Corpo Cases

Corporation.
Page1 of Syllabus
Nature of Corporation
Lozano vs De Los Santos
Jardine Davies vs CA 83
.. .2
Manila Electric Company vs T.E.A.M ..86
International Express Travel vs CA 3
Moral Damages; Specific Provision of Law
ASSOCIATED BANK (now UNITED OVERSEAS BANK [PHILS.]),
Filipinas Broadcasting Network Inc. vs Ago Medical..91
Petitioner, - versus - SPOUSES RAFAEL and MONALIZA PRONSTROLLER ..6
Government Corporations
J.G. SUMMIT HOLDINGS, INC., petitioner,vs.COURT OF APPEALS ..8
Liban vs Gordon ..97
Theory of Concession
Carandang vs Desierto 104
Tayag vs Benguet Consolidated .14
Dennis A.B vs Manila Economic 109
International Express vs CA 3
Nationality of a Corporation
Power to Create Corporation
Roman Catholic Church vs ROD .121
NDC vs Philippines Veterans Bank .17
People vs Quasha .130
Feliciano vs COA ..19
Tatad vs Garcia132
Corporation v Partnership
Filipinas Compania vs Christern..139
Lim vs Philippine Fishing Gear Industries 26
Grandfather Rule
Rights of a Corporation
Palting vs San Jose Petroleum.141
(Due Process) Smith Bell vs Natividad ....32
Gamboa vs Finance Secretary June 28, 2011146
(Self- Incrimination) Bataan Shipyard vs PCGG .36
Gamboa vs Finance Secretary October 9, 2012..156
(Practice Profession) Alfafara vs Acebedo Optical54
Defective Incorporation
Pioneer Insurance vs CA .174
Criminal Liability
Theory of Enterprise Entity
West Coast vs Hurd 57
PSE vs CA .181
Sia vs CA .59
When Officers may be held criminally liable
ANNEX A- Anti-Money Laundering Act of 2001 (RA 9160)
(Read AMLA) Arnel U. Ty vs NBI .61

Moral Damages; Award not proper
ABS-CBN vs CA 68
Mambulao Lumber vs PNB .77
Caelitus Mihi Vires
Corporation.Page1 of Syllabus
The jurisdiction of the Securities and Exchange Commission (SEC) is set forth in Section 5 of Presidential Decree No. 902-A. Section 5 reads
as follows:
G.R. No. 125221
June 19, 1997
REYNALDO M. LOZANO, petitioner, vs.HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and ANTONIO ANDA,
respondents.
Sec. 5.
. . . [T]he Securities and Exchange Commission [has] original and exclusive jurisdiction to hear and decide cases involving:
PUNO, J.:
This petition for certiorari seeks to annul and set aside the decision of the Regional Trial Court, Branch 58, Angeles City which ordered the
Municipal Circuit Trial Court, Mabalacat and Magalang, Pampanga to dismiss Civil Case No. 1214 for lack of jurisdiction.
The facts are undisputed. On December 19, 1995, petitioner Reynaldo M. Lozano filed Civil Case No. 1214 for damages against respondent
Antonio Anda before the Municipal Circuit Trial Court (MCTC), Mabalacat and Magalang, Pampanga. Petitioner alleged that he was the
president of the Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Inc. (KAMAJDA) while respondent Anda was the president of
the Samahang Angeles-Mabalacat Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA); in August 1995, upon the request of the
Sangguniang Bayan of Mabalacat, Pampanga, petitioner and private respondent agreed to consolidate their respective associations and
form the Unified Mabalacat-Angeles Jeepney Operators' and Drivers Association, Inc. (UMAJODA); petitioner and private respondent also
agreed to elect one set of officers who shall be given the sole authority to collect the daily dues from the members of the consolidated
association; elections were held on October 29, 1995 and both petitioner and private respondent ran for president; petitioner won;
private respondent protested and, alleging fraud, refused to recognize the results of the election; private respondent also refused to
abide by their agreement and continued collecting the dues from the members of his association despite several demands to desist.
Petitioner was thus constrained to file the complaint to restrain private respondent from collecting the dues and to order him to pay
damages in the amount of P25,000.00 and attorney's fees of P500.00. 1
Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was lodged with the Securities and
Exchange Commission (SEC). The MCTC denied the motion on February 9, 1996. 2 It denied reconsideration on March 8, 1996. 3
Private respondent filed a petition for certiorari before the Regional Trial Court, Branch 58, Angeles City. 4 The trial court found the
dispute to be intracorporate, hence, subject to the jurisdiction of the SEC, and ordered the MCTC to dismiss Civil Case No. 1214
accordingly. 5 It denied reconsideration on May 31, 1996. 6
(a)
Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting
to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of
associations or organizations registered with the Commission.
(b)
Controversies arising out of intracorporate or partnership relations, between and among stockholders, members or associates;
between any or all of them and the corporation, partnership or association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or
right to exist as such entity.
(c)
Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnerships or
associations.
(d)
Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them
when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to over its liabilities,
but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree.
The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. 8 This jurisdiction is determined
by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of
their controversy. 9
Hence this petition. Petitioner claims that:
THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND SERIOUS
ERROR OF LAW IN CONCLUDING THAT THE SECURITIES AND EXCHANGE COMMISSION HAS JURISDICTION OVER A CASE OF DAMAGES
BETWEEN HEADS/PRESIDENTS OF TWO (2) ASSOCIATIONS WHO INTENDED TO CONSOLIDATE/MERGE THEIR ASSOCIATIONS BUT NOT YET
[SIC] APPROVED AND REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION. 7
Caelitus Mihi Vires
The first element requires that the controversy must arise out of intracorporate or partnership relations between and among
stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in so far as it
concerns their individual franchises. 10 The second element requires that the dispute among the parties be intrinsically connected with
the regulation of the corporation, partnership or association or deal with the internal affairs of the corporation, partnership or
association. 11 After all, the principal function of the SEC is the supervision and control of corporations, partnership and associations with
the end in view that investments in these entities may be encouraged and protected, and their entities may be encouraged and protected,
and their activities pursued for the promotion of economic development. 12
There is no intracorporate nor partnership relation between petitioner and private respondent. The controversy between them arose out
of their plan to consolidate their respective jeepney drivers' and operators' associations into a single common association. This unified
association was, however, still a proposal. It had not been approved by the SEC, neither had its officers and members submitted their
articles of consolidation is accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes effective not upon mere
agreement of the members but only upon issuance of the certificate of consolidation by the SEC. 13 When the SEC, upon processing and
examining the articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions of the
Corporation Code and existing laws, it issues a certificate of consolidation which makes the reorganization official. 14 The new
consolidated corporation comes into existence and the constituent corporations dissolve and cease to exist. 15
The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but these associations
are two separate entities. The dispute between petitioner and private respondent is not within the KAMAJDA nor the SAMAJODA. It is
between members of separate and distinct associations. Petitioner and private respondent have no intracorporate relation much less do
they have an intracorporate dispute. The SEC therefore has no jurisdiction over the complaint.
The doctrine of corporation by estoppel 16 advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is
fixed by law and is not subject to the agreement of the parties. 17 It cannot be acquired through or waived, enlarged or diminished by,
any act or omission of the parties, neither can it be conferred by the acquiescence of the court. 18
Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. 19 It applies when persons
assume to form a corporation and exercise corporate functions and enter into business relations with third person. Where there is no
third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not
been registered, there is no corporation by estoppel. 20
[G.R. No. 119002. October 19, 2000]

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL
FEDERATION, respondents.
DECISION
KAPUNAN, J.:
On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the
Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services
as a travel agency to the latter.[1] The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to
P449,654.83. For the tickets received, the Federation made two partial payments, both in September of 1989, in the total amount of
P176,467.50.[2]
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of
P265,894.33.[3] On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00.[4]
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of
the Federation.[5] Thereafter, no further payments were made despite repeated demands.
IN VIEW WHEREOF, the petition is granted and the decision dated April 18, 1996 and the order dated May 31, 1996 of the Regional Trial
Court, Branch 58, Angeles City are set aside. The Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga is ordered to
proceed with dispatch in resolving Civil Case No. 1214. No costs.
SO ORDERED.
This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal capacity
and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable
for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said
obligation.[6]
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount P207,524.20,
representing the unpaid balance for the plane tickets, he averred that the petitioner has no cause of action against him either in his
personal capacity or in his official capacity as president of the Federation. He maintained that he did not guarantee payment but merely
acted as an agent of the Federation which has a separate and distinct juridical personality.[7]
On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court.[8]
Caelitus Mihi Vires
In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the
unpaid obligation of the Federation. In arriving at the said ruling, the trial court rationalized:
WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered
dismissing the complaint against defendant Henri S. Kahn.[11]
Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation.
The trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate
existence of the defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football Federation is
a sports association xxx." This has not been denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation,
its corporate existence is within the personal knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of
the plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not.
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner
failed to prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a
separate and distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid
obligation. The same was denied by the appellate court in its resolution of 8 February 1995, where it stated that:
xxx
A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract
entered into by its officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are
themselves personally liable.
As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine
Football Federation (PFF) as liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against
the Philippine Football Federation, and the plaintiff did not appeal from this decision. Hence, the Philippine Football Federation is not a
party to this appeal and consequently, no judgment may be pronounced by this Court against the PFF without violating the due process
clause, let alone the fact that the judgment dismissing the complaint against it, had already become final by virtue of the plaintiff's failure
to appeal therefrom. The alternative prayer is therefore similarly DENIED.[12]
x x x[9]
Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors:[13]
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest
thereon at the legal rate computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and
another sum of P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby
dismissed.
With the costs against defendant Henri Kahn.[10]
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a decision
reversing the trial court, the decretal portion of said decision reads:
Caelitus Mihi Vires
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION
(PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE
PFF AS HAVING A CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE
OBLIGATION OF THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED THE OBLIGATION IN BEHALF OF
THE PFF, MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN
NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person.
In the assailed decision, the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135,
otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from
which said Federation derives its existence.
2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department;
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports
associations. This may be gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides:
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose;
SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the following functions, powers and
duties:
4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of their sport;
1. To adopt a constitution and by-laws for their internal organization and government;
5. Affiliate with international or regional sports associations after due consultation with the Department;
2. To raise funds by donations, benefits, and other means for their purposes.
xxx
3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their purpose;
13. Perform such other functions as may be provided by law.
4. To affiliate with international or regional sports' Associations after due consultation with the executive committee;
The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical
personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or
artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded
corporate status, such does not automatically take place by the mere passage of these laws.
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations shall have the following functions,
powers, and duties:
1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department and any
amendment thereto shall take effect upon approval by the Department: Provided, however, That no team, school, club, organization, or
entity shall be admitted as a voting member of an association unless 60 per cent of the athletes composing said team, school, club,
organization, or entity are Filipino citizens;
Caelitus Mihi Vires
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a
special law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine
Football Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision
creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the
manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135 provides:
SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each individual sports in
the Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition
as a National Sports' Association shall be filed with the executive committee together with, among others, a copy of the constitution and
by-laws and a list of the members of the proposed association, and a filing fee of ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act
and particularly section three thereof. No application shall be held pending for more than three months after the filing thereof without
any action having been taken thereon by the executive committee. Should the application be rejected, the reasons for such rejection shall
be clearly stated in a written communication to the applicant. Failure to specify the reasons for the rejection shall not affect the
application which shall be considered as unacted upon: Provided, however, That until the executive committee herein provided shall have
been formed, applications for recognition shall be passed upon by the duly elected members of the present executive committee of the
Philippine Amateur Athletic Federation. The said executive committee shall be dissolved upon the organization of the executive
committee herein provided: Provided, further, That the functioning executive committee is charged with the responsibility of seeing to it
that the National Sports' Associations are formed and organized within six months from and after the passage of this Act.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in
Civil Case No. 90-53595 is hereby REINSTATED.
Section 7 of P.D. 604, similarly provides:
SO ORDERED.
ASSOCIATED BANK (now UNITED OVERSEAS BANK [PHILS.]),
Petitioner, - versus - SPOUSES RAFAEL and MONALIZA PRONSTROLLER,
SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for each individual sport
in the Philippines shall be filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the
members of the proposed association.
Respondents.
SPOUSES EDUARDO and MA. PILAR VACA,
Intervenors.
The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the
objectives of this Decree and has substantially complied with the rules and regulations of the Department: Provided, That the Department
may withdraw accreditation or recognition for violation of this Decree and such rules and regulations formulated by it.
G.R. No. 148444

September 3, 2009
The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the
development and promotion of the particular sport for which they are organized.
Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be
recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and
Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the
juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the
constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has indeed
been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the
aforementioned laws and does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated
Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts
performed as such agent.[14] As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or
non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation
was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt
with the Federation in such a manner as to recognize and in effect admit its existence.[15] The doctrine of corporation by estoppel is
mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to
escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation.[16] In the case at bar, the
petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract.
Caelitus Mihi Vires
RESOLUTION
NACHURA, J.:
For resolution are the Motion for Reconsideration[1] filed by petitioner Associated Bank (now United Overseas Bank [Phils.]) and
Motion for Leave to Intervene[2] filed by Spouses Eduardo and Ma. Pilar Vaca (spouses Vaca).
After a thorough examination of petitioners motion for reconsideration, together with its voluminous attachments, it is readily
apparent that no new issues are raised and the arguments presented are a mere rehash of what have been discussed in its pleadings, all
of which have been considered and found unmeritorious in the July 14, 2008 Decision.[3]
Be that as it may, we would like to reiterate that the second letter-agreement modified the first one entered into by petitioner,
through Atty. Jose Soluta, Jr. (Atty. Soluta). In previously allowing Atty. Soluta to enter into the first letter-agreement without a board
resolution expressly authorizing him, petitioner had clothed him with apparent authority to modify the same via the second letteragreement.[4]
As early as June 1993, respondents already requested a modification of the earlier agreement such that the full payment should be
made upon receipt of this Courts decision confirming petitioners right to the subject property. Instead of acting on the request, the
Board of Directors deferred action on it. It was only after one year and after the banks reorganization that the board rejected
respondents request. We cannot, therefore, blame respondents for believing that the second letter-agreement signed by Atty. Soluta
was petitioners action on their request.*5+
We also would like to stress that the first letter-agreement was not rescinded by respondents failure to deposit in escrow their full
payment simply because the date of full payment had already been modified by the later agreement. Neither was the second letteragreement rescinded by respondents new offer because the offer was made only to demonstrate their capacity to purchase the subject
property.[6]
In our Decision, we affirmed the factual findings of the Court of Appeals (CA) because they were amply supported by the evidence
on record. Well-established is the rule that if there is no showing of error in the appreciation of facts by the CA, this Court treats them as
conclusive. The conclusions of law that the appellate court drew from those facts are likewise accurate and convincing.[7]
Hence, we deny with finality petitioners motion for reconsideration. No further pleadings will be entertained.
SEC. 19. Transfer of interest. In case of any transfer of interest, the action may be continued by or against the original party, unless
the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original
party.
In Natalia Realty, Inc. v. Court of Appeals,[10] citing Santiago Land Development Corporation v. Court of Appeals,[11] we have ruled that:
[A] transferee pendente lite of the property in litigation does not have a right to intervene. We held that a transferee stands exactly in the
shoes of his predecessor-in-interest, bound by the proceedings and judgment in the case before the rights were assigned to him. It is not
legally tenable for a transferee pendente lite to still intervene. Essentially, the law already considers the transferee joined or substituted
in the pending action, commencing at the exact moment when the transfer of interest is perfected between the original party-transferor
and the transferee pendente lite.[12]
After the promulgation of the July 14, 2008 Decision, spouses Vaca filed a Motion for Leave to Intervene alleging that they are the
registered owners of the subject property and are thus real parties-in-interest. They add that they stand to be deprived of their family
home without having been given their day in court. They also contend that the Court should order petitioner to reimburse the spouses
Vaca the amount received from the latter.
The Motion for Leave to Intervene must be denied.
That the Certificate of Title covering the subject property is in the name of the spouses Vaca is of no moment. It is noteworthy that
a notice of lis pendens was timely annotated on petitioners title. This was done prior to the sale of the property to the spouses Vaca, the
cancellation of petitioners title, and the issuance of the new Transfer Certificate of Title in the name of the spouses. By virtue of the
notice of lis pendens, the spouses Vaca are bound by the outcome of the litigation subject of the lis pendens. Their interest is subject to
the incidents or results of the pending suit, and their Certificate of Title will afford them no special protection.[13]
Section 2, Rule 19 of the Rules of Court, provides:
SEC. 2. Time to intervene. The motion to intervene may be filed at any time before rendition of judgment by the trial court. A copy
of the pleading-in-intervention shall be attached to the motion and served on the original parties.[8]
Lastly, the spouses Vacas claim for reimbursement, if any, must be ventilated in a separate action against petitioner. To allow the
intervention would unduly delay and prejudice the rights especially of respondents who have been deprived of the subject property for so
long.
IN LIGHT OF THE FOREGOING, we deny petitioners motion for reconsideration and the Spouses Vacas Motion for Intervention.
Obviously, the spouses Vacas motion for leave to intervene before this Court was belatedly filed.
SO ORDERED.
[G.R. No. 124293. November 20, 2000]
The purpose of intervention is to enable a stranger to an action to become a party to protect his interest, and the court, incidentally,
to settle all conflicting claims.[9] The spouses Vaca are not strangers to the action. Their legal interest in the litigation springs from the
sale of the subject property by petitioner in their favor during the pendency of this case. As transferee pendente lite, the spouses Vaca
are the successors-in-interest of the transferor, the petitioner, who is already a party to the action. Thus, the applicable provision is
Section 19, Rule 3 of the Rules of Court, governing transfers of interest pendente lite. It provides:
Caelitus Mihi Vires
JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET
PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
On January 27, 1977, the National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (Kawasaki) for the construction, operation, and
management of the Subic National Shipyard, Inc. (SNS), which subsequently became the Philippine Shipyard and Engineering Corporation
(PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion of 60%-40%, respectively. One of the
provisions of the JVA accorded the parties the right of first refusal should either party sell, assign or transfer its interest in the joint
venture. Thus, paragraph 1.4 of the JVA states:
Neither party shall sell, transfer or assign all or any part of its interest in SNS to any third party without giving the other under the same
terms the right of first refusal. This provision shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT
or by a KAWASAKI affiliate. (Italics supplied.)
1.0.
The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Governments equity in PHILSECO
consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECOs oustanding capital stock), which will be sold as a whole
block in accordance with the rules herein enumerated.
xxx
Meanwhile, on December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization
(COP) and the Asset Privatization Trust (APT) to take title to and possession of, conserve, manage and dispose of non-performing assets of
the National Government. On February 27, 1987, a trust agreement was entered into between the National Government and the APT by
virtue of which the latter was named the trustee of the National Governments share in PHILSECO. In 1989, as a result of a quasireorganization of PHILSECO to settle its huge obligations to PNB, the National Governments shareholdings in PHILSECO increased to
97.41% thereby reducing Kawasakis shareholdings to 2.59%.
Exercising their discretion, the COP and the APT deemed it in the best interest of the national economy and the government to privatize
PHILSECO by selling 87.67% of its total outstanding capital stock to private entities. After a series of negotiations between the APT and
Kasawaki, they agreed that the latters right of first refusal under the JVA be exchanged for the right to top by five percent (5%) the
highest bid for said shares. They further agreed that Kawasaki would be entitled to name a company in which it was a stockholder, which
could exercise the right to top. On September 7, 1990, Kawasaki informed APT that Philyards Holdings, Inc. (PHI) would exercise its right
to top by 5%.
At the pre-bidding conference held on September 28, 1993, interested bidders were given copies of the JVA between NIDC and Kawasaki,
and of the Asset Specific Bidding Rules (ASBR) drafted for the 87.67% equity (sic)[1] in PHILSECO of the National Government. Salient
provisions of the ASBR state:
Caelitus Mihi Vires
xxx
3.0.
This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National Governments 87.67%
equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).
xxx
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank (PNB). More than
two months later or on February 3, 1987, by virtue of Administrative Order No. 14, PNBs interest in PHILSECO was transferred to the
National Government.
xxx
xxx
xxx
12.0.
The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms, including any
addenda or amendments thereto issued during the bidding period. The bidder shall likewise be responsible for informing itself with
respect to any and all conditions concerning the PHILSECO Shares which may, in any manner, affect the bidders proposal. Failure on the
part of the bidder to so examine and inform itself shall be its sole risk and no relief for error or omission will be given by APT or COP. x x
x.
The provisions of the ASBR were explained to the interested bidders who were notified that bidding would be held on December 2, 1993.
At the public bidding on said date, the consortium composed of petitioner JG Summit Holdings, Inc., Sembawang Shipyard Ltd. of
Singapore (Sembawang), and Jurong Shipyard Limited of Malaysia (Jurong), was declared the highest bidder at P2.03 billion. The following
day, December 3, 1993, the COP approved the sale of 87.67% National Government shares of stock in PHILSECO to said consortium. It
notified petitioner of said approval subject to the right of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs
(petitioners) bid by 5% as specified in the bidding rules.
On December 29, 1993, petitioner informed the APT that it was protesting the offer of PHI to top its bid on the grounds that: (a) the
Kawasaki/PHI consortium composed of Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because
the last four (4) companies were the losing bidders (for P1.528 billion) thereby circumventing the law and prejudicing the weak winning
bidder; (b) only Kawasaki could exercise the right to top; (c) giving the same option to top to PHI constituted unwarranted benefit to a
third party; (d) no right of first refusal can be exercised in a public bidding or auction sale, and (e) the JG Summit Consortium was not
estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject bidding. On February
7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid and that the COP had approved the same on
January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase Agreement.
Consequently, petitioner filed with this Court a petition for mandamus under G.R. No. 114057. On May 11,1994, said petition was
referred to the Court of Appeals ---
x x x for proper determination and disposition, pursuant to Section 9, paragraph 1 of B.P. 129, granting the Court of Appeals original
jurisdiction to issue writs of mandamus x x x and auxiliary writs or processes, whether or not in aid of its appellate jurisdiction, which
jurisdiction is concurrent with this Court, there being no special and important reason for this Court to assume jurisdiction over the case in
the first instance.*2+
On July 18, 1995, the Court of Appeals denied for lack of merit the petition for mandamus. Citing Guanio v. Fernandez,[3] it held that
mandamus is not the proper remedy to compel the undoing of an act already done or the correction of a wrong already perpetuated,
even though the action taken was clearly illegal. It was further ruled that it was not the proper forum for a mere petition for
mandamus that aimed to question the constitutionality or legality of the right of first refusal and the right to top that was exercised by
Kawasaki/PHI and that the matter must be brought by the proper party in the proper forum at the proper time and threshed out in a full
blown trial.
After ruling that the right of first refusal and the right to top are prima facie legal, the Court of Appeals found petitioner to be in estoppel
for the following reasons:
5.
If petitioner found the right to top to be illegal, it should not have participated in the public bidding; or it should have
questioned the legality of the rules before the courts or filed a petition for declaratory relief (Rule 64, Rules of Court) before the public
bidding could have taken place.
By participating in the public bidding, with full knowledge of the right to top granted to Kawasaki/Philyards, petitioner is estopped from
questioning the validity of the award given to Philyards after the latter exercised the right to top and had paid in full the purchase price of
the subject shares, pursuant to the ASBR.
represents a consortium composed of JG Summit, Sembawang Singapore and Jurong of Malaysia. Why should petitioner then expect
Philyards to limit itself to its own resources when the latter can enter into agreements with other entities to help it raise the money it
needed to pay the full purchase price as in fact it had already paid the National Government in the amount of P2.131 billion as required
under the ASBR?*4+
Petitioner filed a motion for the reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed the instant
petition for review on certiorari, raising the following arguments:
I.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT PETITIONER JG SUMMIT IS LEGALLY ESTOPPED FROM CHALLENGING THE
LEGALITY OF THE RIGHT TO TOP, INSERTED IN THE BIDDING RULES, AS WELL AS THE RIGHT OF FIRST REFUSAL FROM WHICH THE RIGHT TO
TOP WAS ADMITTEDLY SOURCED, BY SIMPLY STATING THAT THOSE RIGHTS ARE VALID AND ENFORCEABLE WITHOUT RULING ON ANY OF
THE IMPORTANT LEGAL AND CONSTITUTIONAL GROUNDS RAISED BY THE PETITIONER AS FOLLOWS:
(A) THE RIGHT OF FIRST REFUSAL, GRANTED TO A JAPANESE CORPORATION AT A TIME WHEN IT HELD 40% EQUITY IN PHILSECO, A
LANDHOLDING CORPORATION, IS NULL AND VOID FOR BEING CONTRARY TO THE CONSTITUTION.
(B)
THE RIGHT TO TOP WAS GRANTED TO THE JAPANESE CORPORATION AT A TIME WHEN IT MERELY HELD 2.6% EQUITY IN PHILSECO.
(C) THE RIGHT OF FIRST REFUSAL GRANTED TO THE JAPANESE CORPORATION OVER SHARES OF STOCK IS CONTRARY TO THE
CORPORATION CODE.
(D) THE RIGHT TO TOP IS CONTRARY TO PUBLIC POLICY AS IT IS ANATHEMA TO COMPETITIVE PUBLIC BIDDING FOR BEING UNDULY
RESTRICTIVE THEREOF, AND, MOREOVER, IS CONTRARY TO DUE PROCESS OF LAW AS IT IS AGAINST THE BASIC RUDIMENTS OF FAIR PLAY.
(E) THE GRANT OF THE RIGHT TO TOP IS A CRIMINAL VIOLATION OF THE ANTI-GRAFT LAW AS IT GIVES A CLEARLY UNWARRANTED
BENEFIT IN FAVOR OF PHILYARDS AS SHOWN BY CLEAR AND UNDISPUTED DOCUMENTARY EVIDENCE.
6. The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui and ICTSI) appears to
have joined Philyards in the latters effort to raise P2.131 billion necessary in exercising the right to top by 5% is a valid activity in free
enterprise that is not contrary to law, public policy or public morals. It should not be a cause of grievance for petitioner as it is the very
essence of free competition in the business world. Astute businessmen involved in the public bidding in question knew what they were
up against. And when they participated in the public bidding with prior knowledge of the right to top, they did so, with full knowledge of
the eventuality that the highest bidder may still be topped by Kawasaki/Philyards by 5%. It is admitted by petitioner that it likewise
Caelitus Mihi Vires
II.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT MANDAMUS IS NOT A PROPER REMEDY IN THIS CASE.
compel the award of a contract subject of bidding to an unsuccessful bidder.[14] Mandamus applies as a remedy only where petitioners
right is founded clearly in law and not when it is doubtful.[15] Thus:
III.
FOLLOWING ITS OWN FINDINGS, THE COURT OF APPEALS GRIEVOUSLY ERRED (A) IN NOT DIRECTING THAT TRIAL BE HELD ON ALLEGED
ISSUES OF FACT AND (B) IN NOT APPOINTING AN AMICUS CURIAE FROM AMONG THE LAWYERS IN THE COMMISSION ON AUDIT TO
DETERMINE THE APPLICABILITY OF ITS REQUIREMENTS TO THE TRANSACTIONS IN THIS CASE.[5]
In their comment on the petition, private respondent PHI contends that the real party in interest which should have filed the petition for
mandamus is the JG Summit Consortium and not solely petitioner JG Summit Holdings, Inc. which is just a part of that consortium. Since
Sembawang and Jurong, the other members of the consortium, are indispensable parties to the petition,*6+ petitioners failure to implead
them as co-petitioners warranted the dismissal of the petition.
Public respondents contention must fail. While it is true that Rule 3, Section 2 of the Rules of Court provides that (a)ll persons having an
interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs, petitioner may file the petition
alone. In the first place, Sembawang and Jurong are not indispensable parties, such that their non-joinder as petitioners will not
necessarily result in a failure to arrive at a final determination of the case.[7] They may be necessary parties as they were members of the
consortium that won the public bidding prior to the exercise of the right to top by private respondent, but the petition may be resolved
even without their active participation. Secondly, there is a doubt as to whether or not said foreign corporations are subject to the
jurisdiction of the court as to both service of process and venue.*8+ Thirdly, petitioner may be deemed to represent Sembawang and
Jurong. The admission of petitioners counsel that said foreign corporations are underwriting his and the other counsels fees reflects this
fact.[9] By the nexus that binds the members of the consortium, in the event that petitioner succeeds in pursuing this case, it is bound to
respect the existence of the consortium and the corresponding responsibilities arising therefrom.
Public respondents also contend that petitioner has no standing to question the legality of a provision of the JVA in which it is not a
party.[10] However, as this Court held in Kilosbayan v. Morato,[11] there is a difference between the rule on real-party-in-interest and the
rule on standing, as the latter has constitutional underpinnings. In the case at bar, petitioner has sufficiently alleged constitutional
ramifications in the questioned public bidding of the PHILSECO that merit the attention of the Court. Moreover, the prospect of financial
gains arising from the award of the sale of PHILSECO is enough personal stake in the outcome of the controversy to vest upon petitioner
the locus standi to file the petition for mandamus. Besides, without Kawasaki-PHIs right to top the highest bid, petitioner would have
been awarded the sale as the highest bidder. A winning bidder has personality to initiate proceedings to prevent setting at naught his
right; otherwise, his right to due process would be violated.*12+ As such winning bidder, petitioner has a present substantial interest, or
such interest in the subject matter of action as will entitle it, under substantive law, to recover if the evidence is sufficient.[13]
With respect to the propriety of the remedy availed by petitioner, the Court of Appeals correctly held that the special civil action of
mandamus is not the proper remedy to question the legality of the exercise of the right to top by private respondent. It does not lie to
Caelitus Mihi Vires
In order that a writ of mandamus may issue, it is essential that the person petitioning for the same has a clear legal right to the thing
demanded and that it is the imperative duty of the respondent to perform the act required. It neither confers powers nor imposes duties
and is never issued in doubtful cases. It is simply a command to exercise a power already possessed and to perform a duty already
imposed.*16+
The Court of Appeals cannot declare petitioner as the winning bidder in this case and direct the COP/APT to award the sale to it without
first determining the validity of the right to top stipulated in the ASBR. Moreover, the sale of government share in PHILSECO is a fait
accompli, in view of the execution of the Stock Purchase Agreement between APT and PHI. Mandamus may not be availed to direct the
exercise of judgment or discretion in a particular way or to retract or reverse an action already taken in the exercise of either.[17]
Be that as it may, the Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil
action of mandamus. It must be stressed that the petition was also one for certiorari, seeking to nullify the award of the sale to private
respondent of the PHILSECO shares. Verily, the petition alleges that respondents COP and APT have committed such a grave abuse of
discretion tantamount to lack or excess of their jurisdiction in insisting on awarding the bid to Philyards, for the various reasons stated
herein, particularly since the right of first refusal and the right to top the bid are unconstitutional, contrary to law and public policy.*18+
Petitioners failure to include certiorari in its caption should not negate the fact that the petition charged public respondent with grave
abuse of discretion in awarding the sale to private respondent. Well-settled is the rule that it is not the caption of the pleading but the
allegations therein that determine the nature of the action and the Court shall grant relief warranted by the allegations and the proof
even if no such relief is prayed for.[19]
Petitioners main contention is that PHILSECO, as a shipyard, is a public utility and, hence, could be operated only by a corporation at least
60% of whose capital is owned by Filipino citizens, in accordance with Article XII, Section 10 of the Constitution. Petitioner asserts that a
shipyard is a public utility pursuant to Section 13 (b) of Commonwealth Act No. 146.[20] Respondents, on the other hand, contend that
shipyards are no longer public utilities by express provision of Presidential Decree No. 666, which provided incentives to the shipbuilding
and ship repair industry.
Indeed, P.D. No. 666 dated March 5, 1975 explicitly stated that a shipyard was not a public utility. Section 1 thereof provide as
follows:
d)
Registration required but not as Public Utility. The business of constructing and repairing vessels or parts thereof shall not be
considered a public utility and no Certificate of Public Convenience shall be required therefor. However, no shipyard, graving dock, marine
railway or marine repair shop and no person or enterprise shall engage in the construction and/or repair of any vessel, or any phase or
part thereof, without a valid Certificate of Registration and license for this purpose from the Maritime Industry Authority, except those
10
owned or operated by the Armed Forces of the Philippines or by foreign governments pursuant to a treaty or agreement. (Underscoring
supplied.)
However, Section 1 of P.D. No. 666 was expressly repealed by Section 20 of Batas Pambansa Blg. 391, the Investment Incentive Policy Act
of 1983.[21] Subsequently, Executive Order No. 226, the Omnibus Investments Code of 1987, was issued and Section 85 thereof expressly
repealed B.P. Blg. 391.[22]
The express repeal of B.P. Blg. 391 by E.O. No. 226 did not revive Section 1 of P.D. No. 666, declassifying the shipbuilding and ship repair
industry as a public utility, as said executive order did not provide otherwise. When a law which expressly repeals a prior law is itself
repealed, the law first repealed shall not be thereby revived unless expressly so provided.[23] Consequently, when the APT drafted the
ASBR sometime in 1993, P.D. No. 666 no longer existed in our statute books. While it is true that the repeal of a statute does not operate
to impair rights that have become vested or accrued while the statute was in force, there are no vested rights of the parties that should
be protected in the case at bar. The reason is simple: said decree was already inexistent when the ASBR was issued.
A shipyard such as PHILSECO being a public utility as provided by law, the following provision of the Article XII of the Constitution applies:
Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens
of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or association shall be citizens of the
Philippines. (Italics supplied.)
The progenitor of this constitutional provision, Article XIV, Section 5 of the 1973 Constitution, required the same proportion of 60%-40%
capitalization. The JVA between NIDC and Kawasaki entered into on January 27, 1977 manifests the intention of the parties to abide by
the constitutional mandate on capitalization of public utilities.[24] Paragraph 1.3 of the JVA, as amended by Addendum No. 2 dated
December 28, 1983,[25] provides:
The authorized capital stock of PHILSECO shall be P330 milion. The parties shall thereafter increase their subscription in PHILSECO as
may be necessary and as called by the Board of Directors, maintaining a proportion of 60%-40% for NIDC and KAWASAKI, respectively, up
to a total subscribed and paid-up capital stock of P312 million. (Underscoring supplied.)
A joint venture is an association of persons or companies jointly undertaking some commercial enterprise with all of them generally
contributing assets and sharing risks. It requires a community of interest in the performance of the subject matter, a right to direct and
Caelitus Mihi Vires
govern the policy in connection therewith, and duty, which may be altered by agreement to share both in profit and losses.[26] Persons
and business enterprises usually enter into a joint venture because it is exempt from corporate income tax.[27] Considered more of a
partnership,[28] a joint venture is governed by the laws on contracts and on partnership. The joint venture created between NIDC and
Kawasaki falls within the purview of an association pursuant to Section 5 of Article XIV of the 1973 Constitution and Section 11 of Article
XII of the 1987 Constitution. Consequently, a joint venture that would engage in the business of operating a public utility, such as a
shipyard, must observe the proportion of 60%-40% Filipino-foreign capitalization.
Notably, paragraph 1.4 of the JVA accorded the parties the right of first refusal under the same terms. This phrase implies that when
either party exercises the right of first refusal under paragraph 1.4, they can only do so to the extent allowed them by paragraphs 1.2 and
1.3 of the JVA or under the proportion of 60%-40% of the shares of stock. Thus, should the NIDC opt to sell its shares of stock to a third
party, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock would not exceed 40% of the entire
shares of stock of SNS or PHILSECO. The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government
corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of stocks even beyond 60% of the
capitalization as the Constitution clearly limits only foreign capitalization.
Parenthetically, the Maritime Industry Authority (MARINA) which has been tasked to regulate the operation of shipbuilding and ship
repair yards,[29] abides by the Filipino capitalization requirement as far as corporations and partnerships are concerned. However,
Section 2.3.1 (a) of its Memorandum Circular No. 95, Series of 1994,[30] setting out the Revised Implementing Guidelines on the Licensing
of Shipbuilders, Ship Repairers, Afloat Repairers, Boatbuilders and Shipbreakers, seems to exempt joint ventures registered with the SEC,
the BOI and the EPZA from the 60% requirement of Filipino ownership.[31] The said provision states:
The applicant must be a Filipino citizen or a corporation/partnership at least 60% of the authorized capital stock of which is owned by
Filipino citizens except for joint ventures which are registered with the Securities and Exchange Commission, the Board of Investments
and/or Export Processing Zone Authorities.*32+
The constitutionality of said MARINA guideline, however, is not in issue here. Kawasaki was bound by its contractual obligation under the
JVA that limits its right of first refusal to 40% of the total capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the
capitalization of the joint venture on account of both constitutional and contractual proscriptions.
From the facts on record, it appears that at the outset, the APT and Kawasaki respected the 60%-40% capitalization proportion in
PHILSECO. However, APT subsequently encouraged Kawasaki to participate in the public bidding of the National Governments
shareholdings of 87.67% of the total PHILSECO shares, definitely over and above the 40% limit of its shareholdings. In so doing, the APT
went beyond the ambit of its authority.
It is well settled that the role of courts is to ascertain whether a branch or instrumentality of Government has transgressed its
constitutional or statutory boundaries. The courts, must examine those boundaries in the light of provisions of the law. Otherwise, it
would stray into the realm of policy decision-making.[33]
11
Proclamation No. 50, creating the COP and the APT, was issued by President Corazon C. Aquino pursuant to her legislative powers under
the Provisional Constitution of 1986. Section 12 of said Proclamation vested the APT with the following powers:
This rule is fraught with dangerous implications. It allows a completely foreign corporation to participate in the public bidding of more
than 60% of the total shares of a public utility corporation without setting a period within which the foreign bidder should name its
nominee. As it is, the rule allows a totally foreign investor to engage in the business of operating a public utility for an unlimited period of
time in total disregard of the constitutional proscription on the percentage of Filipino ownership of corporations engaged therein.
Paragraph 15.0 of the ASBR is thus directly and openly repugnant to the Constitution considering that it allows foreign corporations to
operate a public utility for an unlimited period of time.
(1)
To formulate and, after approval by the Committee, implement a program for the disposition of assets transferred to it under
this Proclamation, such program to be completed within a period of five years from the date of the issuance of this Proclamation;
(2)
Subject to its having received the prior written approval of the Committee to sell such asset at a price and on terms of payment
and to a party disclosed to the Committee, to sell each asset referred to it by the Committee to such party and on such terms as in its
discretion are in the best interest of the National Government, and for such purpose to execute and deliver, on behalf and in the name of
the National Government, such deeds of sale, contracts and other instruments as may be necessary or appropriate to convey title to such
assets;
xxx
xxx
xxx
x x x
Pursuant to these provisions, the APT drafted the ASBR. Since the APTs rule-making authority is merely delegated, the ASBR should be
measured by the standard set by said proclamation.[34] Notably, the discretion granted by the proclamation to the APT for the sale of
government property is circumscribed only by the best interest of the National Government.
Implicitly written in any delegated legislative authority, such as that provided for in Proclamation No. 50, is the requisite that the rules and
regulations which an administrative body adopts must respect pertinent provisions of the Constitution and the law.[35] Article XII, Section
11 of the Constitution providing for a 60% Filipino capitalization in order that public utilities may be granted a franchise should thus be
deemed a paramount consideration in drafting the ASBR. In this regard, worth noting is paragraph 15.0 of the ASBR, which provides that:
In the event that the winning bidder is a 100% foreign-owned corporation, it may name its nominee corporation to whom the NG shares
shall be conveyed, provided it owns 40% equity in the nominee corporation, so as not to affect PHILSECOs qualification to own real estate
properties in the Philippines.
Caelitus Mihi Vires
x x x. A competitive public bidding aims to protect the public interest by giving the public the best possible advantages through open
competition. It is a mechanism that enables the government agency to avoid or preclude anomalies in the execution of public
contracts.*36+
xxx
(7)
To adopt its internal rules and regulations, to adopt, alter and use a seal which shall be judicially noticed; to enter into
contracts; to sue and be sued;
xxx
In carrying out its objective of disposing of government property, the APT should take into account the pertinent laws. Since the method
of disposing the PHILSECO that the APT had adopted was through public bidding, it was duty-bound to follow the rules and regulations on
competitive public bidding, in order to uphold the elementary rule on fairness in such disposition. As this Court once said:
The word bidding in its comprehensive sense means making an offer*37+ or an invitation to prospective contractors whereby the
government manifests its intention to make proposals[38] for the purchase of supplies, materials and equipment for official business or
public use,[39] or for public works or repair. The three principles in public bidding are: the offer to the public; an opportunity for
competition; and a basis for exact comparison of bids. The distinctive character of the system is destroyed and the purpose of its
adoption is thwarted when a regulation thereon excludes any of these principles.[40] Public bidding of government contracts and for the
disposition of government assets should have the same principles and objectives. Their only difference, if at all, is that in the public
bidding for public contracts, the award is generally given to the lowest bidder while in the disposition of government assets, the award is
to the highest bidder.*41+ The term public bidding imports a sale to the highest bidder with absolute freedom for competitive
bidding.[42]
Under Section 504 of the Government Auditing Rules and Regulations, a public auction, which is the mode of divestment or disposal of
government property, shall adhere to established mechanics and procedures in public bidding.[43] In such public auction sales, the
presence of a Commission on Audit (COA) representative who shall see to the proper observance of auditing rules is imperative.[44] In
this case, there is no record that a COA representative witnessed the public auction on December 2, 1993. Neither is there a showing that
the APT observed the requirement of COA Circular No. 89-296, to the effect that a government entity that is disposing of government
property shall furnish the COA with the disposal procedure adopted. Likewise, nowhere in the record is it stated that the APT heeded the
suggestion of Secretary of Finance and COP Chairman Jayme that its decision to grant Kawasaki the right to top the highest bid be made
known to the Commission on Audit. What appears on record is that the COA did not approve the ASBR, specifically the provision on the
right to top the highest bidder. Thus, then COA Chairman Pascasio S. Banaria, replying to the query of petitioners counsel on whether or
not the COA had approved the right to top the highest bid by 5%, stated:
Per information received from our Auditor at APT, no prior approval was issued by their Office regarding said preferential option. We
have instructed our Auditor thereat to advise this Office of the result of the review of the Corporations procedures for the sale of the
12
assets including the review of the bidding documents pertaining to the subject public bidding pursuant to the provisions of the
Commission on Audit Circular No. 89-296 dated January 27, 1989.*45+
In according the KHI/PHI the right to top, the APT violated the rule on competitive public bidding, under which the highest bidder is
declared the winner entitled to the award of the subject of the auction sale. In effect, the grant to KHI/PHI of the right to top can be
likened to a second bidding, which, however, is allowed only if there is a failure of bidding, such as when there is only one bidder or none
at all.[46] By placing KHI/PHI in the advantageous position of topping the highest bidder, the APT set aside the basic rule in public bidding
that there be an opportunity for competition.
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the Court of Appeals are
REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its
bid deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:
(a)
(b)
While it may be argued that the right to top was aimed at giving the best financial advantage to the government, the manner by which
that right was conceived and arrived at in this case manifested bias in favor of KHI, thereby clearly brushing aside the rule on fair
competition. More importantly, the ASBR provision on the right to top the highest bidder completely disregarded the stipulation in the
JVA between NIDC and KHI to comply with the 60%-40% capitalization arrangement whereby KHI, the foreign investor, would be able to
exercise its right of first refusal to the extent of only 40% of the total capitalization of the PHILSECO. Thus, KHI, whose investment
exposure was already diminished to only 2.59% of the total PHILSECO shares, was given the privilege, through its nominee PHI, of
exercising the right to top the highest bid to 87.67% of those shares or definitely over and above its 40% contractual right to PHILSECO
shares under the JVA. Consequently, the APT rendered nugatory the constitutional and contractual proscriptions clearly to favor a foreign
investor.
Furthermore, while the right of first refusal entitled KHI to priority in the award of the contract, that right cannot bar another bidder from
submitting a bid because, precisely, the law requires public bidding in government contracts.[47] Thus, by engrafting in the provisions of
the ASBR the right to top, which was only an offshoot of the right of first refusal, the APT effectively did away with pubic bidding insofar as
KHI/PHI was concerned. To be sure, the right to top is different from the right to match. In the latter, a qualified bidder is given the
privilege of offering the same bid as that of the highest bidder.[48] In the former, as provided for by the ASBR, a non-bidder is accorded
the right to top the highest bid. There is reason, therefore, for the petitioner to complain that the APT made a show of a public bidding in
order to elicit the highest bid, only to award the sale to a non-bidder. The unfair manner by which the purported public bidding was
conducted by the APT is even made more blatant by the fact that after the public bidding, KHI exercised the right to top through its
nominee, private respondent PHI, which has among its stockholders some losing bidders.
accept said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;
execute a Stock Purchase Agreement with petitioner;
(c)
capitalization;
cause the issuance in favor of petitioner of the certificates of stocks representing 87.67% of PHILSECOs total
(d)
return to private respondent PHI the amount of Two Billion One Hundred Thirty One Million Five Hundred Thousand Pesos
(P2,131,500,000.00); and
(e)
cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.
G.R. No. L-23145
November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee,
vs.
In drafting the ASBR, the APT should have noted the fact that foreign investors were competing in the bidding. While it is true that foreign
investment should be encouraged in this country, however, the ASBR provision on the right to top is unfair to all competitors, be they
foreign or local, in the public auction of 87.67% of PHILSECO shares as it provided for a method that would set at naught the entire public
bidding.
BENGUET CONSOLIDATED, INC., oppositor-appellant.

Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
It was thus error for the Court of Appeals to conclude that petitioner was estopped from contesting the validity of the ASBR and the
bidding procedure conducted pursuant to it. It is clear from the provisions of the ASBR itself that the basic rules on fair competition in
public biddings have been disregarded. Although petitioner had the opportunity to examine the ASBR before it participated in the
bidding, it cannot be estopped from questioning the unconstitutional, illegal and inequitable provisions thereof. Estoppel is unavailing in
this case; otherwise, it would stamp validity to an act that is prohibited by law or against public policy.[49]
Caelitus Mihi Vires
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York, United States
of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to surrender to the
13
ancillary administrator in the Philippines the stock certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc., to
satisfy the legitimate claims of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now retired, issued on
May 18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator, dated February 11, 1964, as well as the
opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the
administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock
standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said corporation
to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary administrator or to
the Probate Division of this Court."1
From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New York, but
by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged order represents a
response and expresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to the attainment of specific ends
by the use of specific remedies, with full and ample support from legal doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March 27,
1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant, the certificates being in the
possession of the County Trust Company of New York, which as noted, is the domiciliary administrator of the estate of the deceased.2
Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary administration proceedings in
the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was
substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the ancillary
administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27,
1964, the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them
with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and on February
11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the
33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as to "who is
entitled to the possession of the stock certificates in question; appellant opposed the petition of the ancillary administrator because the
said stock certificates are in existence, they are today in the possession of the domiciliary administrator, the County Trust Company, in
New York, U.S.A...."4
It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover, it would
allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be issued. Hence, its
appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic affirmation of
judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a
court decree. How, then, can this order be stigmatized as illegal?
Caelitus Mihi Vires
As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What cannot be
ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without undue loss of judicial prestige, be
condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as to preclude such a solution, the more so as deeper
reflection would make clear its being buttressed by indisputable principles and supported by the strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the country.
Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought about by the persistence of the
domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the
lower court by entering its appearance through counsel on June 27, 1963, and filing a petition for relief from a previous order of March
15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it, what it had
been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary administrator, with residence
abroad, of what was previously ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was
concerned, not a partial but a well-nigh complete paralysis of judicial authority.
1.
Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control and
possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle
her estate and satisfy the claims of local creditors.5 As Justice Tuason speaking for this Court made clear, it is a "general rule universally
recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within the state or
country where it was granted," the corollary being "that an administrator appointed in one state or country has no power over property in
another state or country."6
It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice Malcolm. Thus: "It is
often necessary to have more than one administration of an estate. When a person dies intestate owning property in the country of his
domicile as well as in a foreign country, administration is had in both countries. That which is granted in the jurisdiction of decedent's last
domicile is termed the principal administration, while any other administration is termed the ancillary administration. The reason for the
latter is because a grant of administration does not ex proprio vigore have any effect beyond the limits of the country in which it is
granted. Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper,
whenever a person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets of the
deceased liable for his individual debts or to be distributed among his heirs."7
It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock certificates
covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally
beyond question. For appellant is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts.
Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders.
14
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case, the actual situs of the
shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above undeniable proposition, not even
appellant is insensible. It does not dispute it. Nor could it successfully do so even if it were so minded.
2.
In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order,
how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of precisely demonstrating
the contrary? It would assign as the basic error allegedly committed by the lower court its "considering as lost the stock certificates
covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress that the
"lower court could not "consider as lost" the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and
does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the possession of the
domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of the
appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of
stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was nothing unreasonable
or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent
under the law on the ancillary administrator could be discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of the party
or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusing to yield obedience. Certainly,
appellant would not be heard to contend in all seriousness that a judicial decree could be treated as a mere scrap of paper, the court
issuing it being powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. To be more
blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however, again to borrow from
Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its
development."11
Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of justice, [even if]
clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent jurist, noting "the quasi contract, the
adopted child, the constructive trust, all of flourishing vitality, to attest the empire of "as if" today."13 He likewise noted "a class of
fictions of another order, the fiction which is a working tool of thought, but which at times hides itself from view till reflection and analysis
have brought it to the light."14
Caelitus Mihi Vires
What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be then on the
part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. If ever an occasion did call for
the employment of a legal fiction to put an end to the anomalous situation of a valid judicial order being disregarded with apparent
impunity, this is it. What is thus most obvious is that this particular alleged error does not carry persuasion.
3.
Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of its bylaws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the
event of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost, stolen or
destroyed, the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership
[thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign domiciliary
administrator did not appeal from the order now in question. Moreover, there is likewise the express admission of appellant that as far as
it is concerned, "it is immaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not the case, it would be
a legal absurdity to impart to such a provision conclusiveness and finality. Assuming that a contrariety exists between the above by-law
and the command of a court decree, the latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary must yield
deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however, if a corporate by-law
would be accorded such a high estate in the jural order that a court must not only take note of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its inconsistency
with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming that such
apprehension of a possible court action against it could possibly materialize. Thus far, nothing in the circumstances as they have
developed gives substance to such a fear. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful
exercise of judicial authority.
4.
What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic
postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."16 It owes its life to the
state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person,
owing its existence through creation by a sovereign power."17 As a matter of fact, the statutory language employed owes much to Chief
Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being, invisible, intangible, and
existing only in contemplation of law."18
15
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person, but the law
treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and separate from its individual
stockholders.... It owes its existence to law. It is an artificial person created by law for certain specific purposes, the extent of whose
existence, powers and liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person, resulting from an association of
human beings granted legal personality by the state, puts the matter neatly.20
It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations made by foreign
governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts over juridical persons within our
jurisdiction, the force and effectivity of their orders could be made to depend on the whim or caprice of alien entities. It is difficult to
imagine of a situation more offensive to the dignity of the bench or the honor of the country.
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the reality of the group
as a social and legal entity, independent of state recognition and concession."21 A corporation as known to Philippine jurisprudence is a
creature without any existence until it has received the imprimatur of the state according to law. It is logically inconceivable therefore that
it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield
obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so.
Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be firmly
committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal. Certainly we must at all pains see
to it that it does not succeed. The deplorable consequences attendant on appellant prevailing attest to the necessity of negative response
from us. That is what appellant will get.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our jurisdiction, comes
more often within the ken of the judiciary than the other two coordinate branches. It institutes the appropriate court action to enforce its
right. Correlatively, it is not immune from judicial control in those instances, where a duty under the law as ascertained in an appropriate
legal proceeding is cast upon it.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme and even
oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction is the result arrived at, the
just solution obtained, grounded in the soundest of legal doctrines and distinguished by its correspondence with what a sense of realism
requires. For through the appealed order, the imperative requirement of justice according to law is satisfied and national dignity and
honor maintained.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded
but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its very existence; it is
to contend that what any of its governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot possibly
merit approval.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964, is
affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.
EN BANC
5.
One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then pending
in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of money paid to the minor
under guardianship, alleging that the lower court had previously granted its petition to consider the deceased father as not entitled to
guerilla benefits according to a determination arrived at by its main office in the United States. The motion was denied. In seeking a
reconsideration of such order, the Administrator relied on an American federal statute making his decisions "final and conclusive on all
questions of law or fact" precluding any other American official to examine the matter anew, "except a judge or judges of the United
States court."23 Reconsideration was denied, and the Administrator appealed.
[G.R. Nos. 84132-33 : December 10, 1990.]

192 SCRA 257
NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE VETERANS BANK, THE EX-OFFICIO SHERIFF and
GODOFREDO QUILING, in his capacity as Deputy Sheriff of Calamba, Laguna, Respondents.
DECISION
CRUZ, J.:
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should be rejected. The
provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive when
made on claims property submitted to him for resolution; but they are not applicable to the present case, where the Administrator is not
acting as a judge but as a litigant. There is a great difference between actions against the Administrator (which must be filed strictly in
accordance with the conditions that are imposed by the Veterans' Act, including the exclusive review by United States courts), and those
actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our
attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions where he is a
party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render them mere subordinate
instrumentalities of the Veterans' Administrator."
Caelitus Mihi Vires
This case involves the constitutionality of a presidential decree which, like all other issuances of President Marcos during his regime, was
at that time regarded as sacrosanct. It is only now, in a freer atmosphere, that his acts are being tested by the touchstone of the
fundamental law that even then was supposed to limit presidential action.: rd
The particular enactment in question is Pres. Decree No. 1717, which ordered the rehabilitation of the Agrix Group of Companies to be
administered mainly by the National Development Company. The law outlined the procedure for filing claims against the Agrix companies
16
and created a Claims Committee to process these claims. Especially relevant to this case, and noted at the outset, is Sec. 4(1) thereof
providing that "all mortgages and other liens presently attaching to any of the assets of the dissolved corporations are hereby
extinguished."
The Court does not agree that the principle of estoppel is applicable.
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine Veterans Bank a real estate mortgage
dated July 7, 1978, over three (3) parcels of land situated in Los Baos, Laguna. During the existence of the mortgage, AGRIX went
bankrupt. It was for the expressed purpose of salvaging this and the other Agrix companies that the aforementioned decree was issued by
President Marcos.
It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to this decree. It must be noted,
however, that this was done in 1980, when President Marcos was the absolute ruler of this country and his decrees were the absolute
law. Any judicial challenge to them would have been futile, not to say foolhardy. The private respondent, no less than the rest of the
nation, was aware of that reality and knew it had no choice under the circumstances but to conform.: nad
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the payment of its loan credit. In the
meantime, the New Agrix, Inc. and the National Development Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed a
petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the mortgage lien in favor of the private respondent. For
its part, the private respondent took steps to extrajudicially foreclose the mortgage, prompting the petitioners to file a second case with
the same court to stop the foreclosure. The two cases were consolidated.
It is true that there were a few venturesome souls who dared to question the dictator's decisions before the courts of justice then. The
record will show, however, that not a single act or issuance of President Marcos was ever declared unconstitutional, not even by the
highest court, as long as he was in power. To rule now that the private respondent is estopped for having abided with the decree instead
of boldly assailing it is to close our eyes to a cynical fact of life during that repressive time.
After the submission by the parties of their respective pleadings, the trial court rendered the impugned decision. Judge Francisco Ma.
Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but the entire Pres. Decree No. 1717 on the grounds that: (1) the
presidential exercise of legislative power was a violation of the principle of separation of powers; (2) the law impaired the obligation of
contracts; and (3) the decree violated the equal protection clause. The motion for reconsideration of this decision having been denied, the
present petition was filed.: rd
The petition was originally assigned to the Third Division of this Court but because of the constitutional questions involved it was
transferred to the Court en banc. On August 30, 1988, the Court granted the petitioner's prayer for a temporary restraining order and
instructed the respondents to cease and desist from conducting a public auction sale of the lands in question. After the Solicitor General
and the private respondent had filed their comments and the petitioners their reply, the Court gave due course to the petition and
ordered the parties to file simultaneous memoranda. Upon compliance by the parties, the case was deemed submitted.
The petitioners contend that the private respondent is now estopped from contesting the validity of the decree. In support of this
contention, it cites the recent case of Mendoza v. Agrix Marketing, Inc., 1 where the constitutionality of Pres. Decree No. 1717 was also
raised but not resolved. The Court, after noting that the petitioners had already filed their claims with the AGRIX Claims Committee
created by the decree, had simply dismissed the petition on the ground of estoppel.
The petitioners stress that in the case at bar the private respondent also invoked the provisions of Pres. Decree No. 1717 by filing a claim
with the AGRIX Claims Committee. Failing to get results, it sought to foreclose the real estate mortgage executed by AGRIX in its favor,
which had been extinguished by the decree. It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the
decree, that the private respondent attacked the validity of the provision. At that stage, however, consistent with Mendoza, the private
respondent was already estopped from questioning the constitutionality of the decree.
Caelitus Mihi Vires
This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the AGRIX Claims Committee, received
in settlement thereof shares of stock valued at P40,000.00 without protest or reservation. The herein private respondent has not been
paid a single centavo on its claim, which was kept pending for more than seven years for alleged lack of supporting papers. Significantly,
the validity of that claim was not questioned by the petitioner when it sought to restrain the extrajudicial foreclosure of the mortgage by
the private respondent. The petitioner limited itself to the argument that the private respondent was estopped from questioning the
decree because of its earlier compliance with its provisions.
Independently of these observations, there is the consideration that an affront to the Constitution cannot be allowed to continue existing
simply because of procedural inhibitions that exalt form over substance.
The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages and other liens attaching to the
assets of AGRIX. It also notes, with equal concern, the restriction in Subsection (ii) thereof that all "unsecured obligations shall not bear
interest" and in Subsection (iii) that "all accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether
secured or unsecured, shall not be recognized."
These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no person shall be deprived of life,
liberty or property without due course of law nor shall any person be denied the equal protection of the law" and in Section 10 that "no
law impairing the obligation of contracts shall be passed."
In defending the decree, the petitioners argue that property rights, like all rights, are subject to regulation under the police power for the
promotion of the common welfare. The contention is that this inherent power of the state may be exercised at any time for this purpose
so long as the taking of the property right, even if based on contract, is done with due process of law.
17
interests, whether due to the secured or the unsecured creditors, are all extinguished by the decree. Even assuming such cancellation to
be valid, we still cannot see why all kinds of creditors, regardless of security, are treated alike.
This argument is an over-simplification of the problem before us. The police power is not a panacea for all constitutional maladies. Neither
does its mere invocation conjure an instant and automatic justification for every act of the government depriving a person of his life,
liberty or property.
Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the privileges conferred and the
obligations imposed. Conversely, all persons or things differently situated should be treated differently. In the case at bar, persons
differently situated are similarly treated, in disregard of the principle that there should be equality only among equals.- nad
A legislative act based on the police power requires the concurrence of a lawful subject and a lawful method. In more familiar words, a)
the interests of the public generally, as distinguished from those of a particular class, should justify the interference of the state; and b)
the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2
Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not sufficiently involved to warrant
the interference of the government with the private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the small
investors," who would be prejudiced if the corporation were not to be assisted. However, the record does not state how many there are
of such investors, and who they are, and why they are being preferred to the private respondent and other creditors of AGRIX with vested
property rights.:-cralaw
One may also well wonder why AGRIX was singled out for government help, among other corporations where the stockholders or
investors were also swindled. It is not clear why other companies entitled to similar concern were not similarly treated. And surely, the
stockholders of the private respondent, whose mortgage lien had been cancelled and legitimate claims to accrued interests rejected, were
no less deserving of protection, which they did not get. The decree operated, to use the words of a celebrated case, 3 "with an evil eye
and an uneven hand."
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV, Section 4 of the 1973
Constitution, then in force, that:
The public interest supposedly involved is not identified or explained. It has not been shown that by the creation of the New Agrix, Inc.
and the extinction of the property rights of the creditors of AGRIX, the interests of the public as a whole, as distinguished from those of a
particular class, would be promoted or protected. The indispensable link to the welfare of the greater number has not been established.
On the contrary, it would appear that the decree was issued only to favor a special group of investors who, for reasons not given, have
been preferred to the legitimate creditors of AGRIX.
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization, or regulation of private
corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof. 4
Assuming there is a valid public interest involved, the Court still finds that the means employed to rehabilitate AGRIX fall far short of the
requirement that they shall not be unduly oppressive. The oppressiveness is patent on the face of the decree. The right to property in all
mortgages, liens, interests, penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for the
extinction of the mortgage rights. The accrued interests and other charges are simply rejected by the decree. The right to property is
dissolved by legislative fiat without regard to the private interest violated and, worse, in favor of another private interest.
The new corporation is neither owned nor controlled by the government. The National Development Corporation was merely required to
extend a loan of not more than P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake the management of
the corporation, but with the obligation of making periodic reports to the Agrix board of directors. After payment of the loan, the said
board can then appoint its own management. The stocks of the new corporation are to be issued to the old investors and stockholders of
AGRIX upon proof of their claims against the abolished corporation. They shall then be the owners of the new corporation. New Agrix, Inc.
is entirely private and so should have been organized under the Corporation Law in accordance with the above-cited constitutional
provision.
A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of Rights. So do interests on loans,
as well as penalties and charges, which are also vested rights once they accrue. Private property cannot simply be taken by law from one
person and given to another without compensation and any known public purpose. This is plain arbitrariness and is not permitted under
the Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and other liens, the decree lumps the
secured creditors with the unsecured creditors and places them on the same level in the prosecution of their respective claims. In this
respect, all of them are considered unsecured creditors. The only concession given to the secured creditors is that their loans are allowed
to earn interest from the date of the decree, but that still does not justify the cancellation of the interests earned before that date. Such
Caelitus Mihi Vires
The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private respondent without
justification. While it is true that the police power is superior to the impairment clause, the principle will apply only where the contract is
so related to the public welfare that it will be considered congenitally susceptible to change by the legislature in the interest of the greater
number. 5 Most present-day contracts are of that nature. But as already observed, the contracts of loan and mortgage executed by AGRIX
are purely private transactions and have not been shown to be affected with public interest. There was therefore no warrant to amend
their provisions and deprive the private respondent of its vested property rights.
It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we sustained the preference in
payment of a mortgage creditor as against the argument that the claims of laborers should take precedence over all other claims,
18
including those of the government. In arriving at this ruling, the Court recognized the mortgage lien as a property right protected by the
due process and contract clauses notwithstanding the argument that the amendment in Section 110 of the Labor Code was a proper
exercise of the police power.: nad
The Court reaffirms and applies that ruling in the case at bar.
This is a petition for certiorari*1+ to annul the Commission on Audits (COA) Resolution dated 3 January 2000 and the Decision dated 30
January 2001 denying the Motion for Reconsideration. The COA denied petitioner Ranulfo C. Felicianos request for COA to cease all
audit services, and to stop charging auditing fees, to Leyte Metropolitan Water District (LMWD). The COA also denied petitioners
request for COA to refund all auditing fees previously paid by LMWD.
Antecedent Facts
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in conformity with the traditional
requirements of a lawful subject and a lawful method. The extinction of the mortgage and other liens and of the interest and other
charges pertaining to the legitimate creditors of AGRIX constitutes taking without due process of law, and this is compounded by the
reduction of the secured creditors to the category of unsecured creditors in violation of the equal protection clause. Moreover, the new
corporation, being neither owned nor controlled by the Government, should have been created only by general and not special law. And
insofar as the decree also interferes with purely private agreements without any demonstrated connection with the public interest, there
is likewise an impairment of the obligation of the contract.
A Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD. Subsequently, LMWD received a letter from COA
dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD, petitioner sent a reply dated 12 October 1999
informing COAs Regional Director that the water district could not pay the auditing fees. Petitioner cited as basis for his action Sections 6
and 20 of Presidential Decree 198 (PD 198)*2+, as well as Section 18 of Republic Act No. 6758 (RA 6758). The Regional Director
referred petitioners reply to the COA Chairman on 18 October 1999.
With the above pronouncements, we feel there is no more need to rule on the authority of President Marcos to promulgate Pres. Decree
No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if he had such authority, the decree must fall just the same because of
its violation of the Bill of Rights.
On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to
COA.
WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. The temporary restraining order dated
August 30, 1988, is LIFTED. Costs against the petitioners.- nad
On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3 January 2000 denying his requests. Petitioner
filed a motion for reconsideration on 31 March 2000, which COA denied on 30 January 2001.
SO ORDERED.
On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutions of the Visayas Association of Water
Districts (VAWD) and the Philippine Association of Water Districts (PAWD) supporting the petition.
[G.R. No. 147402. January 14, 2004]

The Ruling of the Commission on Audit
ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte Metropolitan Water District (LMWD), Tacloban City,
petitioner, vs. COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and EMMANUEL M. DALMAN, and
Regional Director of COA Region VIII, respondents.
The COA ruled that this Court has already settled COAs audit jurisdiction over local water districts in Davao City Water District v. Civil
Service Commission and Commission on Audit,[3] as follows:
DECISION
CARPIO, J.:
The Case
Caelitus Mihi Vires
The above-quoted provision *referring to Section 3(b) PD 198+ definitely sets to naught petitioners contention that they are private
corporations. It is clear therefrom that the power to appoint the members who will comprise the members of the Board of Directors
belong to the local executives of the local subdivision unit where such districts are located. In contrast, the members of the Board of
Directors or the trustees of a private corporation are elected from among members or stockholders thereof. It would not be amiss at this
point to emphasize that a private corporation is created for the private purpose, benefit, aim and end of its members or stockholders.
19
Necessarily, said members or stockholders should be given a free hand to choose who will compose the governing body of their
corporation. But this is not the case here and this clearly indicates that petitioners are not private corporations.
The COA also denied petitioners request for COA to stop charging auditing fees as well as petitioners request for COA to refund all
auditing fees already paid.
The Issues
Petitioner contends that COA committed grave abuse of discretion amounting to lack or excess of jurisdiction by auditing LMWD and
requiring it to pay auditing fees. Petitioner raises the following issues for resolution:
1.
Whether a Local Water District (LWD) created under PD 198, as amended, is a government-owned or controlled corporation
subject to the audit jurisdiction of COA;
2.
Whether Section 20 of PD 198, as amended, prohibits COAs certified public accountants from auditing local water districts; and
3.
Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and controlled corporations auditing fees.
The Ruling of the Court
subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government,
which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the
internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special
pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for
such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied)
The COAs audit jurisdiction extends not only to government agencies or instrumentalities, but also to government-owned and
controlled corporations with original charters as well as other government-owned or controlled corporations without original charters.
Whether LWDs are Private or Government-Owned

and Controlled Corporations with Original Charters
Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed by a long line of cases culminating
in Davao City Water District v. Civil Service Commission[5] and just recently reiterated in De Jesus v. Commission on Audit.[6] Petitioner
maintains that LWDs are not government-owned and controlled corporations with original charters. Petitioner even argues that LWDs are
private corporations. Petitioner asks the Court to consider certain interpretations of the applicable laws, which would give a new
perspective to the issue of the true character of water districts.*7+
Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration (LWUA) and not the LWDs. Petitioner
claims that LWDs are created pursuant to and not created directly by PD 198. Thus, petitioner concludes that PD 198 is not an original
charter that would place LWDs within the audit jurisdiction of COA as defined in Section 2(1), Article IX-D of the Constitution. Petitioner
elaborates that PD 198 does not create LWDs since it does not expressly direct the creation of such entities, but only provides for their
formation on an optional or voluntary basis.[8] Petitioner adds that the operative act that creates an LWD is the approval of the
Sanggunian Resolution as specified in PD 198.
The petition lacks merit.

Petitioners contention deserves scant consideration.
The Constitution and existing laws[4] mandate COA to audit all government agencies, including government-owned and controlled
corporations (GOCCs) with original charters. An LWD is a GOCC with an original charter. Section 2(1), Article IX-D of the Constitution
provides for COAs audit jurisdiction, as follows:
SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to examine, audit, and settle all accounts pertaining to
the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government,
or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters,
and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their
Caelitus Mihi Vires
We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of corporations. The
first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations
created by special charters. Section 16, Article XII of the Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and
subject to the test of economic viability.
20
district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted
in, and subject to such restrictions imposed, under this Act.
The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens.[9] The
purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens.[10]
In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional.
Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated
differently, only corporations created under a general law can qualify as private corporations. Under existing laws, that general law is the
Corporation Code,[11] except that the Cooperative Code governs the incorporation of cooperatives.[12]
The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private
corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such corporations
are government-owned or controlled.
Obviously, LWDs are not private corporations because they are not created under the Corporation Code. LWDs are not registered with
the Securities and Exchange Commission. Section 14 of the Corporation Code states that *A+ll corporations organized under this code
shall file with the Securities and Exchange Commission articles of incorporation x x x. LWDs have no articles of incorporation, no
incorporators and no stockholders or members. There are no stockholders or members to elect the board directors of LWDs as in the
case of all corporations registered with the Securities and Exchange Commission. The local mayor or the provincial governor appoints the
directors of LWDs for a fixed term of office. This Court has ruled that LWDs are not created under the Corporation Code, thus:
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are those corporations created
pursuant to the Corporation Code. Significantly, petitioners are not created under the said code, but on the contrary, they were created
pursuant to a special law and are governed primarily by its provision.[13] (Emphasis supplied)
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only government-owned or
controlled corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled. To claim that
LWDs are private corporations with a special charter is to admit that their existence is constitutionally infirm.
Unlike private corporations, which derive their legal existence and power from the Corporation Code, LWDs derive their legal existence
and power from PD 198. Sections 6 and 25 of PD 198[14] provide:
(a)
The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served
by said system, followed by the words Water District.
(b)
A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the
city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof.
(c)
A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the
control of such city, municipality or province to such district upon the filing of resolution forming the district.
(d)
A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5
above.
(e)
The names of the initial directors of the district with the date of expiration of term of office for each.
(f)
A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 44 of this Title.
(g)
A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this Title.
Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the
district beyond that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be
adopted in each city, municipality and province.
xxx
Section 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. For purposes of
this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a
Caelitus Mihi Vires
21
Sec. 25. Authorization. The district may exercise all the powers which are expressly granted by this Title or which are necessarily
implied from or incidental to the powers and purposes herein stated. For the purpose of carrying out the objectives of this Act, a district
is hereby granted the power of eminent domain, the exercise thereof shall, however, be subject to review by the Administration.
(Emphasis supplied)
Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs corporate powers. Section 6 of PD 198
provides that LWDs shall exercise the powers, rights and privileges given to private corporations under existing laws. Without PD 198,
LWDs would have no corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable conclusion is that
LWDs are government-owned and controlled corporations with a special charter.
The phrase government-owned and controlled corporations with original charters means GOCCs created under special laws and not
under the general incorporation law. There is no difference between the term original charters and special charters. The Court
clarified this in National Service Corporation v. NLRC[15] by citing the deliberations in the Constitutional Commission, as follows:
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.
MR. ROMULO.
MR. FOZ.
That is correct. Mr. Presiding Officer.
With that understanding and clarification, the Committee accepts the amendment.
MR. NATIVIDAD.
Mr. Presiding Officer, so those created by the general corporation law are out.
MR. ROMULO.
That is correct. (Emphasis supplied)
Again, in Davao City Water District v. Civil Service Commission,*16+ the Court reiterated the meaning of the phrase government-owned
and controlled corporations with original charters in this wise:
By government-owned or controlled corporation with original charter, We mean government owned or controlled corporation created
by a special law and not under the Corporation Code of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819, February 8,
1989, 170 SCRA 79, 82), We held:
Commissioner Romulo is recognized.
MR. ROMULO.
Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: including governmentowned or controlled corporations WITH ORIGINAL CHARTERS. The purpose of this amendment is to indicate that government
corporations such as the GSIS and SSS, which have original charters, fall within the ambit of the civil service. However, corporations which
are subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the
civil service.
The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No. 69870, promulgated on 29
November 1988, quoting extensively from the deliberations of the 1986 Constitutional Commission in respect of the intent and meaning
of the new phrase with original charter, in effect held that government-owned and controlled corporations with original charter refer to
corporations chartered by special law as distinguished from corporations organized under our general incorporation statute the
Corporation Code. In NASECO, the company involved had been organized under the general incorporation statute and was a subsidiary of
the National Investment Development Corporation (NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank chartered
by a special statute. Thus, government-owned or controlled corporations like NASECO are effectively, excluded from the scope of the Civil
Service. (Emphasis supplied)
THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?
MR. FOZ.
Just one question, Mr. Presiding Officer. By the term original charters, what exactly do we mean?
MR. ROMULO.
MR. FOZ.
Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that the Sangguniang Bayan has the power to
create corporations. This is a patently baseless assumption. The Local Government Code[17] does not vest in the Sangguniang Bayan the
power to create corporations.[18] What the Local Government Code empowers the Sangguniang Bayan to do is to provide for the
establishment of a waterworks system subject to existing laws. Thus, Section 447(5)(vii) of the Local Government Code provides:
We mean that they were created by law, by an act of Congress, or by special law.
And not under the general corporation law.
Caelitus Mihi Vires
SECTION 447.
Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as the legislative body of the municipality,
shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant
to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality as provided for under Section 22 of this
Code, and shall:
22
xxx
(vii)
Subject to existing laws, provide for the establishment, operation, maintenance, and repair of an efficient waterworks system to
supply water for the inhabitants; regulate the construction, maintenance, repair and use of hydrants, pumps, cisterns and reservoirs;
protect the purity and quantity of the water supply of the municipality and, for this purpose, extend the coverage of appropriate
ordinances over all territory within the drainage area of said water supply and within one hundred (100) meters of the reservoir, conduit,
canal, aqueduct, pumping station, or watershed used in connection with the water service; and regulate the consumption, use or wastage
of water;
x x x. (Emphasis supplied)
The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. The Sangguniang Bayan has
no power to create a corporate entity that will operate its waterworks system. However, the Sangguniang Bayan may avail of existing
enabling laws, like PD 198, to form and incorporate a water district. Besides, even assuming for the sake of argument that the
Sangguniang Bayan has the power to create corporations, the LWDs would remain government-owned or controlled corporations subject
to COAs audit jurisdiction. The resolution of the Sangguniang Bayan would constitute an LWDs special charter, making the LWD a
government-owned and controlled corporation with an original charter. In any event, the Court has already ruled in Baguio Water District
v. Trajano[19] that the Sangguniang Bayan resolution is not the special charter of LWDs, thus:
While it is true that a resolution of a local sanggunian is still necessary for the final creation of a district, this Court is of the opinion that
said resolution cannot be considered as its charter, the same being intended only to implement the provisions of said decree.
Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may have an original charter. In short,
petitioner argues that one special law cannot serve as enabling law for several GOCCs but only for one GOCC. Section 16, Article XII of the
Constitution mandates that Congress shall not, except by general law,*20+ provide for the creation of private corporations. Thus, the
Constitution prohibits one special law to create one private corporation, requiring instead a general law to create private corporations.
In contrast, the same Section 16 states that Government-owned or controlled corporations may be created or established by special
charters. Thus, the Constitution permits Congress to create a GOCC with a special charter. There is, however, no prohibition on
Congress to create several GOCCs of the same class under one special enabling charter.
The rationale behind the prohibition on private corporations having special charters does not apply to GOCCs. There is no danger of
creating special privileges to certain individuals, families or groups if there is one special law creating each GOCC. Certainly, such danger
will not exist whether one special law creates one GOCC, or one special enabling law creates several GOCCs. Thus, Congress may create
GOCCs either by special charters specific to each GOCC, or by one special enabling charter applicable to a class of GOCCs, like PD 198
which applies only to LWDs.
Caelitus Mihi Vires
Petitioner also contends that LWDs are private corporations because Section 6 of PD 198*21+ declares that LWDs shall be considered
quasi-public in nature. Petitioners rationale is that only private corporations may be deemed quasi-public and not public corporations.
Put differently, petitioner rationalizes that a public corporation cannot be deemed quasi-public because such corporation is already
public. Petitioner concludes that the term quasi-public can only apply to private corporations. Petitioners argument is inconsequential.
Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdiction depends on the governments ownership or
control of a corporation. The nature of the corporation, whether it is private, quasi-public, or public is immaterial.
The Constitution vests in the COA audit jurisdiction over government-owned and controlled corporations with original charters, as well
as government-owned or controlled corporations without original charters. GOCCs with original charters are subject to COA pre-audit,
while GOCCs without original charters are subject to COA post-audit. GOCCs without original charters refer to corporations created under
the Corporation Code but are owned or controlled by the government. The nature or purpose of the corporation is not material in
determining COAs audit jurisdiction. Neither is the manner of creation of a corporation, whether under a general or special law.
The determining factor of COAs audit jurisdiction is government ownership or control of the corporation. In Philippine Veterans Bank
Employees Union-NUBE v. Philippine Veterans Bank,[22] the Court even ruled that the criterion of ownership and control is more
important than the issue of original charter, thus:
This point is important because the Constitution provides in its Article IX-B, Section 2(1) that the Civil Service embraces all branches,
subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original
charters. As the Bank is not owned or controlled by the Government although it does have an original charter in the form of R.A. No.
3518,[23] it clearly does not fall under the Civil Service and should be regarded as an ordinary commercial corporation. Section 28 of the
said law so provides. The consequence is that the relations of the Bank with its employees should be governed by the labor laws, under
which in fact they have already been paid some of their claims. (Emphasis supplied)
Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD 198. There is
no private party involved as co-owner in the creation of an LWD. Just prior to the creation of LWDs, the national or local government
owns and controls all their assets. The government controls LWDs because under PD 198 the municipal or city mayor, or the provincial
governor, appoints all the board directors of an LWD for a fixed term of six years.[24] The board directors of LWDs are not co-owners of
the LWDs. LWDs have no private stockholders or members. The board directors and other personnel of LWDs are government
employees subject to civil service laws[25] and anti-graft laws.[26]
While Section 8 of PD 198 states that *N+o public official shall serve as director of an LWD, it only means that the appointees to the
board of directors of LWDs shall come from the private sector. Once such private sector representatives assume office as directors, they
become public officials governed by the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198 would contravene Section
23
2(1), Article IX-B of the Constitution declaring that the civil service includes government-owned or controlled corporations with original
charters.
If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they would fall under the term agencies or
instrumentalities of the government and thus still subject to COAs audit jurisdiction. However, the stark and undeniable fact is that the
government owns LWDs. Section 45[27] of PD 198 recognizes government ownership of LWDs when Section 45 states that the board of
directors may dissolve an LWD only on the condition that another public entity has acquired the assets of the district and has assumed all
obligations and liabilities attached thereto. The implication is clear that an LWD is a public and not a private entity.
Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that matter, from auditing LWDs.
Petitioner asserts that this is the import of the second sentence of Section 20 of PD 198 when it states that *A+uditing shall be performed
by a certified public accountant not in the government service.*36+
PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude GOCCs like LWDs from COAs audit jurisdiction.
Section 3, Article IX-C of the Constitution outlaws any scheme or devise to escape COAs audit jurisdiction, thus:
Sec. 3.
No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any investment of
public funds, from the jurisdiction of the Commission on Audit. (Emphasis supplied)
Petitioner does not allege that some entity other than the government owns or controls LWDs. Instead, petitioner advances the theory
that the Water Districts owner is the District itself.*28+ Assuming for the sake of argument that an LWD is self-owned,*29+ as
petitioner describes an LWD, the government in any event controls all LWDs. First, government officials appoint all LWD directors to a
fixed term of office. Second, any per diem of LWD directors in excess of P50 is subject to the approval of the Local Water Utilities
Administration, and directors can receive no other compensation for their services to the LWD.[30] Third, the Local Water Utilities
Administration can require LWDs to merge or consolidate their facilities or operations.[31] This element of government control subjects
LWDs to COAs audit jurisdiction.
Petitioner argues that upon the enactment of PD 198, LWDs became private entities through the transfer of ownership of water facilities
from local government units to their respective water districts as mandated by PD 198. Petitioner is grasping at straws. Privatization
involves the transfer of government assets to a private entity. Petitioner concedes that the owner of the assets transferred under Section
6 (c) of PD 198 is no other than the LWD itself.[32] The transfer of assets mandated by PD 198 is a transfer of the water systems facilities
managed, operated by or under the control of such city, municipality or province to such (water) district.*33+ In short, the transfer is
from one government entity to another government entity. PD 198 is bereft of any indication that the transfer is to privatize the
operation and control of water systems.
Finally, petitioner claims that even on the assumption that the government owns and controls LWDs, Section 20 of PD 198 prevents COA
from auditing LWDs. [34] Section 20 of PD 198 provides:
Sec. 20.
System of Business Administration. The Board shall, as soon as practicable, prescribe and define by resolution a system of
business administration and accounting for the district, which shall be patterned upon and conform to the standards established by the
Administration. Auditing shall be performed by a certified public accountant not in the government service. The Administration may,
however, conduct annual audits of the fiscal operations of the district to be performed by an auditor retained by the Administration.
Expenses incurred in connection therewith shall be borne equally by the water district concerned and the Administration.[35] (Emphasis
supplied)
The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to annul provisions of Presidential Decrees, like
that of Section 20 of PD 198, that exempt GOCCs from COA audit. The following exchange in the deliberations of the Constitutional
Commission elucidates this intent of the framers:
MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee report which reads: NO LAW SHALL BE PASSED
EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS,
FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.
May I explain my reasons on record.
We know that a number of entities of the government took advantage of the absence of a legislature in the past to obtain presidential
decrees exempting themselves from the jurisdiction of the Commission on Audit, one notable example of which is the Philippine National
Oil Company which is really an empty shell. It is a holding corporation by itself, and strictly on its own account. Its funds were not very
impressive in quantity but underneath that shell there were billions of pesos in a multiplicity of companies. The PNOC the empty shell
under a presidential decree was covered by the jurisdiction of the Commission on Audit, but the billions of pesos invested in different
corporations underneath it were exempted from the coverage of the Commission on Audit.
Another example is the United Coconut Planters Bank. The Commission on Audit has determined that the coconut levy is a form of
taxation; and that, therefore, these funds attributed to the shares of 1,400,000 coconut farmers are, in effect, public funds. And that was,
I think, the basis of the PCGG in undertaking that last major sequestration of up to 94 percent of all the shares in the United Coconut
Planters Bank. The charter of the UCPB, through a presidential decree, exempted it from the jurisdiction of the Commission on Audit, it
being a private organization.
So these are the fetuses of future abuse that we are slaying right here with this additional section.
Caelitus Mihi Vires
24
May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS
SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON
AUDIT.
MR. MONSOD:
I think the Commissioner is trying to avoid the situation that happened in the past, because the same provision was in
the 1973 Constitution and yet somehow a law or a decree was passed where certain institutions were exempted from audit. We are just
reaffirming, emphasizing, the role of the Commission on Audit so that this problem will never arise in the future.[37]
THE PRESIDENT: May we know the position of the Committee on the proposed amendment of Commissioner Ople?
There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from auditing LWDs and
Sections 2(1) and 3, Article IX-D of the Constitution vesting in COA the power to audit all GOCCs. We rule that the second sentence of
Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the Constitution.
MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, we will accept the amendment.
On the Legality of COAs

Practice of Charging Auditing Fees
MR. OPLE: Gladly, Madam President. Thank you.
MR. DE CASTRO: Madam President, point of inquiry on the new amendment.
THE PRESIDENT: Commissioner de Castro is recognized.
Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in Section 18 of RA 6758,[38] which
states:
Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. In order to preserve the independence and
integrity of the Commission on Audit (COA), its officials and employees are prohibited from receiving salaries, honoraria, bonuses,
allowances or other emoluments from any government entity, local government unit, government-owned or controlled corporations, and
government financial institutions, except those compensation paid directly by COA out of its appropriations and contributions.
MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner Ople.
Is that not included in Section 2 (1) where it states: (c) government-owned or controlled corporations and their subsidiaries? So that if
these government-owned and controlled corporations and their subsidiaries are subjected to the audit of the COA, any law exempting
certain government corporations or subsidiaries will be already unconstitutional.
So I believe, Madam President, that the proposed amendment is unnecessary.
MR. MONSOD:
Government entities, including government-owned or controlled corporations including financial institutions and local government units
are hereby prohibited from assessing or billing other government entities, including government-owned or controlled corporations
including financial institutions or local government units for services rendered by its officials and employees as part of their regular
functions for purposes of paying additional compensation to said officials and employees. (Emphasis supplied)
Claiming that Section 18 is absolute and leaves no doubt,*39+ petitioner asks COA to discontinue its practice of charging auditing fees to
LWDs since such practice allegedly violates the law.
Madam President, since this has been accepted, we would like to reply to the point raised by Commissioner de Castro.
Petitioners claim has no basis.
THE PRESIDENT: Commissioner Monsod will please proceed.

Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any government entity except
compensation paid directly by COA out of its appropriations and contributions. Thus, RA 6758 itself recognizes an exception to the
statutory ban on COA personnel receiving compensation from GOCCs. In Tejada v. Domingo,[40] the Court declared:
Caelitus Mihi Vires
25
There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further the policy x x x to preserve the
independence and integrity of the COA, by explicitly PROHIBITING: (1) COA officials and employees from receiving salaries, honoraria,
bonuses, allowances or other emoluments from any government entity, local government unit, GOCCs and government financial
institutions, except such compensation paid directly by the COA out of its appropriations and contributions, and (2) government entities,
including GOCCs, government financial institutions and local government units from assessing or billing other government entities, GOCCs,
government financial institutions or local government units for services rendered by the latters officials and employees as part of their
regular functions for purposes of paying additional compensation to said officials and employees.
G.R. No. 136448
November 3, 1999
LIM TONG LIM, petitioner,

vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
xxx
The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed directly against the GOCCs and
government financial institutions. Under the first, COA personnel assigned to auditing units of GOCCs or government financial institutions
can receive only such salaries, allowances or fringe benefits paid directly by the COA out of its appropriations and contributions. The
contributions referred to are the cost of audit services earlier mentioned which cannot include the extra emoluments or benefits now
claimed by petitioners. The COA is further barred from assessing or billing GOCCs and government financial institutions for services
rendered by its personnel as part of their regular audit functions for purposes of paying additional compensation to such personnel. x x x.
(Emphasis supplied)
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses
that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their
contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or
ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.
In Tejada, the Court explained the meaning of the word contributions in Section 18 of RA 6758, which allows COA to charge GOCCs the
cost of its audit services:
The Case
x x x the contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost of the audit function in
the corporation concerned plus a reasonable rate to cover overhead expenses. The actual audit cost shall include personnel services,
maintenance and other operating expenses, depreciation on capital and equipment and out-of-pocket expenses. In respect to the
allowances and fringe benefits granted by the GOCCs to the COA personnel assigned to the formers auditing units, the same shall be
directly defrayed by COA from its own appropriations x x x. [41]
COA may charge GOCCs actual audit cost but GOCCs must pay the same directly to COA and not to COA auditors. Petitioner has not
alleged that COA charges LWDs auditing fees in excess of COAs actual audit cost. Neither has petitioner alleged that the auditing fees
are paid by LWDs directly to individual COA auditors. Thus, petitioners contention must fail.
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR
CV
41477, 1 which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:
WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and the Decision dated 30 January 2001 denying
petitioners Motion for Reconsideration are AFFIRMED. The second sentence of Section 20 of Presidential Decree No. 198 is declared
VOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.
WHEREFORE, the Court rules:
SO ORDERED.
1.
Caelitus Mihi Vires
That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;
26
attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for
by plaintiff to serve as its bond in favor of defendants.
2.
That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by
reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case;
b.
12% interest per annum counted from date of plaintiff's invoices and computed on their respective amounts as follows:
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied
from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the total judgment
obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the
defendants who are not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the
fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities
arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets and
floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
i.
Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;
SO ORDERED. 3
ii.
Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;
The Facts
iii.
Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation. 4
c.
P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per appearance in court;
a.
P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by said Agreement;
d.
P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);
e.
Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of
P532,045.00 and P68,000.00, respectively, or for the total amount P600,045.00, this Court noted that these items were attached to
guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which
the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of
P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public
auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated
in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the
Caelitus Mihi Vires
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit against Chua, Yao
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification
from the Securities and Exchange Commission. 5 On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which
the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro
Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to
pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was
deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the
Writ of Attachment. 6 The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at
a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. 8
27
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2)
on a Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC
of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages. 10 The Compromise Agreement provided:
a)
That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the
fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
b)
If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be
divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c)
If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to
JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be
presumed from the equal distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a
such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific
undertaking, that is for commercial fishing . . . . Oviously, the ultimate undertaking of the defendants was to divide the profits among
themselves which is what a partnership essentially is . . . . By a contract of partnership, two or more persons bind themselves to
contribute money, property or industry to a common fund with the intention of dividing the profits among themselves (Article 1767, New
Civil Code). 13
Hence, petitioner brought this recourse before this Court. 14
Caelitus Mihi Vires
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:
I
THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II
SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE
BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS
WELL.
III
THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must resolve this key
issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a
partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement
28
alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a
lessor, not a partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two
the main asset of the purported partnership the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of
P37,500 plus 25 percent of the gross catch of the boat.
(7)
That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing
Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.
(8)
That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim
Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing
boats; (4) injunction; and (e) damages.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:
(9)
That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of
which are already enumerated above.
Art. 1767 By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: 15
(1)
That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was
already Yao's partner;
(2)
That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the
FB Nelson for the sum of P3.35 million;
(3)
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the
term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which
the business could not have proceeded.
That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.
(4)
That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of
Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
(5)
That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and other expenses for the boats
would be shouldered by Chua and Yao;
We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual
findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the
exceptions to the rule. 16 In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
(6)
That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of P1 million
secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chua's FB Lady Anne Mel and
Yao's FB Tracy to Lim Tong Lim.
Compromise Agreement
Caelitus Mihi Vires
29
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He
also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to its
execution.
We stress that it is unreasonable indeed, it is absurd for petitioner to sell his property to pay a debt he did not incur, if the
relationship among the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again,
we disagree.
A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts
have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on
the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document
and explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual
findings mentioned above nullified petitioner's argument that the existence of a partnership was based only on the Compromise
Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing
venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the
boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of
Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his
consent to the sale proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in
order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as
well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes,
though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of
the creditor, Jesus Lim.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who assume to act as a corporation knowing it to be without authority to do so shall be
liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any
such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in
fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate
existence. "The reason behind this doctrine is obvious an unincorporated association has no personality and would be incompetent to
act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on
another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own
risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third
person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all
Caelitus Mihi Vires
30
those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable
for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question
here is whether petitioner should be held jointly 18 liable with Chua and Yao. Petitioner contests such liability, insisting that only those
who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and
since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.
of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and
tailor-made according to their own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the
Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets
remained with Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an
asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing
vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
G.R. No. 15574
September 17, 1919
SMITH, BELL & COMPANY (LTD.), petitioner,

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered
by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19
Ross and Lawrence for petitioner.

Attorney-General Paredes for respondent.
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position,
entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in
issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be
done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an
aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested
rights in technicalities.
Third Issue:
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad, Collector of Customs of the port of Cebu,
Philippine Islands, to compel him to issue a certificate of Philippine registry to the petitioner for its motor vessel Bato. The AttorneyGeneral, acting as counsel for respondent, demurs to the petition on the general ground that it does not state facts sufficient to constitute
a cause of action. While the facts are thus admitted, and while, moreover, the pertinent provisions of law are clear and understandable,
and interpretative American jurisprudence is found in abundance, yet the issue submitted is not lightly to be resolved. The question, flatly
presented, is, whether Act. No. 2761 of the Philippine Legislature is valid or, more directly stated, whether the Government of the
Philippine Islands, through its Legislature, can deny the registry of vessels in its coastwise trade to corporations having alien stockholders.
Validity of Attachment
FACTS.
Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this
issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name
Caelitus Mihi Vires
31
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A majority of its stockholders are
British subjects. It is the owner of a motor vessel known as the Bato built for it in the Philippine Islands in 1916, of more than fifteen tons
gross The Bato was brought to Cebu in the present year for the purpose of transporting plaintiff's merchandise between ports in the
Islands. Application was made at Cebu, the home port of the vessel, to the Collector of Customs for a certificate of Philippine registry. The
Collector refused to issue the certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of
the United States or of the Philippine Islands. The instant action is the result.
LAW.
SEC. 8.
That general legislative power, except as otherwise herein provided, is hereby granted to the Philippine Legislature, authorized
by this Act.
SEC. 10. That while this Act provides that the Philippine government shall have the authority to enact a tariff law the trade relations
between the islands and the United States shall continue to be governed exclusively by laws of the Congress of the United States:
Provided, That tariff acts or acts amendatory to the tariff of the Philippine Islands shall not become law until they shall receive the
approval of the President of the United States, nor shall any act of the Philippine Legislature affecting immigration or the currency or
coinage laws of the Philippines become a law until it has been approved by the President of the United States: Provided further, That the
President shall approve or disapprove any act mentioned in the foregoing proviso within six months from and after its enactment and
submission for his approval, and if not disapproved within such time it shall become a law the same as if it had been specifically approved.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but reenacting a portion of section 3 of this Law, and
still in force, provides in its section 1:
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with any of the provisions of this Act are hereby
continued in force and effect." (39 Stat at L., 546.)
That until Congress shall have authorized the registry as vessels of the United States of vessels owned in the Philippine Islands, the
Government of the Philippine Islands is hereby authorized to adopt, from time to time, and enforce regulations governing the
transportation of merchandise and passengers between ports or places in the Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S.
Comp Stat. [1916]; 7 Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force, provides in section 3, (first paragraph, first
sentence), 6, 7, 8, 10, and 31, as follows.
SEC. 3.
That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or property without due process of
law, or deny to any person therein the equal protection of the laws. . . .
SEC. 6.
That the laws now in force in the Philippines shall continue in force and effect, except as altered, amended, or modified herein,
until altered, amended, or repealed by the legislative authority herein provided or by Act of Congress of the United States.
SEC. 7.
That the legislative authority herein provided shall have power, when not inconsistent with this Act, by due enactment to
amend, alter modify, or repeal any law, civil or criminal, continued in force by this Act as it may from time to time see fit
This power shall specifically extend with the limitation herein provided as to the tariff to all laws relating to revenue provided as to the
tariff to all laws relating to revenue and taxation in effect in the Philippines.
Caelitus Mihi Vires
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of this law amended section 1172 of the
Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. Upon registration of a vessel of domestic ownership, and of more than fifteen tons gross, a
certificate of Philippine register shall be issued for it. If the vessel is of domestic ownership and of fifteen tons gross or less, the taking of
the certificate of Philippine register shall be optional with the owner.
"Domestic ownership," as used in this section, means ownership vested in some one or more of the following classes of persons: (a)
Citizens or native inhabitants of the Philippine Islands; (b) citizens of the United States residing in the Philippine Islands; (c) any
corporation or company composed wholly of citizens of the Philippine Islands or of the United States or of both, created under the laws of
the United States, or of any State thereof, or of thereof, or the managing agent or master of the vessel resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen hundred and eighteen, had a certificate of Philippine
register under existing law, shall likewise be deemed a vessel of domestic ownership so long as there shall not be any change in the
ownership thereof nor any transfer of stock of the companies or corporations owning such vessel to person not included under the last
preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative Code to read as follows:
32
SEC. 1176. Investigation into character of vessel. No application for a certificate of Philippine register shall be approved until the
collector of customs is satisfied from an inspection of the vessel that it is engaged or destined to be engaged in legitimate trade and that it
is of domestic ownership as such ownership is defined in section eleven hundred and seventy-two of this Code.
without due process of law, or deny to any person therein the equal protection of the laws." Counsel says that Act No. 2761 denies to
Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the corporation from owning vessels, and because
classification of corporations based on the citizenship of one or more of their stockholders is capricious, and that Act No. 2761 deprives
the corporation of its properly without due process of law because by the passage of the law company was automatically deprived of
every beneficial attribute of ownership in the Bato and left with the naked title to a boat it could not use .
The collector of customs may at any time inspect a vessel or examine its owner, master, crew, or passengers in order to ascertain whether
the vessel is engaged in legitimate trade and is entitled to have or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. No Philippine vessel operating in the coastwise trade or
on the high seas shall be permitted to have on board more than one master or one mate and one engineer who are not citizens of the
United States or of the Philippine Islands, even if they hold licenses under section one thousand one hundred and ninety-nine hereof. No
other person who is not a citizen of the United States or of the Philippine Islands shall be an officer or a member of the crew of such
vessel. Any such vessel which fails to comply with the terms of this section shall be required to pay an additional tonnage tax of fifty
centavos per net ton per month during the continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur, namely, whether Act No 2761 of the Philippine
Legislature is valid in whole or in part whether the Government of the Philippine Islands, through its Legislature, can deny the registry
of vessel in its coastwise trade to corporations having alien stockholders .
OPINION.
1.
Considered from a positive standpoint, there can exist no measure of doubt as to the power of the Philippine Legislature to
enact Act No. 2761. The Act of Congress of April 29, 1908, with its specific delegation of authority to the Government of the Philippine
Islands to regulate the transportation of merchandise and passengers between ports or places therein, the liberal construction given to
the provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts, and the grant by the Act of Congress of August 29,
1916, of general legislative power to the Philippine Legislature, are certainly superabundant authority for such a law. While the Act of the
local legislature may in a way be inconsistent with the Act of Congress regulating the coasting trade of the Continental United States, yet
the general rule that only such laws of the United States have force in the Philippines as are expressly extended thereto, and the
abnegation of power by Congress in favor of the Philippine Islands would leave no starting point for convincing argument. As a matter of
fact, counsel for petitioner does not assail legislative action from this direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport
[1859] 22 How., 227.)
2.
It is from the negative, prohibitory standpoint that counsel argues against the constitutionality of Act No. 2761. The first
paragraph of the Philippine Bill of Rights of the Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights as set
forth in the Jones Law, provides "That no law shall be enacted in said Islands which shall deprive any person of life, liberty, or property
Caelitus Mihi Vires
The guaranties extended by the Congress of the United States to the Philippine Islands have been used in the same sense as like
provisions found in the United States Constitution. While the "due process of law and equal protection of the laws" clause of the
Philippine Bill of Rights is couched in slightly different words than the corresponding clause of the Fourteenth Amendment to the United
States Constitution, the first should be interpreted and given the same force and effect as the latter. (Kepner vs. U.S. [1904], 195 U. S.,
100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment has been
announced in classic decisions of the United States Supreme Court. Even at the expense of restating what is so well known, these basic
principles must again be set down in order to serve as the basis of this decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine Bill of Rights, are universal in their
application to all person within the territorial jurisdiction, without regard to any differences of race, color, or nationality. The word
"person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax vs. Raich [1915], 239 U. S., 33.) Private corporations, likewise,
are "persons" within the scope of the guaranties in so far as their property is concerned. (Santa Clara County vs. Southern Pac. R. R. Co.
[1886], 118.U. S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford [1896],
164 U. S., 578.) Classification with the end in view of providing diversity of treatment may be made among corporations, but must be
based upon some reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165 U.
S., 150.) Examples of laws held unconstitutional because of unlawful discrimination against aliens could be cited. Generally, these
decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage in ordinary kinds of business to earn their living.
(State vs. Montgomery [1900], 94 Maine, 192, peddling but see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of
Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese; Truax vs.
Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone Co.
vs. Fagley [1898], 187 Penn., 193, all relating to the employment of aliens by private corporations.)
A literal application of general principles to the facts before us would, of course, cause the inevitable deduction that Act No. 2761 is
unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of the equal protection of the laws. Like
all beneficient propositions, deeper research discloses provisos. Examples of a denial of rights to aliens notwithstanding the provisions of
the Fourteenth Amendment could be cited. (Tragesser vs. Gray [1890], 73 Md., 250, licenses to sell spirituous liquors denied to persons
not citizens of the United States; Commonwealth vs. Hana [1907], 195 Mass , 262, excluding aliens from the right to peddle; Patsone vs.
Commonwealth of Pennsylvania [1914], 232 U. S. , 138, prohibiting the killing of any wild bird or animal by any unnaturalized foreign-born
resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in favor of citizens with reference to the taking for private use of the common
property in fish and oysters found in the public waters of the State; Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915],
239 U. S., 195, limiting employment on public works by, or for, the State or a municipality to citizens of the United States.)
One of the exceptions to the general rule, most persistent and far reaching in influence is, that neither the Fourteenth Amendment to the
United States Constitution, broad and comprehensive as it is, nor any other amendment, "was designed to interfere with the power of the
33
State, sometimes termed its `police power,' to prescribe regulations to promote the health, peace, morals, education, and good order of
the people, and legislate so as to increase the industries of the State, develop its resources and add to its wealth and prosperity. From the
very necessities of society, legislation of a special character, having these objects in view, must often be had in certain districts." (Barbier
vs. Connolly [1884], 113 U.S., 27; New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same police power which
the United States Supreme Court say "extends to so dealing with the conditions which exist in the state as to bring out of them the
greatest welfare in of its people." (Bacon vs. Walker [1907], 204 U.S., 311.) For quite similar reasons, none of the provision of the
Philippine Organic Law could could have had the effect of denying to the Government of the Philippine Islands, acting through its
Legislature, the right to exercise that most essential, insistent, and illimitable of powers, the sovereign police power, in the promotion of
the general welfare and the public interest. (U. S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty [1915], 32 Phil., 580; Rubi
vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another notable exception permits of the regulation or distribution of the public
domain or the common property or resources of the people of the State, so that use may be limited to its citizens. (Ex parte Gilleti [1915],
70 Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391; Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.) Still another
exception permits of the limitation of employment in the construction of public works by, or for, the State or a municipality to citizens of
the United States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207; Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New York [1915],
239 U. S., 195.) Even as to classification, it is admitted that a State may classify with reference to the evil to be prevented; the question is a
practical one, dependent upon experience. (Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a certificate of Philippine registry only on
condition that they be composed wholly of citizens of the Philippine Islands or of the United States or both, as not infringing Philippine
Organic Law, it must be done under some one of the exceptions here mentioned This must be done, moreover, having particularly in mind
what is so often of controlling effect in this jurisdiction our local experience and our peculiar local conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional limits are found more than three thousand islands.
Literally, and absolutely, steamship lines are, for an Insular territory thus situated, the arteries of commerce. If one be severed, the lifeblood of the nation is lost. If on the other hand these arteries are protected, then the security of the country and the promotion of the
general welfare is sustained. Time and again, with such conditions confronting it, has the executive branch of the Government of the
Philippine Islands, always later with the sanction of the judicial branch, taken a firm stand with reference to the presence of undesirable
foreigners. The Government has thus assumed to act for the all-sufficient and primitive reason of the benefit and protection of its own
citizens and of the self-preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil., 93; Forbes vs. Chuoco, Tiaco and
Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly by such
solid and reputable firms as the instant claimant, might indeed traverse the waters of the Philippines for ages without doing any particular
harm. Again, some evilminded foreigner might very easily take advantage of such lavish hospitality to chart Philippine waters, to obtain
valuable information for unfriendly foreign powers, to stir up insurrection, or to prejudice Filipino or American commerce. Moreover,
under the Spanish portion of Philippine law, the waters within the domestic jurisdiction are deemed part of the national domain, open to
public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.) Common carriers which in the
Philippines as in the United States and other countries are, as Lord Hale said, "affected with a public interest," can only be permitted to
use these public waters as a privilege and under such conditions as to the representatives of the people may seem wise. (See De Villata vs.
Stanley [1915], 32 Phil., 541.)
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any wild bird or animal except in defense of person or
property, and `to that end' makes it unlawful for such foreign-born person to own or be possessed of a shotgun or rifle; with a penalty of
$25 and a forfeiture of the gun or guns. The plaintiff in error was found guilty and was sentenced to pay the abovementioned fine. The
judgment was affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this court on the ground that the statute is
contrary to the 14th Amendment and also is in contravention of the treaty between the United States and Italy, to which latter country
the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of property, and discrimination against such aliens
as a class. But the former really depends upon the latter, since it hardly can be disputed that if the lawful object, the protection of wild life
(Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct. Rep., 600), warrants the discrimination, the, means adopted for making it
effective also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start with reference to the evil to be prevented, and that if the
class discriminated against is or reasonably might be considered to define those from whom the evil mainly is to be feared, it properly
may be picked out. A lack of abstract symmetry does not matter. The question is a practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court can say that the legislature of Pennsylvania was not warranted in assuming as
its premise for the law that resident unnaturalized aliens were the peculiar source of the evil that it desired to prevent. (Barrett vs.
Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct. Rep., 692.)
Obviously the question, so stated, is one of local experience, on which this court ought to be very slow to declare that the state legislature
was wrong in its facts (Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we might trust popular
speech in some states it was right; but it is enough that this court has no such knowledge of local conditions as to be able to say that it
was manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the protection afforded
by the due-process of law and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the
Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise
trade, does not belong to that vicious species of class legislation which must always be condemned, but does fall within authorized
exceptions, notably, within the purview of the police power, and so does not offend against the constitutional provision.
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before mentioned, Justice Holmes delivering the
opinion of the United States Supreme Court said:
Caelitus Mihi Vires
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This opinion might well be brought to a close at this point. It occurs to us, however, that the legislative history of the United States and
the Philippine Islands, and, probably, the legislative history of other countries, if we were to take the time to search it out, might disclose
similar attempts at restriction on the right to enter the coastwise trade, and might thus furnish valuable aid by which to ascertain and, if
possible, effectuate legislative intention.
Code of 1916, sec. 1345; Adm. Code of 1917, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the original Customs
Administrative Act which in turn was merely a reflection of the statutory language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of Philippine registry, are thus found not to be
as radical as a first reading would make them appear.
3.
The power to regulate commerce, expressly delegated to the Congress by the Constitution, includes the power to nationalize
ships built and owned in the United States by registries and enrollments, and the recording of the muniments of title of American vessels.
The Congress "may encourage or it may entirely prohibit such commerce, and it may regulate in any way it may see fit between these two
extremes." (U.S. vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat., 1; The Passenger Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had not been long convened before it enacted on
September 1, 1789, "An Act for Registering and Clearing Vessels, Regulating the Coasting Trade, and for other purposes." Section 1 of this
law provided that for any ship or vessel to obtain the benefits of American registry, it must belong wholly to a citizen or citizens of the
United States "and no other." (1 Stat. at L., 55.) That Act was shortly after repealed, but the same idea was carried into the Acts of
Congress of December 31, 1792 and February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that in order to
obtain the registry of any vessel, an oath shall be taken and subscribed by the owner, or by one of the owners thereof, before the officer
authorized to make such registry, declaring, "that there is no subject or citizen of any foreign prince or state, directly or indirectly, by way
of trust, confidence, or otherwise, interested in such vessel, or in the profits or issues thereof." Section 32 of the Act of 1793 even went so
far as to say "that if any licensed ship or vessel shall be transferred to any person who is not at the time of such transfer a citizen of and
resident within the United States, ... every such vessel with her tackle, apparel, and furniture, and the cargo found on board her, shall be
forefeited." In case of alienation to a foreigner, Chief Justice Marshall said that all the privileges of an American bottom were ipso facto
forfeited. (U.S. vs. Willings and Francis [1807], 4 Cranch, 48.) Even as late as 1873, the Attorney-General of the United States was of the
opinion that under the provisions of the Act of December 31, 1792, no vessel in which a foreigner is directly or indirectly interested can
lawfully be registered as a vessel of the United. States. (14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the Act of March 3, 1825, may have affected them, until amended by the
Act of May 28, 1896 (29 Stat. at L., 188) which extended the privileges of registry from vessels wholly owned by a citizen or citizens of the
United States to corporations created under the laws of any of the states thereof. The law, as amended, made possible the deduction that
a vessel belonging to a domestic corporation was entitled to registry or enrollment even though some stock of the company be owned by
aliens. The right of ownership of stock in a corporation was thereafter distinct from the right to hold the property by the corporation
(Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the new government found a substantive law in operation in the Islands with a civil law history
which it wisely continued in force Article fifteen of the Spanish Code of Commerce permitted any foreigner to engage in Philippine trade if
he had legal capacity to do so under the laws of his nation. When the Philippine Commission came to enact the Customs Administrative
Act (No. 355) in 1902, it returned to the old American policy of limiting the protection and flag of the United States to vessels owned by
citizens of the United States or by native inhabitants of the Philippine Islands (Sec. 117.) Two years later, the same body reverted to the
existing Congressional law by permitting certification to be issued to a citizen of the United States or to a corporation or company created
under the laws of the United States or of any state thereof or of the Philippine Islands (Act No. 1235, sec. 3.) The two administration codes
repeated the same provisions with the necessary amplification of inclusion of citizens or native inhabitants of the Philippine Islands (Adm.
Caelitus Mihi Vires
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to enact an anti-alien shipping act. The ultimate
purpose of the Legislature is to encourage Philippine ship-building. This, without doubt, has, likewise, been the intention of the United
States Congress in passing navigation or tariff laws on different occasions. The object of such a law, the United States Supreme Court once
said, was to encourage American trade, navigation, and ship-building by giving American ship-owners exclusive privileges. (Old Dominion
Steamship Co. vs. Virginia [1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is found the following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for example, acts licensing gaming houses, retailers of spirituous
liquors, etc. The act, in this instance, is distinctly of that character, and forms part of an extensive system, the object of which is to
encourage American shipping, and place them on an equal footing with the shipping of other nations. Almost every commercial nation
reserves to its own subjects a monopoly of its coasting trade; and a countervailing privilege in favor of American shipping is contemplated,
in the whole legislation of the United States on this subject. It is not to give the vessel an American character, that the license is granted;
that effect has been correctly attributed to the act of her enrollment. But it is to confer on her American privileges, as contradistinguished
from foreign; and to preserve the. Government from fraud by foreigners, in surreptitiously intruding themselves into the American
commercial marine, as well as frauds upon the revenue in the trade coastwise, that this whole system is projected.
The United States Congress in assuming its grave responsibility of legislating wisely for a new country did so imbued with a spirit of
Americanism. Domestic navigation and trade, it decreed, could only be carried on by citizens of the United States. If the representatives of
the American people acted in this patriotic manner to advance the national policy, and if their action was accepted without protest in the
courts, who can say that they did not enact such beneficial laws under the all-pervading police power, with the prime motive of
safeguarding the country and of promoting its prosperity? Quite similarly, the Philippine Legislature made up entirely of Filipinos,
representing the mandate of the Filipino people and the guardian of their rights, acting under practically autonomous powers, and
imbued with a strong sense of Philippinism, has desired for these Islands safety from foreign interlopers, the use of the common property
exclusively by its citizens and the citizens of the United States, and protection for the common good of the people. Who can say,
therefore, especially can a court, that with all the facts and circumstances affecting the Filipino people before it, the Philippine Legislature
has erred in the enactment of Act No. 2761?
Surely, the members of the judiciary are not expected to live apart from active life, in monastic seclusion amidst dusty tomes and ancient
records, but, as keen spectators of passing events and alive to the dictates of the general the national welfare, can incline the scales
of their decisions in favor of that solution which will most effectively promote the public policy. All the presumption is in favor of the
35
constitutionally of the law and without good and strong reasons, courts should not attempt to nullify the action of the Legislature. "In
construing a statute enacted by the Philippine Commission (Legislature), we deem it our duty not to give it a construction which would be
repugnant to an Act of Congress, if the language of the statute is fairly susceptible of another construction not in conflict with the higher
law." (In re Guaria [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the true construction which will best carry legislative
intention into effect.
1.
The Sequestration, Takeover, and Other Orders Complained of
a.
The Basic Sequestration Order
With full consciousness of the importance of the question, we nevertheless are clearly of the opinion that the limitation of domestic
ownership for purposes of obtaining a certificate of Philippine registry in the coastwise trade to citizens of the Philippine Islands, and to
citizens of the United States, does not violate the provisions of paragraph 1 of section 3 of the Act of Congress of August 29, 1916 No
treaty right relied upon Act No. 2761 of the Philippine Legislature is held valid and constitutional .
The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by
Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as
PCGG. It reads as follows:
The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.
RE: SEQUESTRATION ORDER
G.R. No. 75885
May 27, 1987
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of the Philippines, you
are hereby directed to sequester the following companies.
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA,
COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al.,
respondents.
1.
Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles Shipyard)
2.
Baseco Quarry
3.
Philippine Jai-Alai Corporation
4.
Fidelity Management Co., Inc.
5.
Romson Realty, Inc.
6.
Trident Management Co.
7.
New Trident Management
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.
NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering
Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12,
1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders
by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said corporation.
Caelitus Mihi Vires
36
8.
Bay Transport
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986
9.
And all affiliate companies of Alfredo "Bejo" Romualdez

2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986
You are hereby ordered:

2.5. Minutes of the Executive Committee Meetings from 1973 to 1986
1. To implement this sequestration order with a minimum disruption of these companies' business activities.
2.6. Existing contracts with suppliers/contractors/others.
2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until such time that the Office
of the President through the Commission on Good Government should decide otherwise.
3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate Secretary.
3. To report to the Commission on Good Government periodically.

4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985.
Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other acts essential to
the achievement of this sequestration order. 1
5. Monthly Financial Statements for the current year up to March 31, 1986.
b. Order for Production of Documents
6. Consolidated Cash Position Reports from January to April 15, 1986.
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the
President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit:
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.

1. Stock Transfer Book
9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof.
2. Legal documents, such as:
10. Schedule of company investments and placements. 2
2.1. Articles of Incorporation
2.2. By-Laws
Caelitus Mihi Vires
The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in
pursuance with Presidential Executive Order Nos. 1 and 2."
37
but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry,
located at Mariveles, Bataan, an agreement to this effect having been executed by them on September 17, 1986. 7
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt.
Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's VicePresident for Finance, 3 terminating the contract for security services within the Engineer Island compound between BASECO and "Anchor
and FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been assigned to the area,
f.
Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized to clean and
beautify the Company's compound," and in this connection, to dispose of or sell "metal scraps" and other materials, equipment and
machineries no longer usable, subject to specified guidelines and safeguards including audit and verification. 8
g. The TAKEOVER Order

(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr. Buddy
Ondivilla National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that the stipulated
charges for use of the BASECO road network were made payable "upon entry and not anymore subject to monthly billing as was originally
agreed upon." 4
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of BASECO, "the Philippine
Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1,
empowering the Commission
* * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken over
by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading
to such acquisition by the latter can be disposed of by the appropriate authorities.
d. Aborted Contract for Improvement of Wharf at Engineer Island
A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following powers:
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine Integrated Port Services,
Inc., in virtue of which the latter undertook to introduce improvements costing approximately P210,000.00 on the BASECO wharf at
Engineer Island, allegedly then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which would
flow into the government coffers," in consideration of Deltamarine's being granted "priority in using the improved portion of the wharf
ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area where it may install its
bagging equipments" "until the improvement remains in a condition suitable for port operations." 5 It seems however that this contract
was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by letter dated July
30, 1986 that "the new management is not in a position to honor the said contract" and thus "whatever improvements * * (may be
introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
1.
Conducts all aspects of operation of the subject companies;
2.
Installs key officers, hires and terminates personnel as necessary;
3. Enters into contracts related to management and operation of the companies;

e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and
implement progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;"
Caelitus Mihi Vires
4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently; revenues are duly accounted for; and
disburses funds only as may be necessary;
38
5. Does actions including among others, seeking of military support as may be necessary, that will ensure compliance to this order;
6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this take-over order.
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R.
Cuesta I, advising of the termination of their services by the PCGG. 10
2.
Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have this
Court nullify. More particularly, BASECO prays that this Court-
1)
declare unconstitutional and void Executive Orders Numbered 1 and 2;
2)
annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis
thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders
Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by
the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the
Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was
adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art.
I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order *
* issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing
was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative
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agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which
envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same
has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of innocence
and general rules and procedures, they constitute a Bill of Attainder." 13
b.
Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued
without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by
1)
terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the
contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring &
Lighterage Corporation, these acts being in violation of the non-impairment clause of the constitution; 15
2)
allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc.,
giving the latter free use of BASECO premises; 16
3)
authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17
4)
authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18
5)
authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;
6)
terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez;
Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
39
7)
planning to elect its own Board of Directors; 20
8)
allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls of cable
wires, worth P600,000.00 on May 11, 1986; 21
9)
allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 22
3.
Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by
misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is needful that
these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided, and arguments
tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an exposition of
the law on the matter. In the process many of the objections raised by BASECO will be dealt with.
4.
The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by
Proclamation No. 3, 23 that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a
legislature is elected and convened under a new Constitution" "shall give priority to measures to achieve the mandate of the people,"
among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of
the people through orders of sequestration or freezing of assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government
have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad."
25 Upon these premises, the Presidential Commission on Good Government was created, 26 "charged with the task of assisting the
President in regard to (certain specified) matters," among which was precisely-
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* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all business
enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking undue advantage
of their public office and/or using their powers, authority, influence, connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was granted
"power and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth or
properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or disappearance which
would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task.
2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and properties taken over
by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the transactions leading
to such acquisition by the latter can be disposed of by the appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or
frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of
evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 29 It was given power also to
promulgate such rules and regulations as may be necessary to carry out the purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed by
the leaders and supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties purportedly pertaining
to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates,
dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or
illegal use of funds or properties owned by the government of the Philippines or any of its branches, instrumentalities, enterprises, banks
or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their
unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines:" and
40
and proceed independently of any criminal proceedings and may be proved by a preponderance of evidence;" and that, moreover, the
"technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 36
2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers,
condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries
of the world." 31
Upon these premises, the President-
1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos,
their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates, duties,
agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the Philippines and
abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were
acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the
Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their
official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage
and prejudice of the Filipino people and the Republic of the Philippines;
5.
Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime"; 37
a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, * * located in the Philippines or abroad, * * (and) business enterprises and entities (came to be) owned
or controlled by them, during * * (the Marcos) administration, directly or through nominees, by taking undue advantage of their public
office and/or using their powers, authority, influence, Connections or relationship; 38
3)
prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and
properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are
prescribed by law;" and
b) otherwise stated, that "there are assets and properties purportedly pertaining to former President Ferdinand E. Marcos, and/or his wife
Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or
were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the
Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment and causing grave damage
and prejudice to the Filipino people and the Republic of the Philippines"; 39
4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in their names
as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government within thirty (30) days from
publication of * (the) Executive Order, * *. 32
c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks, buildings, shopping
centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various
countries of the world;" 40 and
d. Executive Order No. 14
2) that certain "business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities or
persons close to former President Marcos. 41
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the assistance of the Office of the
Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its
findings." 34 All such cases, whether civil or criminal, are to be filed "with the Sandiganbayan which shall have exclusive and original
jurisdiction thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or
indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions
under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from
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6.
Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth."
41
Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his dominions of the
assets and properties involved, is not only a right but a duty on the part of Government.
But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a proper
respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are deemed
pillars of a free society such as ours, and to which all members of that society may without exception lay claim.
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3)
provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional
takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos." 43
a. Sequestration
* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience, freedom of
expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and freedom of
enterprise within reasonable bounds and under proper control. * * Evincing much concern for the protection of property, the Constitution
distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is bound up with every aspect of social
life in a democracy as democracy is conceived in the Constitution. The Constitution realizes the indispensable role which property, owned
in reasonable quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid social
middle class that is said to be the bulwark of democracy and the backbone of every progressive and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by adequate
proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged and
consummated; although there are some who maintain that the fact-that an immense fortune, and "vast resources of the government
have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad,"
and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of
judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement of evidentiary
substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may
reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance,
destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and
academic, or effectively hamper, delay, or negate efforts to recover the same.
7.
Provisional Remedies Prescribed by Law
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By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be
placed under its possession or control said property, or any building or office wherein any such property and any records pertaining
thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or
dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings,
whether the property was in truth will- gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds
belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of official position, authority relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and
grave damage and prejudice to the State. 44 And this, too, is the sense in which the term is commonly understood in other jurisdictions.
45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its transfer, encumbrance,
concealment, or dissipation." 46 In other words, it commands the possessor to hold the property and conserve it subject to the orders and
disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or ostensible owner
of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or credits in his possession or control, and thus
becomes in a sense an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business
enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it
being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual management and
operations thereof; and "business enterprises which were taken over by the government government of the Marcos Administration or by
entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent
disposal or dissipation of the enterprises." 48 Such a "provisional takeover" imports something more than sequestration or freezing, more
42
than the placing of the business under physical possession and control, albeit without or with the least possible interference with the
management and carrying on of the business itself. In a "provisional takeover," what is taken into custody is not only the physical assets of
the business enterprise or entity, but the business operation as well. It is in fine the assumption of control not only over things, but over
operations or on- going activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken
over by the government of the Marcos Administration or by entities or persons close to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the
law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies may be resorted to only for a particular
exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment
in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner
was attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the
property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done only
for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the language of
the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of
which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate authorities." 49
Executive Order No. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the outcome of appropriate
proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal means. Executive Order No.
14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or not particular assets are "illgotten," and resultant recovery thereof by the Government is warranted.
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation to the recovery
of ill-gotten wealth shag remain operative for not more than eighteen months after the ratification of this Constitution. However, in the
national interest, as certified by the President, the Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the sequestered or
frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification of this Constitution, the
corresponding judicial action or proceeding shall be filed within six months from its ratification. For those issued after such ratification,
the judicial action or proceeding shall be commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction of
any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. 54 By
receivership, property, real or personal, which is subject of litigation, is placed in the possession and control of a receiver appointed by the
Court, who shall conserve it pending final determination of the title or right of possession over it. 55 All these remedies sequestration,
freezing, provisional, takeover, attachment and receivership are provisional, temporary, designed for-particular exigencies, attended by
no character of permanency or finality, and always subject to the control of the issuing court or agency.
g. Remedies, Non-Judicial
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional takeover is designed to be an
end in itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is intended to
bring about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the governing
rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26 of its
Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although not really
necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders:
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Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General
draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law authorized to
issue against property of a delinquent taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence on sequestration
as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change." What it
insists on, what it pronounces to be its "unyielding position, is that any change in procedure, or the institution of a new one, should
conform to due process and the other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which
there can be no disagreement.
h.
Orders May Issue Ex Parte
43
Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevin suits, sequestration and
provisional takeover writs may issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of personality, no objection
of any significance may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental
character of temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to
recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people;" 59 as
well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of
property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition, concealment or disappearance
of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at the just recovery thereof. 60
8.
SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold order is directed may request the lifting
thereof in writing, either personally or through counsel within five (5) days from receipt of the writ or order, or in the case of a hold order,
from date of knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause shown, the Commission may lift the
writ or order unconditionally or subject to such conditions as it may deem necessary, taking into consideration the evidence and the
circumstance of the case. The resolution of the commission may be appealed by the party concerned to the Office of the President of the
Philippines within fifteen (15) days from receipt thereof.
Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at least, for
the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its negation or
nullification. 61
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed by some rule or
regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it would
nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis in fact or
law, or are whimsical and capricious, are condemned and struck down. 66
9.
Constitutional Sanction of Remedies
Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." 62 Executive Order No. 2
declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new democratic government
that President Marcos * * (and other parties affected) be afforded fair opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue
upon the authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu proprio when the
Commission has reasonable grounds to believe that the issuance thereof is warranted. 64 A similar requirement is now found in Section
26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze order shall be issued only upon showing of a prima
facie case." 65
If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and
takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have
received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the power
and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the
leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets
or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of, and ratifies the "authority to
issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of
promoting the public welfare by restraining and regulating the use of liberty and property," 68 and as "the most essential, insistent and
illimitable of powers * * in the promotion of general welfare and the public interest," 69 and said to be co-extensive with self-protection
and * * not inaptly termed (also) the'law of overruling necessity." " 70
b. Opportunity to Contest
10.
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of
sequestration or freeze order, viz:
Caelitus Mihi Vires
PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as, a
judge. Its general function is to conduct investigations in order to collect evidence establishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve
the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and prosecute in
the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or
44
hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether or not
property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and the executive
orders. This function is reserved to the designated court, in this case, the Sandiganbayan. 71 There can therefore be no serious regard
accorded to the accusation, leveled by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and judge at the same time.
2. Severino G. de la Cruz
1,248 shares
11.
Facts Preclude Grant of Relief to Petitioner

3. Emilio T. Yap
Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed, the petition cannot
succeed. The writs of certiorari and prohibition prayed for will not be issued.
2,508 shares
The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration, through
nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence, " and that it was by and through
the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities.
4. Jose Fernandez
1,248 shares
12.
Organization and Stock Distribution of BASECO

5. Jose Francisco
BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * *
(on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area, Manila,
where its Engineer Island Shipyard is housed, and its main shipyard is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose
that its authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have
been subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the incorporators. 74 The same articles
Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P.
Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose
Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.
128 shares
6. Manuel S. Mendoza
96 shares
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio
Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there were twenty
(20) stockholders listed in BASECO's Stock and Transfer Book. 75 Their names and the number of shares respectively held by them are as
follows:
7. Anthony P. Lee
1,248 shares
1. Jose A. Rojas
8. Hilario M. Ruiz
1,248 shares
Caelitus Mihi Vires
45
32 shares
15. Metro Bay Drydock
9. Constante L. Farias
136,370 shares
8 shares
16. Manuel Jacela
10. Fidelity Management, Inc.
1 share
65,882 shares
17. Jonathan G. Lu
11. Trident Management
1 share
7,412 shares
18. Jose J. Tanchanco
12. United Phil. Lines
1 share
1,240 shares
19. Dioscoro Papa
13. Renato M. Tanseco
128 shares
8 shares
20. Edward T. Marcelo
14. Fidel Ventura
4 shares
8 shares
TOTAL
Caelitus Mihi Vires
46
218,819 shares.
13
Acquisition of NASSCO by BASECO
Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a government-owned
or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except for
NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation all its structures, buildings, shops,
quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with
Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to
NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the inventory undertaken
pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per annum, compounded semi-annually, was
stipulated to be paid in equal semi-annual installments over a term of nine (9) years, payment to commence after a grace period of two
(2) years from date of turnover of the shipyard to BASECO. 76
14.
Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A
document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by Arturo
Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General Manager. 77 This agreement bore, at the top right
corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full signature. The document
recited that a down payment of P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was payable in equal semiannual installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum.
15.
Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority for
the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the balance
stipulated to be payable in installments. 78
16.
Acquisition of Other Assets of NASSCO; Intervention of Marcos
Caelitus Mihi Vires
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired
ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. This was
accomplished by a deed entitled "Contract of Purchase and Sale," 79 which, like the Memorandum of Agreement dated October 9, 1973
supra also bore at the upper right-hand corner of its first page, the handwritten notation of President Marcos reading, "APPROVED, July
29, 1973," and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and
interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants and expendable or semiexpendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the equipment of the Bataan National
Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO and all other selected equipment and
machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed itself to cooperate with BASECO for the
acquisition from the National Government or other appropriate Government entity of Engineer Island. Consideration for the sale was set
at P5,000,000.00; a down payment of P1,000,000.00 appears to have been made, and the balance was stipulated to be paid at 7% interest
per annum in equal semi annual installments over a term of nine (9) years, to commence after a grace period of two (2) years. Mr. Arturo
Pacificador again signed for NASSCO, together with the general manager, Mr. David R. Ines.
17.
Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available Japanese war damage fund
of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80 On September 3, 1975, it got another loan also from
the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in the sum of
P12,400,000.00. 81 The claim has been made that not a single centavo has been paid on these loans. 82
18.
Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in a letter dated
September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in a confidential memorandum dated September
16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez, a
relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship
construction" for some time and expressed the fear that if that state of affairs persisted, BASECO would not be able to pay its debts to the
Government, which at the time stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save the situation,"
there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to be created;" and
towards this end, he informed Marcos that BASECO was
47
* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to P341.165M and
assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's
equity contribution in the new corporation. LUSTEVECO will participate by absorbing and converting a portion of the REPACOM loan of
Bay Shipyard and Drydock, Inc., amounting to P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to build
ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la
Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose
A. Rojas had a major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate
recommendation, to wit:
* * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation of your
instructions to pass a board resolution to legalize the transfers under SEC regulations;
3.
We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following documents: 88
1.
Stock certificates indorsed and assigned in blank with assignments and waivers; 89
2.
The articles of incorporation, the amended articles, and the by-laws of BASECO;
3.
Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";
5.
Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at Mariveles, Bataan;
6.
Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at Engineer Island, Port Area Manila;
7.
Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at Mariveles, Bataan;
8.
List of BASECO's fixed assets;
9.
Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;
10.
BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for BASECO's rank-and-file employees. 90
2.
By getting their replacements, the families cannot question us later on; and
Caelitus Mihi Vires
48
Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders for
ships in order for the company to meet loan obligations," and that
An LOI may be issued to government agencies using floating equipment, that a linkage scheme be applied to a certain percent of
BASECO's net profit as part of BASECO's amortization payments to make it justifiable for you, Sir. 91
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their president's
memorandum, Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in representation of their respective corporations,
executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding corporation to be
known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would seem that the new
corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." 94
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has presented a report on
BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's affairs and problems.
b.
Letter of Instructions No. 670
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and the "linkage
scheme" relative to "BASECO's amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil Company
and Chairman Constante Farias of the National Development Company, directing them "to participate in the formation of a new
corporation resulting from the spin-off of the shipbuilding component of BASECO along the following guidelines:
a.
Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115,903,000 consisting of the
following obligations of BASECO which are hereby authorized to be converted to equity of the said new corporation, to wit:
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of
Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon
Stevedoring Company (LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by the
Solicitor General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to reimbursement by NDC to
BASECO (of) the amount of s allegedly representing the handling and incidental expenses incurred by BASECO in the installation of said
equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO instead the amount of P18.285M); 2) the
shipbuilding equipment procured from reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking,
Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by LUSTEVECO, acting
through PNOC and NDC, as the government's equity participation in a shipbuilding corporation to be established in partnership with the
private sector.
xxx
xxx
xxx
1.
NDC P83,865,000 (P31.165M loan & P52.2M Reparation)
And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM * * in the total amount
of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and converted into non-voting preferred shares. 95
2.
LUSTEVECO P32,538,000 (Reparation)
20.
b. Equity participation of government shall be in the form of non- voting shares.
Caelitus Mihi Vires
Evidence of Marcos'
Ownership of BASECO
49
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of BASECO
has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO, but
also that he actually owns well nigh one hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly
owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370
shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The
first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the
sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares of
stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3)
corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which supposedly owns as aforesaid 65,882
shares of BASECO stock;
2)
the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation which
allegedly owns 136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. which allegedly owns 7,412 shares of BASECO
stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all but 5 % all endorsed
in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders were still in
possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone else," 100 that denial is exposed
by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual declaration.
Caelitus Mihi Vires
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT, as undertaken by him, * *
the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel
thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter alia that "said certificates of stock are in the
possession of third parties, among whom being the respondents themselves * * and petitioner is still endeavoring to secure copies
thereof from them." 102 On the same day he filed another motion praying that he be allowed "to secure copies of the Certificates of
Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of
respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to
secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their)
certificates of stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in
Malacaang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on November 5,
1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the
petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its
possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from
notice." 106 In a motion filed on December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in the premises, that "it
will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates
referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to
produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * *
(him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge
and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in view of last national
emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain
why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of
the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the
originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that
he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in
truth no longer have them in their possession, these having already been assigned in blank to then President Marcos.
21.
Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April,
1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of
stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to
cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be
to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter
egos of the former president.
50
From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as BASECO
was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking
advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the
government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the
corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions
with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to
Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration
and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to be
without merit the theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not according
to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that
the PCGG had acted as prosecutor and judge at the same time.
22.
Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative
act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of
guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary,
the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition
of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by
the PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at their provisions will
immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.
23.
No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order
of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails
to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue
subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents as may be
material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require
all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their
names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit.
Caelitus Mihi Vires
It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that
a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * *
113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the
privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th
Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its records in its
possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S.
186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special
privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It
can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of
its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would
be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the
corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a
criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is
to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does
not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of
such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce
evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution
on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that
xxx
xxx
xxx
The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other
information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may
51
be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply
with the order.
The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no
search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.
24.
Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG with
regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to which an
answer can be easily given, much less one which will suffice for every conceivable situation.
a.
PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or
provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover of
property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation
to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform
acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of
receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the
performance of acts of dominion.
the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects,
its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator,
much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already
adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is
obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is
connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself.
But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish the
legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate,
unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable establishments. In
fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable
grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers
may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking to the end that truly
competent, experienced and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no
matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The business is not to be experimented or
played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the
ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten."
Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business
enterprises provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor

Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business
operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much
like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding
debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this
context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot
and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in
accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. 116 In
Caelitus Mihi Vires
So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote
sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That
Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of
stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of
directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a
manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should be
no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a
substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or
otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and
defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the
dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists.
Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only
when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the
replacements are truly possessed of competence, experience and probity.
52
Medina, Locsin, Corua, & Sumbillo for petitioner.
In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because
the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm,
if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders'
meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986,
particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over
what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this
case on behalf of BASECO have failed to show any right or even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's
affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to
forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and
rectitude is, in the premises, required.
25.
No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts, inclusive
of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on record,
pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the appropriate
action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its judgment for
that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be said to have
established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its powers, or with
grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.
G.R. No. L-27155
May 18, 1978
PHILIPPINE NATIONAL BANK, petitioner,
Manuel Lim & Associates for private respondents.
ANTONIO, J.:
Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila in Civil Case
No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of
P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully paid, P200.00 attorney's fees and costs, the same
amounts which Rita Gueco Tapnio was ordered to pay the Philippine American General Insurance Co., Inc., to be paid directly to the
Philippine American General Insurance Co., Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the
former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action is the complaint filed by Philamgen (Philippine
American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71
paid by Philamgen to the Philippine National Bank on behalf of respondents Tapnio and Gueco, pursuant to an indemnity agreement.
Petitioner Bank was made third-party defendant by Tapnio and Gueco on the theory that their failure to pay the debt was due to the fault
or negligence of petitioner.
The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila, are quoted
hereunder:
Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the Philippine National Bank Branch at San
Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the
payment of whatever amount the bonding company would pay to the Philippine National Bank, both defendants executed the indemnity
agreement, Exh. B. Under the terms and conditions of this indemnity agreement, whatever amount the plaintiff would pay would earn
interest at the rate of 12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of court litigation.
The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00.
vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC.,
respondents.
Caelitus Mihi Vires
It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00, plus accumulated interests unpaid,
which she failed to pay despite demands. The Bank wrote a letter of demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank
on September 18, 1957, the full amount due and owing in the sum of P2,379.91, for and on account of defendant Rita Gueco's obligation
(Exhs. D and D-1).
53
payment of the quota. In said Exh. "6-Gueco", Tuazon also informed the manager that he would want for a notice from the manager as to
the time when the bank needed the money so that Tuazon could sign the corresponding promissory note.
Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made upon her by plaintiff for her
to pay her debt to the Bank, that she told the Plaintiff that she did not consider herself to be indebted to the Bank at all because she had
an agreement with one Jacobo-Nazon whereby she had leased to the latter her unused export sugar quota for the 1956-1957 agricultural
year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of P2,800.00, which was already in excess of her obligation
guaranteed by plaintiff's bond, Exh. A. This lease agreement, according to her, was with the knowledge of the bank. But the Bank has
placed obstacles to the consummation of the lease, and the delay caused by said obstacles forced 'Nazon to rescind the lease contract.
Thus, Rita Gueco Tapnio filed her third-party complaint against the Bank to recover from the latter any and all sums of money which may
be adjudged against her and in favor of the plaitiff plus moral damages, attorney's fees and costs.
Insofar as the contentions of the parties herein are concerned, we quote with approval the following findings of the lower court based on
the evidence presented at the trial of the case:
It has been established during the trial that Mrs. Tapnio had an export sugar quota of 1,000 piculs for the agricultural year 1956-1957
which she did not need. She agreed to allow Mr. Jacobo C. Tuazon to use said quota for the consideration of P2,500.00 (Exh. "4"-Gueco).
This agreement was called a contract of lease of sugar allotment.
At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank at San Fernando, Pampanga. Her indebtedness
was known as a crop loan and was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural
year corresponding to said standing crop. This arrangement was necessary in order that when Mrs. Tapnio harvests, the P.N.B., having a
lien on the crop, may effectively enforce collection against her. Her sugar cannot be exported without sugar quota allotment Sometimes,
however, a planter harvest less sugar than her quota, so her excess quota is utilized by another who pays her for its use. This is the
arrangement entered into between Mrs. Tapnio and Mr. Tuazon regarding the former's excess quota for 1956-1957 (Exh. "4"-Gueco).
Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said Bank, The same was submitted to the
branch manager at San Fernando, Pampanga. The latter required the parties to raise the consideration of P2.80 per picul or a total of
P2,800.00 (Exh. "2-Gueco") informing them that "the minimum lease rental acceptable to the Bank, is P2.80 per picul." In a letter
addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the manager that he was agreeable to raising the
consideration to P2.80 per picul. He further informed the manager that he was ready to pay said amount as the funds were in his folder
which was kept in the bank.
Explaining the meaning of Tuazon's statement as to the funds, it was stated by him that he had an approved loan from the bank but he
had not yet utilized it as he was intending to use it to pay for the quota. Hence, when he said the amount needed to pay Mrs. Tapnio was
in his folder which was in the bank, he meant and the manager understood and knew he had an approved loan available to be used in
Caelitus Mihi Vires
Further Consideration of the evidence discloses that when the branch manager of the Philippine National Bank at San Fernando
recommended the approval of the contract of lease at the price of P2.80 per picul (Exh. 1 1-Bank), whose recommendation was concurred
in by the Vice-president of said Bank, J. V. Buenaventura, the board of directors required that the amount be raised to 13.00 per picul.
This act of the board of directors was communicated to Tuazon, who in turn asked for a reconsideration thereof. On November 19, 1956,
the branch manager submitted Tuazon's request for reconsideration to the board of directors with another recommendation for the
approval of the lease at P2.80 per picul, but the board returned the recommendation unacted upon, considering that the current price
prevailing at the time was P3.00 per picul (Exh. 9-Bank).
The parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion for reconsideration. The
matter stood as it was until February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank informing the Bank that he was no longer
interested to continue the deal, referring to the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio. The result is that
the latter lost the sum of P2,800.00 which she should have received from Tuazon and which she could have paid the Bank to cancel off her
indebtedness,
The court below held, and in this holding we concur that failure of the negotiation for the lease of the sugar quota allocation of Rita Gueco
Tapnio to Tuazon was due to the fault of the directors of the Philippine National Bank, The refusal on the part of the bank to approve the
lease at the rate of P2.80 per picul which, as stated above, would have enabled Rita Gueco Tapnio to realize the amount of P2,800.00
which was more than sufficient to pay off her indebtedness to the Bank, and its insistence on the rental price of P3.00 per picul thus
unnecessarily increasing the value by only a difference of P200.00. inevitably brought about the rescission of the lease contract to the
damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The unreasonableness of the position adopted by the
board of directors of the Philippine National Bank in refusing to approve the lease at the rate of P2.80 per picul and insisting on the rate of
P3.00 per picul, if only to increase the retail value by only P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the
Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety
bonds, aside from the fact that from Exh. 8-Bank, it appears that she was offering to execute a real estate mortgage in favor of the Bank to
replace the surety bond This statement is further bolstered by the fact that Rita Gueco Tapnio apparently had the means to pay her
obligation fact that she has been granted several value of almost P80,000.00 for the agricultural years from 1952 to 56. 1
Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present petition.
The petitioner contends that the Court of Appeals erred:
(1)
In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita Gueco Tapnio
by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and its unreasonable insistence on the
rental price of P3.00 instead of P2.80 per picul; and
54
(2)
In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner, the
latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by respondent Rita Gueco
Tapnio to Jacobo C. Tuazon at P3.00 per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On November 19, 1956, the
Branch Manager submitted the request for reconsideration and again recommended the approval of the lease at P2.80 per picul, but the
Board returned the recommendation unacted, stating that the current price prevailing at that time was P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under the Corporation
Law, to safeguard and protect its rights and interests under the deed of assignment, which include the right to approve or disapprove the
said lease of sugar quota and in the exercise of that authority, its
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the lease of sugar quota
allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her loss in the sum of P2,800.00
which she should have received had the lease in favor of Tuazon been implemented.
Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject of the lease
between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and the Corporation Law, petitioner,
acting thru its Board of Directors, has the perfect right to adopt a policy with respect to fixing of rental prices of export sugar quota
allocations, and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since the said Board was guided by statistics of sugar price
and prices of sugar quotas prevailing at the time. Since the fixing of the rental of the sugar quota is a function lodged with petitioner's
Board of Directors and is a matter of policy, the respondent Court of Appeals could not substitute its own judgment for that of said Board
of Directors, which acted in good faith, making as its basis therefore the prevailing market price as shown by statistics which were then in
their possession.
It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the lease from
P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch Manager of the Bank on August 10,
1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was acceptable to him and that he even offered to use the
loan secured by him from petitioner to pay in full the sum of P2,800.00 which was the total consideration of the lease. This arrangement
was not only satisfactory to the Branch Manager but it was also approves by Vice-President J. V. Buenaventura of the PNB. Under that
arrangement, Rita Gueco Tapnio could have realized the amount of P2,800.00, which was more than enough to pay the balance of her
indebtedness to the Bank which was secured by the bond of Philamgen.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it shall be deprived
of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to respondent Philamgen the sum of
P2,379.71, plus interest, which amount had been previously paid to petitioner by said insurance company in behalf of the principal
debtor, herein respondent Rita Gueco Tapnio, and without recourse against respondent Rita Gueco Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing only errors of law,
accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of the evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was executed on April
17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San Fernando, Pampanga. This
arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a mortgage on her standing crop including her
sugar quota allocation for the agricultural year corresponding to said standing crop. The latter required the parties to raise the
consideration to P2.80 per picul, the minimum lease rental acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch
Manager, thru a letter dated August 10, 1956, that he was agreeable to raising the consideration to P2.80 per picul. He further informed
the manager that he was ready to pay the said sum of P2,800.00 as the funds were in his folder which was kept in the said Bank. This
referred to the approved loan of Tuazon from the Bank which he intended to use in paying for the use of the sugar quota. The Branch
Manager submitted the contract of lease of sugar quota allocation to the Head Office on September 7, 1956, with a recommendation for
approval, which recommendation was concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the
Board of Directors of petitioner required that the consideration be raised to P3.00 per picul.
Caelitus Mihi Vires
There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the disapproval of the lease by
the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is liable for the damage caused.
As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the same must be
utilized during the milling season, because any allotment which is not filled during such milling season may be reallocated by the Sugar
Quota Administration to other holders of allotments. 3 There was no proof that there was any other person at that time willing to lease
the sugar quota allotment of private respondents for a price higher than P2.80 per picul. "The fact that there were isolated transactions
wherein the consideration for the lease was P3.00 a picul", according to the trial court, "does not necessarily mean that there are always
ready takers of said price. " The unreasonableness of the position adopted by the petitioner's Board of Directors is shown by the fact that
the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by the Board amounted only
to a total sum of P200.00. Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on
standing crops, assignment of leasehold rights and interests on her properties, and surety bonds and that she had apparently "the means
to pay her obligation to the Bank, as shown by the fact that she has been granted several sugar crop loans of the total value of almost
P80,000.00 for the agricultural years from 1952 to 1956", there was no reasonable basis for the Board of Directors of petitioner to have
rejected the lease agreement because of a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was mortgaged to the Bank,
the latter certainly cannot escape its responsibility of observing, for the protection of the interest of private respondents, that degree of
care, precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar quota. The law
makes it imperative that every person "must in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith, 4 This petitioner failed to do. Certainly, it knew that the agricultural year was
55
about to expire, that by its disapproval of the lease private respondents would be unable to utilize the sugar quota in question. In failing
to observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably impose, petitioner is
consequently liable for the damages caused on private respondents. Under Article 21 of the New Civil Code, "any person who wilfully
causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the
damage." The afore-cited provisions on human relations were intended to expand the concept of torts in this jurisdiction by granting
adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to specifically provide in the
statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules governing the liability
of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a
corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a principal or master is
liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of a natural person, A corporation
is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from the stockholders
or members acting as a body, or, generally, from the directors as the governing body." 6
This is an action for the issuance of a writ of prohibition against the defendant "commanding the defendant to desist or refrain from
further proceedings in a criminal action pending in that court."
The petitioner is a foreign life-insurance corporation, duly organized under and by virtue of the laws of the State of California, doing
business regularly and legally in the Philippine Islands pursuant to its laws.
On the 16th of December, 1912, the assistant prosecuting attorney of the city of Manila filed an information in a criminal action in the
Court of First Instance of that city against the plaintiff, said corporation, and also against John Northcott and Manuel C. Grey, charging said
corporation and said individuals with the crime of libel. On the 17th day of December the defendant in his official capacity as judge of the
court of First Instance signed and issued a process directed to the plaintiff and the other accused in said criminal action, which said
process reads as follows:
UNITED STATES OF AMERICA,

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.
PHILIPPINE ISLANDS.
In the Court of First Instance of the Judicial District of Manila.
THE UNITED STATES No. 9661

versus
Libel.
WEST COAST LIFE INSURANCE CO., JOHN NORTHCOTT, AND MANUEL C. GREY.
G.R. No. L-8527
March 30, 1914
WEST COAST LIFE INSURANCE CO., plaintiff, vs. GEO N. HURD, Judge of Court of First Instance, defendant.
To West Coast Life Insurance Co., John Northcott, and Manuel C. Grey, Manila.
Southworth, Hargis & Springer for plaintiff.

Haussermann, Cohn & Fisher for defendant.
SUMMONS.
MORELAND, J.:
You are hereby summoned to appear before the Court of First Instance of the city of Manila P.I., on the 18th day of December, 1912, at
the hour of 8 a.m., to answer the charge made against you upon the information of F. H. Nesmith, assistant prosecuting attorney of the
Caelitus Mihi Vires
56
city of Manila, for libel, as set forth in the said information filed in this copurt on December 16, 1912, a copy of which is hereto attached
and herewith served upon you.
Dated at the city of Manila, P. I., this 17th day of December, 1912.
(Sgd.)
GEO N. HURD,
That the said circulars, and the matters therein contained hereinbefore set forth in this information, tend to impeach and have impeached
the honesty, virtue, and reputation of the said Insular Life Insurance Company by exposing it to public hatred, contempt, and ridicule; that
by the matters printed in said circulars, and hereinbefore set forth in this information, the said defendants West Coast Life Insurance
Company, John Northcott, and Manuel C. Grey meant and intended to state and represent to those to whom the said defendants
delivered said circulars as aforesaid, that the said Insular Life Insurance Company was then and there in a dangerous financial condition
and on the point of going into insolvency, to the detriment of the policy holders of the said Insular Life Insurance Company, and of those
with whom the said Insular Life Insurance Company have and have had business transactions, and each and all of said persons to whom
the said defendants delivered said circulars, and all persons as well who read said circulars understood the said matters in said circulars to
have said libelous sense and meaning. Contrary to law.
Judge, Court of First Instance.
The information upon which said process was issued is as follows:
On the 20th day of December, 1912, the plaintiff, together with the other persons named as accused in said process through their
attorneys, served upon the prosecuting attorney and filed with the clerk of the court a motion to quash said summons and the service
thereof, on the ground that the court had no jurisdiction over the said company, there being no authority in the court for the issuance of
the process, Exhibit B, the order under which it was issued being void. The court denied the motion and directed plaintiff to appear before
it on the 28th day of December, 1912, and to plead to the information, to which order the plaintiff then and there duly excepted.
The undersigned accuses the West Coast Life Insurance Company, John Northcott, and Manuel C. Grey of the crime of libel, committed as
follows:
That on or about the 14th day of September, 1912, and continuously thereafter up to and including the date of this complaint, in the city
of Manila, P. I., the said defendant West Coast Life Insurance Company was and has been a foreign corporation duly organized in the State
of California, United States of America, and registered and doing business in the Philippine Islands; that the said defendant John Nortcott
then and there was and has been the general agent and manager for the Philippine Islands of the said defendant corporation West Coast
Life Insurance Company, and the said defendant Manuel C. Grey was and has been an agent and employee of the said defendant
corporation West Coast Life Insurance Company, acting in the capacity of treasurer of the branch of the said defendant corporation in the
Philippine Islands; that on or about the said 14th day of September, 1912, and for some time thereafter, to wit, during the months of
September and October, 1912, in the city of Manila, P.I., the said defendants West Coast Life Insurance Company, John Northcott, and
Manuel C. Grey, conspiring and confederating together, did then and there willfully, unlawfully, and maliciously, and to the damage of the
Insular Life Insurance Company, a domestic corporation duly organized, registered, and doing business in the Philippine Islands, and with
intent o cause such damage and to expose the said Insular Life Insurance Company to public hatred, contempt, and ridicule, compose and
print, and cause to be printed a large number of circulars, and, in numerous printings in the form of said circulars, did publish and
distribute, and cause to be published and distributed, among other persons, to policy holders and prospective policy holders of the said
Insular Life Insurance Company, among other things, a malicious defamation and libel in the Spanish language, of the words and tenor
following:
"First. For some time past various rumors are current to the effect that the Insular Life Insurance Company is not in as good a condition as
i should be at the present time, and that really it is in bad shape. Nevertheless, the investigations made by the representative of the
"Bulletin" have failed fully to confirm these rumors. It is known that the Insular Auditor has examined the books of the company and has
found that its capital has diminished, and that by direction of said official the company has decided to double the amount of its capital,
and also to pay its reserve fund. All this is true."
Caelitus Mihi Vires
It is alleged in the complaint that "unless restrained by this Court the respondent will proceed to carry out said void order and compel
your petitioner to appear before his court and plead and submit to criminal prosecution without having acquired any jurisdiction
whatever over your petitioner."
The prayer of the complaint is, "your petitioner prays judgment for the issuance of a writ of prohibition against the respondent,
commanding the respondent absolutely to desist or refrain from further proceedings against your petitioner in the said criminal action."
The basis of the action is that the Court of First Instance has no power or authority, under the laws of the Philippine Islands, to proceed
against a corporation, as such, criminally, to bring it into court for the purpose of making it amenable to the criminal laws. It is contended
that the court had no jurisdiction to issue the process in evidence against the plaintiff corporation; that the issuance and service thereof
upon the plaintiff corporation were outside of the authority and jurisdiction of the court, were authorized by no law, conferred no
jurisdiction over said corporation, and that they were absolutely void and without force or effect.
The plaintiff, further attacking said process, alleges that the process is a mixture of civil and criminal process, that it is not properly signed,
that it does not direct or require an arrest; that it s an order to appear and answer on a date certain without restraint of the person, and
that it is not in the form required by law.
Section 5 of General Orders, No. 58, defines an information as "accusation in writing charging a period with a public offense." Section 6
provide that a complaint or information is sufficient it if shows "the name of the defendant, or if his name cannot be discovered, that he is
described under a fictitious name with a statement that his true name is unknown to the informant or official signing the same. His true
name may be inserted at any stage of the proceedings instituted against him, whenever ascertained." These provisions, as well as those
57
which relate to arraignment and counsel, and to demurrers and pleas, indicate clearly that the maker of the Code of Criminal Procedure
had no intention or expectation that corporations would be included among those who would fall within the provisions thereof. The only
process known to the Code of Criminal Procedure, or which any court is by that order authorized to issue, is an order of arrest. The Code
of Criminal Procedure provides that "if the magistrate be satisfied from the investigation that the crime complained of has been
committed, and there is reasonable ground to believe that the party charged has committed it, he must issue an order for his arrest. If the
offense be bailable, and the defendant offer a sufficient security, he shall be admitted to bail; otherwise he shall be committed to prison."
There is no authority for the issuance of any other process than an order of arrest. As a necessary consequence, the process issued in the
case before us is without express authorization of statute.
The question remains as to whether or not he court may, of itself and on its own motion, create not only a process but a procedure by
which the process may be made effective.
We do not believe that the authority of the courts of the Philippine Islands extends so far. While having the inherent powers which usually
go with courts of general jurisdiction, we are of the opinion that, under the circumstances of their creation, they have only such authority
in criminal matters as is expressly conferred upon them by statute or which it is necessary to imply from such authority in order to carry
out fully and adequately the express authority conferred. We do not feel that Courts of First Instance have authority to create new
procedure and new processes in criminal law. The exercise of such power verges too closely on legislation. Even though it be admitted, a
question we do not now decide, that there are various penal laws in the Philippine Islands which corporation as such may violate, still we
do not believe that the courts are authorized to go to the extent of creating special procedure and special processes for the purpose of
carrying out those penal statutes, when the legislature itself has neglected to do so. To bring a corporation into court criminally requires
many additions to the present criminal procedure. While it may be said to be the duty of courts to see to it that criminals are punished, it
is no less their duty to follow prescribed forms of procedure and to go out upon unauthorized ways or act in an unauthorized manner.
The case was submitted to this Court on an agreed statement of facts with a stipulation for a decision upon the merits. We are of the
opinion that the plaintiff is entitled, under that stipulation, to the remedy prayed for.
It is adjudged that the Court of First Instance of the city of Manila be and it is hereby enjoined and prohibited from proceeding further in
the criminal cause which is before us in this proceeding, entitled United States vs. West Coast Life Insurance Company, a corporation, John
Northcott and Manuel C. Grey, so far as said proceedings relate to the said West Coast Life Insurance Company, a corporation, the
plaintiff in the case.
G.R. No. L-30896
April 28, 1983
JOSE O. SIA, petitioner,

vs.
THE PEOPLE OF THE PHILIPPINES, respondent.
DE CASTRO, J.:
There are many cases cited by counsel for the defendant which show that corporations have been proceeded against criminally by
indictment and otherwise and have been punished as malefactors by the courts. Of this, of course, there can be no doubt; but it is clear
that, in those cases, the statute, by express words or by necessary intendment, included corporations within the persons who could
offend against the criminal laws; and the legislature, at the same time established a procedure applicable to corporations. No case has
been cited to us where a corporation has been proceeded against under a criminal statute where the court did not exercise its common
law powers or where there was not in force a special procedure applicable to corporations.
The courts of the Philippine Islands are creatures of statute and, as we have said, have only those powers conferred upon them by statute
and those which are required to exercise that authority fully and adequately. The courts here have no common law jurisdiction or powers.
If they have any powers not conferred by statute, expressly or impliedly, they would naturally come from Spanish and not from common
law sources. It is undoubted that, under the Spanish criminal law and procedure, a corporation could not have been proceeded against
criminally, as such, if such an entity as a corporation in fact existed under the Spanish law, and as such it could not have committed a
crime in which a willful purpose or a malicious intent was required. Criminal actions would have been restricted or limited, under that
system, to the officials of such corporations and never would have been directed against the corporation itself. This was the rule with
relation to associations or combinations of persons approaching, more or less, the corporation as it is now understood, and it would
undoubtedly have been the rue with corporations. From this source, then, the courts derive no authority to bring corporations before
them in criminal actions, nor to issue processes for that purpose.
Caelitus Mihi Vires
Petition for review of the decision of the Court of Appeals affirming the decision of the Court of First Instance of Manila convicting the
appellant of estafa, under an information which reads:
That in, about or during the period comprised' between July 24, 1963 and December 31, 1963, both dates inclusive, in the City of Manila,
Philippines, the said accused did then and there willfully, unlawfully and feloniously defraud the Continental Bank, a banking institution
duly organized and doing business in the City of Manila, in the following manner, to wit: the said accused, in his capacity as president and
general manager of the Metal Manufacturing of the Philippines, Inc. (MEMAP) and on behalf of said company, obtained delivery of 150
M/T Cold Rolled Steel Sheets valued at P 71,023.60 under a trust receipt agreement under L/C No. 63/109, which cold rolled steel sheets
were consigned to the Continental Bank, under the express obligation on the part of said accused of holding the said steel sheets in trust
and selling them and turning over the proceeds of the sale to the Continental Bank; but the said accused, once in possession of the said
goods, far from complying with his aforesaid obligation and despite demands made upon him to do so, with intent to defraud, failed and
refused to return the said cold rolled sheets or account for the proceeds thereof, if sold, which the said accused willfully, unlawfully and
feloniously misappropriated, misapplied and converted to his own personal use and benefit, to the damage and prejudice of the said
Continental Bank in the total amount of P146,818.68, that is the balance including the interest after deducting the sum of P28,736.47
deposited by the said accused with the bank as marginal deposit and forfeited by the said from the value of the said goods, in the said
sum of P71,023.60. (Original Records, p. 1).
58
In reviewing the evidence, the Court of Appeals came up with the following findings of facts which the Solicitor General alleges should be
conclusive upon this Court:
There is no debate on certain antecedents: Accused Jose 0. Sia sometime prior to 24 May, 1963, was General Manager of the Metal
Manufacturing Company of the Philippines, Inc. engaged in the manufacture of steel office equipment; on 31 May, 1963, because his
company was in need of raw materials to be imported from abroad, he applied for a letter of credit to import steel sheets from Mitsui
Bussan Kaisha, Ltd. of Tokyo, Japan, the application being directed to the Continental Bank, herein complainant, Exhibit B and his
application having been approved, the letter of credit was opened on 5 June, 1963 in the amount of $18,300, Exhibit D; and the goods
arrived sometime in July, 1963 according to accused himself, tsn. II:7; now from here on there is some debate on the evidence; according
to Complainant Bank, there was permitted delivery of the steel sheets only upon execution of a trust receipt, Exhibit A; while according to
the accused, the goods were delivered to him sometime before he executed that trust receipt in fact they had already been converted
into steel office equipment by the time he signed said trust receipt, tsn. II:8; but there is no question - and this is not debated - that the
bill of exchange issued for the purpose of collecting the unpaid account thereon having fallen due (see Exh. B) neither accused nor his
company having made payment thereon notwithstanding demands, Exh. C and C-1, dated 17 and 27 December, 1963, and the accounts
having reached the sum in pesos of P46,818.68 after deducting his deposit valued at P28,736.47; that was the reason why upon complaint
by Continental Bank, the Fiscal filed the information after preliminary investigation as has been said on 22 October, 1964. (Rollo [CA], pp.
103- 104).
The first issue raised, which in effect combines the first three errors assigned, is whether petitioner Jose O. Sia, having only acted for and
in behalf of the Metal Manufacturing Company of the Philippines (Metal Company, for short) as President thereof in dealing with the
complainant, the Continental Bank, (Bank for short) he may be liable for the crime charged.
In discussing this question, petitioner proceeds, in the meantime, on the assumption that the acts imputed to him would constitute the
crime of estafa, which he also disputes, but seeks to avoid liability on his theory that the Bank knew all along that petitioner was dealing
with him only as an officer of the Metal Company which was the true and actual applicant for the letter of credit (Exhibit B) and which,
accordingly, assumed sole obligation under the trust receipt (Exhibit A). In disputing the theory of petitioner, the Solicitor General relies
on the general principle that when a corporation commits an act which would constitute a punishable offense under the law, it is the
responsible officers thereof, acting for the corporation, who would be punished for the crime, The Court of Appeals has subscribed to this
view when it quoted approvingly from the decision of the trial court the following:
A corporation is an artificial person, an abstract being. If the defense theory is followed unscrupulously legions would form corporations
to commit swindle right and left where nobody could be convicted, for it would be futile and ridiculous to convict an abstract being that
can not be pinched and confined in jail like a natural, living person, hence the result of the defense theory would be hopeless chose in
business and finance. It is completely untenable. (Rollo [CA], p. 108.)
The above-quoted observation of the trial court would seem to be merely restating a general principle that for crimes committed by a
corporation, the responsible officers thereof would personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil. 607. See also
Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.)
The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supra-may however not be squarely applicable to the
instant case in that the corporation was directly required by law to do an act in a given manner, and the same law makes the person who
fails to perform the act in the prescribed manner expressly liable criminally. The performance of the act is an obligation directly imposed
by the law on the corporation. Since it is a responsible officer or officers of the corporation who actually perform the act for the
corporation, they must of necessity be the ones to assume the criminal liability; otherwise this liability as created by the law would be
illusory, and the deterrent effect of the law, negated.
In the present case, a distinction is to be found with the Tan Boon Kong case in that the act alleged to be a crime is not in the performance
of an act directly ordained by law to be performed by the corporation. The act is imposed by agreement of parties, as a practice observed
in the usual pursuit of a business or a commercial transaction. The offense may arise, if at all, from the peculiar terms and condition
agreed upon by the parties to the transaction, not by direct provision of the law. The intention of the parties, therefore, is a factor
determinant of whether a crime was committed or whether a civil obligation alone intended by the parties. With this explanation, the
distinction adverted to between the Tan Boon Kong case and the case at bar should come out clear and meaningful. In the absence of an
express provision of law making the petitioner liable for the criminal offense committed by the corporation of which he is a president as in
fact there is no such provisions in the Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal liability
on his part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of criminal liability for which the accused is
made answerable must be clear and certain. The maxim that all doubts must be resolved in favor of the accused is always of compelling
force in the prosecution of offenses. This Court has thus far not ruled on the criminal liability of an officer of a corporation signing in
behalf of said corporation a trust receipt of the same nature as that involved herein. In the case of Samo vs. People, L-17603-04, May 31,
1962, the accused was not clearly shown to be acting other than in his own behalf, not in behalf of a corporation.
The next question is whether the violation of a trust receipt constitutes estafa under Art. 315 (1-[2]) of the Revised Penal Code, as also
raised by the petitioner. We now entertain grave doubts, in the light of the promulgation of P.D. 115 providing for the regulation of trust
receipts transaction, which is a very comprehensive piece of legislation, and includes an express provision that if the violation or offense is
committed by a corporation, partnership, association or other juridical entities the penalty provided for in this Decree shall be imposed
upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to civil liabilities
arising from the criminal offense. The question that suggests itself is, therefore, whether the provisions of the Revised Penal Code, Article
315, par. 1 (b) are not adequate to justify the punishment of the act made punishable by P.D. 115, that the necessity was felt for the
promulgation of the decree. To answer this question, it is imperative to make an indepth analysis of the conditions usually embodied in a
trust receipt to best their legal sufficiency to constitute the basis for holding the violation of said conditions as estafa under Article 315 of
the Revised Penal Code which P.D. 115 now seeks to punish expressly.
As executed, the trust receipt in question reads:
Caelitus Mihi Vires
59
I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as its property with liberty to sell the same for its account but
without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either way of
conditional sale, pledge or otherwise;
In case of sale I/we further agree to hand the proceeds as soon as received to the BANK to apply against the relative acceptance (as
described above) and for the payment of any other indebtedness of mine/ours to CONTINENTAL BANK. (Original Records, p. 108)
One view is to consider the transaction as merely that of a security of a loan, and that the trust element is but and inherent feature of the
security aspect of the arrangement where the goods are placed in the possession of the "entrustee," to use the term used in P.D. 115,
violation of the element of trust not being intended to be in the same concept as how it is understood in the criminal sense. The other
view is that the bank as the owner and "entrustor" delivers the goods to the "entrustee, " with the authority to sell the goods, but with
the obligation to give the proceeds to the "entrustor" or return the goods themselves if not sold, a trust being thus created in the full
sense as contemplated by Art. 315, par. 1 (b).
We consider the view that the trust receipt arrangement gives rise only to civil liability as the more feasible, before the promulgation of
P.D. 115. The transaction being contractual, the intent of the parties should govern. Since the trust receipt has, by its nature, to be
executed upon the arrival of the goods imported, and acquires legal standing as such receipt only upon acceptance by the "entrustee,"
the trust receipt transaction itself, the antecedent acts consisting of the application of the L/C, the approval of the L/C and the making of
the marginal deposit and the effective importation of the goods, all through the efforts of the importer who has to find his supplier,
arrange for the payment and shipment of the imported goods-all these circumstances would negate any intent of subjecting the importer
to criminal prosecution, which could possibly give rise to a case of imprisonment for non-payment of a debt. The parties, therefore, are
deemed to have consciously entered into a purely commercial transaction that could give rise only to civil liability, never to subject the
"entrustee" to criminal prosecution. Unlike, for instance, when several pieces of jewelry are received by a person from the owner for sale
on commission, and the former misappropriates for his personal use and benefit, either the jewelries or the proceeds of the sale, instead
of returning them to the owner as is his obligation, the bank is not in the same concept as the jewelry owner with full power of disposition
of the goods, which the bank does not have, for the bank has previously extended a loan which the L/C represents to the importer, and by
that loan, the importer should be the real owner of the goods. If under the trust receipt the bank is made to appear as the owner, it was
but an artificial expedient, more of a legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants,
which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the
importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof, a
feature totally absent in the case of the transaction between the jewel-owner and his agent.
There is, moreover, one circumstance appearing on record, the significance of which should be properly evaluated. As stated in
petitioner's brief (page 2), not denied by the People, "before the Continental Bank approved the application for a letter of credit (Exhibit
'D'), subsequently covered by the trust receipt, the Continental Bank examined the financial capabilities of the applicant, Metal
Manufacturing Company of the Philippines because that was the bank's standard procedure (Testimony of Mr. Ernesto Garlit, Asst.
Manager of the Foreign Department, Continental Bank, t.s.n., August 30, 1965). The Continental Bank did not examine the financial
capabilities of herein petitioner, Jose O. Sia, in connection with the same letter of credit. (Ibid). " From this fact, it would appear as
positively established that the intention of the parties in entering into the "trust receipt" agreement is merely to afford a stronger security
for the loan evidenced by the letter of credit, may be not as an ordinary pledge as observed in P.N.B. vs. Viuda e Hijos de Angel Jose, et al.,
63 Phil. 814, citing In re Dunlap C (206 Fed. 726) but neither as a transaction falling under Article 315-1 (b) of the Revised Penal Code
giving rise to criminal liability, as previously explained and demonstrated.
It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal Company. Speaking of such liability alone,
as one arising from the contract, as distinguished from the civil liability arising out of a crime, the petitioner was never intended to be
equally liable as the corporation. Without being made so liable personally as the corporation is, there would then be no basis for holding
him criminally liable, for any violation of the trust receipt. This is made clearly so upon consideration of the fact that in the violation of the
trust agreement and in the absence of positive evidence to the contrary, only the corporation benefited, not the petitioner personally,
yet, the allegation of the information is to effect that the misappropriation or conversion was for the personal use and benefit of the
petitioner, with respect to which there is variance between the allegation and the evidence.
It is also worthy of note that while the trust receipt speaks of authority to sell, the fact is undisputed that the imported goods were to be
manufactured into finished products first before they could be sold, as the Bank had full knowledge of. This fact is, however, not
embodied in the trust agreement, thus impressing on the trust receipt vagueness and ambiguity which should not be the basis for criminal
prosecution, in the event of a violation of the terms of the trust receipt. Again, P.D. 115 has express provision relative to the "manufacture
or process of the good with the purpose of ultimate sale," as a distinct condition from that of "to sell the goods or procure their sale"
(Section 4, (1). Note that what is embodied in the receipt in question is the sale of imported goods, the manufacture thereof not having
been mentioned. The requirement in criminal prosecution, that there must be strict harmony, not variance, between the allegation and
the evidence, may therefore, not be said to have been satisfied in the instance case.
FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and hereby acquit the petitioner, with costs de oficio.
SO ORDERED.
Consequently, if only from the fact that the trust receipt transaction is susceptible to two reasonable interpretation, one as giving rise
only to civil liability for the violation of the condition thereof, and the other, as generating also criminal liability, the former should be
adopted as more favorable to the supposed offender. (Duran vs. CA, L-39758, May 7, 1976, 71 SCRA 68; People vs. Parayno, L-24804, July
5, 1968, 24 SCRA 3; People vs. Abendan, L-1481, January 28,1949,82 Phil. 711; People vs. Bautista, L-1502, May 24, 1948, 81 Phil. 78;
People vs. Abana, L-39, February 1, 1946, 76 Phil. 1.)
ARNEL U. TY, MARIE ANTONETTE TY, JASON ONG, WILLY DY, and ALVIN TY,
Petitioners, - versus - NBI SUPERVISING AGENT MARVIN E. DE JEMIL, PETRON GASUL DEALERS ASSOCIATION, and TOTALGAZ
DEALERS ASSOCIATION,
Respondents.
Caelitus Mihi Vires
60
G.R. No. 182147
Trial Court (RTC) in Pasig City, attaching, among others, his affidavit[15] and the affidavit of Edgardo C. Kawada,[16] an NBI confidential
agent.
December 15, 2010

The Case
61In this Petition for Review on Certiorari under Rule 45, petitioners seek the reversal of the Decision[1] dated September 28, 2007 of the
Court of Appeals (CA) in CA-G.R. SP No. 98054, which reversed and set aside the Resolutions dated October 9, 2006[2] and December 14,
2006[3] of the Secretary of Justice, and reinstated the November 7, 2005 Joint Resolution[4] of the Office of the Chief State Prosecutor.
Petitioners assail also the CA Resolution[5] dated March 14, 2008, denying their motion for reconsideration.
On the same day of the filing of the application for search warrants on April 28, 2004, the RTC, Branch 167 in Pasig City issued Search
Warrants No. 2624[17] and 2625.[18] The NBI served the warrants the next day or on April 29, 2004 resulting in the seizure of several
items from Omnis premises duly itemized in the NBIs Receipt/Inventory of Property/Item Seized.[19] On May 25, 2004, Agent De Jemil
filed his Consolidated Return of Search Warrants with Ex-Parte Motion to Retain Custody of the Seized Items[20] before the RTC Pasig
City.
The Facts
Petitioners are stockholders of Omni Gas Corporation (Omni) as per Omnis General Information Sheet*6+ (GIS) dated March 6, 2004
submitted to the Securities and Exchange Commission (SEC). Omni is in the business of trading and refilling of Liquefied Petroleum Gas
(LPG) cylinders and holds Pasig City Mayors Permit No. RET-04-001256 dated February 3, 2004.
The case all started when Joaquin Guevara Adarlo & Caoile Law Offices (JGAC Law Offices) sent a letter dated March 22, 2004[7] to the
NBI requesting, on behalf of their clients Shellane Dealers Association, Inc., Petron Gasul Dealers Association, Inc., and Totalgaz Dealers
Association, Inc., for the surveillance, investigation, and apprehension of persons or establishments in Pasig City that are engaged in
alleged illegal trading of petroleum products and underfilling of branded LPG cylinders in violation of Batas Pambansa Blg. (BP) 33,[8] as
amended by Presidential Decree No. (PD) 1865.[9]
Earlier, the JGAC Law Offices was furnished by several petroleum producers/brand owners their respective certifications on the
dealers/plants authorized to refill their respective branded LPG cylinders, to wit: (1) On October 3, 2003, Pilipinas Shell Petroleum
Corporation (Pilipinas Shell) issued a certification[10] of the list of entities duly authorized to refill Shellane LPG cylinders; (2) on December
4, 2003, Petron Corporation (Petron) issued a certification[11] of their dealers in Luzon, Visayas, and Mindanao authorized to refill Petron
Gasul LPG cylinders; and (3) on January 5, 2004, Total (Philippines) Corporation (Total) issued two certifications[12] of the refilling stations
and plants authorized to refill their Totalgaz and Superkalan Gaz LPG cylinders.
Agents De Jemil and Kawada attested to conducting surveillance of Omni in the months of March and April 2004 and doing a test-buy on
April 15, 2004. They brought eight branded LPG cylinders of Shellane, Petron Gasul, Totalgaz, and Superkalan Gaz to Omni for refilling.
The branded LPG cylinders were refilled, for which the National Bureau of Investigation (NBI) agents paid PhP 1,582 as evidenced by Sales
Invoice No. 90040[13] issued by Omni on April 15, 2004. The refilled LPG cylinders were without LPG valve seals and one of the cylinders
was actually underfilled, as found by LPG Inspector Noel N. Navio of the Liquefied Petroleum Gas Industry Association (LPGIA) who
inspected the eight branded LPG cylinders on April 23, 2004 which were properly marked by the NBI after the test-buy.
The NBIs test-buy yielded positive results for violations of BP 33, Section 2(a) in relation to Secs. 3(c) and 4, i.e., refilling branded LPG
cylinders without authority; and Sec. 2(c) in relation to Sec. 4, i.e., underdelivery or underfilling of LPG cylinders. Thus, on April 28, 2004,
Agent De Jemil filed an Application for Search Warrant (With Request for Temporary Custody of the Seized Items)[14] before the Regional
Caelitus Mihi Vires
Subsequently, Agent De Jemil filed before the Department of Justice (DOJ) his Complaint-Affidavits against petitioners for: (1) Violation of
Section 2(a), in relation to Sections 3(c) and 4, of B.P. Blg. 33, as amended by P.D. 1865;[21] and (2) Violation of Section 2(c), in relation to
Section 4, of B.P. Blg. 33, as amended by P.D. 1865,[22] docketed as I.S. Nos. 2004-616 and 2004-618, respectively.
During the preliminary investigation, petitioners submitted their Joint Counter-Affidavit,[23] which was replied[24] to by Agent De Jemil
with a corresponding rejoinder[25] from petitioners.
The Ruling of the Office of the Chief State Prosecutor

in I.S. No. 2004-616 and I.S. No. 2004-618
On November 7, 2005, the 3rd Assistant City Prosecutor Leandro C. Catalo of Manila issued a Joint Resolution,[26] later approved by the
Chief State Prosecutor Jovencito R. Zuo upon the recommendation of the Head of the Task Force on Anti-Intellectual Property Piracy
(TFAIPP), Assistant Chief State Prosecutor Leah C. Tanodra-Armamento, finding probable cause to charge petitioners with violations of
pertinent sections of BP 33, as amended, resolving as follows:
WHEREFORE, premises considered, it is hereby recommended that two (2) Informations for violations of Section 2 [a] (illegal trading in
petroleum and/or petroleum products) and Section 2 [c] (underfilling of LPG cylinders), both of Batas Pambansa Bilang 33, as amended,
be filed against respondents [herein petitioners] ARNEL TY, MARIE ANTONETTE TY, JASON ONG, WILLY DY and ALVIN TY.[27]
Assistant City Prosecutor Catalo found the existence of probable cause based on the evidence submitted by Agent De Jemil establishing
the fact that Omni is not an authorized refiller of Shellane, Petron Gasul, Totalgaz and Superkalan Gaz LPG cylinders. Debunking
61
petitioners contention that the branded LPG cylinders are already owned by consumers who are free to do with them as they please, the
law is clear that the stamped markings on the LPG cylinders show who are the real owners thereof and they cannot be refilled sans
authority from Pilipinas Shell, Petron or Total, as the case may be. On the underfilling of one LPG cylinder, the findings of LPG Inspector
Navio of the LPGIA were uncontroverted by petitioners.
Agent De Jemil moved but was denied reconsideration[33] through another Resolution[34] dated December 14, 2006 prompting him to
repair to the CA via a petition for certiorari[35] under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 98054.
The Ruling of the CA

Petitioners motion for reconsideration,*28+ was denied through a Resolution[29] by the Office of the Chief State Prosecutor issued on
May 3, 2006.
The Office of the Solicitor General (OSG), in its Comment*36+ on Agent De Jemils appeal, sought the dismissal of the latters petition
viewing that the determination by the Office of the Secretary of Justice of probable cause is entitled to respect owing to the exercise of his
prerogative to prosecute or not.
In time, petitioners appealed to the Office of the Secretary of Justice.[30]
The Ruling of the DOJ Secretary

in I.S. No. 2004-616 and I.S. No. 2004-618
On October 9, 2006, the Office of the Secretary of Justice issued a Resolution[31] reversing and setting aside the November 7, 2005 Joint
Resolution of the Office of the Chief State Prosecutor, the dispositive portion of which reads:
WHEREFORE, the assailed resolution is hereby REVERSED and SET ASIDE. The Chief State Prosecutor is directed to cause the withdrawal
of the informations for violations of Sections 2(a) and 2(c) of B.P. Blg. 33, as amended by P.D. 1865, against respondents Arnel Ty, Mari
Antonette Ty, Jason Ong, Willy Dy and Alvin Ty and report the action taken within ten (10) days from receipt hereof.
SO ORDERED.[32]
The Office of the Secretary of Justice viewed, first, that the underfilling of one of the eight LPG cylinders was an isolated incident and
cannot give rise to a conclusion of underfilling, as the phenomenon may have been caused by human error, oversight or technical error.
Being an isolated case, it ruled that there was no showing of a clear pattern of deliberate underfilling. Second, on the alleged violation of
refilling branded LPG cylinders sans written authority, it found no sufficient basis to hold petitioners responsible for violation of Sec. 2 (c)
of BP 33, as amended, since there was no proof that the branded LPG cylinders seized from Omni belong to another company or firm,
holding that the simple fact that the LPG cylinders with markings or stamps of other petroleum producers cannot by itself prove
ownership by said firms or companies as the consumers who take them to Omni fully owned them having purchased or acquired them
beforehand.
Caelitus Mihi Vires
On August 31, 2007, Petron filed a Motion to Intervene and to Admit Attached Petition-in-Intervention[37] and Petition-inIntervention[38] before the CA in CA-G.R. SP No. 98054. And much earlier, the Nationwide Association of Consumers, Inc. (NACI) also filed
a similar motion.
On September 28, 2007, the appellate court rendered the assailed Decision[39] revoking the resolutions of the Office of the Secretary of
Justice and reinstated the November 7, 2005 Joint Resolution of the Office of the Chief State Prosecutor. The fallo reads:
WHEREFORE, the instant petition is GRANTED. The assailed resolutions dated October 9, 2006 and December 14, 2006 are hereby
REVERSED and SET ASIDE. The Joint Resolution dated November 7, 2005 of the Office of the Chief State Prosecutor finding probable cause
against private respondents Arnel Ty, Marie Antonette Ty, Jason Ong, Willy Dy, and Alvin Ty is hereby REINSTATED.
SO ORDERED.[40]
Citing Sec. 1 (1) and (3) of BP 33, as amended, which provide for the presumption of underfilling, the CA held that the actual underfilling of
an LPG cylinder falls under the prohibition of the law which does not require for the underfilling to be substantial and deliberate.
Moreover, the CA found strong probable violation of refilling of another companys or firms cylinders without such companys or firms
written authorization under Sec. 3 (c) of BP 33, as amended. The CA relied on the affidavits of Agents De Jemil and Kawada, the
certifications from various LPG producers that Omni is not authorized to refill their branded LPG cylinders, the results of the test-buy
operation as attested to by the NBI agents and confirmed by the examination of LPG Inspector Navio of the LPGIA, the letter-opinion[41]
of the Department of Energy (DOE) to Pilipinas Shell confirming that branded LPG cylinders are properties of the companies whose stamp
markings appear thereon, and Department Circular No. 2000-05-007[42] of the DOE on the required stamps or markings by the
manufacturers of LPG cylinders.
62
After granting the appeal of Agent De Jemil, however, the motions to intervene filed by Petron and NACI were simply noted by the
appellate court.
Petitioners motion for reconsideration was rebuffed by the CA through the equally assailed March 14, 2008 Resolution.[43]
Thus, the instant petition.
The Issues
I.
On April 14, 2009, Petron entered its appearance by filing a Motion for Leave to Intervene and to Admit Comment-in-Intervention[45] and
its Comment-in-Intervention [To petition for Review on Certiorari dated 13 May 2008].[46] It asserted vested interest in the seizure of
several Gasul LPG cylinders and the right to prosecute petitioners for unauthorized refilling of its branded LPG cylinders by Omni.
Petitioners duly filed their Comment/Opposition[47] to Petrons motion to intervene. It is clear, however, that Petron has substantial
interest to protect in so far as its business relative to the sale and refilling of Petron Gasul LPG cylinders is concerned, and therefore its
intervention in the instant case is proper.
The Courts Ruling
We partially grant the petition.
WHETHER OR NOT RESPONDENTS WERE ENTITLED TO THE SPECIAL CIVIL ACTION OF CERTIORARI IN THE COURT OF APPEALS.
II. WHETHER OR NOT UNDER THE CIRCUMSTANCES THERE WAS PROBABLE CAUSE TO BELIEVE THAT PETITIONERS VIOLATED SECTION
2(A) OF BATAS PAMBANSA BLG. 33, AS AMENDED.
III. WHETHER OR NOT UNDER THE CIRCUMSTANCES THERE WAS PROBABLE CAUSE TO BELIEVE THAT PETITIONERS VIOLATED SECTION
2(C) OF BATAS PAMBANSA BLG. 33, AS AMENDED.
IV. WHETHER OR NOT PETITIONERS CAN BE HELD LIABLE UNDER BATAS PAMBANSA BLG. 33, AS AMENDED, FOR BEING MERE
DIRECTORS, NOT ACTUALLY IN CHARGE OF THE MANAGEMENT OF THE BUSINESS AFFAIRS OF THE CORPORATION.[44]
Procedural Issue: Petition for Certiorari under Rule 65 Proper
Petitioners raise the sole procedural issue of the propriety of the legal remedy availed of by public respondent Agent De Jemil. They
strongly maintain that the Office of the Secretary of Justice properly assumed jurisdiction and did not gravely abuse its discretion in its
determination of lack of probable causethe exercise thereof being its sole prerogativewhich, they lament, the appellate court did not
accord proper latitude. Besides, they assail the non-exhaustion of administrative remedies when Agent De Jemil immediately resorted to
court action through a special civil action for certiorari under Rule 65 before the CA without first appealing the resolutions of the Office of
the Secretary of Justice to the Office of the President (OP).
We cannot agree with petitioners.

The foregoing issues can be summarized into two core issues: first, whether probable cause exists against petitioners for violations of Sec.
2 (a) and (c) of BP 33, as amended; and second, whether petitioners can be held liable therefor. We, however, will tackle at the outset the
sole procedural issue raised: the propriety of the petition for certiorari under Rule 65 availed of by public respondent Agent De Jemil to
assail the resolutions of the Office of the Secretary of Justice.
For one, while it is the consistent principle in this jurisdiction that the determination of probable cause is a function that belongs to the
public prosecutor[48] and, ultimately, to the Secretary of Justice, who may direct the filing of the corresponding information or move for
the dismissal of the case;[49] such determination is subject to judicial review where it is established that grave abuse of discretion tainted
the determination.
Petrons Comment-in-Intervention
Caelitus Mihi Vires
63
For another, there is no question that the Secretary of Justice is an alter ego of the President who may opt to exercise or not to exercise
his or her power of review over the formers determination in criminal investigation cases. As aptly noted by Agent De Jemil, the
determination of probable cause by the Secretary of Justice is, under the doctrine of qualified political agency, presumably that of the
Chief Executive unless disapproved or reprobated by the latter.
major players Petron, Total and Pilipinas Shell. Nonetheless, the non-signing of the MOA does not diminish the fact of the recognized
industry practice of cylinder exchange or swapping. Relying on Republic Act No. (RA) 8479,[54] petitioners maintain that said law
promotes and encourages the entry of new participants in the petroleum industry such as Omni. And in furtherance of this mandate is
the valid practice of cylinder exchange or swapping in the LPG industry.
Chan v. Secretary of Justice[50] delineated the proper remedy from the determination of the Secretary of Justice. Therein, the Court,
after expounding on the policy of non-interference in the determination of the existence of probable cause absent any showing of
arbitrariness on the part of the public prosecutor and the Secretary of Justice, however, concluded, citing Alcaraz v. Gonzalez[51] and
Preferred Home Specialties, Inc. v. Court of Appeals,[52] that an aggrieved party from the resolution of the Secretary of Justice may
directly resort to judicial review on the ground of grave abuse of discretion, thus:
We are not persuaded by petitioners strained rationalizations.
x x x [T]he findings of the Justice Secretary may be reviewed through a petition for certiorari under Rule 65 based on the allegation that he
acted with grave abuse of discretion. This remedy is available to the aggrieved party.[53] (Emphasis supplied.)
It is thus clear that Agent De Jemil, the aggrieved party in the assailed resolutions of the Office of the Secretary of Justice, availed of and
pursued the proper legal remedy of a judicial review through a petition for certiorari under Rule 65 in assailing the latters finding of lack
of probable cause on the ground of grave abuse of discretion.
First Core Issue: Existence of Probable Cause
Petitioners contend that there is no probable cause that Omni violated Sec. 2 (a), in relation to Secs. 3 (c) and 4 of BP 33, as amended,
prohibiting the refilling of another companys or firms LPG cylinders without its written authorization. First, the branded LPG cylinders
seized were not traded by Omni as its representative annotated in the NBI receipt of seized items that the filled LPG cylinders came from
customers trucks and the empty ones were taken from the warehouse or swapping section of the refilling plant and not from the refilling
section. Second, the branded LPG cylinders are owned by end-user customers and not by the major petroleum companies, i.e., Petron,
Pilipinas Shell and Total. And even granting arguendo that Omni is selling these LPG cylinders, still there cannot be a prima facie case of
violation since there is no proof that the refilled branded LPG cylinders are owned by another company or firm.
Third, granting that Petron, Total and Pilipinas Shell still own their respective branded LPG cylinders already sold to consumers, still such
fact will not bind third persons, like Omni, who is not privy to the agreement between the buying consumers and said major petroleum
companies. Thus, a subsequent transfer by the customers of Petron, Total and Pilipinas Shell of the duly marked or stamped LPG cylinders
through swapping, for example, will effectively transfer ownership of the LPG cylinders to the transferee, like Omni.
Fourth, LPG cylinder exchange or swapping is a common industry practice that the DOE recognizes. They point to a series of meetings
conducted by the DOE for institutionalizing the validity of swapping of all and any kind of LPG cylinders among the industry players. The
meetings resulted in a draft Memorandum of Agreement (MOA) which unfortunately was not signed due to the withdrawal of petroleum
Caelitus Mihi Vires
Probable violation of Sec. 2 (a) of BP 33, amended
First. The test-buy conducted on April 15, 2004 by the NBI agents, as attested to by their respective affidavits, tends to show that Omni
illegally refilled the eight branded LPG cylinders for PhP 1,582. This is a clear violation of Sec. 2 (a), in relation to Secs. 3 (c) and 4 of BP 33,
as amended. It must be noted that the criminal complaints, as clearly shown in the complaint-affidavits of Agent De Jemil, are not based
solely on the seized items pursuant to the search warrants but also on the test-buy earlier conducted by the NBI agents.
Second. The written certifications from Pilipinas Shell, Petron and Total show that Omni has no written authority to refill LPG cylinders,
embossed, marked or stamped Shellane, Petron Gasul, Totalgaz and Superkalan Gaz. In fact, petitioners neither dispute this nor claim
that Omni has authority to refill these branded LPG cylinders.
Third. Belying petitioners contention, the seized items during the service of the search warrants tend to show that Omni illegally refilled
branded LPG cylinders without authority.
On April 29, 2004, the NBI agents who served the search warrants on Omni seized the following:
Quantity/Unit
Description
7 LPG cylinders
Totalgaz, 11.0 kg [filled]
1 LPG cylinder
Petron Gasul, 11.0 kg [filled]
1 LPG cylinder
Shellane, 11.0 kg [filled]
29 LPG cylinders
Superkalan Gaz, 2.7 kg [empty]
64
17 LPG cylinders
Petron Gasul, 11.0 kg [emptly]
8 LPG cylinders
Marked as Omnigas with Shell emboss,

11.0 kg [empty]
5 LPG cylinders
Illegal trading in petroleum and/or petroleum products
xxxx
Marked as Omnigas with Totalgaz emboss,

11.0 kg [empty]
23 LPG cylinders
Shellane, 11.0 kg [empty]
3 LPG cylinders
Marked as Omnigas with Gasul emboss,
(c)
Refilling of liquefied petroleum gas cylinders without authority from said Bureau, or refilling of another companys or firms
cylinders without such companys or firms written authorization; (Emphasis supplied.)
11.0 kg [empty]
21 LPG cylinders
Totalgaz, 11.0 kg [empty]
The foregoing list is embodied in the NBIs Receipt/Inventory of Property/Item Seized*55+ signed by NBI Agent Edwin J. Roble who served
and implemented the search warrants. And a copy thereof was duly received by Atty. Allan U. Ty, representative of Omni, who signed the
same under protest and made the annotation at the bottom part thereon: The above items/cylinders were taken at customers trucks
and the empty cylinders taken at the warehouse (swapping section) of the company.*56+
Even considering that the filled LPG cylinders were indeed already loaded on customers trucks when confiscated, yet the fact that these
refilled LPG cylinders consisting of nine branded LPG cylinders, specifically Totalgaz, Petron Gasul and Shellane, tends to show that Omni
indeed refilled these branded LPG cylinders without authorization from Total, Petron and Pilipinas Shell. Such a fact is bolstered by the
test-buy conducted by Agent De Jemil and NBI confidential agent Kawada: Omnis unauthorized refilling of branded LPG cylinders,
contrary to Sec. 2 (a) in relation to Sec. 3 (c) of BP 33, as amended. Said provisos provide:
Sec. 2. Prohibited Acts.The following acts are prohibited and penalized:
As petitioners strongly argue, even if the branded LPG cylinders were indeed owned by customers, such fact does not authorize Omni to
refill these branded LPG cylinders without written authorization from the brand owners Pilipinas Shell, Petron and Total. In Yao, Sr. v.
People,[57] a case involving criminal infringement of property rights under Sec. 155 of RA 8293,*58+ in affirming the courts a quos
determination of the presence of probable cause, this Court held that from Sec. 155.1*59+ of RA 8293 can be gleaned that mere
unauthorized use of a container bearing a registered trademark in connection with the sale, distribution or advertising of goods or
services which is likely to cause confusion, mistake or deception among the buyers/consumers can be considered as trademark
infringement.*60+ The Court affirmed the presence of infringement involving the unauthorized sale of Gasul and Shellane LPG cylinders
and the unauthorized refilling of the same by Masagana Gas Corporation as duly attested to and witnessed by NBI agents who conducted
the surveillance and test-buys.
Similarly, in the instant case, the fact that Omni refilled various branded LPG cylinders even if owned by its customers but without
authority from brand owners Petron, Pilipinas Shell and Total shows palpable violation of BP 33, as amended. As aptly noted by the Court
in Yao, Sr. v. People, only the duly authorized dealers and refillers of Shellane, Petron Gasul and, by extension, Total may refill these
branded LPG cylinders. Our laws sought to deter the pernicious practices of unscrupulous businessmen.
Fourth. The issue of ownership of the seized branded LPG cylinders is irrelevant and hence need no belaboring. BP 33, as amended, does
not require ownership of the branded LPG cylinders as a condition sine qua non for the commission of offenses involving petroleum and
petroleum products. Verily, the offense of refilling a branded LPG cylinder without the written consent of the brand owner constitutes
the offense regardless of the buyer or possessor of the branded LPG cylinder.
(a) Illegal trading in petroleum and/or petroleum products;
xxxx
Sec. 3. Definition of terms.For the purpose of this Act, the following terms shall be construed to mean:
Caelitus Mihi Vires
After all, once a consumer buys a branded LPG cylinder from the brand owner or its authorized dealer, said consumer is practically free to
do what he pleases with the branded LPG cylinder. He can simply store the cylinder once it is empty or he can even destroy it since he has
paid a deposit for it which answers for the loss or cost of the empty branded LPG cylinder. Given such fact, what the law manifestly
prohibits is the refilling of a branded LPG cylinder by a refiller who has no written authority from the brand owner. Apropos, a refiller
cannot and ought not to refill branded LPG cylinders if it has no written authority from the brand owner.
65
Besides, persuasive are the opinions and pronouncements by the DOE: brand owners are deemed owners of their duly embossed,
stamped and marked LPG cylinders even if these are possessed by customers or consumers. The Court recognizes this right pursuant to
our laws, i.e., Intellectual Property Code of the Philippines. Thus the issuance by the DOE Circular No. 2000-05-007,[61] the letteropinion[62] dated December 9, 2004 of then DOE Secretary Vincent S. Perez addressed to Pilipinas Shell, the June 6, 2007 letter[63] of
then DOE Secretary Raphael P.M. Lotilla to the LPGIA, and DOE Department Circular No. 2007-10-0007[64] on LPG Cylinder Ownership
and Obligations Related Thereto issued on October 13, 2007 by DOE Secretary Angelo T. Reyes.
Fifth. The ownership of the seized branded LPG cylinders, allegedly owned by Omni customers as petitioners adamantly profess, is of no
consequence.
The law does not require that the property to be seized should be owned by the person against whom the search warrants is directed.
Ownership, therefore, is of no consequence, and it is sufficient that the person against whom the warrant is directed has control or
possession of the property sought to be seized.[65] Petitioners cannot deny that the seized LPG cylinders were in the possession of Omni,
found as they were inside the Omni compound.
In fine, we also note that among those seized by the NBI are 16 LPG cylinders bearing the embossed brand names of Shellane, Gasul and
Totalgaz but were marked as Omnigas. Evidently, this pernicious practice of tampering or changing the appearance of a branded LPG
cylinder to look like another brand violates the brand owners property rights as infringement under Sec. 155.1 of RA 8293. Moreover,
tampering of LPG cylinders is a mode of perpetrating the criminal offenses under BP 33, as amended, and clearly enunciated under DOE
Circular No. 2000-06-010 which provided penalties on a per cylinder basis for each violation.
Foregoing considered, in the backdrop of the quantum of evidence required to support a finding of probable cause, we agree with the
appellate court and the Office of the Chief State Prosecutor, which conducted the preliminary investigation, that there exists probable
cause for the violation of Sec. 2 (a) in relation to Sec. 3 (c) of BP 33, as amended. Probable cause has been defined as the existence of
such facts and circumstances as would excite belief in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that
the person charged was guilty of the crime for which he was prosecuted.[66] After all, probable cause need not be based on clear and
convincing evidence of guilt, as the investigating officer acts upon reasonable beliefprobable cause implies probability of guilt and
requires more than bare suspicion but less than evidence which would justify a conviction.[67]
Probable violation of Sec. 2 (c) of BP 33, as amended
Anent the alleged violation of Sec. 2 (c) in relation to Sec. 4 of BP 33, as amended, petitioners strongly argue that there is no probable
cause for said violation based upon an underfilling of a lone cylinder of the eight branded LPG cylinders refilled during the test-buy.
Besides, they point out that there was no finding of underfilling in any of the filled LPG cylinders seized during the service of the search
warrants. Citing DOEs Bureau of Energy Utilization Circular No. 85-3-348, they maintain that some deviation is allowed from the exact
filled weight. Considering the fact that an isolated underfilling happened in so many LPG cylinders filled, petitioners are of the view that
such is due to human or equipment error and does not in any way constitute deliberate underfilling within the contemplation of the law.
Caelitus Mihi Vires
Moreover, petitioners cast aspersion on the report and findings of LPG Inspector Navio of the LPGIA by assailing his independence for
being a representative of the major petroleum companies and that the inspection he conducted was made without the presence of any
DOE representative or any independent body having technical expertise in determining LPG cylinder underfilling beyond the authorized
quantity.
Again, we are not persuaded.
Contrary to petitioners arguments, a single underfilling constitutes an offense under BP 33, as amended by PD 1865, which clearly
criminalizes these offenses. In Perez v. LPG Refillers Association of the Philippines, Inc.,[68] the Court affirmed the validity of DOE Circular
No. 2000-06-010 which provided penalties on a per cylinder basis for each violation, thus:
B.P. Blg. 33, as amended, criminalizes illegal trading, adulteration, underfilling, hoarding, and overpricing of petroleum products. Under
this general description of what constitutes criminal acts involving petroleum products, the Circular merely lists the various modes by
which the said criminal acts may be perpetrated, namely: no price display board, no weighing scale, no tare weight or incorrect tare
weight markings, no authorized LPG seal, no trade name, unbranded LPG cylinders, no serial number, no distinguishing color, no
embossed identifying markings on cylinder, underfilling LPG cylinders, tampering LPG cylinders, and unauthorized decanting of LPG
cylinders. These specific acts and omissions are obviously within the contemplation of the law, which seeks to curb the pernicious
practices of some petroleum merchants.[69] (Emphasis supplied.)
Moreover, in denying the motion for reconsideration of the LPG Refillers Association of the Philippines, Inc., the Court upheld the basis of
said DOE Circular No. 2000-06-010 on the imposition of penalties on a per cylinder basis, thus:
Respondents position is untenable. The Circular is not confiscatory in providing penalties on a per cylinder basis. Those penalties do not
exceed the ceiling prescribed in Section 4 of B.P. Blg. 33, as amended, which penalizes any person who commits any act *t+herein
prohibited. Thus, violation on a per cylinder basis falls within the phrase any act as mandated in Section 4. To provide the same
penalty for one who violates a prohibited act in B.P. Blg. 33, as amended, regardless of the number of cylinders involved would result in an
indiscriminate, oppressive and impractical operation of B.P. Blg. 33, as amended. The equal protection clause demands that all persons
subject to such legislation shall be treated alike, under like circumstances and conditions, both in the privileges conferred and in the
liabilities imposed.*70+
The Court made it clear that a violation, like underfilling, on a per cylinder basis falls within the phrase of any act as mandated under Sec.
4 of BP 33, as amended. Ineluctably, the underfilling of one LPG cylinder constitutes a clear violation of BP 33, as amended. The finding of
66
underfilling by LPG Inspector Navio of the LPGIA, as aptly noted by Manila Assistant City Prosecutor Catalo who conducted the preliminary
investigation, was indeed not controverted by petitioners.
On the issue of manifest bias and partiality, suffice it to say that aside from the allegation by petitioners, they have not shown that LPG
Inspector Navio is neither an expert nor qualified to determine underfilling. Besides, it must be noted that the inspection by LPG
Inspector Navio was conducted in the presence of NBI agents on April 23, 2004 who attested to that fact through their affidavits.
Moreover, no rules require and petitioners have not cited any that the inspection be conducted in the presence of DOE representatives.
Second Core Issue: Petitioners Liability for Violations
Sec. 4 of BP 33, as amended, provides for the penalties and persons who are criminally liable, thus:
Sec. 4. Penalties. Any person who commits any act herein prohibited shall, upon conviction, be punished with a fine of not less than
twenty thousand pesos (P20,000) but not more than fifty thousand pesos (P50,000), or imprisonment of at least two (2) years but not
more than five (5) years, or both, in the discretion of the court. In cases of second and subsequent conviction under this Act, the penalty
shall be both fine and imprisonment as provided herein. Furthermore, the petroleum and/or petroleum products, subject matter of the
illegal trading, adulteration, shortselling, hoarding, overpricing or misuse, shall be forfeited in favor of the Government: Provided, That if
the petroleum and/or petroleum products have already been delivered and paid for, the offended party shall be indemnified twice the
amount paid, and if the seller who has not yet delivered has been fully paid, the price received shall be returned to the buyer with an
additional amount equivalent to such price; and in addition, if the offender is an oil company, marketer, distributor, refiller, dealer, subdealer and other retail outlets, or hauler, the cancellation of his license.
Trials of cases arising from this Act shall be terminated within thirty (30) days after arraignment.
When the offender is a corporation, partnership, or other juridical person, the president, the general manager, managing partner, or such
other officer charged with the management of the business affairs thereof, or employee responsible for the violation shall be criminally
liable; in case the offender is an alien, he shall be subject to deportation after serving the sentence.
If the offender is a government official or employee, he shall be perpetually disqualified from office. (Emphasis supplied.)
Relying on the third paragraph of the above statutory proviso, petitioners argue that they cannot be held liable for any perceived
violations of BP 33, as amended, since they are mere directors of Omni who are not in charge of the management of its business affairs.
Caelitus Mihi Vires
Reasoning that criminal liability is personal, liability attaches to a person from his personal act or omission but not from the criminal act or
negligence of another. Since Sec. 4 of BP 33, as amended, clearly provides and enumerates who are criminally liable, which do not include
members of the board of directors of a corporation, petitioners, as mere members of the board of directors who are not in charge of
Omnis business affairs, maintain that they cannot be held liable for any perceived violations of BP 33, as amended. To bolster their
position, they attest to being full-time employees of various firms as shown by the Certificates of Employment[71] they submitted tending
to show that they are neither involved in the day-to-day business of Omni nor managing it. Consequently, they posit that even if BP 33, as
amended, had been violated by Omni they cannot be held criminally liable thereof not being in any way connected with the commission
of the alleged violations, and, consequently, the criminal complaints filed against them based solely on their being members of the board
of directors as per the GIS submitted by Omni to SEC are grossly discriminatory.
On this point, we agree with petitioners except as to petitioner Arnel U. Ty who is indisputably the President of Omni.
It may be noted that Sec. 4 above enumerates the persons who may be held liable for violations of the law, viz: (1) the president, (2)
general manager, (3) managing partner, (4) such other officer charged with the management of the business affairs of the corporation or
juridical entity, or (5) the employee responsible for such violation. A common thread of the first four enumerated officers is the fact that
they manage the business affairs of the corporation or juridical entity. In short, they are operating officers of a business concern, while
the last in the list is self-explanatory.
It is undisputed that petitioners are members of the board of directors of Omni at the time pertinent. There can be no quibble that the
enumeration of persons who may be held liable for corporate violators of BP 33, as amended, excludes the members of the board of
directors. This stands to reason for the board of directors of a corporation is generally a policy making body. Even if the corporate
powers of a corporation are reposed in the board of directors under the first paragraph of Sec. 23[72] of the Corporation Code, it is of
common knowledge and practice that the board of directors is not directly engaged or charged with the running of the recurring business
affairs of the corporation. Depending on the powers granted to them by the Articles of Incorporation, the members of the board
generally do not concern themselves with the day-to-day affairs of the corporation, except those corporate officers who are charged with
running the business of the corporation and are concomitantly members of the board, like the President. Section 25[73] of the
Corporation Code requires the president of a corporation to be also a member of the board of directors.
Thus, the application of the legal maxim expressio unius est exclusio alterius, which means the mention of one thing implies the exclusion
of another thing not mentioned. If a statute enumerates the thing upon which it is to operate, everything else must necessarily and by
implication be excluded from its operation and effect.[74] The fourth officer in the enumerated list is the catch-all such other officer
charged with the management of the business affairs of the corporation or juridical entity which is a factual issue which must be alleged
and supported by evidence.
A scrutiny of the GIS reveals that among the petitioners who are members of the board of directors are the following who are likewise
elected as corporate officers of Omni: (1) Petitioner Arnel U. Ty (Arnel) as President; (2) petitioner Mari Antonette Ty as Treasurer; and
(3) petitioner Jason Ong as Corporate Secretary. Sec. 4 of BP 33, as amended, clearly indicated firstly the president of a corporation or
juridical entity to be criminally liable for violations of BP 33, as amended.
67
Evidently, petitioner Arnel, as President, who manages the business affairs of Omni, can be held liable for probable violations by Omni of
BP 33, as amended. The fact that petitioner Arnel is ostensibly the operations manager of Multi-Gas Corporation, a family owned
business, does not deter him from managing Omni as well. It is well-settled that where the language of the law is clear and unequivocal, it
must be taken to mean exactly what it says.[75] As to the other petitioners, unless otherwise shown that they are situated under the
catch-all such other officer charged with the management of the business affairs, they may not be held liable under BP 33, as amended,
for probable violations. Consequently, with the exception of petitioner Arnel, the charges against other petitioners must perforce be
dismissed or dropped.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three (3) film packages (36
title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. 1 par. 2, 2, 2-A and 2-B
Viva). ABS-CBN, however through Mrs. Concio, can tick off only ten (10) titles (from the list) we can purchase (Exh. 3 Viva) and
therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar
except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby quoted:
WHEREFORE, premises considered, we PARTIALLY GRANT the instant petition. Accordingly, the assailed September 28, 2007 Decision and
March 14, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 98054 are AFFIRMED with MODIFICATION that petitioners Mari
Antonette Ty, Jason Ong, Willy Dy and Alvin Ty are excluded from the two Informations charging probable violations of Batas Pambansa
Bilang 33, as amended. The Joint Resolution dated November 7, 2005 of the Office of the Chief State Prosecutor is modified accordingly.
6 January 1992
No pronouncement as to costs.
Dear Vic,
SO ORDERED.
G.R. No. 128690. January 21, 1999]
ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP., VIVA
PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABS-CBN) seeks to reverse and set aside the
decision[1] of 31 October 1996 and the resolution[2] of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former
affirmed with modification the decision[3] of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q12309. The latter denied the motion to reconsider the decision of 31 October 1996.
This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the purchase of the
three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will understand my
position. Most of the action pictures in the list do not have big action stars in the cast. They are not for primetime. In line with this I wish
to mention that I have not scheduled for telecast several action pictures in our very first contract because of the cheap production value
of these movies as well as the lack of big action stars. As a film producer, I am sure you understand what I am trying to say as Viva
produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in out non-primetime slots. We have
to cover the amount that was paid for these movies because as you very well know that non-primetime advertising rates are very low.
These are the unaired titles in the first contract.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
1. Kontra Persa [sic]
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave ABS-CBN an exclusive right to exhibit
some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that-
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be agreed
upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the actual offer in writing.
Caelitus Mihi Vires
5. Boy de Sabog
68
6. lady Commando
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of
Vivas offer to sell the 104 films, after the rejection of the same package by ABS-CBN.
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have them aired at
9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced last year, I have
quite an attractive offer to make.
On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms. Concio, (Exh. 5 Viva), which
reads: Heres the draft of the contract. I hope you find everything in order, to which was attached a draft exhibition agreement (Exh.
C ABS-CBN; Exh. 9 Viva p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario
and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit C provides that ABS-CBN is granted film rights to 53
films and contains a right of first refusal to 1992 Viva Films. The said counter proposal was however rejected by Vivas Board of Directors
[in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos
(Exh. 9 Viva), and such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Vivas
President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992, granting RBS the exclusive right
to air 104 Viva-produced and/or acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films subject of the present
case.[4]
Thanking you and with my warmest regards.

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction
and/or temporary restraining order against private respondents Republic Broadcasting Corporation[5] (hereafter RBS), Viva Production
(hereafter VIVA), and Vicente del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list consisting of 52 original movie titles (i.e., not
yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television) from
which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52
originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. 4
to 4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in
Quezon City to discuss the package proposal of VIVA. What transpired in that lunch meeting is the subject of conflicting versions. Mr.
Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a
total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a napkin and signed it and
gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand. Del Rosario denied having made any
agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted that
what he and Lopez discussed at the lunch meeting was Vivas film package offer of 104 films (52 originals and 52 re-runs) for a total price
of P60 million. Mr. Lopez promising *sic+to make a counter proposal which came in the form of a proposal contract Annex C of the
complaint (Exh. 1 Viva; Exh C ABS-CBN).
Caelitus Mihi Vires
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private respondents from proceeding with the airing,
broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino Ka Man, which was
scheduled to be shown on private respondent RBS channel 7 at seven oclock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order[7] directing the issuance of a writ of preliminary injunction upon
ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the reduction of the bond,[8] while private respondents moved for
reconsideration of the order and offered to put up a counterbond.[9]
In the meantime, private respondents filed separate answer with counterclaim.[10] RBS also set up a cross-claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction upon the posting by RBS of a P30 million
counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioners
injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction should private
respondents be unable to post a counterbond.
69
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the possibility of an amicable
settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond in the
event that no settlement would be reached.
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued defendants RBSs bond to lift the injunction;
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a counterbond, which the RTC approved in its
Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15 October 1992 Orders, which RBS
opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition*17+ challenging the RTCs Order of
3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from enforcing said
orders. The case was docketed as CA-G.R. SP No. 29300.
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorneys fees.
On 3 November 1992, the Court of Appeals issued a temporary restraining order[18] to enjoin the airing, broadcasting, and televising of
any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing the petition in CA-G.R. SP No. 29300 for being
premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was docketed s G.R.
No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309. Thereafter, on 28 April 1993, it rendered a
decision[20] in favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of defendants and against the
plaintiff.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III and
Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the meeting of the
Board on 7 April 1992. Hence, there was no basis for ABS-CBNs demand that VIVA signed the 1992 Film Exhibition Agreement.
Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concios letter to
Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No. 108363, as no reversible error was committed by the
Court of Appeals in its challenged decision and the case had become moot and academic in view of the dismissal of the main action by
the court a quo in its decision of 28 April 1993.
(1) The complaint is hereby dismissed;
Caelitus Mihi Vires
70
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between ABSCBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed
seeking moral and exemplary damages and additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and VIVA had not been
perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, its agent, might have agreed with Lopez III. The
appellate court did not even believe ABS-CBNs evidence that Lopez III actually wrote down such an agreement on a napkin, as the same
was never produced in court. It likewise rejected ABS-CBNs insistence on its right of first refusal and ratiocinated as follows:
complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor, holding that RBSs
reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film Maging Sino Ka
Man. Respondent court also held that exemplary damages were correctly imposed by way of example or correction for the public good
in view of the filing of the complaint despite petitioners knowledge that the contract with VIVA had not been perfected. It also upheld
the award of attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case No. Q-92-12309, RBS was unnecessarily forced to
litigate. The appellate court, however, reduced the awards of moral damages to P 2 million, exemplary damages to P2 million, and
attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it was RBS and not VIVA which was
actually prejudiced when the complaint was filed by ABS-CBN.
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between Appellant ABSCBN and appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof provides:
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals gravely
erred in
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms as may be agreed
upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the
actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to such terms as may be agreed upon by
the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing.
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING
PREPONFERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film right to the twenty-four (24) films,
nor did it specify the terms thereof. The same are still left to be agreed upon by the parties.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.

In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and the draft
contract Exhibit C accepted only fourteen (14) films, while parag. 1.4 of Exhibit A speaks of the next twenty-four (24) films.
III
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the
first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter
dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA. As aptly
observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if
We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of
Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already expired.[22]
Accordingly, respondent court sustained the award factual damages consisting in the cost of print advertisements and the premium
payments for the counterbond, there being adequate proof of the pecuniary loss which RBS has suffered as a result of the filing of the
Caelitus Mihi Vires
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
71
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition Agreement,
as it had chosen only ten titles from the first list. It insists that we give credence to Lopezs testimony that he and Del Rosario met at the
Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon
agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already been effective, as the elements
thereof, namely, consent, object, and consideration were established. It then concludes that the Court of Appeals pronouncements were
not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals,[23]
which cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion v. Court of Appeals,[25] and Villonco Realty Company v.
Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the counterbond of its
own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions during the
hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN
compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the dissolution of the injunction; or if it
was determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the
party suffering loss injury is also required to exercise the diligence of a good father of a family to minimize the damages resulting from the
act or omission. As regards the cost of print advertisements, RBS had not convincingly established that this was a loss attributable to the
non-showing of Maging Sino Ka Man; on the contrary, it was brought out during trial that with or without the case or injunction, RBS
would have spent such an amount to generate interest in the film.
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent meeting of minds between them
regarding the object and consideration of the alleged contract. It affirms that ABS-CBNs claim of a right of first refusal was correctly
rejected by the trial court. RBS insists the premium it had paid for the counterbond constituted a pecuniary loss upon which it may
recover. It was obliged to put up the counterbond due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN
had no cause of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the
premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss
would be equivalent to the cost of money RBS would forego in case the P30 million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film Maging Sino Ka Man because
the print advertisements were out to announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one time, not
as series to be shown on a periodic basis. Hence, the print advertisements were good and relevant for the particular date of showing, and
since the film could not be shown on that particular date and hour because of the injunction, the expenses for the advertisements had
gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of
harassing and prejudicing RBS. Pursuant then to Articles 19 and 21 of the Civil Code, ABS-CBN must be held liable for such damages.
Citing Tolentino,[34] damages may be awarded in cases of abuse of rights even if the done is not illicit, and there is abuse of rights where
a plaintiff institutes an action purely for the purpose of harassing or prejudicing the defendant.
ABS-CBN further contends that there was no other clear basis for the awards of moral and exemplary damages. The controversy involving
ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise from
any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or
reckless; they arose by virtue only of the filing of the complaint. An award of moral and exemplary damages is not warranted where the
record is bereft of any proof that a party acted maliciously or in bad faith in filing an action.[27] In any case, free resort to courts for
redress of wrongs is a matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be
his right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different interpretation
of the laws on the matter, the case would lose ground.[28] One who, makes use of his own legal right does no injury.[29] If damage results
from filing of the complaint, it is damnum absque injuria.[30] Besides, moral damages are generally not awarded in favor of a juridical
person, unless it enjoys a good reputation that was debased by the offending party resulting in social humiliation.[31]
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondent RBS cited People v.
Manero,[35] where it was stated that such entity may recover moral and exemplary damages if it has a good reputation that is debased
resulting in social humiliation. It then ratiocinates; thus:
As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining
the trial courts award, the Court of Appeals acted in clear disregard of the doctrine laid down in Buan v. Camaganacan*32+ that the text of
the decision should state the reason why attorneys fees are being awarded; otherwise, the award should be disallowed. Besides, no bad
faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has been held that where no sufficient showing
of bad faith would be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause,
attorneys fees shall not be recovered as cost.*33+
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the award.
Caelitus Mihi Vires
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When RBS was not able to fulfill its
commitment to the viewing public to show the film Maging Sino Ka Man on the scheduled dates and times (and on two occasions that
RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was cancelled, irate viewers called up RBS
offices and subjected RBS to verbal abuse (Announce kayo ng announce, hindi ninyo naman ilalabas, nanloloko yata kayo) (Exh. 3-RBS,
par.3). This alone was not something RBS brought upon itself. It was exactly what ABS-CBN had planted to happen.
The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a broadcasting company is *sic+ nationwide. Its
clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state, and it is a matter of
judicial notice that almost every other person in the country watches television. The humiliation suffered by RBS is multiplied by the
number of televiewers who had anticipated the showing of the film, Maging Sino Ka Man on May 28 and November 3, 1992 but did not
see it owing to the cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS
had a commitment in consideration of the placement to show the film in the dates and times specified.
72
what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms
of the offer annuls the offer.[40]
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury are far greater in degree when
caused by an entity whose ultimate business objective is to lure customers (viewers in this case) away from the competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not support
ABS-CBNs claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition for review under
Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they adopted the
arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether RBS is
entitled to damages and attorneys fees. It may be noted that that award of attorneys fees of P212,000 in favor of VIVA is not assigned as
another error.
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said package
of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent through Ms. Concio,
counter-proposal in the form a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal
could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly,
there was no acceptance of VIVAs offer, for it was met by a counter-offer which substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals*41+ and Villonco Realty Company v. Bormaheco, Inc.,*42+ is
misplaced. In these cases, it was held that an acceptance may contain a request for certain changes in the terms of the offer and yet be a
binding acceptance as long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether
such request is granted or not. This ruling was, however, reversed in the resolution of 29 March 1996,[43] which ruled that the
acceptance of an offer must be unqualified and absolute, i.e., it must be identical in all respects with that of the offer so as to produce
consent or meetings of the minds.
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds himself to
give something or render some service to another[37] for a consideration. There is no contract unless the following requisites concur: (1)
consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the obligation, which is
established.[38] A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the
parties;
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely
clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance Co.[44] that a vendors
change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer.*45+ However, when any of the elements of the contract is modified upon
acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent period of bargaining. ABS-CBN then
formalized its counter-proposals or counter-offer in a draft contract. VIVA through its Board of Directors, rejected such counter-offer.
Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof
whatsoever that Del Rosario had the specific authority to do so.
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence between the offer and
the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To
convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly
Caelitus Mihi Vires
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as the power to enter into contracts,
are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials or
contracted managers. The delegation, except for the executive committee, must be for specific purposes.[47] Delegation to officers
makes the latter agents of the corporation; accordingly, the general rules of agency as to the binding effects of their acts would apply.[48]
For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them
to do so. that Del Rosario did not have the authority to accept ABS-CBNs counter-offer was best evidenced by his submission of the draft
contract to VIVAs Board of Directors for the latters approval. In any event, there was between Del Rosario and Lopez III no meeting of
minds. The following findings of the trial court are instructive:
73
A number of considerations militate against ABS-CBNs claim that a contract was perfected at that lunch meeting on April 02, 1992 at the
Tamarind Grill.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del Rosario with a handwritten note,
describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said draft has a well defined meaning.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which he wrote
on a napkin. However, Exhibit C contains numerous provisions which were not discussed at the Tamarind Grill, if Lopez testimony was
to be believed nor could they have been physically written on a napkin. There was even doubt as to whether it was a paper napkin or
cloth napkin. In short what were written in Exhibit C were not discussed, and therefore could not have been agreed upon, by the
parties. How then could this court compel the parties to sign Exhibit C when the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact prays for
delivery of 14 films. But Exhibit C mentions 53 films as its subject matter. Which is which? If Exhibit C reflected the true intent of the
parties, then ABS-CBNs claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then Exhibit C did not
reflect what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds as to the subject matter of
the contract, so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is no object certain
which is its subject matter (Art. 1318, NCC).
Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions
thereof could not have been previously agreed upon by ABS-CBN and Viva. Exhibit C could not therefore legally bind Viva, not having
agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit C were prepared by ABS-CBNs lawyers
and there was no discussion on said terms and conditions.
As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no evidence whatsoever that Viva
agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused to sign Exhibit C
reveals only two [sic] well that it did not agree on its terms and conditions, and this court has no authority to compel Viva to agree
thereto.
THIRD, Mr. Lopez *sic+ answer to question 29 of his affidavit testimony (Exh. D) States:
We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we agreed to pay Viva
the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked this
P16,050,000.00.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only provisional, in the sense
that it was subject to approval by the Board of Directors of Viva. He testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that you have the meeting of the
minds between you and Mr. Vic del Rosario, what happened?
which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00 equals P36,000,000.00).
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of Directors.
On cross-examination Mr. Lopez testified:
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
Q What was written in this napkin?
A Yes, sir.
A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies because the price was
broken down accordingly. The none [sic] Viva and the seven other Viva movies and the sharing between the cash portion and the
concerned spot portion in the total amount of P35 million pesos.
Q So, he was going to forward that to the board of Directors for approval?
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
Caelitus Mihi Vires
74
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a contract with
ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario is the Executive Producer
of defendant Viva which is a corporation. (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he
did is ratified by its Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent,
recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has
no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed upon
at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate power to
enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board,
whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid binding upon Viva (Yao Ka Sin Trading vs. Court of
Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit C and insisted that the film
package for 104 films be maintained (Exh. 7-1 Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition
Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As observed
by the trial court, ABS-CBNs right of first refusal had already been exercised when Ms. Concio wrote to Viva ticking off ten films. Thus:
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil
Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation
for actual damages only for such pecuniary loss suffered by him as he has duly proved.[51] The indemnification shall comprehend not only
the value of the loss suffered, but also that of the profits that the obligee failed to obtain.[52] In contracts and quasi-contracts the
damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise. In case of good faith, the
damages recoverable are those which are the natural and probable consequences of the breach of the obligation and which the parties
have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad
faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of
the obligation.[53] In crimes and quasi-delicts, the defendants shall be liable for all damages which are the natural and probable
consequences of the act or omission complained of, whether or not such damages have been foreseen or could have reasonably been
foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury,
or for injury to the plaintiffs business standing or commercial credit.*55+
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of
the complaint despite ABS-CBNs alleged knowledge of lack of cause of action. Thus paragraph 12 of RBSs Answer with Counterclaim and
Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As a result thereof, RBS suffered actual
damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only
probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms. Concio
herself admitted on cross-examination to having used or exercised the right of first refusal. She stated that the list was not acceptable
and was indeed not accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of first refusal
may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand
[sic] that ABS-CBN has lost its right of first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11).[50]
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.
II
Caelitus Mihi Vires
75
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may suffer by
reason of the writ are recoverable from the injunctive bond.[57] In this case, ABS-CBN had not yet filed the required bond; as a matter of
fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter. Clearly then, it was
not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack of sufficient legal basis. The RTC issued a
temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient
ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but
because of the plea of RBS that it be allowed to put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be recovered as actual or compensatory
damages under any of the circumstances provided for in Article 2208 of the Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no premium should be placed
on the right to litigate.[59] They are not to be awarded every time a party wins a suit. The power of the court t award attorneys fees
under Article 2208 demands factual, legal, and equitable justification.[60] Even when a claimant is compelled to litigate with third persons
or to incur expenses to protect his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be
reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause.*61+
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included
in moral damages, while Article 2219 enumerates the cases where they may be recovered. Article 2220 provides that moral damages may
be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBSs claim for moral damages could
possibly fall only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.[62] The award is not meant to enrich the complainant at the expense of the defendant, but to enable the
injured party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at
the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering
inflicted.[63] Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and
measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption or the part of the trial court.[64]
PNB*67+ that a corporation may recover moral damages if it has a good reputation that is debased, resulting in social humiliation is an
obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages.[68] They are recoverable in
criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances;[69] in quasi-delicts,
if the defendant acted with gross negligence;[70] and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.[71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict. Hence, the
claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in bad
faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all provisions of law which
do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the following elements: (1)
there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3) and it is done with
intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design to
do a wrongful act for a dishonest purpose or moral obliquity.[73] Such must be substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it
had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of
an action does not per se make the action wrongful and subject the actor to damages, for the law could not have meant impose a penalty
on the right to litigate. If damages result from a persons exercise of a right, it is damnum absque injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No. 44125 is hereby
REVERSED except as to unappealed award of attorneys fees in favor of VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-22973
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in
legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only by one having a nervous system.[65] The statement in People v. Manero[66] and Mambulao Lumber Co. v.
Caelitus Mihi Vires
January 30, 1968
MAMBULAO LUMBER COMPANY, plaintiff-appellant,
76
vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte, defendants-appellees.
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.
Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.
The antecedent facts of the case, as found by the trial court, are as follows:
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.
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.
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
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
Caelitus Mihi Vires
77
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.
Caelitus Mihi Vires
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.
78
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.
Caelitus Mihi Vires
There is really no evidence of record to support the conclusion that the PNB is entitled to the amount awarded as expenses of the extrajudicial 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
79
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.
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
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:
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.
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.
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:1wph1.t
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
A. -
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
Caelitus Mihi Vires
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]
III.
Attorney's fee
10.00
1,000.00
Total obligation as of Nov. 21, 1961

P57,495.86
80
B. I.
Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961
II.
Additional amount remitted to the PNB on Dec. 18, 1961
P56,908.00
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
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.
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]
Caelitus Mihi Vires
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
81
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 reinspections testified in court that in giving the values appearing in the reports, he used a conservative method of appraisal which, of
Caelitus Mihi Vires
course, is to be expected of an official of the appellee bank. And it appears that the values were considerably reduced in all the reinspection 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 reinspection 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
82
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.
.R. No. 128066
respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid proposals and
gave bid bonds equivalent to 5% of their respective bids, as required.
June 19, 2000

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the award of the
contract to FEMSCO
JARDINE DAVIES INC., petitioner,

vs.
Gentlemen:
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2) units of 1500
KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-92 dated
November 20, 1992, subject to the following basic terms and conditions:
G.R. No. 128069
PURE FOODS CORPORATION, petitioner,

vs.
1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local portion and the labor for the
imported materials, payable by progress billing twice a month, with ten percent (10%) retention. The retained amount shall be released
thirty (30) days after acceptance of the completed project and upon posting of Guarantee Bond in an amount equivalent to twenty
percent (20%) of the contract price. The Guarantee Bond shall be valid for one (1) year from completion and acceptance of project. The
contract price includes future increase/s in costs of materials and labor;
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

2. The projects shall be undertaken pursuant to the attached specifications. It is understood that any item required to complete the
project, and those not included in the list of items shall be deemed included and covered and shall be performed;
BELLOSILLO, J.:
3. All materials shall be brand new;

This is rather a simple case for specific performance with damages which could have been resolved through mediation and conciliation
during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however to resort to full court
proceedings and denied themselves the benefits of alternative dispute resolution, thus making the process more arduous and long-drawn.
The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and curtail further
losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to install two (2) 1500
KW generators in its food processing plant in San Roque, Marikina City.
Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and dealers were
invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best suit the needs of
PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3) bidders, namely,
Caelitus Mihi Vires
4. The project shall commence immediately and must be completed within twenty (20) working days after the delivery of Generator Set to
Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for every day of delay;
5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall procure All Risk Insurance
equivalent to the contract price upon commencement of the project. The All Risk Insurance Policy shall be endorsed in favor of and shall
be delivered to Pure Foods Corporation;
6. Warranty of one (1) year against defective material and/or workmanship.
83
Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.
Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's all-risk insurance policy
in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a letter dated 18
December 1992. FEMSCO also made arrangements with its principal and started the PUREFOODS project by purchasing the necessary
materials. PUREFOODS on the other hand returned FEMSCO's Bidder's Bond in the amount of P1,000,000.00, as requested.
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also reversed the 27 June 1994
Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latter's contract with
FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition, PUREFOODS was also directed to
pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well as 20% of the total amount due as
attorney's fees.
On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by PUREFOODS and
JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were subsequently consolidated.
Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga unilaterally
canceled the award as "significant factors were uncovered and brought to (their) attention which dictate (the) cancellation and warrant a
total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award and sought a meeting with
PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already awarded the project and entered
into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally was not one of the
bidders.1wphi1.nt
FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from delivering and installing
the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE: PUREFOODS for
reneging on its contract, and JARDINE for its unwarranted interference and inducement. Trial ensued. After FEMSCO presented its
evidence, JARDINE filed a Demurrer to Evidence.
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial court concluded that
"[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on, this is all a
matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well in a court of
law." 2 Meanwhile trial proceeded as regards the case against PUREFOODS.
PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a misapprehension of facts. It
argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the project but more
of a qualified acceptance constituting a counter-offer which required FEMSCO's express conforme. Since PUREFOODS never received
FEMSCO's conforme, PUREFOODS was very well within reason to revoke its qualified acceptance or counter-offer. Hence, no contract was
perfected between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt with FEMSCO. Hence
moral and exemplary damages should not have been awarded.
Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract between
PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latter's alleged contract with FEMSCO. Moreover, JARDINE
reasons that FEMSCO, an artificial person, is not entitled to moral damages. But granting arguendo that the award of moral damages is
proper, P2,000,000.00 is extremely excessive.
In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between PUREFOODS and
FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that JARDINE induced or connived with
PUREFOODS to violate the latter's contract with FEMSCO.
On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of P2,300,000.00 representing
the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, and P900,000.00
representing contractor's mark-up on installation work, considering that it would be impossible to compel PUREFOODS to honor, perform
and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that construction had already started
thereon; (c) to pay attorney's fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the costs. The trial court
dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.
A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor
of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do." 4 There can be no contract unless the
following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; and, (c)
cause of the obligation which is established. 5 A contract binds both contracting parties and has the force of law between them.
Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the trial court which
granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it, while PUREFOODS appealed the
28 July 1994 Decision of the same court which ordered it to pay FEMSCO.
Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, the
parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. 6 To produce a contract, the acceptance must not qualify the terms of the
offer. However, the acceptance may be express or implied. 7 For a contract to arise, the acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.
Caelitus Mihi Vires
84
In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The controversy lies in
the consent whether there was an acceptance of the offer, and if so, if it was communicated, thereby perfecting the contract.
To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner PUREFOODS started
the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that "[a]dvertisements for
bidders are simply invitations to make proposals," applies. Accordingly, the Terms and Conditions of the Bidding disseminated by
petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or quotations submitted by the
prospective suppliers including respondent FEMSCO, are the offers. And, the reply of petitioner PUREFOODS, the acceptance or rejection
of the respective offers.
Quite obviously, the 12 December 1992 letter of petitioner. PUREFOODS to FEMSCO constituted acceptance of respondent FEMSCO's
offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm (FEMSCO) the
project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions," these conditions were
imposed on the performance of the obligation rather than on the perfection of the contract. Thus, the first "condition" was merely a
reiteration of the contract price and billing scheme based on the Terms and Conditions of Bidding and the bid or previous offer of
respondent FEMSCO. The second and third "conditions" were nothing more than general statements that all items and materials including
those excluded in the list but necessary to complete the project shall be deemed included and should be brand new. The fourth
"condition" concerned the completion of the work to be done, i.e., within twenty (20) days from the delivery of the generator set, the
purchase of which was part of the contract. The fifth "condition" had to do with the putting up of a performance bond and an all-risk
insurance, both of which should be given upon commencement of the project. The sixth "condition" related to the standard warranty of
one (1) year. In fine, the enumerated "basic terms and conditions" were prescriptions on how the obligation was to be performed and
implemented. They were far from being conditions imposed on the perfection of the contract.
In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the perfection of a contract and a condition imposed
merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a contract, failure to
comply with the second merely gives the other party options and/or remedies to protect his interests.
We thus agree with the conclusion of respondent appellate court which affirmed the trial court
As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has already been made.
The letter only serves as a confirmation of such decision. Hence, to the Court's mind, there is already an acceptance made of the offer
received by Purefoods. Notwithstanding the terms and conditions enumerated therein, the offer has been accepted and/or amplified the
details of the terms and conditions contained in the Terms and Conditions of Bidding given out by Purefoods to prospective bidders. 9
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-offer,"
respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not a clear
indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the contractor's
Caelitus Mihi Vires
all-risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment thereof by petitioner
PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that respondent
FEMSCO indeed consented to the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either be express or
implied, 10 and this can be inferred from the contemporaneous and subsequent acts of the contracting parties.
Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent FEMSCO's conforme would only
be a mere surplusage. The discussion of the price of the project two (2) months after the 12 December 1992 letter can be deemed as
nothing more than a pressure being exerted by petitioner PUREFOODS on respondent FEMSCO to lower the price even after the contract
had been perfected. Indeed from the facts, it can easily be surmised that petitioner PUREFOODS was haggling for a lower price even after
agreeing to the earlier quotation, and was threatening to unilaterally cancel the contract, which it eventually did. Petitioner PUREFOODS
also makes an issue out of the absence of a purchase order (PO). Suffice it to say that purchase orders or POs do not make or break a
contract. Thus, even the tenor of the subsequent letter of petitioner PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the
award to your company of the project," presupposes that the contract has been perfected. For, there can be no cancellation if the
contract was not perfected in the first place.
Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary, it believed in good faith that no such contract
was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which were affirmed by the
appellate court
Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith and this was further
aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile co-defendant Jardine. It is very evident
that Purefoods thought that by the expedient means of merely writing a letter would automatically cancel or nullify the existing contract
entered into by both parties after a process of bidding. This, to the Court's mind, is a flagrant violation of the express provisions of the law
and is contrary to fair and just dealings to which every man is due. 11
This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. 12 In the instant case,
respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on
account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's award of moral damages.
We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the recipient.
Likewise, the award of exemplary damages by way of example for the public good is excessive and should be reduced to P100,000.00.
Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages to respondent
FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem that petitioners
PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on record to support such perception.
Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The similarity in the design submitted
to petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender of a lower quotation by petitioner
JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with respondent
FEMSCO.
85
WHEREFORE, judgment is hereby rendered as follows:
(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June 1994 resolution of the
trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS SUPPLY CORPORATION P2,000,000.00
as moral damages is REVERSED and SET ASIDE for insufficiency of evidence; and
(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner PUREFOODS
CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00 representing the value of
engineering services it rendered, US$14,000.00 or its peso equivalent, and P900,000.00 representing the contractor's mark-up on
installation work, as well as attorney's fees equivalent to twenty percent (20%) of the total amount due, is AFFIRMED. In addition,
petitioner PURE FOODS CORPORATION is ordered to pay private respondent FAR EAST MILLS SUPPLY CORPORATION moral damages in
the amount of P1,000,000.00 and exemplary damages in the amount of P1,000,000.00. Costs against petitioner.
SO ORDERED.
G.R. No. 131723
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: 09341-1322-163 and 09341-1812-13.4
Under the aforesaid agreements, petitioner undertook to supply TEC's 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 TEC's 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 Lease5 with respondent Ultra
Electronics Industries, Inc. (Ultra) for the use of the former's 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.
December 13, 2007
MANILA ELECTRIC COMPANY, petitioner,
On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters installed at the DCIM
building, witnessed by Ultra's6 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 Reports7 prepared by the team.
vs.
T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and ULTRA
ELECTRONICS INSTRUMENTS, INC., respondents.
DECISION
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, TEC's Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra9 which, in turn, informed TEC that its
Executive Vice-President had met with petitioner's representative. Ultra further intimated that assuming that there was tampering of the
meters, petitioner's 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.
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1 of the Court of Appeals
(CA) dated June 18, 1997 and its Resolution2 dated December 3, 1997 in CA-G.R. CV No. 40282 denying the appeal filed by petitioner
Manila Electric Company.
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
The facts of the case, as culled from the records, are as follows:
Caelitus Mihi Vires
86
Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's 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 petitioner's 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 Ultra17 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.
(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 attorney's fees in the amount of P200,000.00
At the pre-trial, the parties agreed to limit the issues, as follows:
Costs against defendant Meralco.
1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at DCIM Building.
SO ORDERED.20
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:
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 petitioner's employees.21 The
sudden drop in TEC's (or Ultra's) 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, petitioner's act of disconnecting the DCIM building's electric supply constituted bad faith and thus makes it liable for
damages.22 The court further denied petitioner's 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.
WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants as follows:
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:
(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;
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
Caelitus Mihi Vires
87
The appellate court agreed with the RTC's 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.
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";
Petitioner now comes before this Court in this petition for review on certiorari contending that:
11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is oppressive, wanton and reckless.
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.
12. In declaring that MERALCO acted arbitrarily in inspecting TEC's 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, attorney's fee and expenses for litigation.25
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.
The petition must fail.
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.
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 TEC's 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.
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.
Caelitus Mihi Vires
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
88
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 TEC's electrical consumption starting February 10, 1986. On
the basis of the foregoing, petitioner concluded that the electric meters were tampered with.
However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric consumption during the affected
period, the Pattern of TEC's Electrical Consumption28 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 1985's 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 customer's 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 petitioner's Billing Record31 (for the DCIM building), TEC's 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, TEC's 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.
the consumption before and after the inspection, casting a cloud of doubt over petitioner's claim of meter-tampering. Indeed, Ultra's
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 court's 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 Corporation35 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.
Petitioner's 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 TEC's 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 TEC's DCIM and NS buildings, petitioner's 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. 40139 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 prosecution42 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
Even more revealing is the fact that TEC's 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, TEC's 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
Caelitus Mihi Vires
89
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 latter's 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 court's 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.
Ultra's 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 attorney's 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
attorney's fees is likewise proper, pursuant to Article 220848 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. TEC's 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
Caelitus Mihi Vires
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 petitioner's 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 petitioner's 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.
SO ORDERED.
[G.R. No. 141994. January 17, 2005]
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF
MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No.
40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision[3] of the Regional Trial Court of Legazpi City,
Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre
and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of
Medicine moral damages, attorneys fees and costs of suit.
The Antecedents
Expos is a radio documentary*4+ program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre).*5+ Expos is
aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City,
the Albay municipalities and other Bicol areas.[6]
90
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents
against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the
broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for damages[7]
against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects
because if they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Several
students had approached me stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is
no such regulation why is AMEC doing the same?
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in their
effort to minimize expenses in terms of salary are absorbing or continues to accept rejects. For example how many teachers in AMEC
are former teachers of Aquinas University but were removed because of immorality? Does it mean that the present administration of
AMEC have the total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my friends, that
AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean
of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC
administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making
use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very
old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from
Bicol University a long time ago but AMEC has patiently made use of her.
xxx
xxx
MEL RIMA:
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral
and physically misfits as teachers.
Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the
part of AMECs administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the
school. However there would be no instructor for such subject. Students would be informed that course would be moved to a later date
because the school is still searching for the appropriate instructor.
xxx
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an
aviation, your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost
saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can
get by thats why she (Lola) was taken in as Dean.
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its
inception because of funds support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names
of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and
undeniable evidence that the support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the
expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign
foundations who assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive
students at cross purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations
temporarily.[8]
xxx
Caelitus Mihi Vires
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they
become members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor who while
studying at AMEC is so much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar
problems because not all students are rich in their struggle to improve their social status are even more burdened with false
regulations. xxx[9] (Emphasis supplied)
91
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre
transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI as
defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer[10] alleging that the broadcasts against AMEC were
fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the goings-on in AMEC,
*which is+ an institution imbued with public interest.
FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed against
AMEC, and not against her. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY
ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty.
Lozares, filed a Motion to Dismiss*11+ on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate
Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a
broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program
after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to observe truth, fairness and objectivity in
their broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI requires all broadcasters to pass the
Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit.
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.[15]
The Ruling of the Court of Appeals

On 14 December 1992, the trial court rendered a Decision[12] finding FBNI and Alegre liable for libel except Rima. The trial court held that
the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight
reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In
holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial
court found Rimas statement within the bounds of freedom of speech, expression, and of the press. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial
utterances, which are not found by this court to be really very serious and damaging, and there being no showing that indeed the
enrollment of plaintiff school dropped, defendants Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio
station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of
Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the
costs of suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of
Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with
Caelitus Mihi Vires
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre
failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their
moral and social duty to inform the public of the students gripes as insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made
with reckless disregard as to whether they were true or false. The appellate court pointed out that FBNI, Rima and Alegre failed to
present in court any of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to
identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that
they were impelled by their moral and social duty to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping ground for morally and
physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3)
AMEC burdened the students with unreasonable imposition and false regulations.*16+
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima
and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and
attorneys fees because the libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima
and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.
92
A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition,
status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of
one who is dead.[24]
Issues
FBNI raises the following issues for resolution:
I.
WHETHER THE BROADCASTS ARE LIBELOUS;
II.
WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III.
WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV.
WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS
OF SUIT.
The Courts Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.[17] While AMEC did
not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based on Articles
30 and 33 of the Civil Code. Article 30[18] authorizes a separate civil action to recover civil liability arising from a criminal offense. On the
other hand, Article 33[19] particularly provides that the injured party may bring a separate civil action for damages in cases of defamation,
fraud, and physical injuries. AMEC also invokes Article 19[20] of the Civil Code to justify its claim for damages. AMEC cites Articles
2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor,
discredit and contempt. Rima and Alegres remarks such as greed for money on the part of AMECs administrators; AMEC is a dumping
ground, garbage of xxx moral and physical misfits; and AMEC students who graduate will be liabilities rather than assets of the society
are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically and morally unfit
teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their civic duty
to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts.
FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its
administrators. FBNI concludes that since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show adequately their good intention and justifiable
motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have
presented the public issues free from inaccurate and misleading information.*26+ Hearing the students alleged complaints a month
before the expos,[27] they had sufficient time to verify their sources and information. However, Rima and Alegre hardly made a
thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC
from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged
AMEC official who refused to disclose any information. Alegre simply relied on the words of the students because they were many and
not because there is proof that what they are saying is true.*28+ This plainly shows Rima and Alegres reckless disregard of whether their
report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in the United States apply
the privilege of neutral reportage in libel cases involving matters of public interest or public figures. Under this privilege, a republisher
who accurately and disinterestedly reports certain defamatory statements made against public figures is shielded from liability, regardless
of the republishers subjective awareness of the truth or falsity of the accusation.*29+ Rima and Alegre cannot invoke the privilege of
neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC
when the broadcasts were made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved
in an existing controversy, and a party to that controversy makes the defamatory statement.[30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,[31] FBNI contends that
the broadcasts fall within the coverage of qualifiedly privileged communications for being commentaries on matters of public interest.
Caelitus Mihi Vires
93
Such being the case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no
libel.
that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of
defendants over the air, not a single centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation
which does not exist.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The
doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because every man is
presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the
discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such
discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false
supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be
mistaken, as long as it might reasonably be inferred from the facts.[32] (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is genuinely imbued with public interest. The welfare
of the youth in general and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the
newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned
broadcasts are not based on established facts. The record supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants
have not presented in court, nor even gave name of a single student who made the complaint to them, much less present written
complaint or petition to that effect. To accept this defense of defendants is too dangerous because it could easily give license to the
media to malign people and establishments based on flimsy excuses that there were reports to them although they could not
satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and
analyze the truth of the reports before they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a
certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer
Physical Therapy course had already been given the plaintiff, which certificate is signed by no less than the Secretary of Education and
Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to verify.
And yet, defendants were very categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to
offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also.
The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building,
Caelitus Mihi Vires
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they
are made to repeat all the other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees
even if there are no laboratories in the school. No evidence was presented to prove the bases for these claims, at least in order to give
semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who
is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even
older people prove to be effective teachers like Supreme Court Justices who are still very much in demand as law professors in their late
years. Counsel for defendants is past 75 but is found by this court to be still very sharp and effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place
himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination easily and become prosperous
and responsible professionals.[33]
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as
long as it might reasonably be inferred from the facts.[34] However, the comments of Rima and Alegre were not backed up by facts.
Therefore, the broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code*35+ of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio
Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1.
xxx
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x x x
Furthermore, the station shall strive to present balanced discussion of issues. x x x.
94
plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form
of defamation and claim for moral damages.[44]
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they
conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and
good order in the presentation of public affairs and public issues.[36] (Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing
practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on
its own members. The Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a
code by which their conduct are measured for lapses, liability and sanctions.
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an honest mistake or the want
of character or reputation of the party libeled goes only in mitigation of damages.[46] Neither in such a case is the plaintiff required to
introduce evidence of actual damages as a condition precedent to the recovery of some damages.[47] In this case, the broadcasts are
libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous
per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages
from P300,000 to P150,000.
III.
Whether the award of attorneys fees is proper
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like
other professionals. A professional code of conduct provides the standards for determining whether a person has acted justly, honestly
and with good faith in the exercise of his rights and performance of his duties as required by Article 19[37] of the Civil Code. A
professional code of conduct also provides the standards for determining whether a person who willfully causes loss or injury to another
has acted in a manner contrary to morals or good customs under Article 21[38] of the Civil Code.
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that the
instant case does not fall under the enumeration in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce
evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective
decisions the rationale for the award of attorneys fees.*49+ In Inter-Asia Investment Industries, Inc. v. Court of Appeals,[50] we held that:
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.[40] The Court of Appeals cites Mambulao Lumber
Co. v. PNB, et al.*41+ to justify the award of moral damages. However, the Courts statement in Mambulao that a corporation may have
a good reputation which, if besmirched, may also be a ground for the award of moral damages is an obiter dictum.*42+
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219*43+ of the Civil Code. This provision expressly authorizes
the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not
to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code
demands factual, legal and equitable justification, without which the award is a conclusion without a premise, its basis being improperly
left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal
portion thereof, the legal reason for the award of attorneys fees.*51+ (Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and depends upon the
circumstances of each case, the Court of Appeals failed to point out any circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
Caelitus Mihi Vires
95
for moral damages, attorneys fees
training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the
broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters.
and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due
diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including
Rima and Alegre, undergo a very regimented process before they are allowed to go on air. Those who apply for broadcaster are
subjected to interviews, examinations and an apprenticeship program.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications.
However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs regimented process of application.
Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP accreditation,*56+ which is one of FBNIs requirements
before it hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong commitment to
observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and
supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the
minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good
father of a family in selecting and supervising them. Rimas accreditation lapsed due to his non-payment of the KBP annual fees while
Alegres accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the
KBP is merely voluntary and not required by any law or government regulation.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of
Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and
the award of attorneys fees is deleted. Costs against petitioner.
FBNIs arguments do not persuade us.
SO ORDERED.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit.[52] Joint tort
feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission
of a tort, or who approve of it after it is done, if done for their benefit.[53] Thus, AMEC correctly anchored its cause of action against FBNI
on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous
broadcasts. As stated by the Court of Appeals, recovery for defamatory statements published by radio or television may be had from the
owner of the station, a licensee, the operator of the station, or a person who procures, or participates in, the making of the defamatory
statements.*54+ An employer and employee are solidarily liable for a defamatory statement by the employee within the course and
scope of his or her employment, at least when the employer authorizes or ratifies the defamation.[55] In this case, Rima and Alegre were
clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor
proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize
and ratify the defamatory broadcasts.
EN BANC
DANTE V. LIBAN,
REYNALDO M. BERNARDO,
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without introducing any
evidence to prove that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence
in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to observe truth, fairness and objectivity and to
refrain from using libelous and indecent language is not enough to prove due diligence in the supervision of its broadcasters. Adequate
and SALVADOR M. VIARI,Petitioners,- versus -RICHARD J. GORDON,

Respondent.
G.R. No. 175352
Promulgated:
Caelitus Mihi Vires
96
July 15, 2009
The Case
This is a petition to declare Senator Richard J. Gordon (respondent) as having forfeited his seat in the Senate.
Respondent contends that even if the present petition is treated as a taxpayers suit, petitioners cannot be allowed to raise a
constitutional question in the absence of any claim that they suffered some actual damage or threatened injury as a result of the allegedly
illegal act of respondent. Furthermore, taxpayers are allowed to sue only when there is a claim of illegal disbursement of public funds, or
that public money is being diverted to any improper purpose, or where petitioners seek to restrain respondent from enforcing an invalid
law that results in wastage of public funds.
The Facts
Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari (petitioners) filed with this Court a Petition to Declare Richard J.
Gordon as Having Forfeited His Seat in the Senate. Petitioners are officers of the Board of Directors of the Quezon City Red Cross Chapter
while respondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors.
During respondents incumbency as a member of the Senate of the Philippines,*1+ he was elected Chairman of the PNRC during the
23 February 2006 meeting of the PNRC Board of Governors. Petitioners allege that by accepting the chairmanship of the PNRC Board of
Governors, respondent has ceased to be a member of the Senate as provided in Section 13, Article VI of the Constitution, which reads:
SEC. 13. No Senator or Member of the House of Representatives may hold any other office or employment in the Government, or
any subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries, during
his term without forfeiting his seat. Neither shall he be appointed to any office which may have been created or the emoluments thereof
increased during the term for which he was elected.
\Petitioners cite Camporedondo v. NLRC,[2] which held that the PNRC is a government-owned or controlled corporation. Petitioners claim
that in accepting and holding the position of Chairman of the PNRC Board of Governors, respondent has automatically forfeited his seat in
the Senate, pursuant to Flores v. Drilon,[3] which held that incumbent national legislators lose their elective posts upon their appointment
to another government office.
Respondent also maintains that if the petition is treated as one for declaratory relief, this Court would have no jurisdiction since
original jurisdiction for declaratory relief lies with the Regional Trial Court.
Respondent further insists that the PNRC is not a government-owned or controlled corporation and that the prohibition under
Section 13, Article VI of the Constitution does not apply in the present case since volunteer service to the PNRC is neither an office nor an
employment.
In their Reply, petitioners claim that their petition is neither an action for quo warranto nor an action for declaratory relief. Petitioners
maintain that the present petition is a taxpayers suit questioning the unlawful disbursement of funds, considering that respondent has
been drawing his salaries and other compensation as a Senator even if he is no longer entitled to his office. Petitioners point out that this
Court has jurisdiction over this petition since it involves a legal or constitutional issue which is of transcendental importance.
The Issues
Petitioners raise the following issues:
1. Whether the Philippine National Red Cross (PNRC) is a government- owned or controlled corporation;
In his Comment, respondent asserts that petitioners have no standing to file this petition which appears to be an action for quo
warranto, since the petition alleges that respondent committed an act which, by provision of law, constitutes a ground for forfeiture of his
public office. Petitioners do not claim to be entitled to the Senate office of respondent. Under Section 5, Rule 66 of the Rules of Civil
Procedure, only a person claiming to be entitled to a public office usurped or unlawfully held by another may bring an action for quo
warranto in his own name. If the petition is one for quo warranto, it is already barred by prescription since under Section 11, Rule 66 of
the Rules of Civil Procedure, the action should be commenced within one year after the cause of the public officers forfeiture of office. In
this case, respondent has been working as a Red Cross volunteer for the past 40 years. Respondent was already Chairman of the PNRC
Board of Governors when he was elected Senator in May 2004, having been elected Chairman in 2003 and re-elected in 2005.
Caelitus Mihi Vires
2. Whether Section 13, Article VI of the Philippine Constitution applies to the case of respondent who is Chairman of the PNRC and at the
same time a Member of the Senate;
3. Whether respondent should be automatically removed as a Senator pursuant to Section 13, Article VI of the Philippine Constitution;
and
97
4. Whether petitioners may legally institute this petition against respondent.[4]
5. Respondent was elected as Chairman of the PNRC Board of Governors, during his incumbency as a Member of the House of
Senate of the Congress of the Philippines, having been elected as such during the national elections last May 2004.
6. Since his election as Chairman of the PNRC Board of Governors, which position he duly accepted, respondent has been exercising
the powers and discharging the functions and duties of said office, despite the fact that he is still a senator.
The substantial issue boils down to whether the office of the PNRC Chairman is a government office or an office in a governmentowned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the Constitution.
7. It is the respectful submission of the petitioner[s] that by accepting the chairmanship of the Board of Governors of the PNRC,
respondent has ceased to be a Member of the House of Senate as provided in Section 13, Article VI of the Philippine Constitution, x x x
xxxx
The Courts Ruling
We find the petition without merit.
Petitioners Have No Standing to File this Petition
10. It is respectfully submitted that in accepting the position of Chairman of the Board of Governors of the PNRC on February 23,
2006, respondent has automatically forfeited his seat in the House of Senate and, therefore, has long ceased to be a Senator, pursuant to
the ruling of this Honorable Court in the case of FLORES, ET AL. VS. DRILON AND GORDON, G.R. No. 104732, x x x
11. Despite the fact that he is no longer a senator, respondent continues to act as such and still performs the powers, functions
and duties of a senator, contrary to the constitution, law and jurisprudence.
12. Unless restrained, therefore, respondent will continue to falsely act and represent himself as a senator or member of the House
of Senate, collecting the salaries, emoluments and other compensations, benefits and privileges appertaining and due only to the
legitimate senators, to the damage, great and irreparable injury of the Government and the Filipino people.[5] (Emphasis supplied)
A careful reading of the petition reveals that it is an action for quo warranto. Section 1, Rule 66 of the Rules of Court provides:
Section 1. Action by Government against individuals. An action for the usurpation of a public office, position or franchise may be
commenced by a verified petition brought in the name of the Republic of the Philippines against:
Thus, petitioners are alleging that by accepting the position of Chairman of the PNRC Board of Governors, respondent has
automatically forfeited his seat in the Senate. In short, petitioners filed an action for usurpation of public office against respondent, a
public officer who allegedly committed an act which constitutes a ground for the forfeiture of his public office. Clearly, such an action is
for quo warranto, specifically under Section 1(b), Rule 66 of the Rules of Court.
(a) A person who usurps, intrudes into, or unlawfully holds or exercises a public office, position or franchise;
(b) A public officer who does or suffers an act which by provision of law, constitutes a ground for the forfeiture of his office; or
(c) An association which acts as a corporation within the Philippines without being legally incorporated or without lawful authority
so to act. (Emphasis supplied)
Petitioners allege in their petition that:
4. Respondent became the Chairman of the PNRC when he was elected as such during the First Regular Luncheon-Meeting of the
Board of Governors of the PNRC held on February 23, 2006, the minutes of which is hereto attached and made integral part hereof as
Annex A.
Caelitus Mihi Vires
Quo warranto is generally commenced by the Government as the proper party plaintiff. However, under Section 5, Rule 66 of the
Rules of Court, an individual may commence such an action if he claims to be entitled to the public office allegedly usurped by another, in
which case he can bring the action in his own name. The person instituting quo warranto proceedings in his own behalf must claim and
be able to show that he is entitled to the office in dispute, otherwise the action may be dismissed at any stage.[6] In the present case,
petitioners do not claim to be entitled to the Senate office of respondent. Clearly, petitioners have no standing to file the present petition.
Even if the Court disregards the infirmities of the petition and treats it as a taxpayers suit, the petition would still fail on the merits.
PNRC is a Private Organization Performing Public Functions
98
On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95,[7] otherwise known as the PNRC Charter. The PNRC is a
non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to bring timely, effective, and compassionate
humanitarian assistance for the most vulnerable without consideration of nationality, race, religion, gender, social status, or political
affiliation.[8] The PNRC provides six major services: Blood Services, Disaster Management, Safety Services, Community Health and
Nursing, Social Services and Voluntary Service.[9]
may be found. Its purpose is to protect life and health and to ensure respect for the human being. It promotes mutual understanding,
friendship, cooperation and lasting peace amongst all peoples.
2. IMPARTIALITY It makes no discrimination as to nationality, race, religious beliefs, class or political opinions. It endeavors to relieve
the suffering of individuals, being guided solely by their needs, and to give priority to the most urgent cases of distress.
3. NEUTRALITY In order to continue to enjoy the confidence of all, the Movement may not take sides in hostilities or engage at any
time in controversies of a political, racial, religious or ideological nature.
The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary organization for the
purpose contemplated in the Geneva Convention of 27 July 1929.[10] The Whereas clauses of the PNRC Charter read:
WHEREAS, there was developed at Geneva, Switzerland, on August 22, 1864, a convention by which the nations of the world
were invited to join together in diminishing, so far lies within their power, the evils inherent in war;
WHEREAS, more than sixty nations of the world have ratified or adhered to the subsequent revision of said convention, namely the
Convention of Geneva of July 29 *sic+, 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in the Field
(referred to in this Charter as the Geneva Red Cross Convention);
4. INDEPENDENCE The Movement is independent. The National Societies, while auxiliaries in the humanitarian services of their
governments and subject to the laws of their respective countries, must always maintain their autonomy so that they may be able at all
times to act in accordance with the principles of the Movement.
5. VOLUNTARY SERVICE It is a voluntary relief movement not prompted in any manner by desire for gain.
6. UNITY There can be only one Red Cross or one Red Crescent Society in any one country. It must be open to all. It must carry on its
humanitarian work throughout its territory.
7. UNIVERSALITY The International Red Cross and Red Crescent Movement, in which all Societies have equal status and share equal
responsibilities and duties in helping each other, is worldwide. (Emphasis supplied)
WHEREAS, the Geneva Red Cross Convention envisages the establishment in each country of a voluntary organization to assist in
caring for the wounded and sick of the armed forces and to furnish supplies for that purpose;
WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946 and proclaimed its adherence to the
Geneva Red Cross Convention on February 14, 1947, and by that action indicated its desire to participate with the nations of the world in
mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose as contemplated by the
Geneva Red Cross Convention;
WHEREAS, there existed in the Philippines since 1917 a Charter of the American National Red Cross which must be terminated in
view of the independence of the Philippines; and
WHEREAS, the volunteer organizations established in the other countries which have ratified or adhered to the Geneva Red Cross
Convention assist in promoting the health and welfare of their people in peace and in war, and through their mutual assistance and
cooperation directly and through their international organizations promote better understanding and sympathy among the peoples of the
world. (Emphasis supplied)
The PNRC is a member National Society of the International Red Cross and Red Crescent Movement (Movement), which is composed
of the International Committee of the Red Cross (ICRC), the International Federation of Red Cross and Red Crescent Societies
(International Federation), and the National Red Cross and Red Crescent Societies (National Societies). The Movement is united and
guided by its seven Fundamental Principles:
1. HUMANITY The International Red Cross and Red Crescent Movement, born of a desire to bring assistance without discrimination to
the wounded on the battlefield, endeavors, in its international and national capacity, to prevent and alleviate human suffering wherever it
Caelitus Mihi Vires
The Fundamental Principles provide a universal standard of reference for all members of the Movement. The PNRC, as a member
National Society of the Movement, has the duty to uphold the Fundamental Principles and ideals of the Movement. In order to be
recognized as a National Society, the PNRC has to be autonomous and must operate in conformity with the Fundamental Principles of the
Movement.[11]
The reason for this autonomy is fundamental. To be accepted by warring belligerents as neutral workers during international or
internal armed conflicts, the PNRC volunteers must not be seen as belonging to any side of the armed conflict. In the Philippines where
there is a communist insurgency and a Muslim separatist rebellion, the PNRC cannot be seen as government-owned or controlled, and
neither can the PNRC volunteers be identified as government personnel or as instruments of government policy. Otherwise, the
insurgents or separatists will treat PNRC volunteers as enemies when the volunteers tend to the wounded in the battlefield or the
displaced civilians in conflict areas.
Thus, the PNRC must not only be, but must also be seen to be, autonomous, neutral and independent in order to conduct its
activities in accordance with the Fundamental Principles. The PNRC must not appear to be an instrument or agency that implements
government policy; otherwise, it cannot merit the trust of all and cannot effectively carry out its mission as a National Red Cross
Society.[12] It is imperative that the PNRC must be autonomous, neutral, and independent in relation to the State.
To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be owned or controlled by the government.
Indeed, the Philippine government does not own the PNRC. The PNRC does not have government assets and does not receive any
99
appropriation from the Philippine Congress.[13] The PNRC is financed primarily by contributions from private individuals and private
entities obtained through solicitation campaigns organized by its Board of Governors, as provided under Section 11 of the PNRC Charter:
SECTION 11. As a national voluntary organization, the Philippine National Red Cross shall be financed primarily by contributions
obtained through solicitation campaigns throughout the year which shall be organized by the Board of Governors and conducted by the
Chapters in their respective jurisdictions. These fund raising campaigns shall be conducted independently of other fund drives by other
organizations. (Emphasis supplied)
The government does not control the PNRC. Under the PNRC Charter, as amended, only six of the thirty members of the PNRC Board
of Governors are appointed by the President of the Philippines. Thus, twenty-four members, or four-fifths (4/5), of the PNRC Board of
Governors are not appointed by the President. Section 6 of the PNRC Charter, as amended, provides:
SECTION 6. The governing powers and authority shall be vested in a Board of Governors composed of thirty members, six of whom
shall be appointed by the President of the Philippines, eighteen shall be elected by chapter delegates in biennial conventions and the
remaining six shall be selected by the twenty-four members of the Board already chosen. x x x.
Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the chapter delegates of the PNRC, and six are elected by
the twenty-four members already chosen a select group where the private sector members have three-fourths majority. Clearly, an
overwhelming majority of four-fifths of the PNRC Board are elected or chosen by the private sector members of the PNRC.
Under Section 16, Article VII of the 1987 Constitution, the President appoints three groups of officers. The first group refers to the
heads of the Executive departments, ambassadors, other public ministers and consuls, officers of the armed forces from the rank of
colonel or naval captain, and other officers whose appointments are vested in the President by the Constitution. The second group refers
to those whom the President may be authorized by law to appoint. The third group refers to all other officers of the Government whose
appointments are not otherwise provided by law.
Under the same Section 16, there is a fourth group of lower-ranked officers whose appointments Congress may by law vest in the
heads of departments, agencies, commissions, or boards. x x x
xxx
In a department in the Executive branch, the head is the Secretary. The law may not authorize the Undersecretary, acting as such
Undersecretary, to appoint lower-ranked officers in the Executive department. In an agency, the power is vested in the head of the
agency for it would be preposterous to vest it in the agency itself. In a commission, the head is the chairperson of the commission. In a
board, the head is also the chairperson of the board. In the last three situations, the law may not also authorize officers other than the
heads of the agency, commission, or board to appoint lower-ranked officers.
xxx
The Constitution authorizes Congress to vest the power to appoint lower-ranked officers specifically in the heads of the specified
offices, and in no other person. The word heads refers to the chairpersons of the commissions or boards and not to their members, for
several reasons.
The PNRC Board of Governors, which exercises all corporate powers of the PNRC, elects the PNRC Chairman and all other officers of
the PNRC. The incumbent Chairman of PNRC, respondent Senator Gordon, was elected, as all PNRC Chairmen are elected, by a private
sector-controlled PNRC Board four-fifths of whom are private sector members of the PNRC. The PNRC Chairman is not appointed by the
President or by any subordinate government official.
Under Section 16, Article VII of the Constitution,[14] the President appoints all officials and employees in the Executive branch
whose appointments are vested in the President by the Constitution or by law. The President also appoints those whose appointments
are not otherwise provided by law. Under this Section 16, the law may also authorize the heads of departments, agencies, commissions,
or boards to appoint officers lower in rank than such heads of departments, agencies, commissions or boards.*15+ In Rufino v.
Endriga,[16] the Court explained appointments under Section 16 in this wise:
The President does not appoint the Chairman of the PNRC. Neither does the head of any department, agency, commission or board
appoint the PNRC Chairman. Thus, the PNRC Chairman is not an official or employee of the Executive branch since his appointment does
not fall under Section 16, Article VII of the Constitution. Certainly, the PNRC Chairman is not an official or employee of the Judiciary or
Legislature. This leads us to the obvious conclusion that the PNRC Chairman is not an official or employee of the Philippine Government.
Not being a government official or employee, the PNRC Chairman, as such, does not hold a government office or employment.
Under Section 17, Article VII of the Constitution,[17] the President exercises control over all government offices in the Executive
branch. If an office is legally not under the control of the President, then such office is not part of the Executive branch. In Rufino v.
Endriga,*18+ the Court explained the Presidents power of control over all government offices as follows:
Caelitus Mihi Vires
100
Every government office, entity, or agency must fall under the Executive, Legislative, or Judicial branches, or must belong to one of
the independent constitutional bodies, or must be a quasi-judicial body or local government unit. Otherwise, such government office,
entity, or agency has no legal and constitutional basis for its existence.
The CCP does not fall under the Legislative or Judicial branches of government. The CCP is also not one of the independent
constitutional bodies. Neither is the CCP a quasi-judicial body nor a local government unit. Thus, the CCP must fall under the Executive
branch. Under the Revised Administrative Code of 1987, any agency not placed by law or order creating them under any specific
department falls under the Office of the President.
Since the President exercises control over all the executive departments, bureaus, and offices, the President necessarily exercises
control over the CCP which is an office in the Executive branch. In mandating that the President shall have control of all executive . . .
offices, Section 17, Article VII of the 1987 Constitution does not exempt any executive office one performing executive functions
outside of the independent constitutional bodies from the Presidents power of control. There is no dispute that the CCP performs
executive, and not legislative, judicial, or quasi-judicial functions.
However, the freely-elected representatives of a National Societys active members must remain in a large majority in a National Societys
governing bodies.[19]
The PNRC is not government-owned but privately owned. The vast majority of the thousands of PNRC members are private
individuals, including students. Under the PNRC Charter, those who contribute to the annual fund campaign of the PNRC are entitled to
membership in the PNRC for one year. Thus, any one between 6 and 65 years of age can be a PNRC member for one year upon
contributing P35, P100, P300, P500 or P1,000 for the year.[20] Even foreigners, whether residents or not, can be members of the PNRC.
Section 5 of the PNRC Charter, as amended by Presidential Decree No. 1264,[21] reads:
SEC. 5. Membership in the Philippine National Red Cross shall be open to the entire population in the Philippines regardless of
citizenship. Any contribution to the Philippine National Red Cross Annual Fund Campaign shall entitle the contributor to membership for
one year and said contribution shall be deductible in full for taxation purposes.
Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization. The PNRC is not a government-owned or
controlled corporation.
The Presidents power of control applies to the acts or decisions of all officers in the Executive branch. This is true whether such
officers are appointed by the President or by heads of departments, agencies, commissions, or boards. The power of control means the
power to revise or reverse the acts or decisions of a subordinate officer involving the exercise of discretion.
In short, the President sits at the apex of the Executive branch, and exercises control of all the executive departments, bureaus,
and offices. There can be no instance under the Constitution where an officer of the Executive branch is outside the control of the
President. The Executive branch is unitary since there is only one President vested with executive power exercising control over the entire
Executive branch. Any office in the Executive branch that is not under the control of the President is a lost command whose existence is
without any legal or constitutional basis. (Emphasis supplied)
An overwhelming four-fifths majority of the PNRC Board are private sector individuals elected to the PNRC Board by the private
sector members of the PNRC. The PNRC Board exercises all corporate powers of the PNRC. The PNRC is controlled by private sector
individuals. Decisions or actions of the PNRC Board are not reviewable by the President. The President cannot reverse or modify the
decisions or actions of the PNRC Board. Neither can the President reverse or modify the decisions or actions of the PNRC Chairman. It is
the PNRC Board that can review, reverse or modify the decisions or actions of the PNRC Chairman. This proves again that the office of the
PNRC Chairman is a private office, not a government office.
Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC,[22] which ruled that the PNRC is a governmentowned or controlled corporation. In ruling that the PNRC is a government-owned or controlled corporation, the simple test used was
whether the corporation was created by its own special charter for the exercise of a public function or by incorporation under the general
corporation law. Since the PNRC was created under a special charter, the Court then ruled that it is a government corporation. However,
the Camporedondo ruling failed to consider the definition of a government-owned or controlled corporation as provided under Section
2(13) of the Introductory Provisions of the Administrative Code of 1987:
SEC. 2. General Terms Defined. x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of
its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of the
Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers,
functions and responsibilities with respect to such corporations.(Boldfacing and underscoring supplied)
Although the State is often represented in the governing bodies of a National Society, this can be justified by the need for proper
coordination with the public authorities, and the government representatives may take part in decision-making within a National Society.
Caelitus Mihi Vires
101
A government-owned or controlled corporation must be owned by the government, and in the case of a stock corporation, at least a
majority of its capital stock must be owned by the government. In the case of a non-stock corporation, by analogy at least a majority of
the members must be government officials holding such membership by appointment or designation by the government. Under this
criterion, and as discussed earlier, the government does not own or control PNRC.
The PNRC Charter is Violative of the Constitutional Proscription against the Creation of Private Corporations by Special Law
The Constitution emphatically prohibits the creation of private corporations except by general law applicable to all citizens. The
purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens.
In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional.
Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated
differently, only corporations created under a general law can qualify as private corporations. Under existing laws, the general law is the
Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives.
The 1935 Constitution, as amended, was in force when the PNRC was created by special charter on 22 March 1947. Section 7,
Article XIV of the 1935 Constitution, as amended, reads:
SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations,
unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof.
The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting Congress from creating private corporations except
by general law. Section 1 of the PNRC Charter, as amended, creates the PNRC as a body corporate and politic, thus:
SECTION 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be the voluntary organization
officially designated to assist the Republic of the Philippines in discharging the obligations set forth in the Geneva Conventions and to
perform such other duties as are inherent upon a National Red Cross Society. The national headquarters of this Corporation shall be
located in Metropolitan Manila. (Emphasis supplied)
In Feliciano v. Commission on Audit,[23] the Court explained the constitutional provision prohibiting Congress from creating private
corporations in this wise:
We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of corporations.
The first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations
created by special charters. Section 16, Article XII of the Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and
subject to the test of economic viability.
Caelitus Mihi Vires
The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private
corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such corporations
are government-owned or controlled.[24] (Emphasis supplied)
In Feliciano, the Court held that the Local Water Districts are government-owned or controlled corporations since they exist by virtue of
Presidential Decree No. 198, which constitutes their special charter. The seed capital assets of the Local Water Districts, such as
waterworks and sewerage facilities, were public property which were managed, operated by or under the control of the city, municipality
or province before the assets were transferred to the Local Water Districts. The Local Water Districts also receive subsidies and loans from
the Local Water Utilities Administration (LWUA). In fact, under the 2009 General Appropriations Act,[25] the LWUA has a budget
amounting to P400,000,000 for its subsidy requirements.[26] There is no private capital invested in the Local Water Districts. The capital
assets and operating funds of the Local Water Districts all come from the government, either through transfer of assets, loans, subsidies
or the income from such assets or funds.
The government also controls the Local Water Districts because the municipal or city mayor, or the provincial governor, appoints all
the board directors of the Local Water Districts. Furthermore, the board directors and other personnel of the Local Water Districts are
government employees subject to civil service laws and anti-graft laws. Clearly, the Local Water Districts are considered governmentowned or controlled corporations not only because of their creation by special charter but also because the government in fact owns and
controls the Local Water Districts.
Just like the Local Water Districts, the PNRC was created through a special charter. However, unlike the Local Water Districts, the
elements of government ownership and control are clearly lacking in the PNRC. Thus, although the PNRC is created by a special charter, it
cannot be considered a government-owned or controlled corporation in the absence of the essential elements of ownership and control
by the government. In creating the PNRC as a corporate entity, Congress was in fact creating a private corporation. However, the
constitutional prohibition against the creation of private corporations by special charters provides no exception even for non-profit or
charitable corporations. Consequently, the PNRC Charter, insofar as it creates the PNRC as a private corporation and grants it corporate
powers,[27] is void for being unconstitutional. Thus, Sections 1,[28] 2,[29] 3,[30] 4(a),[31] 5,[32] 6,[33] 7,[34] 8,[35] 9,[36] 10,[37]
11,[38] 12,[39] and 13[40] of the PNRC Charter, as amended, are void.
The other provisions[41] of the PNRC Charter remain valid as they can be considered as a recognition by the State that the unincorporated
PNRC is the local National Society of the International Red Cross and Red Crescent Movement, and thus entitled to the benefits,
exemptions and privileges set forth in the PNRC Charter. The other provisions of the PNRC Charter implement the Philippine
Governments treaty obligations under Article 4(5) of the Statutes of the International Red Cross and Red Crescent Movement, which
102
provides that to be recognized as a National Society, the Society must be duly recognized by the legal government of its country on the
basis of the Geneva Conventions and of the national legislation as a voluntary aid society, auxiliary to the public authorities in the
humanitarian field.
BERSAMIN, J.:
In sum, we hold that the office of the PNRC Chairman is not a government office or an office in a government-owned or controlled
corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. However, since the PNRC Charter is void
insofar as it creates the PNRC as a private corporation, the PNRC should incorporate under the Corporation Code and register with the
Securities and Exchange Commission if it wants to be a private corporation.
Petitioner Antonio M. Carandang (Carandang) challenges the jurisdiction over him of the Ombudsman and of the Sandiganbayan on the
ground that he was being held to account for acts committed while he was serving as general manager and chief operating officer of
Radio Philippines Network, Inc. (RPN), which was not a government-owned or -controlled corporation; hence, he was not a public official
or employee.
In G.R. No. 148076, Carandang seeks the reversal of the decision[1] and resolution[2] promulgated by the Court of Appeals (CA) affirming
the decision[3] of the Ombudsman dismissing him from the service for grave misconduct.
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office
in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We
also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act
No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private corporation or grant
it corporate powers.
SO ORDERED.
In G.R. No. 153161, Carandang assails on certiorari the resolutions dated October 17, 2001[4] and March 14, 2002[5] of the
Sandiganbayan (Fifth Division) that sustained the Sandiganbayans jurisdiction over the criminal complaint charging him with violation of
Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act).
Antecedents
ANTONIO M. CARANDANG,
Petitioner,
-versus -
Roberto S. Benedicto (Benedicto) was a stockholder of RPN, a private corporation duly registered with the Securities and Exchange
Commission (SEC).*6+ In March 1986, the Government ordered the sequestration of RPNs properties, assets, and business. On November
3, 1990, the Presidential Commission on Good Government (PCGG) entered into a compromise agreement with Benedicto, whereby he
ceded to the Government, through the PCGG, all his shares of stock in RPN. Consequently, upon motion of the PCGG, the Sandiganbayan
(Second Division) directed the president and corporate secretary of RPN to transfer to the PCGG Benedictos shares representing 72.4% of
the total issued and outstanding capital stock of RPN.
HONORABLE ANIANO A. DESIERTO, OFFICE OF THE OMBUDSMAN,

Respondent.
x-----------------------------------------x
However, Benedicto moved for a reconsideration, contending that his RPN shares ceded to the Government, through the PCGG,
represented only 32.4% of RPNs outstanding capital stock, not 72.4%. Benedictos motion for reconsideration has remained unresolved
to this date.[7]
ANTONIO M. CARANDANG,
Petitioner,
Administrative Complaint for Grave Misconduct
-versusSANDIGANBAYAN (FIFTH DIVISION),
On July 28, 1998, Carandang assumed office as general manager and chief operating officer of RPN.[8]
Respondent.
G.R. No. 148076
January 12, 2011
Caelitus Mihi Vires
On April 19, 1999, Carandang and other RPN officials were charged with grave misconduct before the Ombudsman. The charge alleged
that Carandang, in his capacity as the general manager of RPN, had entered into a contract with AF Broadcasting Incorporated despite his
being an incorporator, director, and stockholder of that corporation; that he had thus held financial and material interest in a contract
103
that had required the approval of his office; and that the transaction was prohibited under Section 7 (a) and Section 9 of Republic Act No.
6713 (Code of Conduct and Ethical Standards for Public Officials and Employees), thereby rendering him administratively liable for grave
misconduct.
Carandang sought the dismissal of the administrative charge on the ground that the Ombudsman had no jurisdiction over him because
RPN was not a government-owned or -controlled corporation.[9]
On May 7, 1999, the Ombudsman suspended Carandang from his positions in RPN.
On September 8, 1999, Carandang manifested that he was no longer interested and had no further claim to his positions in RPN. He was
subsequently replaced by Edgar San Luis.[10]
In its decision dated January 26, 2000,[11] the Ombudsman found Carandang guilty of grave misconduct and ordered his dismissal from
the service.
Carandang moved for reconsideration on two grounds: (a) that the Ombudsman had no jurisdiction over him because RPN was not a
government-owned or -controlled corporation; and (b) that he had no financial and material interest in the contract that required the
approval of his office.[12]
The Ombudsman denied Carandangs motion for reconsideration on March 15, 2000.*13+
government as defined in xxx [Sec. 2 (a) of Republic Act No. 3019 as amended+. (Sec. 2 (b) of Republic Act No. 3019 as amended. Unless
the powers conferred are of this nature, the individual is not a public officer.
With these time-honored definitions and the substantial findings of the Ombudsman, We are constrained to conclude that, indeed, the
herein petitioner (Antonio M. Carandang) is a public officer. Precisely, since he (Antonio M. Carandang) was appointed by then President
Joseph Ejercito Estrada as general manager and chief operating officer of RPN-9 (page 127 of the Rollo). As a presidential appointee, the
petitioner derives his authority from the Philippine Government. It is luce clarius that the function of the herein petitioner (as a
presidential appointee), relates to public duty, i.e., to represent the interest of the Philippine Government in RPN-9 and not purely
personal matter, thus, the matter transcends the petitioners personal pique or pride.
xxx
Having declared earlier that the herein petitioner is a public officer, it follows therefore that, that jurisdiction over him is lodged in the
Office of the Ombudsman.
It is worth remembering that as protector of the people, the Ombudsman has the power, function and duty to act promptly on complaints
filed in any form or manner against officers or employees of the Government, or of any, subdivision, agency or instrumentality thereof,
including government-owned or controlled corporations, and enforce their administrative, civil and criminal liability in every case where
the evidence warrants in order to promote efficient service by the Government to the people. (Section 13 of Republic Act No. 6770).
xxx
On appeal (CA G.R. SP No. 58204),[14] the CA affirmed the decision of the Ombudsman on February 12, 2001, stating:
Accordingly, the Office of the Ombudsman is, therefore, clothed with the proper armor when it assumed jurisdiction over the case filed
against the herein petitioner. x x x
The threshold question to be resolved in the present case is whether or not the Office of the Ombudsman has jurisdiction over the herein
petitioner.
xxx
It is therefore of paramount importance to consider the definitions of the following basic terms, to wit: A public office is the right,
authority and duty, created and conferred by law, by which for a given period, either fixed by law or enduring at the pleasure of the
creating power, an individual is invested with some portion of the sovereign functions of the state to be exercised by him for the benefit
of the public. (San Andres, Catanduanes vs. Court of Appeals, 284 SCRA 276: Chapter I, Section 1, Mechem, A Treatise on Law of Public
Offices and Officers). The individual so invested is called the public officer which includes elective and appointive officials and employees,
permanent or temporary, whether in the classified or unclassified or exemption service receiving compensation, even nominal, from the
Caelitus Mihi Vires
It appears that RPN-9 is a private corporation established to install, operate and manage radio broadcasting and/or television stations in
the Philippines (pages 59-79 of the Rollo). On March 2, 1986, when RPN-9 was sequestered by the Government on ground that the same
was considered as an illegally obtained property (page 3 of the Petition for Review; page 2 of the Respondents Comment; pages 10 and
302 of the Rollo), RPN-9 has shed-off its private status. In other words, there can be no gainsaying that as of the date of its sequestration
by the Government, RPN-9, while retaining its own corporate existence, became a government-owned or controlled corporation within
the Constitutional precept.
104
Be it noted that a government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether government or proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51)
percent of its capital stock; Provided, That government-owned or controlled corporations may be further categorized by the department
of Budget, the Civil Service, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions
and responsibilities with respect to such corporations. (Section 2 *13+, Executive Order No. 292).
SO ORDERED.[15]
After the denial of his motion for reconsideration,[16] Carandang commenced G.R. No. 148076.
Violation of Section 3 (g), Republic Act No. 3019

Contrary to the claim of the petitioner, this Court is of the view and so holds that RPN-9 perfectly falls under the foregoing definition. For
one, the governments interest to RPN-9 amounts to 72.4% of RPNs capital stock with an uncontested portion of 32.4% and a contested
or litigated portion of 40%. (page 3 of the Petition for Review; pages 8-9 of the Respondents Comment). On this score, it ought to be
pointed out that while the forty percent (40%) of the seventy two point four percent (72.4%) is still contested and litigated, until the
matter becomes formally settled, the government, for all interests and purposes still has the right over said portion, for the law is on its
side. Hence, We can safely say that for the moment, RPN-9 is a government owned and controlled corporation. Another thing, RPN 9,
though predominantly tackles proprietary functionsthose intended for private advantage and benefit, still, it is irrefutable that RPN-9
also performs governmental roles in the interest of health, safety and for the advancement of public good and welfare, affecting the
public in general.
xxx
Coming now to the last assignment of error- While it may be considered in substance that the latest GIS clearly shows that petitioner was
no longer a stockholder of record of AF Broadcasting Corporation at the time of his assumption of Office in RPN 9 x x x (Petitioners Reply
[to Comment]; page 317 of the Rollo), still severing ties from AF Broadcasting Corporation does not convince this Court fully well to
reverse the finding of the Ombudsman that Antonio Carandang appears to be liable for Grave Misconduct (page 10 of the Assailed
Decision; page 36 of the Rollo). Note that, as a former stockholder of AF Broadcasting Corporation, it is improbable that the herein
petitioner was completely oblivious of the developments therein and unaware of the contracts it (AF Broadcasting Corporation) entered
into. By reason of his past (Antonio Carandang) association with the officers of the AF Broadcasting Corporation, it is unbelievable that
herein petitioner could simply have ignored the contract entered into between RPN-9 and AF Broadcasting Corporation and not at all felt
to reap the benefits thereof. Technically, it is true that herein petitioner did not directly act on behalf of AF Broadcasting Corporation,
however, We doubt that he (herein petitioner) had no financial and/or material interest in that particular transaction requiring the
approval of his officea fact that could not have eluded Our attention.
On January 17, 2000, the Ombudsman formally charged Carandang in the Sandiganbayan with a violation of Section 3 (g) of RA 3019 by
alleging in the following information, [17] viz:
That sometime on September 8, 1998 or thereabouts, in Quezon City, Philippines and within the jurisdiction of this Honorable Court,
accused ANTONIO M. CARANDANG, a high ranking officer (HRO) being then the General Manager of Radio Philippines Network, Inc. (RPN9), then a government owned and controlled corporation, did then and there willfully, unlawfully and criminally give unwarranted benefits
to On Target Media Concept, Inc. (OTMCI) through manifest partiality and gross inexcusable negligence and caused the government
undue injury, by pre-terminating the existing block time contract between RPN 9 and OTMCI for the telecast of Isumbong Mo Kay Tulfo
which assured the government an income of Sixty Four Thousand and Nine Pesos (P 64,009.00) per telecast and substituting the same
with a more onerous co-production agreement without any prior study as to the profitability thereof, by which agreement RPN-9
assumed the additional obligation of taking part in the promotions, sales and proper marketing of the program, with the end result in that
in a period of five (5) months RPN-9 was able to realize an income of only Seventy One Thousand One Hundred Eighty Five Pesos (P
71,185.00), and further, by waiving RPN-9s collectible from OTMCI for August 1-30, 1998 in the amount of Three Hundred Twenty
Thousand and Forty Five Pesos (P 320,045.00).
Carandang moved to quash the information,[18] arguing that Sandiganbayan had no jurisdiction because he was not a public official due
to RPN not being a government-owned or -controlled corporation.
The Sandiganbayan denied Carandangs motion to quash on October 17, 2001.[19]
After the denial by the Sandiganbayan of his motion for reconsideration,[20] Carandang initiated G.R. No. 153161.[21]
xxx
WHEREFORE, premises considered and pursuant to applicable laws and jurisprudence on the matter, the present Petition for Review is
hereby DENIED for lack of merit. The assailed decision (dated January 26, 2000) of the Office of the Ombudsman in OMB-ADM-0-99-0349
is hereby AFFIRMED in toto. No pronouncement as to costs.
On May 27, 2002, Carandang moved to defer his arraignment and pre-trial, citing the pendency of G.R. No. 153161.[22]
On July 29, 2002, the Court directed the parties in G.R. No. 153161 to maintain the status quo until further orders.[23]
Caelitus Mihi Vires
105
Section 2. General Terms Defined. Unless the specific words of the text or the context as a whole or a particular statute, shall require a
different meaning:
On November 20, 2006, G.R. No. 148076 was consolidated with G.R. No. 153161.[24]
xxx
Issue
Carandang insists that he was not a public official considering that RPN was not a government-owned or -controlled corporation; and that,
consequently, the Ombudsman and the Sandiganbayan had no jurisdiction over him. He prays that the administrative and criminal
complaints filed against him should be dismissed. Accordingly, decisive is whether or not RPN was a government-owned or -controlled
corporation.
(13) government-owned or controlled corporations refer to any agency organized as a stock or non-stock corporation vested with
functions relating to public needs whether governmental or proprietary in nature, and owned by the government directly or indirectly
through its instrumentalities either wholly, or where applicable as in the case of stock corporations to the extent of at least 51% of its
capital stock.
It is clear, therefore, that a corporation is considered a government-owned or -controlled corporation only when the Government directly
or indirectly owns or controls at least a majority or 51% share of the capital stock. Applying this statutory criterion, the Court ruled in
Leyson, Jr. v. Office of the Ombudsman:[27]
Ruling
We find the petitions to be meritorious.
It is not disputed that the Ombudsman has jurisdiction over administrative cases involving grave misconduct committed by the officials
and employees of government-owned or -controlled corporations; and that the Sandiganbayan has jurisdiction to try and decide criminal
actions involving violations of R.A. 3019 committed by public officials and employees, including presidents, directors and managers of
government-owned or -controlled corporations. The respective jurisdictions of the respondents are expressly defined and delineated by
the law.[25]
Similarly, the law defines what are government-owned or -controlled corporations. For one, Section 2 of Presidential Decree No. 2029
(Defining Government Owned or Controlled Corporations and Identifying Their Role in National Development) states:
Section 2. A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing governmental or
proprietary functions, which is directly chartered by a special law or if organized under the general corporation law is owned or controlled
by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding capital stock or of its outstanding voting capital stock.
Section 2 (13) of Executive Order No. 292 (Administrative Code of 1987)[26] renders a similar definition of government-owned or controlled corporations:
But these jurisprudential rules invoked by petitioner in support of his claim that the CIIF companies are government owned and/or
controlled corporations are incomplete without resorting to the definition of government owned or controlled corporation contained in
par. (13), Sec.2, Introductory Provisions of the Administrative Code of 1987, i.e., any agency organized as a stock or non-stock corporation
vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the government directly or
indirectly through its instrumentalities either wholly, or where applicable as in the case of stock corporations to the extent of at least fiftyone (51) percent of its capital stock. The definition mentions three (3) requisites, namely, first, any agency organized as a stock or nonstock corporation; second, vested with functions relating to public needs whether governmental or proprietary in nature; and, third,
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations,
to the extent of at least fifty-one (51) of its capital stock.
In the present case, all three (3) corporations comprising the CIIF companies were organized as stock corporations. The UCPB-CIIF owns
44.10% of the shares of LEGASPI OIL, xxx. Obviously, the below 51% shares of stock in LEGASPI OIL removes this firm from the definition of
a government owned or controlled corporation. x x x The Court thus concludes that the CIIF are, as found by public respondent, private
corporations not within the scope of its jurisdiction.[28]
Consequently, RPN was neither a government-owned nor a controlled corporation because of the Governments total share in RPNs
capital stock being only 32.4%.
Parenthetically, although it is true that the Sandiganbayan (Second Division) ordered the transfer to the PCGG of Benedictos shares that
represented 72.4% of the total issued and outstanding capital stock of RPN, such quantification of Benedictos shareholding cannot be
Caelitus Mihi Vires
106
controlling in view of Benedictos timely filing of a motion for reconsideration whereby he clarified and insisted that the shares ceded to
the PCGG had accounted for only 32.4%, not 72.4%, of RPNs outstanding capital stock. With the extent of Benedictos holdings in RPN
remaining unresolved with finality, concluding that the Government held the majority of RPNs capital stock as to make RPN a
government-owned or -controlled corporation would be bereft of any factual and legal basis.
Even the PCGG and the Office of the President (OP) have recognized RPNs status as being neither a government-owned nor -controlled
corporation.
In its Opinion/Clarification dated August 18, 1999, the PCGG communicated to San Luis as the president and general manager of RPN
regarding a case involving RPN and Carandang:[29]
MR. EDGAR S. SAN LUIS

President & General Manager
Accordingly, the Sandiganbayan (Second Division), on motion of the government through PCGG, ordered the president and corporate
secretary of the RPN-9 to effect the immediate cancellation and transfer of the 9,494,327.50 shares corresponding to Benedictos
proprietary interest in RPN-9 to the Republic of the Philippines c/o PCGG (Sandiganbayans Resolution of February 3, 1998 in Civil Case
No. 0034, RP vs. Roberto Benedicto, et. al.) Benedicto, however, filed a motion for reconsideration of said Resolution, contending that the
number of RPN-9 shares ceded by him embraces only his personal holdings and those of his immediate family and nominees totaling
4,161,207.5 shares but excluding the RPN-9 shares in the name of Far East Managers and Investors, Inc. (FEMIE), which is about 40%, as
they are corporate properties/assets of FEMIE and not his personal holdings. Said motion for reconsideration is still pending resolution by
the Sandiganbayan.
xxx
We agree with your x x x view that RPN-9 is not a government owned or controlled corporation within the contemplation of the
Administrative Code of 1987, for admittedly, RPN-9 was organized for private needs and profits, and not for public needs and was not
specifically vested with functions relating to public needs.
Radio Philippines Network, Inc.

Broadcast City, Capitol Hills
Diliman, Quezon City
Neither could RPN-9 be considered a government-owned or controlled corporation under Presidential Decree (PD) No. 2029 dated
February 4, 1986, which defines said terms as follows:
Sec.2. Definition. A government owned- or controlled corporation is a stock or non-stock corporation, whether performing
governmental or proprietary functions which is directly chartered by special law or organized under the general corporation law is owned
or controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a
majority of its outstanding capital stock or of its outstanding voting capital stock;
Sir:
This refers to your letter dated August 4, 1999, seeking PCGGs position on the following:
1. Whether RPN-9 is a GOCC x x x or a private corporation outside the scope of OGCC and COAs control given 32% Government
ownership x x x.
xxx
It appears that under the RP-Benedicto Compromise Agreement dated November 3, 1990 validity of which has been sustained by the
Supreme Court in G.R. No. 96087, March 31, 1992, (Guingona, Jr. vs. PCGG, 207 SCRA 659) Benedicto ceded all his rights, interest and/or
participation, if he has any, in RPN-9, among others, to the government which rights, interest and/or participation per PCGGs
understanding, include 9,494,327.50 shares of stock, i.e, about 72.4% of the total issued and outstanding capital stock of RPN-9.
Caelitus Mihi Vires
Provided, that a corporation organized under the general corporation law under private ownership at least a majority of the shares of
stock of which were conveyed to a government corporation in satisfaction of debts incurred with a government financial institution,
whether by foreclosure or otherwise, or a subsidiary corporation of a government corporation organized exclusively to own and manage,
or lease, or operate specific physical assets acquired by a government financial institution in satisfaction of debts incurred therewith, and
which in any case by enunciated policy of the government is required to be disposed of to private ownership within a specified period of
time, shall not be considered a government-owned or controlled corporation before such disposition and even if the ownership or control
thereof is subsequently transferred to another government-owned or controlled corporation.
A government-owned or controlled corporation is either parent corporation, i.e., one created by special law (Sec. 3 (a), PD 2029) or a
subsidiary corporation, i.e, one created pursuant to law where at least a majority of the outstanding voting capital stock of which is
owned by parent government corporation and/or other government-owned subsidiaries. (Sec. 3 (b), PD 2029).
107
RPN-9 may not likewise be considered as an acquired asset corporation which is one organized under the general corporation law (1)
under private ownership at least a majority of the shares of stock of which were conveyed to a government corporation in satisfaction of
debts incurred with a government financial institution, whether by foreclosure or otherwise, or (2) as a subsidiary corporation of a
government corporation organized exclusively to own and manage, or lease, or operate specific physical assets acquired by a government
financial institution in satisfaction of debts incurred therewith, and which in any case by enunciated policy of the government is required
to be disposed of to private ownership within a specified period of time (Sec 3 c, PD 2029), for the following reasons:
Broadcasting City, Capitol Hills, Diliman
1. as noted above, the uncontested (not litigated) RPN-9 shares of the government is only 32.4% (not a majority) of its capital stock;
xxx
2. said 32.4% shares of stock, together with the contested/litigated 40%, were not conveyed to a government corporation or the
government in satisfaction of debts incurred with government financial institution, whether by foreclosure or otherwise;
Relative thereto, please be informed that we affirm the PCGGs opinion that RPNI is not a government-owned and/or controlled
corporation (GOCC). Section 2 (13), Introductory Provisions of the Administrative Code of 1987 defines a GOCC as an agency organized as
a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the government directly or indirectly through its instrumentalities either wholly, or where applicable as in the case of stock
corporations to the extent of at least 51% of its capital stock. As government ownership over RPNI is only 32.4% of its capital stock,
pending the final judicial determination of the true and legal ownership of RPNI, the corporation is deemed private.[32]
3. RPN-9 was not organized as a subsidiary corporation of a government corporation organized exclusively to own and manage, or lease,
or operate specific physical assets acquired by a government financial institution in satisfaction of debts incurred therewith.
It should be parenthetically noted that the 32.4% or 72.4% shares of stocks were turned over to the government by virtue of a
compromise agreement between the government and Benedicto in Civil Case No. 0034 which is a civil action against Defendants Roberto
S. Benedicto, Ferdinand E. Marcos, Imelda R. Marcos and others, to recover from them ill-gotten wealth (Amended Complaint, Aug. 12,
1987, Civil Case No. 0034, p. 2.) As the case between the government and Benedicto, his family and nominees was compromised, no
judicial pronouncement was made as to the character or nature of the assets and properties turned over by Benedicto to the government
whether they are ill-gotten wealth or not.[30]
The PCGGs Opinion/Clarification was affirmed by the OP itself on February 10, 2000: *31+
Quezon City
Dear President San Luis,
Even earlier, a similar construction impelled the Ombudsman to dismiss a criminal complaint for violation of R.A. 3019 filed against
certain
RPN officials, as the Ombudsmans resolution dated December 15, 1997 indicates,*33+ a pertinent portion of which is quoted thus:
This is not to mention the fact that the other respondents, the RPN officials, are outside the jurisdiction of this Office (Office of the
Ombudsman); they are employed by a private corporation registered with the Securities and Exchange Commission, the RPN, which is not
a government owned or controlled corporation x x x[34]
February 10, 2000

Considering that the construction of a statute given by administrative agencies deserves respect,[35] the uniform administrative
constructions of the relevant aforequoted laws defining what are government-owned or -controlled corporations as applied to RPN is
highly persuasive.
Mr. Edgar S. San Luis
President and General Manager
Radio Philippines Network Inc.
Caelitus Mihi Vires
Lastly, the conclusion that Carandang was a public official by virtue of his having been appointed as general manager and chief operating
officer of RPN by President Estrada deserves no consideration. President Estradas intervention was merely to recommend Carandangs
designation as general manager and chief operating officer of RPN to the PCGG, which then cast the vote in his favor vis--vis said
108
positions.[36] Under the circumstances, it was RPNs Board of Directors that appointed Carandang to his positions pursuant to RPNs ByLaws.[37]
2.) the MECO to submit to such audit and examination.
In fine, Carandang was correct in insisting that being a private individual he was not subject to the administrative authority of the
Ombudsman and to the criminal jurisdiction of the Sandiganbayan.[38]
The antecedents:
WHEREFORE, we grant the petitions in G.R. No. 148076 and G.R. No. 153161.
Prelude
We reverse and set aside the decision promulgated on February 12, 2001 by the Court of Appeals in C.A.-G.R. SP No. 58204, and dismiss
the administrative charge for grave misconduct against the petitioner.
The aftermath of the Chinese civil war2 left the country of China with two (2) governments in a stalemate espousing competing assertions
of sovereignty.3 On one hand is the communist Peoples Republic of China (PROC) which controls the mainland territories, and on the
other hand is the nationalist Republic of China (ROC) which controls the island of Taiwan. For a better part of the past century, both the
PROC and ROC adhered to a policy of "One China" i.e., the view that there is only one legitimate government in China, but differed in their
respective interpretation as to which that government is.4
We annul and set aside the resolutions dated October 17, 2001 and March 14, 2002, as well as the order dated March 15, 2002, all issued
by the Sandiganbayan (Fifth Division) in Criminal Case No. 25802, and dismiss Criminal Case No. 25802 as against the petitioner.
SO ORDERED.
G.R. No. 193462
February 4, 2014
With the existence of two governments having conflicting claims of sovereignty over one country, came the question as to which of the
two is deserving of recognition as that countrys legitimate government. Even after its relocation to Taiwan, the ROC used to enjoy
diplomatic recognition from a majority of the worlds states, partly due to being a founding member of the United Nations (UN).5 The
number of states partial to the PROCs version of the One China policy, however, gradually increased in the 1960s and 70s, most notably
after the UN General Assembly adopted the monumental Resolution 2758 in 1971.6 Since then, almost all of the states that had erstwhile
recognized the ROC as the legitimate government of China, terminated their official relations with the said government, in favor of
establishing diplomatic relations with the PROC.7 The Philippines is one of such states.
DENNIS A.B. FUNA, Petitioner,

vs.
MANILA ECONOMIC AND CULTURAL OFFICE and the COMMISSION ON AUDIT, Respondents.
The Philippines formally ended its official diplomatic relations with the government in Taiwan on 9 June 1975, when the country and the
PROC expressed mutual recognition thru the Joint Communiqu of the Government of the Republic of the Philippines and the
Government of the Peoples Republic of China (Joint Communiqu).8
DECISION
Under the Joint Communiqu, the Philippines categorically stated its adherence to the One China policy of the PROC. The pertinent
portion of the Joint Communiqu reads:9
PEREZ, J.:
This is a petition for mandamus1 to compel:
The Philippine Government recognizes the Government of the Peoples Republic of China as the sole legal government of China, fully
understands and respects the position of the Chinese Government that there is but one China and that Taiwan is an integral part of
Chinese territory, and decides to remove all its official representations from Taiwan within one month from the date of signature of this
communiqu. (Emphasis supplied)
1.) the Commission on Audit (COA) to audit and examine the funds of the Manila Economic and Cultural Office (MECO), and
Caelitus Mihi Vires
109
The Philippines commitment to the One China policy of the PROC, however, did not preclude the country from keeping unofficial
relations with Taiwan on a "people-to-people" basis.10 Maintaining ties with Taiwan that is permissible by the terms of the Joint
Communiqu, however, necessarily required the Philippines, and Taiwan, to course any such relations thru offices outside of the official or
governmental organs.
Hence, despite ending their diplomatic ties, the people of Taiwan and of the Philippines maintained an unofficial relationship facilitated by
the offices of the Taipei Economic and Cultural Office, for the former, and the MECO, for the latter.11
The MECO12 was organized on 16 December 1997 as a non-stock, non-profit corporation under Batas Pambansa Blg. 68 or the
Corporation Code.13 The purposes underlying the incorporation of MECO, as stated in its articles of incorporation,14 are as follows:
On 23 August 2010, petitioner sent a letter18 to the COA requesting for a "copy of the latest financial and audit report" of the MECO
invoking, for that purpose, his "constitutional right to information on matters of public concern." The petitioner made the request on the
belief that the MECO, being under the "operational supervision" of the Department of Trade and Industry (DTI), is a government owned
and controlled corporation (GOCC) and thus subject to the audit jurisdiction of the COA.19
Petitioners letter was received by COA Assistant Commissioner Jaime P. Naranjo, the following day.
On 25 August 2010, Assistant Commissioner Naranjo issued a memorandum20 referring the petitioners request to COA Assistant
Commissioner Emma M. Espina for "further disposition." In this memorandum, however, Assistant Commissioner Naranjo revealed that
the MECO was "not among the agencies audited by any of the three Clusters of the Corporate Government Sector."21
1. To establish and develop the commercial and industrial interests of Filipino nationals here and abroad, and assist on all measures
designed to promote and maintain the trade relations of the country with the citizens of other foreign countries;
On 7 September 2010, petitioner learned about the 25 August 2010 memorandum and its contents.
2. To receive and accept grants and subsidies that are reasonably necessary in carrying out the corporate purposes provided they are not
subject to conditions defeatist for or incompatible with said purpose;
Mandamus Petition
3. To acquire by purchase, lease or by any gratuitous title real and personal properties as may be necessary for the use and need of the
corporation, and to dispose of the same in like manner when they are no longer needed or useful; and
Taking the 25 August 2010 memorandum as an admission that the COA had never audited and examined the accounts of the MECO, the
petitioner filed the instant petition for mandamus on 8 September 2010. Petitioner filed the suit in his capacities as "taxpayer, concerned
citizen, a member of the Philippine Bar and law book author."22 He impleaded both the COA and the MECO.
4. To do and perform any and all acts which are deemed reasonably necessary to carry out the purposes. (Emphasis supplied)
From the moment it was incorporated, the MECO became the corporate entity "entrusted" by the Philippine government with the
responsibility of fostering "friendly" and "unofficial" relations with the people of Taiwan, particularly in the areas of trade, economic
cooperation, investment, cultural, scientific and educational exchanges.15 To enable it to carry out such responsibility, the MECO was
"authorized" by the government to perform certain "consular and other functions" that relates to the promotion, protection and
facilitation of Philippine interests in Taiwan.16
At present, it is the MECO that oversees the rights and interests of Overseas Filipino Workers (OFWs) in Taiwan; promotes the Philippines
as a tourist and investment destination for the Taiwanese; and facilitates the travel of Filipinos and Taiwanese from Taiwan to the
Philippines, and vice versa.17
Facts Leading to the Mandamus Petition
Caelitus Mihi Vires
Petitioner posits that by failing to audit the accounts of the MECO, the COA is neglecting its duty under Section 2(1), Article IX-D of the
Constitution to audit the accounts of an otherwise bona fide GOCC or government instrumentality. It is the adamant claim of the
petitioner that the MECO is a GOCC without an original charter or, at least, a government instrumentality, the funds of which partake the
nature of public funds.23
According to petitioner, the MECO possesses all the essential characteristics of a GOCC and an instrumentality under the Executive Order
No. (EO) 292, s. 1987 or the Administrative Code: it is a non-stock corporation vested with governmental functions relating to public
needs; it is controlled by the government thru a board of directors appointed by the President of the Philippines; and while not integrated
within the executive departmental framework, it is nonetheless under the operational and policy supervision of the DTI.24 As petitioner
substantiates:
1. The MECO is vested with government functions. It performs functions that are equivalent to those of an embassy or a consulate of the
Philippine government.25 A reading of the authorized functions of the MECO as found in EO No. 15, s. 2001, reveals that they are
110
substantially the same functions performed by the Department of Foreign Affairs (DFA), through its diplomatic and consular missions, per
the Administrative Code.26
2. The MECO is controlled by the government. It is the President of the Philippines that actually appoints the directors of the MECO, albeit
indirectly, by way of "desire letters" addressed to the MECOs board of directors.27 An illustration of this exercise is the assumption by
Mr. Antonio Basilio as chairman of the board of directors of the MECO in 2001, which was accomplished when former President Gloria
Macapagal-Arroyo, through a memorandum28 dated 20 February 2001, expressed her "desire" to the board of directors of the MECO for
the election of Mr. Basilio as chairman.29
3. The MECO is under the operational and policy supervision of the DTI. The MECO was placed under the operational supervision of the
DTI by EO No. 328, s. of 2004, and again under the policy supervision of the same department by EO No. 426, s. 2005.30
To further bolster his position that the accounts of the MECO ought to be audited by the COA, the petitioner calls attention to the
practice, allegedly prevailing in the United States of America, wherein the American Institute in Taiwan (AIT)the counterpart entity of
the MECO in the United Statesis supposedly audited by that countrys Comptroller General.31 Petitioner claims that this practice had
been confirmed in a decision of the United States Court of Appeals for the District of Columbia Circuit, in the case of Wood, Jr., ex rel.
United States of America v. The American Institute in Taiwan, et al.32
1. It is not owned or controlled by the government. Contrary to the allegations of the petitioner, the President of the Philippines does not
appoint its board of directors.39 The "desire letter" that the President transmits is merely recommendatory and not binding on the
corporation.40 As a corporation organized under the Corporation Code, matters relating to the election of its directors and officers, as
well as its membership, are governed by the appropriate provisions of the said code, its articles of incorporation and its by-laws.41 Thus, it
is the directors who elect the corporations officers; the members who elect the directors; and the directors who admit the members by
way of a unanimous resolution. All of its officers, directors, and members are private individuals and are not government officials.42
2. The government merely has policy supervision over it. Policy supervision is a lesser form of supervision wherein the governments
oversight is limited only to ensuring that the corporations activities are in tune with the countrys commitments under the One China
policy of the PROC.43 The day-to-day operations of the corporation, however, remain to be controlled by its duly elected board of
directors.44
The MECO emphasizes that categorizing it as a GOCC or a government instrumentality can potentially violate the countrys commitment
to the One China policy of the PROC.45 Thus, the MECO cautions against applying to the present mandamus petition the pronouncement
in the Wood decision regarding the alleged auditability of the AIT in the United States.46
The Position of the COA

The Position of the MECO
The COA, on the other hand, advances that the mandamus petition ought to be dismissed on procedural grounds and on the ground of
mootness.
The MECO prays for the dismissal of the mandamus petition on procedural and substantial grounds.
The COA argues that the mandamus petition suffers from the following procedural defects:
On procedure, the MECO argues that the mandamus petition was prematurely filed.33
The MECO posits that a cause of action for mandamus to compel the performance of a ministerial duty required by law only ripens once
there has been a refusal by the tribunal, board or officer concerned to perform such a duty.34 The MECO claims that there was, in this
case, no such refusal either on its part or on the COAs because the petitioner never made any demand for it to submit to an audit by the
COA or for the COA to perform such an audit, prior to filing the instant mandamus petition.35 The MECO further points out that the only
"demand" that the petitioner made was his request to the COA for a copy of the MECOs latest financial and audit report which request
was not even finally disposed of by the time the instant petition was filed.36
1. The petitioner lacks locus standi to bring the suit. The COA claims that the petitioner has not shown, at least in a concrete manner, that
he had been aggrieved or prejudiced by its failure to audit the accounts of the MECO.47
2. The petition was filed in violation of the doctrine of hierarchy of courts. The COA faults the filing of the instant mandamus petition
directly with this Court, when such petition could have very well been presented, at the first instance, before the Court of Appeals or any
Regional Trial Court.48 The COA claims that the petitioner was not able to provide compelling reasons to justify a direct resort to the
Supreme Court.49
On the petitions merits, the MECO denies the petitioners claim that it is a GOCC or a government instrumentality.37 While performing
public functions, the MECO maintains that it is not owned or controlled by the government, and its funds are private funds.38 The MECO
explains:
Caelitus Mihi Vires
111
At any rate, the COA argues that the instant petition already became moot when COA Chairperson Maria Gracia M. Pulido-Tan (PulidoTan) issued Office Order No. 2011-69850 on 6 October 2011.51 The COA notes that under Office Order No. 2011-698, Chairperson PulidoTan already directed a team of auditors to proceed to Taiwan, specifically for the purpose of auditing the accounts of, among other
government agencies based therein, the MECO.52
In conceding that it has audit jurisdiction over the accounts of the MECO, however, the COA clarifies that it does not consider the former
as a GOCC or a government instrumentality. On the contrary, the COA maintains that the MECO is a non-governmental entity.53
The COA argues that, despite being a non-governmental entity, the MECO may still be audited with respect to the "verification fees" for
overseas employment documents that it collects from Taiwanese employers on behalf of the DOLE.54 The COA claims that, under Joint
Circular No. 3-99,55 the MECO is mandated to remit to the Department of Labor and Employment (DOLE) a portion of such "verification
fees."56 The COA, therefore, classifies the MECO as a non-governmental entity "required to pay xxx government share" subject to a
partial audit of its accounts under Section 26 of the Presidential Decree No. 1445 or the State Audit Code of the Philippines (Audit
Code).57
OUR RULING
We grant the petition in part. We declare that the MECO is a non-governmental entity. However, under existing laws, the accounts of the
MECO pertaining to the "verification fees" it collects on behalf of the DOLE as well as the fees it was authorized to collect under Section
2(6) of EO No. 15, s. 2001, are subject to the audit jurisdiction of the COA. Such fees pertain to the government and should be audited by
the COA.
We decline to dismiss the mandamus petition on the ground of mootness.
A case is deemed moot and academic when, by reason of the occurrence of a supervening event, it ceases to present any justiciable
controversy.60 Since they lack an actual controversy otherwise cognizable by courts, moot cases are, as a rule, dismissible.61
The rule that requires dismissal of moot cases, however, is not absolute. It is subject to exceptions. In David v. Macapagal-Arroyo,62 this
Court comprehensively captured these exceptions scattered throughout our jurisprudence:
The "moot and academic" principle is not a magical formula that can automatically dissuade the courts in resolving a case. Courts will
decide cases, otherwise moot and academic, if: first, there is a grave violation of the Constitution;63 second, the exceptional character of
the situation and the paramount public interest is involved;64 third, when constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar, and the public;65 and fourth, the case is capable of repetition yet evading review.66
In this case, We find that the issuance by the COA of Office Order No. 2011-698 indeed qualifies as a supervening event that effectively
renders moot and academic the main prayer of the instant mandamus petition. A writ of mandamus to compel the COA to audit the
accounts of the MECO would certainly be a mere superfluity, when the former had already obliged itself to do the same.
Be that as it may, this Court refrains from dismissing outright the petition. We believe that the mandamus petition was able to craft
substantial issues presupposing the commission of a grave violation of the Constitution and involving paramount public interest, which
need to be resolved nonetheless:
First. The petition makes a serious allegation that the COA had been remiss in its constitutional or legal duty to audit and examine the
accounts of an otherwise auditable entity in the MECO.
We begin with the preliminary issues.
Mootness of Petition
The first preliminary issue relates to the alleged mootness of the instant mandamus petition, occasioned by the COAs issuance of Office
Order No. 2011-698. The COA claims that by issuing Office Order No. 2011-698, it had already conceded its jurisdiction over the accounts
of the MECO and so fulfilled the objective of the instant petition.58 The COA thus urges that the instant petition be dismissed for being
moot and academic.59
Caelitus Mihi Vires
Second. There is paramount public interest in the resolution of the issue concerning the failure of the COA to audit the accounts of the
MECO. The propriety or impropriety of such a refusal is determinative of whether the COA was able to faithfully fulfill its constitutional
role as the guardian of the public treasury, in which any citizen has an interest.
Third. There is also paramount public interest in the resolution of the issue regarding the legal status of the MECO; a novelty insofar as our
jurisprudence is concerned. We find that the status of the MECOwhether it may be considered as a government agency or nothas a
direct bearing on the countrys commitment to the One China policy of the PROC.67
112
An allegation as serious as a violation of a constitutional or legal duty, coupled with the pressing public interest in the resolution of all
related issues, prompts this Court to pursue a definitive ruling thereon, if not for the proper guidance of the government or agency
concerned, then for the formulation of controlling principles for the education of the bench, bar and the public in general.68 For this
purpose, the Court invokes its symbolic function.69
By way of summary, the following rules may be culled from the cases decided by this Court.1a\^/phi1 Taxpayers, voters, concerned
citizens, and legislators may be accorded standing to sue, provided that the following requirements are met:
If the foregoing reasons are not enough to convince, We still add another:
(1) the cases involve constitutional issues;
Assuming that the allegations of neglect on the part of the COA were true, Office Order No. 2011-698 does not offer the strongest
certainty that they would not be replicated in the future. In the first place, Office Order No. 2011-698 did not state any legal justification
as to why, after decades of not auditing the accounts of the MECO, the COA suddenly decided to do so. Neither does it state any
determination regarding the true status of the MECO. The justifications provided by the COA, in fact, only appears in the memorandum70
it submitted to this Court for purposes of this case.
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure is unconstitutional;
Thus, the inclusion of the MECO in Office Order No. 2011-698 appears to be entirely dependent upon the judgment of the incumbent
chairperson of the COA; susceptible of being undone, with or without reason, by her or even her successor. Hence, the case now before
this Court is dangerously capable of being repeated yet evading review.
(3) for voters, there must be a showing of obvious interest in the validity of the election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of transcendental importance which must be settled early;
and
(5) for legislators, there must be a claim that the official action complained of infringes upon their prerogatives as legislators.
Verily, this Court should not dismiss the mandamus petition on the ground of mootness.
Standing of Petitioner
The second preliminary issue is concerned with the standing of the petitioner to file the instant mandamus petition. The COA claims that
petitioner has none, for the latter was not able to concretely establish that he had been aggrieved or prejudiced by its failure to audit the
accounts of the MECO.71
Related to the issue of lack of standing is the MECOs contention that petitioner has no cause of action to file the instant mandamus
petition. The MECO faults petitioner for not making any demand for it to submit to an audit by the COA or for the COA to perform such an
audit, prior to filing the instant petition.72
We sustain petitioners standing, as a concerned citizen, to file the instant petition.
We rule that the instant petition raises issues of transcendental importance, involved as they are with the performance of a constitutional
duty, allegedly neglected, by the COA. Hence, We hold that the petitioner, as a concerned citizen, has the requisite legal standing to file
the instant mandamus petition.
To be sure, petitioner does not need to make any prior demand on the MECO or the COA in order to maintain the instant petition. The
duty of the COA sought to be compelled by mandamus, emanates from the Constitution and law, which explicitly require, or "demand,"
that it perform the said duty. To the mind of this Court, petitioner already established his cause of action against the COA when he alleged
that the COA had neglected its duty in violation of the Constitution and the law.
Principle of Hierarchy of Courts
The last preliminary issue is concerned with the petitions non-observance of the principle of hierarchy of courts. The COA assails the filing
of the instant mandamus petition directly with this Court, when such petition could have very well been presented, at the first instance,
before the Court of Appeals or any Regional Trial Court.74 The COA claims that the petitioner was not able to provide compelling reasons
to justify a direct resort to the Supreme Court.75
The rules regarding legal standing in bringing public suits, or locus standi, are already well-defined in our case law. Again, We cite David,
which summarizes jurisprudence on this point:73
Caelitus Mihi Vires
113
In view of the transcendental importance of the issues raised in the mandamus petition, as earlier mentioned, this Court waives this last
procedural issue in favor of a resolution on the merits.76
Complementing the constitutional power of the COA to audit accounts of "non-governmental entities receiving subsidy or equity xxx from
or through the government" is Section 29(1)80 of the Audit Code, which grants the COA visitorial authority over the following nongovernmental entities:
II
1. Non-governmental entities "subsidized by the government";
To the merits of this petition, then.
2. Non-governmental entities "required to pay levy or government share";
The single most crucial question asked by this case is whether the COA is, under prevailing law, mandated to audit the accounts of the
MECO. Conversely, are the accounts of the MECO subject to the audit jurisdiction of the COA?
3. Non-governmental entities that have "received counterpart funds from the government"; and
Law, of course, identifies which accounts of what entities are subject to the audit jurisdiction of the COA.
4. Non-governmental entities "partly funded by donations through the government."
Under Section 2(1) of Article IX-D of the Constitution,77 the COA was vested with the "power, authority and duty" to "examine, audit and
settle" the "accounts" of the following entities:
Section 29(1) of the Audit Code, however, limits the audit of the foregoing non-governmental entities only to "funds xxx coming from or
through the government."81 This section of the Audit Code is, in turn, substantially reproduced in Section 14(1), Book V of the
Administrative Code.82
1. The government, or any of its subdivisions, agencies and instrumentalities;
2. GOCCs with original charters;
3. GOCCs without original charters;
4. Constitutional bodies, commissions and offices that have been granted fiscal autonomy under the Constitution; and
5. Non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by
law or the granting institution to submit to the COA for audit as a condition of subsidy or equity.78
In addition to the foregoing, the Administrative Code also empowers the COA to examine and audit "the books, records and accounts" of
public utilities "in connection with the fixing of rates of every nature, or in relation to the proceedings of the proper regulatory agencies,
for purposes of determining franchise tax."83
Both petitioner and the COA claim that the accounts of the MECO are within the audit jurisdiction of the COA, but vary on the extent of
the audit and on what type of auditable entity the MECO is. The petitioner posits that all accounts of the MECO are auditable as the latter
is a bona fide GOCC or government instrumentality.84 On the other hand, the COA argues that only the accounts of the MECO that
pertain to the "verification fees" it collects on behalf of the DOLE are auditable because the former is merely a non-governmental entity
"required to pay xxx government share" per the Audit Code.85
We examine both contentions.
The MECO Is Not a GOCC or

The term "accounts" mentioned in the subject constitutional provision pertains to the "revenue," "receipts," "expenditures" and "uses of
funds and property" of the foregoing entities.79
Caelitus Mihi Vires
Government Instrumentality
114
We start with the petitioners contention.
Petitioner claims that the accounts of the MECO ought to be audited by the COA because the former is a GOCC or government
instrumentality. Petitioner points out that the MECO is a non-stock corporation "vested with governmental functions relating to public
needs"; it is "controlled by the government thru a board of directors appointed by the President of the Philippines"; and it operates
"outside of the departmental framework," subject only to the "operational and policy supervision of the DTI."86 The MECO thus
possesses, petitioner argues, the essential characteristics of a bona fide GOCC and government instrumentality.87
(o) Government-Owned or -Controlled Corporation (GOCC) refers to any agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government of the Republic of
the Philippines directly or through its instrumentalities either wholly or, where applicable as in the case of stock corporations, to the
extent of at least a majority of its outstanding capital stock: x x x.
GOCCs, therefore, are "stock or non-stock" corporations "vested with functions relating to public needs" that are "owned by the
Government directly or through its instrumentalities."93 By definition, three attributes thus make an entity a GOCC: first, its organization
as stock or non-stock corporation;94 second, the public character of its function; and third, government ownership over the same.
We take exception to petitioners characterization of the MECO as a GOCC or government instrumentality. The MECO is not a GOCC or
government instrumentality.
Possession of all three attributes is necessary to deem an entity a GOCC.
Government instrumentalities are agencies of the national government that, by reason of some "special function or jurisdiction" they
perform or exercise, are allotted "operational autonomy" and are "not integrated within the department framework."88 Subsumed under
the rubric "government instrumentality" are the following entities:89
1. regulatory agencies,
In this case, there is not much dispute that the MECO possesses the first and second attributes. It is the third attribute, which the MECO
lacks.
The MECO Is Organized as a Non-Stock Corporation
2. chartered institutions,
3. government corporate entities or government instrumentalities with corporate powers (GCE/GICP),90 and
The organization of the MECO as a non-stock corporation cannot at all be denied. Records disclose that the MECO was incorporated as a
non-stock corporation under the Corporation Code on 16 December 1977.95 The incorporators of the MECO were Simeon R. Roxas,
Florencio C. Guzon, Manuel K. Dayrit, Pio K. Luz and Eduardo B. Ledesma, who also served as the corporations original members and
directors.96
4. GOCCs
The purposes for which the MECO was organized also establishes its non-profit character, to wit:97
The Administrative Code defines a GOCC:91
1. To establish and develop the commercial and industrial interests of Filipino nationals here and abroad and assist on all measures
designed to promote and maintain the trade relations of the country with the citizens of other foreign countries;
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of
its capital stock: x x x.
2. To receive and accept grants and subsidies that are reasonably necessary in carrying out the corporate purposes provided they are not
subject to conditions defeatist for or incompatible with said purpose;
The above definition is, in turn, replicated in the more recent Republic Act No. 10149 or the GOCC Governance Act of 2011, to wit:92
3. To acquire by purchase, lease or by any gratuitous title real and personal properties as may be necessary for the use and need of the
corporation, and in like manner when they are
Caelitus Mihi Vires
115
4. To do and perform any and all acts which are deemed reasonably necessary to carry out the purposes. (Emphasis supplied)
The purposes for which the MECO was organized are somewhat analogous to those of a trade, business or industry chamber,98 but only
on a much larger scale i.e., instead of furthering the interests of a particular line of business or industry within a local sphere, the MECO
seeks to promote the general interests of the Filipino people in a foreign land.
Finally, it is not disputed that none of the income derived by the MECO is distributable as dividends to any of its members, directors or
officers.
Verily, the MECO is organized as a non-stock corporation.
The MECO Performs Functions with a Public Aspect.
The public character of the functions vested in the MECO cannot be doubted either. Indeed, to a certain degree, the functions of the
MECO can even be said to partake of the nature of governmental functions. As earlier intimated, it is the MECO that, on behalf of the
people of the Philippines, currently facilitates unofficial relations with the people in Taiwan.
Consistent with its corporate purposes, the MECO was "authorized" by the Philippine government to perform certain "consular and other
functions" relating to the promotion, protection and facilitation of Philippine interests in Taiwan.99 The full extent of such authorized
functions are presently detailed in Sections 1 and 2 of EO No. 15, s. 2001:
SECTION 1. Consistent with its corporate purposes and subject to the conditions stated in Section 3 hereof, MECO is hereby authorized to
assist in the performance of the following functions:
1. Formulation and implementation of a program to attract and promote investments from Taiwan to Philippine industries and
businesses, especially in manufacturing, tourism, construction and other preferred areas of investments;
3. Negotiation and/or assistance in the negotiation and conclusion of agreements or other arrangements concerning trade, investment,
economic cooperation, technology transfer, banking and finance, scientific, cultural, educational and other modes of cooperative
endeavors between the Philippines and Taiwan, on a people-to-people basis, in accordance with established rules and regulations;
4. Reporting on, and identification of, employment and business opportunities in Taiwan for the promotion of Philippine exports,
manpower and management services, and tourism;
5. Dissemination in Taiwan of information on the Philippines, especially in the fields of trade, tourism, labor, economic cooperation, and
cultural, educational and scientific endeavors;
6. Conduct of periodic assessment of market conditions in Taiwan, including submission of trade statistics and commercial reports for use
of Philippine industries and businesses; and
7. Facilitation, fostering and cultivation of cultural, sports, social, and educational exchanges between the peoples of the Philippines and
Taiwan.
SECTION 2. In addition to the above-mentioned authority and subject to the conditions stated in Section 3 hereof, MECO, through its
branch offices in Taiwan, is hereby authorized to perform the following functions:
1. Issuance of temporary visitors visas and transit and crew list visas, and such other visa services as may be authorized by the
Department of Foreign Affairs;
2. Issuance, renewal, extension or amendment of passports of Filipino citizens in accordance with existing regulations, and provision of
such other passport services as may be required under the circumstances;
3. Certification or affirmation of the authenticity of documents submitted for authentication;
4. Providing translation services;

2. Promotion of the export of Philippine products and Filipino manpower services, including Philippine management services, to Taiwan;
5. Assistance and protection to Filipino nationals and other legal/juridical persons working or residing in Taiwan, including making
representations to the extent allowed by local and international law on their behalf before civil and juridical authorities of Taiwan; and
Caelitus Mihi Vires
116
6. Collection of reasonable fees on the first four (4) functions enumerated above to defray the cost of its operations.
The fact of the incorporation of the MECO under the Corporation Code is key. The MECO was correct in postulating that, as a corporation
organized under the Corporation Code, it is governed by the appropriate provisions of the said code, its articles of incorporation and its
by-laws. In this case, it is the by-laws109 of the MECO that stipulates that its directors are elected by its members; its officers are elected
by its directors; and its members, other than the original incorporators, are admitted by way of a unanimous board resolution, to wit:
A perusal of the above functions of the MECO reveals its uncanny similarity to some of the functions typically performed by the DFA itself,
through the latters diplomatic and consular missions.100 The functions of the MECO, in other words, are of the kind that would
otherwise be performed by the Philippines own diplomatic and consular organs, if not only for the governments acquiescence that they
instead be exercised by the MECO.
SECTION II. MEMBERSHIP
Article 2. Members shall be classified as (a) Regular and (b) Honorary.

Evidently, the functions vested in the MECO are impressed with a public aspect.
The MECO Is Not Owned or Controlled by the Government Organization as a non-stock corporation and the mere performance of
functions with a public aspect, however, are not by themselves sufficient to consider the MECO as a GOCC. In order to qualify as a GOCC, a
corporation must also, if not more importantly, be owned by the government.
(a) Regular members shall consist of the original incorporators and such other members who, upon application for membership, are
unanimously admitted by the Board of Directors.
(b) Honorary member A person of distinction in business who as sympathizer of the objectives of the corporation, is invited by the Board
to be an honorary member.
The government owns a stock or non-stock corporation if it has controlling interest in the corporation. In a stock corporation, the
controlling interest of the government is assured by its ownership of at least fifty-one percent (51%) of the corporate capital stock.101 In
a non-stock corporation, like the MECO, jurisprudence teaches that the controlling interest of the government is affirmed when "at least
majority of the members are government officials holding such membership by appointment or designation"102 or there is otherwise
"substantial participation of the government in the selection" of the corporations governing board.103
In this case, the petitioner argues that the government has controlling interest in the MECO because it is the President of the Philippines
that indirectly appoints the directors of the corporation.104 The petitioner claims that the President appoints directors of the MECO thru
"desire letters" addressed to the corporations board.105 As evidence, the petitioner cites the assumption of one Mr. Antonio Basilio as
chairman of the board of directors of the MECO in 2001, which was allegedly accomplished when former President Macapagal-Arroyo,
through a memorandum dated 20 February 2001, expressed her "desire" to the board of directors of the MECO for the election of Mr.
Basilio as chairman.106
The MECO, however, counters that the "desire letters" that the President transmits are merely recommendatory and not binding on it.107
The MECO maintains that, as a corporation organized under the Corporation Code, matters relating to the election of its directors and
officers, as well as its membership, are ultimately governed by the appropriate provisions of the said code, its articles of incorporation and
its by-laws.108
SECTION III. BOARD OF DIRECTORS
Article 3. At the first meeting of the regular members, they shall organize and constitute themselves as a Board composed of five (5)
members, including its Chairman, each of whom as to serve until such time as his own successor shall have been elected by the regular
members in an election called for the purpose. The number of members of the Board shall be increased to seven (7) when circumstances
so warrant and by means of a majority vote of the Board members and appropriate application to and approval by the Securities and
Exchange Commission. Unless otherwise provided herein or by law, a majority vote of all Board members present shall be necessary to
carry out all Board resolutions.
During the same meeting, the Board shall also elect its own officers, including the designation of the principal officer who shall be the
Chairman. In line with this, the Chairman shall also carry the title Chief Executive Officer. The officer who shall head the branch or office
for the agency that may be established abroad shall have the title of Director and Resident Representative. He will also be the ViceChairman. All other members of the Board shall have the title of Director.
xxxx
As between the contrasting arguments, We find the contention of the MECO to be the one more consistent with the law.
SECTION IV. EXECUTIVE COMMITTEE
Caelitus Mihi Vires
117
For whatever it is worth, however, and without justifying anything, it is easy enough for this Court to understand the rationale, or
necessity even, of the executive branch placing the MECO under the policy supervision of one of its agencies.
Article 5. There shall be established an Executive Committee composed of at least three (3) members of the Board. The members of the
Executive Committee shall be elected by the members of the Board among themselves.
xxxx
SECTION VI. OFFICERS: DUTIES, COMPENSATION
Article 8. The officers of the corporation shall consist of a Chairman of the Board, Vice-Chairman, Chief Finance Officer, and a Secretary.
Except for the Secretary, who is appointed by the Chairman of the Board, other officers and employees of the corporation shall be
appointed by the Board.
The Deputy Representative and other officials and employees of a branch office or agency abroad are appointed solely by the Vice
Chairman and Resident Representative concerned. All such appointments however are subject to ratification by the Board.
It is evident, from the peculiar circumstances surrounding its incorporation, that the MECO was not intended to operate as any other
ordinary corporation. And it is not. Despite its private origins, and perhaps deliberately so, the MECO was "entrusted"111 by the
government with the "delicate and precarious"112 responsibility of pursuing "unofficial"113 relations with the people of a foreign land
whose government the Philippines is bound not to recognize. The intricacy involved in such undertaking is the possibility that, at any given
time in fulfilling the purposes for which it was incorporated, the MECO may find itself engaged in dealings or activities that can directly
contradict the Philippines commitment to the One China policy of the PROC. Such a scenario can only truly be avoided if the executive
department exercises some form of oversight, no matter how limited, over the operations of this otherwise private entity.
Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared with other private corporations. From its over-reaching
corporate objectives, its special duty and authority to exercise certain consular functions, up to the oversight by the executive department
over its operationsall the while maintaining its legal status as a non-governmental entitythe MECO is, for all intents and purposes, sui
generis.
Certain Accounts of the MECO May

Be Audited By the COA.
It is significant to note that none of the original incorporators of the MECO were shown to be government officials at the time of the
corporations organization. Indeed, none of the members, officers or board of directors of the MECO, from its incorporation up to the
present day, were established as government appointees or public officers designated by reason of their office. There is, in fact, no law or
executive order that authorizes such an appointment or designation. Hence, from a strictly legal perspective, it appears that the
presidential "desire letters" pointed out by petitionerif such letters even exist outside of the case of Mr. Basilioare, no matter how
strong its persuasive effect may be, merely recommendatory.
The MECO Is Not a Government Instrumentality; It Is a Sui Generis Entity.
The categorical exclusion of the MECO from a GOCC makes it easier to exclude the same from any other class of government
instrumentality. The other government instrumentalities i.e., the regulatory agencies, chartered institutions and GCE/GICP are all, by
explicit or implicit definition, creatures of the law.110 The MECO cannot be any other instrumentality because it was, as mentioned
earlier, merely incorporated under the Corporation Code.
Hence, unless its legality is questioned, and in this case it was not, the fact that the MECO is operating under the policy supervision of the
DTI is no longer a relevant issue to be reckoned with for purposes of this case.
Caelitus Mihi Vires
We now come to the COAs contention.
The COA argues that, despite being a non-governmental entity, the MECO may still be audited with respect to the "verification fees" for
overseas employment documents that the latter collects from Taiwanese employers on behalf of the DOLE.114 The COA claims that,
under Joint Circular No. 3-99, the MECO is mandated to remit to the national government a portion of such "verification fees."115 The
COA, therefore, classifies the MECO as a non-governmental entity "required to pay xxx government share" per the Audit Code.116
We agree that the accounts of the MECO pertaining to its collection of "verification fees" is subject to the audit jurisdiction of the COA.
However, We digress from the view that such accounts are the only ones that ought to be audited by the COA. Upon careful evaluation of
the information made available by the records vis--vis the spirit and the letter of the laws and executive issuances applicable, We find
that the accounts of the MECO pertaining to the fees it was authorized to collect under Section 2(6) of EO No. 15, s. 2001, are likewise
subject to the audit jurisdiction of the COA.
Verification Fees Collected by the MECO
118
In its comment,117 the MECO admitted that roughly 9% of its income is derived from its share in the "verification fees" for overseas
employment documents it collects on behalf of the DOLE.
The authority behind "consular fees" is Section 2(6) of EO No. 15, s. 2001. The said section authorizes the MECO to collect "reasonable
fees" for its performance of the following consular functions:
The "verification fees" mentioned here refers to the "service fee for the verification of overseas employment contracts, recruitment
agreement or special powers of attorney" that the DOLE was authorized to collect under Section 7 of EO No. 1022,118 which was issued
by President Ferdinand E. Marcos on 1 May 1985. These fees are supposed to be collected by the DOLE from the foreign employers of
OFWs and are intended to be used for "the promotion of overseas employment and for welfare services to Filipino workers within the
area of jurisdiction of [concerned] foreign missions under the administration of the [DOLE]."119
1. Issuance of temporary visitors visas and transit and crew list visas, and such other visa services as may be authorized by the DFA;
2. Issuance, renewal, extension or amendment of passports of Filipino citizens in accordance with existing regulations, and provision of
such other passport services as may be required under the circumstances;
Joint Circular 3-99 was issued by the DOLE, DFA, the Department of Budget Management, the Department of Finance and the COA in an
effort to implement Section 7 of Executive Order No. 1022.120 Thus, under Joint Circular 3-99, the following officials have been tasked to
be the "Verification Fee Collecting Officer" on behalf of the DOLE:121
3. Certification or affirmation of the authenticity of documents submitted for authentication; and
1. The labor attach or duly authorized overseas labor officer at a given foreign post, as duly designated by the DOLE Secretary;
4. Providing translation services.
2. In foreign posts where there is no labor attach or duly authorized overseas labor officer, the finance officer or collecting officer of the
DFA duly deputized by the DOLE Secretary as approved by the DFA Secretary;
Evidently, and just like the peculiarity that attends the DOLE "verification fees," there is no consular office for the collection of the
"consular fees." Thus, the authority for the MECO to collect the "reasonable fees," vested unto it by the executive order.
3. In the absence of such finance officer or collecting officer, the alternate duly designated by the head of the foreign post.
The "consular fees," although held and expended by the MECO by virtue of EO No. 15, s. 2001, are, without question, derived from the
exercise by the MECO of consular functionsfunctions it performs by and only through special authority from the government. There was
never any doubt that the visas, passports and other documents that the MECO issues pursuant to its authorized functions still emanate
from the Philippine government itself.
Since the Philippines does not maintain an official post in Taiwan, however, the DOLE entered into a "series" of Memorandum of
Agreements with the MECO, which made the latter the formers collecting agent with respect to the "verification fees" that may be due
from Taiwanese employers of OFWs.122 Under the 27 February 2004 Memorandum of Agreement between DOLE and the MECO, the
"verification fees" to be collected by the latter are to be allocated as follows: (a) US$ 10 to be retained by the MECO as administrative fee,
(b) US $10 to be remitted to the DOLE, and (c) US$ 10 to be constituted as a common fund of the MECO and DOLE.123
Such fees, therefore, are received by the MECO to be used strictly for the purpose set out under EO No. 15, s. 2001. They must be
reasonable as the authorization requires. It is the government that has ultimate control over the disposition of the "consular fees," which
control the government did exercise when it provided in Section 2(6) of EO No. 15, s. 2001 that such funds may be kept by the MECO "to
defray the cost of its operations."
Evidently, the entire "verification fees" being collected by the MECO are receivables of the DOLE.124 Such receipts pertain to the DOLE by
virtue of Section 7 of EO No. 1022.
The Accounts of the MECO Pertaining to the Verification Fees and Consular Fees May Be Audited by the COA.
Consular Fees Collected by the MECO
Aside from the DOLE "verification fees," however, the MECO also collects "consular fees," or fees it collects from the exercise of its
delegated consular functions.
Caelitus Mihi Vires
Section 14(1), Book V of the Administrative Code authorizes the COA to audit accounts of non-governmental entities "required to pay xxx
or have government share" but only with respect to "funds xxx coming from or through the government." This provision of law perfectly
fits the MECO:
119
[G.R. No. L-8451. December 20, 1957.]
First. The MECO receives the "verification fees" by reason of being the collection agent of the DOLEa government agency. Out of its
collections, the MECO is required, by agreement, to remit a portion thereof to the DOLE. Hence, the MECO is accountable to the
government for its collections of such "verification fees" and, for that purpose, may be audited by the COA.
THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., Petitioner, v. THE LAND REGISTRATION COMMISSION and THE
REGISTER OF DEEDS OF DAVAO CITY, Respondents.
Teodoro Padilla for Petitioner.
Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and Solicitor Troadio T. Quianzon, Jr. for Respondents.
Second. Like the "verification fees," the "consular fees" are also received by the MECO through the government, having been derived from
the exercise of consular functions entrusted to the MECO by the government. Hence, the MECO remains accountable to the government
for its collections of "consular fees" and, for that purpose, may be audited by the COA.
SYLLABUS
Tersely put, the 27 February 2008 Memorandum of Agreement between the DOLE and the MECO and Section 2(6) of EO No. 15, s. 2001,
vis--vis, respectively, the "verification fees" and the "consular fees," grant and at the same time limit the authority of the MECO to collect
such fees. That grant and limit require the audit by the COA of the collections thereby generated.
Conclusion
The MECO is not a GOCC or government instrumentality. It is a sui generis private entity especially entrusted by the government with the
facilitation of unofficial relations with the people in Taiwan without jeopardizing the countrys faithful commitment to the One China
policy of the PROC. However, despite its non-governmental character, the MECO handles government funds in the form of the
"verification fees" it collects on behalf of the DOLE and the "consular fees" it collects under Section 2(6) of EO No. 15, s. 2001. Hence,
under existing laws, the accounts of the MECO pertaining to its collection of such "verification fees" and "consular fees" should be audited
by the COA.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Manila Economic and Cultural Office is hereby declared a
non-governmental entity. However, the accounts of the Manila Economic and Cultural Office pertaining to: the verification fees
contemplated by Section 7 of Executive Order No. 1022 issued 1 May 1985, that the former collects on behalf of the Department of Labor
and Employment, and the fees it was authorized to collect under Section 2(6) of Executive Order No. 15 issued 16 May 2001, are subject
to the audit jurisdiction of the COA.
No costs.
SO ORDERED.
1. CORPORATIONS SOLE; COMPONENTS AND PURPOSE OF; POWER TO HOLD AND TRANSMIT CHURCH PROPERTIES TO HIS SUCCESSOR IN
OFFICE. A corporation sole is a special form of corporation usually associated with clergy . . . designed to facilitate the exercise of the
functions of ownership of the church which was regarded as the property owner (I Bouviers Law Dictionary, p. 682-683). It consists of one
person only, and his successors (who will always be one at a time), in some particular, who are incorporated by law in order to give them
some legal advantages particularly that of perpetuity which in their natural persons they could not have . . . (Reid v. Barry, 93 Fla. 849 112
So. 846). Through this legal fiction, church properties acquired by the incumbent of a corporation sole pass, by operation of law, upon his
death not to his personal heirs but to his successor in office. A corporation sole, therefore, is created not only to administer the
temporalities of the church or religious society where he belongs, but also to hold and transmit the same to his successor in said office.
2. ID.; PERSONALITY OF SEPARATE AND DISTINCT FROM THAT OF ROMAN PONTIFF. Although a branch of the Universal Roman Catholic
Apostolic Church, every Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in accordance
with laws of the country where it is located, is considered an entity or person with all the rights and privileges granted to such artificial
being under laws of that country, separate and distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to its
religious relations with the latter which are governed by the Common Law or their rules and regulations.
3. ID.; ID.; POWER AND QUALIFICATION TO PURCHASE IN ITS NAME PRIVATE LANDS; 60 PER CENTUM REQUIREMENT NOT INTENDED TO
CORPORATION SOLE. Under the circumstances of the present case, it is safe to state that even before the establishment of the
Philippine Commonwealth and of the Republic of the Philippines every corporation sole then organized and registered had by express
provision of law (Corporation Law, Public Act. 1459) the necessary power and qualification to purchase in its name private lands located in
the territory in which it exercised its functions or ministry and for which it was created, independently of the nationality of its incumbent
unique and single number and head, the bishop of the diocese. It can be also maintained without fear of being gainsaid that the Roman
Catholic Apostolic Church in the Philippines has no nationality and that the frames of the Constitution did not have in mind the religious
corporation sole when they provided that 60 per centum of the capital thereof be owned by Filipino citizens. Thus, if this constitutional
provision were not intended for corporation sole, it is obvious that this could not be regulated or restricted by said provision.
4. ID.; ID.; ID.; ID.; CONSTITUTIONAL REQUIREMENT LIMITED TO OWNERSHIP NOT TO CONTROL. But the Corporation Law and the
Canon Law are explicit in their provisions that a corporation sole or "ordinary" is not the owner of the properties that he may acquire but
merely the administrator thereof and holds the same in trust for the church to which the corporation is an organized and constituents
Caelitus Mihi Vires
120
part. Being mere administrator of the temporalities or properties titled in his name, the constitutional provision requiring 60 per centum
Filipino ownership is not applicable. The said constitutional provision is limited by it terms to ownership alone and does not extend to
control unless the control over the property affected has been devised to circumvent the real purpose of the constitution.
5. ID.; CORPORATION SOLE WITHOUT NATIONALITY; NATIONALITY OF CONSTITUENTS DETERMINES WHETHER CONSTITUTIONAL
REQUIREMENTS IS APPLICABLE. The corporation sole by reason of their peculiar constitution and form of operation have no designed
owner of its temporalities, although by the terms of the law it can be safely implied that they ordinarily hold them in trust for the benefit
of the Roman Catholic faithful of their respective locality or diocese. They can not be considered as aliens because they have no
nationality at all. In determining, therefore, whether the constitutional provision requiring 60 per centum Filipino capital is applicable to
corporations sole, the nationality of the constituents of the diocese, and not the nationality of the actual incumbent of the parish, must be
taken into consideration. In the present case, even if the question of nationality be considered, the aforesaid constitutional requirement is
fully met and satisfied, considering that the corporation sole in question is composed of an overwhelming majority of Filipinos.
DECISION
FELIX, J.:
This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao seeking the reversal of a resolution issued
by the Land Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case are as follows:chanrob1es virtual 1aw library
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale of a parcel of land located
in the same city covered by Transfer Certificate of Title No. 2263, in favor of the Roman Catholic Administrator of Davao, Inc., a
corporation sole organized and existing in accordance with Philippine laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual
incumbent. When the deed of sale was presented to the Register of Deeds of Davao for registration, the latter
having in mind a previous resolution of the Fourth Branch of the Court of First Instance of Manila wherein the Carmelite Nuns of Davao
were made to prepare an affidavit to the effect that 60 per cent of the members of their corporation were Filipino citizens when they
sought to register in favor of their congregation a deed of donation of a parcel of land
required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof were Filipino citizens.
Caelitus Mihi Vires
The vendee in a letter dated June 28, 1954, expressed willingness to submit an affidavit, but not in the same tenor as that made by the
Prioress of the Carmelite Nuns because the two cases were not similar, for whereas the congregation of the Carmelite Nuns had five
incorporators, the corporation sole has only one; that according to their articles of incorporation, the organization of the Carmelite Nuns
became the owner of properties donated to it, whereas the case at bar, the totality of the Catholic population of Davao would become
the owner of the property sought to be registered.
As the Register of Deeds entertained some doubts as to the registerability of the document, the matter was referred to the Land
Registration Commissioner en consulta for resolution in accordance with section 4 of Republic Act No. 1151. Proper hearing on the matter
was conducted by the Commissioner and after the petitioner corporation had filed its memorandum, a resolution was rendered on
September 21, 1954, holding that in view of the provisions of Sections 1 and 5 of Article XIII of the Philippine Constitution, the vendee was
not qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per centum of the capital, property, or
assets of the Roman Catholic Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question
that the present incumbent of the corporation sole was a Canadian citizen. It was also the opinion of the Land Registration Commissioner
that section 159 of the Corporation Law relied upon by the vendee was rendered inoperative by the aforementioned provisions of the
Constitution with respect to real estate, unless the precise condition set therein that at least 60 per cent of its capital is owned by
Filipino citizens be present, and, therefore, ordered the Register of Deeds of Davao to deny registration of the deed of sale in the
absence of proof of compliance with such condition.
After the motion to reconsider said resolution was denied, an action for mandamus was instituted with this Court by said corporation
sole, alleging that under the Corporation Law, the Canon Law as well as the settled jurisprudence on the matter, the deed of sale executed
by Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor of the Catholic Church which is qualified to acquire private
agricultural lands for the establishment and maintenance of places of worship, and prayed that judgment be rendered reserving and
setting aside the resolution of the Land Registration Commissioner in question. In its resolution of November 15, 1954, this Court gave
due course to this petition providing that the procedure prescribed for appeals from the Public Service Commission or the Securities and
Exchange Commission (Rule 43), be followed.
Section 5 of Article XIII of the Philippine Constitution reads as follows:chanrob1es virtual 1aw library
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines.
Section 1 of the same Article also provides the following:chanrob1es virtual 1aw library
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, and other natural resources of the Philippines belong to the State, and their disposition, exploitation,
121
development, or utilization shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the
capital of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license, concession, or lease for the exploitation, development, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years, renewable for another twenty-five years, except as to water
rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use
may be the measure and limit of the grant.
In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold agricultural lands in the
Philippines? What is the effect of these constitutional prohibition on the right of a religious corporation recognized by our Corporation
Law and registered as a corporation sole, to possess, acquire and register real estates in its name when the Head, Manager, Administrator
or actual incumbent is an alien?
Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not prohibited or disqualified
to acquire and hold real properties. The Corporation Law and the Canon Law are explicit in their provisions that a corporation sole or
"ordinary" is not the owner of the properties that he may acquire but merely the administrator thereof. The Canon Law also specified that
church temporalities are owned by the Catholic Church as a "moral person" or by the dioceses as minor "moral persons" with the ordinary
or bishop as administrator.
And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a religious society or
organization, it is made up of 2 elements or divisions the clergy or religious members and the faithful or lay members. The 1948 figures
of the Bureau of Census and Statistics showed that there were 277,551 Catholics in Davao and aliens residing therein numbered 3,465.
Even granting that all these foreigners are Catholics, petitioner contends that Filipino citizens form more than 80 per cent of the entire
Catholics population of that area. As to its clergy and religious composition, counsel for petitioner presented the Catholic Directory of the
Philippines for 1954 (Annex A) which revealed that as of that year, Filipino clergy and women novices comprise already 60.5 per cent of
the group. It was, therefore, alleged that the constitutional requirement was fully met and satisfied.
Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per cent Filipino citizenship, the
criterion is not membership in the society but ownership of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is a special form of corporation
usually associated with the clergy. Conceived and introduced into the common law by sheer necessity, this legal creation which was
referred to as "that unhappy freak of English law" was designed to facilitate the exercise of the functions of ownership carried on by the
clerics for and on behalf of the church which was regarded as the property owner (See I Bouviers Law Dictionary, p. 682-683).
A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular station, who are
incorporated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which in their natural
persons they could not have had. In this sense, the king is a sole corporation; so is a bishop, or deans, distinct from their several chapters
(Reid v. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of petitioner. Section 154 thereof
provides:chanrob1es virtual 1aw library
SEC 154. For the administration of the temporalities of any religious denomination, society or church and the management of the
estates and properties thereof, it shall be lawful for the bishop, chief priest, or presiding elder of any such religious denomination, society
or church to become a corporation sole, unless inconsistent with the rules, regulations or discipline of his religious denomination, society,
or church or forbidden by competent authority thereof.
See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:chanrob1es virtual 1aw
library
Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the land purchased, yet he has
control over the same, with full power to administer, take possession of, alienate, transfer, encumber, sell or dispose of any or all lands
and their improvements registered in the name of the corporation sole and can collect, receive, demand or sue for all money or values of
any kind that may become due or owing to said corporation, and vested with authority to enter into agreements with any persons,
concerns or entities in connection with said real properties, or in other words, actually exercising all rights of ownership over the
properties. It was their stand that the theory that properties registered in the name of the corporation sole are held in trust for the
benefit of the Catholic population of a place, as of Davao in the case at bar, should not be sustained because a conglomeration of persons
cannot just be pointed out as the cestui que trust or recipient of the benefits from the property allegedly administered in their behalf.
Neither can it be said that the mass of people referred to as such beneficiary exercise any right of ownership over the same. This set-up,
respondents argued, falls short of a trust. Respondents instead tried to prove that in reality, the beneficiary of ecclesiastical properties are
not the members or faithful of the church but someone else, by quoting a portion of the oath of fidelity subscribed by a bishop upon his
elevation to the episcopacy wherein he promises to render to the Pontifical Father or his successors an account of his pastoral office and
of all things appertaining to the state of this church.
Caelitus Mihi Vires
SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any religious denomination, society, or
church must file with the Securities and Exchange Commissioner articles of incorporation setting forth the following facts:chanrob1es
virtual 1aw library
122
(3)
That as such bishop, chief priest, or presiding elder he is charged with the administration of the temporalities and the
management of the estates, and properties of his religious denomination, society, or church within its territorial jurisdiction, describing it;
(As amended by Commonwealth Act No. 287).
SEC. 157. From and after the filing with the Securities & Exchange Commissioner of the said articles of incorporation, verified by affidavit
or affirmation as aforesaid and accompanied by the copy of the commission, certificate of election, or letters of appointment of the
bishop, chief priest, or presiding elder, duly certified as prescribed in the section immediately preceding such bishop, chief priest, or
presiding elder, as the case may be, shall become a corporation sole, and all temporalities, estates, and properties of the religious
denomination, society, or church therefore administered or managed by him as such bishop, chief priest, or presiding elder shall be held
in trust by him as a corporation sole, for the use, purpose, behoof, and sole benefit of his religious denomination, society, or church,
including hospitals, schools, colleges, orphan asylums; parsonages, and cemeteries thereof. For the filing of such articles of incorporation,
the Securities & Exchange Commissioner shall collect twenty-five pesos. (As amended by Commonwealth Act No. 287); and
That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporations sole are merely administrators of the
church properties that come to their possession, and which they hold in trust for the church. It can also be said that while it is true that
church properties could be administered by a natural person, problems regarding succession to said properties can not be avoided to rise
upon his death. Through this legal fiction, however, church properties acquired by the incumbent of a corporation sole pass, by operation
of law, upon his death not to his personal heirs but to his successor in office. It could be seen, therefore, that a corporation sole is created
not only to administer the temporalities of the church or religious society where he belongs but also to hold and transmit the same to his
successor in said office. If the ownership or title to the properties do not pass to the administrators, who are the owners of church
properties?
Bouscaren and Elis, S. J., authorities on canon law, on their treatise comment:jgc:chanrobles.com.ph
"In matters regarding property belonging to the Universal Church and to the Apostolic See, the Supreme Pontiff exercises his office of
supreme administrator through the Roman Curia; in matters regarding other church property, through the administrators of the individual
moral persons in the Church according to that norms, laid down in the Code of Cannon Law. This does not mean, however, that the
Roman Pontiff is the owner of all church property; but merely that he is the supreme guardian" (Bouscaren and Ellis, Canon Law, A Text
and Commentary, p. 764).
And this Court, citing Campos y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of Trinidad v. Roman Catholic Archbishop
of Manila, 63 Phil. 881, that:jgc:chanrobles.com.ph
SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or society, or by the diocese, synod,
or district organization of any religious denomination or church shall, on its incorporation, pass to the corporation and shall be held in
trust for the use, purpose, behoof, and benefit of the religious society, or order so incorporated or of the church of which the diocese,
synod, or district organization is an organized and constituent part.
The Canon Law contains similar provisions regarding the duties of the corporation sole or ordinary as administrator of the church
properties, as follows:jgc:chanrobles.com.ph
"Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes eclesiasticos que se hallan en su
territorio y no estuvieren sustraidos de su jurisdiccio n, salvas las prescripciones legitimas que le concedan mas amplios dsrechos.
"Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los Ordinarios regular todo lo concerniente a la
administracion de los bienes eclesiasticos, dando las oportunas instrucciones particulares dentro del marco del derecho comun." (Title
XXVIII, Codigo da Derecho Canonico, Lib. III, Canon 1519). *
Caelitus Mihi Vires
"The second question to be decided is in whom the ownership of the properties constituting the endowment of the ecclesiastical or
collative chaplaincies is vested.
Canonists entertain different opinions as to the person in whom the ownership of the ecclesiastical properties is vested, with respect to
which we shall, for our purpose, confine ourselves to stating with Donoso that, while many doctors cited by Fagnano believe that it
resides in the Roman Pontiff as Head of the Universal Church, it is more probable that ownership, strictly speaking, does not reside in the
latter, and, consequently, ecclesiastical properties are owned by churches, institutions and canonically established private corporations to
which said properties have been donated."cralaw virtua1aw library
Considering that nowhere can We find any provision conferring ownership of church properties on the Pope although he appears to be
the supreme administrator or guardian of his flock, nor on the corporations sole or heads of dioceses as they are admittedly mere
administrators of said properties, ownership of these temporalities logically fall and devolve upon the church, diocese or congregation
acquiring the same. Although this question of ownership of ecclesiastical properties has off and on been mentioned in several decisions of
this Court yet in no instance was the subject of citizenship of this religious society been passed upon.
123
We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of Agustines v. Court of First Instance
of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila is only a branch of a universal church by the Pope,
with permanent residence in Rome, Italy." There is no question that the Roman Catholic Church existing in the Philippines is a tributary
and part of that international religious organization, for the word "Roman" clearly expresses its unity with and recognizes the authority of
the Pope in Rome. However, lest We become hasty in drawing conclusions, We have to analyze and take note of the nature of the
government established in the Vatican City, of which it was said:jgc:chanrobles.com.ph
into a strong nationalistic sentiment manifested itself when the provisions on natural resources to be embodied in the Philippines
Constitution were framed, but all that has been said on this regard referred more particularly to landholdings of religious corporations
known as "Friar Estates" which have already been acquired by our Government, and not to properties held corporations sole which, We
repeat, are properties held in trust for the benefit of the faithful residing within its territorial jurisdiction. Though that same feeling
probably precipitated and influenced to a large extent the doctrine laid down in the celebrated Krivenko decision, We have to take this
matter in the light of legal provisions and jurisprudence actually obtaining, irrespective of sentiments.
"GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy and laity alike is held by the pope who
(since the Middle Ages) is elected by the cardinals assembled in conclave, and holds office until his death or legitimate abdication. . . .
While the pope is obviously independent of the laws made, and the officials appointed, by himself or his predecessors, he usually
exercises his administrative authority according to the code of canon law and through the congregations, tribunals and offices of the Curia
Romana. In their respective territories (called generally dioceses) and over their respective subjects, the patriarchs, metropolitans or
archbishops and bishops exercise a jurisdiction which is called ordinary (as attached by law to an office and so distinguished from
delegated jurisdiction which is given to a person. . . . ." (Colliers Encyclopedia, Vol. 17, p. 93.)
The question now left for our determination is whether the Roman Catholic Apostolic Church in the Philippines, or better still, the
corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire private agricultural lands in the
Philippines pursuant to the provisions of Article XIII of the Constitution.
While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the supreme head; that in religious
matters, in the exercise of their belief, the Catholic congregation of the faithful throughout world seeks the guidance and direction of their
Spiritual Father in the Vatican, yet it cannot be said that there is a merger of personalities resultant therein. Neither can it be said that the
political and civil rights of the faithful, inherent or acquired under the laws of their country, are affected by that relationship with the
Pope. The fact that the Roman Catholic Church in almost every country springs from that society that saw its beginning in Europe and the
fact that the clergy of this faith derive their authorities and receive orders from the Holy See do not give or bestow the citizenship of the
Pope upon these branches. Citizenship is a political right which cannot be acquired by a sort of "radiation." We have to realize that
although there is a fraternity among all the catholic countries and the dioceses therein all over the globe, this universality that the word
"catholic" implies, merely characterize their faith, a uniformity in the practice and interpretation of their dogma and in the exercise of
their belief, but certainly they are separate and independent from one another in jurisdiction, governed by different laws under which
they are incorporated, and entirely independent of the others in the management and ownership of their temporalities. To allow theory
that the Roman Catholic Churches all over the world follow the citizenship of their Supreme Head, the Pontifical Father, would lead to the
absurdity of finding the citizens of a country who embrace the Catholic faith and become members of that religious society, likewise
citizens of the Vatican or of Italy. And this is more so if We consider that the Pope himself may be an Italian or national of any other
country of the world. The same thing may be said with regard to the nationality or citizenship of the corporation sole created under the
laws of the Philippines, which is not altered by the change of citizenship of the incumbent bishops or heads of said corporations sole.
We must, therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every Roman Catholic Church in
different countries, if it exercises its mission and is lawfully incorporated in accordance with the laws of the country where it is located, is
considered an entity or person with all the rights and privileges granted to such artificial being under the laws of that country, separate
and distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with the latter which are
governed by the Canon Law or their rules and regulations.
We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to acquire or hold lands of the
public domain in the Philippines may acquire or be assigned and hold private agricultural lands. Consequently, the decisive factor in the
present controversy hinges on the proposition of whether or not the petitioner in this case can acquire agricultural lands of the public
domain.
From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic Bishop of Zamboanga was
incorporated as a corporation sole) in September, 1912, principally to administer its temporalities and manage its properties. Probably
due to the ravages of the last war, its articles of incorporation were reconstructed in the Securities and Exchange Commission on April 8,
1948. At first, this corporation sole administered all the temporalities of the church existing or located in the island of Mindanao. Later on,
however, new dioceses were formed and new corporations sole were created to correspond with the territorial jurisdiction of the new
dioceses, one of them being petitioner herein, the Roman Catholic Apostolic Administrator of Davao, Inc., which was registered with the
Securities and Exchange Commission on September 12, 1950, and succeeded in the administration of all the "temporalities" of the Roman
Catholic Church existing in Davao.
According to our Corporation Law, Public Act No. 1459, approved April 1, 1906, a corporation sole
is organized and composed of a single individual, the head of any religious society or church, for the ADMINISTRATION of the
temporalities of such society of church. By "temporalities" is meant estates and properties not used exclusively for religious worship. The
successors in office of such religious head or chief priest incorporated as a corporation sole shall become the corporation sole on
ascension to office, and shall be permitted to transact business as such on filing with the Securities and Exchange Commission a copy of
his commission, certificate of election or letter of appointment duly certified by any notary public or clerk of court of record (Guevaras
The Philippine Corporation Law, p. 223).
The Corporation Law also contains the following provisions:chanrob1es virtual 1aw library
We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far reaching influence, nor can
We overlook the pages of history that arouse indignation and criticisms against church landholdings. This nurtured feeling that showballed
Caelitus Mihi Vires
124
SECTION 159. Any corporation sole may purchase and hold real estate and personal property for its church, charitable, benevolent, or
educational purposes, and may receive bequests or gifts for such purposes. Such corporation may mortgage or sell real property held by it
upon obtaining an order for that purpose from the Court of First Instance of the province in which the property is situated; but before
making the order proof must be made to the satisfaction of the Court that notice of the application for leave to mortgage or sell has been
given by publication or otherwise in such manner and for such time as said Court or the Judge thereof may have directed, and that it is to
the interest of the corporation that leave to mortgage or sell should be granted. The application for leave to mortgage or sell must be
made by petition, duly verified by the bishop, chief priest, or presiding elder, acting as corporation sole, and may be opposed by any
member of the religious denomination, society or church represented by the corporation sole: Provided, however, That in cases where
the rules, regulations, and discipline of the religious denomination, society or church concerned represented by such corporation sole
regulate the methods of acquiring, holding, selling and mortgaging real estate and personal property, such rules, regulations, and
discipline shall control and the intervention of the Courts shall not be necessary.
It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power exercised in the case at bar, is
not restricted although the power to sell or mortgage sometimes is, depending upon the rules, regulations, and discipline of the church
concerned represented by said corporation sole. If corporations sole can purchase and sell real estate for its church, charitable,
benevolent, or educational purposes, can they register said real properties? As provided by law, lands held in trust for specific purposes
may be subject of registration (section 69, Act 496), and the capacity of a corporation sole, like petitioner herein, to register lands
belonging to it is acknowledged, and title thereto may be issued in its name (Bishop of Nueva Segovia v. Insular Government, 26 Phil. 3001913). Indeed it is absurd to conceive that while the corporations sole that might be in need of acquiring lands for the erection of temples
where the faithful can pray, or schools and cemeteries which they are expressly authorized by law to acquire in connection with the
propagation of the Roman Catholic Apostolic faith or in furtherance of their freedom of religion, they could not register said properties in
their name. As professor Javier J. Nepomuceno very well says "Man in his search for the immortal and imponderable, has, even before the
dawn of recorded history, erected temples to the Unknown God, and there is no doubt that he will continue to do so for all time to come,
as long as he continues imploring the aid of Divine Providence" (Nepomucenos Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41,
September, 1956). Under the circumstances of this case, We might safely state that even before the establishment of the Philippine
Commonwealth and of the Republic of the Philippines every corporation sole then organized and registered had by express provision of
law the necessary power and qualification to purchase in its name private lands located in the territory in which it exercised its functions
or ministry and for which it was created, independently of the nationality of its incumbent unique and single member and head, the
bishop of the diocese. It can be also maintained without fear of being gainsaid that the Roman Catholic Apostolic Church in the Philippines
has no nationality and that the framers of the Constitution, as will be hereunder explained, did not have in mind the religious corporations
sole when they provided that 60 per centum of the capital thereof be owned by Filipino citizens.
There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having the right of succession and
the power, attributes, and properties expressly authorized by law or incident to its existence (section 1, Corporation Law). In outlining the
general powers of a corporation, Public Act No. 1459 provides among others:chanrob1es virtual 1aw library
SEC. 13. Every corporation has the power:chanrob1es virtual 1aw library
Caelitus Mihi Vires
(5)
To purchase, hold, convey, sell, lease, let, mortgage, encumber, and otherwise deal with such real and personal property as the
purposes for which the corporation was formed may permit, and the transaction of the lawful business of the corporation may reasonably
and necessarily require, unless otherwise prescribed in this Act: . . . .
In implementation of the same and specifically made applicable to a form of corporation recognized by the same law, Section 159
aforequoted expressly allowed the corporation sole to purchase and hold real as well as personal properties necessary for the promotion
of the objects for which said corporation sole is created. Respondent Land Registration Commissioner, however, maintained that since the
Philippine Constitution is a later enactment than Public Act No. 1459, the provisions of Section 159 in amplification of Section 13 thereof,
as regard real properties, should be considered repealed by the former.
There is reason to believe that when the specific provision of the Constitution invoked by respondent Commissioner was under
consideration, the framers of the same did not have in mind or overlooked this particular form of corporation. It is undeniable that the
nationalization and conservation of our natural resources was one of the dominating objectives of the Convention and in drafting the
present Article XIII of the Constitution, the delegates were goaded by the desire (1) to insure their conservation for Filipino posterity; (2)
to serve as an instrument of national defense, helping prevent the extension into the country of foreign control through peaceful
economic penetration; and (3) to prevent making the Philippines a source of international conflicts with the consequent danger to its
internal security and independence (See The Framing of the Philippine Constitution by Professor Jose M. Aruego, a Delegate to the
Constitutional Convention, Vol. II. P. 592-604). In the same book Delegate Aruego, explaining the reason behind the first consideration,
wrote:jgc:chanrobles.com.ph
"At the time of the framing of the Philippine Constitution. Filipino capital had been known to be rather shy. Filipinos hesitated as a general
rule to invest a considerable sum of their capital for the development, exploitation and utilization of the natural resources of the country.
They had not as yet been so used to corporate enterprises as the peoples of the west. This general apathy, the delegates knew, would
mean the retardation of the development of the natural resources, unless foreign capital would be encouraged to come and help in that
development. They knew that the nationalization of the natural resources would certainly not encourage the INVESTMENT OF FOREIGN
CAPITAL, into them. But there was a general feeling in the Convention that it was better to have such a development retarded or even
postponed together until such time when the Filipinos would be ready and willing to undertake it rather than permit the natural resources
to be placed under the ownership or control of foreigners in order that they might be immediately developed, with the Filipinos of the
future serving not as owners but utmosts as tenants or workers under foreign masters. By all means, the delegates believed, the natural
resources should be conserved for Filipino posterity."
It could be distilled from the foregoing that the framers of the Constitution intended said provisions as barrier for foreigners or
corporations financed by such foreigners to acquire, exploit and develop our natural resources, saving these undeveloped wealth for our
people to clear and enrich when they are already prepared and capable of doing so. But that is not the case of corporations sole in the
Philippines, for, We repeat, they are mere administrators of the "temporalities" or properties titled in their name and for the benefit of
the members of their respective religion composed of an overwhelming majority of Filipinos. No mention nor allusion whatsoever is made
in the Constitution as to the prohibition against or the ability of the Roman Catholic Church in the Philippines to acquire and hold
125
agricultural lands. Although there were some discussions on landholdings, they were mostly confined in the inclusion of the provision
allowing the Government to break big landed estates to put an end to absentee landlordism.
The framers of the Constitution were not obscured by the rhetoric of democracy or swayed to hostility by an intense spirit of nationalism.
They well knew that conservation of our natural resources did not mean destruction or annihilation of ACQUIRED PROPERTY RIGHTS."
But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of Article XIII of the Constitution
does have bearing on the petitioners case; even so the clause requiring that at least 60 per centum of the capital of the corporation be
owned by Filipinos is subordinated to the petitioners aforesaid right already existing at the time of the inauguration of the
Commonwealth and the Republic of the Philippines. In the language of Mr. Justice Jose P. Laurel (a Delegate to the Constitutional
Convention), in his concurring opinion in the case of Gold Creek Mining Corporation petitioner v. Eulogio Rodriguez, Secretary of
Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau of Mines, respondent, 66 Phil. 259:jgc:chanrobles.com.ph
But respondents counsel may argue that the preexisting right of acquisition of public or private lands by a corporation which does not
fulfill this 60 per cent requisite, refers to purchases or acquisitions made prior to the effectivity of the Constitution and not to later
transactions. This argument would imply that even assuming that petitioner had at the time of the enactment of the Constitution the right
to purchase real property, that power or right could not be exercised after the effectivity of our Constitution, because said power or right
of corporations sole, like the herein petitioner, conferred in virtue of the aforequoted provisions of the Corporation Law, could no longer
be exercised in view of the requisite therein prescribed that at least 60 per centum of the capital of the corporation had to be Filipino. It
has been shown before that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less than 5 incorporators,
is composed of only one person, usually the head or bishop of the diocese, a unit which is not subject to expansion for the purpose of
determining any percentage whatsoever; (2) the corporation sole is only the administrator and not the owner of the temporalities located
in the territory comprised by said corporation sole; (3) such temporalities are administered for and on behalf of the faithful residing in the
diocese or territory of the corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent Ordinary
has nothing to do with the operation, management or administration of the corporation sole, nor affects the citizenship of the faithful
connected with their respective diocese or corporation sole.
"The saving clause in the section involved of the Constitution was originally embodied in the report submitted by the Committee on
Nationalization and Preservation of Lands and Other Natural Resources to the Constitutional Convention on September 17, 1934. It was
later inserted in the first draft of the Constitution as section 13 of Article XIII thereof, and finally incorporated as we find it now. Slight
have been the changes undergone by the proviso from the time when it came out of the committee until it was finally adopted. When
first submitted and as inserted in the first draft of the Constitution it reads: subject to any right, grant, lease or concession existing in
respect thereto as the date of the adoption of the Constitution. As finally adopted, the proviso reads: subject to any existing right, grant,
lease or concession at the time of the inauguration of the Government established under this Constitution. This recognition is not mere
graciousness but springs from the just character of the government established. The framers of the Constitution were not obscured by the
rhetoric of democracy or swayed to hostility by an intense spirit of nationalism. They well knew that conservation of our natural resources
did not mean destruction or annihilation of acquired property rights. Withal, they erected a government neither episodic nor stationary
but well-nigh conservative in the protection of property rights. This notwithstanding nationalistic and socialistic traits discoverable upon
even a sudden dip into a variety of the provisions embodied in the instrument."cralaw virtua1aw library
The writer of this decision wishes to state at this juncture that during the deliberation of this case he submitted to the consideration of
the Court the question that may be termed the "vested right saving clause" contained in Section 1, Article XIII of the Constitution, but
some of the members of this Court either did not agree with the theory of the writer, or were not ready to take a definite stand on the
particular point I am now to discuss deferring our ruling on such debatable question for a better occasion, inasmuch as the determination
thereof is not absolutely necessary for the solution of the problem involved in this case. In his desire to face the issues squarely, the writer
will endeavour, at least as a digression, to explain and develop his theory, not as a lucubration of the Court, but of his own, for he deems it
better and convenient to go over the cycle of reasons that are linked to one another and that step by step lead Us to conclude as We do in
the dispositive part of this decision.
It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all agricultural lands of the public
domain and their disposition shall be limited to citizens of Philippines or to corporations at least 60 per centum of the capital of which is
owned by such citizens, SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED
UNDER THIS CONSTITUTION."cralaw virtua1aw library
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation v. Rodriguez Et. Al., 66 Phil. 259, "this
recognition (in the clause already quoted), is not mere graciousness but springs from the just character of the government established.
Caelitus Mihi Vires
In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of the Constitution invoked
by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers of the same did not have in mind or overlooked
this particular form of corporation. If this were so, as the facts and circumstances already indicated tend to prove it to be so, then the
inescapable conclusion would be that this requirement of at least 60 per cent of Filipino capital was never intended to apply to
corporations sole, and the existence or not of a vested right becomes unquestionably immaterial.
But let us assume that the questioned proviso is material, yet We might say that a reading of said Section 1 will show that it does not refer
to any actual acquisition of land but to the right, qualification or power to acquire and hold private real property. The population of the
Philippines, Catholic to a high percentage, is ever increasing. In the practice of religion of their faithful the corporation sole may be in need
of more temples where to pray, more schools where the children of the congregation could be taught in the principles of their religion,
more hospitals where their sick could be treated, more hallow or consecrated grounds or cemeteries where Catholics could be buried,
many more than those actually existing at the time of the enactment of our Constitution. This being the case, could it be logically
maintained that because the corporation sole which, by express provision of law, has the power to hold and acquire real estate and
personal property for its churches, charitable benevolent, or educational purposes (section 159, Corporation Law) it has to stop its growth
and restrain its necessities just because the corporation sole is a non-stock corporation composed of only one person who in his unity
does not admit of any percentage, especially when that person is not the owner but merely an administrator of the temporalities of the
corporation sole? The writer leaves the answer to whoever may read and consider this portion of the decision.
Anyway, as stated before, this question is not a decisive factor in disposing this case, for even if We were to disregard such saving clause
of the Constitution, which reads: subject to any existing right, grant, etc., at the time of the inauguration of the Government established
under this Constitution, yet We would have, under the evidence on record, sufficient grounds to uphold petitioners contention on this
matter.
126
In this case of the Register of Deeds of Rizal v. Ung Sui Si Temple, * G. R. No. L-6776, promulgated May 21, 1955, wherein this question
was considered from a different angle, this Court, through Mr. Justice J. B. L. Reyes, said:jgc:chanrobles.com.ph
"The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional inhibition, since it is
admitted that its members are of foreign nationality. The purpose of the sixty per centum requirement is obviously to ensure that
corporation or associations allowed to acquired agricultural land or to exploit natural resources shall be controlled by Filipinos; and the
spirit of the Constitution demands that in the absence of capital stock, the controlling membership should be composed of Filipino
citizens."cralaw virtua1aw library
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation aggregate, i.e., an unregistered
organization operating through 3 trustees, all of Chinese nationality, and that is why this Court laid down the doctrine just quoted. With
regard to petitioner, the Roman Catholic Administrator of Davao, Inc., which likewise is a non-stock corporation, the case is different,
because it is a registered corporation sole, evidently of no nationality and registered mainly to administer the temporalities and manage
the properties belonging to the faithful of said church residing in Davao. But even if we were to go over the record to inquire into the
composing membership to determine whether the citizenship requirement is satisfied or not, we would find undeniable proof that the
members of the Roman Catholic Apostolic faith within the territory of Davao are predominantly Filipino citizens. As indicated before,
petitioner has presented evidence to establish that the clergy and lay members of this religion fully covers the percentage of Filipino
citizens required by the Constitution. These facts are not controverted by respondents and our conclusion in this point is sensibly obvious.
Dissenting Opinion Discussed. After having developed our theory in this case and arrived at the findings and conclusions already
expressed in this decision. We now deem it proper to analyze and delve into the basic foundation on which the dissenting opinion stands
up. Being aware of the transcendental and far-reaching effects that Our ruling on the matter might have, this case was thoroughly
considered from all points of view, the Court sparing no effort to solve the delicate problems involved herein.
economic penetration; and to prevent making the Philippines a source of international conflicts with the consequent danger to its internal
security and independence. But all these precautions adopted by the Delegates to Our Constitutional Assembly could not have been
intended for or directed against cases like the one at bar. The emphasis and wanderings on the statement that once the capacity of a
corporation sole to acquire private agricultural lands is admitted there will be no limit to the areas that it may hold and that this will pave
the way for the "revival or revitalization of religious landholdings that proved so troublesome in our past", cannot even furnish the
"penumbra" of a threat to the future of the Filipino people. In the first place, the right of Filipino citizens, including those of foreign
extraction, and Philippine corporations, to acquire private lands is not subject to any restriction or limit as to quantity or area, and We
certainly do not see any wrong in that. The right of Filipino citizens and corporations to acquire public agricultural lands is already limited
by law. In the second place, corporations sole cannot be considered as aliens because they have no nationality at all. Corporations sole
are, under the law, mere administrators of the temporalities of the Roman Catholic Church in the Philippines. In the third place, every
corporation, be it aggregate or sole, is only entitled to purchase, convey, sell, lease, let, mortgage, encumber and otherwise deal with real
properties when it is pursuant to or in consonance with the purposes for which the corporation was formed, and when the transactions of
the lawful business of the corporation reasonably and necessarily require such dealing section 13-(5) of the Corporation Law, Public Act
No. 1459 and considering these provisions in conjunction with Section 159 of the same law which provides that a corporation sole may
only "purchase and hold real estate and personal properties for its church, charitable, benevolent or educational purposes", the above
mentioned fear of revitalization of religious landholdings in the Philippines is absolutely dispelled. The fact that the law thus expressly
authorizes the corporations sole to receive bequests or gifts of real properties (which were the main source that the friars had to acquire
their big haciendas during the Spanish regime), is a clear indication that the requisite that bequests or gifts of real estate be for charitable,
benevolent, or educational purposes, was, in the opinion of the legislators, considered sufficient and adequate protection against the
revitalization of religious landholdings.
Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional Convention drafted and
approved Article XIII of the Constitution, they did not have in mind the corporation sole. We come to this finding because the
Constitutional Assembly, composed as it was by a great number of eminent lawyers and jurists, was like any other legislative body
empowered to enact either the Constitution of the country or any public statute, presumed to know the conditions existing as to
particular subject matter when it enacted a statute (Board of Comrs of Orange County v. Bain, 92 S. E. 176; 173 N. C. 377).
"Immemorial customs are presumed to have been always in the mind of the Legislature in enacting legislation." (In re Krugers Estate, 121
A. 109; 277 Pa. 326).
At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the reversal of the doctrine We laid
down in the celebrated Krivenko case by excluding urban lots and properties from the grasp of the term "private agricultural lands" used
in section 5, Article XIII of the Constitution; and (2) by driving Our reasons to a point that might indirectly cause the appointment of
Filipino bishops or Ordinary to head the corporations sole created to administer the temporalities of the Roman Catholic Church in the
Philippines. With regard to the first way, a great majority of the members of this Court were not yet prepared nor agreeable to follow that
course, for reasons that are obvious. As to the second way, it seems to be misleading because the nationality of the head of a diocese
constituted as a corporation sole has no material bearing on the functions of the latter, which are limited to the administration of the
temporalities of the Roman Catholic Apostolic Church in the Philippines.
"The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which it legislates." (Clover Valley Land &
Stock Co. v. Lamb Et. Al., 187, p. 723, 726.)
Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author lingered on the outskirts of the
issues, thus throwing the main points in controversy out of focus. Of course We fully agree, as stated by Professor Aruego, that the
framers of our Constitution had at heart to insure the conservation of the natural resources of Our motherland for Filipino posterity; to
serve them as an instrument of national defense, helping prevent the extension into the country of foreign control through peaceful
"The Legislature is presumed to have been familiar with the subject with which it was dealing . . . ." (Landers v. Commonwealth, 101 S. E.
778, 781.)
Caelitus Mihi Vires
"The Court in construing a statute, will assume that the legislators acted with full knowledge of the prior legislation on the subject and its
construction by the courts." (Johns v. Town of Sheridan, 89 N. E. 899, 44 Ind. App. 620.)
127
"The Legislature is presumed to know principles of statutory construction" (People v. Lowell, 230 N. W. 202, 250 Mich. 349, followed in P.
v. Woodworth, 230 N. W. 211, 250 Mich. 436.)
"It is not to be presumed that a provision was inserted in a constitution or statute without reason, or that a result was intended
inconsistent with the judgment of men of common sense guided by reason." (Mitchell v. Lawden, 123 N. E. 566, 288 Ill. 326.) See City of
Decatur v. German, 142 N. E. 252, 310 Ill. 591, and many other authorities that can be cited in support hereof.
Consequently, the Constitutional Assembly must have known:chanrob1es virtual 1aw library
1. That a corporation sole is organized by and composed of a single individual, the head of any religious society or church operating within
the zone, area or jurisdiction covered by said corporation sole (Article 155, Public Act No. 1459);
should not receive our sanction on the pretext that corporations sole which have no nationality and are non-stock corporations composed
of only one person in the capacity of administrator, have to establish first that at least sixty per centum of their capital belong to Filipino
citizens. The new Civil Code even provides:jgc:chanrobles.com.ph
"ART. 10. In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and
justice to prevail."cralaw virtua1aw library
Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can acquire, in the name of the latter, private
lands without any limitation whatsoever, and that is so because the properties thus acquired are not for and would not belong to the
administrator but to the Filipino whom he represents. But the dissenting Justice inquires: If the Ordinary is only the administrator, for
whom does he administer? And who can alter or overrule his acts? We will forthwith proceed to answer these questions. The
corporations sole by reason of their peculiar constitution and form of operation have no designed owner of its temporalities, although by
the terms of the law it can be safely implied that the Ordinary holds them in trust for the benefit of the Roman Catholic faithful of their
respective locality or diocese. Borrowing the very words of the law, We may say that the temporalities of every corporation sole are held
in trust for the use, purpose, behoof and benefit of the religious society, or order so incorporated or of the church to which the diocese,
synod, or district organization is an organized and constituent part (section 163 of the Corporation Law).
2. That a corporation sole is a non-stock corporation;
3. That the Ordinary (the corporation sole proper) does not own the temporalities which he merely administers;
4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing on the nationality of the person
desiring to acquire real property in the Philippines by purchase or other lawful means other than by hereditary succession, who, according
to the Constitution must be a Filipino (sections 1 and 5, Article XIII);
In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see now what is the meaning and
scope of the word "control." According to the Merriam-Websters New International Dictionary, 2nd ed., p. 580, one of the acceptations
of the word "control" is:jgc:chanrobles.com.ph
"4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold from action; to curb; subject, also, Obs. to
overpower.
"SYN:
restrain, rule, govern, guide, direct; check, subdue."cralaw virtua1aw library
5. That section 159 of the Corporation Law expressly authorized the corporation sole to purchase and hold real estate for its church,
charitable, benevolent or educational purposes, and to receive bequests or gifts for such purposes;
6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost all of whom were Roman Catholics, could
not have intended to curtail all the propagation of the Roman Catholic faith or the expansion of the activities of their church, knowing
pretty well that with the growth of our population more places of worship, more schools where our youth could be taught and trained;
more hallow grounds where to bury our dead would be needed in the course of time.
Long before the enactment of our Constitution the law authorized the corporations sole even to receive bequests or gifts of real estates
send this Court could not, without any clear and specific provision of the Constitution, declare that any real property donated, let us say
this year, could no longer be registered in the name of the corporation sole to which it was conveyed. That would be an absurdity that
Caelitus Mihi Vires
It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary, to mortgage or sell real property
held by the corporation sole where the rules, regulations and discipline of the religious denomination, society or church concerned
represented by such corporation sole regulate the methods of acquiring, holding, selling and mortgaging real estate, and that the Roman
Catholic faithful residing in the jurisdiction of the corporation sole has no say either in the manner of acquiring or of selling real property.
It may be also admitted that the faithful of the diocese cannot govern or overrule the acts of the Ordinary, but all this does not mean that
the latter can administer the temporalities of the corporation sole without check or restraint. We must not forget that when a corporation
sole is incorporated under Philippine laws, the head and only member thereof subjects himself to the jurisdiction of the Philippine courts
of justice and these tribunals can thus entertain grievances arising out of or with respect to the temporalities of the church which came
into the possession of the corporation sole as administrator. It may be alleged that the courts cannot intervene as to the matters of
doctrine or teachings of the Roman Catholic Church. That is correct, but the courts may step in, at the instance of the faithful for whom
128
the temporalities are being held in trust, to check undue exercise by the corporation sole of its powers as administrator to insure that they
are used for the purpose or purposes for which the corporation sole was created.
American authorities have these to say:chanrob1es virtual 1aw library
It has been held that the courts have jurisdiction over an action brought by persons claiming to be members of a church, who allege a
wrongful and fraudulent diversion of the church property to uses foreign to the purposes of the church, since no ecclesiastical question is
involved and equity will protect from wrongful diversion of the property (Hendryx v. Peoples United Church, 42 Wash. 336, 4 L.R.A. n.s.
-1154).
The courts of the State have no general jurisdiction and control over the officers of such corporations in respect to the performance of
their official duties; but as in respect to the property which they hold for the corporation, they stand in position of TRUSTEES and the
courts may exercise the same supervision as in other cases of trust (Ramsey v. Hicks, 174 Ind. 428, 91 N. E. 344, 92 N. E. 164, 30 L.R.A.
n.s. -665; Hendryx v. Peoples United Church, supra.)
Courts of the state do not interfere with the administration of church rules or discipline unless civil rights become involved and which
must be protected (Morris St., Baptist Church v. Dart, 67 S. C. 338, 45 S. E. 753, and others). (All cited in Vol. II, Cooleys Constitutional
Limitations, p. 960-964.)
If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law relative to existing conditions as
to management and operation of corporations sole in the Philippines, and if, on the other hand, almost all of the Delegates thereto
embraced the Roman Catholic faith, can it be imagined even for an instant that when Article XIII of the Constitution was approved the
framers thereof intended to prevent or curtail from then on the acquisition by corporations sole, either by purchase or donation, of real
properties that they might need for the propagation of the faith and for other religious and Christian activities such as the moral
education of the youth, the care, attention and treatment of the sick and the burial of the dead of the Roman Catholic faithful residing in
the jurisdiction of the respective corporations sole? The mere indulgence in said thought would impress upon Us a feeling of
apprehension and absurdity. And that is precisely the leit motiv that permeates the whole fabric of the dissenting opinion.
of the times when the provision was adopted and of the purposes aimed at in its adoption. The debates of constitutional conventions,
contemporaneous construction, and practical construction by the legislative and executive departments, especially if long continued, may
be resorted to to resolve, but not to create, ambiguities. . . . . Consideration of the consequences flowing from alternative constructions of
doubtful provisions constitutes an important interpretative device. . . . The purposes of many of the broadly phrased constitutional
limitations were the promotion of policies that do not lend themselves to definite and specific formulation. The courts have had to define
those policies and have often drawn on natural law and natural rights theories in doing so. The interpretation of constitutions tends to
respond to changing conceptions of political and social values. The extent to which these extraneous aids affect the judicial construction
of constitutions cannot be formulated in precise rules, but their influence cannot be ignored in describing the essentials of the process"
(Rottschaeffer on Constitutional Law, 1939 ed., p. 18-19).
"There are times when even the literal expression of legislation may be inconsistent with the general objectives of policy behind it, and on
the basis of the equity or spirit of the statute the courts rationalize a restricted meaning of the latter. A restricted interpretation is usually
applied where the effect of a literal interpretation will make for injustice and absurdity or, in the words of one court, the language must
be so unreasonable as to shock general common sense." (Vol. 3, Sutherland on Statutory Construction, 3rd ed., 150.)
"A constitution is not intended to be a limitation on the development of a country nor an obstruction to its progress and foreign relations"
(Moscow Fire Inc. Co. of Moscow, Russia v. Bank of New York & Trust Co., 294 N. Y. S. 648; 56 N. E. 2d 745, 293 N. Y. 749).
"Although the meaning or principles of a constitution remain fixed and unchanged from the time of its adoption, a constitution must be
construed as if intended to stand for a great length of time, and it is progressive and not static. Accordingly, it should not receive too
narrow or literal an interpretation but rather the meaning given it should be applied in such manner as to meet new or changed
conditions as they arise" (U.S. v. Classic, 313 U.S. 299, 85 L. Ed., 1368).
"Effect should be given to the purpose indicated by a fair interpretation of the language used and that construction which effectuates,
rather than that which destroys a plain intent or purpose of a constitutional provision, is not only favored but will be adopted" (State ex
rel. Randolph Country v. Walden, 206 S. W. 2d 979).
"It is quite generally held that in arriving at the intent and purpose the Construction should be broad or liberal or equitable, as the better
method of ascertaining that intent, rather than technical" (Great Southern Life Ins. Co. v. City of Austin, 243 S.W. 778).
It seems from the foregoing that the main problem We are confronted With in this appeal, hinges around the necessity of a proper and
adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us then be guided by the principles of statutory
construction laid down by the authorities on the matter:jgc:chanrobles.com.ph
"The most important single factor in determining the intention of the people from whom the constitution emanated is the language in
which it is expressed. The words employed are to be taken in their natural sense, except that legal or technical terms are to be given their
technical meaning. The imperfections of language as a vehicle for conveying meanings result in ambiguities that must be resolved by
resort to extraneous aids for discovering the intent of the framers. Among the more important of these are a consideration of the history
Caelitus Mihi Vires
All these authorities uphold our conviction that the framers of the constitution had not in mind the corporations sole, nor intended to
apply them the provisions of sections 1 and 5 of said Article XIII when they passed and approved the same. And if it were so as We think it
is, herein petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc., could not be deprived of the right to acquire by purchase
or donation real properties for charitable, benevolent and educational purposes, nor of the right to register the same in its name with the
Register of Deeds of Davao, an indispensable requisite prescribed by the Land Registration Act for lands covered by the Torrens system.
129
We leave as the last theme for discussion the much debated question above referred to as "the vested right saving clause" contained in
section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the personal opinion expressed on the matter by the writer of
the decision the most pointed darts of his severe criticism. We think, however, that this strong dissent should have been spared, because
as clearly indicated before, some members of this Court either did not agree with the theory of the writer or were not ready to take a
definite stand on that particular point, so that there being no majority opinion thereon there was no need of any dissension therefrom.
But as the criticism has been made the writer deems it necessary to say a few words of explanation.
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for appellee.
REYES, J.:
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro, is not in itself a vested or
existing property right that the Constitution protects from impairment. For a property right to be vested (or acquired) there must be a
transition from the potential or contingent to the actual, and the proprietary interest must have attached to a thing; it must have become
fixed and established" (Balboa v. Farrales, 51 Phil. 498). But the case at bar has to be considered as an exception to the rule because
among the rights granted by section 159 of the Corporation Law was the right to receive bequests or gifts of real properties for charitable,
benevolent and educational purposes. And this right to receive such bequests or gifts (which implies donations in futuro), is not a mere
potentiality that could be impaired without any specific provision in the Constitution to that effect, especially when the impairment would
disturbingly affect the propagation of the religious faith of the immense majority of the Filipino people and the curtailment of the
activities of their Church. That is why the writer gave as a basis of his contention what Professor Aruego said in his book "The Framing of
the Philippine Constitution" and the enlightening opinion of Mr. Justice Jose P. Laurel, another Delegate to the Constitutional Convention,
in his concurring opinion in the case of Goldcreek Mining Company v. Eulogio Rodriguez Et. Al., 66 Phil. 269. Anyway the majority of the
Court did not deem necessary to pass upon said "vested right saving clause" for the final determination of this case.
William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with the crime of falsification of a
public and commercial document in that, having been entrusted with the preparation and registration of the article of incorporation of
the Pacific Airways Corporation, a domestic corporation organized for the purpose of engaging in business as a common carrier, he caused
it to appear in said article of incorporation that one Arsenio Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 per
cent of the subscribed capital stock of the corporation when in reality, as the accused well knew, such was not the case, the truth being
that the owner of the portion of the capital stock subscribed to by Baylon and the money paid thereon were American citizen whose
name did not appear in the article of incorporation, and that the purpose for making this false statement was to circumvent the
constitutional mandate that no corporation shall be authorize to operate as a public utility in the Philippines unless 60 per cent of its
capital stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed to this Court.
JUDGMENT
Wherefore, the Resolution of the respondent Land Registration Commission of September 21, 1954, holding that in view of the provisions
of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee (petitioner) is not qualified to acquire lands in the Philippines in
the absence of proof that at least 60 per centum of the capital, properties or assets of the Roman Catholic Apostolic Administrator of
Davao, Inc., is actually owned or controlled by Filipino citizens, and denying the registration of the deed of sale in the absence of proof of
compliance with such requisite, is hereby reversed. Consequently, the respondent Register of Deeds of the City of Davao is ordered to
register the deed of sale executed by Mateo L. Rodis in favor of the Roman Catholic Apostolic Administrator of Davao, Inc., which is the
subject of the present litigation. No pronouncement is made as to costs. It is so ordered.
Bautista Angelo and Endencia, JJ., concur.

G.R. No. L-6055
June 12, 1953
The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered its articles of incorporation with
the Securities and Exchanged Commission. The article were prepared and the registration was effected by the accused, who was in fact
the organizer of the corporation. The article stated that the primary purpose of the corporation was to carry on the business of a common
carrier by air, land or water; that its capital stock was P1,000,000, represented by 9,000 preferred and 100,000 common shares, each
preferred share being of the par value of p100 and entitled to 1/3 vote and each common share, of the par value of P1 and entitled to one
vote; that the amount capital stock actually subscribed was P200,000, and the names of the subscribers were Arsenio Baylon, Eruin E.
Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being a Filipino and the other five all
Americans; that Baylon's subscription was for 1,145 preferred shares, of the total value of P114,500, and for 6,500 common shares, of the
total par value of P6,500, while the aggregate subscriptions of the American subscribers were for 200 preferred shares, of the total par
value of P20,000, and 59,000 common shares, of the total par value of P59,000; and that Baylon and the American subscribers had already
paid 25 per cent of their respective subscriptions. Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital
stock of the corporation, Baylon nevertheless did not have the controlling vote because of the difference in voting power between the
preferred shares and the common shares. Still, with the capital structure as it was, the article of incorporation were accepted for
registration and a certificate of incorporation was issued by the Securities and Exchange Commission.
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
WILLIAM H. QUASHA, defendant-appellant.
Caelitus Mihi Vires
There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the corporation. But it is
admitted that the money paid on his subscription did not belong to him but to the Americans subscribers to the corporate stock. In
explanation, the accused testified, without contradiction, that in the process of organization Baylon was made a trustee for the American
incorporators, and that the reason for making Baylon such trustee was as follows:
130
1. Any private individual who shall commit any of the falsifications enumerated in the next preceding article in any public or official
document or letter of exchange or any other kind of commercial document.
Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred shares with a total value of P1,135. Do you know
how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names are listed on page 7 of this certified copy came to my house,
Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one evening. There was considerable difficulty to get them all
together at one time because they were pilots. They had difficulty in deciding what their respective share holdings would be. Onstott had
invested a certain amount of money in airplane surplus property and they had obtained a considerable amount of money on those planes
and as I recall they were desirous of getting a corporation formed right away. And they wanted to have their respective shares holdings
resolved at a latter date. They stated that they could get together that they feel that they had no time to settle their respective share
holdings. We discussed the matter and finally it was decided that the best way to handle the things was not to put the shares in the name
of anyone of the interested parties and to have someone act as trustee for their respective shares holdings. So we looked around for a
trustee. And he said "There are a lot of people whom I trust." He said, "Is there someone around whom we could get right away?" I said,
"There is Arsenio. He was my boy during the liberation and he cared for me when i was sick and i said i consider him my friend." I said.
They all knew Arsenio. He is a very kind man and that was what was done. That is how it came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the Revised Penal Code, which read:
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. The penalty of prision mayor and a fine not to
exceed 5,000 pesos shall be imposed upon any public officer, employee, or notary who, taking advantage of his official position, shall
falsify a document by committing any of the following acts:
xxx
xxx
xxx
4. Making untruthful statements in a narration of facts.
ART. 172. Falsification by private individuals and use of falsified documents. The penalty of prision correccional in its medium and
maximum period and a fine of not more than 5,000 pesos shall be imposed upon:
xxx
xxx
xxx
Caelitus Mihi Vires
Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code ( new edition, pp. 407-408),
observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in the narration of facts must be made with the
wrongful intent of injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the same author further maintains that
even if such wrongful intent is proven, still the untruthful statement will not constitute the crime of falsification if there is no legal
obligation on the part of the narrator to disclose the truth. Wrongful intent to injure a third person and obligation on the part of the
narrator to disclose the truth are thus essential to a conviction for a crime of falsification under the above article of the Revised Penal
Code.
Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing in the articles of incorporation that
Baylon was a mere trustee ( or dummy as the prosecution chooses to call him) of his American co-incorporators, thus giving the
impression that Baylon was the owner of the shares subscribed to by him which, as above stated, amount to 60.005 per cent of the subscribed capital stock. This, in the opinion of the trial court, is a malicious perversion of the truth made with the wrongful intent
circumventing section 8, Article XIV of the Constitution, which provides that " no franchise, certificate, or any other form of authorization
for the operation of a public utility shall be granted except to citizens of the Philippines or to corporation or other entities organized under
the law of the Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines . . . ." Plausible though it may
appear at first glance, this opinion loses validity once it is noted that it is predicated on the erroneous assumption that the constitutional
provision just quoted was meant to prohibit the mere formation of a public utility corporation without 60 per cent of its capital being
owned by the Filipinos, a mistaken belief which has induced the lower court to that the accused was under obligation to disclose the
whole truth about the nationality of the subscribed capital stock of the corporation by revealing that Baylon was a mere trustee or
dummy of his American co-incorporators, and that in not making such disclosure defendant's intention was to circumvent the
Constitution to the detriment of the public interests. Contrary to the lower court's assumption, the Constitution does not prohibit the
mere formation of a public utility corporation without the required formation of Filipino capital. What it does prohibit is the granting of a
franchise or other form of authorization for the operation of a public utility to a corporation already in existence but without the requisite
proportion of Filipino capital. This is obvious from the context, for the constitutional provision in question qualifies the terms " franchise",
"certificate", or "any other form of authorization" with the phrase "for the operation of a public utility," thereby making it clear that the
franchise meant is not the "primary franchise" that invest a body of men with corporate existence but the "secondary franchise" or the
privilege to operate as a public utility after the corporation has already come into being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then how can the accused be
charged with having wrongfully intended to circumvent that fundamental law by not revealing in the articles of incorporation that Baylon
was a mere trustee of his American co-incorporation and that for that reason the subscribed capital stock of the corporation was wholly
American? For the mere formation of the corporation such revelation was not essential, and the Corporation Law does not require it.
Defendant was, therefore, under no obligation to make it. In the absence of such obligation and of the allege wrongful intent, defendant
cannot be legally convicted of the crime with which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing in the name of Baylon
was an indispensable preparatory step to the subversion of the constitutional prohibition and the laws implementing the policy expressed
131
therein. This view is not correct. For a corporation to be entitled to operate a public utility it is not necessary that it be organized with 60
per cent of its capital owned by Filipinos from the start. A corporation formed with capital that is entirely alien may subsequently change
the nationality of its capital through transfer of shares to Filipino citizens. conversely, a corporation originally formed with Filipino capital
may subsequently change the national status of said capital through transfer of shares to foreigners. What need is there then for a
corporation that intends to operate a public utility to have, at the time of its formation, 60 per cent of its capital owned by Filipinos alone?
That condition may anytime be attained thru the necessary transfer of stocks. The moment for determining whether a corporation is
entitled to operate as a public utility is when it applies for a franchise, certificate, or any other form of authorization for that purpose. And
that can be done after the corporation has already come into being and not while it is still being formed. And at that moment, the
corporation must show that it has complied not only with the requirement of the Constitution as to the nationality of its capital, but also
with the requirements of the Civil Aviation Law if it is a common carrier by air, the Revised Administrative Code if it is a common carrier by
water, and the Public Service Law if it is a common carrier by land or other kind of public service.
Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime" under article 59 of the Revised
Penal Code. It not being possible to suppose that defendant had intended to commit a crime for the simple reason that the alleged
constitutional prohibition which he is charged for having tried to circumvent does not exist, conviction under that article is out of the
question.
The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of the crime charged. The
majority of the court, however, are also of the opinion that, even supposing that the act imputed to the defendant constituted
falsification at the time it was perpetrated, still with the approval of the Party Amendment to the Constitution in March, 1947, which
placed Americans on the same footing as Filipino citizens with respect to the right to operate public utilities in the Philippines, thus doing
away with the prohibition in section 8, Article XIV of the Constitution in so far as American citizens are concerned, the said act has ceased
to be an offense within the meaning of the law, so that defendant can no longer be held criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha acquitted, with costs de oficio.
G.R. No. 114222
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing and enforcing the
"Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" dated April 22, 1992, and the
"Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System
for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate and are suing in their
capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation
and Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of
Hongkong.
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan Manila, which shall
traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was
intended to provide a mass transit system along EDSA and alleviate the congestion and growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to DOTC Secretary Oscar
Orbos, proposing to construct the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with DOTC.
April 6, 1995
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and For Other Purposes," was signed by President Corazon C. Aquino. Referred to as the
Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and Communications, and EDSA LRT
CORPORATION, LTD., respondents.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government projects through private
initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on January 22, 1991 and March
14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively creating the Prequalification Bids and Awards Committee
(PBAC) and the Technical Committee.
QUIASON, J.:
Caelitus Mihi Vires
132
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and implementation of the
project The notice, advertising the prequalification of bidders, was published in three newspapers of general circulation once a week for
three consecutive weeks starting February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1, 1991. Five groups
responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu,
Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and domestic corporations: namely, Kaiser Engineers
International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics,
TCGI Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol
Industrial Construction Group, Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria proposed by the Technical Committee were
adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal aspects 10 percent; (b) Management/Organizational
capability 30 percent; and (c) Financial capability 30 percent; and (d) Technical capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules and Regulations thereof,
approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the five applicants, only the
EDSA LRT Consortium "met the requirements of garnering at least 21 points per criteria [sic], except for Legal Aspects, and obtaining an
over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT contractor-applicant
meet the requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was replaced by Secretary Pete
Nicomedes Prado. The latter sent to President Aquino two letters dated May 31, 1991 and June 14, 1991, respectively recommending the
award of the EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium, and requesting for authority to negotiate with
the said firm for the contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC to proceed with the
negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT Corporation, Ltd., in substitution of
the EDSA LRT Consortium, entered into an "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms
of the BOT Law (Rollo, pp. 147-177).
Caelitus Mihi Vires
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos, informed Secretary Prado
that the President could not grant the requested approval for the following reasons: (1) that DOTC failed to conduct actual public bidding
in compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as the only mode to award BOT projects, and the
prequalification proceedings was not the public bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and
Regulations of the BOT Law which authorized negotiated award of contract in addition to public bidding was of doubtful legality; and (4)
that congressional approval of the list of priority projects under the BOT or BT Scheme provided in the law had not yet been granted at
the time the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated the agreement. On April 22,
1992, the parties entered into a "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA"
(Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to sign the Agreement without need of
approval by the President pursuant to the provisions of Executive Order No. 380 and that certain events [had] supervened since
November 7, 1991 which necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary
Jesus Garcia vice Secretary Prado, and private respondent entered into a "Supplemental Agreement to the 22 April 1992 Revised and
Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their respective rights and
responsibilities" and to submit [the] Supplemental Agreement to the President, of the Philippines for his approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval. In a Memorandum to
Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal Republics and will have a
maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be achieved-through 54 such vehicles operating
simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from F.B.
Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility (Revised and Restated Agreement, Sec. 2.3
(ii); Rollo p. 55). It will also have thirteen (13) passenger stations and one depot in 16-hectare government property at North Avenue
(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete operational light rail transit system (Revised
and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately three years from the
implementation date of the contract inclusive of mobilization, site works, initial and final testing of the system (Supplemental Agreement,
Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private respondent shall deliver the use and possession of the
completed portion to DOTC which shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1;
Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals
shall be determined by an independent and internationally accredited inspection firm to be appointed by the parties (Supplemental
Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital shall be recovered from the rentals to be paid by the
DOTC which, in turn, shall come from the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25
133
years and DOTC shall have completed payment of the rentals, ownership of the project shall be transferred to the latter for a
consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law by
the President. The law was published in two newspapers of general circulation on May 12, 1994, and took effect 15 days thereafter or on
May 28, 1994. The law expressly recognizes BLT scheme and allows direct negotiation of BLT contracts.
(1)
Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition;
(2)
The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3)
The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;
(4)
The nationality requirement for public utilities mandated by the Constitution does not apply to private respondent;
II
In their petition, petitioners argued that:

(5)
The Agreements executed by and between respondents have been approved by President Ramos and are not disadvantageous
to the government;
(1)
THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT
GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE
CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(6)
(2)
THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR
ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;
(7)
Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the Legislature On May
12, 1994, which provides for direct negotiation as a mode of award of infrastructure projects.
(3)
III
THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND, HENCE, IS UNLAWFUL;
The award of the contract to private respondent through negotiation and not public bidding is allowed by the BOT Law; and
(4)
THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD. VIOLATES THE REQUIREMENTS
PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS ILLEGAL;
Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however, countered that the action
was filed by them in their capacity as Senators and as taxpayers.
(5)
THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE,
ARE ILLEGAL AND INEFFECTIVE; AND
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the national government or
government-owned or controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994])
and to disallow the same when only municipal contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176
SCRA. 240 [1989]).
(6)
THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and claimed that:
Caelitus Mihi Vires
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold the legal standing of
petitioners as taxpayers to institute the present action.
134
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not require a franchise
before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the Supplemental Agreement of May 6,
1993 are unconstitutional and invalid for the following reasons:
(1)
the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the Constitution to Filipino citizens
and domestic corporations, not foreign corporations like private respondent;
(2)
the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT Scheme under the law;
(3)
the contract to construct the EDSA LRT III was awarded to private respondent not through public bidding which is the only
mode of awarding infrastructure projects under the BOT law; and
(4)
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is
owned by such citizens, nor shall such franchise, certificate or authorization be exclusive character or for a longer period than fifty years . .
. (Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and equipment used to
serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected to his will in
everything not prohibited by law or the concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence on the Civil
Code of the Philippines 45 [1992]).
the agreements are grossly disadvantageous to the government.
1.
Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was awarded by public
respondent, is admittedly a foreign corporation "duly incorporated and existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is
also no dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to
operate the system and pay rentals for said use.
The question posed by petitioners is:
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to serve the public
as a public utility unless the operator has a franchise. The operation of a rail system as a public utility includes the transportation of
passengers from one point to another point, their loading and unloading at designated places and the movement of the trains at prescheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v.
Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said
facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to
serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not
necessarily be the owner thereof.
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling stocks like the coaches,
rail stations, terminals and the power plant, not a public utility. While a franchise is needed to operate these facilities to serve the public,
they do not by themselves constitute a public utility. What constitutes a public utility is not their ownership but their use to serve the
public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).
This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be very well
appreciated when we consider the transportation industry. Enfranchised airline and shipping companies may lease their aircraft and
vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is not enfranchised to
operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC
Caelitus Mihi Vires
135
agreed that on completion date, private respondent will immediately deliver possession of the LRT system by way of lease for 25 years,
during which period DOTC shall operate the same as a common carrier and private respondent shall provide technical maintenance and
repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists
of providing (1) repair and maintenance facilities for the depot and rail lines, services for routine clearing and security; and (2) producing
and distributing maintenance manuals and drawings for the entire system (Revised and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and repair of the rolling stock,
power plant, substations, electrical, signaling, communications and all other equipment as supplied in the agreement (Revised and
Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC operational personnel which
includes actual driving of light rail vehicles under simulated operating conditions, control of operations, dealing with emergencies,
collection, counting and securing cash from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of
DOTC will work under the direction and control of private respondent only during training (Revised and Restated Agreement, Annex E,
Sec. 3.1). The training objectives, however, shall be such that upon completion of the EDSA LRT III and upon opening of normal revenue
operation, DOTC shall have in their employ personnel capable of undertaking training of all new and replacement personnel (Revised and
Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year construction period and upon commencement of
normal revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost of replacement of plant
equipment and spare parts, investment and financing cost, plus a reasonable rate of return thereon (Revised and Restated Agreement,
Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For this purpose, DOTC
shall indemnify and hold harmless private respondent from any losses, damages, injuries or death which may be claimed in the operation
or implementation of the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account of the defective
condition of equipment or facilities or the defective maintenance of such equipment facilities (Revised and Restated Agreement, Secs.
12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings with the public
and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be distinguished from the role of the
Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the
Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint venture
agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own
expense, all the facilities necessary to operate and maintain a nationwide on-line lottery system from whom PCSO was to lease the
facilities and operate the same. Upon due examination of the contract, the Court found that PGMC's participation was not confined to the
construction and setting up of the on-line lottery system. It spilled over to the actual operation thereof, becoming indispensable to the
pursuit, conduct, administration and control of the highly technical and sophisticated lottery system. In effect, the PCSO leased out its
franchise to PGMC which actually operated and managed the same.
Caelitus Mihi Vires
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and W.R. Co. v. United States, 46
F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v.
Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator,
wine, poultry and beer cars who supply cars under contract to railroad companies considered as public utilities (Crystal Car Line v. State
Tax Commission, 174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one operating a public utility.
The moment for determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any other form of
authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).
2.
Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT Law and its
Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a)
Build-operate-and-transfer scheme A contractual arrangement whereby the contractor undertakes the construction
including financing, of a given infrastructure facility, and the operation and maintenance thereof. The contractor operates the facility over
a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient to enable the
contractor to recover its operating and maintenance expenses and its investment in the project plus a reasonable rate of return thereon.
The contractor transfers the facility to the government agency or local government unit concerned at the end of the fixed term which
shall not exceed fifty (50) years. For the construction stage, the contractor may obtain financing from foreign and/or domestic sources
and/or engage the services of a foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of the contractor of an
infrastructure facility whose operation requires a public utility franchise must be in accordance with the Constitution: Provided, however,
That in the case of corporate investors in the build-operate-and-transfer corporation, the citizenship of each stockholder in the corporate
investors shall be the basis for the computation of Filipino equity in the said corporation: Provided, further, That, in the case of foreign
constructors [sic], Filipino labor shall be employed or hired in the different phases of the construction where Filipino skills are available:
Provided, furthermore, that the financing of a foreign or foreign-controlled contractor from Philippine government financing institutions
shall not exceed twenty percent (20%) of the total cost of the infrastructure facility or project: Provided, finally, That financing from
foreign sources shall not require a guarantee by the Government or by government-owned or controlled corporations. The build-operateand-transfer scheme shall include a supply-and-operate situation which is a contractual agreement whereby the supplier of equipment
and machinery for a given infrastructure facility, if the interest of the Government so requires, operates the facility providing in the
process technology transfer and training to Filipino nationals.
(b)
Build-and-transfer scheme "A contractual arrangement whereby the contractor undertakes the construction including
financing, of a given infrastructure facility, and its turnover after completion to the government agency or local government unit
concerned which shall pay the contractor its total investment expended on the project, plus a reasonable rate of return thereon. This
136
arrangement may be employed in the construction of any infrastructure project including critical facilities which for security or strategic
reasons, must be operated directly by the government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in infrastructure facility, and
operates and maintains the same. The contractor operates the facility for a fixed period during which it may recover its expenses and
investment in the project plus a reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the
ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion, the ownership and
operation thereof are turned over to the government. The government, in turn, shall pay the contractor its total investment on the
project in addition to a reasonable rate of return. If payment is to be effected through amortization payments by the government
infrastructure agency or local government unit concerned, this shall be made in accordance with a scheme proposed in the bid and
incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the citizenship
requirement of the Constitution on the operation of a public utility. No such a requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment by the government of the
project cost. The law must not be read in such a way as to rule out or unduly restrict any variation within the context of the two schemes.
Indeed, no statute can be enacted to anticipate and provide all the fine points and details for the multifarious and complex situations that
may be encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957];
United States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by allowing it to amortize
payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis according to a schedule of rates
through and under the terms of a confirmed Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the
end of 25 years and when full payment shall have been made to and received by private respondent, it shall transfer to DOTC, free from
any lien or encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1;
Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).
Caelitus Mihi Vires
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for a certain price and for a
period which may be definite or indefinite but not longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of
ownership at the end of the lease period. But if the parties stipulate that title to the leased premises shall be transferred to the lessee at
the end of the lease period upon the payment of an agreed sum, the lease becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos. The EDSA LRT III Project is
a high priority project certified by Congress and the National Economic and Development Authority as falling under the Investment
Priorities Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency Act (R.A. No. 529),
which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the
Philippines which provisions purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency
other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public
policy, and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter
incurred. The above prohibition shall not apply to (a) . . .; (b) transactions affecting high-priority economic projects for agricultural,
industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds; . . . .
3.
The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and before congressional
approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the private sector pursuant to the BOT Law
(Rollo, pp. 309-312) does not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with commercial development opportunities" (Rollo,
p. 310) under which the EDSA LRT III projects falls, amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT
Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to have been rigged from
the very beginning to do away with the usual open international public bidding where qualified internationally known applicants could
fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was left, to conduct a public bidding in
accordance with Section 5 of the BOT Law for that lone participant will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan,
217 SCRA 49, 61 [1993]).
137
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential Decree No. 1594 allows
the negotiated award of government infrastructure projects.
(e)
Build-lease-and-transfer A contractual arrangement whereby a project proponent is authorized to finance and construct an
infrastructure or development facility and upon its completion turns it over to the government agency or local government unit
concerned on a lease arrangement for a fixed period after which ownership of the facility is automatically transferred to the government
unit concerned.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts," allows
the negotiated award of government projects in exceptional cases. Sections 4 of the said law reads as follows:
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
Bidding. Construction projects shall generally be undertaken by contract after competitive public bidding. Projects may be undertaken
by administration or force account or by negotiated contract only in exceptional cases where time is of the essence, or where there is lack
of qualified bidders or contractors, or where there is conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provision of laws and acts on the matter, subject to the approval of the Minister of Public Works
and Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the project
cost is less than P1 Million, and the President of the Philippines, upon recommendation of the Minister, if the project cost is P1 Million or
more (Emphasis supplied).
xxx
xxx
xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure contracts may he made by
negotiation. Presidential Decree No. 1594 is the general law on government infrastructure contracts while the BOT Law governs particular
arrangements or schemes aimed at encouraging private sector participation in government infrastructure projects. The two laws are not
inconsistent with each other but are in pari materia and should be read together accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of the competing firms ever
brought the matter before the PBAC, or intervened in this case before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213
SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos himself. Although then Executive Secretary Drilon may have
disapproved the "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA," there is nothing in our laws that prohibits
parties to a contract from renegotiating and modifying in good faith the terms and conditions thereof so as to meet legal, statutory and
constitutional requirements. Under the circumstances, to require the parties to go back to step one of the prequalification process would
just be an idle ceremony. Useless bureaucratic "red tape" should be eschewed because it discourages private sector participation, the
"main engine" for national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is only one complying bidder left as defined
hereunder.
(a)
If, after advertisement, only one contractor applies for prequalification and it meets the prequalification requirements, after
which it is required to submit a bid proposal which is subsequently found by the agency/local government unit (LGU) to be complying.
(b)
If, after advertisement, more than one contractor applied for prequalification but only one meets the prequalification
requirements, after which it submits bid/proposal which is found by the agency/local government unit (LGU) to be complying.
(c)
If, after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU to be
complying.
(d)
If, after prequalification, more than one contractor submit bids but only one is found by the agency/LGU to be complying.
Provided, That, any of the disqualified prospective bidder [sic] may appeal the decision of the implementing agency, agency/LGUs
prequalification bids and awards committee within fifteen (15) working days to the head of the agency, in case of national projects or to
the Department of the Interior and Local Government, in case of local projects from the date the disqualification was made known to the
disqualified bidder: Provided, furthermore, That the implementing agency/LGUs concerned should act on the appeal within forty-five (45)
working days from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT Law has now been rendered
moot and academic by R.A. No. 7718. Section 3 of this law authorizes all government infrastructure agencies, government-owned and
controlled corporations and local government units to enter into contract with any duly prequalified proponent for the financing,
construction, operation and maintenance of any financially viable infrastructure or development facility through a BOT, BT, BLT, BOO
(Build-own-and-operate), CAO (Contract-add-operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and
ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
Caelitus Mihi Vires
138
From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in Section 2 thereof, including a
BLT arrangement, enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of minimum government
regulations and procedures and specific government undertakings in support of the private sector" (Sec. 1). A curative statute makes valid
that which before enactment of the statute was invalid. Thus, whatever doubts and alleged procedural lapses private respondent and
DOTC may have engendered and committed in entering into the questioned contracts, these have now been cured by R.A. No. 7718 (cf.
Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong
Seng Gee, 43 Phil. 43 [1922].
5.
Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental function. DOTC is
the primary policy, planning, programming, regulating and administrative entity of the Executive branch of government in the promotion,
development and regulation of dependable and coordinated networks of transportation and communications systems as well as in the
fast, safe, efficient and reliable postal, transportation and communications services (Administrative Code of 1987, Book IV, Title XV, Sec.
2). It is the Executive department, DOTC in particular that has the power, authority and technical expertise determine whether or not a
specific transportation or communication project is necessary, viable and beneficial to the people. The discretion to award a contract is
vested in the government agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED
G.R. No. L-2294
4.
Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the rental rates are
excessive and private respondent's development rights over the 13 stations and the depot will rob DOTC of the best terms during the
most productive years of the project.
May 25, 1951
FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25 years, exclusive rights
over the depot and the air space above the stations for development into commercial premises for lease, sublease, transfer, or advertising
(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights, private respondent shall pay
DOTC in Philippine currency guaranteed revenues generated therefrom in the amounts set forth in the Supplemental Agreement (Sec. 11;
Rollo, p. 93). In the event that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls
from the monthly rent due private respondent for the construction of the EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 9394). All rights, titles, interests and income over all contracts on the commercial spaces shall revert to DOTC upon expiration of the 25-year
period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.
PARAS, C.J.:
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper administrative agencies
and officials who have acquired expertise, specialized skills and knowledge in the performance of their functions should be accorded
respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990];
Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is necessary to rebut this presumption.
Petitioners have not presented evidence on the reasonable rentals to be paid by the parties to each other. The matter of valuation is an
esoteric field which is better left to the experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is deprived of the profits if it engages
in the business itself, is not worthy of being raised as an issue. In all cases where a party enters into a contract with the government, he
does so, not out of charity and not to lose money, but to gain pecuniarily.
Caelitus Mihi Vires
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding premium, obtained
from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building
located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military occupation, the building and
insured merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy. The salvage goods
were sold at public auction and, after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The petitioner
refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States
declared war against Germany, the respondent Corporation (though organized under and by virtue of the laws of the Philippines) being
controlled by the German subjects and the petitioner being a company under American jurisdiction when said policy was issued on
October 1, 1941. The petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive
Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering from the respondent
the sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise were burned up after the policy issued
in 1941 in favor of the respondent corporation has ceased to be effective because of the outbreak of the war between the United States
139
and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the Japanese
military occupation was under pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as
to costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The case is
now before us on appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy when the United
States declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country or
state by and under the laws of which it was created or organized. It rejected the theory that nationality of private corporation is
determine by the character or citizenship of its controlling stockholders.
There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, we have to
rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany. The
English and American cases relied upon by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of
the United States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148153, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second
International Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages
appear:
Since World War I, the determination of enemy nationality of corporations has been discussion in many countries, belligerent and neutral.
A corporation was subject to enemy legislation when it was controlled by enemies, namely managed under the influence of individuals or
corporations, themselves considered as enemies. It was the English courts which first the Daimler case applied this new concept of
"piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after the First World
War.
The United States of America did not adopt the control test during the First World War. Courts refused to recognized the concept
whereby American-registered corporations could be considered as enemies and thus subject to domestic legislation and administrative
measures regarding enemy property.
World War II revived the problem again. It was known that German and other enemy interests were cloaked by domestic corporation
structure. It was not only by legal ownership of shares that a material influence could be exercised on the management of the corporation
but also by long term loans and other factual situations. For that reason, legislation on enemy property enacted in various countries
during World War II adopted by statutory provisions to the control test and determined, to various degrees, the incidents of control. Court
decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy character of domestic
corporation.
Caelitus Mihi Vires
The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as did other legislations the
applications of the control test and again, as in World War I, courts refused to apply this concept whereby the enemy character of an
American or neutral-registered corporation is determined by the enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the treatment of foreignowned property in the United States allowed to large degree the determination of enemy interest in domestic corporations and thus the
application of the control test. Court decisions sanctioned such administrative practice enacted under the First War Powers Act of 1941,
and more recently, on December 8, 1947, the Supreme Court of the United States definitely approved of the control theory. In Clark vs.
Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court: "The property of
all foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate friendly or
neutral assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and vesting was
extended to all property of any foreign country or national so that no innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision. However, we may add
that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within
the meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated
under the laws of an enemy country but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy may be insured." It
stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.
Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a state of war is prohibited by
the law of nations. Such prohibition includes all negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to
increase, its income or resources; all acts of voluntary submission to it; or receiving its protection; also all acts concerning the transmission
of money or goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy,
upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one country cannot be permitted
to lend their assistance to protect by insurance the commerce or property of belligerent, alien subjects, or to do anything detrimental too
their country's interest. The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one
country should destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should in such
manner increase the resources of the enemy, or render it aid, and the commencement of war determines, for like reasons, all trading
intercourse with the enemy, which prior thereto may have been lawful. All individuals therefore, who compose the belligerent powers,
exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it is plain that when the
parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not vested. lost. (Vance, the
Law on Insurance, Sec. 44, p. 112.)
140
The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941,
by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods were burned after
December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner.
However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the
respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in question became
null and void upon the declaration of war between the United States and Germany on December 10, 1941, and its judgment in favor of
the respondent corporation was predicated on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily
assumed that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on
the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust
but the exercise of its lawful right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of
Financing to the effect that "the appellee was entitled to payment from the appellant was, well founded." Factually, there can be no
doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the respondent, merely obeyed the
instruction of the Japanese Military Administration, as may be seen from the following: "In view of the findings and conclusion of this
office contained in its decision on Administrative Case dated February 9, 1943 copy of which was sent to your office and the concurrence
therein of the Financial Department of the Japanese Military Administration, and following the instruction of said authority, you are
hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by
means of crossed check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case. However, the
petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance
with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the petitioner the sum of
P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that should be returned by the petitioner for the
unexpired term of the policy in question, beginning December 11, 1941. Without costs. So ordered.
PEDRO R. PALTING, petitioner, vs.SAN JOSE PETROLEUM INCORPORATED, respondent.

BARRERA, J.:
This is a petition for review of the order of August 29, 1958, later supplemented and amplified by another dated September 9, 1958, of
the Securities and Exchange Commission denying the opposition to, and instead, granting the registration, and licensing the sale in the
Philippines, of 5,000,000 shares of the capital stock of the respondent-appellee San Jose Petroleum, Inc. (hereafter referred to as SAN
JOSE PETROLEUM), a corporation organized and existing in the Republic of Panama.
On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and Exchange Commission a sworn registration
statement, for the registration and licensing for sale in the Philippines Voting Trust Certificates representing 2,000,000 shares of its capital
stock of a par value of $0.35 a share, at P1.00 per share. It was alleged that the entire proceeds of the sale of said securities will be
devoted or used exclusively to finance the operations of San Jose Oil Company, Inc. (a domestic mining corporation hereafter to be
referred to as SAN JOSE OIL) which has 14 petroleum exploration concessions covering an area of a little less than 1,000,000 hectares,
located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and Agusan. It was the express condition of
the sale that every purchaser of the securities shall not receive a stock certificate, but a registered or bearer-voting-trust certificate from
the voting trustees named therein James L. Buckley and Austin G.E. Taylor, the first residing in Connecticut, U.S.A., and the second in New
York City. While this application for registration was pending consideration by the Securities and Exchange Commission, SAN JOSE
PETROLEUM filed an amended Statement on June 20, 1958, for registration of the sale in the Philippines of its shares of capital stock,
which was increased from 2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to P0.70 per share. At this time the par value
of the shares has also been reduced from $.35 to $.01 per share.1
Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with the Securities and Exchange
Commission an opposition to registration and licensing of the securities on the grounds that (1) the tie-up between the issuer, SAN JOSE
PETROLEUM, a Panamanian corporation and SAN JOSE OIL, a domestic corporation, violates the Constitution of the Philippines, the
Corporation Law and the Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the Philippines; (3) the sale of
the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers; and (4) the issuer as an enterprise,
as well as its business, is based upon unsound business principles. Answering the foregoing opposition of Palting, et al., the registrant SAN
JOSE PETROLEUM claimed that it was a "business enterprise" enjoying parity rights under the Ordinance appended to the Constitution,
which parity right, with respect to mineral resources in the Philippines, may be exercised, pursuant to the Laurel-Langley Agreement, only
through the medium of a corporation organized under the laws of the Philippines. Thus, registrant which is allegedly qualified to exercise
rights under the Parity Amendment, had to do so through the medium of a domestic corporation, which is the SAN JOSE OIL. It refused
the contention that the Corporation Law was being violated, by alleging that Section 13 thereof applies only to foreign corporations doing
business in the Philippines, and registrant was not doing business here. The mere fact that it was a holding company of SAN JOSE OIL and
that registrant undertook the financing of and giving technical assistance to said corporation did not constitute transaction of business in
the Philippines. Registrant also denied that the offering for sale in the Philippines of its shares of capital stock was fraudulent or would
work or tend to work fraud on the investors. On August 29, 1958, and on September 9, 1958 the Securities and Exchange Commissioner
issued the orders object of the present appeal.
The issues raised by the parties in this appeal are as follows:

G.R. No. L-14441
December 17, 1966
Caelitus Mihi Vires
141
1. Whether or not petitioner Pedro R. Palting, as a "prospective investor" in respondent's securities, has personality to file the present
petition for review of the order of the Securities and Exchange Commission;
2. Whether or not the issue raised herein is already moot and academic;
3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL COMPANY, INC.,
a domestic mining corporation, is violative of the Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949, and the
Corporation Law; and
4. Whether or not the sale of respondent's securities is fraudulent, or would work or tend to work fraud to purchasers of such securities in
the Philippines.
1. In answer to the notice and order of the Securities and Exchange Commissioner, published in 2 newspapers of general circulation in the
Philippines, for "any person who is opposed" to the petition for registration and licensing of respondent's securities, to file his opposition
in 7 days, herein petitioner so filed an opposition. And, the Commissioner, having denied his opposition and instead, directed the
registration of the securities to be offered for sale, oppositor Palting instituted the present proceeding for review of said order.
Respondent raises the question of the personality of petitioner to bring this appeal, contending that as a mere "prospective investor", he
is not an "Aggrieved" or "interested" person who may properly maintain the suit. Citing a 1931 ruling of Utah State Supreme Court2 it is
claimed that the phrase "party aggrieved" used in the Securities Act3 and the Rules of Court4 as having the right to appeal should refer
only to issuers, dealers and salesmen of securities.
It is true that in the cited case, it was ruled that the phrase "person aggrieved" is that party "aggrieved by the judgment or decree where it
operates on his rights of property or bears directly upon his interest", that the word "aggrieved" refers to "a substantial grievance, a
denial of some personal property right or the imposition upon a party of a burden or obligation." But a careful reading of the case would
show that the appeal therein was dismissed because the court held that an order of registration was not final and therefore not
appealable. The foregoing pronouncement relied upon by herein respondent was made in construing the provision regarding an order of
revocation which the court held was the one appealable. And since the law provides that in revoking the registration of any security, only
the issuer and every registered dealer of the security are notified, excluding any person or group of persons having no such interest in the
securities, said court concluded that the phrase "interested person" refers only to issuers, dealers or salesmen of securities.
We cannot consider the foregoing ruling by the Utah State Court as controlling on the issue in this case. Our Securities Act in Section 7(c)
thereof, requires the publication and notice of the registration statement. Pursuant thereto, the Securities and Exchange Commissioner
caused the publication of an order in part reading as follows:
Caelitus Mihi Vires
. . . Any person who is opposed with this petition must file his written opposition with this Commission within said period (2 weeks). . . .
In other words, as construed by the administrative office entrusted with the enforcement of the Securities Act, any person (who may not
be "aggrieved" or "interested" within the legal acceptation of the word) is allowed or permitted to file an opposition to the registration of
securities for sale in the Philippines. And this is in consonance with the generally accepted principle that Blue Sky Laws are enacted to
protect investors and prospective purchasers and to prevent fraud and preclude the sale of securities which are in fact worthless or worth
substantially less than the asking price. It is for this purpose that herein petitioner duly filed his opposition giving grounds therefor.
Respondent SAN JOSE PETROLEUM was required to reply to the opposition. Subsequently both the petition and the opposition were set
for hearing during which the petitioner was allowed to actively participate and did so by cross-examining the respondent's witnesses and
filing his memorandum in support of his opposition. He therefore to all intents and purposes became a party to the proceedings. And
under the New Rules of Court,5 such a party can appeal from a final order, ruling or decision of the Securities and Exchange Commission.
This new Rule eliminating the word "aggrieved" appearing in the old Rule, being procedural in nature,6 and in view of the express
provision of Rule 144 that the new rules made effective on January 1, 1964 shall govern not only cases brought after they took effect but
all further proceedings in cases then pending, except to the extent that in the opinion of the Court their application would not be feasible
or would work injustice, in which event the former procedure shall apply, we hold that the present appeal is properly within the appellate
jurisdiction of this Court.
The order allowing the registration and sale of respondent's securities is clearly a final order that is appealable. The mere fact that such
authority may be later suspended or revoked, depending on future developments, does not give it the character of an interlocutory or
provisional ruling. And the fact that seven days after the publication of the order, the securities are deemed registered (Sec. 7, Com. Act
83, as amended), points to the finality of the order. Rights and obligations necessarily arise therefrom if not reviewed on appeal.
Our position on this procedural matter that the order is appealable and the appeal taken here is proper is strengthened by the
intervention of the Solicitor General, under Section 23 of Rule 3 of the Rules of Court, as the constitutional issues herein presented affect
the validity of Section 13 of the Corporation Law, which, according to the respondent, conflicts with the Parity Ordinance and the LaurelLangley Agreement recognizing, it is claimed, its right to exploit our petroleum resources notwithstanding said provisions of the
Corporation Law.
2.
Respondent likewise contends that since the order of Registration/Licensing dated September 9, 1958 took effect 30 days from
September 3, 1958, and since no stay order has been issued by the Supreme Court, respondent's shares became registered and licensed
under the law as of October 3, 1958. Consequently, it is asserted, the present appeal has become academic. Frankly we are unable to
follow respondent's argumentation. First it claims that the order of August 29 and that of September 9, 1958 are not final orders and
therefor are not appealable. Then when these orders, according to its theory became final and were implemented, it argues that the
orders can no longer be appealed as the question of registration and licensing became moot and academic.
But the fact is that because of the authority to sell, the securities are, in all probabilities, still being traded in the open market.
Consequently the issue is much alive as to whether respondent's securities should continue to be the subject of sale. The purpose of the
inquiry on this matter is not fully served just because the securities had passed out of the hands of the issuer and its dealers. Obviously, so
142
long as the securities are outstanding and are placed in the channels of trade and commerce, members of the investing public are entitled
to have the question of the worth or legality of the securities resolved one way or another.
In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit our natural resources) was extended to citizens of
the United States, thus:
But more fundamental than this consideration, we agree with the late Senator Claro M. Recto, who appeared as amicus curiae in this
case, that while apparently the immediate issue in this appeal is the right of respondent SAN JOSE PETROLEUM to dispose of and sell its
securities to the Filipino public, the real and ultimate controversy here would actually call for the construction of the constitutional
provisions governing the disposition, utilization, exploitation and development of our natural resources. And certainly this is neither moot
nor academic.
Notwithstanding the provisions of section one, Article Thirteen, and section eight, Article Fourteen, of the foregoing Constitution, during
the effectivity of the Executive Agreement entered into by the President of the Philippines with the President of the United States on the
fourth of July, nineteen hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred and thirtythree, but in no case to extend beyond the third of July, nineteen hundred and seventy-four, the disposition, exploitation, development,
and utilization of all agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, and other natural resources of the Philippines, and the operation of public utilities shall, if open to any
person, be open to citizens of the United States, and to all forms of business enterprises owned or controlled, directly or indirectly, by
citizens of the United States in the same manner as to, and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the Philippines (Emphasis supplied.)
3. We now come to the meat of the controversy the "tie-up" between SAN JOSE OIL on the one hand, and the respondent SAN JOSE
PETROLEUM and its associates, on the other. The relationship of these corporations involved or affected in this case is admitted and
established through the papers and documents which are parts of the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the
outstanding capital stock of which is owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority
interest of which is owned by OIL INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation in turn is wholly
(100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A., both organized and existing under the
laws of Venezuela. As of September 30, 1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM found in 49 American states
and U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to have
3,077,916 shares held by 12,373 stockholders scattered in 49 American state. In the two lists of stockholders, there is no indication of the
citizenship of these stockholders,7 or of the total number of authorized stocks of each corporation, for the purpose of determining the
corresponding percentage of these listed stockholders in relation to the respective capital stock of said corporation.
Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the relationship between herein respondent SAN JOSE
PETROLEUM and its subsidiary, SAN JOSE OIL, violates the Petroleum Law of 1949, the Philippine Constitution, and Section 13 of the
Corporation Law, which inhibits a mining corporation from acquiring an interest in another mining corporation. It is respondent's theory,
on the other hand, that far from violating the Constitution; such relationship between the two corporations is in accordance with the
Laurel-Langley Agreement which implemented the Ordinance Appended to the Constitution, and that Section 13 of the Corporation Law is
not applicable because respondent is not licensed to do business, as it is not doing business, in the Philippines.
Article XIII, Section 1 of the Philippine Constitution provides:
SEC. 1.
All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, and other natural resources of the Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the
capital of which is owned by such citizens, subject to any existing right, grant, lease or concession at the time of the inauguration of this
Government established under this Constitution. . . . (Emphasis supplied)
Caelitus Mihi Vires
In the 1954 Revised Trade Agreement concluded between the United States and the Philippines, also known as the Laurel-Langley
Agreement, embodied in Republic Act 1355, the following provisions appear:
ARTICLE VI
1. The disposition, exploitation, development and utilization of all agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all forces and sources of potential energy, and other natural resources of either Party,
and the operation of public utilities, shall, if open to any person, be open to citizens of the other Party and to all forms of business
enterprise owned or controlled, directly or indirectly, by citizens of such other Party in the same manner as to and under the same
conditions imposed upon citizens or corporations or associations owned or controlled by citizens of the Party granting the right.
2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the United States, with respect to natural
resources in the public domain in the Philippines, only through the medium of a corporation organized under the laws of the Philippines
and at least 60% of the capital stock of which is owned or controlled by citizens of the United States. . . .
3. The United States of America reserves the rights of the several States of the United States to limit the extent to which citizens or
corporations or associations owned or controlled by citizens of the Philippines may engage in the activities specified in this Article. The
Republic of the Philippines reserves the power to deny any of the rights specified in this Article to citizens of the United States who are
citizens of States, or to corporations or associations at least 60% of whose capital stock or capital is owned or controlled by citizens of
States, which deny like rights to citizens of the Philippines, or to corporations or associations which are owned or controlled by citizens of
the Philippines. . . . (Emphasis supplied.)
143
Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was granted, by Article XIII of the Constitution,
to Filipino citizens or to corporations or associations 60% of the capital of which is owned by such citizens. With the Parity Amendment to
the Constitution, the same right was extended to citizens of the United States and business enterprises owned or controlled directly or
indirectly, by citizens of the United States.
There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned provisions of the Constitution. The
right was granted to 2 types of persons: natural persons (Filipino or American citizens) and juridical persons (corporations 60% of which
capital is owned by Filipinos and business enterprises owned or controlled directly or indirectly, by citizens of the United States). In
American law, "citizen" has been defined as "one who, under the constitution and laws of the United States, has a right to vote for
representatives in congress and other public officers, and who is qualified to fill offices in the gift of the people. (1 Bouvier's Law
Dictionary, p. 490.) A citizen is
exploitation, etc. of the natural resources of these states (see paragraph 3, Article VI of the Laurel-Langley Agreement, supra). Respondent
has presented no proof to this effect.
Fifthly But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied, nevertheless to hold that
the set-up disclosed in this case, with a long chain of intervening foreign corporations, comes within the purview of the Parity Amendment
regarding business enterprises indirectly owned or controlled by citizens of the United States, is to unduly stretch and strain the language
and intent of the law. For, to what extent must the word "indirectly" be carried? Must we trace the ownership or control of these various
corporations ad infinitum for the purpose of determining whether the American ownership-control-requirement is satisfied? Add to this
the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which are allegedly owned or controlled directly by citizens
of the United States, are traded in the stock exchange in New York, and you have a situation where it becomes a practical impossibility to
determine at any given time, the citizenship of the controlling stock required by the law. In the circumstances, we have to hold that the
respondent SAN JOSE PETROLEUM, as presently constituted, is not a business enterprise that is authorized to exercise the parity privileges
under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.
One of the sovereign people. A constituent member of the sovereignty, synonymous with the people." (Scott v. Sandford, 19 Ho. [U.S.]
404, 15 L. Ed. 691.)
A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See U.S. v. Cruikshank 92 U.S. 542, 23 L. Ed. 588; Minor v.
Happersett 21 Wall. [U.S.] 162, 22 L. Ed. 627.)
These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled to parity rights in the
Philippines? The answer must be in the negative, for the following reasons:
Firstly It is not owned or controlled directly by citizens of the United States, because it is owned and controlled by a corporation, the
OIL INVESTMENTS, another foreign (Panamanian) corporation.
Secondly Neither can it be said that it is indirectly owned and controlled by American citizens through the OIL INVESTMENTS, for this
latter corporation is in turn owned and controlled, not by citizens of the United States, but still by two foreign (Venezuelan) corporations,
the PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM.
Thirdly Although it is claimed that these two last corporations are owned and controlled respectively by 12,373 and 9,979 stockholders
residing in the different American states, there is no showing in the certification furnished by respondent that the stockholders of
PANCOASTAL or those of them holding the controlling stock, are citizens of the United States.
What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is owned by SAN JOSE PETROLEUM? This is a query which we
need not resolve in this case as SAN JOSE OIL is not a party and it is not necessary to do so to dispose of the present controversy. But it is a
matter that probably the Solicitor General would want to look into.
There is another issue which has been discussed extensively by the parties. This is whether or not an American mining corporation may
lawfully "be in anywise interested in any other corporation (domestic or foreign) organized for the purpose of engaging in agriculture or in
mining," in the Philippines or whether an American citizen owning stock in more than one corporation organized for the purpose of
engaging in agriculture or in mining, may own more than 15% of the capital stock then outstanding and entitled to vote, of each of such
corporations, in view of the express prohibition contained in Section 13 of the Philippine Corporation Law. The petitioner in this case
contends that the provisions of the Corporation Law must be applied to American citizens and business enterprise otherwise entitled to
exercise the parity privileges, because both the Laurel-Langley Agreement (Art. VI, par. 1) and the Petroleum Act of 1948 (Art. 31),
specifically provide that the enjoyment by them of the same rights and obligations granted under the provisions of both laws shall be "in
the same manner as to, and under the same conditions imposed upon, citizens of the Philippines or corporations or associations owned or
controlled by citizens of the Philippines." The petitioner further contends that, as the enjoyment of the privilege of exploiting mineral
resources in the Philippines by Filipino citizens or corporations owned or controlled by citizens of the Philippines (which corporation must
necessarily be organized under the Corporation Law), is made subject to the limitations provided in Section 13 of the Corporation Law, so
necessarily the exercise of the parity rights by citizens of the United States or business enterprise owned or controlled, directly or
indirectly, by citizens of the United States, must equally be subject to the same limitations contained in the aforesaid Section 13 of the
Corporation Law.
In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass upon this legal question, especially
taking into account the statement of the respondent (SAN JOSE PETROLEUM) that it is essentially a holding company, and as found by the
Securities and Exchange Commissioner, its principal activity is limited to the financing and giving technical assistance to SAN JOSE OIL.
Fourthly Granting that these individual stockholders are American citizens, it is yet necessary to establish that the different states of
which they are citizens, allow Filipino citizens or corporations or associations owned or controlled by Filipino citizens, to engage in the
Caelitus Mihi Vires
144
4.
Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed registration for sale in the Philippines, was
incorporated under the laws of Panama in April, 1956 with an authorized capital stock of $500,000.00, American currency, divided into
50,000,000 shares at par value of $0.01 per share. By virtue of a 3-party Agreement of June 14, 1956, respondent was supposed to have
received from OIL INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at par value of $0.01 per share), plus a note for
$250,000.00 due in 6 months, for which respondent issued in favor of OIL INVESTMENTS 16,000,000 shares of its capital stock, at $0.01
per share or with a value of $160,000.00, plus a note for $230,297.97 maturing in 2 years at 6% per annum interest,9 and the assumption
of payment of the unpaid price of 7,500,000 (of the 8,000,000 shares of SAN JOSE OIL).
On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from $500,000.00 to $17,500,000.00 by increasing the par
value of the same 50,000,000 shares, from $0.01 to $0.35. Without any additional consideration, the 16,000,000 shares of $0.01
previously issued to OIL INVESTMENTS with a total value of $160,000.00 were changed with 16,000,000 shares of the recapitalized stock
at $0.35 per share, or valued at $5,600,000.00. And, to make it appear that cash was received for these re-issued 16,000,000 shares, the
board of directors of respondent corporation placed a valuation of $5,900,000.00 on the 8,000,000 shares of SAN JOSE OIL (still having par
value of $0.10 per share) which were received from OIL INVESTMENTS as part-consideration for the 16,000,000 shares at $0.01 per share.
In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00, supposedly the value of the 8,000,000 shares of SAN
JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the alleged difference between the "value" of the said shares and the
subscription price thereof which is $800,000.00 (at $0.10 per share). From this $800,000.00, the subscription price of the SAN JOSE OIL
shares, the amount of $319,702.03 was deducted, as allegedly unpaid subscription price, thereby giving a difference of $480,297.97,
which was placed as the amount allegedly paid in on the subscription price of the 8,000,000 SAN JOSE OIL shares. Then, by adding thereto
the note receivable from OIL INVESTMENTS, for $250,000.00 (part-consideration for the 16,000,000 SAN JOSE PETROLEUM shares), and
the sum of $6,516.21, as deferred expenses, SAN JOSE PETROLEUM appeared to have assets in the sum of $736,814.18.
These figures are highly questionable. Take the item $5,900,000.00 the valuation placed on the 8,000,000 shares of SAN JOSE OIL. There
appears no basis for such valuation other than belief by the board of directors of respondent that "should San Jose Oil Company be
granted the bulk of the concessions applied for upon reasonable terms, that it would have a reasonable value of approximately
$10,000,000." 10 Then, of this amount, the subscription price of $800,000.00 was deducted and called it "difference between the (above)
valuation and the subscription price for the 8,000,000 shares." Of this $800,000.00 subscription price, they deducted the sum of
$480,297.97 and the difference was placed as the unpaid portion of the subscription price. In other words, it was made to appear that
they paid in $480,297.97 for the 8,000,000 shares of SAN JOSE OIL. This amount ($480,297.97) was supposedly that $250,000.00 paid by
OIL INVESMENTS for 7,500,000 shares of SAN JOSE OIL, embodied in the June 14 Agreement, and a sum of $230,297.97 the amount
expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet, there is still an item among respondent's liabilities, for $230,297.97
appearing as note payable to Oil Investments, maturing in two (2) years at six percent (6%) per annum. 11 As far as it appears from the
records, for the 16,000,000 shares at $0.35 per share issued to OIL INVESTMENTS, respondent SAN JOSE PETROLEUM received from OIL
INVESTMENTS only the note for $250,000.00 plus the 8,000,000 shares of SAN JOSE OIL, with par value of $0.10 per share or a total of
$1,050,000.00 the only assets of the corporation. In other words, respondent actually lost $4,550,000.00, which was received by OIL
INVESTMENTS.
But this is not all. Some of the provisions of the Articles of Incorporation of respondent SAN JOSE PETROLEUM are noteworthy; viz:
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(1)
the directors of the Company need not be shareholders;
(2)
that in the meetings of the board of directors, any director may be represented and may vote through a proxy who also need
not be a director or stockholder; and
(3)
that no contract or transaction between the corporation and any other association or partnership will be affected, except in
case of fraud, by the fact that any of the directors or officers of the corporation is interested in, or is a director or officer of, such other
association or partnership, and that no such contract or transaction of the corporation with any other person or persons, firm, association
or partnership shall be affected by the fact that any director or officer of the corporation is a party to or has an interest in, such contract
or transaction, or has in anyway connected with such other person or persons, firm, association or partnership; and finally, that all and
any of the persons who may become director or officer of the corporation shall be relieved from all responsibility for which they may
otherwise be liable by reason of any contract entered into with the corporation, whether it be for his benefit or for the benefit of any
other person, firm, association or partnership in which he may be interested.
These provisions are in direct opposition to our corporation law and corporate practices in this country. These provisions alone would
outlaw any corporation locally organized or doing business in this jurisdiction. Consider the unique and unusual provision that no contract
or transaction between the company and any other association or corporation shall be affected except in case of fraud, by the fact that
any of the directors or officers of the company may be interested in or are directors or officers of such other association or corporation;
and that none of such contracts or transactions of this company with any person or persons, firms, associations or corporations shall be
affected by the fact that any director or officer of this company is a party to or has an interest in such contract or transaction or has any
connection with such person or persons, firms associations or corporations; and that any and all persons who may become directors or
officers of this company are hereby relieved of all responsibility which they would otherwise incur by reason of any contract entered into
which this company either for their own benefit, or for the benefit of any person, firm, association or corporation in which they may be
interested.
The impact of these provisions upon the traditional judiciary relationship between the directors and the stockholders of a corporation is
too obvious to escape notice by those who are called upon to protect the interest of investors. The directors and officers of the company
can do anything, short of actual fraud, with the affairs of the corporation even to benefit themselves directly or other persons or entities
in which they are interested, and with immunity because of the advance condonation or relief from responsibility by reason of such acts.
This and the other provision which authorizes the election of non-stockholders as directors, completely disassociate the stockholders from
the government and management of the business in which they have invested.
To cap it all on April 17, 1957, admittedly to assure continuity of the management and stability of SAN JOSE PETROLEUM, OIL
INVESTMENTS, as holder of the only subscribed stock of the former corporation and acting "on behalf of all future holders of voting trust
certificates," entered into a voting trust agreement12 with James L. Buckley and Austin E. Taylor, whereby said Trustees were given
authority to vote the shares represented by the outstanding trust certificates (including those that may henceforth be issued) in the
following manner:
145
WILSON P. GAMBOA,Petitioner,
(a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to vote for the election of directors designated by
the Trustees in their own discretion, having in mind the best interests of the holders of the voting trust certificates, it being understood
that any and all of the Trustees shall be eligible for election as directors;
G.R. No. 176579

Present:
- versus -
(b) On any proposition for removal of a director, the Trustees shall designate a suitable proxy or proxies to vote for or against such
proposition as the Trustees in their own discretion may determine, having in mind the best interest of the holders of the voting trust
certificates;
(c) With respect to all other matters arising at any meeting of stockholders, the Trustees will instruct such proxy or proxies attending such
meetings to vote the shares of stock held by the Trustees in accordance with the written instructions of each holder of voting trust
certificates. (Emphasis supplied.)
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL,
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC.,
CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING
DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR
FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE,
Respondents.
CORONA, C.J.,
It was also therein provided that the said Agreement shall be binding upon the parties thereto, their successors, and upon all holders of
voting trust certificates.
June 28, 2011
And these are the voting trust certificates that are offered to investors as authorized by Security and Exchange Commissioner. It can not
be doubted that the sale of respondent's securities would, to say the least, work or tend to work fraud to Philippine investors.
FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied and the orders of the Securities
and Exchange Commissioner, allowing the registration of Respondent's securities and licensing their sale in the Philippines are hereby set
aside. The case is remanded to the Securities and Exchange Commission for appropriate action in consonance with this decision. With
costs. Let a copy of this decision be furnished the Solicitor General for whatever action he may deem advisable to take in the premises. So
ordered.
The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines to Metro Pacific Assets Holdings,
Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), are as
follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major PLDT
stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by
several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by
virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of
stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which
represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of
the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the outstanding
capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it
would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public bidding to be conducted
on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII
(Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.
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146
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415 PTIC shares by
matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its
right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its
subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the
outstanding capital stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was
completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale of
12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacifics common shareholdings in
PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47
percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public
utility to not more than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner
Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held 26,034,263 PLDT
common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other hand, was incorporated in 1977, and
became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue of three Deeds of
Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the
PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered
PTIC shares were reconveyed to the Republic of the Philippines in accordance with this Courts decision4 which became final and
executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding common shares of
stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the Department of Finance and the PCGG, as the
disposing entity. An invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On 20 November 2006,
a pre-bid conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The
extension was published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of P25,217,556,000. The
government notified First Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February 2007 to
exercise its right of first refusal in accordance with PTICs Articles of Incorporation. First Pacific announced its intention to match Parallaxs
bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing on the particulars of
the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who attended the public hearing.
The HR Committee Report No. 2270 concluded that: (a) the auction of the governments 111,415 PTIC shares bore due diligence,
transparency and conformity with existing legal procedures; and (b) First Pacifics intended acquisition of the governments 111,415 PTIC
shares resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a
public utility since PTIC holds only 13.847 percent of the total outstanding common shares of PLDT.5 On 28 February 2007, First Pacific
completed the acquisition of the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415 PTIC shares or
46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and its
affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and
its shareholders granted in PTICs Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the
highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when MPAH paid IPC
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P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other
allegations of facts of petitioner.
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale of
the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in First
Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT DoCoMos common
shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent
constitutional limit.6 Petitioner asserts:
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its common or votingstockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign investors in PLDT First Pacific and Japans NTT
DoCoMo, which is the worlds largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the
completion of the sale, data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign
entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDTs common equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New York Stock Exchange
for the period 2003-2005, revealed that First Pacific and several other foreign entities breached the constitutional limit of 40 percent
ownership as early as 2003. x x x7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares to First Pacific
violates the constitutional limit on foreign ownership of a public utility; (2) whether public respondents committed grave abuse of
discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to foreigners in
excess of 40 percent of the entire subscribed common capital stock violates the constitutional limit on foreign ownership of a public
utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached Petition-inIntervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the Petition-in-Intervention.
Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the sale by respondents
of the 111,415 PTIC shares to First Pacific or assignee. Petitioners-in-intervention claim that, as PLDT subscribers, they have a stake in
the outcome of the controversy x x x where the Philippine Government is completing the sale of government owned assets in [PLDT],
unquestionably a public utility, in violation of the nationality restrictions of the Philippine Constitution.
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which indisputably demand a thorough examination
of the evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this well-settled principle, the Court shall confine
the resolution of the instant controversy solely on the threshold and purely legal issue of whether the term capital in Section 11, Article
XII of the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of common and
non-voting preferred shares) of PLDT, a public utility.
147
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has farreaching implications. As this Court held in Salvacion:
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for prohibition is
within the original jurisdiction of this court, which however is not exclusive but is concurrent with the Regional Trial Court and the Court
of Appeals. The actions for declaratory relief,10 injunction, and annulment of sale are not embraced within the original jurisdiction of the
Supreme Court. On this ground alone, the petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall nevertheless refrain from discussing the
grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale was consummated when MPAH paid IPC
P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of the term capital in Section 11, Article XII of the Constitution has
far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for mandamus considering the
grave injustice that would result in the interpretation of a banking law. In that case, which involved the crime of rape committed by a
foreign tourist against a Filipino minor and the execution of the final judgment in the civil case for damages on the tourists dollar deposit
with a local bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment,
garnishment or any other order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court held that
injustice would result especially to a citizen aggrieved by a foreign guest like accused x x x that would negate Article 10 of the Civil Code
which provides that in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right
and justice to prevail. The Court therefore required respondents Central Bank of the Philippines, the local bank, and the accused to
comply with the writ of execution issued in the civil case for damages and to release the dollar deposit of the accused to satisfy the
judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity of the petition for
declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether the government unlawfully excluded
petitioners, who were government employees, from the enjoyment of rights to which they were entitled under the law. Specifically, the
question was: Are the branches, agencies, subdivisions, and instrumentalities of the Government, including government owned or
controlled corporations included among the four employers under Presidential Decree No. 851 which are required to pay their
employees x x x a thirteenth (13th) month pay x x x ? The Constitutional principle involved therein affected all government employees,
clearly justifying a relaxation of the technical rules of procedure, and certainly requiring the interpretation of the assailed presidential
decree.
The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this rule have been
recognized. Thus, where the petition has far-reaching implications and raises questions that should be resolved, it may be treated as one
for mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the term capital in Section 11, Article XII of the Constitution. He
prays that this Court declare that the term capital refers to common shares only, and that such shares constitute the sole basis in
determining foreign equity in a public utility. Petitioner further asks this Court to declare any ruling inconsistent with such interpretation
unconstitutional.
The interpretation of the term capital in Section 11, Article XII of the Constitution has far-reaching implications to the national
economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class citizens, in their own country.
What is at stake here is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if ever there is a legal
issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshhold legal issue
presented in this case.
The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of the Constitution in the case of
Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same public utility (PLDT) and substantially the same
private respondents. Despite the importance and novelty of the constitutional issue raised therein and despite the fact that the petition
involved a purely legal question, the Court declined to resolve the case on the merits, and instead denied the same for disregarding the
hierarchy of courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts Decision of 21 February
2003 via a petition for review under Rule 45. The Courts Resolution, denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is of
transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our Constitution. The
Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more significantly for the benefit of the entire
Filipino people, to ensure, in the words of the Constitution, a self-reliant and independent national economy effectively controlled by
Filipinos.18 Besides, in the light of vague and confusing positions taken by government agencies on this purely legal issue, present and
future foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of their
participation in the capital of public utilities and other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over 75 years since the
1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental issue and delay again defining the term
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148
capital, which appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on co-production and joint
venture agreements for the development of our natural resources,19 in Section 7, Article XII on ownership of private lands,20 in Section
10, Article XII on the reservation of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational
institutions,22 and in Section 11(2), Article XVI on the ownership of advertising companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which he claims to
violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates the Constitution,
then there is a possibility that PLDTs franchise could be revoked, a dire consequence directly affecting petitioners interest as a
stockholder.
More importantly, there is no question that the instant petition raises matters of transcendental importance to the public. The
fundamental and threshold legal issue in this case, involving the national economy and the economic welfare of the Filipino people, far
outweighs any perceived impediment in the legal personality of the petitioner to bring this action.
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines. (Emphasis supplied)
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to the public, thus:
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain the
enforcement of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that petitioner is a citizen
and as such is interested in the execution of the laws, he need not show that he has any legal or special interest in the result of the action.
In the aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then recognized in
Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published
in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners legal standing, the Court declared that the right
they sought to be enforced is a public right recognized by no less than the fundamental law of the land.
citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the
capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer
amendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus proceeding involves the assertion
of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the
general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned contract for
the development, management and operation of the Manila International Container Terminal, public interest *was+ definitely involved
considering the important role [of the subject contract] . . . in the economic development of the country and the magnitude of the
financial consideration involved. We concluded that, as a consequence, the disclosure provision in the Constitution would constitute
sufficient authority for upholding the petitioners standing. (Emphasis supplied)
citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines sixty per centum of the capital of
which is owned by citizens of the Philippines, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer
period than fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis supplied
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the Filipinization provision in the
1987 Constitution is one of the products of the spirit of nationalism which gripped the 1935 Constitutional Convention.25 The 1987
Constitution provides for the Filipinization of public utilities by requiring that any form of authorization for the operation of public
utilities should be granted only to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines
at least sixty per centum of whose capital is owned by such citizens. The provision is *an express+ recognition of the sensitive and vital
position of public utilities both in the national economy and for national security.26 The evident purpose of the citizenship requirement
is to prevent aliens from assuming control of public utilities, which may be inimical to the national interest.27 This specific provision
explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding economic goal of the 1987 Constitution: to
conserve and develop our patrimony28 and ensure a self-reliant and independent national economy effectively controlled by
Filipinos.29
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner has the
requisite locus standi.
Definition of the Term Capital in
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149
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement prescribed in
Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public utility, at least 60 percent of
its capital must be owned by Filipino citizens.
The crux of the controversy is the definition of the term capital. Does the term capital in Section 11, Article XII of the Constitution
refer to common shares or to the total outstanding capital stock (combined total of common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares because such
shares are entitled to vote and it is through voting that control over a corporation is exercised. Petitioner posits that the term capital in
Section 11, Article XII of the Constitution refers to the ownership of common capital stock subscribed and outstanding, which class of
shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of directors. It is undisputed that PLDTs nonvoting preferred shares are held mostly by Filipino citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June 1973 by
then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting preferred shares to pay
for the investment cost of installing the telephone line.32
Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term capital.33 Petitionersin-intervention allege that the approximate foreign ownership of common capital stock of PLDT x x x already amounts to at least 63.54%
of the total outstanding common stock, which means that foreigners exercise significant control over PLDT, patently violating the 40
percent foreign equity limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of the term capital in Section 11, Article XII of the Constitution. More
importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40 percent of the common shares of
PLDT are held by foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of the petition and
the supposed violation of the due process rights of the affected foreign common shareholders. Respondent Nazareno does not deny
petitioners allegation of foreigners dominating the common shareholdings of PLDT. Nazareno stressed mainly that the petition seeks to
divest foreign common shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership over their
shares. Thus, the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can be heard.34
Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders.
While Nazareno does not introduce any definition of the term capital, he states that among the factual assertions that need to be
established to counter petitioners allegations is the uniform interpretation by government agencies (such as the SEC), institutions and
corporations (such as the Philippine National Oil Company-Energy Development Corporation or PNOC-EDC) of including both preferred
shares and common shares in controlling interest in view of testing compliance with the 40% constitutional limitation on foreign
ownership in public utilities.35
Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII of the Constitution. Neither does
he refute petitioners claim of foreigners holding more than 40 percent of PLDTs common shares. Instead, respondent Pangilinan focuses
on the procedural flaws of the petition and the alleged violation of the due process rights of foreigners. Respondent Pangilinan
emphasizes in his Memorandum (1) the absence of this Courts jurisdiction over the petition; (2) petitioners lack of standing; (3)
mootness of the petition; (4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent
Pangilinan alleges that the issue should be whether owners of shares in PLDT as well as owners of shares in companies holding shares in
PLDT may be required to relinquish their shares in PLDT and in those companies without any law requiring them to surrender their shares
and also without notice and trial.
Respondent Pangilinan further asserts that Section 11, *Article XII of the Constitution+ imposes no nationality requirement on the
shareholders of the utility company as a condition for keeping their shares in the utility company. According to him, Section 11 does not
authorize taking one persons property (the shareholders stock in the utility company) on the basis of another partys alleged failure to
satisfy a requirement that is a condition only for that other partys retention of another piece of property (the utility company being at
least 60% Filipino-owned to keep its franchise).36
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and
Chairman Fe Barin, is likewise silent on the definition of the term capital. In its Memorandum37 dated 24 September 2007, the OSG also
limits its discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of
interested parties, and lack of basis for injunction. The OSG does not present any definition or interpretation of the term capital in
Section 11, Article XII of the Constitution. The OSG contends that the petition actually partakes of a collateral attack on PLDTs franchise
as a public utility, which in effect requires a full-blown trial where all the parties in interest are given their day in court.38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange (PSE), does not also
define the term capital and seeks the dismissal of the petition on the following grounds: (1) failure to state a cause of action against Lim;
(2) the PSE allegedly implemented its rules and required all listed companies, including PLDT, to make proper and timely disclosures; and
(3) the reliefs prayed for in the petition would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of PLDT, contended that
the term capital in the 1987 Constitution refers to shares entitled to vote or the common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock
entitled to vote, i.e., common shares, considering that it is through voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and partially
nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said activities. Otherwise, if the Trial
Courts ruling upholding respondents arguments were to be given credence, it would be possible for the ownership structure of a public
utility corporation to be divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial
Courts ruling adopting respondents arguments, the common shares can be owned entirely by foreigners thus creating an absurd
situation wherein foreigners, who are supposed to be minority shareholders, control the public utility corporation.
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the controlling interest.
Caelitus Mihi Vires
150
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of
shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares will not suffice but it must be shown
that the legal and beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is
already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares
through the Questioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the
Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the proposition that the
meaning of the word capital as used in Section 11, Article XII of the Constitution allegedly refers to the sum total of the shares
subscribed and paid-in by the shareholder and it allegedly is immaterial how the stock is classified, whether as common or preferred,
cannot stand in the face of a clear legislative policy as stated in the FIA which took effect in 1991 or way after said opinions were
rendered, and as clarified by the above-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion
rendered by an administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over
the clear intent of the framers of the Constitution.
In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory for it is the courts that
finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B.
Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea,
argued that the term capital in Section 11, Article XII of the Constitution includes preferred shares since the Constitution does not
distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the corporations capital, without distinction as to classes of shares. x x
In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution was drafted defined
outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used in this Code, means the total shares of
stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury
shares.
Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude either class of shares,
in determining the outstanding capital stock (the capital) of a corporation. Consequently, petitioners suggestion to reckon PLDTs
foreign equity only on the basis of PLDTs outstanding common shares is without legal basis. The language of the Constitution should be
understood in the sense it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is nothing in the Record of the
Constitutional Commission (Vol. III) which petitioner misleadingly cited in the Petition x x x which supports petitioners view that only
common shares should form the basis for computing a public utilitys foreign equity.
xxxx
18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code, and which also has the
responsibility of ensuring compliance with the Constitutions foreign equity restrictions as regards nationalized activities x x x has
categorically ruled that both common and preferred shares are properly considered in determining outstanding capital stock and the
nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares,41 and not to the total
outstanding capital stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of
which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided,
That no share may be deprived of voting rights except those classified and issued as preferred or redeemable shares, unless otherwise
provided in this Code: Provided, further, That there shall always be a class or series of shares which have complete voting rights. Any or all
of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation:
Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be
permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation which are not
violative of the provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated par value. The Board of
Directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and
Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be
liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a
consideration less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the
corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.
Caelitus Mihi Vires
151
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects
to every other share.
of the right to vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the articles
of incorporation restricting the right of common shareholders to vote is invalid.47
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:
Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no
voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred
shares also have the right to vote in the election of directors, then the term capital shall include such preferred shares because the right
to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short,
the term capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control and
management of public utilities. As revealed in the deliberations of the Constitutional Commission, capital refers to the voting stock or
controlling interest of a corporation, to wit:
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40
in Section 9 and 2/3-1/3 in Section 15.
4. Incurring, creating or increasing bonded indebtedness;
MR. VILLEGAS. That is right.
5. Increase or decrease of capital stock;
MR. NOLLEDO. In teaching law, we are always faced with this question: Where do we base the equity requirement, is it on the authorized
capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation? Will the Committee please enlighten me
on this?
6. Merger or consolidation of the corporation with another corporation or other corporations;
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided us a draft. The
phrase that is contained here which we adopted from the UP draft is 60 percent of voting stock.
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this
Code shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation.43 This is
exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation.44 In
the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting
rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right to vote in
the election of directors and on other matters, on the theory that the preferred shareholders are merely investors in the corporation for
income in the same manner as bondholders.45 In fact, under the Corporation Code only preferred or redeemable shares can be deprived
Caelitus Mihi Vires
152
MR. NOLLEDO. Thank you.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase voting stock or controlling interest.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another
corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: corporations or associations at least sixty
percent of whose CAPITAL is owned by such citizens.
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. VILLEGAS. Yes.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the capital is owned by
them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a situation where the corporation is
controlled by foreigners despite being the minority because they have the voting capital. That is the anomaly that would result here.
MR. VILLEGAS. Yes.48

MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have stocks. That is why we say CAPITAL.
MR. AZCUNA. We should not eliminate the phrase controlling interest.
xxxx
MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
Caelitus Mihi Vires
Thus, 60 percent of the capital assumes, or should result in, controlling interest in the corporation. Reinforcing this interpretation of
the term capital, as referring to controlling interest or shares entitled to vote, is the definition of a Philippine national in the Foreign
Investments Act of 1991,50 to wit:
153
SEC. 3. Definitions. - As used in this Act:
a. The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens
of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as
doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where
the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided,
That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned
and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both
corporations must be citizens of the Philippines, in order that the corporation, shall be considered a Philippine national. (Emphasis
supplied)
In explaining the definition of a Philippine national, the Implementing Rules and Regulations of the Foreign Investments Act of 1991
provide:
b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens of the
Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the
benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities and
Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board of
Directors of each of both corporation must be citizens of the Philippines, in order that the corporation shall be considered a Philippine
national. The control test shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock whether
fully paid or not, but only such stocks which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of
which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.
Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the Philippines or to corporations or associations at
least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of
investments. Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to corporations at least
sixty percent of the capital of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government
Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium
Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act
of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No.
1521. Hence, the term capital in Section 11, Article XII of the Constitution is also used in the same context in numerous laws reserving
certain areas of investments to Filipino citizens.
To construe broadly the term capital as the total outstanding capital stock, including both common and non-voting preferred shares,
grossly contravenes the intent and letter of the Constitution that the State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos. A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily
equates to control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume that a corporation has 100
common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having a
par value of one peso (P1.00) per share. Under the broad definition of the term capital, such corporation would be considered
compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than
99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only
100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand,
the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over the
public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to
place the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of an independent national economy
effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in fact exists in the present case.
Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine nationals. (Emphasis
supplied)
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation
expressly state that the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election
of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or to receive
notice of any meeting of stockholders.51
Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60
percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate.
Otherwise, the corporation is considered as non-Philippine national*s+.
On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of
Incorporation52 state that each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him
on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote for the
election of directors and for all other purposes.53
Caelitus Mihi Vires
154
In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control over PLDT. In
fact, under PLDTs Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders of preferred
shares have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on
PLDTs 2010 General Information Sheet (GIS),54 which is a document required to be submitted annually to the Securities and Exchange
Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other
words, foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of
the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably
exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the
Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the SIP58 preferred shares earn a
pittance in dividends compared to the common shares. PLDT declared dividends for the common shares at P70.00 per share, while the
declared dividends for the preferred shares amounted to a measly P1.00 per share.59 So the preferred shares not only cannot vote in the
election of directors, they also have very little and obviously negligible dividend earning capacity compared to common shares.
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value
of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect
directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while
foreigners own only a minuscule 0.56% of the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital
stock of PLDT while common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the nonvoting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and
Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the
constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting
rights, is constitutionally required for the States grant of authority to operate a public utility. The undisputed fact that the PLDT preferred
shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly
contravenes the express command in Section 11, Article XII of the Constitution that *n+o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens x x x.
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election
of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the
voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4)
preferred shares earn only 1/70 of the dividends that common shares earn;63 (5) preferred shares have twice the par value of common
Caelitus Mihi Vires
shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of
ownership and control of a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per share,64
while PLDT preferred shares with a par value of P10.00 per share have a current stock market value ranging from only P10.92 to P11.06
per share,65 is a glaring confirmation by the market that control and beneficial ownership of PLDT rest with the common shares, not with
the preferred shares.
Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both voting and non-voting shares will
result in the abject surrender of our telecommunications industry to foreigners, amounting to a clear abdication of the States
constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the constitutional
provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as well as the ownership
of land, educational institutions and advertising businesses. The Court should never open to foreign control what the Constitution has
expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The Court must perform its
solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words of the Constitution, a self-reliant and
independent national economy effectively controlled by Filipinos.
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinos specific areas of
investment, such as the development of natural resources and ownership of land, educational institutions and advertising business, is selfexecuting. There is no need for legislation to implement these self-executing provisions of the Constitution. The rationale why these
constitutional provisions are self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the presumption now is
that all provisions of the constitution are self-executing. If the constitutional provisions are treated as requiring legislation instead of selfexecuting, the legislature would have the power to ignore and practically nullify the mandate of the fundamental law. This can be
cataclysmic. That is why the prevailing view is, as it has always been, that
. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . . Unless the contrary is clearly
intended, the provisions of the Constitution should be considered self-executing, as a contrary rule would give the legislature discretion to
determine when, or whether, they shall be effective. These provisions would be subordinated to the will of the lawmaking body, which
could make them entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis supplied)
In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed that
constitutional provisions are presumed to be self-executing. Justice Puno stated:
Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future legislation for their
enforcement. The reason is not difficult to discern. For if they are not treated as self-executing, the mandate of the fundamental law
ratified by the sovereign people can be easily ignored and nullified by Congress. Suffused with wisdom of the ages is the unyielding rule
that legislative actions may give breath to constitutional rights but congressional inaction should not suffocate them.
155
Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the rights of a person under
custodial investigation, the rights of an accused, and the privilege against self-incrimination. It is recognized that legislation is unnecessary
to enable courts to effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty and the protection of property.
The same treatment is accorded to constitutional provisions forbidding the taking or damaging of property for public use without just
compensation. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the provisions of the 1935, 1973
and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68 this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as both the citizen and
the alien have violated the law, none of them should have a recourse against the other, and it should only be the State that should be
allowed to intervene and determine what is to be done with the property subject of the violation. We have said that what the State
should do or could do in such matters is a matter of public policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee
Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy should be followed in cases
of violations against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be null and void as
violative of the Constitution. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or over the last 75
years, not one of the constitutional provisions expressly reserving specific areas of investments to corporations, at least 60 percent of the
capital of which is owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions miserably failed
to effectively reserve to Filipinos specific areas of investment, like the operation by corporations of public utilities, the exploitation by
corporations of mineral resources, the ownership by corporations of real estate, and the ownership of educational institutions. All the
legislatures that convened since 1935 also miserably failed to enact legislations to implement these vital constitutional provisions that
determine who will effectively control the national economy, Filipinos or foreigners. This Court cannot allow such an absurd interpretation
of the Constitution.
This Court has held that the SEC has both regulatory and adjudicative functions.69 Under its regulatory functions, the SEC can be
compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same. Under its adjudicative or quasijudicial functions, the SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it administers or
enforces when it is mandated by law to investigate such violation.
Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of Incorporation
of any corporation where the required percentage of ownership of the capital stock to be owned by citizens of the Philippines has not
been complied with as required by existing laws or the Constitution. Thus, the SEC is the government agency tasked with the statutory
duty to enforce the nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities.
This Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, can direct the SEC to
perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that
respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the power and function to suspend or revoke, after
proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the
grounds provided by law. The SEC is mandated under Section 5(d) of the same Code with the power and function to investigate x x x
the activities of persons to ensure compliance with the laws and regulations that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually should put the SEC on guard against violations of the nationality requirement
prescribed in the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief that is treated as a
petition for mandamus as in the present case, to hear and decide a possible violation of Section 11, Article XII of the Constitution in view
Caelitus Mihi Vires
of the ownership structure of PLDTs voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT submitted to
SEC.
WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article XII of the 1987 Constitution refers only
to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange
Commission is DIRECTED to apply this definition of the term capital in determining the extent of allowable foreign ownership in
respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.
SO ORDERED.
G.R. No. 176579
October 9, 2012
HEIRS OF WILSON P. GAMBOA,* Petitioners,

vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC
ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS
CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE
PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.

RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine Stock Exchange's (PSE) President, 1
(2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L. Nazareno (Nazareno ),3 and ( 4) the Securities and Exchange Commission (SEC)4
(collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalfofthe SEC,5 assailing the 28 June 2011
Decision. However, it subsequently filed a Consolidated Comment on behalf of the State,6 declaring expressly that it agrees with the
Court's definition of the term "capital" in Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June 2012, the OSG
reiterated its position consistent with the Court's 28 June 2011 Decision.
156
We deny the motions for reconsideration.
I.
Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been settled and defined to refer to the
total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that the SEC, which is the administrative agency
tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has consistently
adopted this particular definition in its numerous opinions. Movants point out that with the 28 June 2011 Decision, the Court in effect
introduced a "new" definition or "midstream redefinition"9 of the term "capital" in Section 11, Article XII of the Constitution.
Far-reaching implications of the legal issue justify

treatment of petition for declaratory relief as one for mandamus.
As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term "capital" in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are
masters, or second-class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control
of the Philippine national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to
future generations of Filipinos, it is the threshold legal issue presented in this case.
Contrary to Pangilinans narrow view, the serious economic consequences resulting in the interpretation of the term "capital" in Section
11, Article XII of the Constitution undoubtedly demand an immediate adjudication of this issue. Simply put, the far-reaching implications
of this issue justify the treatment of the petition as one for mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise and expedient to resolve the case although the petition for
declaratory relief could be outrightly dismissed for being procedurally defective. There, appellant admittedly had already committed a
breach of the Public Service Act in relation to the Anti-Dummy Law since it had been employing non- American aliens long before the
decision in a prior similar case. However, the main issue in Luzon Stevedoring was of transcendental importance, involving the exercise or
enjoyment of rights, franchises, privileges, properties and businesses which only Filipinos and qualified corporations could exercise or
enjoy under the Constitution and the statutes. Moreover, the same issue could be raised by appellant in an appropriate action. Thus, in
Luzon Stevedoring the Court deemed it necessary to finally dispose of the case for the guidance of all concerned, despite the apparent
procedural flaw in the petition.
The circumstances surrounding the present case, such as the supposed procedural defect of the petition and the pivotal legal issue
involved, resemble those in Luzon Stevedoring. Consequently, in the interest of substantial justice and faithful adherence to the
Constitution, we opted to resolve this case for the guidance of the public and all concerned parties.
II.
No change of any long-standing rule;
This is egregious error.
For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term "capital" found in various economic
provisions of the 1935, 1973 and 1987 Constitutions. There has never been a judicial precedent interpreting the term "capital" in the
1935, 1973 and 1987 Constitutions, until now. Hence, it is patently wrong and utterly baseless to claim that the Court in defining the term
"capital" in its 28 June 2011 Decision modified, reversed, or set aside the purported long-standing definition of the term "capital," which
supposedly refers to the total outstanding shares of stock, whether voting or non-voting. To repeat, until the present case there has never
been a Court ruling categorically defining the term "capital" found in the various economic provisions of the 1935, 1973 and 1987
Philippine Constitutions.
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term "capital" as referring to both voting
and non-voting shares (combined total of common and preferred shares) are, in the first place, conflicting and inconsistent. There is no
basis whatsoever to the claim that the SEC and the DOJ have consistently and uniformly adopted a definition of the term "capital"
contrary to the definition that this Court adopted in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in Section 9, Article XIV of the 1973 Constitution
was raised, that is, whether the term "capital" includes "both preferred and common stocks." The issue was raised in relation to a stockswap transaction between a Filipino and a Japanese corporation, both stockholders of a domestic corporation that owned lands in the
Philippines. Then Minister of Justice Estelito P. Mendoza ruled that the resulting ownership structure of the corporation would be
unconstitutional because 60% of the voting stock would be owned by Japanese while Filipinos would own only 40% of the voting stock,
although when the non-voting stock is added, Filipinos would own 60% of the combined voting and non-voting stock. This ownership
structure is remarkably similar to the current ownership structure of PLDT. Minister Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and preferred) while the Japanese investors
control sixty percent (60%) of the common (voting) shares.
thus, no redefinition of the term "capital."

It is your position that x x x since Section 9, Article XIV of the Constitution uses the word "capital," which is construed "to include both
preferred and common shares" and "that where the law does not distinguish, the courts shall not distinguish."
Caelitus Mihi Vires
157
xxxx
The opinions issued by SEC legal officers do not have the force and effect of SEC rules and regulations because only the SEC en banc can
adopt rules and regulations. As expressly provided in Section 4.6 of the Securities Regulation Code,12 the SEC cannot delegate to any of its
individual Commissioner or staff the power to adopt any rule or regulation. Further, under Section 5.1 of the same Code, it is the SEC as a
collegial body, and not any of its legal officers, that is empowered to issue opinions and approve rules and regulations. Thus:
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may not be constitutionally upheld.
While it may be ordinary corporate practice to classify corporate shares into common voting shares and preferred non-voting shares, any
arrangement which attempts to defeat the constitutional purpose should be eschewed. Thus, the resultant equity arrangement which
would place ownership of 60%11 of the common (voting) shares in the Japanese group, while retaining 60% of the total percentage of
common and preferred shares in Filipino hands would amount to circumvention of the principle of control by Philippine stockholders that
is implicit in the 60% Philippine nationality requirement in the Constitution. (Emphasis supplied)
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office of the Commission, an
individual Commissioner or staff member of the Commission except its review or appellate authority and its power to adopt, alter and
supplement any rule or regulation.
The Commission may review upon its own initiative or upon the petition of any interested party any action of any department or office,
individual Commissioner, or staff member of the Commission.
In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, Article XIV of the 1973 Constitution
includes "both preferred and common stocks" treated as the same class of shares regardless of differences in voting rights and privileges.
Minister Mendoza stressed that the 60-40 ownership requirement in favor of Filipino citizens in the Constitution is not complied with
unless the corporation "satisfies the criterion of beneficial ownership" and that in applying the same "the primordial consideration is situs
of control."
On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan Pantaleon & San Jose, then SEC General
Counsel Vernette G. Umali-Paco applied the Voting Control Test, that is, using only the voting stock to determine whether a corporation is
a Philippine national. The Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national because: (1) sixty percent (60%) of its
outstanding capital stock entitled to vote is owned by a Philippine national, the Trustee; and (2) at least sixty percent (60%) of the ERF will
accrue to the benefit of Philippine nationals. Still pursuant to the Control Test, MLRCs investment in 60% of BFDCs outstanding capital
stock entitled to vote shall be deemed as of Philippine nationality, thereby qualifying BFDC to own private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals, considering that: (1) sixty percent (60%) of
their respective outstanding capital stock entitled to vote is owned by a Philippine national (i.e., by the Trustee, in the case of MLRC; and
by MLRC, in the case of BFDC); and (2) at least 60% of their respective board of directors are Filipino citizens. (Boldfacing and italicization
supplied)
Clearly, these DOJ and SEC opinions are compatible with the Courts interpretation of the 60-40 ownership requirement in favor of Filipino
citizens mandated by the Constitution for certain economic activities. At the same time, these opinions highlight the conflicting,
contradictory, and inconsistent positions taken by the DOJ and the SEC on the definition of the term "capital" found in the economic
provisions of the Constitution.
SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have the powers and
functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing
Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions:
xxxx
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise
compliance with such rules, regulations and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that have the effect of SEC rules or regulations
is ultra vires. Under Sections 4.6 and 5.1(g) of the Code, only the SEC en banc can "issue opinions" that have the force and effect of rules
or regulations. Section 4.6 of the Code bars the SEC en banc from delegating to any individual Commissioner or staff the power to adopt
rules or regulations. In short, any opinion of individual Commissioners or SEC legal officers does not constitute a rule or regulation of the
SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual commissioners or legal staff, is
empowered to issue opinions which have the same binding effect as SEC rules and regulations, thus:
JUSTICE CARPIO:
Caelitus Mihi Vires
158
So, under the law, it is the Commission En Banc that can issue an
What cannot be delegated, among others, is the power to adopt or amend rules and regulations, correct?
SEC Opinion, correct?
COMMISSIONER GAITE:
COMMISSIONER GAITE:13
Thats correct, Your Honor.
Thats correct, Your Honor.
JUSTICE CARPIO:
JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if delegated that power, can issue an opinion but that opinion does not constitute a rule or
regulation, correct?
Can the Commission En Banc delegate this function to an SEC officer?

COMMISSIONER GAITE:
COMMISSIONER GAITE:
Correct, Your Honor.
Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO:
JUSTICE CARPIO:
So, all of these opinions that you mentioned they are not rules and regulations, correct?
It can be delegated. What cannot be delegated by the Commission En Banc to a commissioner or an individual employee of the
Commission?
COMMISSIONER GAITE:
COMMISSIONER GAITE:
They are not rules and regulations.
Novel opinions that [have] to be decided by the En Banc...
JUSTICE CARPIO:
JUSTICE CARPIO:
If they are not rules and regulations, they apply only to that particular situation and will not constitute a precedent, correct?
Caelitus Mihi Vires
159
COMMISSIONER GAITE:
Yes, Your Honor.14 (Emphasis supplied)
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions on behalf of the SEC, has
adopted even the Grandfather Rule in determining compliance with the 60-40 ownership requirement in favor of Filipino citizens
mandated by the Constitution for certain economic activities. This prevailing SEC ruling, which the SEC correctly adopted to thwart any
circumvention of the required Filipino "ownership and control," is laid down in the 25 March 2010 SEC en banc ruling in Redmont
Consolidated Mines, Corp. v. McArthur Mining, Inc., et al.,15 to wit:
MR. NOLLEDO. In teaching law, we are always faced with the question: Where do we base the equity requirement, is it on the authorized
capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation? Will the Committee please enlighten me
on this?
phrase that is contained here which we adopted from the UP draft is 60 percent of voting stock.
entitled to vote.

The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural resources. Necessarily,
therefore, the Rule interpreting the constitutional provision should not diminish that right through the legal fiction of corporate
ownership and control. But the constitutional provision, as interpreted and practiced via the 1967 SEC Rules, has favored foreigners
contrary to the command of the Constitution. Hence, the Grandfather Rule must be applied to accurately determine the actual
participation, both direct and indirect, of foreigners in a corporation engaged in a nationalized activity or business.
Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined by ascertaining if 60% of the
investing corporations outstanding capital stock is owned by "Filipino citizens", or as interpreted, by natural or individual Filipino citizens.
If such investing corporation is in turn owned to some extent by another investing corporation, the same process must be observed. One
must not stop until the citizenships of the individual or natural stockholders of layer after layer of investing corporations have been
established, the very essence of the Grandfather Rule.
Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In one of the discussions on what is now
Article XII of the present Constitution, the framers made the following exchange:
in Section 9, and 2/3-1/3 in Section 15.
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MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another corporation, say, a corporation with 60-40
percent equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather
rule?
MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italicization in the original)
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership requirement in favor of Filipino citizens in the
Constitution to engage in certain economic activities applies not only to voting control of the corporation, but also to the beneficial
ownership of the corporation. Thus, in our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Full beneficial ownership of 60
Otherwise, the corporation is "considered as non-Philippine national[s]." (Emphasis supplied)
160
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is a "Philippine
national."
The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions which respondents relied upon, is
merely preliminary and an opinion only of such officers. To repeat, any such opinion does not constitute an SEC rule or regulation. In fact,
many of these opinions contain a disclaimer which expressly states: "x x x the foregoing opinion is based solely on facts disclosed in your
query and relevant only to the particular issue raised therein and shall not be used in the nature of a standing rule binding upon the
Commission in other cases whether of similar or dissimilar circumstances."16 Thus, the opinions clearly make a caveat that they do not
constitute binding precedents on any one, not even on the SEC itself.
taken out of context. A careful reading of these two cases reveals that the terms "capital stock subscribed or paid," "capital stock" and
"capital" were defined solely to determine the basis for computing the supervision and regulation fees under Section 40(e) and (f) of the
Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the ideals that the Constitution intends
to achieve.22 The Preamble reads:
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither conclusive nor controlling and thus, do
not bind the Court. It is hornbook doctrine that any interpretation of the law that administrative or quasi-judicial agencies make is only
preliminary, never conclusive on the Court. The power to make a final interpretation of the law, in this case the term "capital" in Section
11, Article XII of the 1987 Constitution, lies with this Court, not with any other government entity.
In his motion for reconsideration, the PSE President cites the cases of National Telecommunications Commission v. Court of Appeals17
and Philippine Long Distance Telephone Company v. National Telecommunications Commission18 in arguing that the Court has already
defined the term "capital" in Section 11, Article XII of the 1987 Constitution.19
The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of Appeals20 and Philippine Long Distance
Telephone Company v. National Telecommunications Commission,21 the Court did not define the term "capital" as found in Section 11,
Article XII of the 1987 Constitution. In fact, these two cases never mentioned, discussed or cited Section 11, Article XII of the Constitution
or any of its economic provisions, and thus cannot serve as precedent in the interpretation of Section 11, Article XII of the Constitution.
These two cases dealt solely with the determination of the correct regulatory fees under Section 40(e) and (f) of the Public Service Act, to
wit:
(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other public services and/or in the
regulation or fixing of their rates, twenty centavos for each one hundred pesos or fraction thereof, of the capital stock subscribed or paid,
or if no shares have been issued, of the capital invested, or of the property and equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or fraction thereof, of the increased capital.
(Emphasis supplied)
The Courts interpretation in these two cases of the terms "capital stock subscribed or paid," "capital stock" and "capital" does not pertain
to, and cannot control, the definition of the term "capital" as used in Section 11, Article XII of the Constitution, or any of the economic
provisions of the Constitution where the term "capital" is found. The definition of the term "capital" found in the Constitution must not be
Caelitus Mihi Vires
We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane society, and establish a
Government that shall embody our ideals and aspirations, promote the common good, conserve and develop our patrimony, and secure
to ourselves and our posterity, the blessings of independence and democracy under the rule of law and a regime of truth, justice,
freedom, love, equality, and peace, do ordain and promulgate this Constitution. (Emphasis supplied)
Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy the development of a national
economy "effectively controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:
Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve
to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such
higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the
formation and operation of enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to
qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national
goals and priorities.23
161
Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress enacted Republic Act No. 7042 or the
Foreign Investments Act of 1991 (FIA), as amended, which defined a "Philippine national" as follows:
Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe,
certain areas of investments." Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to
corporations at least sixty percent of the "capital" of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award
of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping
Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage
Decree or P.D. No. 1521.
With respect to public utilities, the 1987 Constitution specifically ordains:
citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer
amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines. (Emphasis supplied)
This provision, which mandates the Filipinization of public utilities, requires that any form of authorization for the operation of public
utilities shall be granted only to "citizens of the Philippines or to corporations or associations organized under the laws of the Philippines
at least sixty per centum of whose capital is owned by such citizens." "The provision is [an express] recognition of the sensitive and vital
position of public utilities both in the national economy and for national security."24
The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1) Filipino citizens, or (2) corporations or
associations at least 60 percent of whose "capital" is owned by Filipino citizens. Hence, in the case of individuals, only Filipino citizens can
validly own and operate a public utility. In the case of corporations or associations, at least 60 percent of their "capital" must be owned by
Filipino citizens. In other words, under Section 11, Article XII of the 1987 Constitution, to own and operate a public utility a corporations
capital must at least be 60 percent owned by Philippine nationals.
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens
of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as
doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where
the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided,
That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned
and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both
corporations must be citizens of the Philippines, in order that the corporation, shall be considered a "Philippine national." (Boldfacing,
italicization and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a domestic corporation at least "60% of
the capital stock outstanding and entitled to vote" is owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in its predecessor statute, Executive
Order No. 226 or the Omnibus Investments Code of 1987,25 which was issued by then President Corazon C. Aquino. Article 15 of this
Code states:
Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or association wholly-owned by citizens
of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent (60%) of the capital stock
retirement or separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise,
at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and held by the
citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of both corporations must be citizens
of the Philippines in order that the corporation shall be considered a Philippine national. (Boldfacing, italicization and underscoring
supplied)
IV.
Definition of "Philippine National"
Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which is not a Philippine national x x x shall do
business
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162
x x x in the Philippines x x x without first securing from the Board of Investments a written certificate to the effect that such business or
economic activity x x x would not conflict with the Constitution or laws of the Philippines."27 Thus, a "non-Philippine national" cannot
own and operate a reserved economic activity like a public utility. This means, of course, that only a "Philippine national" can own and
operate a public utility.
In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of 1987 was a reiteration of the
meaning of such term as provided in Article 14 of the Omnibus Investments Code of 1981,28 to wit:
Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens
of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent (60%) of the capital stock
retirement or separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise,
at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and held by the
citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of both corporations must be citizens
of the Philippines in order that the corporation shall be considered a Philippine national. (Boldfacing, italicization and underscoring
supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is not a Philippine national x x x shall do
business x x x in the Philippines x x x without first securing a written certificate from the Board of Investments to the effect that such
business or economic activity x x x would not conflict with the Constitution or laws of the Philippines."29 Thus, a "non-Philippine national"
cannot own and operate a reserved economic activity like a public utility. Again, this means that only a "Philippine national" can own and
operate a public utility.
Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect on 30 September 1968, if the
investment in a domestic enterprise by non-Philippine nationals exceeds 30% of its outstanding capital stock, such enterprise must obtain
prior approval from the Board of Investments before accepting such investment. Such approval shall not be granted if the investment
"would conflict with existing constitutional provisions and laws regulating the degree of required ownership by Philippine nationals in the
enterprise."31 A "non-Philippine national" cannot own and operate a reserved economic activity like a public utility. Again, this means
that only a "Philippine national" can own and operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino citizen, or a domestic corporation "at least sixty
percent (60%) of the capital stock outstanding and entitled to vote" is owned by Filipino citizens. A domestic corporation is a "Philippine
national" only if at least 60% of its voting stock is owned by Filipino citizens. This definition of a "Philippine national" is crucial in the
present case because the FIA reiterates and clarifies Section 11, Article XII of the 1987 Constitution, which limits the ownership and
operation of public utilities to Filipino citizens or to corporations or associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature of business and area of investment.
The FIA spells out the procedures by which non-Philippine nationals can invest in the Philippines. Among the key features of this law is the
concept of a negative list or the Foreign Investments Negative List.32 Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment Negative List]. - The Foreign Investment Negative
List shall have two 2 component lists: A and B:
a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws.
b. List B shall contain the areas of activities and enterprises regulated pursuant to law:
Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630 or the Investment Incentives Act, which took effect on 16
September 1967, contained a similar definition of a "Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association wholly owned by citizens of the Philippines;
or a corporation organized under the laws of the Philippines of which at least sixty per cent of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine National and at least sixty per cent of the fund will accrue to the benefit of Philippine Nationals:
Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent of the
capital stock outstanding and entitled to vote of both corporations must be owned and held by the citizens of the Philippines and at least
sixty per cent of the members of the Board of Directors of both corporations must be citizens of the Philippines in order that the
corporation shall be considered a Philippine National. (Boldfacing, italicization and underscoring supplied)
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1. which are defense-related activities, requiring prior clearance and authorization from the Department of National Defense [DND] to
engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military
ordinance, explosives, pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically authorized, with a
substantial export component, to a non-Philippine national by the Secretary of National Defense; or
2. which have implications on public health and morals, such as the manufacture and distribution of dangerous drugs; all forms of
gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and massage clinics. (Boldfacing, underscoring and
italicization supplied)
163
Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign Investment Negative List A consists of
"areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws," where foreign equity participation
in any enterprise shall be limited to the maximum percentage expressly prescribed by the Constitution and other specific laws. In short, to
own and operate a public utility in the Philippines one must be a "Philippine national" as defined in the FIA. The FIA is abundant notice to
foreign investors to what extent they can invest in public utilities in the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the ownership and operation of public
utilities, which the Constitution expressly reserves to Filipino citizens and to corporations at least 60% owned by Filipino citizens. In other
words, Negative List A of the FIA reserves the ownership and operation of public utilities only to "Philippine nationals," defined in Section
3(a) of the FIA as "(1) a citizen of the Philippines; x x x or (3) a corporation organized under the laws of the Philippines of which at least
sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or (4) a
corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one hundred
percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals."
Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus Investments Code of 1981, to the
enactment of the Omnibus Investments Code of 1987, and to the passage of the present Foreign Investments Act of 1991, or for more
than four decades, the statutory definition of the term "Philippine national" has been uniform and consistent: it means a Filipino citizen,
or a domestic corporation at least 60% of the voting stock is owned by Filipinos. Likewise, these same statutes have uniformly and
consistently required that only "Philippine nationals" could own and operate public utilities in the Philippines. The following exchange
during the Oral Arguments is revealing:
And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine nationals can own and operate public utilities[], correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments Act of 1991 defines a "Philippine national" either as a citizen of the Philippines, or if it is a corporation
at least sixty percent (60%) of the voting stock is owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
JUSTICE CARPIO:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of the Foreign Investments Act of 1991, x x x? And the FIA of 1991 took effect in 1991,
correct? Thats over twenty (20) years ago, correct?
And, you are also aware that under the predecessor law of the Foreign Investments Act of 1991, the Omnibus Investments Act of 1987,
the same provisions apply: x x x only Philippine nationals can own and operate a public utility and the Philippine national, if it is a
corporation, x x x sixty percent (60%) of the capital stock of that corporation must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
COMMISSIONER GAITE:
JUSTICE CARPIO:
JUSTICE CARPIO:
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164
And even prior to the Omnibus Investments Act of 1987, under the Omnibus Investments Act of 1981, the same rules apply: x x x only a
Philippine national can own and operate a public utility and a Philippine national, if it is a corporation, sixty percent (60%) of its x x x
voting stock, must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
JUSTICE CARPIO:
And even prior to that, under [the]1967 Investments Incentives Act and the Foreign Company Act of 1968, the same rules applied,
correct?
outstanding and entitled to vote is owned and held by citizens of the Philippines." Foreign Investment Negative List A refers to "activities
reserved to Philippine nationals by mandate of the Constitution and specific laws." The FIA is the basic statute regulating foreign
investments in the Philippines. Government agencies tasked with regulating or monitoring foreign investments, as well as counsels of
foreign investors, should start with the FIA in determining to what extent a particular foreign investment is allowed in the Philippines.
Foreign investors and their counsels who ignore the FIA do so at their own peril. Foreign investors and their counsels who rely on opinions
of SEC legal officers that obviously contradict the FIA do so also at their own peril.
Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a red flag. There are already numerous
opinions of SEC legal officers that cite the definition of a "Philippine national" in Section 3(a) of the FIA in determining whether a
particular corporation is qualified to own and operate a nationalized or partially nationalized business in the Philippines. This shows that
SEC legal officers are not only aware of, but also rely on and invoke, the provisions of the FIA in ascertaining the eligibility of a corporation
to engage in partially nationalized industries. The following are some of such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine Overseas Employment Administration;
COMMISSIONER GAITE:
3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S. Calma;
4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;
JUSTICE CARPIO:
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los Angeles;
So, for the last four (4) decades, x x x, the law has been very consistent only a Philippine national can own and operate a public utility,
and a Philippine national, if it is a corporation, x x x at least sixty percent (60%) of the voting stock must be owned by citizens of the
Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.33 (Emphasis supplied)
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S. Arbolado.
The SEC legal officers occasional but blatant disregard of the definition of the term "Philippine national" in the FIA signifies their lack of
integrity and competence in resolving issues on the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of
the Constitution.
Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which categorically prescribe that certain economic
activities, like the ownership and operation of public utilities, are reserved to corporations "at least sixty percent (60%) of the capital stock
Caelitus Mihi Vires
165
The PSE President argues that the term "Philippine national" defined in the FIA should be limited and interpreted to refer to corporations
seeking to avail of tax and fiscal incentives under investment incentives laws and cannot be equated with the term "capital" in Section 11,
Article XII of the 1987 Constitution. Pangilinan similarly contends that the FIA and its predecessor statutes do not apply to "companies
which have not registered and obtained special incentives under the schemes established by those laws."
Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any enterprise. Tax and fiscal incentives to
investments are granted separately under the Omnibus Investments Code of 1987, not under the FIA. In fact, the FIA expressly repealed
Articles 44 to 56 of Book II of the Omnibus Investments Code of 1987, which articles previously regulated foreign investments in
nationalized or partially nationalized industries.
The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized industries. There is nothing in the FIA,
or even in the Omnibus Investments Code of 1987 or its predecessor statutes, that states, expressly or impliedly, that the FIA or its
predecessor statutes do not apply to enterprises not availing of tax and fiscal incentives under the Code. The FIA and its predecessor
statutes apply to investments in all domestic enterprises, whether or not such enterprises enjoy tax and fiscal incentives under the
Omnibus Investments Code of 1987 or its predecessor statutes. The reason is quite obvious mere non-availment of tax and fiscal
incentives by a non-Philippine national cannot exempt it from Section 11, Article XII of the Constitution regulating foreign investments in
public utilities. In fact, the Board of Investments Primer on Investment Policies in the Philippines,34 which is given out to foreign
investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES
Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives, (i.e., the activity is not listed in the IPP,
and they are not exporting at least 70% of their production) may go ahead and make the investments without seeking incentives. They
only have to be guided by the Foreign Investments Negative List (FINL).
The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas outside of this list are fully open to
foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Constitution to engage in certain economic
activities applies not only to voting control of the corporation, but also to the beneficial ownership of the corporation. To repeat, we held:
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Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full beneficial ownership of 60
Otherwise, the corporation is "considered as non-Philippine national[s]." (Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "a trustee of funds for pension
or other employee retirement or separation benefits," the trustee is a Philippine national if "at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of the Implementing Rules of the FIA provides that "for stocks to be
deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity.
Full beneficial ownership of the stocks, coupled with appropriate voting rights, is essential."
Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to voting control of the corporation but
also to the beneficial ownership of the corporation, it is therefore imperative that such requirement apply uniformly and across the board
to all classes of shares, regardless of nomenclature and category, comprising the capital of a corporation. Under the Corporation Code,
capital stock35 consists of all classes of shares issued to stockholders, that is, common shares as well as preferred shares, which may have
different rights, privileges or restrictions as stated in the articles of incorporation.36
The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but disallows denial of the right to vote in
specific corporate matters. Thus, common shares have the right to vote in the election of directors, while preferred shares may be denied
such right. Nonetheless, preferred shares, even if denied the right to vote in the election of directors, are entitled to vote on the following
corporate matters: (1) amendment of articles of incorporation; (2) increase and decrease of capital stock; (3) incurring, creating or
increasing bonded indebtedness; (4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5) investment of
funds in another business or corporation or for a purpose other than the primary purpose for which the corporation was organized; (6)
adoption, amendment and repeal of by-laws; (7) merger and consolidation; and (8) dissolution of corporation.37
Since a specific class of shares may have rights and privileges or restrictions different from the rest of the shares in a corporation, the 6040 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution must apply not only to shares with
voting rights but also to shares without voting rights. Preferred shares, denied the right to vote in the election of directors, are anyway
still entitled to vote on the eight specific corporate matters mentioned above. Thus, if a corporation, engaged in a partially nationalized
industry, issues a mixture of common and preferred non-voting shares, at least 60 percent of the common shares and at least 60 percent
of the preferred non-voting shares must be owned by Filipinos. Of course, if a corporation issues only a single class of shares, at least 60
percent of such shares must necessarily be owned by Filipinos. In short, the 60-40 ownership requirement in favor of Filipino citizens must
apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares. This
uniform application of the 60-40 ownership requirement in favor of Filipino citizens clearly breathes life to the constitutional command
that the ownership and operation of public utilities shall be reserved exclusively to corporations at least 60 percent of whose capital is
Filipino-owned. Applying uniformly the 60-40 ownership requirement in favor of Filipino citizens to each class of shares, regardless of
differences in voting rights, privileges and restrictions, guarantees effective Filipino control of public utilities, as mandated by the
Constitution.
166
Moreover, such uniform application to each class of shares insures that the "controlling interest" in public utilities always lies in the hands
of Filipino citizens. This addresses and extinguishes Pangilinans worry that foreigners, owning most of the non-voting shares, will exercise
greater control over fundamental corporate matters requiring two-thirds or majority vote of all shareholders.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another
corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?

VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion38 a portion of the deliberations of the Constitutional Commission to support his
claim that the term "capital" refers to the total outstanding shares of stock, whether voting or non-voting, the following excerpts of the
deliberations reveal otherwise. It is clear from the following exchange that the term "capital" refers to controlling interest of a
corporation, thus:
MR. VILLEGAS. Yes.39
xxxx
in Section 9 and 2/3-1/3 in Section 15.
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling interest."
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity requirement, is it on the authorized
capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation"? Will the Committee please enlighten me
on this?
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or associations at least sixty
percent of whose CAPITAL is owned by such citizens."
phrase that is contained here which we adopted from the UP draft is "60 percent of voting stock."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.
entitled to vote.
MR. NOLLEDO. Thank you.
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MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the capital is owned by
them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a situation where the corporation is
controlled by foreigners despite being the minority because they have the voting capital. That is the anomaly that would result here.
167
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporations, it is assumed.40 (Boldfacing and underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the corporation.
The use of the term "capital" was intended to replace the word "stock" because associations without stocks can operate public utilities as
long as they meet the 60-40 ownership requirement in favor of Filipino citizens prescribed in Section 11, Article XII of the Constitution.
However, this did not change the intent of the framers of the Constitution to reserve exclusively to Philippine nationals the "controlling
interest" in public utilities.
During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the nationalists in the Convention."41 The
same battle-cry resulted in the nationalization of the public utilities.42 This is also the same intent of the framers of the 1987 Constitution
who adopted the exact formulation embodied in the 1935 and 1973 Constitutions on foreign equity limitations in partially nationalized
industries.
Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by
Filipinos, with both classes of share having a par value of one peso (P 1.00) per share. Under the broad definition of the term "capital,"
such corporation would be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the
overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only
100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand,
the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over the
public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to
place the control of public utilities in the hands of Filipinos. x x x
Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino board of directors, this situation
does not guarantee Filipino control and does not in any way cure the violation of the Constitution. The independence of the Filipino board
members so elected by such foreign shareholders is highly doubtful. As the OSG pointed out, quoting Justice George Sutherlands words in
Humphreys Executor v. US,44 "x x x it is quite evident that one who holds his office only during the pleasure of another cannot be
depended upon to maintain an attitude of independence against the latters will." Allowing foreign shareholders to elect a controlling
majority of the board, even if all the directors are Filipinos, grossly circumvents the letter and intent of the Constitution and defeats the
very purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987 Constitution reads:
The OSG, in its own behalf and as counsel for the State,43 agrees fully with the Courts interpretation of the term "capital." In its
Consolidated Comment, the OSG explains that the deletion of the phrase "controlling interest" and replacement of the word "stock" with
the term "capital" were intended specifically to extend the scope of the entities qualified to operate public utilities to include associations
without stocks. The framers omission of the phrase "controlling interest" did not mean the inclusion of all shares of stock, whether voting
or non-voting. The OSG reiterated essentially the Courts declaration that the Constitution reserved exclusively to Philippine nationals the
ownership and operation of public utilities consistent with the States policy to "develop a self-reliant and independent national economy
effectively controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total outstanding capital stock, treated as a single
class regardless of the actual classification of shares, grossly contravenes the intent and letter of the Constitution that the "State shall
develop a self-reliant and independent national economy effectively controlled by Filipinos." We illustrated the glaring anomaly which
would result in defining the term "capital" as the total outstanding capital stock of a corporation, treated as a single class of shares
regardless of the actual classification of shares, to wit:
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The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in
its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the framers of the Constitution to limit
foreign ownership, and assure majority Filipino ownership and control of public utilities. The OSG argued, "while the delegates disagreed
as to the percentage threshold to adopt, x x x the records show they clearly understood that Filipino control of the public utility
corporation can only be and is obtained only through the election of a majority of the members of the board."
Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23 August 1986 was the extent of
majority Filipino control of public utilities. This is evident from the following exchange:
168
THE PRESIDENT. Commissioner Jamir is recognized.
MS. ROSARIO BRAID. Madam President.
MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase "two thirds of whose voting stock or
controlling interest," and instead substitute the words "SIXTY PERCENT OF WHOSE CAPITAL" so that the sentence will read: "No franchise,
certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or
to corporations or associations organized under the laws of the Philippines at least SIXTY PERCENT OF WHOSE CAPITAL is owned by such
citizens."
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum by the spokesman of the Philippine Chamber
of Communications on why they would like to maintain the present equity, I am referring to the 66 2/3. They would prefer to have a 75-25
ratio but would settle for 66 2/3. x x x
xxxx
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-thirds rather than the 60 percent?
MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous sections in which we fixed the Filipino equity
to 60 percent as against 40 percent for foreigners. It is only in this Section 15 with respect to public utilities that the committee proposal
was increased to two-thirds. I think it would be better to harmonize this provision by providing that even in the case of public utilities, the
minimum equity for Filipino citizens should be 60 percent.
MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino citizens.
x x x x46
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for supporting the amendment is based on the discussions I have had with representatives of the Filipino
majority owners of the international record carriers, and the subsequent memoranda they submitted to me. x x x
Their second point is that under the Corporation Code, the management and control of a corporation is vested in the board of directors,
not in the officers but in the board of directors. The officers are only agents of the board. And they believe that with 60 percent of the
equity, the Filipino majority stockholders undeniably control the board. Only on important corporate acts can the 40-percent foreign
equity exercise a veto, x x x.
While they had differing views on the percentage of Filipino ownership of capital, it is clear that the framers of the Constitution intended
public utilities to be majority Filipino-owned and controlled. To ensure that Filipinos control public utilities, the framers of the Constitution
approved, as additional safeguard, the inclusion of the last sentence of Section 11, Article XII of the Constitution commanding that "[t]he
participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines." In other words,
the last sentence of Section 11, Article XII of the Constitution mandates that (1) the participation of foreign investors in the governing
body of the corporation or association shall be limited to their proportionate share in the capital of such entity; and (2) all officers of the
corporation or association must be Filipino citizens.
Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of the corporation or association to be
Filipino citizens specifically to prevent management contracts, which were designed primarily to circumvent the Filipinization of public
utilities, and to assure Filipino control of public utilities, thus:
x x x x45
Caelitus Mihi Vires
169
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a phrase which states: "THE MANAGEMENT
BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me
their position paper.
MS. ROSARIO BRAID. Madam President, I propose a new section to read: THE MANAGEMENT BODY OF EVERY CORPORATION OR
ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES."
THE PRESIDENT. The Commissioner may proceed.

This will prevent management contracts and assure control by Filipino citizens. Will the committee assure us that this amendment will
insure that past activities such as management contracts will no longer be possible under this amendment?
MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which Commissioner Romulo mentioned Philippine
Global Communications, Eastern Telecommunications, Globe Mackay Cable are 40-percent owned by foreign multinational companies
and 60-percent owned by their respective Filipino partners. All three, however, also have management contracts with these foreign
companies Philcom with RCA, ETPI with Cable and Wireless PLC, and GMCR with ITT. Up to the present time, the general managers of
these carriers are foreigners. While the foreigners in these common carriers are only minority owners, the foreign multinationals are the
ones managing and controlling their operations by virtue of their management contracts and by virtue of their strength in the governing
bodies of these carriers.47
xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is recognized.
xxxx
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an amendment with respect to the operating
management of public utilities, and in this amendment, we are associated with Fr. Bernas, Commissioners Nieva and Rodrigo.
Commissioner Rosario Braid will state this amendment now.
FR. BERNAS. Will the committee accept a reformulation of the first part?
MR. BENGZON. Let us hear it.
Thank you.
MS. ROSARIO BRAID. Madam President.
FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which reads: "THE PARTICIPATION OF FOREIGN
INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE
CAPITAL THEREOF AND..."
THE PRESIDENT. This is still on Section 15.
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS AND ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES."
MS. ROSARIO BRAID. Yes.
MR. BENGZON. Will Commissioner Bernas read the whole thing again?
MR. VILLEGAS. Yes, Madam President.
FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE
LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF..." I do not have the rest of the copy.
xxxx
Caelitus Mihi Vires
170
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF
THE PHILIPPINES." Is that correct?
xxxx
MR. VILLEGAS. Yes.
THE PRESIDENT. All right. Can we proceed now to vote on Section 15?
MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept the amendment. Is that all right with
Commissioner Rosario Braid?
MR. RAMA. Yes, Madam President.
MS. ROSARIO BRAID. Yes.
THE PRESIDENT. Will the chairman of the committee please read Section 15?
xxxx
MR. VILLEGAS. The entire Section 15, as amended, reads: "No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least 60 PERCENT OF WHOSE CAPITAL is owned by such citizens." May I request Commissioner Bengzon to please continue
reading.
MR. DE LOS REYES. The governing body refers to the board of directors and trustees.
MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE
LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. BENGZON. Yes, the governing body refers to the board of directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE EXCLUSIVE IN CHARACTER OR FOR A PERIOD LONGER
THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE THAN TWENTY-FIVE YEARS. Neither shall any such franchise or right be granted
except under the condition that it shall be subject to amendment, alteration, or repeal by Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the general public."
VOTING
xxxx
xxxx
The results show 29 votes in favor and 4 against; Section 15, as amended, is approved.48 (Emphasis supplied)
The results show 29 votes in favor and none against; so the proposed amendment is approved.
Caelitus Mihi Vires
171
The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the limited participation of foreign
investors in the governing body of public utilities, is a reiteration of the last sentence of Section 5, Article XIV of the 1973 Constitution,49
signifying its importance in reserving ownership and control of public utilities to Filipino citizens.
6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess of 40 percent of the total subscribed
common shareholdings; and
7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine Stock Exchange to require PLDT to make a
public disclosure of all of its foreign shareholdings and their actual and real beneficial owners.
VIII.
The undisputed facts
Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)
There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of the common shares of PLDT, which
class of shares exercises the sole right to vote in the election of directors, and thus foreigners control PLDT; (2) Filipinos own only 35.73%
of PLDTs common shares, constituting a minority of the voting stock, and thus Filipinos do not control PLDT; (3) preferred shares, 99.44%
owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn;50 (5) preferred
shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and
common shares only 22.15%.
Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the question of whether PLDT violated the 60-40
ownership requirement in favor of Filipino citizens in Section 11, Article XII of the 1987 Constitution. Such question indisputably calls for a
presentation and determination of evidence through a hearing, which is generally outside the province of the Courts jurisdiction, but well
within the SECs statutory powers. Thus, for obvious reasons, the Court limited its decision on the purely legal and threshold issue on the
definition of the term "capital" in Section 11, Article XII of the Constitution and directed the SEC to apply such definition in determining
the exact percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its statutory duty to investigate whether
"the required percentage of ownership of the capital stock to be owned by citizens of the Philippines has been complied with [by PLDT] as
required by x x x the Constitution."51 Such plea clearly negates SECs argument that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to order the SECs compliance with its
directive contained in the 28 June 2011 Decision in view of the far-reaching implications of this case. In Domingo v. Scheer,52 the Court
dispensed with the amendment of the pleadings to implead the Bureau of Customs considering (1) the unique backdrop of the case; (2)
the utmost need to avoid further delays; and (3) the issue of public interest involved. The Court held:
The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition should not be dismissed because the
second action would only be a repetition of the first. In Salvador, et al., v. Court of Appeals, et al., we held that this Court has full powers,
apart from that power and authority which is inherent, to amend the processes, pleadings, proceedings and decisions by substituting as
party-plaintiff the real party-in-interest. The Court has the power to avoid delay in the disposition of this case, to order its amendment as
to implead the BOC as party-respondent. Indeed, it may no longer be necessary to do so taking into account the unique backdrop in this
case, involving as it does an issue of public interest. After all, the Office of the Solicitor General has represented the petitioner in the
instant proceedings, as well as in the appellate court, and maintained the validity of the deportation order and of the BOCs Omnibus
Resolution. It cannot, thus, be claimed by the State that the BOC was not afforded its day in court, simply because only the petitioner, the
Chairperson of the BOC, was the respondent in the CA, and the petitioner in the instant recourse. In Alonso v. Villamor, we had the
occasion to state:
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is the sole basis in determining foreign
equity in a public utility and that any other government rulings, opinions, and regulations inconsistent with this declaratory relief be
declared unconstitutional and a violation of the intent and spirit of the 1987 Constitution;
Caelitus Mihi Vires
There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is to facilitate the application of justice
to the rival claims of contending parties. They were created, not to hinder and delay, but to facilitate and promote, the administration of
justice. They do not constitute the thing itself, which courts are always striving to secure to litigants. They are designed as the means best
adapted to obtain that thing. In other words, they are a means to an end. When they lose the character of the one and become the other,
the administration of justice is at fault and courts are correspondingly remiss in the performance of their obvious duty.53 (Emphasis
supplied)
172
In any event, the SEC has expressly manifested54 that it will abide by the Courts decision and defer to the Courts definition of the term
"capital" in Section 11, Article XII of the Constitution. Further, the SEC entered its special appearance in this case and argued during the
Oral Arguments, indicating its submission to the Courts jurisdiction. It is clear, therefore, that there exists no legal impediment against the
proper and immediate implementation of the Courts directive to the SEC.
PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, are concerned. In other words, PLDT
must be impleaded in order to fully resolve the issues on (1) whether the sale of 111,415 PTIC shares to First Pacific violates the
constitutional limit on foreign ownership of PLDT; (2) whether the sale of common shares to foreigners exceeded the 40 percent limit on
foreign equity in PLDT; and (3) whether the total percentage of the PLDT common shares with voting rights complies with the 60-40
ownership requirement in favor of Filipino citizens under the Constitution for the ownership and operation of PLDT. These issues
indisputably call for an examination of the parties respective evidence, and thus are clearly within the jurisdiction of the SEC. In short,
PLDT must be impleaded, and must necessarily be heard, in the proceedings before the SEC where the factual issues will be thoroughly
threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the factual issues raised by Gamboa, except the
single and purely legal issue on the definition of the term "capital" in Section 11, Article XII of the Constitution. The Court confined the
resolution of the instant case to this threshold legal issue in deference to the fact-finding power of the SEC.
Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in this case even without the
participation of PLDT since defining the term "capital" in Section 11, Article XII of the Constitution does not, in any way, depend on
whether PLDT was impleaded. Simply put, PLDT is not indispensable for a complete resolution of the purely legal question in this case.55
In fact, the Court, by treating the petition as one for mandamus,56 merely directed the SEC to apply the Courts definition of the term
"capital" in Section 11, Article XII of the Constitution in determining whether PLDT committed any violation of the said constitutional
provision. The dispositive portion of the Courts ruling is addressed not to PLDT but solely to the SEC, which is the administrative agency
tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution.
Since the Court limited its resolution on the purely legal issue on the definition of the term "capital" in Section 11, Article XII of the 1987
Constitution, and directed the SEC to investigate any violation by PLDT of the 60-40 ownership requirement in favor of Filipino citizens
under the Constitution,57 there is no deprivation of PLDTs property or denial of PLDTs right to due process, contrary to Pangilinan and
Nazarenos misimpression. Due process will be afforded to PLDT when it presents proof to the SEC that it complies, as it claims here, with
Section 11, Article XII of the Constitution.
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a sudden flight of existing foreign
investors to "friendlier" countries and simultaneously deterring new foreign investors to our country. In particular, the PSE claims that the
28 June 2011 Decision may result in the following: (1) loss of more than P 630 billion in foreign investments in PSE-listed shares; (2)
massive decrease in foreign trading transactions; (3) lower PSE Composite Index; and (4) local investors not investing in PSE-listed
shares.58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants apprehension. Without providing specific
details, he pointed out the depressing state of the Philippine economy compared to our neighboring countries which boast of growing
economies. Further, Dr. Villegas explained that the solution to our economic woes is for the government to "take-over" strategic
industries, such as the public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have additional information on whether this high FDI59 countries in East Asia have
allowed foreigners x x x control [of] their public utilities, so that we can compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their solution is not to "Filipinize" or
"Vietnamize" or "Singaporize." Their solution is to make sure that those industries are in the hands of state enterprises. So, in these
countries, nationalization means the government takes over. And because their governments are competent and honest enough to the
public, that is the solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then foreign investments in our public utilities serve no purpose. Obviously,
there can never be foreign investments in public utilities if, as Dr. Villegas claims, the "solution is to make sure that those industries are in
the hands of state enterprises." Dr. Villegass argument that foreign investments in telecommunication companies like PLDT are badly
needed to save our ailing economy contradicts his own theory that the solution is for government to take over these companies. Dr.
Villegas is barking up the wrong tree since State ownership of public utilities and foreign investments in such industries are diametrically
opposed concepts, which cannot possibly be reconciled.
X.
Foreign Investments in the Philippines
Caelitus Mihi Vires
In any event, the experience of our neighboring countries cannot be used as argument to decide the present case differently for two
reasons. First, the governments of our neighboring countries have, as claimed by Dr. Villegas, taken over ownership and control of their
strategic public utilities like the telecommunications industry. Second, our Constitution has specific provisions limiting foreign ownership
in public utilities which the Court is sworn to uphold regardless of the experience of our neighboring countries.
173
In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities to Filipino citizens, or corporations
or associations at least 60 percent of whose capital belongs to Filipinos. Following Dr. Villegass claim, the Philippines appears to be more
liberal in allowing foreign investors to own 40 percent of public utilities, unlike in other Asian countries whose governments own and
operate such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the application and imposition of appropriate
sanctions against PLDT if found violating Section 11, Article XII of the Constitution.1avvphi1
As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated Section 11, Article XII of the
Constitution. Thus, there is no dispute that it is only after the SEC has determined PLDTs violation, if any exists at the time of the
commencement of the administrative case or investigation, that the SEC may impose the statutory sanctions against PLDT. In other words,
once the 28 June 2011 Decision becomes final, the SEC shall impose the appropriate sanctions only if it finds after due hearing that, at the
start of the administrative case or investigation, there is an existing violation of Section 11, Article XII of the Constitution. Under prevailing
jurisprudence, public utilities that fail to comply with the nationality requirement under Section 11, Article XII and the FIA can cure their
deficiencies prior to the start of the administrative case or investigation.61
Filipinos have only to remind themselves of how this country was exploited under the Parity Amendment, which gave Americans the same
rights as Filipinos in the exploitation of natural resources, and in the ownership and control of public utilities, in the Philippines. To do this
the 1935 Constitution, which contained the same 60 percent Filipino ownership and control requirement as the present 1987
Constitution, had to be amended to give Americans parity rights with Filipinos. There was bitter opposition to the Parity Amendment62
and many Filipinos eagerly awaited its expiration. In late 1968, PLDT was one of the American-controlled public utilities that became
Filipino-controlled when the controlling American stockholders divested in anticipation of the expiration of the Parity Amendment on 3
July 1974.63 No economic suicide happened when control of public utilities and mining corporations passed to Filipinos hands upon
expiration of the Parity Amendment.
Movants interpretation of the term "capital" would bring us back to the same evils spawned by the Parity Amendment, effectively giving
foreigners parity rights with Filipinos, but this time even without any amendment to the present Constitution. Worse, movants
interpretation opens up our national economy to effective control not only by Americans but also by all foreigners, be they Indonesians,
Malaysians or Chinese, even in the absence of reciprocal treaty arrangements. At least the Parity Amendment, as implemented by the
Laurel-Langley Agreement, gave the capital-starved Filipinos theoretical parity the same rights as Americans to exploit natural resources,
and to own and control public utilities, in the United States of America. Here, movants interpretation would effectively mean a unilateral
opening up of our national economy to all foreigners, without any reciprocal arrangements. That would mean that Indonesians,
Malaysians and Chinese nationals could effectively control our mining companies and public utilities while Filipinos, even if they have the
capital, could not control similar corporations in these countries.
The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control requirement for public utilities like PLOT.
Any deviation from this requirement necessitates an amendment to the Constitution as exemplified by the Parity Amendment. This Court
has no power to amend the Constitution for its power and duty is only to faithfully apply and interpret the Constitution.
XII.
Final Word
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be entertained.
The Constitution expressly declares as State policy the development of an economy "effectively controlled" by Filipinos. Consistent with
such State policy, the Constitution explicitly reserves the ownership and operation of public utilities to Philippine nationals, who are
defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose capital
with voting rights belongs to Filipinos. The FIAs implementing rules explain that "*f+or stocks to be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the interpretation that the term
"capital" in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership. This
is precisely because the right to vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective
control of a corporation.
Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the letter and intent of the
Constitution. Any other meaning of the term "capital" openly invites alien domination of economic activities reserved exclusively to
Philippine nationals. Therefore, respondents interpretation will ultimately result in handing over effective control of our national
economy to foreigners in patent violation of the Constitution, making Filipinos second-class citizens in their own country.
Caelitus Mihi Vires
G.R. No. 84197
July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,

vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB
S. LIM, respondents.
G.R. No. 84157
July 28, 1989
174
JACOB S. LIM, petitioner,

vs.
It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside from Pl51,000.00,,making a total
of P184,878.74. Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana
the other half, the amount of Pl84,878.74 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral
and exemplary damages in the amount of P184,878.84 with interest from the filing of the cross-complaints until the amount is fully paid;
plus moral and exemplary damages in the amount of P50,000.00 for each of the two Cervanteses.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,,
FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another P20,000.00 to Constancio B. Maglana as
attorney's fees.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
xxx
xxx
xxx
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195 which modified the
decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against
all defendants (respondents in G.R. No. 84197) was dismissed but in all other respects the trial court's decision was affirmed.
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants Bormaheco, the Cervanteses and Constancio B.
Maglana, is dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco and the Cervanteses the amount of
P20,000.00 as attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith. The fact that the properties of the
Bormaheco and the Cervanteses were attached and that they were required to file a counterbond in order to dissolve the attachment, is
not an act of bad faith. When a man tries to protect his rights, he should not be saddled with moral or exemplary damages. Furthermore,
the rights exercised were provided for in the Rules of Court, and it was the court that ordered it, in the exercise of its discretion.
No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it only secured the attachment prayed for
by the plaintiff Pioneer. If an insurance company would be liable for damages in performing an act which is clearly within its power and
which is the reason for its being, then nobody would engage in the insurance business. No further claim or counter-claim for or against
anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)
The dispositive portion of the trial court's decision reads as follows:

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a
single proprietorship.
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff the amount of P311,056.02, with interest
at the rate of 12% per annum compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's fees from July 2,1966,
until full payment is made; plus P70,000.00 moral and exemplary damages.
Caelitus Mihi Vires
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract (Exhibit A) for the
sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to
be paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.
175
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed and issued its
Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts.
As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all the defendants was
dismissed. In all other respects the trial court's decision was affirmed.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and
Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare parts.
The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They executed
two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by
Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs,
damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become
surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money
which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.
We first resolve G.R. No. 84197.
On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as
security for the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and convey to the surety the two
aircrafts. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil
Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a total sum of
P298,626.12.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT
REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo
- G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of liability under the surety bond in favor
of JDA and subsequently collected the proceeds of such reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer
amounts to P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28 from defendants will no longer
prosper. Plaintiff Pioneer is not the real party in interest to institute the instant action as it does not stand to be benefited or injured by
the judgment.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. The
Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the
contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of
money they advanced to Lim for the purchase of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other
defendants.
Caelitus Mihi Vires
Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from defendants, hence, it instituted the action is
utterly devoid of merit. Plaintiff did not even present any evidence that it is the attorney-in-fact of the reinsurance company, authorized
to institute an action for and in behalf of the latter. To qualify a person to be a real party in interest in whose name an action must be
prosecuted, he must appear to be the present real owner of the right sought to be enforced (Moran, Vol. I, Comments on the Rules of
Court, 1979 ed., p. 155). It has been held that the real party in interest is the party who would be benefited or injured by the judgment or
the party entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a
present substantial interest as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest
(Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber
v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in interest as it has already been paid by the
reinsurer the sum of P295,000.00 the bulk of defendants' alleged obligation to Pioneer.
176
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, the former was able to foreclose extrajudicially one of the subject airplanes and its spare engine, realizing the total amount of P37,050.00 from the sale of the mortgaged
chattels. Adding the sum of P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff has been
overpaid in the amount of P33,383.72 considering that the total amount it had paid to JDA totals to only P298,666.28. To allow plaintiff
Pioneer to recover from defendants the amount in excess of P298,666.28 would be tantamount to unjust enrichment as it has already
been paid by the reinsurance company of the amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's liability
to JDA. Well settled is the rule that no person should unjustly enrich himself at the expense of another (Article 22, New Civil Code). (Rollo84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was paid by its reinsurer in the
aforesaid amount, as this matter has never been raised by any of the parties herein both in their answers in the court below and in their
respective briefs with respondent court; (Rollo, p. 11) (2) even assuming hypothetically that it was paid by its reinsurer, still none of the
respondents had any interest in the matter since the reinsurance is strictly between the petitioner and the re-insurer pursuant to section
91 of the Insurance Code; (3) pursuant to the indemnity agreements, the petitioner is entitled to recover from respondents Bormaheco
and Maglana; and (4) the principle of unjust enrichment is not applicable considering that whatever amount he would recover from the
co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the parties.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the amount paid to it by the reinsurers,
notwithstanding that the cause of action pertains to the latter, Pioneer says: The reinsurers opted instead that the Pioneer Insurance &
Surety Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to recover the
amount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as attorney-in- fact of the reinsurers for any
amount. Lastly, and most important of all, Pioneer has no right to institute and maintain in its own name an action for the benefit of the
reinsurers. It is well-settled that an action brought by an attorney-in-fact in his own name instead of that of the principal will not prosper,
and this is so even where the name of the principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be prosecuted in the name of the real party in interest.' This
provision is mandatory. The real party in interest is the party who would be benefitted or injured by the judgment or is the party entitled
to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is not a real party in interest, that there is no law permitting an action to be
brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12;
Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.
A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:
xxx
xxx
xxx
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 from the reinsurers, the uninsured
portion of what it paid to JDA is the difference between the two amounts, or P3,666.28. This is the amount for which Pioneer may sue
defendants, assuming that the indemnity agreement is still valid and effective. But since the amount realized from the sale of the
mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still
overpaid by P33,383.72. Therefore, Pioneer has no more claim against defendants. (Record on Appeal, pp. 360-363).
1.
Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA as has been paid with
reinsurance money?
2. If the answer to the preceding question is in the negative, has Pioneer still any claim against defendants, considering the amount it has
realized from the sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of JDA, collected the proceeds of such
reinsurance in the sum of P295,000, and paid with the said amount the bulk of its alleged liability to JDA under the said surety bond, it is
plain that on this score it no longer has any right to collect to the extent of the said amount.
Caelitus Mihi Vires
The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this admitted payment, the
only issue that cropped up was the effect of payment made by the reinsurers to the petitioner. Therefore, the petitioner's argument that
the respondents had no interest in the reinsurance contract as this is strictly between the petitioner as insured and the reinsuring
company pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired in similar cases where the original
insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in general applicable to actions or contracts of reinsurance. (Delaware,
Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).
177
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue the bond provided that the same
would be mortgaged to it, but this was not possible because the planes were still in Japan and could not be mortgaged here in the
Philippines. As soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer Insurance to cover the bond,
and this indemnity agreement would be cancelled.
The following is averred under oath by Pioneer in the original complaint:

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we
subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]):
The various conflicting claims over the mortgaged properties have impaired and rendered insufficient the security under the chattel
mortgage and there is thus no other sufficient security for the claim sought to be enforced by this action.
Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that the insurer is
deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss,
then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with
regard to the portion of the indemnity paid is the insurer and not the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the respondents for
the reason that the petitioner was not the real party in interest in the complaint and, therefore, has no cause of action against the
respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have been dismissed on the premise
that the evidence on record shows that it is entitled to recover from the counter indemnitors. It does not, however, cite any grounds
except its allegation that respondent "Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back up its contention.
This is judicial admission and aside from the chattel mortgage there is no other security for the claim sought to be enforced by this action,
which necessarily means that the indemnity agreement had ceased to have any force and effect at the time this action was instituted. Sec
2, Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and spare parts, no longer has any further
action against the defendants as indemnitors to recover any unpaid balance of the price. The indemnity agreement was ipso jure
extinguished upon the foreclosure of the chattel mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the
right of Pioneer should they make payments to the latter. Articles 2067 and 2080 of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes any further action to recover any
unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as surety having made of the payments to
JDA, the alternative remedies open to Pioneer were as provided in Article 1484 of the New Civil Code, known as the Recto Law.
On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its finding that the counterindemnitors are not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after the execution of the chattel
mortgage.
Caelitus Mihi Vires
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and the instant suit. Such being the
case, as provided by the aforementioned provisions, Pioneer shall have no further action against the purchaser to recover any unpaid
balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23
SCRA 791, 795-6.
178
The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not the vendor but JDA. The
reason is that Pioneer is actually exercising the rights of JDA as vendor, having subrogated it in such rights. Nor may the application of the
provision be validly opposed on the ground that these defendants and defendant Maglana are not the vendee but indemnitors. Pascual,
et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged these defendants from any liability
as alleged indemnitors. The change of the maturity dates of the obligations of Lim, or SAL extinguish the original obligations thru
novations thus discharging the indemnitors.
The principal hereof shall be paid in eight equal successive three months interval installments, the first of which shall be due and payable
25 August 1965, the remainder of which ... shall be due and payable on the 26th day x x x of each succeeding three months and the last of
which shall be due and payable 26th May 1967.
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. Consequently, Pioneer has no more cause of
action to recover from these defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the
surety bond, the failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on every installment, released
Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or became illegal.
However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA, modifying the maturity dates of the
obligations, as follows:
The principal hereof shall be paid in eight equal successive three month interval installments the first of which shall be due and payable 4
September 1965, the remainder of which ... shall be due and payable on the 4th day ... of each succeeding months and the last of which
shall be due and payable 4th June 1967.
These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by reason of the filing of the instant
case against them and the attachment and garnishment of their properties. The instant action is clearly unfounded insofar as plaintiff
drags these defendants and defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.

Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates different from that fixed in the aforesaid
memorandum; the due date of the first installment appears as October 15, 1965, and those of the rest of the installments, the 15th of
each succeeding three months, that of the last installment being July 15, 1967.
These restructuring of the obligations with regard to their maturity dates, effected twice, were done without the knowledge, much less,
would have it believed that these defendants Maglana (sic). Pioneer's official Numeriano Carbonel would have it believed that these
defendants and defendant Maglana knew of and consented to the modification of the obligations. But if that were so, there would have
been the corresponding documents in the form of a written notice to as well as written conformity of these defendants, and there are no
such document. The consequence of this was the extinguishment of the obligations and of the surety bond secured by the indemnity
agreement which was thereby also extinguished. Applicable by analogy are the rulings of the Supreme Court in the case of Kabankalan
Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty The mere
failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension time
referred to herein, (New Civil Code).'
Caelitus Mihi Vires
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l.
What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate
vehicle but who failed to incorporate the entity in which they had chosen to invest? How are the losses to be treated in situations where
their contributions to the intended 'corporation' were invested not through the corporate form? This Petition presents these fundamental
questions which we believe were resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
179
These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and that as a consequence of
such relationship all must share in the losses and/or gains of the venture in proportion to their contribution. The petitioner, therefore,
questions the appellate court's findings ordering him to reimburse certain amounts given by the respondents to the petitioner as their
contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amount of P184,878.74 as correctly
found by the trial court, with interest from the filing of the cross-complaints until the amount is fully paid. Defendant Lim should pay onehalf of the said amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is established in the records
that defendant Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and Maglana representing the latter's
participation in the ownership of the subject airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred
additional expenses, hence, the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be
governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners (Cannon v. Brush
Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a corporation and
who carry on business under the corporate name occupy the position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615,
Ann. Cas. 1913A 1065). Thus, where persons associate themselves together under articles to purchase property to carry on a business,
and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners
inter se, and their rights as members of the company to the property acquired by the company will be recognized (Smith v. Schoodoc
Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a
corporation for the development of land for irrigation purposes, and each conveyed land to the corporation, and two of them contracted
to pay a third the difference in the proportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it
was treated as a trustee for the associates in an action between them for an accounting, and its capital stock was treated as partnership
assets, sold, and the proceeds distributed among them in proportion to the value of the property contributed by each (Shorb v. Beaudry,
56 Cal. 446). However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of
partners, as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct.
442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thus, one who takes
no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of
the alleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other
stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute
for payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464).
(Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrial despite
notification. In his answer, the petitioner denied having received any amount from respondents Bormaheco, the Cervanteses and
Maglana. The trial court and the appellate court, however, found through Exhibit 58, that the petitioner received the amount of
Caelitus Mihi Vires
P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes and
spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to
them. This gives credence to the cross-claims of the respondents to the effect that they were induced and lured by the petitioner to make
contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement. Maglana alleged in
his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was to procure
two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the required permits for the
operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and
Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or
about August 9,1965, promised to incorporate his airline in accordance with their agreement and proceeded to acquire the planes on his
own account. Since then up to the filing of this answer, Lim has refused, failed and still refuses to set up the corporation or return the
money of Maglana. (Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two airplanes and spare parts from
Japan which the latter considered as their lawful contribution and participation in the proposed corporation to be known as SAL.
Arrangements and negotiations were undertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants, defendant Lim in connivance with the
plaintiff, signed and executed the alleged chattel mortgage and surety bond agreement in his personal capacity as the alleged proprietor
of the SAL. The answering defendants learned for the first time of this trickery and misrepresentation of the other, Jacob Lim, when the
herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to file an adverse claim in the form of
third party claim. Notwithstanding repeated oral demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to
surrender the possession of the two planes and their accessories and or return the amount advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted and refused to comply with them.
(Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was created among the
parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and
spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED.
180
SO ORDERED.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs application, recommended to the PSEs Board of
Governors the approval of PALIs listing application.
On February 14, 1996, before it could act upon PALIs application, the Board of Governors of PSE received a letter from the heirs of
Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the
Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation,
which is among the stockholders of PALI, likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for
then President Marcos and now, effectively for his estate, and requested PALIs application to be deferred. PALI was requested to
comment upon the said letter.
[G.R. No. 125469. October 27, 1997]
PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
PUERTO AZUL LAND, INC., respondents.
DECISION
PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its
assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct
from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The Marcoses responded that their claim is not
confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying that they are also asserting legal and
beneficial ownership of other properties titled under the name of PALI.
TORRES, JR., J.:
The Securities and Exchange Commission is the government agency, under the direct general supervision of the Office of the President,[1]
with the immense task of enforcing the Revised Securities Act, and all other duties assigned to it by pertinent laws. Among its inumerable
functions, and one of the most important, is the supervision of all corporations, partnerships or associations, who are grantees or primary
franchise and/or a license or permit issued by the government to operate in the Philippines.[2] Just how far this regulatory authority
extends, particularly, with regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar.
In this Petition for Review of Certiorari, petitioner assails the resolution of the respondent Court of Appeals, dated June 27, 1996, which
affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow the
private respondent Puerto Azul Land, Inc. to be listed in its stock market, thus paving the way for the public offering of PALIs shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise funds
allegedly to develop its properties and pay its loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its
shares to the public by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors, PALI sought
to course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange
an application to list its shares, with supporting documents attached.
Caelitus Mihi Vires
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good Government (PCGG)
requesting for comments on the letter of the PALI and the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses
received a Temporary Restraining Order on the same date, enjoining the Marcoses from, among others, further impeding, obstructing,
delaying or interfering in any manner by or any means with the consideration, processing and approval by the PSE of the initial public
offering of PALI. The TRO was issued by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561,
pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision to reject PALIs application, citing
the existence of serious claims, issues and circumstances surrounding PALIs ownership over its assets that adversely affect the suitability
of listing PALIs shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SECs
attention the action taken by the PSE in the application of PALI for the listing of its shares with the PSE, and requesting that the SEC, in the
exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSEs action on
PALIs listing application and institute such measures as are just and proper and under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of PALI and directing the PSE to file its
comments thereto within five days from its receipt and for its authorized representative to appear for an inquiry on the matter. On
April 22, 1996, the PSE submitted a letter to the SEC containing its comments to the April 11, 1996 letter of PALI.
181
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND
WHICH FORM PART OF NAVAL/MILITARY RESERVATION; AND
On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The dispositive portion of the said order reads:
WHEREFORE, premises considered, and invoking the Commissioners authority and jurisdiction under Section 3 of the Revised Securities
Act, in conjunction with Section 3, 6(j) and 6(m) of the Presidential Decree No. 902-A, the decision of the Board of Governors of the
Philippine Stock Exchange denying the listing of shares of Puerto Azul Land, Inc., is hereby set aside, and the PSE is hereby ordered to
immediately cause the listing of the PALI shares in the Exchange, without prejudice to its authority to require PALI to disclose such other
material information it deems necessary for the protection of the investing public.
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE
VIOLATES THE DUE PROCESS CLAUSE OF THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and Motion to Dismiss. On June 10,
1996, PSE filed its Reply to Comment and Opposition to Motion to Dismiss.
This Order shall take effect immediately.

On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSEs Petition for Review. Hence, this Petition by the
PSE.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied by the Commission in its May 9,
1996 Order which states:
WHEREFORE, premises considered, the Commission finds no compelling reason to consider its order dated April 24, 1996, and in the light
of recent developments on the adverse claim against the PALI properties, PSE should require PALI to submit full disclosure of material
facts and information to protect the investing public. In this regard, PALI is hereby ordered to amend its registration statements filed with
the Commission to incorporate the full disclosure of these material facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with application for Writ of
Preliminary Injunction and Temporary Restraining Order), assailing the above mentioned orders of the SEC, submitting the following as
errors of the SEC:
The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, pursuant to
Section 3[3] of the Revised Securities Act in relation to Section 6(j) and 6(m)[4] of P.D. No. 902-A, and Section 38(b)[5] of the Revised
Securities Act, and for the purpose of ensuring fair administration of the exchange. Both as a corporation and as a stock exchange, the
petitioner is subject to public respondents jurisdiction, regulation and control. Accepting the argument that the public respondent has
the authority merely to supervise or regulate, would amount to serious consequences, considering that the petitioner is a stock exchange
whose business is impressed with public interest. Abuse is not remote if the public respondent is left without any system of control. If
the securities act vested the public respondent with jurisdiction and control over all corporations; the power to authorize the
establishment of stock exchanges; the right to supervise and regulate the same; and the power to alter and supplement rules of the
exchange in the listing or delisting of securities, then the law certainly granted to the public respondent the plenary authority over the
petitioner; and the power of review necessarily comes within its authority.
All in all, the court held that PALI complied with all the requirements for public listing, affirming the SECs ruling to the effect that:
x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI for listing of its
shares in the face of the following considerations:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT POWER,
JURISDICTION, OR AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE
SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;
1.
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE
MANNER IN DISAPPROVING PALIS LISTING APPLICATION;
2.
In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to justify why it acted
differently on the application of PALI, as compared to the IPOs of other companies similarly that were allowed listing in the Exchange;
Caelitus Mihi Vires
PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange;
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3.
It appears that the claims and issues on the title to PALIs properties were even less serious than the claims against the assets of
the other companies in that, the assertions of the Marcoses that they are owners of the disputed properties were not substantiated
enough to overcome the strength of a title to properties issued under the Torrens System as evidence of ownership thereof;
4.
No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership over the disputed properties,
neither has the government instituted recovery proceedings against these properties. Yet the import of PSEs decision in denying PALIs
application is that it would be PALI, not the Marcoses, that must go to court to prove the legality of its ownership on these properties
before its shares can be listed.
In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief. The point is, the PALI
properties are now titled. A property losses its public character the moment it is covered by a title. As a matter of fact, the titles have
long been settled by a final judgment; and the final decree having been registered, they can no longer be re-opened considering that the
one year period has already passed. Lastly, the determination of what standard to apply in allowing PALIs application for listing, whether
the discretion method or the system of public disclosure adhered to by the SEC, should be addressed to the Securities Commission, it
being the government agency that exercises both supervisory and regulatory authority over all corporations.
On August 15, 1996, the PSE, after it was granted an extension, filed an instant Petition for Review on Certiorari, taking exception to the
rulings of the SEC and the Court of Appeals. Respondent PALI filed its Comment to the petition on October 17, 1996. On the same date,
the PCGG filed a Motion for Leave to file a Petition for Intervention. This was followed up by the PCGGs Petition for Intervention on
October 21, 1996. A supplemental Comment was filed by PALI on October 25, 1997. The Office of the Solicitor General, representing the
SEC and the Court of Appeals, likewise filed its Comment on December 26, 1996. In answer to the PCGGs motion for leave to file petition
for intervention, PALI filed its Comment thereto on January 17, 1997, whereas the PSE filed its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17, 1996) and the Solicitor
General (December 26, 1996). On may 16, 1997, PALI filed its Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of PALI in the stock
exchange. Under presidential decree No. 902-A, the powers of the SEC over stock exchanges are more limited as compared to its
authority over ordinary corporations. In connection with this, the powers of the SEC over stock exchanges under the Revised Securities
Act are specifically enumerated, and these do not include the power to reverse the decisions of the stock exchange. Authorities are in
abundance even in the United States, from which the countrys security policies are patterned, to the effect of giving the Securities
Commission less control over stock exchanges, which in turn are given more lee-way in making the decision whether or not to allow
corporations to offer their stock to the public through the stock exchange. This is in accord with the business judgment rule whereby
the SEC and the courts are barred from intruding into business judgments of corporations, when the same are made in good faith. The
said rule precludes the reversal of the decision of the PSE to deny PALIs listing application, absent a showing a bad faith on the part of the
PSE. Under the listing rule of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion to accept or reject
applications for listing. Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE retains the discretion to
accept or reject the issuers listing application if the PSE determines that the listing shall not serve the interests of the investing public.
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Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with corporations whose properties are under
sequestration. A reading of Republic of the Philippines vs. Sandiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the
properties of PALI, which were derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development
Corporation (MSDC), are under sequestration by the PCGG, and the subject of forfeiture proceedings in the Sandiganbayan. This ruling of
the Court is the law of the case between the Republic and the TDC and MSDC. It categorically declares that the assets of these
corporations were sequestered by the PCGG on March 10, 1986 and April 4, 1988.
It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership over its properties can no longer be questioned, since
certificates of title have been issued to PALI and more than one year has since lapsed, is erroneous and ignores well settled jurisprudence
on land titles. That a certificate of title issued under the Torrens System is a conclusive evidence of ownership is not an absolute rule and
admits certain exceptions. It is fundamental that forest lands or military reservations are non-alienable. Thus, when a title covers a forest
reserve or a government reservation, such title is void.
PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged policy of full disclosure to uphold the listing of the PALIs
shares with the PSE, in the absence of a clear mandate for the effectivity of such policy. As it is, the case records reveal the truth that PALI
did not comply with the listing rules and disclosure requirements. In fact, PALIs documents supporting its application contained
misrepresentations and misleading statements, and concealed material information. The matter of sequestration of PALIs properties and
the fact that the same form part of military/naval/forest reservations were not reflected in PALIs application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the marking of a corporate entity,
its functions as the primary channel through which the vessels of capital trade ply. The PSEs relevance to the continued operation and
filtration of the securities transactions in the country gives it a distinct color of importance such that government intervention in its affairs
becomes justified, if not necessary. Indeed, as the only operational stock exchange in the country today, the PSE enjoys a monopoly of
securities transactions, and as such, it yields an immense influence upon the countrys economy.
Due to this special nature of stock exchanges, the countrys lawmakers has seen it wise to give special treatment to the administration
and regulation of stock exchanges.[6]
These provisions, read together with the general grant of jurisdiction, and right of supervision and control over all corporations under Sec.
3 of P.D. 902-A, give the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges so that the interests of
the investing public may be fully safeguarded.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs challenged control authority over the
petitioner PSE even as it provides that the Commission shall have absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate
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in the Philippines The SECs regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a
corporations concerns. This authority springs from the fact that a corporation owes its existence to the concession of its corporate
franchise from the state.
The SECs power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary or incidental to
the carrying out of the SECs express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair
administration of such exchange.[7] It is, likewise, observed that the principal function of the SEC is the supervision and control over
corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and
their activities pursued for the promotion of economic development.[8]
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the application for listing in the
stock exchange of the private respondent PALI. The SECs action was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be
traded or not in the stock exchange. This is in line with the SECs mission to ensure proper compliance with the laws, such as the Revised
Securities Act and to regulate the sale and disposition of securities in the country.[9] As the appellate court explains:
Paramount policy also supports the authority of the public respondent to review petitioners denial of the listing. Being a stock exchange,
the petitioner performs a function that is vital to the national economy, as the business is affected with public interest. As a matter of
fact, it has often been said that the economy moves on the basis of the rise and fall of stocks being traded. By its economic power, the
petitioner certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange, if allowed
to interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry to the market of securities. To repeat,
the monopoly, unless accompanied by control, becomes subject to abuse; hence, considering public interest, then it should be subject to
government regulation.
The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities Act, Presidential Decree
No. 902-A, and other pertinent laws, has entrusted to it the serious responsibility of enforcing all laws affecting corporations and other
forms of associations not otherwise vested in some other government office.[10]
This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. The PSE is, after all, a
corporation authorized by its corporate franchise to engage in its proposed and duly approved business. One of the PSEs main concerns,
as such, is still the generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining to corporations, including the
right to sue and be sued, to hold property in its own name, to enter (or not to enter) into contracts with third persons, and to perform all
other legal acts within its allocated express or implied powers.
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A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal
personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such body.[11]
As to its corporate and management decisions, therefore, the state will generally not interfere with the same. Questions of policy and of
management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to
substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long
as it acts in good faith, its orders are not reviewable by the courts.[12]
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSEs decision in matters
of application for listing in the market, the SEC may exercise such power only if the PSEs judgment is attended by bad faith. In board of
Liquidators vs. Kalaw,[13] it was held that bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose
or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest of ill will,
partaking of the nature of fraud.
In reaching its decision to deny the application for listing of PALI, the PSE considered important facts, which in the general scheme, brings
to serious question the qualification of PALI to sell its shares to the public through the stock exchange. During the time for receiving
objections to the application, the PSE heard from the representative of the late President Ferdinand E. Marcos and his family who claim
the properties of the private respondent to be part of the Marcos estate. In time, the PCGG confirmed this claim. In fact, an order of
sequestration has been issued covering the properties of PALI, and suit for reconveyance to the state has been filed in the Sandiganbayan
Court. How the properties were effectively transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and
to the private respondent PALI, in only a short span of time, are not yet explained to the Court, but it is clear that such circumstances give
rise to serious doubt as to the integrity of PALI as a stock issuer. The petitioner was in the right when it refused application of PALI, for a
contrary ruling was not to the best interest of the general public. The purpose of the Revised Securities Act, after all, is to give adequate
and effective protection to the investing public against fraudulent representations, or false promises, and the imposition of worthless
ventures.[14]
It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to legitimate business, thus:
The Securities Act, often referred to as the truth in securities Act, was designed not only to provide investors with adequate
information upon which to base their decisions to buy and sell securities, but also to protect legitimate business seeking to obtain capital
through honest presentation against competition form crooked promoters and to prevent fraud in the sale of securities. (Tenth Annual
Report, U.S. Securities and Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions, merely by
requirement of that details be revealed; (2) placing the market during the early stages of the offering of a security a body of information,
which operating indirectly through investment services and expert investors, will tend to produce a more accurate appraisal of a security.
x x x. Thus, the Commission may refuse to permit a registration statement to become effective if it appears on its face to be incomplete
or inaccurate in any material respect, and empower the Commission to issue a stop order suspending the effectiveness of any registration
statement which is found to include any untrue statement of a material fact or to omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. (Idem).
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standards which a proposed issuer of securities must satisfy.[16] Pertinently, Section 9 of the Revised Securities Act sets forth the possible
Grounds for the Rejection of the registration of a security:
Also, as the primary market for securities, the PSE has established its name and goodwill, and it has the right to protect such goodwill by
maintaining a reasonable standard of propriety in the entities who choose to transact through its facilities. It was reasonable for PSE,
therefore, to exercise its judgment in the manner it deems appropriate for its business identity, as long as no rights are trampled upon,
and public welfare is safeguarded.
- - The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such registration
statement if it finds that - -
In this connection, it is proper to observe that the concept of government absolutism in a thing of the past, and should remain so.
The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no moment. At this juncture, there
is the claim that the properties were owned by the TDC and MSDC and were transferred in violation of sequestration orders, to Rebecco
Panlilio and later on to PALI, besides the claim of the Marcoses that such properties belong to Marcos estate, and were held only in trust
by Rebecco Panlilio. It is also alleged by the petitioner that these properties belong to naval and forest reserves, and therefore beyond
private dominion. If any of these claims is established to be true, the certificates of title over the subject properties now held by PALI may
be disregarded, as it is an established rule that a registration of a certificate of title does not confer ownership over the properties
described therein to the person named as owner. The inscription in the registry, to be effective, must be made in good faith. The defense
of indefeasibility of a Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw.
In any case, for the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true ownership of the
properties of PALI need not be determined as an absolute fact. What is material is that the uncertainty of the properties ownership and
alienability exists, and this puts to question the qualification of PALIs public offering. In sum, the Court finds that the SEC had acted
arbitrarily in arrogating unto itself the discretion of approving the application for listing in the PSE of the private respondent PALI, since
this is a matter addressed to the sound discretion of the PSE, a corporate entity, whose business judgments are respected in the absence
of bad faith.
The question as to what policy is, or should be relied upon in approving the registration and sale of securities in the SEC is not for the
Court to determine, but is left to the sound discretion of the Securities and Exchange Commission. In mandating the SEC to administer the
Revised Securities Act, and in performing its other functions under pertinent laws, the Revised Securities Act, under Section 3 thereof,
gives the SEC the power to promulgate such rules and regulations as it may consider appropriate in the public interest for the
enforcement of the said laws. The second paragraph of Section 4 of the said law, on the other hand, provides that no security, unless
exempt by law, shall be issued, endorsed, sold, transferred or in any other manner conveyed to the public, unless registered in accordance
with the rules and regulations that shall be promulgated in the public interest and for the protection of investors by the Commission.
Presidential Decree No. 902-A, on the other hand, provides that the SEC, as regulatory agency, has supervision and control over all
corporations and over the securities market as a whole, and as such, is given ample authority in determining appropriate policies.
Pursuant to this regulatory authority, the SEC has manifested that it has adopted the policy of full material disclosure where all
companies, listed or applying for listing, are required to divulge truthfully and accurately, all material information about themselves and
the securities they sell, for the protection of the investing public, and under pain of administrative, criminal and civil sanctions. In
connection with this, a fact is deemed material if it tends to induce or otherwise effect the sale or purchase of its securities.[15] While the
employment of this policy is recognized and sanctioned by laws, nonetheless, the Revised Securities Act sets substantial and procedural
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(1)
The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a
material fact or omits to state a material facts required to be stated therein or necessary to make the statements therein not misleading;
or
(2)
(i)
The issuer or registrant - -
is not solvent or not is sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto, or any order of the
Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in the public interest and for
the protection of investors, impose before the security can be registered;
(iv) had been engaged or is engaged or is about to engaged in fraudulent transactions;
(v) is in any was dishonest of is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary or government rules and
regulations.
(3)
The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles;
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(4)
An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to such officer, director or
principal stockholder; or
(5)
The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to the
prejudice to the public interest or as a fraud upon the purchaser or investors. (Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of securities dependent,
to a certain extent, on the merits of the securities themselves, and of the issuer, to be determined by the Securities and Exchange
Commission. This measure was meant to protect the interest of the investing public against fraudulent and worthless securities, and the
SEC is mandated by law to safeguard these interests, following the policies and rules therefore provided. The absolute reliance on the full
disclosure method in the registration of securities is, therefore, untenable. At it is, the Court finds that the private respondent PALI, on at
least two points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity, thereby lending support
to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does not discount the effectivity of
whatever method the SEC, in the exercise of its vested authority, chooses in setting the standard for public offerings of corporations
wishing to do so. However, the SEC must recognize and implement the mandate of the law, particularly the Revised Securities Act, the
provisions of which cannot be amended or supplanted my mere administrative issuance.
In resum, the Court finds that the PSE has acted with justified circumspection, discounting, therefore, any imputation of arbitrariness and
whimsical animation on its part. Its action in refusing to allow the listing of PALI in the stock exchange is justified by the law and by the
circumstances attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for Review on Certiorari. The decisions of
the Court of Appeals and the Securities and Exchage Commission dated July 27, 1996 and April 24, 1996, respectively, are hereby
REVERSED and SET ASIDE, and a new Judgment is hereby ENTERED, affirming the decision of the Philippine Stock Exchange to deny the
application for listing of the private respondent Puerto Azul Land, Inc.
SO ORDERED.
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Anti-Money Laundering Act of 2001 (RA 9160)

AN ACT DEFINING THE CRIME OF MONEY LAUNDERING, PROVIDING PENALTIES THEREFOR
AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
SECTION 1. Short Title. This Act shall be known as the "Anti-Money Laundering Act of 2001."
SEC. 2. Declaration of Policy. It is hereby declared the policy of the State to protect and preserve
the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as
a money laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the
State shall extend cooperation in transnational investigations and prosecutions of persons involved in
money laundering activities wherever committed.
SEC. 3. Definitions. For purposes of this Act, the following terms are hereby defined as follows:
the amount is commensurate with the business or financial capacity of the client; or those with an
underlying legal or trade obligation, purpose, origin or economic justification.
It likewise refers to a single, series or combination or pattern of unusually large and complex
transactions in excess of Four million Philippine pesos (Php4,000,000.00) especially cash deposits and
investments having no credible purpose or origin, underlying trade obligation or contract.
(c) "Monetary instrument" refers to:
(1) coins or currency of legal tender of the Philippines, or of any other country;
(2) drafts, checks and notes;
(3) securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust
certificates, custodial receipts or deposit substitute instruments, trading orders, transaction tickets and
confirmations of sale or investments and money market instruments; and
(a) "Covered institution" refers to:
(4) other similar instruments where title thereto passes to another by endorsement, assignment or
delivery.
(1) banks, non-banks, quasi-banks, trust entities, and all other institutions and their subsidiaries and
affiliates supervised or regulated by the Bangko Sentral ng Pilipinas (BSP);
(d) "Offender" refers to any person who commits a money laundering offense.
(2) insurance companies and all other institutions supervised or regulated by the Insurance
Commission; and
(e) "Person" refers to any natural or juridical person.

(f) "Proceeds" refers to an amount derived or realized from an unlawful activity.
(3) (i) securities dealers, brokers, salesmen, investment houses and other similar entities managing
securities or rendering services as investment agent, advisor, or consultant, (ii) mutual funds, close-end
investment companies, common trust funds, pre-need companies and other similar entities, (iii) foreign
exchange corporations, money changers, money payment, remittance, and transfer companies and
other similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities
or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary
instruments or property supervised or regulated by Securities and Exchange Commission and Exchange
Commission
(b) "Covered transaction" is a single, series, or combination of transactions involving a total amount in
excess of Four million Philippine pesos (Php4,000,000.00) or an equivalent amount in foreign currency
based on the prevailing exchange rate within five (5) consecutive banking days except those between a
covered institution and a person who, at the time of the transaction was a properly identified client and
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(g) "Supervising Authority" refers to the appropriate supervisory or regulatory agency, department or
office supervising or regulating the covered institutions enumerated in Section 3(a).
(h) "Transaction" refers to any act establishing any right or obligation or giving rise to any contractual
or legal relationship between the parties thereto. It also includes any movement of funds by any means
with a covered institution.
(i) "Unlawful activity" refers to any act or omission or series or combination thereof involving or having
relation to the following:
(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal
Code, as amended;
187
(2) Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise known
as the Dangerous Drugs Act of 1972;
(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended; otherwise known as
the Anti-Graft and Corrupt Practices Act;
(a) Any person knowing that any monetary instrument or property represents, involves, or relates to,
the proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or
property.
(4) Plunder under Republic Act No. 7080, as amended;
(b) Any person knowing that any monetary instrument or property involves the proceeds of any
unlawful activity, performs or fails to perform any act as a result of which he facilitates the offense of
money laundering referred to in paragraph (a) above.
(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal
Code, as amended;
(c) Any person knowing that any monetary instrument or property is required under this Act to be
disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so.
(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602;
(7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532;
SEC. 5. Jurisdiction of Money Laundering Cases. The regional trial courts shall have jurisdiction to
try all cases on money laundering. Those committed by public officers and private persons who are in
conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan.
(8) Qualified theft under Article 310 of the Revised Penal Code, as amended;
SEC. 6. Prosecution of Money Laundering.
(9) Swindling under Article 315 of the Revised Penal Code, as amended;
(a) Any person may be charged with and convicted of both the offense of money laundering and the
unlawful activity as herein defined.
(10) Smuggling under Republic Act Nos. 455 and 1937;

(11) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000;
(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as
defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against
non-combatant persons and similar targets;
(13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the
Securities Regulation Code of 2000;
(14) Felonies or offenses of a similar nature that are punishable under the penal laws of other countries.
SEC. 4. Money Laundering Offense. Money laundering is a crime whereby the proceeds of an
unlawful activity are transacted, thereby making them appear to have originated from legitimate
sources. It is committed by the following:
(b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of
any offense or violation under this Act without prejudice to the freezing and other remedies provided.
SEC. 7. Creation of Anti-Money Laundering Council (AMLC). The Anti-Money Laundering Council
is hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as
chairman, the Commissioner of the Insurance Commission and the Chairman of the Securities and
Exchange Commission as members. The AMLC shall act unanimously in the discharge of its functions as
defined hereunder:
(1) to require and receive covered transaction reports from covered institutions;
(2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to
determine the true identity of the owner of any monetary instrument or property subject of a covered
transaction report or request for assistance from a foreign State, or believed by the Council, on the
basis of substantial evidence, to be, in whole or in part, wherever located, representing, involving, or
related to, directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity;
(3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the
Solicitor General;
Caelitus Mihi Vires
188
(4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the
prosecution of money laundering offenses;
(5) to initiate investigations of covered transactions, money laundering activities and other violations of
this Act;
(6) to freeze any monetary instrument or property alleged to be proceeds of any unlawful activity;
(7) to implement such measures as may be necessary and justified under this Act to counteract money
laundering;
(8) to receive and take action in respect of, any request from foreign states for assistance in their own
anti-money laundering operations provided in this Act;
(9) to develop educational programs on the pernicious effects of money laundering, the methods and
techniques used in money laundering, the viable means of preventing money laundering and the
effective ways of prosecuting and punishing offenders; and
(10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the
government, including government-owned and -controlled corporations, in undertaking any and all antimoney laundering operations, which may include the use of its personnel, facilities and resources for the
more resolute prevention, detection and investigation of money laundering offenses and prosecution of
offenders.
SEC. 8. Creation of a Secretariat. The AMLC is hereby authorized to establish a secretariat to be
headed by an Executive Director who shall be appointed by the Council for a term of five (5) years. He
must be a member of the Philippine Bar, at least thirty-five (35) years of age and of good moral
character, unquestionable integrity and known probity. All members of the Secretariat must have served
for at least five (5) years either in the Insurance Commission, the Securities and Exchange Commission
or the Bangko Sentral ng Pilipinas (BSP) and shall hold full-time permanent positions within the BSP.
SEC. 9. Prevention of Money Laundering; Customer Identification Requirements and Record
Keeping.
(a) Customer Identification. - Covered institutions shall establish and record the true identity of its
clients based on official documents. They shall maintain a system of verifying the true identity of their
clients and, in case of corporate clients, require a system of verifying their legal existence and
organizational structure, as well as the authority and identification of all persons purporting to act on
their behalf.The provisions of existing laws to the contrary notwithstanding, anonymous accounts,
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accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. Peso and
foreign currency non-checking numbered accounts shall be allowed. The BSP may conduct annual
testing solely limited to the determination of the existence and true identity of the owners of such
accounts.
(b) Record Keeping. - All records of all transactions of covered institutions shall be maintained and
safely stored for five (5) years from the dates of transactions. With respect to closed accounts, the
records on customer identification, account files and business correspondence, shall be preserved and
safely stored for at least five (5) years from the dates when they were closed.
(c) Reporting of Covered Transactions. - Covered institutions shall report to the AMLC all covered
transactions within five (5) working days from occurrence thereof, unless the Supervising Authority
concerned prescribes a longer period not exceeding ten (10) working days.
When reporting covered transactions to the AMLC, covered institutions and their officers, employees,
representatives, agents, advisors, consultants or associates shall not be deemed to have violated
Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791 and
other similar laws, but are prohibited from communicating, directly or indirectly, in any manner or by
any means, to any person the fact that a covered transaction report was made, the contents thereof, or
any other information in relation thereto. In case of violation thereof, the concerned officer, employee,
representative, agent, advisor, consultant or associate of the covered institution, shall be criminally
liable. However, no administrative, criminal or civil proceedings, shall lie against any person for having
made a covered transaction report in the regular performance of his duties and in good faith, whether or
not such reporting results in any criminal prosecution under this Act or any other Philippine law.
When reporting covered transactions to the AMLC, covered institutions and their officers, employees,
representatives, agents, advisors, consultants or associates are prohibited from communicating, directly
or indirectly, in any manner or by any means, to any person, entity, the media, the fact that a covered
transaction report was made, the contents thereof, or any other information in relation thereto. Neither
may such reporting be published or aired in any manner or form by the mass media, electronic mail, or
other similar devices. In case of violation thereof, the concerned officer, employee, representative,
agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable.
SEC. 10. Authority to Freeze. Upon determination that probable cause exists that any deposit or
similar account is in any way related to an unlawful activity, the AMLC may issue a freeze order, which
shall be effective immediately, on the account for a period not exceeding fifteen (15) days. Notice to the
depositor that his account has been frozen shall be issued simultaneously with the issuance of the freeze
order. The depositor shall have seventy-two (72) hours upon receipt of the notice to explain why the
freeze order should be lifted. The AMLC has seventy-two (72) hours to dispose of the depositors
explanation. If it fails to act within seventy-two (72) hours from receipt of the depositors explanation,
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the freeze order shall automatically be dissolved. The fifteen (15)-day freeze order of the AMLC may be
extended upon order of the court, provided that the fifteen (15)-day period shall be tolled pending the
courts decision to extend the period.
No court shall issue a temporary restraining order or writ of injunction against any freeze order issued
by the AMLC except the Court of Appeals or the Supreme Court.
SEC. 11. Authority to Inquire into Bank Deposits. Notwithstanding the provisions of Republic Act
No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the
AMLC may inquire into or examine any particular deposit or investment with any banking institution or
non-bank financial institution upon order of any competent court in cases of violation of this Act when it
has been established that there is probable cause that the deposits or investments involved are in any
way related to a money laundering offense: Provided, That this provision shall not apply to deposits and
investments made prior to the effectivity of this Act.
SEC. 12. Forfeiture Provisions.
(a) Civil Forfeiture. - When there is a covered transaction report made, and the court has, in a petition
filed for the purpose ordered seizure of any monetary instrument or property, in whole or in part,
directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply.
(b) Claim on Forfeited Assets. - Where the court has issued an order of forfeiture of the monetary
instrument or property in a criminal prosecution for any money laundering offense defined under Section
4 of this Act, the offender or any other person claiming an interest therein may apply, by verified
petition, for a declaration that the same legitimately belongs to him and for segregation or exclusion of
the monetary instrument or property corresponding thereto. The verified petition shall be filed with the
court which rendered the judgment of conviction and order of forfeiture, within fifteen (15) days from
the date of the order of forfeiture, in default of which the said order shall become final and executory.
This provision shall apply in both civil and criminal forfeiture.
(c) Payment in Lieu of Forfeiture. - Where the court has issued an order of forfeiture of the monetary
instrument or property subject of a money laundering offense defined under Section 4, and said order
cannot be enforced because any particular monetary instrument or property cannot, with due diligence,
be located, or it has been substantially altered, destroyed, diminished in value or otherwise rendered
worthless by any act or omission, directly or indirectly, attributable to the offender, or it has been
concealed, removed, converted or otherwise transferred to prevent the same from being found or to
avoid forfeiture thereof, or it is located outside the Philippines or has been placed or brought outside the
jurisdiction of the court, or it has been commingled with other monetary instruments or property
belonging to either the offender himself or a third person or entity, thereby rendering the same difficult
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to identify or be segregated for purposes of forfeiture, the court may, instead of enforcing the order of
forfeiture of the monetary instrument or property or part thereof or interest therein, accordingly order
the convicted offender to pay an amount equal to the value of said monetary instrument or property.
This provision shall apply in both civil and criminal forfeiture.
SEC. 13. Mutual Assistance among States.
(a) Request for Assistance from a Foreign State. - Where a foreign State makes a request for assistance
in the investigation or prosecution of a money laundering offense, the AMLC may execute the request or
refuse to execute the same and inform the foreign State of any valid reason for not executing the
request or for delaying the execution thereof. The principles of mutuality and reciprocity shall, for this
purpose, be at all times recognized.
(b) Powers of the AMLC to Act on a Request for Assistance from a Foreign State. - The AMLC may
execute a request for assistance from a foreign State by: (1) tracking down, freezing, restraining and
seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in this Act;
(2) giving information needed by the foreign State within the procedures laid down in this Act; and (3)
applying for an order of forfeiture of any monetary instrument or property in the court: Provided, That
the court shall not issue such an order unless the application is accompanied by an authenticated copy
of the order of a court in the requesting State ordering the forfeiture of said monetary instrument or
property of a person who has been convicted of a money laundering offense in the requesting State, and
a certification or an affidavit of a competent officer of the requesting State stating that the conviction
and the order of forfeiture are final and that no further appeal lies in respect of either.
(c) Obtaining Assistance from Foreign States. - The AMLC may make a request to any foreign State for
assistance in (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any
unlawful activity; (2) obtaining information that it needs relating to any covered transaction, money
laundering offense or any other matter directly or indirectly related thereto; (3) to the extent allowed by
the law of the foreign State, applying with the proper court therein for an order to enter any premises
belonging to or in the possession or control of, any or all of the persons named in said request, and/or
search any or all such persons named therein and/or remove any document, material or object named
in said request: Provided, That the documents accompanying the request in support of the application
have been duly authenticated in accordance with the applicable law or regulation of the foreign State;
and (4) applying for an order of forfeiture of any monetary instrument or property in the proper court in
the foreign State: Provided, That the request is accompanied by an authenticated copy of the order of
the regional trial court ordering the forfeiture of said monetary instrument or property of a convicted
offender and an affidavit of the clerk of court stating that the conviction and the order of forfeiture are
final and that no further appeal lies in respect of either.
190
(d) Limitations on Requests for Mutual Assistance. - The AMLC may refuse to comply with any request
for assistance where the action sought by the request contravenes any provision of the Constitution or
the execution of a request is likely to prejudice the national interest of the Philippines unless there is a
treaty between the Philippines and the requesting State relating to the provision of assistance in relation
to money laundering offenses.
(e) Requirements for Requests for Mutual Assistance from Foreign States. - A request for mutual
assistance from a foreign State must (1) confirm that an investigation or prosecution is being conducted
in respect of a money launderer named therein or that he has been convicted of any money laundering
offense; (2) state the grounds on which any person is being investigated or prosecuted for money
laundering or the details of his conviction; (3) give sufficient particulars as to the identity of said
person; (4) give particulars sufficient to identify any covered institution believed to have any
information, document, material or object which may be of assistance to the investigation or
prosecution; (5) ask from the covered institution concerned any information, document, material or
object which may be of assistance to the investigation or prosecution; (6) specify the manner in which
and to whom said information, document, material or object obtained pursuant to said request, is to be
produced; (7) give all the particulars necessary for the issuance by the court in the requested State of
the writs, orders or processes needed by the requesting State; and (8) contain such other information
as may assist in the execution of the request.
(f) Authentication of Documents. - For purposes of this Section, a document is authenticated if the same
is signed or certified by a judge, magistrate or equivalent officer in or of, the requesting State, and
authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a
minister, secretary of State, or officer in or of, the government of the requesting State, or of the person
administering the government or a department of the requesting territory, protectorate or colony. The
certificate of authentication may also be made by a secretary of the embassy or legation, consul
general, consul, vice consul, consular agent or any officer in the foreign service of the Philippines
stationed in the foreign State in which the record is kept, and authenticated by the seal of his office.
(g) Extradition. - The Philippines shall negotiate for the inclusion of money laundering offenses as herein
defined among extraditable offenses in all future treaties.
SEC. 14. Penal Provisions.
(a) Penalties for the Crime of Money Laundering. The penalty of imprisonment ranging from seven (7) to
fourteen (14) years and a fine of not less than Three million Philippine pesos (Php 3,000,000.00) but not
more than twice the value of the monetary instrument or property involved in the offense, shall be
imposed upon a person convicted under Section 4(a) of this Act.
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The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One million five
hundred thousand Philippine pesos (Php1,500,000.00) but not more than Three million Philippine pesos
(Php3,000,000.00), shall be imposed upon a person convicted under Section 4(b) of this Act.
The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One
hundred thousand Philippine pesos (Php100,000.00) but not more than Five hundred thousand
Philippine pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of
this Act.
(b) Penalties for Failure to Keep Records. The penalty of imprisonment from six (6) months to one (1)
year or a fine of not less than One hundred thousand Philippine pesos (Php100,000.00) but not more
than Five hundred thousand Philippine pesos (Php500,000.00), or both, shall be imposed on a person
convicted under Section 9(b) of this Act.
(c) Malicious Reporting. Any person who, with malice, or in bad faith, reports or files a completely
unwarranted or false information relative to money laundering transaction against any person shall be
subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than One
hundred thousand Philippine pesos (Php100, 000.00) but not more than Five hundred thousand
Philippine pesos (Php500, 000.00), at the discretion of the court: Provided, That the offender is not
entitled to avail the benefits of the Probation Law.
If the offender is a corporation, association, partnership or any juridical person, the penalty shall be
imposed upon the responsible officers, as the case may be, who participated in the commission of the
crime or who shall have knowingly permitted or failed to prevent its commission. If the offender is a
juridical person, the court may suspend or revoke its license. If the offender is an alien, he shall, in
addition to the penalties herein prescribed, be deported without further proceedings after serving the
penalties herein prescribed. If the offender is a public official or employee, he shall, in addition to the
penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the
case may be.
Any public official or employee who is called upon to testify and refuses to do the same or purposely
fails to testify shall suffer the same penalties prescribed herein.
(d) Breach of Confidentiality. The punishment of imprisonment ranging from three (3) to eight (8) years
and a fine of not less than Five hundred thousand Philippine pesos (Php500,000.00) but not more than
One million Philippine pesos (Php1,000,000.00), shall be imposed on a person convicted for a violation
under Section 9(c).
191
SEC. 15. System of Incentives and Rewards. A system of special incentives and rewards is hereby
established to be given to the appropriate government agency and its personnel that led and initiated an
investigation, prosecution and conviction of persons involved in the offense penalized in Section 4 of this
Act.
SEC. 16. Prohibitions Against Political Harassment. This Act shall not be used for political
persecution or harassment or as an instrument to hamper competition in trade and commerce.
No case for money laundering may be filed against and no assets shall be frozen, attached or forfeited
to the prejudice of a candidate for an electoral office during an election period.
SEC. 17. Restitution. Restitution for any aggrieved party shall be governed by the provisions of the
New Civil Code.
SEC. 18. Implementing Rules and Regulations. Within thirty (30) days from the effectivity of this
Act, the Bangko Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange
Commission shall promulgate the rules and regulations to implement effectively the provisions of this
Act. Said rules and regulations shall be submitted to the Congressional Oversight Committee for
approval.
SEC. 20. Appropriations Clause. The AMLC shall be provided with an initial appropriation of Twentyfive million Philippine pesos (Php25,000,000.00) to be drawn from the national government.
Appropriations for the succeeding years shall be included in the General Appropriations Act.
SEC. 21. Separability Clause. If any provision or section of this Act or the application thereof to any
person or circumstance is held to be invalid, the other provisions or sections of this Act, and the
application of such provision or section to other persons or circumstances, shall not be affected thereby.
SEC. 22. Repealing Clause. All laws, decrees, executive orders, rules and regulations or parts
thereof, including the relevant provisions of Republic Act No. 1405, as amended; Republic Act No. 6426,
as amended; Republic Act No. 8791, as amended and other similar laws, as are inconsistent with this
Act, are hereby repealed, amended or modified accordingly.
SEC. 23. Effectivity. This Act shall take effect fifteen (15) days after its complete publication in the
Official Gazette or in at least two (2) national newspapers of general circulation.
The provisions of this Act shall not apply to deposits and investments made prior to its effectivity.
Covered institutions shall formulate their respective money laundering prevention programs in
accordance with this Act including, but not limited to, information dissemination on money laundering
activities and its prevention, detection and reporting, and the training of responsible officers and
personnel of covered institutions.
SEC. 19. Congressional Oversight Committee. There is hereby created a Congressional Oversight
Committee composed of seven (7) members from the Senate and seven (7) members from the House of
Representatives. The members from the Senate shall be appointed by the Senate President based on
the proportional representation of the parties or coalitions therein with at least two (2) Senators
representing the minority. The members from the House of Representatives shall be appointed by the
Speaker also based on proportional representation of the parties or coalitions therein with at least two
(2) members representing the minority.
The Oversight Committee shall have the power to promulgate its own rules, to oversee the
implementation of this Act, and to review or revise the implementing rules issued by the Anti-Money
Laundering Council within thirty (30) days from the promulgation of the said rules.
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192

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ANNEX A- Anti-Money Laundering Act of 2001 (RA 9160)

(Read AMLA) Arnel U. Ty vs NBI .61

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June 19, 1997

Hence this petition. Petitioner claims that:

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[G.R. No. 119002. October 19, 2000]

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With the costs against defendant Henri Kahn.[10]

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13. Perform such other functions as may be provided by law.

Section 8 of P.D. 604, grants similar functions to these sports associations:

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Section 7 of P.D. 604, similarly provides:

G.R. No. 148444

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The Motion for Leave to Intervene must be denied.

Section 2, Rule 19 of the Rules of Court, provides:

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execute a Stock Purchase Agreement with petitioner;

cause the cancellation of the stock certificates issued to PHI.

G.R. No. L-23145

November 29, 1968

BENGUET CONSOLIDATED, INC., oppositor-appellant.

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[G.R. Nos. 84132-33 : December 10, 1990.]

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[G.R. No. 147402. January 14, 2004]

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