[G.R. Nos. 116124-25.

November 22, 2000]

BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF APPEALS

and GENERAL CREDIT CORPORATION, respondents.

DECISION
YNARES-SANTIAGO, J.:

Assailed in this petition for review is the consolidated decision of the Court of
Appeals dated July 7, 1994, which reversed the separate decisions of the Regional Trial
Court of Pasig City and the Regional Trial Court of Quezon City in two cases between
petitioner Reynoso and respondent General Credit Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter,
CCC), a financing and investment firm, decided to organize franchise companies in
different parts of the country, wherein it shall hold thirty percent (30%)
equity. Employees of the CCC were designated as resident managers of the franchise
companies.Petitioner Bibiano O. Reynoso, IV was designated as the resident manager
of the franchise company in Quezon City, known as the Commercial Credit Corporation
of Quezon City (hereinafter, CCC-QC).
CCC-QC entered into an exclusive management contract with CCC whereby the
latter was granted the management and full control of the business activities of the
former. Under the contract, CCC-QC shall sell, discount and/or assign its receivables to
CCC. Subsequently, however, this discounting arrangement was discontinued pursuant
to the so-called DOSRI Rule, prohibiting the lending of funds by corporations to its
directors, officers, stockholders and other persons with related interests therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of
the DOSRI Rule, CCC decided to form CCC Equity Corporation, (hereinafter, CCC-
Equity), a wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent
equity in CCC-QC, together with two seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including
petitioner Reynoso, became employees of CCC-Equity. While petitioner continued to be
the Resident Manager of CCC-QC, he drew his salaries and allowances from CCC-
Equity. Furthermore, although an employee of CCC-Equity, petitioner, as well as all
employees of CCC-QC, became qualified members of the Commercial Credit
Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC
and supervised its employees. The business activities of CCC-QC pertain to the
acceptance of funds from depositors who are issued interest-bearing promissory
notes. The amounts deposited are then loaned out to various borrowers. Petitioner, in
order to boost the business activities of CCC-QC, deposited his personal funds in the
company. In return, CCC-QC issued to him its interest-bearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary
attachment,[1] docketed as Civil Case No. Q-30583, was instituted in the then Court of
First Instance of Rizal by CCC-QC against petitioner, who had in the meantime been
dismissed from his employment by CCC-Equity. The complaint was subsequently
amended in order to include Hidelita Nuval, petitioners wife, as a party defendant. [2] The
complaint alleged that petitioner embezzled the funds of CCC-QC amounting to
P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a
house and lot located at No. 12 Macopa Street, Valle Verde I, Pasig City. The property
was mortgaged to CCC, and was later foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC
and asserted that the sum of P1,300,593.11 represented his money placements in
CCC-QC, as shown by twenty-three (23) checks which he issued to the said company.[3]
The case was subsequently transferred to the Regional Trial Court of Quezon City,
Branch 86, pursuant to the Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion of
which states:

Premises considered, the Court finds the complaint without merit. Accordingly,
said complaint is hereby DISMISSED.

By reason of said complaint, defendant Bibiano Reynoso IV suffered

degradation, humiliation and mental anguish.

On the counterclaim, which the Court finds to be meritorious, plaintiff

corporation is hereby ordered:

a) to pay defendant the sum of P185,000.00 plus 14% interest per annum
from October 2, 1980 until fully paid;

b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per
annum from June 24, 1981, the date of filing of Amended Answer, until fully
paid; from this amount may be deducted the remaining obligation of defendant
under the promissory note of October 24, 1977, in the sum of P9,738.00 plus
penalty at the rate of 1% per month from December 24, 1977 until fully paid;

c) to pay defendants P200,000.00 as moral damages;

d) to pay defendants P100,000.00 as exemplary damages;

e) to pay defendants P25,000.00 as and for attorney's fees; plus costs of the
suit.

SO ORDERED.

Both parties appealed to the then Intermediate Appellate Court. The appeal of
Commercial Credit Corporation of Quezon City was dismissed for failure to pay docket
fees. Petitioner, on the other hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was issued
on July 24, 1989.[4] However, the judgment remained unsatisfied,[5] prompting petitioner
to file a Motion for Alias Writ of Execution, Examination of Judgment Debtor, and to
Bring Financial Records for Examination to Court. CCC-QC filed an Opposition to
petitioners motion,[6] alleging that the possession of its premises and records had been
taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an Order
directing General Credit Corporation to file its comment on petitioners motion for alias
writ of execution.[7] General Credit Corporation filed a Special Appearance and
Opposition on December 2, 1991,[8] alleging that it was not a party to the case, and
therefore petitioner should direct his claim against CCC-QC and not General Credit
Corporation. Petitioner filed his reply,[9] stating that the CCC-QC is an adjunct
instrumentality, conduit and agency of CCC. Furthermore, petitioner invoked the
decision of the Securities and Exchange Commission in SEC Case No. 2581,
entitled, Avelina G. Ramoso, et al., Petitioner versus General Credit Corp., et al.,
Respondents, where it was declared that General Credit Corporation, CCC-Equity and
other franchised companies including CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the
issuance of an alias writ of execution.[10] On December 20, 1991, General Credit
Corporation filed an Omnibus Motion,[11] alleging that SEC Case No. 2581 was still
pending appeal, and maintaining that the levy on properties of the General Credit
Corporation by the deputy sheriff of the court was erroneous.
In his Opposition to the Omnibus Motion, petitioner insisted that General Credit
Corporation is just the new name of Commercial Credit Corporation; hence, General
Credit Corporation and Commercial Credit Corporation should be treated as one and
the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus
Motion.[12] On March 5, 1992, it issued an Order directing the issuance of an alias writ of
execution.[13]
Previously, on February 21, 1992, General Credit Corporation instituted a complaint
before the Regional Trial Court of Pasig against Bibiano Reynoso IV and Edgardo C.
Tanangco, in his capacity as Deputy Sheriff of Quezon City, [14] docketed as Civil Case
No. 61777, praying that the levy on its parcel of land located in Pasig, Metro Manila and
covered by Transfer Certificate of Title No. 29940 be declared null and void, and that
defendant sheriff be enjoined from consolidating ownership over the land and from
further levying on other properties of General Credit Corporation to answer for any
liability under the decision in Civil Case No. Q-30583.
The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining
order. Thus, General Credit Corporation instituted two (2) petitions for certiorari with the
Court of Appeals, docketed as CA-G.R. SP No. 27518[15] and CA-G.R. SP No.
27683. These cases were later consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated
cases, the dispositive portion of which reads:

WHEREFORE, in SP No. 27518 we declare the issue of the respondent

court's refusal to issue a restraining order as having been rendered moot by
our Resolution of 7 April 1992 which, by way of injunctive relief, provided that
"the respondents and their representatives are hereby enjoined from
conducting an auction sale (on execution) of petitioner's properties as well as
initiating similar acts of levying (upon) and selling on execution other
properties of said petitioner". The injunction thus granted, as modified by the
words in parenthesis, shall remain in force until Civil Case No. 61777 shall
have been finally terminated.

In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY
and SET ASIDE, for having been issued in excess of jurisdiction, the Order of
13 February 1992 in Civil Case No. Q-30583 as well as any other order or
process through which the petitioner is made liable under the judgment in said
Civil Case No. Q-30583.

No damages and no costs.

SO ORDERED. [16]

Hence, this petition for review anchored on the following arguments:

1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO.

27683 WHEN IT NULLIFIED AND SET ASIDE THE 13 FEBRUARY 1992
ORDER AND OTHER ORDERS OR PROCESS OF BRANCH 86 OF THE
REGIONAL TRIAL COURT OF QUEZON CITY THROUGH WHICH
GENERAL CREDIT CORPORATION IS MADE LIABLE UNDER THE
JUDGMENT THAT WAS RENDERED IN CIVIL CASE NO. Q-30583.

2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO.

27518 WHEN IT ENJOINED THE AUCTION SALE ON EXECUTION OF THE
PROPERTIES OF GENERAL CREDIT CORPORATION AS WELL AS
INITIATING SIMILAR ACTS OF LEVYING UPON AND SELLING ON
EXECUTION OF OTHER PROPERTIES OF GENERAL CREDIT
CORPORATION.

3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

GENERAL CREDIT CORPORATION IS A STRANGER TO CIVIL CASE NO.
Q-30583, INSTEAD OF, DECLARING THAT COMMERCIAL CREDIT
CORPORATION OF QUEZON CITY IS THE ALTER EGO,
INSTRUMENTALITY, CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT
CORPORATION AND ITS SUCCESSOR GENERAL CREDIT
CORPORATION.

At the outset, it must be stressed that there is no longer any controversy over
petitioners claims against his former employer, CCC-QC, inasmuch as the decision in
Civil Case No. Q-30583 of the Regional Trial Court of Quezon City has long become
final and executory. The only issue, therefore, to be resolved in the instant petition is
whether or not the judgment in favor of petitioner may be executed against respondent
General Credit Corporation. The latter contends that it is a corporation separate and
distinct from CCC-QC and, therefore, its properties may not be levied upon to satisfy the
monetary judgment in favor of petitioner. In short, respondent raises corporate fiction as
its defense. Hence, we are necessarily called upon to apply the doctrine of piercing the
veil of corporate entity in order to determine if General Credit Corporation, formerly
CCC, may be held liable for the obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or
incident to its existence.[17] It is an artificial being invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any other legal entity to which it
may be related.[18] It was evolved to make possible the aggregation and assembling of huge amounts of
capital upon which big business depends. It also has the advantage of non-dependence on the lives of
those who compose it even as it enjoys certain rights and conducts activities of natural persons.

Precisely because the corporation is such a prevalent and dominating factor in the
business life of the country, the law has to look carefully into the exercise of powers by
these artificial persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the Court
will not hesitate to use its supervisory and adjudicative powers where the corporate
fiction is used as an unfair device to achieve an inequitable result, defraud creditors,
evade contracts and obligations, or to shield it from the effects of a court decision. The
corporate fiction has to be disregarded when necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al.,[19] we held:
When the fiction is urged as a means of perpetrating a fraud or an illegal act
or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders who compose it
will be lifted to allow for its consideration merely as an aggregation of
individuals.

Also in the above-cited case, we stated that this Court has pierced the veil of
corporate fiction in numerous cases where it was used, among others, to avoid a
judgment credit;[20] to avoid inclusion of corporate assets as part of the estate of a
decedent;[21] to avoid liability arising from debt;[22] when made use of as a shield to
perpetrate fraud and/or confuse legitimate issues;[23] or to promote unfair objectives or
otherwise to shield them.[24]
In the appealed judgment, the Court of Appeals sustained respondents arguments
of separateness and its character as a different corporation which is a non-party or
stranger to this case.
The defense of separateness will be disregarded where the business affairs of a
subsidiary corporation are so controlled by the mother corporation to the extent that it
becomes an instrument or agent of its parent. But even when there is dominance over
the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies
only when such fiction is used to defeat public convenience, justify wrong, protect fraud
or defend crime.[25]
We stated in Tomas Lao Construction v. National Labor Relations
Commission,[26] that the legal fiction of a corporation being a judicial entity with a distinct
and separate personality was envisaged for convenience and to serve
justice. Therefore, it should not be used as a subterfuge to commit injustice and
circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit
Corporation was intended to publicly identify it as a component of the CCC group of
companies engaged in one and the same business, i.e., investment and
financing. Aside from CCC-Quezon City, other franchise companies were organized
such as CCC-North Manila and CCC-Cagayan Valley. The organization of subsidiary
corporations as what was done here is usually resorted to for the aggrupation of capital,
the ability to cover more territory and population, the decentralization of activities best
decentralized, and the securing of other legitimate advantages. But when the mother
corporation and its subsidiary cease to act in good faith and honest business judgment,
when the corporate device is used by the parent to avoid its liability for legitimate
obligations of the subsidiary, and when the corporate fiction is used to perpetrate fraud
or promote injustice, the law steps in to remedy the problem. When that happens, the
corporate character is not necessarily abrogated. It continues for legitimate
objectives. However, it is pierced in order to remedy injustice, such as that inflicted in
this case.
Factually and legally, the CCC had dominant control of the business operations of
CCC-QC. The exclusive management contract insured that CCC-QC would be
managed and controlled by CCC and would not deviate from the commands of the
mother corporation. In addition to the exclusive management contract, CCC appointed
its own employee, petitioner, as the resident manager of CCC-QC.
Petitioners designation as resident manager implies that he was placed in CCC-QC
by a superior authority. In fact, even after his assignment to the subsidiary corporation,
petitioner continued to receive his salaries, allowances, and benefits from CCC, which
later became respondent General Credit Corporation. Not only that.Petitioner and the
other permanent employees of CCC-QC were qualified members and participants of the
Employees Pension Plan of CCC.
There are other indications in the record which attest to the applicability of the
identity rule in this case, namely: the unity of interests, management, and control; the
transfer of funds to suit their individual corporate conveniences; and the dominance of
policy and practice by the mother corporation insure that CCC-QC was an
instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal
line of business involving a single transaction process. Under their discounting
arrangements, CCC financed the operations of CCC-QC. The subsidiary sold,
discounted, or assigned its accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971,
shows the pervasive and intensive auditing function of CCC over CCC-QC.[27] The two
corporations also shared the same office space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified
by the director-representative of CCC. The lawyers who filed the complaint and
amended complaint were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General
Credit Corporation, is not a formal party in the case. The reason for this is that the
complaint was filed by CCC-QC against petitioner. The choice of parties was with CCC-
QC. The judgment award in this case arose from the counterclaim which petitioner set
up against CCC-QC.
The circumstances which led to the filing of the aforesaid complaint are quite
revealing. As narrated above, the discounting agreements through which CCC
controlled the finances of its subordinates became unlawful when Central Bank adopted
the DOSRI prohibitions. Under this rule the directors, officers, and stockholders are
prohibited from borrowing from their company. Instead of adhering to the letter and spirit
of the regulations by avoiding DOSRI loans altogether, CCC used the corporate device
to continue the prohibited practice. CCC organized still another corporation, the CCC-
Equity Corporation. However, as a wholly owned subsidiary, CCC-Equity was in fact
only another name for CCC. Key officials of CCC, including the resident managers of
subsidiary corporations, were appointed to positions in CCC-Equity.
In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing
its DOSRI lender accounts and its directive to follow Central Bank requirements,
resident managers, including petitioner, were told to observe a pseudo-compliance with
the phasing out orders. For his unwillingness to satisfactorily conform to these directives
and his reluctance to resort to illegal practices, petitioner earned the ire of his
employers. Eventually, his services were terminated, and criminal and civil cases were
filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC because
of difficulties faced by the firm in implementing the required phase-out program.Funds
from his current account in the Far East Bank and Trust Company were transferred to
CCC-QC. These monies were alleged in the criminal complaints against him as having
been stolen. Complaints for qualified theft and estafa were brought by CCC-QC against
petitioner. These criminal cases were later dismissed. Similarly, the civil complaint
which was filed with the Court of First Instance of Pasig and later transferred to the
Regional Trial Court of Quezon City was dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother firm
closed CCC-QC, in obvious fraud of its creditors. CCC-QC, instead of opposing its
closure, cooperated in its own demise. Conveniently, CCC-QC stated in its opposition to
the motion for alias writ of execution that all its properties and assets had been
transferred and taken over by CCC.
Under the foregoing circumstances, the contention of respondent General Credit
Corporation, the new name of CCC, that the corporate fiction should be appreciated in
its favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations,[28] reiterated
in Concept Builders Inc. v. National Labor Relations,[29] it is very obvious that respondent
seeks the protective shield of a corporate fiction whose veil the present case could, and
should, be pierced as it was deliberately and maliciously designed to evade its financial
obligation of its employees.
If the corporate fiction is sustained, it becomes a handy deception to avoid a
judgment debt and work an injustice. The decision raised to us for review is an invitation
to multiplicity of litigation. As we stated in Islamic Directorate vs. Court of Appeals,[30] the
ends of justice are not served if further litigation is encouraged when the issue is
determinable based on the records.
A court judgment becomes useless and ineffective if the employer, in this case CCC
as a mother corporation, is placed beyond the legal reach of the judgment creditor who,
after protracted litigation, has been found entitled to positive relief. Courts have been
organized to put an end to controversy. This purpose should not be negated by an
inapplicable and wrong use of the fiction of the corporate veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and
ASIDE. The injunction against the holding of an auction sale for the execution of the
decision in Civil Case No. Q-30583 of properties of General Credit Corporation, and the
levying upon and selling on execution of other properties of General Credit Corporation,
is LIFTED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
 SUPREME COURT
Manila

EN BANC

G.R. No. L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D.

TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.

Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.

Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.

FERNANDO, J.:

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County
Trust Company of New York, United States of America, of the estate of the deceased
Idonah Slade Perkins, who died in New York City on March 27, 1960, to surrender to the
ancillary administrator in the Philippines the stock certificates owned by her in a Philippine
corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors,
the lower court, then presided by the Honorable Arsenio Santos, now retired, issued on May
18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator,
dated February 11, 1964, as well as the opposition filed by the Benguet Consolidated, Inc.,
the Court hereby (1) considers as lost for all purposes in connection with the administration
and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates
covering the 33,002 shares of stock standing in her name in the books of the Benguet
Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said corporation to
issue new certificates in lieu thereof, the same to be delivered by said corporation to either
the incumbent ancillary administrator or to the Probate Division of this Court." 1

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.

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 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

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?

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.

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.

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.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary
administrator to gain control and possession of all assets of the decedent within the
jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle her
estate and satisfy the claims of local creditors.5 As Justice Tuason speaking for this Court
made clear, it is a "general rule universally recognized" that administration, whether
principal or ancillary, certainly "extends to the assets of a decedent found within the state or
country where it was granted," the corollary being "that an administrator appointed in one
state or country has no power over property in another state or country." 6

It is to be noted that the scope of the power of the ancillary administrator was, in an earlier
case, set forth by Justice Malcolm. Thus: "It is often necessary to have more than one
administration of an estate. When a person dies intestate owning property in the country of
his domicile as well as in a foreign country, administration is had in both countries. That
which is granted in the jurisdiction of decedent's last domicile is termed the principal
administration, while any other administration is termed the ancillary administration. The
reason for the latter is because a grant of administration does not ex proprio vigore have
any effect beyond the limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the [Philippines]. The ancillary administration
is proper, whenever a person dies, leaving in a country other than that of his last domicile,
property to be administered in the nature of assets of the deceased liable for his individual
debts or to be distributed among his heirs."7

It would follow then that the authority of the probate court to require that ancillary
administrator's right to "the stock certificates covering the 33,002 shares ... standing in her
name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally
beyond question. For appellant is a Philippine corporation owing full allegiance and subject
to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be
considered in any wise as immune from lawful court orders.

Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds
application. "In the instant case, the actual situs of the shares of stock is in the Philippines,
the corporation being domiciled [here]." To the force of the above undeniable proposition,
not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if
it were so minded.

2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for
the legality of the challenged order, how does appellant, Benguet Consolidated, Inc.
propose to carry the extremely heavy burden of persuasion of precisely demonstrating the
contrary? It would assign as the basic error allegedly committed by the lower court its
"considering as lost the stock certificates covering 33,002 shares of Benguet belonging to
the deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress that the
"lower court could not "consider as lost" the stock certificates in question when, as a 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
followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the
event of a contest or the pendency of an action regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or
certificates would await the "final decision by [a] court regarding the ownership [thereof]." 15

Such reliance is misplaced. In the first place, there is no such occasion to apply such by-
law. It is admitted that the foreign domiciliary administrator did not appeal from the order
now in question. Moreover, there is likewise the express admission of appellant that as far
as it is concerned, "it is immaterial ... who is entitled to the possession of the stock
certificates ..." Even if such were not the case, it would be a legal absurdity to impart to
such a provision conclusiveness and finality. Assuming that a contrariety exists between the
above by-law and the command of a court decree, the latter is to be followed.

It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to

which, however, the judiciary must yield deference, when appropriately invoked and
deemed applicable. It would be most highly unorthodox, however, if a corporate by-law
would be accorded such a high estate in the jural order that a court must not only take note
of it but yield to its alleged controlling force.

The fear of appellant of a contingent liability with which it could be saddled unless the
appealed order be set aside for its inconsistency with one of its by-laws does not impress
us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming that
such apprehension of a possible court action against it could possibly materialize. Thus far,
nothing in the circumstances as they have developed gives substance to such a fear.
Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful
exercise of judicial authority.

4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with
implications at war with the basic postulates of corporate theory.

We start with the undeniable premise that, "a corporation is an artificial being created by
operation of law...."16 It owes its life to the state, its birth being purely dependent on its will.
As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person,
owing its existence through creation by a sovereign power."17As a matter of fact, the
statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth
College decision defined a corporation precisely as "an artificial being, invisible, intangible,
and existing only in contemplation of law."18

The well-known authority Fletcher could summarize the matter thus: "A corporation is not in
fact and in reality a person, but the law treats it as though it were a person by process of
fiction, or by regarding it as an artificial person distinct and separate from its individual
stockholders.... It owes its existence to law. It is an artificial person created by law for
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 applicable to the
present case, where the Administrator is not acting as a judge but as a litigant. There is a
great difference between actions against the Administrator (which must be filed strictly in
accordance with the conditions that are imposed by the Veterans' Act, including the
exclusive review by United States courts), and those actions where the Veterans'
Administrator seeks a remedy from our courts and submits to their jurisdiction by filing
actions therein. Our attention has not been called to any law or treaty that would make the
findings of the Veterans' Administrator, in actions where he is a party, conclusive on our
courts. That, in effect, would deprive our tribunals of judicial discretion and render them
mere subordinate instrumentalities of the Veterans' Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final and
conclusive, determinations made by foreign governmental agencies. It is infinitely worse if
through the absence of any coercive power by our courts over juridical persons within our
jurisdiction, the force and effectivity of their orders could be made to depend on the whim or
caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of
the bench or the honor of the country.

Yet that would be the effect, even if unintended, of the proposition to which appellant
Benguet Consolidated seems to be firmly committed as shown by its failure to accept the
validity of the order complained of; it seeks its reversal. Certainly we must at all pains see to
it that it does not succeed. The deplorable consequences attendant on appellant prevailing
attest to the necessity of negative response from us. That is what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is
always easy to conjure extreme and even oppressive possibilities. That is not decisive. It
does not settle the issue. What carries weight and conviction is the result arrived at, the just
solution obtained, grounded in the soundest of legal doctrines and distinguished by its
correspondence with what a sense of realism requires. For through the appealed order, the
imperative requirement of justice according to law is satisfied and national dignity and honor
maintained.

WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court
of First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant
Benguet Consolidated, Inc.

Makalintal, Zaldivar and Capistrano, JJ., concur.

Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result.
 EN BANC
[G.R. Nos. 84132-33 : December 10, 1990.]
192 SCRA 257
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.

DECISION

CRUZ, J.:

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. : rd

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.
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.
: rd

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.
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 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 is
estopped for having abided with the decree instead of boldly assailing it is to close our eyes
to a cynical fact of life during that repressive time.
This case must be distinguished from Mendoza, where the petitioners, after filing their
claims with the AGRIX Claims Committee, received in settlement thereof shares of stock
valued at P40,000.00 without protest or reservation. The herein private respondent has not
been paid a single centavo on its claim, which was kept pending for more than seven years
for alleged lack of supporting papers. Significantly, the validity of that claim was not
questioned by the petitioner when it sought to restrain the extrajudicial foreclosure of the
mortgage by the private respondent. The petitioner limited itself to the argument that the
private respondent was estopped from questioning the decree because of its earlier
compliance with its provisions.
Independently of these observations, there is the consideration that an affront to the
Constitution cannot be allowed to continue existing simply because of procedural inhibitions
that exalt form over substance.
The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing
all mortgages and other liens attaching to the assets of AGRIX. It also notes, with equal
concern, the restriction in Subsection (ii) thereof that all "unsecured obligations shall not
bear interest" and in Subsection (iii) that "all accrued interests, penalties or charges as of
date hereof pertaining to the obligations, whether secured or unsecured, shall not be
recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in Section
1 that "no person shall be deprived of life, liberty or property without due course of law nor
shall any person be denied the equal protection of the law" and in Section 10 that "no law
impairing the obligation of contracts shall be passed."
In defending the decree, the petitioners argue that property rights, like all rights, are
subject to regulation under the police power for the promotion of the common welfare. The
contention is that this inherent power of the state may be exercised at any time for this
purpose so long as the taking of the property right, even if based on contract, is done with
due process of law.
This argument is an over-simplification of the problem before us. The police power is not a
panacea for all constitutional maladies. Neither does its mere invocation conjure an instant
and automatic justification for every act of the government depriving a person of his life,
liberty or property.
A legislative act based on the police power requires the concurrence of a lawful subject and
a lawful method. In more familiar words, a) the interests of the public generally, as
distinguished from those of a particular class, should justify the interference of the state;
and b) the means employed are reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals. 2
Applying these criteria to the case at bar, the Court finds first of all that the interests of the
public are not sufficiently involved to warrant the interference of the government with 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.:-cralaw

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

One may also well wonder why AGRIX was singled out for government help, among other
corporations where the stockholders or investors were also swindled. It is not clear why
other companies entitled to similar concern were not similarly treated. And surely, the
stockholders of the private respondent, whose mortgage lien had been cancelled and
legitimate claims to accrued interests rejected, were no less deserving of protection, which
they did not get. The decree operated, to use the words of a celebrated case, 3 "with an evil
eye and an uneven hand."
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the
provision of Article XIV, Section 4 of the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa 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. 4
The new corporation is neither owned nor controlled by the government. The National
Development Corporation was merely required to extend a loan of not more than
P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake the
management of the corporation, but with the obligation of making periodic reports to the
Agrix board of directors. After payment of the loan, the said board can then appoint its own
management. The stocks of the new corporation are to be issued to the old investors and
stockholders of AGRIX upon proof of their claims against the abolished corporation. They
shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so
should have been organized under the Corporation Law in accordance with the above-cited
constitutional provision.
The Court also feels that the decree impairs the obligation of the contract between AGRIX
and the private respondent without justification. While it is true that the police power is
superior to the impairment clause, the principle will apply only where the contract is so
related to the public welfare that it will be considered congenitally susceptible to change by
the legislature in the interest of the greater number. 5 Most present-day contracts are of
that nature. But as already observed, the contracts of loan and mortgage executed by
AGRIX are purely private transactions and have not been shown to be affected with public
interest. There was therefore no warrant to amend their provisions and deprive the private
respondent of its vested property rights.
It is worth noting that only recently in the case of the Development Bank of the Philippines
v. NLRC, 6 we sustained the preference in payment of a mortgage creditor as against the
argument that the claims of laborers should take precedence over all other claims, including
those of the government. In arriving at this ruling, the Court recognized the mortgage lien
as a property right protected by the due process and contract clauses notwithstanding the
argument that the amendment in Section 110 of the Labor Code was a proper exercise of
the police power.: na d

The Court reaffirms and applies that ruling in the case at bar.
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.- nad

SO ORDERED.
Fernan (C.J.), Narvasa, Gutierrez, Jr., Paras, Gancayco Padilla, Bidin, Sarmiento,
Grio-Aquino, Medialdea and Regalado, JJ., concur.
Melencio-Herrera, J., In the result. In Dumlao v. COMELEC, 95 SCRA 392 (1980), a
portion of the second paragraph of section 4 of Batas Pambansa Blg. 52 was
declared null and void for being unconstitutional.
Feliciano, J., is on leave.
G.R. No. 120077 October 13, 2000

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA
AND MARCELO G. SANTOS, respondents.

PARDO, J.:

The case before the Court is a petition for certiorari1 to annul the following orders of the
National Labor Relations Commission (hereinafter referred to as "NLRC") for having been
issued without or with excess jurisdiction and with grave abuse of discretion: 2

(1) Order of May 31, 1993.3 Reversing and setting aside its earlier resolution of
August 28, 1992.4 The questioned order declared that the NLRC, not the Philippine
Overseas Employment Administration (hereinafter referred to as "POEA"), had
jurisdiction over private respondent's complaint;

(2) Decision of December 15, 1994.5 Directing petitioners to jointly and severally pay
private respondent twelve thousand and six hundred dollars (US$ 12,600.00)
representing salaries for the unexpired portion of his contract; three thousand six
hundred dollars (US$3,600.00) as extra four months salary for the two (2) year
period of his contract, three thousand six hundred dollars (US$3,600.00) as "14th
month pay" or a total of nineteen thousand and eight hundred dollars
(US$19,800.00) or its peso equivalent and attorney's fees amounting to ten percent
(10%) of the total award; and

(3) Order of March 30, 1995.6 Denying the motion for reconsideration of the
petitioners.

In May, 1988, private respondent Marcelo Santos (hereinafter referred to as "Santos") was
an overseas worker employed as a printer at the Mazoon Printing Press, Sultanate of
Oman. Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing,
People's Republic of China and later terminated due to retrenchment.

Petitioners are the Manila Hotel Corporation (hereinafter referred to as "MHC") and the
Manila Hotel International Company, Limited (hereinafter referred to as "MHICL").

When the case was filed in 1990, MHC was still a government-owned and controlled
corporation duly organized and existing under the laws of the Philippines.

MHICL is a corporation duly organized and existing under the laws of Hong Kong. 7 MHC is
an "incorporator" of MHICL, owning 50% of its capital stock.8

By virtue of a "management agreement"9 with the Palace Hotel (Wang Fu Company

Limited), MHICL10 trained the personnel and staff of the Palace Hotel at Beijing, China.

Now the facts.

During his employment with the Mazoon Printing Press in the Sultanate of Oman,
respondent Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt,
General Manager, Palace Hotel, Beijing, China. Mr. Schmidt informed respondent Santos
that he was recommended by one Nestor Buenio, a friend of his.

Mr. Shmidt offered respondent Santos the same position as printer, but with a higher
monthly salary and increased benefits. The position was slated to open on October 1,
1988.11

On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance of the
offer.

On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to sign
employment contract to respondent Santos. Mr. Henk advised respondent Santos that if the
contract was acceptable, to return the same to Mr. Henk in Manila, together with his
passport and two additional pictures for his visa to China.

On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press, effective
June 30, 1988, under the pretext that he was needed at home to help with the family's
piggery and poultry business.

On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr. Henk's
letter. Respondent Santos enclosed four (4) signed copies of the employment contract
(dated June 4, 1988) and notified them that he was going to arrive in Manila during the first
week of July 1988.

The employment contract of June 4, 1988 stated that his employment would commence
September 1, 1988 for a period of two years.12 It provided for a monthly salary of nine
hundred dollars (US$900.00) net of taxes, payable fourteen (14) times a year. 13

On June 30, 1988, respondent Santos was deemed resigned from the Mazoon Printing
Press.

On July 1, 1988, respondent Santos arrived in Manila.

On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the
Palace Hotel.14

Subsequently, respondent Santos signed an amended "employment agreement" with the

Palace Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented the
Palace Hotel. The Vice President (Operations and Development) of petitioner MHICL
Miguel D. Cergueda signed the employment agreement under the word "noted".

From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He
returned to China and reassumed his post on July 17, 1989.
On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna suggested in a
handwritten note that respondent Santos be given one (1) month notice of his release from
employment.

On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr.
Shmidt that his employment at the Palace Hotel print shop would be terminated due to
business reverses brought about by the political upheaval in China.15 We quote the letter:16

"After the unfortunate happenings in China and especially Beijing (referring to

Tiannamen Square incidents), our business has been severely affected. To reduce
expenses, we will not open/operate printshop for the time being.

"We sincerely regret that a decision like this has to be made, but rest assured this
does in no way reflect your past performance which we found up to our
expectations."

"Should a turnaround in the business happen, we will contact you directly and give
you priority on future assignment."

On September 5, 1989, the Palace Hotel terminated the employment of respondent Santos
and paid all benefits due him, including his plane fare back to the Philippines.

On October 3, 1989, respondent Santos was repatriated to the Philippines.

On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr.
Shmidt, demanding full compensation pursuant to the employment agreement.

On November 11, 1989, Mr. Shmidt replied, to wit:17

His service with the Palace Hotel, Beijing was not abruptly terminated but we
followed the one-month notice clause and Mr. Santos received all benefits due him.

"For your information the Print Shop at the Palace Hotel is still not operational and
with a low business outlook, retrenchment in various departments of the hotel is
going on which is a normal management practice to control costs.

"When going through the latest performance ratings, please also be advised that his
performance was below average and a Chinese National who is doing his job now
shows a better approach.

"In closing, when Mr. Santos received the letter of notice, he hardly showed up for
work but still enjoyed free accommodation/laundry/meals up to the day of his
departure."

On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with the
Arbitration Branch, National Capital Region, National Labor Relations Commission (NLRC).
He prayed for an award of nineteen thousand nine hundred and twenty three dollars
(US$19,923.00) as actual damages, forty thousand pesos (P40,000.00) as exemplary
damages and attorney's fees equivalent to 20% of the damages prayed for. The complaint
named MHC, MHICL, the Palace Hotel and Mr. Shmidt as respondents.

The Palace Hotel and Mr. Shmidt were not served with summons and neither participated in
the proceedings before the Labor Arbiter.18

On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners,
thus:19

"WHEREFORE, judgment is hereby rendered:

"1. directing all the respondents to pay complainant jointly and severally;

"a) $20,820 US dollars or its equivalent in Philippine currency as unearned

salaries;

"b) P50,000.00 as moral damages;

"c) P40,000.00 as exemplary damages; and

"d) Ten (10) percent of the total award as attorney's fees.

"SO ORDERED."

On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the NLRC
had jurisdiction over the case.

On August 28, 1992, the NLRC promulgated a resolution, stating: 20

"WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void
for want of jurisdiction. Complainant is hereby enjoined to file his complaint with the
POEA.

"SO ORDERED."

On September 18, 1992, respondent Santos moved for reconsideration of the afore-quoted
resolution. He argued that the case was not cognizable by the POEA as he was not an
"overseas contract worker."21

On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC directed
Labor Arbiter Emerson Tumanon to hear the case on the question of whether private
respondent was retrenched or dismissed.22

On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the
testimonial and documentary evidence presented to and heard by him. 23
Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter of the National
Capital Region, Arbitration Branch, and the case was transferred to Labor Arbiter Jose G.
de Vera.24

On November 25, 1994, Labor Arbiter de Vera submitted his report.25 He found that
respondent Santos was illegally dismissed from employment and recommended that he be
paid actual damages equivalent to his salaries for the unexpired portion of his contract. 26

On December 15, 1994, the NLRC ruled in favor of private respondent, to wit: 27

"WHEREFORE, finding that the report and recommendations of Arbiter de Vera are
supported by substantial evidence, judgment is hereby rendered, directing the
respondents to jointly and severally pay complainant the following computed
contractual benefits: (1) US$12,600.00 as salaries for the unexpired portion of the
parties' contract; (2) US$3,600.00 as extra four (4) months salary for the two (2)
years period (sic) of the parties' contract; (3) US$3,600.00 as "14th month pay" for
the aforesaid two (2) years contract stipulated by the parties or a total of
US$19,800.00 or its peso equivalent, plus (4) attorney's fees of 10% of
complainant's total award.

"SO ORDERED."

On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor
Arbiter de Vera's recommendation had no basis in law and in fact. 28

On March 30, 1995, the NLRC denied the motion for reconsideration. 29

Hence, this petition.30

On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance of a
temporary restraining order and/or writ of preliminary injunction and a motion for the
annulment of the entry of judgment of the NLRC dated July 31, 1995.31

On November 20, 1995, the Court denied petitioner's urgent motion. The Court required
respondents to file their respective comments, without giving due course to the petition.32

On March 8, 1996, the Solicitor General filed a manifestation stating that after going over
the petition and its annexes, they can not defend and sustain the position taken by the
NLRC in its assailed decision and orders. The Solicitor General prayed that he be excused
from filing a comment on behalf of the NLRC33

On April 30,1996, private respondent Santos filed his comment.34

On June 26, 1996, the Court granted the manifestation of the Solicitor General and required
the NLRC to file its own comment to the petition.35

On January 7, 1997, the NLRC filed its comment.

The petition is meritorious.

I. Forum Non-Conveniens

The NLRC was a seriously inconvenient forum.

We note that the main aspects of the case transpired in two foreign jurisdictions and the
case involves purely foreign elements. The only link that the Philippines has with the case is
that respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are foreign
corporations. Not all cases involving our citizens can be tried here.

The employment contract. Respondent Santos was hired directly by the Palace Hotel, a
foreign employer, through correspondence sent to the Sultanate of Oman, where
respondent Santos was then employed. He was hired without the intervention of the POEA
or any authorized recruitment agency of the government.36

Under the rule of forum non conveniens, a Philippine court or agency may assume
jurisdiction over the case if it chooses to do so provided: (1) that the Philippine court is one
to which the parties may conveniently resort to; (2) that the Philippine court is in a position
to make an intelligent decision as to the law and the facts; and (3) that the Philippine court
has or is likely to have power to enforce its decision.37 The conditions are unavailing in the
case at bar.

Not Convenient. We fail to see how the NLRC is a convenient forum given that all the
incidents of the case from the time of recruitment, to employment to dismissal occurred
outside the Philippines. The inconvenience is compounded by the fact that the proper
defendants, the Palace Hotel and MHICL are not nationals of the Philippines. Neither .are
they "doing business in the Philippines." Likewise, the main witnesses, Mr. Shmidt and Mr.
Henk are non-residents of the Philippines.

No power to determine applicable law. Neither can an intelligent decision be made as to

the law governing the employment contract as such was perfected in foreign soil. This calls
to fore the application of the principle of lex loci contractus (the law of the place where the
contract was made).38

The employment contract was not perfected in the Philippines. Respondent Santos signified
his acceptance by writing a letter while he was in the Republic of Oman. This letter was sent
to the Palace Hotel in the People's Republic of China.

No power to determine the facts. Neither can the NLRC determine the facts surrounding
the alleged illegal dismissal as all acts complained of took place in Beijing, People's
Republic of China. The NLRC was not in a position to determine whether the Tiannamen
Square incident truly adversely affected operations of the Palace Hotel as to justify
respondent Santos' retrenchment.

Principle of effectiveness, no power to execute decision. Even assuming that a proper

decision could be reached by the NLRC, such would not have any binding effect against the
employer, the Palace Hotel. The Palace Hotel is a corporation incorporated under the laws
of China and was not even served with summons. Jurisdiction over its person was not
acquired.

This is not to say that Philippine courts and agencies have no power to solve controversies
involving foreign employers. Neither are we saying that we do not have power over an
employment contract executed in a foreign country. If Santos were an "overseas contract
worker", a Philippine forum, specifically the POEA, not the NLRC, would protect him.39 He is
not an "overseas contract worker" a fact which he admits with conviction.40

Even assuming that the NLRC was the proper forum, even on the merits, the NLRC's
decision cannot be sustained.

II. MHC Not Liable

Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2) that
MHICL was liable for Santos' retrenchment, still MHC, as a separate and distinct juridical
entity cannot be held liable.

True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock.
However, this is not enough to pierce the veil of corporate fiction between MHICL and MHC.

Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend
a crime. 41 It is done only when a corporation is a mere alter ego or business conduit of a
person or another corporation.

In Traders Royal Bank v. Court of Appeals,42 we held that "the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation
is not of itself a sufficient reason for disregarding the fiction of separate corporate
personalities."

The tests in determining whether the corporate veil may be pierced are: First, the defendant
must have control or complete domination of the other corporation's finances, policy and
business practices with regard to the transaction attacked. There must be proof that the
other corporation had no separate mind, will or existence with respect the act complained
of. Second, control must be used by the defendant to commit fraud or wrong. Third, the
aforesaid control or breach of duty must be the proximate cause of the injury or loss
complained of. The absence of any of the elements prevents the piercing of the corporate
veil.43

It is basic that a corporation has a personality separate and distinct from those composing it
as well as from that of any other legal entity to which it may be related. 44 Clear and
convincing evidence is needed to pierce the veil of corporate fiction. 45 In this case, we find
no evidence to show that MHICL and MHC are one and the same entity.

III. MHICL not Liable

Respondent Santos predicates MHICL's liability on the fact that MHICL "signed" his
employment contract with the Palace Hotel. This fact fails to persuade us.

First, we note that the Vice President (Operations and Development) of MHICL, Miguel D.
Cergueda signed the employment contract as a mere witness. He merely signed under the
word "noted".

When one "notes" a contract, one is not expressing his agreement or approval, as a party
would.46 In Sichangco v. Board of Commissioners of Immigration,47 the Court recognized
that the term "noted" means that the person so noting has merely taken cognizance of the
existence of an act or declaration, without exercising a judicious deliberation or rendering a
decision on the matter.

Mr. Cergueda merely signed the "witnessing part" of the document. The "witnessing part" of
the document is that which, "in a deed or other formal instrument is that part which comes
after the recitals, or where there are no recitals, after the parties (emphasis ours)."48 As
opposed to a party to a contract, a witness is simply one who, "being present, personally
sees or perceives a thing; a beholder, a spectator, or eyewitness."49 One who "notes"
something just makes a "brief written statement"50 a memorandum or observation.

Second, and more importantly, there was no existing employer-employee relationship

between Santos and MHICL. In determining the existence of an employer-employee
relationship, the following elements are considered:51

"(1) the selection and engagement of the employee;

"(2) the payment of wages;

"(3) the power to dismiss; and

"(4) the power to control employee's conduct."

MHICL did not have and did not exercise any of the aforementioned powers. It
did not select respondent Santos as an employee for the Palace Hotel. He was referred to
the Palace Hotel by his friend, Nestor Buenio. MHICL did not engage respondent Santos to
work. The terms of employment were negotiated and finalized through correspondence
between respondent Santos, Mr. Schmidt and Mr. Henk, who were officers and
representatives of the Palace Hotel and not MHICL. Neither did respondent Santos adduce
any proof that MHICL had the power to control his conduct. Finally, it was the Palace Hotel,
through Mr. Schmidt and not MHICL that terminated respondent Santos' services.

Neither is there evidence to suggest that MHICL was a "labor-only contractor."52 There is no
proof that MHICL "supplied" respondent Santos or even referred him for employment to the
Palace Hotel.

Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the
same entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not
enough to pierce the corporate veil between MHICL and the Palace Hotel.
 IV. Grave Abuse of Discretion

Considering that the NLRC was forum non-conveniens and considering further that no
employer-employee relationship existed between MHICL, MHC and respondent Santos,
Labor Arbiter Ceferina J. Diosana clearly had no jurisdiction over respondent's claim in
NLRC NCR Case No. 00-02-01058-90.

Labor Arbiters have exclusive and original jurisdiction only over the following: 53

"1. Unfair labor practice cases;

"2. Termination disputes;

"3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of
employment;

"4. Claims for actual, moral, exemplary and other forms of damages arising from
employer-employee relations;

"5. Cases arising from any violation of Article 264 of this Code, including questions
involving legality of strikes and lockouts; and

"6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims, arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with
a claim for reinstatement."

In all these cases, an employer-employee relationship is an indispensable jurisdictional

requirement.

The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is
limited to disputes arising from an employer-employee relationship which can be resolved
by reference to the Labor Code, or other labor statutes, or their collective bargaining
agreements.54

"To determine which body has jurisdiction over the present controversy, we rely on the
sound judicial principle that jurisdiction over the subject matter is conferred by law and is
determined by the allegations of the complaint irrespective of whether the plaintiff is entitled
to all or some of the claims asserted therein."55

The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the
complaint. His failure to dismiss the case amounts to grave abuse of discretion.56

V. The Fallo
WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the
orders and resolutions of the National Labor Relations Commission dated May 31, 1993,
December 15, 1994 and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR
Case No. 00-02-01058-90).

No costs.

SO ORDERED.

Davide, Jr., C .J ., Puno, Kapunan, Pardo and Ynares-Santiago, JJ ., concur.

G.R. Nos. 86883-85 January 29, 1993

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
NORBERTO MANERO, JR., EDILBERTO MANERO, ELPIDIO MANERO, SEVERINO
LINES, RUDY LINES, EFREN PLEAGO, ROGER BEDAO, RODRIGO ESPIA,
ARSENIO VILLAMOR, JR., JOHN DOE and PETER DOE, accused.

SEVERINO LINES, RUDY LINES, EFREN PLEAGO and ROGER BENDAO, accused-
appellants.

The Solicitor General for plaintiff-appellee.

Romeo P. Jorge for accused-appellants.

BELLOSILLO, J.:

This was gruesome murder in a main thoroughfare an hour before sundown. A hapless
foreign religious minister was riddled with bullets, his head shattered into bits and pieces
amidst the revelling of his executioners as they danced and laughed around their quarry,
chanting the tune "Mutya Ka Baleleng", a popular regional folk song, kicking and scoffing at
his prostrate, miserable, spiritless figure that was gasping its last. Seemingly unsatiated with
the ignominy of their manslaughter, their leader picked up pieces of the splattered brain and
mockingly displayed them before horrified spectators. Some accounts swear that acts of
cannibalism ensued, although they were not sufficiently demonstrated. However, for their
outrageous feat, the gangleader already earned the monicker "cannibal priest-killer" But,
what is indubitable is that Fr. Tulio Favali 1 was senselessly killed for no apparent reason than that
he was one of the Italian Catholic missionaries laboring in heir vineyard in the hinterlands of Mindanao. 2

In the aftermath of the murder, police authorities launched a massive manhunt which
resulted in the capture of the perpetrators except Arsenio Villamor, Jr., and two unidentified
persons who eluded arrest and still remain at large.

Informations for Murder, 3 Attempted Murder 4 and Arson 5 were accordingly filed against those
responsible for the frenzied orgy of violence that fateful day of 11 April 1985. As these cases arose from
the same occasion, they were all consolidated in Branch 17 of the Regional Trial Court of Kidapawan,
Cotabato. 6

After trial, the court a quo held

WHEREFORE . . . the Court finds the accused Norberto Manero, Jr. alias
Commander Bucay, Edilberto Manero alias Edil, Elpidio Manero, Severino
Lines, Rudy Lines, Rodrigo Espia alias Rudy, Efren Pleago and Roger
Bedao GUILTY beyond reasonable doubt of the offense of Murder, and with
the aggravating circumstances of superior strength and treachery, hereby
sentences each of them to a penalty of imprisonment of reclusion perpetua;
 to pay the Pontifical Institute of Foreign Mission (PIME) Brothers, the
congregation to which Father Tulio Favali belonged, a civil indemnity of
P12,000.00; attorney's fees in the sum of P50,000.00 for each of the eight (8)
accused or a total sum of P400,000.00; court appearance fee of P10,000.00
for every day the case was set for trial; moral damages in the sum of
P100,000.00; and to pay proportionately the costs.

Further, the Court finds the accused Norberto Manero, Jr. alias Commander
Bucay GUILTY beyond reasonable doubt of the offense of Arson and with the
application of the Indeterminate Sentence Law, hereby sentences him to an
indeterminate penalty of imprisonment of not less than four (4) years, nine (9)
months, one (1) day of prision correccional, as minimum, to six (6) years
of prision correccional, as maximum, and to indemnify the Pontifical Institute
of Foreign Mission (PIME) Brothers, the congregation to which Father Tulio
Favali belonged, the sum of P19,000.00 representing the value of the
motorcycle and to pay the costs.

Finally, the Court finds the accused Norberto Manero, Jr., alias Commander
Bucay, Edilberto Manero alias Edil, Elpidio Manero, Severino Lines, Rudy
Lines, Rodrigo Espia alias Rudy, Efren Pleago and Roger Bedao GUILTY
beyond reasonable doubt of the offense of Attempted Murder and with the
application of the Indeterminate Sentence Law, hereby sentences each of
them to an indeterminate penalty of imprisonment of not less than two (2)
years, four (4) months and one (1) day of prision correccional, and minimum,
to eight (8) years and twenty (20) days of prision mayor, as maximum, and to
pay the complainant Rufino Robles the sum of P20,000.00 as attorney's fees
and P2,000.00 as court appearance fee for every day of trial and to pay
proportionately the costs.

The foregoing penalties shall be served by the said accused successively in

the order of their respective severity in accordance with the provisions of
Article 70 of the Revised Penal Code, as amended. 7

From this judgment of conviction only accused Severino Lines, Rudy Lines, Efren Pleago
and Roger Bedao appealed with respect to the cases for Murder and Attempted Murder.
The Manero brothers as well as Rodrigo Espia did not appeal; neither did Norberto Manero,
Jr., in the Arson case. Consequently, the decision as against them already became final.

Culled from the records, the facts are: On 11 April 1985, around 10:00 o'clock in the
morning, the Manero brothers Norberto Jr., Edilberto and Elpidio, along with Rodrigo Espia,
Severino Lines, Rudy Lines, Efren Pleago and Roger Bedao, were inside the eatery of
one Reynaldo Diocades at Km. 125, La Esperanza, Tulunan, Cotabato. They were
conferring with Arsenio Villamor, Jr., private secretary to the Municipal Mayor of Tulunan,
Cotabato, and his two (2) unidentified bodyguards. Plans to liquidate a number of suspected
communist sympathizers were discussed. Arsenio Villamor, Jr. scribbled on a cigarette
wrapper the following "NPA v. NPA, starring Fr. Peter, Domingo Gomez, Bantil, Fred
Gapate, Rene alias Tabagac and Villaning." "Fr. Peter" is Fr. Peter Geremias, an Italian
priest suspected of having links with the communist movement; "Bantil" is Rufino Robles, a
Catholic lay leader who is the complaining witness in the Attempted Murder; Domingo
Gomez is another lay leader, while the others are simply "messengers". On the same
occasion, the conspirators agreed to Edilberto Manero's proposal that should they fail to kill
Fr. Peter Geremias, another Italian priest would be killed in his stead. 8

At about 1:00 o'clock that afternoon, Elpidio Manero with two (2) unidentified companions
nailed a placard on a street-post beside the eatery of Deocades. The placard bore the same
inscriptions as those found on the cigarette wrapper except for the additional phrase
"versus Bucay, Edil and Palo." Some two (2) hours later, Elpidio also posted a wooden
placard bearing the same message on a street cross-sign close to the eatery. 9

Later, at 4:00 o'clock, the Manero brothers, together with Espia and the four (4) appellants,
all with assorted firearms, proceeded to the house of "Bantil", their first intended victim,
which was also in the vicinity of Deocades' carinderia. They were met by "Bantil" who
confronted them why his name was included in the placards. Edilberto brushed aside the
query; instead, he asked "Bantil" if he had any qualms about it, and without any
provocation, Edilberto drew his revolver and fired at the forehead of "Bantil". "Bantil" was
able to parry the gun, albeit his right finger and the lower portion of his right ear were hit.
Then they grappled for its possession until "Bantil" was extricated by his wife from the fray.
But, as he was running away, he was again fired upon by Edilberto. Only his trousers were
hit. "Bantil" however managed to seek refuge in the house of a certain Domingo
Gomez. 10Norberto, Jr., ordered his men to surround the house and not to allow any one to get out so
that "Bantil" would die of hemorrhage. Then Edilberto went back to the restaurant of Deocades and pistol-
whipped him on the face and accused him of being a communist coddler, while appellants and their
cohorts relished the unfolding drama. 11

Moments later, while Deocades was feeding his swine, Edilberto strewed him with a burst of
gunfire from his M-14 Armalite. Deocades cowered in fear as he knelt with both hands
clenched at the back of his head. This again drew boisterous laughter and ridicule from the
dreaded desperados.

At 5:00 o'clock, Fr. Tulio Favali arrived at Km. 125 on board his motorcycle. He entered the
house of Gomez. While inside, Norberto, Jr., and his co-accused Pleago towed the
motorcycle outside to the center of the highway. Norberto, Jr., opened the gasoline tank,
spilled some fuel, lit a fire and burned the motorcycle. As the vehicle was ablaze, the felons
raved and rejoiced. 12

Upon seeing his motorcycle on fire, Fr. Favali accosted Norberto, Jr. But the latter simply
stepped backwards and executed a thumbs-down signal. At this point, Edilberto asked the
priest: "Ano ang gusto mo, padre (What is it you want, Father)? Gusto mo, Father, bukon ko
ang ulo mo (Do you want me, Father, to break your head)?" Thereafter, in a flash, Edilberto
fired at the head of the priest. As Fr. Favali dropped to the ground, his hands clasped
against his chest, Norberto, Jr., taunted Edilberto if that was the only way he knew to kill a
priest. Slighted over the remark, Edilberto jumped over the prostrate body three (3) times,
kicked it twice, and fired anew. The burst of gunfire virtually shattered the head of Fr. Favali,
causing his brain to scatter on the road. As Norberto, Jr., flaunted the brain to the terrified
onlookers, his brothers danced and sang "Mutya Ka Baleleng" to the delight of their
comrades-in-arms who now took guarded positions to isolate the victim from possible
assistance. 13
In seeking exculpation from criminal liability, appellants Severino Lines, Rudy Lines, Efren
Pleago and Roger Bedao contend that the trial court erred in disregarding their respective
defenses of alibi which, if properly appreciated, would tend to establish that there was no
prior agreement to kill; that the intended victim was Fr. Peter Geremias, not Fr. Tulio Favali;
that there was only one (1) gunman, Edilberto; and, that there was absolutely no showing
that appellants cooperated in the shooting of the victim despite their proximity at the time to
Edilberto.

But the evidence on record does not agree with the arguments of accused-appellants.

On their defense of alibi, accused brothers Severino and Rudy Lines claim that they were
harvesting palay the whole day of 11 April 1985 some one kilometer away from the crime
scene. Accused Roger Bedao alleges that he was on an errand for the church to buy
lumber and nipa in M'lang, Cotabato, that morning of 11 April 1985, taking along his wife
and sick child for medical treatment and arrived in La Esperanza, Tulunan, past noontime.

Interestingly, all appellants similarly contend that it was only after they heard gunshots that
they rushed to the house of Norberto Manero, Sr., Barangay Captain of La Esperanza,
where they were joined by their fellow CHDF members and co-accused, and that it was only
then that they proceeded together to where the crime took place at Km. 125.

It is axiomatic that the accused interposing the defense of alibi must not only be at some
other place but that it must also be physically impossible for him to be at the scene of the
crime at the time of its commission. 14

Considering the failure of appellants to prove the required physical impossibility of being
present at the crime scene, as can be readily deduced from the proximity between the
places where accused-appellants were allegedly situated at the time of the commission of
the offenses and the locus criminis, 15 the defense of alibi is definitely feeble. 16 After all, it has been
the consistent ruling of this Court that no physical impossibility exists in instances where it would take the
accused only fifteen to twenty minutes by jeep or tricycle, or some one-and-a-half hours by foot, to
traverse the distance between the place where he allegedly was at the time of commission of the offense
and the scene of the crime. 17 Recently, we ruled that there can be no physical impossibility even if the
distance between two places is merely two (2) hours by bus. 18 More important, it is well-settled that the
defense of alibi cannot prevail over
the positive identification of the authors of the crime by the prosecution witnesses. 19

In the case before Us, two (2) eyewitnesses, Reynaldo Deocades and Manuel Bantolo,
testified that they were both inside the eatery at about 10:00 o'clock in the morning of 11
April 1985 when the Manero brothers, together with appellants, first discussed their plan to
kill some communist sympathizers. The witnesses also testified that they still saw the
appellants in the company of the Manero brothers at 4:00 o'clock in the afternoon when
Rufino Robles was shot. Further, at 5:00 o'clock that same afternoon, appellants were very
much at the scene of the crime, along with the Manero brothers, when Fr. Favali was
brutally murdered. 20 Indeed, in the face of such positive declarations that appellants were at the locus
criminis from 10:00 o'clock in the morning up to about 5:00 o'clock in the afternoon, the alibi of appellants
that they were somewhere else, which is negative in nature, cannot prevail. 21 The presence of appellants
in the eatery at Km. 125 having been positively established, all doubts that they were not privy to the plot
to liquidate alleged communist sympathizers are therefore removed. There was direct proof to link them to
the conspiracy.
There is conspiracy when two or more persons come to an agreement to commit a crime
and decide to commit it. 22 It is not essential that all the accused commit together each and every act
constitutive of the offense. 23 It is enough that an accused participates in an act or deed where there is
singularity of purpose, and unity in its execution is present. 24

The findings of the court a quo unmistakably show that there was indeed a community of
design as evidenced by the concerted acts of all the accused. Thus

The other six accused, 25 all armed with high powered firearms, were positively
identified with Norberto Manero, Jr. and Edilberto Manero in the carinderia of Reynaldo
Deocades in La Esperanza, Tulunan, Cotabato at 10:00 o'clock in the morning of 11 April
1985 morning . . . they were outside of the carinderia by the window near the table where
Edilberto Manero, Norberto Manero, Jr., Jun Villamor, Elpidio Manero and unidentified
members of the airborne from Cotabato were grouped together. Later that morning, they
all went to the cockhouse nearby to finish their plan and drink tuba. They were seen
again with Edilberto Manero and Norberto Manero, Jr., at 4:00 o'clock in the afternoon of
that day near the house of Rufino Robles (Bantil) when Edilberto Manero shot Robles.
They surrounded the house of Domingo Gomez where Robles fled and hid, but later left
when Edilberto Manero told them to leave as Robles would die of hemorrhage. They
followed Fr. Favali to Domingo Gomez' house, witnessed and enjoyed the burning of the
motorcycle of Fr. Favali and later stood guard with their firearms ready on the road when
Edilberto Manero shot to death Fr. Favali. Finally, they joined Norberto Manero, Jr. and
Edilberto Manero in their enjoyment and merriment on the death of the priest. 26

From the foregoing narration of the trial court, it is clear that appellants were not merely
innocent bystanders but were in fact vital cogs in perpetrating the savage murder of Fr.
Favali and the attempted murder of Rufino Robles by the Manero brothers and their
militiamen. For sure, appellants all assumed a fighting stance to discourage if not prevent
any attempt to provide assistance to the fallen priest. They surrounded the house of
Domingo Gomez to stop Robles and the other occupants from leaving so that the wounded
Robles may die of hemorrhage. 27Undoubtedly, these were overt acts to ensure success of the
commission of the crimes and in furtherance of the aims of the conspiracy. The appellants acted in
concert in the murder of Fr. Favali and in the attempted murder of Rufino Robles. While accused-
appellants may not have delivered the fatal shots themselves, their collective action showed a common
intent to commit the criminal acts.

While it may be true that Fr. Favali was not originally the intended victim, as it was Fr. Peter
Geremias whom the group targetted for the kill, nevertheless, Fr. Favali was deemed a
good substitute in the murder as he was an Italian priest. On this, the conspirators expressly
agreed. As witness Manuel Bantolo explained 28

Q Aside from those persons listed in that paper to be killed,

were there other persons who were to be liquidated?

A There were some others.

Q Who were they?

A They said that if they could not kill those persons listed in that
paper then they will (sic) kill anyone so long as he is (sic) an
 Italian and if they could not kill the persons they like to kill they
will (sic) make Reynaldo Deocades as their sample.

That appellants and their co-accused reached a common understanding to kill another
Italian priest in the event that Fr. Peter Geremias could not be spotted was elucidated by
Bantolo thus 29

Q Who suggested that Fr. Peter be the first to be killed?

A All of them in the group.

Q What was the reaction of Norberto Manero with respect to

the plan to kill Fr. Peter?

A He laughed and even said, "amo ina" meaning "yes, we will

kill him ahead."

xxx xxx xxx

Q What about Severino Lines? What was his reaction?

A He also laughed and so conformed and agreed to it.

Q Rudy Lines.

A He also said "yes".

Q What do you mean "yes"?

A He also agreed and he was happy and said "yes" we will kill
him.

xxx xxx xxx

Q What about Efren Pleago?

A He also agreed and even commented laughing "go ahead".

Q Roger Bedao, what was his reaction to that suggestion that

should they fail to kill Fr. Peter, they will (sic) kill anybody
provided he is an Italian and if not, they will (sic) make
Reynaldo Deocades an example?

A He also agreed laughing.

Conspiracy or action in concert to achieve a criminal design being sufficiently shown, the
act of one is the act of all the other conspirators, and
the precise extent or modality of participation of each of them becomes secondary. 30

The award of moral damages in the amount of P100,000.00 to the congregation, the
Pontifical Institute of Foreign Mission (PIME) Brothers, is not proper. There is nothing on
record which indicates that the deceased effectively severed his civil relations with his
family, or that he disinherited any member thereof, when he joined his religious
congregation. As a matter of fact, Fr. Peter Geremias of the same congregation, who was
then a parish priest of Kidapawan, testified that "the religious family belongs to the natural
family of origin." 31 Besides, as We already held, 32 a juridical person is not entitled to moral damages
because, not being a natural person, it cannot experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or moral shock. It is only when a juridical person has a
good reputation that is debased, resulting in social humiliation, that moral damages may be awarded.

Neither can We award moral damages to the heirs of the deceased who may otherwise be
lawfully entitled thereto pursuant to par. (3), Art. 2206, of the Civil Code, 33 for the reason that
the heirs never presented any evidence showing that they suffered mental anguish; much less did they
take the witness stand. It has been held 34 that moral damages and their causal relation to the defendant's
acts should be satisfactorily proved by the claimant. It is elementary that in order that moral damages may
be awarded there must be proof of moral suffering. 35 However, considering that the brutal slaying of Fr.
Tulio Favali was attended with abuse of superior strength, cruelty and ignominy by deliberately and
inhumanly augmenting the pain and anguish of the victim, outraging or scoffing at his person or corpse,
exemplary damages may be awarded to the lawful heirs, 36 even though not proved nor expressly
pleaded in the complaint, 37 and the amount of P100,000.00 is considered reasonable.

With respect to the civil indemnity of P12,000.00 for the death of Fr. Tulio Favali, the
amount is increased to P50,000.00 in accordance with existing jurisprudence, which should
be paid to the lawful heirs, not the PIME as the trial court ruled.

WHEREFORE, the judgment appealed from being in accord with law and the evidence is
AFFIRMED with the modification that the civil indemnity which is increased from P12,000.00
to P50,000.00 is awarded to the lawful heirs of the deceased plus exemplary damages of
P100,000.00; however, the award of moral damages is deleted.

Costs against accused-appellants.

SO ORDERED.

Cruz, Padilla and Grio-Aquino, JJ., concur.

G.R. No. L-22973 January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of
Camarines Norte, defendants-appellees.

Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.

Tomas Besa and Jose B. Galang for defendants-appellees.

ANGELES, J.:

An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in
Civil Case No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine
National Bank and Anacleto Heraldo, defendants", dismissing the complaint against both
defendants and sentencing the plaintiff to pay to defendant Philippine National Bank (PNB
for short) the sum of P3,582.52 with interest thereon at the rate of 6% per annum from
December 22, 1961 until fully paid, and the costs of suit.

In seeking the reversal of the decision, the plaintiff advances several propositions in its brief
which may be restated as follows:

1. That its total indebtedness to the PNB as of November 21, 1961, was only
P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the
proceeds of the foreclosure sale of its real property alone in the amount of
P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB
thereafter was more than sufficient to liquidate its obligation, thereby rendering the
subsequent foreclosure sale of its chattels unlawful;

2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the
additional sum of P298.54 as expenses of the foreclosure sale;

3. That the subsequent foreclosure sale of its chattels is null and void, not only
because it had already settled its indebtedness to the PNB at the time the sale was
effected, but also for the reason that the said sale was not conducted in accordance
with the provisions of the Chattel Mortgage Law and the venue agreed upon by the
parties in the mortgage contract;

4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value;
and

5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter
disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof
after the sale thru force, intimidation, coercion, and by detaining its "man-in-charge"
of said properties, the PNB is liable to plaintiff for damages and attorney's fees.

The antecedent facts of the case, as found by the trial court, are as follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga
Branch of defendant PNB and the former offered real estate, machinery, logging and
transportation equipments as collaterals. The application, however, was approved
for a loan of P100,000 only. To secure the payment of the loan, the plaintiff
mortgaged to defendant PNB a parcel of land, together with the buildings and
improvements existing thereon, situated in the poblacion of Jose Panganiban
(formerly Mambulao), province of Camarines Norte, and covered by Transfer
Certificate of Title No. 381 of the land records of said province, as well as various
sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in its
compound in the aforementioned municipality.

On August 2, 1956, the PNB released from the approved loan the sum of P27,500,
for which the plaintiff signed a promissory note wherein it promised to pay to the
PNB the said sum in five equal yearly installments at the rate of P6,528.40 beginning
July 31, 1957, and every year thereafter, the last of which would be on July 31,
1961.

On October 19, 1956, the PNB made another release of P15,500 as part of the
approved loan granted to the plaintiff and so on the said date, the latter executed
another promissory note wherein it agreed to pay to the former the said sum in five
equal yearly installments at the rate of P3,679.64 beginning July 31, 1957, and
ending on July 31, 1961.

The plaintiff failed to pay the amortization on the amounts released to and received
by it. Repeated demands were made upon the plaintiff to pay its obligation but it
failed or otherwise refused to do so. Upon inspection and verification made by
employees of the PNB, it was found that the plaintiff had already stopped operation
about the end of 1957 or early part of 1958.

On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines
Norte requesting him to take possession of the parcel of land, together with the
improvements existing thereon, covered by Transfer Certificate of Title No. 381 of
the land records of Camarines Norte, and to sell it at public auction in accordance
with the provisions of Act No. 3135, as amended, for the satisfaction of the unpaid
obligation of the plaintiff, which as of September 22, 1961, amounted to P57,646.59,
excluding attorney's fees. In compliance with the request, on October 16, 1961, the
Provincial Sheriff of Camarines Norte issued the corresponding notice of extra-
judicial sale and sent a copy thereof to the plaintiff. According to the notice, the
mortgaged property would be sold at public auction at 10:00 a.m. on November 21,
1961, at the ground floor of the Court House in Daet, Camarines Norte.

On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines
Norte requesting him to take possession of the chattels mortgaged to it by the
plaintiff and sell them at public auction also on November 21, 1961, for the
satisfaction of the sum of P57,646.59, plus 6% annual interest therefore from
September 23, 1961, attorney's fees equivalent to 10% of the amount due and the
costs and expenses of the sale. On the same day, the PNB sent notice to the plaintiff
that the former was foreclosing extrajudicially the chattels mortgaged by the latter
and that the auction sale thereof would be held on November 21, 1961, between
9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged chattels
were situated.

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession

of the chattels mortgaged by the plaintiff and made an inventory thereof in the
presence of a PC Sergeant and a policeman of the municipality of Jose Panganiban.
On November 9, 1961, the said Deputy Sheriff issued the corresponding notice of
public auction sale of the mortgaged chattels to be held on November 21, 1961, at
10:00 a.m., at the plaintiff's compound situated in the municipality of Jose
Panganiban, Province of Camarines Norte.

On November 19, 1961, the plaintiff sent separate letters, posted as registered air
mail matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff
of Camarines Norte, protesting against the foreclosure of the real estate and chattel
mortgages on the grounds that they could not be effected unless a Court's order was
issued against it (plaintiff) for said purpose and that the foreclosure proceedings,
according to the terms of the mortgage contracts, should be made in Manila. In said
letter to the Naga Branch of the PNB, it was intimated that if the public auction sale
would be suspended and the plaintiff would be given an extension of ninety (90)
days, its obligation would be settled satisfactorily because an important negotiation
was then going on for the sale of its "whole interest" for an amount more than
sufficient to liquidate said obligation.

The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter
as a request for extension of the foreclosure sale of the mortgaged chattels and so it
advised the Sheriff of Camarines Norte to defer it to December 21, 1961, at the
same time and place. A copy of said advice was sent to the plaintiff for its
information and guidance.

The foreclosure sale of the parcel of land, together with the buildings and
improvements thereon, covered by Transfer Certificate of Title No. 381, was,
however, held on November 21, 1961, and the said property was sold to the PNB for
the sum of P56,908.00, subject to the right of the plaintiff to redeem the same within
a period of one year. On the same date, Deputy Provincial Sheriff Heraldo executed
a certificate of sale in favor of the PNB and a copy thereof was sent to the plaintiff.

In a letter dated December 14, 1961 (but apparently posted several days later), the
plaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full
settlement of the balance of the obligation of the plaintiff after the application thereto
of the sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel
of land described in Transfer Certificate of Title No. 381. In the said letter, the
plaintiff reiterated its request that the foreclosure sale of the mortgaged chattels be
discontinued on the grounds that the mortgaged indebtedness had been fully paid
and that it could not be legally effected at a place other than the City of Manila.
In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of
Camarines Norte that it had fully paid its obligation to the PNB, and enclosed
therewith a copy of its letter to the latter dated December 14, 1961.

On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the
plaintiff acknowledging the remittance of P738.59 with the advice, however, that as
of that date the balance of the account of the plaintiff was P9,161.76, to which
should be added the expenses of guarding the mortgaged chattels at the rate of
P4.00 a day beginning December 19, 1961. It was further explained in said letter that
the sum of P57,646.59, which was stated in the request for the foreclosure of the
real estate mortgage, did not include the 10% attorney's fees and expenses of the
sale. Accordingly, the plaintiff was advised that the foreclosure sale scheduled on
the 21st of said month would be stopped if a remittance of P9,161.76, plus interest
thereon and guarding fees, would be made.

On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at
10:00 a.m. and they were awarded to the PNB for the sum of P4,200 and the
corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff
Heraldo.

In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB
advised the plaintiff giving it priority to repurchase the chattels acquired by the
former at public auction. This offer was reiterated in a letter dated January 3, 1962,
of the Attorney of the Naga Branch of the PNB to the plaintiff, with the suggestion
that it exercise its right of redemption and that it apply for the condonation of the
attorney's fees. The plaintiff did not follow the advice but on the contrary it made
known of its intention to file appropriate action or actions for the protection of its
interests.

On May 24, 1962, several employees of the PNB arrived in the compound of the
plaintiff in Jose Panganiban, Camarines Norte, and they informed Luis Salgado,
Chief Security Guard of the premises, that the properties therein had been auctioned
and bought by the PNB, which in turn sold them to Mariano Bundok. Upon being
advised that the purchaser would take delivery of the things he bought, Salgado was
at first reluctant to allow any piece of property to be taken out of the compound of the
plaintiff. The employees of the PNB explained that should Salgado refuse, he would
be exposing himself to a litigation wherein he could be held liable to pay big sum of
money by way of damages. Apprehensive of the risk that he would take, Salgado
immediately sent a wire to the President of the plaintiff in Manila, asking advice as to
what he should do. In the meantime, Mariano Bundok was able to take out from the
plaintiff's compound two truckloads of equipment.

In the afternoon of the same day, Salgado received a telegram from plaintiff's
President directing him not to deliver the "chattels" without court order, with the
information that the company was then filing an action for damages against the PNB.
On the following day, May 25, 1962, two trucks and men of Mariano Bundok arrived
but Salgado did not permit them to take out any equipment from inside the
compound of the plaintiff. Thru the intervention, however, of the local police and PC
 soldiers, the trucks of Mariano Bundok were able finally to haul the properties
originally mortgaged by the plaintiff to the PNB, which were bought by it at the
foreclosure sale and subsequently sold to Mariano Bundok.

Upon the foregoing facts, the trial court rendered the decision appealed from which, as
stated in the first paragraph of this opinion, sentenced the Mambulao Lumber Company to
pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per
annum from December 22, 1961 (day following the date of the questioned foreclosure of
plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber Company interposed
the instant appeal.

We shall discuss the various points raised in appellant's brief in seriatim.

The first question Mambulao Lumber Company poses is that which relates to the amount of
its indebtedness to the PNB arising out of the principal loans and the accrued interest
thereon. It is contended that its obligation under the terms of the two promissory notes it
had executed in favor of the PNB amounts only to P56,485.87 as of November 21, 1961,
when the sale of real property was effected, and not P58,213.51 as found by the trial court.

There is merit to this claim. Examining the terms of the promissory note executed by the
appellant in favor of the PNB, we find that the agreed interest on the loan of P43,000.00
P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit C-3),
and P15,500.00 released on October 19, 1956, as per promissory note of the same date
(Exhibit C-4) was six per cent (6%) per annum from the respective date of said notes
"until paid". In the statement of account of the appellant as of September 22, 1961,
submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as
of that date, the PNB had compounded the principal of the loan and the accrued 6% interest
thereon each time the yearly amortizations became due, and on the basis of these
compounded amounts charged additional delinquency interest on them up to September
22, 1961; and to this erroneously computed total of P57,646.59, the trial court added 6%
interest per annum from September 23, 1961 to November 21 of the same year. In effect,
the PNB has claimed, and the trial court has adjudicated to it, interest on accrued
interests from the time the various amortizations of the loan became due until the real
estate mortgage executed to secure the loan was extra-judicially foreclosed on November
21, 1961. This is an error. Section 5 of Act No. 2655 expressly provides that in computing
the interest on any obligation, promissory note or other instrument or contract, compound
interest shall not be reckoned, except by agreement, or in default thereof, whenever the
debt is judicially claimed. This is also the clear mandate of Article 2212 of the new Civil
Code which provides that interest due shall earn legal interest only from the time it is
judicially demanded, and of Article 1959 of the same code which ordains that interest due
and unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the
interest due and unpaid, which as added principal shall earn new interest; but such
stipulation is nowhere to be found in the terms of the promissory notes involved in this case.
Clearly therefore, the trial court fell into error when it awarded interest on accrued interests,
without any agreement to that effect and before they had been judicially demanded.

Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale
in favor of the PNB. With respect to the amount of P298.54 allowed as expenses of the
extra-judicial sale of the real property, appellant maintains that the same has no basis,
factual or legal, and should not have been awarded. It likewise decries the award of
attorney's fees which, according to the appellant, should not be deducted from the proceeds
of the sale of the real property, not only because there is no express agreement in the real
estate mortgage contract to pay attorney's fees in case the same is extra-judicially
foreclosed, but also for the reason that the PNB neither spent nor incurred any obligation to
pay attorney's fees in connection with the said extra-judicial foreclosure under
consideration.

There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In
this respect, the trial court said:

The parcel of land, together with the buildings and improvements existing thereon
covered by Transfer Certificate of Title No. 381, was sold for P56,908. There was,
however, no evidence how much was the expenses of the foreclosure sale although
from the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for
advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his
commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a total of
P298.54.

There is really no evidence of record to support the conclusion that the PNB is entitled to
the amount awarded as expenses of the extra-judicial foreclosure sale. The court below
committed error in applying the provisions of the Rules of Court for purposes of arriving at
the amount awarded. It is to be borne in mind that the fees enumerated under paragraphs k
and n, Section 7, of Rule 130 (now Rule 141) are demandable, only by a sheriff serving
processes of the court in connection with judicial foreclosure of mortgages under Rule 68 of
the new Rules, and not in cases of extra-judicial foreclosure of mortgages under Act 3135.
The law applicable is Section 4 of Act 3135 which provides that the officer conducting the
sale is entitled to collect a fee of P5.00 for each day of actual work performed in addition to
his expenses in connection with the foreclosure sale. Admittedly, the PNB failed to prove
during the trial of the case, that it actually spent any amount in connection with the said
foreclosure sale. Neither may expenses for publication of the notice be legally allowed in the
absence of evidence on record to support it. 1It is true, as pointed out by the appellee bank,
that courts should take judicial notice of the fees provided for by law which need not be
proved; but in the absence of evidence to show at least the number of working days the
sheriff concerned actually spent in connection with the extra-judicial foreclosure sale, the
most that he may be entitled to, would be the amount of P10.00 as a reasonable allowance
for two day's work one for the preparation of the necessary notices of sale, and the other
for conducting the auction sale and issuance of the corresponding certificate of sale in favor
of the buyer. Obviously, therefore, the award of P298.54 as expenses of the sale should be
set aside.

But the claim of the appellant that the real estate mortgage does not provide for attorney's
fees in case the same is extra-judicially foreclosed, cannot be favorably considered, as
would readily be revealed by an examination of the pertinent provision of the mortgage
contract. The parties to the mortgage appear to have stipulated under paragraph (c)
thereof, inter alia:
 . . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the
Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as
amended, to sign all documents and to perform all acts requisite and necessary to
accomplish said purpose and to appoint its substitute as such attorney-in-fact with
the same powers as above specified. In case of judicial foreclosure, the Mortgagor
hereby consents to the appointment of the Mortgagee or any of its employees as
receiver, without any bond, to take charge of the mortgaged property at once, and to
hold possession of the same and the rents, benefits and profits derived from the
mortgaged property before the sale, less the costs and expenses of the receivership;
the Mortgagor hereby agrees further that in all cases, attorney's fees hereby fixed at
Ten Per cent (10%) of the total indebtedness then unpaid which in no case shall be
less than P100.00 exclusive of all fees allowed by law, and the expenses of
collection shall be the obligation of the Mortgagor and shall with priority, be paid to
the Mortgagee out of any sums realized as rents and profits derived from the
mortgaged property or from the proceeds realized from the sale of the said property
and this mortgage shall likewise stand as security therefor. . . .

We find the above stipulation to pay attorney's fees clear enough to cover both cases of
foreclosure sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in
all cases" appears to be part of the second sentence, a reading of the whole context of the
stipulation would readily show that it logically refers to extra-judicial foreclosure found in the
first sentence and to judicial foreclosure mentioned in the next sentence. And the ambiguity
in the stipulation suggested and pointed out by the appellant by reason of the faulty
sentence construction should not be made to defeat the otherwise clear intention of the
parties in the agreement.

It is suggested by the appellant, however, that even if the above stipulation to pay attorney's
fees were applicable to the extra-judicial foreclosure sale of its real properties, still, the
award of P5,821.35 for attorney's fees has no legal justification, considering the
circumstance that the PNB did not actually spend anything by way of attorney's fees in
connection with the sale. In support of this proposition, appellant cites authorities to the
effect: (1) that when the mortgagee has neither paid nor incurred any obligation to pay an
attorney in connection with the foreclosure sale, the claim for such fees should be
denied; 2 and (2) that attorney's fees will not be allowed when the attorney conducting the
foreclosure proceedings is an officer of the corporation (mortgagee) who receives a salary
for all the legal services performed by him for the corporation. 3 These authorities are indeed
enlightening; but they should not be applied in this case. The very same authority first cited
suggests that said principle is not absolute, for there is authority to the contrary. As to the
fact that the foreclosure proceeding's were handled by an attorney of the legal staff of the
PNB, we are reluctant to exonerate herein appellant from the payment of the stipulated
attorney's fees on this ground alone, considering the express agreement between the
parties in the mortgage contract under which appellant became liable to pay the same. At
any rate, we find merit in the contention of the appellant that the award of P5,821.35 in favor
of the PNB as attorney's fees is unconscionable and unreasonable, considering that all that
the branch attorney of the said bank did in connection with the foreclosure sale of the real
property was to file a petition with the provincial sheriff of Camarines Norte requesting the
latter to sell the same in accordance with the provisions of Act 3135.
The principle that courts should reduce stipulated attorney's fees whenever it is found under
the circumstances of the case that the same is unreasonable, is now deeply rooted in this
jurisdiction to entertain any serious objection to it. Thus, this Court has explained:

But the principle that it may be lawfully stipulated that the legal expenses involved in
the collection of a debt shall be defrayed by the debtor does not imply that such
stipulations must be enforced in accordance with the terms, no matter how injurious
or oppressive they may be. The lawful purpose to be accomplished by such a
stipulation is to permit the creditor to receive the amount due him under his contract
without a deduction of the expenses caused by the delinquency of the debtor. It
should not be permitted for him to convert such a stipulation into a source of
speculative profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stands upon an entirely different
footing from contracts for the payment of compensation for any other services. By
express provision of section 29 of the Code of Civil Procedure, an attorney is not
entitled in the absence of express contract to recover more than a reasonable
compensation for his services; and even when an express contract is made the court
can ignore it and limit the recovery to reasonable compensation if the amount of the
stipulated fee is found by the court to be unreasonable. This is a very different rule
from that announced in section 1091 of the Civil Code with reference to the
obligation of contracts in general, where it is said that such obligation has the force
of law between the contracting parties. Had the plaintiff herein made an express
contract to pay his attorney an uncontingent fee of P2,115.25 for the services to be
rendered in reducing the note here in suit to judgment, it would not have been
enforced against him had he seen fit to oppose it, as such a fee is obviously far
greater than is necessary to remunerate the attorney for the work involved and is
therefore unreasonable. In order to enable the court to ignore an express contract for
an attorney's fees, it is not necessary to show, as in other contracts, that it is
contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is
unreasonable or unconscionable. 4

Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever
the fees stipulated appear excessive, unconscionable, or unreasonable, because a lawyer
is primarily a court officer charged with the duty of assisting the court in administering
impartial justice between the parties, and hence, the fees should be subject to judicial
control. Nor should it be ignored that sound public policy demands that courts disregard
stipulations for counsel fees, whenever they appear to be a source of speculative profit at
the expense of the debtor or mortgagor. 5 And it is not material that the present action is
between the debtor and the creditor, and not between attorney and client. As court have
power to fix the fee as between attorney and client, it must necessarily have the right to say
whether a stipulation like this, inserted in a mortgage contract, is valid. 6

In determining the compensation of an attorney, the following circumstances should be

considered: the amount and character of the services rendered; the responsibility imposed;
the amount of money or the value of the property affected by the controversy, or involved in
the employment; the skill and experience called for in the performance of the service; the
professional standing of the attorney; the results secured; and whether or not the fee is
contingent or absolute, it being a recognized rule that an attorney may properly charge a
much larger fee when it is to be contingent than when it is not. 7 From the stipulation in the
mortgage contract earlier quoted, it appears that the agreed fee is 10% of the total
indebtedness, irrespective of the manner the foreclosure of the mortgage is to be effected.
The agreement is perhaps fair enough in case the foreclosure proceedings is prosecuted
judicially but, surely, it is unreasonable when, as in this case, the mortgage was foreclosed
extra-judicially, and all that the attorney did was to file a petition for foreclosure with the
sheriff concerned. It is to be assumed though, that the said branch attorney of the PNB
made a study of the case before deciding to file the petition for foreclosure; but even with
this in mind, we believe the amount of P5,821.35 is far too excessive a fee for such
services. Considering the above circumstances mentioned, it is our considered opinion that
the amount of P1,000.00 would be more than sufficient to compensate the work
aforementioned.

The next issue raised deals with the claim that the proceeds of the sale of the real
properties alone together with the amount it remitted to the PNB later was more than
sufficient to liquidate its total obligation to herein appellee bank. Again, we find merit in this
claim. From the foregoing discussion of the first two errors assigned, and for purposes of
determining the total obligation of herein appellant to the PNB as of November 21, 1961
when the real estate mortgage was foreclosed, we have the following illustration in support
of this conclusion: 1w ph1.t

A. -
I. Principal Loan
(a) Promissory note dated August 2, 1956 P27,500.00
(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 8,751.78
(b) Promissory note dated October 19, 1956 P15,500.00
(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08
II. Sheriff's fees [for two (2) day's work] 10.00
III. Attorney's fee 1,000.00

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

B. -
Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21,
I. P56,908.00
1961
II. Additional amount remitted to the PNB on Dec. 18, 1961 738.59

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

 Deduct: Total obligation to the PNB P57,495.86

Excess Payment to the PNB P 150.73

========

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

That appellant vigorously objected to the foreclosure of its chattel mortgage after the
foreclosure of its real estate mortgage on November 21, 1961, can not be doubted, as
shown not only by its letter to the PNB on November 19, 1961, but also in its letter to the
provincial sheriff of Camarines Norte on the same date. These letters were followed by
another letter to the appellee bank on December 14, 1961, wherein herein appellant, in no
uncertain terms, reiterated its objection to the scheduled sale of its chattels on December
21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it
had settled in full its total obligation to the PNB by the sale of the real estate and its
subsequent remittance of the amount of P738.59; and (2) that the contemplated sale at
Jose Panganiban would violate their agreement embodied under paragraph (i) in the
Chattel Mortgage which provides as follows:

(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended,
the parties hereto agree that the corresponding complaint for foreclosure or the
petition for sale should be filed with the courts or the sheriff of the City of Manila, as
the case may be; and that the Mortgagor shall pay attorney's fees hereby fixed at ten
per cent (10%) of the total indebtedness then unpaid but in no case shall it be less
than P100.00, exclusive of all costs and fees allowed by law and of other expenses
incurred in connection with the said foreclosure. [Emphasis supplied]

Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter
disregard of the objection of herein appellant to the sale of its chattels at Jose Panganiban,
Camarines Norte and not in the City of Manila as agreed upon, the PNB proceeded with the
foreclosure sale of said chattels. The trial court, however, justified said action of the PNB in
the decision appealed from in the following rationale:

While it is true that it was stipulated in the chattel mortgage contract that a petition
for the extra-judicial foreclosure thereof should be filed with the Sheriff of the City of
Manila, nevertheless, the effect thereof was merely to provide another place where
the mortgage chattel could be sold in addition to those specified in the Chattel
Mortgage Law. Indeed, a stipulation in a contract cannot abrogate much less
impliedly repeal a specific provision of the statute. Considering that Section 14 of Act
 No. 1508 vests in the mortgagee the choice where the foreclosure sale should be
held, hence, in the case under consideration, the PNB had three places from which
to select, namely: (1) the place of residence of the mortgagor; (2) the place of the
mortgaged chattels were situated; and (3) the place stipulated in the contract. The
PNB selected the second and, accordingly, the foreclosure sale held in Jose
Panganiban, Camarines Norte, was legal and valid.

To the foregoing conclusion, We disagree. While the law grants power and authority to the
mortgagee to sell the mortgaged property at a public place in the municipality where the
mortgagor resides or where the property is situated, 8 this Court has held that the sale of a
mortgaged chattel may be made in a place other than that where it is found, provided that
the owner thereof consents thereto; or that there is an agreement to this effect between the
mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed to have the
sale of the mortgaged chattels in the City of Manila, which, any way, is the residence of the
mortgagor, it cannot be rightly said that mortgagee still retained the power and authority to
select from among the places provided for in the law and the place designated in their
agreement over the objection of the mortgagor. In providing that the mortgaged chattel may
be sold at the place of residence of the mortgagor or the place where it is situated, at the
option of the mortgagee, the law clearly contemplated benefits not only to the mortgagor but
to the mortgagee as well. Their right arising thereunder, however, are personal to them;
they do not affect either public policy or the rights of third persons. They may validly be
waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in
cases of both judicial and extra-judicial foreclosure under Act 1508, as amended, the
corresponding complaint for foreclosure or the petition for sale should be filed with the
courts or the Sheriff of Manila, as the case may be, they waived their corresponding rights
under the law. The correlative obligation arising from that agreement have the force of law
between them and should be complied with in good faith. 10

By said agreement the parties waived the legal venue, and such waiver is valid and
legally effective, because it, was merely a personal privilege they waived, which is
not contrary, to public policy or to the prejudice of third persons. It is a general
principle that a person may renounce any right which the law gives unless such
renunciation is expressly prohibited or the right conferred is of such nature that its
renunciation would be against public policy. 11

On the other hand, if a place of sale is specified in the mortgage and statutory
requirements in regard thereto are complied with, a sale is properly conducted in that
place. Indeed, in the absence of a statute to the contrary, a sale conducted at a
place other than that stipulated for in the mortgage is invalid, unless the mortgagor
consents to such sale. 12

Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale
should make a return of his doings which shall particularly describe the articles sold and the
amount received from each article. From this, it is clear that the law requires that sale be
made article by article, otherwise, it would be impossible for him to state the amount
received for each item. This requirement was totally disregarded by the Deputy Sheriff of
Camarines Norte when he sold the chattels in question in bulk, notwithstanding the fact that
the said chattels consisted of no less than twenty different items as shown in the bill of
sale. 13 This makes the sale of the chattels manifestly objectionable. And in the absence of
any evidence to show that the mortgagor had agreed or consented to such sale in gross,
the same should be set aside.

It is said that the mortgagee is guilty of conversion when he sells under the mortgage but
not in accordance with its terms, or where the proceedings as to the sale of foreclosure do
not comply with the statute. 14 This rule applies squarely to the facts of this case where, as
earlier shown, herein appellee bank insisted, and the appellee deputy sheriff of Camarines
Norte proceeded with the sale of the mortgaged chattels at Jose Panganiban, Camarines
Norte, in utter disregard of the valid objection of the mortgagor thereto for the reason that it
is not the place of sale agreed upon in the mortgage contract; and the said deputy sheriff
sold all the chattels (among which were a skagit with caterpillar engine, three GMC 6 x 6
trucks, a Herring Hall Safe, and Sawmill equipment consisting of a 150 HP Murphy Engine,
plainer, large circular saws etc.) as a single lot in violation of the requirement of the law to
sell the same article by article. The PNB has resold the chattels to another buyer with whom
it appears to have actively cooperated in subsequently taking possession of and removing
the chattels from appellant compound by force, as shown by the circumstance that they had
to take along PC soldiers and municipal policemen of Jose Panganiban who placed the
chief security officer of the premises in jail to deprive herein appellant of its possession
thereof. To exonerate itself of any liability for the breach of peace thus committed, the PNB
would want us to believe that it was the subsequent buyer alone, who is not a party to this
case, that was responsible for the forcible taking of the property; but assuming this to be so,
still the PNB cannot escape liability for the conversion of the mortgaged chattels by parting
with its interest in the property. Neither would its claim that it afterwards gave a chance to
herein appellant to repurchase or redeem the chattels, improve its position, for the
mortgagor is not under obligation to take affirmative steps to repossess the chattels that
were converted by the mortgagee. 15 As a consequence of the said wrongful acts of the PNB
and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein
appellant is entitled to collect from them, jointly and severally, the full value of the chattels in
question at the time they were illegally sold by them. To this effect was the holding of this
Court in a similar situation. 16

The effect of this irregularity was, in our opinion to make the plaintiff liable to the
defendant for the full value of the truck at the time the plaintiff thus carried it off to be
sold; and of course, the burden is on the defendant to prove the damage to which he
was thus subjected. . . .

This brings us to the problem of determining the value of the mortgaged chattels at the time
of their sale in 1961. The trial court did not make any finding on the value of the chattels in
the decision appealed from and denied altogether the right of the appellant to recover the
same. We find enough evidence of record, however, which may be used as a guide to
ascertain their value. The record shows that at the time herein appellant applied for its loan
with the PNB in 1956, for which the chattels in question were mortgaged as part of the
security therefore, herein appellant submitted a list of the chattels together with its
application for the loan with a stated value of P107,115.85. An official of the PNB made an
inspection of the chattels in the same year giving it an appraised value of P42,850.00 and a
market value of P85,700.00. 17 The same chattels with some additional equipment acquired
by herein appellant with part of the proceeds of the loan were reappraised in a re-inspection
conducted by the same official in 1958, in the report of which he gave all the chattels an
appraised value of P26,850.00 and a market value of P48,200.00. 18 Another re-inspection
report in 1959 gave the appraised value as P19,400.00 and the market value at
P25,600.00. 19 The said official of the PNB who made the foregoing reports of inspection
and re-inspections testified in court that in giving the values appearing in the reports, he
used a conservative method of appraisal which, of course, is to be expected of an official of
the appellee bank. And it appears that the values were considerably reduced in all the re-
inspection reports for the reason that when he went to herein appellant's premises at the
time, he found the chattels no longer in use with some of the heavier equipments
dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain the value
of the dismantled chattels in such condition, he did not give them anymore any value in his
reports. Noteworthy is the fact, however, that in the last re-inspection report he made of the
chattels in 1961, just a few months before the foreclosure sale, the same inspector of the
PNB reported that the heavy equipment of herein appellant were "lying idle and rusty" but
were "with a shed free from rains" 20 showing that although they were no longer in use at the
time, they were kept in a proper place and not exposed to the elements. The President of
the appellant company, on the other hand, testified that its caterpillar (tractor) alone is worth
P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the
proceeds of the loan and included as additional items in the mortgaged chattels were worth
no less than P14,000.00. He likewise appraised the worth of its Murphy engine at
P16,000.00 which, according to him, when taken together with the heavy equipments he
mentioned, the sawmill itself and all other equipment forming part of the chattels under
consideration, and bearing in mind the current cost of equipments these days which he
alleged to have increased by about five (5) times, could safely be estimated at P120,000.00.
This testimony, except for the appraised and market values appearing in the inspection and
re-inspection reports of the PNB official earlier mentioned, stand uncontroverted in the
record; but We are not inclined to accept such testimony at its par value, knowing that the
equipments of herein appellant had been idle and unused since it stopped operating its
sawmill in 1958 up to the time of the sale of the chattels in 1961. We have no doubt that the
value of chattels was depreciated after all those years of inoperation, although from the
evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for
which the chattels were sold in the foreclosure sale in question was grossly unfair to the
mortgagor. Considering, however, the facts that the appraised value of P42,850.00 and the
market value of P85,700.00 originally given by the PNB official were admittedly
conservative; that two 6 x 6 trucks subsequently bought by the appellant company had
thereafter been added to the chattels; and that the real value thereof, although depreciated
after several years of inoperation, was in a way maintained because the depreciation is off-
set by the marked increase in the cost of heavy equipment in the market, it is our opinion
that the market value of the chattels at the time of the sale should be fixed at the original
appraised value of P42,850.00.

Herein appellant's claim for moral damages, however, seems to have no legal or factual
basis. Obviously, an artificial person like herein appellant corporation cannot experience
physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock
or social humiliation which are basis of moral damages. 21 A corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral damages. The
same cannot be considered under the facts of this case, however, not only because it is
admitted that herein appellant had already ceased in its business operation at the time of
the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of
the foreclosure sale of the chattels could have upon its reputation or business standing
would undoubtedly be the same whether the sale was conducted at Jose Panganiban,
Camarines Norte, or in Manila which is the place agreed upon by the parties in the
mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte
in proceeding with the sale in utter disregard of the agreement to have the chattels sold in
Manila as provided for in the mortgage contract, to which their attentions were timely called
by herein appellant, and in disposing of the chattels in gross for the miserable amount of
P4,200.00, herein appellant should be awarded exemplary damages in the sum of
P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as
attorney's fees for herein appellant.

WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from
should be, as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of
the province of Camarines Norte are ordered to pay, jointly and severally, to Mambulao
Lumber Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by
the latter to the PNB, P42,850.00 the value of the chattels at the time of the sale with
interest at the rate of 6% per annum from December 21, 1961, until fully paid, P10,000.00 in
exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and
Fernando, JJ., concur.
Bengzon, J.P. J., took no part.