PETRON vs NCBA

The sole question raised in this petition for review on certiorari1 is whether petitioner Petron Corporation (Petron)
should be held liable to pay attorney’s fees and exemplary damages to respondent National College of Business and Arts
(NCBA).

This case, however, is but part of a larger controversy over the lawful ownership of seven parcels of land2 in the V. Mapa
area of Sta. Mesa, Manila (the V. Mapa properties) that arose out of a series of events that began in 1969.3

Sometime in 1969, the V. Mapa properties, then owned by Felipe and Enrique Monserrat, Jr., were mortgaged to the
Development Bank of the Philippines (DBP) as part of the security for the ₱5.2 million loan of Manila Yellow Taxicab Co.,
Inc. (MYTC) and Monserrat Enterprises Co. MYTC, for its part, mortgaged four parcels of land located in Quiapo, Manila.

On March 31, 1975, however, Felipe’s ½ undivided interest in the V. Mapa properties was levied upon in execution of a
money judgment rendered by the Regional Trial Court (RTC) of Manila in Filoil Marketing Corporation v. MYTC, Felipe
Monserrat, and Rosario Vda. De Monserrat (the Manila case).4 DBP challenged the levy through a third-party claim
asserting that the V. Mapa properties were mortgaged to it and were, for that reason, exempt from levy or attachment.
The RTC quashed it.

On June 18, 1981, MYTC and the Monserrats got DBP to accept a dacion en pago arrangement whereby MYTC conveyed
to the bank the four mortgaged Quiapo properties as full settlement of their loan obligation. But despite this agreement,
DBP did not release the V. Mapa properties from the mortgage.

On May 21, 1982, Felipe, acting for himself and as Enrique’s attorney-in-fact, sold the V. Mapa properties to respondent
NCBA. Part of the agreement was that Felipe and Enrique would secure the release of the titles to the properties free of
all liens and encumbrances including DBP’s mortgage lien and Filoil’s levy on or before July 31, 1982. But the Monserrats
failed to comply with this undertaking. Thus, on February 3, 1983, NCBA caused the annotation of an affidavit of adverse
claim on the TCTs covering the V. Mapa properties.

Shortly thereafter, NCBA filed a complaint against Felipe and Enrique for specific performance with an alternative prayer
for rescission and damages in the RTC of Manila. The case was raffled to Branch 30 and docketed as Civil Case No. 83-
16617. On March 30, 1983, NCBA had a notice of lis pendens inscribed on the TCTs of the V. Mapa properties. A little
over two years later, NCBA impleaded DBP as an additional defendant in order to compel it to release the V. Mapa
properties from mortgage.

On February 28, 1985, during the pendency of Civil Case No. 83-16617, Enrique’s ½ undivided interest in the V. Mapa
properties was levied on in execution of a judgment of the RTC of Makati (the Makati case)5 holding him liable to Petron
(then known as Petrophil Corporation) on a 1972 promissory note. On April 29, 1985, the V. Mapa properties were sold
at public auction to satisfy the judgments in the Manila and Makati cases. Petron, the highest bidder, acquired both
Felipe’s and Enrique’s undivided interests in the property. The final deeds of sale of Enrique’s and Felipe’s shares in the
V. Mapa properties were awarded to Petron in 1986. Sometime later, the Monserrats’ TCTs were cancelled and new
ones were issued to Petron. Thus it was that, towards the end of 1987, Petron intervened in NCBA’s suit against Felipe,
Enrique and DBP (Civil Case No. 83-16617) to assert its right to the V. Mapa properties.

The RTC rendered judgment on March 11, 1996.6 It ruled, among other things, that Petron never acquired valid title to
the V. Mapa properties as the levy and sale thereof were void and that NCBA was now the lawful owner of the
properties. Moreover, the RTC held Petron, DBP, Felipe and Enrique jointly and severally liable to NCBA for exemplary
damages and attorney’s fees for the following reasons:

FELIPE and ENRIQUE had no reason to renege on their undertaking in the Deed of Absolute Sale "to secure the release of
the titles to the properties xxx free from all the liens and encumbrances, and to cause the lifting of the levy on execution
of Commercial Credit Corporation, Industrial Finance Corporation[,] and Filoil over the V. Mapa [p]roperty. Moreover,
ENRIQUE had no reason to repudiate FELIPE and disavow authority he had [given] the latter to sell his share in the V.
Mapa property.

On the other hand, the mortgage in favor of DBP had been fully extinguished thru dacion en pago as early as 18 June
1981 but it unjustifiably and whimsically refused to release the mortgage and to surrender to the buyer (NCBA) the
owner’s duplicate copies of Transfer Certificates of Title No[s]. 83621 to 83627, thereby preventing NCBA from
registering the sale in its favor.

Similarly, [Petron] has absolutely no reason to claim the V. Mapa property. For, as shown above, the levy in execution
and sale of the shares of FELIPE and ENRIQUE in the V. Mapa property were null and void.

Finally, in their Memorandum of Agreement dated 25 September 1992 with Technical Institute of the Philippines,
[Petron] and DBP attempted to pre-empt this Court’s power to adjudicate on the claim of ownership stipulating that "to
facilitate their defenses and cause of action in Civil Case No. 83-16617," they agreed on the disposition of the V. Mapa
property among themselves. For obvious reasons, this Court refused to give its imprimatur and denied their prayer for
dismissal of the complaint against DBP.

These acts of defendants and intervenor demonstrate their wanton, fraudulent, reckless, oppressive and malevolent
conduct in their dealings with NCBA. Furthermore, they acted with gross and evident bad faith in refusing to satisfy
NCBA’s plainly valid and demandable claims. Assessment of exemplary damages and attorney’s fees in the amounts of
₱100,000.00 and ₱150,000.00, respectively, is therefore in order (Arts. 2208 and 2232, Civil Code).7

Enrique, DBP and Petron appealed to the Court of Appeals (CA). The appeal was docketed as CA–G.R. CV No. 53466. In a
decision dated June 21, 2002,8 the CA affirmed the RTC decision in toto. On motion for reconsideration, Petron and DBP
tried to have the award of exemplary damages and attorney’s fees deleted for lack of legal and factual basis. The
Philippine National Oil Company (PNOC), which had been allowed to intervene in the appeal as transferee pendente
lite of Petron’s right to the V. Mapa properties, moved for reconsideration of the ruling on ownership. In a resolution
dated October 16, 2002,9 the CA denied these motions for lack of merit. Thereupon, Petron and PNOC took separate
appeals to this Court.

In this appeal, the only issue is Petron’s liability for exemplary damages and attorney’s fees. And on this matter, we
reverse the rulings of the trial and appellate courts.

Article 2208 lays down the rule that in the absence of stipulation, attorney’s fees cannot be recovered except in the
following instances:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expense to
protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and
demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should
be recovered.10

Here, the RTC held Petron liable to NCBA for attorney’s fees under Article 2208(5), which allows such an award "where
the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just, and demandable
claim." However, the only justification given for this verdict was that Petron had no reason to claim the V. Mapa
properties because, in the RTC’s opinion, the levy and sale thereof were void.11 This was sorely inadequate and it was
erroneous for the CA to have upheld that ruling built on such a flimsy foundation.

Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad faith to satisfy another’s
plainly valid, just and demandable claim, compelling the latter needlessly to seek redress from the courts.12 In such a
case, the law allows recovery of money the plaintiff had to spend for a lawyer’s assistance in suing the defendant –
expenses the plaintiff would not have incurred if not for the defendant’s refusal to comply with the most basic rules of
fair dealing. It does not mean, however, that the losing party should be made to pay attorney’s fees merely because the
court finds his legal position to be erroneous and upholds that of the other party, for that would be an intolerable
transgression of the policy that no one should be penalized for exercising the right to have contending claims settled by
a court of law.13 In fact, even a clearly untenable defense does not justify an award of attorney’s fees unless it amounts
to gross and evident bad faith.14

Petron’s claim to the V. Mapa properties, founded as it was on final deeds of sale on execution, was far from untenable.
No gross and evident bad faith could be imputed to Petron merely for intervening in NCBA’s suit against DBP and the
Monserrats in order to assert what it believed (and had good reason to believe) were its rights and to have the disputed
ownership of the V. Mapa properties settled decisively in a single lawsuit.

With respect to the award of exemplary damages, the rule in this jurisdiction is that the plaintiff must show that he is
entitled to moral, temperate or compensatory damages before the court may even consider the question of whether
exemplary damages should be awarded.15 In other words, no exemplary damages may be awarded without the
plaintiff’s right to moral, temperate, liquidated or compensatory damages having first been established. Therefore, in
view of our ruling that Petron cannot be made liable to NCBA for compensatory damages (i.e., attorney’s fees), Petron
cannot be held liable for exemplary damages either.

WHEREFORE, the petition is hereby GRANTED. The imposition of liability on Petron Corporation for exemplary damages
and attorney’s fees is REVOKED. The June 21, 2002 decision and October 16, 2002 resolution of the Court of Appeals in
CA–G.R. CV No. 53466 and the March 11, 1996 decision of the Regional Trial Court of Manila in Civil Case No. 83-16617
are hereby MODIFIED accordingly.

APT vs. CA

KAPUNAN, J.:

The petition for review on certiorari before us seeks us to reverse and set aside the decision of the Court of Appeals
which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of
the Regional Trial Court (RTC) Branch 62, Makati City. The Makati RTCs order upheld and confirmed the award made by
the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the
Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or approximately P4.5
BILLION, including interest).

Ironically, the staggering amount of damages was imposed on the Government for exercising its legitimate right of
foreclosure as creditor against the debtor MMIC as a consequence of the latters failure to pay its overdue and unpaid
obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP).
The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been
authorized by Republic Act No. 1828, as amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao
Mineral Reservation Board, granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other
minerals in the Surigao mineral reservation.[1] MMIC is a domestic corporation engaged in mining with respondents
Jesus S. Cabarrus, Sr. as President and among its original stockholders.

The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture and extension
of guarantees. Further, the Philippine Government obtained a firm, commitment from the DBP and/or other
government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or deferred payment
arrangements secured from the US Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100
Million.[2]

DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized
portion of the Government commitment. Thereafter, the Government extended accommodations to MMIC in various
amounts.

On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement[3] whereby MMIC, as mortgagor, agreed to
constitute a mortgage in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real estate and chattel
mortgage executed by the mortgagor, and additional assets described and identified, including assets of whatever kind,
nature or description, which the mortgagor may acquire whether in substitution of, in replenishment, or in addition
thereto.

Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the
MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due.[4]

Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of defaults,
circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of period to
foreclose, authority of Trustee before, during and after foreclosure, including taking possession of the mortgaged
properties.[5]
In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings, Promissory Notes, Loans
Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand or under certain
terms the loans and accommodations secured from or guaranteed by both DBP and PNB.

By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached tremendous proportions,
and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding loan with DBP in the
amount of P13,792,607,565.92 as of August 31, 1984 and in the amount of P8,789,028,249.38 as of July 15, 1984 or a
total Government exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Thousand
Seven Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine Currency.[6] Thus, a financial restructuring plan
(FRP) designed to reduce MMIC' interest expense through debt conversion to equity was drafted by the Sycip Gorres
Velayo accounting firm.[7] On April 30, 1984, the FRP was approved by the Board of Directors of the MMIC.[8] However,
the proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP.[9]

In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had become overdue
and since any restructuring program relative to the loans was no longer feasible, and in compliance with the directive of
Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to
extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement.[10]

The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations,
namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island Cement Corporation. In
1986, these assets were transferred to the Asset Privatization Trust (APT).[11]

On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative suit against
DBP and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and
Damages.[12] The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul the foreclosure, restore the
foreclosed assets to MMIC, and require the banks to account for their use and operation in the interim; (2) direct the
banks to honor and perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages,
attorneys fees, litigation expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor of the DBP and PNBs interest in MMIC,
mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement,
stipulating, inter alia:

NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contain herein, the
parties agreed as follows:

1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the Trial Court and to
resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based on this
Compromise and Arbitration Agreement.

In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the parties have agreed
that:

(a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts, APT shall likewise succeed
to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to be
transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility of, be
discharged by and be enforceable against APT, the partied having agreed to drop PNB and DBP from the arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to
arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial Court of
this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money claims with the
parties waiving and foregoing all other forms of reliefs which they prayed for or should have payed for in Civil Case No.
9900.[13]

The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether PLAINTIFFS have the capacity
or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) Whether or not the actions
leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith.[14]

This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch 62, issued an
order, to wit:

WHEREFORE, this Court orders:

1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant.

2. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as Annex C of the Omnibus
Motion.

3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims; and

4. The Complaint is hereby DISMISSED.[15]

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman, Atty. Jose
C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after conducting
several hearings, the Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions of
which read as follows:

Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the Committee holds and so
declares that the loans of PNB and DBP to MMIC, for the payment and recovery of which the void foreclosure sales were
undertaken, continue to remain outstanding and unpaid.Defendant APT as the successor-in-interest of PNB and DBP to
the said loans is therefore entitled and retains the right, to collect the same from MMIC pursuant to and based on the
loan documents signed by MMIC, subject to the legal and valid defenses that the latter may duly and seasonably
interpose.Such loans shall, however, be reduced by the amount which APT may have realized from the sale of the seized
assets of MMIC which by agreement should no longer be returned even if the foreclosure were found to be null and
void.

The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit ZZZ) as
their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of foreclosure
is P22,668,537,770.05, more or less.

Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668.537,770.05, more or less, with interest thereon as stipulated in the loan documents from the date
of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the total
capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in obligations of
MMIC in proportion to its 87% equity in the total capital stock of MMIC.

x x x.

As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the above provision
of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the actual damages
of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest.

DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum
of P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3, 9,
and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT from the
outstanding and unpaid loans of the MMIC with DBP and PNB, which have not been converted into equity. Should there
be any balance due to the MMIC after the offsetting, the same shall be satisfied from the funds representing the
purchase price of the sale of the shares of Island Cement Corporation in the amount of P503,000,000.00 held under
escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would
supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;

2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum
of P13,000,000.00 as and for moral and exemplary damages. Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into
equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of Island Cement Corporation in the of P503,000,000.00 held
under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that
would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise
from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supercede it, pursuant to paragraph (9) of the Compromise and Arbitration Agreement, as
and for moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.[16]

Motions for reconsiderations were filed by both parties, but the same were denied.

On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an Application/Motion for Confirmation
of Arbitration Award.Petitioner countered with an Opposition and Motion to Vacate Judgment raising the following
grounds:

1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said motion is
neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon motion of the
parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the Philippines and the
Philippine National Bank (PNB);

2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission shall be deemed a special
proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction, (not
necessarily with this Honorable Court) for an order confirming the award;

3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative suit
and (2) the regularity of the foreclosure proceedings. The arbitration award sought to be confirmed herein far exceeded
the issues submitted and even granted moral damages to one of the herein plaintiffs;

4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where the arbitrators exceeded
their powers, or so imperfectly executed them, that a mutual final and definite award upon the subject matter
submitted to them was not made.[17]

Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that a dismissal of Civil case No.
9900 was merely a qualified dismissal to pave the way for the submission of the controversy to arbitration, and operated
simply as a mere suspension of the proceedings.They denied that the Arbitration Committee had exceeded its powers.

In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration Committee. The dispositive
portion of said order reads:

WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement dated
October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as affirmed in a
Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated September 2, 1994 of
Committee Member Elma, and the pertinent provisions of RA 876,also known as the Arbitration Law, this Court GRANTS
PLAINTIFFS APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED:

(a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC, except the DBP, the sum
of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held under escrow in
the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The Balance of the award, after
the escrow funds are fully applied, shall be executed against the APT;

(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and moral and exemplary
damages;

(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages; and

(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.22 as arbitration
costs.

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration Committees decision, and with this Courts Confirmation,
the issuance of the Arbitration Committees Award shall henceforth be final and executory.

SO ORDERED.[18]

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28, 1994. Private
respondents, in turn, submitted their reply and opposition thereto.

On January 18, 1995, the trial court handed down its order denying APTs motion for reconsideration for lack of merit
and for having been filed out of time. The trial court declared that considering that the defendant APT through counsel,
officially and actually received a copy of the Order of this Court dated November 28, 1994 on December 6, 1994, the
Motion for Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse of 21 days, was
clearly filed beyond the 15-day reglementary period prescribed or provided for by law for the filing of an appeal from
final orders, resolutions, awards, judgments or decisions of any court in all cases, and by necessary implication for the
filling of a motion for reconsideration thereof.

On February 7, 1995, petitioner received private respondents motion for Execution and Appointment of Custodian of
Proceeds of Execution dated February 6, 1995.

Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary restraining order
and/or preliminary injunction dated February 13, 1996 to annul and declare as void the Orders of the RTC-Makati dated
November 28, 1994 and January 18, 1995 for having been issued without or in excess of jurisdiction and/or with grave
abuse of discretion.[19] As ground therefor, petitioner alleged that:

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO
CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN
DISMISSED.

II

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF
JURISDICTION, IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION
FOR RECONSIDERATION OF ORDER OF AWARD.

III

THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT
JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT FROM THE
DATE OF SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT
PRESUMABLY IS THE OPPOSING COUNSELS COPY THEREOF.[20]

On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and dismissed the petition
for certiorari.

Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following errors.

ASSIGNMENT OF ERRORS

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS
PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE
SAME CIVIL CASE AND IN NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A
NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC.

II

THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED FROM QUESTIONING THE
ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT
THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER
DISMISSED/DENIED PRIVATE RESPONDENTS MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD AND/OR
SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL AWARD.

IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS PETITION FOR CERTIORARI AS AN APPEAL TAKEN
FROM THE ORDER CONFIRMING THE AWARD

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE
PERIOD TO FILE A MOTION FOR RECONSIDERATION.[21]

The petition is impressed with merit.

I
The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

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.[22]

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.[23]

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,[24] 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 vase. 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.

II
Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm the arbitral
award because it sought affirmative relief in said court by asking that the arbitral award be vacated.

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 de 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.[25] As a rule the, neither waiver
nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and exceptional
circumstances.[26] One such exception was enunciated in Tijam vs. Sibonghanoy,[27] 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."

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.

III
Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.

The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial of APTs motion for
reconsideration of the trial courts order confirming the arbitral award, on the ground that said motion was filed beyond
the 15-day reglementary period; consequently, the petition for certiorari could not be resorted to as substitute to the
lost right of appeal.

We do not agree.

Section 29 of Republic Act No. 876,[28] provides that:

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an
award through certiorariproceedings, but such appeals shall be limited to question of law. x x x.

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.

Thus, Section 1 of Rule 65 provides:

SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising judicial functions, has acted without or in
excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speedy, and
adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper
court alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings, as
the law requires, of such tribunal, board or officer.

In the instant case, the respondent court erred in dismissing the special civil action for certiorari, it being from the
pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of discretion in taking
cognizance of private respondent motion to confirm the arbitral award and, worse, in confirming said award which is
grossly and patently not in accord with the arbitration agreement, as will be hereinafter demonstrated.

IV
The nature and limits of the Arbitrators powers.

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.[29] Courts are without power to amend or overrule merely because of disagreement with matters of law or facts
determined by the arbitrators.[30] 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.[31] 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.[32] Judicial review of an
arbitration is, thus, more limited than judicial review of a trial.[33]

Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators cannot resolve issues
beyond the scope of the submission agreement.[34] The parties to such an agreement are bound by the arbitrators award
only to the extent and in the manner prescribed by the contract and only if the award is rendered in conformity
thereto.[35] 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,[36] 2039[37] and 2040[38] of the Civil Code applicable to
compromises and arbitration are attendant, the arbitration award may also be annulled.

In Chung Fu Industries (Phils.) vs. Court of Appeals,[39] we held:

x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators awards is not absolute and
without exceptions. Where the conditions described in Articles 2038, 2039, and 2040 applicable to both compromises
and arbitration are obtaining, the arbitrators' award may be annulled or rescinded. Additionally, under Sections 24 and
25, of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrators award. Thus, if and
when the factual circumstances referred to in the above-cited provisions are present, judicial review of the award is
properly warranted.

Accordingly, Section 20 of R.A. 876 provides:

SEC. 20. Form and contents of award. The award must be made in writing and signed and acknowledged by a majority of
the arbitrators, if more than one; and by the sole arbitrator, if there is only one. Each party shall be furnished with a
copy of the award. The arbitrators in their award may grant any remedy or relief which they deem just and equitable
and within the scope of the agreement of the parties, which shall include, but not be limited to, the specific
performance of a contract.

xxx

The arbitrators shall have the power to decide only those matters which have been submitted to them. The terms of the
award shall be confined to such disputes. (Underscoring ours).

xxx.

Section 24 of the same law enumerating the grounds for vacating an award states:

SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating the
award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration
proceedings:

(a) The award was procured by corruption, fraud, or other undue means; or

(b) That there was evident partiality or corruption in arbitrators or any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified
to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or any other
misbehavior by which the rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award
upon the subject matter submitted to them was not made. (Underscoring ours).

xxx.

Section 25 which enumerates the grounds for modifying the award provides:

SEC. 25. Grounds for modifying or correcting award In anyone of the following cases, the court must make an order
modifying or correcting the award, upon the application of any party to the controversy which was arbitrated:

(a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person, thing or
property referred to in the award; or

(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision
upon the matter submitted; or

(c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a
commissioners report, the defect could have been amended or disregarded by the court.

x x x.

Finally, it should be stressed that while a court is precluded from overturning an award for errors in determination of
factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators
determinations, their award must be vacated.[40] In the same manner, an award must be vacated if it was made
in manifest disregard of the law.[41]

Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came out with an award in
excess of their powers and palpably devoid of factual and legal basis.

V
There was no financial structuring program; foreclosure of mortgage was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of 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.

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate opinion:

1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. The fact
that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan
agreement. Restructuring simply connotes that the obligations are past due that is why it is restructurable;

2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had been
informed or notified that its obligations were past due and that foreclosure is forthcoming;

3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the
foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet Cabarrus
himself opposed the FRP;

4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with honest and sincere belief
that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who testified that foreclosure
was, in the judgment of PNB, the best move to save MMIC itself.

Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A for the respondent, may I
know from you, Dr. Mapa what you meant by that the decision to foreclose was neither precipitate nor arbitrary?

A : Well, it is not a whimsical decision but rather decision arrived at after weighty considerations of the information that
we have received, and listening to the prospects which reported to us that we had assumed would be the premises of
the financial rehabilitation plan was not materialized nor expected to materialized.

Q : And this statement that it was premised upon the known fact that means, it was referring to the decision to
foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was no
longer feasible, just what is meant by no longer feasible?

A : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore expected
to be forthcoming because it will result in a short fall compared to the prices that were actually taking place in the
market.
Q : And I supposed that was you were referring to when you stated that the production targets and assumed prices of
MMICs products, among other projections, used in the financial reorganization program that will make it viable were not
met nor expected to be met?

A : Yes.

xxx

Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing the
mortgages?

In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past
due. The drawing up of the FRP is the best proof of this. When MMIC adopted a restructuring program for its loan, it
only meant that these loans were already due and unpaid. If these loans were restructurable because they were already
due and unpaid, they are likewise forecloseable. The option is with the PNB-DBP on what steps to take.

The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. Neither does it
mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect, supersede the
existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement between the lenders and the
borrowers. As in all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP must
have to validly adopt and ratify such FRP before they can be bound by it; before it can be implemented. In this case, not
an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP.
PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its allegation in this regard.[42]

Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took effect on
January 31, 1974. The decree requires government financial institutions to foreclose collaterals for loans where the
arrearages amount to 20% of the total outstanding obligations. The pertinent provisions of said decree read as follows:

SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of
this Decree to foreclose the collaterals and/or securities for any loan, credit, accommodations, and/or guarantees
granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at
least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the
books of account and/or related records of the financial institutions concerned. This shall be without prejudice to
the exercise by the government financial institutions of such rights and/or remedies available to them under their
respective contracts with their debtor, including the right to foreclosure on loans, credits, accommodations and/or
guarantees on which the arrearages are less than twenty percent (20%).

SEC. 2. No restraining order, temporary or permanent injunction shall be issued by the court against any government
financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in
Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or
any third party or parties, except after due hearing in which it is established by the borrower and admitted by the
government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after
the filing of foreclosure proceedings. (Underscoring supplied.)

Private respondents thesis that the foreclosure 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.[43]

VI

Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case, the arbitrators
in making the award went beyond the arbitration agreement.

In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their favor:

1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC null and void and directing
said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of their use and/or
operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the deterioration thereof;

2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial reorganization
plan which was approved at the annual stockholders meeting of MMIC on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting of the
loss of value of their investment amounting to not less than P80,000,000.00, the damnum emerges and lucrum cessans
in such amount as may be establish during the trial, moral damages in such amount as this Honorable Court may deem
just and equitable in the premises, exemplary damages in such amount as this Honorable Court may consider
appropriate for the purpose of setting an example for the public good, attorneys fees and litigation expenses in such
amounts as may be proven during the trial, and the costs legally taxable in this litigation.

Further, Plaintiffs pray for such other reliefs as may be just and equitable in the premises.[44]

Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and explicitly defined
and limited the issues to the following:

(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its
directors;

(b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid
and in good faith.[45]

Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as well as the
nature thereof:

8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from the date of its
constitution.

In the event the committee finds that PLAINTIFFS have the personality to file this suit and extra-judicial foreclosure of
the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as may be
established or warranted by the evidence which shall be payable in Philippine Pesos at the time of the award. Such
award shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of the award in
accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS remedies under this Section shall be in
addition to other remedies that may be available to the PLAINTIFFS, all such remedies being cumulative and not
exclusive of each other.

On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the
extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the counterclaims of DBP
and PNB in an amount as may be established or warranted by the evidence. This decision of the arbitration committee in
favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds held in
escrow mentioned in par. 9 hereunder will thus be released in full in favor of APT.[46]

The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded its powers
or so imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages to MMIC which
was not a party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the validity
of, and gave effect to, the proposed FRP.

In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the validity of the foreclosure
and to transform the reliefs prayed for therein into pure money claims.

There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It cannot be
overemphasized that a FRP, as a contract, requires the consent of the parties thereto.[47] The contract must bind both
contracting parties.[48] Private respondents even by their own admission recognized that the FRP had yet not been
carried out and that the loans of MMIC had not yet been converted into equity.[49]

However, the arbitration Committee not only declared the FRP valid and effective, but also converted the loans of MMIC
into equity raising the equity of DBP to 87%.[50]

The Arbitration Committee ruled that there was a commitment to carry out the FRP[51] on the ground of promissory
estoppel.

Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact that the
government (that is Alfredo Velayo) was the FRPs proponent. Although the plaintiffs are agreed that the government
executed no formal agreement, the fact remains that the DBP itself which made representations that the FRP
constituted a way out for MMIC. The Committee believes that although the DBP did not formally agree (assuming that
the board and stockholders approvals were not formal enough), it is bound nonetheless if only for its conspicuous
representations.
Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs equity (at that time) and as MMICs
creditor-the DBP can not validly renege on its commitments simply because at the same time, it held interest against the
MMIC.

The fact, of course, is that as APT itself asserted, the FRP was being carried out although apparently, it would supposedly
fall short of its targets.Assuming that the FRP would fail to meet its targets, the DBP-and so this Committee holds-can
not, in any event, brook any denial that it was bound to begin with, and the fact is that adequate or not (the FRP), the
government is still bound by virtue of its acts.

The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity in MMIC to 87%. It is not
excuse, however, for the government to deny its commitments.[52]

Atty. Sison, however, did not agree and correctly observed that:

But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any
estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted, mostly
composed of PNB and DBP representatives. But those representatives, singly or collectively, are not themselves PNB or
DBP. They are individuals with personalities separate and distinct from the banks they represent. PNB and DBP have
different boards with different members who may have different decisions. It is unfair to impose upon them the
decision of the board of another company and thus pin them down on the equitable principle of estoppel. Estoppel is a
principle based on equity and it is certainly not equitable to apply it in this particular situation. Otherwise the rights of
entirely separate, distinct and autonomous legal entities like PNB and DBP with thousands of stockholders will be
suppressed and rendered nugatory.[53]

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.[54] 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.

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. As Atty. Sison in his separate opinion persuasively put it:

Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the Supreme
Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs. PNB 22 SCRA 359,
such ruling cannot find application in this case. It must be pointed out that when the supposed wrongful act of
foreclosure was done, MMICs credit reputation was no longer a desirable one. The company then was already suffering
from serious financial crisis which definitely projects an image not compatible with good and wholesome reputation. So
it could not be said that there was a reputation besmirches by the act of foreclosure.[55]
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code 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.

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 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.[56]

It is a condition sine qua non that the corporation be impleaded as a party because-

x x x. Not only is the corporation an indispensible party, but it is also the present rule that it must be served with
process. The reason given is that the judgment must be made binding upon the corporation and in order that the
corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the
same cause of action. In other words the corporations must be joined as party because it is its cause of action that is
being litigated and because judgment must be a res ajudicata against it.[57]
The reasons given for not allowing direct individual suit are:

(1) x x x the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the
corporate property; that both of these are in the corporation itself for the benefit of the stockholders. In other words, to
allow shareholders to sue separately would conflict with the separate corporate entity principle;

(2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of Evangelista
v. Santos, that the stockholders may not directly claim those damages for themselves for that would result in the
appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the
corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of section 16
of the Corporation Law xxx;

(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned;

(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages
recoverable by the corporation for the same act.[58]

If at all an award was due MMIC, which it was not, the same should have been given sans deduction, regardless of
whether or not the party liable had equity in the corporation, in view of the doctrine that a corporation has a personality
separate and distinct from its individual stockholders or members.DBPs alleged equity, even if it were indeed 87%, did
not give it ownership over any corporate property, including the monetary award, its right over said corporate property
being a mere expectancy or inchoate right.[59]Notably, the stipulation even had the effect of prejudicing the other
creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit, in which
the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award moral damages to
an individual stockholder, to wit:

WHEREFORE, premises considered, judgment is hereby rendered:

xxx.

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to paragraph (9), Compromise and Arbitration
Agreement, as and for moral damages; x x x[60]

The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S. Cabarrus, Sr.
by pointing to the fact that among the assets seized by the government were assets belonging to Industrial Enterprise
Inc. (IEI), of which Cabarrus is the majority stockholder. It then acknowledge that Cabarrus had already recovered said
assets in the RTC, but that he won no more than actual damages. While the Committee cannot possibly speak for the
RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of that specific foreclosure,
damages the Committee believes and so holds, he Jesus S. Cabarrus, Sr., may be awarded in this proceeding.[61]

Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder, having
been ventilated in a complaint he previously filed with the RTC, from which he obtained actual damages, he was
barred res judicata from filing a similar case in another court, this time asking for moral damages which he failed to get
from the earlier case.[62] Worse, private respondents violated the rule against non-forum shopping.

It is a basic postulate that s corporation has a personality separate and distinct from its stockholders.[63] The properties
foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the foreclosure, it was done
against the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself
that would result in the appropriation by, and the distribution to, him part of the corporations assets before the
dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration Committee, therefore,
passed upon matters not submitted to it. Moreover, said cause of action had already been decided in a separate case. It
is thus quite patent that the arbitration committee exceeded the authority granted to it by the parties Compromise and
Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus, Sr.

Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus S.
Cabarrus, Sr.:
It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves have agreed
that the basic ingredient of the causes of action in this case is the wrong committed on the corporation (MMIC) for the
alleged illegal foreclosure of its assets. By agreeing to this stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit
that the cause of action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in Corporation Law that the shareholders have no title, legal or
equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon
& Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that a stockholder is not the co-owner of
corporate property. Since the property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done
against the corporation. There is therefore no direct injury or direct violation of the rights of Cabarrus et al. There is no
way, legal or equitable, by which Cabarrus et al. could recover damages in their personal capacities even assuming or
just because the foreclosure is improper or invalid. The Compromise and Arbitration Agreement itself and the
elementary principles of Corporation Law say so. Therefore, I am constrained to dissent from the award of moral
damages to Cabarrus.[64]

From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers or so
imperfectly execute them, but also, its findings and conclusions are palpably devoid of any factual basis and in manifest
disregard of the law.

We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and memoranda filed
with this Court, as well as in the Court of Appeals, raised and extensively discussed the issues on the merits. Such being
the case, there is sufficient basis for us to resolve the controversy between the parties anchored on the records and the
pleadings before us.[65]

WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the Regional Trial Court
of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby REVERSED and SET ASIDE, and the
decision of the Arbitration Committee is hereby VACATED.

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. 1 It 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:1äwphï1.ñët

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. -

I. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 P56,908.00

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.

HANIL DEVELOPMENT CO., LTD., petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and M. R. ESCOBAR EXPLOSIVES ENGINEERS, INC., represented by its General
Manager, MANUEL R. ESCOBAR, respondents.

GUTIERREZ, JR., J.:

This is a petition for certiorari, mandamus, and prohibition, with prayer for mandatory injunction and restraining order
from the resolutions of the then Intermediate Appellate Court dated April 30, 1985 and June 20, 1985 in AC-G.R. No.
05055 entitled "Hanil Development Co., Ltd. v. M.R. Escobar Explosives Engineers, Inc., represented by its General
Manager, Manuel R. Escobar."

The present controversy has its origins in a complaint for recovery of a sum of money with damages filed by private
respondent Escobar Explosives Engineers, Inc., against petitioner Hanil Development Co., Ltd., before the then Court of
First Instance of Rizal, Branch XXXI, Pasig, Metro Manila. The petitioner is a foreign corporation organized under the laws
of the Republic of Korea and doing business in the Philippines pursuant to the Corporation Code and the Foreign
Investment Act. The complaint docketed as Civil Case No. 35966 sought to compel the petitioner to pay for the blasting
services rendered by the private respondent in connection with the former's contract with the Ministry of Public
Highways to construct the 200 Km. Oro-Butuan Road Project in Mindanao.

The trial court, on April 16, 1983, rendered a decision in favor of the private respondent. The petitioner was ordered to
pay the private respondent the sum of P1,341,727.40 corresponding to the value of the rocks blasted by the private
respondent; ten percent (10%) of said amount as attorney's fees and costs.
On May 6, 1982, the private respondent filed a petition for the issuance of a preliminary attachment. The motion was
set for hearing.

On May 13, 1982, the petitioner filed its notice of appeal and cash appeal bond with the trial court.

On May 24, 1982, the trial court issued an order granting the petition for the issuance of preliminary attachment.

On May 26, 1982, the private respondent moved for the appointment of Deputy Sheriff Felix Honoracion as special
sheriff to serve the writ of attachment/garnishment.

Consequently, the order dated May 24, 1982 and the writ of attachment dated May 27, 1982 were enforced by the
respondents and the bank accounts of the petitioner were garnished and its equipment attached.

The petitioner then filed a motion for reconsideration of the May 24, 1982 order. While this motion was pending, the
private respondent filed another motion, this time an "Ex-Parte Motion to Deposit Cash" praying that an order be issued
directing the Finance Manager of the National Power Corporation (NAPOCOR) to withdraw available funds of the
petitioner from the NAPOCOR and deposit them with the clerk of court of the Court of First Instance of Rizal. This
motion was granted in an order dated June 29, 1982.

In view of this development, the petitioner filed with the then Intermediate Appellate Court a petition for certiorari with
prayer for prohibition, injunction and preliminary restraining order challenging the orders dated May 24, 1982 and June
29, 1982 of the trial court. The case was docketed as CA-G.R. No. 14512.

The appellate court temporarily restrained the enforcement of the challenged orders and after a hearing issued a
preliminary injunction enjoining the implementation of said orders upon the filing of a P50,000.00 cash bond by the
petitioner.

In a decision dated February 3, 1983, the appellate court granted the petition and declared the challenged orders null
and void, having been issued with grave abuse of discretion.

While the above-mentioned petition was pending before the appellate court and despite the writ of injunction issued by
it, other developments continued to unfold in the trial court.

In an order dated August 23, 1982, the trial court disapproved the petitioner's amended record on appeal on the ground
that it was "filed beyond the reglementary period and the extension granted." The appeal was dismissed. The petitioner
filed a motion for reconsideration of the dismissal while the private respondent filed a motion for execution of
judgment.

On October 19, 1982, the trial court issued an order denying the petitioner's motion for reconsideration and at the same
time granting the private respondent's motion for execution of judgment.

The petitioner filed a petition for certiorari and mandamus with prayer for prohibition with the Intermediate Appellate
Court assailing the trial court's orders dated August 23, 1982 and October 19, 1982. The case was docketed as AC-G.R.
No. 15050.

The appellate court granted the petition. The challenged orders were set aside and declared null and void. Hence, the
petitioner's appeal in Civil Case No. 35966 was reinstated and the trial court was ordered to elevate the entire records of
the case to the appellate court.

A petition for review of the decision in AC-G.R. No. 15050 was filed by the private respondent before this Court, but was
denied for lack of merit.

After transmittal of the records, the appellate court on February 11, 1985, sent a notice to the petitioner to file
appellant's brief within forty-five (45) days from receipt. The petitioner received the notice on February 25, 1985.

On March 13, 1985, and within the reglementary period to file appellant's brief, the petitioner filed an "Application for
Judgment against Attachment Bond" and "Motion to Defer Filing of Appellant's Brief" praying for a hearing before the
appellate court so it could prove the damages it sustained as a result of the illegal writ of attachment issued by the trial
court. It wanted a judgment against the attachment bond posted by the private respondent and its insurer Sanpiro
Insurance Corporation to be included in the final decision in the main case, Civil Case No. 35966, now pending before the
appellate court.

Acting on the petitioner's motions, the appellate court issued a resolution directing the private respondent to comment
on these motions.

The private respondent filed its "Comment" with a "Motion to Dismiss Appeal" for the petitioner's alleged failure to file
its appellant's brief.
In a resolution dated April 30, 1985, the appellate court denied the petitioner's application for judgment against the
attachment bond and the motion to defer filing of appellant's brief, granted the private respondent's motion to dismiss
the appeal, and dismissed the appeal. The petitioner filed a motion for reconsideration but this was denied in a
resolution dated June 20, 1985.

Hence, this petition.

In a resolution dated July 17, 1985, we issued a temporary restraining order to enjoin the respondents from proceeding
with the execution of the decision in Civil Case No. 35966.

The petitioner now asserts that the April 30, 1985 and June 20, 1985 resolutions were issued by the appellate court with
grave abuse of discretion.

The questioned April 30, 1985 minute resolution of the appellate court states:

Acting upon (1) the application for judgment against attachment bond, etc. filed by counsel for defendant-appellant on
March 13, 1985; (2) the comment thereto; (3) the motion to dismiss appeal filed by counsel for plaintiff-appellee on
April 24, 1985; and the docket report dated April 25, 1985, the COURT RESOLVED: (a) to DENY the application for
judgment against attachment bond and the motion to defer filing of appellant's brief; and (b) to GRANT the motion to
dismiss appeal and to dismiss the instant appeal.

The issues to be resolved in the instant petition are: (1) whether or not the petitioner's application for judgment against
the attachment bond and its motion to defer filing of appellant's brief were correctly denied by the appellate court and
(2) whether or not the same court rightly dismissed the petitioner's appeal.

Anent the first issue, the petitioner contends that its application for judgment against the attachment bond was
pursuant to Section 20, Rule 57 of the Revised Rules of Court.

Section 20, Rule 57 of the Revised Rules of Court provides for the claim of damages on account of illegal attachment, to
wit:

Claim for damages on account of illegal attachment. — If the judgment on the motion be in favor of the party against
whom attachment was issued, he may recover, upon the bond given or deposit made by the attaching creditor, any
damages resulting from the attachment. Such damages may be awarded only upon application and after proper hearing,
and shall be included in the final judgment. The application must be filed before the trial or before appeal is perfected or
before the judgment becomes executory, with notice to the attaching creditor and his surety or sureties, setting forth
the facts showing his right to damages and the amount thereof.

If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must claim
damages sustained during the pendency of the appeal by filing an application with notice to the party in whose favor the
attachment was issued or his surety or sureties, before the judgment of the appellate court becomes executory. The
appellate court may allow the application to be heard and decided by the trial court.

In the instant case, the initial writ of attachment issued by the trial court in the main case — Civil Case No. 35966 which
is the subject of appeal was declared null and void by the appellate court in CA-G.R. No. 14512. This present writ of
attachment was issued and subsequently enforced after the trial court's decision in Civil Case No. 35966 had been
rendered and after the petitioner had already perfected its appeal. The petitioner, therefore, argues that the application
for judgment against the attachment bond was properly lodged with the appellate court pursuant to Section 9, of the
Judiciary Reorganization Act of 1980 (Batas Pambansa Blg. 129) which grants the Intermediate Appellate Court "power
to try cases and conduct hearings, receive evidence and perform any and all acts necessary to resolve factual issues ... ."
It contends that it is only in the appellate court that these damages could well be ventilated because they occurred
during the pendency of the appeal in AC-G.R. No. 15050.

The petitioner's arguments are well-taken.

The application for judgment against attachment bond was filed to prove the damages sustained by the petitioner as a
result of the illegal writ of attachment issued by the trial court so that the judgment against the attachment bond posted
by the private respondent and its insurer could be included in the final judgment of the main case. The assessment and
award of such damages could not have been made in CA-G.R. No. 14512 as alleged by the private respondent because
the question therein was whether or not the writ of attachment in Civil Case No. 35966 should have been issued.

The object was to set aside the preliminary attachment immediately. It was a preventive measure.

The private respondent, in its petition for writ of attachment filed with the trial court, posted an attachment bond
issued by the Sanpiro Insurance Corporation in the amount of P1,341,727.40, the relevant portion of which reads:
WHEREFORE, WE, M.R. ESCOBAR EXPLOSIVE ENGINEERS as PRINCIPAL, and the SANPIRO INSURANCE CORPORATION, a
corporation duly organized and existing under and by virtue of the laws of the Philippines, as SURETY, in consideration of
the above and of the levying of said attachment, hereby jointly and severally bind ourselves in the sum of PESOS: ONE
MILLION THREE HUNDRED FORTY ONE THOUSAND SEVEN HUNDRED TWENTY SEVEN & 40/100 (P1,341,727.40),
Philippine Currency, under the condition that we will pay all the costs which may be adjudged to said defendant/s and
all damages which said defendant/s may sustain by reason of the attachment, if the Court shall finally adjudge that
plaintiff/s was/were not entitled thereto.

Contrary to the claim of the private respondent, this writ of attachment issued by the trial court was executed. The
petitioner's equipment and bank accounts were garnished pursuant to the writ. In fact, the private respondent's
opposition to the petitioner's motion for reconsideration of the trial court's order which issued the writ of attachment
stated that the same should be denied for being moot and academic "because the writ of attachment and/or
garnishment have already been executed."

Considering that the writ of attachment was declared null and void, the petitioner had the right to ask for whatever
damages it may have incurred as a result of its issuance pursuant to Section 20, Rule 57 of the Revised Rules of Court.

Malayan Insurance Co., Inc. v. Salas (90 SCRA 252), lays down the procedure regarding claims for damages against an
illegal attachment. It states:

Under section 20, in order to recover damages on a replevin bond (or on a bond for preliminary attachment, injunction
or receivership) it is necessary (1) that the defendant-claimant has secured a favorable judgment in the main action,
meaning that the plaintiff has no cause of action and was not, therefore, entitled to the provisional remedy of replevin;
(2) that the application for damages, showing claimant's right thereto and the amount thereof, be filed in the same
action before trial or before appeal is perfected or before the judgment becomes executory; (3) that due notice be given
to the other party and his surety or sureties, notice to the principal not being sufficient and (4) that there should be a
proper hearing and the award for damages should be included in the final judgment (Luneta Motor Co. v. Menendez,
117 Phil. 970, 974; 3 Moran's Comments on the Rules of Court, 1970 Ed., pp. 54-56. See Cruz v. Manila Surety & Fidelity
Co., Inc., 92 Phil. 699).

xxx xxx xxx

As may be gathered from section 20 of Rule 57, the application for damages against the surety must be filed (with notice
to the surety) in the Court of First Instance before the trial or before appeal is perfected or before the judgment
becomes executory.

If an appeal is taken, the application must be filed in the appellate court but always before the judgment of that court
becomes executory so that the award may be included in its judgment (Luneta Motor Co. v. Menendez, supra).

But it is not always mandatory that the appellate court should include in its judgment the award of damages against the
surety. Thus, it was held that where the application for damages against the surety is seasonably made in the appellate
court, 'the latter must either proceed to hear and decide the application or refer 'it' to the trial court and allow it to hear
and decide the same' (Rivera v. Talavera, 112 Phil. 209, 219).

xxx xxx xxx

Note that under the second paragraph of section 20, Rule 57 of the present Rules of Court, the damages suffered during
the pendency of an appeal in a case where the writs of attachment, injunction and replevin or an order of receivership
were issued should be claimed in the appellate court.

xxx xxx xxx

In the instant case, the application for judgment against the attachment bond was filed under the following
circumstances: (1) the writ of attachment was issued by the trial court after it had rendered its decision and after the
petitioner had already perfected its appeal; (2) the private respondent posted a surety bond to answer for any damages
that may be adjudged to the petitioner if the writ is later found to be illegal; (3) the writ of attachment was declared
illegal; and (4) the application for judgment against the attachment bond was made with notice to the insurer, Sanpiro
Insurance Corporation.

Applying the principles laid down in the Malayan case to the circumstances surrounding the application for judgment
against attachment bond in this case, the appellate court committed grave abuse of discretion in denying the application
for judgment against attachment bond. The appellate court's error in this case is more pronounced considering that
under Section 9 of the Judiciary Reorganization Act of 1980 (Batas Pambansa Blg. 129) the Intermediate Appellate Court
is now empowered to try cases and conduct hearings, receive evidence and perform acts necessary to resolve factual
issues in cases falling within its original and appellate jurisdiction. Certainly, the amount of damages, if any, suffered by
the petitioner as a result of the issuance of the illegal attachment during the pendency of the appeal is a factual issue.

Moreover, the application for judgment against the bond seasonably filed by the petitioner in the appellate court would
avoid multiplicity of suits. We have earlier ruled that "the explicit provision of Section 20 of Rule 57, Revised Rules of
Court that the judgment against the surety should be included in the final judgment is to avoid additional proceedings.
(Cruz v. Manila Surety & Fidelity Co., Inc. et al., 92 Phil. 699; (Japco v. City of Manila, 48 Phil. 851, 855 cited in Malayan
insurance Corporation v. Salas, supra).

Consequently, the appellate court also committed a grave abuse of discretion in denying the motion to defer filing of
appellant's brief. The petitioner filed this motion for the purpose of first settling the issue on damages against the
attachment bond so that such issue would be discussed and included in the appellant's brief and ultimately in the final
judgment thereby avoiding multiplicity of suits.

Needless to say, the appellate court should not have dismissed the petitioner's appeal.

We take notice of the circumstances under which the appellate court dismissed the appeal. Granting that the
petitioner's application for judgment against attachment bond was not meritorious, the appellate court's dismissal of
the appeal would still be unwarranted.

The record shows that in response to the petitioner's application for judgment against the attachment bond and motion
to defer filing of the appellant's brief which was filed on March 13, 1985 and within the 45-day reglementary period to
fife appellant's brief, the appellate court issued a resolution directing the private respondent to comment on the motion
within ten (10) days from notice. Upon motion ' of the private respondent, the appellate court issued another resolution
granting an extension of ten (10) days from April 13, 1985 to file comment on the said motions of the petitioner. The
extension granted meant that the private respondent had until April 24, 1985 to file its comment. In addition to the
comment, the private respondent filed on April 24, 1985 a motion to dismiss appeal contending that the petitioner had
not filed its appellant's brief within the 45-day reglementary period. Upon verification from its docket decision that no
appellant's brief was filed as of April 25, 1985, the appellate court dismissed the appeal.

Under these circumstances, the dismissal of the appeal by the appellate court due to the failure to file the appellant's
brief within the 45-day reglementary period counted from February 25, 1985 to April 25, 1985 without allowing any
interruption gave undue advantage to the private respondent. This is so, because the private respondent after having
been given ten (10) days from receipt of notice to comment on the twin motions of the petitioner was again granted a
ten-day extension or until April 24, 1985 to file its comment thereto. This, in effect, removed a substantial number of
days from the 45-day period of the petitioner to file its brief, through no fault of its own.

The procedure adopted by the appellate court in interpreting the 45-day reglementary period to file appellant's brief
was unfair. When the appellate court issued the resolution requiring the private respondent to comment on the
petitioner's application for judgment against the attachment bond and motion to defer appellant's brief the 45-day
period should be deemed to have stopped, and the period to commence again after denial of the motions.

The notice to "file appellant's brief within 45 days from receipt" was received by the petitioner on February 25, 1985.
The petitioner filed the application for judgment against the attachment bond and motion to defer filing of appellant's
brief on March 13, 1985. Thus, the petitioner filed its motions on the 16th day after receipt of the notice to file
appellant's brief and within the 45-day reglementary period. On March 26, 1985, the appellate court issued its
resolution directing the private respondent to file its comment on the motions of the petitioner. At this point, counting
from February 25, 1985 to March 26, 1985, a total number of 29 days had lapsed. Hence, the petitioner still had 16 days
within the 45-day reglementary period to file its appellant's brief in the event that its motions were denied.

It is likewise the practise in the Court of Appeals, after granting an initial period of 45 days, to routinely grant a motion
for extension of another 45 days for the filing of an appellant's brief. Considering the amount involved in this litigation
and the nature of the defenses raised by the petitioner, the appellate court was unduly severe when it peremptorily
dismissed the appeal.

Therefore, we have to set aside the appellate court's action in simultaneously denying the application for judgment
against the attachment bond and the motion to defer the filing of appellant's brief and in dismissing the appeal. Since
the petitioner's two motions were denied on April 30, 1985, the petitioner still had 16 days from notice of the denial to
file its appellant's brief. In short, the petitioner's 45-day period within which to file its appellant's brief had not yet
lapsed when the appellate court dismissed the appeal. The brief could have been filed or a motion for extension of time
requested.

WHEREFORE, the instant petition is GRANTED. The questioned resolutions dated April 30, 1985 and June 20, 1985 of the
then Intermediate Appellate Court are hereby REVERSED and SET ASIDE. The Court of Appeals is directed to conduct
hearings on the application for judgment against attachment bond filed by the petitioner and to reinstate the appeal.
The temporary restraining order dated July 17, 1985 is made PERMANENT.

BACHE AND CO VS RUIZ

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory and
prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws
of the Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No.
2-M-70 issued by respondent Judge on February 25, 1970; to order respondents to desist from enforcing the same
and/or keeping the documents, papers and effects seized by virtue thereof, as well as from enforcing the tax
assessments on petitioner corporation alleged by petitioners to have been made on the basis of the said documents,
papers and effects, and to order the return of the latter to petitioners. We gave due course to the petition but did not
issue the writ of preliminary injunction prayed for therein.

The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual 1aw library

On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to
respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of
Section 46(a) of the National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly
Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to
make and file the application for search warrant which was attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent Arturo
Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers: respondent Vera’s
aforesaid letter-request; an application for search warrant already filled up but still unsigned by respondent De Leon; an
affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in printed form of respondent
Logronio already accomplished and signed by him but not yet subscribed; and a search warrant already accomplished
but still unsigned by respondent Judge.

At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of
Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge
was informed that the depositions had already been taken. The stenographer, upon request of respondent Judge, read
to him her stenographic notes; and thereafter, respondent Judge asked respondent Logronio to take the oath and
warned him that if his deposition was found to be false and without legal basis, he could be charged for perjury.
Respondent Judge signed respondent de Leon’s application for search warrant and respondent Logronio’s deposition,
Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued.

Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant petitioners at
the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’ lawyers protested the search on the
ground that no formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless
proceeded with their search which yielded six boxes of documents.

On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant be
quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search
warrant be declared null and void, and that the respondents be ordered to pay petitioners, jointly and severally,
damages and attorney’s fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an answer to the
petition. After hearing, the court, presided over by respondent Judge, issued on July 29, 1970, an order dismissing the
petition for dissolution of the search warrant. In the meantime, or on April 16, 1970, the Bureau of Internal Revenue
made tax assessments on petitioner corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the
documents thus seized. Petitioners came to this Court.

The petition should be granted for the following reasons:chanrob1es virtual 1aw library

1. Respondent Judge failed to personally examine the complainant and his witness.

The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court
are:jgc:chanrobles.com.ph

"(3) 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." (Art. III, Sec. 1, Constitution.)

"SEC. 3. Requisites for issuing search warrant. — A search warrant shall not issue but upon probable cause in connection
with one specific offense to be determined by the judge or justice of the peace 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.

"No search warrant shall issue for more than one specific offense.

"SEC. 4. Examination of the applicant. — The judge or justice of the peace must, before issuing the warrant, personally
examine on oath or affirmation the complainant and any witnesses he may produce and take their depositions in
writing, and attach them to the record, in addition to any affidavits presented to him." (Rule 126, Revised Rules of
Court.)

The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3, of the
Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by the judge himself and
not by others. The phrase "which shall be determined by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce," appearing in the said constitutional provision, was introduced by
Delegate Francisco as an amendment to the draft submitted by the Sub-Committee of Seven. The following discussion in
the Constitutional Convention (Laurel, Proceedings of the Philippine Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph

"SR. ORENSE. Vamos a dejar compañero los piropos y vamos al grano.

En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia mediante el
registro inmediato y la incautacion del cuerpo del delito, no cree Su Señoria que causaria cierta demora el
procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de la justicia o si Su Señoria
encuentra un remedio para esto casos con el fin de compaginar los fines de la justicia con los derechos del individuo en
su persona, bienes etcetera, etcetera.

"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Señoria pregunta por la siguiente razon: el que
solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en la Mesa del Juez sin que
alguien vaya el juez a presentar ese escrito o peticion de sucuestro. Esa persona que presenta el registro puede ser el
mismo denunciante o alguna persona que solicita dicho mandamiento de registro. Ahora toda la enmienda en esos
casos consiste en que haya peticion de registro y el juez no se atendra solamente a sea peticion sino que el juez
examiner a ese denunciante y si tiene testigos tambin examiner a los testigos.

"SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese denunciante por escrito siempre requeriria algun
tiempo?.

"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las vejaciones
injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males debemos escoger. el
menor.

x x x

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating in our constitution
something of a fundamental character. Now, before a judge could issue a search warrant, he must be under the
obligation to examine personally under oath the complainant and if he has any witness, the witnesses that he may
produce . . ."cralaw virtua1aw library

The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for it requires the
judge, before issuing a search warrant, to "personally examine on oath or affirmation the complainant and any
witnesses he may produce . . ."cralaw virtua1aw library

Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the
existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule
126 of the Revised Rules of Court, both of which prohibit the issuance of warrants except "upon probable cause." The
determination of whether or not a probable cause exists calls for the exercise of judgment after a judicial appraisal of
facts and should not be allowed to be delegated in the absence of any rule to the contrary.

In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant (respondent
De Leon) and his witness (respondent Logronio). While it is true that the complainant’s application for search warrant
and the witness’ printed-form deposition were subscribed and sworn to before respondent Judge, the latter did not ask
either of the two any question the answer to which could possibly be the basis for determining whether or not there
was probable cause against herein petitioners. Indeed, the participants seem to have attached so little significance to
the matter that notes of the proceedings before respondent Judge were not even taken. At this juncture it may be well
to recall the salient facts. The transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken
at the hearing of this case in the court below shows that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales,
Special Deputy Clerk of Court, took the depositions of the complainant and his witness, and that stenographic notes
thereof were taken by Mrs. Gaspar. At that time respondent Judge was at the sala hearing a case. After respondent
Judge was through with the hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and witness
Logronio went to respondent Judge’s chamber and informed the Judge that they had finished the depositions.
Respondent Judge then requested the stenographer to read to him her stenographic notes. Special Deputy Clerk
Gonzales testified as follows:jgc:chanrobles.com.ph

"A And after finishing reading the stenographic notes, the Honorable Judge requested or instructed them, requested Mr.
Logronio to raise his hand and warned him if his deposition will be found to be false and without legal basis, he can be
charged criminally for perjury. The Honorable Court told Mr. Logronio whether he affirms the facts contained in his
deposition and the affidavit executed before Mr. Rodolfo de Leon.

"Q And thereafter?

"A And thereafter, he signed the deposition of Mr. Logronio.

"Q Who is this he?

"A The Honorable Judge.

"Q The deposition or the affidavit?

"A The affidavit, Your Honor."cralaw virtua1aw library

Thereafter, respondent Judge signed the search warrant.

The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No. 2-M-70 was
thus limited to listening to the stenographer’s readings of her notes, to a few words of warning against the commission
of perjury, and to administering the oath to the complainant and his witness. This cannot be consider a personal
examination. If there was an examination at all of the complainant and his witness, it was the one conducted by the
Deputy Clerk of Court. But, as stated, the Constitution and the rules require a personal examination by the judge. It was
precisely on account of the intention of the delegates to the Constitutional Convention to make it a duty of the issuing
judge to personally examine the complainant and his witnesses that the question of how much time would be consumed
by the judge in examining them came up before the Convention, as can be seen from the record of the proceedings
quoted above. The reading of the stenographic notes to respondent Judge did not constitute sufficient compliance with
the constitutional mandate and the rule; for by that manner respondent Judge did not have the opportunity to observe
the demeanor of the complainant and his witness, and to propound initial and follow-up questions which the judicial
mind, on account of its training, was in the best position to conceive. These were important in arriving at a sound
inference on the all-important question of whether or not there was probable cause.

2. The search warrant was issued for more than one specific offense.

Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue Code in relation to
all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The question is: Was the said search
warrant issued "in connection with one specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to above. Thus
we find the following:chanrob1es virtual 1aw library

Sec. 46(a) requires the filing of income tax returns by corporations.

Sec. 53 requires the withholding of income taxes at source.

Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent returns.

Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information required
under the Tax Code.

Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures any article subject to a
specific tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of illicit distilling,
rectifying, compounding, or illicit manufacture of any article subject to specific tax . . .," and provides that in the case of
a corporation, partnership, or association, the official and/or employee who caused the violation shall be responsible.

Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed, or to pay
the tax due thereon.

The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the violation
of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second is the violation of
Sec. 53 (withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of business or
occupation); and the fourth is the violation of Sec. 209 (failure to make a return of receipts, sales, business or gross
value of output actually removed or to pay the tax due thereon). Even in their classification the six above-mentioned
provisions are embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208
and 209 are under Title V (Privilege Tax on Business and Occupation).

Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA 383), is not applicable,
because there the search warrants were issued for "violation of Central Bank Laws, Internal Revenue (Code) and Revised
Penal Code;" whereas, here Search Warrant No 2-M-70 was issued for violation of only one code, i.e., the National
Internal Revenue Code. The distinction more apparent than real, because it was precisely on account of the Stonehill
incident, which occurred sometime before the present Rules of Court took effect on January 1, 1964, that this Court
amended the former rule by inserting therein the phrase "in connection with one specific offense," and adding the
sentence "No search warrant shall issue for more than one specific offense," in what is now Sec. 3, Rule 126. Thus we
said in Stonehill:jgc:chanrobles.com.ph

"Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court
deemed it fit to amend Section 3 of Rule 122 of the former 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.’"

3. The search warrant does not particularly describe the things to be seized.

The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this
manner:jgc:chanrobles.com.ph

"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books,
customers ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory notes and
deeds of sale; telex and coded messages; business communications, accounting and business records; checks and check
stubs; records of bank deposits and withdrawals; and records of foreign remittances, covering the years 1966 to
1970."cralaw virtua1aw library

The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the
Revised Rules of Court, that the warrant should particularly describe the things to be seized.

In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said:jgc:chanrobles.com.ph

"The grave violation of the Constitution made in the application for the contested search warrants was compounded by
the description therein made of the effects to be searched for and seized, to wit:chanrob1es virtual 1aw library

‘Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or paper showing all business transactions including disbursement receipts,
balance sheets and related profit and loss statements.’

"Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners
herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of
the petitioners and the aforementioned corporations, whatever their nature, thus openly contravening 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."cralaw virtua1aw library

While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant nevertheless
tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the language used
therein is so all-embracing as to include all conceivable records of petitioner corporation, which, if seized, could possibly
render its business inoperative.

In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the purpose of the
requirement that the warrant should particularly describe the place to be searched and the things to be seized, to
wit:jgc:chanrobles.com.ph

". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search warrant should
particularly describe the place to be searched and the things to be seized. The evident purpose and intent of this
requirement is to limit the things to be seized to those, and only those, particularly described in the search warrant — to
leave the officers of the law with no discretion regarding what articles they shall seize, to the end that ‘unreasonable
searches and seizures’ may not be made, — that abuses may not be committed. That this is the correct interpretation of
this constitutional provision is borne out by American authorities."cralaw virtua1aw library

The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in this case.

A search warrant may be said to particularly describe the things to be seized when the description therein is as specific
as the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the description expresses a conclusion
of fact — not of law — by which the warrant officer may be guided in making the search and seizure (idem., dissent of
Abad Santos, J.,); or when the things described are limited to those which bear direct relation to the offense for which
the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein search warrant does not conform to
any of the foregoing tests. If the articles desired to be seized have any direct relation to an offense committed, the
applicant must necessarily have some evidence, other than those articles, to prove the said offense; and the articles
subject of search and seizure should come in handy merely to strengthen such evidence. In this event, the description
contained in the herein disputed warrant should have mentioned, at least, the dates, amounts, persons, and other
pertinent data regarding the receipts of payments, certificates of stocks and securities, contracts, promissory notes,
deeds of sale, messages and communications, checks, bank deposits and withdrawals, records of foreign remittances,
among others, enumerated in the warrant.

Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of
respondent Judge’s order of July 29, 1970. The contention is without merit. In the first place, when the questions raised
before this Court are the same as those which were squarely raised in and passed upon by the court below, the filing of
a motion for reconsideration in said court before certiorari can be instituted in this Court is no longer a prerequisite.
(Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring the filing of a motion for
reconsideration before an application for a writ of certiorari can be entertained was never intended to be applied
without considering the circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar time is of the
essence in view of the tax assessments sought to be enforced by respondent officers of the Bureau of Internal Revenue
against petitioner corporation, On account of which immediate and more direct action becomes necessary. (Matute v.
Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not apply where, as in this case, the deprivation of
petitioners’ fundamental right to due process taints the proceeding against them in the court below not only with
irregularity but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)

It is next contended by respondents that a corporation is not entitled to protection against unreasonable search and
seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a
violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional
powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be understood as
holding that a corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and
seizures. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal
entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only be proceeded against by due process of law, and is
protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)

"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a corporation,
the ground that it was not privileged from producing its books and papers. But the rights of a corporation against
unlawful search and seizure are to be protected even if the same result might have been achieved in a lawful way."
(Silverthorne Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)

In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to object against
unreasonable searches and seizures, thus:jgc:chanrobles.com.ph

"As regards the first group, we hold that petitioners herein 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 the interest of each of them in said corporations, 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. Consequently, petitioners herein may 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
. . ."cralaw virtua1aw library

In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were
searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and
whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a
different footing from the corporations in Stonehill.

The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by petitioners — at least partly
— as in effect admitted by respondents — based on the documents seized by virtue of Search Warrant No. 2-M-70.
Furthermore, the fact that the assessments were made some one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents thus seized served as basis for the assessments. Those
assessments should therefore not be enforced.

PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent Judge is
declared null and void; respondents are permanently enjoined from enforcing the said search warrant; the documents,
papers and effects seized thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of
Internal Revenue and their representatives are permanently enjoined from enforcing the assessments mentioned in
Annex "G" of the present petition, as well as other assessments based on the documents, papers and effects seized
under the search warrant herein nullified, and from using the same against petitioners in any criminal or other
proceeding. No pronouncement as to costs.

SULO NG BAYAN VS ARANETA

ANTONIO, J.:

The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an action in behalf of its
individual members for the recovery of certain parcels of land allegedly owned by said members; for the nullification of
the transfer certificates of title issued in favor of defendants appellees covering the aforesaid parcels of land; for a
declaration of "plaintiff's members as absolute owners of the property" and the issuance of the corresponding
certificate of title; and for damages.

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance
of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-appellees to recover the ownership and
possession of a large tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 square meters, more
or less, registered under the Torrens System in the name of defendants-appellees' predecessors-in-interest. 1 The
complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing under
the laws of the Philippines, with its principal office and place of business at San Jose del Monte, Bulacan; that its
membership is composed of natural persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff
corporation, through themselves and their predecessors-in-interest, had pioneered in the clearing of the fore-
mentioned tract of land, cultivated the same since the Spanish regime and continuously possessed the said property
openly and public under concept of ownership adverse against the whole world; that defendant-appellee Gregorio
Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members of the plaintiff
corporation fro their possession of the aforementioned vast tract of land; that upon investigation conducted by the
members and officers of plaintiff corporation, they found out for the first time in the year 1961 that the land in question
"had been either fraudelently or erroneously included, by direct or constructive fraud, in Original Certificate of Title No.
466 of the Land of Records of the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and
devoid of legal efficacy due to the fact that "no original survey nor plan whatsoever" appears to have been submitted as
a basis thereof and that the Court of First Instance of Bulacan which issued the decree of registration did not acquire
jurisdiction over the land registration case because no notice of such proceeding was given to the members of the
plaintiff corporation who were then in actual possession of said properties; that as a consequence of the nullity of the
original title, all subsequent titles derived therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of
Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of Title No. 7573 in
the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of, the National Waterworks
& Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and
another transfer certificate of title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant
consequently prayed (1) that Original Certificate of Title No. 466, as well as all transfer certificates of title issued and
derived therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said
property and that the corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio
Araneta, Inc. be ordered to pay to plaintiff the damages therein specified.

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended complaint on
the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription
and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds.
Appellee National Waterworks & Sewerage Authority did not file any motion to dismiss. However, it pleaded in its
answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and the barring of such
action by prescription and laches.

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying that the
case be transferred to another branch of the Court of First Instance sitting at Malolos, Bulacan, According to defendants-
appellees, they were not furnished a copy of said motion, hence, on October 14, 1966, the lower court issued an Order
requiring plaintiff-appellant to furnish the appellees copy of said motion, hence, on October 14, 1966, defendant-
appellant's motion dated October 7, 1966 and, consequently, prayed that the said motion be denied for lack of notice
and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly, defendant-appellee
paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that it also did not receive a copy
of the afore-mentioned of appellant. On January 24, 1967, the trial court issued an Order dismissing the amended
complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the court had no
jurisdiction to issue the Order of dismissal, because its request for the transfer of the case from the Valenzuela Branch of
the Court of First Instance to the Malolos Branch of the said court has been approved by the Department of Justice; that
the complaint states a sufficient cause of action because the subject matter of the controversy in one of common
interest to the members of the corporation who are so numerous that the present complaint should be treated as a
class suit; and that the action is not barred by the statute of limitations because (a) an action for the reconveyance of
property registered through fraud does not prescribe, and (b) an action to impugn a void judgment may be brought any
time. This motion was denied by the trial court in its Order dated February 22, 1967. From the afore-mentioned Order of
dismissal and the Order denying its motion for reconsideration, plaintiff-appellant appealed to the Court of Appeals.

On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but only
questions of law and jurisdiction, certified this case to this Court for resolution of the legal issues involved in the
controversy.

Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction in
dismissing the amended complaint when the Secretary of Justice had already approved the transfer of the case to any
one of the two branches of the Court of First Instance of Malolos, Bulacan.
Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different
branches of the same Court of First Instance. Jurisdiction implies the power of the court to decide a case, while venue
the place of action. There is no question that respondent court has jurisdiction over the case. The venue of actions in the
Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of venue is not left to
the caprice of plaintiff, but must be in accordance with the aforesaid provision of the rules. 2 The mere fact that a
request for the transfer of a case to another branch of the same court has been approved by the Secretary of Justice
does not divest the court originally taking cognizance thereof of its jurisdiction, much less does it change the venue of
the action. As correctly observed by the trial court, the indorsement of the Undersecretary of Justice did not order the
transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but only "authorized" it for the reason
given by plaintiff's counsel that the transfer would be convenient for the parties. The trial court is not without power to
either grant or deny the motion, especially in the light of a strong opposition thereto filed by the defendant. We hold
that the court a quo acted within its authority in denying the motion for the transfer the case to Malolos
notwithstanding the authorization" of the same by the Secretary of Justice.

II

Let us now consider the substantive aspect of the Order of dismissal.

In dismissing the amended complaint, the court a quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the lack of personality of plaintiff to file the
instant action. Essentially, the term 'cause of action' is composed of two elements: (1) the right of the plaintiff and (2)
the violation of such right by the defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules require that every
action must be prosecuted and defended in the name of the real party in interest and that all persons having an interest
in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the
amended complaint, the people whose rights were alleged to have been violated by being deprived and dispossessed of
their land are the members of the corporation and not the corporation itself. The corporation has a separate. and
distinct personality from its members, and this is not a mere technicality but a matter of substantive law. There is no
allegation that the members have assigned their rights to the corporation or any showing that the corporation has in any
way or manner succeeded to such rights. The corporation evidently did not have any rights violated by the defendants
for which it could seek redress. Even if the Court should find against the defendants, therefore, the plaintiff corporation
would not be entitled to the reliefs prayed for, which are recoveries of ownership and possession of the land, issuance
of the corresponding title in its name, and payment of damages. Neither can such reliefs be awarded to the members
allegedly deprived of their land, since they are not parties to the suit. It appearing clearly that the action has not been
filed in the names of the real parties in interest, the complaint must be dismissed on the ground of lack of cause of
action. 3

Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the amended
complaint.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be
considered as separate and apart from the individual stockholders or members who compose it, and is not affected by
the personal rights, obligations and transactions of its stockholders or members. 4 The property of the corporation is its
property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the
name of the corporation are owned by it as an entity separate and distinct from its members. 5 Conversely, a
corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation,
"even in the case of a one-man corporation. 6 The mere fact that one is president of a corporation does not render the
property which he owns or possesses the property of the corporation, since the president, as individual, and the
corporation are separate similarities. 7 Similarly, stockholders in a corporation engaged in buying and dealing in real
estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the
corporation upon surrender of their stock certificates were considered not to have such legal or equitable title or
interest in the land, as would support a suit for title, especially against parties other than the corporation. 8

It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons
composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. 9This
separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is
used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. 10

Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, ... the law will regard the corporation as an association of persons, or in the case of two corporations, merge
them into one, the one being merely regarded as part or instrumentality of the other. 11 The same is true where a
corporation is a dummy and serves no business purpose and is intended only as a blind, or an alter ego or business
conduit for the sole benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the
corporation has been applied by the courts in those cases when the corporate entity is used for the evasion of taxes 13 or
when the veil of corporate fiction is used to confuse legitimate issue of employer-employee relationship, 14 or when
necessary for the protection of creditors, in which case the veil of corporate fiction may be pierced and the funds of the
corporation may be garnished to satisfy the debts of a principal stockholder. 15 The aforecited principle is resorted to by
the courts as a measure protection for third parties to prevent fraud, illegality or injustice. 16

It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in
question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-appellant
herein, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of
recovering property which belongs to said stockholders or members in their personal capacities.

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law
upon a person. 17 Evidently, there can be no wrong without a corresponding right, and no breach of duty by one person
without a corresponding right belonging to some other person. 18 Thus, the essential elements of a cause of action are
legal right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant in violation of the
aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it does
not have any interest in the subject matter of the case which is material and, direct so as to entitle it to file the suit as a
real party in interest.

III

Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section 12 of
Rule 3 of the Revised Rules of Court.

In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the
controversy is one of common or general interest to many persons; and (2) that the parties are so numerous that it is
impracticable to bring them all before the court. 20

Under the first requisite, the person who sues must have an interest in the controversy, common with those for whom
he sues, and there must be that unity of interest between him and all such other persons which would entitle them to
maintain the action if suit was brought by them jointly. 21

As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott v.
Donald 22 thus:

The interest that will allow parties to join in a bill of complaint, or that will enable the court to dispense with the
presence of all the parties, when numerous, except a determinate number, is not only an interest in the question, but
one in common in the subject Matter of the suit; ... a community of interest growing out of the nature and condition of
the right in dispute; for, although there may not be any privity between the numerous parties, there is a common
title out of which the question arises, and which lies at the foundation of the proceedings ... [here] the only matter in
common among the plaintiffs, or between them and the defendants, is an interest in the Question involved which alone
cannot lay a foundation for the joinder of parties. There is scarcely a suit at law, or in equity which settles a Principle or
applies a principle to a given state of facts, or in which a general statute is interpreted, that does not involved a Question
in which other parties are interested. ... (Emphasis supplied )

Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject matter
of the controversy, and cannot, therefore, represent its members or stockholders who claim to own in their individual
capacities ownership of the said property. Moreover, as correctly stated by the appellees, a class suit does not lie in
actions for the recovery of property where several persons claim Partnership of their respective portions of the
property, as each one could alleged and prove his respective right in a different way for each portion of the land, so that
they cannot all be held to have Identical title through acquisition prescription. 23

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot be
considered as a class suit, it would be unnecessary and an Idle exercise for this Court to resolve the remaining issue of
whether or not the plaintiffs action for reconveyance of real property based upon constructive or implied trust had
already prescribed.

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.

MERALCO VS TEAM ELECTRONICS

NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision[1] of the
Court of Appeals (CA) dated June 18, 1997 and its Resolution[2] dated December 3, 1997 in CA-G.R. CV No. 40282
denying the appeal filed by petitioner Manila Electric Company.

The facts of the case, as culled from the records, are as follows:

Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982
and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology Electronics Assembly
and Management Pacific Corporation (TPC). On the other hand, petitioner Manila Electric Company (Meralco) is a utility
company supplying electricity in the Metro Manila area.

Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to two
separate contracts denominated as Agreements for the Sale of Electric Energy under the following account numbers:
09341-1322-16[3] and 09341-1812-13.[4] Under the aforesaid agreements, petitioner undertook to supply TECs building
known as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig, Metro
Manila, with electric power.Another contract was entered into for the supply of electric power to TECs NS Building
under Account No. 19389-0900-10.

In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of
Lease[5] with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the formers DCIM building for a period of
five years or until September 1991. Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a
court order, for repeated violation of the terms and conditions of the lease contract.

On September 28, 1987, a team of petitioners inspectors conducted a surprise inspection of the electric meters installed
at the DCIM building, witnessed by Ultras[6] representative, Mr. Willie Abangan. The two meters covered by account
numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and did not register the actual
power consumption in the building. The results of the inspection were reflected in the Service Inspection
Reports[7] prepared by the team.

In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from the
latter the payment of P7,040,401.01 representing its unregistered consumption from February 10, 1986 until September
28, 1987, as a result of the alleged tampering of the meters.[8] TEC received the letters on January 7, 1988. Since Ultra
was in possession of the subject building during the covered period, TECs Managing Director, Mr. Bobby Tan, referred
the demand letter to Ultra[9] which, in turn, informed TEC that its Executive Vice-President had met with petitioners
representative. Ultra further intimated that assuming that there was tampering of the meters, petitioners assessment
was excessive.[10] For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply to the
DCIM building on April 29, 1988.

TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged
tampering but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before the Energy
Regulatory Board (ERB) praying that electric power be restored to the DCIM building.[11] The ERB immediately ordered
the reconnection of the service but petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00,
under protest. The complaint before the ERB was later withdrawn as the parties deemed it best to have the issues
threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted a scheduled
inspection of the questioned meters and found them to have been tampered anew.[12]

Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TECs NS Building. The inspection
allegedly revealed that the electric meters were not registering the correct power consumption. Petitioner, thus, sent a
letter dated June 18, 1988 demanding payment of P280,813.72 representing the differential billing.[13] TEC denied
petitioners allegations and claim in a letter dated June 29, 1988.[14] Petitioner, thus, sent TEC another letter demanding
payment of the aforesaid amount, with a warning that the electric service would be disconnected in case of continued
refusal to pay the differential billing.[15] To avert the impending disconnection of electrical service, TEC paid the above
amount, under protest.[16]
On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra[17] before the Regional Trial
Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851.[18] Upon the filing of
the parties answer to the complaint, pre-trial was scheduled.

At the pre-trial, the parties agreed to limit the issues, as follows:

1. Whether or not the defendant Meralco is liable for the plaintiffs disconnection of electric service at DCIM Building.

2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount of P7,040,401.01.

3. Whether or not the plaintiff is liable to defendant for exemplary damages.[19]

For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court
rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinent
portion of the decision reads:

WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants as follows:

(1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severally reimburse
plaintiff TEC actual damages in the amount of ONE MILLION PESOS with legal rate of interest from the date of the filing
of this case on January 19, 1989 until the said amount shall have been fully paid;

(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual damages with legal
rate of interest also from January 19, 1989;

(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages with interest
at legal rate from January 19, 1989;

(4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount pf P500,000.00;

(5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the amount
of P200,000.00;

(6) Ordering defendant Meralco to pay attorneys fees in the amount of P200,000.00

Costs against defendant Meralco.

SO ORDERED.[20]

The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter
installations.The deformed condition of the meter seal and the existence of an opening in the wire duct leading to the
transformer vault did not, in themselves, prove the alleged tampering, especially since access to the transformer was
given only to petitioners employees.[21]The sudden drop in TECs (or Ultras) electric consumption did not, per se, show
meter tampering. The delay in the sending of notice of the results of the inspection was likewise viewed by the court as
evidence of inefficiency and arbitrariness on the part of petitioner. More importantly, petitioners act of disconnecting
the DCIM buildings electric supply constituted bad faith and thus makes it liable for damages.[22] The court further
denied petitioners claim of differential billing primarily on the ground of equitable negligence.[23] Considering that TEC
and TPC paid P1,000,000.00 to avert the disconnection of electric power; and because Ultra manifested to settle the
claims of petitioner, the court imposed solidary liability on both Ultra and petitioner for the payment of
the P1,000,000.00.
Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the amount of actual
damages and interest thereon. The dispositive portion of the CA decision dated June 18, 1997, states:

WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with the slight
modification that the interest at legal rate shall be computed from January 13, 1989 and that Meralco shall pay plaintiff
T.E.A.M. Electronics Corporation and Technology Electronics Assembly and Management Pacific Corporation the sum
of P150,000.00 per month for five (5) months for actual damages incurred when it was compelled to lease a generator
set with interest at the legal rate from the above-stated date.

SO ORDERED.[24]

The appellate court agreed with the RTCs conclusion. In addition, it considered petitioner negligent for failing to discover
the alleged defects in the electric meters; in belatedly notifying TEC and TPC of the results of the inspection; and in
disconnecting the electric power without prior notice.

Petitioner now comes before this Court in this petition for review on certiorari contending that:

The Court of Appeals committed grievous errors and decided matters of substance contrary to law and the rulings of this
Honorable Court:

1. In finding that the issue in the case is whether there was deliberate tampering of the metering installations at the
building owned by TEC.

2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner is entitled to
differential billing, and if so, how much.

3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing evidence that with
respect to the tampered meters that TEC and/or TPC authored their tampering.

4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of Ultra.

5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM Building.

6. In finding that there was no notice of disconnection.

7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering.

8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7, 1988 the meter
installations, they were found to be tampered.

9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters.
10. In finding that the method employed by MERALCO to as certain (sic) the correct amount of electricity consumed is
questionable;

11. In declaring that MERALCO all throughout its dealings with TEC took on an attitude which is oppressive, wanton and
reckless.

12. In declaring that MERALCO acted arbitrarily in inspecting TECs DCIM building and the NS building.

13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded.

14. In not declaring that petitioner is entitled to the differential bill.

15. In not declaring that respondents are liable to petitioner for exemplary damages, attorneys fee and expenses for
litigation.[25]

The petition must fail.

The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric meters
installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by
petitioner; and 3) whether or not petitioner was justified in disconnecting the electric power supply in TECs DCIM
building.

Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by respondent
TEC has been established by overwhelming evidence, as specifically shown by the shorting devices found during the
inspection. Thus, says petitioner, tampering of the meter is no longer an issue.

It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Well-established is the
doctrine that under Rule 45 of the Rules of Court, only questions of law, not of fact, may be raised before the Court. We
would like to stress that this Court is not a trier of facts and may not re-examine and weigh anew the respective
evidence of the parties. Factual findings of the trial court, especially those affirmed by the Court of Appeals, are binding
on this Court.[26]

Looking at the record, we note that petitioner claims to have discovered three incidences of meter-tampering; twice in
the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988.

The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence of a
short circuiting device and saw that the meter seal was deformed. In addition, petitioner, through the Supervising
Engineer of its Special Billing Analysis Department,[27] claimed that there was a sudden and unexplainable drop in TECs
electrical consumption starting February 10, 1986. On the basis of the foregoing, petitioner concluded that the electric
meters were tampered with.

However, contrary to petitioners claim that there was a drastic and unexplainable drop in TECs electric consumption
during the affected period, the Pattern of TECs Electrical Consumption[28] shows that the sudden drop is not peculiar to
the said period.Noteworthy is the observation of the RTC in this wise:

In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by Exhibits 35 and 35-
A, there was likewise a sudden drop of electrical consumption from the year 1984 which recorded an average 141,300
kwh/month to 1985 which recorded an average kwh/month at 87,600 or a difference-drop of 53,700 kwh/month; from
1985s 87,600 recorded consumption, the same dropped to 18,600 kwh/month or a difference-drop of 69,000
kwh/month. Surely, a drop of 53,700 could be equally categorized as a sudden drop amounting to 69,000 which,
incidentally, the Meralco claimed as unexplainable. x x x.[29]

The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering is
committed by consumers to prevent the meter from registering the correct amount of electric consumption, and result
in a reduced monthly electric bill, while continuing to enjoy the same power supply. Only the registration of actual
electric energy consumption, not the supply of electricity, is affected when a meter is tampered with.[30] The witnesses
claimed that after the inspection, the tampered electric meters were corrected, so that they would register the correct
consumption of TEC. Logically, then, after the correction of the allegedly tampered meters, the customers registered
consumption would go up.

In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until
September 1987. Based on petitioners Billing Record[31] (for the DCIM building), TECs monthly electric consumption on
Account No. 9341-1322-16 was between 4,500 and 27,000 kwh.[32] Account No. 9341-1812-13 showed a monthly
consumption between 9,600 and 34,200 kwh.[33] It is interesting to note that, after correction of the allegedly tampered
meters, TECs monthly electric consumption from October 1987 to February 1988 (the last month that Ultra occupied the
DCIM building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800 kwh on the second account.

Even more revealing is the fact that TECs meters registered 9,300 kwh and 19,200 kwh consumption on the first and
second accounts, respectively, a month prior to the inspection. On the first month after the meters were corrected, TECs
electric consumption registered at 9,300 kwh and 22,200 kwh on the respective accounts. These figures clearly show
that there was no palpably drastic difference between the consumption before and after the inspection, casting a cloud
of doubt over petitioners claim of meter-tampering. Indeed, Ultras explanation that the corporation was losing; thus, it
had lesser consumption of electric power appear to be the more plausible reason for the drop in electric consumption.

Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found to
have been tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and months before
the inspection, there was an unsettled controversy between TEC and petitioner, brought about by the disconnection of
electric power and the non-payment of differential billing. We are more disposed to accept the trial courts conclusion
that it is hard to believe that a customer previously apprehended for tampered meters and assessed P7 million would
further jeopardize itself in the eyes of petitioner.[34] If it is true that there was evidence of tampering found
on September 28, 1987 and again on June 7, 1988, the better view would be that the defective meters were not actually
corrected after the first inspection. If so, then Manila Electric Company v. Macro Textile Mills Corporation[35] would
apply, where we said that we cannot sanction a situation wherein the defects in the electric meter are allowed to
continue indefinitely until suddenly, the public utilities demand payment for the unrecorded electricity utilized when
they could have remedied the situation immediately. Petitioners failure to do so may encourage neglect of public
utilities to the detriment of the consuming public. Corollarily, it must be underscored that petitioner has the imperative
duty to make a reasonable and proper inspection of its apparatus and equipment to ensure that they do not
malfunction, and the due diligence to discover and repair defects therein. Failure to perform such duties constitutes
negligence.[36] By reason of said negligence, public utilities run the risk of forfeiting amounts originally due from their
customers.[37]

As to the alleged tampering of the electric meter in TECs NS building, suffice it to state that the allegation was not
proven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken,
with petitioner having sole access to the said meters.[38]

In view of the negative finding on the alleged tampering of electric meters on TECs DCIM and NS buildings, petitioners
claim of differential billing was correctly denied by the trial and appellate courts. With greater reason, therefore, could
petitioner not exercise the right of immediate disconnection.

The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 401 [39] issued on March 1,
1974.[40]The decree penalized unauthorized installation of water, electrical or telephone connections and such acts as
the use of tampered electrical meters. It was issued in answer to the urgent need to put an end to illegal activities that
prejudice the economic well-being of both the companies concerned and the consuming public.[41] P.D. 401 granted the
electric companies the right to conduct inspections of electric meters and the criminal prosecution[42] of erring
consumers who were found to have tampered with their electric meters. It did not expressly provide for more expedient
remedies such as the charging of differential billing and immediate disconnection against erring consumers. Thus,
electric companies found a creative way of availing themselves of such remedies by inserting into their service contracts
(or agreements for the sale of electric energy) a provision for differential billing with the option of disconnection upon
non-payment by the erring consumer. The Court has recognized the validity of such stipulations.[43]However, recourse to
differential billing with disconnection was subject to the prior requirement of a 48-hour written notice of
disconnection.[44]

Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that
petitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the
electric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and Revised
General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the impending
disconnection. Accordingly, the CA did not err in affirming the RTC decision.

As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation for an
injury that will put the injured party in the position where it was before the injury. They pertain to such injuries or losses
that are actually sustained and susceptible of measurement. Except as provided by law or by stipulation, a party is
entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is the rule that to recover actual
damages, not only must the amount of loss be capable of proof; it must also be actually proven with a reasonable
degree of certainty, premised upon competent proof or the best evidence obtainable.[45]

Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00
and P280,813.72 under protest, the amounts representing a portion of the latters claim of differential billing. With the
finding that no tampering was committed and, thus, no differential billing due, the aforesaid amounts should be
returned by petitioner, with interest, as ordered by the Court of Appeals and pursuant to the guidelines set forth by the
Court.[46]

However, despite the appellate courts conclusion that no tampering was committed, it held Ultra solidarily liable with
petitioner for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims of the
latter. This ruling is erroneous. Ultras promise was conditioned upon the finding of defect or tampering of the meters. It
did not acknowledge any culpability and liability, and absent any tampered meter, it is absurd to make the lawful
occupant liable. It was petitioner who received the P1 million; thus, it alone should be held liable for the return of the
amount.

TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator set it
was constrained to rent by reason of the illegal disconnection of electrical service. The official receipts and purchase
orders submitted by TEC as evidence sufficiently show that such rentals were indeed made. However, the amount
of P150,000.00 per month for five months, awarded by the CA, is excessive. Instead, a total sum of P150,000.00, as
found by the RTC, is proper.

As to the payment of exemplary damages and attorneys fees, we find no cogent reason to disturb the same. Exemplary
damages are imposed by way of example or correction for the public good in addition to moral, temperate, liquidated,
or compensatory damages.[47] In this case, to serve as an example that before a disconnection of electrical supply can be
effected by a public utility, the requisites of law must be complied with we affirm the award of P200,000.00 as
exemplary damages. With the award of exemplary damages, the award of attorneys fees is likewise proper, pursuant to
Article 2208[48] of the Civil Code. It is obvious that TEC needed the services of a lawyer to argue its cause through three
levels of the judicial hierarchy. Thus, the award of P200,000.00 is in order.[49]

We, however, deem it proper to delete the award of moral damages. TECs claim was premised allegedly on the damage
to its goodwill and reputation.[50] As a rule, a corporation is not entitled to moral damages because, not being a natural
person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and
moral shock. The only exception to this rule is when the corporation has a reputation that is debased, resulting in its
humiliation in the business realm.[51]But in such a case, it is imperative for the claimant to present proof to justify the
award. It is essential to prove the existence of the factual basis of the damage and its causal relation to petitioners
acts.[52] In the present case, the records are bereft of any evidence that the name or reputation of TEC/TPC has been
debased as a result of petitioners acts. Besides, the trial court simply awarded moral damages in the dispositive portion
of its decision without stating the basis thereof.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282 dated June 18, 1997
and its Resolution dated December 3, 1997 are AFFIRMED with the following MODIFICATIONS: (1) the award
of P150,000.00 per month for five months as reimbursement for the rentals of the generator set
is REDUCED to P150,000.00; and (2) the award of P500,000.00 as moral damages is hereby DELETED.