Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee, vs. BENGUET CONSOLIDATED, INC., oppositor-appellant. Cirilo F. Asperillo, Jr., for ancillary administrator-appellee. Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant. FERNANDO, J.: Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court."1 From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from legal doctrines of weight and significance. The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant, the certificates being in the possession of the County Trust Company of New York, which as noted, is the domiciliary administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator petitioned the court to

"issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3 It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as to "who is entitled to the possession of the stock certificates in question; appellant opposed the petition of the ancillary administrator because the said stock certificates are in existence, they are today in the possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."4 It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be issued. Hence, its appeal. As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a court decree. How, then, can this order be stigmatized as illegal? As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as to preclude such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable principles and supported by the strongest policy considerations. It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27, 1963, and filing a petition for relief from a previous order of March 15, 1963. Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary administrator, with residence abroad, of what was previously ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority. 1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle her estate and satisfy the claims of local creditors.5 As Justice Tuason speaking for this Court made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that an administrator appointed in one state or country has no power over property in another state or country."6 It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate owning property in the country of his domicile as well as in a foreign country, administration is had in both countries. That which is granted in the jurisdiction of

decedent's last domicile is termed the principal administration, while any other administration is termed the ancillary administration. The reason for the latter is because a grant of administration does not ex proprio vigore have any effect beyond the limits of the country in which it is granted. Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper, whenever a person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets of the deceased liable for his individual debts or to be distributed among his heirs."7 It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders. Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it were so minded. 2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its "considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress that the "lower court could not "consider as lost" the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the possession of the domiciliary administrator in New York."10 There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be discharged and his responsibility fulfilled. Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard. It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its development."11 Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent jurist, noting "the quasi contract, the adopted child, the constructive

trust, all of flourishing vitality, to attest the empire of "as if" today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought, but which at times hides itself from view till reflection and analysis have brought it to the light."14 What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular alleged error does not carry persuasion. 3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the event of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership [thereof]."15 Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness and finality. Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter is to be followed. It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary must yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however, if a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it but yield to its alleged controlling force. The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus far, nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority. 4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic postulates of corporate theory. We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."16 It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person, owing its existence through creation by a sovereign power."17As a matter of fact, the statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law."18 The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and separate from its individual stockholders.... It owes its

existence to law. It is an artificial person created by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person, resulting from an association of human beings granted legal personality by the state, puts the matter neatly.20 There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and concession."21 A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so. As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances, where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it. To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its very existence; it is to contend that what any of its governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot possibly merit approval. 5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of money paid to the minor under guardianship, alleging that the lower court had previously granted its petition to consider the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the United States. The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an American federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other American official to examine the matter anew, "except a judge or judges of the United States court."23 Reconsideration was denied, and the Administrator appealed. In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive when made on claims property submitted to him for resolution; but they are not applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that are imposed by the Veterans' Act, including the exclusive review by United States courts), and those actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render them mere subordinate instrumentalities of the Veterans' Administrator." It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts over juridical persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the whim or caprice of alien entities.

It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of the country. Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal. Certainly we must at all pains see to it that it does not succeed. The deplorable consequences attendant on appellant prevailing attest to the necessity of negative response from us. That is what appellant will get. That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and distinguished by its correspondence with what a sense of realism requires. For through the appealed order, the imperative requirement of justice according to law is satisfied and national dignity and honor maintained. WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc. Makalintal, Zaldivar and Capistrano, JJ., concur. Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result.

Footnotes
1

Statement of the Case and Issues Involved, Brief for the Oppositor-Appellant, p. 2. Ibid, p. 3. Ibid, pp. 3 to 4. Ibid, p. 4.

Rule 84, Sec. 3, Rules of Court. Cf. Pavia v. De la Rosa, 8 Phil. 70 (1907); Suiliong and Co. v. Chio Taysan, 12 Phil. 13 (1908); Malahacan v. Ignacio, 19 Phil. 434 (1911); McMicking v. Sy Conbieng, 21 Phil. 211 (1912); In re Estate of De Dios, 24 Phil. 573 (1913); Santos v. Manarang, 27 Phil. 209 (1914); Jaucian v. Querol, 38 Phil. 707 (1918); Buenaventura v. Ramos, 43 Phil. 704 (1922); Roxas v. Pecson, 82 Phil. 407 (1948); De Borja v. De Boria, 83 Phil. 405 (1949); Barraca v. Zayco, 88 Phil. 774 (1951); Pabilonia v. Santiago, 93 Phil. 516 (1953); Sison v. Teodoro, 98 Phil. 680 (1956); Ozaeta v. Palanca, 101 Phil. 976 (1957); Natividad Castelvi de Raquiza v. Castelvi, et al, L-17630, Oct. 31, 1963; Habana v. Imbo, L15598 & L-15726, March 31, 1964; Gliceria Liwanag v. Hon. Luis Reyes, L-19159, Sept. 29, 1964; Ignacio v. Elchico, L-18937, May 16, 1967.
6

Leon and Ghezzi v. Manufacturers Life, Inc. Co., 990 Phil. 459 (1951). Johannes v. Harvey, 43 Phil. 175, 177-178 (1922). 70 Phil. 325 (1940). Cf. Perkins v. Dizon, 69 Phil. 186 (1939).

Brief for Oppositor-Appellant, p. 5. The Assignment of Error reads: "The lower court erred in entering its order of May 18, 1964, (1) considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, (2) ordering the said certificates cancelled, and (3) ordering appellant to issue new certificates in lieu thereof and to deliver them to the ancillary administrator of the estate of the deceased Idonah Slade Perkins or to the probate division of the lower court."
10

Ibid, pp. 5 to 6. Nashville C. St. Louis Ry v. Browning, 310 US 362 (1940). Cardozo, The Paradoxes of Legal Science, 34 (1928). Ibid, p. 34.

11

12

13

14

Ibid, p. 34. The late Professor Gray in his The Nature and Sources of the Law, distinguished, following Ihering, historic fictions from dogmatic fictions, the former being devices to allow the addition of new law to old without changing the form of the old law and the latter being intended to arrange recognized and established doctrines under the most convenient forms. pp. 30, 36 (1909) Speaking of historic fictions, Gray added: "Such fictions have had their field of operation largely in the domain of procedure, and have consisted in pretending that a person or thing was other than which he or it was in truth (or that an event had occurred which had not in fact occurred) for the purpose of thereby giving an action at law to or against a person who did not really come within the class to or against which the old section was confined." Ibid, pp. 30-31. See also Pound, The Philosophy of Law, pp. 179, 180, 274 (1922).

This is what the particular by-law provides: Section 10. Lost, Stolen or Destroyed Certificates. Any registered stockholder claiming a certificate or certificates of stock to be lost, stolen or destroyed shall file an affidavit in triplicate with the Secretary of the Company, or with one of its Transfer Agents, setting forth, if possible, the circumstances as to how, when and where said certificate or certificates was or were lost, stolen or destroyed, the number of shares represented by the certificate or by each of the certificates, the serial number or numbers of the certificate or certificates, and the name of this Company. The registered stockholder shall also submit such other information and evidence which he may deem necessary. xxx xxx xxx

15

If a contest is presented to the Company, or if an action is pending in court regarding the ownership of said certificate or certificates of stock which have been claimed to have been lost, stolen or destroyed, the issuance of the new certificate or certificates in lieu of that or those claimed to have been lost, stolen or destroyed, shall be suspended until final decision by the court regarding the ownership of said certificate or certificates. Brief for OppositorAppelant, pp. 8-10.
16

Sec. 2, Act No. 1459 (1906). Berle, The Theory of Enterprise Entity, 47 Co. Law Rev. 343 (1907).

17

Dartmouth College v. Woodward, 4 Wheat, 518 (1819). Cook would trace such a concept to Lord Coke. See 1 Cook on Corporations, p. 2 (1923).
19

18

Fletcher, Cyclopedia Corporations, pp. 19-20 (1931). Chancellor Kent and Chief Justice Baldwin of Connecticut were likewise cited to the same effect. At pp. 12-13. 4 Pound on Jurisprudence, pp. 207-209 (1959).

20

21

Friedmann, Legal Theory, pp. 164-168 (1947). See also Holdsworth, English Corporation Law, 31 Yale Law Journal, 382 (1922).
22

101 Phil. 762 (1957). 38 USCA, Sec. 808.

23

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 114222 April 6, 1995 FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners, vs. HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and Communications, and EDSA LRT CORPORATION, LTD., respondents.

QUIASON, J.: This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993. Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation and Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of Hongkong. I In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit system along EDSA and alleviate the congestion and growing transportation problem in the metropolis. On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a BuildOperate-Transfer (BOT) basis. On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with DOTC. On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," was signed by President Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.

Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government projects through private initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT). In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91496, respectively creating the Prequalification Bids and Awards Committee (PBAC) and the Technical Committee. After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and implementation of the project The notice, advertising the prequalification of bidders, was published in three newspapers of general circulation once a week for three consecutive weeks starting February 21, 1991. The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and domestic corporations: namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz & co., Inc. On the last day for submission of prequalification documents, the prequalification criteria proposed by the Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal aspects 10 percent; (b) Management/Organizational capability 30 percent; and (c) Financial capability 30 percent; and (d) Technical capability 30 percent (Rollo, p. 122). On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules and Regulations thereof, approved the same. After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT contractor-applicant meet the requirements specified in the Constitution and other pertinent laws (Rollo, p. 114). Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters dated May 31, 1991 and June 14, 1991, respectively recommending the award of the EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium, and requesting for authority to negotiate with the said firm for the contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302). In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC. Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to

Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177). Secretary Prado, thereafter, requested presidential approval of the contract. In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos, informed Secretary Prado that the President could not grant the requested approval for the following reasons: (1) that DOTC failed to conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as the only mode to award BOT projects, and the prequalification proceedings was not the public bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which authorized negotiated award of contract in addition to public bidding was of doubtful legality; and (4) that congressional approval of the list of priority projects under the BOT or BT Scheme provided in the law had not yet been granted at the time the contract was awarded (Rollo, pp. 178-179). In view of the comments of Executive Secretary Drilon, the DOTC and private respondents renegotiated the agreement. On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to sign the Agreement without need of approval by the President pursuant to the provisions of Executive Order No. 380 and that certain events [had] supervened since November 7, 1991 which necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and private respondent entered into a "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their respective rights and responsibilities" and to submit [the] Supplemental Agreement to the President, of the Philippines for his approval" (Rollo, pp. 79-80). Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194). According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger stations and one depot in 16-hectare government property at North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). Private respondents shall undertake and finance the entire project required for a complete operational light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately three years from the implementation date of the contract inclusive of mobilization, site works, initial and final testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private respondent shall deliver the use and possession of the completed portion to DOTC which shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals shall be determined by an independent and internationally accredited inspection firm to be appointed by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital shall be recovered from the rentals to be

paid by the DOTC which, in turn, shall come from the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have completed payment of the rentals, ownership of the project shall be transferred to the latter for a consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67). On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law by the President. The law was published in two newspapers of general circulation on May 12, 1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and allows direct negotiation of BLT contracts. II In their petition, petitioners argued that: (1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL; (2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS ILLEGAL; (3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND, HENCE, IS UNLAWFUL; (4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS ILLEGAL; (5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND (6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, pp. 15-16). Secretary Garcia and private respondent filed their comments separately and claimed that: (1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition; (2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts; (3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;

(4) The nationality requirement for public utilities mandated by the Constitution does not apply to private respondent; (5) The Agreements executed by and between respondents have been approved by President Ramos and are not disadvantageous to the government; (6) The award of the contract to private respondent through negotiation and not public bidding is allowed by the BOT Law; and (7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of award of infrastructure projects. III Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however, countered that the action was filed by them in their capacity as Senators and as taxpayers. The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the national government or government-owned or controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA. 240 [1989]). For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold the legal standing of petitioners as taxpayers to institute the present action. IV In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons: (1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the Constitution to Filipino citizens and domestic corporations, not foreign corporations like private respondent; (2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT Scheme under the law; (3) the contract to construct the EDSA LRT III was awarded to private respondent not through public bidding which is the only mode of awarding infrastructure projects under the BOT law; and (4) the agreements are grossly disadvantageous to the government. 1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the system and pay rentals for said use.

The question posed by petitioners is: Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility? (Rollo, p. 17). The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is needed to operate these facilities to serve the public, they do not by themselves constitute a public utility. What constitutes a public utility is not their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]). The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public. Section 11 of Article XII of the Constitution provides: No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive character or for a longer period than fifty years . . . (Emphasis supplied). In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and equipment used to serve the public. Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected to his will in everything not prohibited by law or the concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]). The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to serve the public as a public utility unless the operator has a franchise. The operation of a rail system as a public utility includes the transportation of passengers from one point to another point, their loading and unloading at designated places and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]). The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof. This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be very well appreciated when we consider the transportation industry. Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning them themselves.

While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on completion date, private respondent will immediately deliver possession of the LRT system by way of lease for 25 years, during which period DOTC shall operate the same as a common carrier and private respondent shall provide technical maintenance and repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance facilities for the depot and rail lines, services for routine clearing and security; and (2) producing and distributing maintenance manuals and drawings for the entire system (Revised and Restated Agreement, Annex F). Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and repair of the rolling stock, power plant, substations, electrical, signaling, communications and all other equipment as supplied in the agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC operational personnel which includes actual driving of light rail vehicles under simulated operating conditions, control of operations, dealing with emergencies, collection, counting and securing cash from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work under the direction and control of private respondent only during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their employ personnel capable of undertaking training of all new and replacement personnel (Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year construction period and upon commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and train all new personnel by itself. Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost of replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54). Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or death which may be claimed in the operation or implementation of the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account of the defective condition of equipment or facilities or the defective maintenance of such equipment facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68). In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings with the public and the public will have no right to demand any services from it. It is well to point out that the role of private respondent as lessor during the lease period must be distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own expense, all the facilities necessary to operate and maintain a nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the same. Upon due examination of the contract, the Court found that PGMC's participation was not confined to the construction and setting up of the on-line lottery system. It spilled over to the actual operation thereof, becoming indispensable to the pursuit, conduct, administration and control of the highly technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which actually operated and managed the same.

Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]). Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one operating a public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]). 2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT Law and its Implementing Rules and Regulations. Section 2 of the BOT Law defines the BOT and BT schemes as follows: (a) Build-operate-and-transfer scheme A contractual arrangement whereby the contractor undertakes the construction including financing, of a given infrastructure facility, and the operation and maintenance thereof. The contractor operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient to enable the contractor to recover its operating and maintenance expenses and its investment in the project plus a reasonable rate of return thereon. The contractor transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty (50) years. For the construction stage, the contractor may obtain financing from foreign and/or domestic sources and/or engage the services of a foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of the contractor of an infrastructure facility whose operation requires a public utility franchise must be in accordance with the Constitution: Provided, however, That in the case of corporate investors in the build-operate-and-transfer corporation, the citizenship of each stockholder in the corporate investors shall be the basis for the computation of Filipino equity in the said corporation: Provided, further, That, in the case of foreign constructors [sic], Filipino labor shall be employed or hired in the different phases of the construction where Filipino skills are available: Provided, furthermore, that the financing of a foreign or foreign-controlled contractor from Philippine government financing institutions shall not exceed twenty percent (20%) of the total cost of the infrastructure facility or project: Provided, finally, That financing from foreign sources shall not require a guarantee by the Government or by government-owned or controlled corporations. The build-operate-and-transfer scheme shall include a supply-and-operate situation which is a contractual agreement whereby the supplier of equipment and machinery for a given infrastructure facility, if the interest of the Government so requires, operates the facility providing in the process technology transfer and training to Filipino nationals. (b) Build-and-transfer scheme "A contractual arrangement whereby the contractor undertakes the construction including financing, of a given infrastructure facility, and its turnover after completion to the government agency or local government unit concerned which shall pay the contractor its total investment expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure project including critical facilities which for

security or strategic reasons, must be operated directly by the government (Emphasis supplied). The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in infrastructure facility, and operates and maintains the same. The contractor operates the facility for a fixed period during which it may recover its expenses and investment in the project plus a reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the ownership and operation of the project to the government. In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion, the ownership and operation thereof are turned over to the government. The government, in turn, shall pay the contractor its total investment on the project in addition to a reasonable rate of return. If payment is to be effected through amortization payments by the government infrastructure agency or local government unit concerned, this shall be made in accordance with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec. 6). Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the citizenship requirement of the Constitution on the operation of a public utility. No such a requirement is imposed in the BT scheme. There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment by the government of the project cost. The law must not be read in such a way as to rule out or unduly restrict any variation within the context of the two schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points and details for the multifarious and complex situations that may be encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]). The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law. As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by allowing it to amortize payments out of the income from the operation of the LRT System. In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis according to a schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment shall have been made to and received by private respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87). A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for a certain price and for a period which may be definite or indefinite but not longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the lease period. But if the parties stipulate that title to the leased premises shall be transferred to the lessee at the end of the lease period upon the payment of an agreed sum, the lease becomes a lease-purchase agreement. Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and the National Economic and Development Authority as falling under the Investment Priorities Plan of

Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency Act (R.A. No. 529), which reads as follows: Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the Philippines which provisions purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. The above prohibition shall not apply to (a) . . .; (b) transactions affecting high-priority economic projects for agricultural, industrial and power development as may be determined by the National Economic Council which are financed by or through foreign funds; . . . . 3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and before congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award. Subsequent congressional approval of the list including "rail-based projects packaged with commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT Law. Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to have been rigged from the very beginning to do away with the usual open international public bidding where qualified internationally known applicants could fairly participate. The records show that only one applicant passed the prequalification process. Since only one was left, to conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]). Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects. Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts," allows the negotiated award of government projects in exceptional cases. Sections 4 of the said law reads as follows: Bidding. Construction projects shall generally be undertaken by contract after competitive public bidding. Projects may be undertaken by administration or force account or by negotiated contract only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or where there is conclusive evidence that greater economy and efficiency would be achieved through this arrangement, and in accordance with provision of laws and acts on the matter, subject to the approval of the Minister of Public Works and Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and the President of the Philippines, upon recommendation of the Minister, if the project cost is P1 Million or more (Emphasis supplied). xxx xxx xxx

Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the general law on government infrastructure contracts while the BOT Law governs particular arrangements or schemes aimed at encouraging private sector participation in government infrastructure projects. The two laws are not inconsistent with each other but are inpari materia and should be read together accordingly. In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of the competing firms ever brought the matter before the PBAC, or intervened in this case before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]). The challenged agreements have been approved by President Ramos himself. Although then Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a contract from renegotiating and modifying in good faith the terms and conditions thereof so as to meet legal, statutory and constitutional requirements. Under the circumstances, to require the parties to go back to step one of the prequalification process would just be an idle ceremony. Useless bureaucratic "red tape" should be eschewed because it discourages private sector participation, the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory. Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as: (e) Build-lease-and-transfer A contractual arrangement whereby a project proponent is authorized to finance and construct an infrastructure or development facility and upon its completion turns it over to the government agency or local government unit concerned on a lease arrangement for a fixed period after which ownership of the facility is automatically transferred to the government unit concerned. Section 5-A of the law, which expressly allows direct negotiation of contracts, provides: Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is only one complying bidder left as defined hereunder. (a) If, after advertisement, only one contractor applies for prequalification and it meets the prequalification requirements, after which it is required to submit a bid proposal which is subsequently found by the agency/local government unit (LGU) to be complying. (b) If, after advertisement, more than one contractor applied for prequalification but only one meets the prequalification requirements, after which it submits bid/proposal which is found by the agency/local government unit (LGU) to be complying. (c) If, after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU to be complying. (d) If, after prequalification, more than one contractor submit bids but only one is found by the agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder [sic] may appeal the decision of the implementing agency, agency/LGUs prequalification bids and awards committee within fifteen (15) working days to the head of the agency, in case of national projects or to the Department of

the Interior and Local Government, in case of local projects from the date the disqualification was made known to the disqualified bidder: Provided, furthermore, That the implementing agency/LGUs concerned should act on the appeal within forty-five (45) working days from receipt thereof. Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law authorizes all government infrastructure agencies, government-owned and controlled corporations and local government units to enter into contract with any duly prequalified proponent for the financing, construction, operation and maintenance of any financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-addoperate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]). From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3). Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of minimum government regulations and procedures and specific government undertakings in support of the private sector" (Sec. 1). A curative statute makes valid that which before enactment of the statute was invalid. Thus, whatever doubts and alleged procedural lapses private respondent and DOTC may have engendered and committed in entering into the questioned contracts, these have now been cured by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922]. 4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the rental rates are excessive and private respondent's development rights over the 13 stations and the depot will rob DOTC of the best terms during the most productive years of the project. It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25 years, exclusive rights over the depot and the air space above the stations for development into commercial premises for lease, sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights, private respondent shall pay DOTC in Philippine currency guaranteed revenues generated therefrom in the amounts set forth in the Supplemental Agreement (Sec. 11;Rollo, p. 93). In the event that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent due private respondent for the construction of the EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the commercial spaces shall revert to DOTC upon expiration of the 25-year period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper administrative agencies and officials who have acquired expertise, specialized skills and knowledge in the performance of their functions should be accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]). Government officials are presumed to perform their functions with regularity and strong evidence is necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable

rentals to be paid by the parties to each other. The matter of valuation is an esoteric field which is better left to the experts and which this Court is not eager to undertake. That the grantee of a government contract will profit therefrom and to that extent the government is deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In all cases where a party enters into a contract with the government, he does so, not out of charity and not to lose money, but to gain pecuniarily. 5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental function. DOTC is the primary policy, planning, programming, regulating and administrative entity of the Executive branch of government in the promotion, development and regulation of dependable and coordinated networks of transportation and communications systems as well as in the fast, safe, efficient and reliable postal, transportation and communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular that has the power, authority and technical expertise determine whether or not a specific transportation or communication project is necessary, viable and beneficial to the people. The discretion to award a contract is vested in the government agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]). WHEREFORE, the petition is DISMISSED. SO ORDERED Bellosillo and Kapunan, JJ., concur. Padilla and Regalado, JJ., concurs in the result. Romero, J., is on leave.

Separate Opinions

MENDOZA, J., concurring: I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to sue, I join to dismiss the petition in this case. I write only to set forth what I understand the grounds for our decisions on the doctrine of standing are and, why in accordance with these decisions, petitioners do not have the rights to sue, whether as legislators, taxpayers or citizens. As members of Congress, because they allege no infringement of prerogative as legislators. 1 As taxpayers because petitioners allege neither an unconstitutional exercise of the taxing or spending powers of Congress (Art VI, 24-25 and 29) 2 nor an illegal disbursement of public money. 3As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron, 4 a party suing as taxpayer "must specifically prove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will sustain a direct injury as a result of the enforcement of the questioned

statute or contract. It is not sufficient that he has merely a general interest common to all members of the public." In that case, it was held that a contract, whereby a local government leased property to a private party with the understanding that the latter would build a market building and at the end of the lease would transfer the building of the lessor, did not involve a disbursement of public funds so as to give taxpayer standing to question the legality of the contract. I see no substantial difference, as far as the standing is of taxpayers to question public contracts is concerned, between the contract there and the build-lease-transfer (BLT) contract being questioned by petitioners in this case. Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were authorized to sue, this Court found standing because it thought the constitutional claims pressed for decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners by invalidating the challenged statutes or governmental actions. Thus in the Lotto case 6 relied upon by the majority for upholding petitioners standing, this Court took into account the "paramount public interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being of the people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery system:" 7 Accordingly, the Court invalidated the contract for the operation of lottery. But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive contentions to be without merit To the extent therefore that a party's standing is affected by a determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in the case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for a Better Philippines v. Aquino 8 and In re Bermudez 9 where we dismissed citizens' actions on the ground that petitioners had no personality to sue and their petitions did not state a cause of action. The holding that petitioners did not have standing followed from the finding that they did not have a cause of action. In order that citizens' actions may be allowed a party must show that he personally has suffered some actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly traceable to the challenged action; and the injury is likely to be redressed by a favorable action. 10 As the U.S. Supreme Court has held:
Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims asserted. Is the injury too abstract, or otherwise not appropriate, to be considered judicially cognizable? Is the line of causation between the illegal conduct and injury too attenuated? Is the prospect of obtaining relief from the injury as a result of a favorable ruling too speculative? These questions and any others relevant to the standing inquiry must be answered by reference to the Art III notion that federal courts may exercise power only "in the last resort, and as a necessity, Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when adjudication is "consistent with a system of separated powers and [the dispute is one] traditionally thought to be capable of resolution through the judicial process," Flast v Cohen, 392 US 83, 97, 20 L Ed 2d 947, 88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752. 11

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly expands the scope of public actions and sweeps away the case and controversy requirement so carefully embodied in Art. VIII, 5 in defining the jurisdiction of this Court. The result is to convert the Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with the view that this case has no merit I submit with respect that petitioners, as representatives of the public interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur. DAVIDE, JR., J., dissenting: After wading through the record of the vicissitudes of the challenged contract and evaluating the issues raised and the arguments adduced by the parties, I find myself unable to joint majority in the well-written ponencia of Mr. Justice Camilo P. Quiason. I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is anultra-vires act of the Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has, the contract was entered into without complying with the mandatory requirement of public bidding. I Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements between the private sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2 thereof which defines only the BOT and BT schemes, in Section 3 which explicitly provides for said schemes thus: Sec. 3 Private Initiative in Infrastructure. All government infrastructure agencies, including government-owned and controlled corporations and local government units, are hereby authorized to enter into contract with any duly prequalified private contractor for the financing, construction, operation and maintenance of any financially viable infrastructure facilities through the build-operate-and transfer or build-and-transfer scheme, subject to the terms and conditions hereinafter set forth; (Emphasis supplied). and in Section 5 which requires public bidding of projects under both schemes. All prior acts and negotiations leading to the perfection of the challenged contract were clearly intended and pursued for such schemes. A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC is without any power or authority to enter into the BLT contract in question. The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the BOT and the BT schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict any variation within the context of the two schemes." This interpretation would be correct if the law itself provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended to include a BLT scheme, then it should have so stated, for contracts of lease are not unknown in our jurisdiction, and Congress has enacted several laws relating to leases. That the BLT scheme was never intended as a permissible variation "within the context" of the BOT and BT schemes is conclusively established by the passage of R.A. No. 7718 which amends:

a. Section 2 by adding to the original BOT and BT schemes the following schemes:
(1) (2) (3) (4) (5) (6) (7)

Build-own-and-operate (BOO) Build-Lease-and-transfer (BLT) Build-transfer-and-operate (BTO) Contract-add-and-operate (CAO) Develop-operate-and-transfer (DOT) Rehabilitate-operate-and-transfer (ROT) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the buildoperate-and-transfer or build-and-transfer scheme." II Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows: Sec. 5 Public Bidding of Projects. Upon approval of the projects mentioned in Section 4 of this Act, the concerned head of the infrastructure agency or local government unit shall forthwith cause to be published, once every week for three (3) consecutive weeks, in at least two (2) newspapers of general circulation and in at least one (1) local newspaper which is circulated in the region, province, city or municipality in which the project is to be constructed a notice inviting all duly prequalified infrastructure contractors to participate in the public bidding for the projects so approved. In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present value of its proposed tolls, fees, rentals, and charges over a fixed term for the facility to be constructed, operated, and maintained according to the prescribed minimum design and performance standards plans, and specifications. For this purpose, the winning contractor shall be automatically granted by the infrastructure agency or local government unit the franchise to operate and maintain the facility, including the collection of tolls, fees, rentals; and charges in accordance with Section 6 hereof. In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present value of its proposed, schedule of amortization payments for the facility to be constructed according to the prescribed minimum design and performance standards, plans and specifications: Provided, however, That a Filipino constructor who submits an equally advantageous bid shall be given preference. A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submitted to Congress for its information. The requirement of public bidding is not an idle ceremony. It has been aptly said that in our jurisdiction "public bidding is the policy and medium adhered to in Government procurement and construction contracts under existing laws and regulations. It is the accepted method for arriving at a fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices are eliminated or minimized. And any Government contract entered into without the required bidding is null and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr.,

A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]). The Office of the President, through then Executive Secretary Franklin Drilon Correctly disapproved the contract because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was conducted. Secretary Drilon Further bluntly stated that the provision of the Implementing Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void because the law itself does not recognize or allow negotiated contracts. However the majority opinion posits the view that since only private respondent EDSA LRT was prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the mandatory requirement of public bidding cannot be legally dispensed with simply because only one was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to the lowest complying bidder," which logically means that there must at least be two (2) bidders. If this minimum requirement is not met, then the proposed bidding should be deferred and a new prequalification proceeding be scheduled. Even those who were earlier disqualified may by then have qualified because they may have, in the meantime, exerted efforts to meet all the qualifications. This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy conspiracies among prospective bidders, which would even include dishonest government officials. They could just agree, for a certain consideration, that only one of them qualify in order that the latter would automatically corner the contract and obtain the award. That section 5 admits of no exception and that no bidding could be validly had with only one bidder is likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation contracts. This new section reads: Sec. 5-A. Direct Negotiation Of Contracts Direct negotiation, shall be resorted to when there is only one complying bidder left as defined hereunder. (a) If, after advertisement, only one contractor applies for prequalification requirements, after which it is required to submit a bid/proposal which subsequently found by the agency/local government unit (LGU) to be complying. (b) If, after advertisement, more than one contractor applied for prequalification but only one meets the prequalification requirements, after which it submits bid/proposal which is found by the agency/local government unit (LGU) to be complying, (c) If after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU to be complying. (d) If, after prequalification, more than one contractor, only one submit bids but only one is found by the agency/LGU to be complying: Provided, That, any of the disqualified prospective bidder may appeal the decision contractor of the implementing agency/LGUs prequalification bids an award committee within fifteen (15) working days to the head of the agency, in case of national projects or to the Department of the Interior and Local Government, in case of local

projects from the date the disqualification was made known to the disqualified bidder Provided, That the implementing agency/LGUs concerned should act on the appeal within forty-five (45) working days from receipt thereof. Can this amendment be given retroactive effect to the challenged contract so that it may now be considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says that it "shall take effect fifteen (15) days after its publication in at least two (2) newspapers of general circulation." If it were the intention of Congress to give said act retroactive effect then it would have so expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect, unless the contrary is provided." The presumption is that all laws operate prospectively, unless the contrary clearly appears or is clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing statute, Sutherland states: In accordance with the rule applicable to original acts, it is presumed that provisions added by the amendment affecting substantive rights are intended to operate prospectively. Provisions added by the amendment that affect substantive rights will not be construed to apply to transactions and events completed prior to its enactment unless the legislature has expressed its intent to that effect or such intent is clearly implied by the language of the amendment or by the circumstances surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION 434-436 [1943 ed.]). I vote then to grant the instant petition and to declare void the challenged contract and its supplement. FELICIANO, J., dissenting: After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I agree with many of the things set out in the majority opinion written by my distinguished brother in the Court Quiason, J. At the end of the day, however, I find myself unable to join in the result reached by the majority. I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly narrow grounds. At the same time; I wish to address briefly one of the points made by Justice Quiason in the majority opinion in his effort to meet the difficulties posed by Davide Jr., J. I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled: "Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts" More specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as follows: Sec. 4. Bidding. Construction projects shall, generally be undertaken by contract after competitive public bidding. Projects may be undertaken by administration or force account or by negotiated contract only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or where there is a conclusive evidence that greater economy and efficiency would be achieved through

this arrangement, and in accordance with provisions of laws and acts on the matter, subject to the approval of the Ministry of public Works, Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and of the President of the Philippines, upon the recommendation of the Minister, if the project cost is P1 Million or more. xxx xxx xxx I understand the unspoken theory in the majority opinion to be that above Section 4 and presumably the rest of Presidential Decree No. 1594 continue to exist and to run parallel to the provisions of Republic Act No. 6957, whether in its original form or as amended by Republic Act No. 7718. A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all "government contracts for infrastructure and other construction projects." But Republic Act No. 6957 as amended by Republic Act No. 7718, relates only to "infrastructure projects" which are financed, constructed, operated and maintained "by the private sector" "through the build/operateand-transfer or build-and-transfer scheme" under Republic Act No. 6597 and under a series of other comparable schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and Republic Act. No. 7718 must be held, in my view, to be special statutes applicable to a more limited field of "infrastructure projects" than the wide-ranging scope of application of the general statute i.e., Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of contracts imposed an unqualifiedrequirement of public bidding set out in Section 5 thereof. It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by administration or force account or by negotiated contract only" (1) in exceptional cases where time is of the essence; or (2) where there is lack of bidders or contractors; or (3) where there is a conclusive evidence that greater economy and efficiency would be achieved through these arrangements, and in accordance with provision[s] of laws and acts on the matter. It must, upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely no mention of negotiated contracts being permitted to displace the requirement of public bidding. Upon the other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act No. 7718, does not purport to authorize direct negotiation of contracts situations where there is a lack of pre-qualified contractors or, complying bidders. Thus, even under the amended special statute, entering into contracts by negotiation is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of the essence" and "when there is conclusive evidence that greater economy and efficiency would be achieved through these arrangements, etc." The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act No. 7718, The provision of Republic Act No. 7718. The assailed contract was entered into before Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of Presidential Degree No. 1594 to the Edsa LRT-type of contracts are aggravated when one considers the detailed "Implementing Rules and Regulations as amended April 1988" issued under that Presidential Decree. 1 For instance: IB [2.5.2] 2.4.2 By Negotiated Contract xxx xxx xxx a. In times of emergencies arising from natural calamities where immediate action is necessary to prevent imminent loss of life and/or property. b. Failure to award the contract after competitive public bidding for valid cause or causes [such as where the prices obtained through public bidding are all above the AAE and the bidders refuse to reduce their prices to the AAE]. In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified contractors. Authority to negotiate contracts for projects under these exceptional cases shall be subject to prior approval by heads of agencies within their limits of approving authority. c. Where the subject project is adjacent or contiguous to an on-going project and it could be economically prosecuted by the same contractor provided that he has no negative slippage and has demonstrated a satisfactory performance. (Emphasis supplied). Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules and Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as distinguished from requiring public bidding or a second public bidding. Note also the following provision of the same Implementing Rules and Regulations: IB 1 Prequalification The following may be become contractors for government projects: 1 Filipino a. Citizens (single proprietorship) b. Partnership of corporation duly organized under the laws of the Philippines, and at least seventy five percent (75%) of the capital stock of which belongs to Filipino citizens. 2. Contractors forming themselves into a joint venture, i.e., a group of two or more contractors that intend to be jointly and severally responsible for a particular contract, shall for purposes of bidding/tendering comply with LOI 630, and, aside from being currently and properly accredited by the Philippine Contractors Accreditation Board, shall comply with the provisions of R.A. 4566, provided that joint ventures in which Filipino ownership is less than seventy five percent ( 75%) may be prequalified where

the structures to be built require the application of techniques and/or technologies which are not adequately possessed by a Filipino entity as defined above. [The foregoing shall not negate any existing and future commitments with respect to the bidding and aware of contracts financed partly or wholly with funds from international lending institutions like the Asian Development Bank and the Worlds Bank as well as from bilateral and other similar sources.(Emphases supplied) The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT Corporation; there is no suggestion that this corporation is organized under Philippine law and is at least seventy-five (75%) percent owned by Philippine citizens. Public bidding is the normal method by which a government keeps contractors honest and is able to assure itself that it would be getting the best possible value for its money in any construction or similar project. It is not for nothing that multilateral financial organizations like the World Bank and the Asian Development Bank uniformly require projects financed by them to be implemented and carried out by public bidding. Public bidding is much too important a requirement casually to loosen by a latitudinarian exercise in statutory construction. The instant petition should be granted and the challenged contract and its supplement should be nullified and set aside. A true public bidding, complete with a new prequalification proceeding, should be required for the Edsa LRT Project.

Separate Opinions MENDOZA, J., concurring: I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to sue, I join to dismiss the petition in this case. I write only to set forth what I understand the grounds for our decisions petitioners do not have the rights to sue, whether as legislators, taxpayers or citizens. As members of Congress, because they allege no infringement of prerogative as legislators. 1 As taxpayers because petitioners allege neither an unconstitutional exercise of the taxing or spending powers of Congress (Art VI, 24-25 and 29) 2 nor an illegal disbursement of public money. 3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron, 4 a party suing as taxpayer "must specifically prove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will sustain a direct injury as a result of the enforcement of the questioned statute or contract, It is not sufficient that has merely a general interest common to all members of the public." In that case, it was held that a contract, whereby a local government leased property to a private party with the understanding that the latter would build a market building and at the end of the lease would transfer the building of the lessor, did not involve a disbursement of public funds so as to give taxpayer standing to question the legality of the contract contracts I see no substantial difference, as far as the standing is of taxpayers is concerned, between the contract there and the build-lease-transfer (BLT) contract being questioned by petitioners in this case. Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were authorized to sue, this Court found standing because it thought the constitutional claims pressed for decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners by invalidating the challenged statutes or governmental actions. Thus in the Lotto case 6 relied upon

by the majority for upholding petitioners standing, this Court took into account the "paramount public interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being of the people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery system:" 7 Accordingly, the Court invalidated the contract for the operation of lottery. But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive contentions to be without merit To the extent therefore that a party's standing is affected by a determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in the case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for a Better Philippines v. Aquino 8 and In re Bermudez 9 where we dismissed citizens' actions on the ground that petitioners had no personality to sue and their petitions did not state a cause of action. The holding that petitioners did not have standing followed from the finding that they did not have a cause of action. In order that citizens' actions may be allowed a party must show that he personally has suffered some actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly traceable to the challenged action; and the injury is likely to be redressed by a favorable action. 10 As the U.S. Supreme Court has held:
Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims asserted. Is the injury too abstract, or otherwise not appropriate, to be considered judicially cognizable? Is the line of causation between the illegal conduct and injury too attenuated? Is the prospect of obtaining relief from the injury as a result of a favorable ruling too speculative? These questions and any others relevant to the standing inquiry must be answered by reference to the Art III notion that federal courts may exercise power only "in the last resort, and as a necessity, Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when adjudication is "consistent with a system of separated powers and [the dispute is one] traditionally thought to be capable of resolution through the judicial process," Flast v Cohen, 392 US 83, 97, 20 L Ed 2d 947, .88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752. 11

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly expands the scope of public actions and sweeps away the case and controversy requirement so carefully embodied in Art. VIII, 5 in defining the jurisdiction of this Court. The result is to convert the Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with the view that this case has no merit I submit with respect that petitioners, as representatives of the public interest, have no standing. Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur. DAVIDE, JR., J., dissenting: After wading through the record of the vicissitudes of the challenged contract and evaluating the issues raised and the arguments adduced by the parties, I find myself unable to joint majority in the well-written ponencia of Mr. Justice Camilo P. Quiason. I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is anultra-vires act of the Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has, the contract was entered into without complying with the mandatory requirement of public bidding.

I Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements between the private sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2 thereof which defines only the BOT and BT schemes, in Section 3 which explicitly provides for said schemes thus: Sec. 3 Private Initiative in Infrastructure. All government infrastructure agencies, including government-owned and controlled corporations and local government units, are hereby authorized to enter into contract with any duly prequalified private contractor for the financing, construction, operation and maintenance of any financially viable infrastructure facilities through the build-operate-and transfer or build-and-transfer scheme, subject to the terms and conditions hereinafter set forth; (Emphasis supplied). and in Section 5 which requires public bidding of projects under both schemes. All prior acts and negotiations leading to the perfection of the challenged contract were clearly intended and pursued for such schemes. A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC is without any power or authority to enter into the BLT contract in question. The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the BOT and the BT schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict any variation within the context of the two schemes." This interpretation would be correct if the law itself provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended to include a BLT scheme, then it should have so stated, for contracts of lease are not unknown in our jurisdiction, and Congress has enacted several laws relating to leases. That the BLT scheme was never intended as a permissible variation "within the context" of the BOT and BT schemes is conclusively established by the passage of R.A. No. 7718 which amends: a. Section. 2 by adding to the original BOT and BT schemes the following schemes:
1) 2) 3) 4) 5) 6) 7)

Build-own-and-operate (BOO) Build-Lease-and-transfer (BLT) Build-transfer-and-operate (BTO) Contract-add-and-operate (CAO) Develop-operate-and-transfer (DOT) Rehabilitate-operate-and-transfer (ROT) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the buildoperate-and-transfer or build-and-transfer scheme.

II Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows: Sec. 5 Public Bidding of Projects. Upon approval of the projects mentioned in Section 4 of this Act, the concerned head of the infrastructure agency or local government unit shall forthwith cause to be published, once every week for three (3) consecutive weeks, in at least two (2) newspapers of general circulation and in at least one (1) local newspaper which is circulated in the region, province, city or municipality in which the project is to be constructed a notice inviting all duly prequalified infrastructure contractors to participate in the public bidding for the projects so approved. In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present value of its proposed tolls, fees, rentals, and charges over a fixed term for the facility to be constructed, operated, and maintained according to the prescribed minimum design and performance standards plans, and specifications. For this purpose, the winning contractor shall be automatically granted by the infrastructure agency or local government unit the franchise to operate and maintain the facility, including the collection of tolls, fees, rentals; and charges in accordance with Section 6 hereof. In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the present value of its proposed, schedule of amortization payments for the facility to be constructed according to the prescribed minimum design and performance standards, plans and specifications: Provided, however, That a Filipino constructor who submits an equally advantageous bid shall be given preference. A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submitted to Congress for its information. The requirement of public bidding is not an idle ceremony. It has been aptly said that in our jurisdiction "public bidding is the policy and medium adhered to in Government procurement and construction contracts under existing laws and regulations. It is the accepted method for arriving at a fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices are eliminated or minimized. And any Government contract entered into without the required bidding is null and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]). The Office of the president secretary through then Executive Secretary Franklin Drilon Correctly disapproved the contract because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was conducted. Secretary Drilon Further bluntly stated that the provision of the Implementing Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void because the law itself does not recognize or allow negotiated contracts. However the majority opinion posits the view that since only private respondent EDSA LRT was prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the mandatory requirement of public bidding cannot be legally dispensed with simply because only one was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to the lowest complying bidder," which logically means that there must at least be two (2) bidders. If this minimum requirement is not met, then the proposed bidding should be deferred and a new prequalification proceeding be scheduled. Even those who were earlier

disqualified may by then have qualified because they may have, in the meantime, exerted efforts to meet all the qualifications. This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy conspiracies among prospective bidders, which would even include dishonest government officials. They could just agree, for a certain consideration, that only one of them qualify in order that the latter would automatically corner the contract and obtain the award. That section 5 admits of no exception and that no bidding could be validly had with only one bidder is likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation contracts. This new section reads: Sec. 5-A. Direct Negotiation Of Contracts Direct negotiation, shall be resorted to when there is only one complying bidder left as defined hereunder. (a) If, after advertisement, only one contractor applies for prequalification requirements submit a bid/proposal which subsequently found by the agency/local government unit (LGU) to be complying. (b) If, after advertisement, more than one contractor applied for prequalification but only one meets the prequalification .requirements, after which it submits bid/proposal which is found by the agency/local government unit (LGU) to be complying, (c) If after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU to be complying. (d) If, after prequalification, more than one contractor, only one submit bids but only one is found by the agency/LGU to be complying: Provided, That, any of the disqualified prospective bidder may appeal the decision contractor of the implementing agency/LGUs prequalification bids an award committee within fifteen (15) working days to the head of the agency of national projects or to the Department of the Interior and Local Government, in case of local projects from the date the disqualification was made known to the disqualified bidder Provided, That the implementing agency/LGUs concerned should act on the appeal within forty-five (45) working days from receipt thereof. Can this amendment be given retroactive effect to the challenged contract so that it may now be considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says that it "shall take effect fifteen (15) after its publication in at least two (2) newspapers of general circulation." If it were the intention of Congress to give said act retroactive effect then it would have so expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect, unless the contrary is provided." The presumption is that all laws operate prospectively, unless the contrary clearly appears or is clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY

CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing statute, Sutherland states: In accordance with the rule applicable to original acts, it is presumed that provisions added by the amendment affecting substantive rights are intended to operate prospectively. Provisions added by the amendment that affect substantive rights will not be construed to apply to transactions and events completed prior to its enactment unless the legislature has expressed its intent to that effect or such intent is clearly implied by the language of the amendment or by the circumstances surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION 434-436 [1943 ed.]). I vote then to grant the instant petition and to declare void the challenged contract and its supplement. FELICIANO, J., dissenting: After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I agree with many of the things set out in the majority opinion written by my distinguished brother in the Court Quiason, J. At the end of the day, however, I find myself unable to join in the result reached by the majority. I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly narrow grounds. At the same time; I wish to address briefly one of Justice Quiason in the majority opinion in his effort to meet the difficulties posed by Davide Jr., J. I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled: "Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts" More specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as follows: Sec. 4. Bidding. Construction projects shall, generally be undertaken by contract after competitive public bidding. Projects may be undertaken by administration or force account or by negotiated contract only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or where there is a conclusive evidence that greater economy and efficiency would be achieved through this arrangement, and in accordance with provisions of laws and acts on the matter, subject to the approval of the Ministry of public Works, Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and of the president of the Philippines, upon the recommendation of the Minister, if the project cost is P1 Million or more. xxx xxx xxx I understand the unspoken theory in the majority opinion utility and the ownership of the facilities used to serve the public can be very w1594 continue to exist and to run parallel to the provisions of Republic Act No. 6957, whether in its original form or as amended by Republic Act No. 7718. A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all "government contracts for infrastructure and other construction projects" But Republic Act No. 6957 as amended by Republic Act No. 7718, relates on to "infrastructure projects" which are financed,

constructed, operated and maintained "by the private sector" "through the build/operate-and-transfer or build-and-transfer scheme" under Republic Act No. 6597 and under a series of other comparable schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and Republic Act. No: 7718 must be held, in my view, to be special statutes applicable to a more limited field of "infrastructure projects" than the wide-ranging scope of application of the general statute i.e., Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof. It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by administration or force account or by negotiated contract only " (1) in exceptional cases where time is of the essence; or (2) where there is lack of bidders or contractors; or (3) where there is a conclusive evidence that greater economy and efficiency would be achieved through these arrangements, and in accordance with provision[s] of laws and acts on the matter. It must, upon the one hand, be noted that the special law Republic Act- No. 6957 made absolutely no mention ofnegotiated contracts being permitted to displace the requirement of public bidding. Upon the other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act No. 7718, does not purport to authorize direct negotiation of contracts situations where there is a lack of pre-qualified contractors or, complying bidders. Thus, even under the amended special statute, entering into contracts by negotiation is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of the essence" and "when there is conclusive evidence that greater economy and efficiency would be achieved through these arrangements, etc." The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act No. 7718. The provision of Republic Act No. 7718. The assailed contract was entered into before Republic Act. No. 7718 was enacted. The difficulties. of applying the provisions of presidential Degree No. 1594 to the Edsa LRT-type of contracts are aggravated when one considers the detailed" Implementing Rules and Regulations as amended April 1988" issued under that Presidential Decree. 1 For instance: IB [2.5.2] 2.4.2 By Negotiated Contract xxx xxx xxx a. In times of emergencies arising from natural calamities where immediate action is necessary to prevent imminent loss of life and/or property. b. Failure to award the contract after competitive public bidding for valid cause or causes [such as where the prices obtained through

public bidding are all above the AAE and the bidders refuse to reduce their prices to the AAE]. In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified contractors. Authority to negotiate contracts for projects under these exceptional cases shall be subject to prior approval by heads of agencies within their limits of approving authority. c. Where the subject project is adjacent or contiguous to an on-going project and it could be economically prosecuted by the same contractor provided that he has no negative slippage and has demonstrated a satisfactory performance. (Emphasis supplied). Note that there is no reference at all in these presidential Decree No. 1594 Implementing Rules and Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as distinguished from requiring public bidding or a second public bidding. Note also the following provision of the same Implementing Rules and Regulations: IB 1 Prequalification The following may be become contractors for government projects: 1 Filipino a. Citizens (single proprietorship) b. Partnership of corporation duly organized under the laws of the Philippines, and at least seventy five percent (75%) of the capital stock of which belongs to Filipino citizens. 2. Contractors forming themselves into a joint venture, i.e., a group of two or more contractors that intend to be jointly and severally responsible for a particular contract, shall for purposes of bidding/tendering comply with LOI 630, and, aside from being currently and properly accredited by the Philippine Contractors Accreditation Board, shall comply with the provisions of R.A. 4566, provided that joint ventures in which Filipino ownership is less than seventy five percent ( 75%) may be prequalified where the structures to be built require the application of techniques and/or technologies which are not adequately possessed by a Filipino entity as defined above. [The foregoing shall not negate any existing and future commitments with respect to the bidding and aware of contracts financed partly or wholly with funds from international lending institutions like the Asian Development Bank and the Worlds Bank as well as from bilateral and other similar sources.(Emphases supplied) The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT Corporation; there is no suggestion that this corporation is organized under Philippine law and is at least seventy-five (75%) percent owned by Philippine citizens.

Public bidding is the normal method by which a government keeps contractors honest and is able to assure itself that it would be getting the best possible value for its money in any construction or similar project. It is not for nothing that multilateral financial organizations like the World Bank and the Asian Development Bank uniformly require projects financed by them to be implemented and carried out by public bidding. Public bidding is much too important a requirement casually to loosen by a latitudinarian exercise in statutory construction. The instant petition should be granted and the challenged contract and its supplement should be nullified and set aside. A true public bidding, complete with a new prequalification proceeding, should be required for the Edsa LRT Project. Footnotes MENDOZA, J., concurring: 1 Philconsa v. Enriquez, 235 SCRA 506 (1994); Gonzales v. Macaraig, 191 SCRA 452 (1990); Tolentino v. Comelec, 41 SCRA 702 (1971). 2 Flast v. Cohen, 392 U.S. 83, 20 L. Ed. 2d 947 (1968), cited in Igot v. Comelec, 95 SCRA 392 (1980). 3 Pascual v. Secretary of Public Works, 110 Phil 331 (1960); Sanidad v Comelec, 73 SCRA 333 (1976). 4 176 SCRA 240, 251-2 (1989). 5 Emergency Powers Cases [Araneta v. Dinglasan]. 84 Phil. 368 (1949), Iloilo Palay and Corn Planters Ass'n. v. Feliciano, 121 Phil. 358 (1965); Philconsa v. Gimenez. 122 Phil. 894 (1965); CLU v. Executive Secretary, 194 SCRA 317 (1991). 6 Kilosbayan, Inc. v. Guingona, 232 SCRA 110 (1994). 7 Id. at 139. 8 G.R Nos. 73748, 73972, and 73990, May 22, 1986. (Questioning the legitimacy of the Provisional Government of President Aquino). 9 145 SCRA 160 (1986). (Questioning whether President Aquino and Vice President Laurel were the "President and Vice-President elected in the February 7, 1986 election" within the meaning of Art XVIII, 5 of the Constitution. 10 Valley Forge College v. Americans United, 454 U.S. 464, 70 L. Ed. 2d 700 (1982); Bugnay Const. and Dev. Corp. v. Laron, supra, note 4. 11 Allen v. Wright, 468 U.S. 737, 752, 82 L. Ed. 2d 556, 170 (1984). FELICIANO, J., dissenting: 1 Text in 84 Official Gazette, No. 23, pp. 33-37, et seq. (June 1988).
EN BANC

G.R. No. L-18216

October 30, 1962

STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants, vs. REGISTER OF DEEDS OF MANILA, Respondent-Appellee. BAUTISTA ANGELO, J.:
ch an rob les virt u al l aw lib rary

On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the assets of the corporation reciting, among other things, that by virtue of a resolution of the stockholders adopted on September 17, 1960, dissolving the corporation, they have distributed among themselves in proportion to their shareholdings, as liquidating dividends, the assets of said corporation, including real properties located in Manila.
ch an rob lesvirt u alawl ib rary ch an rob les virt u al l aw lib rary

The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration on seven grounds, of which the following were disputed by the stockholders: 3. The number of parcels not certified to in the acknowledgment; 5. P430.50 Reg. fees need be paid;
ch an rob les virt u al l aw lib rary ch an rob les v irt u al la w l ib rary

6. P940.45 documentary stamps need be attached to the document;

ch an rob les virt u al l aw lib rary

7. The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need be presented (Rules of Court, Rule 104, Sec. 3). Deciding the consulta elevated by the stockholders, the Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5 and 6.
ch anrob lesvirt u ala wlib rary ch an rob les virt u al law lib rary

The stockholders interposed the present appeal.

ch an rob lesvirt u alawlib rar y ch an rob le s virt u al l aw lib rary

As correctly stated by the Commissioner of Land Registration, the propriety or impropriety of the three grounds on which the denial of the registration of the certificate of liquidation was predicated hinges on whether or not that certificate merely involves a distribution of the corporation's assets or should be considered a transfer or conveyance.
c an rob lesvirt u ala wlib rary ch an rob les virt u al l aw lib rary h

Appellants contend that the certificate of liquidation is not a conveyance or transfer but merely a distribution of the assets of the corporation which has ceased to exist for having been dissolved. This is apparent in the minutes for dissolution attached to the document. Not being a conveyance the certificate need not contain a statement of the number of parcel of land involved in the distribution in the acknowledgment appearing therein. Hence the amount of documentary stamps to be affixed thereon should only be P0.30 and not P940.45, as required by the register of deeds. Neither is it correct to require appellants to pay the amount of P430.50 as registration fee.
ch an rob lesvirt u alawl ib rary ch an rob l es virt u al l aw lib rary

The Commissioner of Land Registration, however, entertained a different opinion. He concurred in the view expressed by the register of deed to the effect that the certificate of liquidation in question, though it involves a distribution of the corporation's assets, in the last analysis represents a transfer of said assets from the corporation to the stockholders. Hence, in substance it is a transfer or conveyance.
ch an rob lesvirt u alawl ib rary ch an rob les virt u al l aw lib rary

We agree with the opinion of these two officials. A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the corporation's property, or the right to

share in its proceeds to that extent when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala 398, 56 So., 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate property (Halton v. Hohnston, 166 Ala 317, 51 So 992).
ch an rob lesvirt u alawlib rar y ch an rob le s virt u al la w lib rary

On the basis of the foregoing authorities, it is clear that the act of liquidation made by the stockholders of the F. Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered a partition of community property, but rather a transfer or conveyance of the title of its assets to the individual stockholders. Indeed, since the purpose of the liquidation, as well as the distribution of the assets of the corporation, is to transfer their title from the corporation to the stockholders in proportion to their shareholdings, - and this is in effect the purpose which they seek to obtain from the Register of Deeds of Manila, - that transfer cannot be effected without the corresponding deed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to consider the certificate of liquidation as one in the nature of a transfer or conveyance.
c an rob lesvirt u ala wlib rary ch an rob les virt u al l aw lib rary h

WHEREFORE, we affirm the resolution appealed from, with costs against appellants.

ch an rob lesvirt u alawl ib rary ch an rob l es virt u al l aw lib rary

Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur. Barrera, J., took no part.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-14441 December 17, 1966

PEDRO R. PALTING, Petitioner, vs. SAN JOSE PETROLEUM INCORPORATED, Respondent. BARRERA, J.:
ch an rob les virt u al la w lib rary

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

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3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of the Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949, and the Corporation Law; and
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4. Whether or not the sale of respondent's securities is fraudulent, or would work or tend to work fraud to purchasers of such securities in the Philippines. 1. In answer to the notice and order of the Securities and Exchange Commissioner, published in 2 newspapers of general circulation in the Philippines, for "any person who is opposed" to the petition for registration and licensing of respondent's securities, to file his opposition in 7 days, herein petitioner so filed an opposition. And, the Commissioner, having denied his opposition and instead, directed the registration of the securities to be offered for sale, oppositor Palting instituted the present proceeding for review of said order.
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Respondent raises the question of the personality of petitioner to bring this appeal, contending that as a mere "prospective investor", he is not an "Aggrieved" or "interested" person who may properly maintain the suit. Citing a 1931 ruling of Utah State Supreme Court2 it is claimed that the phrase "party aggrieved" used in the Securities Act3 and the Rules of Court4 as having the right to appeal should refer only to issuers, dealers and salesmen of securities.
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It is true that in the cited case, it was ruled that the phrase "person aggrieved" is that party "aggrieved by the judgment or decree where it operates on his rights of property or bears directly upon his interest", that the word "aggrieved" refers to "a substantial grievance, a denial of some personal property right or the imposition upon a party of a burden or obligation." But a careful reading of the case would show that the appeal therein was dismissed because the court held that an order of registration was not final and therefore not appealable. The foregoing pronouncement relied upon by herein respondent was made in construing the provision regarding an order of revocation which the court held was the one appealable. And since the law provides that in revoking the registration of any security, only the issuer and every registered dealer of the security are notified, excluding any person or group of persons having no such interest in the securities, said court concluded that the phrase "interested person" refers only to issuers, dealers or salesmen of securities.
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We cannot consider the foregoing ruling by the Utah State Court as controlling on the issue in this case. Our Securities Act in Section 7(c) thereof, requires the publication and notice of the registration statement. Pursuant thereto, the Securities and Exchange Commissioner caused the publication of an order in part reading as follows: . . . Any person who is opposed with this petition must file his written opposition with this Commission within said period (2 weeks). . . . In other words, as construed by the administrative office entrusted with the enforcement of the Securities Act, any person (who may not be "aggrieved" or "interested" within the legal acceptation of the word) is allowed or permitted to file an opposition to the registration of securities for sale in the Philippines. And this is in consonance with the generally accepted principle that Blue Sky Laws are enacted to protect investors and prospective purchasers and to prevent fraud and preclude the sale of securities which are in fact worthless or worth substantially less than the asking price. It is for this purpose that herein petitioner duly filed his opposition giving grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply to the opposition. Subsequently both the petition and the opposition

were set for hearing during which the petitioner was allowed to actively participate and did so by cross-examining the respondent's witnesses and filing his memorandum in support of his opposition. He therefore to all intents and purposes became a party to the proceedings. And under the New Rules of Court,5 such a party can appeal from a final order, ruling or decision of the Securities and Exchange Commission. This new Rule eliminating the word "aggrieved" appearing in the old Rule, being procedural in nature,6 and in view of the express provision of Rule 144 that the new rules made effective on January 1, 1964 shall govern not only cases brought after they took effect but all further proceedings in cases then pending, except to the extent that in the opinion of the Court their application would not be feasible or would work injustice, in which event the former procedure shall apply, we hold that the present appeal is properly within the appellate jurisdiction of this Court.
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The order allowing the registration and sale of respondent's securities is clearly a final order that is appealable. The mere fact that such authority may be later suspended or revoked, depending on future developments, does not give it the character of an interlocutory or provisional ruling. And the fact that seven days after the publication of the order, the securities are deemed registered (Sec. 7, Com. Act 83, as amended), points to the finality of the order. Rights and obligations necessarily arise therefrom if not reviewed on appeal.
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Our position on this procedural matter - that the order is appealable and the appeal taken here is proper - is strengthened by the intervention of the Solicitor General, under Section 23 of Rule 3 of the Rules of Court, as the constitutional issues herein presented affect the validity of Section 13 of the Corporation Law, which, according to the respondent, conflicts with the Parity Ordinance and the Laurel-Langley Agreement recognizing, it is claimed, its right to exploit our petroleum resources notwithstanding said provisions of the Corporation Law.
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2. Respondent likewise contends that since the order of Registration/Licensing dated September 9, 1958 took effect 30 days from September 3, 1958, and since no stay order has been issued by the Supreme Court, respondent's shares became registered and licensed under the law as of October 3, 1958. Consequently, it is asserted, the present appeal has become academic. Frankly we are unable to follow respondent's argumentation. First it claims that the order of August 29 and that of September 9, 1958 are not final orders and therefor are not appealable. Then when these orders, according to its theory became final and were implemented, it argues that the orders can no longer be appealed as the question of registration and licensing became moot and academic.
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But the fact is that because of the authority to sell, the securities are, in all probabilities, still being traded in the open market. Consequently the issue is much alive as to whether respondent's securities should continue to be the subject of sale. The purpose of the inquiry on this matter is not fully served just because the securities had passed out of the hands of the issuer and its dealers. Obviously, so long as the securities are outstanding and are placed in the channels of trade and commerce, members of the investing public are entitled to have the question of the worth or legality of the securities resolved one way or another.
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But more fundamental than this consideration, we agree with the late Senator Claro M. Recto, who appeared as amicus curiae in this case, that while apparently the immediate issue in this appeal is the right of respondent SAN JOSE PETROLEUM to dispose of and sell its securities to the Filipino public, the real and ultimate controversy here would actually call for the construction of the constitutional provisions governing the disposition, utilization, exploitation and development of our natural resources. And certainly this is neither moot nor academic.
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3. We now come to the meat of the controversy - the "tie-up" between SAN JOSE OIL on the one hand, and the respondent SAN JOSE PETROLEUM and its associates, on the other. The relationship of these corporations involved or affected in this case is admitted and established through the papers and documents which are parts of the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of which is owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest of which is owned by OIL INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A., both organized and

existing under the laws of Venezuela. As of September 30, 1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM found in 49 American states and U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to have 3,077,916 shares held by 12,373 stockholders scattered in 49 American state. In the two lists of stockholders, there is no indication of the citizenship of these stockholders,7 or of the total number of authorized stocks of each corporation, for the purpose of determining the corresponding percentage of these listed stockholders in relation to the respective capital stock of said corporation.
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Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the relationship between herein respondent SAN JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates the Petroleum Law of 1949, the Philippine Constitution, and Section 13 of the Corporation Law, which inhibits a mining corporation from acquiring an interest in another mining corporation. It is respondent's theory, on the other hand, that far from violating the Constitution; such relationship between the two corporations is in accordance with the Laurel-Langley Agreement which implemented the Ordinance Appended to the Constitution, and that Section 13 of the Corporation Law is not applicable because respondent is not licensed to do business, as it is not doing business, in the Philippines.
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Article XIII, Section 1 of the Philippine Constitution provides: SEC. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease or concession at the time of the inauguration of this Government established under this Constitution. . . . (Emphasis supplied) In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit our natural resources) was extended to citizens of the United States, thus: Notwithstanding the provisions of section one, Article Thirteen, and section eight, Article Fourteen, of the foregoing Constitution, during the effectivity of the Executive Agreement entered into by the President of the Philippines with the President of the United States on the fourth of July, nineteen hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred and thirty-three, but in no case to extend beyond the third of July, nineteen hundred and seventyfour, the disposition, exploitation, development, and utilization of all agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the Philippines, and the operation of public utilities shall, if open to any person, be open to citizens of the United States, and to all forms of business enterprises owned or controlled, directly or indirectly, by citizens of the United States in the same manner as to, and under the same conditions imposed upon, citizens of the Philippines or corporations or associations owned or controlled by citizens of the Philippines (Emphasis supplied.) In the 1954 Revised Trade Agreement concluded between the United States and the Philippines, also known as the Laurel-Langley Agreement, embodied in Republic Act 1355, the following provisions appear:
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ARTICLE VI 1. The disposition, exploitation, development and utilization of all agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces and sources of potential energy, and other natural resources of either Party, and the operation of public utilities, shall, if open to any person, be open to citizens of the other Party and to all forms of business enterprise owned or controlled, directly or indirectly, by citizens of such other Party in the same manner as to and under the same conditions imposed upon citizens or corporations or associations owned or controlled by citizens of the Party granting the right.
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2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the United States, with respect to natural resources in the public domain in the Philippines, only through the medium of a corporation organized under the laws of the Philippines and at least 60% of the capital stock of which is owned or controlled by citizens of the United States. . . .
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3. The United States of America reserves the rights of the several States of the United States to limit the extent to which citizens or corporations or associations owned or controlled by citizens of the Philippines may engage in the activities specified in this Article. The Republic of the Philippines reserves the power to deny any of the rights specified in this Article to citizens of the United States who are citizens of States, or to corporations or associations at least 60% of whose capital stock or capital is owned or controlled by citizens of States, which deny like rights to citizens of the Philippines, or to corporations or associations which are owned or controlled by citizens of the Philippines. . . . (Emphasis supplied.) Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was granted, by Article XIII of the Constitution, to Filipino citizens or to corporations or associations 60% of the capital of which is owned by such citizens. With the Parity Amendment to the Constitution, the same right was extended to citizens of the United States and business enterprises owned or controlled directly or indirectly, by citizens of the United States.
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There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned provisions of the Constitution. The right was granted to 2 types of persons: natural persons (Filipino or American citizens) and juridical persons (corporations 60% of which capital is owned by Filipinos and business enterprises owned or controlled directly or indirectly, by citizens of the United States). In American law, "citizen" has been defined as "one who, under the constitution and laws of the United States, has a right to vote for representatives in congress and other public officers, and who is qualified to fill offices in the gift of the people. (1 Bouvier's Law Dictionary, p. 490.) A citizen is One of the sovereign people. A constituent member of the sovereignty, synonymous with the people." (Scott v. Sandford, 19 Ho. [U.S.] 404, 15 L. Ed. 691.)
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A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See U.S. v. Cruikshank 92 U.S. 542, 23 L. Ed. 588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed. 627.) These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled to parity rights in the Philippines? The answer must be in the negative, for the following reasons:
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Firstly - It is not owned or controlled directly by citizens of the United States, because it is owned and controlled by a corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.
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Secondly - Neither can it be said that it is indirectly owned and controlled by American citizens through the OIL INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of the United States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM.
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Thirdly - Although it is claimed that these two last corporations are owned and controlled respectively by 12,373 and 9,979 stockholders residing in the different American states, there is no showing in the certification furnished by respondent that the stockholders of PANCOASTAL or those of them holding the controlling stock, are citizens of the United States.
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Fourthly - Granting that these individual stockholders are American citizens, it is yet necessary to establish that the different states of which they are citizens, allow Filipino citizens or corporations or associations owned or controlled by Filipino citizens, to engage in the exploitation, etc. of the natural resources of these states (see paragraph 3, Article VI of the Laurel-Langley Agreement, supra). Respondent has presented no proof to this effect.
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Fifthly - But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied, nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening foreign corporations, comes within the purview of the Parity Amendment regarding business enterprises indirectly owned or controlled by citizens of the United States, is to unduly stretch and strain the language and intent of the law. For, to what extent must the word "indirectly" be carried? Must we trace the ownership or control of these various corporationsad infinitum for the purpose of determining whether the American ownership-control-requirement is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which are allegedly owned or controlled directly by citizens of the United States, are traded in the stock exchange in New York, and you have a situation where it becomes a practical impossibility to determine at any given time, the citizenship of the controlling stock required by the law. In the circumstances, we have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.
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What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is owned by SAN JOSE PETROLEUM? This is a query which we need not resolve in this case as SAN JOSE OIL is not a party and it is not necessary to do so to dispose of the present controversy. But it is a matter that probably the Solicitor General would want to look into.
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There is another issue which has been discussed extensively by the parties. This is whether or not an American mining corporation may lawfully "be in anywise interested in any other corporation (domestic or foreign) organized for the purpose of engaging in agriculture or in mining," in the Philippines or whether an American citizen owning stock in more than one corporation organized for the purpose of engaging in agriculture or in mining, may own more than 15% of the capital stock then outstanding and entitled to vote, of each of such corporations, in view of the express prohibition contained in Section 13 of the Philippine Corporation Law. The petitioner in this case contends that the provisions of the Corporation Law must be applied to American citizens and business enterprise otherwise entitled to exercise the parity privileges, because both the Laurel-Langley Agreement (Art. VI, par. 1) and the Petroleum Act of 1948 (Art. 31), specifically provide that the enjoyment by them of the same rights and obligations granted under the provisions of both laws shall be "in the same manner as to, and under the same conditions imposed upon, citizens of the Philippines or corporations or associations owned or controlled by citizens of the Philippines." The petitioner further contends that, as the enjoyment of the privilege of exploiting mineral resources in the Philippines by Filipino citizens or corporations owned or controlled by citizens of the Philippines (which corporation must necessarily be organized under the Corporation Law), is made subject to the limitations provided in Section 13 of the Corporation Law, so necessarily the exercise of the parity rights by citizens of the United States or business enterprise owned or controlled, directly or indirectly, by citizens of the United States, must equally be subject to the same limitations contained in the aforesaid Section 13 of the Corporation Law.
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In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass upon this legal question, especially taking into account the statement of the respondent (SAN JOSE PETROLEUM) that it is essentially a holding company, and as found by the Securities and Exchange Commissioner, its principal activity is limited to the financing and giving technical assistance to SAN JOSE OIL.
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4. Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed registration for sale in the Philippines, was incorporated under the laws of Panama in April, 1956 with an authorized capital stock of $500,000.00, American currency, divided into 50,000,000 shares at par value of $0.01 per share. By virtue of a 3-party Agreement of June 14, 1956, respondent was supposed to have received from OIL INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at par value of $0.01 per share), plus a note for $250,000.00 due in 6 months, for which respondent issued in favor of OIL INVESTMENTS 16,000,000 shares of its capital stock, at $0.01 per share or with a value of $160,000.00, plus a note for $230,297.97 maturing in 2 years at 6% per annum interest,9 and the assumption of payment of the unpaid price of 7,500,000 (of the 8,000,000 shares of SAN JOSE OIL).
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On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from $500,000.00 to $17,500,000.00 by increasing the par value of the same 50,000,000 shares, from $0.01 to $0.35. Without any additional consideration, the 16,000,000 shares of $0.01 previously issued to OIL INVESTMENTS with a total value of $160,000.00 were changed with 16,000,000 shares of the recapitalized stock at $0.35 per share, or valued at $5,600,000.00. And, to make it appear that cash was received for these re-issued 16,000,000 shares, the board of directors of respondent corporation placed a valuation of $5,900,000.00 on the 8,000,000 shares of SAN JOSE OIL (still having par value of $0.10 per share) which were received from OIL INVESTMENTS as part-consideration for the 16,000,000 shares at $0.01 per share.
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In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00, supposedly the value of the 8,000,000 shares of SAN JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the alleged difference between the "value" of the said shares and the subscription price thereof which is $800,000.00 (at $0.10 per share). From this $800,000.00, the subscription price of the SAN JOSE OIL shares, the amount of $319,702.03 was deducted, as allegedly unpaid subscription price, thereby giving a difference of $480,297.97, which was placed as the amount allegedly paid in on the subscription price of the 8,000,000 SAN JOSE OIL shares. Then, by adding thereto the note receivable from OIL INVESTMENTS, for $250,000.00 (part-consideration for the 16,000,000 SAN JOSE PETROLEUM shares), and the sum of $6,516.21, as deferred expenses, SAN JOSE PETROLEUM appeared to have assets in the sum of $736,814.18.
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These figures are highly questionable. Take the item $5,900,000.00 the valuation placed on the 8,000,000 shares of SAN JOSE OIL. There appears no basis for such valuation other than belief by the board of directors of respondent that "should San Jose Oil Company be granted the bulk of the concessions applied for upon reasonable terms, that it would have a reasonable value of approximately $10,000,000." 10 Then, of this amount, the subscription price of $800,000.00 was deducted and called it "difference between the (above) valuation and the subscription price for the 8,000,000 shares." Of this $800,000.00 subscription price, they deducted the sum of $480,297.97 and the difference was placed as the unpaid portion of the subscription price. In other words, it was made to appear that they paid in $480,297.97 for the 8,000,000 shares of SAN JOSE OIL. This amount ($480,297.97) was supposedly that $250,000.00 paid by OIL INVESMENTS for 7,500,000 shares of SAN JOSE OIL, embodied in the June 14 Agreement, and a sum of $230,297.97 the amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet, there is still an item among respondent's liabilities, for $230,297.97 appearing as note payable to Oil Investments, maturing in two (2) years at six percent (6%) per annum. 11 As far as it appears from the records, for the 16,000,000 shares at $0.35 per share issued to OIL INVESTMENTS, respondent SAN JOSE PETROLEUM received from OIL INVESTMENTS only the note for $250,000.00 plus the 8,000,000 shares of SAN JOSE OIL, with par value of $0.10 per share or a total of $1,050,000.00 - the only assets of the corporation. In other words, respondent actually lost $4,550,000.00, which was received by OIL INVESTMENTS.
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But this is not all. Some of the provisions of the Articles of Incorporation of respondent SAN JOSE PETROLEUM are noteworthy; viz: (1) the directors of the Company need not be shareholders;
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(2) that in the meetings of the board of directors, any director may be represented and may vote through a proxy who also need not be a director or stockholder; and
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(3) that no contract or transaction between the corporation and any other association or partnership will be affected, except in case of fraud, by the fact that any of the directors or officers of the corporation is interested in, or is a director or officer of, such other association or partnership, and that no such contract or transaction of the corporation with any other person or persons, firm, association or partnership shall be affected by the fact that any director or officer of the corporation is a party to or has an interest in, such contract or transaction, or has in anyway connected with such other person or persons, firm, association or partnership; and finally, that all and any of the persons who may become director or officer of the corporation shall be relieved from all responsibility for which

they may otherwise be liable by reason of any contract entered into with the corporation, whether it be for his benefit or for the benefit of any other person, firm, association or partnership in which he may be interested. These provisions are in direct opposition to our corporation law and corporate practices in this country. These provisions alone would outlaw any corporation locally organized or doing business in this jurisdiction. Consider the unique and unusual provision that no contract or transaction between the company and any other association or corporation shall be affected except in case of fraud, by the fact that any of the directors or officers of the company may be interested in or are directors or officers of such other association or corporation; and that none of such contracts or transactions of this company with any person or persons, firms, associations or corporations shall be affected by the fact that any director or officer of this company is a party to or has an interest in such contract or transaction or has any connection with such person or persons, firms associations or corporations; and that any and all persons who may become directors or officers of this company are hereby relieved of all responsibility which they would otherwise incur by reason of any contract entered into which this company either for their own benefit, or for the benefit of any person, firm, association or corporation in which they may be interested.
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The impact of these provisions upon the traditional judiciary relationship between the directors and the stockholders of a corporation is too obvious to escape notice by those who are called upon to protect the interest of investors. The directors and officers of the company can do anything, short of actual fraud, with the affairs of the corporation even to benefit themselves directly or other persons or entities in which they are interested, and with immunity because of the advance condonation or relief from responsibility by reason of such acts. This and the other provision which authorizes the election of non-stockholders as directors, completely disassociate the stockholders from the government and management of the business in which they have invested.
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To cap it all on April 17, 1957, admittedly to assure continuity of the management and stability of SAN JOSE PETROLEUM, OIL INVESTMENTS, as holder of the only subscribed stock of the former corporation and acting "on behalf of all future holders of voting trust certificates," entered into a voting trust agreement12 with James L. Buckley and Austin E. Taylor, whereby said Trustees were given authority to vote the shares represented by the outstanding trust certificates (including those that may henceforth be issued) in the following manner: (a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to vote for the election of directors designated by the Trustees in their own discretion, having in mind the best interests of the holders of the voting trust certificates, it being understood that any and all of the Trustees shall be eligible for election as directors;
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(b) On any proposition for removal of a director, the Trustees shall designate a suitable proxy or proxies to vote for or against such proposition as the Trustees in their own discretion may determine, having in mind the best interest of the holders of the voting trust certificates;
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(c) With respect to all other matters arising at any meeting of stockholders, the Trustees will instruct such proxy or proxies attending such meetings to vote the shares of stock held by the Trustees in accordance with the written instructions of each holder of voting trust certificates. (Emphasis supplied.) It was also therein provided that the said Agreement shall be binding upon the parties thereto, their successors, and upon all holders of voting trust certificates.
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And these are the voting trust certificates that are offered to investors as authorized by Security and Exchange Commissioner. It can not be doubted that the sale of respondent's securities would, to say the least, work or tend to work fraud to Philippine investors.
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FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied and the orders of the Securities and Exchange Commissioner, allowing the registration of Respondent's securities and licensing their sale in the Philippines are hereby set aside. The case is remanded to the Securities and Exchange Commission for appropriate action in consonance with this decision. With costs. Let a copy of this decision be furnished the Solicitor General for whatever action he may deem advisable to take in the premises. So ordered.
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Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
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Castro, J., took no part.

Endnotes:
1

At a special stockholders' meeting held on January 27, 1958, the Articles of Incorporation of SAN JOSE PETROLEUM was amended so as to reduce the authorized capital from $17,500,000 to $500,000.00 divided into 50,000,000 shares at 1 per share.
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Ogden Chamber of Commerce, et al. v. State Securities Commission, 78 Utah 393, 3 P (2nd) 267.

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"SEC. 35. Court review by orders.-(a) Any person aggrieved by an order issued by the Commission in a proceeding under this Act to which such person is a party or who may be affected thereby may obtain a review of such order in the Supreme Court of the Philippines by filing in such court, within thirty days after the entry of such order, a written petition praying that the order of the Commission be modified or set aside in whole or in part. . . . (Com. Act 88).
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"SECTION 1. Petition for review.- Within thirty (30) days from notice of an order or decision issued by the Public Service Commission or the Securities and Exchange Commission, any party aggrieved thereby may file, in the Supreme Court, a written petition for the review of such order or decision. (Rule 43, of the old Rules of Court).
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"SECTION 1. How appeal taken.-Any party may appeal from a final order, ruling or decision of the Securities and Exchange Commission, . . . by filing with said bod(y) a notice of appeal and with the Supreme Court twelve (12) printed or mimeographed copies of a petition for certiorari or review of such order, ruling or decision, as the corresponding statute may provide." (Rule 43, New Rules of Court.)
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Casambar v. Sino Cruz, et al., L-6882, Dec. 29, 1955.

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Later the Acting Assistant Secretary of Pantepec, who is a director of the San Jose Petroleum, certified, according to the best of his belief and knowledge that more than 60% of the stockholders are citizens of the United States and more than 60% of the stock is held by citizens of the United States.
ch an rob les virt u alawl ib rary ch an rob les virt u al l aw lib rary

The Republic of the Philippines was allowed by this Court to intervene in this proceeding, in view of the allegation that the Corporation Law and the Petroleum Act of 1949 have been violated.
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Under the June 14, 1956 Agreement, this amount corresponded to the expenditures advanced by Oil Investments, in connection with the SAN JOSE OIL venture in the Philippines.
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10

Board Meeting of June 27, 1956.

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11

In the June 14, 1956 Agreement, it was stated that respondent "assumes the obligation of the Philippine company (SAN JOSE OIL) to repay the advances made to it by Oil Investments, including the total amount of any direct expenditures made by Oil Investments in connection with the San Jose venture in the Philippines. The amount of said obligation shall be calculated as of the date hereof, and shall be represented by a note to become payable in U.S. dollars two (2) years, from the date of this agreement, and to bear interest at six percent (6%) per annum."
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12

The voting trust agreement will expire April 7, 1967.

SPECIAL SECOND DIVISION G.R. No. 144476. April 8, 2003] ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIE ONG ALONZO,Petitioners, v. DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY, and the SECURITIES AND EXCHANGE COMMISSION, respondents. [G.R. No. 144629. April 8, 2003] DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, and INTRALAND RESOURCES DEVELOPMENT CORP., petitioners, vs. ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIA ONG ALONZO, respondents. RESOLUTION CORONA, J.: Before us are the (1) motion for reconsideration, dated March 15, 2002, of petitioner movants Ong Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julia Ong Alonzo (the Ongs); (2) motion for partial reconsideration, dated March 15, 2002, of petitioner movant Willie Ong seeking a reversal of this Courts Decision,[1 dated February 1, 2002, in G.R. Nos. 144476 and 144629 affirming with modification the decision2 of the Court of Appeals, dated October 5, 1999, which in turn upheld, likewise with modification, the decision of the SEC en banc, dated September 11, 1998; and (3) motion for issuance of writ of execution of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius) of our February 1, 2002 Decision. A brief recapitulation of the facts shows that: In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which was owned by the Tius, encountered dire financial difficulties. It was heavily indebted to the Philippine National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the two lots where the mall was being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing subscription of 450,200 shares. Furthermore, they agreed that the Tius were entitled to nominate the Vice-President and the Treasurer plus five directors while the Ongs were entitled to nominate the President, the Secretary and six directors (including the chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right to manage and operate the mall. Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while the Tius committed to contribute to FLADC a four-storey building and two parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs paid in another P70 million3 to FLADC and P20 million to the Tius over and above their P100 million investment, the total sum of which (P190 million) was used to settle the P190 million mortgage indebtedness of FLADC to PNB.

The business harmony between the Ongs and the Tius in FLADC, however, was shortlived because the Tius, on February 23, 1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares covering their real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President and Treasurer, respectively, and (3) refusing to give them the office spaces agreed upon. According to the Tius, the agreement was for David S. Tiu and Cely S. Tiu to assume the positions and perform the duties of Vice-President and Treasurer, respectively, but the Ongs prevented them from doing so. Furthermore, the Ongs refused to provide them the space for their executive offices as VicePresident and Treasurer. Finally, and most serious of all, the Ongs refused to give them the shares corresponding to their property contributions of a four-story building, a 1,902.30 square-meter lot and a 151 square-meter lot. Hence, they felt they were justified in setting aside their Pre-Subscription Agreement with the Ongs who allegedly refused to comply with their undertakings. In their defense, the Ongs said that David S. Tiu and Cely Y. Tiu had in fact assumed the positions of Vice-President and Treasurer of FLADC but that it was they who refused to comply with the corporate duties assigned to them. It was the contention of the Ongs that they wanted the Tius to sign the checks of the corporation and undertake their management duties but that the Tius shied away from helping them manage the corporation. On the issue of office space, the Ongs pointed out that the Tius did in fact already have existing executive offices in the mall since they owned it 100% before the Ongs came in. What the Tius really wanted were new offices which were anyway subsequently provided to them. On the most important issue of their alleged failure to credit the Tius with the FLADC shares commensurate to the Tius property contributions, the Ongs asserted that, although the Tius executed a deed of assignment for the 1,902.30 square-meter lot in favor of FLADC, they (the Tius) refused to pay P 570,690 for capital gains tax and documentary stamp tax. Without the payment thereof, the SEC would not approve the valuation of the Tius property contribution (as opposed to cash contribution). This, in turn, would make it impossible to secure a new Transfer Certificate of Title (TCT) over the property in FLADCs name. In any event, it was easy for the Tius to simply pay the said transfer taxes and, after the new TCT was issued in FLADCs name, they could then be given the corresponding shares of stocks. On the 151 square-meter property, the Tius never executed a deed of assignment in favor of FLADC. The Tius initially claimed that they could not as yet surrender the TCT because it was still being reconstituted by the Lichaucos from whom the Tius bought it. The Ongs later on discovered that FLADC had in reality owned the property all along, even before their PreSubscription Agreement was executed in 1994. This meant that the 151 square-meter property was at that time already the corporate property of FLADC for which the Tius were not entitled to the issuance of new shares of stock. The controversy finally came to a head when this case was commenced4 by the Tius on February 27, 1996 at the Securities and Exchange Commission (SEC), seeking confirmation of their rescission of the Pre-Subscription Agreement. After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr., issued a decision on May 19, 1997 confirming the rescission sought by the Tius, as follows: WHEREFORE, judgment is hereby rendered confirming the rescission of the Pre-Subscription Agreement, and consequently ordering: (a) The cancellation of the 1,000,000 shares subscription of the individual defendants in FLADC; (b) FLADC to pay the amount of P170,000,000.00 to the individual defendants representing the return of their contribution for 1,000,000 shares of FLADC; ( c) The plaintiffs to submit with (sic) the Securities and Exchange Commission amended articles of incorporation of FLADC to conform with this decision; (d) The defendants to surrender to the plaintiffs TCT Nos. 132493, 132494, 134066 (formerly 15587), 135325 and 134204 and any other title or deed in the name of FLADC, failing in which said titles are declared void;

(e) The Register of Deeds to issue new certificates of titles in favor of the plaintiffs and to cancel the annotation of the Pre-Subscription Agreement dated 15 August 1994 on TCT No. 134066 (formerly 15587); (f) The individual defendants, individually and collectively, their agents and representatives, to desist from exercising or performing any and all acts pertaining to stockholder, director or officer of FLADC or in any manner intervene in the management and affairs of FLADC; (g) The individual defendants, jointly and severally, to return to FLADC interest payment in the amount of P8,866,669.00 and all interest payments as well as any payments on principal received from the P70,000,000.00 inexistent loan, plus the legal rate of interest thereon from the date of their receipt of such payment until fully paid; (h) The plaintiff David Tiu to pay individual defendants the sum of P20,000,000.00 representing his loan from said defendants plus legal interest from the date of receipt of such amount. SO ORDERED.[5 On motion of both parties, the above decision was partially reconsidered but only insofar as the Ongs P70 million was declared not as a premium on capital stock but an advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct.[6 Both parties appealed[7 to the SEC en banc which rendered a decision on September 11, 1998, affirming the May 19, 1997 decision of the Hearing Officer. The SEC en banc confirmed the rescission of the Pre-Subscription Agreement but reverted to classifying the P70 million paid by the Ongs as premium on capital and not as a loan or advance to FLADC, hence, not entitled to earn interest.8 On appeal, the Court of Appeals (CA) rendered a decision on October 5, 1999, thus: WHEREFORE, the Order dated September 11, 1998 issued by the Securities and Exchange Commission En Banc in SEC AC CASE NOS. 598 and 601 confirming the rescission of the PreSubscription Agreement dated August 15, 1994 is hereby AFFIRMED, subject to the following MODIFICATIONS: 1. The Ong and Tiu Groups are ordered to liquidate First Landlink Asia Development Corporation in accordance with the following cash and property contributions of the parties therein. (a) Ong Group P100,000,000.00 cash contribution for one (1) million shares in First Landlink Asia Development Corporation at a par value of P100.00 per share; (b) Tiu Group: 1) P45,020,000.00 original cash contribution for 450,200 shares in First Landlink Asia Development Corporation at a par value of P100.00 per share; 2) A four-storey building described in Transfer Certificate of Title No. 15587 in the name of Intraland Resources and Development Corporation valued at P20,000,000.00 for 200,000 shares in First Landlink Asia Development Corporation at a par value of P100.00 per share; 3) A 1,902.30 square-meter parcel of land covered by Transfer Certificate of Title No. 15587 in the name of Masagana Telamart, Inc. valued at P30,000,000.00 for 300,000 shares in First Landlink Asia Development Corporation at a par value of P100.00 per share.

2) Whatever remains of the assets of the First Landlink Asia Development Corporation and the management thereof is (sic) hereby ordered transferred to the Tiu Group. 3) First Landlink Asia Development Corporation is hereby ordered to pay the amount of P70,000,000.00 that was advanced to it by the Ong Group upon the finality of this decision. Should the former incur in delay in the payment thereof, it shall pay the legal interest thereon pursuant to Article 2209 of the New Civil Code. 4) The Tius are hereby ordered to pay the amount of P20,000,000.00 loaned them by the Ongs upon the finality of this decision. Should the former incur in delay in the payment thereof, it shall pay the legal interest thereon pursuant to Article 2209 of the New Civil Code. SO ORDERED.[9 An interesting sidelight of the CA decision was its description of the rescission made by the Tius as the height of ingratitude and as pulling a fast one on the Ongs. The CA moreover found the Tius guilty of withholding FLADC funds from the Ongs and diverting corporate income to their own MATTERCO account.10 These were findings later on affirmed in our own February 1, 2002 Decision which is the subject of the instant motion for reconsideration.11 But there was also a strange aspect of the CA decision. The CA concluded that both the Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission) but, for practical considerations, that is, their inability to work together, it was best to separate the two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding practically everything else to the Tius. Their motions for reconsideration having been denied, both parties filed separate petitions for review before this Court. In their petition docketed as G.R. No. 144476, Ong et al. vs. Tiu et al., the Ongs argued that the Tius may not properly avail of rescission under Article 1191 of the Civil Code considering that the PreSubscription Agreement did not provide for reciprocity of obligations; that the rights over the subject matter of the rescission (capital assets and properties) had been acquired by a third party (FLADC); that they did not commit a substantial and fundamental breach of their agreement since they did not prevent the Tius from assuming the positions of Vice-President and Treasurer of FLADC, and that the failure to credit the 300,000 shares corresponding to the 1,902.30 square-meter property covered by TCT No. 134066 (formerly 15587) was due to the refusal of the Tius to pay the required transfer taxes to secure the approval of the SEC for the property contribution and, thereafter, the issuance of title in FLADCs name. They also argued that the liquidation of FLADC may not legally be ordered by the appellate court even for so called practical considerations or even to prevent further squabbles and numerous litigations, since the same are not valid grounds under the Corporation Code. Moreover, the Ongs bewailed the failure of the CA to grant interest on their P70 million and P20 million advances to FLADC and David S. Tiu, respectively, and to award costs and damages. In their petition docketed as G.R. No. 144629, Tiu et al. vs. Ong et al., the Tius, on the other hand, contended that the rescission should have been limited to the restitution of the parties respective investments and not the liquidation of FLADC based on the erroneous perception by the court that: the Masagana Citimall was threatened with incompletion since FLADC was in financial distress; that the Tius invited the Ongs to invest in FLADC to settle its P190 million loan from PNB; that they violated the Pre-Subscription Agreement when it was the Lichaucos and not the Tius who executed the deed of assignment over the 151 square-meter property commensurate to 49,800 shares in FLADC thereby failing to pay the price for the said shares; that they did not turn over to the Ongs the entire amount of FLADC funds; that they were diverting rentals from lease contracts due to FLADC to their own MATTERCO account; that the P70 million paid by the Ongs was an advance and not a premium on capital; and that, by rescinding the Pre-Subscription Agreement, they wanted to wrestle away the

management of the mall and prevent the Ongs from enjoying the profits of their P190 million investment in FLADC. On February 1, 2002, this Court promulgated its Decision (the subject of the instant motions), affirming the assailed decision of the Court of Appeals but with the following modifications: 1. the P20 million loan extended by the Ongs to the Tius shall earn interest at twelve percent (12%) per annum to be computed from the time of judicial demand which is from April 23, 1996; 2. the P70 million advanced by the Ongs to the FLADC shall earn interest at ten percent (10%) per annum to be computed from the date of the FLADC Board Resolution which is June 19, 1996; and 3. the Tius shall be credited with 49,800 shares in FLADC for their property contribution, specifically, the 151 sq. m. parcel of land. This Court affirmed the fact that both the Ongs and the Tius violated their respective obligations under the Pre-Subscription Agreement. The Ongs prevented the Tius from assuming the positions of VicePresident and Treasurer of the corporation. On the other hand, the Decision established that the Tius failed to turn over FLADC funds to the Ongs and that the Tius diverted rentals due to FLADC to their MATTERCO account. Consequently, it held that rescission was not possible since both parties were in pari delicto. However, this Court agreed with the Court of Appeals that the remedy of specific performance, as espoused by the Ongs, was not practical and sound either and would only lead to further squabbles and numerous litigations between the parties. On March 15, 2002, the Tius filed before this Court a Motion for Issuance of a Writ of Execution on the grounds that: (a) the SEC order had become executory as early as September 11, 1998 pursuant to Sections 1 and 12, Rule 43 of the Rules of Court; (b) any further delay would be injurious to the rights of the Tius since the case had been pending for more than six years; and (c) the SEC no longer had quasi-judicial jurisdiction under RA 8799 (Securities Regulation Code). The Ongs filed their opposition, contending that the Decision dated February 1, 2002 was not yet final and executory; that no good reason existed to issue a warrant of execution; and that, pursuant to Section 5.2 of RA 8799, the SEC retained jurisdiction over pending cases involving intra-corporate disputes already submitted for final resolution upon the effectivity of the said law. Aside from their opposition to the Tius Motion for Issuance of Writ of Execution, the Ongs filed their own Motion for Reconsideration; Alternatively, Motion for Modification (of the February 1, 2002 Decision) on March 15, 2002, raising two main points: (a) that specific performance and not rescission was the proper remedy under the premises; and (b) that, assuming rescission to be proper, the subject decision of this Court should be modified to entitle movants to their proportionate share in the mall. On their first point (specific performance and not rescission was the proper remedy), movants Ong argue that their alleged breach of the Pre-Subscription Agreement was, at most, casual which did not justify the rescission of the contract. They stress that providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer, respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the said obligation (to provide executive offices) pertained to FLADC itself. Such obligation arose from the relations between the said officers and the corporation and not any of the individual parties such as the Ongs. Likewise, the alleged failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also pertained to the corporation and not to the Ongs. Just the same, it could not be done in view of the Tius refusal to pay the necessary transfer taxes which in turn resulted in the inability to secure SEC approval for the property contributions and the issuance of a new TCT in the name of FLADC. Besides, according to the Ongs, the principal objective of both parties in entering into the PreSubscription Agreement in 1994 was to raise theP190 million desperately needed for the payment of FLADCs loan to PNB. Hence, in this light, the alleged failure to provide office space for the two

corporate officers was no more than an inconsequential infringement. For rescission to be justified, the law requires that the breach of contract should be so substantial or fundamental as to defeat the primary objective of the parties in making the agreement. At any rate, the Ongs claim that it was the Tius who were guilty of fundamental violations in failing to remit funds due to FLADC and diverting the same to their MATTERCO account. The Ongs also allege that, in view of the findings of the Court that both parties were guilty of violating the Pre-Subscription Agreement, neither of them could resort to rescission under the principle of pari delicto. In addition, since the cash and other contributions now sought to be returned already belong to FLADC, an innocent third party, said remedy may no longer be availed of under the law. On their second point (assuming rescission to be proper, the Ongs should be given their proportionate share of the mall), movants Ong vehemently take exception to the second item in the dispositive portion of the questioned Decision insofar as it decreed that whatever remains of the assets of FLADC and the management thereof (after liquidation) shall be transferred to the Tius. They point out that the mall itself, which would have been foreclosed by PNB if not for their timely investment of P190 million in 1994 and which is now worth about P1 billion mainly because of their efforts, should be included in any partition and distribution. They (the Ongs) should not merely be given interest on their capital investments. The said portion of our Decision, according to them, amounted to the unjust enrichment of the Tius and ran contrary to our own pronouncement that the act of the Tius in unilaterally rescinding the agreement was the height of ingratitude and an attempt to pull a fast one as it would prevent the Ongs from enjoying the fruits of their P190 million investment in FLADC. It also contravenes this Courts assurance in the questioned Decision that the Ongs and Tius will have a bountiful return of their respective investments derived from the profits of the corporation. Willie Ong filed a separate Motion for Partial Reconsideration dated March 8, 2002, pointing out that there was no violation of the Pre-Subscription Agreement on the part of the Ongs; that, after more than seven years since the mall began its operations, rescission had become not only impractical but would also adversely affect the rights of innocent parties; and that it would be highly inequitable and unfair to simply return the P100 million investment of the Ongs and give the remaining assets now amounting to about P1 billion to the Tius. The Tius, in their opposition to the Ongs motion for reconsideration, counter that the arguments therein are a mere re-hash of the contentions in the Ongs petition for review and previous motion for reconsideration of the Court of Appeals decision. The Tius compare the arguments in said pleadings to prove that the Ongs do not raise new issues, and, based on well-settled jurisprudence,[12 the Ongs present motion is therefore pro-forma and did not prevent the Decision of this Court from attaining finality. On January 29, 2003, the Special Second Division of this Court held oral arguments on the respective positions of the parties. On February 27, 2003, Dr. Willie Ong and the rest of the movants Ong filed their respective memoranda. On February 28, 2003, the Tius submitted their memorandum. We grant the Ongs motions for reconsideration. This is not the first time that this Court has reversed itself on a motion for reconsideration. In Philippine Consumers Foundation, Inc. vs. National Telecommunications Commission,[13] this Court, through then Chief Justice Felix V. Makasiar, said that its members may and do change their minds, after a re-study of the facts and the law, illuminated by a mutual exchange of views.[14 After a thorough re-examination of the case, we find that our Decision of February 1, 2002 overlooked certain aspects which, if not corrected, will cause extreme and irreparable damage and prejudice to the Ongs, FLADC and its creditors. The procedural rule on pro-forma motions pointed out by the Tius should not be blindly applied to meritorious motions for reconsideration. As long as the same adequately raises a valid ground15 (i.e., the decision or final order is contrary to law), this Court has to evaluate the merits of the arguments to prevent an unjust decision from attaining finality. In Security Bank and Trust Company vs.

Cuenca,[16] we ruled that a motion for reconsideration is not pro-forma for the reason alone that it reiterates the arguments earlier passed upon and rejected by the appellate court. We explained there that a movant may raise the same arguments, if only to convince this Court that its ruling was erroneous. Moreover, the rule (that a motion is pro-forma if it only repeats the arguments in the previous pleadings) will not apply if said arguments were not squarely passed upon and answered in the decision sought to be reconsidered. In the case at bar, no ruling was made on some of the petitioner Ongs arguments. For instance, no clear ruling was made on why an order distributing corporate assets and property to the stockholders would not violate the statutory preconditions for corporate dissolution or decrease of authorized capital stock. Thus, it would serve the ends of justice to entertain the subject motion for reconsideration since some important issues therein, although mere repetitions, were not considered or clearly resolved by this Court. Going now to the merits, we resolve whether the Tius could legally rescind the Pre-Subscription Agreement. We rule that they could not. FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius owning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in FLADC as stockholders, an increase of the authorized capital stock became necessary to give each group equal (50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized capital stock was thus increased from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition to their 450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract was the 1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the parties Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation Code: Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract(Italics supplied). A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. It was FLADC that did. Considering therefore that the real contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their personal capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that contracts take effect only between the parties, their assigns and heirs Therefore, a party who has not taken part in the transaction cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected thereby. [17 In their February 28, 2003 Memorandum, the Tius claim that there are two contracts embodied in the Pre-Subscription Agreement: a shareholders agreement between the Tius and the Ongs defining and governing their relationship and a subscription contract between the Tius, the Ongs and FLADC regarding the subscription of the parties to the corporation. They point out that these two component parts form one whole agreement and that their terms and conditions are intrinsically related and dependent on each other. Thus, the breach of the shareholders agreement, which was allegedly the consideration for the subscription contract, was also a breach of the latter. Aside from the fact that this is an entirely new angle never raised in any of their previous pleadings until after the oral arguments on January 29, 2003, we find this argument too strained for comfort. It

is obviously intended to remedy and cover up the Tius lack of legal personality to rescind an agreement in which they were personally not parties-in-interest. Assuming arguendo that there were two sub-agreements embodied in the Pre-Subscription Agreement, this Court fails to see how the shareholders agreement between the Ongs and Tius can, within the bounds of reason, be interpreted as the consideration of the subscription contract between FLADC and the Ongs. There was nothing in the Pre-Subscription Agreement even remotely suggesting such alleged interdependence. Be that as it may, however, the Tius are nevertheless not the proper parties to raise this point because they were not parties to the subscription contract between FLADC and the Ongs. Thus, they are not in a position to claim that the shareholders agreement between them and the Ongs was what induced FLADC and the Ongs to enter into the subscription contract. It is the Ongs alone who can say that. Though FLADC was represented by the Tius in the subscription contract, FLADC had a separate juridical personality from the Tius. The case before us does not warrant piercing the veil of corporate fiction since there is no proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice.18 The Tius also argue that, since the Ongs represent FLADC as its management, breach by the Ongs is breach by FLADC. This must also fail because such an argument disregards the separate juridical personality of FLADC. The Tius allege that they were prevented from participating in the management of the corporation. There is evidence that the Ongs did prevent the rightfully elected Treasurer, Cely Tiu, from exercising her function as such. The records show that the President, Wilson Ong, supervised the collection and receipt of rentals in the Masagana Citimall;19 that he ordered the same to be deposited in the bank;20 and that he held on to the cash and properties of the corporation.21 Section 25 of the Corporation Code prohibits the President from acting concurrently as Treasurer of the corporation. The rationale behind the provision is to ensure the effective monitoring of each officers separate functions. However, although the Tius were adversely affected by the Ongs unwillingness to let them assume their positions, rescission due to breach of contract is definitely the wrong remedy for their personal grievances. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and adequate intra-corporate remedies, other than rescission, in situations like this. Rescission is certainly not one of them, specially if the party asking for it has no legal personality to do so and the requirements of the law therefor have not been met. A contrary doctrine will tread on extremely dangerous ground because it will allow just any stockholder, for just about any real or imagined offense, to demand rescission of his subscription and call for the distribution of some part of the corporate assets to him without complying with the requirements of the Corporation Code. Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary remedy of rescission of the subject agreement based on a less than substantial breach of subscription contract. Not only are they not parties to the subscription contract between the Ongs and FLADC; they also have other available and effective remedies under the law. All this notwithstanding, granting but not conceding that the Tius possess the legal standing to sue for rescission based on breach of contract, said action will nevertheless still not prosper since rescission will violate the Trust Fund Doctrine and the procedures for the valid distribution of assets and property under the Corporation Code. The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs. Rivera,22 provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims.23 This doctrine is the underlying principle in the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings,[25and (3) dissolution and eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own shares26 and in Section 122 on the prohibition against

the distribution of corporate assets and property unless the stringent requirements therefor are complied with.27 The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or directors of the corporation, or even, for that matter, on the earnest desire of the court a quo to prevent further squabbles and future litigations unless the indispensable conditions and procedures for the protection of corporate creditors are followed. Otherwise, the corporate peace laudably hoped for by the court will remain nothing but a dream because this time, it will be the creditors turn to engage in squabbles and litigations should the court order an unlawful distribution in blatant disregard of the Trust Fund Doctrine. In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed. Contrary to the Tius allegation, rescission will, in the final analysis, result in the premature liquidation of the corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation Code.[28 The Tius maintain that rescinding the subscription contract is not synonymous to corporate liquidation because all rescission will entail would be the simple restoration of the status quo ante and a return to the two groups of their cash and property contributions. We wish it were that simple. Very noticeable is the fact that the Tius do not explain why rescission in the instant case will not effectively result in liquidation. The Tius merely refer in cavalier fashion to the end-result of rescission (which incidentally is 100% favorable to them) but turn a blind eye to its unfair, inequitable and disastrous effect on the corporation, its creditors and the Ongs. In their Memorandum dated February 28, 2003, the Tius claim that rescission of the agreement will not result in an unauthorized liquidation of the corporation because their case is actually a petition to decrease capital stock pursuant to Section 38 of the Corporation Code. Section 122 of the law provides that (e)xcept by decrease of capital stock, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. The Tius claim that their case for rescission, being a petition to decrease capital stock, does not violate the liquidation procedures under our laws. All that needs to be done, according to them, is for this Court to order (1) FLADC to file with the SEC a petition to issue a certificate of decrease of capital stock and (2) the SEC to approve said decrease. This new argument has no merit. The Tius case for rescission cannot validly be deemed a petition to decrease capital stock because such action never complied with the formal requirements for decrease of capital stock under Section 33 of the Corporation Code. No majority vote of the board of directors was ever taken. Neither was there any stockholders meeting at which the approval of stockholders owning at least two-thirds of the outstanding capital stock was secured. There was no revised treasurers affidavit and no proof that said decrease will not prejudice the creditors rights. On the contrary, all their pleadings contained were alleged acts of violations by the Ongs to justify an order of rescission. Furthermore, it is an improper judicial intrusion into the internal affairs of the corporation to compel FLADC to file at the SEC a petition for the issuance of a certificate of decrease of stock. Decreasing a corporations authorized capital stock is an amendment of the Articles of Incorporation. It is a decision that only the stockholders and the directors can make, considering that they are the contracting parties thereto. In this case, the Tius are actually not just asking for a review of the legality and fairness of a corporate decision. They want this Court to make a corporate decision for FLADC. We decline to intervene and order corporate structural changes not voluntarily agreed upon by its stockholders and directors. Truth to tell, a judicial order to decrease capital stock without the assent of FLADCs directors and stockholders is a violation of the business judgment rule which states that:

xxx xxx xxx (C)ontracts intra vires entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to wanton destruction to the rights of the minority, as when plaintiffs aver that the defendants (members of the board), have concluded a transaction among themselves as will result in serious injury to the plaintiffs stockholders.[29 The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in corporate law, thus: Courts and other tribunals are wont to override the business judgment of the board mainly because, courts are not in the business of business, and the laissez faire rule or the free enterprise system prevailing in our social and economic set-up dictates that it is better for the State and its organs to leave business to the businessmen; especially so, when courts are ill-equipped to make business decisions. More importantly, the social contract in the corporate family to decide the course of the corporate business has been vested in the board and not with courts.30 Apparently, the Tius do not realize the illegal consequences of seeking rescission and control of the corporation to the exclusion of the Ongs. Such an act infringes on the law on reduction of capital stock. Ordering the return and distribution of the Ongs capital contribution without dissolving the corporation or decreasing its authorized capital stock is not only against the law but is also prejudicial to corporate creditors who enjoy absolute priority of payment over and above any individual stockholder thereof. Stripped to its barest essentials, the issue of rescission in this case is not difficult to understand. If rescission is denied, will injustice be inflicted on any of the parties? The answer is no because the financial interests of both the Tius and the Ongs will remain intact and safe within FLADC. On the other hand, if rescission is granted, will any of the parties suffer an injustice? Definitely yes because the Ongs will find themselves out in the streets with nothing but the money they had in 1994 while the Tius will not only enjoy a windfall estimated to be anywhere from P450 million to P900 million[31 but will also take over an extremely profitable business without much effort at all. Another very important point follows. The Court of Appeals and, later on, our Decision dated February 1, 2002, stated that both groups were in pari delicto, meaning, that both the Tius and the Ongs committed breaches of the Pre-Subscription Agreement. This may be true to a certain extent but, judging from the comparative gravity of the acts separately committed by each group, we find that the Ongs acts were relatively tame vis--vis those committed by the Tius in not surrendering FLADC funds to the corporation and diverting corporate income to their own MATTERCO account. The Ongs were right in not issuing to the Tius the shares corresponding to the four-story building and the 1,902.30 square-meter lot because no title for it could be issued in FLADCs name, owing to the Tius refusal to pay the transfer taxes. And as far as the 151 square-meter lot was concerned, why should FLADC issue additional shares to the Tius for property already owned by the corporation and which, in the final analysis, was already factored into the shareholdings of the Tius before the Ongs came in? We are appalled by the attempt by the Tius, in the words of the Court of Appeals, to pull a fast one on the Ongs because that was where the problem precisely started. It is clear that, when the finances of FLADC improved considerably after the equity infusion of the Ongs, the Tius started planning to take over the corporation again and exclude the Ongs from it. It appears that the Tius refusal to pay transfer taxes might not have really been at all unintentional because, by failing to pay that relatively small amount which they could easily afford, the Tius should have expected that they were not going to be given the corresponding shares. It was, from every angle, the perfect excuse for blackballing the Ongs. In other words, the Tius created a problem then used that same problem as their pretext for showing their partners the door. In the process, they stood to be rewarded with a bonanza of anywhere between P450 million to P900 million in assets (from an investment of only P45 million which was nearly foreclosed by PNB), to the extreme and irreparable damage of the Ongs, FLADC and its creditors.

After all is said and done, no one can close his eyes to the fact that the Masagana Citimall would not be what it has become today were it not for the timely infusion of P190 million by the Ongs in 1994. There are no ifs or buts about it. Without the Ongs, the Tius would have lost everything they originally invested in said mall. If only for this and the fact that this Resolution can truly pave the way for both groups to enjoy the fruits of their investments assuming good faith and honest intentions we cannot allow the rescission of the subject subscription agreement. The Ongs shortcomings were far from serious and certainly less than substantial; they were in fact remediable and correctable under the law. It would be totally against all rules of justice, fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds. WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julie Ong Alonzo and the motion for partial reconsideration, dated March 15, 2002, of petitioner Willie Ong are hereby GRANTED. The Petition for Confirmation of the Rescission of the Pre-Subscription Agreement docketed as SEC Case No. 02-96-5269 is hereby DISMISSED for lack of merit. The unilateral rescission by the Tius of the subject Pre-Subscription Agreement, dated August 15, 1994, is hereby declared as null and void. The motion for the issuance of a writ of execution, dated March 15, 2002, of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu is hereby DENIED for being moot. Accordingly, the Decision of this Court, dated February 1, 2002, affirming with modification the decision of the Court of Appeals, dated October 5, 1999, and the SEC en banc, dated September 11, 1998, is hereby REVERSED. Costs against the petitioner Tius. SO ORDERED. Bellosillo, (Chairman), Quisumbing, and Callejo, Sr., JJ., concur.

Endnotes:
1

Ong Yong, et.al v. Tiu, et. al, G.R. No. 144476; Tiu, et.al. v. Ong Yong, et.al., G.R. No. 144629. Rollo of G.R. No. 144476, pp. 111-135.

3 The testimony of Wilson Ong, never refuted by the Tius, was that the parties original agreement was to increase FLADCs authorized capital stock from P50 million to P340 million (which explains the Ongs 50% share of P170 million). Later on, the parties decided to downgrade the proposed new authorized capital stock to only P200 million but the Ongs decided to leave the overpayment of P70 million in FLADC to help pay off the loan to PNB. (TSN at the SEC, January 29, 1997 cited in CA Rollo, pp. 429-452; TSN at the SEC, February 6, 1997 cited in CARollo, pp. 485-489).

Docketed as SEC Case No. 02-96-5269. Rollo of G.R. No. 144476, pp. 114-116. Ibid., pp. 116-117. Docketed as SEC Cases Nos. 598 and 601.

Rollo of G.R. No. 144476, pp. 117-118. Ibid., pp. 133-135.

10 CA Decision dated October 5, 1999, p. 18; CA Records, p. 1045; Penned by Associate Justice Ramon A. Barcelona and concurred in by Associate Justices Mariano M. Umali and Edgardo P. Cruz. Then Associate Justice Demetrio G. Demetria dissented while also then Associate Justice Conchita Carpio Morales concurred and dissented.

11

Supreme Court Decision dated February 1, 2002, pp. 34-35; Rollo, pp. 299-300.

12 Estrada v. Sto. Domingo, 28 SCRA 890 [1969]; Cruz v. Tuazon & Co., Inc., 76 SCRA 543 [1977]; Llanter v. Court of Appeals, 105 SCRA 609 [1981]; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305 [1978].

13

131 SCRA 200 [1984]. Id at 221. See Section 1, Rule 37 of the 1997 Rules of Civil Procedure. G.R. No. 138544, October 3, 2000 citing Guerra Enterprises v. CFI, 32 SCRA 314 [1970].

14

15

16

17

Sustiguer v. Tamayo, 176 SCRA 579 [1989] citing Marimperio Compania Naviera v. Court of Appeals, 156 SCRA 368 [1987]. Boyer-Roxas v. Court of Appeals, 211 SCRA 470 [1992]. TSN, December 11, 1996, pp. 699-702, Rollo, pp. 705-706. TSN, December 17, 1996, pp. 28-34; Rollo, pp. 699-702. TSN, January 17, 1997, pp. 92-93; Rollo, pp. 705-706. 44 Phil 469 [1923].

18

19

20

21

22

23

Id; Garcia v. Lim Chu Sing, 59 Phil. 562 [1934]; Boman Environmental Devt. Corp. v. Court of Appeals, 167 SCRA 540 [1988].

24 Section 38 of the Corporation Code provides for the process to be followed for reduction of the authorized capital stock. First, a proposal to decrease capital stock must be approved by a majority vote of the board of directors and affirmed by stockholders who own 2/3 of the outstanding capital stock in a meeting duly called for that purpose. Written notice of the time and place of the meeting on the proposed decrease in the capital stock must be served to each of the stockholders at his place of residence as shown in the corporate books. Thereafter, the SEC shall approve the certificate of decrease of capital stock only if the same is accompanied by a new treasurers affidavit stating that 25% of the authorized capital stock has been subscribed while 25% of the subscribed capital stock has been paid-up, and also if said decrease will not prejudice the rights of corporate creditors.

25

Section 8 of the Corporation Code provides that :

SEC. 8. Redeemable shares Redeemable shares may be issued by the corporation when expressly so provided in the articles of incorporation. They may be purchased or taken up by the corporation upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions as may be stated in the articles of incorporation, which terms and conditions must also be stated in the certificate of stock representing said shares. Section 5, par. 5, SEC Rules Governing Redeemable and Treasury Shares provides that redeemable shares may be redeemed regardless of the existence of unrestricted retained earning, provided that the corporation has, after such redemption, assets in its books to cover debts and liabilities of capital stock. Therefore, redemption, according to SEC Opinion, January 23, 1985, may not be made where the corporation is insolvent or if such redemption would cause insolvency or inability of the corporation to meet its debts as they mature. (cited in Hector De Leon, The Corporation Code of the Philippines, 1999 Ed., pp. 96-97).

26

Section 41 of the Corporation Code provides that:

Sec. 41. Power to acquire own shares. A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired: (1) To eliminate fractional shares arising out of stock dividends; (2) To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and (3) To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code.(Italics supplied)
27

xxx xxx xxx

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.
28

Sections 117, 118, 119, and 120 of the Corporation Code provide that:

SEC. 117. Methods of dissolution. - A corporation formed or organized under the provisions of this Code may be dissolved voluntarily or involuntarily. (n) SEC. 118. Voluntary dissolution where no creditors are affected. - If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it, the dissolution may be effected by majority vote of the board of directors or trustees, and by a resolution duly adopted by the affirmative vote of the stockholders owning at least two thirds (2/3) of the outstanding capital or of at least two-thirds (2/3) of the members at a meeting to be held upon call of the directors or trustees after publication of the notice of time, place and object of the meeting for three (3) consecutive weeks in a newspaper published in the place where the principal office of said corporation is located; and if no newspaper is published in such place, then in a newspaper of general circulation in the Philippines, after sending such notice to each stockholder or member either by registered mail or by personal delivery at least thirty (30) days prior to said meeting. A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation. The Securities and Exchange Commission shall thereupon issue the certificate of dissolution. (62a) SEC. 119. Voluntary dissolution where creditors are affected. - Where the dissolution of a corporation may prejudice the rights of any creditor, the petition for dissolution shall be filed with the Securities and Exchange Commission. The petition shall be signed by a majority of its board of directors or trustees or other officers having the management of its affairs, verified by its president or secretary or one of its directors or trustees, and shall set forth all claims and demands against it, and that its dissolution was resolved upon by the affirmative vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members, at a meeting of its stockholders or members called for that purpose. If the petition is sufficient in form and substance, the Commission shall, by an order reciting the purpose of the petition, fix a date on or before which objections thereto may be filed by any person, which date shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the order. Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in municipality or city where the principal office of the corporation is situated, or if there be no such newspaper, then in a newspaper of general circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in such municipality or city. Upon five (5) days notice, given after the date on which the right to file objections as fixed in the order has expired, the Commission shall proceed to hear the petition and try any issue made by the objections filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the corporation and directing such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation. (Rule 104, RCa) SEC. 120. Dissolution by shortening corporate term. - A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuant to the provisions of this Code. A copy of the amended articles of incorporation shall be submitted to the Securities and Exchange Commission in accordance with this Code. Upon approval of the amended articles of incorporation or the expiration of the shortened term, as the case may be, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions of this Code on liquidation. (n)

29

Gamboa v. Victoriano, 90 SCRA 40 [1979]. Cesar L. Villanueva, Philippine Corporate Law, 1998 Ed., p. 228.

30

31 Estimates of FLADCs current net worth cited during the oral arguments on January 29, 2003 ranged from P450 million to P1 billion.

SPECIAL SECOND DIVISION G.R. No. 144476. April 8, 2003] ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIE ONG ALONZO,Petitioners, v. DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY, and the SECURITIES AND EXCHANGE COMMISSION, respondents. [G.R. No. 144629. April 8, 2003] DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, and INTRALAND RESOURCES DEVELOPMENT CORP., petitioners, vs. ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIA ONG ALONZO, respondents. RESOLUTION CORONA, J.: Before us are the (1) motion for reconsideration, dated March 15, 2002, of petitioner movants Ong Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julia Ong Alonzo (the Ongs); (2) motion for partial reconsideration, dated March 15, 2002, of petitioner movant Willie Ong seeking a reversal of this Courts Decision,[1 dated February 1, 2002, in G.R. Nos. 144476 and 144629 affirming with modification the decision2 of the Court of Appeals, dated October 5, 1999, which in turn upheld, likewise with modification, the decision of the SEC en banc, dated September 11, 1998; and (3) motion for issuance of writ of execution of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius) of our February 1, 2002 Decision. A brief recapitulation of the facts shows that: In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which was owned by the Tius, encountered dire financial difficulties. It was heavily indebted to the Philippine National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the two lots where the mall was being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing subscription of 450,200 shares. Furthermore, they agreed that the Tius were entitled to nominate the Vice-President and the Treasurer plus five directors while the Ongs were entitled to nominate the President, the Secretary and six directors (including the chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right to manage and operate the mall. Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while the Tius committed to contribute to FLADC a four-storey building and two parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs paid in another P70 million3 to FLADC and P20 million to the Tius over and above their P100 million investment, the total sum of which (P190 million) was used to settle the P190 million mortgage indebtedness of FLADC to PNB.

The business harmony between the Ongs and the Tius in FLADC, however, was shortlived because the Tius, on February 23, 1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares covering their real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President and Treasurer, respectively, and (3) refusing to give them the office spaces agreed upon. According to the Tius, the agreement was for David S. Tiu and Cely S. Tiu to assume the positions and perform the duties of Vice-President and Treasurer, respectively, but the Ongs prevented them from doing so. Furthermore, the Ongs refused to provide them the space for their executive offices as VicePresident and Treasurer. Finally, and most serious of all, the Ongs refused to give them the shares corresponding to their property contributions of a four-story building, a 1,902.30 square-meter lot and a 151 square-meter lot. Hence, they felt they were justified in setting aside their Pre-Subscription Agreement with the Ongs who allegedly refused to comply with their undertakings. In their defense, the Ongs said that David S. Tiu and Cely Y. Tiu had in fact assumed the positions of Vice-President and Treasurer of FLADC but that it was they who refused to comply with the corporate duties assigned to them. It was the contention of the Ongs that they wanted the Tius to sign the checks of the corporation and undertake their management duties but that the Tius shied away from helping them manage the corporation. On the issue of office space, the Ongs pointed out that the Tius did in fact already have existing executive offices in the mall since they owned it 100% before the Ongs came in. What the Tius really wanted were new offices which were anyway subsequently provided to them. On the most important issue of their alleged failure to credit the Tius with the FLADC shares commensurate to the Tius property contributions, the Ongs asserted that, although the Tius executed a deed of assignment for the 1,902.30 square-meter lot in favor of FLADC, they (the Tius) refused to pay P 570,690 for capital gains tax and documentary stamp tax. Without the payment thereof, the SEC would not approve the valuation of the Tius property contribution (as opposed to cash contribution). This, in turn, would make it impossible to secure a new Transfer Certificate of Title (TCT) over the property in FLADCs name. In any event, it was easy for the Tius to simply pay the said transfer taxes and, after the new TCT was issued in FLADCs name, they could then be given the corresponding shares of stocks. On the 151 square-meter property, the Tius never executed a deed of assignment in favor of FLADC. The Tius initially claimed that they could not as yet surrender the TCT because it was still being reconstituted by the Lichaucos from whom the Tius bought it. The Ongs later on discovered that FLADC had in reality owned the property all along, even before their PreSubscription Agreement was executed in 1994. This meant that the 151 square-meter property was at that time already the corporate property of FLADC for which the Tius were not entitled to the issuance of new shares of stock. The controversy finally came to a head when this case was commenced4 by the Tius on February 27, 1996 at the Securities and Exchange Commission (SEC), seeking confirmation of their rescission of the Pre-Subscription Agreement. After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr., issued a decision on May 19, 1997 confirming the rescission sought by the Tius, as follows: WHEREFORE, judgment is hereby rendered confirming the rescission of the Pre-Subscription Agreement, and consequently ordering: (a) The cancellation of the 1,000,000 shares subscription of the individual defendants in FLADC; (b) FLADC to pay the amount of P170,000,000.00 to the individual defendants representing the return of their contribution for 1,000,000 shares of FLADC; ( c) The plaintiffs to submit with (sic) the Securities and Exchange Commission amended articles of incorporation of FLADC to conform with this decision; (d) The defendants to surrender to the plaintiffs TCT Nos. 132493, 132494, 134066 (formerly 15587), 135325 and 134204 and any other title or deed in the name of FLADC, failing in which said titles are declared void;

(e) The Register of Deeds to issue new certificates of titles in favor of the plaintiffs and to cancel the annotation of the Pre-Subscription Agreement dated 15 August 1994 on TCT No. 134066 (formerly 15587); (f) The individual defendants, individually and collectively, their agents and representatives, to desist from exercising or performing any and all acts pertaining to stockholder, director or officer of FLADC or in any manner intervene in the management and affairs of FLADC; (g) The individual defendants, jointly and severally, to return to FLADC interest payment in the amount of P8,866,669.00 and all interest payments as well as any payments on principal received from the P70,000,000.00 inexistent loan, plus the legal rate of interest thereon from the date of their receipt of such payment until fully paid; (h) The plaintiff David Tiu to pay individual defendants the sum of P20,000,000.00 representing his loan from said defendants plus legal interest from the date of receipt of such amount. SO ORDERED.[5 On motion of both parties, the above decision was partially reconsidered but only insofar as the Ongs P70 million was declared not as a premium on capital stock but an advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct.[6 Both parties appealed[7 to the SEC en banc which rendered a decision on September 11, 1998, affirming the May 19, 1997 decision of the Hearing Officer. The SEC en banc confirmed the rescission of the Pre-Subscription Agreement but reverted to classifying the P70 million paid by the Ongs as premium on capital and not as a loan or advance to FLADC, hence, not entitled to earn interest.8 On appeal, the Court of Appeals (CA) rendered a decision on October 5, 1999, thus: WHEREFORE, the Order dated September 11, 1998 issued by the Securities and Exchange Commission En Banc in SEC AC CASE NOS. 598 and 601 confirming the rescission of the PreSubscription Agreement dated August 15, 1994 is hereby AFFIRMED, subject to the following MODIFICATIONS: 1. The Ong and Tiu Groups are ordered to liquidate First Landlink Asia Development Corporation in accordance with the following cash and property contributions of the parties therein. (a) Ong Group P100,000,000.00 cash contribution for one (1) million shares in First Landlink Asia Development Corporation at a par value of P100.00 per share; (b) Tiu Group: 1) P45,020,000.00 original cash contribution for 450,200 shares in First Landlink Asia Development Corporation at a par value of P100.00 per share; 2) A four-storey building described in Transfer Certificate of Title No. 15587 in the name of Intraland Resources and Development Corporation valued at P20,000,000.00 for 200,000 shares in First Landlink Asia Development Corporation at a par value of P100.00 per share; 3) A 1,902.30 square-meter parcel of land covered by Transfer Certificate of Title No. 15587 in the name of Masagana Telamart, Inc. valued at P30,000,000.00 for 300,000 shares in First Landlink Asia Development Corporation at a par value of P100.00 per share.

2) Whatever remains of the assets of the First Landlink Asia Development Corporation and the management thereof is (sic) hereby ordered transferred to the Tiu Group. 3) First Landlink Asia Development Corporation is hereby ordered to pay the amount of P70,000,000.00 that was advanced to it by the Ong Group upon the finality of this decision. Should the former incur in delay in the payment thereof, it shall pay the legal interest thereon pursuant to Article 2209 of the New Civil Code. 4) The Tius are hereby ordered to pay the amount of P20,000,000.00 loaned them by the Ongs upon the finality of this decision. Should the former incur in delay in the payment thereof, it shall pay the legal interest thereon pursuant to Article 2209 of the New Civil Code. SO ORDERED.[9 An interesting sidelight of the CA decision was its description of the rescission made by the Tius as the height of ingratitude and as pulling a fast one on the Ongs. The CA moreover found the Tius guilty of withholding FLADC funds from the Ongs and diverting corporate income to their own MATTERCO account.10 These were findings later on affirmed in our own February 1, 2002 Decision which is the subject of the instant motion for reconsideration.11 But there was also a strange aspect of the CA decision. The CA concluded that both the Ongs and the Tius were in pari delicto (which would not have legally entitled them to rescission) but, for practical considerations, that is, their inability to work together, it was best to separate the two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding practically everything else to the Tius. Their motions for reconsideration having been denied, both parties filed separate petitions for review before this Court. In their petition docketed as G.R. No. 144476, Ong et al. vs. Tiu et al., the Ongs argued that the Tius may not properly avail of rescission under Article 1191 of the Civil Code considering that the PreSubscription Agreement did not provide for reciprocity of obligations; that the rights over the subject matter of the rescission (capital assets and properties) had been acquired by a third party (FLADC); that they did not commit a substantial and fundamental breach of their agreement since they did not prevent the Tius from assuming the positions of Vice-President and Treasurer of FLADC, and that the failure to credit the 300,000 shares corresponding to the 1,902.30 square-meter property covered by TCT No. 134066 (formerly 15587) was due to the refusal of the Tius to pay the required transfer taxes to secure the approval of the SEC for the property contribution and, thereafter, the issuance of title in FLADCs name. They also argued that the liquidation of FLADC may not legally be ordered by the appellate court even for so called practical considerations or even to prevent further squabbles and numerous litigations, since the same are not valid grounds under the Corporation Code. Moreover, the Ongs bewailed the failure of the CA to grant interest on their P70 million and P20 million advances to FLADC and David S. Tiu, respectively, and to award costs and damages. In their petition docketed as G.R. No. 144629, Tiu et al. vs. Ong et al., the Tius, on the other hand, contended that the rescission should have been limited to the restitution of the parties respective investments and not the liquidation of FLADC based on the erroneous perception by the court that: the Masagana Citimall was threatened with incompletion since FLADC was in financial distress; that the Tius invited the Ongs to invest in FLADC to settle its P190 million loan from PNB; that they violated the Pre-Subscription Agreement when it was the Lichaucos and not the Tius who executed the deed of assignment over the 151 square-meter property commensurate to 49,800 shares in FLADC thereby failing to pay the price for the said shares; that they did not turn over to the Ongs the entire amount of FLADC funds; that they were diverting rentals from lease contracts due to FLADC to their own MATTERCO account; that the P70 million paid by the Ongs was an advance and not a premium on capital; and that, by rescinding the Pre-Subscription Agreement, they wanted to wrestle away the

management of the mall and prevent the Ongs from enjoying the profits of their P190 million investment in FLADC. On February 1, 2002, this Court promulgated its Decision (the subject of the instant motions), affirming the assailed decision of the Court of Appeals but with the following modifications: 1. the P20 million loan extended by the Ongs to the Tius shall earn interest at twelve percent (12%) per annum to be computed from the time of judicial demand which is from April 23, 1996; 2. the P70 million advanced by the Ongs to the FLADC shall earn interest at ten percent (10%) per annum to be computed from the date of the FLADC Board Resolution which is June 19, 1996; and 3. the Tius shall be credited with 49,800 shares in FLADC for their property contribution, specifically, the 151 sq. m. parcel of land. This Court affirmed the fact that both the Ongs and the Tius violated their respective obligations under the Pre-Subscription Agreement. The Ongs prevented the Tius from assuming the positions of VicePresident and Treasurer of the corporation. On the other hand, the Decision established that the Tius failed to turn over FLADC funds to the Ongs and that the Tius diverted rentals due to FLADC to their MATTERCO account. Consequently, it held that rescission was not possible since both parties were in pari delicto. However, this Court agreed with the Court of Appeals that the remedy of specific performance, as espoused by the Ongs, was not practical and sound either and would only lead to further squabbles and numerous litigations between the parties. On March 15, 2002, the Tius filed before this Court a Motion for Issuance of a Writ of Execution on the grounds that: (a) the SEC order had become executory as early as September 11, 1998 pursuant to Sections 1 and 12, Rule 43 of the Rules of Court; (b) any further delay would be injurious to the rights of the Tius since the case had been pending for more than six years; and (c) the SEC no longer had quasi-judicial jurisdiction under RA 8799 (Securities Regulation Code). The Ongs filed their opposition, contending that the Decision dated February 1, 2002 was not yet final and executory; that no good reason existed to issue a warrant of execution; and that, pursuant to Section 5.2 of RA 8799, the SEC retained jurisdiction over pending cases involving intra-corporate disputes already submitted for final resolution upon the effectivity of the said law. Aside from their opposition to the Tius Motion for Issuance of Writ of Execution, the Ongs filed their own Motion for Reconsideration; Alternatively, Motion for Modification (of the February 1, 2002 Decision) on March 15, 2002, raising two main points: (a) that specific performance and not rescission was the proper remedy under the premises; and (b) that, assuming rescission to be proper, the subject decision of this Court should be modified to entitle movants to their proportionate share in the mall. On their first point (specific performance and not rescission was the proper remedy), movants Ong argue that their alleged breach of the Pre-Subscription Agreement was, at most, casual which did not justify the rescission of the contract. They stress that providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer, respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the said obligation (to provide executive offices) pertained to FLADC itself. Such obligation arose from the relations between the said officers and the corporation and not any of the individual parties such as the Ongs. Likewise, the alleged failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also pertained to the corporation and not to the Ongs. Just the same, it could not be done in view of the Tius refusal to pay the necessary transfer taxes which in turn resulted in the inability to secure SEC approval for the property contributions and the issuance of a new TCT in the name of FLADC. Besides, according to the Ongs, the principal objective of both parties in entering into the PreSubscription Agreement in 1994 was to raise theP190 million desperately needed for the payment of FLADCs loan to PNB. Hence, in this light, the alleged failure to provide office space for the two

corporate officers was no more than an inconsequential infringement. For rescission to be justified, the law requires that the breach of contract should be so substantial or fundamental as to defeat the primary objective of the parties in making the agreement. At any rate, the Ongs claim that it was the Tius who were guilty of fundamental violations in failing to remit funds due to FLADC and diverting the same to their MATTERCO account. The Ongs also allege that, in view of the findings of the Court that both parties were guilty of violating the Pre-Subscription Agreement, neither of them could resort to rescission under the principle of pari delicto. In addition, since the cash and other contributions now sought to be returned already belong to FLADC, an innocent third party, said remedy may no longer be availed of under the law. On their second point (assuming rescission to be proper, the Ongs should be given their proportionate share of the mall), movants Ong vehemently take exception to the second item in the dispositive portion of the questioned Decision insofar as it decreed that whatever remains of the assets of FLADC and the management thereof (after liquidation) shall be transferred to the Tius. They point out that the mall itself, which would have been foreclosed by PNB if not for their timely investment of P190 million in 1994 and which is now worth about P1 billion mainly because of their efforts, should be included in any partition and distribution. They (the Ongs) should not merely be given interest on their capital investments. The said portion of our Decision, according to them, amounted to the unjust enrichment of the Tius and ran contrary to our own pronouncement that the act of the Tius in unilaterally rescinding the agreement was the height of ingratitude and an attempt to pull a fast one as it would prevent the Ongs from enjoying the fruits of their P190 million investment in FLADC. It also contravenes this Courts assurance in the questioned Decision that the Ongs and Tius will have a bountiful return of their respective investments derived from the profits of the corporation. Willie Ong filed a separate Motion for Partial Reconsideration dated March 8, 2002, pointing out that there was no violation of the Pre-Subscription Agreement on the part of the Ongs; that, after more than seven years since the mall began its operations, rescission had become not only impractical but would also adversely affect the rights of innocent parties; and that it would be highly inequitable and unfair to simply return the P100 million investment of the Ongs and give the remaining assets now amounting to about P1 billion to the Tius. The Tius, in their opposition to the Ongs motion for reconsideration, counter that the arguments therein are a mere re-hash of the contentions in the Ongs petition for review and previous motion for reconsideration of the Court of Appeals decision. The Tius compare the arguments in said pleadings to prove that the Ongs do not raise new issues, and, based on well-settled jurisprudence,[12 the Ongs present motion is therefore pro-forma and did not prevent the Decision of this Court from attaining finality. On January 29, 2003, the Special Second Division of this Court held oral arguments on the respective positions of the parties. On February 27, 2003, Dr. Willie Ong and the rest of the movants Ong filed their respective memoranda. On February 28, 2003, the Tius submitted their memorandum. We grant the Ongs motions for reconsideration. This is not the first time that this Court has reversed itself on a motion for reconsideration. In Philippine Consumers Foundation, Inc. vs. National Telecommunications Commission,[13] this Court, through then Chief Justice Felix V. Makasiar, said that its members may and do change their minds, after a re-study of the facts and the law, illuminated by a mutual exchange of views.[14 After a thorough re-examination of the case, we find that our Decision of February 1, 2002 overlooked certain aspects which, if not corrected, will cause extreme and irreparable damage and prejudice to the Ongs, FLADC and its creditors. The procedural rule on pro-forma motions pointed out by the Tius should not be blindly applied to meritorious motions for reconsideration. As long as the same adequately raises a valid ground15 (i.e., the decision or final order is contrary to law), this Court has to evaluate the merits of the arguments to prevent an unjust decision from attaining finality. In Security Bank and Trust Company vs.

Cuenca,[16] we ruled that a motion for reconsideration is not pro-forma for the reason alone that it reiterates the arguments earlier passed upon and rejected by the appellate court. We explained there that a movant may raise the same arguments, if only to convince this Court that its ruling was erroneous. Moreover, the rule (that a motion is pro-forma if it only repeats the arguments in the previous pleadings) will not apply if said arguments were not squarely passed upon and answered in the decision sought to be reconsidered. In the case at bar, no ruling was made on some of the petitioner Ongs arguments. For instance, no clear ruling was made on why an order distributing corporate assets and property to the stockholders would not violate the statutory preconditions for corporate dissolution or decrease of authorized capital stock. Thus, it would serve the ends of justice to entertain the subject motion for reconsideration since some important issues therein, although mere repetitions, were not considered or clearly resolved by this Court. Going now to the merits, we resolve whether the Tius could legally rescind the Pre-Subscription Agreement. We rule that they could not. FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius owning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in FLADC as stockholders, an increase of the authorized capital stock became necessary to give each group equal (50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized capital stock was thus increased from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition to their 450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract was the 1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the parties Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation Code: Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract(Italics supplied). A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. It was FLADC that did. Considering therefore that the real contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their personal capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that contracts take effect only between the parties, their assigns and heirs Therefore, a party who has not taken part in the transaction cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected thereby. [17 In their February 28, 2003 Memorandum, the Tius claim that there are two contracts embodied in the Pre-Subscription Agreement: a shareholders agreement between the Tius and the Ongs defining and governing their relationship and a subscription contract between the Tius, the Ongs and FLADC regarding the subscription of the parties to the corporation. They point out that these two component parts form one whole agreement and that their terms and conditions are intrinsically related and dependent on each other. Thus, the breach of the shareholders agreement, which was allegedly the consideration for the subscription contract, was also a breach of the latter. Aside from the fact that this is an entirely new angle never raised in any of their previous pleadings until after the oral arguments on January 29, 2003, we find this argument too strained for comfort. It

is obviously intended to remedy and cover up the Tius lack of legal personality to rescind an agreement in which they were personally not parties-in-interest. Assuming arguendo that there were two sub-agreements embodied in the Pre-Subscription Agreement, this Court fails to see how the shareholders agreement between the Ongs and Tius can, within the bounds of reason, be interpreted as the consideration of the subscription contract between FLADC and the Ongs. There was nothing in the Pre-Subscription Agreement even remotely suggesting such alleged interdependence. Be that as it may, however, the Tius are nevertheless not the proper parties to raise this point because they were not parties to the subscription contract between FLADC and the Ongs. Thus, they are not in a position to claim that the shareholders agreement between them and the Ongs was what induced FLADC and the Ongs to enter into the subscription contract. It is the Ongs alone who can say that. Though FLADC was represented by the Tius in the subscription contract, FLADC had a separate juridical personality from the Tius. The case before us does not warrant piercing the veil of corporate fiction since there is no proof that the corporation is being used as a cloak or cover for fraud or illegality, or to work injustice.18 The Tius also argue that, since the Ongs represent FLADC as its management, breach by the Ongs is breach by FLADC. This must also fail because such an argument disregards the separate juridical personality of FLADC. The Tius allege that they were prevented from participating in the management of the corporation. There is evidence that the Ongs did prevent the rightfully elected Treasurer, Cely Tiu, from exercising her function as such. The records show that the President, Wilson Ong, supervised the collection and receipt of rentals in the Masagana Citimall;19 that he ordered the same to be deposited in the bank;20 and that he held on to the cash and properties of the corporation.21 Section 25 of the Corporation Code prohibits the President from acting concurrently as Treasurer of the corporation. The rationale behind the provision is to ensure the effective monitoring of each officers separate functions. However, although the Tius were adversely affected by the Ongs unwillingness to let them assume their positions, rescission due to breach of contract is definitely the wrong remedy for their personal grievances. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and adequate intra-corporate remedies, other than rescission, in situations like this. Rescission is certainly not one of them, specially if the party asking for it has no legal personality to do so and the requirements of the law therefor have not been met. A contrary doctrine will tread on extremely dangerous ground because it will allow just any stockholder, for just about any real or imagined offense, to demand rescission of his subscription and call for the distribution of some part of the corporate assets to him without complying with the requirements of the Corporation Code. Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary remedy of rescission of the subject agreement based on a less than substantial breach of subscription contract. Not only are they not parties to the subscription contract between the Ongs and FLADC; they also have other available and effective remedies under the law. All this notwithstanding, granting but not conceding that the Tius possess the legal standing to sue for rescission based on breach of contract, said action will nevertheless still not prosper since rescission will violate the Trust Fund Doctrine and the procedures for the valid distribution of assets and property under the Corporation Code. The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs. Rivera,22 provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims.23 This doctrine is the underlying principle in the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings,[25and (3) dissolution and eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own shares26 and in Section 122 on the prohibition against

the distribution of corporate assets and property unless the stringent requirements therefor are complied with.27 The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or directors of the corporation, or even, for that matter, on the earnest desire of the court a quo to prevent further squabbles and future litigations unless the indispensable conditions and procedures for the protection of corporate creditors are followed. Otherwise, the corporate peace laudably hoped for by the court will remain nothing but a dream because this time, it will be the creditors turn to engage in squabbles and litigations should the court order an unlawful distribution in blatant disregard of the Trust Fund Doctrine. In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed. Contrary to the Tius allegation, rescission will, in the final analysis, result in the premature liquidation of the corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation Code.[28 The Tius maintain that rescinding the subscription contract is not synonymous to corporate liquidation because all rescission will entail would be the simple restoration of the status quo ante and a return to the two groups of their cash and property contributions. We wish it were that simple. Very noticeable is the fact that the Tius do not explain why rescission in the instant case will not effectively result in liquidation. The Tius merely refer in cavalier fashion to the end-result of rescission (which incidentally is 100% favorable to them) but turn a blind eye to its unfair, inequitable and disastrous effect on the corporation, its creditors and the Ongs. In their Memorandum dated February 28, 2003, the Tius claim that rescission of the agreement will not result in an unauthorized liquidation of the corporation because their case is actually a petition to decrease capital stock pursuant to Section 38 of the Corporation Code. Section 122 of the law provides that (e)xcept by decrease of capital stock, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. The Tius claim that their case for rescission, being a petition to decrease capital stock, does not violate the liquidation procedures under our laws. All that needs to be done, according to them, is for this Court to order (1) FLADC to file with the SEC a petition to issue a certificate of decrease of capital stock and (2) the SEC to approve said decrease. This new argument has no merit. The Tius case for rescission cannot validly be deemed a petition to decrease capital stock because such action never complied with the formal requirements for decrease of capital stock under Section 33 of the Corporation Code. No majority vote of the board of directors was ever taken. Neither was there any stockholders meeting at which the approval of stockholders owning at least two-thirds of the outstanding capital stock was secured. There was no revised treasurers affidavit and no proof that said decrease will not prejudice the creditors rights. On the contrary, all their pleadings contained were alleged acts of violations by the Ongs to justify an order of rescission. Furthermore, it is an improper judicial intrusion into the internal affairs of the corporation to compel FLADC to file at the SEC a petition for the issuance of a certificate of decrease of stock. Decreasing a corporations authorized capital stock is an amendment of the Articles of Incorporation. It is a decision that only the stockholders and the directors can make, considering that they are the contracting parties thereto. In this case, the Tius are actually not just asking for a review of the legality and fairness of a corporate decision. They want this Court to make a corporate decision for FLADC. We decline to intervene and order corporate structural changes not voluntarily agreed upon by its stockholders and directors. Truth to tell, a judicial order to decrease capital stock without the assent of FLADCs directors and stockholders is a violation of the business judgment rule which states that:

xxx xxx xxx (C)ontracts intra vires entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to wanton destruction to the rights of the minority, as when plaintiffs aver that the defendants (members of the board), have concluded a transaction among themselves as will result in serious injury to the plaintiffs stockholders.[29 The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in corporate law, thus: Courts and other tribunals are wont to override the business judgment of the board mainly because, courts are not in the business of business, and the laissez faire rule or the free enterprise system prevailing in our social and economic set-up dictates that it is better for the State and its organs to leave business to the businessmen; especially so, when courts are ill-equipped to make business decisions. More importantly, the social contract in the corporate family to decide the course of the corporate business has been vested in the board and not with courts.30 Apparently, the Tius do not realize the illegal consequences of seeking rescission and control of the corporation to the exclusion of the Ongs. Such an act infringes on the law on reduction of capital stock. Ordering the return and distribution of the Ongs capital contribution without dissolving the corporation or decreasing its authorized capital stock is not only against the law but is also prejudicial to corporate creditors who enjoy absolute priority of payment over and above any individual stockholder thereof. Stripped to its barest essentials, the issue of rescission in this case is not difficult to understand. If rescission is denied, will injustice be inflicted on any of the parties? The answer is no because the financial interests of both the Tius and the Ongs will remain intact and safe within FLADC. On the other hand, if rescission is granted, will any of the parties suffer an injustice? Definitely yes because the Ongs will find themselves out in the streets with nothing but the money they had in 1994 while the Tius will not only enjoy a windfall estimated to be anywhere from P450 million to P900 million[31 but will also take over an extremely profitable business without much effort at all. Another very important point follows. The Court of Appeals and, later on, our Decision dated February 1, 2002, stated that both groups were in pari delicto, meaning, that both the Tius and the Ongs committed breaches of the Pre-Subscription Agreement. This may be true to a certain extent but, judging from the comparative gravity of the acts separately committed by each group, we find that the Ongs acts were relatively tame vis--vis those committed by the Tius in not surrendering FLADC funds to the corporation and diverting corporate income to their own MATTERCO account. The Ongs were right in not issuing to the Tius the shares corresponding to the four-story building and the 1,902.30 square-meter lot because no title for it could be issued in FLADCs name, owing to the Tius refusal to pay the transfer taxes. And as far as the 151 square-meter lot was concerned, why should FLADC issue additional shares to the Tius for property already owned by the corporation and which, in the final analysis, was already factored into the shareholdings of the Tius before the Ongs came in? We are appalled by the attempt by the Tius, in the words of the Court of Appeals, to pull a fast one on the Ongs because that was where the problem precisely started. It is clear that, when the finances of FLADC improved considerably after the equity infusion of the Ongs, the Tius started planning to take over the corporation again and exclude the Ongs from it. It appears that the Tius refusal to pay transfer taxes might not have really been at all unintentional because, by failing to pay that relatively small amount which they could easily afford, the Tius should have expected that they were not going to be given the corresponding shares. It was, from every angle, the perfect excuse for blackballing the Ongs. In other words, the Tius created a problem then used that same problem as their pretext for showing their partners the door. In the process, they stood to be rewarded with a bonanza of anywhere between P450 million to P900 million in assets (from an investment of only P45 million which was nearly foreclosed by PNB), to the extreme and irreparable damage of the Ongs, FLADC and its creditors.

After all is said and done, no one can close his eyes to the fact that the Masagana Citimall would not be what it has become today were it not for the timely infusion of P190 million by the Ongs in 1994. There are no ifs or buts about it. Without the Ongs, the Tius would have lost everything they originally invested in said mall. If only for this and the fact that this Resolution can truly pave the way for both groups to enjoy the fruits of their investments assuming good faith and honest intentions we cannot allow the rescission of the subject subscription agreement. The Ongs shortcomings were far from serious and certainly less than substantial; they were in fact remediable and correctable under the law. It would be totally against all rules of justice, fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds. WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julie Ong Alonzo and the motion for partial reconsideration, dated March 15, 2002, of petitioner Willie Ong are hereby GRANTED. The Petition for Confirmation of the Rescission of the Pre-Subscription Agreement docketed as SEC Case No. 02-96-5269 is hereby DISMISSED for lack of merit. The unilateral rescission by the Tius of the subject Pre-Subscription Agreement, dated August 15, 1994, is hereby declared as null and void. The motion for the issuance of a writ of execution, dated March 15, 2002, of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu is hereby DENIED for being moot. Accordingly, the Decision of this Court, dated February 1, 2002, affirming with modification the decision of the Court of Appeals, dated October 5, 1999, and the SEC en banc, dated September 11, 1998, is hereby REVERSED. Costs against the petitioner Tius. SO ORDERED. Bellosillo, (Chairman), Quisumbing, and Callejo, Sr., JJ., concur.

Endnotes:
1

Ong Yong, et.al v. Tiu, et. al, G.R. No. 144476; Tiu, et.al. v. Ong Yong, et.al., G.R. No. 144629. Rollo of G.R. No. 144476, pp. 111-135.

3 The testimony of Wilson Ong, never refuted by the Tius, was that the parties original agreement was to increase FLADCs authorized capital stock from P50 million to P340 million (which explains the Ongs 50% share of P170 million). Later on, the parties decided to downgrade the proposed new authorized capital stock to only P200 million but the Ongs decided to leave the overpayment of P70 million in FLADC to help pay off the loan to PNB. (TSN at the SEC, January 29, 1997 cited in CA Rollo, pp. 429-452; TSN at the SEC, February 6, 1997 cited in CARollo, pp. 485-489).

Docketed as SEC Case No. 02-96-5269. Rollo of G.R. No. 144476, pp. 114-116. Ibid., pp. 116-117. Docketed as SEC Cases Nos. 598 and 601.

Rollo of G.R. No. 144476, pp. 117-118. Ibid., pp. 133-135.

10 CA Decision dated October 5, 1999, p. 18; CA Records, p. 1045; Penned by Associate Justice Ramon A. Barcelona and concurred in by Associate Justices Mariano M. Umali and Edgardo P. Cruz. Then Associate Justice Demetrio G. Demetria dissented while also then Associate Justice Conchita Carpio Morales concurred and dissented.

11

Supreme Court Decision dated February 1, 2002, pp. 34-35; Rollo, pp. 299-300.

12 Estrada v. Sto. Domingo, 28 SCRA 890 [1969]; Cruz v. Tuazon & Co., Inc., 76 SCRA 543 [1977]; Llanter v. Court of Appeals, 105 SCRA 609 [1981]; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305 [1978].

13

131 SCRA 200 [1984]. Id at 221. See Section 1, Rule 37 of the 1997 Rules of Civil Procedure. G.R. No. 138544, October 3, 2000 citing Guerra Enterprises v. CFI, 32 SCRA 314 [1970].

14

15

16

17

Sustiguer v. Tamayo, 176 SCRA 579 [1989] citing Marimperio Compania Naviera v. Court of Appeals, 156 SCRA 368 [1987]. Boyer-Roxas v. Court of Appeals, 211 SCRA 470 [1992]. TSN, December 11, 1996, pp. 699-702, Rollo, pp. 705-706. TSN, December 17, 1996, pp. 28-34; Rollo, pp. 699-702. TSN, January 17, 1997, pp. 92-93; Rollo, pp. 705-706. 44 Phil 469 [1923].

18

19

20

21

22

23

Id; Garcia v. Lim Chu Sing, 59 Phil. 562 [1934]; Boman Environmental Devt. Corp. v. Court of Appeals, 167 SCRA 540 [1988].

24 Section 38 of the Corporation Code provides for the process to be followed for reduction of the authorized capital stock. First, a proposal to decrease capital stock must be approved by a majority vote of the board of directors and affirmed by stockholders who own 2/3 of the outstanding capital stock in a meeting duly called for that purpose. Written notice of the time and place of the meeting on the proposed decrease in the capital stock must be served to each of the stockholders at his place of residence as shown in the corporate books. Thereafter, the SEC shall approve the certificate of decrease of capital stock only if the same is accompanied by a new treasurers affidavit stating that 25% of the authorized capital stock has been subscribed while 25% of the subscribed capital stock has been paid-up, and also if said decrease will not prejudice the rights of corporate creditors.

25

Section 8 of the Corporation Code provides that :

SEC. 8. Redeemable shares Redeemable shares may be issued by the corporation when expressly so provided in the articles of incorporation. They may be purchased or taken up by the corporation upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions as may be stated in the articles of incorporation, which terms and conditions must also be stated in the certificate of stock representing said shares. Section 5, par. 5, SEC Rules Governing Redeemable and Treasury Shares provides that redeemable shares may be redeemed regardless of the existence of unrestricted retained earning, provided that the corporation has, after such redemption, assets in its books to cover debts and liabilities of capital stock. Therefore, redemption, according to SEC Opinion, January 23, 1985, may not be made where the corporation is insolvent or if such redemption would cause insolvency or inability of the corporation to meet its debts as they mature. (cited in Hector De Leon, The Corporation Code of the Philippines, 1999 Ed., pp. 96-97).

26

Section 41 of the Corporation Code provides that:

Sec. 41. Power to acquire own shares. A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired: (1) To eliminate fractional shares arising out of stock dividends; (2) To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and (3) To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code.(Italics supplied)
27

xxx xxx xxx

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.
28

Sections 117, 118, 119, and 120 of the Corporation Code provide that:

SEC. 117. Methods of dissolution. - A corporation formed or organized under the provisions of this Code may be dissolved voluntarily or involuntarily. (n) SEC. 118. Voluntary dissolution where no creditors are affected. - If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it, the dissolution may be effected by majority vote of the board of directors or trustees, and by a resolution duly adopted by the affirmative vote of the stockholders owning at least two thirds (2/3) of the outstanding capital or of at least two-thirds (2/3) of the members at a meeting to be held upon call of the directors or trustees after publication of the notice of time, place and object of the meeting for three (3) consecutive weeks in a newspaper published in the place where the principal office of said corporation is located; and if no newspaper is published in such place, then in a newspaper of general circulation in the Philippines, after sending such notice to each stockholder or member either by registered mail or by personal delivery at least thirty (30) days prior to said meeting. A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation. The Securities and Exchange Commission shall thereupon issue the certificate of dissolution. (62a) SEC. 119. Voluntary dissolution where creditors are affected. - Where the dissolution of a corporation may prejudice the rights of any creditor, the petition for dissolution shall be filed with the Securities and Exchange Commission. The petition shall be signed by a majority of its board of directors or trustees or other officers having the management of its affairs, verified by its president or secretary or one of its directors or trustees, and shall set forth all claims and demands against it, and that its dissolution was resolved upon by the affirmative vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members, at a meeting of its stockholders or members called for that purpose. If the petition is sufficient in form and substance, the Commission shall, by an order reciting the purpose of the petition, fix a date on or before which objections thereto may be filed by any person, which date shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the order. Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in municipality or city where the principal office of the corporation is situated, or if there be no such newspaper, then in a newspaper of general circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in such municipality or city. Upon five (5) days notice, given after the date on which the right to file objections as fixed in the order has expired, the Commission shall proceed to hear the petition and try any issue made by the objections filed; and if no such objection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the corporation and directing such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation. (Rule 104, RCa) SEC. 120. Dissolution by shortening corporate term. - A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuant to the provisions of this Code. A copy of the amended articles of incorporation shall be submitted to the Securities and Exchange Commission in accordance with this Code. Upon approval of the amended articles of incorporation or the expiration of the shortened term, as the case may be, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions of this Code on liquidation. (n)

29

Gamboa v. Victoriano, 90 SCRA 40 [1979]. Cesar L. Villanueva, Philippine Corporate Law, 1998 Ed., p. 228.

30

31 Estimates of FLADCs current net worth cited during the oral arguments on January 29, 2003 ranged from P450 million to P1 billion.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-45911 April 11, 1979 JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA, respondents. De Santos, Balgos & Perez for petitioner. Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation. R. T Capulong for respondent Eduardo R. Visaya.

ANTONIO, J.: The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction, arose out of two cases filed by petitioner with the Securities and Exchange Commission, as follows: SEC CASE NO 1375 On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended bylaws, cancellation of certificate of filing of amended by- laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. The petition, entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375. As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of the corporation, basing their authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,047 with a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of

the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation of the power of the stockholders. As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being six (6) new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of respondent corporation, being a Substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned hence the amended by-laws are null and void. 1 As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts (specifically a management contract) with respondent corporation, which was allowed because the questioned amendment gave the Board itself the prerogative of determining whether they or other persons are engaged in competitive or antagonistic business; that the portion of the amended bylaws which states that in determining whether or not a person is engaged in competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws which requires that "all nominations for election of directors ... shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive. It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled, and that individual respondents be made to pay damages, in specified amounts, to petitioner. On October 28, 1976, in connection with the same case, petitioner filed with the Securities and Exchange Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of respondent corporation refused to allow him to inspect its records despite request made by petitioner for production of certain documents enumerated in the request, and that respondent corporation had been attempting to suppress information from its stockholders despite a negative reply by the SEC to its query regarding their authority to do so. Among the documents requested to be copied were (a) minutes of the stockholder's meeting field on March 13, 1961, (b) copy of the management contract between San Miguel Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance sheet of San Miguel International, Inc.; (d) authority of the stockholders to invest the funds of respondent corporation in San Miguel International, Inc.; and (e) lists of salaries, allowances, bonuses, and other compensation, if any, received by Andres M. Soriano, Jr. and/or its successor-in-interest. The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents, alleging, among others that the motion has no legal basis; that the demand is not based on good faith; that the motion is premature since the materiality or relevance of the evidence sought cannot be determined until the issues are joined, that it fails to show good cause and constitutes continued

harrasment, and that some of the information sought are not part of the records of the corporation and, therefore, privileged. During the pendency of the motion for production, respondents San Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto filed their answer to the petition, denying the substantial allegations therein and stating, by way of affirmative defenses that "the action taken by the Board of Directors on September 18, 1976 resulting in the ... amendments is valid and legal because the power to "amend, modify, repeal or adopt new By-laws" delegated to said Board on March 13, 1961 and long prior thereto has never been revoked of SMC"; that contrary to petitioner's claim, "the vote requirement for a valid delegation of the power to amend, repeal or adopt new by-laws is determined in relation to the total subscribed capital stock at the time the delegation of said power is made, not when the Board opts to exercise said delegated power"; that petitioner has not availed of his intracorporate remedy for the nullification of the amendment, which is to secure its repeal by vote of the stockholders representing a majority of the subscribed capital stock at any regular or special meeting, as provided in Article VIII, section I of the by-laws and section 22 of the Corporation law, hence the, petition is premature; that petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board. since he failed, to object to other amendments made on the basis of the same 1961 authorization: that the power of the corporation to amend its by-laws is broad, subject only to the condition that the by-laws adopted should not be respondent corporation inconsistent with any existing law; that respondent corporation should not be precluded from adopting protective measures to minimize or eliminate situations where its directors might be tempted to put their personal interests over t I hat of the corporation; that the questioned amended by-laws is a matter of internal policy and the judgment of the board should not be interfered with: That the by-laws, as amended, are valid and binding and are intended to prevent the possibility of violation of criminal and civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of action. It was, therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to respondents. The application for writ of preliminary injunction was likewise on various grounds. Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying the material averments thereof and stating, as part of their affirmative defenses, that in August 1972, the Universal Robina Corporation (Robina), a corporation engaged in business competitive to that of respondent corporation, began acquiring shares therein. until September 1976 when its total holding amounted to 622,987 shares: that in October 1972, the Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent (corporation. until its total holdings amounted to P543,959.00 in September 1976; that on January 12, 1976, petitioner, who is president and controlling shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation, and thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and in representation of Robina and CFC interests, a seat in the Board of Directors of SMC", that in the stockholders' meeting of March 18, 1976, petitioner was rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue that petitioner was engaged in a competitive business and his securing a seat would have subjected respondent corporation to grave disadvantages; that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next annual meeting; that thereafter the Board of Directors amended the by-laws as afore-stated. As counterclaims, actual damages, moral damages, exemplary damages, expenses of litigation and attorney's fees were presented against petitioner. Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the respondents. This was duly opposed by petitioner. At this juncture,

respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed to intervene as oppositors and they accordingly filed their oppositions-intervention to the petition. On December 29, 1976, the Securities and Exchange Commission resolved the motion for production and inspection of documents by issuing Order No. 26, Series of 1977, stating, in part as follows: Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled case, it is hereby ordered: 1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of the petitioner-movant, John Gokongwei, Jr., of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held on March 13, 1961, which are in the possession, custody and control of the said corporation, it appearing that the same is material and relevant to the issues involved in the main case. Accordingly, the respondents should allow petitioner-movant entry in the principal office of the respondent Corporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clock in the morning for purposes of enforcing the rights herein granted; it being understood that the inspection, copying and photographing of the said documents shall be undertaken under the direct and strict supervision of this Commission. Provided, however, that other documents and/or papers not heretofore included are not covered by this Order and any inspection thereof shall require the prior permission of this Commission; 2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances, bonuses, compensation and/or remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its successors-in- interest, the Petition to produce and inspect the same is hereby DENIED, as petitioner-movant is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent right to inspect said documents; 3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request to copy and inspect the management contract between San Miguel Corporation and A. Soriano Corporation and the renewal and amendments thereof for the reason that he had already obtained the same, the Commission takes note thereof; and 4. Finally, the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International, Inc., until after the hearing on the merits of the principal issues in the above-entitled case.
This Order is immediately executory upon its approval. 2

Dissatisfied with the foregoing Order, petitioner moved for its reconsideration. Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws", setting such meeting for February 10, 1977. This prompted petitioner to ask respondent Commission for a summary judgment insofar as the first cause of action is concerned, for the alleged reason that by calling a special stockholders' meeting for the aforesaid

purpose, private respondents admitted the invalidity of the amendments of September 18, 1976. The motion for summary judgment was opposed by private respondents. Pending action on the motion, petitioner filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determination of petitioner's application for the issuance of a preliminary injunction and/or petitioner's motion for summary judgment, a temporary restraining order be issued, restraining respondents from holding the special stockholder's meeting as scheduled. This motion was duly opposed by respondents. On February 10, 1977, respondent Commission issued an order denying the motion for issuance of temporary restraining order. After receipt of the order of denial, respondents conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. On February 14, 1977, petitioner filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed by petitioner before respondent Commission on March 10, 1977. Petitioner alleges that up to the time of the filing of the instant petition, the said motion had not yet been scheduled for hearing. Likewise, the motion for reconsideration of the order granting in part and denying in part petitioner's motion for production of record had not yet been resolved. In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and prejudice, Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date of the stockholders' meeting. Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court. SEC. CASE NO. 1423 Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed with respondent Commission, on January 20, 1977, a petition seeking to have private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared guilty of such violation, and ordered to account for such investments and to answer for damages. On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that said motions were filed as early as February 4, 1977, the commission acted thereon only on April 25, 1977, when it denied respondents' motion to dismiss and gave them two (2) days within which to file their answer, and set the case for hearing on April 29 and May 3, 1977.

Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the following: 6. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant thereto. By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on May 3, 1977, the date set for the second hearing of the case on the merits. Respondent Commission, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up to the date of the filing of the instant petition. With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of respondent corporation, and that respondent are acting oppressively against petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this Court direct respondent SEC to act on collateral incidents pending before it. On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner from running or from being voted as director of respondent corporation and from submitting for ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from Making effective the amended by-laws of respondent corporation, until further orders from this Court or until the Securities and Ex-change Commission acts on the matters complained of in the instant petition. On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner copies of the following orders: (1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for reconsideration, with its supplement, of the order of the Commission denying in part petitioner's motion for production of documents, petitioner's motion for reconsideration of the order denying the issuance of a temporary restraining order denying the issuance of a temporary restraining order, and petitioner's consolidated motion to declare respondents in contempt and to nullify the stockholders' meeting; (2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of respondent corporation but stating that he should not sit as such if elected, until such time that the Commission has decided the validity of the bylaws in dispute, and denying deferment of Item 6 of the Agenda for the annual stockholders' meeting; and (3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion for reconsideration of the order of respondent Commission denying petitioner's motion for summary judgment;

It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted with indecent haste and without circumspection in issuing the aforesaid orders to petitioner's irreparable damage and injury; (2) that it acted without jurisdiction and in violation of petitioner's right to due process when it decided en banc an issue not raised before it and still pending before one of its Commissioners, and without hearing petitioner thereon despite petitioner's request to have the same calendared for hearing , and (3) that the respondents acted oppressively against the petitioner in violation of his rights as a stockholder, warranting immediate judicial intervention. It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that respondent Commission be ordered to allow petitioner to undertake discovery proceedings relative to San Miguel International. Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on the merits. On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment, alleging that the petition is without merit for the following reasons: (1) that the petitioner the interest he represents are engaged in business competitive and antagonistic to that of respondent San Miguel Corporation, it appearing that the owns and controls a greater portion of his SMC stock thru the Universal Robina Corporation and the Consolidated Foods Corporation, which corporations are engaged in business directly and substantially competing with the allied businesses of respondent SMC and of corporations in which SMC has substantial investments. Further, when CFC and Robina had accumulated investments. Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC realized the clear and present danger that competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and plans; (2) that the amended by law were adopted to preserve and protect respondent SMC from the clear and present danger that business competitors, if allowed to become directors, will illegally and unfairly utilize their direct access to its business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is asserted that membership of a competitor in the Board of Directors is a blatant disregard of no less that the Constitution and pertinent laws against combinations in restraint of trade; (3) that by laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself by excluding competitors and antogonistic parties, under the law of selfpreservation, and it should be allowed a wide latitude in the selection of means to preserve itself; (4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner's own acts or omissions, since he failed to have the petition to suspend, pendente lite the amended by-laws calendared for hearing. It was emphasized that it was only on April 29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it is apparent that respondent Commission was not given a chance to act "with deliberate dispatch", and (5) that, even assuming that the petition was meritorious was, it has become moot and academic because respondent Commission has acted on the pending incidents, complained of. It was, therefore, prayed that the petition be dismissed. On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the petition has become moot and academic for the reason, among others that the acts of private respondent sought to be enjoined have reference to the annual meeting of the stockholders of respondent San Miguel Corporation, which was held on may 10, 1977; that in said meeting, in compliance with the

order of respondent Commission, petitioner was allowed to run and be voted for as director; and that in the same meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed. Further it was averred that the questions and issues raised by petitioner are pending in the Securities and Exchange Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had; hence the elevation of these issues before the Supreme Court is premature. Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions for the determination of this Court because (1) the respondent Commission acted without circumspection, unfairly and oppresively against petitioner, warranting the intervention of this Court; (2) a derivative suit, such as the instant case, is not rendered academic by the act of a majority of stockholders, such that the discussion, ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10, 1977 did not render the case moot; that the amendment to the bylaws which specifically bars petitioner from being a director is void since it deprives him of his vested rights. Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order issued by this Court and noting that the restraining order did not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375. In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation, took into consideration an urgent manifestation filed with the Commission by petitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of the Agenda be deferred. The reason given for denial of deferment was that "such action is within the authority of the corporation as well as falling within the sphere of stockholders' right to know, deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are the ones directly affected." It was alleged that the main petition has, therefore, become moot and academic. On September 29,1977, petitioner filed a second supplemental petition with prayer for preliminary injunction, alleging that the actuations of respondent SEC tended to deprive him of his right to due process, and "that all possible questions on the facts now pending before the respondent Commission are now before this Honorable Court which has the authority and the competence to act on them as it may see fit." (Reno, pp. 927-928.) Petitioner, in his memorandum, submits the following issues for resolution; (1) whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from nomination or election to the Board of Directors are valid and reasonable; (2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation; and (3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, allegedly in violation of section 17-1/2 of the Corporation Law. I

Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the amended by-laws in compliance with the principle of exhaustion of administrative remedies", considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid ... is purely a legal question. There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and approved ... "; second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made ... "; third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner ... ", and "Commissioner Sulit ... approved the amended by-laws ex-parte and obviously found the same intrinsically valid; and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice." Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future ligiation", citingGayong v. Gayos. 3 To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of its amended by laws and the rights and obligations of the parties thereunder, otherwise "the time spent and effort exerted by the parties concerned and, more importantly, by this Honorable Court, would have been for naught because the main question will come back to this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar appeal. It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of the issues involved, invoking the latter's primary jurisdiction to hear and decide case involving intra-corporate controversies. It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a single proceeding, leaving nor root or branch to bear the seeds of future litigation. 4 Thus, in Francisco v. City of Davao, 5 this Court resolved to decide the case on the merits instead of remanding it to the trial court for further proceedings since the ends of justice would not be subserved by the remand of the case. In Republic v. Security Credit and Acceptance Corporation, et al., 6 this Court, finding that the main issue is one of law, resolved to decide the case on the merits "because public interest demands an early disposition of the case", and in Republic v. Central Surety and Insurance Company, 7 this Court denied remand of the third-party complaint to the trial court for further proceedings, citing precedent where this Court, in similar situations resolved to decide the cases on the merits, instead of remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case; or (b) where public interest demand an early disposition of the case; or (c) where the trial court had already received all the evidence presented by both parties and the Supreme Court is now in a position, based upon said evidence, to decide the case on its merits. 8 It is settled that the doctrine of primary jurisdiction has no application where only a question of law is involved. 8a Because uniformity may be secured through review by a single Supreme Court, questions of law may appropriately be determined in the first instance by courts. 8b In the case at bar, there are facts which cannot be denied, viz.: that the amended by-laws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that the foreign investment in the Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders.

II Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable The validity or reasonableness of a by-law of a corporation in purely a question of law. 9 Whether the by-law is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is a question of law. 10 This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised their authority. 11 Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that ex. conclusion of a competitor from the Board is legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate enterprise; that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation. It is alleged that petitioner, as of May 6, 1978, has exercised, personally or thru two corporations owned or controlled by him, control over the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr. 6,325 shares; (b) Universal Robina Corporation 738,647 shares; (c) CFC Corporation 658,313 shares, or a total of 1,403,285 shares. Since the outstanding capital stock of San Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also contended that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family. It is also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the alleged businesses of San Miguel Corporation, and of corporations in which SMC has substantial investments. ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution dated April 28, 1978, thus: Product Line Estimated Market Share Total 1977 SMC Robina-CFC

Table Eggs 0.6% 10.0% 10.6% Layer Pullets 33.0% 24.0% 57.0% Dressed Chicken 35.0% 14.0% 49.0% Poultry & Hog Feeds 40.0% 12.0% 52.0% Ice Cream 70.0% 13.0% 83.0% Instant Coffee 45.0% 40.0% 85.0% Woven Fabrics 17.5% 9.1% 26.6% Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion total product sales of SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors. It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for SMC, represented sales amounting to more than ?478 million. In addition, CFC-Robina was directly competing in the sale of coffee with Filipro, a subsidiary of SMC, which product line represented sales for SMC amounting to more than P275 million. The CFC-Robina group (Robitex, excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The areas of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC, product sales of more than P849 million. According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or more than 90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board of Directors because they "realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC." On September 18, 1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the stockholders," approved the amendment to ' he by-laws in question. At the meeting of February 10, 1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945 shares, or more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005 shares, opposed the confirmation and ratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders, owning 27,257.014 shares, or more than 90% of the outstanding shares, rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the May 9, 1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more than 30 million shares, or more than 90% of the total outstanding shares. voted against petitioner. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-, a measure of self-defense to protect the corporation from the clear and present danger that the election of a business competitor to the Board may cause upon the corporation and the other stockholders inseparable prejudice. Submitted for resolution, therefore, is the issue whether or not respondent San Miguel Corporation could, as a measure of selfprotection, disqualify a competitor from nomination and election to its Board of Directors. It is recognized by an authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. 12 At common law, the rule was "that the power to make and adopt by-laws was inherent in every

corporation as one of its necessary and inseparable legal incidents. And it is settled throughout the United States that in the absence of positive legislative provisions limiting it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of any specific enabling provision in its charter or in general law, such power of selfgovernment being essential to enable the corporation to accomplish the purposes of its creation. 13 In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its bylaws "the qualifications, duties and compensation of directors, officers and employees ... " This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director ... " InGovernment v. El Hogar, 14 the Court sustained the validity of a provision in the corporate by-law requiring that persons elected to the Board of Directors must be holders of shares of the paid up value of P5,000.00, which shall be held as security for their action, on the ground that section 21 of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity with good practice. " NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." 15 To this extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of his fellow incorporators. ... It cannot therefore be justly said that the contract, express or implied, between the corporation and the stockholders is infringed ... by any act of the former which is authorized by a majority ... ." 16 Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation If the amendment changes, diminishes or restricts the rights of the existing shareholders then the disenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new bylaws. It cannot be said, therefore, that petitioner has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification. 17 It being settled that the corporation has the power to provide for the qualifications of its directors, the next question that must be considered is whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority. A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of trust." 18 "The ordinary trust relationship of directors

of a corporation and stockholders", according to Ashaman v. Miller, 19 "is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof * * *. Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of fiduciary obligation of the directors of corporations, thus: A director is a fiduciary. ... Their powers are powers in trust. ... He who is in such fiduciary position cannot serve himself first and his cestuis second. ... He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters ... He cannot utilize his inside information and strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot violate rules of fair play by doing indirectly though the corporation what he could not do so directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference or advantage of the fiduciary to the exclusion or detriment of the cestuis. And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was said: ... A person cannot serve two hostile and adverse master, without detriment to one of them. A judge cannot be impartial if personally interested in the cause. No more can a director. Human nature is too weak -for this. Take whatever statute provision you please giving power to stockholders to choose directors, and in none will you find any express prohibition against a discretion to select directors having the company's interest at heart, and it would simply be going far to deny by mere implication the existence of such a salutary power ... If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director, the same reasoning would apply to disqualify the wife and immediate member of the family of such stockholder, on account of the supposed interest of the wife in her husband's affairs, and his suppose influence over her. It is perhaps true that such stockholders ought not to be condemned as selfish and dangerous to the best interest of the corporation until tried and tested. So it is also true that we cannot condemn as selfish and dangerous and unreasonable the action of the board in passing the by-law. The strife over the matter of control in this corporation as in many others is perhaps carried on not altogether in the spirit of brotherly love and affection. The only test that we can apply is as to whether or not the action of the Board is authorized and sanctioned by law. ... . 22 These principles have been applied by this Court in previous cases. 23 AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID

It is a settled state law in the United States, according to Fletcher, that corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. ... (A)n amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid."24 This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the corporation and is good." An exception exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey prescribed the only qualification, and therefore the corporation was not empowered to add additional qualifications. 25 This is the exact opposite of the situation in the Philippines because as stated heretofore, section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director. 26 It is also well established that corporate officers "are not permitted to use their position of trust and confidence to further their private interests." 27 In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard the new contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. 28 The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection. 30 It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the bylaws was made. Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. Thus, in McKee & Co. v. First National Bank of San Diego, supra the court sustained as valid and reasonable an amendment to the by-laws of a bank, requiring that its directors should not be directors, officers, employees, agents, nominees or attorneys of any other banking corporation, affiliate or subsidiary thereof. Chief Judge Parker, in McKee, explained the reasons of the court, thus:

... A bank director has access to a great deal of information concerning the business and plans of a bank which would likely be injurious to the bank if known to another bank, and it was reasonable and prudent to enlarge this minimum disqualification to include any director, officer, employee, agent, nominee, or attorney of any other bank in California. The Ashkins case, supra, specifically recognizes protection against rivals and others who might acquire information which might be used against the interests of the corporation as a legitimate object of by-law protection. With respect to attorneys or persons associated with a firm which is attorney for another bank, in addition to the direct conflict or potential conflict of interest, there is also the danger of inadvertent leakage of confidential information through casual office discussions or accessibility of files. Defendant's directors determined that its welfare was best protected if this opportunity for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed. In McKee the Court further listed qualificational by-laws upheld by the courts, as follows: (1) A director shall not be directly or indirectly interested as a stockholder in any other firm, company, or association which competes with the subject corporation. (2) A director shall not be the immediate member of the family of any stockholder in any other firm, company, or association which competes with the subject corporation, (3) A director shall not be an officer, agent, employee, attorney, or trustee in any other firm, company, or association which compete with the subject corporation. (4) A director shall be of good moral character as an essential qualification to holding office. (5) No person who is an attorney against the corporation in a law suit is eligible for service on the board. (At p. 7.) These are not based on theorical abstractions but on human experience that a person cannot serve two hostile masters without detriment to one of them. The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be discussed, would not detract from the validity and reasonableness of the by-laws here involved. Apart from the impractical results that would ensue from such arrangement, it would be inconsistent with petitioner's primary motive in running for board membership which is to protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporate management. As explained by Oleck: 31 "The law win not tolerate the passive attitude of directors ... without active and conscientious participation in the managerial functions of the company. As directors, it is their duty to control and supervise the day to day business activities of the company or to promulgate definite policies and rules of guidance with a vigilant eye toward seeing to it that these policies are carried out. It is only then that directors may be said to have fulfilled their duty of fealty to the corporation." Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he disclose this information to a competitive arrival. These dangers are enhanced considerably where the common director such as

the petitioner is a controlling stockholder of two of the competing corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director. Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor, for advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or new products could enable said competitor to utilize such knowledge to his advantage. 32 There is another important consideration in determining whether or not the amended by-laws are reasonable. The Constitution and the law prohibit combinations in restraint of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be snowed." Article 186 of the Revised Penal Code also provides: Art. 186. Monopolies and combinations in restraint of trade. The penalty of prision correccional in its minimum period or a fine ranging from two hundred to six thousand pesos, or both, shall be imposed upon: 1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the market. 2. Any person who shag monopolize any merchandise or object of trade or commerce, or shall combine with any other person or persons to monopolize said merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other artifice to restrain free competition in the market. 3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an importer of any merchandise or object of commerce from any foreign country, either as principal or agent, wholesale or retailer, shall combine, conspire or agree in any manner with any person likewise engaged in the manufacture, production, processing, assembling or importation of such merchandise or object of commerce or with any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing the market price in any part of the Philippines, or any such merchandise or object of commerce manufactured, produced, processed, assembled in or imported into the Philippines, or of any article in the manufacture of which such manufactured, produced, processed, or imported merchandise or object of commerce is used. There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint of trade. 33 Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising levels of competition by improving the consumers' effectiveness as the final arbiter in free markets. These laws are designed to preserve free and unfettered competition as the rule of trade. "It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices and the highest quality ... ." 34 they

operate to forestall concentration of economic power. 35 The law against monopolies and combinations in restraint of trade is aimed at contracts and combinations that, by reason of the inherent nature of the contemplated acts, prejudice the public interest by unduly restraining competition or unduly obstructing the course of trade. 36 The terms "monopoly", "combination in restraint of trade" and "unfair competition" appear to have a well defined meaning in other jurisdictions. A "monopoly" embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to control prices to the detriment of the public. 37 In short, it is the concentration of business in the hands of a few. The material consideration in determining its existence is not that prices are raised and competition actually excluded, but that power exists to raise prices or exclude competition when desired. 38 Further, it must be considered that the Idea of monopoly is now understood to include a condition produced by the mere act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the suppression of competition by the qualification of interest or management, or it may be thru agreement and concert of action. It is, in brief, unified tactics with regard to prices. 39 From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with reality. The election of petitioner to the Board of respondent Corporation can bring about an illegal situation. This is because an express agreement is not necessary for the existence of a combination or conspiracy in restraint of trade. 40 It is enough that a concert of action is contemplated and that the defendants conformed to the arrangements, 41and what is to be considered is what the parties actually did and not the words they used. For instance, the Clayton Act prohibits a person from serving at the same time as a director in any two or more corporations, if such corporations are, by virtue of their business and location of operation, competitors so that the elimination of competition between them would constitute violation of any provision of the anti-trust laws. 42 There is here a statutory recognition of the anti-competitive dangers which may arise when an individual simultaneously acts as a director of two or more competing corporations. A common director of two or more competing corporations would have access to confidential sales, pricing and marketing information and would be in a position to coordinate policies or to aid one corporation at the expense of another, thereby stifling competition. This situation has been aptly explained by Travers, thus:
The argument for prohibiting competing corporations from sharing even one director is that the interlock permits the coordination of policies between nominally independent firms to an extent that competition between them may be completely eliminated. Indeed, if a director, for example, is to be faithful to both corporations, some accommodation must result. Suppose X is a director of both Corporation A and Corporation B. X could hardly vote for a policy by A that would injure B without violating his duty of loyalty to B at the same time he could hardly abstain from voting without depriving A of his best judgment. If the firms really do compete in the sense of vying for economic advantage at the expense of the other there can hardly be any reason for an interlock between competitors other than the suppression of competition. 43 (Emphasis supplied.)

According to the Report of the House Judiciary Committee of the U. S. Congress on section 9 of the Clayton Act, it was established that: "By means of the interlocking directorates one man or group of men have been able to dominate and control a great number of corporations ... to the detriment of the small ones dependent upon them and to the injury of the public. 44 Shared information on cost accounting may lead to price fixing. Certainly, shared information on production, orders, shipments, capacity and inventories may lead to control of production for the purpose of controlling prices. Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation, the essence of competition in a free market for the purpose of serving the lowest

priced goods to the consuming public would be frustrated, The competitor could so manipulate the prices of his products or vary its marketing strategies by region or by brand in order to get the most out of the consumers. Where the two competing firms control a substantial segment of the market this could lead to collusion and combination in restraint of trade. Reason and experience point to the inevitable conclusion that the inherent tendency of interlocking directorates between companies that are related to each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of compromising opposing interests, and thus eliminate competition. As respondent SMC aptly observes, knowledge by CFC-Robina of SMC's costs in various industries and regions in the country win enable the former to practice price discrimination. CFC-Robina can segment the entire consuming population by geographical areas or income groups and change varying prices in order to maximize profits from every market segment. CFC-Robina could determine the most profitable volume at which it could produce for every product line in which it competes with SMC. Access to SMC pricing policy by CFC-Robina would in effect destroy free competition and deprive the consuming public of opportunity to buy goods of the highest possible quality at the lowest prices. Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the election of petitioner to the Board of SMC may constitute a violation of the prohibition contained in section 13(5) of the Corporation Law. Said section provides in part that "any stockholder of more than one corporation organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the purpose of bringing about or attempting to bring about a combination to exercise control of incorporations ... ." Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy of petitioner for election to the Board. If the by-law were to be applied in the case of one stockholder but waived in the case of another, then it could be reasonably claimed that the by-law was being applied in a discriminatory manner. However, the by law, by its terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Besides, before petitioner can be declared ineligible to run for director, there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. Sound principles of public policy and management, therefore, support the view that a by-law which disqualifies a competition from election to the Board of Directors of another corporation is valid and reasonable. In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporation interests. Thus, "where the reasonableness of a by-law is a mere matter of judgment, and upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have expressed their authority. 45 Although it is asserted that the amended by-laws confer on the present Board powers to perpetua themselves in power such fears appear to be misplaced. This power, but is very nature, is subject to certain well established limitations. One of these is inherent in the very convert and definition of the terms "competition" and "competitor". "Competition" implies a struggle for advantage between two or more forces, each possessing, in substantially similar if not Identical degree, certain characteristics essential to the business sought. It means an independent endeavor of two or more persons to obtain the business patronage of a third by offering more advantageous terms as an inducement to secure trade. 46 The test must be whether the business does in fact compete, not whether it is capable of an indirect and highly unsubstantial duplication of an isolated or non-characteristics activity. 47 It is, therefore, obvious that not every person or entity engaged in business of the same kind is a competitor. Such factors as quantum and place of business, Identity of products and area of competition should be taken into consideration. It is, therefore, necessary to show that petitioner's business covers a substantial portion of the same markets for similar products to the extent of not less than 10% of respondent corporation's market for competing products. While We here sustain

the validity of the amended by-laws, it does not follow as a necessary consequence that petitioner is ipso facto disqualified. Consonant with the requirement of due process, there must be due hearing at which the petitioner must be given the fullest opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of the stockholders, it is the responsibility of directors to act with fairness to the stockholders. 48 Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities behind Exchange Commission en banc and its decision shall be final unless reversed by this Court on certiorari. 49 Indeed, it is a settled principle that where the action of a Board of Directors is an abuse of discretion, or forbidden by statute, or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste, dissipation or misapplication of the corporation assets, a court of equity has the power to grant appropriate relief.50 III Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International Inc., a fully owned subsidiary of San Miguel Corporation Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was denied inspection rights as stockholder of SMC "was made in the teeth of undisputed facts that, over a specific period, petitioner had been furnished numerous documents and information," to wit: (1) a complete list of stockholders and their stockholdings; (2) a complete list of proxies given by the stockholders for use at the annual stockholders' meeting of May 18, 1975; (3) a copy of the minutes of the stockholders' meeting of March 18,1976; (4) a breakdown of SMC's P186.6 million investment in associated companies and other companies as of December 31, 1975; (5) a listing of the salaries, allowances, bonuses and other compensation or remunerations received by the directors and corporate officers of SMC; (6) a copy of the US $100 million Euro-Dollar Loan Agreement of SMC; and (7) copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976, with deletions of sensitive data, which deletions were not objected to by petitioner. Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976; (1) that SMC's foreign investments are handled by San Miguel International, Inc., incorporated in Bermuda and wholly owned by SMC; this was SMC's first venture abroad, having started in 1948 with an initial outlay of ?500,000.00, augmented by a loan of Hongkong $6 million from a foreign bank under the personal guaranty of SMC's former President, the late Col. Andres Soriano; (2) that as of December 31, 1975, the estimated value of SMI would amount to almost P400 million (3) that the total cash dividends received by SMC from SMI since 1953 has amount to US $ 9.4 million; and (4) that from 1972-1975, SMI did not declare cash or stock dividends, all earnings having been used in line with a program for the setting up of breweries by SMI These averments are supported by the affidavit of the Corporate Secretary, enclosing photocopies of the afore-mentioned documents. 51 Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a

beneficial ownership, or a ownership. 52 This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. 53 In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the corporation. 54 In Grey v. Insular Lumber, 55 this Court held that "the right to examine the books of the corporation must be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for specific and honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes. The weight of judicial opinion appears to be, that on application for mandamus to enforce the right, it is proper for the court to inquire into and consider the stockholder's good faith and his purpose and motives in seeking inspection. 56 Thus, it was held that "the right given by statute is not absolute and may be refused when the information is not sought in good faith or is used to the detriment of the corporation." 57But the "impropriety of purpose such as will defeat enforcement must be set up the corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the stockholder the burden of showing propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or motive. 58 It appears to be the general rule that stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds, and to inspection to obtain such information, especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stockholders to the exclusion of others." 59 While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing. Some state courts recognize the right under certain conditions, while others do not. Thus, it has been held that where a corporation owns approximately no property except the shares of stock of subsidiary corporations which are merely agents or instrumentalities of the holding company, the legal fiction of distinct corporate entities may be disregarded and the books, papers and documents of all the corporations may be required to be produced for examination, 60 and that a writ of mandamus, may be granted, as the records of the subsidiary were, to all incontents and purposes, the records of the parent even though subsidiary was not named as a party. 61mandamus was likewise held proper to inspect both the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the parent showing the relation of principal or agent or something similar thereto. 62 On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary corporation is a separate and distinct corporation domiciled and with its books and records in another jurisdiction, and is not legally subject to the control of the parent company, although it owned a vast majority of the stock of the subsidiary. 63Likewise, inspection of the books of an allied corporation by stockholder of the parent company which owns all the stock of the subsidiary has been refused on the ground that the stockholder was not within the class of "persons having an interest." 64 In the Nash case, 65 The Supreme Court of New York held that the contractual right of former stockholders to inspect books and records of the corporation included the right to inspect corporation's subsidiaries' books and records which were in corporation's possession and control in its office in New York."

In the Bailey case, 66 stockholders of a corporation were held entitled to inspect the records of a controlled subsidiary corporation which used the same offices and had Identical officers and directors. In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC, petitioner contended that respondent corporation "had been attempting to suppress information for the stockholders" and that petitioner, "as stockholder of respondent corporation, is entitled to copies of some documents which for some reason or another, respondent corporation is very reluctant in revealing to the petitioner notwithstanding the fact that no harm would be caused thereby to the corporation." 67 There is no question that stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management, determine the financial condition of the corporation, and generally take an account of the stewardship of the officers and directors. 68 In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and, therefore, under its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records of such wholly subsidiary which are in respondent corporation's possession and control. IV Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent corporation to ratify the investment of corporate funds in a foreign corporation Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested corporate funds in SMI without prior authority of the stockholders, thus violating section 17-1/2 of the Corporation Law, and alleges that respondent SEC should have investigated the charge, being a statutory offense, instead of allowing ratification of the investment by the stockholders. Respondent SEC's position is that submission of the investment to the stockholders for ratification is a sound corporate practice and should not be thwarted but encouraged. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. 69 As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its Articles of Incorporation, which is to manufacture and market beer. It appears that the original investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization. Under these circumstances, the ruling in De la Rama v. Manao Sugar Central Co., Inc., supra, appears relevant. In said case, one of the issues was the legality of an investment made by

Manao Sugar Central Co., Inc., without prior resolution approved by the affirmative vote of 2/3 of the stockholders' voting power, in the Philippine Fiber Processing Co., Inc., a company engaged in the manufacture of sugar bags. The lower court said that "there is more logic in the stand that if the investment is made in a corporation whose business is important to the investing corporation and would aid it in its purpose, to require authority of the stockholders would be to unduly curtail the power of the Board of Directors." This Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara, said: "j. Power to acquire or dispose of shares or securities. A private corporation, in order to accomplish is purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidence of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such shares or securities must be subject to the limitations established by the Corporations law; namely, (a) that no agricultural or mining corporation shall be restricted to own not more than 15% of the voting stock of nay agricultural or mining corporation; and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of commerce of combination in restraint of trade." The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis supplied.) 40. Power to invest corporate funds. A private corporation has the power to invest its corporate funds "in any other corporation or business, or for any purpose other than the main purpose for which it was organized, provide that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a propose at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in its articles of incorporation the approval of the stockholders is not necessary."" (Id., p. 108) (Emphasis ours.) (pp. 258-259). Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment, there is no question that a corporation, like an individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. 70 This is true because the questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate transaction or contract which is within the corporate powers, but which is defective from a supported failure to observe in its execution the. requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. "Mere ultra vires acts", said this Court in Pirovano, 71 "or those which are not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. The mere fact that respondent corporation submitted

the assailed investment to the stockholders for ratification at the annual meeting of May 10, 1977 cannot be construed as an admission that respondent corporation had committed an ultra vires act, considering the common practice of corporations of periodically submitting for the gratification of their stockholders the acts of their directors, officers and managers. WHEREFORE, judgment is hereby rendered as follows: The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books and records of San Miguel International, Inc., as specified by him. On the matter of the validity of the amended by-laws of respondent San Miguel Corporation, six (6) Justices, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, voted to sustain the validity per se of the amended by-laws in question and to dismiss the petition without prejudice to the question of the actual disqualification of petitioner John Gokongwei, Jr. to run and if elected to sit as director of respondent San Miguel Corporation being decided, after a new and proper hearing by the Board of Directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. Unless disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner. The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the issue on the validity of the foreign investment of respondent corporation as moot. Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result. Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the questioned amended bylaws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as director of respondent SMC in the scheduled May 6, 1979 election and subsequent elections until disqualified after proper hearing by the respondent's Board of Directors and petitioner's disqualification shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court. In resume, subject to the qualifications aforestated judgment is hereby rendered GRANTING the petition by allowing petitioner to examine the books and records of San Miguel International, Inc. as specified in the petition. The petition, insofar as it assails the validity of the amended by- laws and the ratification of the foreign investment of respondent corporation, for lack of necessary votes, is hereby DISMISSED. No costs. Makasiar, Santos Abad Santos and De Castro, JJ., concur. Aquino, and Melencio Herrera JJ., took no part.

Separate Opinions

TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring: I As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect, examine and secure copies of the records of San Miguel International, inc. (SMI), a wholly owned foreign subsidiary corporation of respondent San Miguel Corporation. Respondent commissions en banc Order No. 449, Series of 19 7 7, denying petitioner's right of inspection for "not being a stockholder of San Miguel International, Inc." has been accordingly set aside. It need be only pointed out that: a) The commission's reasoning grossly disregards the fact that the stockholders of San Miguel Corporation are likewise the owners of San Miguel International, Inc. as the corporation's wholly owned foreign subsidiary and therefore have every right to have access to its books and records. otherwise, the directors and management of any Philippine corporation by the simple device of organizing with the corporation's funds foreign subsidiaries would be granted complete immunity from the stockholders' scrutiny of its foreign operations and would have a conduit for dissipating, if not misappropriating, the corporation funds and assets by merely channeling them into foreign subsidiaries' operations; and
b) Petitioner's right of examination herein recognized refers to all books and records of the foreign subsidiary SMI which are which are " in respondent corporation's possession and control" 1, meaning to say regardless of whether or not such books and records are physically within the Philippines. all such books and records of SMI are legally within respondent corporation's "possession and control" and if nay books or records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to be expected), then the respondent corporation's board and management are obliged under the Court's judgment to bring and make them (or true copies thereof available within the Philippines for petitioner's examination and inspection.

II On the other main issue of the Validity of respondent San Miguel Corporation's amendment of its bylaws 2whereby respondent corporation's board of directors under its resolution dated April 29, 1977 declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors, the Court, composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera inhibited herself from taking part herein, while Mr. Justice Ramon C. Aquino upon submittal of the main opinion of Mr. Justice Antonio decided not to take part), failed to reach a conclusive vote or, the required majority of 8 votes to settle the issue one way or the other. Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned amended by-laws but nevertheless voted that the prohibition and disqualification therein provided shall not apply to petitioner Gokongwei until and after he shall have been given a new and proper hearing" by the corporation's board of directors and the board's decision of disqualification

she'll have been sustained on appeal by respondent Securities and Exchange Commission and ultimately by this Court. The undersigned Justices do not consider the issue as purely legal in the light of respondent commission's Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on the ground that "the Commissionen banc finds that there (are) unresolved and genuine issues of fact" 3 as well as its position in this case to the Solicitor General that the case at bar is "premature" and that the administrative remedies before the commission should first be availed of and exhausted. 4 We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a century of respondent corporation's existence as a public corporation with its shares freely purchased and traded in the open market without restriction and disqualification) which would bar petitioner from qualification, nomination and election as director and worse, grant the board by 3/4 vote the arbitrary power to bar any stockholder from his right to be elected as director by the simple expedient of declaring him to be engaged in a "competitive or antagonistic business" or declaring him as a "nominee" of the competitive or antagonistic" stockholder are illegal, oppressive, arbitrary and unreasonable. We consider the questioned amended by-laws as being specifically tailored to discriminate against petitioner and depriving him in violation of substantive due process of his vested substantial rights as stockholder of respondent corporation. We further consider said amended by-laws as violating specific provisions of the Corporation Law which grant and recognize the right of a minority stockholder like petitioner to be elected director by the process of cumulative voting ordained by the Law (secs 21 and 30) and the right of a minority director once elected not to be removed from office of director except for cause by vote of the stockholders holding 2/3 of the subscribed capital stock (sec. 31). If a minority stockholder could be disqualified by such a by-laws amendment under the guise of providing for "qualifications," these mandates of the Corporation Law would have no meaning or purpose. These vested and substantial rights granted stockholders under the Corporation Law may not be diluted or defeated by the general authority granted by the Corporation Law itself to corporations to adopt their by-laws (in section 21) which deal principally with the procedures governing their internal business. The by-laws of any corporation must, be always within the character limits. What the Corporation Law has granted stockholders maynot be taken away by the corporation's by-laws. The amendment is further an instrument of oppressiveness and arbitrariness in that the incumbent directors are thereby enabled to perpetuate themselves in office by the simple expedient of disqualifying any unwelcome candidate, no matter how many votes he may have. However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as expressed in its Orders Nos. 450 and 451, Series of 1977 that there are unresolved and genuine issues of fact" and that it has yet to rule on and finally decide the validity of the disputed by-law provision", subject to appeal by either party to this Court. In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the case should as a consequence be remanded to the Securities and Exchange Commission as the agency of primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should property be submitted to the commission instead of the piecemeal documents submitted as annexes to this Court which is not a trier of facts) concerning not only the petitioner but the members of the board of directors of respondent corporation as well, so that it may determine on the basis thereof the issue of the legality of the questioned amended by-laws, and assuming Chat it holds the same to be valid whether the same are arbitrarily and unreasonably applied to petitioner vis a vis

other directors, who, petitioner claims, should in such event be likewise disqualified from sitting in the board of directors by virtue of conflict of interests or their being likewise engaged in competitive or antagonistic business" with the corporation such as investment and finance, coconut oil mills cement, milk and hotels. 5 It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote and the Court's failure to affair, the required 8-vote majority to resolve the issue, such as dismissal (for lack of necessary votes) is of no doctrine value and does not in any manner resolve the issue of the validity of the questioned amended by-laws nor foreclose the same. The same should properly be determined in a proper case in the first instance by the Securities and Exchange Commission as the agency of primary jurisdiction, as above indicated. The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office of, and if elected, sit as, member of the board of directors of respondent San Miguel Corporation as stated in the dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after petitioner has been given a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable Lo the respondent Securities and Exchange Commission deliverating and acting en banc and ultimately to this Court" and until ' disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner," In other words, until and after petitioner shall have been given due process and proper hearing by the respondent board of directors as to the question of his qualification or disqualification under the questioned amended by-laws (assuming that the respondent Securities and Exchange C commission ultimately upholds the validity of said by laws), and such disqualification shall have been sustained by respondent Securities and Exchange Commission and ultimately by final judgment of this Court, petitioner is deemed eligible for all legal purposes and effects to be nominated and voted and if elected to sit as a member of the hoard of directors of respondent San Miguel Corporation. In view of the Court's unanimous judgment on this point the portion of respondent commission's Order No. 450, Series of 977 which imposed "the condition that he [petitioner] cannot sit as board member if elected until after the Commission shall have finally decided the validity of the disputed by-law provision" has been likewise accordingly set aside. III By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to ambiguity, we state the following. 1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four votes, plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12) votes unanimously rendered judgment granting petitioner's right to examine and secure copies of the books and records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation and respondent commission's Order No. 449, Series of 1977, to the contrary is set aside: 2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that until and after petitioner shall have been given due process and proper hearing by the respondent board of directors as to the question of his disqualification under the questioned amended by- laws (assuming that the respondent Securities and Exchange Commission ultimately upholds the validity of said by laws), and such disqualification shall have been sustained by respondent Securities and Exchange Commission and ultimately by final judgment of this Court petitioner is deemed eligible for all legal purposes and effect to be nominated and voted and if elected to sit as a member of the board of directors of respondent San Miguel Corporation.

Accordingly, respondent commission's Order No. 450, Series of 1977 to the contrary has likewise been set aside; and 3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2, Art. 111) is inconclusive without the required majority of eight votes to settle the issue one way or the other having been reached. No judgment is rendered by the Court thereon and the statements of the six Justices who have signed the main opinion on the legality thereof have no binding effect, much less doctrinal value. The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment is concerned is not by an judgment with the required eight votes but simply by force of Rule 56, section II of the Rules of Court, the pertinent portion of which provides that "where the court en banc is equally divided in opinion, or the necessary majority cannot be had, the case shall be reheard, and if on re-hearing no decision is reached, the action shall be dismissed if originally commenced in the court ...." The end result is that the Court has thereby dismissed the petition which prayed that the Court bypass the commission and directly resolved the issue and therefore the respondent commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the "unresolved and genuine issues of fact" (as per Order No. 451, Series of 1977) and the issues of legality of the disputed by-laws amendment. Teehankee, Concepcion, Jr., and Fernandez, JJ., concur. Guerrero, J., concurred. TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring: This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice Barredo issued by him as to "certain misimpressions as to the import of the decision in this case" which might be produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his) position in respect to the rights of the parties resulting from the dismissal of the petition herein and the outline of the procedure by which the disqualification of petitioner Gokongwei can be made effective." 1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of the validity of the challenged by-laws is already settled" had, of course, no binding effect. The judgment of the Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr. Justice Antonio, wherein on the question of the validity of the amended by-laws the Court's inconclusive voting is set forth as follows: Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended bylaws, pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. Justice Fernando reserved his vote on the validity of subject amendment to the bylaws but otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the

questioned amended by-laws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction ... 1

As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the validity of the questioned by-laws, was dismissed. 2. Mr. Justice Barredo now contends contrary to the undersigned's understanding, as stated on pages 8 and 9 of our joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the petition on the question of validity of the amended by-laws for lack of the necessary votes simply means that "the Court has thereby dismissed the petition which prayed that the Court by-pass the commission and directly resolve the issue and therefore the respondent commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the 'unresolved and genuine issues of fact' (as per Order No. 451, Series of 1977) and the issue of legalityof the disputed by-laws amendment," that such dismissal "has no other legal consequence than that it is the law of the case as far as the parties are concerned, albeit the majority of the opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases." We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no applicability for the following reasons: a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final andconclusive determination of an issue in the first case later invoked as the law of the case. Thus, in People vs. Olarte, 2 we held that "Law of the case" has been defined as the opinion delivered on a former appeal More specifically, it means that whatever is once irrevocably established as the controlling legal rule of decision between the same parties in the same case continues to he the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case before the court. ... It need not be stated that the Supreme Court, being the court of last resort, is the final arbiter of all legal questions properly brought before it and that its decision in any given case constitutes the law of that particular case. Once its judgment becomes final it is binding on all inferior courts, and hence beyond their power and authority to alter or modify Kabigting vs. Acting Director of Prisons, G. R. No. L15548, October 30, 1962). The decision of this Court on that appeal by the government from the order of dismissal, holding that said appeal did not place the appellants, including Absalon Bignay, in double jeopardy, signed and concurred in by six Justices as against three dissenters headed by the Chief Justice, promulgated way back in the year 1952, has long become the law of the case. It may be erroneous, judged by the law on double jeopardy as recently interpreted by this same Tribunal Even so, it may not be disturbed and modified. Our recent interpretation of the law may be applied to new cases, but certainly not to anold one finally and conclusively determined. As already stated, the majority opinion in that appeal is now the law of the case. (People vs. Pinuila)

The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the question of the validity or invalidity of the amended by-laws is concerned. The Court's judgment of April 11, 1979 clearly shows that the voting on this question was inconclusive with six against four Justices and two other Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their votes thereon, and Mr. Justice Aquino while taking no part in effect likewise expressly reserved his vote thereon. No final and conclusive determination could be reached on the issue and pursuant to the provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the action was simply dismissed with the result that no law of the case was laid down insofar as the issue of the validity or invalidity of the questioned by-laws is concerned, and the relief sought herein by petitioner that this Court by-pass the SEC which has yet to hear and determine the same issue pending before it below and that this Court itself directly resolve the said issue stands denied. b) The contention of Mr. Justice Barredo that the result of the dismiss of the case was that "petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of the validity whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the setting of this case Not even the Securities and Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf, " appears to us to be untenable. The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating Justices headed by the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and proper hearing" by the SMC board of directors on the matter of his disqualification under the questioned by-laws and that the board's "decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court (and) unless disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." The entire Court, therefore, recognized that petitioner had not been given procedural due process by the SMC board on the matter of his disqualification and that he was entitled to a "new and proper hearing". It stands to reason that in such hearing, petitioner could raise not only questions of fact but questions of law, particularly questions of law affecting the investing public and their right to representation on the board as provided by law not to mention that as borne out by the fact that no restriction whatsoever appears in the court's decision, it was never contemplated that petitioner was to be limited to questions of fact and could not raise the fundamental questions of law bearing on the invalidity of the questioned amended by-laws at such hearing before the SMC board. Furthermore, it was expressly provided unanimously in the Court's decision that the SMC board's decision on the disqualification of petitioner ("assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him" as qualified in Mr. Justice Barredo's own separate opinion, at page 2) shall be appealable to respondent Securities and Exchange Commission "deliberating and acting en banc and "untimately to this Court." Again, the Court's judgment as set forth in its decision of April 11, 1979 contains nothing that would warrant the opinion now expressed that respondent Securities and Exchange Commission may not pass anymore on the question of the invalidity of the amended by-laws. Certainly, it cannot be contended that the Court in dismissing the petition for lack of necessary votes actually by-passed the Securities and Exchange Commission and directly ruled itself on the invalidity of the questioned by-laws when it itself could not reach a final and conclusive vote (a minimum of eight votes) on the issue and three other Justices (the Chief Justice and Messrs. Justices Fernando and Aquino) had expressly reserved their vote until after further hearings (first before the Securities and Exchange Commission and ultimately in this Court). Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation where supposedly under the law of this case the questioned by-laws would be held valid as against

petitioner Gokongwei and yet the same may be stricken off as invalid as to all other SMC shareholders in a proper case. 3. It need only be pointed out that Mr. Justice Barredo's advance separate opinion can in no way affect or modify the judgment of this Court as set forth in the decision of April 11, 1979 and discussed hereinabove. The same bears the unqualified concurrence of only three Justices out of the six Justices who originally voted for the validity per se of the questioned by-laws, namely, Messrs. Justices Antonio, Santos and De Castro. Messrs. Justices Fernando and Makasiar did not concur therein but they instead concurred with the limited concurrence of the Chief Justice touching on the law of the case which guardedly held that the Court has not found merit in the claim that the amended bylaws in question are invalid but without in any manner foreclosing the issue and as a matter of fact and law, without in any manner changing or modifying the above-quoted vote of the Chief Justice as officially rendered in the decision of April 11, 1979, wherein he precisely "reserved (his) vote on the validity of the amended by-laws." 4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive construction of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that during the Court's deliberations it was brought out that this prohibitory provision was and is not raised in issue in this case whether here or in the Securities and Exchange Commission below (outside of a passing argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent Sorianos in their Memorandum of June 26, 1978 that "(T)he disputed By-Laws does not prohibit petitioner from holding onto, or even increasing his SMC investment; it only restricts any shifting on the part of petitioner from passive investor to a director of the company." 3 As a consequence, the Court abandoned the Idea of calling for another hearing wherein the parties could properly raise and discuss this question as a new issue and instead rendered the decision in question, under which the question of section 13(5) could be raised at a new and proper hearing before the SMC board and in the Securities and Exchange Commission and in due course before this Court (but with the clear understanding that since both corporations, the Robina and SMC are engaged in agriculture as submitted by the Sorianos' counsel in their said memorandum, the issue could be raised likewise against SMC and its other shareholders, directors, if not against SMC itself. As expressly stated in the Chief Justices reservation of his vote, the matter of the question of the applicability of the said section 13(5) to petitioner would be heard by this Court at the appropriate time after the proceedings below (and necessarily the question of the validity of the amended bylaws would be taken up anew and the Court would at that time be able to reach a final and conclusive vote). Mr. Justice De Castro's personal interpretation of the decision of April 11, 1979 that petitioner may be allowed to run for election despite adverse decision of both the SMC board and the Securities and Exchange Commission "only if he comes to this Court and obtains an injunction against the enforcement of the decision disqualifying him" is patently contradictory of his vote on the matter as expressly given in the judgment in the Court's decision of April 11, 1979 (at page 59) that petitioner could run and if elected, sit as director of the respondent SMC and could be disqualified only after a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. Unless-disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." Teehankee, Concepcion Jr., Fernandez and Guerrero, JJ., concur. BARREDO, J., concurring:

I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the validity of the amended by-laws in question. Regrettably, I have not yet finished preparing the same. In view, however, of the joint separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and Guerrero, the full text of which has just come to my attention, and which I am afraid might produce certain misimpressions as to the import of the decision in this case, I consider it urgent to clarify my position in respect to the rights of the parties resulting from the dismissal of the petition herein and the outlining of the procedure by which the disqualification of petitioner Gokongwei can be made effective, hence this advance separate opinion. To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said amended by-laws squarely before the Court for resolution, because he feels, rightly or wrongly, he can no longer have due process or justice from the Securities and Exchange Commission, and the private respondents have joined with him in that respect, the six votes cast by Justices Makasiar, Antonio, Santos, Abad Santos, de Castro and this writer in favor of validity of the amended by-laws in question, with only four members of this Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes thereon, and Justices Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the petition "insofar as it assails the validity of the amended by- laws ... for lack of necessary votes", has no other legal consequence than that it is the law of the case as far as the parties herein are concerned, albeit the majority opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases. This means that petitioner Gokongwei and the respondents, including the Securities and Exchange Commission, are bound by the foregoing result, namely, that the Court en banc has not found merit in the claim that the amended by-laws in question are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal and entirely another thing to maintain that such dismissal leaves the issue unsettled. It is somewhat of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known established norm observed by this Court, to state that the dismissal of a petition for lack of the necessary votes does not amount to a decision on the merits. Unquestionably, the Court is deemed to find no merit in a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the required number of justices needed to sustain the same cannot be had. I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged bylaws is already settled. From which it follows that the same are already enforceable-insofar as they are concerned. Petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of validity whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the setting of this case. Not even the Securities and Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remand the case thereto cannot alter the situation. It is very clear that under the decision herein, the issue of validity is a settled matter for the parties herein as the law of the case, and it is only the actual implementation of the impugned amended bylaws in the particular case of petitioner that remains to be passed upon by the Securities and Exchange Commission, and on appeal therefrom to Us, assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him. To be sure, the record is replete with substantial indications, nay admissions of petitioner himself, that he is a controlling stockholder of corporations which are competitors of San Miguel Corporation. The very substantial areas of such competition involving hundreds of millions of pesos worth of businesses stand uncontroverted in the records hereof. In fact, petitioner has even offered, if he should be elected, as director, not to take part when the board takes up matters affecting the

corresponding areas of competition between his corporation and San Miguel. Nonetheless, perhaps, it is best that such evidence be formally offered at the hearing contemplated in Our decision. As to whether or not petitioner may sit in the board if he wins, definitely, under the decision in this case, even if petitioner should win, he will have to immediately leave his position or should be ousted the moment this Court settles the issue of his actual disqualification, either in a full blown decision or by denying the petition for review of corresponding decision of the Securities and Exchange Commission unfavorable to him. And, of course, as a matter of principle, it is to be expected that the matter of his disqualification should be resolved expeditiously and within the shortest possible time, so as to avoid as much juridical injury as possible, considering that the matter of the validity of the prohibition against competitors embodied in the amended by-laws is already unquestionable among the parties herein and to allow him to be in the board for sometime would create an obviously anomalous and legally incongruous situation that should not be tolerated. Thus, all the parties concerned must act promptly and expeditiously. Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands. Castro, C.J., concurs in Justice Barredo's statement that the dismissal (for lack of necessary votes) of the petition to the extent that "it assails the validity of the amended by laws," is the law of the case at bar, which means in effect that as far and only in so far as the parties and the Securities and Exchange Commission are concerned, the Court has not found merit in the claim that the amended by-laws in question are invalid. Antonio and Santos, JJ., concur. DE CASTRO, J., concurring: As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment to the by-laws in question. What induced me to this view is the practical consideration easily perceived in the following illustration: If a person becomes a stockholder of a corporation and gets himself elected as a director, and while he is such a director, he forms his own corporation competitive or antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and President of his own corporation, he may be removed from his position as director, admittedly one of trust and confidence. If this is so, as seems undisputably to be the case, a person already controlling, and also the Chairman of the Board and President of, a corporation, may be barred from becoming a member of the board of directors of a competitive corporation. This is my view, even as I am for a restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit the scope of the provision to corporations engaged in agriculture, but only as the word agriculture" refers to its more stated meaning as distinguished from its general and broad connotation. The term would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the manner as is required by the Public Land Act in the acquisition of agricultural land, such as by homestead, before the patent may be issued. It is my opinion that under the public land statute, the development of a certain portion of the land applied for as specified in the law as a condition precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or piggery, which may be included in the term Is agriculture" in its broad sense. For under Section 13(5) of the Philippine Corporation Law, construed not in the strict way as I believe it should, because the provision is in derogation of property rights, the petitioner in this case would be disqualified from becoming an officer of either the San Miguel Corporation or his own supposedly agricultural corporations. It is thus beyond my comprehension why, feeling as though I am the only member of the Court for a restricted interpretation of Section 13(5) of Act 1459, doubt still seems to be in the minds of other members giving the cited provision an unrestricted interpretation, as to the validity of the amended by-laws in question, or even holding them null and void.

I concur with the observation of Justice Barredo that despite that less than six votes are for upholding the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It could not be otherwise, after the present petition is dismissed with the relief sought to declare null and void the said by-laws being denied in effect. A vicious circle would be created if, should petitioner Gokongwei be barred or disqualified from running by the Board of Directors of San Miguel Corporation and the Securities and Exchange Commission sustain the Board, petitioner could come again to Us, raising the same question he has raised in the present petition, unless the principle of the "law of the case" is applied. Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question standing unimpaired it is now for petitioner to show that he does not come within the disqualification as therein provided, both to the Board and later to the Securities and Exchange Commission, it being a foregone conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive corporations, San Miguel Corporation would apply the by-laws against him, His right, therefore, to run depends on what, on election day, May 8, 1979, the ruling of the Board and/or the Securities and Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint Separate Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after petitioner's "disqualification" has ultimately been passed upon by this Court should petitioner, not be allowed to run. Petitioner may be allowed to run, despite an adverse decision of both the Board and the Securities and Exchange Commission, only if he comes to this Court and obtain an injunction against the enforcement of the decision disqualifying him. Without such injunction being required, all that petitioner has to do is to take his time in coming to this Court, and in so doing, he would in the meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrine that gives binding, if not conclusive, effect of findings of facts of administrative bodies exercising quasi-judicial functions upon appellate courts, which should, accordingly, be enforced until reversed by this Tribunal. Fernando and Makasiar, JJ., concurs. Antonio and Santos, JJ., concur DE CASTRO, J.: concurring: As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment to the by-laws in question. What induced me to this view is the practical consideration easily perceived in the following illustration: If a person becomes a stockholder of a corporation and gets himself elected as a director, and while he is such a director, he forms his own corporation competitive or antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and President of his own corporation, he may be removed from his position as director, admittedly one of trust case, a person already controlling, and also the Chairman of the Board and President of, a corporation, may be barred from becoming a member of the board of directors of a competitive corporation. This is my view, even as I am for restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit the scope of the provision to corporations engaged in agriculture, but only as the word "agriculture" refers to its more limited meaning as distinguished from its general and broad connotation. The term would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the manner as in required by the Public Land Act in the acquisition of agricultural land, such as by homestead, before the patent may be issued. It is my opinion that under the public land statute, the development of a certain portion of the land applied for as specified in the law as a condition precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or peggery, whch may be included in the term "agriculture" in its broad sense. For under Section 13(5) of the Philippine Corporation Law, construed

not in the strict way as I believe it should, because the provision is in derogation of property rights, the petitioner in this case would be disqualified from becoming an officer of either the San Miguel Corporation or his own supposedly agricultural corporations. It is thus beyond my comprehension why, feeling as though I am the only members of the Court for a restricted interpretation of Section 13(5) of Act 1459, doubt still seems to be in the minds of other members giving the cited provision an unrestricted interpretation, as to the validity of the amended by-laws in question, or even holding them null and void. I concur with the observation of Justice Barredo that despite that less than six votes are for upholding the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It could not be otherwise, after the present petition is dimissed with the relief sought to declare null and void the said by-laws being denied in effect. A vicious circle would be created if, should petitioner Gokongwei be barred or disqualified from running by the Board, petitioner could come again to Us, raising the same question he has raised in the present petition, unless the principle of the "law of the case" is applied. Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question standing unimpaired, it is nowfor petitioner to show that he does not come paired, it is now for petitioner to show that he does not come within the disqualification as therein provided, both to the Board and later to the Securities and Exhange Commission, it being a foregone conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive corporations, San Miguel Corporation would apply the by-laws against him. His right, therefore, to run depends on what, on election day, May 8, 1979, the ruling of the Board and/or the Securities and Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint Separate Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after petitioner's "disqualification" has ultimately been passed upon by this Court should petitioner not be allowed to run. Petitioner may be allowed to run, despite anadverse decision of both the Board and the Securities and Exchange Commission, only if he comes to this Court and obtain an injunction against the enforcement of the decision disqualifying him. Without such injunction being required, all that petitioner has to do is to take his time in coming to this Court, and in so doing, he would in the meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrine that gives binding, if not conclusive, effect of findings of facts of administrative bodies exercising quasi-judicial functions upon appellate courts, which should, accordingly, be enforced until reversed by this Tribunal.

Separate Opinions

TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring: I As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect, examine and secure copies of the records of San Miguel International, inc. (SMI), a wholly owned foreign subsidiary corporation of respondent San Miguel Corporation. Respondent commissions en banc Order No. 449, Series of 19 7 7, denying petitioner's right of inspection for "not being a

stockholder of San Miguel International, Inc." has been accordingly set aside. It need be only pointed out that: a) The commission's reasoning grossly disregards the fact that the stockholders of San Miguel Corporation are likewise the owners of San Miguel International, Inc. as the corporation's wholly owned foreign subsidiary and therefore have every right to have access to its books and records. otherwise, the directors and management of any Philippine corporation by the simple device of organizing with the corporation's funds foreign subsidiaries would be granted complete immunity from the stockholders' scrutiny of its foreign operations and would have a conduit for dissipating, if not misappropriating, the corporation funds and assets by merely channeling them into foreign subsidiaries' operations; and
b) Petitioner's right of examination herein recognized refers to all books and records of the foreign subsidiary SMI which are which are " in respondent corporation's possession and control" 1, meaning to say regardless of whether or not such books and records are physically within the Philippines. all such books and records of SMI are legally within respondent corporation's "possession and control" and if nay books or records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to be expected), then the respondent corporation's board and management are obliged under the Court's judgment to bring and make them (or true copies thereof available within the Philippines for petitioner's examination and inspection.

II On the other main issue of the Validity of respondent San Miguel Corporation's amendment of its bylaws 2whereby respondent corporation's board of directors under its resolution dated April 29, 1977 declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors, the Court, composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera inhibited herself from taking part herein, while Mr. Justice Ramon C. Aquino upon submittal of the main opinion of Mr. Justice Antonio decided not to take part), failed to reach a conclusive vote or, the required majority of 8 votes to settle the issue one way or the other. Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned amended by-laws but nevertheless voted that the prohibition and disqualification therein provided shall not apply to petitioner Gokongwei until and after he shall have been given a new and proper hearing" by the corporation's board of directors and the board's decision of disqualification she'll have been sustained on appeal by respondent Securities and Exchange Commission and ultimately by this Court. The undersigned Justices do not consider the issue as purely legal in the light of respondent commission's Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on the ground that "the Commissionen banc finds that there (are) unresolved and genuine issues of fact" 3 as well as its position in this case to the Solicitor General that the case at bar is "premature" and that the administrative remedies before the commission should first be availed of and exhausted. 4 We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a century of respondent corporation's existence as a public corporation with its shares freely purchased and traded in the open market without restriction and disqualification) which would bar petitioner from qualification, nomination and election as director and worse, grant the board by 3/4

vote the arbitrary power to bar any stockholder from his right to be elected as director by the simple expedient of declaring him to be engaged in a "competitive or antagonistic business" or declaring him as a "nominee" of the competitive or antagonistic" stockholder are illegal, oppressive, arbitrary and unreasonable. We consider the questioned amended by-laws as being specifically tailored to discriminate against petitioner and depriving him in violation of substantive due process of his vested substantial rights as stockholder of respondent corporation. We further consider said amended by-laws as violating specific provisions of the Corporation Law which grant and recognize the right of a minority stockholder like petitioner to be elected director by the process of cumulative voting ordained by the Law (secs 21 and 30) and the right of a minority director once elected not to be removed from office of director except for cause by vote of the stockholders holding 2/3 of the subscribed capital stock (sec. 31). If a minority stockholder could be disqualified by such a by-laws amendment under the guise of providing for "qualifications," these mandates of the Corporation Law would have no meaning or purpose. These vested and substantial rights granted stockholders under the Corporation Law may not be diluted or defeated by the general authority granted by the Corporation Law itself to corporations to adopt their by-laws (in section 21) which deal principally with the procedures governing their internal business. The by-laws of any corporation must, be always within the character limits. What the Corporation Law has granted stockholders maynot be taken away by the corporation's by-laws. The amendment is further an instrument of oppressiveness and arbitrariness in that the incumbent directors are thereby enabled to perpetuate themselves in office by the simple expedient of disqualifying any unwelcome candidate, no matter how many votes he may have. However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as expressed in its Orders Nos. 450 and 451, Series of 1977 that there are unresolved and genuine issues of fact" and that it has yet to rule on and finally decide the validity of the disputed by-law provision", subject to appeal by either party to this Court. In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the case should as a consequence be remanded to the Securities and Exchange Commission as the agency of primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should property be submitted to the commission instead of the piecemeal documents submitted as annexes to this Court which is not a trier of facts) concerning not only the petitioner but the members of the board of directors of respondent corporation as well, so that it may determine on the basis thereof the issue of the legality of the questioned amended by-laws, and assuming Chat it holds the same to be valid whether the same are arbitrarily and unreasonably applied to petitioner vis a vis other directors, who, petitioner claims, should in such event be likewise disqualified from sitting in the board of directors by virtue of conflict of interests or their being likewise engaged in competitive or antagonistic business" with the corporation such as investment and finance, coconut oil mills cement, milk and hotels. 5 It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote and the Court's failure to affair, the required 8-vote majority to resolve the issue, such as dismissal (for lack of necessary votes) is of no doctrine value and does not in any manner resolve the issue of the validity of the questioned amended by-laws nor foreclose the same. The same should properly be determined in a proper case in the first instance by the Securities and Exchange Commission as the agency of primary jurisdiction, as above indicated. The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office of, and if elected, sit as, member of the board of directors of respondent San Miguel Corporation as

stated in the dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after petitioner has been given a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable Lo the respondent Securities and Exchange Commission deliverating and acting en banc and ultimately to this Court" and until ' disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner," In other words, until and after petitioner shall have been given due process and proper hearing by the respondent board of directors as to the question of his qualification or disqualification under the questioned amended by-laws (assuming that the respondent Securities and Exchange C commission ultimately upholds the validity of said by laws), and such disqualification shall have been sustained by respondent Securities and Exchange Commission and ultimately by final judgment of this Court, petitioner is deemed eligible for all legal purposes and effects to be nominated and voted and if elected to sit as a member of the hoard of directors of respondent San Miguel Corporation. In view of the Court's unanimous judgment on this point the portion of respondent commission's Order No. 450, Series of 977 which imposed "the condition that he [petitioner] cannot sit as board member if elected until after the Commission shall have finally decided the validity of the disputed by-law provision" has been likewise accordingly set aside. III By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to ambiguity, we state the following. 1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four votes, plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12) votes unanimously rendered judgment granting petitioner's right to examine and secure copies of the books and records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation and respondent commission's Order No. 449, Series of 1977, to the contrary is set aside: 2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that until and after petitioner shall have been given due process and proper hearing by the respondent board of directors as to the question of his disqualification under the questioned amended by- laws (assuming that the respondent Securities and Exchange Commission ultimately upholds the validity of said by laws), and such disqualification shall have been sustained by respondent Securities and Exchange Commission and ultimately by final judgment of this Court petitioner is deemed eligible for all legal purposes and effect to be nominated and voted and if elected to sit as a member of the board of directors of respondent San Miguel Corporation. Accordingly, respondent commission's Order No. 450, Series of 1977 to the contrary has likewise been set aside; and 3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2, Art. 111) is inconclusive without the required majority of eight votes to settle the issue one way or the other having been reached. No judgment is rendered by the Court thereon and the statements of the six Justices who have signed the main opinion on the legality thereof have no binding effect, much less doctrinal value. The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment is concerned is not by an judgment with the required eight votes but simply by force of Rule 56, section II of the Rules of Court, the pertinent portion of which provides that "where the court en banc is equally divided in opinion, or the necessary majority cannot be had, the case shall be reheard, and if on re-hearing no decision is reached, the action shall be dismissed if originally commenced in the court ...." The end result is that the Court has thereby dismissed the petition

which prayed that the Court bypass the commission and directly resolved the issue and therefore the respondent commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the "unresolved and genuine issues of fact" (as per Order No. 451, Series of 1977) and the issues of legality of the disputed by-laws amendment. Teehankee, Concepcion, Jr., and Fernandez, JJ., concur. Guerrero, J., concurred. TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring: This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice Barredo issued by him as to "certain misimpressions as to the import of the decision in this case" which might be produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his) position in respect to the rights of the parties resulting from the dismissal of the petition herein and the outline of the procedure by which the disqualification of petitioner Gokongwei can be made effective." 1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of the validity of the challenged by-laws is already settled" had, of course, no binding effect. The judgment of the Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr. Justice Antonio, wherein on the question of the validity of the amended by-laws the Court's inconclusive voting is set forth as follows: Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended bylaws, pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. Justice Fernando reserved his vote on the validity of subject amendment to the bylaws but otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the questioned amended by-laws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction ... 1

As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the validity of the questioned by-laws, was dismissed. 2. Mr. Justice Barredo now contends contrary to the undersigned's understanding, as stated on pages 8 and 9 of our joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the petition on the question of validity of the amended by-laws for lack of the necessary votes simply means that "the Court has thereby dismissed the petition which prayed that the Court by-pass the commission and directly resolve the issue and therefore the respondent commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the 'unresolved and genuine issues of fact' (as per Order No. 451, Series of 1977) and the issue of legalityof the disputed by-laws amendment," that such dismissal "has no other legal consequence than that it is the law of the case as far as the parties are concerned, albeit the majority of the opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases."

We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no applicability for the following reasons: a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final andconclusive determination of an issue in the first case later invoked as the law of the case. Thus, in People vs. Olarte, 2 we held that "Law of the case" has been defined as the opinion delivered on a former appeal More specifically, it means that whatever is once irrevocably established as the controlling legal rule of decision between the same parties in the same case continues to he the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case before the court. ... It need not be stated that the Supreme Court, being the court of last resort, is the final arbiter of all legal questions properly brought before it and that its decision in any given case constitutes the law of that particular case. Once its judgment becomes final it is binding on all inferior courts, and hence beyond their power and authority to alter or modify Kabigting vs. Acting Director of Prisons, G. R. No. L15548, October 30, 1962). "The decision of this Court on that appeal by the government from the order of dismissal, holding that said appeal did not place the appellants, including Absalon Bignay, in double jeopardy, signed and concurred in by six Justices as against three dissenters headed by the Chief Justice, promulgated way back in the year 1952, has long become the law of the case. It may be erroneous, judged by the law on double jeopardy as recently interpreted by this same Tribunal Even so, it may not be disturbed and modified. Our recent interpretation of the law may be applied to new cases, but certainly not to anold one finally and conclusively determined. As already stated, the majority opinion in that appeal is now the law of the case." (People vs. Pinuila) The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the question of the validity or invalidity of the amended by-laws is concerned. The Court's judgment of April 11, 1979 clearly shows that the voting on this question was inconclusive with six against four Justices and two other Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their votes thereon, and Mr. Justice Aquino while taking no part in effect likewise expressly reserved his vote thereon. No final and conclusive determination could be reached on the issue and pursuant to the provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the action was simply dismissed with the result that no law of the case was laid down insofar as the issue of the validity or invalidity of the questioned by-laws is concerned, and the relief sought herein by petitioner that this Court by-pass the SEC which has yet to hear and determine the same issue pending before it below and that this Court itself directly resolve the said issue stands denied. b) The contention of Mr. Justice Barredo that the result of the dismiss of the case was that "petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of the validity whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the setting of this case Not even the Securities and Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf, " appears to us to be untenable.

The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating Justices headed by the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and proper hearing" by the SMC board of directors on the matter of his disqualification under the questioned by-laws and that the board's "decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court (and) unless disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." The entire Court, therefore, recognized that petitioner had not been given procedural due process by the SMC board on the matter of his disqualification and that he was entitled to a "new and proper hearing". It stands to reason that in such hearing, petitioner could raise not only questions of fact but questions of law, particularly questions of law affecting the investing public and their right to representation on the board as provided by law not to mention that as borne out by the fact that no restriction whatsoever appears in the court's decision, it was never contemplated that petitioner was to be limited to questions of fact and could not raise the fundamental questions of law bearing on the invalidity of the questioned amended by-laws at such hearing before the SMC board. Furthermore, it was expressly provided unanimously in the Court's decision that the SMC board's decision on the disqualification of petitioner ("assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him" as qualified in Mr. Justice Barredo's own separate opinion, at page 2) shall be appealable to respondent Securities and Exchange Commission "deliberating and acting en banc and "untimately to this Court." Again, the Court's judgment as set forth in its decision of April 11, 1979 contains nothing that would warrant the opinion now expressed that respondent Securities and Exchange Commission may not pass anymore on the question of the invalidity of the amended by-laws. Certainly, it cannot be contended that the Court in dismissing the petition for lack of necessary votes actually by-passed the Securities and Exchange Commission and directly ruled itself on the invalidity of the questioned by-laws when it itself could not reach a final and conclusive vote (a minimum of eight votes) on the issue and three other Justices (the Chief Justice and Messrs. Justices Fernando and Aquino) had expressly reserved their vote until after further hearings (first before the Securities and Exchange Commission and ultimately in this Court). Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation where supposedly under the law of this case the questioned by-laws would be held valid as against petitioner Gokongwei and yet the same may be stricken off as invalid as to all other SMC shareholders in a proper case. 3. It need only be pointed out that Mr. Justice Barredo's advance separate opinion can in no way affect or modify the judgment of this Court as set forth in the decision of April 11, 1979 and discussed hereinabove. The same bears the unqualified concurrence of only three Justices out of the six Justices who originally voted for the validity per se of the questioned by-laws, namely, Messrs. Justices Antonio, Santos and De Castro. Messrs. Justices Fernando and Makasiar did not concur therein but they instead concurred with the limited concurrence of the Chief Justice touching on the law of the case which guardedly held that the Court has not found merit in the claim that the amended bylaws in question are invalid but without in any manner foreclosing the issue and as a matter of fact and law, without in any manner changing or modifying the above-quoted vote of the Chief Justice as officially rendered in the decision of April 11, 1979, wherein he precisely "reserved (his) vote on the validity of the amended by-laws." 4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive construction of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that during the Court's deliberations it was brought out that this prohibitory provision was and is not raised in issue in this case whether here or in the Securities and Exchange Commission below

(outside of a passing argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent Sorianos in their Memorandum of June 26, 1978 that "(T)he disputed By-Laws does not prohibit petitioner from holding onto, or even increasing his SMC investment; it only restricts any shifting on the part of petitioner from passive investor to a director of the company." 3 As a consequence, the Court abandoned the Idea of calling for another hearing wherein the parties could properly raise and discuss this question as a new issue and instead rendered the decision in question, under which the question of section 13(5) could be raised at a new and proper hearing before the SMC board and in the Securities and Exchange Commission and in due course before this Court (but with the clear understanding that since both corporations, the Robina and SMC are engaged in agriculture as submitted by the Sorianos' counsel in their said memorandum, the issue could be raised likewise against SMC and its other shareholders, directors, if not against SMC itself. As expressly stated in the Chief Justices reservation of his vote, the matter of the question of the applicability of the said section 13(5) to petitioner would be heard by this Court at the appropriate time after the proceedings below (and necessarily the question of the validity of the amended bylaws would be taken up anew and the Court would at that time be able to reach a final and conclusive vote). Mr. Justice De Castro's personal interpretation of the decision of April 11, 1979 that petitioner may be allowed to run for election despite adverse decision of both the SMC board and the Securities and Exchange Commission "only if he comes to this Court and obtains an injunction against the enforcement of the decision disqualifying him" is patently contradictory of his vote on the matter as expressly given in the judgment in the Court's decision of April 11, 1979 (at page 59) that petitioner could run and if elected, sit as director of the respondent SMC and could be disqualified only after a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. Unless-disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." Teehankee, Concepcion Jr., Fernandez and Guerrero, JJ., concur. BARREDO, J., concurring: I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the validity of the amended by-laws in question. Regrettably, I have not yet finished preparing the same. In view, however, of the joint separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and Guerrero, the full text of which has just come to my attention, and which I am afraid might produce certain misimpressions as to the import of the decision in this case, I consider it urgent to clarify my position in respect to the rights of the parties resulting from the dismissal of the petition herein and the outlining of the procedure by which the disqualification of petitioner Gokongwei can be made effective, hence this advance separate opinion. To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said amended by-laws squarely before the Court for resolution, because he feels, rightly or wrongly, he can no longer have due process or justice from the Securities and Exchange Commission, and the private respondents have joined with him in that respect, the six votes cast by Justices Makasiar, Antonio, Santos, Abad Santos, de Castro and this writer in favor of validity of the amended by-laws in question, with only four members of this Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes thereon, and Justices Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the petition "insofar as it assails the validity of the amended by- laws ... for lack of necessary votes", has no other legal consequence than that it is the law of the case as far

as the parties herein are concerned, albeit the majority opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases. This means that petitioner Gokongwei and the respondents, including the Securities and Exchange Commission, are bound by the foregoing result, namely, that the Court en banc has not found merit in the claim that the amended by-laws in question are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal and entirely another thing to maintain that such dismissal leaves the issue unsettled. It is somewhat of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known established norm observed by this Court, to state that the dismissal of a petition for lack of the necessary votes does not amount to a decision on the merits. Unquestionably, the Court is deemed to find no merit in a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the required number of justices needed to sustain the same cannot be had. I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged bylaws is already settled. From which it follows that the same are already enforceable-insofar as they are concerned. Petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of validity whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the setting of this case. Not even the Securities and Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remand the case thereto cannot alter the situation. It is very clear that under the decision herein, the issue of validity is a settled matter for the parties herein as the law of the case, and it is only the actual implementation of the impugned amended bylaws in the particular case of petitioner that remains to be passed upon by the Securities and Exchange Commission, and on appeal therefrom to Us, assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him. To be sure, the record is replete with substantial indications, nay admissions of petitioner himself, that he is a controlling stockholder of corporations which are competitors of San Miguel Corporation. The very substantial areas of such competition involving hundreds of millions of pesos worth of businesses stand uncontroverted in the records hereof. In fact, petitioner has even offered, if he should be elected, as director, not to take part when the board takes up matters affecting the corresponding areas of competition between his corporation and San Miguel. Nonetheless, perhaps, it is best that such evidence be formally offered at the hearing contemplated in Our decision. As to whether or not petitioner may sit in the board if he wins, definitely, under the decision in this case, even if petitioner should win, he will have to immediately leave his position or should be ousted the moment this Court settles the issue of his actual disqualification, either in a full blown decision or by denying the petition for review of corresponding decision of the Securities and Exchange Commission unfavorable to him. And, of course, as a matter of principle, it is to be expected that the matter of his disqualification should be resolved expeditiously and within the shortest possible time, so as to avoid as much juridical injury as possible, considering that the matter of the validity of the prohibition against competitors embodied in the amended by-laws is already unquestionable among the parties herein and to allow him to be in the board for sometime would create an obviously anomalous and legally incongruous situation that should not be tolerated. Thus, all the parties concerned must act promptly and expeditiously. Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands. Castro, C.J., concurs in Justice Barredo's statement that the dismissal (for lack of necessary votes) of the petition to the extent that "it assails the validity of the amended by laws," is the law of the case

at bar, which means in effect that as far and only in so far as the parties and the Securities and Exchange Commission are concerned, the Court has not found merit in the claim that the amended by-laws in question are invalid. Antonio and Santos, JJ., concur. DE CASTRO, J., concurring: As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment to the by-laws in question. What induced me to this view is the practical consideration easily perceived in the following illustration: If a person becomes a stockholder of a corporation and gets himself elected as a director, and while he is such a director, he forms his own corporation competitive or antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and President of his own corporation, he may be removed from his position as director, admittedly one of trust and confidence. If this is so, as seems undisputably to be the case, a person already controlling, and also the Chairman of the Board and President of, a corporation, may be barred from becoming a member of the board of directors of a competitive corporation. This is my view, even as I am for a restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit the scope of the provision to corporations engaged in agriculture, but only as the word agriculture" refers to its more stated meaning as distinguished from its general and broad connotation. The term would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the manner as is required by the Public Land Act in the acquisition of agricultural land, such as by homestead, before the patent may be issued. It is my opinion that under the public land statute, the development of a certain portion of the land applied for as specified in the law as a condition precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or piggery, which may be included in the term Is agriculture" in its broad sense. For under Section 13(5) of the Philippine Corporation Law, construed not in the strict way as I believe it should, because the provision is in derogation of property rights, the petitioner in this case would be disqualified from becoming an officer of either the San Miguel Corporation or his own supposedly agricultural corporations. It is thus beyond my comprehension why, feeling as though I am the only member of the Court for a restricted interpretation of Section 13(5) of Act 1459, doubt still seems to be in the minds of other members giving the cited provision an unrestricted interpretation, as to the validity of the amended by-laws in question, or even holding them null and void. I concur with the observation of Justice Barredo that despite that less than six votes are for upholding the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It could not be otherwise, after the present petition is dismissed with the relief sought to declare null and void the said by-laws being denied in effect. A vicious circle would be created if, should petitioner Gokongwei be barred or disqualified from running by the Board of Directors of San Miguel Corporation and the Securities and Exchange Commission sustain the Board, petitioner could come again to Us, raising the same question he has raised in the present petition, unless the principle of the "law of the case" is applied. Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question standing unimpaired it is now for petitioner to show that he does not come within the disqualification as therein provided, both to the Board and later to the Securities and Exchange Commission, it being a foregone conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive corporations, San Miguel Corporation would apply the by-laws against him, His right, therefore, to run depends on what, on election day, May 8, 1979, the ruling of the Board and/or the Securities and Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint Separate Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero,

that only after petitioner's "disqualification" has ultimately been passed upon by this Court should petitioner, not be allowed to run. Petitioner may be allowed to run, despite an adverse decision of both the Board and the Securities and Exchange Commission, only if he comes to this Court and obtain an injunction against the enforcement of the decision disqualifying him. Without such injunction being required, all that petitioner has to do is to take his time in coming to this Court, and in so doing, he would in the meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrine that gives binding, if not conclusive, effect of findings of facts of administrative bodies exercising quasi-judicial functions upon appellate courts, which should, accordingly, be enforced until reversed by this Tribunal. Fernando and Makasiar, JJ., concurs. Antonio and Santos, JJ., concur

Separate Opinions

TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring: I As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect, examine and secure copies of the records of San Miguel International, inc. (SMI), a wholly owned foreign subsidiary corporation of respondent San Miguel Corporation. Respondent commissions en banc Order No. 449, Series of 19 7 7, denying petitioner's right of inspection for "not being a stockholder of San Miguel International, Inc." has been accordingly set aside. It need be only pointed out that: a) The commission's reasoning grossly disregards the fact that the stockholders of San Miguel Corporation are likewise the owners of San Miguel International, Inc. as the corporation's wholly owned foreign subsidiary and therefore have every right to have access to its books and records. otherwise, the directors and management of any Philippine corporation by the simple device of organizing with the corporation's funds foreign subsidiaries would be granted complete immunity from the stockholders' scrutiny of its foreign operations and would have a conduit for dissipating, if not misappropriating, the corporation funds and assets by merely channeling them into foreign subsidiaries' operations; and
b) Petitioner's right of examination herein recognized refers to all books and records of the foreign subsidiary SMI which are which are " in respondent corporation's possession and control" 1, meaning to say regardless of whether or not such books and records are physically within the Philippines. all such books and records of SMI are legally within respondent corporation's "possession and control" and if nay books or records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to be expected), then the respondent corporation's board and management are obliged under the Court's judgment to bring and make them (or true copies thereof available within the Philippines for petitioner's examination and inspection.

II On the other main issue of the Validity of respondent San Miguel Corporation's amendment of its bylaws 2whereby respondent corporation's board of directors under its resolution dated April 29, 1977 declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors, the Court, composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera inhibited herself from taking part herein, while Mr. Justice Ramon C. Aquino upon submittal of the main opinion of Mr. Justice Antonio decided not to take part), failed to reach a conclusive vote or, the required majority of 8 votes to settle the issue one way or the other. Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned amended by-laws but nevertheless voted that the prohibition and disqualification therein provided shall not apply to petitioner Gokongwei until and after he shall have been given a new and proper hearing" by the corporation's board of directors and the board's decision of disqualification she'll have been sustained on appeal by respondent Securities and Exchange Commission and ultimately by this Court. The undersigned Justices do not consider the issue as purely legal in the light of respondent commission's Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on the ground that "the Commissionen banc finds that there (are) unresolved and genuine issues of fact" 3 as well as its position in this case to the Solicitor General that the case at bar is "premature" and that the administrative remedies before the commission should first be availed of and exhausted. 4 We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a century of respondent corporation's existence as a public corporation with its shares freely purchased and traded in the open market without restriction and disqualification) which would bar petitioner from qualification, nomination and election as director and worse, grant the board by 3/4 vote the arbitrary power to bar any stockholder from his right to be elected as director by the simple expedient of declaring him to be engaged in a "competitive or antagonistic business" or declaring him as a "nominee" of the competitive or antagonistic" stockholder are illegal, oppressive, arbitrary and unreasonable. We consider the questioned amended by-laws as being specifically tailored to discriminate against petitioner and depriving him in violation of substantive due process of his vested substantial rights as stockholder of respondent corporation. We further consider said amended by-laws as violating specific provisions of the Corporation Law which grant and recognize the right of a minority stockholder like petitioner to be elected director by the process of cumulative voting ordained by the Law (secs 21 and 30) and the right of a minority director once elected not to be removed from office of director except for cause by vote of the stockholders holding 2/3 of the subscribed capital stock (sec. 31). If a minority stockholder could be disqualified by such a by-laws amendment under the guise of providing for "qualifications," these mandates of the Corporation Law would have no meaning or purpose. These vested and substantial rights granted stockholders under the Corporation Law may not be diluted or defeated by the general authority granted by the Corporation Law itself to corporations to adopt their by-laws (in section 21) which deal principally with the procedures governing their internal business. The by-laws of any corporation must, be always within the character limits. What the Corporation Law has granted stockholders maynot be taken away by the corporation's by-laws. The amendment is further an instrument of oppressiveness and arbitrariness in that the incumbent

directors are thereby enabled to perpetuate themselves in office by the simple expedient of disqualifying any unwelcome candidate, no matter how many votes he may have. However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as expressed in its Orders Nos. 450 and 451, Series of 1977 that there are unresolved and genuine issues of fact" and that it has yet to rule on and finally decide the validity of the disputed by-law provision", subject to appeal by either party to this Court. In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the case should as a consequence be remanded to the Securities and Exchange Commission as the agency of primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should property be submitted to the commission instead of the piecemeal documents submitted as annexes to this Court which is not a trier of facts) concerning not only the petitioner but the members of the board of directors of respondent corporation as well, so that it may determine on the basis thereof the issue of the legality of the questioned amended by-laws, and assuming Chat it holds the same to be valid whether the same are arbitrarily and unreasonably applied to petitioner vis a vis other directors, who, petitioner claims, should in such event be likewise disqualified from sitting in the board of directors by virtue of conflict of interests or their being likewise engaged in competitive or antagonistic business" with the corporation such as investment and finance, coconut oil mills cement, milk and hotels. 5 It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote and the Court's failure to affair, the required 8-vote majority to resolve the issue, such as dismissal (for lack of necessary votes) is of no doctrine value and does not in any manner resolve the issue of the validity of the questioned amended by-laws nor foreclose the same. The same should properly be determined in a proper case in the first instance by the Securities and Exchange Commission as the agency of primary jurisdiction, as above indicated. The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office of, and if elected, sit as, member of the board of directors of respondent San Miguel Corporation as stated in the dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after petitioner has been given a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable Lo the respondent Securities and Exchange Commission deliverating and acting en banc and ultimately to this Court" and until ' disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner," In other words, until and after petitioner shall have been given due process and proper hearing by the respondent board of directors as to the question of his qualification or disqualification under the questioned amended by-laws (assuming that the respondent Securities and Exchange C commission ultimately upholds the validity of said by laws), and such disqualification shall have been sustained by respondent Securities and Exchange Commission and ultimately by final judgment of this Court, petitioner is deemed eligible for all legal purposes and effects to be nominated and voted and if elected to sit as a member of the hoard of directors of respondent San Miguel Corporation. In view of the Court's unanimous judgment on this point the portion of respondent commission's Order No. 450, Series of 977 which imposed "the condition that he [petitioner] cannot sit as board member if elected until after the Commission shall have finally decided the validity of the disputed by-law provision" has been likewise accordingly set aside. III By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to ambiguity, we state the following.

1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four votes, plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12) votes unanimously rendered judgment granting petitioner's right to examine and secure copies of the books and records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation and respondent commission's Order No. 449, Series of 1977, to the contrary is set aside: 2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that until and after petitioner shall have been given due process and proper hearing by the respondent board of directors as to the question of his disqualification under the questioned amended by- laws (assuming that the respondent Securities and Exchange Commission ultimately upholds the validity of said by laws), and such disqualification shall have been sustained by respondent Securities and Exchange Commission and ultimately by final judgment of this Court petitioner is deemed eligible for all legal purposes and effect to be nominated and voted and if elected to sit as a member of the board of directors of respondent San Miguel Corporation. Accordingly, respondent commission's Order No. 450, Series of 1977 to the contrary has likewise been set aside; and 3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2, Art. 111) is inconclusive without the required majority of eight votes to settle the issue one way or the other having been reached. No judgment is rendered by the Court thereon and the statements of the six Justices who have signed the main opinion on the legality thereof have no binding effect, much less doctrinal value. The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment is concerned is not by an judgment with the required eight votes but simply by force of Rule 56, section II of the Rules of Court, the pertinent portion of which provides that "where the court en banc is equally divided in opinion, or the necessary majority cannot be had, the case shall be reheard, and if on re-hearing no decision is reached, the action shall be dismissed if originally commenced in the court ...." The end result is that the Court has thereby dismissed the petition which prayed that the Court bypass the commission and directly resolved the issue and therefore the respondent commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the "unresolved and genuine issues of fact" (as per Order No. 451, Series of 1977) and the issues of legality of the disputed by-laws amendment. Teehankee, Concepcion, Jr., and Fernandez, JJ., concur. Guerrero, J., concurred. TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring: This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice Barredo issued by him as to "certain misimpressions as to the import of the decision in this case" which might be produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his) position in respect to the rights of the parties resulting from the dismissal of the petition herein and the outline of the procedure by which the disqualification of petitioner Gokongwei can be made effective." 1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of the validity of the challenged by-laws is already settled" had, of course, no binding effect. The judgment of the Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr.

Justice Antonio, wherein on the question of the validity of the amended by-laws the Court's inconclusive voting is set forth as follows: Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended bylaws, pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. Justice Fernando reserved his vote on the validity of subject amendment to the bylaws but otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the questioned amended by-laws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction ... 1

As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the validity of the questioned by-laws, was dismissed. 2. Mr. Justice Barredo now contends contrary to the undersigned's understanding, as stated on pages 8 and 9 of our joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the petition on the question of validity of the amended by-laws for lack of the necessary votes simply means that "the Court has thereby dismissed the petition which prayed that the Court by-pass the commission and directly resolve the issue and therefore the respondent commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the 'unresolved and genuine issues of fact' (as per Order No. 451, Series of 1977) and the issue of legalityof the disputed by-laws amendment," that such dismissal "has no other legal consequence than that it is the law of the case as far as the parties are concerned, albeit the majority of the opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases." We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no applicability for the following reasons: a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final andconclusive determination of an issue in the first case later invoked as the law of the case. Thus, in People vs. Olarte, 2 we held that "Law of the case" has been defined as the opinion delivered on a former appeal More specifically, it means that whatever is once irrevocably established as the controlling legal rule of decision between the same parties in the same case continues to he the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case before the court. ... It need not be stated that the Supreme Court, being the court of last resort, is the final arbiter of all legal questions properly brought before it and that its decision in any given case constitutes the law of that particular case. Once its judgment becomes final it is binding on all inferior courts, and hence beyond their power and authority to alter or modify Kabigting vs. Acting Director of Prisons, G. R. No. L15548, October 30, 1962).

"The decision of this Court on that appeal by the government from the order of dismissal, holding that said appeal did not place the appellants, including Absalon Bignay, in double jeopardy, signed and concurred in by six Justices as against three dissenters headed by the Chief Justice, promulgated way back in the year 1952, has long become the law of the case. It may be erroneous, judged by the law on double jeopardy as recently interpreted by this same Tribunal Even so, it may not be disturbed and modified. Our recent interpretation of the law may be applied to new cases, but certainly not to anold one finally and conclusively determined. As already stated, the majority opinion in that appeal is now the law of the case." (People vs. Pinuila) The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the question of the validity or invalidity of the amended by-laws is concerned. The Court's judgment of April 11, 1979 clearly shows that the voting on this question was inconclusive with six against four Justices and two other Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their votes thereon, and Mr. Justice Aquino while taking no part in effect likewise expressly reserved his vote thereon. No final and conclusive determination could be reached on the issue and pursuant to the provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the action was simply dismissed with the result that no law of the case was laid down insofar as the issue of the validity or invalidity of the questioned by-laws is concerned, and the relief sought herein by petitioner that this Court by-pass the SEC which has yet to hear and determine the same issue pending before it below and that this Court itself directly resolve the said issue stands denied. b) The contention of Mr. Justice Barredo that the result of the dismiss of the case was that "petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of the validity whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the setting of this case Not even the Securities and Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf, " appears to us to be untenable. The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating Justices headed by the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and proper hearing" by the SMC board of directors on the matter of his disqualification under the questioned by-laws and that the board's "decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court (and) unless disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." The entire Court, therefore, recognized that petitioner had not been given procedural due process by the SMC board on the matter of his disqualification and that he was entitled to a "new and proper hearing". It stands to reason that in such hearing, petitioner could raise not only questions of fact but questions of law, particularly questions of law affecting the investing public and their right to representation on the board as provided by law not to mention that as borne out by the fact that no restriction whatsoever appears in the court's decision, it was never contemplated that petitioner was to be limited to questions of fact and could not raise the fundamental questions of law bearing on the invalidity of the questioned amended by-laws at such hearing before the SMC board. Furthermore, it was expressly provided unanimously in the Court's decision that the SMC board's decision on the disqualification of petitioner ("assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him" as qualified in Mr. Justice Barredo's own separate opinion, at page 2) shall be appealable to respondent Securities and Exchange Commission "deliberating and acting en banc and "untimately to this Court." Again, the Court's judgment as set forth in its decision of April 11, 1979 contains nothing that would warrant the opinion now expressed that respondent Securities and Exchange Commission may not pass anymore on the

question of the invalidity of the amended by-laws. Certainly, it cannot be contended that the Court in dismissing the petition for lack of necessary votes actually by-passed the Securities and Exchange Commission and directly ruled itself on the invalidity of the questioned by-laws when it itself could not reach a final and conclusive vote (a minimum of eight votes) on the issue and three other Justices (the Chief Justice and Messrs. Justices Fernando and Aquino) had expressly reserved their vote until after further hearings (first before the Securities and Exchange Commission and ultimately in this Court). Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation where supposedly under the law of this case the questioned by-laws would be held valid as against petitioner Gokongwei and yet the same may be stricken off as invalid as to all other SMC shareholders in a proper case. 3. It need only be pointed out that Mr. Justice Barredo's advance separate opinion can in no way affect or modify the judgment of this Court as set forth in the decision of April 11, 1979 and discussed hereinabove. The same bears the unqualified concurrence of only three Justices out of the six Justices who originally voted for the validity per se of the questioned by-laws, namely, Messrs. Justices Antonio, Santos and De Castro. Messrs. Justices Fernando and Makasiar did not concur therein but they instead concurred with the limited concurrence of the Chief Justice touching on the law of the case which guardedly held that the Court has not found merit in the claim that the amended bylaws in question are invalid but without in any manner foreclosing the issue and as a matter of fact and law, without in any manner changing or modifying the above-quoted vote of the Chief Justice as officially rendered in the decision of April 11, 1979, wherein he precisely "reserved (his) vote on the validity of the amended by-laws." 4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive construction of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that during the Court's deliberations it was brought out that this prohibitory provision was and is not raised in issue in this case whether here or in the Securities and Exchange Commission below (outside of a passing argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent Sorianos in their Memorandum of June 26, 1978 that "(T)he disputed By-Laws does not prohibit petitioner from holding onto, or even increasing his SMC investment; it only restricts any shifting on the part of petitioner from passive investor to a director of the company." 3 As a consequence, the Court abandoned the Idea of calling for another hearing wherein the parties could properly raise and discuss this question as a new issue and instead rendered the decision in question, under which the question of section 13(5) could be raised at a new and proper hearing before the SMC board and in the Securities and Exchange Commission and in due course before this Court (but with the clear understanding that since both corporations, the Robina and SMC are engaged in agriculture as submitted by the Sorianos' counsel in their said memorandum, the issue could be raised likewise against SMC and its other shareholders, directors, if not against SMC itself. As expressly stated in the Chief Justices reservation of his vote, the matter of the question of the applicability of the said section 13(5) to petitioner would be heard by this Court at the appropriate time after the proceedings below (and necessarily the question of the validity of the amended bylaws would be taken up anew and the Court would at that time be able to reach a final and conclusive vote). Mr. Justice De Castro's personal interpretation of the decision of April 11, 1979 that petitioner may be allowed to run for election despite adverse decision of both the SMC board and the Securities and Exchange Commission "only if he comes to this Court and obtains an injunction against the enforcement of the decision disqualifying him" is patently contradictory of his vote on the matter as

expressly given in the judgment in the Court's decision of April 11, 1979 (at page 59) that petitioner could run and if elected, sit as director of the respondent SMC and could be disqualified only after a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. Unless-disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." Teehankee, Concepcion Jr., Fernandez and Guerrero, JJ., concur. BARREDO, J., concurring: I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the validity of the amended by-laws in question. Regrettably, I have not yet finished preparing the same. In view, however, of the joint separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and Guerrero, the full text of which has just come to my attention, and which I am afraid might produce certain misimpressions as to the import of the decision in this case, I consider it urgent to clarify my position in respect to the rights of the parties resulting from the dismissal of the petition herein and the outlining of the procedure by which the disqualification of petitioner Gokongwei can be made effective, hence this advance separate opinion. To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said amended by-laws squarely before the Court for resolution, because he feels, rightly or wrongly, he can no longer have due process or justice from the Securities and Exchange Commission, and the private respondents have joined with him in that respect, the six votes cast by Justices Makasiar, Antonio, Santos, Abad Santos, de Castro and this writer in favor of validity of the amended by-laws in question, with only four members of this Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes thereon, and Justices Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the petition "insofar as it assails the validity of the amended by- laws ... for lack of necessary votes", has no other legal consequence than that it is the law of the case as far as the parties herein are concerned, albeit the majority opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases. This means that petitioner Gokongwei and the respondents, including the Securities and Exchange Commission, are bound by the foregoing result, namely, that the Court en banc has not found merit in the claim that the amended by-laws in question are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal and entirely another thing to maintain that such dismissal leaves the issue unsettled. It is somewhat of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known established norm observed by this Court, to state that the dismissal of a petition for lack of the necessary votes does not amount to a decision on the merits. Unquestionably, the Court is deemed to find no merit in a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the required number of justices needed to sustain the same cannot be had. I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged bylaws is already settled. From which it follows that the same are already enforceable-insofar as they are concerned. Petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of validity whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the setting of this case. Not even the Securities and Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remand the case thereto cannot alter the situation.

It is very clear that under the decision herein, the issue of validity is a settled matter for the parties herein as the law of the case, and it is only the actual implementation of the impugned amended bylaws in the particular case of petitioner that remains to be passed upon by the Securities and Exchange Commission, and on appeal therefrom to Us, assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him. To be sure, the record is replete with substantial indications, nay admissions of petitioner himself, that he is a controlling stockholder of corporations which are competitors of San Miguel Corporation. The very substantial areas of such competition involving hundreds of millions of pesos worth of businesses stand uncontroverted in the records hereof. In fact, petitioner has even offered, if he should be elected, as director, not to take part when the board takes up matters affecting the corresponding areas of competition between his corporation and San Miguel. Nonetheless, perhaps, it is best that such evidence be formally offered at the hearing contemplated in Our decision. As to whether or not petitioner may sit in the board if he wins, definitely, under the decision in this case, even if petitioner should win, he will have to immediately leave his position or should be ousted the moment this Court settles the issue of his actual disqualification, either in a full blown decision or by denying the petition for review of corresponding decision of the Securities and Exchange Commission unfavorable to him. And, of course, as a matter of principle, it is to be expected that the matter of his disqualification should be resolved expeditiously and within the shortest possible time, so as to avoid as much juridical injury as possible, considering that the matter of the validity of the prohibition against competitors embodied in the amended by-laws is already unquestionable among the parties herein and to allow him to be in the board for sometime would create an obviously anomalous and legally incongruous situation that should not be tolerated. Thus, all the parties concerned must act promptly and expeditiously. Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands. Castro, C.J., concurs in Justice Barredo's statement that the dismissal (for lack of necessary votes) of the petition to the extent that "it assails the validity of the amended by laws," is the law of the case at bar, which means in effect that as far and only in so far as the parties and the Securities and Exchange Commission are concerned, the Court has not found merit in the claim that the amended by-laws in question are invalid. Antonio and Santos, JJ., concur. DE CASTRO, J., concurring: As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment to the by-laws in question. What induced me to this view is the practical consideration easily perceived in the following illustration: If a person becomes a stockholder of a corporation and gets himself elected as a director, and while he is such a director, he forms his own corporation competitive or antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and President of his own corporation, he may be removed from his position as director, admittedly one of trust and confidence. If this is so, as seems undisputably to be the case, a person already controlling, and also the Chairman of the Board and President of, a corporation, may be barred from becoming a member of the board of directors of a competitive corporation. This is my view, even as I am for a restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit the scope of the provision to corporations engaged in agriculture, but only as the word agriculture" refers to its more stated meaning as distinguished from its general and broad connotation. The term would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the manner as is required by the Public Land Act in the acquisition of

agricultural land, such as by homestead, before the patent may be issued. It is my opinion that under the public land statute, the development of a certain portion of the land applied for as specified in the law as a condition precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or piggery, which may be included in the term Is agriculture" in its broad sense. For under Section 13(5) of the Philippine Corporation Law, construed not in the strict way as I believe it should, because the provision is in derogation of property rights, the petitioner in this case would be disqualified from becoming an officer of either the San Miguel Corporation or his own supposedly agricultural corporations. It is thus beyond my comprehension why, feeling as though I am the only member of the Court for a restricted interpretation of Section 13(5) of Act 1459, doubt still seems to be in the minds of other members giving the cited provision an unrestricted interpretation, as to the validity of the amended by-laws in question, or even holding them null and void. I concur with the observation of Justice Barredo that despite that less than six votes are for upholding the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It could not be otherwise, after the present petition is dismissed with the relief sought to declare null and void the said by-laws being denied in effect. A vicious circle would be created if, should petitioner Gokongwei be barred or disqualified from running by the Board of Directors of San Miguel Corporation and the Securities and Exchange Commission sustain the Board, petitioner could come again to Us, raising the same question he has raised in the present petition, unless the principle of the "law of the case" is applied. Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question standing unimpaired it is now for petitioner to show that he does not come within the disqualification as therein provided, both to the Board and later to the Securities and Exchange Commission, it being a foregone conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive corporations, San Miguel Corporation would apply the by-laws against him, His right, therefore, to run depends on what, on election day, May 8, 1979, the ruling of the Board and/or the Securities and Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint Separate Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after petitioner's "disqualification" has ultimately been passed upon by this Court should petitioner, not be allowed to run. Petitioner may be allowed to run, despite an adverse decision of both the Board and the Securities and Exchange Commission, only if he comes to this Court and obtain an injunction against the enforcement of the decision disqualifying him. Without such injunction being required, all that petitioner has to do is to take his time in coming to this Court, and in so doing, he would in the meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrine that gives binding, if not conclusive, effect of findings of facts of administrative bodies exercising quasi-judicial functions upon appellate courts, which should, accordingly, be enforced until reversed by this Tribunal.
#Footnotes

1 The pertinent amendments reads as follows: RESOLVED, That Section 2, Article III of the By-laws of San Miguel Corporation, which reads as follows: SECTION 2. Any stockholder having at least five thousand shares registered in his name may be elected director, but he shall not be qualified to hold office unless he pledges said five thousand shares to the Corporation to answer for his conduct.

SECTION 2. Any stockholder having at least five thousand shares registered in his name may be elected Director, provided, however, that no person shall qualify or be eligible for nomination or election to the Board of Directors if he is engaged in any business which competes with or is antagonistic to that of the Corporation. Without limiting the generality of the foregoing, a person shall be deemed to be so engaged: (a) if he is an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of, any corporation (other than one in which the corporation owns at least 30% of the capital stock) engaged in a business which the Board, by at least three-fourths vote, determines to be competitive or antagonistic to that of the Corporation; or (b) If he is an officer, manager or controlling person of, or the owner (either of record or beneficially) or 10% or more of any oustanding class of shares of, any other corporation or entity engaged in any line of business of the Corporation, when in the judgment of the Board, by at least three-fourths vote, the laws against combinations in restraint of trade shall be violated by such person's membership in the Board of Directors. (c) If the Board, in the exercise of its judgment in good faith, determines by at least three-fourths vote that he is the nominee of any person set forth in (a) or (b). In determining whether or not a person is a controlling person, beneficial owner, or the nominee of another, the Board may take into account such factors as business and family relationship. For the proper implementation of this provision, all nominations for election of Directors by the stockholders shall be submitted in writing to the Board of Directors at least five working days before the date of the Annual Meeting.' " (Rollo, pp. 462-463). 2 Annex "H", petition, pp. 168-169, Rollo. 3 L-27812, September 26, 1975, 67 SCRA 146. 4 Gayos v. Gayos, Ibid., citing Marquez v. Marquez, No. 47792, July 24, 1941, 73 Phil. 74, 78; Keramik Industries, Inc. v. Guerrero, L-38866, November 29, 1974, 61 SCRA 265. 5 L-20654, December 24, 1964, 12 SCRA 628. 6 L-20583, January 23, 1967, 19 SCRA 58. 7 L-27802, October 26, 1968, 25 SCRA 641. 8 Samal v. Court of Appeals, L-8579, May 25, 1956, 99 Phil. 230.

8a 2 Am. Jur. 2d 696. 697. 8b Pan American P. Corp. v. Supreme Court of Delaware, 336 US 656, 6 L. ed. 2d 584. 9 Fleischer v. Botica Nolasco Co., Inc., No. 23241. March 14, 1925, 47 Phil. 583, 590. 10 C.J.S. Corporation, Sec. 189, p. 603. 11 People ex rel. Wildi v. Ittner, 165 III. App. 360, 367 (1911), cited in Flectcher, Cyclopedia Corporations, Sec. 4191. 12 Mckee & Company v. First National Bank of San Diego, 265 F. Supp. 1 (1967), citing Olicy v. Merle Norman Cosmetics, Inc., 200 Cal. App. 20, 260, 19 Cal. Reptr. 387 (1962). 13 Fletcher, Cyclopedia Corporations, Sec. 4171, cited in McKee & Company, supra. 14 No. 26649, July 13, 1927, 50 Phil. 399, 441. 15 6 Thompson 369, Sec. 4490. 16 Ibid. 17 Mobile Press Register, Inc., v. McGowin, 277 Ala. 414, 124 So. 2d 812; Brundage v. The New Jersey Zinc Co., 226 A 2d 585. 18 Fletcher, Cyclopedia Corporations, 1975 Ed., Vol. 3 p. 144, Sec. 838. 19 101 Fed. 2d 85, cited in Aleck, Modern Corporation Law, Vol. 2, Sec. 959. 20 308 U.S. 309; 84 L.ed. 281, 289-291. 21 16 S.E. 587, 18 L.R.A. 582. 22 265 F. Supp., pp. 8-9. 23 Barreto v. Tuason, No. 23923, Mar. 23, 1926, 50 Phil. 888; Severino v. Severino, No. 18058, Jan. 16, 1923, 44 Phil. 343; Thomas v. Pineda, L-2411, June 28, 1951, 89 Phil. 312, 326. 24 2 Fletcher Cyclopedia Corporations, Sec. 297 (1969), p. 87. 25 Costello v. Thomas Cusack co., 125 A. 15, 94 N.J. Eq. 923, (1923). 26 hall v. Dekker, 115 P. 2d 15, July 9, 1941. 27 Thaver v. Gaebler, 232 NW 563.

28 Sialkot Importing Corporation v. Berlin, 68 NE 2d 501, 503. 29 Schildberg Rock Products Co. v. Brooks, 140 NW 2d 132, 137. Chief Justice Garfield quotes the doctrine as follows: (5) The doctrine "corporate opportunity" is not new to the law and is but one phase of the cardinal rule of undivided loyalty on the part of the fiduciaries. 3 Flecther Cyc. Corporations, Perm. Ed., 1965 Revised Volume, section 861.1, page 227; 19 Am. Jur. 2d. corporations, section 1311, page 717. Our own consideration of the quoted terms as such is mainly in Ontjes v. MacNider, supra, 232 Iowa 562, 579, 5 N.W., 2d 860, 869, which quotes at length with approval from Guth v. Loft, Inc., 23 Del. Ch. 255, 270, 5 A 2d 503, 511, a leading case in this area of the law. The quotation cites several precedents for this: "*** if there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and by embracing the opportunity, the self-interest of the officer or director will be brought into seize the opportunity for himself. And, if, in such circumstances, the interests of the corporation are betrayed, the corporation may elect to claim all of the benefits of the transaction for itself. and the law will impress a trust in favor of the corporation upon the property. interests and profits so acquired. 30 Paulman v. Kritzer, 74 III. App. 2d 284, 291 NE 2d 541; Tower Recreation, Inc. v. Beard, 141 Ind. App. 649, 231 NE 2d 154. 31 Oleck, Modern Corporation Law, Vol. 2, Section 960. 32 The CFC and Robina companies, which are reportedly worth more than P500 Million, are principally owned and controlled by Mr. Gokongwei and are in substantial competition to San Miguel. As against his almost 100% ownership in these basically family companies, Mr. Gokongwei's holding in San Miguel are approximately 4% of the total shareholdings of your Company. As a consequence, One Peso (P1.00) of profit resulting from a sale by CFC and Robina in the lines competing with San Miquel, is earned almost completely by Mr. Gokongwei, his immediate family and close associates. On the other hand, the loss of that sale to San Miguel, resulting in a One Peso (P1.00) loss of profit to San Miquel, in the lines competing with CFC and Robina, would result in a loss in profit of only Four Centavos (0.04) to Mr. Gokongwei." (Letter to stockholders of SMC, dated April 3, 1978, Annex "R", Memo for respondent San Miguel Corporation, rollo, p. 1967. 33 Article 28, Civil Code; Section 4, par. 5, of Rep. Act No. 5455; and Section 7 (g) of Rep. Act No. 6173. Cf. Section 17, paragraph 2. of the Judiciary Act. 34 Standard Oil Co. v. United States, 55 L.Ed. 619. 35 Blake & Jones, Contracts in Antitrust Theory, 65 Columbia L. Rev. 377, 383 (1965).

36 Filipinas Compania de Seguros v. Mandanas, L-19638, June 20, 1966, 17 SCRA 391. 37 Love v. Kozy Theater Co., 236 SW 243, 245, 26 ALR 364. 38 Aldea-Rochelle, Inc. v. American Society of Composers, Authors and Publishers, D.D. N.Y., 80 F. Suppl. 888, 893: 39 National Cotton Oil Co. v. State of Texas, 25 S.T. 379, 383, 49 L. Ed. 689. 40 Norfolk Monument Co. v. Woodlawn Memorial Gardens, Inc., 394 U.S. 700; v. General Motors Corp., 384 U.S. 127. 41 U.S. v. Paramount Pictures, 334 U.S. 131. 42 Section 8, 15 U.S.C.A. 19. 43 Travers, Interlocks in Corporate Management and the Anti Trust Laws, 46 Texas L. Rev. 819, 840 (1968). 44 51 Cong. Rec. 9091. 45 People ex rel. Wildi v. Ittner, supra, citing Thompson on Corporation, Section 1002 (2nd Ed.). 46 Schill v. Remington Putnam Book Co., 17 A 2d 175, 180, 179 Md. 83. 47 People ex rel. Broderick v. Goldfogle, 205 NYS 870, 877, 123 Misc. 399. 48 Swanson v. American Consumer Industries, Inc., 288 F. Supp. 60. 49 Sections 3 and 5 of Presidential Decree No. 902-A provides: SEC. 3. The Commission shall have absolute jurisdiction supervision and control over all corporations *** who are grantees of *** license or permit issued by the government *** SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations partnerships and other forms of associations registered with its as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving. a) Devices or schemes employed by or nay acts, of the board of directors, business associates, its officers or partners amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission.

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporations their individual francise or right to exist as such entity; c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnership or associations. 50 Moore v. Keystone Macaroni Mfg. Co., 29 ALR 2d 1256. 51 Annex "A" of SMC's Comment on Supplemental Petition pp. 680-688, Rollo. 52 Fletcher Cyc, Private Corporations, Vol. 5, 1976 Rev. Ed. Section 2213, p. 693. 53 Fletcher, Ibid., Section 2218, p. 709. 54 Fletcher, Ibid., Section 2222, p. 725. 55 40 O.G., 1st Suppl. 1. April 3, 1939, citing 14 C.J.S. 854, 855. 56 Fletcher, supra, p. 716. 57 State v. Monida & Yellowstone Stage Co., 110 Minn. 193, 124 NW 791, 125 NW 676; State v. Cities Service Co., 114 A 463. 58 Fletcher, supra, Section 2220, p. 717. 59 Fletcher, supra, Section 2223, p. 728. 60 Martin v. D. B. Martin Co., 10 Del. Ch. 211, 88 A. 612, 102 A. 373. 61 Woodward v. Old Second National Bank, 154 Mich, 459, 117 NW 893, 118 NW 581. 62 Martin v. D.B. Martin Co., supra. 63 State v. Sherman Oil Co., 1 W.W. Harr. (31 Del) 570, 117 A. 122. 64 Lisle v. Shipp, 96 Cal. App. 264, 273 P. 1103. 65 Nash v. Gay Apparel Corp., 193 NYS 2d 246. 66 Bailey v. Boxbound Products Co., 314 Pa. 45, 170 A. 127. 67 Rollo, pp. 50-51. 68 18 Am. Jur. 2d 718.

69 De la Rama v. Ma-ao Sugar Central Co., Inc., L-17504 and L-17506, February 28, 1969, 27 SCRA 247, 260. 70 Boyce v. Chemical Plastics, 175 F 2d 839, citing 13 Am. Jur., Section 972. 71 Pirovano v. De la Rama Steamship Co., L-53-7, 96 Phil. 335, December 29, 1954. * Includes the Supplemental petitions filed by petitioner. JOINT SEPARATE OPINION 1 Main opinion, p. 55. 2 Sec. 2, Art. III of respondent corporation's By-Laws, reproduced in footnote 1 of the main opinion, pages 3 and 4. 3 Rollo, Vol. I, page 392-E. 4 SEC memo, page 9 and 10. 5 Petitioner's memorandum in support of oral argument, pp. 18-20 SUPPLEMENT TO JOINT SEPARATE OPINION 1 At p. 60; emphasis supplied. 2 19 SCRA 494; citing People vs. Pinnila, L-11374, May 30, 1958, cited in Lee vs. Aligaen, 76 SCRA 416 (1977) per Antonio, J. 3 Soriano's Memorandum at page 94.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-67626 April 18, 1989 JOSE REMO, JR., Petitioner, vs. THE HON. INTERMEDIATE APPELLATE COURT and E.B. MARCHA TRANSPORT COMPANY, INC., represented by APIFANIO B. MARCHA, Respondents.

GANCAYCO, J.: A corporation is an entity separate and distinct from its stockholders. While not in fact and in reality a person, the law treats a corporation as though it were a person by process of fiction or by regarding it as an artificial person distinct and separate from its individual stockholders. 1
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However, the corporate fiction or the notion of legal entity may be disregarded when it "is used to defeat public convenience, justify wrong, protect fraud, or defend crime" in which instances "the law will regard the corporation as an association of persons, or in case of two corporations, will merge them into one." The corporate fiction may also be disregarded when it is the "mere alter ego or business conduit of a person." 2 There are many occasions when this Court pierced the corporate veil because of its use to protect fraud and to justify wrong. 3 The herein petition for review of a. resolution of the Intermediate Appellate Court dated February 8, 1984 seeking the reversal thereof and the reinstatement of its earlier decision dated June 30, 1983 in AC-G.R. No. 68496-R 4 calls for the application of the foregoing principles.
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In the latter part of December, 1977 the board of directors of Akron Customs Brokerage Corporation (hereinafter referred to as Akron), composed of petitioner Jose Remo, Jr., Ernesto Baares, Feliciano Coprada, Jemina Coprada, and Dario Punzalan with Lucia Lacaste as Secretary, adopted a resolution authorizing the purchase of thirteen (13) trucks for use in its business to be paid out of a loan the corporation may secure from any lending institution. 5 Feliciano Coprada, as President and Chairman of Akron, purchased thirteen trucks from private respondent on January 25, 1978 for and in consideration of P525,000.00 as evidenced by a deed of absolute sale. 6 In a side agreement of the same date, the parties agreed on a downpayment in the amount of P50,000.00 and that the balance of P475,000.00 shall be paid within sixty (60) days from the date of the execution of the agreement. The parties also agreed that until said balance is fully paid, the down payment of P50,000.00 shall accrue as rentals of the 13 trucks; and that if Akron fails to pay the balance within the period of 60 days, then the balance shall constitute as a chattel mortgage lien covering said cargo trucks and the parties may allow an extension of 30 days and thereafter private respondent may ask for a revocation of the contract and the reconveyance of all said trucks. 7 The obligation is further secured by a promissory note executed by Coprada in favor of Akron. It is stated in the promissory note that the balance shall be paid from the proceeds of a loan obtained from the Development Bank of the Philippines (DBP) within sixty (60) days. 8After the lapse of 90 days, private respondent tried to collect from Coprada but the latter promised to pay only upon the release of the DBP loan. Private respondent sent Coprada a letter of demand dated May 10, 1978. 9 In his reply to the said letter, Coprada reiterated that he was applying for a loan from the DBP from the proceeds of which payment of the obligation shall be made. 10

Meanwhile, two of the trucks were sold under a pacto de retro sale to a certain Mr. Bais of the Perpetual Loans and Savings Bank at Baclaran. The sale was authorized by a board resolution made in a meeting held on March 15, 1978. 11
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Upon inquiry, private respondent found that no loan application was ever filed by Akron with DBP. 12 In the meantime, Akron paid rentals of P500.00 a day pursuant to a subsequent agreement, from April 27, 1978 (the end of the 90-day period to pay the balance) to May 31, 1978. Thereafter, no more rental payments were made.
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On June 17, 1978, Coprada wrote private respondent begging for a grace period of until the end of the month to pay the balance of the purchase price; that he will update the rentals within the week; and in case he fails, then he will return the 13 units should private respondent elect to get back the same. 13 Private respondent, through counsel, wrote Akron on August 1, 1978 demanding the return of the 13 trucks and the payment of P25,000.00 back rentals covering the period from June 1 to August 1, 1978. 14
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Again, Coprada wrote private respondent on August 8, 1978 asking for another grace period of up to August 31, 1978 to pay the balance, stating as well that he is expecting the approval of his loan application from a certain financing company, and that ten (10) trucks have been returned to Bagbag, Novaliches. 15 On December 9, 1978, Coprada informed private respondent anew that he had returned ten (10) trucks to Bagbag and that a resolution was passed by the board of directors confirming the deed of assignment to private respondent of P475,000 from the proceeds of a loan obtained by Akron from the State Investment House, Inc. 16 In due time, private respondent filed a compliant for the recovery of P525,000.00 or the return of the 13 trucks with damages against Akron and its officers and directors, Feliciano Coprada, Dario D. Punzalan, Jemina Coprada, Lucia Lacaste, Wilfredo Layug, Arcadio de la Cruz, Francisco Clave, Vicente Martinez, Pacifico Dollario and petitioner with the then Court of First Instance of Rizal. Only petitioner answered the complaint denying any participation in the transaction and alleging that Akron has a distinct corporate personality. He was, however, declared in default for his failure to attend the pretrial.
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In the meanwhile, petitioner sold all his shares in Akron to Coprada. It also appears that Akron amended its articles of incorporation thereby changing its name to Akron Transport International, Inc. which assumed the liability of Akron to private respondent.
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After an ex parte reception of the evidence of the private respondent, a decision was rendered on October 28, 1980, the dispositive part of which reads as follows:
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Finding the evidence sufficient to prove the case of the plaintiff, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering them jointly and severally to pay; a - the purchase price of the trucks in the amount of P525,000.00 with ... legal rate (of interest) from the filing of the complaint until the full amount is paid;
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b - rentals of Bagbag property at P1,000.00 a month from August 1978 until the premises is cleared of the said trucks;
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c - attorneys fees of P10,000.00, and d - costs of suit.

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The P50,000.00 given as down payment shall pertain as rentals of the trucks from June 1 to August 1, 1978 which is P25,000.00 (see demand letter of Atty. Aniano Exhibit "T") and the remaining P25,000.00 shall be from August 1, 1978 until the trucks are removed totally from the place." 17
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A motion for new trial filed by petitioner was denied so he appealed to the then Intermediate Appellate Court (IAC) wherein in due course a decision was rendered on June 30, 1 983 setting aside the said decision as far as petitioner is concemed. However, upon a motion for reconsideration filed by private respondent dent, the IAC, in a resolution dated February 8,1984, set aside the decision dated June 30, 1983. The appellate court entered another decision affirming the appealed decision of the trial court, with costs against petitioner.
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Hence, this petition for review wherein petitioner raises the following issues: I. The Intermediate Appellate Court (IAC) erred in disregarding the corporate fiction and in holding the petitioner personally liable for the obligation of the Corporation which decision is patently contrary to law and the applicable decision thereon.
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II. The Intermediate Appellate Court (IAC) committed grave error of law in its decision by sanctioning the merger of the personality of the corporation with that of the petitioner when the latter was held liable for the corporate debts. 18
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We reverse.

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The environmental facts of this case show that there is no cogent basis to pierce the corporate veil of Akron and hold petitioner personally liable for its obligation to private respondent. While it is true that in December, 1977 petitioner was still a member of the board of directors of Akron and that he participated in the adoption of a resolution authorizing the purchase of 13 trucks for the use in the brokerage business of Akron to be paid out of a loan to be secured from a lending institution, it does not appear that said resolution was intended to defraud anyone and more particularly private respondent. It was Coprada, President and Chairman of Akron, who negotiated with said respondent for the purchase of 13 cargo trucks on January 25, 1978. It was Coprada who signed a promissory note to guarantee the payment of the unpaid balance of the purchase price out of the proceeds of a loan he supposedly sought from the DBP. The word "WE' in the said promissory note must refer to the corporation which Coprada represented in the execution of the note and not its stockholders or directors. Petitioner did not sign the said promissory note so he cannot be personally bound thereby.
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Thus, if there was any fraud or misrepresentation that was foisted on private respondent in that there was a forthcoming loan from the DBP when it fact there was none, it is Coprada who should account for the same and not petitioner.
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As to the sale through pacto de retro of the two units to a third person by the corporation by virtue of a board resolution, petitioner asserts that he never signed said resolution. Be that as it may, the sale is not inherently fraudulent as the 13 units were sold through a deed of absolute sale to Akron so that the corporation is free to dispose of the same. Of course, it was stipulated that in case of default in payment to private respondent of the balance of the consideration, a chattel mortgage lien shag be constituted on the 13 units. Nevertheless, said mortgage is a prior lien as against the pacto de retro sale of the 2 units.
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As to the amendment of the articles of incorporation of Akron thereby changing its name to Akron Transport International, Inc., petitioner alleges that the change of corporate name was in order to include trucking and container yard operations in its customs brokerage of which private respondent was duly informed in a letter. 19 Indeed, the new corporation confirmed and assumed the obligation of the old corporation. There is no indication of an attempt on the part of Akron to evade payment of its obligation to private respondent.
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There is the fact that petitioner sold his shares in Akron to Coprada during the pendency of the case. Since petitioner has no personal obligation to private respondent, it is his inherent right as a stockholder to dispose of his shares of stock anytime he so desires.
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Mention is also made of the alleged "dumping" of 10 units in the premises of private respondent at Bagbag, Novaliches which to the mind of the Court does not prove fraud and instead appears to be an attempt on the part of Akron to attend to its obligations as regards the said trucks. Again petitioner has no part in this.
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If the private respondent is the victim of fraud in this transaction, it has not been clearly shown that petitioner had any part or participation in the perpetration of the same. Fraud must be established by clear and convincing evidence. If at all, the principal character on whom fault should be attributed is Feliciano Coprada, the President of Akron, whom private respondent dealt with personally all through out. Fortunately, private respondent obtained a judgment against him from the trial court and the said judgment has long been final and executory.
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WHEREFORE, the petition is GRANTED. The questioned resolution of the Intermediate Appellate Court dated February 8,1984 is hereby set aside and its decision dated June 30,1983 setting aside the decision of the trial court dated October 28, 1980 insofar as petitioner is concemed is hereby reinstated and affirmed, without costs.
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SO ORDERED. Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., .

Endnotes:
1 Section 2, Batas Pambansa Blg. 68, the Corporation Code of the Philippines; 1 Fletcher, Cyclopedia of the Law of Private Corporations, pages 19 and 20.
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2 Yutivo and Sons Hardware Co. vs. Court of Tax Appeals, 1 SCRA 160 (1961) citing Koppel (Phil.), Inc. vs. Yatco, 77 Phil. 496 (1946) in turn citing 1 Fletcher Cyclopedia of the Law of Private Corporations, perm. Ed. pages 13 and 135-136.
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3 Namarco vs. Associated Finance Co. Inc. 19 SCRA 962 (1967); Villa Rey Transit Inc. vs. Ferrer, 25 SCRA 845 (1968); Liddell & Co., Inc. vs. Collector of Internal Revenue, 2 SCRA 632 (1961); Emilio Cano Enterprises Inc. vs. Court of Industrial Relations, 13 SCRA 290 (1965); McConnel vs. Court of Appeals 1 SCRA 722 (1961).
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4 Justice Ramon G. Gaviola, Jr. was the ponente, with Justices Eduardo P. Caguioa and Ma. Rosario Quetulio-Losa, concurring.
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5 Exhibits C and 7. 6 Exhibit Q.

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7 Exhibits R-1 to R-4. 8 Exhibit S.

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9 Exhibits T and T-1. 10 Exhibit W.

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11 Exhibit X.

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12 Exhibit V-1. 13 Exhibit Y.

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14 Exhibit X.

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15 Exhibit AA.

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16 Exhibit BB.

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17 Annex C to Petition, pages 24 and 25, Record on Appeal; page 50, Rollo. 18 Page 18, Rollo.

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19 Page 10, Record on Appeal; Annex C, Petition.

SECOND DIVISION G.R. No. 152347 : June 21, 2006 UNION BANK OF THE PHILIPPINES, Petitioner, v. SPS. ALFREDO ONG AND SUSANA ONG and JACKSON LEE, Respondents. DECISION GARCIA, J.: By this petition for review under Rule 45 of the Rules of Court, petitioner Union Bank of the Philippines (Union Bank) seeks to set aside the decision1 dated December 5, 2001 of the Court of Appeals (CA) in CA-G.R. No. 66030 reversing an earlier decision of the Regional Trial Court (RTC) of Pasig City in Civil Case No. 61601, a suit thereat commenced by the petitioner against the herein respondents for annulment or rescission of sale in fraud of creditors. The facts:
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Herein respondents, the spouses Alfredo Ong and Susana Ong, own the majority capital stock of Baliwag Mahogany Corporation (BMC). On October 10, 1990, the spouses executed a Continuing Surety Agreement in favor of Union Bank to secure a P40,000,000.00-credit line facility made available to BMC. The agreement expressly stipulated a solidary liability undertaking. On October 22, 1991, or about a year after the execution of the surety agreement, the spouses Ong, for P12,500,000.00, sold their 974-square meter lot located in Greenhills, San Juan, Metro Manila, together with the house and other improvements standing thereon, to their co-respondent, Jackson Lee (Lee, for short). The following day, Lee registered the sale and was then issued Transfer Certificate of Title (TCT) No. 4746-R. At about this time, BMC had already availed itself of the credit facilities, and had in fact executed a total of twenty-two (22) promissory notes in favor of Union Bank. On November 22, 1991, BMC filed a Petition for Rehabilitation and for Declaration of Suspension of Payments with the Securities and Exchange Commission (SEC). To protect its interest, Union Bank lost no time in filing with the RTC of Pasig City an action for rescission of the sale between the spouses Ong and Jackson Lee for purportedly being in fraud of creditors. In its complaint, docketed as Civil Case No. 61601 and eventually raffled to Branch 157 of the court, Union Bank assailed the validity of the sale, alleging that the spouses Ong and Lee entered into the transaction in question for the lone purpose of fraudulently removing the property from the reach of Union Bank and other creditors. The fraudulent design, according to Union Bank, is evidenced by the following circumstances: (1) insufficiency of consideration, the purchase price ofP12,500,000.00 being below the fair market value of the subject property at that time; (2) lack of financial capacity on the part of Lee to buy the property at that time since his gross income for the year 1990, per the credit investigation conducted by the bank, amounted to only P346,571.73; and (3) Lee did not assert absolute ownership over the property as he allowed the spouses Ong to retain possession thereof under a purported Contract of Lease dated October 29, 1991. Answering, herein respondents, as defendants a quo, maintained, in the main, that both contracts of sale and lease over the Greenhills property were founded on good and valid consideration and executed in good faith. They also scored Union Bank for forum shopping, alleging that the latter is one of the participating creditors in BMC's petition for rehabilitation. Issues having been joined, trial followed. On September 27, 1999, the trial court, applying Article 1381 of the Civil Code and noting that the evidence on record "present[s] a holistic combination of circumstances distinctly characterized by badges of fraud," rendered judgment for Union Bank, the

Deed of Sale executed on October 22, 1991 by the spouses Ong in favor of Lee being declared null and void. Foremost of the circumstances adverted to relates to the execution of the sale against the backdrop of the spouses Ong, as owners of 70% of BMC's stocks, knowing of the company's insolvency. This knowledge was the reason why, according to the court, the spouses Ong disposed of the subject property leaving the bank without recourse to recover BMC's indebtedness. The trial court also made reference to the circumstances which Union Bank mentioned in its complaint as indicia of conveyance in fraud of creditors. Therefrom, herein respondents interposed an appeal to the CA which docketed their recourse as CAG.R. No. 66030. In its Decision dated December 5, 2001, the CA reversed and set aside the trial court's ruling, observing that the contract of sale executed by the spouses Ong and Lee, being complete and regular on its face, is clothed with the prima facie presumption of regularity and legality. Plodding on, the appellate court said:
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In order that rescission of a contract made in fraud of creditors may be decreed, it is necessary that the complaining creditors must prove that they cannot recover in any other manner what is due them. xxx. There is no gainsaying that the basis of liability of the appellant spouses in their personal capacity to Union Bank is the Continuing Surety Agreement they have signed . on October 10, 1990. However, the real debtor of Union Bank is BMC, which has a separate juridical personality from appellants Ong. Granting that BMC was already insolvent at the time of the sale, still, there was no showing that at the time BMC filed a petition for suspension of payment that appellants Ong were themselves bankrupt. In the case at bench, no attempt was made by Union Bank, not even a feeble or half-hearted one, to establish that appellants spouses have no other property from which Union Bank, as creditor of BMC, could obtain payment. While appellants Ong may be independently liable directly to Union Bank under the Continuing Surety Agreement, all that Union Bank tried to prove was that BMC was insolvent at the time of the questioned sale. No competent evidence was adduced showing that appellants Ong had no leviable assets other than the subject property that would justify challenge to the transaction.2
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Petitioner moved for a reconsideration of the above decision but its motion was denied by the appellate court in its resolution of February 21, 2002.3
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Hence, petitioner's present recourse on its submission that the appellate court erred: I. xxx WHEN IT CONSIDERED THAT THE SALE TRANSACTION BETWEEN [ RESPONDENTS SPOUSES ONG AND LEE] ENJOYS THE PRESUMPTION OF REGULARITY AND LEGALITY AS THERE EXISTS ALSO A PRESUMPTION THAT THE SAID SALE WAS ENTERED IN FRAUD OF CREDITORS. PETITIONER THEREFORE NEED NOT PROVE THAT RESPONDENTS SPOUSES ONG DID NOT LEAVE SUFFICIENT ASSETS TO PAY THEIR CREDITORS. BUT EVEN THEN, PETITIONER HAS PROVEN THAT THE SPOUSES HAVE NO OTHER ASSETS. II. IN CONCLUDING, ASSUMING EX-GRATIA ARGUMENTI THAT THE SALE BETWEEN DEFENDANTAPPELLANTS ENJOY THE PRESUMPTION OF REGULARITY AND LEGALITY, THAT THE EVIDENCE ADDUCED BY THE PETITIONER . WAS NOT SUFFICIENT TO OVERCOME THE PRESUMPTION. III. xxx IN FINDING THAT IT WAS [RESPONDENT] LEE WHO HAS SUFFICIENTLY PROVEN THAT THERE WAS A VALID AND SUFFICIENT CONSIDERATION FOR THE SALE. IV. xxx IN NOT FINDING THAT JACKSON LEE WAS IN BAD FAITH WHEN HE PURCHASED THE PROPERTY.4

Petitioner maintains, citing China Banking Corporation vs. Court of Appeals,5 that the sale in question, having been entered in fraud of creditor, is rescissible. In the same breath, however, petitioner would fault the CA for failing to consider that the sale between the Ongs and Lee is presumed fraudulent under Section 70 of Act No. 1956, as amended, or the Insolvency Law. Elaborating on this point, petitioner states that the subject sale occurred thirty (30) days prior to the filing by BMC of a petition for suspension of payment before the SEC, thus rendering the sale not merely rescissible but absolutely void. We resolve to deny the petition. In effect, the determinative issue tendered in this case resolves itself into the question of whether or not the Ong-Lee contract of sale partakes of a conveyance to defraud Union Bank. Obviously, this necessitates an inquiry into the facts and this Court eschews factual examination in a petition for review under Rule 45 of the Rules of Court, save when, as in the instant case, a clash between the factual findings of the trial court and that of the appellate court exists,6 among other exceptions. As between the contrasting positions of the trial court and the CA, that of the latter commends itself for adoption, being more in accord with the evidence on hand and the laws applicable thereto. Essentially, petitioner anchors its case on Article 1381 of the Civil Code which lists as among the rescissible contracts "[T]hose undertaken in fraud of creditors when the latter cannot in any other manner collect the claim due them." Contracts in fraud of creditors are those executed with the intention to prejudice the rights of creditors. They should not be confused with those entered into without such mal-intent, even if, as a direct consequence thereof, the creditor may suffer some damage. In determining whether or not a certain conveying contract is fraudulent, what comes to mind first is the question of whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors.7 To creditors seeking contract rescission on the ground of fraudulent conveyance rest the onus of proving by competent evidence the existence of such fraudulent intent on the part of the debtor, albeit they may fall back on the disputable presumptions, if proper, established under Article 1387 of the Code.8
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In the present case, respondent spouses Ong, as the CA had determined, had sufficiently established the validity and legitimacy of the sale in question. The conveying deed, a duly notarized document, carries with it the presumption of validity and regularity. Too, the sale was duly recorded and annotated on the title of the property owners, the spouses Ong. As the transferee of said property, respondent Lee caused the transfer of title to his name. There can be no quibbling about the transaction being supported by a valid and sufficient consideration. Respondent Lee's account, while on the witness box, about this angle of the sale was categorical and straightforward. An excerpt of his testimony:
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Atty. De Jesus :

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Before you prepared the consideration of this formal offer, as standard operating procedure of buy and sell, what documents were prepared? xxx xxx xxx Jackson Lee:
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A. There is a downpayment. Q. And how much was the downpayment?

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A. P2,500,000.00. Q. Was that downpayment covered by a receipt signed by the seller? A. Yes, Sir, P500,000.00 and P2,000,000.00 xxx xxx xxx Q. Are you referring to the receipt dated October 19, 1991, how about the other receipt dated October 21, 1991?
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A. Yes, Sir, this is the same receipt. xxx xxx xxx Q. Considering that the consideration of this document is for P12,000,000.00 and you made mention only of P2,500,000.00, covered by the receipts, do you have evidence to show that, finally, Susana Ong received the balance of P10,000,000.00?
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A. Yes, Sir. Q. Showing to you a receipt denominated as Acknowledgement Receipt, dated October 25, 1991, are you referring to this receipt to cover the balance of P10,000,000.00?
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A. Yes, sir.9

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The foregoing testimony readily proves that money indeed changed hands in connection with the sale of the subject property. Respondent Lee, as purchaser, paid the stipulated contract price to the spouses Ong, as vendors. Receipts presented in evidence covered and proved such payment. Accordingly, any suggestion negating payment and receipt of valuable consideration for the subject conveyance, or worse, that the sale was fictitious must simply be rejected. In a bid to attach a badge of fraud on the transaction, petitioner raises the issue of inadequate consideration, alleging in this regard that only P12,500,000.00 was paid for property having, during the period material, a fair market value ofP14,500,000.00. We do not agree. The existence of fraud or the intent to defraud creditors cannot plausibly be presumed from the fact that the price paid for a piece of real estate is perceived to be slightly lower, if that really be the case, than its market value. To be sure, it is logical, even expected, for contracting minds, each having an interest to protect, to negotiate on the price and other conditions before closing a sale of a valuable piece of land. The negotiating areas could cover various items. The purchase price, while undeniably an important consideration, is doubtless only one of them. Thus, a scenario where the price actually stipulated may, as a matter of fact, be lower than the original asking price of the vendor or the fair market value of the property, as what perhaps happened in the instant case, is not out of the ordinary, let alone indicative of fraudulent intention. That the spouses Ong acquiesced to the price of P12,500,000.00, which may be lower than the market value of the house and lot at the time of alienation, is certainly not an unusual business phenomenon. Lest it be overlooked, the disparity between the price appearing in the conveying deed and what the petitioner regarded as the real value of the property is not as gross to support a conclusion of fraud. What is more, one Oliver Morales, a licensed real estate appraiser and broker, virtually made short shrift of petitioner's claim of gross inadequacy of the purchase price. Mr. Morales declared that there

exists no gross disparity between the market value of the subject property and the price mentioned in the deed as consideration. He explained why:
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ATTY. EUFEMIO:

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Q. I am showing to you the said two (2) exhibits Mr. Morales and I would like you to go over the terms and conditions stated therein and as an expert in real estate appraiser (sic) and also as a real estate broker, can you give this Honorable Court your considered opinion whether the consideration stated therein P12,500,000.00 in the light of all terms and conditions of the said Deed of Absolute Sale and Offer to Purchase could be deemed fair and reasonable? xxx xxx xxx MR. MORALES:
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A. My opinion generally a Deed of Absolute Sale indicated prescribed not only the amount of the consideration. There are also other expenses involved in the sales. I do not see here other payment of who takes care of capital gains stocks (sic) in this Deed of Sale neither who shouldered the documentary stamps or even transfer tax. That is my comment regarding this. Q. Precisely Mr. Witness we have also shown to you the Offer to Purchase which has been marked as Exhibit "9" as to the terms which we are asking? xxx xxx xxx A. Well, it says here in item C of the conditions the Capital Gains Stocks (sic), documentary stamps, transfer tax registration and broker's fee for the buyer's account. I do not know how much is this worth. If at all in condition (sic) to the 12.5 million which is the selling price, may I, therefore aside (sic) how much is the total cost pertaining to this. The capital gains tax on (sic), documentary stamps, transfer tax are all computed on the basis of the consideration which is P12.5 M, the capital gain stocks (sic) is 5%, 5% of 12.5 M. xxx xxx xxx Yes sir if the 5% capital gains tax and documentary stamps respectively shall be added to the 12.5 Million before the inclusion of the transfer tax, the amount will be already in the vicinity of P13,250.000. Q. With such consideration Mr. Witness and in the light of the terms and conditions in the said Offer to Purchase and Deed of Absolute Sale could you give your opinion as to whether the consideration is fair and reasonable. xxx xxx xxx A. With our proposal of P14.5 M as compared now to P13,250,000.00 may I give my opinion that generally there will be two appraisers. In fairness to the situation, they should not vary by as much as 7% down so we are playing at a variance actually of about 15%. In my experience in this profession for the last 27 years as I have said in fairness if there is another appraisal done by another person, that kind of difference is very marginal should at least indicate the fairness of the property and so therefore the only way to find out is to determine the difference between the P14.5 M and the P13,250,000.00. My computation indicates that it is close to 10% something like that difference. What is the question again?
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Q. Whether it is fair and reasonable under the circumstances.

A. I have answered already the question and I said maximum of 15%. Q. So based on your computation this is about 10% which is fair and reasonable. A That is right sir.10
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Withal, the consideration of the sale is fair and reasonable as would justify the conclusion that the sale is undoubtedly a true and genuine conveyance to which the parties thereto are irrevocably and undeniably bound. It may be stressed that, when the validity of sales contract is in issue, two veritable presumptions are relevant: first, that there was sufficient consideration of the contract11 ; and, second, that it was the result of a fair and regular private transaction.12 If shown to hold, these presumptions infer prima facie the transaction's validity, except that it must yield to the evidence adduced13 which the party disputing such presumptive validity has the burden of overcoming. Unfortunately for the petitioner, it failed to discharge this burden. Its bare allegation respecting the sale having been executed in fraud of creditors and without adequate consideration cannot, without more, prevail over the respondents' evidence which more than sufficiently supports a conclusion as to the legitimacy of the transaction and the bona fides of the parties. Parenthetically, the rescissory action to set aside contracts in fraud of creditors is accion pauliana, essentially a subsidiary remedy accorded under Article 1383 of the Civil Code which the party suffering damage can avail of only when he has no other legal means to obtain reparation for the same.14 In net effect, the provision applies only when the creditor cannot recover in any other manner what is due him. It is true that respondent spouses, as surety for BMC, bound themselves to answer for the latter's debt. Nonetheless, for purposes of recovering what the eventually insolvent BMC owed the bank, it behooved the petitioner to show that it had exhausted all the properties of the spouses Ong. It does not appear in this case that the petitioner sought other properties of the spouses other than the subject Greenhills property. The CA categorically said so. Absent proof, therefore, that the spouses Ong had no other property except their Greenhills home, the sale thereof to respondent Lee cannot simplistically be considered as one in fraud of creditors. Neither was evidence adduced to show that the sale in question peremptorily deprived the petitioner of means to collect its claim against the Ongs. Where a creditor fails to show that he has no other legal recourse to obtain satisfaction for his claim, then he is not entitled to the rescission asked.15

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For a contract to be rescinded for being in fraud of creditors, both contracting parties must be shown to have acted maliciously so as to prejudice the creditors who were prevented from collecting their claims.16 Again, in this case, there is no evidence tending to prove that the spouses Ong and Lee were conniving cheats. In fact, the petitioner did not even attempt to prove the existence of personal closeness or business and professional interdependence between the spouses Ong and Lee as to cast doubt on their true intent in executing the contract of sale. With the view we take of the evidence on record, their relationship vis--vis the subject Greenhills property was no more than one between vendor and vendee dealing with each other for the first time. Any insinuation that the two colluded to gyp petitioner bank is to read in a relationship something which, from all indications, appears to be purely business. It cannot be overemphasized that rescission is generally unavailing should a third person, acting in good faith, is in lawful possession of the property,17 that is to say, he is protected by law against a suit for rescission by the registration of the transfer to him in the registry. As recited earlier, Lee was - and may still be - in lawful possession of the subject property as the transfer to him was by virtue of a presumptively valid onerous contract of sale. His possession is evidenced by no less than a certificate of title issued him by the Registry of Deeds of San Juan, Metro

Manila, after the usual registration of the corresponding conveying deed of sale. On the other hand, the bona fides of his acquisition can be deduced from his conduct and outward acts previous to the sale. As testified to by him and duly noted by the CA, respondent Lee undertook what amounts to due diligence on the possible defects in the title of the Ongs before proceeding with the sale. As it were, Lee decided to buy the property only after being satisfied of the absence of such defects.18
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Time and again, the Court has held that one dealing with a registered parcel of land need not go beyond the certificate of title as he is charged with notice only of burdens which are noted on the face of the register or on the certificate of title.19 The Continuing Surety Agreement, it ought to be particularly pointed out, was never recorded nor annotated on the title of spouses Ong. There is no evidence extant in the records to show that Lee had knowledge, prior to the subject sale, of the surety agreement adverted to. In fine, there is nothing to remotely suggest that the purchase of the subject property was characterized by anything other than good faith. Petitioner has made much of respondent Lee not taking immediate possession of the property after the sale, stating that such failure is an indication of his participation in the fraudulent scheme to prejudice petitioner bank. We are not persuaded. Lee, it is true, allowed the respondent spouses to continue occupying the premises even after the sale. This development, however, is not without basis or practical reason. The spouses' continuous possession of the property was by virtue of a one-year lease20 they executed with respondent Lee six days after the sale. As explained by the respondent spouses, they insisted on the lease arrangement as a condition for the sale in question. And pursuant to the lease contract aforementioned, the respondent Ongs paid and Lee collected rentals at the rate of P25,000.00 a month. Contrary thus to the petitioner's asseveration, respondent Lee, after the sale, exercised acts of dominion over the said property and asserted his rights as the new owner. So, when the respondent spouses continued to occupy the property after its sale, they did so as mere tenants. While the failure of the vendee to take exclusive possession of the property is generally recognized as a badge of fraud, the same cannot be said here in the light of the existence of what appears to be a genuine lessor-lessee relationship between the spouses Ong and Lee. To borrow from Reyes vs. Court of Appeals,21 possession may be exercised in one's own name or in the name of another; an owner of a piece of land has possession, either when he himself physically occupies the same or when another person who recognizes his right as owner is in such occupancy. Petitioner's assertion regarding respondent Lee's lack of financial capacity to acquire the property in question since his income in 1990 was only P346,571.73 is clearly untenable. Assuming for argument that petitioner got its figure right, it is clearly incorrect to measure one's purchasing capacity with one's income at a given period. But the more important consideration in this regard is the uncontroverted fact that respondent Lee paid the purchase price of said property. Where he sourced the needed cash is, for the nonce, really of no moment. The cited case of China Banking22 cannot plausibly provide petitioner with a winning card. In that case, the Court, applying Article 1381 (3) of the Civil Code, rescinded an Assignment of Rights to Redeem owing to the failure of the assignee to overthrow the presumption that the said conveyance/assignment is fraudulent. In turn, the presumption was culled from Article 1387, par. 2, of the Code pertinently providing that "[A]lienation by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued." Indeed, when the deed of assignment was executed in China Banking, the assignor therein already faced at that time an adverse judgment. In the same case, moreover, the Court took stock of other signs of fraud which tainted the transaction therein and which are, significantly, not obtaining in the instant case. We refer, firstly, to the element of kinship, the assignor, Alfonso Roxas Chua, being the father of the assignee, Paulino. Secondly, Paulino admitted knowing his father to be insolvent. Hence, the Court, rationalizing the rescission of the assignment of rights, made the following remarks:
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The mere fact that the conveyance was founded on valuable consideration does not necessarily negate the presumption of fraud under Article 1387 of the Civil Code. There has to be valuable consideration and the transaction must have been made bona fide.23
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There lies the glaring difference with the instant case. Here, the existence of fraud cannot be presumed, or, at the very least, what were perceived to be badges of fraud have been proven to be otherwise. And, unlike Alfonso Roxas Chua in China Banking, a judgment has not been rendered against respondent spouses Ong or that a writ of attachment has been issued against them at the time of the disputed sale. In a last-ditch attempt to resuscitate a feeble cause, petitioner cites Section 70 of the Insolvency Law which, unlike the invoked Article 1381 of the Civil Code that deals with a valid but rescissible contract, treats of a contractual infirmity resulting in nullity no less of the transaction in question. Insofar as pertinent, Section 70 of the Insolvency Law provides:
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Sec. 70. If any debtor, being insolvent, or in contemplation of insolvency, within thirty days before the filing of a petition by or against him, with a view to giving a preference to any creditor or person having a claim against him xxx makes any xxx sale or conveyance of any part of his property, xxx such xxx sale, assignment or conveyance is void, and the assignee, or the receiver, may recover the property or the value thereof, as assets of such insolvent debtor. xxx. Any payment, pledge, mortgage, conveyance, sale, assignment, or transfer of property of whatever character made by the insolvent within one (1) month before the filing of a petition in insolvency by or against him, except for a valuable pecuniary consideration made in good faith shall be void. xxx. (Emphasis added) Petitioner avers that the Ong-Lee sales contract partakes of a fraudulent transfer and is null and void in contemplation of the aforequoted provision, the sale having occurred on October 22, 1991 or within thirty (30) days before BMC filed a petition for suspension of payments on November 22, 1991. Petitioner's reliance on the afore-quoted provision is misplaced for the following reasons: First, Section 70, supra, of the Insolvency Law specifically makes reference to conveyance of properties made by a "debtor" or by an "insolvent" who filed a petition, or against whom a petition for insolvency has been filed. Respondent spouses Ong have doubtlessly not filed a petition for a declaration of their own insolvency. Neither has one been filed against them. And as the CA aptly observed, it was never proven that respondent spouses are likewise insolvent, petitioner having failed to show that they were down to their Greenhills property as their only asset. It may be that BMC had filed a petition for rehabilitation and suspension of payments with the SEC. The nagging fact, however is that BMC is a different juridical person from the respondent spouses. Their seventy percent (70%) ownership of BMC's capital stock does not change the legal situation. Accordingly, the alleged insolvency of BMC cannot, as petitioner postulates, extend to the respondent spouses such that transaction of the latter comes within the purview of Section 70 of the Insolvency Law. Second, the real debtor of petitioner bank in this case is BMC. The fact that the respondent spouses bound themselves to answer for BMC's indebtedness under the surety agreement referred to at the outset is not reason enough to conclude that the spouses are themselves debtors of petitioner bank. We have already passed upon the simple reason for this proposition. We refer to the basic precept in this jurisdiction that a corporation, upon coming into existence, is invested by law with a personality separate and distinct from those of the persons composing it.24 Mere ownership by a single or small group of stockholders of nearly all of the capital stock of the corporation is not, without more, sufficient to disregard the fiction of separate corporate personality.25
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Third, Section 70 of the Insolvency Law considers transfers made within a month after the date of cleavage void, except those made in good faith and for valuable pecuniary consideration. The twin

elements of good faith and valuable and sufficient consideration have been duly established. Given the validity and the basic legitimacy of the sale in question, there is simply no occasion to apply Section 70 of the Insolvency Law to nullify the transaction subject of the instant case. All told, we are far from convinced by petitioner's argumentation that the circumstances surrounding the sale of the subject property may be considered badges of fraud. Consequently, its failure to show actual fraudulent intent on the part of the spouses Ong defeats its own cause. WHEREFORE, the instant petition is DENIED and the assailed decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED. CANCIO C. GARCIA Associate Justice WE CONCUR: REYNATO S. PUNO Associate Justice Chairperson

ANGELINA SANDOVALGUTIERREZ Associate Justice

RENATO C. CORONA Associate Justice

ADOLFO S. AZCUNA Associate Justice ATTESTATION I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. REYNATO S. PUNO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. ARTEMIO V. PANGANIBAN Chief Justice

Endnotes:

Penned by then Associate Justice Romeo A. Brawner (now COMELEC Commissioner), with Associate Justice Elvi John S. Asuncion and Associate Justice Juan Q. Enriquez, Jr., concurring; Rollo, pp. 5267.
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Id. at 60. Id. at 68.

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Id. at 21-22.

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G.R. No. 129644, March 7, 2000, 327 SCRA 378.

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Manila Banking Corporation vs. Silverio, G.R. No. 132887, August 11, 2005, 466 SCRA 438. Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., pp. 575-576. Ibid, citing Ayles v. Reyes, 18 Phil. 243. TSN, March 3, 1998, pp. 51-54.
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10

TSN, February 17, 1998, pp. 12-13, 20-25. Section 3(r), Rule 131, Rules of Court.
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11

12

Section 3(p), Rule 131, Rules of Court.

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13

Suntay vs. Court of Appeals, G.R. No. 112592, December 19, 1995, 251 SCRA 421. Suria vs. IAC, G.R. No. L-73893, June 30, 1987, 151 SCRA 661. Tolentino, Civil Code, supra, p. 585.
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14

15

16

Cuizon vs. Court of Appeals, G.R. No. 102096, August 22, 1996, 260 SCRA 645.

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17

Art. 1385 of the Civil Code - xxx Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.
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18

CA Decision, pp. 11-12, citing TSN, March 3, 1998, pp. 43-48.

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19

San Lorenzo Development Corporation vs. Court of Appeals, G.R. No. 124242, January 21, 2005, 449 SCRA 99.
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20

Records, pp. 16-18.

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21

G.R. No. 127608, Sept. 30, 1999, 315 SCRA 626. Supra note 5. At p. 389.
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22

23

24

Jardine Davies, Inc. vs. JRB Realty, Inc., G.R. No. 151438, July 15, 2005, 463 SCRA 555. Sunio vs. NLRC, G.R. No. L-57767, Jan. 31, 1984, 127 SCRA 390.

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25

THIRD DIVISION
HYATT ELEVATORS AND ESCALATORS CORPORATION, Petitioner, G.R. No. 161026 Present: Panganiban, J., Chairman, Sandoval-Gutierrez, Corona, Carpio Morales, and Garcia, JJ

- versus -

GOLDSTAR ELEVATORS, Promulgated: * PHILS., INC., Respondent. October 24, 2005 x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION
PANGANIBAN, J.:

ell established in our jurisprudence is the rule that the residence of a corporation is the place where its principal office is located, as stated in its Articles of Incorporation.

The Case Before us is a Petition for Review[1] on Certiorari, under Rule 45 of the Rules of Court, assailing the June 26, 2003 Decision[2] and the November 27, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 74319. The decretal portion of the Decision reads as follows:
WHEREFORE, in view of the foregoing, the assailed Orders dated May 27, 2002 and October 1, 2002 of the RTC, Branch 213, Mandaluyong City in Civil Case No. 99-600, are hereby SET ASIDE. The said case is hereby ordered DISMISSED on the ground of improper venue.[4]

The assailed Reconsideration.

Resolution

denied

petitioners

Motion

for

The Facts The relevant facts of the case are summarized by the CA in this wise:
Petitioner [herein Respondent] Goldstar Elevator Philippines, Inc. (GOLDSTAR for brevity) is a domestic corporation primarily engaged in the business of marketing, distributing, selling, importing, installing, and maintaining elevators and escalators, with address at 6th Floor, Jacinta II Building, 64 EDSA, Guadalupe, Makati City. On the other hand, private respondent [herein petitioner] Hyatt Elevators and Escalators Company (HYATT for brevity) is a domestic corporation similarly engaged in the business of selling, installing and maintaining/servicing elevators, escalators and parking equipment, with address at the 6th Floor, Dao I Condominium,

Salcedo St., Legaspi Village, Makati, as stated in its Articles of Incorporation. On February 23, 1999, HYATT filed a Complaint for unfair trade practices and damages under Articles 19, 20 and 21 of the Civil Code of the Philippines against LG Industrial Systems Co. Ltd. (LGISC) and LG International Corporation (LGIC), alleging among others, that: in 1988, it was appointed by LGIC and LGISC as the exclusive distributor of LG elevators and escalators in the Philippines under a Distributorship Agreement; x x x LGISC, in the latter part of 1996, made a proposal to change the exclusive distributorship agency to that of a joint venture partnership; while it looked forward to a healthy and fruitful negotiation for a joint venture, however, the various meetings it had with LGISC and LGIC, through the latters representatives, were conducted in utmost bad faith and with malevolent intentions; in the middle of the negotiations, in order to put pressures upon it, LGISC and LGIC terminated the Exclusive Distributorship Agreement; x x x [A]s a consequence, [HYATT] sufferedP120,000,000.00 as actual damages, representing loss of earnings and business opportunities, P20,000,000.00 as damages for its reputation and goodwill,P1,000,000.00 as and by way of exemplary damages, and P500,000.00 as and by way of attorneys fees. On March 17, 1999, LGISC and LGIC filed a Motion to Dismiss raising the following grounds: (1) lack of jurisdiction over the persons of defendants, summons not having been served on its resident agent; (2) improper venue; and (3) failure to state a cause of action. The [trial] court denied the said motion in an Order dated January 7, 2000. On March 6, 2000, LGISC and LGIC filed an Answer with Compulsory Counterclaim ex abundante cautela. Thereafter, they filed a Motion for Reconsideration and to Expunge Complaint which was denied. On December 4, 2000, HYATT filed a motion for leave of court to amend the complaint, alleging that subsequent to the filing of the complaint, it learned that LGISC transferred all its organization, assets and goodwill, as a consequence of a joint venture agreement with Otis Elevator Company of the USA, to LG Otis Elevator Company (LG OTIS, for brevity). Thus, LGISC was to be substituted or changed to LG OTIS, its successor-in-interest.

Likewise, the motion averred that x x x GOLDSTAR was being utilized by LG OTIS and LGIC in perpetrating their unlawful and unjustified acts against HYATT. Consequently, in order to afford complete relief, GOLDSTAR was to be additionally impleaded as a party-defendant. Hence, in the Amended Complaint, HYATT impleaded x x x GOLDSTAR as a party-defendant, and all references to LGISC were correspondingly replaced with LG OTIS. On December 18, 2000, LG OTIS (LGISC) and LGIC filed their opposition to HYATTs motion to amend the complaint. It argued that: (1) the inclusion of GOLDSTAR as party-defendant would lead to a change in the theory of the case since the latter took no part in the negotiations which led to the alleged unfair trade practices subject of the case; and (b) HYATTs move to amend the complaint at that time was dilatory, considering that HYATT was aware of the existence of GOLDSTAR for almost two years before it sought its inclusion as party-defendant. On January 8, 2001, the [trial] court admitted the Amended Complaint. LG OTIS (LGISC) and LGIC filed a motion for reconsideration thereto but was similarly rebuffed on October 4, 2001. On April 12, 2002, x x x GOLDSTAR filed a Motion to Dismiss the amended complaint, raising the following grounds: (1) the venue was improperly laid, as neither HYATT nor defendants reside in Mandaluyong City, where the original case was filed; and (2) failure to state a cause of action against [respondent], since the amended complaint fails to allege with certainty what specific ultimate acts x x x Goldstar performed in violation of x x x Hyatts rights. In the Order dated May 27, 2002, which is the main subject of the present petition, the [trial] court denied the motion to dismiss, ratiocinating as follows:
Upon perusal of the factual and legal arguments raised by the movants-defendants, the court finds that these are substantially the same issues posed by the then defendant LG Industrial System Co. particularly the matter dealing [with] the issues of improper venue, failure to state cause of action as well as this courts lack of jurisdiction. Under the circumstances obtaining, the court resolves to rule that the complaint sufficiently states a cause of action and that the venue is properly laid. It is significant to note that in the amended complaint, the same allegations are adopted

as in the original complaint with respect to the Goldstar Philippines to enable this court to adjudicate a complete determination or settlement of the claim subject of the action it appearing preliminarily as sufficiently alleged in the plaintiffs pleading that said Goldstar Elevator Philippines Inc., is being managed and operated by the same Korean officers of defendants LG-OTIS Elevator Company and LG International Corporation.

On June 11, 2002, [Respondent] GOLDSTAR filed a motion for reconsideration thereto. On June 18, 2002, without waiving the grounds it raised in its motion to dismiss, [it] also filed an Answer Ad Cautelam. On October 1, 2002, [its] motion for reconsideration was denied. From the aforesaid Order denying x x x Goldstars motion for reconsideration, it filed the x x x petition for certiorari [before the CA] alleging grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the [trial] court in issuing the assailed Orders dated May 27, 2002 and October 1, 2002.[5]

Ruling of the Court of Appeals The CA ruled that the trial court had committed palpable error amounting to grave abuse of discretion when the latter denied respondents Motion to Dismiss. The appellate court held that the venue was clearly improper, because none of the litigants resided in Mandaluyong City, where the case was filed.

According to the appellate court, since Makati was the principal place of business of both respondent and petitioner, as stated in the latters Articles of Incorporation, that place was controlling for purposes of determining the proper venue. The fact that petitioner had abandoned its principal office in Makati years prior to the filing of the original case did not affect the venue where personal actions could be commenced and tried.

Hence, this Petition.[6]

The Issue

In its Memorandum, petitioner submits this sole issue for our consideration:
Whether or not the Court of Appeals, in reversing the ruling of the Regional Trial Court, erred as a matter of law and jurisprudence, as well as committed grave abuse of discretion, in holding that in the light of the peculiar facts of this case, venue was improper[.][7]

This Courts Ruling The Petition has no merit.

Sole Issue: Venue The resolution of this case rests upon a proper understanding of Section 2 of Rule 4 of the 1997 Revised Rules of Court:
Sec. 2. Venue of personal actions. All other actions may be commenced and tried where the plaintiff or any of the principal plaintiff resides, or where the defendant or any of the principal defendant resides, or in the case of a non-resident defendant where he may be found, at the election of the plaintiff.

Since both parties to this case are corporations, there is a need to clarify the meaning of residence. The law recognizes two types of persons: (1) natural and (2) juridical. Corporations come under the latter in accordance with Article 44(3) of the Civil Code.[8]

Residence is the permanent home -- the place to which, whenever absent for business or pleasure, one intends to return.[9] Residence is vital when dealing with venue.[10] A corporation, however, has no residence in the same sense in which this term is applied to a natural person. This is precisely the reason why the Court in Young Auto Supply Company v. Court of Appeals[11] ruled that for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation.[12] Even before this ruling, it has already been established that the residence of a corporation is the place where its principal office is established.[13] This Court has also definitively ruled that for purposes of venue, the term residence is synonymous with domicile.[14] Correspondingly, the Civil Code provides:
Art. 51. When the law creating or recognizing them, or any other provision does not fix the domicile of juridical persons, the same shall be understood to be the place where their legal representation is established or where they exercise their principal functions.[15]

It now becomes apparent that the residence or domicile of a juridical person is fixed by the law creating or recognizing it. Under Section 14(3) of the Corporation Code, the place where the principal office of the corporation is to be located is one of the required contents of the articles of incorporation, which shall be filed with the Securities and Exchange Commission (SEC).

In the present case, there is no question as to the residence of respondent. What needs to be examined is that of petitioner. Admittedly,[16] the latters principal place of business is Makati, as indicated in its Articles of Incorporation. Since the principal place of business of a corporation determines its residence or domicile, then the place indicated in petitioners articles of incorporation becomes controlling in determining the venue for this case. Petitioner argues that the Rules of Court do not provide that when the plaintiff is a corporation, the complaint should be filed in the location of its principal office as indicated in its articles of incorporation.[17] Jurisprudence has, however, settled that the place where the principal office of a corporation is located, as stated in the articles, indeed establishes its residence.[18] This ruling is important in determining the venue of an action by or against a corporation,[19] as in the present case. Without merit is the argument of petitioner that the locality stated in its Articles of Incorporation does not conclusively indicate that its principal office is still in the same place. We agree with the appellate court in its observation that the requirement to state in the articles the place where the principal office of the corporation is to be located is not a meaningless requirement. That proviso would be rendered nugatory if corporations were to be allowed to simply disregard what is expressly stated in their Articles of Incorporation.[20] Inconclusive are the bare allegations of petitioner that it had closed its Makati office and relocated to Mandaluyong City, and that respondent

was well aware of those circumstances. Assuming arguendo that they transacted business with each other in the Mandaluyong office of petitioner, the fact remains that, in law, the latters residence was still the place indicated in its Articles of Incorporation. Further unacceptable is its faulty reasoning that the ground for the CAs dismissal of its Complaint was its failure to amend its Articles of Incorporation so as to reflect its actual and present principal office. The appellate court was clear enough in its ruling that the Complaint was dismissed because the venue had been improperly laid, not because of the failure of petitioner to amend the latters Articles of Incorporation. Indeed, it is a legal truism that the rules on the venue of personal actions are fixed for the convenience of the plaintiffs and their witnesses. Equally settled, however, is the principle that choosing the venue of an action is not left to a plaintiffs caprice; the matter is regulated by the Rules of Court.[21] Allowing petitioners arguments may lead precisely to what this Court was trying to avoid in Young Auto Supply Company v. CA:[22] the creation of confusion and untold inconveniences to party litigants. Thus enunciated the CA:
x x x. To insist that the proper venue is the actual principal office and not that stated in its Articles of Incorporation would indeed create confusion and work untold inconvenience. Enterprising litigants may, out of some ulterior motives, easily circumvent the rules on venue by the simple expedient of closing old offices and opening new ones in another place that they may find well to suit their needs.[23]

We find it necessary to remind party litigants, especially corporations, as follows:

The rules on venue, like the other procedural rules, are designed to insure a just and orderly administration of justice or the impartial and evenhanded determination of every action and proceeding. Obviously, this objective will not be attained if the plaintiff is given unrestricted freedom to choose the court where he may file his complaint or petition. The choice of venue should not be left to the plaintiffs whim or caprice. He may be impelled by some ulterior motivation in choosing to file a case in a particular court even if not allowed by the rules on venue.[24]

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against petitioner. SO ORDERED. ARTEMIO V. PANGANIBAN Associate Justice Chairman, Third Division W E C O N C U R:

ANGELINA SANDOVAL-GUTIERREZ Associate Justice

RENATO C. CORONA Associate Justice

CONCHITA CARPIO MORALES

CANCIO C. GARCIA

Associate Justice

Associate Justice

ATTESTATION

I attest that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Associate Justice Chairman, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. HILARIO G. DAVIDE, JR. Chief Justice

The Petition included the Court of Appeals as a respondent. However, the CA was omitted by the Court from the title of the case because, under Section 4 of Rule 45 of the Rules of Court, the appellate court need not be impleaded in petitions for review.
Rollo, pp. 7-20.

[1]

[2]

[3] [4] [5] [6]

[7] [8]

[9] [10]

Annex A of the Petition; rollo, pp. 22-31. Penned by Justice Remedios A. SalazarFernando, with the concurrence of Justices Delilah Vidallon-Magtolis (Sixth Division chair) and Edgardo F. Sundiam (member). Annex B of the Petition; id., p. 33. CA Decision, p. 9; id., p. 30. Id., pp. 2-6 & 23-27. Citations omitted. The case was deemed submitted for decision on January 26, 2005, upon this Courts receipt of respondents Memorandum, signed by Attys. Enrique W. Galang and Jerome L. de Guzman. Petitioners Memorandum, signed by Atty. Alan A. Leynes, was received by this Court on December 9, 2004. Petitioners Memorandum, p. 6; rollo, p. 192. Original in uppercase. Art. 44. The following are juridical persons: xxx xxx xxx (3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member. Evangelista v. Santos, 86 Phil. 387, May 19, 1950. Cohen v. Benguet Commercial Co., Ltd., 34 Phil. 526, March 29, 1916.

[11] [12]

[13] [14]

[15] [16] [17] [18]

[19] [20] [21] [22] [23] [24]

223 SCRA 670, June 25, 1993. Id., p. 674, per Quiason, J. This was later reiterated in Davao Light & Power Co, Inc. v. CA, 363 SCRA 396, August 20, 2001. Clavecilla Radio System v. Antillon, 19 SCRA 379, February 18, 1967. Evangelista v. Santos, supra at note 9; Corre v. Corre, 100 Phil. 321, November 13, 1956. Article 51, Civil Code. Petitioners Memorandum, p. 7; rollo, p. 193. Id., pp. 193-195. Campos, The Corporation Code, Comments, Notes and Selected Cases, Vol. I (1990), p. 77; Villanueva, Philippine Corporate Law (1998), p. 162. Ibid. CA Decision, p. 8; rollo, p. 29. Clavecilla Radio System v. Antillon, supra at note 13; Evangelista v. Santos, supra. Supra at note 11. CA Decision, p. 8; rollo, p. 29. Sy v. Tyson Enterprises, Inc., 119 SCRA 367, 371-372, December 15, 1982, per Aquino, J. See also Sps. Rigor v. Consolidated Orix Leasing and Finance Corp., 387 SCRA 437, August 20, 2002.

THIRD DIVISION

[G.R. No. 136448. November 3, 1999]

LIM

TONG LIM, petitioner, vs. PHILIPPINE INDUSTRIES, INC., respondent. DECISION

FISHING

GEAR

PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partners, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.
The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV 41477,[1] which disposed as follows: WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.[2] The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:

WHEREFORE, the Court rules: 1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990; 2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement; b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective amounts as follows: i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990; ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990; iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990; c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court; d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale); e. Cost of suit. With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount of P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. [3]
The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted toP532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.[4] The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission.[5] On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila. Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.[6] The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of P900,000.[7] On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent.[8]

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three[9] in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages.[10] The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment forP3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim; b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11] The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed from the equal distribution of the profit and loss.[12] Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC. Ruling of the Court of Appeals In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled: The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a partnership essentially is x x x. By a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves (Article 1767, New Civil Code).[13] Hence, petitioner brought this recourse before this Court.[14]
The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM. II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL. III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership -- the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat. We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings:[15]

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yaos partner; (2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million; (3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture. (4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim; (5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expenses for the boats would be shouldered by Chua and Yao; (6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim. (7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name. (8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages. (9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term common fund

under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded. Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them. We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the exceptions to the rule.[16] In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to its execution. A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts factual findings mentioned above nullified petitioners argument that the existence of a partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three. Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim. We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of them was merely that of lessorlessee, instead of partners.
Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again, we disagree. Section 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. The reason behind this doctrine is obvious an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has

no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent.[17] The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question here is whether petitioner should be held jointly[18] liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable. Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel. It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position , entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality, when it deserts its proper office as an aid to justice and becomes

its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED. Melo, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur. Vitug, J., Pls. see concurring opinion.

[1] Penned by J. Portia Alino-Hormachuelos; with the concurrence of JJ. Buenaventura J. Guerrero, Division chairman, and Presbitero J. Velasco Jr., member. [2] CA Decision, p. 12; rollo, p. 36. [3] RTC Decision penned by Judge Maximiano C. Asuncion, pp. 11-12; rollo, pp. 48-49. [4] CA Decision, pp. 1-2; rollo, pp. 25-26. [5] Ibid., p. 2; rollo, p. 26. [6] RTC Decision, p. 2; rollo, p. 39. [7] Petition, p. 4; rollo, p. 11. [8] Ibid. [9] RTC Decision, pp. 6-7; rollo, pp. 43-44. [10] Respondents Memorandum, pp. 5, 8; rollo, pp. 107, 109. [11] CA Decision, pp. 9-10; rollo, pp. 33-34. [12] RTC Decision, p. 10; rollo, p. 47. [13] Ibid. [14] This case was deemed submitted for resolution on August 10, 1999, when this Court received petitioners Memorandum signed by Atty. Roberto A. Abad. Respondents Memorandum signed by Atty. Benjamin S. Benito was filed earlier on July 27, 1999.

[15] Nos. 1-7 are from CA Decision, p. 9 (rollo, p. 33); No. 8 is from RTC Decision, p. 5 (rollo, p. 42); and No. 9 is from CA Decision, pp. 9-10 (rollo, pp. 33-34). [16] See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997. [17] Salvatierra v. Garlitos, 103 SCRA 757, May 23, 1958, per Felix, J.; citing Fay v. Noble, 7 Cushing [Mass.] 188. [18] The liability is joint if it is not specifically stated that it is solidary, Maramba v. Lozano, 126 Phil 833, June 29, 1967, per Makalintal, J. See also Article 1207 of the Civil Code, which provides: The concurrence of two or more creditors or of two or more debtors in one [and] the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. [19] 16 Phil. 315, July 26, 1910, per Moreland, J.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 91478 February 7, 1991 ROSITA PEA petitioner, vs. THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT,respondents. Cesar L. Villanueva for petitioner. Martin N. Roque for private respondents.

GANCAYCO, J.:p The validity of the redemption of a foreclosed real property is the center of this controversy. The facts as found by the respondent court are not disputed. A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO, original owners of the lots in question under TCT Nos. 4314, 4315 and 4316, mortgaged the same to the Development Bank of the Philippines (DBP) on January 3, 1962 in consideration of the amount of P935,000.00. This mortgage was foreclosed. In the foreclosure sale under Act No. 3135 held on October 25, 1974, the said properties were awarded to Rosita Pea as highest bidder. A certificate of sale was issued in her favor by the Senior Deputy Sheriff of Pampanga, Edgardo A. Zabat, upon payment of the sum of P128,000.00 to the Office of the Provincial Sheriff (Exh. 23). The certificate of sale was registered on October 29, 1974 (Exh. G). On November 19, 1974, the board of directors of PAMBUSCO, through three (3) out of its five (5) directors, resolved to assign its right of redemption over the aforesaid lots and authorized one of its members, Atty. Joaquin Briones "to execute and sign a Deed of Assignment for and in behalf of PAMBUSCO in favor of any interested party . . ." (Exh. 24). Consequently, on March 18, 1975, Briones executed a Deed of Assignment of PAMBUSCO's redemption right over the subject lots in favor of Marcelino Enriquez (Exh. 25). The latter then redeemed the said properties and a certificate of redemption dated August 15, 1975 was issued in his favor by Sheriff Zabat upon payment of the sum of one hundred forty thousand, four hundred seventy four pesos P140,474.00) to the Office of the Provincial Sheriff of Pampanga (Exh. 26).

A day after the aforesaid certificate was issued, Enriquez executed a deed of absolute sale of the subject properties in favor of plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, for the sum of P140,000.00 (Exh. F). On August 18, 1975, a levy on attachment in favor of Capitol Allied Trading was entered as an additional encumbrance on TCT Nos. 4314, 4315 and 4316 and a Notice of a pending consulta was also annotated on the same titles concerning the Allied Trading case entitled Dante Gutierrez, et al.vs. PAMBUSCO (Civil Case No. 4310) in which the registrability of the aforesaid lots in the name of the spouses Yap was sought to be resolved (Exh. 20-F). The certificate of sale issued by the Sheriff in favor of defendant Pea, the resolution of the PAMBUSCO's board of directors assigning its redemption rights to any interested party, the deed of assignment PAMBUSCO executed in favor of Marcelino B. Enriquez, the certificate of redemption issued by the Sheriff in favor of Enriquez as well as the deed of absolute sale of the subject lots executed by Enriquez in favor of the plaintiffs-appellants were all annotated on the same certificates of title likewise on August 18, 1975. Also, on the same date, the Office of the Provincial Sheriff of San Fernando, Pampanga informed defendant-appellee by registered mail "that the properties under TCT Nos. 4314, 4315 and 4316 . . . . were all redeemed by Mr. Marcelino B. Enriquez on August 15,1975 . . . ;" and that she may now get her money at the Sheriffs Office (Exh. J and J-1). On September 8, 1975, Pea wrote the Sheriff notifying him that the redemption was not valid as it was made under a void deed of assignment. She then requested the recall of the said redemption and a restraint on any registration or transaction regarding the lots in question (Exh. 27). On Sept. 10, 1975, the CFI Branch III, Pampanga in the aforementioned Civil Case No. 4310, entitledDante Gutierrez, et al. vs. PAMBUSCO, et al., ordered the Register of Deeds of Pampanga . . . to desist from registering or noting in his registry of property . . . any of the following documents under contract, until further orders: (a) Deed of Assignment dated March 18, 1975 executed by the defendant Pampanga Bus Company in virtue of a resolution of its Board of Directors in favor of defendant Marcelino Enriquez; (b) A Certificate of Redemption issued by defendant Deputy Sheriff Edgardo Zabat in favor of defendant Marcelino Enriquez dated August 15, 1975; (c) Deed of Sale dated August 16, 1975 executed by defendant Marcelino Enriquez in favor of defendant Rising Yap. (Original Record, p. 244) On November 17, 1975, the Land Registration Commission opined under LRC Resolution No. 1029 that "the levy on attachment in favor of Capitol Allied Trading (represented by Dante Gutierrez) should be carried over on the new title that would be issued in the name of Rising Yap in the event that he is able to present the owner's duplicates of the certificates of title herein involved" (Exh. G). Meanwhile, defendant Pea, through counsel, wrote the Sheriff asking for the execution of a deed of final sale in her favor on the ground that "the one (1) year period of redemption has long elapsed without any valid redemption having been

exercised;" hence she "will now refuse to receive the redemption money . . . (Exh. 28). On Dec. 30, 1977, plaintiff Yap wrote defendant Pea asking payment of back rentals in the amount of P42,750.00 "for the use and occupancy of the land and house located at Sta. Lucia, San Fernando, Pampanga," and informing her of an increase in monthly rental to P2,000; otherwise, to vacate the premises or face an eviction cum collection suit (Exh. D). In the meantime, the subject lots, formerly under TCT Nos. 4314, 4315 and 4316 were registered on June 16, 1978 in the name of the spouses Yap under TCT Nos. 148983-R, 148984-R and 148985-R, with an annotation of a levy on attachment in favor of Capitol Allied Trading. The LRC Resolution No. 1029 allowing the conditioned registration of the subject lots in the name of the spouses Yap was also annotated on TCT No. 4315 on June 16, 1978 and the notice of a pending consulta noted thereon on August 18, 1975 was cancelled on the same date. No Trial on the merits was held concerning Civil Case No. 4310. In an order dated February 17, 1983, the case was dismissed without prejudice.
Despite the foregoing, defendant-appellee Pea remained in possession of the lots in question hence, the spouses Yap were prompted to file the instant case. 1

The antecedents of the present petition are as follows: Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the registered owners of the lots in question under Transfer Certificate of Title (TCT) Nos. 148983-R, 148984-R, 148985-R. In the complaint filed on December 15, 1978, appellants sought to recover possession over the subject lands from defendants Rosita Pea and Washington Distillery on the ground that being registered owners, they have to enforce their right to possession against defendants who have been allegedly in unlawful possession thereof since October 1974 "when the previous owners assigned (their) right to collect rentals . . . in favor of plaintiffs" (Record, p. 5). The amount claimed as damages is pegged on the total amount of unpaid rentals from October 1974 (as taken from the allegations in the complaint) up to December 1978 at a monthly rate of P1,500.00 'and the further sum of P2,000.00 a month from January 1979 until the defendants finally vacate the . . . premises in question with interest at the legal rate (Record, p. 61). In their answer, defendants Rosita Pea and Washington Distillery denied the material allegations of the complaint and by way of an affirmative and special defense asserted that Pea is now the legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the DBP . . . against PAMBUSCO . . . and no valid redemption having been effected within the period provided by law. It was contended that plaintiffs could not have acquired ownership over the subject properties under a deed of absolute sale executed in their favor by one Marcelino B. Enriquez who likewise could not have become [the] owner of the properties in question by redeeming the same on August 18, 1975 (Exh. 26) under an alleged[ly] void deed of assignment executed in his favor on March 18, 1975 by the original owners of the land in question, the PAMBUSCO. The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was void ab initiofor being an ultra vires act of its board of directors and, for being

without any valuable consideration, it could not have had any legal effect; hence, all the acts which flowed from it and all the rights and obligations which derived from the aforesaid void deed are likewise void and without any legal effect. Further, it was alleged in the same Answer that plaintiffs are buyers in bad faith because they have caused the titles of the subject properties with the Register of Deeds to be issued in their names despite an order from the then CFI, Br. III, Pampanga in Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc., et al., to desist from registering or noting in his registry of property . . . any of the above-mentioned documents under contest, until further orders. (Record, p. 11). For its part, defendant Washington Distillery stated that it has never occupied the subject lots hence they should not have been impleaded in the complaint. The defendants, therefore, prayed that the complaint be dismissed; that the deed of assignment executed in favor of Marcelino Enriquez, the certificate of redemption issued by the Provincial Sheriff also in favor of Marcelino Enriquez, and the deed of sale of these parcels of land executed by Marcelino Enriquez in favor of the plaintiffs herein be all declared null and void; and further, that TCT Nos. 148983-R, 148984-R and 148985-R, covering these parcels issued in the plaintiffs name be cancelled and, in lieu thereof, corresponding certificates of title over these same parcels be issued in the name of defendant Rosita Pea. Thereafter, the defendants with prior leave of court filed a third-party complaint thirdparty defendants PAMBUSCO, Jesus Domingo, Joaquin Briones, Salvador Bernardez (as members of the Board of Directors of PAMBUSCO), Marcelino Enriquez, and Deputy Sheriff Edgardo Zabat of Pampanga. All these third-party defendants, how ever, were declared as in default for failure to file their answer, except Edgardo Zabat who did file his answer but failed to appear at the pre-trial. After trial, a decision was rendered by the court in favor of the defendants-appellees, to wit: WHEREFORE, and in view of all the foregoing, judgment is hereby rendered dismissing the complaint filed by the plaintiffs against the defendants and declaring as null and void the following: (a) The resolution of the Board of Directors of PAMBUSCO approved on November 19, 1974 assigning the PAMBUSCO's right of redemption concerning the parcels involved herein (b) The deed of assignment dated March 18, 1975 executed in favor of Marcelino Enriquez pursuant to the resolution referred to in the preceding paragraph; (c) The certificate of redemption dated August 15, 1975 issued by Deputy Sheriff Edgardo Zabat in favor of Marcelino Enriquez concerning these parcels;

(d) The deed of absolute sale dated August 15, 1975 executed by Marcelino Enriquez in favor of the plaintiffs concerning the same parcels and (e) TCT Nos. 148983-R, 148984-R and 148985-R of the Register of Deeds of Pampanga in the name of the plaintiffs also covering these parcels. Third-party defendant Edgardo Zabat, in his capacity as Deputy Sheriff of Pampanga is directed to execute in favor of defendant Rosita Pea the corresponding certificate of final sale involving the parcels bought by her in the auction sale of October 25, 1974 for which a certificate of sale had been issued to her.
Finally, the third-party defendants herein except Deputy Sheriff Edgardo Zabat are hereby ordered to pay the defendants/third party plaintiffs, jointly and severally, the amount of P10,000.00 as attorney's fees plus costs. 2

Thus, an appeal from said judgment of the trial court was interposed by private respondents to the Court of Appeals wherein in due course a decision was rendered on June 20, 1989, the dispositive part of which reads as follows: WHEREFORE, premises considered, the judgment of the trial court on appeal is REVERSED. Defendant-appellee Pea is hereby ordered to vacate the lands in question and pay the plaintiffs-appellants the accrued rentals from October, 1974 in the amount of P1,500.00 per month up to December, 1978 and the amount of P2,000.00 per month thereafter, until appellee finally vacate (sic) the premises with interest at the legal rate.
SO ORDERED. 3

A motion for reconsideration filed by the appellee was denied in a resolution dated December 27, 1989. Hence, this petition for review on certiorari of said decision and resolution of the appellate court predicated on the following assigned errors: First Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT HAD NO JURISDICTION TO RULE ON THE VALIDITY OF THE QUESTIONED RESOLUTION AND TRANSFERS. Second Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO LEGAL STANDING TO ASSAIL THE VALIDITY OF THE QUESTIONED RESOLUTION AND THE SERIES OF SUCCEEDING TRANSACTIONS LEADING TO THE REGISTRATION OF THE SUBJECT PROPERTIES IN FAVOR OF THE RESPONDENTS YAP.

Third Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE RESOLUTION OF RESPONDENT PAMBUSCO, ADOPTED ON 19 NOVEMBER 1974, ASSIGNING ITS RIGHT OF REDEMPTION IS NOT VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE. Fourth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT, DATED 8 MARCH 1975, IN FAVOR OF RESPONDENT ENRIQUEZ IS NOT VOID OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE. Fifth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE QUESTIONED DEED OF ASSIGNMENT, DATED 8 MARCH 1975, WAS VOID AB INITIO FOR FAILING TO COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED UNDER THE LAW FOR DONATIONS. Sixth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS YAP ARE PURCHASERS IN GOOD FAITH AND IN FURTHER HOLDING THAT IT WAS TOO LATE FOR PETITIONER TO INTERPOSE THE ISSUE THAT RESPONDENTS YAP WERE PURCHASERS IN BAD FAITH. Seventh Assignment of Error
THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT.4

The petition is impressed with merit. First, the preliminary issues. The respondent court ruled that the trial court has no jurisdiction to annul the board resolution as the matter falls within the jurisdiction of the Securities and Exchange Commission (SEC) and that petitioner did not have the proper standing to have the same declared null and void. In Philex Mining Corporation vs. Reyes, 5 this Court held that it is the fact of relationship between the parties that determines the proper and exclusive jurisdiction of the SEC to hear and decide intracorporate disputes; that unless the controversy has arisen between and among stockholders of the corporation, or between the stockholders and the officers of the corporation, then the case is not within the jurisdiction of the SEC. Where the issue involves a party who is neither a stockholder or officer of the corporation, the same is not within the jurisdiction of the SEC. In Union Glass & Container Corporation vs. Securities and Exchange Commission, 6 this Court defined the relationships which are covered within "intra-corporate disputes" under Presidential Decree No. 902-A, as amended, as follows:

Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates themselves. In this case, neither petitioner nor respondents Yap spouses are stockholders or officers of PAMBUSCO. Consequently, the issue of the validity of the series of transactions resulting in the subject properties being registered in the names of respondents Yap may be resolved only by the regular courts. Respondent court held that petitioner being a stranger to the questioned resolution and series of succeeding transactions has no legal standing to question their validity. In Teves vs. People's Homesite and Housing Corporation, 7 this Court held: We note however, in reading the complaint that the plaintiff is seeking the declaration of the nullity of the deed of sale, not as a party in the deed, or because she is obliged principally or subsidiarily under the deed, but because she has an interest that is affected by the deed. This Court has held that a person who is not a party obliged principally or subsidiarily in a contract may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show the detriment which would positively result to him from the contract in which he had no intervention, Indeed, in the case now before Us, the complaint alleges facts which show that plaintiff suffered detriment as a result of the deed of sale entered into by and between defendant PHHC and defendant Melisenda L. Santos. We believe that the plaintiff should be given a chance to present evidence to establish that she suffered detriment and that she is entitled to relief. (Emphasis supplied.) There can be no question in this case that the questioned resolution and series of transactions resulting in the registration of the properties in the name of respondent Yap spouses adversely affected the rights of petitioner to the said properties. Consequently, petitioner has the legal standing to question the validity of said resolution and transactions. As to the question of validity of the board resolution of respondent PAMBUSCO adopted on November 19, 1974, Section 4, Article III of the amended by-laws of respondent PAMBUSCO, provides as follows:
Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed to each Director not less than five days before any such meeting, and notices of special meeting shall state the purpose or purposes thereof Notices of regular meetings shall be sent by the Secretary and notices of special meetings by the President or Directors issuing the call. No failure or irregularity of notice of meeting shall invalidate any regular meeting or proceeding thereat; Provided a quorum of the Board is present, nor of any special meeting;Provided at least four Directors are present. (Emphasis supplied.) 8

The trial court in finding the resolution void held as follows:

On the other hand, this Court finds merit in the position taken by the defendants that the questioned resolution should be declared invalid it having been approved in a meeting attended by only 3 of the 5 members of the Board of Directors of PAMBUSCO which attendance is short of the number required by the by-laws of the corporation. xxx xxx xxx In the meeting of November 19, 1974 when the questioned resolution was approved, the three members of the Board of Directors of PAMBUSCO who were present were Jesus Domingo, Joaquin Briones, and Salvador Bernardez The remaining 2 others, namely: Judge Pio Marcos and Alfredo Mamuyac were both absent therefrom.
As it becomes clear that the resolution approved on November 19, 1974 is null and void it having been approved by only 3 of the members of the Board of Directors who were the only ones present at the said meeting, the deed of assignment subsequently executed in favor of Marcelino Enriquez pursuant to this resolution also becomes null and void. . . . 9

However, the respondent court overturning said legal conclusions of the trial court made the following disquisition: It should be noted that the provision in Section 4, Article III of PAMBUSCO's amended by-laws would apply only in case of a failure to notify the members of the board of directors on the holding of a special meeting, . . . . In the instant case, however, there was no proof whatsoever, either by way of documentary or testimonial evidence, that there was such a failure or irregularity of notice as to make the aforecited provision apply. There was not even such an allegation in the Answer that should have necessitated a proof thereof. The fact alone that only three (3) out of five (5) members of the board of directors attended the subject special meeting, was not enough to declare the aforesaid proceeding void ab initio, much less the board resolution borne out of it, when there was no proof of irregularity nor failure of notice and when the defense made in the Answer did not touch upon the said failure of attendance. Therefore, the judgment declaring the nullity of the subject board resolution must be set aside for lack of proof.
Moreover, there is no categorical declaration in the by-laws that a failure to comply with the attendance requirement in a special meeting should make all the acts of the board therein null and void ab initio. A cursory reading of the subject provision, as aforequoted, would show that its framers only intended to make voidable a board meeting held without the necessary compliance with the attendance requirement in the by-laws. Just the use of the word "invalidate" already denotes a legal imputation of validity to the questioned board meeting absent its invalidation in the proceedings prescribed by the corporation's by-laws and/or the general incorporation law. More significantly, it should be noted that even if the subject special meeting is itself declared void, it does not follow that the acts of the board therein are ipso facto void and without any legal effect. Without the declaration of nullity of the subject board proceedings, its validity should be maintained and the acts borne out of it should be presumed valid. Considering that the subject special board meeting has not been declared void in a proper proceeding, nor even in the trial by the court below, there is no reason why the acts of the board in the said special meeting should be treated as void AB. initio. . . . 10

The Court disagrees.

The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in effect, written, into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its directors and officers must comply. 11 Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened on November 19, 1974 by virtue of a prior notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO. Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation may fix a greater number than the majority of the number of board members to constitute the quorum necessary for the valid transaction of business. Any number less than the number provided in the articles or by-laws therein cannot constitute a quorum and any act therein would not bind the corporation; all that the attending directors could do is to adjourn. 12 Moreover, the records show that respondent PAMBUSCO ceased to operate as of November 15, 1949 as evidenced by a letter of the SEC to said corporation dated April 17, 1980. 13 Being a dormant corporation for several years, it was highly irregular, if not anomalous, for a group of three (3) individuals representing themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only remaining asset of the corporation in favor of a former corporate officer. As a matter of fact, the three (3) alleged directors who attended the special meeting on November 19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general information sheet of respondent PAMBUSCO filed with the SEC dated 18 March 1951. 14 Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the SEC does not show that the said alleged directors were among the stockholders of respondent PAMBUSCO. 15 Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share in their own right may qualify to be directors of a corporation. Further, under Section 28 1/2 of the said law, the sale or disposition of an and/or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. The same requirement is found in Section 40 of the present Corporation Code. It is also undisputed that at the time of the passage of the questioned resolution, respondent PAMBUSCO was insolvent and its only remaining asset was its right of redemption over the subject properties. Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the questioned resolution was not approved by the required number of stockholders under the law, the said resolution, as well as the subsequent assignment executed on March 8, 1975 assigning to respondent Enriquez the said right of redemption, should be struck down as null and void. Respondent court, in upholding the questioned deed of assignment, which appears to be without any consideration at all, held that the consideration thereof is the liberality of the respondent PAMBUSCO in favor of its former corporate officer, respondent Enriquez, for services rendered. Assuming this to be so, then as correctly argued by petitioner, it is not just an ordinary deed of assignment, but is in fact a donation. Under Article 725 of the Civil Code, in order to be valid, such a

donation must be made in a public document and the acceptance must be made in the same or in a separate instrument. In the latter case, the donor shall be notified of the acceptance in an authentic form and such step must be noted in both instruments. 16 Non-compliance with this requirement renders the donation null and void. 17 Since undeniably the deed of assignment dated March 8, 1975 in question, 18 shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assignment is thus void ab initio and of no force and effect. WHEREFORE, the petition is GRANTED. The questioned decision of the respondent Court of Appeals dated June 20, 1989 and its resolution dated December 27, 1989 are hereby REVERSED AND SET ASIDE and another judgment is hereby rendered AFFIRMING in toto the decision of the trial court. SO ORDERED. Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

Footnotes 1 Pages 38 to 40, Rollo. 2 Pages 35 to 38, Rollo. 3 Page 52, Rollo. 4 Pages 12 to 13, Rollo. 5 118 SCRA 602 (1982). 6 126 SCRA 31, 38 (1983). 7 23 SCRA 1141, 1147 (1968). 8 Exhibit "4-A". 9 Pages 92 to 93, Rollo. 10 Pages 44 to 45, Rollo. 11 8 Fletcher cyclopedia of the Law of Private Corporations, Perm, Ed., pages 750 to 751. 12 Citing Ballantine, page 130. 13 Exihibit 19. 14 Exhibit 7.

15 Exhibit 8. 16 Article 749, Civil Code. 17 Uzon vs. Del Rosario, et al., L-4963, January 28, 1953 92 Phil 530; Aldaba vs. Court of Appeals, 27 SCRA 263 (1969). 18 Exhibit 25.

EN BANC

[G.R. No. 141735. June 8, 2005]

SAPPARI K. SAWADJAAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, THE CIVIL SERVICE COMMISSION and ALAMANAH INVESTMENT BANK OF THE PHILIPPINES, respondents. DECISION
CHICO-NAZARIO, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court of the Decision[1] of the Court of Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil Service Commission (CSC) dated 11 August 1994 and 11 April 1995, respectively, which in turn affirmed Resolution No. 2309 of the Board of Directors of the Al-Amanah Islamic Investment Bank of the Philippines (AIIBP) dated 13 December 1993, finding petitioner guilty of Dishonesty in the Performance of Official Duties and/or Conduct Prejudicial to the Best Interest of the Service and dismissing him from the service, and its Resolution[2] of 15 December 1999 dismissing petitioners Motion for Reconsideration. The records show that petitioner Sappari K. Sawadjaan was among the first employees of the Philippine Amanah Bank (PAB) when it was created by virtue of Presidential Decree No. 264 on 02 August 1973. He rose through the ranks, working his way up from his initial designation as security guard, to settling clerk, bookkeeper, credit investigator, project analyst, appraiser/ inspector, and eventually, loans analyst.[3] In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned to inspect the properties offered as collaterals by Compressed Air Machineries and Equipment Corporation (CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). The properties consisted of two parcels of land covered by Transfer Certificates of Title (TCTs) No. N-130671 and No. C-52576. On the basis of his Inspection and Appraisal Report,[4] the PAB granted the loan application. When the loan matured on 17 May 1989, CAMEC requested an extension of 180 days, but was granted only 120 days to repay the loan.[5] In the meantime, Sawadjaan was promoted to Loans Analyst I on 01 July 1989.[6] In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing P.D. No. 264 (which created the PAB). All assets, liabilities and capital accounts of the PAB were transferred to the AIIBP,[7] and the existing personnel of the PAB were to continue to discharge their functions unless discharged.[8] In the ensuing reorganization, Sawadjaan was among the personnel retained by the AIIBP.

When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP, discovered that TCT No. N-130671 was spurious, the property described therein non-existent, and that the property covered by TCT No. C-52576 had a prior existing mortgage in favor of one Divina Pablico. On 08 June 1993, the Board of Directors of the AIIBP created an Investigating Committee to look into the CAMEC transaction, which had cost the bank Six Million Pesos (P6,000,000.00) in losses.[9] The subsequent events, as found and decided upon by the Court of Appeals,[10] are as follows:

On 18 June 1993, petitioner received a memorandum from Islamic Bank [AIIBP] Chairman Roberto F. De Ocampo charging him with Dishonesty in the Performance of Official Duties and/or Conduct Prejudicial to the Best Interest of the Service and preventively suspending him. In his memorandum dated 8 September 1993, petitioner informed the Investigating Committee that he could not submit himself to the jurisdiction of the Committee because of its alleged partiality. For his failure to appear before the hearing set on 17 September 1993, after the hearing of 13 September 1993 was postponed due to the Manifestation of even date filed by petitioner, the Investigating Committee declared petitioner in default and the prosecution was allowed to present its evidence ex parte. On 08 December 1993, the Investigating Committee rendered a decision, the pertinent portions of which reads as follows: In view of respondent SAWADJAANS abject failure to perform his duties and assigned tasks as appraiser/inspector, which resulted to the prejudice and substantial damage to the Bank, respondent should be held liable therefore. At this juncture, however, the Investigating Committee is of the considered opinion that he could not be held liable for the administrative offense of dishonesty considering the fact that no evidence was adduced to show that he profited or benefited from being remiss in the performance of his duties. The record is bereft of any evidence which would show that he received any amount in consideration for his non-performance of his official duties. This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to perform his official duties resulted to the prejudice and substantial damage to the Islamic Bank for which he should be held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE SERVICE. Premises considered, the Investigating Committee recommends that respondent SAPPARI SAWADJAAN be meted the penalty of SIX (6) MONTHS and ONE (1)

DAY SUSPENSION from office in accordance with the Civil Service Commissions Memorandum Circular No. 30, Series of 1989. On 13 December 1993, the Board of Directors of the Islamic Bank [AIIBP] adopted Resolution No. 2309 finding petitioner guilty of Dishonesty in the Performance of Official Duties and/or Conduct Prejudicial to the Best Interest of the Service and imposing the penalty of Dismissal from the Service. On reconsideration, the Board of Directors of the Islamic Bank [AIIBP] adopted the Resolution No. 2332 on 20 February 1994 reducing the penalty imposed on petitioner from dismissal to suspension for a period of six (6) months and one (1) day. On 29 March 1994, petitioner filed a notice of appeal to the Merit System Protection Board (MSPB). On 11 August 1994, the CSC adopted Resolution No. 94-4483 dismissing the appeal for lack of merit and affirming Resolution No. 2309 dated 13 December 1993 of the Board of Directors of Islamic Bank. On 11 April 1995, the CSC adopted Resolution No. 95-2574 denying petitioners Motion for Reconsideration. On 16 June 1995, the instant petition was filed with the Honorable Supreme Court on the following assignment of errors: I. Public respondent Al-Amanah Islamic Investment Bank of the Philippines has committed a grave abuse of discretion amounting to excess or lack of jurisdiction when it initiated and conducted administrative investigation without a validly promulgated rules of procedure in the adjudication of administrative cases at the Islamic Bank. II. Public respondent Civil Service Commission has committed a grave abuse of discretion amounting to lack of jurisdiction when it prematurely and falsely assumed jurisdiction of the case not appealed to it, but to the Merit System Protection Board. III. Both the Islamic Bank and the Civil Service Commission erred in finding petitioner Sawadjaan of having deliberately reporting false information and therefore guilty of Dishonesty and Conduct Prejudicial to the Best Interest of the Service and penalized with dismissal from the service.

On 04 July 1995, the Honorable Supreme Court En Banc referred this petition to this Honorable Court pursuant to Revised Administrative Circular No. 1-95, which took effect on 01 June 1995. We do not find merit [in] the petition. Anent the first assignment of error, a reading of the records would reveal that petitioner raises for the first time the alleged failure of the Islamic Bank [AIIBP] to promulgate rules of procedure governing the adjudication and disposition of administrative cases involving its personnel. It is a rule that issues not properly brought and ventilated below may not be raised for the first time on appeal, save in exceptional circumstances (Casolita, Sr. v. Court of Appeals, 275 SCRA 257) none of which, however, obtain in this case. Granting arguendo that the issue is of such exceptional character that the Court may take cognizance of the same, still, it must fail. Section 26 of Republic Act No. 6848 (1990) provides: Section 26. Powers of the Board. The Board of Directors shall have the broadest powers to manage the Islamic Bank, x x x The Board shall adopt policy guidelines necessary to carry out effectively the provisions of this Charter as well as internal rules and regulations necessary for the conduct of its Islamic banking business and all matters related to personnel organization, office functions and salary administration. (Italics ours) On the other hand, Item No. 2 of Executive Order No. 26 (1992) entitled Prescribing Procedure and Sanctions to Ensure Speedy Disposition of Administrative Cases directs, all administrative agencies to adopt and include in their respective Rules of Procedure provisions designed to abbreviate administrative proceedings. The above two (2) provisions relied upon by petitioner does not require the Islamic Bank [AIIBP] to promulgate rules of procedure before administrative discipline may be imposed upon its employees. The internal rules of procedures ordained to be adopted by the Board refers to that necessary for the conduct of its Islamic banking business and all matters related to personnel organization, office functions and salary administration. On the contrary, Section 26 of RA 6848 gives the Board of Directors of the Islamic Bank the broadest powers to manage the Islamic Bank. This grant of broad powers would be an idle ceremony if it would be powerless to discipline its employees. The second assignment of error must likewise fail. The issue is raised for the first time via this petition for certiorari. Petitioner submitted himself to the jurisdiction of the CSC. Although he could have raised the alleged lack of jurisdiction in his Motion for Reconsideration of Resolution No. 94-4483 of the CSC, he did not do so. By

filing the Motion for Reconsideration, he is estopped from denying the CSCs jurisdiction over him, as it is settled rule that a party who asks for an affirmative relief cannot later on impugn the action of the tribunal as without jurisdiction after an adverse result was meted to him. Although jurisdiction over the subject matter of a case may be objected to at any stage of the proceedings even on appeal, this particular rule, however, means that jurisdictional issues in a case can be raised only during the proceedings in said case and during the appeal of said case (Aragon v. Court of Appeals, 270 SCRA 603). The case at bar is a petition [for] certiorari and not an appeal. But even on the merits the argument must falter. Item No. 1 of CSC Resolution No. 93-2387 dated 29 June 1993, provides: Decisions in administrative cases involving officials and employees of the civil service appealable to the Commission pursuant to Section 47 of Book V of the Code (i.e., Administrative Code of 1987) including personnel actions such as contested appointments shall now be appealed directly to the Commission and not to the MSPB. In Rubenecia v. Civil Service Commission, 244 SCRA 640, 651, it was categorically held: . . . The functions of the MSPB relating to the determination of administrative disciplinary cases were, in other words, re-allocated to the Commission itself. Be that as it may, (i)t is hornbook doctrine that in order `(t)o ascertain whether a court (in this case, administrative agency) has jurisdiction or not, the provisions of the law should be inquired into. Furthermore, `the jurisdiction of the court must appear clearly from the statute law or it will not be held to exist.(Azarcon v. Sandiganbayan, 268 SCRA 747, 757) From the provision of law abovecited, the Civil Service Commission clearly has jurisdiction over the Administrative Case against petitioner. Anent the third assignment of error, we likewise do not find merit in petitioners proposition that he should not be liable, as in the first place, he was not qualified to perform the functions of appraiser/investigator because he lacked the necessary training and expertise, and therefore, should not have been found dishonest by the Board of Directors of Islamic Bank [AIIBP] and the CSC. Petitioner himself admits that the position of appraiser/inspector is one of the most serious [and] sensitive job in the banking operations. He should have been aware that accepting such a designation, he is obliged to perform the task at hand by the exercise of more than ordinary prudence. As appraiser/investigator, he is expected, among others, to check the authenticity of the documents presented by the borrower by comparing them with

the originals on file with the proper government office. He should have made it sure that the technical descriptions in the location plan on file with the Bureau of Lands of Marikina, jibe with that indicated in the TCT of the collateral offered by CAMEC, and that the mortgage in favor of the Islamic Bank was duly annotated at the back of the copy of the TCT kept by the Register of Deeds of Marikina. This, petitioner failed to do, for which he must be held liable. That he did not profit from his false report is of no moment. Neither the fact that it was not deliberate or willful, detracts from the nature of the act as dishonest. What is apparent is he stated something to be a fact, when he really was not sure that it was so. WHEREFORE, above premises considered, the instant Petition is DISMISSED, and the assailed Resolutions of the Civil Service Commission are hereby AFFIRMED.
On 24 March 1999, Sawadjaans counsel notified the court a quo of his change of address,[11] but apparently neglected to notify his client of this fact. Thus, on 23 July 1999, Sawadjaan, by himself, filed a Motion for New Trial[12] in the Court of Appeals based on the following grounds: fraud, accident, mistake or excusable negligence and newly discovered evidence. He claimed that he had recently discovered that at the time his employment was terminated, the AIIBP had not yet adopted its corporate by-laws. He attached a Certification[13] by the Securities and Exchange Commission (SEC) that it was only on 27 May 1992 that the AIIBP submitted its draft by-laws to the SEC, and that its registration was being held in abeyance pending certain corrections being made thereon. Sawadjaan argued that since the AIIBP failed to file its by-laws within 60 days from the passage of Rep. Act No. 6848, as required by Sec. 51 of the said law, the bank and its stockholders had already forfeited its franchise or charter, including its license to exist and operate as a corporation,[14] and thus no longer have the legal standing and personality to initiate an administrative case. Sawadjaans counsel subsequently adopted his motion, but requested that it be treated as a motion for reconsideration.[15] This motion was denied by the court a quo in its Resolution of 15 December 1999.[16] Still disheartened, Sawadjaan filed the present petition for certiorari under Rule 65 of the Rules of Court challenging the above Decision and Resolution of the Court of Appeals on the ground that the court a quo erred: i) in ignoring the facts and evidences that the alleged Islamic Bank has no valid by-laws; ii) in ignoring the facts and evidences that the Islamic Bank lost its juridical personality as a corporation on 16 April 1990; iii) in ignoring the facts and evidences that the alleged Islamic Bank and its alleged Board of Directors have no jurisdiction to act in the manner they did in the absence of a valid by-laws; iv) in not correcting the acts of the Civil Service Commission who erroneously rendered the assailed Resolutions No. 94-4483 and No. 95-2754 as a result of fraud, falsification and/or misrepresentations committed by Farouk A. Carpizo and his group, including Roberto F. de Ocampo; v) in affirming an unconscionably harsh and/or excessive penalty; and vi) in failing to consider newly discovered evidence and reverse its decision accordingly.

Subsequently, petitioner Sawadjaan filed an Ex-parte Urgent Motion for Additional Extension of Time to File a Reply (to the Comments of Respondent Al-Amanah Investment Bank of the Philippines),[17] Reply (to Respondents Consolidated Comment,)[18] and Reply (to the Alleged Comments of Respondent Al-Amanah Islamic Bank of the Philippines).[19] On 13 October 2000, he informed this Court that he had terminated his lawyers services, and, by himself, prepared and filed the following: 1) Motion for New Trial;[20] 2) Motion to Declare Respondents in Default and/or Having Waived their Rights to Interpose Objection to Petitioners Motion for New Trial;[21] 3) ExParte Urgent Motions to Punish Attorneys Amado D. Valdez, Elpidio J. Vega, Alda G. Reyes, Dominador R. Isidoro, Jr., and Odilon A. Diaz for Being in Contempt of Court & to Inhibit them from Appearing in this Case Until they Can Present Valid Evidence of Opposition/Reply (to Respondent AIIBPs Alleged Legal Authority;[22] 4) [23] Comment); 5) Ex-Parte Urgent Motion to Punish Atty. Reynaldo A. Pineda for Contempt of Court and the Issuance of a Commitment Order/Warrant for His Arrest;[24] 6) Reply/Opposition (To the Formal Notice of Withdrawal of Undersigned Counsel as Legal Counsel for the Respondent Islamic Bank with Opposition to Petitioners Motion to Punish Undersigned Counsel for Contempt of Court for the Issuance of a Warrant of Arrest);[25] 7) Memorandum for Petitioner;[26] 8) Opposition to SolGens Motion for Clarification with Motion for Default and/or Waiver of Respondents to File their Memorandum;[27] 9) Motion for Contempt of Court and Inhibition/Disqualification with Opposition to OGCCs Motion for Extension of Time to File Memorandum;[28] 10) Motion for Enforcement (In Defense of the Rule of Law);[29] 11) Motion and Opposition (Motion to Punish OGCCs Attorneys Amado D. Valdez, Efren B. Gonzales, Alda G. Reyes, Odilon A. Diaz and Dominador R. Isidoro, Jr., for Contempt of Court and the Issuance of a Warrant for their Arrest; and Opposition to their Alleged Manifestation and Motion Dated February 5, 2002);[30] 12) Motion for Reconsideration of Item (a) of Resolution dated 5 February 2002 with Supplemental Motion for Contempt of Court;[31] 13) Motion for Reconsideration of Portion of Resolution Dated 12 March 2002;[32] 14) Ex-Parte Urgent Motion for Extension of Time to File Reply Memorandum (To: CSC and AIIBPs Memorandum);[33] 15) Reply Memorandum (To: CSCs Memorandum) With Ex-Parte Urgent Motion for Additional Extension of time to File Reply Memorandum (To: AIIBPs Memorandum);[34]and 16) Reply Memorandum (To: OGCCs Memorandum for Respondent AIIBP).[35] Petitioners efforts are unavailing, and we deny his petition for its procedural and substantive flaws. The general rule is that the remedy to obtain reversal or modification of the judgment on the merits is appeal. This is true even if the error, or one of the errors, ascribed to the court rendering the judgment is its lack of jurisdiction over the subject matter, or the exercise of power in excess thereof, or grave abuse of discretion in the findings of fact or of law set out in the decision.[36] The records show that petitioners counsel received the Resolution of the Court of Appeals denying his motion for reconsideration on 27 December 1999. The fifteen day reglamentary period to appeal under Rule 45 of the Rules of Court therefore lapsed on 11 January 2000. On 23 February 2000, over a month after receipt of the resolution

denying his motion for reconsideration, the petitioner filed his petition for certiorari under Rule 65. It is settled that a special civil action for certiorari will not lie as a substitute for the lost remedy of appeal,[37] and though there are instances[38] where the extraordinary remedy of certiorarimay be resorted to despite the availability of an appeal,[39] we find no special reasons for making out an exception in this case. Even if we were to overlook this fact in the broader interests of justice and treat this as a special civil action for certiorari under Rule 65,[40] the petition would nevertheless be dismissed for failure of the petitioner to show grave abuse of discretion. Petitioners recurrent argument, tenuous at its very best, is premised on the fact that since respondent AIIBP failed to file its by-laws within the designated 60 days from the effectivity of Rep. Act No. 6848, all proceedings initiated by AIIBP and all actions resulting therefrom are a patent nullity. Or, in his words, the AIIBP and its officers and Board of Directors,

. . . [H]ave no legal authority nor jurisdiction to manage much less operate the Islamic Bank, file administrative charges and investigate petitioner in the manner they did and allegedly passed Board Resolution No. 2309 on December 13, 1993 which is null and void for lack of an (sic) authorized and valid by-laws. The CIVIL SERVICE COMMISSION was therefore affirming, erroneously, a null and void Resolution No. 2309 dated December 13, 1993 of the Board of Directors of Al-Amanah Islamic Investment Bank of the Philippines in CSC Resolution No. 94-4483 dated August 11, 1994. A motion for reconsideration thereof was denied by the CSC in its Resolution No. 95-2754 dated April 11, 1995. Both acts/resolutions of the CSC are erroneous, resulting from fraud, falsifications and misrepresentations of the alleged Chairman and CEO Roberto F. de Ocampo and the alleged Director Farouk A. Carpizo and his group at the alleged Islamic Bank.
[41]

Nowhere in petitioners voluminous pleadings is there a showing that the court a quo committed grave abuse of discretion amounting to lack or excess of jurisdiction reversible by a petition for certiorari. Petitioner already raised the question of AIIBPs corporate existence and lack of jurisdiction in his Motion for New Trial/Motion for Reconsideration of 27 May 1997 and was denied by the Court of Appeals. Despite the volume of pleadings he has submitted thus far, he has added nothing substantial to his arguments. The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here represented by the Office of the Government Corporate Counsel, the principal law office of government-owned corporations, one of which is respondent bank.[42] At the very least, by its failure to submit its by-laws on time, the AIIBP may be considered a de facto corporation[43] whose right to exercise corporate powers may not be inquired into collaterally in any private suit to which such corporations may be a party.[44]

Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration of Corporations,[45] details the procedures and remedies that may be availed of before an order of revocation can be issued. There is no showing that such a procedure has been initiated in this case. In any case, petitioners argument is irrelevant because this case is not a corporate controversy, but a labor dispute; and it is an employers basic right to freely select or discharge its employees, if only as a measure of self-protection against acts inimical to its interest.[46] Regardless of whether AIIBP is a corporation, a partnership, a sole proprietorship, or a sari-sari store, it is an undisputed fact that AIIBP is the petitioners employer. AIIBP chose to retain his services during its reorganization, controlled the means and methods by which his work was to be performed, paid his wages, and, eventually, terminated his services.[47] And though he has had ample opportunity to do so, the petitioner has not alleged that he is anything other than an employee of AIIBP. He has neither claimed, nor shown, that he is a stockholder or an officer of the corporation. Having accepted employment from AIIBP, and rendered his services to the said bank, received his salary, and accepted the promotion given him, it is now too late in the day for petitioner to question its existence and its power to terminate his services. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.[48] Even if we were to consider the facts behind petitioner Sawadjaans dismissal from service, we would be hard pressed to find error in the decision of the AIIBP. As appraiser/investigator, the petitioner was expected to conduct an ocular inspection of the properties offered by CAMEC as collaterals and check the copies of the certificates of title against those on file with the Registry of Deeds. Not only did he fail to conduct these routine checks, but he also deliberately misrepresented in his appraisal report that after reviewing the documents and conducting a site inspection, he found the CAMEC loan application to be in order. Despite the number of pleadings he has filed, he has failed to offer an alternative explanation for his actions. When he was informed of the charges against him and directed to appear and present his side on the matter, the petitioner sent instead a memorandum questioning the fairness and impartiality of the members of the investigating committee and refusing to recognize their jurisdiction over him. Nevertheless, the investigating committee rescheduled the hearing to give the petitioner another chance, but he still refused to appear before it. Thereafter, witnesses were presented, and a decision was rendered finding him guilty of dishonesty and dismissing him from service. He sought a reconsideration of this decision and the same committee whose impartiality he questioned reduced their recommended penalty to suspension for six months and one day. The board of directors, however, opted to dismiss him from service.

On appeal to the CSC, the Commission found that Sawadjaans failure to perform his official duties greatly prejudiced the AIIBP, for which he should be held accountable. It held that:

. . . (I)t is crystal clear that respondent SAPPARI SAWADJAAN was remiss in the performance of his duties as appraiser/inspector. Had respondent performed his duties as appraiser/inspector, he could have easily noticed that the property located at Balintawak, Caloocan City covered by TCT No. C-52576 and which is one of the properties offered as collateral by CAMEC is encumbered to Divina Pablico. Had respondent reflected such fact in his appraisal/inspection report on said property the ISLAMIC BANK would not have approved CAMECs loan of P500,000.00 in 1987 and CAMECs P5 Million loan in 1988, respondent knowing fully well the Banks policy of not accepting encumbered properties as collateral. Respondent SAWADJAANs reprehensible act is further aggravated when he failed to check and verify from the Registry of Deeds of Marikina the authenticity of the property located at Mayamot, Antipolo, Rizal covered by TCT No. N-130671 and which is one of the properties offered as collateral by CAMEC for its P5 Million loan in 1988. If he only visited and verified with the Register of Deeds of Marikina the authenticity of TCT No. N-130671 he could have easily discovered that TCT No. N130671 is fake and the property described therein non-existent. ... This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to perform his official duties resulted to the prejudice and substantial damage to the ISLAMIC BANK for which he should be held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE SERVICE.
[49]

From the foregoing, we find that the CSC and the court a quo committed no grave abuse of discretion when they sustained Sawadjaans dismissal from service. Grave abuse of discretion implies such capricious and whimsical exercise of judgment as equivalent to lack of jurisdiction, or, in other words, where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.[50] The records show that the respondents did none of these; they acted in accordance with the law. WHEREFORE, the petition is DISMISSED. The Decision of the Court of Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil Service Commission, and its Resolution of 15 December 1999 are hereby AFFIRMED. Costs against the petitioner. SO ORDERED.

Davide, Jr., C.J., Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., Azcuna, Tinga, and Garcia, JJ.,concur. Puno, J., on official leave.

[1]

Docketed as CA-G.R. SP No. 37891; Penned by Associate Justice Romeo A. Brawner, with Associate Justices Angelina Sandoval-Gutierrez and Martin S. Villarama, Jr., concurring. Rollo, p. 37. Petitioners Service Record, Rollo, p. 61. Rollo, p. 64. Decision of the AIIBP Investigating Committee dated 3 December 1993, CA Rollo, p. 68. Petitioners Service Record, Rollo, p. 61. Sec. 48, Republic Act No. 6848. Sec. 49, Republic Act No. 6848. Decision of the AIIBP Investigating Committee dated 3 December 1993, CA Rollo, p. 48. Rollo, pp. 30-36. CA Rollo, p. 171. CA Rollo, pp. 175-193. Dated 19 October 1993, CA Rollo, pp. 196. CA Rollo, p. 194. CA Rollo, p. 200. CA Rollo, p. 205. Dated 15 June 2000, Rollo, pp. 140-143. Dated 1 June 2000, Rollo, pp. 144-166. Dated 1 July 2000, Rollo, pp. 168-197. Rollo, pp. 203-238. Dated 9 March 20001, Rollo, pp. 260-262. Dated 21 October 2001, Rollo pp. 287-293. Dated 27 October 2001, Rollo, pp. 294-313. Dated 18 October 2001, Rollo, pp. 314-318. Dated 4 December 2001, Rollo, pp. 325-339. Dated 7 January 2002, Rollo, pp. 349-381. Dated 20 January 2002, Rollo, pp. 382-388. Dated 23 January 2002, Rollo, pp. 389-400.

[2]

[3]

[4]

[5]

[6]

[7]

[8]

[9]

[10]

[11]

[12]

[13]

[14]

[15]

[16]

[17]

[18]

[19]

[20]

[21]

[22]

[23]

[24]

[25]

[26]

[27]

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Dated 05 February 2002,. Rollo, pp. 405-411. Dated 24 January 2002, Rollo, pp. 412-418. Dated 08 April 2002, Rollo, pp. 419-429. Dated 12 May 2002, Rollo, pp. 430-434. Dated 08 November 2002, Rollo, pp. 486-489. Dated 08 December 2002, Rollo, pp. 490-A-490-A-6. Dated 08 January 2003, Rollo, pp. 491-524. Heirs of Lourdes Potenciano Padilla v. Court of Appeals, G.R. No. 147205, 10 March 2004, 425 SCRA 236, citing MMDA v. JANCOM Environmental Corp., G.R. No. 147465, 30 January 2002, 375 SCRA 320. Paa v. Court of Appeals, G.R. No, 126560, 4 December 1997, 282 SCRA 448, citing Vda. De Espina v. Abaya, G.R. No. 45142, 26 April 1991, 196 SCRA 312, Sy v. Romero, G.R. No. 83580, 23 September 1992, 214 SCRA 187, Hipolito v. Court of Appeals, G.R. Nos. 108478-79, 21 February 1994, 230 SCRA 191, Fajardo v. Bautista, G.R. Nos. 102193-97, 10 May 1994, 232 SCRA 291, De la Paz v. Panis, G.R. No. 57023, 22 June 1995, 245 SCRA 242. When public welfare and the advancement of public policy dictates, or when the broader interests of justice so require, or when the writs issued are null, or when the questioned order amount to an oppressive exercise of judicial authority. Supra, Note No. 36, citing Ruiz, Jr. v. Court of Appeals, G.R. No. 101566, 26 March 1993, 220 SCRA 490. Ligon v. Court of Appeals, G.R. No. 127683, 7 August 1998, 294 SCRA 73. Petition for Certiorari, Rollo, pp. 22-23. Resolution dated 6 August 2002, Rollo, pp. 435-436. Hall v. Piccio, No. L-2598, 29 June 1950, 86 Phil 603. Sec. 20, Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines. XXVIII SEC Quarterly Bulletin 90 (No. 3, June 1994). Filipro, Incorporated v. National Labor Relations Commission, G.R. No. 70546, 16 October 1986, 145 SCRA 123. Brotherhood Labor Unity Movement of the Philippines v. Zamora, G.R. No. L-48645, 07 January 1987, 147 SCRA 49. Par. 2, Sec. 21, Batas Pambansa Blg. 68, The Corporation Code of the Philippines. CA Rollo, pp. 59-60. Bernaldez v. Francia, G.R. No. 143929, 28 February 2003, 398 SCRA 489; People v. Ebias, G.R. No. 127130, 12 October 2000, 342 SCRA 675; Esguerra v. Court of Appeals, G.R. No. 119310, 03 February 1997, 267 SCRA 380, 399-400.

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