Stonehill vs. Diokno20 SCRA 383 (GR No. L-19550)June 19, 1967

CJ Concepcion

Constitutional Law; Search warrants; Corporations; Only party affected may contest legality of seizure effected by search warrants.Officers of certain corporations, from which documents, papers and things were seized by means of search warrants, have no cause of action to assail the legality of the seizures because said corporations have personalities distinct and separate from those of said officers. The legality of a seizure can be contested only by the party whose rights have been impaired thereby. The objection to an unlawful search is purely personal and cannot be availed of by third parties.Same; Evidence: When illegally seized evidence is admissible.Officers of certain corporations cannot validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations since the right to object to their admission in evidence belongs exclusively to the corporations, to which the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity.

Same; Requisites for issuing search warrants.The Constitution provides that no warrant shall issue but upon probable cause, to be determined by the judge, and that the warrant shall particularly describe the things to be seized.

Same; General search warrants.Search warrants, issued upon applications stating that the natural and juridical persons therein named had committed a violation of Central Bank laws, tariff and customs laws, Tax Code and Revised Penal Code do not satisfy the constitutional requirements because no specific offense had been alleged in said applications. It was impossible for the judges, who issued the warrants, to have found the existence of probable cause, which presupposes the introduction of competent proof that the party against whom it is sought has performed particular acts or committed specific omissions in violation of a specific penal provision.

Same; Why general warrants are outlawed.General search warrants are outlawed because they place the sanctity of the domicile and the privacy of communication and correspondence at the mercy of the whims, caprice or passion of peace officers.

Same; Provision of Revised Rules of Court.To prevent the issuance of general warrants, the Supreme Court amended the Old Rules of Court by providing in the Revised Rules of Court that "no search warrant shall issue for more than one specific offense".

Same; Warrants not describing particularly the things to be seized.Search warrants authorizing the seizure of books of accounts and records "showing all the business transactions" of certain persons, regardless of whether the transactions were legal or illegal, contravene the explicit command of the Bill of Rights that the things to be seized should be particularly described and defeat its major objective of eliminating general warrants.

Same; Evidence; Abandonment of Moncado ruling; Illegally seized documents are not admissible in evidence.The Moncado ruling, that illegally seized documents, papers and things are admissible in evidence, must be abandoned. The exclusion of such evidence is the only practical means of enforcing the constitutional injunction against unreasonable searches and seizures. The non-exclusionary rule is contrary to the letter and spirit of the prohibition against unreasonable searches and seizures. If there is competent evidence to establish probable cause of the commission of a given crime by the party against whom the warrant is intended, then there is no reason why the applicant should not comply with the constitutional requirements If he has no such evidence, then it is not possible for the judge to find that there is a probable cause, and, hence, no justification for the issuance of the warrant. The only possible explanation for the issuance in that case is the necessity of fishing for evidence of the commission of a crime. Such a fishing expedition is indicative of the absence of evidence to establish a probable cause.

CASTRO, J., concurring and dissenting:

Constitutional Law; Search and Seizure; Lack of standard of petitioners cannot affect illegality of search and seizure. That the petitioners have no legal standing to ask for the suppression of the papers, things, and effects seized from places other than their residences, cannot in any manner affect, alter, or otherwise modify the intrinsic nullity of the search warrants and the intrinsic illegality of the searches and seizures made thereunder. Whether or not petitioners possess legal standing, the said warrants are void and remain void, and the searches and seizures were illegal and remain illegal. No inference can be drawn from the words of the Constitution that "legal standing", or the lack of it, is a determinant of the nullity or validity of a Search warrant or of the lawfulness or illegality of a search or seizure.Same; Provision on search and seizure is derived from Federal Constitution.Our constitutional provision on searches and seizures was derived almost verbatim from the Fourth Amendment to the United States Constitution. In the many years of judicial construction and interpretation of the said constitutional provision, our courts have invariably regarded as doctrinal the pronouncements made on the Fourth Amendment by federal courts, especially the Federal Supreme Court and the Federal Circuit Courts of Appeals. The U.S. doctrines and pertinent cases on standing to move for the suppression or return of documents, papers and effects, which are the fruits of an unlawful search and seizure, may be summarized as follows: (a) ownership of documents, papers, and effects gives "standing"; (b) ownership and/or control or possessionactual or constructiveof premises searched gives "standing"; and (c) the "aggrieved person" doctrine where the search warrant and the sworn application for search warrant are "primarily" directed solely and exclusively 'against the "aggrieved person", gives "standing". An examination of the search warrants in this case will readily show that, excepting three, all were directed against the petitioners personally. In some of them, the petitioners were named personally, followed by the designation, "The President and/or General Manager" of the particular corporation. The three warrants excepted named three corporate defendants. But the "office/house/warehouse/premises" mentioned in the said three warrants were also the same "office/house/warehouse/premises" declared to be owned by or under the control of the petitioners in all the other search warrants directed against the petitioners and/or "the President and/or General Manager" of the particular corporation. The searches and seizures were to be made, and were actually made, in the "office/house/warehouse/premises" owned by or under the control of the petitioners.

Same; Ownership of properties seized entitles petitioners to bring motion to return and suppress and gives them standing as persons aggrieved by unlawful search and seizure. Ownership of the properties seized alone entitles the petitioners to bring a motion to return and suppress, and gives them standing as persons aggrieved by an unlawful search and seizure regardless of their location at the time of seizure. Under the constitutional provision against unlawful searches and seizures, a person places himself or his property within a constitutionally protected area, be it his home or his office, his hotel room or his automobile.

Same; Control of premises searched gives "standing". Independent of ownership or other personal interest in the records and documents seized, the petitioners have standing to move for return and suppression by virtue of their proprietary or leasehold interest in many of the premises searched. These proprietary and leasehold interests have been sufficiently set forth in their motion for reconsideration and need not be recounted here. It has never been held that a person with requisite interest in the premises searched must own the property seized in order to have standing in a motion to return and suppress. [Stonehill vs. Diokno, 20 SCRA 383(1967)]

Facts:

Upon application of the prosecutors (respondent) several judges (respondent) issued on different dates a total of 42 search warrants against petitioners (Stonehill et. al.) and/or corporations of which they were officers to search the persons of the petitioner and/or premises of their officers warehouses and/or residences and to seize and take possession of the personal property which is the subject of the offense, stolen, or embezzled and proceeds of fruits of the offense, or used or intended to be used or the means of committing the offense, which is described in the application as violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue Code and the Revised Penal Code.

Petitioners filed with the Supreme Court this original action for certiorari, prohibition and mandamus and injunction and prayed that, pending final disposition of the case, a writ of preliminary injunction be issued against the prosecutors, their agents and representatives from using the effect seized or any copies thereof, in the deportation case and that thereafter, a decision be rendered quashing the contested search warrants and declaring the same null and void. For being violative of the constitution and the Rules of court by: (1) not describing with particularity the documents, books and things to be seized; (2) money not mentioned in the warrants were seized; (3) the warrants were issued to fish evidence for deportation cases filed against the petitioner; (4) the searches and seizures were made in an illegal manner; and (5) the documents paper and cash money were not delivered to the issuing courts for disposal in accordance with law.

In their answer, the prosecutors (respondent) alleged; (1) search warrants are valid and issued in accordance with law; (2) defects of said warrants, were cured by petitioners consent; and (3) in any event the effects are admissible regardless of the irregularity.

The Court granted the petition and issued the writ of preliminary injunction. However by a resolution, the writ was partially lifted dissolving insofar as paper and things seized from the offices of the corporations.

Issues:

1.) Whether or not the petitioners have the legal standing to assail the legality of search warrants issued against the corporation of which they were officers.

2.) Whether or not the search warrants issued partakes the nature of a general search warrants.

3.) Whether or not the seized articles were admissible as evidence regardless of the illegality of its seizure.

Held:

I

Officers of certain corporations, from which the documents, papers, things were seized by means of search warrants, have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties.

Officers of certain corporations can not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity.

II

The Constitution provides:

The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched, and the persons or things to be seized.

Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue but upon probable cause, to be determined by the judge in the manner set forth in said provision; and (2) that the warrant shall particularly describe the things to be seized.

Search warrants issued upon applications stating that the natural and juridical person therein named had committed a "violation of Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no specific offense had been alleged in said applications. The averments thereof with respect to the offense committed were abstract. As a consequence, it was impossible for the judges who issued the warrants to have found the existence of probable cause, for the same presupposes the introduction of competent proof that the party against whom it is sought has performed particular acts, or committed specific omissions, violating a given provision of our criminal laws.

General search warrants are outlawed because the sanctity of the domicile and the privacy of communication and correspondence at the mercy of the whims caprice or passion of peace officers.

To prevent the issuance of general warrants this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court by providing in its counterpart, under the Revised Rules of Court that "a search warrant shall not issue but upon probable cause in connection with one specific offense." Not satisfied with this qualification, the Court added thereto a paragraph, directing that "no search warrant shall issue for more than one specific offense."

Seizure of books and records showing all business transaction of petitioners persons, regardless of whether the transactions were legal or illegal contravened the explicit command of our Bill of Rights - that the things to be seized be particularly described - as well as tending to defeat its major objective the elimination of general warrants.

III

Most common law jurisdiction have already given up the Moncado ruling and eventually adopted the exclusionary rule, realizing that this is the only practical means of enforcing the constitutional injunction against unreasonable searches and seizures. In the language of Judge Learned Hand:

As we understand it, the reason for the exclusion of evidence competent as such, which has been unlawfully acquired, is that exclusion is the only practical way of enforcing the constitutional privilege. In earlier times the action of trespass against the offending official may have been protection enough; but that is true no longer. Only in case the prosecution which itself controls the seizing officials, knows that it cannot profit by their wrong will that wrong be repressed. The non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the constitutional injunction against unreasonable searches and seizures. To be sure, if the applicant for a search warrant has competent evidence to establish probable cause of the commission of a given crime by the party against whom the warrant is intended, then there is no reason why the applicant should not comply with the requirements of the fundamental law. Upon the other hand, if he has no such competent evidence, then it is not possible for the Judge to find that there is probable cause, and, hence, no justification for the issuance of the warrant. The only possible explanation (not justification) for its issuance is the necessity of fishing evidence of the commission of a crime. But, then, this fishing expedition is indicative of the absence of evidence to establish a probable cause.

The Court held that the doctrine adopted in the Moncado case must be, as it is hereby, abandoned; that the warrants for the search of three (3) residences of herein petitioners, as specified in the Resolution of June 29, 1962, are null and void; that the searches and seizures therein made are illegal; that the writ of preliminary injunction heretofore issued, in connection with the documents, papers and other effects thus seized in said residences of herein petitioners is hereby made permanent; that the writs prayed for are granted, insofar as the documents, papers and other effects so seized in the aforementioned residences are concerned; that the aforementioned motion for Reconsideration and Amendment should be, as it is hereby, denied; and that the petition herein is dismissed and the writs prayed for denied, as regards the documents, papers and other effects seized in the twenty-nine (29) places, offices and other premises enumerated in the same Resolution, without special pronouncement as to costs.

150 SCRA 181 Business Organization Corporation Law A Corporation Cannot Invoke the Right Against Self-Incrimination

Constitutional Law; Executive Orders Nos. 1 and 2 issued to implement a constitutional mandate, valid and constitutionalThe impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by Proclamation No. 3, that the Presidentin the exercise of legislative power which she was authorized to continue to wield "(u)ntil a legislature is elected and convened under a new Constitution""shall give priority to measures to achieve the mandate of the people," among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts."

Same; Same; Executive orders not bill of attainder.Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. "A bill of attainder is a legislative act which inflicts punishment without judicial trial." "Its essence is the substitution of a legislative for a judicial determination of guilt." In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.

Same; Same; Same; Right against self-incrimination has no application to juridical persons and the constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either.BASECO also contends that its right against self-incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18,1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation conducted by the Commission," and paragraph (3), Executive Order No. 2 dealing with its power to "(r)equire all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same **." The contention lacks merit. It is elementary that the right against self-incrimination has no application to juridical persons. "While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse of such privileges. * *" At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that"* * * * 'The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order." The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.PCGG; Its creation and powers.Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad." Upon these premises, the Presidential Commission on Good Government was created, "charged with the task of assisting the President in regard to * * (certain specified) matters," among which was precisely"* * The recovery of all ill-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence, connections or relationship." In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was granted "power and authority" to do the following particular acts, to wit: 1. 'To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth or properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task." 2. "To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities." 3. 'To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order." So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. It was given power also to promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its creation)." Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed by the leaders and supporters of the previous regime." It declares that: 1) "* * the Government of the Philippines is in possession of evidence showing that there are assets and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines;" and 2) "* * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world." Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation;" 2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates, dummies, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines;" 3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;" and 4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government within thirty (30) days from publication of * (the) Executive Order, * *." A third executive order is relevant: Executive Order No. 14, by which the PCGG is empowered, "with theassistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its findings." All such cases, whether civil or criminal, are to be filed "with the Sandiganbayan, which shall have exclusive and original jurisdiction thereof." Executive Order No. 14 also pertinently provides that "(c)ivil suits for restitution, reparation of damages, or indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly applied to * * (said) civil cases.''

Same; Same; PCGG is not and was never intended to act as a judge; General functions of PCGG.It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as, a judge. Its general function is to conduct investigations in order to collect evidence establishing instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and the executive orders. This function is reserved to the designated court, in this case, the Sandiganbayan. There can therefore be no serious regard accorded to the accusation, leveled by BASECO, that the PCGG plays the perfidious role of prosecutor and judge at the same time.Same; Same; Same; PCGG is not an owner but a conservator who can exercise only powers of administration over property sequestered, frozen or provisionally taken over.One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. As already earlier stressed with no little insistence, the act ofsequestration, freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion. Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise being "ill-gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner.

Same; Same; Same; Same; Need of provisional measures to collect and conserve assets pending suits; Provisional remedies prescribed by law.Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to recover the same. To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3) provisional takeover. Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos."

Same; Same; Same; Same; Same; Sequestration, Freeze Order and Provisional Takeover, meaning.By the clear terms of the law, the power of the PCGG to sequester property claimed to be "illgotten" means to place or cause to be placed under its possession or control said property, or any building or office wherein any such property and any records pertaining thereto may be found, including "business enterprises and entities,"for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the sameuntil it can be determined, through appropriate judicial proceedings, whether the property was in truth "ill-gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the State. And this, too, is the sense in which the term is commonly understood in other jurisdictions. A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its transfer, encumbrance, concealment, or dissipation." In other words, it commands the possessor to hold the property and conserve it subject to the orders and disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or credits in his possession or control, and thus becomes in a sense an involuntary depositary thereof, In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill-gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual management and operations thereof; and "business enterprises which were taken over by the government of the Marcos Administration or by entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent disposal or dissipation of the enterprises." Such a "provisional takeover" imports something more than sequestration or freezing, more than the placing of the business under physical possession and control, albeit without or with the least possible interference with the management and carrying on of the business itself. In a "provisional takeover," what is taken into custody is not only the physical assets of the business enterprise or entity, but the business operation as well. It is in fine the assumption of control not only over things, but over operations or on-going activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken over by the government of the Marcos Administration or by entities or persons close to former President t Marcos.''

Same; Same; Same; Same; Same; Same; Same; Remedies maybe resorted to by PCGG only for a particular exigency. The law was not meant to divest title or right of the owner over the property sequestered, frozen or takenover.lt may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the law plainly qualifies the remedy of takeover by the adjective, "provisional." These remedies may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done only for the causes and by the processes laid down by law. That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate authorities." Executive Order No. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the out-come of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal means. Executive Order No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or not particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.

Same; Same; Same; Same; Same; Same; Same; Same; Same; Duration of these provisional remedies.There is thus no cause for the apprehension voiced by BASECO that sequestration, freezing or provisional takeover is designed to be an end in itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is intended to bring about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the governing rules. Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26 of its Transitory Provisions lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although not really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders: "SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in rela-tion to the recovery of ill-gotten wealth shall remain operative f or not more than eighteen months after the ratification of this Constitution. However, in the national interest, as certified by the President, the Congress may extend said period. "A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification of this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its ratification. For those issued after such ratification, the judicial action or proceeding shall be commenced within six months from the issuance thereof. "The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein provided." As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or receivership. By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. By receivership, property, real or personal, which is subject of litigation, is placed in the possession and control of a receiver appointed by the Court, who shall conserve it pending final determination of the title or right of possession over it. All these remediessequestration, freezing, provisional takeover, attachment and receivershipare provisional, temporary, designed for particular exigencies, attended by no character of permanency or finality, and always subject to the control of the issuing court or agency.

Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Remedies non-judicial and writs may be issued exparte.Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law authorized to issue against property of a delinquent taxpayer. BASECO itself declares that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change." What it insists on, what it pronounces to be its "unyielding position, is that any change in procedure, or the institution of a new one, should conform to due process and the other prescriptions of the Bill of Rights of the Constitution." It is, to be sure, a proposition on which there can be no disagreement. Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevin suits, sequestration and provisional takeover writs may issue ex parte. And as in preliminary attachment, receivership, and delivery of personalty, no objection of any significance may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people;" as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at the just recovery thereof.Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Requisites for validity of sequestration, freeze or takeover order.What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its negation or nullification. Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG. Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new democratic government that President Marcos * * (and other parties affected) be afforded fair opportunity to contest these claims before appropriate Philippine authorities." Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. A similar requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze order shall be issued only upon showing of a prima facie case." And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of sequestration or freeze order, viz: "SECTION 5. Who may contendThe person against whom a writ of sequestration or freeze or hold order is directed may request the lifting thereof in writing, either personally or through counsel within five (5) days from receipt of the writ or order, or in the case of a hold order, from date of knowledge thereof. "SECTION 6. Procedure for review of writ or order.After due hearing or motu proprio for good cause shown, the Commission may lift the writ or order unconditionally or subject to such conditions as it may deem necessary, taking into consideration the evidence and the circumstance of the case. The resolution of the Commission may be appealed by the party concerned to the Office of the President of the Philippines within fifteen (15) days from receipt thereof." Parenthetically, even if the requirement for a prima facie showing of "ill-gotten wealth" were not expressly imposed by some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis in fact or law, or are whimsical and capricious, are condemned and struck down.

Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Remedies and authority of PCGG to issue writs and orders, constitutionality approved and sanctioned.lf any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to achieve the mandate of the people to * * * (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution treats of, and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986." The institution of these provisional remedies is also premised upon the State's inherent police power, regarded as "the power of promoting the public welfare by restraining and regulating the use of liberty and property," and as "the most essential, insistent and illimitable of powers * * in the promotion of general welfare and the public interest," and said to be "co-extensive with self-protection and * * not inaptly termed (also) the 'law of overruling necessity.' " [Bataan Shipyard & Engineering Co., Inc. vs. Presidential Commission on Good Government, 150 SCRA 181(1987)]

FACTS

When President Corazon Aquino took power, the Presidential Commission on Good Government (PCGG) was formed in order to recover ill gotten wealth allegedly acquired by former President Marcos and his cronies. Aquino then issued two executive orders in 1986 and pursuant thereto, a sequestration and a takeover order were issued against Bataan Shipyard & engineering Co., Inc. (BASECO). BASECO was alleged to be in actuality owned and controlled by the Marcoses through the Romualdez family, and in turn, through dummy stockholders.

The sequestration order issued in 1986 required, among others, that BASECO produce corporate records from 1973 to 1986 under pain of contempt of the PCGG if it fails to do so. BASECO assails this order as it avers, among others, that it is against BASECOs right against self incrimination and unreasonable searches and seizures.

ISSUE: Whether or not BASECO is correct.

HELD: No. First of all, PCGG has the right to require the production of such documents pursuant to the power granted to it. Second, and more importantly, right against self-incrimination has no application to juridical persons. There is a reserve right in the legislature to investigate the contracts of a corporation and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation like BASECO to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose.

Neither is the right against unreasonable searches and seizures applicable here. There were no searches made and no seizure pursuant to any search was ever made. BASECO was merely ordered to produce the corporate records.

PNB VS CA 83 SCRA 237 Business Organization Corporation Law Corporations Liability for Negligence

Sugar quota; Banks and Banking; Chattel Mortgage; Torts; Circumstances which show that the Philippine National Bank acted unreasonably in raising the price of the lease of sugar quota allotment from P2.80 to P3.00 per picul.As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the same must be utilized during the milling season, because any allotment which is not filled during such milling season may be reallocated by the Sugar Quota Administration to other holders of allotments. There was no proof that there was any other person at that time willing to lease the sugar quota allotment of private respondents for a price higher than P2.80 per picul. The fact that there were isolated transactions wherein the consideration for the lease was P3.00 a picul, according to the trial court, does not necessarily mean that there are always ready takers for said price. The unreasonableness of the position adopted by the petitioners Board of Directors is shown by the fact that the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the Board amounted only to a total sum of P200.00. Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety bonds and that she had apparently the means to pay her obligation to the Bank, as shown by the fact that she has been granted several sugar crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to 1956, there was no reasonable basis for the Board of Directors of petitioner to have rejected the lease agreement because of a measly sum of P200.00. [Philippine National Bank vs. Court of Appeals, 83 SCRA 237(1978)]

Same; Same; Same; Same; Assignments; The Philippine National Bank, as assignee of lease of sugar quota allotment, should show that degree of care, precaution, and vigilance which circumstances demand in approving or disapproving a lease of sugar quota, otherwise it will be liable for damages on account of tort.While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was mortgaged to the bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest of private respondents, that degree of care, precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar quota. The law makes it imperative that every person must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. This petitioner failed to do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of the lease private respondents would be unable to utilize the sugar quota in question. In failing to observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably impose, petitioner is consequently liable for the damages caused on private respondents. Under Article 21 of the New Civil Code, any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. The afore-cited provisions on human relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to specifically provide in the statutes. [Philippine National Bank vs. Court of Appeals, 83 SCRA 237(1978)]

Torts; Corporation Law; Corporations can be liable in same manner as natural persons, for tort.A corporation is civilly liable in the same manner as natural persons for torts, because generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of a natural person. [Philippine National Bank vs. Court of Appeals, 83 SCRA 237(1978)]

Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her sugar crops about to be harvested including her export quota allocation worth 1,000 piculs. The said export quota was later dealt by Tapnio to a certain Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since the subject of the deal is mortgaged with PNB, the latter has to approve it. The branch manager of PNB recommended that the price should be at P2.80 per picul which was the prevailing minimum amount allowable. Tapnio and Tuazon agreed to the said amount. And so the bank manager recommended the agreement to the vice president of PNB. The vice president in turn recommended it to the board of directors of PNB.

However, the Board of Directors wanted to raise the price to P3.00 per picul. This Tuazon does not want hence he backed out from the agreement. This resulted to Tapnio not being able to realize profit and at the same time rendered her unable to pay her P2,000.00 crop loan which would have been covered by her agreement with Tuazon.

Eventually, Tapnio was sued by her other creditors and Tapnio filed a third party complaint against PNB where she alleged that her failure to pay her debts was because of PNBs negligence and unreasonableness.

ISSUE: Whether or not Tapnio is correct.

HELD: Yes. In this type of transaction, time is of the essence considering that Tapnios sugar quota for said year needs to be utilized ASAP otherwise her allotment may be assigned to someone else, and if she cant use it, she wont be able to export her crops. It is unreasonable for PNBs board of directors to disallow the agreement between Tapnio and Tuazon because of the mere difference of 0.20 in the agreed price rate. What makes it more unreasonable is the fact that the P2.80 was recommended both by the bank manager and PNBs VP yet it was disapproved by the board. Further, the P2.80 per picul rate is the minimum allowable rate pursuant to prevailing market trends that time. This unreasonable stand reflects PNBs lack of the reasonable degree of care and vigilance in attending to the matter. PNB is therefore negligent.

A corporation is civilly liable in the same manner as natural persons for torts, because generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which it expressly directs or authorizes, and this is just as true of a corporation as of a natural person, a corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body.

EN BANC

G.R. No. L-35262 March 15, 1930

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant, vs.TAN BOON KONG, defendant-appellee.

Attorney-General Jaranilla for appellant.Alejandro de Aboitiz Pinaga for appellee.

OSTRAND, J.:

This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to demurrer to an information charging the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711 as amended. The information reads as follows:

That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province of Iloilo, Philippine Islands, the said accused, as corporation organized under the laws of the Philippine Islands and engaged in the purchase and the sale of sugar, "bayon," coprax, and other native products and as such object to the payment of internal-revenue taxes upon its sales, did then and there voluntarily, illegally, and criminally declare in 1924 for the purpose of taxation only the sum of P2,352,761.94, when in truth and in fact, and the accused well knew that the total gross sales of said corporation during that year amounted to P2543,303.44, thereby failing to declare for the purpose of taxation the amount of P190,541.50, and voluntarily and illegally not paying the Government as internal-revenue percentage taxes the sum of P2,960.12, corresponding to 1 per cent of said undeclared sales.

The question to be decided is whether the information sets forth facts rendering the defendant, as manager of the corporation liable criminally under section 2723 of Act No. 2711 for violation of section 1458 of the same act for the benefit of said corporation. Section 1458 and 2723 read as follows:

SEC. 1458. Payment of percentage taxes Quarterly reports of earnings. The percentage taxes on business shall be payable at the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter; and it shall be on the duty of every person conducting a business subject to such tax, within the same period as is allowed for the payment of the quarterly installments of the fixed taxes without penalty, to make a true and complete return of the amount of the receipts or earnings of his business during the preceeding quarter and pay the tax due thereon. . . . (Act No. 2711.)

SEC. 2723. Failure to make true return of receipts and sales. Any person who, being required by law to make a return of the amount of his receipts, sales, or business, shall fail or neglect to make such return within the time required, shall be punished by a fine not exceeding two thousand pesos or by imprisonment for a term not exceeding one year, or both.

And any such person who shall make a false or fraudulent return shall be punished by a fine not exceeding ten thousand pesos or by imprisonment for a term not exceeding two years, or both. (Act No. 2711.)

Apparently, the court below based the appealed ruling on the ground that the offense charged must be regarded as committed by the corporation and not by its officials or agents. This view is in direct conflict with the great weight of authority. a corporation can act only through its officers and agent s, and where the business itself involves a violation of the law, the correct rule is that all who participate in it are liable (Grall and Ostrand's Case, 103 Va., 855, and authorities there cited.)

In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary corporation was criminally liable for the violation of a statute by the corporation through he was not present when the offense was committed.

In the present case the information or complaint alleges that he defendant was the manager of a corporation which was engaged in business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the total amount of sale made by said false return constitutes a violation of law, the defendant, as the author of the illegal act, must necessarily answer for its consequences, provided that the allegation are proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be returned to said court for further proceedings not inconsistent with our view as hereinafter stated. Without costs. So ordered.

Johnson, Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.

Mambulao Lumber Co. vs. Philippine National Bank, 22 SCRA 359(1968)

Interest; Compounded; When shall it be reckoned.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. Interest due shal l ea rn le interest only from the time it is judicially demanded. Interest due and unpaid shall not earn interest. The parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest.Auctions; Claims for expenses thereto.Fees enumerated by the Rules of Court (Rule 141, New Rules of Court) are demandable only by a sheriff serving processes of the court in connection with judicia l foreclosu re of mortga ges u nder 68 and not in cases of extra-judicial foreclosure of mortgagees 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.Stipulations; Mortgage contract; How it should be construed.The ambiguity in the stipulation by reason of the faulty sentence construction should not be made to defeat the otherwise clear intention of the parties in the agreement.Attorney's fees; Rule of quantum meruit.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. The fees should be subject to judicial control. 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.Same; Circumstances to consider.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.Mortgages; Extent of authority of mortgagee to sell property mortgaged.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. 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 or that there is an agreement to this effect between the mortgagor and the mortgagee. But when the parties agreed to have the property mortgaged sold at the residence of the mortgagor; the mortgagee can not retain that power and authority to select from among the places provided for in the law and place designated in their agreement.Damages; Moral damages; Award of damage to juridical persons.An artificial person cannot experience physical sufferingS; mental anguish, fright, serious anxiety, wounded feelings, moral -shock or social humiliation which are the basis of moral damage. A corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages. [Mambulao Lumber Co. vs. Philippine National Bank, 22 SCRA 359(1968)]

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.

Asset Privatization Trust vs. Court of Appeals, 300 SCRA 579(1998)

Actions; Arbitration; Judgments; Dismissal of Actions; Words and Phrases; The term dismiss has a precise definition in lawto dispose of an action, suit, or motion without trial on the issues involved, conclude, discontinue, terminate, quash.The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of the Order of the trial court dated October 14, 1992 stated in no uncertain terms: 4. The Complaint is hereby DISMISSED. The term dismiss has a precise definition in law. To dispose of an action, suit, or motion without trial on the issues involved. Conclude, discontinue, terminate, quash.

Same; Same; Same; Same; A court makes a fatal mistake if it dismisses a case instead of merely suspending it to await the outcome of arbitration proceedings.Admittedly, the correct procedure was for the parties to go back to the court where the case was pending to have the award confirmed by said court. However, Branch 62 made the fatal mistake of issuing a final order dismissing the case. While Branch 62 should have merely suspended the case and not dismissed it, neither of the parties questioned said dismissal. Thus, both parties as well as said court are bound by such error. It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the knowledge that the case was merely stayed until arbitration finished, as again, the order of Branch 62 in very clear terms stated that the complaint was dismissed. By its own action, Branch 62 had lost jurisdiction over the case. It could not have validly reacquired jurisdiction over the said case on mere motion of one of the parties. The Rules of Court is specific on how a new case may be initiated and such is not done by mere motion in a particular branch of the RTC. Consequently, as there was no pending action to speak of, the petition to confirm the arbitral award should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court.

Same; Same; Courts; Jurisdiction; As a rule, neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and exceptional circumstances.The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the invocation of this defense may be done at any time. It is neither for the courts nor for the parties to violate or disregard that rule, let alone to confer that jurisdiction, this matter being legislative in character. As a rule then, neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and exceptional circumstances. One such exception was enunciated in Tijam vs. Sibonghanoy, where it was held that after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for the loser to question the jurisdiction or power of the court.

Same; Same; Same; Same; A partys prayer for the setting aside of the arbitral award is not inconsistent with its disavowal of the courts jurisdiction where, from the outset, it has consistently held that the court has no jurisdiction to confirm the arbitral award.Petitioners situation is different because from the outset, it has consistently held the position that the RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be said that it was estopped from questioning the RTCs jurisdiction. Petitioners prayer for the setting aside of the arbitral award was not inconsistent with its disavowal of the courts jurisdiction.

Same; Same; Same; Same; Certiorari; A party aggrieved by an arbitral award is not precluded from resorting to the extraordinary remedy of certiorari under Rule 65 where the court to which the award was submitted for confirmation has acted without jurisdiction, or with grave abuse of discretion.The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court where, as in this case, the Regional Trial Court to which the award was submitted for confirmation has acted without jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy remedy in the course of law.

Same; Same; Same; Judicial review of an arbitration is more limited than judicial review of a trial.As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to the facts. Courts are without power to amend or overrule merely because of disagreement with matters of law or facts determined by the arbitrators. They will not review the findings of law and fact contained in an award, and will not undertake to substitute their judgment for that of the arbitrators, since any other rule would make an award the commencement, not the end, of litigation. Errors of law and fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and honestly made. Judicial review of an arbitration is, thus, more limited than judicial review of a trial.

Same; Same; Same; The arbitrators cannot resolve issues beyond the scope of the submission agreement.Nonetheless, the arbitrators award is not absolute and without exceptions. The arbitrators cannot resolve issues beyond the scope of the submission agreement. The parties to such an agreement are bound by the arbitra-tors award only to the extent and in the manner prescribed by the contract and only if the award is rendered in conformity thereto. Thus, Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration award. Where the conditions described in Articles 2038, 2039, and 2040 of the Civil Code applicable to compromises and arbitration are attendant, the arbitration award may also be annulled.

Same; Same; Same; While a court is precluded from overturning an award for errors in the determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators determination, their award must be vacated.It should be stressed that while a court is precluded from overturning an award for errors in the determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators determinations, their award must be vacated. In the same manner, an award must be vacated if it was made in manifest disregard of the law.

Mortgages; Damages; Where the foreclosure is not a wrongful act of the mortgagee, it could not be the basis of any award of damages.The point need not be belabored that PNB and DBP had the legitimate right to foreclose the mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act of the banks and, therefore, could not be the basis of any award of damages. There was no financial restructuring agreement to speak of that could have constituted an impediment to the exercise of the banks right to foreclose.

Same; Presumptions; It is a disputable presumption that official duty has been regularly performed and ordinary course of business has been followed.Private respondents thesis that the foreclo-sure proceedings were null and void because of lack of publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the evidence. In any case, a disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary course of business has been followed.

Corporation Law; Agency; A corporation exercises its powers, including the power to enter into contracts, through its board of directors, and while it may appoint agents to enter into a contract in its behalf, the agent should not exceed their authority.As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While a corporation may appoint agents to enter into a contract in its behalf, the agent should not exceed his authority. In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-for-equity swap. And if they had such authority, there was no showing that the banks, through their board of directors, had ratified the FRP.

Damages; A corporation whose credit reputation is not exactly something to be considered sound and wholesome cannot be entitled to a big amount of moral damages; Moral damages include besmirched reputation which a corporation may possibly suffer.Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about.

Actions; Arbitration; An award of damages to one who is not a party before the Arbitration Committee is a complete nullity.Civil Case No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As it is, the award of damages to MMIC, which was not a party before the Arbitration Committee, is a complete nullity.

Same; Corporation Law; Derivative Suits; Parties; In a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the corporations behalf is only a nominal partythe corporation should be included as a party in the suit.Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the corporations behalf is only a nominal party. The corporation should be included as a party in the suit. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. x x x.Same; Same; If an award is due a corporation from a party who has equity in such corporation, the same should be given sans deduction in view of the doctrine that a corp