Asset Privatization Trust vs Court of Appeals which committee awarded damages in favor of
300 SCRA 579 [GR No. 121171 December 29, 1998]
Facts: The development, exploration and
utilization of the mineral deposits in the Surigao
Mineral Reservation have been authorized by the
Republic Act No. 1528, as amended by Republic Act
No. 2077 and Republic Act No. 4167, by virtue of
which laws, a memorandum of agreement was drawn
on July 3, 1968, whereby the Republic of the
Philippines thru the Surigao Mineral Reservation
Board, granted MMIC the exclusive right to explore,
develop and exploit nickel, cobalt, and other minerals
in the Surigao Mineral Reservation. MMIC is a
domestic corporation engaged in mining with
respondent Jesus S. Cabarrus Sr. as president and
among its original stockholders. The Philippine
government undertook to support the financing of
MMIC by purchase of MMIC debenture bonds and
extension of guarantees. Further, from the DBP
and/or the government financing institutions to
subscribe in MMIC and issue guarantee/s of foreign
loans or deferred payment arrangements secured
from the US Eximbank, Asian Development Bank
(ADB), Kobe steel of amount not exceeding US$100
million. On July 13, 1981, MMIC, PNB, and DBP
executed a mortgage trust agreement whereby MMIC
as mortgagor, agreed to constitute a mortgage in
favor of PNB and DBP as mortgages, over all MMIC
assets; subject of real estate and chattel mortgage
executed by the mortgagor, and additional assets
described and identified, including assets of whatever
kind, nature or description, which the mortgagor may
acquire whether in substitution of, in replenishment
or in addition thereto. Due to the unsettled
obligations, a financial restructuring plan (FRP) was
suggested, however not finalized. The obligations
matured and the mortgage was foreclosed. The
foreclosed assets were sold to PNB as the lone bidder
and were assigned to the newly formed corporations
namely Nonoc Mining Corporation, Maricalum Mining
and Industrial Corporation and Island Cement
Corporation. In 1986, these assets were transferred to
the asset privatization trust. On February 28, 1985,
Jesus S. Cabarrus Sr. together with the other
stockholders of MMIC, filed a derivative suit against
DBP and PNB before the RTC of Makati branch 62, for
annulment of foreclosures, specific performance and
damages. The suit docketed as civil case no. 9900,
prayed that the court: 1.) Annul the foreclosures,
restore the foreclosed assets to MMIC, and require
the banks to account for their use and operation in
the interim; 2.) Direct the banks to honor and perform
their commitments under the alleged FRP; 3.) Pay
moral and exemplary damages, attorney’s fees,
litigation expenses and costs. A compromise and
arbitration agreement was entered by the parties to
Cabarrus.
Issue: Whether or not the award granted to Cabarrus
was proper.
Held: No. Civil case no. 9900 filed before the RTC
being a derivative suit, MMIC should have been
impleaded as a party. It was not joined as a part
plaintiff or party defendant at any stage before of the
proceedings as it is, the award for damages to MMIC,
which was not party before the arbitration
committee is a complete nullity.
Settled is the doctrine that in a derivative suit, the
corporation is the real party in interest while the
stockholder filing suit for the corporation’s behalf is
only a nominal party. The corporation should be
included s a party in the suit.
An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein
he holds stock in order to protect or vindicate
corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued
or hold the control of the corporation. In such actions,
the suing stockholder is regarded as a nominal party,
with the corporation as the real part in interest.
It is a condition sine qua non that the corporation be
impleaded as a party because – not only is the
corporation an indispensable party, but it is also the
present rule that it must be served with process. The
reason given is that the judgement must be made
binding upon the corporation in order that the
corporation may get the benefit of the suit and may
not bring a subsequent suit against the same
defendants for the same cause of action. In other
words the corporation must be joined as a party
because it is its cause of action that is being litigated
and because judgement must be a res judicata against
it.
 National Coal Company vs Collector of Internal corporation law, in so far as they are not inconsistent
Revenue with said act. No provisions of Act 2705 are found to
46 Phil 583 [GR No. L-22619 December 2, 1924] be inconsistent with the provisions of the corporation
law. As a private corporation, it has no greater rights,
Facts: The plaintiff corporation was created on the powers or privileges than any other corporation which
10th day of March 1917, by Act No. 2705, for the might be organized for the same purpose under the
purpose of developing the coal industry in the corporation law, and certainly it was not the intention
Philippine Islands , in harmony with the general plan
of the legislature to give it a preference or right or
of the government to encourage the development of privilege over other legitimate private corporations in
natural resources of the country, and to provide the mining of coal. While it is true that said
facilities therefore. By the said act, the company was proclamation no. 39 withdrew from settlement entry,
granted the general powers of a corporation and such
sale or other disposition of coal-bearing public lands
other powers as may be necessary to enable it to within the province of Zamboanga, and the islands of
prosecute the business of developing coal deposits in Polillo, it made no provision for the occupation and
the Philippine Islands of mining, extracting,
operation by the plaintiff, to the exclusion of other
transporting, and selling the coal contained in said persons or corporations who might under proper
deposits. By the same law, the government of the
permission, enter upon to operate the coal mines.
Philippine Islands is made the majority stockholder,
evidently in order to ensure 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 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 deposition, 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 of 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.

Issue: Whether or not plaintiff is a private

corporation.

Held: Yes. The plaintiff is a private corporation. The

mere fact that the government happens to the
majority stockholder does not make it a public
corporation. Act 2705, as amended by Act 2822,
makes it subject to all the provisions of the
 Republic Planters Bank vs. Agana
[GR 51765, 3 March 1997]
Facts: On 18 September 1961, the Robes-Francisco
Realty & Development Corporation (RFRDC) secured a
loan from the Republic Planters Bank in the amount of
P120,000.00. As part of the proceeds of the loan,
preferred shares of stocks were issued to RFRDC through
its officers then, Adalia F. Robes and one Carlos F. Robes.
In other words, instead of giving the legal tender totaling
to the full amount of the loan, which is P120,000.00, the
Bank lent such amount partially in the form of money
and partially in the form of stock certificates numbered
3204 and 3205, each for 400 shares with a par value of
P10.00 per share, or for P4,000.00 each, for a total of
P8,000.00. Said stock certificates were in the name of
Adalia F. Robes and Carlos F. Robes, who subsequently,
however, endorsed his shares in favor of Adalia F.
Robes.
Said certificates of stock bear the following terms and
conditions: "The Preferred Stock shall have the following
rights, preferences, qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of 1%,
cumulative and participating. xxx 2. That such preferred
shares may be redeemed, by the system of drawing lots,
at any time after 2 years from the date of issue at the
option of the Corporation." On 31 January 1979, RFRDC
and Robes proceeded against the Bank and filed a
complaint anchored on their alleged rights to collect
dividends under the preferred shares in question and to
have the bank redeem the same under the terms and
conditions of the stock certificates. The bank filed a
Motion to Dismiss 3 private respondents' Complaint on
the following grounds: (1) that the trial court had no
jurisdiction over the subject-matter of the action; (2)
that the action was unenforceable under substantive
law; and (3) that the action was barred by the statute of
limitations and/or laches. The bank's Motion to Dismiss
was denied by the trial court in an order dated 16 March
1979. The bank then filed its Answer on 2 May 1979.
Thereafter, the trial court gave the parties 10 days from
30 July 1979 to submit their respective memoranda after
the submission of which the case would be deemed
submitted for resolution. On 7 September 1979, the trial
court rendered the decision in favor of RFRDC and
Robes; ordering the bank to pay RFRDC and Robes the
face value of the stock certificates as redemption price,
plus 1% quarterly interest thereon until full payment.
The bank filed the petition for certiorari with the
Supreme Court, essentially on pure questions of law.
Issue:
1. Whether the bank can be compelled to
redeem the preferred shares issued to RFRDC
and Robes.
2. Whether RFRDC and Robes are entitled
to the payment of certain rate of interest on the
stocks as a matter of right without necessity of a
prior declaration of dividend.
Held:
1. While the stock certificate does allow redemption, the
option to do so was clearly vested in the bank. The
redemption therefore is clearly the type known as
"optional". Thus, except as otherwise provided in the
stock certificate, the redemption rests entirely with the
corporation and the stockholder is without right to
either compel or refuse the redemption of its stock.
Furthermore, the terms and conditions set forth therein
use the word "may". It is a settled doctrine in statutory
construction that the word "may" denotes discretion,
and cannot be construed as having a mandatory effect.
The redemption of said shares cannot be allowed. The
Central Bank made a finding that the Bank has been
suffering from chronic reserve deficiency, and that such
finding resulted in a directive, issued on 31 January 1973
by then Gov. G. S. Licaros of the Central Bank, to the
President and Acting Chairman of the Board of the bank
prohibiting the latter from redeeming any preferred
share, on the ground that said redemption would reduce
the assets of the Bank to the prejudice of its depositors
and creditors. Redemption of preferred shares was
prohibited for a just and valid reason. The directive
issued by the Central Bank Governor was obviously
meant to preserve the status quo, and to prevent the
financial ruin of a banking institution that would have
resulted in adverse repercussions, not only to its
depositors and creditors, but also to the banking
industry as a whole. The directive, in limiting the
exercise of a right granted by law to a corporate entity,
may thus be considered as an exercise of police power.
2. Both Section 16 of the Corporation Law and Section
43 of the present Corporation Code prohibit the issuance
of any stock dividend without the approval of
stockholders, representing not less than two-thirds (2/3)
of the outstanding capital stock at a regular or special
meeting duly called for the purpose. These provisions
underscore the fact that payment of dividends to a
stockholder is not a matter of right but a matter of
consensus. Furthermore, "interest bearing stocks", on
which the corporation agrees absolutely to pay interest
before dividends are paid to common stockholders, is
legal only when construed as requiring payment of
interest as dividends from net earnings or surplus only.
In compelling the bank to redeem the shares and to pay
the corresponding dividends, the Trial committed grave
abuse of discretion amounting to lack or excess of
jurisdiction in ignoring both the terms and conditions
specified in the stock certificate, as well as the clear
mandate of the law.
 Gamboa vs Teves
G.R. No. 176579 June 28, 2011
Facts: On 28 November 1928, the Philippine Legislature
enacted Act No. 3436 which granted PLDT a franchise and
the right to engage in telecommunications business. In 1969,
General Telephone and Electronics Corporation (GTE), an
American company and a major PLDT stockholder, sold 26
percent of the outstanding common shares of PLDT to
PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated
by several persons, including Roland Gapud and Jose
Campos, Jr. Subsequently, PHI became the owner of
111,415 shares of stock of PTIC by virtue of three Deeds of
Assignment executed by PTIC stockholders Ramon
Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415
shares of stock of PTIC held by PHI were sequestered by the
Presidential Commission on Good Government (PCGG).
The 111,415 PTIC shares, which represent about 46.125
percent of the outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic of the
Philippines. Since PTIC is a stockholder of PLDT, the sale
by the Philippine Government of 46.125 percent of PTIC
shares is actually an indirect sale of 12 million shares or
about 6.3 percent of the outstanding common shares of
PLDT. With the sale, First Pacifics common shareholdings
in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in PLDT
to about 81.47 percent. This violates Section 11, Article XII
of the 1987 Philippine Constitution which limits foreign
ownership of the capital of a public utility to not more than
40 percent.
Issue: Whether or not the term capital in Section 11, Article
XII of the Constitution refers to the common shares of
PLDT, a public utility.
Held: Yes. Section 11, Article XII (National Economy and
Patrimony) of the 1987 Constitution mandates the
Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other
form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is
owned by such citizens; nor shall such franchise, certificate,
or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall
encourage equity participation in public utilities by the
general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or
association must be citizens of the Philippines. (Emphasis
supplied)
Any citizen or juridical entity desiring to operate a
public utility must therefore meet the minimum nationality
requirement prescribed in Section 11, Article XII of the
Constitution. Hence, for a corporation to be granted
authority to operate a public utility, at least 60 percent of its
capital must be owned by Filipino citizens.
Thus, the 40% foreign ownership limitation should
be interpreted to apply to both the beneficial ownership and
the controlling interest.
Clearly, therefore, the forty percent (40%) foreign
equity limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock entitled
to vote, i.e., common shares. Furthermore, ownership of
record of shares will not suffice but it must be shown that
the legal and beneficial ownership rests in the hands of
Filipino citizens. Consequently, in the case of petitioner
PLDT, since it is already admitted that the voting interests
of foreigners which would gain entry to petitioner PLDT by
the acquisition of SMART shares through the Questioned
Transactions is equivalent to 82.99%, and the nominee
arrangements between the foreign principals and the Filipino
owners is likewise admitted, there is, therefore, a violation
of Section 11, Article XII of the Constitution.
Indisputably, one of the rights of a stockholder is
the right to participate in the control or management of the
corporation. This is exercised through his vote in the
election of directors because it is the board of directors that
controls or manages the corporation. In the absence of
provisions in the articles of incorporation denying voting
rights to preferred shares, preferred shares have the same
voting rights as common shares. However, preferred
shareholders are often excluded from any control, that is,
deprived of the right to vote in the election of directors and
on other matters, on the theory that the preferred
shareholders are merely investors in the corporation for
income in the same manner as bondholders. In fact, under
the Corporation Code only preferred or redeemable shares
can be deprived of the right to vote. Common shares cannot
be deprived of the right to vote in any corporate meeting,
and any provision in the articles of incorporation restricting
the right of common shareholders to vote is invalid.
Considering that common shares have voting rights
which translate to control, as opposed to preferred shares
which usually have no voting rights, the term capital in
Section 11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term
capital shall include such preferred shares because the right
to participate in the control or management of the
corporation is exercised through the right to vote in the
election of directors. In short, the term capital in Section 11,
Article XII of the Constitution refers only to shares of stock
that can vote in the election of directors.
This interpretation is consistent with the intent of
the framers of the Constitution to place in the hands of
Filipino citizens the control and management of public
utilities.
As shown in PLDTs 2010 GIS, as submitted to the
SEC, the par value of PLDT common shares is P5.00 per
share, whereas the par value of preferred shares is P10.00
per share. In other words, preferred shares have twice the
par value of common shares but cannot elect directors and
have only 1/70 of the dividends of common shares.
Moreover, 99.44% of the preferred shares are owned by
Filipinos while foreigners own only a minuscule 0.56% of
the preferred shares. Worse, preferred shares constitute
77.85% of the authorized capital stock of PLDT while
common shares constitute only 22.15%.62 This undeniably
shows that beneficial interest in PLDT is not with the non-
voting preferred shares but with the common shares,
blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in
a public utility.