforce its right. Correlatively, it is not immune from judicial control in those instances,
where a duty under the law as ascertained in an appropriate legal proceeding is cast
upon it.
To assert that it can choose which court order to follow and which to disregard is to
confer upon it not autonomy which may be conceded but license which cannot be
tolerated. It is to argue that it may, when so minded, overrule the state, the source of its
very existence; it is to contend that what any of its governmental organs may lawfully
require could be ignored at will. So extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs, 22 it was shown that in a
guardianship proceedings then pending in a lower court, the United States Veterans
Administration filed a motion for the refund of a certain sum of money paid to the minor
under guardianship, alleging that the lower court had previously granted its petition to
consider the deceased father as not entitled to guerilla benefits according to a
determination arrived at by its main office in the United States. The motion was denied.
In seeking a reconsideration of such order, the Administrator relied on an American
federal statute making his decisions "final and conclusive on all questions of law or fact"
precluding any other American official to examine the matter anew, "except a judge or
judges of the United States court." 23 Reconsideration was denied, and the Administrator
appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the
opinion that the appeal should be rejected. The provisions of the U.S. Code, invoked by
the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive
when made on claims property submitted to him for resolution; but they are not
3
In this petition for review on certiorari under Rule 45 of the Revised Rules of Court,
petitioners seek to annul the decision of the Court of Appeals in CA-G.R. SP. No. 31748
dated 23 May 1994 and its subsequent resolution dated 10 May 1995 denying
petitioners' motion for reconsideration.
The present case involves two separate but interrelated conflicts. The facts leading to the
first controversy are as follows:
The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority stockholder of
Tormil Realty & Development Corporation while private respondents who are the children
of Judge Torres' deceased brother Antonio A. Torres, constituted the minority
stockholders. In particular, their respective shareholdings and positions in the corporation
were as follows:
Name of Stockholder Number of Percentage Position(s)
Shares
Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair
Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director 1
In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an "estate
planning" scheme under which he assigned to Tormil Realty & Development Corporation
(Tormil for brevity) various real properties he owned and his shares of stock in other
corporations in exchange for 225,972 Tormil Realty shares. Hence, on various dates in
July and August of 1984, ten (10) deeds of assignment were executed by the late Judge
Torres:
ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION SHARES TO BE
ISSUED
1. July 13, 1984 TCT 81834 Quezon City 13,252
TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493
TCT 109200 Manila
225,972 2
Consequently, the aforelisted properties were duly recorded in the inventory of assets of
Tormil Realty and the revenues generated by the said properties were correspondingly
entered in the corporation's books of account and financial records.
Likewise, all the assigned parcels of land were duly registered with the respective
Register of Deeds in the name of Tormil Realty, except for the ones located in Makati and
Pasay City.
At the time of the assignments and exchange, however, only 225,000 Tormil Realty
shares remained unsubscribed, all of which were duly issued to and received by Judge
Torres (as evidenced by stock certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25). 3
Due to the insufficient number of shares of stock issued to Judge Torres and the alleged
refusal of private respondents to approve the needed increase in the corporation's
authorized capital stock (to cover the shortage of 972 shares due to Judge Torres under
the "estate planning" scheme), on 11 September 1986, Judge Torres revoked the two (2)
deeds of assignment covering the properties in Makati and Pasay City. 4
Noting the disappearance of the Makati and Pasay City properties from the corporation's
inventory of assets and financial records private respondents, on 31 March 1987, were
constrained to file a complaint with the Securities and Exchange Commission (SEC)
docketed as SEC Case No. 3153 to compel Judge Torres to deliver to Tormil corporation
the two (2) deeds of assignment covering the aforementioned Makati and Pasay City
properties which he had unilaterally revoked and to cause the registration of the
corresponding titles in the name of Tormil. Private respondents alleged that following the
disappearance of the properties from the corporation's inventory of assets, they found
that on October 24, 1986, Judge Torres, together with Edgardo Pabalan and Graciano
Tobias, then General Manager and legal counsel, respectively, of Tormil, formed and
organized a corporation named "Torres-Pabalan Realty and Development Corporation"
and that as part of Judge Torres' contribution to the new corporation, he executed in its
favor a Deed of Assignment conveying the same Makati and Pasay City properties he
had earlier transferred to Tormil.
The second controversy involving the same parties concerned the election of the
1987 corporate board of directors.
The 1987 annual stockholders meeting and election of directors of Tormil corporation
was scheduled on 25 March 1987 in compliance with the provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (l) share each to
petitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These assigned shares
were in the nature of "qualifying shares," for the sole purpose of meeting the legal
requirement to be able to elect them (Tobias and company) to the Board of Directors as
Torres' nominees.
The assigned shares were covered by corresponding Tormil Stock Certificates Nos. 030,
029, 028, 027, 026 and at the back of each certificate the following inscription is found:
The present certificate and/or the one share it represents, conformably to
the purpose and intention of the Deed of Assignment dated March 6,
1987, is not held by me under any claim of ownership and I acknowledge
that I hold the same merely as trustee of Judge Manuel A. Torres, Jr. and
for the sole purpose of qualifying me as Director;
(Signature of Assignee) 5
The reason behind the aforestated action was to remedy the "inequitable lopsided set-up
obtaining in the corporation, where, notwithstanding his controlling interest in the
corporation, the late Judge held only a single seat in the nine-member Board of Directors
and was, therefore, at the mercy of the minority, a combination of any two (2) of whom
would suffice to overrule the majority stockholder in the Board's decision making
functions." 6
When the Chairman called for the election of directors, the Secretary
refused to write down the names of nominees prompting Atty. Azura to
initiate the appointment of Atty. Jocson, Jr. as Acting Secretary.
Antonio Torres, Jr. nominated the present members of the Board. At this
juncture, Milagros Torres cried out and told the group of Manuel Torres,
Jr. to leave the house.
Manuel Torres, Jr., together with his lawyers-stockholders went to the
residence of Ma. Jacinta Torres in San Miguel Village, Makati, Metro
Manila. The undersigned joined them since the group with Manuel Torres,
Jr. the one who requested for S.E.C. observers, represented the majority
of the outstanding capital stock and still constituted a quorum.
At the resumption of the meeting, the following were nominated and
elected as directors for the year 1987-1988:
1. Manuel Torres, Jr.
2. Ma. Jacinta Torres
3. Edgardo Pabalan
4. Graciano Tobias
5. Rodolfo Jocson, Jr.
6. Melvin Jurisprudencia
7. Augustus Cesar Azura
8. Josefina Torres
9. Dante Morales
After the election, it was resolved that after the meeting, the new board of
directors shall convene for the election of officers.
xxx xxx xxx 7
Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No. 339).
Thereafter, on 3 April 1991, during the pendency of said appeal, petitioner Manuel A.
Torres, Jr. died. However, notice thereof was brought to the attention of the SEC not by
petitioners' counsel but by private respondents in a Manifestation dated 24 April 1991. 9
Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for joint
hearing and adjudication.
On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision in favor
of private respondents. The dispositive portion thereof states, thus:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:
1. Ordering and directing the respondents, particularly respondent
Manuel A. Torres, Jr., to turn over and deliver to TORMIL through its
Corporate Secretary, Ma. Cristina T. Carlos: (a) the originals of the Deeds
of Assignment dated July 13 and 24, 1984 together with the owner's
duplicates of Transfer Certificates of Title Nos. 374079 of the Registry of
Deeds for Makati, and 41527, 41528 and 41529 of the Registry of Deeds
for Pasay City and/or to cause the formal registration and transfer of title
in and over such real properties in favor of TORMIL with the proper
government agency; (b) all corporate books of account, records and
papers as may be necessary for the conduct of a comprehensive audit
examination, and to allow the examination and inspection of such
accounting books, papers and records by any or all of the corporate
directors, officers and stockholders and/or their duly authorized
representatives or auditors;
2. Declaring as permanent and final the writ of preliminary injunction
issued by the Hearing Panel on February 13, 1989;
3. Declaring as null and void the election and appointment of
respondents to the Board of Directors and executive positions of TORMIL
held on March 25, 1987, and all their acts and resolutions made for and
in behalf of TORMIL by authority of and pursuant to such invalid
appointment & election held on March 25, 1987;
(4)
12
From the said decision, petitioners filed a motion for reconsideration which was denied in
a resolution issued by the Court of Appeals dated 10 May 1995. 13
Insisting on their cause, petitioners filed the present petition for review alleging that the
Court of Appeals committed the following errors in its decision:
(1)
WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A
FULL LENGTH DECISION, WITHOUT THE EVIDENCE AND THE
ORIGINAL RECORD OF S.E.C. AC NO. 339 BEING PROPERLY
BROUGHT BEFORE IT FOR REVIEW AND RE-EXAMINATION, AN
OMISSION RESULTING IN A CLEAR TRANSGRESSION OR
CURTAILMENT OF THE RIGHTS OF THE HEREIN PETITIONERS TO
PROCEDURAL DUE PROCESS;
(2)
WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE
RESPONDENT S.E.C., WHICH IS VOID FOR HAVING BEEN
RENDERED WITHOUT THE PROPER SUBSTITUTION OF THE
DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-AC NO. 339
AND CONSEQUENTLY, FOR WANT OF JURISDICTION OVER THE
SAID DECEASED'S TESTATE ESTATE, AND MOREOVER, WHEN IT
SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITS
APPLICATION OF THE CIVIL LAW CONCEPT OF NEGOTIORUM
GESTIO;
(3)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE
AND THE ORIGINAL RECORD OF S.E.C. AC NO. 339 NOT HAVING
ACTUALLY BEEN RE-EXAMINED, THAT S.E.C. CASE NO. 3153
INVOLVED A SITUATION WHERE PERFORMANCE WAS IMPOSSIBLE
(AS CONTEMPLATED UNDER ARTICLE 1191 OF THE CIVIL CODE)
AND WAS NOT A MERE CASE OF LESION OR INADEQUACY OF
CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS SO
ERRONEOUSLY CHARACTERIZED BY THE RESPONDENT S.E.C.;
and,
merely to preserve the status quo pending the disposition of the case. The court can
require the submission of memoranda in support of the respective claims and positions
of the parties without necessarily giving due course to the petition. The matter of whether
or not to give due course to a petition lies in the discretion of the court.
It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised
Administrative Circular No. 1-95 (which took effect on 1 June 1995) wherein the
procedure for appeals from quasi-judicial agencies to the Court of Appeals was clarified
thus:
10. Due course. If upon the filing of the comment or such other
pleadings or documents as may be required or allowed by the Court of
Appeals or upon the expiration of the period for the filing thereof, and on
the bases of the petition or the record the Court of Appeals finds prima
faciethat the court or agency concerned has committed errors of fact or
law that would warrant reversal or modification of the award, judgment,
final order or resolution sought to be reviewed, it may give due course to
the petition; otherwise, it shall dismiss the same. The findings of fact of
the court or agency concerned, when supported by substantial evidence,
shall be binding on the Court of Appeals.
11. Transmittal of record. Within fifteen (15) days from notice that the
petition has been given due course, the Court of Appeals may require the
court or agency concerned to transmit the original or a legible certified
true copy of the entire record of the proceeding under review. The record
to be transmitted may be abridged by agreement of all parties to the
proceeding. The Court of Appeals may require or permit subsequent
correction of or addition to the record. (Emphasis ours.)
The aforecited circular now formalizes the correct practice and clearly states that in
resolving appeals from quasi judicial agencies, it is within the discretion of the Court of
Appeals to have the original records of the proceedings under review be transmitted to it.
In this connection petitioners' claim that the Court of Appeals could not have decided the
case on the merits without the records being brought before it is patently lame.
Indubitably, the Court of Appeals decided the case on the basis of the uncontroverted
facts and admissions contained in the pleadings, that is, the petition, comment, reply,
rejoinder, memoranda, etc. filed by the parties.
Petitioners contend that the decisions of the SEC and the Court of Appeals are null and
void for being rendered without the necessary substitution of parties (for the deceased
It can readily be observed therefore that the parties involved in the present controversy
are virtually the same parties fighting over the representation of the late Judge Torres'
estate. It should be recalled that the purpose behind the rule on substitution of parties is
the protection of the right of every party to due process. It is to ensure that the deceased
party would continue to be properly represented in the suit through the duly appointed
legal representative of his estate. In the present case, this purpose has been
substantially fulfilled (despite the lack of formal substitution) in view of the peculiar fact
that both proceedings involve practically the same parties. Both parties have been
fiercely fighting in the probate proceedings of Judge Torres' holographic will for
appointment as legal representative of his estate. Since both parties claim interests over
the estate, the rights of the estate were expected to be fully protected in the proceedings
before the SEC en banc and the Court of Appeals. In either case, whoever shall be
appointed legal representative of Judge Torres' estate (petitioner Pabalan or private
respondents) would no longer be a stranger to the present case, the said parties having
voluntarily submitted to the jurisdiction of the SEC and the Court of Appeals and having
thoroughly participated in the proceedings.
The foregoing rationate finds support in the recent case of Vda. de Salazar
v. CA, 18 wherein the Court expounded thus:
It has been held that when a party dies in an action that survives, and no
order is issued by the Court for the appearance of the legal
representative or of the heirs of the deceased to be substituted for the
deceased, and as a matter of fact no such substitution has ever been
effected, the trial held by the court without such legal representative or
heirs, and the judgment rendered after such trial, are null and void
because the court acquired no jurisdiction over the persons of the legal
representative or of the heirs upon whom the trial and the judgment are
not binding. 16
The need for substitution of heirs is based on the right to due process
accruing to every party in any proceeding. The rationale underlying this
requirement in case a party dies during the pendency of proceedings of a
nature not extinguished by such death, is that . . . the exercise of judicial
power to hear and determine a cause implicitly presupposes in the trial
court, amongst other essentials, jurisdiction over the persons of the
parties. That jurisdiction was inevitably impaired upon the death of the
protestee pending the proceedings below such that unless and until a
legal representative is for him duly named and within the jurisdiction of
the trial court, no adjudication in the cause could have been accorded
any validity or binding effect upon any party, in representation of the
deceased, without trenching upon the fundamental right to a day in court
which is the very essence of the constitutionally enshrined guarantee of
due process.
As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-1768 before
the Regional Trial Court of Makati for the ante-mortem probate of his holographic will
which he had executed on 31 October 1986. Testifying in the said proceedings, Judge
Torres confirmed his appointment of petitioner Edgardo D. Pabalan as the sole executor
of his will and administrator of his estate. The proceedings, however, were opposed by
the same parties, herein private respondents Antonio P. Torres, Jr., Ma. Luisa T. Morales
and Ma. Cristina T. Carlos, 17 who are nephew and nieces of Judge Torres, being the
children of his late brother Antonio A. Torres.
We are not unaware of several cases where we have ruled that a party
having died in an action that survives, the trial held by the court without
appearance of the deceased's legal representative or substitution of heirs
and the judgment rendered after such trial, are null and void because the
court acquired no jurisdiction over the persons of the legal
representatives or of the heirs upon whom the trial and the judgment
would be binding. This general rule notwithstanding, in denying
petitioner's motion for reconsideration, the Court of Appeals correctly
10
Petitioners find legal basis for Judge Torres' act of revoking the assignment of his
properties in Makati and Pasay City to Tormil corporation by relying on Art. 1191 of the
Civil Code which provides that:
Art. 1191. The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
Petitioners' contentions cannot be sustained. We see no justifiable reason to disturb the
findings of SEC, as affirmed by the Court of Appeals:
We sustain the ruling of respondent SEC in the decision appealed from
(Rollo, pp. 45-46) that
. . . the shortage of 972 shares would not be valid ground
for respondent Torres to unilaterally revoke the deeds of
assignment he had executed on July 13, 1984 and July
24, 1984 wherein he voluntarily assigned to TORMIL real
properties covered by TCT No. 374079 (Makati) and TCT
No. 41527, 41528 and 41529 (Pasay) respectively.
A comparison of the number of shares that respondent
Torres received from TORMIL by virtue of the "deeds of
assignment" and the stock certificates issued by the latter
to the former readily shows that TORMIL had substantially
performed what was expected of it. In fact, the first two
issuances were in satisfaction to the properties being
revoked by respondent Torres. Hence, the shortage of
972 shares would never be a valid ground for the
III
11
TOTAL 225,972.3
*Order of stock certificate issuances by TORMIL to respondent Torres
relative to the Deeds of Assignment he executed sometime in July and
August, 1984. 22 (Emphasis ours.)
Moreover, we agree with the contention of the Solicitor General that the shortage of
shares should not have affected the assignment of the Makati and Pasay City properties
which were executed in 13 and 24 July 1984 and the consideration for which have been
duly paid or fulfilled but should have been applied logically to the last assignment of
property Judge Torres' Ayala Fund shares which was executed on 29 August
1984. 23
IV
Petitioners insist that the assignment of "qualifying shares" to the nominees of the late
Judge Torres (herein petitioners) does not partake of the real nature of a transfer or
conveyance of shares of stock as would call for the "imposition of stringent requirements
(with respect to the) recording of the transfer of said shares." Anyway, petitioners add,
there was substantial compliance with the above-stated requirement since said
assignments were entered by the late Judge Torres himself in the corporation's stock and
transfer book on 6 March 1987, prior to the 25 March 1987 annual stockholders meeting
and which entries were confirmed on 8 March 1987 by petitioner Azura who was
appointed Assistant Corporate Secretary by Judge Torres.
12
Thus, we agree with the ruling of the SEC en banc as affirmed by the Court of Appeals:
We likewise sustain respondent SEC when it ruled, interpreting Section
74 of the Corporation Code, as follows (Rollo, p. 45):
In the absence of (any) provision to the contrary, the
corporate secretary is the custodian of corporate records.
Corollarily, he keeps the stock and transfer book and
makes proper and necessary entries therein.
Contrary to the generally accepted corporate practice, the
stock and transfer book of TORMIL was not kept by Ms.
Maria Cristina T. Carlos, the corporate secretary but by
respondent Torres, the President and Chairman of the
Board of Directors of TORMIL. In contravention to the
above cited provision, the stock and transfer book was
not kept at the principal office of the corporation either but
at the place of respondent Torres.
These being the obtaining circumstances, any entries
made in the stock and transfer book on March 8, 1987 by
respondent Torres of an alleged transfer of nominal
shares to Pabalan and Co. cannot therefore be given any
valid effect. Where the entries made are not valid,
Pabalan and Co. cannot therefore be considered
stockholders of record of TORMIL. Because they are not
stockholders, they cannot therefore be elected as
directors of TORMIL. To rule otherwise would not only
encourage violation of clear mandate of Sec. 74 of the
Corporation Code that stock and transfer book shall be
kept in the principal office of the corporation but would
likewise open the flood gates of confusion in the
corporation as to who has the proper custody of the stock
and transfer book and who are the real stockholders of
records of a certain corporation as any holder of the stock
and transfer book, though not the corporate secretary, at
pleasure would make entries therein.
The fact that respondent Torres holds 81.28% of the
outstanding capital stock of TORMIL is of no moment and
is not a license for him to arrogate unto himself a duty
lodged to (sic) the corporate secretary. 26
13
After the submission by the parties of their respective pleadings, the trial court rendered
the impugned decision. Judge Francisco Ma. Guerrero annulled not only the challenged
provision, viz., Sec. 4 (1), but the entire Pres. Decree No. 1717 on the grounds that: (1)
the presidential exercise of legislative power was a violation of the principle of separation
of powers; (2) the law impaired the obligation of contracts; and (3) the decree violated
the equal protection clause. The motion for reconsideration of this decision having been
denied, the present petition was filed.:
GR No. 84132-33.
December 10, 1990
NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs.
PHILIPPINE VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO
QUILING, in his capacity as Deputy Sheriff of Calamba, Laguna, Respondents.
The petition was originally assigned to the Third Division of this Court but because of the
constitutional questions involved it was transferred to the Court en banc. On August 30,
1988, the Court granted the petitioner's prayer for a temporary restraining order and
instructed the respondents to cease and desist from conducting a public auction sale of
the lands in question. After the Solicitor General and the private respondent had filed
their comments and the petitioners their reply, the Court gave due course to the petition
and ordered the parties to file simultaneous memoranda. Upon compliance by the
parties, the case was deemed submitted.
This case involves the constitutionality of a presidential decree which, like all other
issuances of President Marcos during his regime, was at that time regarded as
sacrosanct. It is only now, in a freer atmosphere, that his acts are being tested by the
touchstone of the fundamental law that even then was supposed to limit presidential
action.
The petitioners contend that the private respondent is now estopped from contesting the
validity of the decree. In support of this contention, it cites the recent case of Mendoza v.
Agrix Marketing, Inc., 1 where the constitutionality of Pres. Decree No. 1717 was also
raised but not resolved. The Court, after noting that the petitioners had already filed their
claims with the AGRIX Claims Committee created by the decree, had simply dismissed
the petition on the ground of estoppel.
The particular enactment in question is Pres. Decree No. 1717, which ordered the
rehabilitation of the Agrix Group of Companies to be administered mainly by the National
Development Company. The law outlined the procedure for filing claims against the Agrix
companies and created a Claims Committee to process these claims. Especially relevant
to this case, and noted at the outset, is Sec. 4(1) thereof providing that "all mortgages
and other liens presently attaching to any of the assets of the dissolved corporations are
hereby extinguished."
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent
Philippine Veterans Bank a real estate mortgage dated July 7, 1978, over three (3)
parcels of land situated in Los Baos, Laguna. During the existence of the mortgage,
AGRIX went bankrupt. It was for the expressed purpose of salvaging this and the other
Agrix companies that the aforementioned decree was issued by President Marcos.
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee
for the payment of its loan credit. In the meantime, the New Agrix, Inc. and the National
Development Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed a
petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the
mortgage lien in favor of the private respondent. For its part, the private respondent took
steps to extrajudicially foreclose the mortgage, prompting the petitioners to file a second
case with the same court to stop the foreclosure. The two cases were consolidated.
The petitioners stress that in the case at bar the private respondent also invoked the
provisions of Pres. Decree No. 1717 by filing a claim with the AGRIX Claims Committee.
Failing to get results, it sought to foreclose the real estate mortgage executed by AGRIX
in its favor, which had been extinguished by the decree. It was only when the petitioners
challenged the foreclosure on the basis of Sec. 4 (1) of the decree, that the private
respondent attacked the validity of the provision. At that stage, however, consistent with
Mendoza, the private respondent was already estopped from questioning the
constitutionality of the decree.
The Court does not agree that the principle of estoppel is applicable.
It is not denied that the private respondent did file a claim with the AGRIX Claims
Committee pursuant to this decree. It must be noted, however, that this was done in
1980, when President Marcos was the absolute ruler of this country and his decrees
were the absolute law. Any judicial challenge to them would have been futile, not to say
foolhardy. The private respondent, no less than the rest of the nation, was aware of that
reality and knew it had no choice under the circumstances but to conform.: nad
It is true that there were a few venturesome souls who dared to question the dictator's
decisions before the courts of justice then. The record will show, however, that not a
single act or issuance of President Marcos was ever declared unconstitutional, not even
by the highest court, as long as he was in power. To rule now that the private respondent
14
the private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the
small investors," who would be prejudiced if the corporation were not to be assisted.
However, the record does not state how many there are of such investors, and who they
are, and why they are being preferred to the private respondent and other creditors of
AGRIX with vested property rights
The public interest supposedly involved is not identified or explained. It has not been
shown that by the creation of the New Agrix, Inc. and the extinction of the property rights
of the creditors of AGRIX, the interests of the public as a whole, as distinguished from
those of a particular class, would be promoted or protected. The indispensable link to the
welfare of the greater number has not been established. On the contrary, it would appear
that the decree was issued only to favor a special group of investors who, for reasons not
given, have been preferred to the legitimate creditors of AGRIX.
Assuming there is a valid public interest involved, the Court still finds that the means
employed to rehabilitate AGRIX fall far short of the requirement that they shall not be
unduly oppressive. The oppressiveness is patent on the face of the decree. The right to
property in all mortgages, liens, interests, penalties and charges owing to the creditors of
AGRIX is arbitrarily destroyed. No consideration is paid for the extinction of the mortgage
rights. The accrued interests and other charges are simply rejected by the decree. The
right to property is dissolved by legislative fiat without regard to the private interest
violated and, worse, in favor of another private interest.
A mortgage lien is a property right derived from contract and so comes under the
protection of the Bill of Rights. So do interests on loans, as well as penalties and
charges, which are also vested rights once they accrue. Private property cannot simply
be taken by law from one person and given to another without compensation and any
known public purpose. This is plain arbitrariness and is not permitted under the
Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing the
mortgage and other liens, the decree lumps the secured creditors with the unsecured
creditors and places them on the same level in the prosecution of their respective claims.
In this respect, all of them are considered unsecured creditors. The only concession
given to the secured creditors is that their loans are allowed to earn interest from the
date of the decree, but that still does not justify the cancellation of the interests earned
before that date. Such interests, whether due to the secured or the unsecured creditors,
are all extinguished by the decree. Even assuming such cancellation to be valid, we still
cannot see why all kinds of creditors, regardless of security, are treated alike.
Under the equal protection clause, all persons or things similarly situated must be treated
alike, both in the privileges conferred and the obligations imposed. Conversely, all
persons or things differently situated should be treated differently. In the case at bar,
persons differently situated are similarly treated, in disregard of the principle that there
should be equality only among equals.- nad
15
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police
power, not being in conformity with the traditional requirements of a lawful subject and a
lawful method. The extinction of the mortgage and other liens and of the interest and
other charges pertaining to the legitimate creditors of AGRIX constitutes taking without
due process of law, and this is compounded by the reduction of the secured creditors to
the category of unsecured creditors in violation of the equal protection clause. Moreover,
the new corporation, being neither owned nor controlled by the Government, should have
been created only by general and not special law. And insofar as the decree also
interferes with purely private agreements without any demonstrated connection with the
public interest, there is likewise an impairment of the obligation of the contract.
With the above pronouncements, we feel there is no more need to rule on the authority
of President Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of
the 1973 Constitution. Even if he had such authority, the decree must fall just the same
because of its violation of the Bill of Rights.
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared
UNCONSTITUTIONAL. The temporary restraining order dated August 30, 1988, is
LIFTED. Costs against the petitioners.
SO ORDERED.
G.R. No. 169752
September 25, 2007
PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS vs.
COMMISSION ON AUDIT, DIR. RODULFO J. ARIESGA (in his official capacity as
Director of the Commission on Audit), MS. MERLE M. VALENTIN and MS. SUSAN
GUARDIAN (in their official capacities as Team Leader and Team Member,
respectively, of the audit Team of the Commission on Audit)
Before the Court is a special civil action for Certiorari and Prohibition under Rule 65 of
the Rules of Court, in relation to Section 2 of Rule 64, filed by the petitioner assailing
Office Order No. 2005-0211 dated September 14, 2005 issued by the respondents which
constituted the audit team, as well as its September 23, 2005 Letter 2 informing the
petitioner that respondents audit team shall conduct an audit survey on the petitioner for
a detailed audit of its accounts, operations, and financial transactions. No temporary
restraining order was issued.
The petitioner was incorporated as a juridical entity over one hundred years ago by virtue
of Act No. 1285, enacted on January 19, 1905, by the Philippine Commission. The
petitioner, at the time it was created, was composed of animal aficionados and animal
propagandists. The objects of the petitioner, as stated in Section 2 of its charter, shall be
to enforce laws relating to cruelty inflicted upon animals or the protection of animals in
the Philippine Islands, and generally, to do and perform all things which may tend in any
way to alleviate the suffering of animals and promote their welfare. 3
16
authority to denounce to regular peace officers any violation of the laws enacted for the
prevention of cruelty to animals and the protection of animals and to cooperate with said
peace officers in the prosecution of transgressors of such laws.
Sec. 2. The full amount of the fines collected for violation of the laws against cruelty to
animals and for the protection of animals, shall accrue to the general fund of the
Municipality where the offense was committed.
Sec. 3. This Act shall take effect upon its approval.
Approved, November 8, 1936. (Emphasis supplied)
SEC. 4. The said society is authorized to appoint not to exceed five agents in the City of
Manila, and not to exceed two in each of the provinces of the Philippine Islands who
shall have all the power and authority of a police officer to make arrests for violation of
the laws enacted for the prevention of cruelty to animals and the protection of animals,
and to serve any process in connection with the execution of such laws; and in addition
thereto, all the police force of the Philippine Islands, wherever organized, shall, as
occasion requires, assist said society, its members or agents, in the enforcement of all
such laws.
Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.)
No. 63 dated November 12, 1936, portions of which provide:
SEC. 5. One-half of all the fines imposed and collected through the efforts of said
society, its members or its agents, for violations of the laws enacted for the prevention of
cruelty to animals and for their protection, shall belong to said society and shall be used
to promote its objects.
xxxx
(emphasis supplied)
Subsequently, however, the power to make arrests as well as the privilege to retain a
portion of the fines collected for violation of animal-related laws were recalled by virtue of
Commonwealth Act (C.A.) No. 148,4 which reads, in its entirety, thus:
Be it enacted by the National Assembly of the Philippines:
Section 1. Section four of Act Numbered Twelve hundred and eighty-five as amended by
Act Numbered Thirty five hundred and forty-eight, is hereby further amended so as to
read as follows:
Sec. 4. The said society is authorized to appoint not to exceed ten agents in the City of
Manila, and not to exceed one in each municipality of the Philippines who shall have the
Whereas, during the first regular session of the National Assembly, Commonwealth Act
Numbered One Hundred Forty Eight was enacted depriving the agents of the Society for
the Prevention of Cruelty to Animals of their power to arrest persons who have violated
the laws prohibiting cruelty to animals thereby correcting a serious defect in one of the
laws existing in our statute books.
Whereas, the cruel treatment of animals is an offense against the State, penalized under
our statutes, which the Government is duty bound to enforce;
Acting on the said request, the General Counsel of respondent COA, in a Memorandum
dated July 13, 2004,9affirmed her earlier opinion that the petitioner was a government
entity that was subject to the audit jurisdiction of respondent COA. In a letter dated
September 14, 2004, the respondent COA informed the petitioner of the result of the reevaluation, maintaining its position that the petitioner was subject to its audit jurisdiction,
and requested an initial conference with the respondents.
In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA
Assistant Commissioner Juanito Espino, Corporate Government Sector, that the audit
survey was not conducted due to the refusal of the petitioner because the latter
maintained that it was a private corporation.
Petitioner received on September 27, 2005 the subject COA Office Order 2005-021
dated September 14, 2005 and the COA Letter dated September 23, 2005.
Hence, herein Petition on the following grounds:
A.
b. That Executive Order No. 63, issued during the Commonwealth period,
effectively deprived the petitioner of its power to make arrests, and that the
petitioner lost its operational funding, underscore the fact that it exercises no
governmental function. In fine, the government itself, by its overt acts, confirmed
petitioners status as a private juridical entity.
The COA General Counsel issued a Memorandum 6 dated May 6, 2004, asserting that the
petitioner was subject to its audit authority. In a letter dated May 17, 2004, 7 respondent
COA informed the petitioner of the result of the evaluation, furnishing it with a copy of
said Memorandum dated May 6, 2004 of the General Counsel.
Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated
May 19, 2004,8 insisting that it was a private domestic corporation.
B.
The essential question before this Court is whether the petitioner qualifies as a
government agency that may be subject to audit by respondent COA.
Petitioner argues: first, even though it was created by special legislation in 1905 as there
was no general law then existing under which it may be organized or incorporated, it
exercises no governmental functions because these have been revoked by C.A. No. 148
and E.O. No. 63; second, nowhere in its charter is it indicated that it is a public
corporation, unlike, for instance, C.A. No. 111 which created the Boy Scouts of the
Philippines, defined its powers and purposes, and specifically stated that it was "An Act
to Create a Public Corporation" in which, even as amended by Presidential Decree No.
460, the law still adverted to the Boy Scouts of the Philippines as a "public corporation,"
18
1998," designates the petitioner as a member of its Committee on Animal Welfare which
is attached to the Department of Agriculture.
In view of the phrase "One-half of all the fines imposed and collected through the efforts
of said society," the Court, in a Resolution dated January 30, 2007, required the Office of
the Solicitor General (OSG) and the parties to comment on: a) petitioner's authority to
impose fines and the validity of the provisions of Act No. 1285 and Commonwealth Act
No. 148 considering that there are no standard measures provided for in the aforecited
laws as to the manner of implementation, the specific violations of the law, the person/s
authorized to impose fine and in what amount; and, b) the effect of the 1935 and 1987
Constitutions on whether petitioner continues to exist or should organize as a private
corporation under the Corporation Code, B.P. Blg. 68 as amended.
Petitioner and the OSG filed their respective Comments. Respondents filed a
Manifestation stating that since they were being represented by the OSG which filed its
Comment, they opted to dispense with the filing of a separate one and adopt for the
purpose that of the OSG.
The petitioner avers that it does not have the authority to impose fines for violation of
animal welfare laws; it only enjoyed the privilege of sharing in the fines imposed and
collected from its efforts in the enforcement of animal welfare laws; such privilege,
however, was subsequently abolished by C.A. No. 148; that it continues to exist as a
private corporation since it was created by the Philippine Commission before the
effectivity of the Corporation law, Act No. 1459; and the 1935 and 1987 Constitutions.
The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the
authority to impose fines for violation of laws 12 relating to the prevention of cruelty to
animals and the protection of animals; that even prior to the amendment of Act No. 1285,
petitioner was only entitled to share in the fines imposed; C.A. No. 148 abolished that
privilege to share in the fines collected; that petitioner is a public corporation and has
continued to exist since Act No. 1285; petitioner was not repealed by the 1935 and 1987
Constitutions which contain transitory provisions maintaining all laws issued not
inconsistent therewith until amended, modified or repealed.
The petition is impressed with merit.
The arguments of the parties, interlaced as they are, can be disposed of in five points.
First, the Court agrees with the petitioner that the "charter test" cannot be applied.
19
statutes are to be construed as having only a prospective operation, unless the purpose
and intention of the legislature to give them a retrospective effect is expressly declared or
is necessarily implied from the language used. In case of doubt, the doubt must be
resolved against the retrospective effect.17
There are a few exceptions. Statutes can be given retroactive effect in the following
cases: (1) when the law itself so expressly provides; (2) in case of remedial statutes; (3)
in case of curative statutes; (4) in case of laws interpreting others; and (5) in case of laws
creating new rights.18 None of the exceptions is present in the instant case.
The general principle of prospectivity of the law likewise applies to Act No. 1459,
otherwise known as the Corporation Law, which had been enacted by virtue of the
plenary powers of the Philippine Commission on March 1, 1906, a little over a year after
January 19, 1905, the time the petitioner emerged as a juridical entity. Even the
Corporation Law respects the rights and powers of juridical entities organized
beforehand, viz:
SEC. 75. Any corporation or sociedad anonima formed, organized, and existing under
the laws of the Philippine Islands and lawfully transacting business in the Philippine
Islands on the date of the passage of this Act, shall be subject to the provisions hereof so
far as such provisions may be applicable and shall be entitled at its optioneither to
continue business as such corporation or to reform and organize under and by virtue of
the provisions of this Act, transferring all corporate interests to the new corporation
which, if a stock corporation, is authorized to issue its shares of stock at par to the
stockholders or members of the old corporation according to their interests. (Emphasis
supplied).
As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory
provisions maintaining all laws issued not inconsistent therewith until amended, modified
or repealed.19
In a legal regime where the charter test doctrine cannot be applied, the mere fact that a
corporation has been created by virtue of a special law does not necessarily qualify it as
a public corporation.
What then is the nature of the petitioner as a corporate entity? What legal regime
governs its rights, powers, and duties?
20
Time and again the Court must caution even the most brilliant scholars of the law and all
constitutional historians on the danger of imposing legal concepts of a later date on facts
of an earlier date.20
Jose Robles Lahesa, Josefina R. de Luzuriaga, and such other persons as may be
associated with them in conformity with this act, and their successors, are hereby
constituted and created a body politic and corporate at law, under the name and style of
"The Philippines Society for the Prevention of Cruelty to Animals."
As incorporated by this Act, said society shall have the power to add to its organization
such and as many members as it desires, to provide for and choose such officers as it
may deem advisable, and in such manner as it may wish, and to remove members as it
shall provide.
It shall have the right to sue and be sued, to use a common seal, to receive legacies and
donations, to conduct social enterprises for the purpose of obtaining funds, to levy dues
upon its members and provide for their collection to hold real and personal estate such
as may be necessary for the accomplishment of the purposes of the society, and to
adopt such by-laws for its government as may not be inconsistent with law or this charter.
xxxx
The amendments introduced by C.A. No. 148 made it clear that the petitioner was a
private corporation and not an agency of the government. This was evident in Executive
Order No. 63, issued by then President of the Philippines Manuel L. Quezon, declaring
that the revocation of the powers of the petitioner to appoint agents with powers of arrest
"corrected a serious defect" in one of the laws existing in the statute books.
Sec. 3. The said society shall be operated under the direction of its officers, in
accordance with its by-laws in force, and this charter.
xxxx
As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to
be given retroactive effect, thereby freeing all doubt as to which class of corporations the
petitioner belongs, that is, it is a quasi-public corporation, a kind of private domestic
corporation, which the Court will further elaborate on under the fourth point.
Sec. 6. The principal office of the society shall be kept in the city of Manila, and the
society shall have full power to locate and establish branch offices of the society
wherever it may deem advisable in the Philippine Islands, such branch offices to be
under the supervision and control of the principal office.
Third. The employees of the petitioner are registered and covered by the Social Security
System at the latters initiative, and not through the Government Service Insurance
System, which should be the case if the employees are considered government
employees. This is another indication of petitioners nature as a private entity. Section 1
of Republic Act No. 1161, as amended by Republic Act No. 8282, otherwise known as
the Social Security Act of 1997, defines the employer:
Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker, Mary S.
Fergusson, Amasa S. Crossfield, Spencer Cosby, Sealy B. Rossiter, Richard P. Strong,
Employer Any person, natural or juridical, domestic or foreign, who carries on in the
Philippines any trade, business, industry, undertaking or activity of any kind and uses the
services of another person who is under his orders as regards the employment, except
the Government and any of its political subdivisions, branches or instrumentalities,
including corporations owned or controlled by the Government: Provided, That a self-
21
Authorities are of the view that the purpose alone of the corporation cannot be taken as a
safe guide, for the fact is that almost all corporations are nowadays created to promote
the interest, good, or convenience of the public. A bank, for example, is a private
corporation; yet, it is created for a public benefit. Private schools and universities are
likewise private corporations; and yet, they are rendering public service. Private hospitals
and wards are charged with heavy social responsibilities. More so with all common
carriers. On the other hand, there may exist a public corporation even if it is endowed
with gifts or donations from private individuals.
The true criterion, therefore, to determine whether a corporation is public or private is
found in the totality of the relation of the corporation to the State. If the corporation is
created by the State as the latters own agency or instrumentality to help it in carrying out
its governmental functions, then that corporation is considered public; otherwise, it is
private. Applying the above test, provinces, chartered cities, and barangays can best
exemplify public corporations. They are created by the State as its own device and
agency for the accomplishment of parts of its own public works.25
It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the
petitioner to arrest offenders of animal welfare laws and the power to serve processes in
connection therewith.
Fifth. The respondents argue that since the charter of the petitioner requires the latter to
render periodic reports to the Civil Governor, whose functions have been inherited by the
President, the petitioner is, therefore, a government instrumentality.
This contention is inconclusive. By virtue of the fiction that all corporations owe their very
existence and powers to the State, the reportorial requirement is applicable to all
corporations of whatever nature, whether they are public, quasi-public, or private
corporationsas creatures of the State, there is a reserved right in the legislature to
investigate the activities of a corporation to determine whether it acted within its powers.
In other words, the reportorial requirement is the principal means by which the State may
see to it that its creature acted according to the powers and functions conferred upon it.
These principles were extensively discussed in Bataan Shipyard & Engineering Co., Inc.
v. Presidential Commission on Good Government.26 Here, the Court, in holding that the
subject corporation could not invoke the right against self-incrimination whenever the
State demanded the production of its corporate books and papers, extensively discussed
the purpose of reportorial requirements, viz:
x x x 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[d] 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.)27
22
TAXABLE
YEAR
A7-18308346
1997-2001
A7-18305224
1992-2001
TAX DUE
243,522,855.00
113,582,466.00
PENALTY
123,351,728.18
71,159,414.98
TOTAL
A7-19100843
1992-2001
54,454,800.00
34,115,932.20
88,570,732.20
A7-19100140
1992-2001
1,632,960.00
1,023,049.44
2,656,009.44
A7-19100139
1992-2001
6,068,448.00
3,801,882.85
9,870,330.85
A7-18305409
1992-2001
59,129,520.00
37,044,644.28
96,174,164.28
A7-18305410
1992-2001
20,619,720.00
12,918,254.58
33,537,974.58
A7-18305413
1992-2001
7,908,240.00
4,954,512.36
12,862,752.36
A7-18305412
1992-2001
18,441,981.20
11,553,901.13
29,995,882.33
A7-18305411
1992-2001
109,946,736.00
68,881,630.13
178,828,366.13
A7-18305245
1992-2001
7,440,000.00
4,661,160.00
12,101,160.00
P642,747,726.20
P373,466,110.13
P1,016,213,836.33
GRAND TOTAL
On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy
and warrants of levy for the NAIA Pasay properties. MIAA received the notices and
warrants of levy on 28 August 2001. Thereafter, the City Mayor of Pasay threatened to
sell at public auction the NAIA Pasay properties if the delinquent real property taxes
remain unpaid.
366,874,583.18
On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and
injunction with prayer for preliminary injunction or temporary restraining order. The
184,741,880.98 petition sought to enjoin the City of Pasay from imposing real property taxes on, levying
against, and auctioning for public sale the NAIA Pasay properties.
23
(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;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit or religious cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used
by local water districts and government owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under
R.A. No. 6938; and
The Issue
The issue raised in this petition is whether the NAIA Pasay properties of MIAA are
exempt from real property tax.
The Courts Ruling
The petition is meritorious.
In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited
Sections 193 and 234 of the Local Government Code which read:
SECTION 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 the
effectivity of this Code.
SECTION 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:
(e) Machinery and equipment used for pollution control and environment
protection.
Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including all
government-owned or controlled corporations are hereby withdrawn upon the effectivity
of this Code.
The Court of Appeals held that as a government-owned corporation, MIAAs tax
exemption under Section 21 of EO 903 has already been withdrawn upon the effectivity
of the Local Government Code in 1992.
In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA case), this Court
already resolved the issue of whether the airport lands and buildings of MIAA are exempt
from tax under existing laws. The 2006 MIAA case originated from a petition for
prohibition and injunction which MIAA filed with the Court of Appeals, seeking to restrain
the City of Paraaque from imposing real property tax on, levying against, and auctioning
for public sale the airport lands and buildings located in Paraaque City. The only
difference between the 2006 MIAA case and this case is that the 2006 MIAA case
involved airport lands and buildings located in Paraaque City while this case involved
airport lands and buildings located in Pasay City. The 2006 MIAA case and this case
raised the same threshold issue: whether the local government can impose real property
24
25
Corporation Law, insofar as these powers are not inconsistent with the provisions of this
Executive Order."9
Section 3 of the Corporation Code 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.
xxx
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. 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?
Furthermore, the airport lands and buildings of MIAA are properties of public dominion
intended for public use, and as such are exempt from real property tax under Section
234(a) of the Local Government Code. However, under the same provision, if MIAA
leases its real property to a taxable person, the specific property leased becomes subject
to real property tax.12 In this case, only those portions of the NAIA Pasay properties which
are leased to taxable persons like private parties are subject to real property tax by the
City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October
2002 and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP
No. 67416. We DECLARE the NAIA Pasay properties of the Manila International Airport
Authority EXEMPT from real property tax imposed by the City of Pasay. We
declare VOID all the real property tax assessments, including the final notices of real
property tax delinquencies, issued by the City of Pasay on the NAIA Pasay properties of
the Manila International Airport Authority, except for the portions that the Manila
International Airport Authority has leased to private parties.
No costs.
SO ORDERED.
G.R. No. 177131
BSP vs. COA
June 7, 2011
The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines
(BSP) is the subject matter of this controversy that reached us via petition for
prohibition1 filed by the BSP under Rule 65 of the 1997 Rules of Court. In this petition,
the BSP seeks that the COA be prohibited from implementing its June 18, 2002
26
1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs.
National Labor Relations Commission, et al. (G.R. No. 80767) classifying the
BSP as a government-controlled corporation is anchored on the "substantial
Government participation" in the National Executive Board of the BSP. It is to be
noted that the case was decided when the BSP Charter is defined by
Commonwealth Act No. 111 as amended by Presidential Decree 460.
However, may we humbly refer you to Republic Act No. 7278 which amended the BSPs
charter after the cited case was decided. The most salient of all amendments in RA No.
7278 is the alteration of the composition of the National Executive Board of the BSP.
The said RA virtually eliminated the "substantial government participation" in the National
Executive Board by removing: (i) the President of the Philippines and executive
secretaries, with the exception of the Secretary of Education, as members thereof; and
(ii) the appointment and confirmation power of the President of the Philippines, as Chief
Scout, over the members of the said Board.
The BSP believes that the cited case has been superseded by RA 7278. Thereby
weakening the cases conclusion that the BSP is a government-controlled corporation
(sic). The 1987 Administrative Code itself, of which the BSP vs. NLRC relied on for some
terms, defines government-owned and controlled corporations as agencies organized as
stock or non-stock corporations which the BSP, under its present charter, is not.
Also, the Government, like in other GOCCs, does not have funds invested in the BSP.
What RA 7278 only provides is that the Government or any of its subdivisions, branches,
offices, agencies and instrumentalities can from time to time donate and contribute funds
to the BSP.
xxxx
Also the BSP respectfully believes that the BSP is not "appropriately regarded as a
government instrumentality under the 1987 Administrative Code" as stated in the COA
resolution. As defined by Section 2(10) of the said code, 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."
The BSP is not an entity administering special funds. It is not even included in the DECS
National Budget. x x x
27
DECS. Being an attached agency, however, it does not change its nature as a
government-controlled corporation with original charter and, necessarily, subject to COA
audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides that
COA shall have the power, authority, and duty to examine, audit and settle all accounts
pertaining to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies or instrumentalities, including government-owned or controlled
corporations with original charters.14
Based on the Memorandum of the COA General Counsel, Director Sunico wrote:
In view of the points clarified by said Memorandum upholding COA Resolution No. 99011, we have to comply with the provisions of the latter, among which is to conduct an
annual financial audit of the Boy Scouts of the Philippines. 15
In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I,
the COA informed the BSP that a preliminary survey of its organizational structure,
operations and accounting system/records shall be conducted on November 21 to 22,
2000.16
Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP then filed a
Petition for Review with Prayer for Preliminary Injunction and/or Temporary Restraining
Order before the COA. This was denied by the COA in its questioned Decision, which
held that the BSP is under its audit jurisdiction. The BSP moved for reconsideration but
this was likewise denied under its questioned Resolution. 17
Analysis of the said case disclosed that the substantial government participation is only
one (1) of the three (3) grounds relied upon by the Court in the resolution of the case.
Other considerations include the character of the BSPs purposes and functions which
has a public aspect and the statutory designation of the BSP as a "public corporation".
These grounds have not been deleted by R.A. No. 7278. On the contrary, these were
strengthened as evidenced by the amendment made relative to BSPs purposes stated in
Section 3 of R.A. No. 7278.
This led to the filing by the BSP of this petition for prohibition with preliminary injunction
and temporary restraining order against the COA.
The Issue
As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under
the COAs audit jurisdiction.
The BSP contends that Boy Scouts of the Philippines v. National Labor Relations
Commission is inapplicable for purposes of determining the audit jurisdiction of the COA
as the issue therein was the jurisdiction of the National Labor Relations Commission over
a case for illegal dismissal and unfair labor practice filed by certain BSP employees. 18
28
alleged, in its Resolution No. 99-011 or in the Memorandum of its General Counsel, that
BSP received, receives or continues to receive assets and funds from any agency of the
government. The foregoing simply point to the private nature of the funds and assets of
petitioner BSP.
xxxx
As stated in petitioners third argument, BSPs assets and funds were never acquired
from the government. Its operations are not in any way financed by the government, as
BSP has never been included in any appropriations act for the government. Neither has
the government invested funds with BSP. BSP, has not been, at any time, a user of
government property or funds; nor have properties of the government been held in trust
by BSP. This is precisely the reason why, until this time, the COA has not attempted to
subject BSP to its audit jurisdiction. x x x.25
To summarize its other arguments, the BSP contends that it is not a government-owned
or controlled corporation; neither is it an instrumentality, agency, or subdivision of the
government.
In its Comment,26 the COA argues as follows:
1. The BSP is a public corporation created under Commonwealth Act No. 111
dated October 31, 1936, and whose functions relate to the fostering of public
virtues of citizenship and patriotism and the general improvement of the moral
spirit and fiber of the youth. The manner of creation and the purpose for which
the BSP was created indubitably prove that it is a government agency.
2. Being a government agency, the funds and property owned or held in trust by
the BSP are subject to the audit authority of respondent Commission on Audit
pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.
3. Republic Act No. 7278 did not change the character of the BSP as a
government-owned or controlled corporation and government instrumentality.27
The COA maintains that the functions of the BSP that include, among others, the
teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are
undeniably sovereign functions enshrined under the Constitution and discussed by the
Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The COA
contends that any attempt to classify the BSP as a private corporation would be
incomprehensible since no less than the law which created it had designated it as a
29
The COA points out that the government is not precluded by law from extending financial
support to the BSP and adding to its funds, and that "as a government instrumentality
which continues to perform a vital function imbued with public interest and reflective of
the governments policy to stimulate patriotic sentiments and love of country, the BSPs
funds from whatever source are public funds, and can be used solely for public purpose
in pursuance of the provisions of Republic Act No. [7278]."32
The COA claims that the fact that it has not yet audited the BSPs funds may not bar the
subsequent exercise of its audit jurisdiction.
The BSP filed its Reply33 on August 29, 2007 maintaining that its statutory designation as
a "public corporation" and the public character of its purpose and functions are not
determinative of the COAs audit jurisdiction; reiterating its stand that Boy Scouts of the
Philippines v. National Labor Relations Commission is not applicable anymore because
the aspect of government ownership and control has been removed by Republic Act No.
7278; and concluding that the funds and property that it either owned or held in trust are
not public funds and are not subject to the COAs audit jurisdiction.
Thereafter, considering the BSPs claim that it is a private corporation, this Court, in a
Resolution34 dated July 20, 2010, required the parties to file, within a period of twenty
(20) days from receipt of said Resolution, their respective comments on the issue of
whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is
constitutional.
In compliance with the Courts resolution, the parties filed their respective Comments.
In its Comment35 dated October 22, 2010, the COA argues that the constitutionality of
Commonwealth Act No. 111, as amended, is not determinative of the resolution of the
present controversy on the COAs audit jurisdiction over petitioner, and in fact, the
controversy may be resolved on other grounds; thus, the requisites before a judicial
inquiry may be made, as set forth in Commissioner of Internal Revenue v. Court of Tax
Appeals,36 have not been fully met. 37 Moreover, the COA maintains that behind every law
lies the presumption of constitutionality.38 The COA likewise argues that contrary to the
BSPs position, repeal of a law by implication is not favored. 39 Lastly, the COA claims that
there was no violation of Section 16, Article XII of the 1987 Constitution with the creation
or declaration of the BSP as a government corporation. Citing Philippine Society for the
Prevention of Cruelty to Animals v. Commission on Audit,40 the COA further alleges:
The true criterion, therefore, to determine whether a corporation is public or private is
found in the totality of the relation of the corporation to the State. If the corporation is
30
benefit from its creation are not its officers but its entire membership consisting of boys
being trained in scoutcraft all over the country; (iii) it caters to all boys who wish to join
the organization without any distinction; and (iv) it does not limit its membership to a
particular class or group of boys. Thus, the enactment of its charter confers no special
privilege to particular individuals, families, or groups; nor does it bring about the danger
of granting undue favors to certain groups to the prejudice of others or of the interest of
the country, which are the evils sought to be prevented by the constitutional provision
involved.50
Finally, the BSP states that the presumption of constitutionality of a legislative enactment
prevails absent any clear showing of its repugnancy to the Constitution. 51
The Ruling of the Court
After looking at the legislative history of its amended charter and carefully studying the
applicable laws and the arguments of both parties, we find that the BSP is a public
corporation and its funds are subject to the COAs audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled
"An Act to Create a Public Corporation to be Known as the Boy Scouts of the Philippines,
and to Define its Powers and Purposes" created the BSP as a "public corporation" to
serve the following public interest or purpose:
Sec. 3. The purpose of this corporation shall be to promote through organization and
cooperation with other agencies, the ability of boys to do useful things for themselves
and others, to train them in scoutcraft, and to inculcate in them patriotism, civic
consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
and moral values, using the method which are in common use by boy scouts.
Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act
No. 111 and provided substantial changes in the BSP organizational structure. Pertinent
provisions are quoted below:
Section II. Section 5 of the said Act is also amended to read as follows:
The governing body of the said corporation shall consist of a National Executive Board
composed of (a) the President of the Philippines or his representative; (b) the charter and
life members of the Boy Scouts of the Philippines; (c) the Chairman of the Board of
Trustees of the Philippine Scouting Foundation; (d) the Regional Chairman of the Scout
Regions of the Philippines; (e) the Secretary of Education and Culture, the Secretary of
31
"Sec. 3. The purpose of this corporation shall be to promote through organization and
cooperation with other agencies, the ability of boys to do useful things for themselves
and others, to train them in scoutcraft, and to inculcate in them patriotism, civic
consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
and moral values, using the method which are in common use by boy scouts."
Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and in
lieu thereof, Section 4 shall read as follows:
"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of
the Philippines."
Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby
amended to read as follows:
"Sec. 5. The governing body of the said corporation shall consist of a National Executive
Board, the members of which shall be Filipino citizens of good moral character. The
Board shall be composed of the following:
"(a) One (1) charter member of the Boy Scouts of the Philippines who shall be
elected by the members of the National Council at its meeting called for this
purpose;
"(b) The regional chairmen of the scout regions who shall be elected by the
representatives of all the local scout councils of the region during its meeting
called for this purpose: Provided, That a candidate for regional chairman need
not be the chairman of a local scout council;
"(c) The Secretary of Education, Culture and Sports;
"(d) The National President of the Girl Scouts of the Philippines;
"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be
elected by the senior scout delegates of the local scout councils to the scout
youth forums in their respective areas, in its meeting called for this purpose, to
represent the boy scout membership;
"(f) Twelve (12) regular members to be elected by the members of the National
Council in its meeting called for this purpose;
32
Partnerships and associations for private interest or purpose are governed by the
provisions of this Code concerning partnerships. (Emphasis and underscoring supplied.)
The purpose of the BSP as stated in its amended charter shows that it was created in
order to implement a State policy declared in Article II, Section 13 of the Constitution,
which reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES
xxxx
"Sec. 8. Any donation or contribution which from time to time may be made to the Boy
Scouts of the Philippines by the Government or any of its subdivisions, branches, offices,
agencies or instrumentalities or by a foreign government or by private, entities and
individuals shall be expended by the National Executive Board in pursuance of this Act.
The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and the
BSP, as presently constituted under Republic Act No. 7278, falls under the second
classification. Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
Section 13. The State recognizes the vital role of the youth in nation-building and shall
promote and protect their physical, moral, spiritual, intellectual, and social well-being. It
shall inculcate in the youth patriotism and nationalism, and encourage their involvement
in public and civic affairs.
Evidently, the BSP, which was created by a special law to serve a public purpose in
pursuit of a constitutional mandate, comes within the class of "public corporations"
defined by paragraph 2, Article 44 of the Civil Code and governed by the law which
creates it, pursuant to Article 45 of the same Code.
The BSPs Classification Under the Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact that, along
with the Girl Scouts of the Philippines, it is classified as an attached agency of the DECS
under Executive Order No. 292, or the Administrative Code of 1987, which states:
SEC. 20. Attached Agencies. The following agencies are hereby attached to the
Department:
xxxx
The BSP, which is a corporation created for a public interest or purpose, is subject to the
law creating it under Article 45 of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are
governed by the laws creating or recognizing them.
33
IV
SECTION 1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both domestic
and foreign markets. However, the State shall protect Filipino enterprises against unfair
foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged to
broaden the base of their ownership.
The scope and coverage of Section 16, Article XII of the Constitution can be seen from
the aforementioned declaration of state policies and goals which pertains to national
economy and patrimony and the interests of the people in economic development.
Section 16, Article XII deals with "the formation, organization, or regulation of private
corporations,"52 which should be done through a general law enacted by Congress,
provides for an exception, that is: if the corporation is government owned or controlled;
its creation is in the interest of the common good; and it meets the test of economic
viability. The rationale behind Article XII, Section 16 of the 1987 Constitution was
explained in Feliciano v. Commission on Audit,53 in the following manner:
The Constitution emphatically prohibits the creation of private corporations except by a
general law applicable to all citizens. The purpose of this constitutional provision is to
ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens. 54(Emphasis
added.)
It may be gleaned from the above discussion that Article XII, Section 16 bans the
creation of "private corporations" by special law. The said constitutional provision should
not be construed so as to prohibit the creation of public corporations or a corporate
agency or instrumentality of the government intended to serve a public interest or
purpose, which should not be measured on the basis of economic viability, but according
to the public interest or purpose it serves as envisioned by paragraph (2), of Article 44 of
the Civil Code and the pertinent provisions of the Administrative Code of 1987.
34
While the BSP may be seen to be a mixed type of entity, combining aspects of both
public and private entities, we believe that considering the character of its purposes and
its functions, the statutory designation of the BSP as "a public corporation" and the
substantial participation of the Government in the selection of members of the National
Executive Board of the BSP, the BSP, as presently constituted under its charter, is a
government-controlled corporation within the meaning of Article IX (B) (2) (1) of the
Constitution.
We are fortified in this conclusion when we note that the Administrative Code of 1987
designates the BSP as one of the attached agencies of the Department of Education,
Culture and Sports ("DECS"). An "agency of the Government" is defined as referring to
any of the various units of the Government including a department, bureau, office,
instrumentality, government-owned or -controlled corporation, or local government or
distinct unit therein. "Government instrumentality" is in turn defined in the 1987
Administrative Code in the following manner:
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. This term includes regulatory agencies,
chartered institutions and government-owned or controlled corporations.
We strongly disagree. Section 16, Article XII should not be construed so as to prohibit
Congress from creating public corporations. In fact, Congress has enacted numerous
laws creating public corporations or government agencies or instrumentalities vested
with corporate powers. Moreover, Section 16, Article XII, which relates to National
Economy and Patrimony, could not have tied the hands of Congress in creating public
corporations to serve any of the constitutional policies or objectives.
In his dissent, Justice Carpio contends that this ponente introduces "a totally different
species of corporation, which is neither a private corporation nor a government owned or
controlled corporation" and, in so doing, is missing the fact that the BSP, "which was
created as a non-stock, non-profit corporation, can only be either a private corporation or
a government owned or controlled corporation."
Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the
BSP, under its former charter, was regarded as both a government owned or controlled
corporation with original charter and a "public corporation." The said case pertinently
stated:
It thus appears that the BSP may be regarded as both a "government controlled
corporation with an original charter" and as an "instrumentality" of the Government within
the meaning of Article IX (B) (2) (1) of the Constitution. x x x. 55 (Emphases supplied.)
The existence of public or government corporate or juridical entities or chartered
institutions by legislative fiat distinct from private corporations and government owned or
controlled corporation is best exemplified by the 1987 Administrative Code cited above,
which we quote in part:
35
DECS pursuant to its Charter and the Administrative Code of 1987. It is not a private
corporation which is required to be owned or controlled by the government and be
economically viable to justify its existence under a special law.
xxxx
(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. This term includes regulatory agencies,
chartered institutions and government-owned or controlled corporations.
xxxx
The dissent of Justice Carpio also submits that by recognizing "a new class of public
corporation(s)" created by special charter that will not be subject to the test of economic
viability, the constitutional provision will be circumvented.
However, a review of the Record of the 1986 Constitutional Convention reveals the intent
of the framers of the highest law of our land to distinguish between government
corporations performing governmental functions and corporations involved in business or
proprietary functions:
(12) "Chartered institution" refers to any agency organized or operating under a special
charter, and vested by law with functions relating to specific constitutional policies or
objectives. This term includes the state universities and colleges and the monetary
authority of the State.
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. x x x
Assuming for the sake of argument that the BSP ceases to be owned or controlled by the
government because of reduction of the number of representatives of the government in
the BSP Board, it does not follow that it also ceases to be a government instrumentality
as it still retains all the characteristics of the latter as an attached agency of the DECS
under the Administrative Code. Vesting corporate powers to an attached agency or
instrumentality of the government is not constitutionally prohibited and is allowed by the
above-mentioned provisions of the Civil Code and the 1987 Administrative Code.
Economic Viability and Ownership and Control Tests Inapplicable to Public Corporations
As presently constituted, the BSP still remains an instrumentality of the national
government. It is a public corporation created by law for a public purpose, attached to the
MR. FOZ. Madam President, I support the proposal to insert "ECONOMIC VIABILITY" as
one of the grounds for organizing government corporations. x x x.
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. x x x.
xxxx
THE PRESIDENT. Commissioner Quesada is recognized.
MS. QUESADA. Madam President, may we be clarified by the committee on what is
meant by economic viability?
THE PRESIDENT. Please proceed.
36
MS. QUESADA. So, is the Commissioner saying then that the Filipinos will benefit more
if these government-controlled corporations were given to private hands, and that there
will be more goods and services that will be affordable and within the reach of the
ordinary citizens?
MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the formation
of a government corporation in accordance with a special charter given by Congress.
However, we are raising the standard a little bit so that, in the future, corporations
established by the government will meet the test of the common good but within that
framework we should also build a certain standard of economic viability.
MR. MONSOD. Yes, because it is also consistent with the economic philosophy that this
Commission approved that there should be minimum government participation and
intervention in the economy.
xxxx
MS. QUESDA. Sometimes this Commission would just refer to Congress to provide the
particular requirements when the government would get into corporations. But this time
around, we specifically mentioned economic viability. x x x.
MR. PADILLA. This is an inquiry to the committee. With regard to corporations created
by a special charter for government-owned or controlled corporations, will these be in the
pioneer fields or in places where the private enterprise does not or cannot enter? Or is
this so general that these government corporations can compete with private
corporations organized under a general law?
MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing that
amendment.
MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular
amendment jointly with Commissioner Foz. During the past three decades, there had
been a proliferation of government corporations, very few of which have succeeded, and
many of which are now earmarked by the Presidential Reorganization Commission for
liquidation because they failed the economic test. x x x.
xxxx
MS. QUESADA. But would not the Commissioner say that the reason why many of the
government-owned or controlled corporations failed to come up with the economic test is
due to the management of these corporations, and not the idea itself of government
corporations? It is a problem of efficiency and effectiveness of management of these
corporations which could be remedied, not by eliminating government corporations or the
idea of getting into state-owned corporations, but improving management which our
technocrats should be able to do, given the training and the experience.
37
amendments to its Charter under Presidential Decree No. 460. The BSP suffered from
low morale and decrease in number because the Secretaries of the different
departments in government who were too busy to attend the meetings of the BSPs
National Executive Board ("the Board") sent representatives who, as it turned out,
changed from meeting to meeting. Thus, the Scouting Councils established in the
provinces and cities were not in touch with what was happening on the national level, but
they were left to implement what was decided by the Board.58
A portion of the legislators discussion is quoted below to clearly show their intent:
HON. DEL MAR. x x x I need not mention to you the value and the tremendous good that
the Boy Scout Movement has done not only for the youth in particular but for the country
in general. And that is why, if we look around, our past and present national leaders,
prominent men in the various fields of endeavor, public servants in government offices,
and civic leaders in the communities all over the land, and not only in our country but all
over the world many if not most of them have at one time or another been beneficiaries
of the Scouting Movement. And so, it is along this line, Mr. Chairman, that we would like
to have the early approval of this measure if only to pay back what we owe much to the
Scouting Movement. Now, going to the meat of the matter, Mr. Chairman, if I may just
the Scouting Movement was enacted into law in October 31, 1936 under Commonwealth
Act No. 111. x x x [W]e were acknowledged as the third biggest scouting organization in
the world x x x. And to our mind, Mr. Chairman, this erratic growth and this decrease in
membership [number] is because of the bad policy measures that were enunciated with
the enactment or promulgation by the President before of Presidential Decree No. 460
which we feel is the culprit of the ills that is flagging the Boy Scout Movement today. And
so, this is specifically what we are attacking, Mr. Chairman, the disenfranchisement of
the National Council in the election of the national board. x x x. And so, this is what we
would like to be appraised of by the officers of the Boy [Scouts] of the Philippines whom
we are also confident, have the best interest of the Boy Scout Movement at heart and it
is in this spirit, Mr. Chairman, that we see no impediment towards working together, the
Boy Scout of the Philippines officers working together with the House of Representatives
in coming out with a measure that will put back the vigor and enthusiasm of the Boy
Scout Movement. x x x.59 (Emphasis ours.)
The following is another excerpt from the discussion on the House version of the bill, in
the Committee on Government Enterprises:
HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws that have
created the Boy Scouts of the Philippines did not provide for any direct government
support by way of appropriation from the national budget to support the activities of this
38
creating your charter, in effect, you have been given some sort of a franchise with this
movement.
xxxx
The ownership and control test is likewise irrelevant for a public corporation like the BSP.
To reiterate, the relationship of the BSP, an attached agency, to the government, through
the DECS, is defined in the Revised Administrative Code of 1987. The BSP meets the
minimum statutory requirement of an attached government agency as the DECS
Secretary sits at the BSP Board ex officio, thus facilitating the policy and program
coordination between the BSP and the DECS.
MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the
Philippines will be required to register with the SEC. If we are registered with the SEC,
there could be a danger of proliferation of scout organization. Anybody can organize and
then register with the SEC. If there will be a proliferation of this, then the organization will
lose control of the entire organization. Another disadvantage, Mr. Chairman, anybody can
file a complaint in the SEC against the Boy Scouts of the Philippines and the SEC may
suspend the operation or freeze the assets of the organization and hamper the operation
of the organization. I dont know, Mr. Chairman, how you look at it but there could be a
danger for anybody filing a complaint against the organization in the SEC and the SEC
might suspend the registration permit of the organization and we will not be able to
operate.
HON. AQUINO: Well, that I think would be a problem that will not be exclusive to
corporations registered with the SEC because even if you are government corporation,
court action may be taken against you in other judicial bodies because the SEC is simply
another quasi-judicial body. But, I think, the first point would be very interesting, the first
point that you raised. In effect, what you are saying is that with the legislative mandate
39
The sources of funds to maintain the BSP were identified before the House Committee
on Government Enterprises while the bill was being deliberated, and the pertinent portion
of the discussion is quoted below:
MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the
organization. First, Mr. Chairman, the Boy Scouts of the Philippines do not receive
annual allotment from the government. The organization has to raise its own funds
through fund drives and fund campaigns or fund raising activities. Aside from this, we
have some revenue producing projects in the organization that gives us funds to support
the operation. x x x From time to time, Mr. Chairman, when we have special activities we
request for assistance or financial assistance from government agencies, from private
business and corporations, but this is only during special activities that the Boy Scouts of
the Philippines would conduct during the year. Otherwise, we have to raise our own
funds to support the organization.62
The nature of the funds of the BSP and the COAs audit jurisdiction were likewise brought
up in said congressional deliberations, to wit:
40
August 27, 2009 by movant-intervenor Philippine National Red Cross (PNRC), and the
latters Manifestation and Motion to Admit Attached Position Paper 3 filed on December
23, 2009.
In the Decision,4 the Court held that respondent did not forfeit his seat in the Senate
when he accepted the chairmanship of the PNRC Board of Governors, as "the office of
the PNRC Chairman is not a government office or an office in a government-owned or
controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987
Constitution."5 The Decision, however, further declared void the PNRC Charter "insofar
as it creates the PNRC as a private corporation" and consequently ruled that "the PNRC
should incorporate under the Corporation Code and register with the Securities and
Exchange Commission if it wants to be a private corporation." 6 The dispositive portion of
the Decision reads as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red
Cross is not a government office or an office in a government-owned or controlled
corporation for purposes of the prohibition in Section 13, Article VI of the 1987
Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13
of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended
by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC
as a private corporation or grant it corporate powers. 7
In his Motion for Clarification and/or for Reconsideration, respondent raises the following
grounds: (1) as the issue of constitutionality of Republic Act (R.A.) No. 95 was not raised
by the parties, the Court went beyond the case in deciding such issue; and (2) as the
Court decided that Petitioners did not have standing to file the instant Petition, the
pronouncement of the Court on the validity of R.A. No. 95 should be considered obiter.8
Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore, it was
unnecessary for the Court to decide on that question. Respondent cites Laurel v.
Garcia,9 wherein the Court said that it "will not pass upon a constitutional question
although properly presented by the record if the case can be disposed of on some other
ground" and goes on to claim that since this Court, in the Decision, disposed of the
petition on some other ground, i.e., lack of standing of petitioners, there was no need for
it to delve into the validity of R.A. No. 95, and the rest of the judgment should be deemed
obiter.
In its Motion for Partial Reconsideration, PNRC prays that the Court sustain the
constitutionality of its Charter on the following grounds:
41
This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is
a well-established rule that a court should not pass upon a constitutional question and
decide a law to be unconstitutional or invalid, unless such question is raised by the
parties and that when it is raised, if the record also presents some other ground upon
which the court may [rest] its judgment, that course will be adopted and the constitutional
question will be left for consideration until such question will be unavoidable. 13
Under the rule quoted above, therefore, this Court should not have declared void certain
sections of R.A. No. 95, as amended by Presidential Decree (P.D.) Nos. 1264 and 1643,
the PNRC Charter. Instead, the Court should have exercised judicial restraint on this
matter, especially since there was some other ground upon which the Court could have
based its judgment. Furthermore, the PNRC, the entity most adversely affected by this
declaration of unconstitutionality, which was not even originally a party to this case, was
being compelled, as a consequence of the Decision, to suddenly reorganize and
incorporate under the Corporation Code, after more than sixty (60) years of existence in
this country.
Its existence as a chartered corporation remained unchallenged on ground of
unconstitutionality notwithstanding that R.A. No. 95 was enacted on March 22, 1947
during the effectivity of the 1935 Constitution, which provided for a proscription against
the creation of private corporations by special law, to wit:
SEC. 7. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned
and controlled by the Government or any subdivision or instrumentality thereof. (Art. XIV,
1935 Constitution.)
Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution and Article
XII, Section 16 of the 1987 Constitution. The latter reads:
SECTION 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.
Since its enactment, the PNRC Charter was amended several times, particularly on June
11, 1953, August 16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A.
No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643, respectively. The passage of
several laws relating to the PNRCs corporate existence notwithstanding the effectivity of
the constitutional proscription on the creation of private corporations by law, is a
42
WHEREAS, there existed in the Philippines since 1917 a chapter of the American
National Red Cross which was terminated in view of the independence of the Philippines;
and
WHEREAS, the volunteer organizations established in other countries which have
ratified or adhered to the Geneva Conventions assist in promoting the health and welfare
of their people in peace and in war, and through their mutual assistance and cooperation
directly and through their international organizations promote better understanding and
sympathy among the people of the world;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue
of the powers vested in me by the Constitution as Commander-in-Chief of all the Armed
Forces of the Philippines and pursuant to Proclamation No. 1081 dated September 21,
1972, and General Order No. 1 dated September 22, 1972, do hereby decree and order
that Republic Act No. 95, Charter of the Philippine National Red Cross (PNRC) as
amended by Republic Acts No. 855 and 6373, be further amended as follows:
The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and further
amended by P.D. Nos. 1264 and 1643, show the historical background and legal basis of
the creation of the PNRC by legislative fiat, as a voluntary organization impressed with
public interest. Pertinently R.A. No. 95, as amended by P.D. 1264, provides:
Section 1. There is hereby created in the Republic of the Philippines a body corporate
and politic to be the voluntary organization officially designated to assist the Republic of
the Philippines in discharging the obligations set forth in the Geneva Conventions and to
perform such other duties as are inherent upon a national Red Cross Society. The
national headquarters of this Corporation shall be located in Metropolitan Manila.
(Emphasis supplied.)
WHEREAS, during the meeting in Geneva, Switzerland, on 22 August 1894, the nations
of the world unanimously agreed to diminish within their power the evils inherent in war;
The significant public service rendered by the PNRC can be gleaned from Section 3 of its
Charter, which provides:
WHEREAS, more than one hundred forty nations of the world have ratified or adhered to
the Geneva Conventions of August 12, 1949 for the Amelioration of the Condition of the
Wounded and Sick of Armed Forces in the Field and at Sea, The Prisoners of War, and
The Civilian Population in Time of War referred to in this Charter as the Geneva
Conventions;
(a) To provide volunteer aid to the sick and wounded of armed forces in time of
war, in accordance with the spirit of and under the conditions prescribed by the
Geneva Conventions to which the Republic of the Philippines proclaimed its
adherence;
(b) For the purposes mentioned in the preceding sub-section, to perform all
duties devolving upon the Corporation as a result of the adherence of the
Republic of the Philippines to the said Convention;
(c) To act in matters of voluntary relief and in accordance with the authorities of
the armed forces as a medium of communication between people of the Republic
43
44
In the Decision of July 15, 2009, the Court recognized the public service rendered by the
PNRC as the governments partner in the observance of its international commitments,
to wit:
The auxiliary status of [a] Red Cross Society means that it is at one and the same
time a private institution and a public service organization because the very nature
of its work implies cooperation with the authorities, a link with the State. In carrying
out their major functions, Red Cross Societies give their humanitarian support to official
bodies, in general having larger resources than the Societies, working towards
comparable ends in a given sector.
x x x No other organization has a duty to be its governments humanitarian partner while
remaining independent.18(Emphases ours.)
It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has
remained valid and effective from the time of its enactment in March 22, 1947 under the
1935 Constitution and during the effectivity of the 1973 Constitution and the 1987
Constitution.
The PNRC Charter and its amendatory laws have not been questioned or challenged on
constitutional grounds, not even in this case before the Court now.
In the Decision, the Court, citing Feliciano v. Commission on Audit, 19 explained that the
purpose of the constitutional provision prohibiting Congress from creating private
corporations was to prevent the granting of special privileges to certain individuals,
families, or groups, which were denied to other groups. Based on the above discussion,
it can be seen that the PNRC Charter does not come within the spirit of this constitutional
provision, as it does not grant special privileges to a particular individual, family, or group,
but creates an entity that strives to serve the common good.
Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of the 1987
Constitution will hinder the State in adopting measures that will serve the public good or
national interest. It should be noted that a special law, R.A. No. 9520, the Philippine
Cooperative Code of 2008, and not the general corporation code, vests corporate power
and capacities upon cooperatives which are private corporations, in order to implement
the States avowed policy.
The Republic of the Philippines, adhering to the Geneva Conventions, established the
PNRC as a voluntary organization for the purpose contemplated in the Geneva
Convention of 27 July 1929. x x x.20 (Citations omitted.)
So must this Court recognize too the countrys adherence to the Geneva
Convention and respect the unique status of the PNRC in consonance with its
treaty obligations. The Geneva Convention has the force and effect of law. 21 Under the
Constitution, the Philippines adopts the generally accepted principles of international law
as part of the law of the land. 22 This constitutional provision must be reconciled and
harmonized with Article XII, Section 16 of the Constitution, instead of using the latter to
negate the former.
By requiring the PNRC to organize under the Corporation Code just like any other private
corporation, the Decision of July 15, 2009 lost sight of the PNRCs special status under
international humanitarian law and as an auxiliary of the State, designated to assist it in
discharging its obligations under the Geneva Conventions. Although the PNRC is called
to be independent under its Fundamental Principles, it interprets such independence as
inclusive of its duty to be the governments humanitarian partner. To be recognized in the
International Committee, the PNRC must have an autonomous status, and carry out its
humanitarian mission in a neutral and impartial manner.
However, in accordance with the Fundamental Principle of Voluntary Service of National
Societies of the Movement, the PNRC must be distinguished from private and profitmaking entities. It is the main characteristic of National Societies that they "are not
inspired by the desire for financial gain but by individual commitment and devotion to a
humanitarian purpose freely chosen or accepted as part of the service that National
Societies through its volunteers and/or members render to the Community." 23
45
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red
Cross is not a government office or an office in a government-owned or controlled
corporation for purposes of the prohibition in Section 13, Article VI of the 1987
Constitution.
SO ORDERED.
Based on the above, the sui generis status of the PNRC is now sufficiently
established. Although it is neither a subdivision, agency, or instrumentality of the
government, nor a government-owned or -controlled corporation or a subsidiary thereof,
as succinctly explained in the Decision of July 15, 2009, so much so that respondent,
under the Decision, was correctly allowed to hold his position as Chairman thereof
concurrently while he served as a Senator, such a conclusion does not ipso facto imply
that the PNRC is a "private corporation" within the contemplation of the provision of the
Constitution, that must be organized under the Corporation Code. As correctly mentioned
by Justice Roberto A. Abad, the sui generis character of PNRC requires us to approach
controversies involving the PNRC on a case-to-case basis.
1wphi1
In sum, the PNRC enjoys a special status as an important ally and auxiliary of the
government in the humanitarian field in accordance with its commitments under
international law. This Court cannot all of a sudden refuse to recognize its existence,
especially since the issue of the constitutionality of the PNRC Charter was never raised
by the parties. It bears emphasizing that the PNRC has responded to almost all national
disasters since 1947, and is widely known to provide a substantial portion of the
countrys blood requirements. Its humanitarian work is unparalleled. The Court should
not shake its existence to the core in an untimely and drastic manner that would not only
have negative consequences to those who depend on it in times of disaster and armed
hostilities but also have adverse effects on the image of the Philippines in the
international community. The sections of the PNRC Charter that were declared void must
therefore stay.
WHEREFORE, premises considered, respondent Richard J. Gordons Motion for
Clarification and/or for Reconsideration and movant-intervenor PNRCs Motion for Partial
Reconsideration of the Decision in G.R. No. 175352 dated July 15, 2009 are GRANTED.
The constitutionality of R.A. No. 95, as amended, the charter of the Philippine National
Red Cross, was not raised by the parties as an issue and should not have been passed
upon by this Court. The structure of the PNRC is sui generis being neither strictly private
nor public in nature. R.A. No. 95 remains valid and constitutional in its entirety. The
dispositive portion of the Decision should therefore be MODIFIED by deleting the second
sentence, to now read as follows:
In his Comment, respondent asserts that petitioners have no standing to file this petition
which appears to be an action for quo warranto, since the petition alleges that
respondent committed an act which, by provision of law, constitutes a ground for
forfeiture of his public office. Petitioners do not claim to be entitled to the Senate office of
respondent. Under Section 5, Rule 66 of the Rules of Civil Procedure, only a person
claiming to be entitled to a public office usurped or unlawfully held by another may bring
an action for quo warranto in his own name. If the petition is one for quo warranto, it is
already barred by prescription since under Section 11, Rule 66 of the Rules of Civil
Procedure, the action should be commenced within one year after the cause of the public
officers forfeiture of office. In this case, respondent has been working as a Red Cross
volunteer for the past 40 years. Respondent was already Chairman of the PNRC Board
of Governors when he was elected Senator in May 2004, having been elected Chairman
in 2003 and re-elected in 2005.
The Issues
Respondent contends that even if the present petition is treated as a taxpayers suit,
petitioners cannot be allowed to raise a constitutional question in the absence of any
claim that they suffered some actual damage or threatened injury as a result of the
allegedly illegal act of respondent. Furthermore, taxpayers are allowed to sue only when
there is a claim of illegal disbursement of public funds, or that public money is being
diverted to any improper purpose, or where petitioners seek to restrain respondent from
enforcing an invalid law that results in wastage of public funds.
Respondent also maintains that if the petition is treated as one for declaratory relief, this
Court would have no jurisdiction since original jurisdiction for declaratory relief lies with
the Regional Trial Court.
Respondent further insists that the PNRC is not a government-owned or controlled
corporation and that the prohibition under Section 13, Article VI of the Constitution does
not apply in the present case since volunteer service to the PNRC is neither an office nor
an employment.
In their Reply, petitioners claim that their petition is neither an action for quo warranto nor
an action for declaratory relief. Petitioners maintain that the present petition is a
taxpayers suit questioning the unlawful disbursement of funds, considering that
respondent has been drawing his salaries and other compensation as a Senator even if
he is no longer entitled to his office. Petitioners point out that this Court has jurisdiction
47
12. Unless restrained, therefore, respondent will continue to falsely act and
represent himself as a senator or member of the House of Senate, collecting the
salaries, emoluments and other compensations, benefits and privileges
appertaining and due only to the legitimate senators, to the damage, great and
irreparable injury of the Government and the Filipino people. 5 (Emphasis
supplied)
Thus, petitioners are alleging that by accepting the position of Chairman of the PNRC
Board of Governors, respondent has automatically forfeited his seat in the Senate. In
short, petitioners filed an action for usurpation of public office against respondent, a
public officer who allegedly committed an act which constitutes a ground for the forfeiture
of his public office. Clearly, such an action is for quo warranto, specifically under Section
1(b), Rule 66 of the Rules of Court.
Quo warranto is generally commenced by the Government as the proper party plaintiff.
However, under Section 5, Rule 66 of the Rules of Court, an individual may commence
such an action if he claims to be entitled to the public office allegedly usurped by another,
in which case he can bring the action in his own name. The person instituting quo
warranto proceedings in his own behalf must claim and be able to show that he is
entitled to the office in dispute, otherwise the action may be dismissed at any stage. 6 In
the present case, petitioners do not claim to be entitled to the Senate office of
respondent. Clearly, petitioners have no standing to file the present petition.
Even if the Court disregards the infirmities of the petition and treats it as a taxpayers
suit, the petition would still fail on the merits.
PNRC is a Private Organization Performing Public Functions
On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95, 7 otherwise
known as the PNRC Charter. The PNRC is a non-profit, donor-funded, voluntary,
humanitarian organization, whose mission is to bring timely, effective, and
compassionate humanitarian assistance for the most vulnerable without consideration of
nationality, race, religion, gender, social status, or political affiliation. 8 The PNRC provides
six major services: Blood Services, Disaster Management, Safety Services, Community
Health and Nursing, Social Services and Voluntary Service. 9
The Republic of the Philippines, adhering to the Geneva Conventions, established the
PNRC as a voluntary organization for the purpose contemplated in the Geneva
Convention of 27 July 1929.10 The Whereas clauses of the PNRC Charter read:
48
alleviate human suffering wherever it may be found. Its purpose is to protect life
and health and to ensure respect for the human being. It promotes mutual
understanding, friendship, cooperation and lasting peace amongst all peoples.
WHEREAS, more than sixty nations of the world have ratified or adhered to the
subsequent revision of said convention, namely the "Convention of Geneva of July 29
[sic], 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in the
Field" (referred to in this Charter as the Geneva Red Cross Convention);
WHEREAS, the Geneva Red Cross Convention envisages the establishment in each
country of a voluntary organization to assist in caring for the wounded and sick of the
armed forces and to furnish supplies for that purpose;
WHEREAS, there existed in the Philippines since 1917 a Charter of the American
National Red Cross which must be terminated in view of the independence of the
Philippines; and
WHEREAS, the volunteer organizations established in the other countries which have
ratified or adhered to the Geneva Red Cross Convention assist in promoting the health
and welfare of their people in peace and in war, and through their mutual assistance and
cooperation directly and through their international organizations promote better
understanding and sympathy among the peoples of the world. (Emphasis supplied)
The PNRC is a member National Society of the International Red Cross and Red
Crescent Movement (Movement), which is composed of the International Committee of
the Red Cross (ICRC), the International Federation of Red Cross and Red Crescent
Societies (International Federation), and the National Red Cross and Red Crescent
Societies (National Societies). The Movement is united and guided by its seven
Fundamental Principles:
1. HUMANITY The International Red Cross and Red Crescent Movement, born
of a desire to bring assistance without discrimination to the wounded on the
battlefield, endeavors, in its international and national capacity, to prevent and
49
Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the
chapter delegates of the PNRC, and six are elected by the twenty-four members already
chosen a select group where the private sector members have three-fourths majority.
Clearly, an overwhelming majority of four-fifths of the PNRC Board are elected or chosen
by the private sector members of the PNRC.
The PNRC Board of Governors, which exercises all corporate powers of the PNRC,
elects the PNRC Chairman and all other officers of the PNRC. The incumbent Chairman
of PNRC, respondent Senator Gordon, was elected, as all PNRC Chairmen are elected,
by a private sector-controlled PNRC Board four-fifths of whom are private sector
members of the PNRC. The PNRC Chairman is not appointed by the President or by any
subordinate government official.
Under Section 16, Article VII of the Constitution, 14 the President appoints all officials and
employees in the Executive branch whose appointments are vested in the President by
the Constitution or by law. The President also appoints those whose appointments are
not otherwise provided by law. Under this Section 16, the law may also authorize the
"heads of departments, agencies, commissions, or boards" to appoint officers lower in
rank than such heads of departments, agencies, commissions or boards. 15 In Rufino v.
Endriga,16 the Court explained appointments under Section 16 in this wise:
Under Section 16, Article VII of the 1987 Constitution, the President appoints three
groups of officers. The first group refers to the heads of the Executive departments,
ambassadors, other public ministers and consuls, officers of the armed forces from the
rank of colonel or naval captain, and other officers whose appointments are vested in the
President by the Constitution. The second group refers to those whom the President may
be authorized by law to appoint. The third group refers to all other officers of the
Government whose appointments are not otherwise provided by law.
Under the same Section 16, there is a fourth group of lower-ranked officers whose
appointments Congress may by law vest in the heads of departments, agencies,
commissions, or boards. x x x
xxx
In a department in the Executive branch, the head is the Secretary. The law may not
authorize the Undersecretary, acting as such Undersecretary, to appoint lower-ranked
officers in the Executive department. In an agency, the power is vested in the head of the
agency for it would be preposterous to vest it in the agency itself. In a commission, the
head is the chairperson of the commission. In a board, the head is also the chairperson
50
executive . . . offices," Section 17, Article VII of the 1987 Constitution does not exempt
any executive office one performing executive functions outside of the independent
constitutional bodies from the Presidents power of control. There is no dispute that
the CCP performs executive, and not legislative, judicial, or quasi-judicial functions.
The Presidents power of control applies to the acts or decisions of all officers in the
Executive branch. This is true whether such officers are appointed by the President or by
heads of departments, agencies, commissions, or boards. The power of control means
the power to revise or reverse the acts or decisions of a subordinate officer involving the
exercise of discretion.
In short, the President sits at the apex of the Executive branch, and exercises "control of
all the executive departments, bureaus, and offices." There can be no instance under the
Constitution where an officer of the Executive branch is outside the control of the
President. The Executive branch is unitary since there is only one President vested with
executive power exercising control over the entire Executive branch. Any office in the
Executive branch that is not under the control of the President is a lost command whose
existence is without any legal or constitutional basis. (Emphasis supplied)
An overwhelming four-fifths majority of the PNRC Board are private sector individuals
elected to the PNRC Board by the private sector members of the PNRC. The PNRC
Board exercises all corporate powers of the PNRC. The PNRC is controlled by private
sector individuals. Decisions or actions of the PNRC Board are not reviewable by the
President. The President cannot reverse or modify the decisions or actions of the PNRC
Board. Neither can the President reverse or modify the decisions or actions of the PNRC
Chairman. It is the PNRC Board that can review, reverse or modify the decisions or
actions of the PNRC Chairman. This proves again that the office of the PNRC Chairman
is a private office, not a government office.
1avvphi1
Although the State is often represented in the governing bodies of a National Society,
this can be justified by the need for proper coordination with the public authorities, and
the government representatives may take part in decision-making within a National
Society. However, the freely-elected representatives of a National Societys active
members must remain in a large majority in a National Societys governing bodies. 19
The PNRC is not government-owned but privately owned. The vast majority of the
thousands of PNRC members are private individuals, including students. Under the
PNRC Charter, those who contribute to the annual fund campaign of the PNRC are
entitled to membership in the PNRC for one year. Thus, any one between 6 and 65 years
of age can be a PNRC member for one year upon contributing P35, P100, P300, P500
51
SEC. 5. Membership in the Philippine National Red Cross shall be open to the entire
population in the Philippines regardless of citizenship. Any contribution to the Philippine
National Red Cross Annual Fund Campaign shall entitle the contributor to membership
for one year and said contribution shall be deductible in full for taxation purposes.
Thus, the PNRC is a privately owned, privately funded, and privately run charitable
organization. The PNRC is not a government-owned or controlled corporation.
Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC, 22 which
ruled that the PNRC is a government-owned or controlled corporation. In ruling that the
PNRC is a government-owned or controlled corporation, the simple test used was
whether the corporation was created by its own special charter for the exercise of a
public function or by incorporation under the general corporation law. Since the PNRC
was created under a special charter, the Court then ruled that it is a government
corporation. However, the Camporedondoruling failed to consider the definition of a
government-owned or controlled corporation as provided under Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987:
SEC. 2. General Terms Defined. 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: Provided,
That government-owned or controlled corporations may be further categorized by the
Department of the Budget, the Civil Service Commission, and the Commission on Audit
for purposes of the exercise and discharge of their respective powers, functions and
responsibilities with respect to such corporations.(Boldfacing and underscoring supplied)
A government-owned or controlled corporation must be owned by the government, and in
the case of a stock corporation, at least a majority of its capital stock must be owned by
the government. In the case of a non-stock corporation, by analogy at least a majority of
the members must be government officials holding such membership by appointment or
designation by the government. Under this criterion, and as discussed earlier, the
government does not own or control PNRC.
The PNRC Charter is Violative of the Constitutional Proscription against the Creation of
Private Corporations by Special Law
The 1935 Constitution, as amended, was in force when the PNRC was created by
special charter on 22 March 1947. Section 7, Article XIV of the 1935 Constitution, as
amended, reads:
SEC. 7. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned
or controlled by the Government or any subdivision or instrumentality thereof.
The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting
Congress from creating private corporations except by general law. Section 1 of the
PNRC Charter, as amended, creates the PNRC as a "body corporate and politic," thus:
SECTION 1. There is hereby created in the Republic of the Philippines a body corporate
and politic to be the voluntary organization officially designated to assist the Republic of
the Philippines in discharging the obligations set forth in the Geneva Conventions and to
perform such other duties as are inherent upon a National Red Cross Society. The
national headquarters of this Corporation shall be located in Metropolitan Manila.
(Emphasis supplied)
In Feliciano v. Commission on Audit,23 the Court explained the constitutional provision
prohibiting Congress from creating private corporations in this wise:
We begin by explaining the general framework under the fundamental law. The
Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to government-owned or
controlled corporations created by special charters. Section 16, Article XII of the
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.
The Constitution emphatically prohibits the creation of private corporations except by
general law applicable to all citizens. The purpose of this constitutional provision is to
ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens.
52
Just like the Local Water Districts, the PNRC was created through a special charter.
However, unlike the Local Water Districts, the elements of government ownership and
control are clearly lacking in the PNRC. Thus, although the PNRC is created by a special
charter, it cannot be considered a government-owned or controlled corporation in the
absence of the essential elements of ownership and control by the government. In
creating the PNRC as a corporate entity, Congress was in fact creating a private
corporation. However, the constitutional prohibition against the creation of private
53
P50,000.00
5,706.14
3,330.58
d) Costs of suit
135.60
e) Attorney's fees
2,000.00
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of
facts.
1wph1.t
On May 15, 1962, one day after the date fixed in the compromise agreement, within
which the judgment debt would be paid, but was not, respondent Imperial Insurance Inc.,
filed a "Motion for the Insurance of a Writ of Execution". On May 23, 1962, a Writ of
Execution was issued by respondent Sheriff of Manila and on May 26, 1962, Notices of
Sale were sent out for the auction of the personal properties of the petitioner J.R.S.
Business Corporation. On June 2, 1962, a Notice of Sale of the "whole capital stocks of
the defendants JRS Business Corporation, the business name, right of operation, the
whole assets, furnitures and equipments, the total liabilities, and Net Worth, books of
accounts, etc., etc." of the petitioner corporation was, handed down. On June 9, the
petitioner, thru counsel, presented an "Urgent Petition for Postponement of Auction Sale
and for Release of Levy on the Business Name and Right to Operate of Defendant JRS
Business Corporation", stating that petitioners were busy negotiating for a loan with
which to pay the judgment debt; that the judgment was for money only and, therefore,
plaintiff (respondent Insurance Company) was not authorized to take over and
appropriate for its own use, the business name of the defendants; that the right to
operate under the franchise, was not transferable and could not be considered a
personal or immovable, property, subject to levy and sale. On June 10, 1962, a
Supplemental Motion for Release of Execution, was filed by counsel of petitioner JRS
Business Corporation, claiming that the capital stocks thereof, could not be levied upon
and sold under execution. Under date of June 20, 1962, petitioner's counsel presented a
pleading captioned "Very Urgent Motion for Postponement of Public Auction Sale and for
Ruling on Motion for Release of Levy on the Business Name, Right to Operate and
Capital Stocks of JRS Business Corporation". The auction sale was set for June 21,
1962. In said motion, petitioners alleged that the loan they had applied for, was to be
secured within the next ten (10) days, and they would be able to discharge the judgment
debt. Respondents opposed the said motion and on June 21, 1962, the lower court
denied the motion for postponement of the auction sale.
In the sale which was conducted in the premises of the JRS Business Corporation at
1341 Perez St., Paco, Manila, all the properties of said corporation contained in the
Notices of Sale dated May 26, 1962, and June 2, 1962 (the latter notice being for the
whole capital stocks of the defendant, JRS Business Corporation, the business name,
right of operation, the whole assets, furnitures and equipments, the total liabilities and
Net Worth, books of accounts, etc., etc.), were bought by respondent Imperial Insurance,
Inc., for P10,000.00, which was the highest bid offered. Immediately after the sale,
respondent Insurance Company took possession of the proper ties and started running
the affairs and operating the business of the JRS Business Corporation. Hence, the
present appeal.
54
55
the transaction took place. By way of counterclaim, the said defendant alleged that he
suffered damages in the sum of P1,000 on account of the filing of this action against him
by the plaintiff with full knowledge that the said defendant had nothing to do whatever
with any and all of the transactions mentioned in the complaint in his own individual and
personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the
plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest on both sums,
and absolving the defendant Fernando Busuego (treasurer of the corporation) from the
complaint and the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon
appeal to the Court of Appeals, the latter modified that judgment by reducing it to the
total sum of P3,314.78, with legal interest thereon and the costs. But by a subsequent
resolution upon the defendant's motion for reconsideration, the Court of Appeals set
aside its judgment and ordered that the case be remanded to the court of origin for
further proceedings. The defendant Vazquez, not being agreeable to that result, filed the
present petition for certiorari (G.R. No. 48930) to review and reverse the judgment of the
Court of Appeals; and the plaintiff Francisco de Borja, excepting to the resolution of the
Court of Appeals whereby its original judgment was set aside and the case was ordered
remanded to the court of origin for further proceedings, filed a cross-petition for certiorari
(G.R. No. 48931) to maintain the original judgment of the Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on
reconsideration read as follows:
Es hecho no controvertido que el 25 de Febrero de 1932, el demandadoapelante vendio al demandante 4,000 cavanes de palay al precio de P2.10 el
cavan, de los cuales, dicho demandante solamente recibio 2,583 cavanes; y que
asimismo recibio para su envase 4,000 sacos vacios. Esta provbado que de
dichos 4,000 sacos vacios solamente se entregaron, 2,583 quedando en poder
del demandado el resto, y cuyo valor es el de P0.24 cada uno. Presentada la
demanda contra los demandados Antonio Vazquez y Fernando Busuego para el
pago de la cantidad de P4,702.70, con sus intereses legales desde el 1.o de
marzo de 1932 hasta su completo pago y las costas, el Juzgado de Primera
Instancia de Manila el asunto condenando a Antonio Vazquez a pagar al
demandante la cantidad de P3,175.20, mas la cantidad de P377.50, con sus
intereses legales, absolviendo al demandado Fernando Busuego de la demanda
y al demandante de la reconvencion de los demandados, sin especial
pronunciamiento en cuanto a las costas. De dicha decision apelo el demandado
Antonio Vazquez, apuntado como principal error el de que el habia sido
condenado personalmente, y no la corporacion por el representada.
Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a
favor de Francisco de Borja de los 4,000 cavanes de palay fue en su capacidad
56
57
48754.) Consequently it was error for the Court of Appeals to remand the case to the trial
court to try and decide such issue.
It only remains for us to consider petitioner's second assignment of error referring to the
lower courts' refusal to entertain his counterclaim for damages against the respondent
Borja arising from the bringing of this action. The lower courts having sustained plaintiff's
action. The finding of the Court of Appeals that according to the preponderance of the
evidence the defendant Vazquez celebrated the contract not in his personal capacity but
as acting president and manager of the corporation, does not warrant his contention that
the suit against him is malicious and tortious; and since we have to decide defendant's
counterclaim upon the facts found by the Court of Appeals, we find no sufficient basis
upon which to sustain said counterclaim. Indeed, we feel that a a matter of moral justice
we ought to state here that the indignant attitude adopted by the defendant towards the
plaintiff for having brought this action against him is in our estimation not wholly right.
Altho from the legal point of view he was not personally liable for the fulfillment of the
contract entered into by him on behalf of the corporation of which he was the acting
president and manager, we think it was his moral duty towards the party with whom he
contracted in said capacity to see to it that the corporation represented by him fulfilled
the contract by delivering the palay it had sold, the price of which it had already received.
Recreant to such duty as a moral person, he has no legitimate cause for indignation. We
feel that under the circumstances he not only has no cause of action against the plaintiff
for damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby
dismissed, without any finding as to costs.
G.R. No. 152542
July 8, 2004
MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as
represented by MA. ANTONIA M. SALVATIERRA vs. ANTONIO B. MONFORT III, MA.
LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT, ALFREDO B. MONFORT,
CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION
CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ and COURT OF APPEALS
Before the Court are consolidated petitions for review of the decisions of the Court of
Appeals in the complaints for forcible entry and replevin filed by Monfort Hermanos
Agricultural Development Corporation (Corporation) and Ramon H. Monfort against the
children, nephews, and nieces of its original incorporators (collectively known as "the
group of Antonio Monfort III").
The petition in G.R. No. 152542, assails the October 5, 2001 Decision 1 of the Special
Tenth Division of the Court of Appeals in CA-G.R. SP No. 53652, which ruled that Ma.
Antonia M. Salvatierra has no legal capacity to represent the Corporation in the forcible
58
The motion for reconsideration filed by the group of Antonio Monfort III was
denied.10 Hence, they instituted a petition for review with this Court, docketed as G.R. No.
155472.
In G.R. No. 152542:
On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the Corporation a
complaint for forcible entry, preliminary mandatory injunction with temporary restraining
order and damages against the group of Antonio Monfort III, before the Municipal Trial
Court (MTC) of Cadiz City.11 It contended that the latter through force and intimidation,
unlawfully took possession of the 4 Haciendas and deprived the Corporation of the
produce thereon.
In their answer,12 the group of Antonio Monfort III alleged that they are possessing and
controlling the Haciendas and harvesting the produce therein on behalf of the corporation
and not for themselves. They likewise raised the affirmative defense of lack of legal
capacity of Ma. Antonia M. Salvatierra to sue on behalf of the Corporation.
On February 18, 1998, the MTC of Cadiz City rendered a decision dismissing the
complaint.13 On appeal, the Regional Trial Court of Negros Occidental, Branch 60,
reversed the Decision of the MTCC and remanded the case for further proceedings. 14
Aggrieved, the group of Antonio Monfort III filed a petition for review with the Court of
Appeals. On October 5, 2001, the Special Tenth Division set aside the judgment of the
RTC and dismissed the complaint for forcible entry for lack of capacity of Ma. Antonia M.
Salvatierra to represent the Corporation. 15 The motion for reconsideration filed by the
latter was denied by the appellate court.16
Unfazed, the Corporation filed a petition for review with this Court, docketed as G.R. No.
152542 which was consolidated with G.R. No. 155472 per Resolution dated January 21,
2004.17
The focal issue in these consolidated petitions is whether or not Ma. Antonia M.
Salvatierra has the legal capacity to sue on behalf of the Corporation.
The group of Antonio Monfort III claims that the March 31, 1997 Board Resolution
authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the
Corporation is void because the purported Members of the Board who passed the same
were not validly elected officers of the Corporation.
59
xxx
xxx
2. A General Information Sheet shall be filed with this Commission within thirty
(30) days following the date of the annual stockholders' meeting. No extension of
said period shall be allowed, except for very justifiable reasons stated in writing
by the President, Secretary, Treasurer or other officers, upon which the
Commission may grant an extension for not more than ten (10) days.
2.A. Should a director, trustee or officer die, resign or in any manner,
cease to hold office, the corporation shall report such fact to the
Commission with fifteen (15) days after such death, resignation or
cessation of office.
3. If for any justifiable reason, the annual meeting has to be postponed, the
company should notify the Commission in writing of such postponement.
The General Information Sheet shall state, among others, the names of the
elected directors and officers, together with their corresponding position
title (Emphasis supplied)
In the instant case, the six signatories to the March 31, 1997 Board Resolution
authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the
Corporation, were: Ma. Antonia M. Salvatierra, President; Ramon H. Monfort, Executive
Vice President; Directors Paul M. Monfort, Yvete M. Benedicto and Jaqueline M. Yusay;
and Ester S. Monfort, Secretary. However, the names of the last four (4) signatories to
the said Board Resolution do not appear in the 1996 General Information Sheet
submitted by the Corporation with the SEC. Under said General Information Sheet the
composition of the Board is as follows:
19
60
61
The complaint for forcible entry docketed as Civil Case No. 822 before the Municipal Trial
Court of Cadiz City is DISMISSED. In Civil Case No. 506-C with the Regional Trial Court
of Negros Occidental, Branch 60, the action for delivery of personal property filed by
Monfort Hermanos Agricultural Development Corporation is likewise DISMISSED. With
respect to the action filed by Ramon H. Monfort for the delivery of 387 fighting cocks, the
Regional Trial Court of Negros Occidental, Branch 60, is ordered to effect the
corresponding substitution of parties. No costs. SO ORDERED.
G.R. No. 15574
September 17, 1919
SMITH, BELL & COMPANY (LTD.) vs. JOAQUIN NATIVIDAD, Collector of Customs
of the port of Cebu
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad,
Collector of Customs of the port of Cebu, Philippine Islands, to compel him to issue a
certificate of Philippine registry to the petitioner for its motor vessel Bato. The AttorneyGeneral, acting as counsel for respondent, demurs to the petition on the general ground
that it does not state facts sufficient to constitute a cause of action. While the facts are
thus admitted, and while, moreover, the pertinent provisions of law are clear and
understandable, and interpretative American jurisprudence is found in abundance, yet
the issue submitted is not lightly to be resolved. The question, flatly presented, is,
whether Act. No. 2761 of the Philippine Legislature is valid or, more directly stated,
whether the Government of the Philippine Islands, through its Legislature, can deny the
registry of vessels in its coastwise trade to corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the
Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a
motor vessel known as the Bato built for it in the Philippine Islands in 1916, of more than
fifteen tons gross The Bato was brought to Cebu in the present year for the purpose of
transporting plaintiff's merchandise between ports in the Islands. Application was made
at Cebu, the home port of the vessel, to the Collector of Customs for a certificate of
Philippine registry. The Collector refused to issue the certificate, giving as his reason that
all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United
States or of the Philippine Islands. The instant action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but
reenacting a portion of section 3 of this Law, and still in force, provides in its section 1:
62
United States: Provided further, That the President shall approve or disapprove
any act mentioned in the foregoing proviso within six months from and after its
enactment and submission for his approval, and if not disapproved within such
time it shall become a law the same as if it had been specifically approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict
with any of the provisions of this Act are hereby continued in force and effect."
(39 Stat at L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section
of this law amended section 1172 of the Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. Upon registration of a vessel of
domestic ownership, and of more than fifteen tons gross, a certificate of
Philippine register shall be issued for it. If the vessel is of domestic ownership
and of fifteen tons gross or less, the taking of the certificate of Philippine register
shall be optional with the owner.
"Domestic ownership," as used in this section, means ownership vested in some
one or more of the following classes of persons: (a) Citizens or native inhabitants
of the Philippine Islands; (b) citizens of the United States residing in the
Philippine Islands; (c) any corporation or company composed wholly of citizens
of the Philippine Islands or of the United States or of both, created under the laws
of the United States, or of any State thereof, or of thereof, or the managing agent
or master of the vessel resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen
hundred and eighteen, had a certificate of Philippine register under existing law,
shall likewise be deemed a vessel of domestic ownership so long as there shall
not be any change in the ownership thereof nor any transfer of stock of the
companies or corporations owning such vessel to person not included under the
last preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative
Code to read as follows:
SEC. 1176. Investigation into character of vessel. No application for a
certificate of Philippine register shall be approved until the collector of customs is
satisfied from an inspection of the vessel that it is engaged or destined to be
63
convincing argument. As a matter of fact, counsel for petitioner does not assail legislative
action from this direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport
[1859] 22 How., 227.)
2. It is from the negative, prohibitory standpoint that counsel argues against the
constitutionality of Act No. 2761. The first paragraph of the Philippine Bill of Rights of the
Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights as set
forth in the Jones Law, provides "That no law shall be enacted in said Islands which shall
deprive any person of life, liberty, or property without due process of law, or deny to any
person therein the equal protection of the laws." Counsel says that Act No. 2761 denies
to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits
the corporation from owning vessels, and because classification of corporations based
on the citizenship of one or more of their stockholders is capricious, and that Act No.
2761 deprives the corporation of its properly without due process of law because by the
passage of the law company was automatically deprived of every beneficial attribute of
ownership in the Bato and left with the naked title to a boat it could not use .
The guaranties extended by the Congress of the United States to the Philippine Islands
have been used in the same sense as like provisions found in the United States
Constitution. While the "due process of law and equal protection of the laws" clause of
the Philippine Bill of Rights is couched in slightly different words than the corresponding
clause of the Fourteenth Amendment to the United States Constitution, the first should
be interpreted and given the same force and effect as the latter. (Kepner vs. U.S. [1904],
195 U. S., 100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull [1910], 15 Phil.,
7.) The meaning of the Fourteenth Amendment has been announced in classic decisions
of the United States Supreme Court. Even at the expense of restating what is so well
known, these basic principles must again be set down in order to serve as the basis of
this decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the
Philippine Bill of Rights, are universal in their application to all person within the territorial
jurisdiction, without regard to any differences of race, color, or nationality. The word
"person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax vs. Raich
[1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within the scope of
the guaranties in so far as their property is concerned. (Santa Clara County vs. Southern
Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125
U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford [1896], 164 U. S., 578.)
Classification with the end in view of providing diversity of treatment may be made
among corporations, but must be based upon some reasonable ground and not be a
mere arbitrary selection (Gulf, Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165 U.
64
could have had the effect of denying to the Government of the Philippine Islands, acting
through its Legislature, the right to exercise that most essential, insistent, and illimitable
of powers, the sovereign police power, in the promotion of the general welfare and the
public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs.Rafferty [1915],
32 Phil., 580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another notable
exception permits of the regulation or distribution of the public domain or the common
property or resources of the people of the State, so that use may be limited to its citizens.
(Ex parte Gilleti [1915], 70 Fla., 442; McCready vs.Virginia [1876], 94 U. S., 391;
Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.) Still another
exception permits of the limitation of employment in the construction of public works by,
or for, the State or a municipality to citizens of the United States or of the State.
(Atkin vs. Kansas [1903],191 U. S., 207; Heim vs.McCall [1915], 239 U.S., 175;
Crane vs. New York [1915], 239 U. S., 195.) Even as to classification, it is admitted that a
State may classify with reference to the evil to be prevented; the question is a practical
one, dependent upon experience. (Patsone vs. Commonwealth of Pennsylvania [1914],
232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or companies to obtain
a certificate of Philippine registry only on condition that they be composed wholly of
citizens of the Philippine Islands or of the United States or both, as not infringing
Philippine Organic Law, it must be done under some one of the exceptions here
mentioned This must be done, moreover, having particularly in mind what is so often of
controlling effect in this jurisdiction our local experience and our peculiar local
conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional limits are
found more than three thousand islands. Literally, and absolutely, steamship lines are, for
an Insular territory thus situated, the arteries of commerce. If one be severed, the lifeblood of the nation is lost. If on the other hand these arteries are protected, then the
security of the country and the promotion of the general welfare is sustained. Time and
again, with such conditions confronting it, has the executive branch of the Government of
the Philippine Islands, always later with the sanction of the judicial branch, taken a firm
stand with reference to the presence of undesirable foreigners. The Government has
thus assumed to act for the all-sufficient and primitive reason of the benefit and
protection of its own citizens and of the self-preservation and integrity of its dominion. (In
re Patterson [1902], 1 Phil., 93; Forbes vs.Chuoco, Tiaco and Crossfield [1910], 16 Phil.,
534;.228 U.S., 549; In re McCulloch Dick [1918], 38 Phil., 41.) Boats owned by
foreigners, particularly by such solid and reputable firms as the instant claimant, might
indeed traverse the waters of the Philippines for ages without doing any particular harm.
Again, some evilminded foreigner might very easily take advantage of such lavish
65
desired to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052;
33 Sup. Ct. Rep., 692.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein
before mentioned, Justice Holmes delivering the opinion of the United States Supreme
Court said:
Judgment affirmed.
This statute makes it unlawful for any unnaturalized foreign-born resident to kill
any wild bird or animal except in defense of person or property, and `to that end'
makes it unlawful for such foreign-born person to own or be possessed of a
shotgun or rifle; with a penalty of $25 and a forfeiture of the gun or guns. The
plaintiff in error was found guilty and was sentenced to pay the abovementioned
fine. The judgment was affirmed on successive appeals. (231 Pa., 46; 79 Atl.,
928.) He brings the case to this court on the ground that the statute is contrary to
the 14th Amendment and also is in contravention of the treaty between the
United States and Italy, to which latter country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the
alien of property, and discrimination against such aliens as a class. But the
former really depends upon the latter, since it hardly can be disputed that if the
lawful object, the protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40
L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the discrimination, the, means
adopted for making it effective also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start
with reference to the evil to be prevented, and that if the class discriminated
against is or reasonably might be considered to define those from whom the evil
mainly is to be feared, it properly may be picked out. A lack of abstract symmetry
does not matter. The question is a practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court can say that the
legislature of Pennsylvania was not warranted in assuming as its premise for the
law that resident unnaturalized aliens were the peculiar source of the evil that it
Obviously the question, so stated, is one of local experience, on which this court
ought to be very slow to declare that the state legislature was wrong in its facts
(Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct.
Rep., 610.) If we might trust popular speech in some states it was right; but it is
enough that this court has no such knowledge of local conditions as to be able to
say that it was manifestly wrong. . . .
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien
stockholders, is entitled to the protection afforded by the due-process of law and equal
protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761
of the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd.,
the right to register vessels in the Philippines coastwise trade, does not belong to that
vicious species of class legislation which must always be condemned, but does fall within
authorized exceptions, notably, within the purview of the police power, and so does not
offend against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however, that
the legislative history of the United States and the Philippine Islands, and, probably, the
legislative history of other countries, if we were to take the time to search it out, might
disclose similar attempts at restriction on the right to enter the coastwise trade, and might
thus furnish valuable aid by which to ascertain and, if possible, effectuate legislative
intention.
3. The power to regulate commerce, expressly delegated to the Congress by the
Constitution, includes the power to nationalize ships built and owned in the
United States by registries and enrollments, and the recording of the muniments
of title of American vessels. The Congress "may encourage or it may entirely
prohibit such commerce, and it may regulate in any way it may see fit between
these two extremes." (U.S. vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden
[1824], 9 Wheat., 1; The Passenger Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had not
been long convened before it enacted on September 1, 1789, "An Act for Registering
and Clearing Vessels, Regulating the Coasting Trade, and for other purposes." Section 1
of this law provided that for any ship or vessel to obtain the benefits of American registry,
66
state thereof or of the Philippine Islands (Act No. 1235, sec. 3.) The two administration
codes repeated the same provisions with the necessary amplification of inclusion of
citizens or native inhabitants of the Philippine Islands (Adm. Code of 1916, sec. 1345;
Adm. Code of 1917, sec. 1172). And now Act No. 2761 has returned to the restrictive
idea of the original Customs Administrative Act which in turn was merely a reflection of
the statutory language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a
certificate of Philippine registry, are thus found not to be as radical as a first reading
would make them appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be
to enact an anti-alien shipping act. The ultimate purpose of the Legislature is to
encourage Philippine ship-building. This, without doubt, has, likewise, been the intention
of the United States Congress in passing navigation or tariff laws on different occasions.
The object of such a law, the United States Supreme Court once said, was to encourage
American trade, navigation, and ship-building by giving American ship-owners exclusive
privileges. (Old Dominion Steamship Co. vs. Virginia [1905], 198 U.S., 299; Kent's
Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1)
is found the following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for
example, acts licensing gaming houses, retailers of spirituous liquors, etc. The
act, in this instance, is distinctly of that character, and forms part of an extensive
system, the object of which is to encourage American shipping, and place them
on an equal footing with the shipping of other nations. Almost every commercial
nation reserves to its own subjects a monopoly of its coasting trade; and a
countervailing privilege in favor of American shipping is contemplated, in the
whole legislation of the United States on this subject. It is not to give the vessel
an American character, that the license is granted; that effect has been correctly
attributed to the act of her enrollment. But it is to confer on her American
privileges, as contradistinguished from foreign; and to preserve the. Government
from fraud by foreigners, in surreptitiously intruding themselves into the American
commercial marine, as well as frauds upon the revenue in the trade coastwise,
that this whole system is projected.
The United States Congress in assuming its grave responsibility of legislating wisely for a
new country did so imbued with a spirit of Americanism. Domestic navigation and trade, it
67
were invaded, they were the rights of the corporation and not the rights of
the other defendants. Next, it is clear that a question of the lawfulness of a
seizure can be raised only by one whose rights have been invaded. Certainly,
such a seizure, if unlawful, could not affect the constitutional rights of
defendants whose property had not been seized or the privacy of whose homes
had not been disturbed; nor could they claim for themselves the benefits of the
Fourth Amendment, when its violation, if any, was with reference to the rights
of another. Remus vs. United States (C.C.A.)291 F. 501, 511. It follows,
therefore, that the question of the admissibility of the evidence based on an
alleged unlawful search and seizure does not extend to the personal defendants
but embraces only the corporation whose property was taken. . . . (A
Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis
supplied.)
With respect to the documents, papers and things seized in the residences of petitioners
herein, the aforementioned resolution of June 29, 1962, lifted the writ of preliminary
injunction previously issued by this Court, 12 thereby, in effect, restraining herein
Respondents-Prosecutors from using them in evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important questions need
be settled, namely: (1) whether the search warrants in question, and the searches and
seizures made under the authority thereof, are valid or not, and (2) if the answer to the
preceding question is in the negative, whether said documents, papers and things may
be used in evidence against petitioners herein.
1wph1.t
Petitioners maintain that the aforementioned search warrants are in the nature of general
warrants and that accordingly, the seizures effected upon the authority there of are null
and void. In this connection, the Constitution 13 provides:
The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures shall not be violated, and no
warrants shall issue but upon probable cause, to be determined by the judge
after examination under oath or affirmation of the complainant and the witnesses
he may produce, and particularly describing the place to be searched, and the
persons or things to be seized.
Two points must be stressed in connection with this constitutional mandate, namely: (1)
that no warrant shall issue but upon probable cause, to be determined by the judge in the
manner set forth in said provision; and (2) that the warrant shall particularly describe the
things to be seized.
69
70
destruction by avulsion of the sanction upon which its protection and enjoyment
had always been deemed dependent under the Boyd, Weeks and Silverthorne
Cases. Therefore, in extending the substantive protections of due process to all
constitutionally unreasonable searches state or federal it was logically and
constitutionally necessarily that the exclusion doctrine an essential part of the
right to privacy be also insisted upon as an essential ingredient of the right
newly recognized by the Wolf Case. In short, the admission of the new
constitutional Right by Wolf could not tolerate denial of its most important
constitutional privilege, namely, the exclusion of the evidence which an accused
had been forced to give by reason of the unlawful seizure. To hold otherwise is to
grant the right but in reality to withhold its privilege and enjoyment. Only last year
the Court itself recognized that the purpose of the exclusionary rule to "is to deter
to compel respect for the constitutional guaranty in the only effectively
available way by removing the incentive to disregard it" . . . .
The ignoble shortcut to conviction left open to the State tends to destroy the
entire system of constitutional restraints on which the liberties of the people rest.
Having once recognized that the right to privacy embodied in the Fourth
Amendment is enforceable against the States, and that the right to be secure
against rude invasions of privacy by state officers is, therefore constitutional in
origin, we can no longer permit that right to remain an empty promise. Because it
is enforceable in the same manner and to like effect as other basic rights secured
by its Due Process Clause, we can no longer permit it to be revocable at the
whim of any police officer who, in the name of law enforcement itself, chooses to
suspend its enjoyment. Our decision, founded on reason and truth, gives to the
individual no more than that which the Constitution guarantees him to the police
officer no less than that to which honest law enforcement is entitled, and, to the
courts, that judicial integrity so necessary in the true administration of justice.
(emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit
of the constitutional injunction against unreasonable searches and seizures. To be sure,
if the applicant for a search warrant has competent evidence to establish probable cause
of the commission of a given crime by the party against whom the warrant is intended,
then there is no reason why the applicant should not comply with the requirements of the
fundamental law. Upon the other hand, if he has no such competent evidence, then it
is not possible for the Judge to find that there is probable cause, and, hence, no
justification for the issuance of the warrant. The only possible explanation (not
justification) for its issuance is the necessity of fishing evidence of the commission of a
71
application of the views therein expressed, should we agree thereto. At any rate, we do
not deem it necessary to express our opinion thereon, it being best to leave the matter
open for determination in appropriate cases in the future.
We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is
hereby, abandoned; that the warrants for the search of three (3) residences of herein
petitioners, as specified in the Resolution of June 29, 1962, are null and void; that the
searches and seizures therein made are illegal; that the writ of preliminary injunction
heretofore issued, in connection with the documents, papers and other effects thus
seized in said residences of herein petitioners is hereby made permanent; that the writs
prayed for are granted, insofar as the documents, papers and other effects so seized in
the aforementioned residences are concerned; that the aforementioned motion for
Reconsideration and Amendment should be, as it is hereby, denied; and that the petition
herein is dismissed and the writs prayed for denied, as regards the documents, papers
and other effects seized in the twenty-nine (29) places, offices and other premises
enumerated in the same Resolution, without special pronouncement as to costs.
It is so ordered.
G.R. No. 75885 May 27, 1987
BASECO 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.
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:
72
2. Baseco Quarry
2.2. By-Laws
73
74
deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec.
1)." 12
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;
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
75
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
76
77
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
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 "illgotten 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
78
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."
79
levy which since 1936 the Commissioner of Internal Revenue has been by law
authorized to issue against property of a delinquent taxpayer. 56 BASECO itself declares
that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * *
(as it feels) that the law should not be ossified to a point that makes it insensitive to change."
What it insists on, what it pronounces to be its "unyielding position, is that any change in
procedure, or the institution of a new one, should conform to due process and the other
prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on
which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of
personal property in replevinsuits, sequestration and provisional takeover writs may
issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of personality,
no objection of any significance may be raised to the ex parte issuance of an order of
sequestration, freezing or takeover, given its fundamental character of temporariness or
conditionality; and taking account specially of the constitutionally expressed "mandate of the
people to recover ill-gotten properties amassed by the leaders and supporters of the previous
regime and protect the interest of the people;" 59 as well as the obvious need to avoid alerting
suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of
property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer,
disposition, concealment or disappearance of said assets and properties would frustrate,
obstruct or hamper the efforts of the Government" at the just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there
exist a prima facie factual foundation, at least, for the sequestration, freeze or takeover
order, and adequate and fair opportunity to contest it and endeavor to cause its negation
or nullification. 61
Both are assured under the executive orders in question and the rules and regulations
promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness
and due process." 62Executive Order No. 2 declares that with respect to claims on allegedly
"ill-gotten" assets and properties, "it is the position of the new democratic government that
President Marcos * * (and other parties affected) be afforded fair opportunity to contest these
claims before appropriate Philippine authorities." 63 Section 7 of the Commission's Rules and
Regulations provides that sequestration or freeze (and takeover) orders issue upon the
authority of at least two commissioners, based on the affirmation or complaint of an
80
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by
which a party may seek to set aside a writ of sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a writ of
sequestration or freeze or hold order is directed may request the lifting
thereof in writing, either personally or through counsel within five (5) days
from receipt of the writ or order, or in the case of a hold order, from date
of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or
motu proprio for good cause shown, the Commission may lift the writ or
order unconditionally or subject to such conditions as it may deem
necessary, taking into consideration the evidence and the circumstance
of the case. The resolution of the commission may be appealed by the
party concerned to the Office of the President of the Philippines within
fifteen (15) days from receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth"
were not expressly imposed by some rule or regulation as a condition to warrant the
sequestration or freezing of property contemplated in the executive orders in question, it
would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and
official acts which are devoid of rational basis in fact or law, or are whimsical and
capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations as to the
validity and propriety of sequestration, freeze and takeover orders, it should be dispelled
by the fact that these particular remedies and the authority of the PCGG to issue them
have received constitutional approbation and sanction. As already mentioned, the
Provisional or "Freedom" Constitution recognizes the power and duty of the President to
enact "measures to achieve the mandate of the people to * * * (recover 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 treats of, and ratifies the "authority to issue sequestration or freeze orders
under Proclamation No. 3 dated March 25, 1986."
67
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," 69 and said
to be co-extensive with self-protection and * * not inaptly termed (also) the'law of overruling
necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the
PCGG is not, and was never intended to act as, a judge. Its general function is to
conduct investigations in order to collect evidenceestablishing instances of "ill-gotten
wealth;" issue sequestration, and such orders as may be warranted by the evidence thus
collected and as may be necessary to preserve and conserve the assets of which it takes
custody and control and prevent their disappearance, loss or dissipation; and
eventually file and prosecute in the proper court of competent jurisdiction all cases
investigated by it as may be warranted by its findings. It does not try and decide, or hear
and determine, or adjudicate with any character of finality or compulsion, cases involving
the essential issue of whether or not property should be forfeited and transferred to the
State because "ill-gotten" within the meaning of the Constitution and the executive
orders. This function is reserved to the designated court, in this case, the
Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation,
leveled by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and judge at the
same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the
record, hereafter to be discussed, the petition cannot succeed. The writs of certiorari and
prohibition prayed for will not be issued.
The facts show that the corporation known as BASECO was owned or controlled by
President Marcos "during his administration, through nominees, by taking undue
advantage of his public office and/or using his powers, authority, or influence, " and that it
was by and through the same means, that BASECO had taken over the business and/or
assets of the National Shipyard and Engineering Co., Inc., and other government-owned
or controlled entities.
12. Organization and Stock Distribution of BASECO
81
6. Manuel S.
Mendoza
96 shares
7. Anthony P. Lee
1,248 shares
8. Hilario M. Ruiz
32 shares
9. Constante L.
Farias
8 shares
10. Fidelity
Management, Inc.
65,882
shares
1. Jose A. Rojas
1,248 shares
2. Severino G. de
la Cruz
1,248 shares
11. Trident
Management
7,412 shares
3. Emilio T. Yap
2,508 shares
1,240 shares
4. Jose
Fernandez
1,248 shares
13. Renato M.
Tanseco
8 shares
5. Jose Francisco
128 shares
8 shares
82
136,370
shares
1 share
17. Jonathan G.
Lu
1 share
18. Jose J.
Tanchanco
1 share
19. Dioscoro
Papa
128 shares
20. Edward T.
Marcelo
4 shares
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 semiannually, 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
Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to
P24,311,550.00, about eight (8) months later. A document to this effect was executed on
October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by
Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as
General Manager. 77 This agreement bore, at the top right corner of the first page, the word
"APPROVED" in the handwriting of President Marcos, followed by his usual full signature.
The document recited that a down payment of P5,862,310.00 had been made by BASECO,
and the balance of P19,449,240.00 was payable in equal semi-annual installments over nine
(9) years after a grace period of two (2) years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in
Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00 of
which, as set out in the document of sale, P2,000.000.00 was paid upon its execution,
and the balance stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
TOTAL
218,819
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 of
NASSCO which had not been included in the first two (2) purchase documents. This was
accomplished by a deed entitled "Contract of Purchase and Sale," 79 which, like the
Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-hand
corner of its first page, the handwritten notation of President Marcos reading, "APPROVED,
July 29, 1973," and underneath it, his usual full signature. Transferred to BASECO were
NASSCO's "ownership and all its titles, rights and interests over all equipment and facilities
including structures, buildings, shops, quarters, houses, plants and expendable or semiexpendable assets, located at the Engineer Island, known as the Engineer Island Shops,
including all the equipment of the Bataan National Shipyards (BNS) which were excluded
from the sale of NBS to BASECO but retained by BASECO and all other selected equipment
83
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It
opened with the following caption:
MEMORANDUM:
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken
from "the last available Japanese war damage fund of $19,000,000.00," to pay for
"Japanese made heavy equipment (brand new)." 80 On September 3, 1975, it got another
loan also from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it
got still another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has
been made that not a single centavo has been paid on these loans. 82
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."
In September, 1977, two (2) reports were submitted to President Marcos regarding
BASECO. The first was contained in a letter dated September 5, 1977 of Hilario M. Ruiz,
BASECO president. 83 The second was embodied in a confidential memorandum dated
September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of
Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity.
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:
88
84
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
85
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."
86
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.
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
87
the witness in any criminal case, except a prosecution for perjury, giving a
false statement, or otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no
application to the case at bar either. There has been no search undertaken by any agent
or representative of the PCGG, and of course no seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of
the powers that may be wielded by the PCGG with regard to the properties or
businesses placed under sequestration or provisionally taken over. Obviously, it is not a
question to which an answer can be easily given, much less one which will suffice for
every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts
of dominion over property sequestered, frozen or provisionally taken over. AS already
earlier stressed with no little insistence, the act of sequestration; freezing or provisional
takeover of property does not import or bring about a divestment of title over said
property; does not make the PCGG the owner thereof. In relation to the property
sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an
owner. Therefore, it can not perform acts of strict ownership; and this is specially true in
the situations contemplated by the sequestration rules where, unlike cases of
receivership, for example, no court exercises effective supervision or can upon due
application and hearing, grant authority for the performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question should entail the
least possible interference with business operations or activities so that, in the event that
the accusation of the business enterprise being "ill gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time
of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or
business sequestered or provisionally taken over, much like a court-appointed
receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding
debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and
administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person
or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish
for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office,
agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns,
88
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
89
Plaintiff, in turn, made several demands, both verbal and written, upon
defendants (Exhs. E and F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She
claims, however, when demand was made upon her by plaintiff for her to
pay her debt to the Bank, that she told the Plaintiff that she did not
consider herself to be indebted to the Bank at all because she had an
agreement with one Jacobo-Nazon whereby she had leased to the latter
her unused export sugar quota for the 1956-1957 agricultural year,
consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of
P2,800.00, which was already in excess of her obligation guaranteed by
plaintiff's bond, Exh. A. This lease agreement, according to her, was with
the knowledge of the bank. But the Bank has placed obstacles to the
consummation of the lease, and the delay caused by said obstacles
forced 'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio filed
her third-party complaint against the Bank to recover from the latter any
and all sums of money which may be adjudged against her and in favor
of the plaitiff plus moral damages, attorney's fees and costs.
Insofar as the contentions of the parties herein are concerned, we quote
with approval the following findings of the lower court based on the
evidence presented at the trial of the case:
It has been established during the trial that Mrs. Tapnio
had an export sugar quota of 1,000 piculs for the
agricultural year 1956-1957 which she did not need. She
agreed to allow Mr. Jacobo C. Tuazon to use said quota
for the consideration of P2,500.00 (Exh. "4"-Gueco). This
agreement was called a contract of lease of sugar
allotment.
At the time of the agreement, Mrs. Tapnio was indebted to
the Philippine National Bank at San Fernando,
Pampanga. Her indebtedness was known as a crop loan
and was secured by a mortgage on her standing crop
including her sugar quota allocation for the agricultural
year corresponding to said standing crop. This
arrangement was necessary in order that when Mrs.
Tapnio harvests, the P.N.B., having a lien on the crop,
may effectively enforce collection against her. Her sugar
90
91
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this
nature is limited to reviewing only errors of law, accepting as conclusive the factual fin
dings of the Court of Appeals upon its own assessment of the evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco
Tapnio and Jacobo C. Tuazon was executed on April 17, 1956. This contract was
submitted to the Branch Manager of the Philippine National Bank at San Fernando,
Pampanga. This arrangement was necessary because Tapnio's indebtedness to
petitioner was secured by a mortgage on her standing crop including her sugar quota
allocation for the agricultural year corresponding to said standing crop. The latter
required the parties to raise the consideration to P2.80 per picul, the minimum lease
rental acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch
Manager, thru a letter dated August 10, 1956, that he was agreeable to raising the
consideration to P2.80 per picul. He further informed the manager that he was ready to
pay the said sum of P2,800.00 as the funds were in his folder which was kept in the said
Bank. This referred to the approved loan of Tuazon from the Bank which he intended to
use in paying for the use of the sugar quota. The Branch Manager submitted the contract
of lease of sugar quota allocation to the Head Office on September 7, 1956, with a
recommendation for approval, which recommendation was concurred in by the VicePresident of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of
Directors of petitioner required that the consideration be raised to P3.00 per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a
reconsideration thereof. On November 19, 1956, the Branch Manager submitted the
request for reconsideration and again recommended the approval of the lease at P2.80
per picul, but the Board returned the recommendation unacted, stating that the current
price prevailing at that time was P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer
interested in continuing the lease of sugar quota allotment. The crop year 1956-1957
ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her loss in the sum of
P2,800.00 which she should have received had the lease in favor of Tuazon been
implemented.
It has been clearly shown that when the Branch Manager of petitioner required the
parties to raise the consideration of the lease from P2.50 to P2.80 per picul, or a total of
P2,800-00, they readily agreed. Hence, in his letter to the Branch Manager of the Bank
on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per
picul was acceptable to him and that he even offered to use the loan secured by him
from petitioner to pay in full the sum of P2,800.00 which was the total consideration of
92
damages caused on private respondents. Under Article 21 of the New Civil Code, "any
person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage." The afore-cited
provisions on human relations were intended to expand the concept of torts in this jurisdiction
by granting adequate legal remedy for the untold number of moral wrongs which is impossible
for human foresight to specifically provide in the statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts, because
"generally speaking, the rules governing the liability of a principal or master for a tort
committed by an agent or servant are the same whether the principal or master be a
natural person or a corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable for every tort which
he expressly directs or authorizes, and this is just as true of a corporation as of a natural
person, A corporation is liable, therefore, whenever a tortious act is committed by an
officer or agent under express direction or authority from the stockholders or members
acting as a body, or, generally, from the directors as the governing body." 6
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby
AFFIRMED.
G.R. No. 126297
January 31, 2007
PROFESSIONAL SERVICES, INC vs. NATIVIDAD and ENRIQUE AGANA
Hospitals, having undertaken one of mankinds most important and delicate endeavors,
must assume the grave responsibility of pursuing it with appropriate care. The care and
service dispensed through this high trust, however technical, complex and esoteric its
character may be, must meet standards of responsibility commensurate with the
undertaking to preserve and protect the health, and indeed, the very lives of those placed
in the hospitals keeping.1
Assailed in these three consolidated petitions for review on certiorari is the Court of
Appeals Decision2 dated September 6, 1996 in CA-G.R. CV No. 42062 and CA-G.R. SP
No. 32198 affirming with modification the Decision3dated March 17, 1993 of the Regional
Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q-43322 and nullifying its
Order dated September 21, 1993.
The facts, as culled from the records, are:
On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital
(Medical City Hospital) because of difficulty of bowel movement and bloody anal
93
Dr. Ampils assurance did not come true. Instead, the pains intensified, prompting
Natividad to seek treatment at the Polymedic General Hospital. While confined there, Dr.
Ramon Gutierrez detected the presence of another foreign object in her vagina -- a foulsmelling gauze measuring 1.5 inches in width which badly infected her vaginal vault. A
recto-vaginal fistula had formed in her reproductive organs which forced stool to excrete
through the vagina. Another surgical operation was needed to remedy the damage.
Thus, in October 1984, Natividad underwent another surgery.
On November 12, 1984, Natividad and her husband filed with the RTC, Branch 96,
Quezon City a complaint for damages against the Professional Services, Inc. (PSI),
owner of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes, docketed as Civil Case
No. Q-43322. They alleged that the latter are liable for negligence for leaving two pieces
of gauze inside Natividads body and malpractice for concealing their acts of negligence.
"announced to surgeon searched (sic) done but to no avail continue for closure."
Meanwhile, Enrique Agana also filed with the Professional Regulation Commission
(PRC) an administrative complaint for gross negligence and malpractice against Dr.
Ampil and Dr. Fuentes, docketed as Administrative Case No. 1690. The PRC Board of
Medicine heard the case only with respect to Dr. Fuentes because it failed to acquire
jurisdiction over Dr. Ampil who was then in the United States.
On April 24, 1984, Natividad was released from the hospital. Her hospital and medical
bills, including the doctors fees, amounted to P60,000.00.
On February 16, 1986, pending the outcome of the above cases, Natividad died and was
duly substituted by her above-named children (the Aganas).
After a couple of days, Natividad complained of excruciating pain in her anal region. She
consulted both Dr. Ampil and Dr. Fuentes about it. They told her that the pain was the
natural consequence of the surgery. Dr. Ampil then recommended that she consult an
oncologist to examine the cancerous nodes which were not removed during the
operation.
On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI,
Dr. Ampil and Dr. Fuentes liable for negligence and malpractice, the decretal part of
which reads:
On May 9, 1984, Natividad, accompanied by her husband, went to the United States to
seek further treatment. After four months of consultations and laboratory examinations,
Natividad was told she was free of cancer. Hence, she was advised to return to the
Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two
weeks thereafter, her daughter found a piece of gauze protruding from her vagina. Upon
being informed about it, Dr. Ampil proceeded to her house where he managed to extract
by hand a piece of gauze measuring 1.5 inches in width. He then assured her that the
pains would soon vanish.
WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the defendants
PROFESSIONAL SERVICES, INC., DR. MIGUEL AMPIL and DR. JUAN FUENTES to
pay to the plaintiffs, jointly and severally, except in respect of the award for exemplary
damages and the interest thereon which are the liabilities of defendants Dr. Ampil and Dr.
Fuentes only, as follows:
1. As actual damages, the following amounts:
a. The equivalent in Philippine Currency of the total of US$19,900.00 at
the rate of P21.60-US$1.00, as reimbursement of actual expenses
incurred in the United States of America;
94
Meanwhile, on January 23, 1995, the PRC Board of Medicine rendered its Decision 6 in
Administrative Case No. 1690 dismissing the case against Dr. Fuentes. The Board held
that the prosecution failed to show that Dr. Fuentes was the one who left the two pieces
of gauze inside Natividads body; and that he concealed such fact from Natividad.
On September 6, 1996, the Court of Appeals rendered its Decision jointly disposing of
CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198, thus:
WHEREFORE, except for the modification that the case against defendant-appellant Dr.
Juan Fuentes is hereby DISMISSED, and with the pronouncement that defendantappellant Dr. Miguel Ampil is liable to reimburse defendant-appellant Professional
Services, Inc., whatever amount the latter will pay or had paid to the plaintiffs-appellees,
the decision appealed from is hereby AFFIRMED and the instant appeal DISMISSED.
Concomitant with the above, the petition for certiorari and prohibition filed by herein
defendant-appellant Dr. Juan Fuentes in CA-G.R. SP No. 32198 is hereby GRANTED
and the challenged order of the respondent judge dated September 21, 1993, as well as
the alias writ of execution issued pursuant thereto are hereby NULLIFIED and SET
ASIDE. The bond posted by the petitioner in connection with the writ of preliminary
injunction issued by this Court on November 29, 1993 is hereby cancelled.
Costs against defendants-appellants Dr. Miguel Ampil and Professional Services, Inc.
SO ORDERED.
Only Dr. Ampil filed a motion for reconsideration, but it was denied in a Resolution 7 dated
December 19, 1996.
Hence, the instant consolidated petitions.
In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in holding
that: (1) it is estopped from raising the defense that Dr. Ampil is not its employee; (2) it is
solidarily liable with Dr. Ampil; and (3) it is not entitled to its counterclaim against the
Aganas. PSI contends that Dr. Ampil is not its employee, but a mere consultant or
independent contractor. As such, he alone should answer for his negligence.
In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in finding that
Dr. Fuentes is not guilty of negligence or medical malpractice, invoking the doctrine of
res ipsa loquitur. They contend that the pieces of gauze are prima facie proofs that the
operating surgeons have been negligent.
95
was announced to surgeon and that a search was done but to no avail
prompting Dr. Ampil to continue for closure x x x.
Third, after the operation, two (2) gauzes were extracted from the same spot of
the body of Mrs. Agana where the surgery was performed.
An operation requiring the placing of sponges in the incision is not complete until the
sponges are properly removed, and it is settled that the leaving of sponges or other
foreign substances in the wound after the incision has been closed is at least prima facie
negligence by the operating surgeon.8 To put it simply, such act is considered so
inconsistent with due care as to raise an inference of negligence. There are even legions
of authorities to the effect that such act is negligence per se. 9
Of course, the Court is not blind to the reality that there are times when danger to a
patients life precludes a surgeon from further searching missing sponges or foreign
objects left in the body. But this does not leave him free from any obligation. Even if it
has been shown that a surgeon was required by the urgent necessities of the case to
leave a sponge in his patients abdomen, because of the dangers attendant upon delay,
still, it is his legal duty to so inform his patient within a reasonable time thereafter by
advising her of what he had been compelled to do. This is in order that she might seek
relief from the effects of the foreign object left in her body as her condition might permit.
The ruling in Smith v. Zeagler10 is explicit, thus:
The removal of all sponges used is part of a surgical operation, and when a physician or
surgeon fails to remove a sponge he has placed in his patients body that should be
removed as part of the operation, he thereby leaves his operation uncompleted and
creates a new condition which imposes upon him the legal duty of calling the new
condition to his patients attention, and endeavoring with the means he has at hand to
minimize and avoid untoward results likely to ensue therefrom.
Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze. Worse,
he even misled her that the pain she was experiencing was the ordinary consequence of
her operation. Had he been more candid, Natividad could have taken the immediate and
appropriate medical remedy to remove the gauzes from her body. To our mind, what was
initially an act of negligence by Dr. Ampil has ripened into a deliberate wrongful act of
deceiving his patient.
This is a clear case of medical malpractice or more appropriately, medical negligence. To
successfully pursue this kind of case, a patient must only prove that a health care
provider either failed to do something which a reasonably prudent health care provider
96
caused the injury was under the control and management of the defendant; (3) the
occurrence was such that in the ordinary course of things, would not have happened if
those who had control or management used proper care; and (4) the absence of
explanation by the defendant. Of the foregoing requisites, the most instrumental is the
"control and management of the thing which caused the injury." 15
We find the element of "control and management of the thing which caused the injury" to
be wanting. Hence, the doctrine of res ipsa loquitur will not lie.
It was duly established that Dr. Ampil was the lead surgeon during the operation of
Natividad. He requested the assistance of Dr. Fuentes only to perform hysterectomy
when he (Dr. Ampil) found that the malignancy in her sigmoid area had spread to her left
ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work
to Dr. Ampil. The latter examined it and finding everything to be in order, allowed Dr.
Fuentes to leave the operating room. Dr. Ampil then resumed operating on Natividad. He
was about to finish the procedure when the attending nurses informed him that two
pieces of gauze were missing. A "diligent search" was conducted, but the misplaced
gauzes were not found. Dr. Ampil then directed that the incision be closed. During this
entire period, Dr. Fuentes was no longer in the operating room and had, in fact, left the
hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the person in complete
charge of the surgery room and all personnel connected with the operation. Their duty is
to obey his orders.16 As stated before, Dr. Ampil was the lead surgeon. In other words, he
was the "Captain of the Ship." That he discharged such role is evident from his following
conduct: (1) calling Dr. Fuentes to perform a hysterectomy; (2) examining the work of Dr.
Fuentes and finding it in order; (3) granting Dr. Fuentes permission to leave; and (4)
ordering the closure of the incision. To our mind, it was this act of ordering the closure of
the incision notwithstanding that two pieces of gauze remained unaccounted for, that
caused injury to Natividads body. Clearly, the control and management of the thing
which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.
In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per
se create or constitute an independent or separate ground of liability, being a mere
evidentiary rule.17 In other words, mere invocation and application of the doctrine does
not dispense with the requirement of proof of negligence. Here, the negligence was
proven to have been committed by Dr. Ampil and not by Dr. Fuentes.
III - G.R. No. 126297
97
x x x
x x x
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.
A prominent civilist commented that professionals engaged by an employer, such as
physicians, dentists, and pharmacists, are not "employees" under this article because the
manner in which they perform their work is not within the control of the latter (employer).
In other words, professionals are considered personally liable for the fault or negligence
they commit in the discharge of their duties, and their employer cannot be held liable for
such fault or negligence. In the context of the present case, "a hospital cannot be held
liable for the fault or negligence of a physician or surgeon in the treatment or operation of
patients."21
The foregoing view is grounded on the traditional notion that the professional status and
the very nature of the physicians calling preclude him from being classed as an agent or
employee of a hospital, whenever he acts in a professional capacity.22 It has been said
that medical practice strictly involves highly developed and specialized knowledge, 23 such
that physicians are generally free to exercise their own skill and judgment in rendering
medical services sans interference.24 Hence, when a doctor practices medicine in a
hospital setting, the hospital and its employees are deemed to subserve him in his
ministrations to the patient and his actions are of his own responsibility.25
The case of Schloendorff v. Society of New York Hospital26 was then considered an
authority for this view. The "Schloendorff doctrine" regards a physician, even if employed
by a hospital, as an independent contractor because of the skill he exercises and the
lack of control exerted over his work. Under this doctrine, hospitals are exempt from the
application of the respondeat superior principle for fault or negligence committed by
physicians in the discharge of their profession.
However, the efficacy of the foregoing doctrine has weakened with the significant
developments in medical care. Courts came to realize that modern hospitals are
increasingly taking active role in supplying and regulating medical care to patients. No
longer were a hospitals functions limited to furnishing room, food, facilities for treatment
and operation, and attendants for its patients. Thus, in Bing v. Thunig, 27 the New York
Court of Appeals deviated from the Schloendorff doctrine, noting that modern hospitals
actually do far more than provide facilities for treatment. Rather, they regularly employ,
on a salaried basis, a large staff of physicians, interns, nurses, administrative and
manual workers. They charge patients for medical care and treatment, even collecting for
98
test is determining. Accordingly, on the basis of the foregoing, we rule that for the
purpose of allocating responsibility in medical negligence cases, an employer-employee
relationship in effect exists between hospitals and their attending and visiting physicians.
"
But the Ramos pronouncement is not our only basis in sustaining PSIs liability. Its
liability is also anchored upon the agency principle of apparent authority or agency by
estoppel and the doctrine of corporate negligence which have gained acceptance in the
determination of a hospitals liability for negligent acts of health professionals. The
present case serves as a perfect platform to test the applicability of these doctrines, thus,
enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as the "holding
out" theory, or doctrine of ostensible agency or agency by estoppel,29 has its origin from
the law of agency. It imposes liability, not as the result of the reality of a contractual
relationship, but rather because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the authority exists. 30 The
concept is essentially one of estoppel and has been explained in this manner:
"The principal is bound by the acts of his agent with the apparent authority which he
knowingly permits the agent to assume, or which he holds the agent out to the public as
possessing. The question in every case is whether the principal has by his voluntary act
placed the agent in such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in presuming that
such agent has authority to perform the particular act in question. 31
The applicability of apparent authority in the field of hospital liability was upheld long time
ago in Irving v. Doctor Hospital of Lake Worth, Inc.32 There, it was explicitly stated that
"there does not appear to be any rational basis for excluding the concept of apparent
authority from the field of hospital liability." Thus, in cases where it can be shown that a
hospital, by its actions, has held out a particular physician as its agent and/or employee
and that a patient has accepted treatment from that physician in the reasonable belief
that it is being rendered in behalf of the hospital, then the hospital will be liable for the
physicians negligence.
Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article
1869 of the Civil Code reads:
99
surgeons." Premised on the doctrine of corporate negligence, the trial court held that
PSI is directly liable for such breach of duty.
34
Recent years have seen the doctrine of corporate negligence as the judicial answer to
the problem of allocating hospitals liability for the negligent acts of health practitioners,
absent facts to support the application of respondeat superior or apparent authority. Its
formulation proceeds from the judiciarys acknowledgment that in these modern times,
the duty of providing quality medical service is no longer the sole prerogative and
responsibility of the physician. The modern hospitals have changed structure. Hospitals
now tend to organize a highly professional medical staff whose competence and
performance need to be monitored by the hospitals commensurate with their inherent
responsibility to provide quality medical care.35
The doctrine has its genesis in Darling v. Charleston Community Hospital.36 There, the
Supreme Court of Illinois held that "the jury could have found a hospital negligent, inter
alia, in failing to have a sufficient number of trained nurses attending the patient; failing to
require a consultation with or examination by members of the hospital staff; and failing to
review the treatment rendered to the patient." On the basis of Darling, other jurisdictions
held that a hospitals corporate negligence extends to permitting a physician known to be
incompetent to practice at the hospital.37 With the passage of time, more duties were
expected from hospitals, among them: (1) the use of reasonable care in the maintenance
of safe and adequate facilities and equipment; (2) the selection and retention of
competent physicians; (3) the overseeing or supervision of all persons who practice
medicine within its walls; and (4) the formulation, adoption and enforcement of adequate
rules and policies that ensure quality care for its patients.38 Thus, in Tucson Medical
Center, Inc. v. Misevich,39 it was held that a hospital, following the doctrine of corporate
responsibility, has the duty to see that it meets the standards of responsibilities for the
care of patients. Such duty includes the proper supervision of the members of its medical
staff. And in Bost v. Riley,40 the court concluded that a patient who enters a hospital does
so with the reasonable expectation that it will attempt to cure him. The hospital
accordingly has the duty to make a reasonable effort to monitor and oversee the
treatment prescribed and administered by the physicians practicing in its premises.
One allegation in the complaint in Civil Case No. Q-43332 for negligence and
malpractice is that PSI as owner, operator and manager of Medical City Hospital, "did not
perform the necessary supervision nor exercise diligent efforts in the supervision of Drs.
Ampil and Fuentes and its nursing staff, resident doctors, and medical interns who
assisted Drs. Ampil and Fuentes in the performance of their duties as
In the present case, it was duly established that PSI operates the Medical City Hospital
for the purpose and under the concept of providing comprehensive medical services to
the public. Accordingly, it has the duty to exercise reasonable care to protect from harm
all patients admitted into its facility for medical treatment. Unfortunately, PSI failed to
perform such duty. The findings of the trial court are convincing, thus:
x x x regardless of the education and status in life of the patient, he ought not be
burdened with the defense of absence of employer-employee relationship between the
hospital and the independent physician whose name and competence are certainly
certified to the general public by the hospitals act of listing him and his specialty in its
lobby directory, as in the case herein. The high costs of todays medical and health care
should at least exact on the hospital greater, if not broader, legal responsibility for the
conduct of treatment and surgery within its facility by its accredited physician or surgeon,
regardless of whether he is independent or employed."33
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI,
are capable of acting only through other individuals, such as physicians. If these
accredited physicians do their job well, the hospital succeeds in its mission of offering
quality medical services and thus profits financially. Logically, where negligence mars the
quality of its services, the hospital should not be allowed to escape liability for the acts of
its ostensible agents.
100
was employing a method of treatment or care which fell below the recognized standard
of care.
Subsequent to the Purcell decision, the Arizona Court of Appeals held that a hospital has
certain inherent responsibilities regarding the quality of medical care furnished to patients
within its walls and it must meet the standards of responsibility commensurate with this
undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App. 165, 500 P. 2d 1153
(1972). This court has confirmed the rulings of the Court of Appeals that a hospital has
the duty of supervising the competence of the doctors on its staff. x x x.
x x
x
x x x
In the amended complaint, the plaintiffs did plead that the operation was performed at
the hospital with its knowledge, aid, and assistance, and that the negligence of the
defendants was the proximate cause of the patients injuries. We find that such general
allegations of negligence, along with the evidence produced at the trial of this case, are
sufficient to support the hospitals liability based on the theory of negligent supervision."
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let
it be emphasized that PSI, apart from a general denial of its responsibility, failed to
adduce evidence showing that it exercised the diligence of a good father of a family in
the accreditation and supervision of the latter. In neglecting to offer such proof, PSI failed
to discharge its burden under the last paragraph of Article 2180 cited earlier, and,
therefore, must be adjudged solidarily liable with Dr. Ampil. Moreover, as we have
discussed, PSI is also directly liable to the Aganas.
One final word. Once a physician undertakes the treatment and care of a patient, the law
imposes on him certain obligations. In order to escape liability, he must possess that
reasonable degree of learning, skill and experience required by his profession. At the
same time, he must apply reasonable care and diligence in the exercise of his skill and
the application of his knowledge, and exert his best judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the
Court of Appeals in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198.
Costs against petitioners PSI and Dr. Miguel Ampil.
SO ORDERED.
101
On May 9, 1984, Natividad, accompanied by her husband, went to the United States to
seek further treatment. After four (4) months of consultations and laboratory
examinations, Natividad was told that she was free of cancer. Hence, she was advised to
return to the Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two
(2) weeks thereafter, her daughter found a piece of gauze protruding from her vagina. Dr.
Ampil was immediately informed. He proceeded to Natividads house where he managed
to extract by hand a piece of gauze measuring 1.5 inches in width. Dr. Ampil then
assured Natividad that the pains would soon vanish.
Despite Dr. Ampils assurance, the pains intensified, prompting Natividad to seek
treatment at the Polymedic General Hospital. While confined thereat, Dr. Ramon
Gutierrez detected the presence of a foreign object in her vagina -- a foul-smelling gauze
measuring 1.5 inches in width. The gauze had badly infected her vaginal vault. A rectovaginal fistula had formed in her reproductive organ which forced stool to excrete through
the vagina. Another surgical operation was needed to remedy the situation. Thus, in
October 1984, Natividad underwent another surgery.
On November 12, 1984, Natividad and her husband filed with the Regional Trial Court,
Branch 96, Quezon City a complaint for damages against PSI (owner of Medical City),
Dr. Ampil and Dr. Fuentes.
On February 16, 1986, pending the outcome of the above case, Natividad died. She was
duly substituted by her above-named children (the Aganas).
On March 17, 1993, the trial court rendered judgment in favor of spouses Agana finding
PSI, Dr. Ampil and Dr. Fuentes jointly and severally liable. On appeal, the Court of
Appeals, in its Decision dated September 6, 1996, affirmed the assailed judgment with
modification in the sense that the complaint against Dr. Fuentes was dismissed.
PSI, Dr. Ampil and the Aganas filed with this Court separate petitions for review
on certiorari. On January 31, 2007, the Court, through its First Division, rendered a
Decision holding that PSI is jointly and severally liable with Dr. Ampil for the following
reasons: first, there is an employer-employee relationship between Medical City and Dr.
Ampil. The Court relied on Ramos v. Court of Appeals,2 holding that for the purpose of
apportioning responsibility in medical negligence cases, an employer-employee
relationship in effect exists between hospitals and their attending and visiting
physicians; second, PSIs act of publicly displaying in the lobby of the Medical City the
names and specializations of its accredited physicians, including Dr. Ampil, estopped it
102
103
representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon." Estoppel rests on this
rule: "Whether a party has, by his own declaration, act, or omission, intentionally
and deliberately led another to believe a particular thing true, and to act upon
such belief, he cannot, in any litigation arising out of such declaration, act or
omission, be permitted to falsify it. (De Castro v. Ginete, 137 Phil. 453 [1969],
citing Sec. 3, par. A, Rule 131 of the Rules of Court. See also King v. Mitchell, 31
A.D.3rd 958, 819 N.Y.S.2d 169 [2006]).
xxx
In Nograles, et al. v. Capitol Medical Center, et al.,4 through Mr. Justice Antonio T. Carpio,
the Court held:
The question now is whether CMC is automatically exempt from liability
considering that Dr. Estrada is an independent contractor-physician.
In general, a hospital is not liable for the negligence of an independent
contractor-physician. There is, however, an exception to this principle. The
hospital may be liable if the physician is the "ostensible" agent of the hospital.
(Jones v. Philpott, 702 F. Supp. 1210 [1988]) This exception is also known as the
"doctrine of apparent authority." (Sometimes referred to as the apparent or
ostensible agency theory. [King v. Mitchell, 31 A.D.3rd 958, 819 N.Y. S.2d 169
(2006)].
xxx
The doctrine of apparent authority essentially involves two factors to determine
the liability of an independent contractor-physician.
The first factor focuses on the hospitals manifestations and is sometimes
described as an inquiry whether the hospital acted in a manner which would lead
a reasonable person to conclude that the individual who was alleged to be
negligent was an employee or agent of the hospital. (Diggs v. Novant Health,
Inc., 628 S.E.2d 851 (2006) citing Hylton v. Koontz, 138 N.C. App. 629 (2000). In
this regard, the hospital need not make express representations to the
patient that the treating physician is an employee of the hospital; rather a
representation may be general and implied. (Id.)
A Well, I saw Dr. Ampil at the Medical City, I know him to be a staff member
there, and I told him about the case of my wife and he asked me to bring my wife
over so she could be examined. Prior to that, I have known Dr. Ampil, first, he
was staying in front of our house, he was a neighbor, second, my daughter was
his student in the University of the East School of Medicine at Ramon
Magsaysay; and when my daughter opted to establish a hospital or a clinic, Dr.
Ampil was one of our consultants on how to establish that hospital. And from
there, I have known that he was a specialist when it comes to that illness.
Atty. Agcaoili
104
Clearly, PSI is estopped from passing the blame solely to Dr. Ampil. Its act of displaying
his name and those of the other physicians in the public directory at the lobby of the
hospital amounts to holding out to the public that it offers quality medical service through
the listed physicians. This justifies Atty. Aganas belief that Dr. Ampil was a member of
the hospitals staff. It must be stressed that under the doctrine of apparent authority,
the question in every case is whether the principal has by his voluntary act placed
the agent in such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in
presuming that such agent has authority to perform the particular act in
question.6 In these cases, the circumstances yield a positive answer to the question.
The challenged Decision also anchors its ruling on the doctrine of corporate
responsibility.7 The duty of providing quality medical service is no longer the sole
prerogative and responsibility of the physician. This is because the modern hospital now
tends to organize a highly-professional medical staff whose competence and
performance need also to be monitored by the hospital commensurate with its inherent
responsibility to provide quality medical care.8 Such responsibility includes the proper
supervision of the members of its medical staff. Accordingly, the hospital has the
duty to make a reasonable effort to monitor and oversee the treatment prescribed
and administered by the physicians practicing in its premises.
Unfortunately, PSI had been remiss in its duty. It did not conduct an immediate
investigation on the reported missing gauzes to the great prejudice and agony of its
patient. Dr. Jocson, a member of PSIs medical staff, who testified on whether the
hospital conducted an investigation, was evasive, thus:
Q We go back to the operative technique, this was signed by Dr.
Puruganan, was this submitted to the hospital?
A Yes, sir, this was submitted to the hospital with the record of the
patient.
The hospital already had the record of the two OS missing, sir.
Q If you place yourself in the position of the hospital, how will you
recover.
A
The hospital left it up to the surgeon who was doing the operation, sir.
Did the hospital investigate the surgeon who did the operation?
Q You never did hear the hospital investigating the doctors involved in
this case of those missing sponges, or did you hear something?
xxxxxx
A I think we already made a report by just saying that two sponges were
missing, it is up to the hospital to make the move.
Atty. Agana
Precisely, I am asking you if the hospital did a move, if the hospital did a
move.
A
Court
105
After your talk to Dr. Ampil, you went to the record custodian?
A I went to the record custodian to get the clinical record of my wife, and
I was given a portion of the records consisting of the findings, among
them, the entries of the dates, but not the operating procedure and
operative report.10
With prior leave of court, petitioner Professional Services, Inc. (PSI) filed a second
motion for reconsideration2urging referral thereof to the Court en banc and seeking
modification of the decision dated January 31, 2007 and resolution dated February 11,
2008 which affirmed its vicarious and direct liability for damages to respondents Enrique
Agana and the heirs of Natividad Agana (Aganas).
1
Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc. (AHI),4 and Private Hospital
Association of the Philippines (PHAP)5 all sought to intervene in these cases invoking the
common ground that, unless modified, the assailed decision and resolution will
jeopardize the financial viability of private hospitals and jack up the cost of health care.
The Special First Division of the Court granted the motions for intervention of MMSI, AHI
and PHAP (hereafter intervenors),6 and referred en consulta to the Court en banc the
motion for prior leave of court and the second motion for reconsideration of PSI. 7
Due to paramount public interest, the Court en banc accepted the referral8 and heard the
parties on oral arguments on one particular issue: whether a hospital may be held liable
for the negligence of physicians-consultants allowed to practice in its premises. 9
To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil) and Dr. Juan
Fuentes (Dr. Fuentes), was impleaded by Enrique Agana and Natividad Agana (later
substituted by her heirs), in a complaint10 for damages filed in the Regional Trial Court
(RTC) of Quezon City, Branch 96, for the injuries suffered by Natividad when Dr. Ampil
and Dr. Fuentes neglected to remove from her body two gauzes 11 which were used in the
surgery they performed on her on April 11, 1984 at the Medical City General Hospital.
PSI was impleaded as owner, operator and manager of the hospital.
In a decision12 dated March 17, 1993, the RTC held PSI solidarily liable with Dr. Ampil
and Dr. Fuentes for damages.13 On appeal, the Court of Appeals (CA), absolved Dr.
Fuentes but affirmed the liability of Dr. Ampil and PSI, subject to the right of PSI to claim
reimbursement from Dr. Ampil.14
1avvphi1
On petition for review, this Court, in its January 31, 2007 decision, affirmed the CA
decision.15 PSI filed a motion for reconsideration16 but the Court denied it in a resolution
dated February 11, 2008.17
The Court premised the direct liability of PSI to the Aganas on the following facts and
law:
106
The declaration in the 31 January 2007 Decision vis-a-vis the 11 February 2009
Resolution that the ruling in Ramos vs. Court of Appeals (G.R. No. 134354, December
29, 1999) that "an employer-employee relations exists between hospital and their
consultants" stays should be set aside for being inconsistent with or contrary to the
import of the resolution granting the hospital's motion for reconsideration in Ramos vs.
Court of Appeals (G.R. No. 134354, April 11, 2002), which is applicable to PSI since the
Aganas failed to prove an employer-employee relationship between PSI and Dr. Ampil
and PSI proved that it has no control over Dr. Ampil. In fact, the trial court has found that
there is no employer-employee relationship in this case and that the doctor's are
independent contractors.
II
Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not primarily and
specifically look to the Medical City Hospital (PSI) for medical care and support;
otherwise stated, respondents Aganas did not select Medical City Hospital (PSI) to
provide medical care because of any apparent authority of Dr. Miguel Ampil as its agent
since the latter was chosen primarily and specifically based on his qualifications and
being friend and neighbor.
III
PSI cannot be liable under doctrine of corporate negligence since the proximate cause of
Mrs. Agana's injury was the negligence of Dr. Ampil, which is an element of the principle
of corporate negligence.29
In their respective memoranda, intervenors raise parallel arguments that the Court's
ruling on the existence of an employer-employee relationship between private hospitals
and consultants will force a drastic and complex alteration in the long-established and
currently prevailing relationships among patient, physician and hospital, with
burdensome operational and financial consequences and adverse effects on all three
parties.30
The Aganas comment that the arguments of PSI need no longer be entertained for they
have all been traversed in the assailed decision and resolution. 31
After gathering its thoughts on the issues, this Court holds that PSI is liable to the
Aganas, not under the principle of respondeat superior for lack of evidence of an
employment relationship with Dr. Ampil but under the principle of ostensible agency for
107
medical director, no operations can be undertaken in those areas. For control test
to apply, it is not essential for the employer to actually supervise the performance
of duties of the employee, it being enough that it has the right to wield the
power. (emphasis supplied)
Even in its December 29, 1999 decision41 and April 11, 2002 resolution42 in Ramos, the
Court found the control test decisive.
In the present case, it appears to have escaped the Court's attention that both the RTC
and the CA found no employment relationship between PSI and Dr. Ampil, and that the
Aganas did not question such finding. In its March 17, 1993 decision, the RTC found
"that defendant doctors were not employees of PSI in its hospital, they being merely
consultants without any employer-employee relationship and in the capacity of
independent contractors."43 The Aganas never questioned such finding.
PSI, Dr. Ampil and Dr. Fuentes appealed44 from the RTC decision but only on the issues
of negligence, agency and corporate liability. In its September 6, 1996 decision, the CA
mistakenly referred to PSI and Dr. Ampil as employer-employee, but it was clear in its
discussion on the matter that it viewed their relationship as one of mere apparent
agency.45
This Court still employs the "control test" to determine the existence of an employeremployee relationship between hospital and doctor. In Calamba Medical Center, Inc. v.
National Labor Relations Commission, et al.40 it held:
The Aganas appealed from the CA decision, but only to question the exoneration of Dr.
Fuentes.46 PSI also appealed from the CA decision, and it was then that the issue of
employment, though long settled, was unwittingly resurrected.
Under the "control test", an employment relationship exists between a physician and a
hospital if the hospital controls both the means and the details of the process by which
the physician is to accomplish his task.
In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had no
employer-employee relationship, such finding became final and conclusive even to this
Court.47 There was no reason for PSI to have raised it as an issue in its petition. Thus,
whatever discussion on the matter that may have ensued was purely academic.
xxx
xxx
xxx
Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this particular
instance, the concurrent finding of the RTC and the CA that PSI was not the employer of
Dr. Ampil is correct. Control as a determinative factor in testing the employer-employee
relationship between doctor and hospital under which the hospital could be held
vicariously liable to a patient in medical negligence cases is a requisite fact to be
established by preponderance of evidence. Here, there was insufficient evidence that
PSI exercised the power of control or wielded such power over the means and the details
of the specific process by which Dr. Ampil applied his skills in the treatment of Natividad.
Consequently, PSI cannot be held vicariously liable for the negligence of Dr. Ampil under
the principle of respondeat superior.
108
the physicians of this hospital for and during the confinement of xxx. (emphasis
supplied)
By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a
physician of its hospital, rather than one independently practicing in it; that the
medications and treatments he prescribed were necessary and desirable; and that the
hospital staff was prepared to carry them out.
1avvphi1
Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the condition of
his wife; that after the meeting and as advised by Dr. Ampil, he "asked [his] wife to go to
Medical City to be examined by [Dr. Ampil]"; and that the next day, April 3, he told his
daughter to take her mother to Dr. Ampil.50 This timeline indicates that it was Enrique who
actually made the decision on whom Natividad should consult and where, and that the
latter merely acceded to it. It explains the testimony of Natividad that she consulted Dr.
Ampil at the instigation of her daughter.51
Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified:
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for choosing Dr. Ampil to
contact with in connection with your wife's illness?
A. First, before that, I have known him to be a specialist on that part of the body as a
surgeon, second, I have known him to be a staff member of the Medical City which is
a prominent and known hospital. And third, because he is a neighbor, I expect more
than the usual medical service to be given to us, than his ordinary patients. 52(emphasis
supplied)
Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was significantly
influenced by the impression that Dr. Ampil was a staff member of Medical City General
Hospital, and that said hospital was well known and prominent. Enrique looked upon Dr.
Ampil not as independent of but as integrally related to Medical City.
PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view. It is of
record that PSI required a "consent for hospital care" 53 to be signed preparatory to the
surgery of Natividad. The form reads:
Permission is hereby given to the medical, nursing and laboratory staff of the Medical
City General Hospital to perform such diagnostic procedures and to administer such
medications and treatments as may be deemed necessary or advisable by
PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not the
exclusive basis of the Aganas decision to have Natividad treated in Medical City General
Hospital, meaning that, had Dr. Ampil been affiliated with another hospital, he would still
have been chosen by the Aganas as Natividad's surgeon.54
The Court cannot speculate on what could have been behind the Aganas decision but
would rather adhere strictly to the fact that, under the circumstances at that time, Enrique
decided to consult Dr. Ampil for he believed him to be a staff member of a prominent and
known hospital. After his meeting with Dr. Ampil, Enrique advised his wife Natividad to go
to the Medical City General Hospital to be examined by said doctor, and the hospital
acted in a way that fortified Enrique's belief.
This Court must therefore maintain the ruling that PSI is vicariously liable for the
negligence of Dr. Ampil as its ostensible agent.
Moving on to the next issue, the Court notes that PSI made the following admission in its
Motion for Reconsideration:
51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not liable for Dr.
Ampil's acts during the operation. Considering further that Dr. Ampil was personally
engaged as a doctor by Mrs. Agana, it is incumbent upon Dr. Ampil, as "Captain of the
Ship", and as the Agana's doctor to advise her on what to do with her situation vis-a-vis
the two missing gauzes. In addition to noting the missing gauzes, regular check-ups
were made and no signs of complications were exhibited during her stay at the
hospital, which could have alerted petitioner PSI's hospital to render and provide
post-operation services to and tread on Dr. Ampil's role as the doctor of Mrs.
Agana. The absence of negligence of PSI from the patient's admission up to her
discharge is borne by the finding of facts in this case. Likewise evident therefrom
is the absence of any complaint from Mrs. Agana after her discharge from the
hospital which had she brought to the hospital's attention, could have alerted
petitioner PSI to act accordingly and bring the matter to Dr. Ampil's attention. But
this was not the case. Ms. Agana complained ONLY to Drs. Ampil and Fuentes, not
109
PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed
the personal responsibility of informing Natividad about the two missing gauzes. 61 Dr.
Ricardo Jocson, who was part of the group of doctors that attended to Natividad, testified
that toward the end of the surgery, their group talked about the missing gauzes but Dr.
Ampil assured them that he would personally notify the patient about it. 62 Furthermore,
PSI claimed that there was no reason for it to act on the report on the two missing
gauzes because Natividad Agana showed no signs of complications. She did not even
inform the hospital about her discomfort.63
The excuses proffered by PSI are totally unacceptable.
To begin with, PSI could not simply wave off the problem and nonchalantly delegate to
Dr. Ampil the duty to review what transpired during the operation. The purpose of such
review would have been to pinpoint when, how and by whom two surgical gauzes were
mislaid so that necessary remedial measures could be taken to avert any jeopardy to
Natividads recovery. Certainly, PSI could not have expected that purpose to be achieved
by merely hoping that the person likely to have mislaid the gauzes might be able to
retrace his own steps. By its own standard of corporate conduct, PSI's duty to initiate the
review was non-delegable.
Third, by such admission, PSI defined the standards of its corporate conduct under the
circumstances of this case, specifically: (a) that it had a corporate duty to Natividad even
after her operation to ensure her safety as a patient; (b) that its corporate duty was not
limited to having its nursing staff note or record the two missing gauzes and (c) that its
corporate duty extended to determining Dr. Ampil's role in it, bringing the matter to his
attention, and correcting his negligence.
While Dr. Ampil may have had the primary responsibility of notifying Natividad about the
missing gauzes, PSI imposed upon itself the separate and independent responsibility of
initiating the inquiry into the missing gauzes. The purpose of the first would have been to
apprise Natividad of what transpired during her surgery, while the purpose of the second
would have been to pinpoint any lapse in procedure that led to the gauze count
discrepancy, so as to prevent a recurrence thereof and to determine corrective measures
that would ensure the safety of Natividad. That Dr. Ampil negligently failed to notify
Natividad did not release PSI from its self-imposed separate responsibility.
And finally, by such admission, PSI barred itself from arguing in its second motion for
reconsideration that the concept of corporate responsibility was not yet in existence at
the time Natividad underwent treatment;58 and that if it had any corporate responsibility,
the same was limited to reporting the missing gauzes and did not include "taking an
active step in fixing the negligence committed."59 An admission made in the pleading
cannot be controverted by the party making such admission and is conclusive as to him,
and all proofs submitted by him contrary thereto or inconsistent therewith should be
ignored, whether or not objection is interposed by a party.60
Given the standard of conduct that PSI defined for itself, the next relevant inquiry is
whether the hospital measured up to it.
As it happened, PSI took no heed of the record of operation and consequently did not
initiate a review of what transpired during Natividads operation. Rather, it shirked its
responsibility and passed it on to others to Dr. Ampil whom it expected to inform
Natividad, and to Natividad herself to complain before it took any meaningful step. By its
110
Therefore, taking all the equities of this case into consideration, this Court believes P15
million would be a fair and reasonable liability of PSI, subject to 12% p.a. interest from
the finality of this resolution to full satisfaction.
WHEREFORE, the second motion for reconsideration is DENIED and the motions for
intervention are NOTED.
Professional Services, Inc. is ORDERED pro hac vice to pay Natividad (substituted by
her children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana
and Raymund Agana) and Enrique Agana the total amount of P15 million, subject to 12%
p.a. interest from the finality of this resolution to full satisfaction.
No further pleadings by any party shall be entertained in this case.
Let the long-delayed entry of judgment be made in this case upon receipt by all
concerned parties of this resolution.
SO ORDERED.
111