1
LBC EXPRESS, INC., petitioner,
vs.
THE COURT OF APPEALS, ADOLFO M. CARLOTO,
and RURAL BANK OF LABASON, INC., respondents.
G.R. No. 108670 September 21, 1994
In this Petition for Review on Certiorari, petitioner LBC
1
questions the decision of respondent Court of Appeals
affirming the judgment of the Regional Trial Court of
Dipolog City, Branch 8, awarding moral and exemplary
damages, reimbursement of P32,000.00, and costs of suit;
but deleting the amount of attorney's fees.
Private respondent Adolfo Carloto, incumbent President-
Manager of private respondent Rural Bank of Labason,
alleged that on November 12, 1984, he was in Cebu City
transacting business with the Central Bank Regional
Office. He was instructed to proceed to Manila on or
before November 21, 1984 to follow-up the Rural Bank's
plan of payment of rediscounting obligations with Central
2
Bank's main office in Manila. He then purchased a round
trip plane ticket to Manila. He also phoned his sister Elsie
Carloto-Concha to send him ONE THOUSAND PESOS
(P1,000.00) for his pocket money in going to Manila and
some rediscounting papers thru petitioner's LBC Office at
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Dipolog City.
On November 16, 1984, Mrs. Concha thru her clerk,
Adelina Antigo consigned thru LBC Dipolog Branch the
pertinent documents and the sum of ONE THOUSAND
PESOS (P1,000.00) to respondent Carloto at No. 2
Greyhound Subdivision, Kinasangan, Pardo, Cebu City.
This was evidenced by LBC Air Cargo, Inc., Cashpack
Delivery Receipt No. 34805.
On November 17, 1984, the documents arrived without the
cashpack. Respondent Carloto made personal follow-ups
on that same day, and also on November 19 and 20, 1984
at LBC's office in Cebu but petitioner failed to deliver to
him the cashpack.
Consequently, respondent Carloto said he was compelled
to go to Dipolog City on November 24, 1984 to claim the
money at LBC's office. His effort was once more in vain.
On November 27, 1984, he went back to Cebu City at
LBC's office. He was, however, advised that the money
has been returned to LBC's office in Dipolog City upon
shipper's request. Again, he demanded for the ONE
THOUSAND PESOS (P1,000.00) and refund of FORTY-
NINE PESOS (P49.00) LBC revenue charges. He
received the money only on December 15, 1984 less the
revenue charges.
Respondent Carloto claimed that because of the delay in
the transmittal of the cashpack, he failed to submit the
rediscounting documents to Central Bank on time. As a
consequence, his rural bank was made to pay the Central
Bank THIRTY-TWO THOUSAND PESOS (P32,000.00) as
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penalty interest. He allegedly suffered embarrassment
and humiliation.
Petitioner LBC, on the other hand, alleged that the
cashpack was forwarded via PAL to LBC Cebu City
5
branch on November 22, 1984. On the same day, it was
delivered at respondent Carloto's residence at No. 2
Greyhound Subdivision, Kinasangan, Pardo, Cebu City.
However, he was not around to receive it. The delivery
man served instead a claim notice to insure he would
personally receive the money. This was annotated on
Cashpack Delivery Receipt No. 342805. Notwithstanding
the said notice, respondent Carloto did not claim the
cashpack at LBC Cebu. On November 23, 1984, it was
returned to the shipper, Elsie Carloto-Concha at Dipolog
City.
Claiming that petitioner LBC wantonly and recklessly
disregarded its obligation, respondent Carloto instituted an
action for Damages Arising from Non-performance of
Obligation docketed as Civil Case No. 3679 before the
Regional Trial Court of Dipolog City on January 4, 1985.
On June 25, 1988, an amended complaint was filed where
respondent rural bank joined as one of the plaintiffs and
prayed for the reimbursement of THIRTY-TWO
THOUSAND PESOS (P32,000.00).
After hearing, the trial court rendered its decision, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering the defendant LBC Air Cargo, Inc. to pay
unto plaintiff Adolfo M. Carloto and Rural Bank of
Labason, Inc., moral damages in the amount of
P10,000.00; exemplary damages in the amount of
P5,000.00; attorney's fees in the amount of P3,000.00
and litigation expenses of P1,000.00;
2. Sentencing defendant LBC Air Cargo, Inc., to
reimburse plaintiff Rural Bank of Labason, Inc. the
sum of P32,000.00 which the latter paid as penalty
interest to the Central Bank of the Philippines as
penalty interest for failure to rediscount its due bills on
time arising from the defendant's failure to deliver the
cashpack, with legal interest computed from the date
of filing of this case; and
3. Ordering defendant to pay the costs of these
proceedings.
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SO ORDERED.
On appeal, respondent court modified the judgment by
deleting the award of attorney's fees. Petitioner's Motion
for Reconsideration was denied in a Resolution dated
January 11, 1993.
Hence, this petition raising the following questions, to
wit:
1. Whether or not respondent Rural Bank of Labason
Inc., being an artificial person should be awarded
moral damages.
2. Whether or not the award of THIRTY-TWO
THOUSAND PESOS (P32,000.00) was made with
grave abuse of discretion.
3. Whether or not the respondent Court of Appeals
gravely abused its discretion in affirming the trial
court's decision ordering petitioner LBC to pay moral
and exemplary damages despite performance of its
obligation.
We find merit in the petition.
The respondent court erred in awarding moral damages to
the Rural Bank of Labason, Inc., an artificial person.
Moral damages are granted in recompense for physical
suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock,
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social humiliation, and similar injury. A corporation, being
an artificial person and having existence only in legal

contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and
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mental anguish. Mental suffering can be experienced
only by one having a nervous system and it flows from real
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ills, sorrows, and griefs of life — all of which cannot be
suffered by respondent bank as an artificial person.
We can neither sustain the award of moral damages in
favor of the private respondents. The right to recover
moral damages is based on equity. Moral damages are
recoverable only if the case falls under Article 2219 of the
10
Civil Code in relation to Article 21. Part of conventional
wisdom is that he who comes to court to demand equity,
must come with clean hands.
In the case at bench, respondent Carloto is not without
fault. He was fully aware that his rural bank's obligation
would mature on November 21, 1984 and his bank has set
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aside cash for these bills payable. He was all set to go
to Manila to settle this obligation. He has received the
documents necessary for the approval of their
rediscounting application with the Central Bank. He has
also received the plane ticket to go to Manila.
Nevertheless, he did not immediately proceed to Manila
but instead tarried for days allegedly claiming his ONE
THOUSAND PESOS (P1,000.00) pocket money. Due to
his delayed trip, he failed to submit the rediscounting
papers to the Central Bank on time and his bank was
penalized THIRTY-TWO THOUSAND PESOS
(P32,000.00) for failure to pay its obligation on its due
date. The undue importance given by respondent Carloto
to his ONE THOUSAND PESOS (P1,000.00) pocket
money is inexplicable for it was not indispensable for him
to follow up his bank's rediscounting application with
Central Bank. According to said respondent, he needed
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the money to "invite people for a snack or dinner." The
attitude of said respondent speaks ill of his ways of
business dealings and cannot be countenanced by this
Court. Verily, it will be revolting to our sense of ethics to
use it as basis for awarding damages in favor of private
respondent Carloto and the Rural Bank of Labason, Inc.
We also hold that respondents failed to show that
petitioner LBC's late delivery of the cashpack was
motivated by personal malice or bad faith, whether
intentional or thru gross negligence. In fact, it was proved
during the trial that the cashpack was consigned on
November 16, 1984, a Friday. It was sent to Cebu on
November 19, 1984, the next business day. Considering
this circumstance, petitioner cannot be charged with gross
neglect of duty. Bad faith under the law can not be
presumed; it must be established by clearer and
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convincing evidence. Again, the unbroken jurisprudence
is that in breach of contract cases where the defendant is
not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable
consequences of the branch of the obligation which the
parties had foreseen or could reasonable have foreseen.
The damages, however, will not include liability for moral
14
damages.
Prescinding from these premises, the award of exemplary
damages made by the respondent court would have no
legal leg to support itself. Under Article 2232 of the Civil
Code, in a contractual or quasi-contractual relationship,
exemplary damages may be awarded only if the defendant
had acted in "a wanton, fraudulent, reckless, oppressive,
2
or malevolent manner." The established facts of not so
warrant the characterization of the action of petitioner
LBC.
IN VIEW WHEREOF, the Decision of the respondent court
dated September 30, 1992 is REVERSED and SET
ASIDE; and the Complaint in Civil Case No. 3679 is
ordered DISMISSED. No costs.
SO ORDERED.
FILIPINAS BROADCASTING NETWORK,
INC., petitioner,
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL
CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM)
and ANGELITA F. AGO, respondents.
G.R. No. 141994 January 17, 2005
DECISION
The Case
1
This petition for review assails the 4 January 1999
2
Decision 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
3
Decision 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, attorney’s fees and costs of
suit.
The Antecedents
4
"Exposé" is a radio documentary program hosted by
Carmelo ‘Mel’ Rima ("Rima") and Hermogenes ‘Jun’
5
Alegre ("Alegre"). Exposé is aired every morning over
DZRC-AM which is owned by Filipinas Broadcasting
Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi
6
City, the Albay municipalities and other Bicol areas.
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 AMEC’s College of Medicine, filed a
7
complaint for damages 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?
xxx
Second: Earlier AMEC students in Physical Therapy
had complained that the course is not recognized by
DECS. Xxx
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 AMEC’s
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
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 you’ll 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,
isn’t 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 latter’s 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
8
foundations to lift or suspend their donations temporarily.
Xxx
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
MEL RIMA:
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.
3
May I say I’m 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.
Don’t 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 –
that’s why she (Lola) was taken in as Dean.
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
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more burdened with false regulations. xxx (Emphasis
supplied)
The complaint further alleged that AMEC is a reputable
learning institution. With the supposed exposés, 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.
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Rozil Lozares, filed an Answer 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."
Thereafter, trial ensued. During the presentation of the
evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to
11
Dismiss on FBNI’s 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.
On 14 December 1992, the trial court rendered a
12
Decision 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 Rima’s only participation was when he agreed with
Alegre’s exposé. The trial court found Rima’s 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 ₱300,000.00 moral damages,
plus ₱30,000.00 reimbursement of attorney’s fees,
and to pay the costs of suit.
13
SO ORDERED. (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 court’s judgment with modification. The
appellate court made Rima solidarily liable with FBNI and
Alegre. The appellate court denied Ago’s claim for
damages and attorney’s 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.
14
SO ORDERED.
FBNI, Rima and Alegre filed a motion for
reconsideration which the Court of Appeals denied in its
26 January 2000 Resolution.
15
Hence, FBNI filed this petition.
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court’s 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 Alegre’s
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
AMEC’s 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."
4
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
16
false regulations."
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 Ago’s claim for damages and attorney’s
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, attorney’s fees and costs of suit.
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 ATTORNEY’S FEES IS
PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA
AND ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEY’S FEES AND COSTS OF SUIT.
The Court’s 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
17
AMEC. While AMEC did not point out clearly the legal
basis for its complaint, a reading of the complaint reveals
that AMEC’s cause of action is based on Articles 30 and
18
33 of the Civil Code. Article 30 authorizes a separate
civil action to recover civil liability arising from a criminal
19
offense. On the other hand, Article 33 particularly
provides that the injured party may bring a separate civil
action for damages in cases of defamation, fraud, and
20
physical injuries. AMEC also invokes Article 19 of the
Civil Code to justify its claim for damages. AMEC cites
21 22
Articles 2176 and 2180 of the Civil Code to hold FBNI
solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
23
A libel 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
24
dead.
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
Alegre’s remarks such as "greed for money on the part of
AMEC’s 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 AMEC’s side and gave Ago the
opportunity to defend AMEC and its administrators. FBNI
concludes that since there is no malice, there is no libel.
FBNI’s contentions are untenable.
Every defamatory imputation is presumed
25
malicious. 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
26
from inaccurate and misleading information." Hearing the
students’ alleged complaints a month before the
27
exposé, 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
28
saying is true." This plainly shows Rima and Alegre’s
reckless disregard of whether their report was true or not.
Contrary to FBNI’s 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 republisher’s
subjective awareness of the truth or falsity of the
29
accusation. 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
30
makes the defamatory statement.
However, FBNI argues vigorously that malice in law does
not apply to this case. Citing Borjal v. Court of
31
Appeals, FBNI contends that the broadcasts "fall within
the coverage of qualifiedly privileged communications" for
being commentaries on matters of public interest. 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.
FBNI’s 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
5
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
32
facts. (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
AMEC’s 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, 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.
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.l^vvphi1.net 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
33
responsible professionals.
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
34
inferred from the facts. However, the comments of Rima
and Alegre were not backed up by facts. Therefore, the
broadcasts are not privileged and remain libelous per se.
35
The broadcasts also violate the Radio Code 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. x x x
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.
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
36
issues. (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
6
radio broadcast industry that radio broadcast practitioners
are subject to a code by which their conduct are measured
for lapses, liability and sanctions.
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
37
performance of his duties as required by Article 19 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
38
21 of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral
39
damages because it is a corporation.
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
40
moral shock. The Court of Appeals cites Mambulao
41
Lumber Co. v. PNB, et al. to justify the award of moral
damages. However, the Court’s statement
in Mambulao that "a corporation may have a good
reputation which, if besmirched, may also be a ground for
42
the award of moral damages" is an obiter dictum.
Nevertheless, AMEC’s claim for moral damages falls
43
under item 7 of Article 2219 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
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
44
moral damages.
Moreover, where the broadcast is libelous per se, the law
45
implies damages. In such a case, evidence of an honest
mistake or the want of character or reputation of the party
46
libeled goes only in mitigation of damages. Neither in
such a case is the plaintiff required to introduce evidence
of actual damages as a condition precedent to the
47
recovery of some damages. In this case, the broadcasts
are libelous per se. Thus, AMEC is entitled to moral
damages.
However, we find the award of ₱300,000 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
₱300,000 to ₱150,000.
III.
Whether the award of attorney’s fees is proper
FBNI contends that since AMEC is not entitled to moral
damages, there is no basis for the award of attorney’s
fees. FBNI adds that the instant case does not fall under
48
the enumeration in Article 2208 of the Civil Code.
The award of attorney’s fees is not proper because AMEC
failed to justify satisfactorily its claim for attorney’s fees.
AMEC did not adduce evidence to warrant the award of
attorney’s fees. Moreover, both the trial and appellate

courts failed to explicitly state in their respective decisions
49
the rationale for the award of attorney’s fees. In Inter-
Asia Investment Industries, Inc. v. Court of
50
Appeals , we held that:
[I]t is an accepted doctrine that the award thereof as an
item of damages is the exception rather than the rule, and
counsel’s fees are not to be awarded every time a party
wins a suit. The power of the court to award attorney’s
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
51
legal reason for the award of attorney’s fees. (Emphasis
supplied)
While it mentioned about the award of attorney’s 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 for
moral damages, attorney’s fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and
Alegre for the payment of damages and attorney’s 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 further argues that Alegre’s 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." Rima’s
accreditation lapsed due to his non-payment of the KBP
annual fees while Alegre’s 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.
FBNI’s arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors
are jointly and severally liable for the tort which they
52
commit. 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
53
benefit. 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
7
54
defamatory statements." 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
55
ratifies the defamation. In this case, Rima and Alegre
were clearly performing their official duties as hosts of
FBNI’s radio program Exposé 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.
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.
FBNI’s 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 training of the broadcasters on the industry’s
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.
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 FBNI’s "regimented process" of application.
Furthermore, FBNI admits that Rima and Alegre had
56
deficiencies in their KBP accreditation, which is one of
FBNI’s requirements before it hires a broadcaster.
Significantly, membership in the KBP, while voluntary,
indicates the broadcaster’s strong commitment to observe
the broadcast industry’s rules and regulations. Clearly,
these circumstances show FBNI’s lack of diligence in
selecting andsupervising Rima and Alegre. Hence, FBNI
is solidarily liable to pay damages together with Rima and
Alegre.
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 ₱300,000 to ₱150,000 and the
award of attorney’s fees is deleted. Costs against
petitioner. SO ORDERED.

HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN
GEORGIA C. SOLANTE, and DORIS C. MAGLASANG,
as Heirs of Deceased SPOUSES RAYMUNDO I.
CRYSTAL and DESAMPARADOS C.
CRYSTAL, petitioners,
vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.
G.R. No. 172428 November 28, 2008
DECISION
1 2
Before us is a Petition for Review of the Decision and
3
Resolution of the Court of Appeals dated 24 October
2005 and 31 March 2006, respectively, in CA G.R. CV No.
72886, which affirmed the 8 June 2001 decision of the
4
Regional Trial Court, Branch 5, of Cebu City.
The facts, as culled from the records, follow.
On 28 March 1978, spouses Raymundo and
Desamparados Crystal obtained a P300,000.00 loan in
behalf of the Cebu Contractors Consortium Co. (CCCC)
from the Bank of the Philippine Islands-Butuan branch
(BPI-Butuan). The loan was secured by a chattel
mortgage on heavy equipment and machinery of CCCC.
On the same date, the spouses executed in favor of BPI-
5
Butuan a Continuing Suretyship where they bound
themselves as surety of CCCC in the aggregate principal
sum of not exceeding P300,000.00. Thereafter, or on 29
March 1979, Raymundo Crystal executed a promissory
6
note for the amount of P300,000.00, also in favor of BPI-
Butuan.
Sometime in August 1979, CCCC renewed a previous
loan, this time from BPI, Cebu City branch (BPI-Cebu
City). The renewal was evidenced by a promissory
7
note dated 13 August 1979, signed by the spouses in
their personal capacities and as managing partners of
CCCC. The promissory note states that the spouses are
jointly and severally liable with CCCC. It appears that
before the original loan could be granted, BPI-Cebu City
required CCCC to put up a security.
However, CCCC had no real property to offer as security
for the loan; hence, the spouses executed a real estate
8
mortgage over their own real property on 22 September
9
1977. On 3 October 1977, they executed another real
estate mortgage over the same lot in favor of BPI-Cebu
City, to secure an additional loan of P20,000.00 of
CCCC.
10
CCCC failed to pay its loans to both BPI-Butuan and BPI-
Cebu City when they became due. CCCC, as well as the
spouses, failed to pay their obligations despite demands.
Thus, BPI resorted to the foreclosure of the chattel
mortgage and the real estate mortgage. The foreclosure
sale on the chattel mortgage was initially stalled with the
11
issuance of a restraining order against BPI. However,
following BPI’s compliance with the necessary requisites
of extrajudicial foreclosure, the foreclosure sale on the
chattel mortgage was consummated on 28 February 1988,
with the proceeds amounting to P240,000.00 applied to
the loan from BPI-Butuan which had then
12
reached P707,393.90. Meanwhile, on 7 July 1981, Insular
8
Bank of Asia and America (IBAA), through its Vice-
President for Legal and Corporate Affairs, offered to buy
the lot subject of the two (2) real
estate mortgages and to pay directly the spouses’
indebtedness in exchange for the release of the
mortgages. BPI rejected IBAA’s offer to pay.
13
BPI filed a complaint for sum of money against CCCC and
the spouses before the Regional Trial Court of Butuan City
(RTC Butuan), seeking to recover the deficiency of the
loan of CCCC and the spouses with BPI-Butuan. The trial
court ruled in favor of BPI. Pursuant to the decision, BPI
instituted extrajudicial foreclosure of the spouses’
mortgaged property.
14
On 10 April 1985, the spouses filed an action for Injunction
With Damages, With A Prayer For A Restraining Order
15
and/ or Writ of Preliminary Injunction. The spouses
claimed that the foreclosure of the real estate mortgages
is illegal because BPI should have exhausted CCCC’s
properties first, stressing that they are mere guarantors of
the renewed loans. They also prayed that they be
awarded moral and exemplary damages, attorney’s fees,
litigation expenses and cost of suit. Subsequently, the
16
spouses filed an amended complaint, additionally
alleging that CCCC had opened and maintained a foreign
currency savings account (FCSA-197) with bpi, Makati
branch (BPI-Makati), and that said FCSA was used as
security for a P450,000.00 loan also extended by BPI-
Makati. The P450,000.00 loan was allegedly paid, and
thereafter the spouses demanded the return of the FCSA
passbook. BPI rejected the demand; thus, the spouses
were unable to withdraw from the said account to pay for
their other obligations to BPI.
The trial court dismissed the spouses’ complaint and
ordered them to pay moral and exemplary damages and
17
attorney’s fees to BPI. It ruled that since the spouses
agreed to bind themselves jointly and severally, they are
solidarily liable for the loans; hence, BPI can validly
foreclose the two real estate mortgages. Moreover, being
guarantors-mortgagors, the spouses are not entitled to the
benefit of exhaustion. Anent the FCSA, the trial court
found that CCCC originally had FCDU SA No. 197 with
BPI, Dewey Boulevard branch, which was transferred to
BPI-Makati as FCDU SA 76/0035, at the request of
Desamparados Crystal. FCDU SA 76/0035 was thus
closed, but Desamparados Crystal failed to surrender the
passbook because it was lost. The transferred FCSA in
BPI-Makati was the one used as security for
CCCC’s P450,000.00 loan from BPI-Makati. CCCC was
no longer allowed to withdraw from FCDU SA No. 197
because it was already closed.
The spouses appealed the decision of the trial court to the
18
Court of Appeals, but their appeal was dismissed. The
spouses moved for the reconsideration of the decision, but
the Court of Appeals also denied their motion for
19
reconsideration. Hence, the present petition.
Before the Court, petitioners who are the heirs of the
spouses argue that the failure of the spouses to pay the
BPI-Cebu City loan of P120,000.00 was due to BPI’s

illegal refusal to accept payment for the loan unless
the P300,000.00 loan from BPI-Butuan would also be
paid. Consequently, in view of BPI’s unjust refusal to
accept payment of the BPI-Cebu City loan, the loan
obligation of the spouses was extinguished, petitioners
contend.
The contention has no merit. Petitioners rely on IBAA’s
offer to purchase the mortgaged lot from them and to
directly pay BPI out of the proceeds thereof to settle the
20
loan. BPI’s refusal to agree to such payment scheme
cannot extinguish the spouses’ loan obligation. In the first
place, IBAA is not privy to the loan agreement or the
promissory note between the spouses and BPI. Contracts,
after all, take effect only between the parties, their
successors in interest, heirs
21
and assigns. Besides, under Art. 1236 of the Civil Code,
the creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to
the contrary. We see no stipulation in the promissory note
which states that a third person may fulfill the spouses’
obligation. Thus, it is clear that the spouses alone bear
responsibility for the same.
In any event, the promissory note is the controlling
repository of the obligation of the spouses. Under the
promissory note, the spouses defined the parameters of
their obligation as follows:
On or before June 29, 1980 on demand, for value
received, I/we promise to pay, jointly and severally, to
the BANK OF THE PHILIPPINE ISLANDS, at its
office in the city of Cebu Philippines, the sum of ONE
HUNDRED TWENTY THOUSAND PESOS
(P120,0000.00), Philippine Currency, subject to
periodic installments on the principal as
follows: P30,000.00 quarterly amortization starting
September 28, 1979. x x x
22
A solidary obligation is one in which each of the debtors is
liable for the entire obligation, and each of the creditors is
entitled to demand the satisfaction of the whole obligation
23
from any or all of the debtors. A liability is solidary "only
when the obligation expressly so states, when the law so
provides or when the nature of the
24
obligation so requires." Thus, when the obligor
undertakes to be "jointly and severally" liable, it means
25
that the obligation is solidary, such as in this case. By
stating "I/we promise to pay, jointly and severally, to the
BANK OF THE PHILIPPINE ISLANDS," the spouses
agreed to be sought out and be demanded payment from,
by BPI. BPI did demand payment from them, but they
failed to comply with their obligation, prompting BPI’s valid
resort to the foreclosure of the chattel mortgage and the
real estate mortgages.
More importantly, the promissory note, wherein the
spouses undertook to be solidarily liable for the principal
loan, partakes the nature of a suretyship and therefore is
an additional security for the loan. Thus we held in one
case that if solidary liability was instituted to "guarantee" a
9
principal obligation, the law deems the contract to be one
26
of suretyship. And while a contract of a surety is in
essence secondary only to a valid principal obligation, the
surety’s liability to the creditor or promisee of the principal
is said to be direct, primary, and absolute; in other words,
the surety is directly and equally bound with the principal.
The surety therefore becomes liable for the debt or duty of
another even if he possesses no direct or personal interest
over the obligations nor does he receive any benefit
27
therefrom.
Petitioners contend that the Court of Appeals erred in not
granting their counterclaims, considering that they suffered
moral damages in view of the unjust refusal of BPI to
accept the payment scheme proposed by IBAA and the
allegedly unjust and illegal foreclosure of the real estate
28
mortgages on their property. Conversely, they argue that
the Court of Appeals erred in awarding moral damages to
BPI, which is a corporation, as well as exemplary
29
damages, attorney’s fees and expenses of litigation.
We do not agree. Moral damages are meant to
compensate the claimant for any physical suffering,
mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
30
humiliation and similar injuries unjustly caused. Such
damages, to be recoverable, must be the proximate result
of a wrongful act or omission the factual basis for which is
31
satisfactorily established by the aggrieved party. There
being no wrongful or unjust act on the part of BPI in
demanding payment from them and in seeking the
foreclosure of the chattel and real estate mortgages, there
is no lawful basis for award of damages in favor of the
spouses.
Neither is BPI entitled to moral damages. 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
32
shock. The Court of Appeals found BPI as "being famous
and having gained its familiarity and respect not only in the
Philippines but also in the whole world because of its good
will and good reputation must protect and defend the
same against any unwarranted suit such as the case at
33
bench." In holding that BPI is entitled to moral damages,
the Court of Appeals relied on the case of People v.
34
Manero, wherein the Court ruled that "[i]t is only when a
juridical person has a good reputation that is debased,
resulting in social humiliation, that moral damages may be
35
awarded."
We do not agree with the Court of Appeals. A statement
similar to that made by the Court in Manerocan be found
36
in the case of Mambulao Lumber Co. v. PNB, et al., thus:
x x x 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. A corporation
may have good reputation which, if besmirched
may also be a ground for the award of moral
damages. x x x (Emphasis supplied)

Nevertheless, in the more recent cases of ABS-CBN Corp.
37
v. Court of Appeals, et al., and Filipinas Broadcasting
Network, Inc. v. Ago Medical and Educational Center-Bicol
38
Christian College of Medicine (AMEC-BCCM), the Court
held that the statements in Manero and Mambulao were
mere obiter dicta, implying that the award of moral
damages to corporations is not a hard and fast rule.
Indeed, while the Court may allow the grant of moral
damages to corporations, it is not automatically granted;
there must still be proof of the existence of the factual
basis of the damage and its causal relation to the
defendant’s acts. This is so because moral damages,
though incapable of pecuniary estimation, are in the
category of an award designed to compensate the
claimant for actual injurysuffered and not to impose a
39
penalty on the wrongdoer.
The spouses’ complaint against BPI proved to be
unfounded, but it does not automatically entitle BPI to
moral damages. Although the institution of a clearly
unfounded civil suit can at times be a legal
justification for an award of attorney's fees, such filing,
however, has almost invariably been held not to be a
ground for an award of moral damages. The rationale for
the rule is that the law could not have meant to impose a
penalty on the right to litigate. Otherwise, moral damages
must every time be awarded in favor of the prevailing
40
defendant against an unsuccessful plaintiff. BPI may
have been inconvenienced by the suit, but we do not see
how it could have possibly suffered besmirched reputation
on account of the single suit alone. Hence, the award of
moral damages should be deleted.
The awards of exemplary damages and attorney’s fees,
however, are proper. Exemplary damages, on the other
hand, are imposed by way of example or correction for the
public good, when the party to a contract acts in a wanton,
fraudulent, oppressive or malevolent manner, while
attorney’s fees are allowed when exemplary damages are
awarded and when the party to a suit is compelled to incur
41
expenses to protect his interest. The spouses instituted
their complaint against BPI notwithstanding the fact that
they were the ones who failed to pay their obligations.
Consequently, BPI was forced to litigate and defend its
interest. For these reasons, BPI is entitled to the awards of
exemplary damages and attorney’s fees.
WHEREFORE, the petition is DENIED. The Decision and
Resolution of the Court of Appeals dated 24 October 2005
and 31 March 2006, respectively, are hereby AFFIRMED,
with the MODIFICATION that the award of moral damages
to Bank of the Philippine Islands is DELETED.
Costs against the petitioners.
SO ORDERED.
10
THE COLLECTOR OF INTERNAL REVENUE, vs.
THE CLUB FILIPINO, INC. DE CEBU,
G.R. No. L-12719 May 31, 1962
This is a petition to review the decision of the Court of Tax
Appeals, reversing the decision of the Collector of Internal
Revenue, assessing against and demanding from the
"Club Filipino, Inc. de Cebu", the sum of P12,068.84 as
fixed and percentage taxes, surcharge and compromise
penalty, allegedly due from it as a keeper of bar and
restaurant.
As found by the Court of Tax Appeals, the "Club Filipino,
Inc. de Cebu," (Club, for short), is a civic corporation
organized under the laws of the Philippines with an
original authorized capital stock of P22,000.00, which was
subsequently increased to P200,000.00, among others, to
it "proporcionar, operar, y mantener un campo de golf,
tenis, gimnesio (gymnasiums), juego de bolos (bowling
alleys), mesas de billar y pool, y toda clase de juegos no
prohibidos por leyes generales y ordenanzas generales; y
desarollar y cultivar deportes de toda clase y
denominacion cualquiera para el recreo y entrenamiento
saludable de sus miembros y accionistas" (sec. 2,
Escritura de Incorporacion del Club Filipino, Inc. Exh. A).
Neither in the articles or by-laws is there a provision
relative to dividends and their distribution, although it is
covenanted that upon its dissolution, the Club's remaining
assets, after paying debts, shall be donated to a charitable
Philippine Institution in Cebu (Art. 27, Estatutos del Club,
Exh. A-a.).
The Club owns and operates a club house, a bowling
alley, a golf course (on a lot leased from the government),
and a bar-restaurant where it sells wines and liquors, soft
drinks, meals and short orders to its members and their
guests. The bar-restaurant was a necessary incident to
the operation of the club and its golf-course. The club is
operated mainly with funds derived from membership fees
and dues. Whatever profits it had, were used to defray its
overhead expenses and to improve its golf-course. In
1951. as a result of a capital surplus, arising from the re-
valuation of its real properties, the value or price of which
increased, the Club declared stock dividends; but no
actual cash dividends were distributed to the stockholders.
In 1952, a BIR agent discovered that the Club has never
paid percentage tax on the gross receipts of its bar and
restaurant, although it secured B-4, B-9(a) and B-7
licenses. In a letter dated December 22, 1852, the
Collector of Internal Revenue assessed against and
demanded from the Club, the following sums: —
As percentage tax on its gross receipts
during the tax years 1946 to 1951 P9,599.07
Surcharge therein 2,399.77
As fixed tax for the years 1946 to 1952 70.00
Compromise penalty 500.00
The Club wrote the Collector, requesting for the
cancellation of the assessment. The request having been
denied, the Club filed the instant petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment
of the sum of 12,068.84, as fixed and percentage taxes

and surcharges prescribed in sections 182, 183 and 191
of the Tax Code, under which the assessment was made,
in connection with the operation of its bar and restaurant,
during the periods mentioned above; and
2. Whether it is liable for the payment of the sum of
P500.00 as compromise penalty.
Section 182, of the Tax Code states, "Unless otherwise
provided, every person engaging in a business on which
the percentage tax is imposed shall pay in full a fixed
annual tax of ten pesos for each calendar year or fraction
thereof in which such person shall engage in said
business." Section 183 provides in general that "the
percentage taxes on business shall be payable at the end
of each calendar quarter in the amount lawfully due on the
business transacted during each quarter; etc." And section
191, same Tax Code, provides "Percentage tax . . .
Keepers of restaurants, refreshment parlors and other
eating places shall pay a tax three per centum, and
keepers of bar and cafes where wines or liquors are
served five per centum of their gross receipts . . .". It has
been held that the liability for fixed and percentage taxes,
as provided by these sections, does not ipso facto attach
by mere reason of the operation of a bar and restaurant.
For the liability to attach, the operator thereof must be
engaged in the business as a barkeeper and restaurateur.
The plain and ordinary meaning of business is restricted to
activities or affairs where profit is the purpose or livelihood
is the motive, and the term business when used without
qualification, should be construed in its plain and ordinary
meaning, restricted to activities for profit or livelihood (The
Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE
[Manila Elks Club] & Court of Tax Appeals, G.R. No. L-
11176, June 29, 1959, giving full definitions of the word
"business"; Coll. of Int. Rev. v. Sweeney, et al.
[International Club of Iloilo, Inc.], G.R. No. L-12178, Aug.
21, 1959, the facts of which are similar to the ones at bar;
Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27,
1960).
Having found as a fact that the Club was organized to
develop and cultivate sports of all class and denomination,
for the healthful recreation and entertainment of its
stockholders and members; that upon its dissolution, its
remaining assets, after paying debts, shall be donated to a
charitable Philippine Institution in Cebu; that it is operated
mainly with funds derived from membership fees and
dues; that the Club's bar and restaurant catered only to its
members and their guests; that there was in fact no cash
dividend distribution to its stockholders and that whatever
was derived on retail from its bar and restaurant was used
to defray its overall overhead expenses and to improve its
golf-course (cost-plus-expenses-basis), it stands to reason
that the Club is not engaged in the business of an operator
of bar and restaurant (same authorities, cited above).
It is conceded that the Club derived profit from the
operation of its bar and restaurant, but such fact does not
necessarily convert it into a profit-making enterprise. The
bar and restaurant are necessary adjuncts of the Club to
foster its purposes and the profits derived therefrom are
necessarily incidental to the primary object of developing
and cultivating sports for the healthful recreation and
entertainment of the stockholders and members. That a
Club makes some profit, does not make it a profit-making
11
Club. As has been remarked a club should always strive,
whenever possible, to have surplus (Jesus Sacred Heart
College v. Collector of Int. Rev., G.R. No. L-6807, May 24,
1954; Collector of Int. Rev. v. Sinco Educational Corp.,
G.R. No. L-9276, Oct. 23, 1956). 1äwphï1.ñët
It is claimed that unlike the two cases just cited (supra),
which are non-stock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the
capital stock of the respondent Club is divided into shares,
does not detract from the finding of the trial court that it is
not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the
Club is engaged in such business is its object or purpose,
as stated in its articles and by-laws. It is a familiar rule that
the actual purpose is not controlled by the corporate form
or by the commercial aspect of the business prosecuted,
but may be shown by extrinsic evidence, including the by-
laws and the method of operation. From the extrinsic
evidence adduced, the Tax Court concluded that the Club
is not engaged in the business as a barkeeper and
restaurateur.
Moreover, for a stock corporation to exist, two requisites
must be complied with, to wit: (1) a capital stock divided
into shares and (2) an authority to distribute to the holders
of such shares, dividends or allotments of the surplus
profits on the basis of the shares held (sec. 3, Act No.
1459). In the case at bar, nowhere in its articles of
incorporation or by-laws could be found an authority for
the distribution of its dividends or surplus profits. Strictly
speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation
law.
A tax is a burden, and, as such, it should not be deemed
imposed upon fraternal, civic, non-profit, nonstock
organizations, unless the intent to the contrary is manifest
and patent" (Collector v. BPOE Elks Club, et al., supra),
which is not the case in the present appeal.
Having arrived at the conclusion that respondent Club is
not engaged in the business as an operator of a bar and
restaurant, and therefore, not liable for fixed and
percentage taxes, it follows that it is not liable for any
penalty, much less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed
without costs.

PNOC-ENERGY DEVELOPMENT
CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (Third
Division) and DANILO MERCADO, respondents.
G.R. No. 79182 September 11, 1991
This is a petition for certiorari to set aside the
Resolution dated July 3, 1987 of respondent National
*
Labor Relations Commission (NLRC for brevity) which
affirmed the decision dated April 30, 1986 of Labor Arbiter
Vito J. Minoria of the NLRC, Regional Arbitration Branch
No. VII at Cebu City in Case No. RAB-VII-0556-85 entitled
"Danilo Mercado, Complainant, vs. Philippine National Oil
Company-Energy Development Corporation,
Respondent", ordering the reinstatement of complainant
Danilo Mercado and the award of various monetary
claims.
The factual background of this case is as follows:
Private respondent Danilo Mercado was first employed by
herein petitioner Philippine National Oil Company-Energy
Development Corporation (PNOC-EDC for brevity) on
August 13, 1979. He held various positions ranging from
clerk, general clerk to shipping clerk during his
employment at its Cebu office until his transfer to its
establishment at Palimpinon, Dumaguete, Oriental Negros
on September 5, 1984. On June 30, 1985, private
respondent Mercado was dismissed. His last salary was
P1,585.00 a month basic pay plus P800.00 living
allowance (Labor Arbiter's Decision, Annex "E" of Petition,
Rollo, p. 52).
The grounds for the dismissal of Mercado are allegedly
serious acts of dishonesty committed as follows:
1. On ApriI 12, 1985, Danilo Mercado was ordered to
purchase 1,400 pieces of nipa shingles from Mrs.
Leonardo Nodado of Banilad, Dumaguete City, for the
total purchase price of Pl,680.00. Against company
policy, regulations and specific orders, Danilo
Mercado withdrew the nipa shingles from the supplier
but paid the amount of P1,000.00 only. Danilo
Mercado appropriated the balance of P680.00 for his
personal use;
2. In the same transaction stated above, the supplier
agreed to give the company a discount of P70.00
which Danilo Mercado did not report to the company;
3. On March 28, 1985, Danilo Mercado was instructed
to contract the services of Fred R. Melon of
Dumaguete City, for the fabrication of rubber stamps,
for the total amount of P28.66. Danilo Mercado paid
the amount of P20.00 to Fred R. Melon and
appropriated for his personal use the balance of
P8.66.
In addition, private respondent, Danilo Mercado
violated company rules and regulations in the
following instances:
1. On June 5, 1985, Danilo Mercado was absent from
work without leave, without proper turn-over of his
work, causing disruption and delay of company work
activities;
12
2. On June 15, 1985, Danilo Mercado went on
vacation leave without prior leave, against company
policy, rules and regulations. (Petitioner's
Memorandum, Rollo, p. 195).
On September 23, 1985, private respondent Mercado filed
a complaint for illegal dismissal, retirement benefits,
separation pay, unpaid wages, etc. against petitioner
PNOC-EDC before the NLRC Regional Arbitration Branch
No. VII docketed as Case No. RAB-VII-0556-85.
After private respondent Mercado filed his position paper
on December 16, 1985 (Annex "B" of the Petition, Rollo,
pp. 28-40), petitioner PNOC-EDC filed its Position
Paper/Motion to Dismiss on January 15, 1986, praying for
the dismissal of the case on the ground that the Labor
Arbiter and/or the NLRC had no jurisdiction over the case
(Annex "C" of the Petition, Rollo, pp. 41-45), which was
assailed by private respondent Mercado in his Opposition
to the Position Paper/Motion to Dismiss dated March 12,
1986 (Annex "D" of the Petition, Rollo, pp. 46-50).
The Labor Arbiter ruled in favor of private respondent
Mercado. The dispositive onion of said decision reads as
follows:
WHEREFORE, in view of the foregoing, respondents
are hereby ordered:
1) To reinstate complainant to his former position with
full back wages from the date of his dismissal up to
the time of his actual reinstatement without loss of
seniority rights and other privileges;
2) To pay complainant the amount of P10,000.00
representing his personal share of his savings
account with the respondents;
3) To pay complainants the amount of P30,000.00
moral damages; P20,000.00 exemplary damages and
P5,000.00 attorney's fees;
4) To pay complainant the amount of P792.50 as his
proportionate 13th month pay for 1985.
Respondents are hereby further ordered to deposit
the aforementioned amounts with this Office within
ten days from receipt of a copy of this decision for
further disposition.
SO ORDERED.
(Labor Arbiter's Decision, Rollo, p. 56)
The appeal to the NLRC was dismissed for lack of merit
on July 3, 1987 and the assailed decision was affirmed.
Hence, this petition.
The issues raised by petitioner in this instant petition are:
1. Whether or not matters of employment affecting the
PNOC-EDC, a government-owned and controlled
corporation, are within the jurisdiction of the Labor
Arbiter and the NLRC.
2. Assuming the affirmative, whether or not the Labor
Arbiter and the NLRC are justified in ordering the
reinstatement of private respondent, payment of his

savings, and proportionate 13th month pay and
payment of damages as well as attorney's fee.
Petitioner PNOC-EDC alleges that it is a corporation
wholly owned and controlled by the government; that the
Energy Development Corporation is a subsidiary of the
Philippine National Oil Company which is a government
entity created under Presidential Decree No. 334, as
amended; that being a government-owned and controlled
corporation, it is governed by the Civil Service Law as
provided for in Section 1, Article XII-B of the 1973
Constitution, Section 56 of Presidential Decree No. 807
(Civil Service Decree) and Article 277 of Presidential
Decree No. 442, as amended (Labor Code).
The 1973 Constitution provides:
The Civil Service embraces every branch, agency,
subdivision and instrumentality of the government
including government-owned or controlled
corporations.
Petitioner PNOC-EDC argued that since Labor Arbiter
Minoria rendered the decision at the time when the 1973
Constitution was in force, said decision is null and void
because under the 1973 Constitution, government-owned
and controlled corporations were governed by the Civil
Service Law. Even assuming that PNOC-EDC has no
original or special charter and Section 2(i), Article IX-B of
the 1987 Constitution provides that:
The Civil Service embraces all branches, subdivision,
instrumentalities and agencies of the Government,
including government-owned or controlled
corporations with original charters.
such circumstances cannot give validity to the decision of
the Labor Arbiter (Ibid., pp. 192-193).
This issue has already been laid to rest in the case
of PNOC-EDC vs. Leogardo, 175 SCRA 26 (July 5, 1989),
involving the same petitioner and the same issue, where
this Court ruled that the doctrine that employees of
government-owned and/or con controlled corporations,
whether created by special law or formed as subsidiaries
under the General Corporation law are governed by the
Civil Service Law and not by the Labor Code, has been
supplanted by the present Constitution. "Thus, under the
present state of the law, the test in determining whether a
government-owned or controlled corporation is subject to
the Civil Service Law are the manner of its creation, such
that government corporations created by special charter
are subject to its provisions while those incorporated
under the General Corporation Law are not within its
coverage."
Specifically, the PNOC-EDC having been incorporated
under the General Corporation Law was held to be a
government owned or controlled corporation whose
employees are subject to the provisions of the Labor Code
(Ibid.).
13
The fact that the case arose at the time when the 1973
Constitution was still in effect, does not deprive the NLRC
of jurisdiction on the premise that it is the 1987
Constitution that governs because it is the Constitution in
place at the time of the decision (NASECO v. NLRC, G.R.
No. 69870, 168 SCRA 122 [1988]).
In the case at bar, the decision of the NLRC was
promulgated on July 3, 1987. Accordingly, this case falls
squarely under the rulings of the aforementioned cases.
As regards the second issue, the record shows that
PNOC-EDC's accusations of dishonesty and violations of
company rules are not supported by evidence.
Nonetheless, while acknowledging the rule that
administrative bodies are not governed by the strict rules
of evidence, petitioner PNOC-EDC alleges that the labor
arbiter's propensity to decide the case through the position
papers submitted by the parties is violative of due process
thereby rendering the decision null and void (Ibid., p. 196).
On the other hand, private respondent contends that as
can be seen from petitioner's Motion for Reconsideration
and/or Appeal dated July 28, 1986 (Annex "F" of the
Petition, Rollo, pp. 57- 64), the latter never questioned the
findings of facts of the Labor Arbiter but simply limited its
objection to the lack of legal basis in view of its stand that
the NLRC had no jurisdiction over the case (Private
Respondent's Memorandum, Rollo, p. 104).
Petitioner PNOC-EDC filed its Position Paper/Motion to
Dismiss dated January 15, 1986 (Annex "C" of the Petition
Rollo, pp. 41-45) before the Regional Arbitration Branch
No. VII of Cebu City and its Motion for Reconsideration
and/or Appeal dated July 28, 1986 (Annex "F" of the
Petition, Rollo, pp. 57-64) before the NLRC of Cebu City.
Indisputably, the requirements of due process are satisfied
when the parties are given an opportunity to submit
position papers. What the fundamental law abhors is not
the absence of previous notice but rather the absolute lack
of opportunity to ventilate a party's side. There is no denial
of due process where the party submitted its position
paper and flied its motion for reconsideration (Odin
Security Agency vs. De la Serna, 182 SCRA 472
[February 21, 1990]). Petitioner's subsequent Motion for
Reconsideration and/or Appeal has the effect of curing
whatever irregularity might have been committed in the
proceedings below (T.H. Valderama and Sons, Inc. vs.
Drilon, 181 SCRA 308 [January 22, 1990]).
Furthermore, it has been consistently held that findings of
administrative agencies which have acquired expertise
because their jurisdiction is confined to specific matters
are accorded not only respect but even finality (Asian
Construction and Development Corporation vs. NLRC,
187 SCRA 784 [July 27, 1990]; Lopez Sugar Corporation
vs. Federation of Free Workers, 189 SCRA 179 [August
30, 1990]). Judicial review by this Court does not go so far
as to evaluate the sufficiency of the evidence but is limited
to issues of jurisdiction or grave abuse of discretion
(Filipinas Manufacturers Bank vs. NLRC, 182 SCRA 848
[February 28, 1990]). A careful study of the records shows
no substantive reason to depart from these established
principles.

While it is true that loss of trust or breach of confidence is
a valid ground for dismissing an employee, such loss or
breach of trust must have some basis (Gubac v. NLRC,
187 SCRA 412 [July 13, 1990]). As found by the Labor
Arbiter, the accusations of petitioner PNOC-EDC against
private respondent Mercado have no basis. Mrs. Leonardo
Nodado, from whom the nipa shingles were purchased,
sufficiently explained in her affidavit (Rollo, p. 36) that the
total purchase price of P1,680.00 was paid by respondent
Mercado as agreed upon. The alleged discount given by
Mrs. Nodado is not supported by evidence as well as the
alleged appropriation of P8.66 from the cost of fabrication
of rubber stamps. The Labor Arbiter, likewise, found no
evidence to support the alleged violation of company
rules. On the contrary, he found respondent Mercado's
explanation in his affidavit (Rollo, pp. 38-40) as to the
alleged violations to be satisfactory. Moreover, these
findings were never contradicted by petitioner petitioner
PNOC-EDC.
PREMISES CONSIDERED, the petition is DENIED and
the resolution of respondent NLRC dated July 3, 1987 is
AFFIRMED with the modification that the moral damages
are reduced to Ten Thousand (P10,000.00) Pesos, and
the exemplary damages reduced to Five Thousand
(P5,000.00) Pesos.
SO ORDERED.
NATIONAL COAL COMPANY, plaintiff-appellee,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-
appellant.
G.R. No. L-22619 December 2, 1924
This action was brought in the Court of First Instance of
the City of Manila on the 17th day of July, 1923, for the
purpose of recovering the sum of P12,044.68, alleged to
have been paid under protest by the plaintiff company to
the defendant, as specific tax on 24,089.3 tons of coal.
Said company is a corporation created by Act No. 2705 of
the Philippine Legislature for the purpose of developing
the coal industry in the Philippine Islands and is actually
engaged in coal mining on reserved lands belonging to the
Government. It claimed exemption from taxes under the
provision of sections 14 and 15 of Act No. 2719, and
prayed for a judgment ordering the defendant to refund to
the plaintiff said sum of P12,044.68, with legal interest
from the date of the presentation of the complaint, and
costs against the defendant.
The defendant answered denying generally and
specifically all the material allegations of the complaint,
except the legal existence and personality of the plaintiff.
14
As a special defense, the defendant alleged (a) that the
sum of P12,044.68 was paid by the plaintiff without
protests, and (b) that said sum was due and owing from
the plaintiff to the Government of the Philippine Islands
under the provisions of section 1496 of the Administrative
Code and prayed that the complaint be dismissed, with
costs against the plaintiff.
Upon the issue thus presented, the case was brought on
for trial. After a consideration of the evidence adduced by
both parties, the Honorable Pedro Conception, judge, held
that the words "lands owned by any person, etc.," in
section 15 of Act No. 2719 should be understood to mean
"lands held in lease or usufruct," in harmony with the other
provision of said Act; that the coal lands possessed by the
plaintiff, belonging to the Government, fell within the
provisions of section 15 of Act No. 2719; and that a tax of
P0.04 per ton of 1,016 kilos on each ton of coal extracted
therefrom, as provided in said section, was the only tax
which should be collected from the plaintiff; and sentenced
the defendant to refund to the plaintiff the sum of
P11,081.11 which is the difference between the amount
collected under section 1496 of the Administrative Code
and the amount which should have been collected under
the provisions of said section 15 of Act No. 2719. From
that sentence the defendant appealed, and now makes
the following assignments of error:
I. The court below erred in holding that section 15 of Act
No. 2719 does not refer to coal lands owned by persons
and corporations.
II. The court below erred in holding that the plaintiff was
not subject to the tax prescribed in section 1496 of the
Administrative Code.
The question confronting us in this appeal is whether the
plaintiff is subject to the taxes under section 15 of Act No.
2719, or to the specific taxes under section 1496 of the
Administrative Code.
The plaintiff corporation was created on the 10th day of
March, 1917, by Act No. 2705, for the purpose of
developing the coal industry in the Philippine Island, in
harmony with the general plan of the Government to
encourage the development of the natural resources of the
country, and to provided facilities therefor. By said Act, the
company was granted the general powers of a corporation
"and such other powers as may be necessary to enable it
to prosecute the business of developing coal deposits in
the Philippine Island and of mining, extracting, transporting
and selling the coal contained in said deposits." (Sec. 2,
Act No. 2705.) By the same law (Act No. 2705) the
Government of the Philippine Islands is made the majority
stockholder, evidently in order to insure proper
government supervision and control, and thus to place the
Government in a position to render all possible
encouragement, assistance and help in the prosecution
and furtherance of the company's business.
On May 14, 1917, two months after the passage of Act
No. 2705, creating the National Coal Company, the
Philippine Legislature passed Act No. 2719 "to provide for
the leasing and development of coal lands in the

Philippine Islands." On October 18, 1917, upon petition of
the National Coal Company, the Governor-General, by
Proclamation No. 39, withdrew "from settlement, entry,
sale or other disposition, all coal-bearing public lands
within the Province of Zamboanga, Department of
Mindanao and Sulu, and the Island of Polillo, Province of
Tayabas." Almost immediately after the issuance of said
proclamation the National Coal Company took possession
of the coal lands within the said reservation, with an area
of about 400 hectares, without any further formality,
contract or lease. Of the 30,000 shares of stock issued by
the company, the Government of the Philippine Islands is
the owner of 29,809 shares, that is, of 99 1/3 per centum
of the whole capital stock.
If we understand the theory of the plaintiff-appellee, it is,
that it claims to be the owner of the land from which it has
mined the coal in question and is therefore subject to the
provisions of section 15 of Act No. 2719 and not to the
provisions of the section 1496 of the Administrative Code.
That contention of the plaintiff leads us to an examination
of the evidence upon the question of the ownership of the
land from which the coal in question was mined. Was the
plaintiff the owner of the land from which the coal in
question was mined? If the evidence shows the
affirmative, then the judgment should be affirmed. If the
evidence shows that the land does not belong to the
plaintiff, then the judgment should be reversed, unless the
plaintiff's rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the
question of the ownership of the land in question was Mr.
Dalmacio Costas, who stated that he was a member of the
board of directors of the plaintiff corporation; that the
plaintiff corporation took possession of the land in question
by virtue of the proclamation of the Governor-General,
known as Proclamation No. 39 of the year 1917; that no
document had been issued in favor of the plaintiff
corporation; that said corporation had received no
permission from the Secretary of Agriculture and Natural
Resources; that it took possession of said lands covering
an area of about 400 hectares, from which the coal in
question was mined, solely, by virtue of said proclamation
(Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis
Burton Harrison, then Governor-General, on the 18th day
of October, 1917, and provided: "Pursuant to the provision
of section 71 of Act No. 926, I hereby withdraw from
settlement, entry, sale, or other disposition, all coal-
bearing public lands within the Province of Zamboanga,
Department of Mindanao and Sulu, and the Island of
Polillo, Province of Tayabas." It will be noted that said
proclamation only provided that all coal-bearing public
lands within said province and island should be withdrawn
from settlement, entry, sale, or other disposition. There is
nothing in said proclamation which authorizes the plaintiff
or any other person to enter upon said reversations and to
mine coal, and no provision of law has been called to our
attention, by virtue of which the plaintiff was entitled to
enter upon any of the lands so reserved by said
proclamation without first obtaining permission therefor.
The plaintiff is a private corporation. The mere fact that the
Government happens to the majority stockholder does not
15
make it a public corporation. Act No. 2705, as amended by
Act No. 2822, makes it subject to all of the provisions of
the Corporation Law, in so far as they are not inconsistent
with said Act (No. 2705). No provisions of Act No. 2705
are found to be inconsistent with the provisions of the
Corporation Law. As a private corporation, it has no
greater rights, powers or privileges than any other
corporation which might be organized for the same
purpose under the Corporation Law, and certainly it was
not the intention of the Legislature to give it a preference
or right or privilege over other legitimate private
corporations in the mining of coal. While it is true that said
proclamation No. 39 withdrew "from settlement, entry,
sale, or other disposition of coal-bearing public lands
within the Province of Zamboanga . . . and the Island of
Polillo," it made no provision for the occupation and
operation by the plaintiff, to the exclusion of other persons
or corporations who might, under proper permission, enter
upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of
said proclamation, the Legislature of the Philippine Island
in "an Act for the leasing and development of coal lands in
the Philippine Islands" (Act No. 2719), made liberal
provision. Section 1 of said Act provides: "Coal-bearing
lands of the public domain in the Philippine Island shall not
be disposed of in any manner except as provided in this
Act," thereby giving a clear indication that no "coal-bearing
lands of the public domain" had been disposed of by virtue
of said proclamation.
Neither is there any provision in Act No. 2705 creating the
National Coal Company, nor in the amendments thereof
found in Act No. 2822, which authorizes the National Coal
Company to enter upon any of the reserved coal lands
without first having obtained permission from the
Secretary of Agriculture and Natural Resources. lawphi1.net
The following propositions are fully sustained by the facts
and the law:
(1) The National Coal Company is an ordinary private
corporation organized under Act No. 2705, and has no
greater powers nor privileges than the ordinary private
corporation, except those mentioned, perhaps, in section
10 of Act No. 2719, and they do not change the situation
here.
(2) It mined on public lands between the month of July,
1920, and the months of March, 1922, 24,089.3 tons of
coal.
(3) Upon demand of the Collector of Internal Revenue it
paid a tax of P0.50 a ton, as taxes under the provisions of
article 1946 of the Administrative Code on the 15th day of
December, 1922.
(4) It is admitted that it is neither the owner nor the lessee
of the lands upon which said coal was mined.
(5) The proclamation of Francis Burton Harrison,
Governor-General, of the 18th day of October, 1917, by
authority of section 1 of Act No. 926, withdrawing from

settlement, entry, sale, or other dispositon all coal-bearing
public lands within the Province of Zamboanga and the
Island of Polillo, was not a reservation for the benefit of the
National Coal Company, but for any person or corporation
of the Philippine Islands or of the United States.
(6) That the National Coal Company entered upon said
land and mined said coal, so far as the record shows,
without any lease or other authority from either the
Secretary of Agriculture and Natural Resources or any
person having the power to grant a leave or authority.
From all of the foregoing facts we find that the issue is well
defined between the plaintiff and the defendant. The
plaintiff contends that it was liable only to pay the internal
revenue and other fees and taxes provided for under
section 15 of Act No. 2719; while the defendant contends,
under the facts of record, the plaintiff is obliged to pay the
internal revenue duty provided for in section 1496 of the
Administrative Code. That being the issue, an examination
of the provisions of Act No. 2719 becomes necessary.
An examination of said Act (No. 2719) discloses the
following facts important for consideration here:
First. All "coal-bearing lands of the public domain in the
Philippine Islands shall not be disposed of in any manner
except as provided in this Act." Second. Provisions for
leasing by the Secretary of Agriculture and Natural
Resources of "unreserved, unappropriated coal-bearing
public lands," and the obligation to the Government which
shall be imposed by said Secretary upon the lessee. lawphi1.net
Third. The internal revenue duty and tax which must be
paid upon coal-bearing lands owned by any person, firm,
association or corporation.
To repeat, it will be noted, first, that Act No. 2719 provides
an internal revenue duty and tax upon unreserved,
unappropriated coal-bearing public lands which may be
leased by the Secretary of Agriculture and Natural
Resources; and, second, that said Act (No. 2719) provides
an internal revenue duty and tax imposed upon any
person, firm, association or corporation, who may be the
owner of "coal-bearing lands." A reading of said Act clearly
shows that the tax imposed thereby is imposed upon two
classes of persons only — lessees and owners.
The lower court had some trouble in determining what was
the correct interpretation of section 15 of said Act, by
reason of what he believed to be some difference in the
interpretation of the language used in Spanish and
English. While there is some ground for confusion in the
use of the language in Spanish and English, we are
persuaded, considering all the provisions of said Act, that
said section 15 has reference only to persons, firms,
associations or corporations which had already, prior to
the existence of said Act, become the owners of coal
lands. Section 15 cannot certainty refer to "holders or
lessees of coal lands' for the reason that practically all of
the other provisions of said Act has reference to lessees
or holders. If section 15 means that the persons, firms,
associations, or corporation mentioned therein are holders
or lessees of coal lands only, it is difficult to understand
16
why the internal revenue duty and tax in said section was
made different from the obligations mentioned in section 3
of said Act, imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that
the plaintiff is neither a lessee nor an owner of coal-
bearing lands, and is, therefore, not subject to any other
provisions of Act No. 2719. But, is the plaintiff subject to
the provisions of section 1496 of the Administrative Code?
Section 1496 of the Administrative Code provides that "on
all coal and coke there shall be collected, per metric ton,
fifty centavos." Said section (1496) is a part of article, 6
which provides for specific taxes. Said article provides for
a specific internal revenue tax upon all things
manufactured or produced in the Philippine Islands for
domestic sale or consumption, and upon things imported
from the United States or foreign countries. It having been
demonstrated that the plaintiff has produced coal in the
Philippine Islands and is not a lessee or owner of the land
from which the coal was produced, we are clearly of the
opinion, and so hold, that it is subject to pay the internal
revenue tax under the provisions of section 1496 of the
Administrative Code, and is not subject to the payment of
the internal revenue tax under section 15 of Act No. 2719,
nor to any other provisions of said Act.
Therefore, the judgment appealed from is hereby revoked,
and the defendant is hereby relieved from all responsibility
under the complaint. And, without any finding as to costs,
it is so ordered.
NARRA NICKEL MINING AND DEVELOPMENT CORP.,
TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES
CORP., Respondent.
G.R. No. 195580 April 21, 2014
DECISION
Before this Court is a Petition for Review on Certiorari
under Rule 45 filed by Narra Nickel and Mining
Development Corp. (Narra), Tesoro Mining and
Development, Inc. (Tesoro), and McArthur Mining Inc.
(McArthur), which seeks to reverse the October 1, 2010
Decision and the February 15, 2011 Resolution of the
1
Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic

corporation organized and existing under Philippine laws,
took interest in mining and exploring certain areas of the
province of Palawan. After inquiring with the Department
of Environment and Natural Resources (DENR), it learned
that the areas where it wanted to undertake exploration
and mining activities where already covered by Mineral
Production Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest
Sara Marie Mining, Inc. (SMMI), filed an application for an
MPSA and Exploration Permit (EP) with the Mines and
Geo-Sciences Bureau (MGB), Region IV-B, Office of the
Department of Environment and Natural Resources
(DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153
covering an area of over 1,782 hectares in Barangay
Sumbiling, Municipality of Bataraza, Province of Palawan
and EPA-IVB-44 which includes an area of 3,720 hectares
in Barangay Malatagao, Bataraza, Palawan. The MPSA
and EP were then transferred to Madridejos Mining
Corporation (MMC) and, on November 6, 2006, assigned
to petitioner McArthur.
2
Petitioner Narra acquired its MPSA from Alpha Resources
and Development Corporation and Patricia Louise Mining
& Development Corporation (PLMDC) which previously
filed an application for an MPSA with the MGB, Region IV-
B, DENR on January 6, 1992. Through the said
application, the DENR issued MPSA-IV-1-12 covering an
area of 3.277 hectares in barangays Calategas and San
Isidro, Municipality of Narra, Palawan. Subsequently,
PLMDC conveyed, transferred and/or assigned its rights
and interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the
DENR Region IV-B, labeled as MPSA-AMA-IVB-154
(formerly EPA-IVB-47) over 3,402 hectares in Barangays
Malinao and Princesa Urduja, Municipality of Narra,
Province of Palawan. SMMI subsequently conveyed,
transferred and assigned its rights and interest over the
said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of
Arbitrators (POA) of the DENR three (3) separate petitions
for the denial of petitioners’ applications for MPSA
designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-
1-12.
In the petitions, Redmont alleged that at least 60% of the
capital stock of McArthur, Tesoro and Narra are owned
and controlled by MBMI Resources, Inc. (MBMI), a 100%
Canadian corporation. Redmont reasoned that since
MBMI is a considerable stockholder of petitioners, it was
the driving force behind petitioners’ filing of the MPSAs
over the areas covered by applications since it knows that
it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont
argued that given that petitioners’ capital stocks were
mostly owned by MBMI, they were likewise disqualified
from engaging in mining activities through MPSAs, which
are reserved only for Filipino citizens.
17
In their Answers, petitioners averred that they were
qualified persons under Section 3(aq) of Republic Act No.
(RA) 7942 or the Philippine Mining Act of 1995 which
provided:
Sec. 3 Definition of Terms. As used in and for purposes of
this Act, the following terms, whether in singular or plural,
shall mean:
xxxx
(aq) "Qualified person" means any citizen of the
Philippines with capacity to contract, or a corporation,
partnership, association, or cooperative organized or
authorized for the purpose of engaging in mining, with
technical and financial capability to undertake mineral
resources development and duly registered in accordance
with law at least sixty per cent (60%) of the capital of
which is owned by citizens of the Philippines: Provided,
That a legally organized foreign-owned corporation shall
be deemed a qualified person for purposes of granting an
exploration permit, financial or technical assistance
agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants
is immaterial because they also applied for Financial or
Technical Assistance Agreements (FTAA) denominated as
AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and
AFTA-IVB-07 for Narra, which are granted to foreign-
owned corporations. Nevertheless, they claimed that the
issue on nationality should not be raised since McArthur,
Tesoro and Narra are in fact Philippine Nationals as 60%
of their capital is owned by citizens of the Philippines.
They asserted that though MBMI owns 40% of the shares
of PLMC (which owns 5,997 shares of Narra), 40% of the
3
shares of MMC (which owns 5,997 shares of
McArthur) and 40% of the shares of SLMC (which, in turn,
4
owns 5,997 shares of Tesoro), the shares of MBMI will not
5
make it the owner of at least 60% of the capital stock of
each of petitioners. They added that the best tool used in
determining the nationality of a corporation is the "control
test," embodied in Sec. 3 of RA 7042 or the Foreign
Investments Act of 1991. They also claimed that the POA
of DENR did not have jurisdiction over the issues in
Redmont’s petition since they are not enumerated in Sec.
77 of RA 7942. Finally, they stressed that Redmont has no
personality to sue them because it has no pending claim
or application over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution
disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified
applicants to engage in mining activities. On the other
hand, [Redmont] having filed its own applications for an
EPA over the areas earlier covered by the MPSA
application of respondents may be considered if and when
they are qualified under the law. The violation of the
requirements for the issuance and/or grant of permits over
mining areas is clearly established thus, there is reason to
believe that the cancellation and/or revocation of permits
already issued under the premises is in order and open
the areas covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the
Respondents, McArthur Mining Inc., Tesoro Mining and

Development, Inc., and Narra Nickel Mining and
Development Corp. as, DISQUALIFIED for being
considered as Foreign Corporations. Their Mineral
Production Sharing Agreement (MPSA) are hereby x x x
DECLARED NULL AND VOID. 6
The POA considered petitioners as foreign corporations
being "effectively controlled" by MBMI, a 100% Canadian
company and declared their MPSAs null and void. In the
same Resolution, it gave due course to Redmont’s EPAs.
Thereafter, on February 7, 2008, the POA issued an
Order denying the Motion for Reconsideration filed by
7
petitioners.
Aggrieved by the Resolution and Order of the POA,
McArthur and Tesoro filed a joint Notice of Appeal and
8
Memorandum of Appeal with the Mines Adjudication
9
Board (MAB) while Narra separately filed its Notice of
Appeal and Memorandum of Appeal.
10 11
In their respective memorandum, petitioners emphasized
that they are qualified persons under the law. Also,
through a letter, they informed the MAB that they had their
individual MPSA applications converted to FTAAs.
McArthur’s FTAA was denominated as AFTA-IVB-09 on 12
May 2007, while Tesoro’s MPSA application was
converted to AFTA-IVB-08 on May 28, 2007, and Narra’s
13
FTAA was converted to AFTA-IVB-07 on March 30, 2006.
14
Pending the resolution of the appeal filed by petitioners
with the MAB, Redmont filed a Complaint with the
15
Securities and Exchange Commission (SEC), seeking the
revocation of the certificates for registration of petitioners
on the ground that they are foreign-owned or controlled
corporations engaged in mining in violation of Philippine
laws. Thereafter, Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend Proceeding before
the MAB praying for the suspension of the proceedings on
the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed
before the Regional Trial Court of Quezon City, Branch 92
(RTC) a Complaint for injunction with application for
16
issuance of a temporary restraining order (TRO) and/or
writ of preliminary injunction, docketed as Civil Case No.
08-63379. Redmont prayed for the deferral of the MAB
proceedings pending the resolution of the Complaint
before the SEC.
But before the RTC can resolve Redmont’s Complaint and
applications for injunctive reliefs, the MAB issued an Order
on September 10, 2008, finding the appeal meritorious. It
held:
WHEREFORE, in view of the foregoing, the Mines
Adjudication Board hereby REVERSES and SETS ASIDE
the Resolution dated 14 December 2007 of the Panel of
Arbitrators of Region IV-B (MIMAROPA) in POA-DENR
Case Nos. 2001-01, 2007-02 and 2007-03, and its Order
dated 07 February 2008 denying the Motions for
Reconsideration of the Appellants. The Petition filed by
Redmont Consolidated Mines Corporation on 02 January
2007 is hereby ordered DISMISSED. 17
18
Belatedly, on September 16, 2008, the RTC issued an
Order granting Redmont’s application for a TRO and
18
setting the case for hearing the prayer for the issuance of
a writ of preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a
Motion for Reconsideration of the September 10, 2008
19
Order of the MAB. Subsequently, it filed a Supplemental
Motion for Reconsideration on September 29, 2008.
20
Before the MAB could resolve Redmont’s Motion for
Reconsideration and Supplemental Motion for
Reconsideration, Redmont filed before the RTC a
Supplemental Complaint in Civil Case No. 08-63379.
21
On October 6, 2008, the RTC issued an Order granting
22
the issuance of a writ of preliminary injunction enjoining
the MAB from finally disposing of the appeals of
petitioners and from resolving Redmont’s Motion for
Reconsideration and Supplement Motion for
Reconsideration of the MAB’s September 10, 2008
Resolution.
On July 1, 2009, however, the MAB issued a second
Order denying Redmont’s Motion for Reconsideration and
Supplemental Motion for Reconsideration and resolving
the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the
CA, assailing the Orders issued by the MAB. On October
1, 2010, the CA rendered a Decision, the dispositive of
which reads:
WHEREFORE, the Petition is PARTIALLY
GRANTED. The assailed Orders, dated September
10, 2008 and July 1, 2009 of the Mining Adjudication
Board are reversed and set aside. The findings of the
Panel of Arbitrators of the Department of Environment
and Natural Resources that respondents McArthur,
Tesoro and Narra are foreign corporations is upheld
and, therefore, the rejection of their applications for
Mineral Product Sharing Agreement should be
recommended to the Secretary of the DENR.
With respect to the applications of respondents
McArthur, Tesoro and Narra for Financial or Technical
Assistance Agreement (FTAA) or conversion of their
MPSA applications to FTAA, the matter for its
rejection or approval is left for determination by the
Secretary of the DENR and the President of the
Republic of the Philippines.
SO ORDERED. 23
In a Resolution dated February 15, 2011, the CA denied
the Motion for Reconsideration filed by petitioners.
After a careful review of the records, the CA found that
there was doubt as to the nationality of petitioners when it
realized that petitioners had a common major investor,
MBMI, a corporation composed of 100% Canadians.
Pursuant to the first sentence of paragraph 7 of
Department of Justice (DOJ) Opinion No. 020, Series of
2005, adopting the 1967 SEC Rules which implemented

the requirement of the Constitution and other laws
pertaining to the exploitation of natural resources, the CA
used the "grandfather rule" to determine the nationality of
petitioners. It provided:
Shares belonging to corporations or partnerships at least
60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are
registered in the name of a corporation or partnership at
least 60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%, or
say, 50% of the capital stock or capital of the corporation
or partnership, respectively, belongs to Filipino citizens,
only 50,000 shares shall be recorded as belonging to
aliens. (emphasis supplied)
24
In determining the nationality of petitioners, the CA looked
into their corporate structures and their corresponding
common shareholders. Using the grandfather rule, the CA
discovered that MBMI in effect owned majority of the
common stocks of the petitioners as well as at least 60%
equity interest of other majority shareholders of petitioners
through joint venture agreements. The CA found that
through a "web of corporate layering, it is clear that one
common controlling investor in all mining corporations
involved x x x is MBMI." Thus, it concluded that
25
petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA
applications of petitioners into FTAA applications
suspicious in nature and, as a consequence, it
recommended the rejection of petitioners’ MPSA
applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to
mining areas, the CA pointed out that the POA has
jurisdiction over them and that it also has the power to
determine the of nationality of petitioners as a prerequisite
of the Constitution prior the conferring of rights to "co-
production, joint venture or production-sharing
agreements" of the state to mining rights. However, it also
stated that the POA’s jurisdiction is limited only to the
resolution of the dispute and not on the approval or
rejection of the MPSAs. It stipulated that only the
Secretary of the DENR is vested with the power to
approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its
December 14, 2007 Resolution which considered
petitioners McArthur, Tesoro and Narra as foreign
corporations. Nevertheless, the CA determined that the
POA’s declaration that the MPSAs of McArthur, Tesoro
and Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed
with the Office of the President (OP) a petition dated May
7, 2010 seeking the cancellation of petitioners’ FTAAs.
The OP rendered a Decision on April 6, 2011, wherein it
26
19
canceled and revoked petitioners’ FTAAs for violating and
circumventing the "Constitution x x x[,] the Small Scale
Mining Law and Environmental Compliance Certificate as
well as Sections 3 and 8 of the Foreign Investment Act
and E.O. 584." The OP, in affirming the cancellation of
27
the issued FTAAs, agreed with Redmont stating that
petitioners committed violations against the
abovementioned laws and failed to submit evidence to
negate them. The Decision further quoted the December
14, 2007 Order of the POA focusing on the alleged
misrepresentation and claims made by petitioners of being
domestic or Filipino corporations and the admitted
continued mining operation of PMDC using their locally
secured Small Scale Mining Permit inside the area earlier
applied for an MPSA application which was eventually
transferred to Narra. It also agreed with the POA’s
estimation that the filing of the FTAA applications by
petitioners is a clear admission that they are "not capable
of conducting a large scale mining operation and that they
need the financial and technical assistance of a foreign
entity in their operation, that is why they sought the
participation of MBMI Resources, Inc." The Decision
28
further quoted:
The filing of the FTAA application on June 15, 2007,
during the pendency of the case only demonstrate the
violations and lack of qualification of the respondent
corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that
indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its
stockholders in their head office in Canada suggest that
they are conducting operation only through their local
counterparts.29
The Motion for Reconsideration of the Decision was
further denied by the OP in a Resolution dated July 6,
30
2011. Petitioners then filed a Petition for Review on
Certiorari of the OP’s Decision and Resolution with the
CA, docketed as CA-G.R. SP No. 120409. In the CA
Decision dated February 29, 2012, the CA affirmed the
Decision and Resolution of the OP. Thereafter, petitioners
appealed the same CA decision to this Court which is now
pending with a different division.
Thus, the instant petition for review against the October 1,
2010 Decision of the CA. Petitioners put forth the following
errors of the CA:
I.
The Court of Appeals erred when it did not dismiss
the case for mootness despite the fact that the subject
matter of the controversy, the MPSA Applications,
have already been converted into FTAA applications
and that the same have already been granted.
II.
The Court of Appeals erred when it did not dismiss
the case for lack of jurisdiction considering that the
Panel of Arbitrators has no jurisdiction to determine
the nationality of Narra, Tesoro and McArthur.
III.

The Court of Appeals erred when it did not dismiss
the case on account of Redmont’s willful forum
shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro and
McArthur are foreign corporations based on the
"Grandfather Rule" is contrary to law, particularly the
express mandate of the Foreign Investments Act of
1991, as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the
exceptions to the res inter alios acta rule.
VI.
The Court of Appeals erred when it concluded that the
conversion of the MPSA Applications into FTAA
Applications were of "suspicious nature" as the same
is based on mere conjectures and surmises without
any shred of evidence to show the same. 31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering
the instant case as moot is without merit.
Basically, a case is said to be moot and/or academic when
it "ceases to present a justiciable controversy by virtue of
supervening events, so that a declaration thereon would
be of no practical use or value." Thus, the courts
32
"generally decline jurisdiction over the case or dismiss it
on the ground of mootness." 33
The "mootness" principle, however, does accept certain
exceptions and the mere raising of an issue of "mootness"
will not deter the courts from trying a case when there is a
valid reason to do so. In David v. Macapagal-Arroyo
(David), the Court provided four instances where courts
can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and
paramount public interest is involved;
3.) When constitutional issue raised requires
formulation of controlling principles to guide the
bench, the bar, and the public; and
4.) The case is capable of repetition yet evading
review. 34
All of the exceptions stated above are present in the
instant case. We of this Court note that a grave violation of
the Constitution, specifically Section 2 of Article XII, is
being committed by a foreign corporation right under our
country’s nose through a myriad of corporate layering
under different, allegedly, Filipino corporations. The
intricate corporate layering utilized by the Canadian
company, MBMI, is of exceptional character and involves
paramount public interest since it undeniably affects the
exploitation of our Country’s natural resources. The
corresponding actions of petitioners during the lifetime and
existence of the instant case raise questions as what
principle is to be applied to cases with similar issues. No
definite ruling on such principle has been pronounced by
20
the Court; hence, the disposition of the issues or errors in
the instant case will serve as a guide "to the bench, the
bar and the public." Finally, the instant case is capable of
35
repetition yet evading review, since the Canadian
company, MBMI, can keep on utilizing dummy Filipino
corporations through various schemes of corporate
layering and conversion of applications to skirt the
constitutional prohibition against foreign mining in
Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth
error presented by petitioners since both involve the
conversion of MPSA applications to FTAA applications.
Petitioners propound that the CA erred in ruling against
them since the questioned MPSA applications were
already converted into FTAA applications; thus, the issue
on the prohibition relating to MPSA applications of foreign
mining corporations is academic. Also, petitioners would
want us to correct the CA’s finding which deemed the
aforementioned conversions of applications as suspicious
in nature, since it is based on mere conjectures and
surmises and not supported with evidence.
We disagree.
The CA’s analysis of the actions of petitioners after the
case was filed against them by respondent is on point.
The changing of applications by petitioners from one type
to another just because a case was filed against them, in
truth, would raise not a few sceptics’ eyebrows. What is
the reason for such conversion? Did the said conversion
not stem from the case challenging their citizenship and to
have the case dismissed against them for being "moot"? It
is quite obvious that it is petitioners’ strategy to have the
case dismissed against them for being "moot."
Consider the history of this case and how petitioners
responded to every action done by the court or
appropriate government agency: on January 2, 2007,
Redmont filed three separate petitions for denial of the
MPSA applications of petitioners before the POA. On June
15, 2007, petitioners filed a conversion of their MPSA
applications to FTAAs. The POA, in its December 14,
2007 Resolution, observed this suspect change of
applications while the case was pending before it and
held:
The filing of the Financial or Technical Assistance
Agreement application is a clear admission that the
respondents are not capable of conducting a large scale
mining operation and that they need the financial and
technical assistance of a foreign entity in their operation
that is why they sought the participation of MBMI
Resources, Inc. The participation of MBMI in the
corporation only proves the fact that it is the Canadian
company that will provide the finances and the resources
to operate the mining areas for the greater benefit and
interest of the same and not the Filipino stockholders who
only have a less substantial financial stake in the
corporation.
xxxx

x x x The filing of the FTAA application on June 15, 2007,
during the pendency of the case only demonstrate the
violations and lack of qualification of the respondent
corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that
indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its
stockholders in their head office in Canada suggest that
they are conducting operation only through their local
counterparts.36
On October 1, 2010, the CA rendered a Decision which
partially granted the petition, reversing and setting aside
the September 10, 2008 and July 1, 2009 Orders of the
MAB. In the said Decision, the CA upheld the findings of
the POA of the DENR that the herein petitioners are in fact
foreign corporations thus a recommendation of the
rejection of their MPSA applications were recommended
to the Secretary of the DENR. With respect to the FTAA
applications or conversion of the MPSA applications to
FTAAs, the CA deferred the matter for the determination
of the Secretary of the DENR and the President of the
Republic of the Philippines.37
In their Motion for Reconsideration dated October 26,
2010, petitioners prayed for the dismissal of the petition
asserting that on April 5, 2010, then President Gloria
Macapagal-Arroyo signed and issued in their favor FTAA
No. 05-2010-IVB, which rendered the petition moot and
academic. However, the CA, in a Resolution dated
February 15, 2011 denied their motion for being a mere
"rehash of their claims and defenses." Standing firm on its
38
Decision, the CA affirmed the ruling that petitioners are, in
fact, foreign corporations. On April 5, 2011, petitioners
elevated the case to us via a Petition for Review on
Certiorari under Rule 45, questioning the Decision of the
CA. Interestingly, the OP rendered a Decision dated April
6, 2011, a day after this petition for review was filed,
cancelling and revoking the FTAAs, quoting the Order of
the POA and stating that petitioners are foreign
corporations since they needed the financial strength of
MBMI, Inc. in order to conduct large scale mining
operations. The OP Decision also based the cancellation
on the misrepresentation of facts and the violation of the
"Small Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the Foreign
Investment Act and E.O. 584." On July 6, 2011, the OP
39
issued a Resolution, denying the Motion for
Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10,
2011, made known to the Court the fact of the OP’s
Decision and Resolution. In their Reply, petitioners chose
to ignore the OP Decision and continued to reuse their old
arguments claiming that they were granted FTAAs and,
thus, the case was moot. Petitioners filed a Manifestation
and Submission dated October 19, 2012, wherein they
40
asserted that the present petition is moot since, in a
remarkable turn of events, MBMI was able to sell/assign
all its shares/interest in the "holding companies" to DMCI
Mining Corporation (DMCI), a Filipino corporation and, in
effect, making their respective corporations fully-Filipino
owned.
21
Again, it is quite evident that petitioners have been trying
to have this case dismissed for being "moot." Their final
act, wherein MBMI was able to allegedly sell/assign all its
shares and interest in the petitioner "holding companies"
to DMCI, only proves that they were in fact not Filipino
corporations from the start. The recent divesting of interest
by MBMI will not change the stand of this Court with
respect to the nationality of petitioners prior the suspicious
change in their corporate structures. The new documents
filed by petitioners are factual evidence that this Court has
no power to verify.
The only thing clear and proved in this Court is the fact
that the OP declared that petitioner corporations have
violated several mining laws and made misrepresentations
and falsehood in their applications for FTAA which lead to
the revocation of the said FTAAs, demonstrating that
petitioners are not beyond going against or around the law
using shifty actions and strategies. Thus, in this instance,
we can say that their claim of mootness is moot in itself
because their defense of conversion of MPSAs to FTAAs
has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of
petitioners’ nationality, whether Filipino or foreign. In their
previous petitions, they had been adamant in insisting that
they were Filipino corporations, until they submitted their
Manifestation and Submission dated October 19, 2012
where they stated the alleged change of corporate
ownership to reflect their Filipino ownership. Thus, there is
a need to determine the nationality of petitioner
corporations.
Basically, there are two acknowledged tests in determining
the nationality of a corporation: the control test and the
grandfather rule. Paragraph 7 of DOJ Opinion No. 020,
Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other
laws pertaining to the controlling interests in enterprises
engaged in the exploitation of natural resources owned by
Filipino citizens, provides:
Shares belonging to corporations or partnerships at least
60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are
registered in the name of a corporation or partnership at
least 60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%, or
say, 50% of the capital stock or capital of the corporation
or partnership, respectively, belongs to Filipino citizens,
only 50,000 shares shall be counted as owned by Filipinos
and the other 50,000 shall be recorded as belonging to
aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating
"shares belonging to corporations or partnerships at least
60% of the capital of which is owned by Filipino citizens

shall be considered as of Philippine nationality," pertains
to the control test or the liberal rule. On the other hand, the
second part of the DOJ Opinion which provides, "if the
percentage of the Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as
Philippine nationality," pertains to the stricter, more
stringent grandfather rule.
Prior to this recent change of events, petitioners were
constant in advocating the application of the "control test"
under RA 7042, as amended by RA 8179, otherwise
known as the Foreign Investments Act (FIA), rather than
using the stricter grandfather rule. The pertinent provision
under Sec. 3 of the FIA provides:
SECTION 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 the citizens of the Philippines; 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 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 were 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, in order that the corporation shall be considered
a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to
stand on in the instant case since the definition of a
"Philippine National" under Sec. 3 of the FIA does not
provide for it. They further claim that the grandfather rule
"has been abandoned and is no longer the applicable
rule." They also opined that the last portion of Sec. 3 of
41
the FIA admits the application of a "corporate layering"
scheme of corporations. Petitioners claim that the clear
and unambiguous wordings of the statute preclude the
court from construing it and prevent the court’s use of
discretion in applying the law. They said that the plain,
literal meaning of the statute meant the application of the
control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by
the FIA; but if it is used to circumvent the Constitution and
pertinent laws, then it becomes illegal. Further, the
pronouncement of petitioners that the grandfather rule has
already been abandoned must be discredited for lack of
basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals,
coal, petroleum and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora
and fauna, and other natural resources are owned by the
22
State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be
under the full control and supervision of the State. The
State may directly undertake such activities, or it may
enter into co-production, joint venture or production-
sharing agreements with Filipino citizens, or corporations
or associations at least sixty per centum of whose capital
is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not
more than twenty-five years, and under such terms and
conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-
owned corporations involving either technical or financial
assistance for large-scale exploration, development, and
utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by
law, based on real contributions to the economic growth
and general welfare of the country. In such agreements,
the State shall promote the development and use of local
scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the
State entering into different types of agreements for the
exploration, development, and utilization of natural
resources with entities who are deemed Filipino due to 60
percent ownership of capital is pertinent to this case, since
the issues are centered on the utilization of our country’s
natural resources or specifically, mining. Thus, there is a
need to ascertain the nationality of petitioners since, as
the Constitution so provides, such agreements are only
allowed corporations or associations "at least 60 percent
of such capital is owned by such citizens." The
deliberations in the Records of the 1986 Constitutional
Commission shed light on how a citizenship of a
corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s
interpretation of an independent national economy is freedom
from undue foreign control? What is the meaning of undue foreign
control?
MR. VILLEGAS: Undue foreign control is foreign control which
sacrifices national sovereignty and the welfare of the Filipino in
the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the
word "undue"? Why not simply freedom from foreign control? I
think that is the meaning of independence, because as phrased, it
still allows for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because
if, for example, we retain the 60/40 possibility in the cultivation of
natural resources, 40 percent involves some control; not total
control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose
some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the
phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
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.
MR. VILLEGAS: That is right.
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?
MR. VILLEGAS: We have just had a long discussion with the
members of the team from the UP Law Center who provided us
with a draft. The phrase that is contained here which we adopted
from the UP draft is ‘60 percent of the voting stock.’
MR. NOLLEDO: That must be based on the subscribed capital
stock, because unless declared delinquent, unpaid capital stock
shall be entitled to vote.
MR. VILLEGAS: That is right.
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, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes. (emphasis supplied)
42
It is apparent that it is the intention of the framers of the
Constitution to apply the grandfather rule in cases where
corporate layering is present.
Elementary in statutory construction is when there is
conflict between the Constitution and a statute, the
Constitution will prevail. In this instance, specifically
pertaining to the provisions under Art. XII of the
Constitution on National Economy and Patrimony, Sec. 3
of the FIA will have no place of application. As decreed by
the honorable framers of our Constitution, the grandfather
rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of
2005 provides:
The above-quoted SEC Rules provide for the manner of
calculating the Filipino interest in a corporation for
purposes, among others, of determining compliance with
nationality requirements (the ‘Investee Corporation’). Such
manner of computation is necessary since the shares in
the Investee Corporation may be owned both by individual
stockholders (‘Investing Individuals’) and by corporations
and partnerships (‘Investing Corporation’). The said rules
thus provide for the determination of nationality depending
on the ownership of the Investee Corporation and, in
certain instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two cases
in determining the nationality of the Investee Corporation.
The first case is the ‘liberal rule’, later coined by the SEC
as the Control Test in its 30 May 1990 Opinion, and
pertains to the portion in said Paragraph 7 of the 1967
SEC Rules which states, ‘(s)hares belonging to
corporations or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be considered as
of Philippine nationality.’ Under the liberal Control Test,
there is no need to further trace the ownership of the 60%
(or more) Filipino stockholdings of the Investing
Corporation since a corporation which is at least 60%
Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule
Proper and pertains to the portion in said Paragraph 7 of
the 1967 SEC Rules which states, "but if the percentage of
Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to
23
such percentage shall be counted as of Philippine
nationality." Under the Strict Rule or Grandfather Rule
Proper, the combined totals in the Investing Corporation
and the Investee Corporation must be traced (i.e.,
"grandfathered") to determine the total percentage of
Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares
must first be traced to the level of the Investing
Corporation and added to the shares directly owned in the
Investee Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ
Opinion, the Grandfather Rule or the second part of the
SEC Rule applies only when the 60-40 Filipino-foreign
equity ownership is in doubt (i.e., in cases where the joint
venture corporation with Filipino and foreign stockholders
with less than 60% Filipino stockholdings [or 59%] invests
in other joint venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated differently,
where the 60-40 Filipino- foreign equity ownership is not in
doubt, the Grandfather Rule will not apply. (emphasis
supplied)
After a scrutiny of the evidence extant on record, the Court
finds that this case calls for the application of the
grandfather rule since, as ruled by the POA and affirmed
by the OP, doubt prevails and persists in the corporate
ownership of petitioners. Also, as found by the CA, doubt
is present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since their
common investor, the 100% Canadian corporation––
MBMI, funded them. However, petitioners also claim that
there is "doubt" only when the stockholdings of Filipinos
are less than 60%. 43
The assertion of petitioners that "doubt" only exists when
the stockholdings are less than 60% fails to convince this
Court. DOJ Opinion No. 20, which petitioners quoted in
their petition, only made an example of an instance where
"doubt" as to the ownership of the corporation exists. It
would be ludicrous to limit the application of the said word
only to the instances where the stockholdings of non-
Filipino stockholders are more than 40% of the total
stockholdings in a corporation. The corporations interested
in circumventing our laws would clearly strive to have
"60% Filipino Ownership" at face value. It would be
senseless for these applying corporations to state in their
respective articles of incorporation that they have less
than 60% Filipino stockholders since the applications will
be denied instantly. Thus, various corporate schemes and
layerings are utilized to circumvent the application of the
Constitution.
Obviously, the instant case presents a situation which
exhibits a scheme employed by stockholders to
circumvent the law, creating a cloud of doubt in the Court’s
mind. To determine, therefore, the actual participation,
direct or indirect, of MBMI, the grandfather rule must be
used.
McArthur Mining, Inc.
 24

To establish the actual ownership, interest or participation Number

Nameof Shares Nationality Amount Amount Paid
of MBMI in each of petitioners’ corporate structure, they Subscribed
have to be "grandfathered."

Olympic Mines 6,663

Filipino PhP 6,663,000.00 PhP 0
As previously discussed, McArthur acquired its MPSA &
application from MMC, which acquired its application from Devt
SMMI. McArthur has a capital stock of ten million pesos Corp.
(PhP 10,000,000) divided into 10,000 common shares at
MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP
one thousand pesos (PhP 1,000) per share, subscribed to Inc. 2,803,900.00
by the following: 44

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Name Nationality Number Amount Amount Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
of Subscribed Paid Esguerra
Shares
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Madridejos Filipino 5,997 PhP PhP Hernando
Mining 5,997,000.00 825,000.00
Corporation Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

MBMI Canadian 3,998 PhP PhP Total 10,000 PhP 10,000,000.00 PhP
Resources, 3,998,000.0 1,878,174.60 2,809,900.00
Inc. (emphasis
supplied)

Lauro L. Filipino 1 PhP 1,000.00 PhP

Salazar 1,000.00 Noticeably, Olympic Mines & Development Corporation
(Olympic) did not pay any amount with respect to the
number of shares they subscribed to in the corporation,
Fernando B. Filipino 1 PhP 1,000.00 PhP which is quite absurd since Olympic is the major
Esguerra 1,000.00 stockholder in MMC. MBMI’s 2006 Annual Report sheds
light on why Olympic failed to pay any amount with respect
Manuel A. Filipino 1 PhP 1,000.00 PhP to the number of shares it subscribed to. It states that
Agcaoili 1,000.00 Olympic entered into joint venture agreements with
several Philippine companies, wherein it holds directly and
indirectly a 60% effective equity interest in the Olympic
Michael T. American 1 PhP 1,000.00 PhP Properties. Quoting the said Annual report:
46

Mason 1,000.00
On September 9, 2004, the Company and Olympic Mines
Kenneth Canadian 1 PhP 1,000.00 PhP & Development Corporation ("Olympic") entered into a
Cawkell 1,000.00 series of agreements including a Property Purchase and
Development Agreement (the Transaction Documents)
with respect to three nickel laterite properties in Palawan,
Total 10,000 PhP PhP Philippines (the "Olympic Properties"). The Transaction
10,000,000.00 2,708,174.60 Documents effectively establish a joint venture between
(emphasis the Company and Olympic for purposes of developing the
supplied) Olympic Properties. The Company holds directly and
indirectly an initial 60% interest in the joint venture. Under
certain circumstances and upon achieving certain
milestones, the Company may earn up to a 100% interest,
Interestingly, looking at the corporate structure of MMC,
subject to a 2.5% net revenue royalty. (emphasis
47

we take note that it has a similar structure and

supplied)
composition as McArthur. In fact, it would seem that MBMI
is also a major investor and "controls" MBMI and also,
45

similar nominal shareholders were present, i.e. Fernando
B. Esguerra (Esguerra), Lauro L. Salazar (Salazar),
Michael T. Mason (Mason) and Kenneth Cawkell
(Cawkell):
Madridejos Mining Corporation
Thus, as demonstrated in this first corporation, McArthur,
when it is "grandfathered," company layering was utilized
by MBMI to gain control over McArthur. It is apparent that
MBMI has more than 60% or more equity interest in
McArthur, making the latter a foreign corporation.
Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI,

has a capital stock of ten million pesos (PhP 10,000,000)
 25

divided into ten thousand (10,000) common shares at PhP Lauro Salazar Filipino 1 PhP 1,000.00 PhP
1,000 per share, as demonstrated below: 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP

Name Nationality Number AmountSubscribed Amount Paid
Hernando 1,000.00
ofShares
Michael T. America 1 PhP 1,000.00 PhP
Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Mason n 1,000.00
Mining, Inc.
Kenneth Cawkell Canadia 1 PhP 1,000.00 PhP
MBMI Canadian 3,998 PhP 3,998,000.00 n 1,000.00
PhP 1,878,174.60
Resources, Inc.
Total 10,00 PhP PhP
0 10,000,000.00 2,809,90
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 0.00
(emphasi
s
supplied)
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra
After subsequently studying SMMI’s corporate structure, it
Manuel A. Filipino 1 PhP 1,000.00 isPhP
not1,000.00
farfetched for us to spot the glaring similarity
Agcaoili between SMMI and MMC’s corporate structure. Again, the
presence of identical stockholders, namely: Olympic,
Michael T. Mason American 1 PhP 1,000.00 MBMI, Amanti Limson (Limson), Esguerra, Salazar,
PhP 1,000.00
Hernando, Mason and Cawkell. The figures under the
headings "Nationality," "Number of Shares," "Amount
Kenneth Cawkell Canadian 1 PhP 1,000.00 Subscribed," and "Amount Paid" are exactly the same
PhP 1,000.00
except for the amount paid by MBMI which now reflects
the amount of two million seven hundred ninety four
thousand pesos (PhP 2,794,000). Oddly, the total value of
Total 10,000 PhP 10,000,000.00 PhP
the 2,708,174.60
amount paid is two million eight hundred nine
thousand nine hundred pesos (PhP 2,809,900).
(emphasis supplied)
Accordingly, after "grandfathering" petitioner Tesoro and
factoring in Olympic’s participation in SMMI’s corporate
Except for the name "Sara Marie Mining, Inc.," the table structure, it is clear that MBMI is in control of Tesoro and
above shows exactly the same figures as the corporate owns 60% or more equity interest in Tesoro. This makes
structure of petitioner McArthur, down to the last centavo. petitioner Tesoro a non-Filipino corporation and, thus,
All the other shareholders are the same: MBMI, Salazar, disqualifies it to participate in the exploitation, utilization
Esguerra, Agcaoili, Mason and Cawkell. The figures under and development of our natural resources.
"Nationality," "Number of Shares," "Amount Subscribed,"
and "Amount Paid" are exactly the same. Delving deeper,
we scrutinize SMMI’s corporate structure: Narra Nickel Mining and Development Corporation

Sara Marie Mining, Inc. Moving on to the last petitioner, Narra, which is the
transferee and assignee of PLMDC’s MPSA application,
whose corporate structure’s arrangement is similar to that
of the first two petitioners discussed. The capital stock of
Narra is ten million pesos (PhP 10,000,000), which is
divided into ten thousand common shares (10,000) at one
Name Nationa No.of Amount Amount
lity Shar Subscribed Paid
thousand pesos (PhP 1,000) per share, shown as follows:
es

Name Nationalit Number Amoun Amount

Olympic Mines Filipino 6,663 PhP PhP 0 y ofShares Subscribed Paid
& 6,663,000.00
Development
Corp. Patricia Filipino 5,997 PhP PhP
Louise 5,997,000.00 1,677,000.
Mining & 00
MBMI Canadia 3,331 PhP PhP
Development
Resources, n 3,331,000.00 2,794,00 Corp.
Inc. 0.00
MBMI Canadian 3,998 PhP PhP
Amanti Limson Filipino 1 PhP 1,000.00 PhP Resources, 3,996,000.00 1,116,000.
1,000.00 Inc. 00

Fernando B. Filipino 1 PhP 1,000.00 PhP

Higinio C. Filipino 1 PhP 1,000.00 PhP
Esguerra 1,000.00
Mendoza, Jr. 1,000.00
 26

Henry E. Filipino 1 PhP 1,000.00 PhP Total 10,000 PhP PhP

Fernandez 1,000.00 10,000,000.00 2,708,174.60
(emphasis
Manuel A. Filipino 1 PhP 1,000.00 PhP supplied)
Agcaoili 1,000.00

Yet again, the usual players in petitioners’ corporate

Ma. Elena A. Filipino 1 PhP 1,000.00 PhP
Bocalan 1,000.00
structures are present. Similarly, the amount of money
paid by the 2nd tier majority stock holder, in this case,
Bayani H. Filipino 1 PhP 1,000.00 PhP
Palawan Alpha South Resources and Development Corp.
Agabin 1,000.00 (PASRDC), is zero.

Robert L. American 1 PhP 1,000.00 PhP Studying MBMI’s Summary of Significant Accounting
McCurdy 1,000.00 Policies dated October 31, 2005 explains the reason
behind the intricate corporate layering that MBMI
Kenneth Canadian 1 PhP 1,000.00 PhP immersed itself in:
Cawkell 1,000.00

Total 10,000 PhP PhP JOINT VENTURES The Company’s ownership interests in
10,000,000.00 2,800,000. various mining ventures engaged in the acquisition,
00 exploration and development of mineral properties in the
(emphasis Philippines is described as follows:
supplied)

(a) Olympic Group

Again, MBMI, along with other nominal stockholders, i.e.,
Mason, Agcaoili and Esguerra, is present in this corporate The Philippine companies holding the Olympic Property,
structure. and the ownership and interests therein, are as follows:

Patricia Louise Mining & Development Corporation Olympic- Philippines (the "Olympic Group")

Using the grandfather method, we further look and Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
examine PLMDC’s corporate structure:
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Name Nationality Number Amount Amount Paid
of Subscribed Pursuant to the Olympic joint venture agreement the
Shares Company holds directly and indirectly an effective equity
Palawan Alpha Filipino 6,596 PhP PhP 0
interest in the Olympic Property of 60.0%. Pursuant to a
South 6,596,000.00 shareholders’ agreement, the Company exercises joint
Resources control over the companies in the Olympic Group.
Development
Corporation (b) Alpha Group
MBMI Canadian 3,396 PhP PhP
Resources, 3,396,000.00 2,796,000.00 The Philippine companies holding the Alpha Property, and
Inc. the ownership interests therein, are as follows:
Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00
Mendoza, Jr. Alpha- Philippines (the "Alpha Group")
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernandez Narra Nickel Mining & Development Corporation (Narra)
60.4%
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00 Under a joint venture agreement the Company holds
Agcaoili directly and indirectly an effective equity interest in the
Alpha Property of 60.4%. Pursuant to a shareholders’
Bayani H. Filipino 1 PhP 1,000.00 PhP 1,000.00
Agabin agreement, the Company exercises joint control over the
companies in the Alpha Group. (emphasis supplied)
48

Michael T. American 1 PhP 1,000.00 PhP 1,000.00

Mason
Concluding from the above-stated facts, it is quite safe to
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00 say that petitioners McArthur, Tesoro and Narra are not
Cawkell Filipino since MBMI, a 100% Canadian corporation, owns
60% or more of their equity interests. Such conclusion is

derived from grandfathering petitioners’ corporate owners,
namely: MMI, SMMI and PLMDC. Going further and
adding to the picture, MBMI’s Summary of Significant
Accounting Policies statement– –regarding the "joint
venture" agreements that it entered into with the "Olympic"
and "Alpha" groups––involves SMMI, Tesoro, PLMDC and
Narra. Noticeably, the ownership of the "layered"
corporations boils down to MBMI, Olympic or corporations
under the "Alpha" group wherein MBMI has joint venture
agreements with, practically exercising majority control
over the corporations mentioned. In effect, whether
looking at the capital structure or the underlying
relationships between and among the corporations,
petitioners are NOT Filipino nationals and must be
considered foreign since 60% or more of their capital
stocks or equity interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CA’s use of the exception of the
res inter alios acta or the "admission by co-partner or
agent" rule and "admission by privies" under the Rules of
Court in the instant case, by pointing out that statements
made by MBMI should not be admitted in this case since it
is not a party to the case and that it is not a "partner" of
petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court
provide:
Sec. 29. Admission by co-partner or agent.- The act or
declaration of a partner or agent of the party within the
scope of his authority and during the existence of the
partnership or agency, may be given in evidence against
such party after the partnership or agency is shown by
evidence other than such act or declaration itself. The
same rule applies to the act or declaration of a joint owner,
joint debtor, or other person jointly interested with the
party.
Sec. 31. Admission by privies.- Where one derives title to
property from another, the act, declaration, or omission of
the latter, while holding the title, in relation to the property,
is evidence against the former.
Petitioners claim that before the above-mentioned Rule
can be applied to a case, "the partnership relation must be
shown, and that proof of the fact must be made by
evidence other than the admission itself." Thus,
49
petitioners assert that the CA erred in finding that a
partnership relationship exists between them and MBMI
because, in fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29,
Rule 130 of the Rules by stating that "by entering into a
joint venture, MBMI have a joint interest" with Narra,
Tesoro and McArthur. They challenged the conclusion of
the CA which pertains to the close characteristics of
"partnerships" and "joint venture agreements." Further,
they asserted that before this particular partnership can be
27
formed, it should have been formally reduced into writing
since the capital involved is more than three thousand
pesos (PhP 3,000). Being that there is no evidence of
written agreement to form a partnership between
petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind
themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits
among themselves. On the other hand, joint ventures
50
have been deemed to be "akin" to partnerships since it is
difficult to distinguish between joint ventures and
partnerships. Thus:
[T]he relations of the parties to a joint venture and the
nature of their association are so similar and closely akin
to a partnership that it is ordinarily held that their rights,
duties, and liabilities are to be tested by rules which are
closely analogous to and substantially the same, if not
exactly the same, as those which govern partnership. In
fact, it has been said that the trend in the law has been to
blur the distinctions between a partnership and a joint
venture, very little law being found applicable to one that
does not apply to the other. 51
Though some claim that partnerships and joint ventures
are totally different animals, there are very few rules that
differentiate one from the other; thus, joint ventures are
deemed "akin" or similar to a partnership. In fact, in joint
venture agreements, rules and legal incidents governing
partnerships are applied. 52
Accordingly, culled from the incidents and records of this
case, it can be assumed that the relationships entered
between and among petitioners and MBMI are no simple
"joint venture agreements." As a rule, corporations are
prohibited from entering into partnership agreements;
consequently, corporations enter into joint venture
agreements with other corporations or partnerships for
certain transactions in order to form "pseudo
partnerships."
Obviously, as the intricate web of "ventures" entered into
by and among petitioners and MBMI was executed to
circumvent the legal prohibition against corporations
entering into partnerships, then the relationship created
should be deemed as "partnerships," and the laws on
partnership should be applied. Thus, a joint venture
agreement between and among corporations may be seen
as similar to partnerships since the elements of
partnership are present.
Considering that the relationships found between
petitioners and MBMI are considered to be partnerships,
then the CA is justified in applying Sec. 29, Rule 130 of
the Rules by stating that "by entering into a joint venture,
MBMI have a joint interest" with Narra, Tesoro and
McArthur.
Panel of Arbitrators’ jurisdiction

We affirm the ruling of the CA in declaring that the POA
has jurisdiction over the instant case. The POA has
jurisdiction to settle disputes over rights to mining areas
which definitely involve the petitions filed by Redmont
against petitioners Narra, McArthur and Tesoro. Redmont,
by filing its petition against petitioners, is asserting the
right of Filipinos over mining areas in the Philippines
against alleged foreign-owned mining corporations. Such
claim constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by
the parties for the decision, the panel shall have exclusive
and original jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation
v. Macroasia Corp.: 53
The phrase "disputes involving rights to mining areas"
refers to any adverse claim, protest, or opposition to an
application for mineral agreement. The POA therefore has
the jurisdiction to resolve any adverse claim, protest, or
opposition to a pending application for a mineral
agreement filed with the concerned Regional Office of the
MGB. This is clear from Secs. 38 and 41 of the DENR AO
96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the authorized
officer(s) of the concerned office(s) shall issue a
certification(s) that the publication/posting/radio
announcement have been complied with. Any adverse
claim, protest, opposition shall be filed directly, within thirty
(30) calendar days from the last date of
publication/posting/radio announcement, with the
concerned Regional Office or through any concerned
PENRO or CENRO for filing in the concerned Regional
Office for purposes of its resolution by the Panel of
Arbitrators pursuant to the provisions of this Act and these
implementing rules and regulations. Upon final resolution
of any adverse claim, protest or opposition, the Panel of
Arbitrators shall likewise issue a certification to that effect
within five (5) working days from the date of finality of
resolution thereof. Where there is no adverse claim,
protest or opposition, the Panel of Arbitrators shall likewise
issue a Certification to that effect within five working days
therefrom.
xxxx
No Mineral Agreement shall be approved unless the
requirements under this Section are fully complied with
and any adverse claim/protest/opposition is finally
resolved by the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the
Certification issued by the Panel of Arbitrators as provided
in Section 38 hereof, the concerned Regional Director
28
shall initially evaluate the Mineral Agreement applications
in areas outside Mineral reservations. He/She shall
thereafter endorse his/her findings to the Bureau for
further evaluation by the Director within fifteen (15)
working days from receipt of forwarded documents.
Thereafter, the Director shall endorse the same to the
secretary for consideration/approval within fifteen working
days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with
Mineral Reservations, within fifteen (15) working days from
receipt of the Certification issued by the Panel of
Arbitrators as provided for in Section 38 hereof, the same
shall be evaluated and endorsed by the Director to the
Secretary for consideration/approval within fifteen days
from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that
the "disputes involving rights to mining areas" under Sec.
77(a) specifically refer only to those disputes relative to
the applications for a mineral agreement or conferment of
mining rights.
The jurisdiction of the POA over adverse claims, protest,
or oppositions to a mining right application is further
elucidated by Secs. 219 and 43 of DENR AO 95-936,
which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57
above, any adverse claim, protest or opposition specified
in said sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director
shall also cause the posting of the application on the
bulletin boards of the Bureau, concerned Regional
office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the
proposed contract area is located once a week for two (2)
consecutive weeks in a language generally understood in
the locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim,
protest or opposition was filed within the said forty-five
(45) days, the concerned offices shall issue a certification
that publication/posting has been made and that no
adverse claim, protest or opposition of whatever nature
has been filed. On the other hand, if there be any adverse
claim, protest or opposition, the same shall be filed within
forty-five (45) days from the last date of
publication/posting, with the Regional Offices concerned,
or through the Department’s Community Environment and
Natural Resources Officers (CENRO) or Provincial
Environment and Natural Resources Officers (PENRO), to
be filed at the Regional Office for resolution of the Panel of
Arbitrators. However previously published valid and
subsisting mining claims are exempted from
posted/posting required under this Section.
No mineral agreement shall be approved unless the
requirements under this section are fully complied with

and any opposition/adverse claim is dealt with in writing by
the Director and resolved by the Panel of Arbitrators.
(Emphasis supplied.)
It has been made clear from the aforecited provisions that
the "disputes involving rights to mining areas" under Sec.
77(a) specifically refer only to those disputes relative to
the applications for a mineral agreement or conferment of
mining rights.
The jurisdiction of the POA over adverse claims, protest,
or oppositions to a mining right application is further
elucidated by Secs. 219 and 43 of DENRO AO 95-936,
which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57
above, any adverse claim, protest or opposition specified
in said sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement
Application.-
xxxx
The Regional Director or concerned Regional Director
shall also cause the posting of the application on the
bulletin boards of the Bureau, concerned Regional
office(s) and in the concerned province(s) and
municipality(ies), copy furnished the barangays where the
proposed contract area is located once a week for two (2)
consecutive weeks in a language generally understood in
the locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim,
protest or opposition was filed within the said forty-five
(45) days, the concerned offices shall issue a certification
that publication/posting has been made and that no
adverse claim, protest or opposition of whatever nature
has been filed. On the other hand, if there be any adverse
claim, protest or opposition, the same shall be filed within
forty-five (45) days from the last date of
publication/posting, with the Regional offices concerned,
or through the Department’s Community Environment and
Natural Resources Officers (CENRO) or Provincial
Environment and Natural Resources Officers (PENRO), to
be filed at the Regional Office for resolution of the Panel of
Arbitrators. However, previously published valid and
subsisting mining claims are exempted from
posted/posting required under this Section.
No mineral agreement shall be approved unless the
requirements under this section are fully complied with
and any opposition/adverse claim is dealt with in writing by
the Director and resolved by the Panel of Arbitrators.
(Emphasis supplied.)
These provisions lead us to conclude that the power of the
POA to resolve any adverse claim, opposition, or protest
relative to mining rights under Sec. 77(a) of RA 7942 is
confined only to adverse claims, conflicts and oppositions
relating to applications for the grant of mineral rights.
29
POA’s jurisdiction is confined only to resolutions of such
adverse claims, conflicts and oppositions and it has no
authority to approve or reject said applications. Such
power is vested in the DENR Secretary upon
recommendation of the MGB Director. Clearly, POA’s
jurisdiction over "disputes involving rights to mining areas"
has nothing to do with the cancellation of existing mineral
agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA
unquestionably has jurisdiction to resolve disputes over
MPSA applications subject of Redmont’s petitions.
However, said jurisdiction does not include either the
approval or rejection of the MPSA applications, which is
vested only upon the Secretary of the DENR. Thus, the
finding of the POA, with respect to the rejection of
petitioners’ MPSA applications being that they are foreign
corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent,
asserts that it is the regular courts, not the POA, that has
jurisdiction over the MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by
the statute in force at the time of the commencement of
the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary
Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts
shall exercise exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is
incapable of pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal
from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the submission of
the case by the parties for the decision, the panel
shall have exclusive and original jurisdiction to hear
and decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction
over any and all disputes involving rights to mining areas.
One such dispute is an MPSA application to which an
adverse claim, protest or opposition is filed by another
interested applicant. In the case at bar, the dispute arose
1âwphi1
or originated from MPSA applications where petitioners
are asserting their rights to mining areas subject of their
respective MPSA applications. Since respondent filed 3
separate petitions for the denial of said applications, then
a controversy has developed between the parties and it is
POA’s jurisdiction to resolve said disputes.
 30

Moreover, the jurisdiction of the RTC involves civil actions WHEREFORE, premises considered, the instant petition is
while what petitioners filed with the DENR Regional Office DENIED. The assailed Court of Appeals Decision dated
or any concerned DENRE or CENRO are MPSA October 1, 2010 and Resolution dated February 15, 2011
applications. Thus POA has jurisdiction. are hereby AFFIRMED.
SO ORDERED.
Furthermore, the POA has jurisdiction over the MPSA
applications under the doctrine of primary jurisdiction.
Euro-med Laboratories v. Province of
Batangas elucidates:
55

The doctrine of primary jurisdiction holds that if a case is

such that its determination requires the expertise,
specialized training and knowledge of an administrative
body, relief must first be obtained in an administrative
proceeding before resort to the courts is had even if the
matter may well be within their proper jurisdiction.

Whatever may be the decision of the POA will eventually

reach the court system via a resort to the CA and to this
Court as a last recourse.

Selling of MBMI’s shares to DMCI

As stated before, petitioners’ Manifestation and

Submission dated October 19, 2012 would want us to
declare the instant petition moot and academic due to the
transfer and conveyance of all the shareholdings and
interests of MBMI to DMCI, a corporation duly organized
and existing under Philippine laws and is at least 60%
Philippine-owned. Petitioners reasoned that they now
56

cannot be considered as foreign-owned; the transfer of

their shares supposedly cured the "defect" of their
previous nationality. They claimed that their current FTAA
contract with the State should stand since "even wholly-
owned foreign corporations can enter into an FTAA with
the State." Petitioners stress that there should no longer
57

be any issue left as regards their qualification to enter into

FTAA contracts since they are qualified to engage in
mining activities in the Philippines. Thus, whether the
"grandfather rule" or the "control test" is used, the
nationalities of petitioners cannot be doubted since it
would pass both tests.

The sale of the MBMI shareholdings to DMCI does not

have any bearing in the instant case and said fact should
be disregarded. The manifestation can no longer be
considered by us since it is being tackled in G.R. No.
202877 pending before this Court. Thus, the question of
1âwphi1

whether petitioners, allegedly a Philippine-owned

corporation due to the sale of MBMI's shareholdings to
DMCI, are allowed to enter into FTAAs with the State is a
non-issue in this case.

In ending, the "control test" is still the prevailing mode of

determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the
Philippines. When in the mind of the Court there is doubt,
based on the attendant facts and circumstances of the
case, in the 60-40 Filipino-equity ownership in the
corporation, then it may apply the "grandfather rule."