Professional Documents
Culture Documents
March 8, 1996. 3
REYNALDO M. LOZANO, petitioner, vs.HON. ELIEZER R. DE LOS SANTOS,
Private respondent filed a petition for certiorari before the Regional Trial Court, Branch
Presiding Judge, RTC, Br. 58, Angeles City; and ANTONIO ANDA, respondents.
58, Angeles City. 4 The trial court found the dispute to be intracorporate, hence,
PUNO, J.:
subject to the jurisdiction of the SEC, and ordered the MCTC to dismiss Civil Case
No. 1214 accordingly. 5 It denied reconsideration on May 31, 1996. 6
This petition for certiorari seeks to annul and set aside the decision of the Regional
Trial Court, Branch 58, Angeles City which ordered the Municipal Circuit Trial Court,
Mabalacat and Magalang, Pampanga to dismiss Civil Case No. 1214 for lack of
jurisdiction.
The facts are undisputed. On December 19, 1995, petitioner Reynaldo M. Lozano
OF
filed Civil Case No. 1214 for damages against respondent Antonio Anda before the
LAW
IN
CONCLUDING
THAT
THE
SECURITIES
AND
EXCHANGE
Municipal Circuit Trial Court (MCTC), Mabalacat and Magalang, Pampanga. Petitioner
Drivers' Association, Inc. (KAMAJDA) while respondent Anda was the president of the
The jurisdiction of the Securities and Exchange Commission (SEC) is set forth in
Sec. 5. . . . [T]he Securities and Exchange Commission [has] original and exclusive
agreed to elect one set of officers who shall be given the sole authority to collect the
daily dues from the members of the consolidated association; elections were held on
October 29, 1995 and both petitioner and private respondent ran for president;
(a)
petitioner won; private respondent protested and, alleging fraud, refused to recognize
business
the results of the election; private respondent also refused to abide by their agreement
its
officers
or
partners,
amounting
to
fraud
and
misrepresentation which may be detrimental to the interest of the public and/or of the
and continued collecting the dues from the members of his association despite
several demands to desist. Petitioner was thus constrained to file the complaint to
Commission.
restrain private respondent from collecting the dues and to order him to pay damages
in the amount of P25,000.00 and attorney's fees of P500.00. 1
(b)
and among stockholders, members or associates; between any or all of them and the
Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming
that jurisdiction was lodged with the Securities and Exchange Commission (SEC).
entity.
respondent. The controversy between them arose out of their plan to consolidate their
respective jeepney drivers' and operators' associations into a single common
(c)
association. This unified association was, however, still a proposal. It had not been
approved by the SEC, neither had its officers and members submitted their articles of
consolidation is accordance with Sections 78 and 79 of the Corporation Code.
(d)
Consolidation becomes effective not upon mere agreement of the members but only
upon issuance of the certificate of consolidation by the SEC. 13 When the SEC, upon
association possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where the
makes the reorganization official. 14 The new consolidated corporation comes into
The grant of jurisdiction to the SEC must be viewed in the light of its nature and
The KAMAJDA and SAMAJODA to which petitioner and private respondent belong
are duly registered with the SEC, but these associations are two separate entities.
elements: (1) the status or relationship of the parties; and (2) the nature of the
The dispute between petitioner and private respondent is not within the KAMAJDA nor
The first element requires that the controversy must arise out of intracorporate or
have an intracorporate dispute. The SEC therefore has no jurisdiction over the
complaint.
between any or all of them and the corporation, partnership or association of which
they are stockholders, members or associates, respectively; and between such
individual franchises. 10 The second element requires that the dispute among the
diminished by, any act or omission of the parties, neither can it be conferred by the
association. 11 After all, the principal function of the SEC is the supervision and
control of corporations, partnership and associations with the end in view that
investments in these entities may be encouraged and protected, and their entities may
be encouraged and protected, and their activities pursued for the promotion of
and exercise corporate functions and enter into business relations with third person.
economic development. 12
Where there is no third person involved and the conflict arises only among those
assuming the form of a corporation, who therefore know that it has not been
IN VIEW WHEREOF, the petition is granted and the decision dated April 18, 1996 and
the order dated May 31, 1996 of the Regional Trial Court, Branch 58, Angeles City are
This prompted petitioner to file a civil case before the Regional Trial Court of Manila.
set aside. The Municipal Circuit Trial Court of Mabalacat and Magalang, Pampanga is
Petitioner sued Henri Kahn in his personal capacity and as President of the
ordered to proceed with dispatch in resolving Civil Case No. 1214. No costs.
SO ORDERED.
sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by
the Federation on the ground that Henri Kahn allegedly guaranteed the said
obligation.[6]
Henri Kahn filed his answer with counterclaim. While not denying the allegation that
the Federation owed the amount P207,524.20, representing the unpaid balance for
respondents.
the plane tickets, he averred that the petitioner has no cause of action against him
DECISION
KAPUNAN, J.:
either in his personal capacity or in his official capacity as president of the Federation.
On June 30 1989, petitioner International Express Travel and Tour Services, Inc.,
He maintained that he did not guarantee payment but merely acted as an agent of the
through its managing director, wrote a letter to the Philippine Football Federation
On the other hand, the Federation failed to file its answer, hence, was declared in
(Federation), through its president private respondent Henri Kahn, wherein the former
offered its services as a travel agency to the latter.[1] The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the
In due course, the trial court rendered judgment and ruled in favor of the petitioner
and declared Henri Kahn personally liable for the unpaid obligation of the Federation.
Federation to the South East Asian Games in Kuala Lumpur as well as various other
trips to the People's Republic of China and Brisbane. The total cost of the tickets
amounted to P449,654.83. For the tickets received, the Federation made two partial
payments, both in September of 1989, in the total amount of P176,467.50.[2]
Defendant Henri Kahn would have been correct in his contentions had it been duly
On 4 October 1989, petitioner wrote the Federation, through the private respondent a
neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving
demand letter requesting for the amount of P265,894.33.[3] On 30 October 1989, the
Federation, through the Project Gintong Alay, paid the amount of P31,603.00.[4]
association xxx." This has not been denied by defendant Henri Kahn in his Answer.
Being the President of defendant Federation, its corporate existence is within the
personal knowledge of defendant Henri Kahn. He could have easily denied
specifically the assertion of the plaintiff that it is a mere sports association, if it were a
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of
the Federation. It rationalized that since petitioner failed to prove that Henri Kahn
guaranteed the obligation of the Federation, he should not be held liable for the same
xxx
as said entity has a separate and distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that
enter into, or to ratify, a contract. The contract entered into by its officers or agents on
the Federation be held liable for the unpaid obligation. The same was denied by the
behalf of such association is not binding on, or enforceable against it. The officers or
in the dispositive portion thereof the Philippine Football Federation (PFF) as liable for
the unpaid obligation, it should be remembered that the trial court dismissed the
complaint against the Philippine Football Federation, and the plaintiff did not appeal
from this decision. Hence, the Philippine Football Federation is not a party to this
appeal and consequently, no judgment may be pronounced by this Court against the
plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate
PFF without violating the due process clause, let alone the fact that the judgment
computed from July 5, 1990, the date the complaint was filed, until the principal
dismissing the complaint against it, had already become final by virtue of the plaintiff's
obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the
Petitioner now seeks recourse to this Court and alleges that the respondent court
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21
December 1994, the respondent court rendered a decision reversing the trial court,
HENRI KAHN WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A
CORPORATE PERSONALITY.
REVERSED and SET ASIDE and another one is rendered dismissing the complaint
13. To perform such other acts as may be necessary for the proper accomplishment
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT
sports associations shall have the following functions, powers, and duties:
1. Adopt a Constitution and By-Laws for their internal organization and government
cited Republic Act 3135, otherwise known as the Revised Charter of the Philippine
which shall be submitted to the Department and any amendment thereto shall take
Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which
effect upon approval by the Department: Provided, however, That no team, school,
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604
2. Raise funds by donations, benefits, and other means for their purpose subject to
SEC. 14. Functions, powers and duties of Associations. - The National Sports'
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for
1. To adopt a constitution and by-laws for their internal organization and government;
4. Conduct local, interport, and international competitions, other than the Olympic and
Asian Games, for the promotion of their sport;
2. To raise funds by donations, benefits, and other means for their purposes.
5. Affiliate with international or regional sports associations after due consultation with
3. To purchase, sell, lease or otherwise encumber property both real and personal, for
the Department;
xxx
The above powers and functions granted to national sports associations clearly
indicate that these entities may acquire a juridical personality. The power to purchase,
sell, lease and encumber property are acts which may only be done by persons,
organization of the executive committee herein provided: Provided, further, That the
whether natural or artificial, with juridical capacity. However, while we agree with the
appellate court that national sports associations may be accorded corporate status,
the National Sports' Associations are formed and organized within six months from
such does not automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the
State must give its consent either in the form of a special law or a general enabling
act. We cannot agree with the view of the appellate court and the private respondent
that the Philippine Football Federation came into existence upon the passage of these
a national sports association for each individual sport in the Philippines shall be filed
laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the
with the Department together with, among others, a copy of the Constitution and By-
national sports associations and provided the manner by which these entities may
acquire juridical personality. Section 11 of R.A. 3135 provides:
The Department shall give the recognition applied for if it is satisfied that the national
sports association to be organized will promote the objectives of this Decree and has
substantially complied with the rules and regulations of the Department: Provided,
Association shall be organized for each individual sports in the Philippines in the
That the Department may withdraw accreditation or recognition for violation of this
Applications for recognition as a National Sports' Association shall be filed with the
executive committee together with, among others, a copy of the constitution and by-
The Department shall supervise the national sports association: Provided, That the
laws and a list of the members of the proposed association, and a filing fee of ten
latter shall have exclusive technical control over the development and promotion of the
pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that
Clearly the above cited provisions require that before an entity may be considered as
said association will promote the purposes of this Act and particularly section three
thereof. No application shall be held pending for more than three months after the
organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the
filing thereof without any action having been taken thereon by the executive
Department of Youth and Sports Development under P.D. 604. This fact of
committee. Should the application be rejected, the reasons for such rejection shall be
juridical existence of the Federation, Henri Kahn attached to his motion for
reasons for the rejection shall not affect the application which shall be considered as
reconsideration before the trial court a copy of the constitution and by-laws of the
unacted upon: Provided, however, That until the executive committee herein provided
Philippine Football Federation. Unfortunately, the same does not prove that said
shall have been formed, applications for recognition shall be passed upon by the duly
Federation has indeed been recognized and accredited by either the Philippine
Athletic Federation. The said executive committee shall be dissolved upon the
Accordingly, we rule that the Philippine Football Federation is not a national sports
association within the purview of the aforementioned laws and does not have
RESOLUTION
NACHURA, J.:
For resolution are the Motion for Reconsideration[1] filed by petitioner
Thus being said, it follows that private respondent Henry Kahn should be held liable
Associated Bank (now United Overseas Bank [Phils.]) and Motion for Leave to
Intervene[2] filed by Spouses Eduardo and Ma. Pilar Vaca (spouses Vaca).
settled principal in corporation law that any person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and
becomes personally liable for contract entered into or for other acts performed as
with its voluminous attachments, it is readily apparent that no new issues are raised
and the arguments presented are a mere rehash of what have been discussed in its
pleadings, all of which have been considered and found unmeritorious in the July 14,
subscribe to the position taken by the appellate court that even assuming that the
2008 Decision.[3]
Federation was defectively incorporated, the petitioner cannot deny the corporate
existence of the Federation because it had contracted and dealt with the Federation in
such a manner as to recognize and in effect admit its existence.[15] The doctrine of
modified the first one entered into by petitioner, through Atty. Jose Soluta, Jr. (Atty.
Soluta). In previously allowing Atty. Soluta to enter into the first letter-agreement
The application of the doctrine applies to a third party only when he tries to escape
without a board resolution expressly authorizing him, petitioner had clothed him with
liability on a contract from which he has benefited on the irrelevant ground of defective
incorporation.[16] In the case at bar, the petitioner is not trying to escape liability from
As early as June 1993, respondents already requested a modification of the
the contract but rather is the one claiming from the contract.
earlier agreement such that the full payment should be made upon receipt of this
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The
Courts decision confirming petitioners right to the subject property. Instead of acting
decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595
on the request, the Board of Directors deferred action on it. It was only after one year
is hereby REINSTATED.
and after the banks reorganization that the board rejected respondents request. We
cannot, therefore, blame respondents for believing that the second letter-agreement
signed by Atty. Soluta was petitioners action on their request.[5]
SO ORDERED.
ASSOCIATED BANK (now UNITED OVERSEAS BANK [PHILS.]),
We also would like to stress that the first letter-agreement was not rescinded by
respondents failure to deposit in escrow their full payment simply because the date of
Respondents.
full payment had already been modified by the later agreement. Neither was the
second letter-agreement rescinded by respondents new offer because the offer was
Intervenors.
In our Decision, we affirmed the factual findings of the Court of Appeals (CA)
action. Thus, the applicable provision is Section 19, Rule 3 of the Rules of Court,
the rule that if there is no showing of error in the appreciation of facts by the CA, this
Court treats them as conclusive. The conclusions of law that the appellate court drew
SEC. 19. Transfer of interest. In case of any transfer of interest, the action
may be continued by or against the original party, unless the court upon motion
Hence, we deny with finality petitioners motion for reconsideration. No further
directs the person to whom the interest is transferred to be substituted in the action or
After the promulgation of the July 14, 2008 Decision, spouses Vaca filed a
Motion for Leave to Intervene alleging that they are the registered owners of the
subject property and are thus real parties-in-interest. They add that they stand to be
deprived of their family home without having been given their day in court. They also
contend that the Court should order petitioner to reimburse the spouses Vaca the
[A] transferee pendente lite of the property in litigation does not have a right to
intervene. We held that a transferee stands exactly in the shoes of his predecessorin-interest, bound by the proceedings and judgment in the case before the rights were
assigned to him.
intervene. Essentially, the law already considers the transferee joined or substituted
Section 2, Rule 19 of the Rules of Court, provides:
in the pending action, commencing at the exact moment when the transfer of interest
is perfected between the original party-transferor and the transferee pendente lite.[12]
SEC. 2. Time to intervene. The motion to intervene may be filed at any time
before rendition of judgment by the trial court. A copy of the pleading-in-intervention
That the Certificate of Title covering the subject property is in the name of the
the spouses Vaca, the cancellation of petitioners title, and the issuance of the new
Transfer Certificate of Title in the name of the spouses. By virtue of the notice of lis
pendens, the spouses Vaca are bound by the outcome of the litigation subject of the
lis pendens. Their interest is subject to the incidents or results of the pending suit,
party to protect his interest, and the court, incidentally, to settle all conflicting claims.
[9] The spouses Vaca are not strangers to the action. Their legal interest in the
litigation springs from the sale of the subject property by petitioner in their favor during
Lastly, the spouses Vacas claim for reimbursement, if any, must be ventilated in
the pendency of this case. As transferee pendente lite, the spouses Vaca are the
a separate action against petitioner. To allow the intervention would unduly delay and
prejudice the rights especially of respondents who have been deprived of the subject
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO
to the Philippine National Bank (PNB). More than two months later or on February 3,
1987, by virtue of Administrative Order No. 14, PNBs interest in PHILSECO was
SO ORDERED.
agreement was entered into between the National Government and the APT by virtue
of which the latter was named the trustee of the National Governments share in
DECISION
YNARES-SANTIAGO, J.:
Exercising their discretion, the COP and the APT deemed it in the best interest of the
national economy and the government to privatize PHILSECO by selling 87.67% of its
On January 27, 1977, the National Investment and Development Corporation (NIDC),
between the APT and Kasawaki, they agreed that the latters right of first refusal
Kawasaki Heavy Industries, Ltd. of Kobe, Japan (Kawasaki) for the construction,
under the JVA be exchanged for the right to top by five percent (5%) the highest bid
operation, and management of the Subic National Shipyard, Inc. (SNS), which
for said shares. They further agreed that Kawasaki would be entitled to name a
company in which it was a stockholder, which could exercise the right to top. On
(PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding
September 7, 1990, Kawasaki informed APT that Philyards Holdings, Inc. (PHI) would
proportion of 60%-40%, respectively. One of the provisions of the JVA accorded the
parties the right of first refusal should either party sell, assign or transfer its interest in
the joint venture. Thus, paragraph 1.4 of the JVA states:
At the pre-bidding conference held on September 28, 1993, interested bidders were
given copies of the JVA between NIDC and Kawasaki, and of the Asset Specific
Neither party shall sell, transfer or assign all or any part of its interest in SNS to any
Bidding Rules (ASBR) drafted for the 87.67% equity (sic)[1] in PHILSECO of the
third party without giving the other under the same terms the right of first refusal. This
provision shall not apply if the transferee is a corporation owned or controlled by the
GOVERNMENT or by a KAWASAKI affiliate. (Italics supplied.)
1.0.
The subject of this Asset Privatization Trust (APT) sale through public
Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the
which will be sold as a whole block in accordance with the rules herein enumerated.
ASBR because the last four (4) companies were the losing bidders (for P1.528 billion)
thereby circumventing the law and prejudicing the weak winning bidder; (b) only
xxx
xxx
xxx
Kawasaki could exercise the right to top; (c) giving the same option to top to PHI
constituted unwarranted benefit to a third party; (d) no right of first refusal can be
3.0.
exercised in a public bidding or auction sale, and (e) the JG Summit Consortium was
Indicative price set for the National Governments 87.67% equity in PHILSECO is
xxx
xxx
petitioner that PHI had exercised its option to top the highest bid and that the COP
12.0.
The bidder shall be solely responsible for examining with appropriate care
had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI
these rules, the official bid forms, including any addenda or amendments thereto
issued during the bidding period.
informing itself with respect to any and all conditions concerning the PHILSECO
Consequently, petitioner filed with this Court a petition for mandamus under G.R. No.
Shares which may, in any manner, affect the bidders proposal. Failure on the part of
114057. On May 11,1994, said petition was referred to the Court of Appeals ---
the bidder to so examine and inform itself shall be its sole risk and no relief for error or
omission will be given by APT or COP. x x x.
The provisions of the ASBR were explained to the interested bidders who were
mandamus x x x and auxiliary writs or processes, whether or not in aid of its appellate
jurisdiction, which jurisdiction is concurrent with this Court, there being no special and
important reason for this Court to assume jurisdiction over the case in the first
At the public bidding on said date, the consortium composed of petitioner JG Summit
instance.[2]
On July 18, 1995, the Court of Appeals denied for lack of merit the petition for
billion. The following day, December 3, 1993, the COP approved the sale of 87.67%
mandamus. Citing Guanio v. Fernandez,[3] it held that mandamus is not the proper
remedy to compel the undoing of an act already done or the correction of a wrong
already perpetuated, even though the action taken was clearly illegal. It was further
ruled that it was not the proper forum for a mere petition for mandamus that aimed to
bidding rules.
question the constitutionality or legality of the right of first refusal and the right to top
that was exercised by Kawasaki/PHI and that the matter must be brought by the
On December 29, 1993, petitioner informed the APT that it was protesting the offer of
proper party in the proper forum at the proper time and threshed out in a full blown
PHI to top its bid on the grounds that: (a) the Kawasaki/PHI consortium composed of
trial.
10
After ruling that the right of first refusal and the right to top are prima facie legal, the
I.
participated in the public bidding; or it should have questioned the legality of the rules
before the courts or filed a petition for declaratory relief (Rule 64, Rules of Court)
By participating in the public bidding, with full knowledge of the right to top granted to
(A)
THE CONSTITUTION.
Group, Insular Life Assurance, Mitsui and ICTSI) appears to have joined Philyards in
the latters effort to raise P2.131 billion necessary in exercising the right to top by 5%
(B)
is a valid activity in free enterprise that is not contrary to law, public policy or public
morals. It should not be a cause of grievance for petitioner as it is the very essence of
free competition in the business world. Astute businessmen involved in the public
(C)
bidding in question knew what they were up against. And when they participated in
CORPORATION
the public bidding with prior knowledge of the right to top, they did so, with full
CORPORATION CODE.
OVER
SHARES
OF
STOCK
IS
CONTRARY
TO
THE
knowledge of the eventuality that the highest bidder may still be topped by
Kawasaki/Philyards by 5%. It is admitted by petitioner that it likewise represents a
(D)
ANATHEMA
Why should petitioner then expect Philyards to limit itself to its own resources when
the latter can enter into agreements with other entities to help it raise the money it
TO
COMPETITIVE
PUBLIC
BIDDING
FOR
BEING
UNDULY
needed to pay the full purchase price as in fact it had already paid the National
Government in the amount of P2.131 billion as required under the ASBR?[4]
(E)
March 15, 1996. Petitioner thus filed the instant petition for review on certiorari, raising
EVIDENCE.
11
II.
fact.[9] By the nexus that binds the members of the consortium, in the event that
petitioner succeeds in pursuing this case, it is bound to respect the existence of the
legality of a provision of the JVA in which it is not a party.[10] However, as this Court
held in Kilosbayan v. Morato,[11] there is a difference between the rule on real-party-
in-interest and the rule on standing, as the latter has constitutional underpinnings. In
the case at bar, petitioner has sufficiently alleged constitutional ramifications in the
FACT AND (B) IN NOT APPOINTING AN AMICUS CURIAE FROM AMONG THE
questioned public bidding of the PHILSECO that merit the attention of the Court.
Moreover, the prospect of financial gains arising from the award of the sale of
PHILSECO is enough personal stake in the outcome of the controversy to vest upon
petitioner the locus standi to file the petition for mandamus. Besides, without
In their comment on the petition, private respondent PHI contends that the real party
Kawasaki-PHIs right to top the highest bid, petitioner would have been awarded the
in interest which should have filed the petition for mandamus is the JG Summit
sale as the highest bidder. A winning bidder has personality to initiate proceedings to
Consortium and not solely petitioner JG Summit Holdings, Inc. which is just a part of
prevent setting at naught his right; otherwise, his right to due process would be
that consortium. Since Sembawang and Jurong, the other members of the
such interest in the subject matter of action as will entitle it, under substantive law, to
Public respondents contention must fail. While it is true that Rule 3, Section 2 of the
With respect to the propriety of the remedy availed by petitioner, the Court of Appeals
Rules of Court provides that (a)ll persons having an interest in the subject of the
correctly held that the special civil action of mandamus is not the proper remedy to
action and in obtaining the relief demanded shall be joined as plaintiffs, petitioner
question the legality of the exercise of the right to top by private respondent. It does
not lie to compel the award of a contract subject of bidding to an unsuccessful bidder.
indispensable parties, such that their non-joinder as petitioners will not necessarily
[14] Mandamus applies as a remedy only where petitioners right is founded clearly in
necessary parties as they were members of the consortium that won the public
bidding prior to the exercise of the right to top by private respondent, but the petition
In order that a writ of mandamus may issue, it is essential that the person petitioning
may be resolved even without their active participation. Secondly, there is a doubt as
for the same has a clear legal right to the thing demanded and that it is the imperative
to whether or not said foreign corporations are subject to the jurisdiction of the court
duty of the respondent to perform the act required. It neither confers powers nor
represent Sembawang and Jurong. The admission of petitioners counsel that said
foreign corporations are underwriting his and the other counsels fees reflects this
12
The Court of Appeals cannot declare petitioner as the winning bidder in this case and
direct the COP/APT to award the sale to it without first determining the validity of the
d)
constructing and repairing vessels or parts thereof shall not be considered a public
shipyard, graving dock, marine railway or marine repair shop and no person or
enterprise shall engage in the construction and/or repair of any vessel, or any phase
or part thereof, without a valid Certificate of Registration and license for this purpose
from the Maritime Industry Authority, except those owned or operated by the Armed
Be that as it may, the Court of Appeals erred when it dismissed the petition on the
sole ground of the impropriety of the special civil action of mandamus. It must be
stressed that the petition was also one for certiorari, seeking to nullify the award of the
sale to private respondent of the PHILSECO shares. Verily, the petition alleges that
However, Section 1 of P.D. No. 666 was expressly repealed by Section 20 of Batas
respondents COP and APT have committed such a grave abuse of discretion
Pambansa Blg. 391, the Investment Incentive Policy Act of 1983.[21] Subsequently,
Executive Order No. 226, the Omnibus Investments Code of 1987, was issued and
Philyards, for the various reasons stated herein, particularly since the right of first
refusal and the right to top the bid are unconstitutional, contrary to law and public
policy.[18] Petitioners failure to include certiorari in its caption should not negate the
The express repeal of B.P. Blg. 391 by E.O. No. 226 did not revive Section 1 of P.D.
fact that the petition charged public respondent with grave abuse of discretion in
No. 666, declassifying the shipbuilding and ship repair industry as a public utility, as
awarding the sale to private respondent. Well-settled is the rule that it is not the
said executive order did not provide otherwise. When a law which expressly repeals a
caption of the pleading but the allegations therein that determine the nature of the
prior law is itself repealed, the law first repealed shall not be thereby revived unless
action and the Court shall grant relief warranted by the allegations and the proof even
expressly so provided.[23] Consequently, when the APT drafted the ASBR sometime
in 1993, P.D. No. 666 no longer existed in our statute books. While it is true that the
repeal of a statute does not operate to impair rights that have become vested or
accrued while the statute was in force, there are no vested rights of the parties that
should be protected in the case at bar. The reason is simple: said decree was
A shipyard such as PHILSECO being a public utility as provided by law, the following
that shipyards are no longer public utilities by express provision of Presidential Decree
No. 666, which provided incentives to the shipbuilding and ship repair industry.
Sec. 11. No franchise, certificate, or any other form of authorization for the operation
Indeed, P.D. No. 666 dated March 5, 1975 explicitly stated that a shipyard was not a
corporations or associations organized under the laws of the Philippines at least sixty
13
per centum of whose capital is owned by such citizens, nor shall such franchise,
operating a public utility, such as a shipyard, must observe the proportion of 60%-40%
years. Neither shall any such franchise or right be granted except under the condition
Filipino-foreign capitalization.
that it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in public
Notably, paragraph 1.4 of the JVA accorded the parties the right of first refusal under
utilities by the general public. The participation of foreign investors in the governing
the same terms. This phrase implies that when either party exercises the right of first
body of any public utility enterprise shall be limited to their proportionate share in its
refusal under paragraph 1.4, they can only do so to the extent allowed them by
capital, and all the executive and managing officers of such corporation or association
paragraphs 1.2 and 1.3 of the JVA or under the proportion of 60%-40% of the shares
of stock.
Thus, should the NIDC opt to sell its shares of stock to a third party,
Kawasaki could only exercise its right of first refusal to the extent that its total shares
The progenitor of this constitutional provision, Article XIV, Section 5 of the 1973
of stock would not exceed 40% of the entire shares of stock of SNS or PHILSECO.
The JVA
The NIDC, on the other hand, may purchase even beyond 60% of the total shares.
between NIDC and Kawasaki entered into on January 27, 1977 manifests the
there is nothing to prevent its purchase of stocks even beyond 60% of the
public utilities.[24] Paragraph 1.3 of the JVA, as amended by Addendum No. 2 dated
regulate the operation of shipbuilding and ship repair yards,[29] abides by the Filipino
called by the Board of Directors, maintaining a proportion of 60%-40% for NIDC and
However, Section 2.3.1 (a) of its Memorandum Circular No. 95, Series of 1994,[30]
commercial enterprise with all of them generally contributing assets and sharing risks.
It requires a community of interest in the performance of the subject matter, a right to
direct and govern the policy in connection therewith, and duty, which may be altered
the authorized capital stock of which is owned by Filipino citizens except for joint
ventures which are registered with the Securities and Exchange Commission, the
enterprises usually enter into a joint venture because it is exempt from corporate
Kawasaki was bound by its contractual obligation under the JVA that limits its right of
Article XIV of the 1973 Constitution and Section 11 of Article XII of the 1987
first refusal to 40% of the total capitalization of PHILSECO. Thus, Kawasaki cannot
14
purchase beyond 40% of the capitalization of the joint venture on account of both
xxx
xxx
xxx
To adopt its internal rules and regulations, to adopt, alter and use a seal
which shall be judicially noticed; to enter into contracts; to sue and be sued;
However, APT
xxx
xxx
x x x
making authority is merely delegated, the ASBR should be measured by the standard
the APT for the sale of government property is circumscribed only by the best interest
boundaries. The courts, must examine those boundaries in the light of provisions of
the law. Otherwise, it would stray into the realm of policy decision-making.[33]
Implicitly written in any delegated legislative authority, such as that provided for in
Proclamation No. 50, is the requisite that the rules and regulations which an
Proclamation No. 50, creating the COP and the APT, was issued by President
administrative body adopts must respect pertinent provisions of the Constitution and
the law.[35] Article XII, Section 11 of the Constitution providing for a 60% Filipino
Constitution of 1986.
capitalization in order that public utilities may be granted a franchise should thus be
following powers:
deemed a paramount consideration in drafting the ASBR. In this regard, worth noting
is paragraph 15.0 of the ASBR, which provides that:
(1)
for the disposition of assets transferred to it under this Proclamation, such program to
In the event that the winning bidder is a 100% foreign-owned corporation, it may
be completed within a period of five years from the date of the issuance of this
name its nominee corporation to whom the NG shares shall be conveyed, provided it
Proclamation;
(2)
Subject to its having received the prior written approval of the Committee
to sell such asset at a price and on terms of payment and to a party disclosed to the
Committee, to sell each asset referred to it by the Committee to such party and on
corporation to participate in the public bidding of more than 60% of the total shares of
such terms as in its discretion are in the best interest of the National Government, and
a public utility corporation without setting a period within which the foreign bidder
for such purpose to execute and deliver, on behalf and in the name of the National
should name its nominee. As it is, the rule allows a totally foreign investor to engage
in the business of operating a public utility for an unlimited period of time in total
15
1993. Neither is there a showing that the APT observed the requirement of COA
Circular No. 89-296, to the effect that a government entity that is disposing of
In carrying out its objective of disposing of government property, the APT should take
government property shall furnish the COA with the disposal procedure adopted.
into account the pertinent laws. Since the method of disposing the PHILSECO that
Likewise, nowhere in the record is it stated that the APT heeded the suggestion of
the APT had adopted was through public bidding, it was duty-bound to follow the rules
Secretary of Finance and COP Chairman Jayme that its decision to grant Kawasaki
and regulations on competitive public bidding, in order to uphold the elementary rule
the right to top the highest bid be made known to the Commission on Audit. What
appears on record is that the COA did not approve the ASBR, specifically the
provision on the right to top the highest bidder. Thus, then COA Chairman Pascasio
x x x. A competitive public bidding aims to protect the public interest by giving the
S. Banaria, replying to the query of petitioners counsel on whether or not the COA
public the best possible advantages through open competition. It is a mechanism that
had approved the right to top the highest bid by 5%, stated:
Per information received from our Auditor at APT, no prior approval was issued by
their Office regarding said preferential option. We have instructed our Auditor thereat
to advise this Office of the result of the review of the Corporations procedures for the
sale of the assets including the review of the bidding documents pertaining to the
make proposals[38] for the purchase of supplies, materials and equipment for official
subject public bidding pursuant to the provisions of the Commission on Audit Circular
business or public use,[39] or for public works or repair. The three principles in public
bidding are: the offer to the public; an opportunity for competition; and a basis for
exact comparison of bids. The distinctive character of the system is destroyed and
In according the KHI/PHI the right to top, the APT violated the rule on competitive
the purpose of its adoption is thwarted when a regulation thereon excludes any of
public bidding, under which the highest bidder is declared the winner entitled to the
these principles.[40] Public bidding of government contracts and for the disposition of
award of the subject of the auction sale. In effect, the grant to KHI/PHI of the right to
government assets should have the same principles and objectives. Their only
top can be likened to a second bidding, which, however, is allowed only if there is a
difference, if at all, is that in the public bidding for public contracts, the award is
failure of bidding, such as when there is only one bidder or none at all.[46] By placing
generally given to the lowest bidder while in the disposition of government assets, the
KHI/PHI in the advantageous position of topping the highest bidder, the APT set aside
award is to the highest bidder.[41] The term public bidding imports a sale to the
the basic rule in public bidding that there be an opportunity for competition.
advantage to the government, the manner by which that right was conceived and
arrived at in this case manifested bias in favor of KHI, thereby clearly brushing aside
the rule on fair competition. More importantly, the ASBR provision on the right to top
auction sales, the presence of a Commission on Audit (COA) representative who shall
the highest bidder completely disregarded the stipulation in the JVA between NIDC
see to the proper observance of auditing rules is imperative.[44] In this case, there is
and KHI to comply with the 60%-40% capitalization arrangement whereby KHI, the
16
foreign investor, would be able to exercise its right of first refusal to the extent of only
exposure was already diminished to only 2.59% of the total PHILSECO shares, was
given the privilege, through its nominee PHI, of exercising the right to top the highest
bid to 87.67% of those shares or definitely over and above its 40% contractual right to
PHILSECO shares under the JVA. Consequently, the APT rendered nugatory the
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed
Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE.
Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos
Furthermore, while the right of first refusal entitled KHI to priority in the award of the
(P2,030,000,000.00), less its bid deposit plus interests upon the finality of this
contract, that right cannot bar another bidder from submitting a bid because, precisely,
the law requires public bidding in government contracts.[47] Thus, by engrafting in the
provisions of the ASBR the right to top, which was only an offshoot of the right of first
(a)
refusal, the APT effectively did away with pubic bidding insofar as KHI/PHI was
concerned. To be sure, the right to top is different from the right to match. In the latter,
a qualified bidder is given the privilege of offering the same bid as that of the highest
(b)
bidder.[48] In the former, as provided for by the ASBR, a non-bidder is accorded the
right to top the highest bid. There is reason, therefore, for the petitioner to complain
(c)
that the APT made a show of a public bidding in order to elicit the highest bid, only to
award the sale to a non-bidder. The unfair manner by which the purported public
bidding was conducted by the APT is even made more blatant by the fact that after
(d)
return to private respondent PHI the amount of Two Billion One Hundred
the public bidding, KHI exercised the right to top through its nominee, private
respondent PHI, which has among its stockholders some losing bidders.
(e)
In drafting the ASBR, the APT should have noted the fact that foreign investors were
competing in the bidding.
encouraged in this country, however, the ASBR provision on the right to top is unfair to
SO ORDERED.
all competitors, be they foreign or local, in the public auction of 87.67% of PHILSECO
shares as it provided for a method that would set at naught the entire public bidding.
G.R. No. L-23145
It was thus error for the Court of Appeals to conclude that petitioner was estopped
from contesting the validity of the ASBR and the bidding procedure conducted
ancillary
pursuant to it. It is clear from the provisions of the ASBR itself that the basic rules on
administrator-appellee,
oppositor-appellant.
fair competition in public biddings have been disregarded. Although petitioner had the
17
vs.
BENGUET
CONSOLIDATED,
INC.,
the domiciliary administrator of the estate of the deceased.2 Then came this portion of
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary
FERNANDO, J.:
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
County Trust Company of New York, United States of America, of the estate of the
which of them was entitled to the possession of the stock certificates in question. On
deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to
January 27, 1964, the Court of First Instance of Manila ordered the domiciliary
surrender to the ancillary administrator in the Philippines the stock certificates owned
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
claims of local creditors, the lower court, then presided by the Honorable Arsenio
with the order, and on February 11, 1964, the ancillary administrator petitioned the
Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering
court to "issue an order declaring the certificate or certificates of stocks covering the
the motion of the ancillary administrator, dated February 11, 1964, as well as the
33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated,
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
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is
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
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
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
It is its view, therefore, that under the circumstances, the stock certificates cannot be
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The
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
ends by the use of specific remedies, with full and ample support from legal doctrines
of weight and significance.
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
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
obedience to a court decree. How, then, can this order be stigmatized as illegal?
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
18
As is true of many problems confronting the judiciary, such a response was called for
It is to be noted that the scope of the power of the ancillary administrator was, in an
by the realities of the situation. What cannot be ignored is that conduct bordering on
earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more
wilful defiance, if it had not actually reached it, cannot without undue loss of judicial
than one administration of an estate. When a person dies intestate owning property in
prestige, be condoned or tolerated. For the law is not so lacking in flexibility and
the country of his domicile as well as in a foreign country, administration is had in both
would make clear its being buttressed by indisputable principles and supported by the
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
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
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
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.
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
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
allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of
residence abroad, of what was previously ordained by a court order could be thus
stock cannot therefore be considered in any wise as immune from lawful court orders.
remedied, it would have entailed, insofar as this matter was concerned, not a partial
but a well-nigh complete paralysis of judicial authority.
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
1.
Appellant Benguet Consolidated, Inc. did not dispute the power of the
Philippines, the corporation being domiciled [here]." To the force of the above
appellee ancillary administrator to gain control and possession of all assets of the
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor
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
2.
fashion for the legality of the challenged order, how does appellant, Benguet
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
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
19
More specifically, appellant would stress that the "lower court could not "consider as
order, the fiction which is a working tool of thought, but which at times hides itself from
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
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
There may be an element of fiction in the above view of the lower court. That certainly
occasion did call for the employment of a legal fiction to put an end to the anomalous
does not suffice to call for the reversal of the appealed order. Since there is a refusal,
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.
thereof. Thereby, the task incumbent under the law on the ancillary administrator
contention by its invoking one of the provisions of its by-laws which would set forth the
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
the issuance of a new certificate or certificates would await the "final decision by [a]
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
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
It may be admitted of course that such alleged loss as found by the lower court did not
that as far as it is concerned, "it is immaterial ... who is entitled to the possession of
correspond exactly with the facts. To be more blunt, the quality of truth may be lacking
the stock certificates ..." Even if such were not the case, it would be a legal absurdity
Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends
exists between the above by-law and the command of a court decree, the latter is to
be followed.
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
to which, however, the judiciary must yield deference, when appropriately invoked and
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
law would be accorded such a high estate in the jural order that a court must not only
attest the empire of "as if" today."13 He likewise noted "a class of fictions of another
20
will have rights and privileges of a higher priority than that of its creator. More than
appealed order be set aside for its inconsistency with one of its by-laws does not
that, it cannot legitimately refuse to yield obedience to acts of its state organs,
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
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
4.
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
To assert that it can choose which court order to follow and which to disregard is to
by operation of law...."16 It owes its life to the state, its birth being purely dependent
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
matter of fact, the statutory language employed owes much to Chief Justice Marshall,
lawfully require could be ignored at will. So extravagant a claim cannot possibly merit
who in the Dartmouth College decision defined a corporation precisely as "an artificial
approval.
The well-known authority Fletcher could summarize the matter thus: "A corporation is
that in a guardianship proceedings then pending in a lower court, the United States
not in fact and in reality a person, but the law treats it as though it were a person by
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
created by law for certain specific purposes, the extent of whose existence, powers
to a determination arrived at by its main office in the United States. The motion was
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,
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,
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
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of
Philippine jurisprudence is a creature without any existence until it has received the
the opinion that the appeal should be rejected. The provisions of the U.S. Code,
21
invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final
through the appealed order, the imperative requirement of justice according to law is
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
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the
Administrator (which must be filed strictly in accordance with the conditions that are
Court of First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-
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
EN BANC
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
DECISION
worse if through the absence of any coercive power by our courts over juridical
CRUZ, J.:
persons within our jurisdiction, the force and effectivity of their orders could be made
This case involves the constitutionality of a presidential decree which, like all other
issuances of President Marcos during his regime, was at that time regarded as
situation more offensive to the dignity of the bench or the honor of the country.
sacrosanct. It is only now, in a freer atmosphere, that his acts are being tested by the
touchstone of the fundamental law that even then was supposed to limit presidential
Yet that would be the effect, even if unintended, of the proposition to which appellant
action.: rd
The particular enactment in question is Pres. Decree No. 1717, which ordered the
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
National Development Company. The law outlined the procedure for filing claims
against the Agrix companies and created a Claims Committee to process these
claims. Especially relevant to this case, and noted at the outset, is Sec. 4(1) thereof
That is all then that this case presents. It is obvious why the appeal cannot succeed. It
providing that "all mortgages and other liens presently attaching to any of the assets
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
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent
Philippine Veterans Bank a real estate mortgage dated July 7, 1978, over three (3)
22
parcels of land situated in Los Baos, Laguna. During the existence of the mortgage,
Mendoza v. Agrix Marketing, Inc., 1 where the constitutionality of Pres. Decree No.
AGRIX went bankrupt. It was for the expressed purpose of salvaging this and the
1717 was also raised but not resolved. The Court, after noting that the petitioners had
other Agrix companies that the aforementioned decree was issued by President
already filed their claims with the AGRIX Claims Committee created by the decree,
Marcos.
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims
The petitioners stress that in the case at bar the private respondent also invoked the
Committee for the payment of its loan credit. In the meantime, the New Agrix, Inc. and
provisions of Pres. Decree No. 1717 by filing a claim with the AGRIX Claims
the National Development Company, petitioners herein, invoking Sec. 4 (1) of the
Committee. Failing to get results, it sought to foreclose the real estate mortgage
decree, filed a petition with the Regional Trial Court of Calamba, Laguna, for the
executed by AGRIX in its favor, which had been extinguished by the decree. It was
cancellation of the mortgage lien in favor of the private respondent. For its part, the
only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the
private respondent took steps to extrajudicially foreclose the mortgage, prompting the
decree, that the private respondent attacked the validity of the provision. At that stage,
petitioners to file a second case with the same court to stop the foreclosure. The two
however, consistent with Mendoza, the private respondent was already estopped from
After the submission by the parties of their respective pleadings, the trial court
The Court does not agree that the principle of estoppel is applicable.
rendered the impugned decision. Judge Francisco Ma. Guerrero annulled not only the
challenged provision, viz., Sec. 4 (1), but the entire Pres. Decree No. 1717 on the
It is not denied that the private respondent did file a claim with the AGRIX Claims
grounds that: (1) the presidential exercise of legislative power was a violation of the
Committee pursuant to this decree. It must be noted, however, that this was done in
principle of separation of powers; (2) the law impaired the obligation of contracts; and
1980, when President Marcos was the absolute ruler of this country and his decrees
(3) the decree violated the equal protection clause. The motion for reconsideration of
were the absolute law. Any judicial challenge to them would have been futile, not to
this decision having been denied, the present petition was filed.: rd
say foolhardy. The private respondent, no less than the rest of the nation, was aware
of that reality and knew it had no choice under the circumstances but to conform.: nad
The petition was originally assigned to the Third Division of this Court but because of
the constitutional questions involved it was transferred to the Court en banc. On
It is true that there were a few venturesome souls who dared to question the dictator's
August 30, 1988, the Court granted the petitioner's prayer for a temporary restraining
decisions before the courts of justice then. The record will show, however, that not a
order and instructed the respondents to cease and desist from conducting a public
single act or issuance of President Marcos was ever declared unconstitutional, not
auction sale of the lands in question. After the Solicitor General and the private
even by the highest court, as long as he was in power. To rule now that the private
respondent had filed their comments and the petitioners their reply, the Court gave
respondent is estopped for having abided with the decree instead of boldly assailing it
due course to the petition and ordered the parties to file simultaneous memoranda.
is to close our eyes to a cynical fact of life during that repressive time.
claims with the AGRIX Claims Committee, received in settlement thereof shares of
the validity of the decree. In support of this contention, it cites the recent case of
23
respondent has not been paid a single centavo on its claim, which was kept pending
for more than seven years for alleged lack of supporting papers. Significantly, the
A legislative act based on the police power requires the concurrence of a lawful
validity of that claim was not questioned by the petitioner when it sought to restrain the
subject and a lawful method. In more familiar words, a) the interests of the public
limited itself to the argument that the private respondent was estopped from
interference of the state; and b) the means employed are reasonably necessary for
questioning the decree because of its earlier compliance with its provisions.
the accomplishment of the purpose and not unduly oppressive upon individuals. 2
Applying these criteria to the case at bar, the Court finds first of all that the interests of
the public are not sufficiently involved to warrant the interference of the government
with the private contracts of AGRIX. The decree speaks vaguely of the "public,
particularly the small investors," who would be prejudiced if the corporation were not
The Court is especially disturbed by Section 4(1) of the decree, quoted above,
to be assisted. However, the record does not state how many there are of such
extinguishing all mortgages and other liens attaching to the assets of AGRIX. It also
investors, and who they are, and why they are being preferred to the private
notes, with equal concern, the restriction in Subsection (ii) thereof that all "unsecured
obligations shall not bear interest" and in Subsection (iii) that "all accrued interests,
penalties or charges as of date hereof pertaining to the obligations, whether secured
The public interest supposedly involved is not identified or explained. It has not been
shown that by the creation of the New Agrix, Inc. and the extinction of the property
rights of the creditors of AGRIX, the interests of the public as a whole, as
These provisions must be read with the Bill of Rights, where it is clearly provided in
Section 1 that "no person shall be deprived of life, liberty or property without due
indispensable link to the welfare of the greater number has not been established. On
course of law nor shall any person be denied the equal protection of the law" and in
the contrary, it would appear that the decree was issued only to favor a special group
Section 10 that "no law impairing the obligation of contracts shall be passed."
of investors who, for reasons not given, have been preferred to the legitimate creditors
of AGRIX.
In defending the decree, the petitioners argue that property rights, like all rights, are
subject to regulation under the police power for the promotion of the common welfare.
Assuming there is a valid public interest involved, the Court still finds that the means
The contention is that this inherent power of the state may be exercised at any time
employed to rehabilitate AGRIX fall far short of the requirement that they shall not be
for this purpose so long as the taking of the property right, even if based on contract,
unduly oppressive. The oppressiveness is patent on the face of the decree. The right
to property in all mortgages, liens, interests, penalties and charges owing to the
creditors of AGRIX is arbitrarily destroyed. No consideration is paid for the extinction
This argument is an over-simplification of the problem before us. The police power is
of the mortgage rights. The accrued interests and other charges are simply rejected
not a panacea for all constitutional maladies. Neither does its mere invocation conjure
by the decree. The right to property is dissolved by legislative fiat without regard to the
an instant and automatic justification for every act of the government depriving a
24
A mortgage lien is a property right derived from contract and so comes under the
On top of all this, New Agrix, Inc. was created by special decree notwithstanding the
provision of Article XIV, Section 4 of the 1973 Constitution, then in force, that:
charges, which are also vested rights once they accrue. Private property cannot
simply be taken by law from one person and given to another without compensation
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the
and any known public purpose. This is plain arbitrariness and is not permitted under
the Constitution.
And not only is there arbitrary taking, there is discrimination as well. In extinguishing
the mortgage and other liens, the decree lumps the secured creditors with the
The new corporation is neither owned nor controlled by the government. The National
unsecured creditors and places them on the same level in the prosecution of their
Development Corporation was merely required to extend a loan of not more than
respective claims. In this respect, all of them are considered unsecured creditors. The
P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake
only concession given to the secured creditors is that their loans are allowed to earn
the management of the corporation, but with the obligation of making periodic reports
interest from the date of the decree, but that still does not justify the cancellation of the
to the Agrix board of directors. After payment of the loan, the said board can then
interests earned before that date. Such interests, whether due to the secured or the
appoint its own management. The stocks of the new corporation are to be issued to
unsecured creditors, are all extinguished by the decree. Even assuming such
the old investors and stockholders of AGRIX upon proof of their claims against the
cancellation to be valid, we still cannot see why all kinds of creditors, regardless of
abolished corporation. They shall then be the owners of the new corporation. New
Agrix, Inc. is entirely private and so should have been organized under the
Corporation Law in accordance with the above-cited constitutional provision.
Under the equal protection clause, all persons or things similarly situated must be
treated alike, both in the privileges conferred and the obligations imposed.
The Court also feels that the decree impairs the obligation of the contract between
AGRIX and the private respondent without justification. While it is true that the police
the case at bar, persons differently situated are similarly treated, in disregard of the
power is superior to the impairment clause, the principle will apply only where the
One may also well wonder why AGRIX was singled out for government help, among
present-day contracts are of that nature. But as already observed, the contracts of
other corporations where the stockholders or investors were also swindled. It is not
loan and mortgage executed by AGRIX are purely private transactions and have not
clear why other companies entitled to similar concern were not similarly treated. And
been shown to be affected with public interest. There was therefore no warrant to
surely, the stockholders of the private respondent, whose mortgage lien had been
amend their provisions and deprive the private respondent of its vested property
cancelled and legitimate claims to accrued interests rejected, were no less deserving
rights.
of protection, which they did not get. The decree operated, to use the words of a
celebrated case, 3 "with an evil eye and an uneven hand."
It is worth noting that only recently in the case of the Development Bank of the
Philippines v. NLRC, 6 we sustained the preference in payment of a mortgage creditor
as against the argument that the claims of laborers should take precedence over all
25
other claims, including those of the government. In arriving at this ruling, the Court
recognized the mortgage lien as a property right protected by the due process and
contract clauses notwithstanding the argument that the amendment in Section 110 of
the Labor Code was a proper exercise of the police power.: nad
CARPIO, J.:
The Court reaffirms and applies that ruling in the case at bar.
The Case
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police
power, not being in conformity with the traditional requirements of a lawful subject and
Resolution dated 3 January 2000 and the Decision dated 30 January 2001 denying
a lawful method. The extinction of the mortgage and other liens and of the interest
the Motion for Reconsideration. The COA denied petitioner Ranulfo C. Felicianos
and other charges pertaining to the legitimate creditors of AGRIX constitutes taking
request for COA to cease all audit services, and to stop charging auditing fees, to
without due process of law, and this is compounded by the reduction of the secured
request for COA to refund all auditing fees previously paid by LMWD.
clause. Moreover, the new corporation, being neither owned nor controlled by the
Government, should have been created only by general and not special law. And
Antecedent Facts
insofar as the decree also interferes with purely private agreements without any
demonstrated connection with the public interest, there is likewise an impairment of
A Special Audit Team from COA Regional Office No. VIII audited the accounts of
LMWD.
With the above pronouncements, we feel there is no more need to rule on the
reply dated 12 October 1999 informing COAs Regional Director that the water district
could not pay the auditing fees. Petitioner cited as basis for his action Sections 6 and
Amendment No. 6 of the 1973 Constitution. Even if he had such authority, the decree
20 of Presidential Decree 198 (PD 198)[2], as well as Section 18 of Republic Act No.
must fall just the same because of its violation of the Bill of Rights.
On 19 October 1999, petitioner wrote COA through the Regional Director asking for
SO ORDERED.
26
On 13 March 2001, petitioner filed this instant petition. Attached to the petition were
resolutions of the Visayas Association of Water Districts (VAWD) and the Philippine
2.
3.
The Constitution and existing laws[4] mandate COA to audit all government agencies,
power to appoint the members who will comprise the members of the Board of
Directors belong to the local executives of the local subdivision unit where such
charters. An LWD is a GOCC with an original charter. Section 2(1), Article IX-D of
SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to
created for the private purpose, benefit, aim and end of its members or stockholders.
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to,
who will compose the governing body of their corporation. But this is not the case
here and this clearly indicates that petitioners are not private corporations.
government-owned and controlled corporations with original charters, and on a postaudit basis: (a) constitutional bodies, commissions and offices that have been granted
The COA also denied petitioners request for COA to stop charging auditing fees as
fiscal autonomy under this Constitution; (b) autonomous state colleges and
well as petitioners request for COA to refund all auditing fees already paid.
The Issues
directly or indirectly, from or through the government, which are required by law or the
granting institution to submit to such audit as a condition of subsidy or equity.
Petitioner contends that COA committed grave abuse of discretion amounting to lack
However, where the internal control system of the audited agencies is inadequate, the
are necessary and appropriate to correct the deficiencies. It shall keep the general
accounts of the Government and, for such period as may be provided by law,
1.
supplied)
27
(Emphasis
Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation,
a general law applicable to all citizens.[9] The purpose of this constitutional provision
a doctrine backed by a long line of cases culminating in Davao City Water District v.
on Audit.[6] Petitioner maintains that LWDs are not government-owned and controlled
corporations with original charters.
corporations.
In short, Congress cannot enact a law creating a private corporation with a special
applicable laws, which would give a new perspective to the issue of the true
only under a general law. If the corporation is private, it must necessarily exist under
a general law. Stated differently, only corporations created under a general law can
qualify as private corporations.
Petitioner theorizes that what PD 198 created was the Local Waters Utilities
Corporation Code,[11] except that the Cooperative Code governs the incorporation of
Administration (LWUA) and not the LWDs. Petitioner claims that LWDs are created
cooperatives.[12]
pursuant to and not created directly by PD 198. Thus, petitioner concludes that PD
198 is not an original charter that would place LWDs within the audit jurisdiction of
COA as defined in Section 2(1), Article IX-D of the Constitution. Petitioner elaborates
corporations through special charters. Since private corporations cannot have special
that PD 198 does not create LWDs since it does not expressly direct the creation of
charters, it follows that Congress can create corporations with special charters only if
such entities, but only provides for their formation on an optional or voluntary basis.[8]
Petitioner adds that the operative act that creates an LWD is the approval of the
Sanggunian Resolution as specified in PD 198.
Obviously, LWDs are not private corporations because they are not created under the
Corporation Code.
Commission.
organized under this code shall file with the Securities and Exchange Commission
We begin by explaining the general framework under the fundamental law.
Constitution recognizes two classes of corporations.
The
articles of incorporation x x x.
members to elect the board directors of LWDs as in the case of all corporations
28
registered with the Securities and Exchange Commission. The local mayor or the
(b)
provincial governor appoints the directors of LWDs for a fixed term of office. This
municipality, such boundary may include all lands within the city or municipality. A
Court has ruled that LWDs are not created under the Corporation Code, thus:
district may include one or more municipalities, cities or provinces, or portions thereof.
From the foregoing pronouncement, it is clear that what has been excluded from the
(c)
coverage of the CSC are those corporations created pursuant to the Corporation
Code.
province to such district upon the filing of resolution forming the district.
Significantly, petitioners are not created under the said code, but on the
contrary, they were created pursuant to a special law and are governed primarily by its
provision.[13] (Emphasis supplied)
(d)
A statement identifying the purpose for which the district is formed, which
(e)
charters, LWDs can validly exist only if they are government-owned or controlled. To
The names of the initial directors of the district with the date of expiration of
claim that LWDs are private corporations with a special charter is to admit that their
existence is constitutionally infirm.
(f)
A statement that the district may only be dissolved on the grounds and
(g)
Section 6.
Nothing in the resolution of formation shall state or infer that the local legislative body
power to form and maintain a district. For purposes of this Act, a district shall be
has the power to dissolve, alter or affect the district beyond that specifically provided
public wants. As such, a district shall exercise the powers, rights and privileges given
to private corporations under existing laws, in addition to the powers granted in, and
form a single district, a similar resolution shall be adopted in each city, municipality
and province.
(a)
The name of the local water district, which shall include the name of the city,
xxx
Authorization. The district may exercise all the powers which are
expressly granted by this Title or which are necessarily implied from or incidental to
the powers and purposes herein stated.
29
objectives of this Act, a district is hereby granted the power of eminent domain, the
exercise thereof shall, however, be subject to review by the Administration.
MR. ROMULO.
(Emphasis supplied)
or by special law.
Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers
MR. FOZ.
on LWDs corporate powers. Section 6 of PD 198 provides that LWDs shall exercise
the powers, rights and privileges given to private corporations under existing laws.
MR. ROMULO.
Without PD 198, LWDs would have no corporate powers. Thus, PD 198 constitutes
the special enabling charter of LWDs. The ineluctable conclusion is that LWDs are
MR. FOZ.
amendment.
MR. NATIVIDAD.
means GOCCs created under special laws and not under the general incorporation
law.
MR. ROMULO.
government owned or controlled corporation created by a special law and not under
the Corporation Code of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R.
indicate that government corporations such as the GSIS and SSS, which have original
charters, fall within the ambit of the civil service. However, corporations which are
subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel
and Hyatt are excluded from the coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?
MR. FOZ.
Just one question, Mr. Presiding Officer. By the term original charters,
under our general incorporation statute the Corporation Code. In NASECO, the
company involved had been organized under the general incorporation statute and
30
The Sangguniang Bayan may establish a waterworks system only in accordance with
statute.
effectively, excluded from the scope of the Civil Service. (Emphasis supplied)
corporate entity that will operate its waterworks system. However, the Sangguniang
Bayan may avail of existing enabling laws, like PD 198, to form and incorporate a
Petitioners contention that the Sangguniang Bayan resolution creates the LWDs
water district.
assumes that the Sangguniang Bayan has the power to create corporations. This is a
Sangguniang Bayan has the power to create corporations, the LWDs would remain
patently baseless assumption. The Local Government Code[17] does not vest in the
charter.
Thus, Section
In any event, the Court has already ruled in Baguio Water District v.
Trajano[19] that the Sangguniang Bayan resolution is not the special charter of LWDs,
thus:
SECTION 447.
While it is true that a resolution of a local sanggunian is still necessary for the final
ordinances, approve resolutions and appropriate funds for the general welfare of the
creation of a district, this Court is of the opinion that said resolution cannot be
municipality and its inhabitants pursuant to Section 16 of this Code and in the proper
considered as its charter, the same being intended only to implement the provisions of
exercise of the corporate powers of the municipality as provided for under Section 22
said decree.
order that it may have an original charter. In short, petitioner argues that one special
law cannot serve as enabling law for several GOCCs but only for one GOCC. Section
(vii)
16, Article XII of the Constitution mandates that Congress shall not, except by
maintenance, and repair of an efficient waterworks system to supply water for the
Thus, the
Constitution prohibits one special law to create one private corporation, requiring
pumps, cisterns and reservoirs; protect the purity and quantity of the water supply of
instead a general law to create private corporations. In contrast, the same Section
the municipality and, for this purpose, extend the coverage of appropriate ordinances
over all territory within the drainage area of said water supply and within one hundred
(100) meters of the reservoir, conduit, canal, aqueduct, pumping station, or watershed
GOCC with a special charter. There is, however, no prohibition on Congress to create
used in connection with the water service; and regulate the consumption, use or
several GOCCs of the same class under one special enabling charter.
wastage of water;
The rationale behind the prohibition on private corporations having special charters
x x x. (Emphasis supplied)
does not apply to GOCCs. There is no danger of creating special privileges to certain
31
individuals, families or groups if there is one special law creating each GOCC.
This point is important because the Constitution provides in its Article IX-B, Section
Certainly, such danger will not exist whether one special law creates one GOCC, or
2(1) that the Civil Service embraces all branches, subdivisions, instrumentalities, and
GOCCs either by special charters specific to each GOCC, or by one special enabling
with original charters. As the Bank is not owned or controlled by the Government
charter applicable to a class of GOCCs, like PD 198 which applies only to LWDs.
although it does have an original charter in the form of R.A. No. 3518,[23] it clearly
does not fall under the Civil Service and should be regarded as an ordinary
Petitioner also contends that LWDs are private corporations because Section 6 of PD
that the relations of the Bank with its employees should be governed by the labor
rationale is that only private corporations may be deemed quasi-public and not
laws, under which in fact they have already been paid some of their claims.
(Emphasis supplied)
LWDs in accordance with a specific law, PD 198. There is no private party involved
as co-owner in the creation of an LWD.
Petitioner forgets that the constitutional criterion on the exercise of COAs audit
national or local government owns and controls all their assets. The government
controls LWDs because under PD 198 the municipal or city mayor, or the provincial
governor, appoints all the board directors of an LWD for a fixed term of six years.[24]
The board directors of LWDs are not co-owners of the LWDs. LWDs have no private
The Constitution vests in the COA audit jurisdiction over government-owned and
stockholders or members. The board directors and other personnel of LWDs are
controlled corporations without original charters. GOCCs with original charters are
subject to COA pre-audit, while GOCCs without original charters are subject to COA
While Section 8 of PD 198 states that [N]o public official shall serve as director of an
post-audit. GOCCs without original charters refer to corporations created under the
LWD, it only means that the appointees to the board of directors of LWDs shall come
Corporation Code but are owned or controlled by the government. The nature or
from the private sector. Once such private sector representatives assume office as
directors, they become public officials governed by the civil service law and anti-graft
laws. Otherwise, Section 8 of PD 198 would contravene Section 2(1), Article IX-B of
law.
If LWDs are neither GOCCs with original charters nor GOCCs without original
Veterans Bank,[22] the Court even ruled that the criterion of ownership and control is
charters, then they would fall under the term agencies or instrumentalities of the
government and thus still subject to COAs audit jurisdiction. However, the stark and
undeniable fact is that the government owns LWDs.
32
recognizes government ownership of LWDs when Section 45 states that the board of
Sec. 20.
directors may dissolve an LWD only on the condition that another public entity has
acquired the assets of the district and has assumed all obligations and liabilities
and accounting for the district, which shall be patterned upon and conform to the
attached thereto. The implication is clear that an LWD is a public and not a private
entity.
certified public accountant not in the government service. The Administration may,
however, conduct annual audits of the fiscal operations of the district to be performed
Petitioner does not allege that some entity other than the government owns or
controls LWDs.
therewith shall be borne equally by the water district concerned and the
owner is the District itself.[28] Assuming for the sake of argument that an LWD is
Petitioner argues that PD 198 expressly prohibits COA auditors, or any government
of office. Second, any per diem of LWD directors in excess of P50 is subject to the
auditor for that matter, from auditing LWDs. Petitioner asserts that this is the import of
approval of the Local Water Utilities Administration, and directors can receive no other
the second sentence of Section 20 of PD 198 when it states that [A]uditing shall be
compensation for their services to the LWD.[30] Third, the Local Water Utilities
exclude GOCCs like LWDs from COAs audit jurisdiction. Section 3, Article IX-C of the
Petitioner argues that upon the enactment of PD 198, LWDs became private entities
Constitution outlaws any scheme or devise to escape COAs audit jurisdiction, thus:
through the transfer of ownership of water facilities from local government units to
their respective water districts as mandated by PD 198. Petitioner is grasping at
Sec. 3.
subsidiary in any guise whatever, or any investment of public funds, from the
Petitioner concedes that the owner of the assets transferred under Section 6 (c) of PD
198 is no other than the LWD itself.[32] The transfer of assets mandated by PD 198 is
a transfer of the water systems facilities managed, operated by or under the control
The framers of the Constitution added Section 3, Article IX-D of the Constitution
of such city, municipality or province to such (water) district.[33] In short, the transfer
is from one government entity to another government entity. PD 198 is bereft of any
indication that the transfer is to privatize the operation and control of water systems.
Finally, petitioner claims that even on the assumption that the government owns and
MR. OPLE:
controls LWDs, Section 20 of PD 198 prevents COA from auditing LWDs. [34] Section
20 of PD 198 provides:
33
MR. JAMIR: If the honorable Commissioner will change the number of the section to
May I explain my reasons on record.
We know that a number of entities of the government took advantage of the absence
It is a holding
impressive in quantity but underneath that shell there were billions of pesos in a
multiplicity of companies. The PNOC the empty shell under a presidential
MR. DE CASTRO:
decree was covered by the jurisdiction of the Commission on Audit, but the billions of
Ople.
Another example is the United Coconut Planters Bank. The Commission on Audit has
and controlled corporations and their subsidiaries are subjected to the audit of the
determined that the coconut levy is a form of taxation; and that, therefore, these funds
attributed to the shares of 1,400,000 coconut farmers are, in effect, public funds. And
already unconstitutional.
that was, I think, the basis of the PCGG in undertaking that last major sequestration of
up to 94 percent of all the shares in the United Coconut Planters Bank. The charter of
the UCPB, through a presidential decree, exempted it from the jurisdiction of the
Commission on Audit, it being a private organization.
MR. MONSOD:
MR. MONSOD:
happened in the past, because the same provision was in the 1973 Constitution and
yet somehow a law or a decree was passed where certain institutions were exempted
from audit. We are just reaffirming, emphasizing, the role of the Commission on Audit
34
D of the Constitution vesting in COA the power to audit all GOCCs. We rule that the
compensation from any government entity except compensation paid directly by COA
strengthen further the policy x x x to preserve the independence and integrity of the
COA, by explicitly PROHIBITING: (1) COA officials and employees from receiving
salaries, honoraria, bonuses, allowances or other emoluments from any government
entity, local government unit, GOCCs and government financial institutions, except
such compensation paid directly by the COA out of its appropriations and
on Audit (COA), its officials and employees are prohibited from receiving salaries,
institutions and local government units from assessing or billing other government
financial institutions, except those compensation paid directly by COA out of its
services rendered by the latters officials and employees as part of their regular
xxx
The first aspect of the strategy is directed to the COA itself, while the second aspect is
rendered by its officials and employees as part of their regular functions for purposes
addressed directly against the GOCCs and government financial institutions. Under
the first, COA personnel assigned to auditing units of GOCCs or government financial
(Emphasis
supplied)
institutions can receive only such salaries, allowances or fringe benefits paid directly
by the COA out of its appropriations and contributions. The contributions referred to
Claiming that Section 18 is absolute and leaves no doubt,[39] petitioner asks COA to
are the cost of audit services earlier mentioned which cannot include the extra
discontinue its practice of charging auditing fees to LWDs since such practice
emoluments or benefits now claimed by petitioners. The COA is further barred from
35
In Tejada, the Court explained the meaning of the word contributions in Section 18
PANGANIBAN, J.:
of RA 6758, which allows COA to charge GOCCs the cost of its audit services:
A partnership may be deemed to exist among parties who agree to borrow money to
x x x the contributions from the GOCCs are limited to the cost of audit services which
pursue a business and to divide the profits or losses that may arise therefrom, even if
are based on the actual cost of the audit function in the corporation concerned plus a
it is shown that they have not contributed any capital of their own to a "common fund."
reasonable rate to cover overhead expenses. The actual audit cost shall include
Their contribution may be in the form of credit or industry, not necessarily cash or
fixed assets. Being partner, they are all liable for debts incurred by or on behalf of the
capital and equipment and out-of-pocket expenses. In respect to the allowances and
fringe benefits granted by the GOCCs to the COA personnel assigned to the formers
association or ostensible corporation may lie in a person who may not have directly
auditing units, the same shall be directly defrayed by COA from its own appropriations
x x x. [41]
The Case
COA may charge GOCCs actual audit cost but GOCCs must pay the same directly
to COA and not to COA auditors. Petitioner has not alleged that COA charges LWDs
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November
auditing fees in excess of COAs actual audit cost. Neither has petitioner alleged that
the auditing fees are paid by LWDs directly to individual COA auditors.
Thus,
hereby affirmed. 2
the Decision dated 30 January 2001 denying petitioners Motion for Reconsideration
are AFFIRMED. The second sentence of Section 20 of Presidential Decree No. 198
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was
is declared VOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the
Constitution. No costs.
WHEREFORE, the Court rules:
SO ORDERED.
G.R. No. 136448 November 3, 1999
1.
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;
36
a.
of P900,000.00 replaced the attached property as a guaranty for any judgment that
covered by the Agreement plus P68,000.00 representing the unpaid price of the floats
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]
b.
12% interest per annum counted from date of plaintiff's invoices and
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
i.
damages to defendants to be cancelled and for the P900,000.00 cash bidded and
February 9, 1990;
ii.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may
Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated
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
iii.
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
c.
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
d.
possession and ownership of the nets and floats and for the reimbursement of the
the nets counted from September 20, 1990 (date of attachment) to September 12,
Cost of suit.
The Facts
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,
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
respectively, or for the total amount P600,045.00, this Court noted that these items
entered into a Contract dated February 7, 1990, for the purchase of fishing nets of
were attached to guarantee any judgment that may be rendered in favor of the plaintiff
various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent).
but, upon agreement of the parties, and, to avoid further deterioration of the nets
They claimed that they were engaged in a business venture with Petitioner Lim Tong
during the pendency of this case, it was ordered sold at public auction for not less
Lim, who however was not a signatory to the agreement. The total price of the nets
than P900,000.00 for which the plaintiff was the sole and winning bidder. The
amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold
proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount
to the Corporation. 4
37
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
a)
respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with
sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00
That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels
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
b)
If the four (4) vessel[s] and the fishing net will be sold at a higher price than
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the
P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim;
fishing nets on board F/B Lourdes which was then docked at the Fisheries Port,
If the proceeds of the sale the vessels will be less than P5,750,000.00
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
1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11
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
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
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
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the
fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding
RTC.
and deposited with the said court the sales proceeds of P900,000. 7
Ruling of the Court of Appeals
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
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 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
The evidence establishes that all the defendants including herein appellant Lim Tong
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
fishing . . . . Oviously, the ultimate undertaking of the defendants was to divide the
of fishing boats; (d) an injunction and (e) damages. 10 The Compromise Agreement
provided:
38
industry to a common fund with the intention of dividing the profits among themselves
Existence of a Partnership
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision
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
AMONG THEM.
Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25
percent of the gross catch of the boat.
II
We are not persuaded by the arguments of petitioner. The facts as found by the two
NETS
lower courts clearly showed that there existed a partnership among Chua, Yao and
FROM
PHILIPPINE
FISHING,
THE
COURT
OF
APPEALS
WAS
III
Art. 1767 By the contract of partnership, two or more persons bind themselves to
In determining whether petitioner may be held liable for the fishing nets and floats
from respondent, the Court must resolve this key issue: whether by their acts, Lim,
Specifically, both lower courts ruled that a partnership among the three existed based
(1)
That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yao's partner;
The Petition is devoid of merit.
(2)
First and Second Issues:
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;
39
That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim
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.
(4)
That they bought the boats from CMF Fishing Corporation, which executed a
The contribution to such fund need not be cash or fixed assets; it could be an
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve
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.
(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
Moreover, it is clear that the partnership extended not only to the purchase of the
and Yao;
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
(6)
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
which, Yao and Chua entrusted the ownership papers of two other boats, Chua's FB
have proceeded.
That in pursuance of the business agreement, Peter Yao and Antonio Chua
a partnership engaged in the fishing business. They purchased the boats, which
bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest
constituted the main assets of the partnership, and they agreed that the proceeds
from the sales and operations thereof would be divided among them.
(8)
That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
We stress that under Rule 45, a petition for review like the present case should
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of
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
(9)
executed between the parties-litigants the terms of which are already enumerated
above.
Compromise Agreement
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth
P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's
40
Petitioner argues that the appellate court's sole basis for assuming the existence of a
of the boats, as well as the division among the three of the balance remaining after
partnership was the Compromise Agreement. He also claims that the settlement was
the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in
entered into only to end the dispute among them, but not to adjudicate their
his name, was not his own property but an asset of the partnership. It is not
preexisting rights and obligations. His arguments are baseless. The Agreement was
uncommon to register the properties acquired from a loan in the name of the person
but an embodiment of the relationship extant among the parties prior to its execution.
the lender trusts, who in this case is the petitioner himself. After all, he is the brother
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
property to pay a debt he did not incur, if the relationship among the three of them
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
Corporation by Estoppel
petitioner's argument that the existence of a partnership was based only on the
Compromise Agreement.
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.
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
however, That when any such ostensible corporation is sued on any transaction
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
incompetent to act and appropriate for itself the power and attributes of a corporation
the upgrading of the vessels which would be used in their fishing business. The sale
as provided by law; it cannot create agents or confer authority on another to act in its
41
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
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
regarded as the principal, possessed of all the right and subject to all the liabilities of
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
no valid existence assumes such privileges and obligations and becomes personally
corporation and those benefited by it, knowing it to be without valid existence, are held
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
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
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
skilled in the subtle art of movement and position, entraps and destroys the other. It is,
nonetheless treated it as a corporation and received benefits from it, may be barred
rather, a contest in which each contending party fully and fairly lays before the court
from denying its corporate existence in a suit brought against the alleged corporation.
the facts in issue and then, brushing aside as wholly trivial and indecisive all
In such case, all those who benefited from the transaction made by the ostensible
imperfections of form and technicalities of procedure, asks that justice be done upon
corporation, despite knowledge of its legal defects, may be held liable for contracts
the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no
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
Third Issue:
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
Validity of Attachment
nets. We agree with the Court of Appeals that this issue is now moot and academic.
Lourdes, the boat which has earlier been proven to be an asset of the partnership. He
As previously discussed, F/B Lourdes was an asset of the partnership and that it was
in fact questions the attachment of the nets, because the Writ has effectively stopped
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-
42
made according to their own design, and were bought and used in the fishing venture
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the
they agreed upon. Hence, the issuance of the Writ to assure the payment of the price
Philippine Islands. A majority of its stockholders are British subjects. It is the owner of
a motor vessel known as the Bato built for it in the Philippine Islands in 1916, of more
nets remained with Respondent Philippine Fishing Gear, until full payment thereof.
than fifteen tons gross The Bato was brought to Cebu in the present year for the
purpose of transporting plaintiff's merchandise between ports in the Islands.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
Application was made at Cebu, the home port of the vessel, to the Collector of
against petitioner.
Customs for a certificate of Philippine registry. The Collector refused to issue the
certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd.,
SO ORDERED.
G.R. No. 15574
were not citizens either of the United States or of the Philippine Islands. The instant
action is the result.
SMITH, BELL & COMPANY (LTD.), petitioner vs. JOAQUIN NATIVIDAD, Collector
of Customs of the port of Cebu, respondent.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906
but reenacting a portion of section 3 of this Law, and still in force, provides in its
section 1:
MALCOLM, J.:
That until Congress shall have authorized the registry as vessels of the United States
of vessels owned in the Philippine Islands, the Government of the Philippine Islands is
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin
hereby authorized to adopt, from time to time, and enforce regulations governing the
Natividad, Collector of Customs of the port of Cebu, Philippine Islands, to compel him
to issue a certificate of Philippine registry to the petitioner for its motor vessel Bato.
Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7
The Attorney-General, acting as counsel for respondent, demurs to the petition on the
general ground that it does not state facts sufficient to constitute a cause of action.
While the facts are thus admitted, and while, moreover, the pertinent provisions of law
The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in
force, provides in section 3, (first paragraph, first sentence), 6, 7, 8, 10, and 31, as
abundance, yet the issue submitted is not lightly to be resolved. The question, flatly
follows.
presented, is, whether Act. No. 2761 of the Philippine Legislature is valid or, more
directly stated, whether the Government of the Philippine Islands, through its
SEC. 3. That no law shall be enacted in said Islands which shall deprive any person
Legislature, can deny the registry of vessels in its coastwise trade to corporations
of life, liberty, or property without due process of law, or deny to any person therein
FACTS:
43
SEC. 6. That the laws now in force in the Philippines shall continue in force and
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first
section of this law amended section 1172 of the Administrative Code to read as
follows:
United States.
SEC. 1172.
SEC. 7. That the legislative authority herein provided shall have power, when not
domestic ownership, and of more than fifteen tons gross, a certificate of Philippine
inconsistent with this Act, by due enactment to amend, alter modify, or repeal any law,
register shall be issued for it. If the vessel is of domestic ownership and of fifteen tons
civil or criminal, continued in force by this Act as it may from time to time see fit
gross or less, the taking of the certificate of Philippine register shall be optional with
the owner.
This power shall specifically extend with the limitation herein provided as to the tariff
to all laws relating to revenue provided as to the tariff to all laws relating to revenue
"Domestic ownership," as used in this section, means ownership vested in some one
or more of the following classes of persons: (a) Citizens or native inhabitants of the
Philippine Islands; (b) citizens of the United States residing in the Philippine Islands;
(c) any corporation or company composed wholly of citizens of the Philippine Islands
or of the United States or of both, created under the laws of the United States, or of
any State thereof, or of thereof, or the managing agent or master of the vessel resides
SEC. 10.
That while this Act provides that the Philippine government shall
have the authority to enact a tariff law the trade relations between the islands and the
United States shall continue to be governed exclusively by laws of the Congress of the
Any vessel of more than fifteen gross tons which on February eighth, nineteen
United States: Provided, That tariff acts or acts amendatory to the tariff of the
hundred and eighteen, had a certificate of Philippine register under existing law, shall
Philippine Islands shall not become law until they shall receive the approval of the
likewise be deemed a vessel of domestic ownership so long as there shall not be any
President of the United States, nor shall any act of the Philippine Legislature affecting
change in the ownership thereof nor any transfer of stock of the companies or
immigration or the currency or coinage laws of the Philippines become a law until it
corporations owning such vessel to person not included under the last preceding
has been approved by the President of the United States: Provided further, That the
paragraph.
President shall approve or disapprove any act mentioned in the foregoing proviso
within six months from and after its enactment and submission for his approval, and if
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the
not disapproved within such time it shall become a law the same as if it had been
specifically approved.
SEC. 1176. Investigation into character of vessel. No application for a certificate of
SEC. 31.
Philippine register shall be approved until the collector of customs is satisfied from an
conflict with any of the provisions of this Act are hereby continued in force and effect."
44
While the Act of the local legislature may in a way be inconsistent with the Act of
The collector of customs may at any time inspect a vessel or examine its owner,
Congress regulating the coasting trade of the Continental United States, yet the
general rule that only such laws of the United States have force in the Philippines as
legitimate trade and is entitled to have or retain the certificate of Philippine register.
are expressly extended thereto, and the abnegation of power by Congress in favor of
the Philippine Islands would leave no starting point for convincing argument. As a
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. No
matter of fact, counsel for petitioner does not assail legislative action from this
Philippine vessel operating in the coastwise trade or on the high seas shall be
direction (See U. S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How.,
permitted to have on board more than one master or one mate and one engineer who
227.)
are not citizens of the United States or of the Philippine Islands, even if they hold
licenses under section one thousand one hundred and ninety-nine hereof. No other
2.
It is from the negative, prohibitory standpoint that counsel argues against the
person who is not a citizen of the United States or of the Philippine Islands shall be an
constitutionality of Act No. 2761. The first paragraph of the Philippine Bill of Rights of
officer or a member of the crew of such vessel. Any such vessel which fails to comply
the Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights
with the terms of this section shall be required to pay an additional tonnage tax of fifty
as set forth in the Jones Law, provides "That no law shall be enacted in said Islands
centavos per net ton per month during the continuance of said failure.
which shall deprive any person of life, liberty, or property without due process of law,
or deny to any person therein the equal protection of the laws." Counsel says that Act
ISSUES.
No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it,
in effect, prohibits the corporation from owning vessels, and because classification of
Predicated on these facts and provisions of law, the issues as above stated recur,
namely, whether Act No 2761 of the Philippine Legislature is valid in whole or in part
capricious, and that Act No. 2761 deprives the corporation of its properly without due
whether the Government of the Philippine Islands, through its Legislature, can
process of law because by the passage of the law company was automatically
deny the registry of vessel in its coastwise trade to corporations having alien
deprived of every beneficial attribute of ownership in the Bato and left with the naked
stockholders .
OPINION.
The guaranties extended by the Congress of the United States to the Philippine
Islands have been used in the same sense as like provisions found in the United
1.
States Constitution. While the "due process of law and equal protection of the laws"
as to the power of the Philippine Legislature to enact Act No. 2761. The Act of
clause of the Philippine Bill of Rights is couched in slightly different words than the
Congress of April 29, 1908, with its specific delegation of authority to the Government
the first should be interpreted and given the same force and effect as the latter.
passengers between ports or places therein, the liberal construction given to the
(Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U.
provisions of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts,
S. vs. Bull [1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment has been
and the grant by the Act of Congress of August 29, 1916, of general legislative power
announced in classic decisions of the United States Supreme Court. Even at the
to the Philippine Legislature, are certainly superabundant authority for such a law.
45
expense of restating what is so well known, these basic principles must again be set
any wild bird or animal by any unnaturalized foreign-born resident; Ex parte Gilleti
[1915], 70 Fla., 442, discriminating in favor of citizens with reference to the taking for
The guaranties of the Fourteenth Amendment and so of the first paragraph of the
private use of the common property in fish and oysters found in the public waters of
Philippine Bill of Rights, are universal in their application to all person within the
the State; Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915],
239 U. S., 195, limiting employment on public works by, or for, the State or a
The word "person" includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax
vs. Raich [1915], 239 U. S., 33.) Private corporations, likewise, are "persons" within
the scope of the guaranties in so far as their property is concerned. (Santa Clara
One of the exceptions to the general rule, most persistent and far reaching in
County vs. Southern Pac. R. R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs.
influence is, that neither the Fourteenth Amendment to the United States Constitution,
Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford
broad and comprehensive as it is, nor any other amendment, "was designed to
[1896], 164 U. S., 578.) Classification with the end in view of providing diversity of
interfere with the power of the State, sometimes termed its `police power,' to prescribe
treatment may be made among corporations, but must be based upon some
regulations to promote the health, peace, morals, education, and good order of the
reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe
people, and legislate so as to increase the industries of the State, develop its
Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional
resources and add to its wealth and prosperity. From the very necessities of society,
legislation of a special character, having these objects in view, must often be had in
decisions relate to statutes which had attempted arbitrarily to forbid aliens to engage
certain districts." (Barbier vs. Connolly [1884], 113 U.S., 27; New Orleans Gas Co. vs.
in ordinary kinds of business to earn their living. (State vs. Montgomery [1900], 94
Lousiana Light Co. [1885], 115 U.S., 650.) This is the same police power which the
Maine, 192, peddling but see. Commonwealth vs. Hana [1907], 195 Mass., 262;
United States Supreme Court say "extends to so dealing with the conditions which
Templar vs. Board of Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick Wo
exist in the state as to bring out of them the greatest welfare in of its people." (Bacon
vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese; Truax vs. Raich
vs. Walker [1907], 204 U.S., 311.) For quite similar reasons, none of the provision of
[1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; Fraser vs. McConway & Torley
the Philippine Organic Law could could have had the effect of denying to the
Co. [1897], 82 Fed , 257; Juniata Limestone Co. vs. Fagley [1898], 187 Penn., 193, all
Government of the Philippine Islands, acting through its Legislature, the right to
exercise that most essential, insistent, and illimitable of powers, the sovereign police
power, in the promotion of the general welfare and the public interest. (U. S. vs.
A literal application of general principles to the facts before us would, of course, cause
Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty [1915], 32 Phil., 580; Rubi
the inevitable deduction that Act No. 2761 is unconstitutional by reason of its denial to
vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another notable exception
a corporation, some of whole members are foreigners, of the equal protection of the
permits of the regulation or distribution of the public domain or the common property
laws. Like all beneficient propositions, deeper research discloses provisos. Examples
or resources of the people of the State, so that use may be limited to its citizens. (Ex
parte Gilleti [1915], 70 Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391; Patsone
Amendment could be cited. (Tragesser vs. Gray [1890], 73 Md., 250, licenses to sell
vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.) Still another exception
spirituous liquors denied to persons not citizens of the United States; Commonwealth
permits of the limitation of employment in the construction of public works by, or for,
vs. Hana [1907], 195 Mass , 262, excluding aliens from the right to peddle; Patsone
the State or a municipality to citizens of the United States or of the State. (Atkin vs.
46
Kansas [1903],191 U. S., 207; Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New
to public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3,
York [1915], 239 U. S., 195.) Even as to classification, it is admitted that a State may
1866, arts 1, 2, 3.) Common carriers which in the Philippines as in the United States
classify with reference to the evil to be prevented; the question is a practical one,
and other countries are, as Lord Hale said, "affected with a public interest," can only
be permitted to use these public waters as a privilege and under such conditions as to
the representatives of the people may seem wise. (See De Villata vs. Stanley [1915],
32 Phil., 541.)
To justify that portion of Act no. 2761 which permits corporations or companies to
obtain a certificate of Philippine registry only on condition that they be composed
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein
wholly of citizens of the Philippine Islands or of the United States or both, as not
before mentioned, Justice Holmes delivering the opinion of the United States
infringing Philippine Organic Law, it must be done under some one of the exceptions
here mentioned This must be done, moreover, having particularly in mind what is so
often of controlling effect in this jurisdiction our local experience and our peculiar
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any
local conditions.
wild bird or animal except in defense of person or property, and `to that end' makes it
unlawful for such foreign-born person to own or be possessed of a shotgun or rifle;
To recall a few facts in geography, within the confines of Philippine jurisdictional limits
with a penalty of $25 and a forfeiture of the gun or guns. The plaintiff in error was
are found more than three thousand islands. Literally, and absolutely, steamship lines
found guilty and was sentenced to pay the abovementioned fine. The judgment was
are, for an Insular territory thus situated, the arteries of commerce. If one be severed,
affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this
the life-blood of the nation is lost. If on the other hand these arteries are protected,
court on the ground that the statute is contrary to the 14th Amendment and also is in
then the security of the country and the promotion of the general welfare is sustained.
contravention of the treaty between the United States and Italy, to which latter country
Time and again, with such conditions confronting it, has the executive branch of the
Government of the Philippine Islands, always later with the sanction of the judicial
branch, taken a firm stand with reference to the presence of undesirable foreigners.
Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien of
The Government has thus assumed to act for the all-sufficient and primitive reason of
property, and discrimination against such aliens as a class. But the former really
the benefit and protection of its own citizens and of the self-preservation and integrity
depends upon the latter, since it hardly can be disputed that if the lawful object, the
of its dominion. (In re Patterson [1902], 1 Phil., 93; Forbes vs. Chuoco, Tiaco and
protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct.
Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick [1918], 38 Phil.,
Rep., 600), warrants the discrimination, the, means adopted for making it effective
41.) Boats owned by foreigners, particularly by such solid and reputable firms as the
instant claimant, might indeed traverse the waters of the Philippines for ages without
doing any particular harm. Again, some evilminded foreigner might very easily take
The discrimination undoubtedly presents a more difficult question. But we start with
reference to the evil to be prevented, and that if the class discriminated against is or
reasonably might be considered to define those from whom the evil mainly is to be
or American commerce. Moreover, under the Spanish portion of Philippine law, the
feared, it properly may be picked out. A lack of abstract symmetry does not matter.
waters within the domestic jurisdiction are deemed part of the national domain, open
47
3.
The question therefore narrows itself to whether this court can say that the legislature
the Constitution, includes the power to nationalize ships built and owned in the United
of Pennsylvania was not warranted in assuming as its premise for the law that
States by registries and enrollments, and the recording of the muniments of title of
resident unnaturalized aliens were the peculiar source of the evil that it desired to
American vessels. The Congress "may encourage or it may entirely prohibit such
prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct.
commerce, and it may regulate in any way it may see fit between these two
Rep., 692.)
extremes." (U.S. vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat.,
1; The Passenger Cases [1849], 7 How., 283.)
Obviously the question, so stated, is one of local experience, on which this court
ought to be very slow to declare that the state legislature was wrong in its facts
Acting within the purview of such power, the first Congress of the United States had
(Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep.,
not been long convened before it enacted on September 1, 1789, "An Act for
610.) If we might trust popular speech in some states it was right; but it is enough that
Registering and Clearing Vessels, Regulating the Coasting Trade, and for other
this court has no such knowledge of local conditions as to be able to say that it was
purposes." Section 1 of this law provided that for any ship or vessel to obtain the
manifestly wrong. . . .
Judgment affirmed.
but the same idea was carried into the Acts of Congress of December 31, 1792 and
February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act of 1792 provided that
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having
in order to obtain the registry of any vessel, an oath shall be taken and subscribed by
alien stockholders, is entitled to the protection afforded by the due-process of law and
the owner, or by one of the owners thereof, before the officer authorized to make such
equal protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act
registry, declaring, "that there is no subject or citizen of any foreign prince or state,
No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell
&. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not
vessel, or in the profits or issues thereof." Section 32 of the Act of 1793 even went so
belong to that vicious species of class legislation which must always be condemned,
far as to say "that if any licensed ship or vessel shall be transferred to any person who
but does fall within authorized exceptions, notably, within the purview of the police
is not at the time of such transfer a citizen of and resident within the United States, ...
every such vessel with her tackle, apparel, and furniture, and the cargo found on
board her, shall be forefeited." In case of alienation to a foreigner, Chief Justice
This opinion might well be brought to a close at this point. It occurs to us, however,
Marshall said that all the privileges of an American bottom were ipso facto forfeited.
that the legislative history of the United States and the Philippine Islands, and,
(U.S. vs. Willings and Francis [1807], 4 Cranch, 48.) Even as late as 1873, the
probably, the legislative history of other countries, if we were to take the time to
Attorney-General of the United States was of the opinion that under the provisions of
search it out, might disclose similar attempts at restriction on the right to enter the
the Act of December 31, 1792, no vessel in which a foreigner is directly or indirectly
coastwise trade, and might thus furnish valuable aid by which to ascertain and, if
interested can lawfully be registered as a vessel of the United. States. (14 Op. Atty.-
48
These laws continued in force without contest, although possibly the Act of March 3,
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to
1825, may have affected them, until amended by the Act of May 28, 1896 (29 Stat. at
L., 188) which extended the privileges of registry from vessels wholly owned by a
encourage Philippine ship-building. This, without doubt, has, likewise, been the
citizen or citizens of the United States to corporations created under the laws of any of
intention of the United States Congress in passing navigation or tariff laws on different
the states thereof. The law, as amended, made possible the deduction that a vessel
occasions. The object of such a law, the United States Supreme Court once said, was
some stock of the company be owned by aliens. The right of ownership of stock in a
owners exclusive privileges. (Old Dominion Steamship Co. vs. Virginia [1905], 198
corporation was thereafter distinct from the right to hold the property by the
corporation (Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud
[1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat.,
1) is found the following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for example,
Article fifteen of the Spanish Code of Commerce permitted any foreigner to engage in
acts licensing gaming houses, retailers of spirituous liquors, etc. The act, in this
Philippine trade if he had legal capacity to do so under the laws of his nation. When
instance, is distinctly of that character, and forms part of an extensive system, the
the Philippine Commission came to enact the Customs Administrative Act (No. 355) in
1902, it returned to the old American policy of limiting the protection and flag of the
footing with the shipping of other nations. Almost every commercial nation reserves to
its own subjects a monopoly of its coasting trade; and a countervailing privilege in
inhabitants of the Philippine Islands (Sec. 117.) Two years later, the same body
States on this subject. It is not to give the vessel an American character, that the
citizen of the United States or to a corporation or company created under the laws of
license is granted; that effect has been correctly attributed to the act of her enrollment.
the United States or of any state thereof or of the Philippine Islands (Act No. 1235,
sec. 3.) The two administration codes repeated the same provisions with the
themselves into the American commercial marine, as well as frauds upon the revenue
Islands (Adm. Code of 1916, sec. 1345; Adm. Code of 1917, sec. 1172). And now Act
No. 2761 has returned to the restrictive idea of the original Customs Administrative
Act which in turn was merely a reflection of the statutory language of the first
The United States Congress in assuming its grave responsibility of legislating wisely
American Congress.
for a new country did so imbued with a spirit of Americanism. Domestic navigation
and trade, it decreed, could only be carried on by citizens of the United States. If the
Provisions such as those in Act No. 2761, which deny to foreigners the right to a
representatives of the American people acted in this patriotic manner to advance the
certificate of Philippine registry, are thus found not to be as radical as a first reading
national policy, and if their action was accepted without protest in the courts, who can
say that they did not enact such beneficial laws under the all-pervading police power,
with the prime motive of safeguarding the country and of promoting its prosperity?
49
desired for these Islands safety from foreign interlopers, the use of the common
property exclusively by its citizens and the citizens of the United States, and
protection for the common good of the people. Who can say, therefore, especially can
a court, that with all the facts and circumstances affecting the Filipino people before it,
the Philippine Legislature has erred in the enactment of Act No. 2761?
vs.
of passing events and alive to the dictates of the general the national welfare,
can incline the scales of their decisions in favor of that solution which will most
effectively promote the public policy. All the presumption is in favor of the
NARVASA, J.:
constitutionally of the law and without good and strong reasons, courts should not
attempt to nullify the action of the Legislature. "In construing a statute enacted by the
corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1)
which would be repugnant to an Act of Congress, if the language of the statute is fairly
susceptible of another construction not in conflict with the higher law." (In re Guaria
on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration,
[1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the true construction
takeover, and other orders issued, and acts done, in accordance with said executive
orders
by
the
Presidential
Commission
on
Good
Government
and/or
its
With full consciousness of the importance of the question, we nevertheless are clearly
of the opinion that the limitation of domestic ownership for purposes of obtaining a
certificate of Philippine registry in the coastwise trade to citizens of the Philippine
Islands, and to citizens of the United States, does not violate the provisions of
paragraph 1 of section 3 of the Act of Congress of August 29, 1916 No treaty right
relied upon Act No. 2761 of the Philippine Legislature is held valid and constitutional .
1.
a.
The sequestration order which, in the view of the petitioner corporation, initiated all its
The petition for a writ of mandamus is denied, with costs against the petitioner. So
misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It
ordered.
was addressed to three of the agents of the Commission, hereafter simply referred to
as PCGG. It reads as follows:
RE: SEQUESTRATION ORDER
50
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the
by authority of the President of the Philippines, you are hereby directed to sequester
PCGG, addressed a letter dated April 18, 1986 to the President and other officers of
petitioner firm, reiterating an earlier request for the production of certain documents,
to wit:
1.
Bataan Shipyard and Engineering Co., Inc.
(Engineering Island Shipyard and Mariveles Shipyard)
2.
Baseco Quarry
3.
Philippine Jai-Alai Corporation
4.
Fidelity Management Co., Inc.
5.
Romson Realty, Inc.
6.
Trident Management Co.
7.
New Trident Management
8.
Bay Transport
9.
to 1986
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others
from 1973 to December 31, 1985.
Further, you are authorized to request for Military/Security Support from the
Military/Police authorities, and such other acts essential to the achievement of this
5. Monthly Financial Statements for the current year up to March 31, 1986.
sequestration order. 1
6. Consolidated Cash Position Reports from January to April 15, 1986.
b. Order for Production of Documents
51
of BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the
withdrawals thereof.
"optimize its utilization and in return maximize the revenue which would flow into the
government coffers," in consideration of Deltamarine's being granted "priority in using
The letter closed with the warning that if the documents were not submitted within five
the improved portion of the wharf ahead of anybody" and exemption "from the
days, the officers would be cited for "contempt in pursuance with Presidential
payment of any charges for the use of wharf including the area where it may install its
bagging equipments" "until the improvement remains in a condition suitable for port
operations." 5 It seems however that this contract was never consummated. Capt.
position to honor the said contract" and thus "whatever improvements * * (may be
introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own
risk." 6
BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member
of the task force assigned to carry out the basic sequestration order. He sent a letter
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG
agent, Mayor Melba O. Buenaventura, "to plan and implement progress towards
the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at
Mariveles, Bataan, an agreement to this effect having been executed by them on
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck
f.
the sense that the stipulated charges for use of the BASECO road network were
made payable "upon entry and not anymore subject to monthly billing as was
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor
Buenaventura was also "authorized to clean and beautify the Company's compound,"
52
and in this connection, to dispose of or sell "metal scraps" and other materials,
takeover by the PCGG of BASECO, "the Philippine Dockyard Corporation and all their
2.
It is the foregoing specific orders and acts of the PCGG and its members and agents
dissipation, business enterprises and properties taken over by the government of the
which, to repeat, petitioner BASECO would have this Court nullify. More particularly,
until the transactions leading to such acquisition by the latter can be disposed of by
the appropriate authorities.
1)
2)
annul the sequestration order dated April- 14, 1986, and all other orders
subsequently issued and acts done on the basis thereof, inclusive of the takeover
order of July 14, 1986 and the termination of the services of the BASECO executives.
1.
11
2.
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
4. Ensures that the assets of the companies are not dissipated and used effectively
1986 when the Freedom Constitution was promulgated, under the principle that the
and efficiently; revenues are duly accounted for; and disburses funds only as may be
law promulgated by the ruler under a revolutionary regime is the law of the land, it
necessary;
ceased to be acceptable when the same ruler opted to promulgate the Freedom
Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of
Rights) of the 1973 Constitution was adopted providing, among others, that "No
person shall be deprived of life, liberty and property without due process of law."
(Const., Art. I V, Sec. 1)." 12
53
2)
It declares that its objection to the constitutionality of the Executive Orders "as well as
contract" with Deltamarine Integrated Port Services, Inc., giving the latter free use of
the Sequestration Order * * and Takeover Order * * issued purportedly under the
BASECO premises; 16
3)
over; Second, the PCGG is not a court, but a purely investigative agency and
therefore not competent to act as prosecutor and judge in the same cause; Third,
there is nothing in the issuances which envisions any proceeding, process or remedy
4)
by which petitioner may expeditiously challenge the validity of the takeover after the
authorizing the same mayor to sell or dispose of its metal scrap, equipment,
same has been effected; and Fourthly, being directed against specified persons, and
in disregard of the constitutional presumption of innocence and general rules and
5)
b.
6)
apparently already complied with, was issued without court authority and infringed its
constitutional right against self-incrimination, and unreasonable search and seizure.
7)
8)
allowing willingly or unwillingly its personnel to take, steal, carry away from
14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of
dominion and management of its business affairs by
9)
terminating its contract for security services with Fairways & Anchor, without
the consent and against the will of the contracting parties; and amending the mode of
3.
payment of entry fees stipulated in its Lease Contract with National Stevedoring &
Orders
Many misconceptions and much doubt about the matter of sequestration, takeover
and freeze orders have been engendered by misapprehension, or incomplete
comprehension if not indeed downright ignorance of the law governing these
remedies. It is needful that these misconceptions and doubts be dispelled so that
54
uninformed and useless debates about them may be avoided, and arguments tainted
relationship. 27
end, this opinion will essay an exposition of the law on the matter. In the process
many of the objections raised by BASECO will be dealt with.
4.
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit
President-in the exercise of legislative power which she was authorized to continue to
wield "(until a legislature is elected and convened under a new Constitution" "shall
give priority to measures to achieve the mandate of the people," among others to
(r)ecover ill-gotten properties amassed by the leaders and supporters of the previous
dissipation, business enterprises and properties taken over by the government of the
regime and protect the interest of the people through orders of sequestration or
until the transactions leading to such acquisition by the latter can be disposed of by
the appropriate authorities.
entity that may render moot and academic, or frustrate or otherwise make ineffectual
postulates that "vast resources of the government have been amassed by former
the efforts of the Commission to carry out its task under this order. 28
President Ferdinand E. Marcos, his immediate family, relatives, and close associates
both here and abroad." 25 Upon these premises, the Presidential Commission on
So that it might ascertain the facts germane to its objectives, it was granted power to
Good Government was created, 26 "charged with the task of assisting the President
conduct
testificandum and duces tecum; administer oaths; punish for contempt. 29 It was
investigations;
require
submission
of
evidence
by
subpoenae
ad
given power also to promulgate such rules and regulations as may be necessary to
* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, whether
located in the Philippines or abroad, including the takeover or sequestration of all
55
Executive Order No. 2 gives additional and more specific data and directions
there are assets and properties purportedly pertaining to former Ferdinand E. Marcos,
and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates,
3)
business associates, dummies, agents or nominees which had been or were acquired
4) required "all persons in the Philippines holding such assets or properties, whether
resulting in their unjust enrichment and causing grave damage and prejudice to the
to make full disclosure of the same to the Commission on Good Government within
thirty (30) days from publication of * (the) Executive Order, * *. 32
2) * * said assets and properties are in the form of bank accounts, deposits, trust
accounts, shares of stocks, buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and personal properties in the Philippines
and in various countries of the world." 31
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is
empowered, "with the assistance of the Office of the Solicitor General and other
1) froze "all assets and properties in the Philippines in which former President Marcos
filed "with the Sandiganbayan which shall have exclusive and original jurisdiction
and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates,
thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for
participation;
forfeiture proceedings provided for under Republic Act No. 1379, or any other civil
actions under the Civil Code or other existing laws, in connection with * * (said
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close
Executive Orders Numbered 1 and 2) may be filed separately from and proceed
evidence;" and that, moreover, the "technical rules of procedure and evidence shall
5.
56
Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
6.
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the
There can be no debate about the validity and eminent propriety of the Government's
previous regime"; 37
Neither can there be any debate about the proposition that assuming the above
true, to be demonstrable by competent evidence, the recovery from Marcos, his family
and his dominions of the assets and properties involved, is not only a right but a duty
But however plain and valid that right and duty may be, still a balance must be sought
with the equally compelling necessity that a proper respect be accorded and
b) otherwise stated, that "there are assets and properties purportedly pertaining to
adequate protection assured, the fundamental rights of private property and free
former President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez
enterprise which are deemed pillars of a free society such as ours, and to which all
nominees which had been or were acquired by them directly or indirectly, through or
as a result of the improper or illegal use of funds or properties owned by the
in the pursuit of happiness. Along with these freedoms are included economic
freedom and freedom of enterprise within reasonable bounds and under proper
grave damage and prejudice to the Filipino people and the Republic of the
control. * * Evincing much concern for the protection of property, the Constitution
Philippines"; 39
distinctly recognizes the preferred position which real estate has occupied in law for
ages. Property is bound up with every aspect of social life in a democracy as
c) that "said assets and properties are in the form of bank accounts. deposits, trust.
residences, estates, and other kinds of real and personal properties in the Philippines
legitimately, plays in the stimulation to economic effort and the formation and growth
of a solid social middle class that is said to be the bulwark of democracy and the
backbone of every progressive and happy country. 42
2) that certain "business enterprises and properties (were) taken over by the
government of the Marcos Administration or by entities or persons close to former
President Marcos. 41
57
By the clear terms of the law, the power of the PCGG to sequester property claimed to
proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly
and properly adjudged and consummated; although there are some who maintain that
said property, or any building or office wherein any such property and any records
the fact-that an immense fortune, and "vast resources of the government have been
pertaining thereto may be found, including "business enterprises and entities,"-for the
and close associates both here and abroad," and they have resorted to all sorts of
clever schemes and manipulations to disguise and hide their illicit acquisitions-is
judicial proceedings, whether the property was in truth will- gotten," i.e., acquired
within the realm of judicial notice, being of so extensive notoriety as to dispense with
been expressly acknowledged, and the procedure to be followed explicitly laid down,
Nor may it be gainsaid that pending the institution of the suits for the recovery of such
b. "Freeze Order"
"ill-gotten wealth" as the evidence at hand may reveal, there is an obvious and
imperative need for preliminary, provisional measures to prevent the concealment,
A "freeze order" prohibits the person having possession or control of property alleged
the suits, or to restrain or foil acts that may render moot and academic, or effectively
otherwise depleting or concealing such property, or from assisting or taking part in its
7.
To answer this need, the law has prescribed three (3) provisional remedies. These
are: (1) sequestration; (2) freeze orders; and (3) provisional takeover.
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the
apparent distinction between "ill gotten" "business enterprises and entities" (going
concerns, businesses in actual operation), generally, as to which the remedy of
a. Sequestration
58
interference, or the least possible interference with the actual management and
operations thereof; and "business enterprises which were taken over by the
Order No. 2 declares that the assets or properties therein mentioned shall remain
determine whether any such assets or properties were acquired" by illegal means.
Executive Order No. 14 makes clear that judicial proceedings are essential for the
takeover" imports something more than sequestration or freezing, more than the
resolution of the basic issue of whether or not particular assets are "ill-gotten," and
placing of the business under physical possession and control, albeit without or with
the least possible interference with the management and carrying on of the business
itself. In a "provisional takeover," what is taken into custody is not only the physical
assets of the business enterprise or entity, but the business operation as well. It is in
fine the assumption of control not only over things, but over operations or on- going
is the device through which persons may be deprived of their property branded as "ill-
governing rules.
It may perhaps be well at this point to stress once again the provisional, contingent
Be this as it may, the 1987 Constitution should allay any lingering fears about the
character of the remedies just described. Indeed the law plainly qualifies the remedy
down the relevant rule in plain terms, apart from extending ratification or confirmation
(although not really necessary) to the institution by presidential fiat of the remedy of
appropriate proceedings of the primary issue of whether or not the acquisition of title
or other right thereto by the apparent owner was attended by some vitiating anomaly.
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation
None of the remedies is meant to deprive the owner or possessor of his title or any
No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain
right to the property sequestered, frozen or taken over and vest it in the sequestering
operative for not more than eighteen months after the ratification of this Constitution.
agency, the Government or other person. This can be done only for the causes and
However, in the national interest, as certified by the President, the Congress may
That this is the sense in which the power to sequester, freeze or provisionally take
A sequestration or freeze order shall be issued only upon showing of a prima facie
case. The order and the list of the sequestered or frozen properties shall forthwith be
question leaves no doubt. Executive Order No. 1 declares that the sequestration of
registered with the proper court. For orders issued before the ratification of this
property the acquisition of which is suspect shall last "until the transactions leading to
Constitution, the corresponding judicial action or proceeding shall be filed within six
59
months from its ratification. For those issued after such ratification, the judicial action
or proceeding shall be commenced within six months from the issuance thereof.
disagreement.
h.
personal property in replevin suits, sequestration and provisional takeover writs may
issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of
As thus described, sequestration, freezing and provisional takeover are akin to the
sheriff seizes property of a defendant in a civil suit so that it may stand as security for
the satisfaction of any judgment that may be obtained, and not disposed of, or
leaders and supporters of the previous regime and protect the interest of the people;"
and control of a receiver appointed by the Court, who shall conserve it pending final
wealth" and thereby cause that disappearance or loss of property precisely sought to
determination of the title or right of possession over it. 55 All these remedies
be prevented, and the fact, just as self-evident, that "any transfer, disposition,
permanency or finality, and always subject to the control of the issuing court or
agency.
8.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued
takeover order, and adequate and fair opportunity to contest it and endeavor to cause
distraint and levy which since 1936 the Commissioner of Internal Revenue has been
by law authorized to issue against property of a delinquent taxpayer. 56 BASECO
Both are assured under the executive orders in question and the rules and regulations
itself declares that it has not manifested "a rigid insistence on sequestration as a
purely judicial remedy * * (as it feels) that the law should not be ossified to a point that
makes it insensitive to change." What it insists on, what it pronounces to be its
"unyielding position, is that any change in procedure, or the institution of a new one,
should conform to due process and the other prescriptions of the Bill of Rights of the
Executive Order No. 14 enjoins that there be "due regard to the requirements of
fairness and due process." 62 Executive Order No. 2 declares that with respect to
60
claims on allegedly "ill-gotten" assets and properties, "it is the position of the new
and official acts which are devoid of rational basis in fact or law, or are whimsical and
9.
sequestration or freeze (and takeover) orders issue upon the authority of at least two
commissioners, based on the affirmation or complaint of an interested party, or motu
If any doubt should still persist in the face of the foregoing considerations as to the
proprio when the Commission has reasonable grounds to believe that the issuance
thereof is warranted. 64 A similar requirement is now found in Section 26, Art. XVIII of
dispelled by the fact that these particular remedies and the authority of the PCGG to
the 1987 Constitution, which requires that a "sequestration or freeze order shall be
mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty
of the President to enact "measures to achieve the mandate of the people to * * *
b. Opportunity to Contest
(recover ill- gotten properties amassed by the leaders and supporters of the previous
regime and protect the interest of the people through orders of sequestration or
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by
freezing of assets or accounts." And as also already adverted to, Section 26, Article
which a party may seek to set aside a writ of sequestration or freeze order, viz:
XVIII of the 1987 Constitution 67 treats of, and ratifies the "authority to issue
sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's
personally or through counsel within five (5) days from receipt of the writ or order, or in
inherent police power, regarded, as t lie power of promoting the public welfare by
restraining and regulating the use of liberty and property," 68 and as "the most
essential, insistent and illimitable of powers * * in the promotion of general welfare and
SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio
the public interest," 69 and said to be co-extensive with self-protection and * * not
for good cause shown, the Commission may lift the writ or order unconditionally or
subject to such conditions as it may deem necessary, taking into consideration the
evidence and the circumstance of the case. The resolution of the commission may be
10.
appealed by the party concerned to the Office of the President of the Philippines
within fifteen (15) days from receipt thereof.
It should also by now be reasonably evident from what has thus far been said that the
PCGG is not, and was never intended to act as, a judge. Its general function is to
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth"
were not expressly imposed by some rule or regulation as a condition to warrant the
wealth;" issue sequestration, and such orders as may be warranted by the evidence
thus collected and as may be necessary to preserve and conserve the assets of
it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails
which it takes custody and control and prevent their disappearance, loss or
dissipation; and eventually file and prosecute in the proper court of competent
61
jurisdiction all cases investigated by it as may be warranted by its findings. It does not
Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5)
try and decide, or hear and determine, or adjudicate with any character of finality or
Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante,
compulsion, cases involving the essential issue of whether or not property should be
(9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio
forfeited and transferred to the State because "ill-gotten" within the meaning of the
Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.
Constitution and the executive orders. This function is reserved to the designated
court, in this case, the Sandiganbayan. 71 There can therefore be no serious regard
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be
accorded to the accusation, leveled by BASECO, 72 that the PCGG plays the
stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias
Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this
year, 1986, there were twenty (20) stockholders listed in BASECO's Stock and
11.
Transfer Book. 75 Their names and the number of shares respectively held by them
are as follows:
Upon these premises and reasoned conclusions, and upon the facts disclosed by the
record, hereafter to be discussed, the petition cannot succeed. The writs of certiorari
1. Jose A. Rojas
2. Severino G. de la Cruz
advantage of his public office and/or using his powers, authority, or influence, " and
that it was by and through the same means, that BASECO had taken over the
1,248 shares
business and/or assets of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities.
3. Emilio T. Yap
12.
2,508 shares
BASECO describes itself in its petition as "a shiprepair and shipbuilding company * *
4. Jose Fernandez
1,248 shares
Port Area, Manila, where its Engineer Island Shipyard is housed, and its main
shipyard is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that
5. Jose Francisco
its authorized capital stock is P60,000,000.00 divided into 60,000 shares, of which
12,000 shares with a value of P12,000,000.00 have been subscribed, and on said
128 shares
subscription, the aggregate sum of P3,035,000.00 has been paid by the incorporators.
74 The same articles Identify the incorporators, numbering fifteen (15), as follows: (1)
6. Manuel S. Mendoza
62
8 shares
96 shares
15. Metro Bay Drydock
7. Anthony P. Lee
136,370 shares
1,248 shares
16. Manuel Jacela
8. Hilario M. Ruiz
1 share
32 shares
17. Jonathan G. Lu
9. Constante L. Farias
1 share
8 shares
18. Jose J. Tanchanco
10. Fidelity Management, Inc.
1 share
65,882 shares
19. Dioscoro Papa
11. Trident Management
128 shares
7,412 shares
20. Edward T. Marcelo
12. United Phil. Lines
4 shares
1,240 shares
TOTAL
13. Renato M. Tanseco
218,819 shares.
8 shares
13
14. Fidel Ventura
63
Barely six months after its incorporation, BASECO acquired from National Shipyard &
of which, as set out in the document of sale, P2,000.000.00 was paid upon its
latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS),
and except for NASSCO's Engineer Island Shops and certain equipment of the
16.
BNS, consigned for future negotiation all its structures, buildings, shops, quarters,
houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again
"Contract of Purchase and Sale with Chattel Mortgage" executed on February 13,
with the intervention of President Marcos, acquired ownership of the rest of the assets
1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered
of NASSCO which had not been included in the first two (2) purchase documents.
This was accomplished by a deed entitled "Contract of Purchase and Sale," 79 which,
(24) hours from completion of the inventory undertaken pursuant to the contract. The
like the Memorandum of Agreement dated October 9, 1973 supra also bore at the
upper right-hand corner of its first page, the handwritten notation of President Marcos
reading, "APPROVED, July 29, 1973," and underneath it, his usual full signature.
installments over a term of nine (9) years, payment to commence after a grace period
Transferred to BASECO were NASSCO's "ownership and all its titles, rights and
interests over all equipment and facilities including structures, buildings, shops,
quarters, houses, plants and expendable or semi-expendable assets, located at the
14.
Engineer Island, known as the Engineer Island Shops, including all the equipment of
the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to
BASECO but retained by BASECO and all other selected equipment and machineries
P24,311,550.00, about eight (8) months later. A document to this effect was executed
committed itself to cooperate with BASECO for the acquisition from the National
David R. Ines, as General Manager. 77 This agreement bore, at the top right corner of
for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to
the first page, the word "APPROVED" in the handwriting of President Marcos,
have been made, and the balance was stipulated to be paid at 7% interest per annum
followed by his usual full signature. The document recited that a down payment of
in equal semi annual installments over a term of nine (9) years, to commence after a
P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was
grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO,
payable in equal semi-annual installments over nine (9) years after a grace period of
Loans Obtained
taken from "the last available Japanese war damage fund of $19,000,000.00," to pay
Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00
for "Japanese made heavy equipment (brand new)." 80 On September 3, 1975, it got
another loan also from the NDC in the amount of P30,000,000.00 (id.). And on
64
January 28, 1976, it got still another loan, this time from the GSIS, in the sum of
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It
P12,400,000.00. 81 The claim has been made that not a single centavo has been
In September, 1977, two (2) reports were submitted to President Marcos regarding
BASECO. The first was contained in a letter dated September 5, 1977 of Hilario M.
SUBJECT:
disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez,
a relative by affinity.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan
obligations due chiefly to the fact that "orders to build ships as expected * * did not
materialize."
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that
He advised that five stockholders had "waived and/or assigned their holdings inblank,"
there had been "no orders or demands for ship construction" for some time and
these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4)
expressed the fear that if that state of affairs persisted, BASECO would not be able to
Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is
pay its debts to the Government, which at the time stood at the not inconsiderable
already dead and Mr. Jose A. Rojas had a major heart attack," he made the following
quite revealing, and it may be added, quite cynical and indurate recommendation, to
wit:
entirely new corporation to be created;" and towards this end, he informed Marcos
that BASECO was
* * (that) their replacements (be effected) so we can register their names in the stock
book prior to the implementation of your instructions to pass a board resolution to
2.
By getting their replacements, the families cannot question us later on; and
3.
65
1.
waivers; 89
such period when BASECO will have enough orders for ships in order for the
company to meet loan obligations," and that
2.
BASECO;
3.
Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in
"Engineer Island";
and his report demonstrates intimate familiarity with the firm's affairs and problems.
5.
Contract dated July 16, 1975, between NASSCO and BASECO re-structure
particularly as regards the "spin-off" and the "linkage scheme" relative to "BASECO's
amortization payments."
7.
a. Instructions re "Spin-Off"
Geronimo Velasco of the Philippine National Oil Company and Chairman Constante
Farias of the National Development Company, directing them "to participate in the
9.
P30,000,000.00;
10.
a.
which are hereby authorized to be converted to equity of the said new corporation, to
wit:
1.
66
2.
xxx
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two
And so, through a simple letter of instruction and memorandum, BASECO's loan
(22) days after receiving their president's memorandum, Messrs. Hilario M. Ruiz,
obligation to NDC and REPACOM * * in the total amount of P83.365M and BSD's
REPACOM loan of P32.438M were wiped out and converted into non-voting preferred
shares. 95
xxx
xxx
20.
Evidence of Marcos'
instructions. It would seem that the new corporation ultimately formed was actually
named "Philippine Dockyard Corporation (PDC)." 94
Ownership of BASECO
b.
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the
actuality of the control by President Marcos of BASECO has been sufficiently shown.
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of
instructions. On February 14, 1978, he issued Letter of Instructions No. 670
Other evidence submitted to the Court by the Solicitor General proves that President
Marcos not only exercised control over BASECO, but also that he actually owns well
Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were
holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident
Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three
the installation of said equipment (so instead of NDC getting paid on its loan to
BASECO, it was made to pay BASECO instead the amount of P18.285M); 2) the
shipbuilding equipment procured from reparations through EPZA, now in the
Now, the Solicitor General has drawn the Court's attention to the intriguing
possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to
circumstance that found in Malacanang shortly after the sudden flight of President
Marcos, were certificates corresponding to more than ninety-five percent (95%) of all
67
the outstanding shares of stock of BASECO, endorsed in blank, together with deeds
petitioner is still endeavoring to secure copies thereof from them." 102 On the same
of assignment of practically all the outstanding shares of stock of the three (3)
day he filed another motion praying that he be allowed "to secure copies of the
corporations above mentioned (which hold 95.82% of all BASECO stock), signed by
Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not
unreasonably argued that counsel's aforestated motion to secure copies of the stock
1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc.
certificates "confirms the fact that stockholders of petitioner corporation are not in
possession of * * (their) certificates of stock," and the reason, according to him, was
"that 95% of said shares * * have been endorsed in blank and found in Malacaang
2)
after the former President and his family fled the country." To this manifestation
BASECO stock;
insisting that the firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27,
Inc. which allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98
1986 among other things "to require * * the petitioner * * to deposit upon proper
and
receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged
to be in its possession or accessible to it, mentioned and described in Annex 'P' of its
petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion
filed on December 5, 1986, 107 BASECO's counsel made the statement, quite
surprising in the premises, that "it will negotiate with the owners (of the BASECO
While the petitioner's counsel was quick to dispute this asserted fact, assuring this
stock in question) to allow petitioner to borrow from them, if available, the certificates
Court that the BASECO stockholders were still in possession of their respective stock
referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel
certificates and had "never endorsed * * them in blank or to anyone else," 100 that
however eventually had to confess inability to produce the originals of the stock
denial is exposed by his own prior and subsequent recorded statements as a mere
certificates, putting up the feeble excuse that while he had "requested the
By resolution dated September 25, 1986, this Court granted BASECO's counsel a
third parties in view of last national emergency." 108 He has conveniently omitted, nor
issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P'
has he offered to give the details of the transactions adverted to by him, or to explain
of the petition.' 101 Counsel thereafter moved for extension; and in his motion dated
why he had not impressed on the supposed stockholders the primordial importance of
October 2, 1986, he declared inter alia that "said certificates of stock are in the
convincing this Court of their present custody of the originals of the stock, or if he had
possession of third parties, among whom being the respondents themselves * * and
done so, why the stockholders are unwilling to agree to some sort of arrangement so
68
that the originals of their certificates might at the very least be exhibited to the Court.
orders pursuant to which they were done, are fatally defective in not according to the
Under the circumstances, the Court can only conclude that he could not get the
parties affected prior notice and hearing, or an adequate remedy to impugn, set aside
originals from the stockholders for the simple reason that, as the Solicitor General
or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and
maintains, said stockholders in truth no longer have them in their possession, these
In the light of the affirmative showing by the Government that, prima facie at least, the
of attainder. 110 "A bill of attainder is a legislative act which inflicts punishment
stockholders and directors of BASECO as of April, 1986 109 were mere "dummies,"
without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial
nominees or alter egos of President Marcos; at any rate, that they are no longer
owners of any shares of stock in the corporation, the conclusion cannot be avoided
that said stockholders and directors have no basis and no standing whatever to cause
In the first place, nothing in the executive orders can be reasonably construed as a
the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as
prayed for in the petition, would in effect be to restore the assets, properties and
Executive Order No. 14, make it perfectly clear that any judgment of guilt in the
business sequestered and taken over by the PCGG to persons who are "dummies,"
tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the
PCGG. In the second place, no punishment is inflicted by the executive orders, as the
From the standpoint of the PCGG, the facts herein stated at some length do indeed
show that the private corporation known as BASECO was "owned or controlled by
23.
authority, influence * *," and that NASSCO and other property of the government had
and Seizures
been taken over by BASECO; and the situation justified the sequestration as well as
the provisional takeover of the corporation in the public interest, in accordance with
BASECO also contends that its right against self incrimination and unreasonable
the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions
searches and seizures had been transgressed by the Order of April 18, 1986 which
with the Sandiganbayan to cause divestment of title thereto from Marcos, and its
required it "to produce corporate records from 1973 to 1986 under pain of contempt of
the Commission if it fails to do so." The order was issued upon the authority of
Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue
As already earlier stated, this Court agrees that this assessment of the facts is
correct; accordingly, it sustains the acts of sequestration and takeover by the PCGG
as being in accord with the law, and, in view of what has thus far been set out in this
conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing
opinion, pronounces to be without merit the theory that said acts, and the executive
with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten")
69
corporation which is charged with a criminal violation of the statute may plead the
nominees, agents or trustees, to make full disclosure of the same * *." The contention
lacks merit.
a corporation, vested with special privileges and franchises may refuse to show its
persons.
hand when charged with an abuse of such privileges. (Wilson v. United States, 55
Law Ed., 771, 780 [emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14
special privileges and franchises, may refuse to show its hand when charged with an
against any possible violation of his right against self-incrimination. It gives them
immunity from prosecution on the basis of testimony or information he is compelled to
* * corporations are not entitled to all of the constitutional protections which private
xxx
xxx
xxx
individuals have. * * They are not at all within the privilege against self-incrimination,
although this court more than once has said that the privilege runs very closely with
The witness may not refuse to comply with the order on the basis of his privilege
the 4th Amendment's Search and Seizure provisions. It is also settled that an officer
of the company cannot refuse to produce its records in its possession upon the plea
order (or any information directly or indirectly derived from such testimony, or other
that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing
information) may be used against the witness in any criminal case, except a
prosecution for perjury, giving a false statement, or otherwise failing to comply with
the order.
them subject to the laws of the state and the limitations of its charter. Its powers are
application to the case at bar either. There has been no search undertaken by any
limited by law. It can make no contract not authorized by its charter. Its rights to act as
a corporation are only preserved to it so long as it obeys the laws of its creation.
thereof.
There is a reserve right in the legislature to investigate its contracts and find out
whether it has exceeded its powers. It would be a strange anomaly to hold that a
24.
state, having chartered a corporation to make use of certain franchises, could not, in
the exercise of sovereignty, inquire how these franchises had been employed, and
One other question remains to be disposed of, that respecting the scope and extent of
whether they had been abused, and demand the production of the corporate books
the powers that may be wielded by the PCGG with regard to the properties or
and papers for that purpose. The defense amounts to this, that an officer of the
70
a question to which an answer can be easily given, much less one which will suffice
contempt in accordance with the Rules of Court; and seek and secure the assistance
a.
One thing is certain, and should be stated at the outset: the PCGG cannot exercise
provisional takeover of property does not import or bring about a divestment of title
over said property; does not make the PCGG the owner thereof. In relation to the
property sequestered, frozen or provisionally taken over, the PCGG is a conservator,
Now, in the special instance of a business enterprise shown by evidence to have been
not an owner. Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the sequestration rules where, unlike
close to former President Marcos," 117 the PCGG is given power and authority, as
already adverted to, to "provisionally take (it) over in the public interest or to prevent *
upon due application and hearing, grant authority for the performance of acts of
* (its) disposal or dissipation;" and since the term is obviously employed in reference
dominion.
Equally evident is that the resort to the provisional remedies in question should entail
control in the operation, running, or management of the business itself. But even in
the least possible interference with business operations or activities so that, in the
this special situation, the intrusion into management should be restricted to the
event that the accusation of the business enterprise being "ill gotten" be not proven, it
minimum degree necessary to accomplish the legislative will, which is "to prevent the
may be returned to its rightful owner as far as possible in the same condition as it was
The PCGG may thus exercise only powers of administration over the property or
of the PCGG. And it goes without saying that where replacement of management
officers may be called for, the greatest prudence, circumspection, care and attention -
receiver, 115 such as to bring and defend actions in its own name; receive rents;
should accompany that undertaking to the end that truly competent, experienced and
collect debts due; pay outstanding debts; and generally do such other acts and things
honest managers may be recruited. There should be no role to be played in this area
by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is
paved with good intentions. The business is not to be experimented or played around
acts by any person or entity that may render moot and academic, or frustrate or
with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight
otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect
should never be lost sight of the ultimate objective of the whole exercise, which is to
71
turn over the business to the Republic, once judicially established to be "ill-gotten."
stock in the firm, if they ever were at all. This is why, in its Resolution of October 28,
Reason dictates that it is only under these conditions and circumstances that the
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in
respondents' calling and holding of a stockholders' meeting for the election of
directors as authorized by the Memorandum of the President * * (to the PCGG) dated
June 26, 1986, particularly, where as in this case, the government can, through its
So, too, it is within the parameters of these conditions and circumstances that the
designated directors, properly exercise control and management over what appear to
be properties and assets owned and belonging to the government itself and over
which the persons who appear in this case on behalf of BASECO have failed to show
dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the
It must however be emphasized that the conduct of the PCGG nominees in the
guided and governed by the norms herein laid down. They should never for a moment
allow themselves to forget that they are conservators, not owners of the business;
they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is,
exercise of the right to vote simply because the right exists, or because the stocks
25.
the corporation except for demonstrably weighty and defensible grounds, and always
revision, and the execution of certain contracts, inclusive of the termination of the
employment of some of its executives, 119 this Court cannot, in the present state of
prevent the dispersion or undue disposal of the corporate assets. Directors are not to
the evidence on record, pass upon them. It is not necessary to do so. The issues
be voted out simply because the power to do so exists. Substitution of directors is not
arising therefrom may and will be left for initial determination in the appropriate action.
But the Court will state that absent any showing of any important cause therefor, it will
not normally substitute its judgment for that of the PCGG in these individual
property, and always under such circumstances as assure that the replacements are
transactions. It is clear however, that as things now stand, the petitioner cannot be
said to have established the correctness of its submission that the acts of the PCGG
in question were done without or in excess of its powers, or with grave abuse of
In the case at bar, there was adequate justification to vote the incumbent directors out
discretion.
of office and elect others in their stead because the evidence showed prima facie that
the former were just tools of President Marcos and were no longer owners of any
72
The facts as found by the respondent Court of Appeals, in affirming the decision of
vs.
guarantee the payment of defendant Rita Gueco Tapnio's account with said Bank. In
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE
turn, to guarantee the payment of whatever amount the bonding company would pay
to the Philippine National Bank, both defendants executed the indemnity agreement,
Exh. B. Under the terms and conditions of this indemnity agreement, whatever
amount the plaintiff would pay would earn interest at the rate of 12% per annum, plus
attorney's fees in the amount of 15 % of the whole amount due in case of court
litigation.
The original amount of the bond was for P4,000.00; but the amount was later reduced
to P2,000.00.
ANTONIO, J.:
It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the
Certiorari to review the decision of the Court of Appeals which affirmed the judgment
sum of P2,000.00, plus accumulated interests unpaid, which she failed to pay despite
of the Court of First Instance of Manila in Civil Case No. 34185, ordering petitioner, as
demands. The Bank wrote a letter of demand to plaintiff, as per Exh. C; whereupon,
plaintiff paid the bank on September 18, 1957, the full amount due and owing in the
the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until
sum of P2,379.91, for and on account of defendant Rita Gueco's obligation (Exhs. D
the same is fully paid, P200.00 attorney's fees and costs, the same amounts which
and D-1).
Rita Gueco Tapnio was ordered to pay the Philippine American General Insurance
Co., Inc., to be paid directly to the Philippine American General Insurance Co., Inc. in
Plaintiff, in turn, made several demands, both verbal and written, upon defendants
full satisfaction of the judgment rendered against Rita Gueco Tapnio in favor of the
former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic
action is the complaint filed by Philamgen (Philippine American General Insurance
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however,
Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of
when demand was made upon her by plaintiff for her to pay her debt to the Bank, that
the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of
she told the Plaintiff that she did not consider herself to be indebted to the Bank at all
because she had an agreement with one Jacobo-Nazon whereby she had leased to
was made third-party defendant by Tapnio and Gueco on the theory that their failure
the latter her unused export sugar quota for the 1956-1957 agricultural year,
consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of P2,800.00,
which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A.
73
This lease agreement, according to her, was with the knowledge of the bank. But the
manager that he was agreeable to raising the consideration to P2.80 per picul. He
Bank has placed obstacles to the consummation of the lease, and the delay caused
further informed the manager that he was ready to pay said amount as the funds were
by said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco
Tapnio filed her third-party complaint against the Bank to recover from the latter any
and all sums of money which may be adjudged against her and in favor of the plaitiff
Explaining the meaning of Tuazon's statement as to the funds, it was stated by him
that he had an approved loan from the bank but he had not yet utilized it as he was
intending to use it to pay for the quota. Hence, when he said the amount needed to
Insofar as the contentions of the parties herein are concerned, we quote with approval
pay Mrs. Tapnio was in his folder which was in the bank, he meant and the manager
the following findings of the lower court based on the evidence presented at the trial of
understood and knew he had an approved loan available to be used in payment of the
the case:
quota. In said Exh. "6-Gueco", Tuazon also informed the manager that he would want
for a notice from the manager as to the time when the bank needed the money so that
It has been established during the trial that Mrs. Tapnio had an export sugar quota of
1,000 piculs for the agricultural year 1956-1957 which she did not need. She agreed
to allow Mr. Jacobo C. Tuazon to use said quota for the consideration of P2,500.00
Further Consideration of the evidence discloses that when the branch manager of the
(Exh. "4"-Gueco). This agreement was called a contract of lease of sugar allotment.
Philippine National Bank at San Fernando recommended the approval of the contract
of lease at the price of P2.80 per picul (Exh. 1 1-Bank), whose recommendation was
At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National
Bank at San Fernando, Pampanga. Her indebtedness was known as a crop loan and
directors required that the amount be raised to 13.00 per picul. This act of the board
was secured by a mortgage on her standing crop including her sugar quota allocation
for the agricultural year corresponding to said standing crop. This arrangement was
thereof. On November 19, 1956, the branch manager submitted Tuazon's request for
necessary in order that when Mrs. Tapnio harvests, the P.N.B., having a lien on the
crop, may effectively enforce collection against her. Her sugar cannot be exported
approval of the lease at P2.80 per picul, but the board returned the recommendation
without sugar quota allotment Sometimes, however, a planter harvest less sugar than
unacted upon, considering that the current price prevailing at the time was P3.00 per
her quota, so her excess quota is utilized by another who pays her for its use. This is
the arrangement entered into between Mrs. Tapnio and Mr. Tuazon regarding the
former's excess quota for 1956-1957 (Exh. "4"-Gueco).
The parties were notified of the refusal on the part of the board of directors of the
Bank to grant the motion for reconsideration. The matter stood as it was until
Since the quota was mortgaged to the P.N.B., the contract of lease had to be
February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank informing the Bank that
approved by said Bank, The same was submitted to the branch manager at San
he was no longer interested to continue the deal, referring to the lease of sugar quota
Fernando, Pampanga. The latter required the parties to raise the consideration of
allotment in favor of defendant Rita Gueco Tapnio. The result is that the latter lost the
P2.80 per picul or a total of P2,800.00 (Exh. "2-Gueco") informing them that "the
sum of P2,800.00 which she should have received from Tuazon and which she could
minimum lease rental acceptable to the Bank, is P2.80 per picul." In a letter
addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the
74
The court below held, and in this holding we concur that failure of the negotiation for
the rental of price per picul of 1,000 piculs of sugar quota leased by respondent Rita
the lease of the sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the
fault of the directors of the Philippine National Bank, The refusal on the part of the
bank to approve the lease at the rate of P2.80 per picul which, as stated above, would
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right,
have enabled Rita Gueco Tapnio to realize the amount of P2,800.00 which was more
both under its own Charter and under the Corporation Law, to safeguard and protect
than sufficient to pay off her indebtedness to the Bank, and its insistence on the rental
its rights and interests under the deed of assignment, which include the right to
price of P3.00 per picul thus unnecessarily increasing the value by only a difference of
approve or disapprove the said lease of sugar quota and in the exercise of that
P200.00. inevitably brought about the rescission of the lease contract to the damage
authority, its
and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The
unreasonableness of the position adopted by the board of directors of the Philippine
Board of Directors necessarily had authority to determine and fix the rental price per
National Bank in refusing to approve the lease at the rate of P2.80 per picul and
picul of the sugar quota subject of the lease between private respondents and Jacobo
insisting on the rate of P3.00 per picul, if only to increase the retail value by only
C. Tuazon. It argued further that both under its Charter and the Corporation Law,
P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the Bank
petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with
respect to fixing of rental prices of export sugar quota allocations, and in fixing the
and interests on her properties, and surety bonds, aside from the fact that from Exh.
rentals at P3.00 per picul, it did not act arbitrarily since the said Board was guided by
8-Bank, it appears that she was offering to execute a real estate mortgage in favor of
statistics of sugar price and prices of sugar quotas prevailing at the time. Since the
the Bank to replace the surety bond This statement is further bolstered by the fact that
fixing of the rental of the sugar quota is a function lodged with petitioner's Board of
Rita Gueco Tapnio apparently had the means to pay her obligation fact that she has
Directors and is a matter of policy, the respondent Court of Appeals could not
been granted several value of almost P80,000.00 for the agricultural years from 1952
substitute its own judgment for that of said Board of Directors, which acted in good
to 56. 1
faith, making as its basis therefore the prevailing market price as shown by statistics
which were then in their possession.
Its motion for the reconsideration of the decision of the Court of Appeals having been
denied, petitioner filed the present petition.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great
injustice because as a creditor, it shall be deprived of a just claim against its debtor
(1)
In finding that the rescission of the lease contract of the 1,000 piculs of sugar
paid to petitioner by said insurance company in behalf of the principal debtor, herein
quota allocation of respondent Rita Gueco Tapnio by Jacobo C. Tuazon was due to
respondent Rita Gueco Tapnio, and without recourse against respondent Rita Gueco
the unjustified refusal of petitioner to approve said lease contract, and its
Tapnio.
unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this
(2)
In not holding that based on the statistics of sugar price and prices of sugar
nature is limited to reviewing only errors of law, accepting as conclusive the factual fin
quota in the possession of the petitioner, the latter's Board of Directors correctly fixed
dings of the Court of Appeals upon its own assessment of the evidence. 2
75
It has been clearly shown that when the Branch Manager of petitioner required the
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco
parties to raise the consideration of the lease from P2.50 to P2.80 per picul, or a total
Tapnio and Jacobo C. Tuazon was executed on April 17, 1956. This contract was
of P2,800-00, they readily agreed. Hence, in his letter to the Branch Manager of the
submitted to the Branch Manager of the Philippine National Bank at San Fernando,
Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of
P2.80 per picul was acceptable to him and that he even offered to use the loan
petitioner was secured by a mortgage on her standing crop including her sugar quota
secured by him from petitioner to pay in full the sum of P2,800.00 which was the total
allocation for the agricultural year corresponding to said standing crop. The latter
consideration of the lease. This arrangement was not only satisfactory to the Branch
required the parties to raise the consideration to P2.80 per picul, the minimum lease
rental acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch
Under that arrangement, Rita Gueco Tapnio could have realized the amount of
Manager, thru a letter dated August 10, 1956, that he was agreeable to raising the
P2,800.00, which was more than enough to pay the balance of her indebtedness to
consideration to P2.80 per picul. He further informed the manager that he was ready
to pay the said sum of P2,800.00 as the funds were in his folder which was kept in the
said Bank. This referred to the approved loan of Tuazon from the Bank which he
There is no question that Tapnio's failure to utilize her sugar quota for the crop year
intended to use in paying for the use of the sugar quota. The Branch Manager
1956-1957 was due to the disapproval of the lease by the Board of Directors of
submitted the contract of lease of sugar quota allocation to the Head Office on
petitioner. The issue, therefore, is whether or not petitioner is liable for the damage
caused.
As observed by the trial court, time is of the essence in the approval of the lease of
sugar quota allotments, since the same must be utilized during the milling season,
because any allotment which is not filled during such milling season may be
Tuazon, after being informed of the action of the Board of Directors, asked for a
reconsideration thereof. On November 19, 1956, the Branch Manager submitted the
was no proof that there was any other person at that time willing to lease the sugar
request for reconsideration and again recommended the approval of the lease at
quota allotment of private respondents for a price higher than P2.80 per picul. "The
P2.80 per picul, but the Board returned the recommendation unacted, stating that the
fact that there were isolated transactions wherein the consideration for the lease was
P3.00 a picul", according to the trial court, "does not necessarily mean that there are
always ready takers of said price. " The unreasonableness of the position adopted by
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no
the petitioner's Board of Directors is shown by the fact that the difference between the
longer interested in continuing the lease of sugar quota allotment. The crop year
amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by
1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her
the Board amounted only to a total sum of P200.00. Considering that all the accounts
loss in the sum of P2,800.00 which she should have received had the lease in favor of
of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing
crops, assignment of leasehold rights and interests on her properties, and surety
bonds and that she had apparently "the means to pay her obligation to the Bank, as
shown by the fact that she has been granted several sugar crop loans of the total
76
value of almost P80,000.00 for the agricultural years from 1952 to 1956", there was
no reasonable basis for the Board of Directors of petitioner to have rejected the lease
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby
AFFIRMED.
While petitioner had the ultimate authority of approving or disapproving the proposed
lease since the quota was mortgaged to the Bank, the latter certainly cannot escape
its responsibility of observing, for the protection of the interest of private respondents,
that degree of care, precaution and vigilance which the circumstances justly demand
in approving or disapproving the lease of said sugar quota. The law makes it
imperative that every person "must in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due, and observe honesty and good
faith, 4 This petitioner failed to do. Certainly, it knew that the agricultural year was
about to expire, that by its disapproval of the lease private respondents would be
WEST COAST LIFE INSURANCE CO., plaintiff, vs. GEO N. HURD, Judge of Court of
unable to utilize the sugar quota in question. In failing to observe the reasonable
respondents. Under Article 21 of the New Civil Code, "any person who wilfully causes
loss or injury to another in a manner that is contrary to morals, good customs or public
MORELAND, J.:
policy shall compensate the latter for the damage." The afore-cited provisions on
human relations were intended to expand the concept of torts in this jurisdiction by
This is an action for the issuance of a writ of prohibition against the defendant
granting adequate legal remedy for the untold number of moral wrongs which is
A corporation is civilly liable in the same manner as natural persons for torts, because
"generally speaking, the rules governing the liability of a principal or master for a tort
virtue of the laws of the State of California, doing business regularly and legally in the
committed by an agent or servant are the same whether the principal or master be a
On the 16th of December, 1912, the assistant prosecuting attorney of the city of
tort which he expressly directs or authorizes, and this is just as true of a corporation
Manila filed an information in a criminal action in the Court of First Instance of that city
against the plaintiff, said corporation, and also against John Northcott and Manuel C.
Grey, charging said corporation and said individuals with the crime of libel. On the
stockholders or members acting as a body, or, generally, from the directors as the
17th day of December the defendant in his official capacity as judge of the court of
governing body." 6
77
First Instance signed and issued a process directed to the plaintiff and the other
The undersigned accuses the West Coast Life Insurance Company, John Northcott,
That on or about the 14th day of September, 1912, and continuously thereafter up to
and including the date of this complaint, in the city of Manila, P. I., the said defendant
PHILIPPINE ISLANDS.
West Coast Life Insurance Company was and has been a foreign corporation duly
organized in the State of California, United States of America, and registered and
doing business in the Philippine Islands; that the said defendant John Nortcott then
and there was and has been the general agent and manager for the Philippine Islands
No. 9661
of the said defendant corporation West Coast Life Insurance Company, and the said
Libel.
defendant Manuel C. Grey was and has been an agent and employee of the said
defendant corporation West Coast Life Insurance Company, acting in the capacity of
treasurer of the branch of the said defendant corporation in the Philippine Islands; that
GREY.
on or about the said 14th day of September, 1912, and for some time thereafter, to
wit, during the months of September and October, 1912, in the city of Manila, P.I., the
To West Coast Life Insurance Co., John Northcott, and Manuel C. Grey, Manila.
said defendants West Coast Life Insurance Company, John Northcott, and Manuel C.
Grey, conspiring and confederating together, did then and there willfully, unlawfully,
SUMMONS.
and maliciously, and to the damage of the Insular Life Insurance Company, a
domestic corporation duly organized, registered, and doing business in the Philippine
You are hereby summoned to appear before the Court of First Instance of the city of
Islands, and with intent o cause such damage and to expose the said Insular Life
Manila P.I., on the 18th day of December, 1912, at the hour of 8 a.m., to answer the
Insurance Company to public hatred, contempt, and ridicule, compose and print, and
charge made against you upon the information of F. H. Nesmith, assistant prosecuting
cause to be printed a large number of circulars, and, in numerous printings in the form
attorney of the city of Manila, for libel, as set forth in the said information filed in this
of said circulars, did publish and distribute, and cause to be published and distributed,
copurt on December 16, 1912, a copy of which is hereto attached and herewith
among other persons, to policy holders and prospective policy holders of the said
Insular Life Insurance Company, among other things, a malicious defamation and libel
in the Spanish language, of the words and tenor following:
Dated at the city of Manila, P. I., this 17th day of December, 1912.
"First. For some time past various rumors are current to the effect that the Insular Life
(Sgd.)
GEO N. HURD,
and that really it is in bad shape. Nevertheless, the investigations made by the
representative of the "Bulletin" have failed fully to confirm these rumors. It is known
that the Insular Auditor has examined the books of the company and has found that its
78
capital has diminished, and that by direction of said official the company has decided
The prayer of the complaint is, "your petitioner prays judgment for the issuance of a
to double the amount of its capital, and also to pay its reserve fund. All this is true."
That the said circulars, and the matters therein contained hereinbefore set forth in this
action."
information, tend to impeach and have impeached the honesty, virtue, and reputation
of the said Insular Life Insurance Company by exposing it to public hatred, contempt,
The basis of the action is that the Court of First Instance has no power or authority,
and ridicule; that by the matters printed in said circulars, and hereinbefore set forth in
under the laws of the Philippine Islands, to proceed against a corporation, as such,
this information, the said defendants West Coast Life Insurance Company, John
criminally, to bring it into court for the purpose of making it amenable to the criminal
Northcott, and Manuel C. Grey meant and intended to state and represent to those to
laws. It is contended that the court had no jurisdiction to issue the process in evidence
whom the said defendants delivered said circulars as aforesaid, that the said Insular
against the plaintiff corporation; that the issuance and service thereof upon the
Life Insurance Company was then and there in a dangerous financial condition and on
plaintiff corporation were outside of the authority and jurisdiction of the court, were
the point of going into insolvency, to the detriment of the policy holders of the said
authorized by no law, conferred no jurisdiction over said corporation, and that they
Insular Life Insurance Company, and of those with whom the said Insular Life
Insurance Company have and have had business transactions, and each and all of
said persons to whom the said defendants delivered said circulars, and all persons as
The plaintiff, further attacking said process, alleges that the process is a mixture of
well who read said circulars understood the said matters in said circulars to have said
civil and criminal process, that it is not properly signed, that it does not direct or
require an arrest; that it s an order to appear and answer on a date certain without
restraint of the person, and that it is not in the form required by law.
On the 20th day of December, 1912, the plaintiff, together with the other persons
named as accused in said process through their attorneys, served upon the
prosecuting attorney and filed with the clerk of the court a motion to quash said
summons and the service thereof, on the ground that the court had no jurisdiction
information is sufficient it if shows "the name of the defendant, or if his name cannot
over the said company, there being no authority in the court for the issuance of the
be discovered, that he is described under a fictitious name with a statement that his
process, Exhibit B, the order under which it was issued being void. The court denied
true name is unknown to the informant or official signing the same. His true name may
the motion and directed plaintiff to appear before it on the 28th day of December,
1912, and to plead to the information, to which order the plaintiff then and there duly
excepted.
counsel, and to demurrers and pleas, indicate clearly that the maker of the Code of
Criminal Procedure had no intention or expectation that corporations would be
It is alleged in the complaint that "unless restrained by this Court the respondent will
included among those who would fall within the provisions thereof. The only process
proceed to carry out said void order and compel your petitioner to appear before his
known to the Code of Criminal Procedure, or which any court is by that order
court and plead and submit to criminal prosecution without having acquired any
that "if the magistrate be satisfied from the investigation that the crime complained of
has been committed, and there is reasonable ground to believe that the party charged
79
has committed it, he must issue an order for his arrest. If the offense be bailable, and
against the criminal laws; and the legislature, at the same time established a
shall be committed to prison." There is no authority for the issuance of any other
corporation has been proceeded against under a criminal statute where the court did
not exercise its common law powers or where there was not in force a special
The question remains as to whether or not he court may, of itself and on its own
The courts of the Philippine Islands are creatures of statute and, as we have said,
motion, create not only a process but a procedure by which the process may be made
have only those powers conferred upon them by statute and those which are required
effective.
to exercise that authority fully and adequately. The courts here have no common law
jurisdiction or powers. If they have any powers not conferred by statute, expressly or
We do not believe that the authority of the courts of the Philippine Islands extends so
impliedly, they would naturally come from Spanish and not from common law sources.
far. While having the inherent powers which usually go with courts of general
It is undoubted that, under the Spanish criminal law and procedure, a corporation
jurisdiction, we are of the opinion that, under the circumstances of their creation, they
could not have been proceeded against criminally, as such, if such an entity as a
have only such authority in criminal matters as is expressly conferred upon them by
corporation in fact existed under the Spanish law, and as such it could not have
statute or which it is necessary to imply from such authority in order to carry out fully
and adequately the express authority conferred. We do not feel that Courts of First
Criminal actions would have been restricted or limited, under that system, to the
Instance have authority to create new procedure and new processes in criminal law.
officials of such corporations and never would have been directed against the
The exercise of such power verges too closely on legislation. Even though it be
corporation itself. This was the rule with relation to associations or combinations of
admitted, a question we do not now decide, that there are various penal laws in the
Philippine Islands which corporation as such may violate, still we do not believe that
would undoubtedly have been the rue with corporations. From this source, then, the
the courts are authorized to go to the extent of creating special procedure and special
courts derive no authority to bring corporations before them in criminal actions, nor to
processes for the purpose of carrying out those penal statutes, when the legislature
itself has neglected to do so. To bring a corporation into court criminally requires
many additions to the present criminal procedure. While it may be said to be the duty
The case was submitted to this Court on an agreed statement of facts with a
of courts to see to it that criminals are punished, it is no less their duty to follow
stipulation for a decision upon the merits. We are of the opinion that the plaintiff is
unauthorized manner.
It is adjudged that the Court of First Instance of the city of Manila be and it is hereby
There are many cases cited by counsel for the defendant which show that
enjoined and prohibited from proceeding further in the criminal cause which is before
corporations have been proceeded against criminally by indictment and otherwise and
us in this proceeding, entitled United States vs. West Coast Life Insurance Company,
have been punished as malefactors by the courts. Of this, of course, there can be no
a corporation, John Northcott and Manuel C. Grey, so far as said proceedings relate
doubt; but it is clear that, in those cases, the statute, by express words or by
to the said West Coast Life Insurance Company, a corporation, the plaintiff in the
necessary intendment, included corporations within the persons who could offend
case.
80
said accused with the bank as marginal deposit and forfeited by the said from the
value of the said goods, in the said sum of P71,023.60. (Original Records, p. 1).
In reviewing the evidence, the Court of Appeals came up with the following findings of
facts which the Solicitor General alleges should be conclusive upon this Court:
There is no debate on certain antecedents: Accused Jose 0. Sia sometime prior to 24
May, 1963, was General Manager of the Metal Manufacturing Company of the
DE CASTRO, J.:
Petition for review of the decision of the Court of Appeals affirming the decision of the
he applied for a letter of credit to import steel sheets from Mitsui Bussan Kaisha, Ltd.
of Tokyo, Japan, the application being directed to the Continental Bank, herein
complainant, Exhibit B and his application having been approved, the letter of credit
was opened on 5 June, 1963 in the amount of $18,300, Exhibit D; and the goods
That in, about or during the period comprised' between July 24, 1963 and December
arrived sometime in July, 1963 according to accused himself, tsn. II:7; now from here
31, 1963, both dates inclusive, in the City of Manila, Philippines, the said accused did
on there is some debate on the evidence; according to Complainant Bank, there was
then and there willfully, unlawfully and feloniously defraud the Continental Bank, a
permitted delivery of the steel sheets only upon execution of a trust receipt, Exhibit A;
banking institution duly organized and doing business in the City of Manila, in the
while according to the accused, the goods were delivered to him sometime before he
following manner, to wit: the said accused, in his capacity as president and general
executed that trust receipt in fact they had already been converted into steel office
manager of the Metal Manufacturing of the Philippines, Inc. (MEMAP) and on behalf
equipment by the time he signed said trust receipt, tsn. II:8; but there is no question -
of said company, obtained delivery of 150 M/T Cold Rolled Steel Sheets valued at P
and this is not debated - that the bill of exchange issued for the purpose of collecting
71,023.60 under a trust receipt agreement under L/C No. 63/109, which cold rolled
the unpaid account thereon having fallen due (see Exh. B) neither accused nor his
steel sheets were consigned to the Continental Bank, under the express obligation on
company having made payment thereon notwithstanding demands, Exh. C and C-1,
the part of said accused of holding the said steel sheets in trust and selling them and
dated 17 and 27 December, 1963, and the accounts having reached the sum in pesos
turning over the proceeds of the sale to the Continental Bank; but the said accused,
of P46,818.68 after deducting his deposit valued at P28,736.47; that was the reason
once in possession of the said goods, far from complying with his aforesaid obligation
why upon complaint by Continental Bank, the Fiscal filed the information after
and despite demands made upon him to do so, with intent to defraud, failed and
preliminary investigation as has been said on 22 October, 1964. (Rollo [CA], pp. 103-
refused to return the said cold rolled sheets or account for the proceeds thereof, if
104).
sold, which the said accused willfully, unlawfully and feloniously misappropriated,
misapplied and converted to his own personal use and benefit, to the damage and
The first issue raised, which in effect combines the first three errors assigned, is
prejudice of the said Continental Bank in the total amount of P146,818.68, that is the
whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal
balance including the interest after deducting the sum of P28,736.47 deposited by the
81
thereof in dealing with the complainant, the Continental Bank, (Bank for short) he may
who actually perform the act for the corporation, they must of necessity be the ones to
assume the criminal liability; otherwise this liability as created by the law would be
that the acts imputed to him would constitute the crime of estafa, which he also
disputes, but seeks to avoid liability on his theory that the Bank knew all along that
In the present case, a distinction is to be found with the Tan Boon Kong case in that
petitioner was dealing with him only as an officer of the Metal Company which was the
the act alleged to be a crime is not in the performance of an act directly ordained by
true and actual applicant for the letter of credit (Exhibit B) and which, accordingly,
assumed sole obligation under the trust receipt (Exhibit A). In disputing the theory of
petitioner, the Solicitor General relies on the general principle that when a corporation
The offense may arise, if at all, from the peculiar terms and condition agreed upon by
commits an act which would constitute a punishable offense under the law, it is the
the parties to the transaction, not by direct provision of the law. The intention of the
responsible officers thereof, acting for the corporation, who would be punished for the
crime, The Court of Appeals has subscribed to this view when it quoted approvingly
whether a civil obligation alone intended by the parties. With this explanation, the
distinction adverted to between the Tan Boon Kong case and the case at bar should
come out clear and meaningful. In the absence of an express provision of law making
the petitioner liable for the criminal offense committed by the corporation of which he
followed unscrupulously legions would form corporations to commit swindle right and
is a president as in fact there is no such provisions in the Revised Penal Code under
left where nobody could be convicted, for it would be futile and ridiculous to convict an
which petitioner is being prosecuted, the existence of a criminal liability on his part
abstract being that can not be pinched and confined in jail like a natural, living person,
may not be said to be beyond any doubt. In all criminal prosecutions, the existence of
hence the result of the defense theory would be hopeless chose in business and
criminal liability for which the accused is made answerable must be clear and certain.
The maxim that all doubts must be resolved in favor of the accused is always of
compelling force in the prosecution of offenses. This Court has thus far not ruled on
The above-quoted observation of the trial court would seem to be merely restating a
general principle that for crimes committed by a corporation, the responsible officers
trust receipt of the same nature as that involved herein. In the case of Samo vs.
thereof would personally bear the criminal liability. (People vs. Tan Boon Kong, 54
People, L-17603-04, May 31, 1962, the accused was not clearly shown to be acting
Phil. 607. See also Tolentino, Commercial Laws of the Philippines, p. 625, citing
cases.)
The next question is whether the violation of a trust receipt constitutes estafa under
The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case,
Art. 315 (1-[2]) of the Revised Penal Code, as also raised by the petitioner. We now
supra-may however not be squarely applicable to the instant case in that the
entertain grave doubts, in the light of the promulgation of P.D. 115 providing for the
corporation was directly required by law to do an act in a given manner, and the same
law makes the person who fails to perform the act in the prescribed manner expressly
liable criminally. The performance of the act is an obligation directly imposed by the
82
penalty provided for in this Decree shall be imposed upon the directors, officers,
We consider the view that the trust receipt arrangement gives rise only to civil liability
employees or other officials or persons therein responsible for the offense, without
as the more feasible, before the promulgation of P.D. 115. The transaction being
prejudice to civil liabilities arising from the criminal offense. The question that
contractual, the intent of the parties should govern. Since the trust receipt has, by its
suggests itself is, therefore, whether the provisions of the Revised Penal Code, Article
nature, to be executed upon the arrival of the goods imported, and acquires legal
315, par. 1 (b) are not adequate to justify the punishment of the act made punishable
standing as such receipt only upon acceptance by the "entrustee," the trust receipt
by P.D. 115, that the necessity was felt for the promulgation of the decree. To answer
transaction itself, the antecedent acts consisting of the application of the L/C, the
approval of the L/C and the making of the marginal deposit and the effective
embodied in a trust receipt to best their legal sufficiency to constitute the basis for
importation of the goods, all through the efforts of the importer who has to find his
holding the violation of said conditions as estafa under Article 315 of the Revised
supplier, arrange for the payment and shipment of the imported goods-all these
payment of a debt. The parties, therefore, are deemed to have consciously entered
into a purely commercial transaction that could give rise only to civil liability, never to
I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as
subject the "entrustee" to criminal prosecution. Unlike, for instance, when several
its property with liberty to sell the same for its account but without authority to make
pieces of jewelry are received by a person from the owner for sale on commission,
any other disposition whatsoever of the said goods or any part thereof (or the
and the former misappropriates for his personal use and benefit, either the jewelries
or the proceeds of the sale, instead of returning them to the owner as is his obligation,
the bank is not in the same concept as the jewelry owner with full power of disposition
In case of sale I/we further agree to hand the proceeds as soon as received to the
of the goods, which the bank does not have, for the bank has previously extended a
BANK to apply against the relative acceptance (as described above) and for the
loan which the L/C represents to the importer, and by that loan, the importer should
be the real owner of the goods. If under the trust receipt the bank is made to appear
Records, p. 108)
as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it
were really so, it could dispose of the goods in any manner it wants, which it cannot
One view is to consider the transaction as merely that of a security of a loan, and that
do, just to give consistency with the purpose of the trust receipt of giving a stronger
the trust element is but and inherent feature of the security aspect of the arrangement
security for the loan obtained by the importer. To consider the bank as the true owner
where the goods are placed in the possession of the "entrustee," to use the term used
from the inception of the transaction would be to disregard the loan feature thereof, a
in P.D. 115, violation of the element of trust not being intended to be in the same
feature totally absent in the case of the transaction between the jewel-owner and his
concept as how it is understood in the criminal sense. The other view is that the bank
agent.
as the owner and "entrustor" delivers the goods to the "entrustee, " with the authority
to sell the goods, but with the obligation to give the proceeds to the "entrustor" or
Consequently, if only from the fact that the trust receipt transaction is susceptible to
return the goods themselves if not sold, a trust being thus created in the full sense as
two reasonable interpretation, one as giving rise only to civil liability for the violation of
the condition thereof, and the other, as generating also criminal liability, the former
should be adopted as more favorable to the supposed offender. (Duran vs. CA, L-
83
39758, May 7, 1976, 71 SCRA 68; People vs. Parayno, L-24804, July 5, 1968, 24
SCRA 3; People vs. Abendan, L-1481, January 28,1949,82 Phil. 711; People vs.
It is also worthy of note that while the trust receipt speaks of authority to sell, the fact
Bautista, L-1502, May 24, 1948, 81 Phil. 78; People vs. Abana, L-39, February 1,
is undisputed that the imported goods were to be manufactured into finished products
first before they could be sold, as the Bank had full knowledge of. This fact is,
however, not embodied in the trust agreement, thus impressing on the trust receipt
There is, moreover, one circumstance appearing on record, the significance of which
vagueness and ambiguity which should not be the basis for criminal prosecution, in
should be properly evaluated. As stated in petitioner's brief (page 2), not denied by
the event of a violation of the terms of the trust receipt. Again, P.D. 115 has express
the People, "before the Continental Bank approved the application for a letter of credit
provision relative to the "manufacture or process of the good with the purpose of
(Exhibit 'D'), subsequently covered by the trust receipt, the Continental Bank
ultimate sale," as a distinct condition from that of "to sell the goods or procure their
sale" (Section 4, (1). Note that what is embodied in the receipt in question is the sale
the Philippines because that was the bank's standard procedure (Testimony of Mr.
of imported goods, the manufacture thereof not having been mentioned. The
Ernesto Garlit, Asst. Manager of the Foreign Department, Continental Bank, t.s.n.,
requirement in criminal prosecution, that there must be strict harmony, not variance,
August 30, 1965). The Continental Bank did not examine the financial capabilities of
between the allegation and the evidence, may therefore, not be said to have been
herein petitioner, Jose O. Sia, in connection with the same letter of credit. (Ibid). "
From this fact, it would appear as positively established that the intention of the
parties in entering into the "trust receipt" agreement is merely to afford a stronger
FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and
security for the loan evidenced by the letter of credit, may be not as an ordinary
pledge as observed in P.N.B. vs. Viuda e Hijos de Angel Jose, et al., 63 Phil. 814,
citing In re Dunlap C (206 Fed. 726) but neither as a transaction falling under Article
SO ORDERED.
315-1 (b) of the Revised Penal Code giving rise to criminal liability, as previously
explained and demonstrated.
ARNEL U. TY, MARIE ANTONETTE TY, JASON ONG, WILLY DY, and ALVIN TY,
It is worthy of note that the civil liability imposed by the trust receipt is exclusively on
the Metal Company. Speaking of such liability alone, as one arising from the contract,
ASSOCIATION,
as distinguished from the civil liability arising out of a crime, the petitioner was never
Respondents.
personally as the corporation is, there would then be no basis for holding him
criminally liable, for any violation of the trust receipt. This is made clearly so upon
The Case
consideration of the fact that in the violation of the trust agreement and in the absence
61In this Petition for Review on Certiorari under Rule 45, petitioners seek the reversal
of positive evidence to the contrary, only the corporation benefited, not the petitioner
of the Decision[1] dated September 28, 2007 of the Court of Appeals (CA) in CA-G.R.
personally, yet, the allegation of the information is to effect that the misappropriation
SP No. 98054, which reversed and set aside the Resolutions dated October 9,
or conversion was for the personal use and benefit of the petitioner, with respect to
2006[2] and December 14, 2006[3] of the Secretary of Justice, and reinstated the
November 7, 2005 Joint Resolution[4] of the Office of the Chief State Prosecutor.
84
Petitioners assail also the CA Resolution[5] dated March 14, 2008, denying their
Gaz to Omni for refilling. The branded LPG cylinders were refilled, for which the
National Bureau of Investigation (NBI) agents paid PhP 1,582 as evidenced by Sales
The Facts
Invoice No. 90040[13] issued by Omni on April 15, 2004. The refilled LPG cylinders
were without LPG valve seals and one of the cylinders was actually underfilled, as
Petitioners are stockholders of Omni Gas Corporation (Omni) as per Omnis General
found by LPG Inspector Noel N. Navio of the Liquefied Petroleum Gas Industry
Information Sheet[6] (GIS) dated March 6, 2004 submitted to the Securities and
Association (LPGIA) who inspected the eight branded LPG cylinders on April 23,
2004 which were properly marked by the NBI after the test-buy.
Liquefied Petroleum Gas (LPG) cylinders and holds Pasig City Mayors Permit No.
RET-04-001256 dated February 3, 2004.
The NBIs test-buy yielded positive results for violations of BP 33, Section 2(a) in
relation to Secs. 3(c) and 4, i.e., refilling branded LPG cylinders without authority; and
The case all started when Joaquin Guevara Adarlo & Caoile Law Offices (JGAC Law
Offices) sent a letter dated March 22, 2004[7] to the NBI requesting, on behalf of their
Thus, on April 28, 2004, Agent De Jemil filed an Application for Search Warrant (With
clients Shellane Dealers Association, Inc., Petron Gasul Dealers Association, Inc.,
Request for Temporary Custody of the Seized Items)[14] before the Regional Trial
and Totalgaz Dealers Association, Inc., for the surveillance, investigation, and
Court (RTC) in Pasig City, attaching, among others, his affidavit[15] and the affidavit of
On the same day of the filing of the application for search warrants on April 28, 2004,
(PD) 1865.[9]
the RTC, Branch 167 in Pasig City issued Search Warrants No. 2624[17] and 2625.
[18] The NBI served the warrants the next day or on April 29, 2004 resulting in the
Earlier, the JGAC Law Offices was furnished by several petroleum producers/brand
seizure of several items from Omnis premises duly itemized in the NBIs
respective branded LPG cylinders, to wit: (1) On October 3, 2003, Pilipinas Shell
filed his Consolidated Return of Search Warrants with Ex-Parte Motion to Retain
duly authorized to refill Shellane LPG cylinders; (2) on December 4, 2003, Petron
Corporation (Petron) issued a certification[11] of their dealers in Luzon, Visayas, and
Subsequently, Agent De Jemil filed before the Department of Justice (DOJ) his
Mindanao authorized to refill Petron Gasul LPG cylinders; and (3) on January 5, 2004,
Sections 3(c) and 4, of B.P. Blg. 33, as amended by P.D. 1865;[21] and (2) Violation of
stations and plants authorized to refill their Totalgaz and Superkalan Gaz LPG
Section 2(c), in relation to Section 4, of B.P. Blg. 33, as amended by P.D. 1865,[22]
cylinders.
months of March and April 2004 and doing a test-buy on April 15, 2004. They brought
eight branded LPG cylinders of Shellane, Petron Gasul, Totalgaz, and Superkalan
from petitioners.
85
On November 7, 2005, the 3rd Assistant City Prosecutor Leandro C. Catalo of Manila
issued a Joint Resolution,[26] later approved by the Chief State Prosecutor Jovencito
reversing and setting aside the November 7, 2005 Joint Resolution of the Office of the
R. Zuo upon the recommendation of the Head of the Task Force on Anti-Intellectual
Property Piracy (TFAIPP), Assistant Chief State Prosecutor Leah C. TanodraArmamento, finding probable cause to charge petitioners with violations of pertinent
WHEREFORE, the assailed resolution is hereby REVERSED and SET ASIDE. The
Chief State Prosecutor is directed to cause the withdrawal of the informations for
violations of Sections 2(a) and 2(c) of B.P. Blg. 33, as amended by P.D. 1865, against
respondents Arnel Ty, Mari Antonette Ty, Jason Ong, Willy Dy and Alvin Ty and report
the action taken within ten (10) days from receipt hereof.
SO ORDERED.[32]
underfilling, as the phenomenon may have been caused by human error, oversight or
evidence submitted by Agent De Jemil establishing the fact that Omni is not an
technical error. Being an isolated case, it ruled that there was no showing of a clear
authorized refiller of Shellane, Petron Gasul, Totalgaz and Superkalan Gaz LPG
cylinders.
LPG cylinders sans written authority, it found no sufficient basis to hold petitioners
already owned by consumers who are free to do with them as they please, the law is
responsible for violation of Sec. 2 (c) of BP 33, as amended, since there was no proof
clear that the stamped markings on the LPG cylinders show who are the real owners
that the branded LPG cylinders seized from Omni belong to another company or firm,
thereof and they cannot be refilled sans authority from Pilipinas Shell, Petron or Total,
holding that the simple fact that the LPG cylinders with markings or stamps of other
as the case may be. On the underfilling of one LPG cylinder, the findings of LPG
the consumers who take them to Omni fully owned them having purchased or
acquired them beforehand.
86
petition for certiorari[35] under Rule 65 of the Rules of Court, docketed as CA-G.R.
Moreover, the CA found strong probable violation of refilling of another companys or
SP No. 98054.
firms cylinders without such companys or firms written authorization under Sec. 3
The Ruling of the CA
(c) of BP 33, as amended. The CA relied on the affidavits of Agents De Jemil and
Kawada, the certifications from various LPG producers that Omni is not authorized to
The Office of the Solicitor General (OSG), in its Comment[36] on Agent De Jemils
refill their branded LPG cylinders, the results of the test-buy operation as attested to
appeal, sought the dismissal of the latters petition viewing that the determination by
by the NBI agents and confirmed by the examination of LPG Inspector Navio of the
the Office of the Secretary of Justice of probable cause is entitled to respect owing to
confirming that branded LPG cylinders are properties of the companies whose stamp
markings appear thereon, and Department Circular No. 2000-05-007[42] of the DOE
On August 31, 2007, Petron filed a Motion to Intervene and to Admit Attached
After granting the appeal of Agent De Jemil, however, the motions to intervene filed by
On September 28, 2007, the appellate court rendered the assailed Decision[39]
Petitioners motion for reconsideration was rebuffed by the CA through the equally
revoking the resolutions of the Office of the Secretary of Justice and reinstated the
November 7, 2005 Joint Resolution of the Office of the Chief State Prosecutor. The
fallo reads:
WHEREFORE, the instant petition is GRANTED.
The Issues
October 9, 2006 and December 14, 2006 are hereby REVERSED and SET ASIDE.
The Joint Resolution dated November 7, 2005 of the Office of the Chief State
I.
Prosecutor finding probable cause against private respondents Arnel Ty, Marie
Antonette Ty, Jason Ong, Willy Dy, and Alvin Ty is hereby REINSTATED.
II.
SO ORDERED.[40]
III.
underfilling, the CA held that the actual underfilling of an LPG cylinder falls under the
prohibition of the law which does not require for the underfilling to be substantial and
deliberate.
87
IV.
Petitioners raise the sole procedural issue of the propriety of the legal remedy availed
THE CORPORATION.[44]
of by public respondent Agent De Jemil. They strongly maintain that the Office of the
Secretary of Justice properly assumed jurisdiction and did not gravely abuse its
discretion in its determination of lack of probable causethe exercise thereof being its
The foregoing issues can be summarized into two core issues: first, whether probable
sole prerogativewhich, they lament, the appellate court did not accord proper
cause exists against petitioners for violations of Sec. 2 (a) and (c) of BP 33, as
amended; and second, whether petitioners can be held liable therefor. We, however,
Agent De Jemil immediately resorted to court action through a special civil action for
will tackle at the outset the sole procedural issue raised: the propriety of the petition
certiorari under Rule 65 before the CA without first appealing the resolutions of the
for certiorari under Rule 65 availed of by public respondent Agent De Jemil to assail
probable cause is a function that belongs to the public prosecutor[48] and, ultimately,
to the Secretary of Justice, who may direct the filing of the corresponding information
It asserted vested
or move for the dismissal of the case;[49] such determination is subject to judicial
interest in the seizure of several Gasul LPG cylinders and the right to prosecute
review where it is established that grave abuse of discretion tainted the determination.
petitioners for unauthorized refilling of its branded LPG cylinders by Omni. Petitioners
duly filed their Comment/Opposition[47] to Petrons motion to intervene. It is clear,
For another, there is no question that the Secretary of Justice is an alter ego of the
however, that Petron has substantial interest to protect in so far as its business
President who may opt to exercise or not to exercise his or her power of review over
relative to the sale and refilling of Petron Gasul LPG cylinders is concerned, and
Jemil, the determination of probable cause by the Secretary of Justice is, under the
doctrine of qualified political agency, presumably that of the Chief Executive unless
of the Secretary of Justice. Therein, the Court, after expounding on the policy of non-
Chan v. Secretary of Justice[50] delineated the proper remedy from the determination
interference in the determination of the existence of probable cause absent any
showing of arbitrariness on the part of the public prosecutor and the Secretary of
Justice, however, concluded, citing Alcaraz v. Gonzalez[51] and Preferred Home
Specialties, Inc. v. Court of Appeals,[52] that an aggrieved party from the resolution of
88
the Secretary of Justice may directly resort to judicial review on the ground of grave
swapping, for example, will effectively transfer ownership of the LPG cylinders to the
x x x [T]he findings of the Justice Secretary may be reviewed through a petition for
Fourth, LPG cylinder exchange or swapping is a common industry practice that the
certiorari under Rule 65 based on the allegation that he acted with grave abuse of
DOE recognizes.
institutionalizing the validity of swapping of all and any kind of LPG cylinders among
players Petron, Total and Pilipinas Shell. Nonetheless, the non-signing of the MOA
the Office of the Secretary of Justice, availed of and pursued the proper legal remedy
does not diminish the fact of the recognized industry practice of cylinder exchange or
of a judicial review through a petition for certiorari under Rule 65 in assailing the
swapping. Relying on Republic Act No. (RA) 8479,[54] petitioners maintain that said
latters finding of lack of probable cause on the ground of grave abuse of discretion.
law promotes and encourages the entry of new participants in the petroleum industry
such as Omni. And in furtherance of this mandate is the valid practice of cylinder
Petitioners contend that there is no probable cause that Omni violated Sec. 2 (a), in
relation to Secs. 3 (c) and 4 of BP 33, as amended, prohibiting the refilling of another
companys or firms LPG cylinders without its written authorization. First, the branded
LPG cylinders seized were not traded by Omni as its representative annotated in the
NBI receipt of seized items that the filled LPG cylinders came from customers trucks
and the empty ones were taken from the warehouse or swapping section of the
refilling plant and not from the refilling section. Second, the branded LPG cylinders
First. The test-buy conducted on April 15, 2004 by the NBI agents, as attested to by
are owned by end-user customers and not by the major petroleum companies, i.e.,
their respective affidavits, tends to show that Omni illegally refilled the eight branded
Petron, Pilipinas Shell and Total. And even granting arguendo that Omni is selling
LPG cylinders for PhP 1,582. This is a clear violation of Sec. 2 (a), in relation to
these LPG cylinders, still there cannot be a prima facie case of violation since there is
no proof that the refilled branded LPG cylinders are owned by another company or
firm.
based solely on the seized items pursuant to the search warrants but also on the test-
Second. The written certifications from Pilipinas Shell, Petron and Total show that
Omni, who is not privy to the agreement between the buying consumers and said
Omni has no written authority to refill LPG cylinders, embossed, marked or stamped
Shellane, Petron Gasul, Totalgaz and Superkalan Gaz. In fact, petitioners neither
dispute this nor claim that Omni has authority to refill these branded LPG cylinders.
Petron, Total and Pilipinas Shell of the duly marked or stamped LPG cylinders through
89
consisting of nine branded LPG cylinders, specifically Totalgaz, Petron Gasul and
Third.
Belying petitioners contention, the seized items during the service of the
Shellane, tends to show that Omni indeed refilled these branded LPG cylinders
search warrants tend to show that Omni illegally refilled branded LPG cylinders
without authorization from Total, Petron and Pilipinas Shell. Such a fact is bolstered
without authority.
by the test-buy conducted by Agent De Jemil and NBI confidential agent Kawada:
Omnis unauthorized refilling of branded LPG cylinders, contrary to Sec. 2 (a) in
On April 29, 2004, the NBI agents who served the search warrants on Omni seized
the following:
Sec. 2.
Quantity/Unit
Description
7 LPG cylinders
1 LPG cylinder
1 LPG cylinder
29 LPG cylinders
17 LPG cylinders
Sec. 3.
8 LPG cylinders
construed to mean:
(a)
xxxx
Definition of terms.For the purpose of this Act, the following terms shall be
11.0 kg [empty]
5 LPG cylinders
23 LPG cylinders
3 LPG cylinders
21 LPG cylinders
11.0 kg [empty]
xxxx
11.0 kg [empty]
(c)
As petitioners strongly argue, even if the branded LPG cylinders were indeed owned
representative of Omni, who signed the same under protest and made the
by customers, such fact does not authorize Omni to refill these branded LPG cylinders
annotation at the bottom part thereon: The above items/cylinders were taken at
without written authorization from the brand owners Pilipinas Shell, Petron and Total.
customers trucks and the empty cylinders taken at the warehouse (swapping section)
of the company.[56]
under Sec. 155 of RA 8293,[58] in affirming the courts a quos determination of the
search warrants.
presence of probable cause, this Court held that from Sec. 155.1[59] of RA 8293 can
Even considering that the filled LPG cylinders were indeed already loaded on
customers trucks when confiscated, yet the fact that these refilled LPG cylinders
90
The Court
recognizes this right pursuant to our laws, i.e., Intellectual Property Code of the
infringement involving the unauthorized sale of Gasul and Shellane LPG cylinders
Philippines. Thus the issuance by the DOE Circular No. 2000-05-007,[61] the letter-
and the unauthorized refilling of the same by Masagana Gas Corporation as duly
attested to and witnessed by NBI agents who conducted the surveillance and test-
addressed to Pilipinas Shell, the June 6, 2007 letter[63] of then DOE Secretary
buys.
Raphael P.M. Lotilla to the LPGIA, and DOE Department Circular No. 2007-100007[64] on LPG Cylinder Ownership and Obligations Related Thereto issued on
Similarly, in the instant case, the fact that Omni refilled various branded LPG cylinders
even if owned by its customers but without authority from brand owners Petron,
Pilipinas Shell and Total shows palpable violation of BP 33, as amended. As aptly
Fifth. The ownership of the seized branded LPG cylinders, allegedly owned by Omni
noted by the Court in Yao, Sr. v. People, only the duly authorized dealers and refillers
of Shellane, Petron Gasul and, by extension, Total may refill these branded LPG
cylinders.
The law does not require that the property to be seized should be owned by the
businessmen.
consequence, and it is sufficient that the person against whom the warrant is directed
Fourth. The issue of ownership of the seized branded LPG cylinders is irrelevant and
hence need no belaboring. BP 33, as amended, does not require ownership of the
deny that the seized LPG cylinders were in the possession of Omni, found as they
branded LPG cylinders as a condition sine qua non for the commission of offenses
involving petroleum and petroleum products. Verily, the offense of refilling a branded
LPG cylinder without the written consent of the brand owner constitutes the offense
In fine, we also note that among those seized by the NBI are 16 LPG cylinders
bearing the embossed brand names of Shellane, Gasul and Totalgaz but were
marked as Omnigas. Evidently, this pernicious practice of tampering or changing the
After all, once a consumer buys a branded LPG cylinder from the brand owner or its
appearance of a branded LPG cylinder to look like another brand violates the brand
authorized dealer, said consumer is practically free to do what he pleases with the
branded LPG cylinder. He can simply store the cylinder once it is empty or he can
even destroy it since he has paid a deposit for it which answers for the loss or cost of
33, as amended, and clearly enunciated under DOE Circular No. 2000-06-010 which
the empty branded LPG cylinder. Given such fact, what the law manifestly prohibits is
the refilling of a branded LPG cylinder by a refiller who has no written authority from
the brand owner. Apropos, a refiller cannot and ought not to refill branded LPG
a finding of probable cause, we agree with the appellate court and the Office of the
Chief State Prosecutor, which conducted the preliminary investigation, that there
brand
exists probable cause for the violation of Sec. 2 (a) in relation to Sec. 3 (c) of BP 33,
owners are deemed owners of their duly embossed, stamped and marked LPG
as amended. Probable cause has been defined as the existence of such facts and
91
circumstances as would excite belief in a reasonable mind, acting on the facts within
the knowledge of the prosecutor, that the person charged was guilty of the crime for
which he was prosecuted.[66] After all, probable cause need not be based on clear
and convincing evidence of guilt, as the investigating officer acts upon reasonable
what constitutes criminal acts involving petroleum products, the Circular merely lists
beliefprobable cause implies probability of guilt and requires more than bare
the various modes by which the said criminal acts may be perpetrated, namely: no
price display board, no weighing scale, no tare weight or incorrect tare weight
markings, no authorized LPG seal, no trade name, unbranded LPG cylinders, no
Anent the alleged violation of Sec. 2 (c) in relation to Sec. 4 of BP 33, as amended,
LPG cylinders.
petitioners strongly argue that there is no probable cause for said violation based
contemplation of the law, which seeks to curb the pernicious practices of some
upon an underfilling of a lone cylinder of the eight branded LPG cylinders refilled
during the test-buy. Besides, they point out that there was no finding of underfilling in
any of the filled LPG cylinders seized during the service of the search warrants.
Citing DOEs Bureau of Energy Utilization Circular No. 85-3-348, they maintain that
Moreover, in denying the motion for reconsideration of the LPG Refillers Association
some deviation is allowed from the exact filled weight. Considering the fact that an
of the Philippines, Inc., the Court upheld the basis of said DOE Circular No. 2000-06-
isolated underfilling happened in so many LPG cylinders filled, petitioners are of the
view that such is due to human or equipment error and does not in any way constitute
deliberate underfilling within the contemplation of the law.
Moreover, petitioners cast aspersion on the report and findings of LPG Inspector
prescribed in Section 4 of B.P. Blg. 33, as amended, which penalizes any person
Navio of the LPGIA by assailing his independence for being a representative of the
who commits any act [t]herein prohibited. Thus, violation on a per cylinder basis falls
major petroleum companies and that the inspection he conducted was made without
within the phrase any act as mandated in Section 4. To provide the same penalty for
the presence of any DOE representative or any independent body having technical
one who violates a prohibited act in B.P. Blg. 33, as amended, regardless of the
demands that all persons subject to such legislation shall be treated alike, under like
circumstances and conditions, both in the privileges conferred and in the liabilities
imposed.[70]
The Court made it clear that a violation, like underfilling, on a per cylinder basis falls
within the phrase of any act as mandated under Sec. 4 of BP 33, as amended.
92
Ineluctably, the underfilling of one LPG cylinder constitutes a clear violation of BP 33,
Trials of cases arising from this Act shall be terminated within thirty (30) days after
arraignment.
aptly noted by Manila Assistant City Prosecutor Catalo who conducted the preliminary
investigation, was indeed not controverted by petitioners.
On the issue of manifest bias and partiality, suffice it to say that aside from the
the management of the business affairs thereof, or employee responsible for the
allegation by petitioners, they have not shown that LPG Inspector Navio is neither an
violation shall be criminally liable; in case the offender is an alien, he shall be subject
inspection by LPG Inspector Navio was conducted in the presence of NBI agents on
April 23, 2004 who attested to that fact through their affidavits. Moreover, no rules
require and petitioners have not cited any that the inspection be conducted in the
they cannot be held liable for any perceived violations of BP 33, as amended, since
Sec. 4 of BP 33, as amended, provides for the penalties and persons who are
they are mere directors of Omni who are not in charge of the management of its
Sec. 4.
Penalties. Any person who commits any act herein prohibited shall, upon
another. Since Sec. 4 of BP 33, as amended, clearly provides and enumerates who
conviction, be punished with a fine of not less than twenty thousand pesos (P20,000)
are criminally liable, which do not include members of the board of directors of a
but not more than fifty thousand pesos (P50,000), or imprisonment of at least two (2)
corporation, petitioners, as mere members of the board of directors who are not in
years but not more than five (5) years, or both, in the discretion of the court. In cases
charge of Omnis business affairs, maintain that they cannot be held liable for any
of second and subsequent conviction under this Act, the penalty shall be both fine
Employment[71] they submitted tending to show that they are neither involved in the
day-to-day business of Omni nor managing it. Consequently, they posit that even if
the petroleum and/or petroleum products have already been delivered and paid for,
BP 33, as amended, had been violated by Omni they cannot be held criminally liable
the offended party shall be indemnified twice the amount paid, and if the seller who
thereof not being in any way connected with the commission of the alleged violations,
has not yet delivered has been fully paid, the price received shall be returned to the
and, consequently, the criminal complaints filed against them based solely on their
buyer with an additional amount equivalent to such price; and in addition, if the
being members of the board of directors as per the GIS submitted by Omni to SEC
offender is an oil company, marketer, distributor, refiller, dealer, sub-dealer and other
93
It may be noted that Sec. 4 above enumerates the persons who may be held liable for
board of directors are the following who are likewise elected as corporate officers of
Omni: (1) Petitioner Arnel U. Ty (Arnel) as President; (2) petitioner Mari Antonette Ty
partner, (4) such other officer charged with the management of the business affairs of
as Treasurer; and (3) petitioner Jason Ong as Corporate Secretary. Sec. 4 of BP 33,
the corporation or juridical entity, or (5) the employee responsible for such violation. A
common thread of the first four enumerated officers is the fact that they manage the
business affairs of the corporation or juridical entity. In short, they are operating
officers of a business concern, while the last in the list is self-explanatory.
Evidently, petitioner Arnel, as President, who manages the business affairs of Omni,
can be held liable for probable violations by Omni of BP 33, as amended. The fact
that petitioner Arnel is ostensibly the operations manager of Multi-Gas Corporation, a
It is undisputed that petitioners are members of the board of directors of Omni at the
family owned business, does not deter him from managing Omni as well. It is well-
time pertinent. There can be no quibble that the enumeration of persons who may be
settled that where the language of the law is clear and unequivocal, it must be taken
held liable for corporate violators of BP 33, as amended, excludes the members of the
to mean exactly what it says.[75] As to the other petitioners, unless otherwise shown
board of directors. This stands to reason for the board of directors of a corporation is
that they are situated under the catch-all such other officer charged with the
generally a policy making body. Even if the corporate powers of a corporation are
management of the business affairs, they may not be held liable under BP 33, as
reposed in the board of directors under the first paragraph of Sec. 23[72] of the
Corporation Code, it is of common knowledge and practice that the board of directors
Arnel, the charges against other petitioners must perforce be dismissed or dropped.
is not directly engaged or charged with the running of the recurring business affairs of
the corporation.
Incorporation, the members of the board generally do not concern themselves with
Accordingly, the assailed September 28, 2007 Decision and March 14, 2008
the day-to-day affairs of the corporation, except those corporate officers who are
Resolution of the Court of Appeals in CA-G.R. SP No. 98054 are AFFIRMED with
charged with running the business of the corporation and are concomitantly members
MODIFICATION that petitioners Mari Antonette Ty, Jason Ong, Willy Dy and Alvin Ty
of the board, like the President. Section 25[73] of the Corporation Code requires the
are excluded from the two Informations charging probable violations of Batas
Pambansa Bilang 33, as amended. The Joint Resolution dated November 7, 2005 of
the Office of the Chief State Prosecutor is modified accordingly.
Thus, the application of the legal maxim expressio unius est exclusio alterius, which
No pronouncement as to costs.
means the mention of one thing implies the exclusion of another thing not mentioned.
SO ORDERED.
If a statute enumerates the thing upon which it is to operate, everything else must
necessarily and by implication be excluded from its operation and effect.[74] The
fourth officer in the enumerated list is the catch-all such other officer charged with the
94
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting
6 January 1992
Corp.
Dear Vic,
(hereinafter ABS-CBN) seeks to reverse and set aside the decision[1] of 31 October
1996 and the resolution[2] of 10 March 1997 of the Court of Appeals in CA-G.R. CV
This is not a very formal business letter I am writing to you as I would like to express
No. 44125. The former affirmed with modification the decision[3] of 28 April 1993 of
my difficulty in recommending the purchase of the three film packages you are
the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-12309.
offering ABS-CBN.
The latter denied the motion to reconsider the decision of 31 October 1996.
From among the three packages I can only tick off 10 titles we can purchase. Please
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as
see attached. I hope you will understand my position. Most of the action pictures in
follows:
the list do not have big action stars in the cast. They are not for primetime. In line
with this I wish to mention that I have not scheduled for telecast several action
pictures in our very first contract because of the cheap production value of these
whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime
movies as well as the lack of big action stars. As a film producer, I am sure you
in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating
understand what I am trying to say as Viva produces only big action pictures.
thatIn fact, I would like to request two (2) additional runs for these movies as I can only
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films
schedule them in out non-primetime slots. We have to cover the amount that was
for TV telecast under such terms as may be agreed upon by the parties hereto,
paid for these movies because as you very well know that non-primetime advertising
provided, however, that such right shall be exercised by ABS-CBN from the actual
rates are very low. These are the unaired titles in the first contract.
offer in writing.
1. Kontra Persa [sic]
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president
2. Raider Platoon
Charo Santos-Concio, a list of three (3) film packages (36 title) from which ABS-CBN
3. Underground guerillas
may exercise its right of first refusal under the afore-said agreement (Exhs. 1 par. 2,
4. Tiger Command
2, 2-A and 2-B Viva). ABS-CBN, however through Mrs. Concio, can tick off only
5. Boy de Sabog
ten (10) titles (from the list) we can purchase (Exh. 3 Viva) and therefore did not
6. lady Commando
accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are
7. Batang Matadero
not the subject of the case at bar except the film Maging Sino Ka Man.
8. Rebelyon
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva)
is hereby quoted:
95
The other dramatic films have been offered to us before and have been rejected
which came in the form of a proposal contract Annex C of the complaint (Exh. 1
because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very
adult themes.
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president
As for the 10 titles I have choosen [sic] from the 3 packages please consider including
for Finance discussed the terms and conditions of Vivas offer to sell the 104 films,
all the other Viva movies produced last year, I have quite an attractive offer to make.
On April 07, 1992, defendant Del Rosario received through his secretary , a
handwritten note from Ms. Concio, (Exh. 5 Viva), which reads: Heres the draft of
(Signed)
the contract. I hope you find everything in order, to which was attached a draft
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio,
one film was added by Ms. Concio, for a consideration of P35 million. Exhibit C
with a list consisting of 52 original movie titles (i.e., not yet aired on television)
provides that ABS-CBN is granted film rights to 53 films and contains a right of first
including the 14 titles subject of the present case, as well as 104 re-runs (previously
refusal to 1992 Viva Films. The said counter proposal was however rejected by
aired on television) from which ABS-CBN may choose another 52 titles, as a total of
Vivas Board of Directors [in the] evening of the same day, April 7, 1992, as Viva
156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals
would not sell anything less than the package of 104 films for P60 million pesos (Exh.
and meetings defendant Del Rosario and Vivas President Teresita Cruz, in
Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the package
consideration of P60 million, signed a letter of agreement dated April 24, 1992,
proposal of VIVA. What transpired in that lunch meeting is the subject of conflicting
granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh.
versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-
7-A - RBS; Exh. 4 RBS) including the fourteen (14) films subject of the present
CBN was granted exclusive film rights to fourteen (14) films for a total consideration of
case.[4]
P36 million; that he allegedly put this agreement as to the price and number of films in
a napkin and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance
with a prayer for a writ of preliminary injunction and/or temporary restraining order
agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in
which Lopez wrote something; and insisted that what he and Lopez discussed at the
lunch meeting was Vivas film package offer of 104 films (52 originals and 52 re-runs)
for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal
96
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private
respondents from proceeding with the airing, broadcasting, and televising of the
fourteen VIVA films subject of the controversy, starting with the film Maging Sino Ka
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of
Appeals a petition[17] challenging the RTCs Order of 3 August and 15 October 1992
and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from
enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.
On 17 June 1992, after appropriate proceedings, the RTC issued an order[7] directing
the issuance of a writ of preliminary injunction upon ABS-CBNs posting of a P35
million bond.
to enjoin the airing, broadcasting, and televising of any or all of the films involved in
the controversy.
counterbond.[9]
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing
In the meantime, private respondents filed separate answer with counterclaim.[10]
the petition in CA-G.R. SP No. 29300 for being premature. ABS-CBN challenged the
dismissal in a petition for review filed with this Court on 19 January 1993, which was
docketed s G.R. No. 108363.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary
injunction upon the posting by RBS of a P30 million counterbond to answer for
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-
reduced petitioners injunction bond to P15 million as a condition precedent for the
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is
rendered in favor of defendants and against the plaintiff.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed
to explore the possibility of an amicable settlement. In the meantime, RBS prayed for
and was granted reasonable time within which to put up a P30 million counterbond in
the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October
a) P107,727.00 the amount of premium paid by RBS to the surety which issued
1992 a counterbond, which the RTC approved in its Order of 15 October 1992.[13]
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in
various newspapers;
97
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the
contract between ABS-CBN and VIVA had not been perfected, absent the approval by
the VIVA Board of Directors of whatever Del Rosario, its agent, might have agreed
with Lopez III. The appellate court did not even believe ABS-CBNs evidence that
Lopez III actually wrote down such an agreement on a napkin, as the same was
never produced in court. It likewise rejected ABS-CBNs insistence on its right of first
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way
Agreement was entered into between Appellant ABS-CBN and appellant VIVA under
Exhibit A in 1990 and that parag. 1.4 thereof provides:
films for TV telecast under such terms as may be agreed upon by the parties hereto,
offer. The alleged agreement between Lopez III and Del Rosario was subject to the
provided, however, that such right shall be exercised by ABS-CBN within a period of
approval of the VIVA Board of Directors, and said agreement was disapproved during
fifteen (15) days from the actual offer in writing (Records, p. 14).
the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBNs
demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still
of first refusal under the 1990 Film Exhibition Agreement had previously been
be subjected to such terms as may be agreed upon by the parties thereto, and that
exercised per Ms. Concios letter to Del Rosario ticking off ten titles acceptable to
the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual
them, which would have made the 1992 agreement an entirely new contract.
offer in writing.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the
price of the film right to the twenty-four (24) films, nor did it specify the terms thereof.
challenged decision and the case had become moot and academic in view of the
dismissal of the main action by the court a quo in its decision of 28 April 1993.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals
it can only tick off ten (10) films, and the draft contract Exhibit C accepted only
claiming that there was a perfected contract between ABS-CBN and VIVA granting
fourteen (14) films, while parag. 1.4 of Exhibit A speaks of the next twenty-four (24)
ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA
films.
and Del Rosario also appealed seeking moral and exemplary damages and additional
attorneys fees.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records,
pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was
98
sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Mrs. Charo
Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where
PETITIONER
As aptly
observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992,
PRIVATE
RESPONDENT
VIVA
NOTWITHSTANDING
CONTRARY.
ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day
period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-
II
CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABSCBN shall exercise its right of first refusal has already expired.[22]
III
being adequate proof of the pecuniary loss which RBS has suffered as a result of the
filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of
Appeals found reasonable basis therefor, holding that RBSs reputation was debased
RESPONDENT RBS.
by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of
the film Maging Sino Ka Man. Respondent court also held that exemplary damages
IV
were correctly imposed by way of example or correction for the public good in view of
the filing of the complaint despite petitioners knowledge that the contract with VIVA
had not been perfected. It also upheld the award of attorneys fees, reasoning that
with ABS-CBNs act of instituting Civil Case No. Q-92-12309, RBS was
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-
unnecessarily forced to litigate. The appellate court, however, reduced the awards
four titles under the 1990 Film Exhibition Agreement, as it had chosen only ten titles
from the first list. It insists that we give credence to Lopezs testimony that he and Del
fees to P500,000.00.
Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of
the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon,
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios
wrote the same on a paper napkin. It also asserts that the contract has already been
appeal because it was RBS and not VIVA which was actually prejudiced when the
effective, as the elements thereof, namely, consent, object, and consideration were
established. It then concludes that the Court of Appeals pronouncements were not
supported by law and jurisprudence, as per our decision of 1 December 1995 in
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this
Limketkai Sons Milling, Inc. v. Court of Appeals,[23] which cited Toyota Shaw, Inc. v.
99
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor.
As regards the award of attorneys fees, ABS-CBN maintains that the same had no
RBS spent for the premium on the counterbond of its own volition in order to negate
factual, legal, or equitable justification. In sustaining the trial courts award, the Court
the injunction issued by the trial court after the parties had ventilated their respective
positions during the hearings for the purpose. The filing of the counterbond was an
Camaganacan[32] that the text of the decision should state the reason why attorneys
option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to
fees are being awarded; otherwise, the award should be disallowed. Besides, no bad
incur such expense. Besides, RBS had another available option, i.e., move for the
faith has been imputed on, much less proved as having been committed by, ABS-
CBN.
have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the
party suffering loss injury is also required to exercise the diligence of a good father of
It has been held that where no sufficient showing of bad faith would be
a family to minimize the damages resulting from the act or omission. As regards the
cost of print advertisements, RBS had not convincingly established that this was a
On the other hand, RBS asserts that there was no perfected contract between ABS-
loss attributable to the non-showing of Maging Sino Ka Man; on the contrary, it was
CBN and VIVA absent meeting of minds between them regarding the object and
brought out during trial that with or without the case or injunction, RBS would have
consideration of the alleged contract. It affirms that ABS-CBNs claim of a right of first
refusal was correctly rejected by the trial court. RBS insists the premium it had paid
for the counterbond constituted a pecuniary loss upon which it may recover. It was
ABS-CBN further contends that there was no other clear basis for the awards of moral
obliged to put up the counterbond due to the injunction procured by ABS-CBN. Since
and exemplary damages. The controversy involving ABS-CBN and RBS did not in
the trial court found that ABS-CBN had no cause of action or valid claim against RBS
any way originate from business transaction between them. The claims for such
and, therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN
damages did not arise from any contractual dealings or from specific acts committed
the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash
bond would prove to be more expensive, as the loss would be equivalent to the cost of
reckless; they arose by virtue only of the filing of the complaint. An award of moral
money RBS would forego in case the P30 million came from its funds or was
and exemplary damages is not warranted where the record is bereft of any proof that
a party acted maliciously or in bad faith in filing an action.[27] In any case, free resort
to courts for redress of wrongs is a matter of public policy. The law recognizes the
RBS likewise asserts that it was entitled to the cost of advertisements for the
right of every one to sue for that which he honestly believes to be his right without fear
cancelled showing of the film Maging Sino Ka Man because the print advertisements
of standing trial for damages where by lack of sufficient evidence, legal technicalities,
were out to announce the showing on a particular day and hour on Channel 7, i.e., in
or a different interpretation of the laws on the matter, the case would lose ground.[28]
its entirety at one time, not as series to be shown on a periodic basis. Hence, the
One who, makes use of his own legal right does no injury.[29] If damage results from
print advertisements were good and relevant for the particular date of showing, and
filing of the complaint, it is damnum absque injuria.[30] Besides, moral damages are
since the film could not be shown on that particular date and hour because of the
generally not awarded in favor of a juridical person, unless it enjoys a good reputation
100
Pursuant then to Articles 19 and 21 of the Civil Code, ABS-CBN must be held liable
for such damages. Citing Tolentino,[34] damages may be awarded in cases of abuse
The second is that it is a competitor that caused RBS suffer the humiliation. The
of rights even if the done is not illicit, and there is abuse of rights where a plaintiff
humiliation and injury are far greater in degree when caused by an entity whose
institutes an action purely for the purpose of harassing or prejudicing the defendant.
ultimate business objective is to lure customers (viewers in this case) away from the
competition.[36]
In support of its stand that a juridical entity can recover moral and exemplary
damages, private respondent RBS cited People v. Manero,[35] where it was stated
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the
that such entity may recover moral and exemplary damages if it has a good reputation
trial court and the Court of Appeals do not support ABS-CBNs claim that there was a
perfected contract. Such factual findings can no longer be disturbed in this petition for
review under Rule 45, as only questions of law can be raised, not questions of fact.
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in
On the issue of damages and attorneys fees, they adopted the arguments of RBS.
this case. When RBS was not able to fulfill its commitment to the viewing public to
show the film Maging Sino Ka Man on the scheduled dates and times (and on two
The key issues for our consideration are (1) whether there was a perfected contract
between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and
humiliation. When the showing was cancelled, irate viewers called up RBS offices
attorneys fees. It may be noted that that award of attorneys fees of P212,000 in favor
and subjected RBS to verbal abuse (Announce kayo ng announce, hindi ninyo
naman ilalabas, nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not
something RBS brought upon itself. It was exactly what ABS-CBN had planted to
happen.
The first issue should be resolved against ABS-CBN. A contract is a meeting of
The amount of moral and exemplary damages cannot be said to be excessive. Two
minds between two persons whereby one binds himself to give something or render
The first is that the humiliation suffered by RBS, is national in extent. RBS operations
which is the subject of the contract; and (3) cause of the obligation, which is
consists of those who own and watch television. It is not an exaggeration to state,
and it is a matter of judicial notice that almost every other person in the country
televiewers who had anticipated the showing of the film, Maging Sino Ka Man on
May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to
(b)
this are the advertisers who had placed commercial spots for the telecast and to
whom RBS had a commitment in consideration of the placement to show the film in
the dates and times specified.
101
perfection or birth of the contract, which is the moment when the parties come to
(c)
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised
counter-offer were not material but merely clarificatory of what had previously been
Contracts that are consensual in nature are perfected upon mere meeting of the
agreed upon. It cited the statement in Stuart v. Franklin Life Insurance Co.[44] that a
minds. Once there is concurrence between the offer and the acceptance upon the
vendors change in a phrase of the offer to purchase, which change does not
subject matter, consideration, and terms of payment a contract is produced. The offer
essentially change the terms of the offer, does not amount to a rejection of the offer
must be certain. To convert the offer into a contract, the acceptance must be absolute
and the tender of a counter-offer.[45] However, when any of the elements of the
and must not qualify the terms of the offer; it must be plain, unequivocal,
A qualified
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence,
rejection of the original offer. Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not sufficient to generate
or counter-offer in a draft contract. VIVA through its Board of Directors, rejected such
consent because any modification or variation from the terms of the offer annuls the
counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the
offer.[40]
counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever
that Del Rosario had the specific authority to do so.
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2
April 1992 to discuss the package of films, said package of 104 VIVA films was VIVAs
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate
offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent
powers, such as the power to enter into contracts, are exercised by the Board of
through Ms. Concio, counter-proposal in the form a draft contract proposing exhibition
Directors.
less than the counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs offer, for it was
the latter agents of the corporation; accordingly, the general rules of agency as to the
binding effects of their acts would apply.[48] For such officers to be deemed fully
clothed by the corporation to exercise a power of the Board, the latter must specially
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals[41] and
authorize them to do so. that Del Rosario did not have the authority to accept ABS-
CBNs counter-offer was best evidenced by his submission of the draft contract to
held that an acceptance may contain a request for certain changes in the terms of the
VIVAs Board of Directors for the latters approval. In any event, there was between
offer and yet be a binding acceptance as long as it is clear that the meaning of the
Del Rosario and Lopez III no meeting of minds. The following findings of the trial
acceptance is positively and unequivocally to accept the offer, whether such request is
granted or not. This ruling was, however, reversed in the resolution of 29 March 1996,
[43] which ruled that the acceptance of an offer must be unqualified and absolute, i.e.,
it must be identical in all respects with that of the offer so as to produce consent or
perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill.
102
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to
the price and the number of films, which he wrote on a napkin. However, Exhibit C
contains numerous provisions which were not discussed at the Tamarind Grill, if
and the other 7 Viva movies because the price was broken down accordingly. The
The total price, the breakdown the known Viva movies, the 7 blockbuster movies
Lopez testimony was to be believed nor could they have been physically written on a
none [sic] Viva and the seven other Viva movies and the sharing between the cash
napkin. There was even doubt as to whether it was a paper napkin or cloth napkin. In
portion and the concerned spot portion in the total amount of P35 million pesos.
short what were written in Exhibit C were not discussed, and therefore could not
have been agreed upon, by the parties. How then could this court compel the parties
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
to sign Exhibit C when the provisions thereof were not previously agreed upon?
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the
to Mr. Del Rosario with a handwritten note, describing said Exhibit C as a draft.
contract was 14 films. The complaint in fact prays for delivery of 14 films. But Exhibit
(Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said draft has a well defined
meaning.
the true intent of the parties, then ABS-CBNs claim for 14 films in its complaint is
false or if what it alleged in the complaint is true, then Exhibit C did not reflect what
was agreed upon by the parties. This underscores the fact that there was no meeting
of the minds as to the subject matter of the contract, so as to preclude perfection
thereof. For settled is the rule that there can be no contract where there is no object
prepared for discussion, the terms and conditions thereof could not have been
previously agreed upon by ABS-CBN and Viva. Exhibit C could not therefore legally
bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D)
States:
We were able to reach an agreement. VIVA gave us the exclusive license to show
As the parties had not yet discussed the proposed terms and conditions in Exhibit C,
these fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00
and there was no evidence whatsoever that Viva agreed to the terms and conditions
thereof, said document cannot be a binding contract. The fact that Viva refused to
We had already
sign Exhibit C reveals only two [sic] well that it did not agree on its terms and
conditions, and this court has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at
the Tamarind Grill was only provisional, in the sense that it was subject to approval by
103
Now, Mr. Witness, and after that Tamarinf meeting the second meeting
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions
wherein you claimed that you have the meeting of the minds between you and Mr. Vic
that what was supposed to have been agreed upon at the Tamarind Grill between Mr.
Lopez and Del Rosario was not a binding agreement. It is as it should be because
corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23,
Vic Del Rosario was supposed to call us up and tell us specifically the result of the
Corporation Code).
agreement Lopez and Del Rosario arrived at could not ripen into a valid binding upon
Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763).
And you are referring to the so-called agreement which you wrote in [sic] a piece
The evidence
adduced shows that the Board of Directors of Viva rejected Exhibit C and insisted
of paper?
that the film package for 104 films be maintained (Exh. 7-1 Cica).[49]
Yes, sir.
The contention that ABS-CBN had yet to fully exercise its right of first refusal over
So, he was going to forward that to the board of Directors for approval?
twenty-four films under the 1990 Film Exhibition Agreement and that the meeting
between Lopez and Del Rosario was a continuation of said previous contract is
untenable. As observed by the trial court, ABS-CBNs right of first refusal had already
A
been exercised when Ms. Concio wrote to Viva ticking off ten films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent,
was for an entirely different package.
Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
examination to having used or exercised the right of first refusal. She stated that the
list was not acceptable and was indeed not accepted by ABS-CBN, (Tsn, June 8,
1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of first refusal may
have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp.
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario
71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its
had no authority to bind Viva to a contract with ABS-CBN until and unless its Board of
right of first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-
Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario is the
11).[50]
II
by its Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson,
44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not
However, we find for ABS-CBN on the issue of damages. We shall first take up actual
be held liable jointly and severally with Viva and his inclusion as party defendant has
damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on
no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil. 125; Salmon vs.
entitled to compensation for actual damages only for such pecuniary loss suffered by
him as he has duly proved.[51] The indemnification shall comprehend not only the
104
value of the loss suffered, but also that of the profits that the obligee failed to obtain.
ART. 19. Every person must, in the exercise of hid rights and in the performance of
[52] In contracts and quasi-contracts the damages which may be awarded are
his duties, act with justice, give everyone his due, and observe honesty and good
dependent on whether the obligor acted with good faith or otherwise. In case of good
faith.
faith, the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to
could have reasonably foreseen at the time of the constitution of the obligation. If the
obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible
for all damages which may be reasonably attributed to the non-performance of the
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
obligation.[53] In crimes and quasi-delicts, the defendants shall be liable for all
contrary to morals, good customs or public policy shall compensate the latter for the
damages which are the natural and probable consequences of the act or omission
damage.
complained of, whether or not such damages have been foreseen or could have
reasonably been foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity
recoverable from the injunctive bond.[57] In this case, ABS-CBN had not yet filed the
required bond; as a matter of fact, it asked for reduction of the bond and even went to
the Court of Appeals to challenge the order on the matter. Clearly then, it was not
necessary for RBS to file a counterbond.
The claim of RBS for actual damages did not arise from contract, quasi-contract,
delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABSCBNs alleged knowledge of lack of cause of action. Thus paragraph 12 of RBSs
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka
Man for lack of sufficient legal basis. The RTC issued a temporary restraining order
specifically alleges:
and later, a writ of preliminary injunction on the basis of its determination that there
existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action
the injunction on the ground of lack of legal and factual basis, but because of the plea
against RBS. As a result thereof, RBS suffered actual damages in the amount of
P6,621,195.32.[56]
As regards attorneys fees, the law is clear that in the absence of stipulation,
Needless to state the award of actual damages cannot be comprehended under the
above law on actual damages. RBS could only probably take refuge under Articles
105
award attorneys fees under Article 2208 demands factual, legal, and equitable
debased, resulting in social humiliation is an obiter dictum. On this score alone the
incur expenses to protect his rights, still attorneys fees may not be awarded where no
sufficient showing of bad faith could be reflected in a partys persistence in a case
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of
the Civil Code. These are imposed by way of example or correction for the public
good, in addition to moral, temperate, liquidated, or compensatory damages.[68] They
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil
are recoverable in criminal cases as part of the civil liability when the crime was
Code. Article 2217 thereof defines what are included in moral damages, while Article
2219 enumerates the cases where they may be recovered. Article 2220 provides that
moral damages may be recovered in breaches of contract where the defendant acted
fraudulently or in bad faith. RBSs claim for moral damages could possibly fall only
manner.[71]
quasi-contract, delict, or quasi-delict. Hence, the claims for moral and exemplary
damages can only be based on Articles 19, 20, and 21 of the Civil Code.
Moral damages are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the wrongdoer.[62] The
The elements of abuse of right under Article 19 are the following: (1) the existence of
award is not meant to enrich the complainant at the expense of the defendant, but to
a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of
enable the injured party to obtain means, diversion, or amusements that will serve to
obviate the moral suffering he has undergone. It is aimed at the restoration, within the
provisions of law which do not especially provide for their own sanction; while Article
limits of the possible, of the spiritual status quo ante, and should be proportionate to
21 deals with acts contra bonus mores, and has the following elements: (1) there is an
the suffering inflicted.[63] Trial courts must then guard against the award of exorbitant
act which is legal, (2) but which is contrary to morals, good custom, public order, or
damages; they should exercise balanced restrained and measured objectivity to avoid
suspicion that it was due to passion, prejudice, or corruption or the part of the trial
court.[64]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad
faith implies a conscious and intentional design to do a wrongful act for a dishonest
being an artificial person and having existence only in legal contemplation, it has no
feelings, no emotions, no senses. It cannot, therefore, experience physical suffering
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was
and mental anguish, which can be experienced only by one having a nervous system.
honestly convinced of the merits of its cause after it had undergone serious
[65] The statement in People v. Manero[66] and Mambulao Lumber Co. v. PNB[67]
negotiations culminating in its formal submission of a draft contract. Settled is the rule
that a corporation may recover moral damages if it has a good reputation that is
that the adverse result of an action does not per se make the action wrongful and
subject the actor to damages, for the law could not have meant impose a penalty on
106
the right to litigate. If damages result from a persons exercise of a right, it is damnum
P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB
absque injuria.[75]
thereafter was more than sufficient to liquidate its obligation, thereby rendering the
subsequent foreclosure sale of its chattels unlawful;
2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-22973
3. That the subsequent foreclosure sale of its chattels is null and void, not only
January 30, 1968
because it had already settled its indebtedness to the PNB at the time the sale was
effected, but also for the reason that the said sale was not conducted in accordance
with the provisions of the Chattel Mortgage Law and the venue agreed upon by the
vs.
4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value;
and
5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter
disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof
ANGELES, J.:
after the sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of
said properties, the PNB is liable to plaintiff for damages and attorney's fees.
An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila
in Civil Case No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus
The antecedent facts of the case, as found by the trial court, are as follows:
Philippine National Bank and Anacleto Heraldo, defendants", dismissing the complaint
against both defendants and sentencing the plaintiff to pay to defendant Philippine
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga
National Bank (PNB for short) the sum of P3,582.52 with interest thereon at the rate
Branch of defendant PNB and the former offered real estate, machinery, logging and
of 6% per annum from December 22, 1961 until fully paid, and the costs of suit.
In seeking the reversal of the decision, the plaintiff advances several propositions in
defendant PNB a parcel of land, together with the buildings and improvements
1. That its total indebtedness to the PNB as of November 21, 1961, was only
the land records of said province, as well as various sawmill equipment, rolling unit
P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the
and other fixed assets of the plaintiff, all situated in its compound in the
proceeds of the foreclosure sale of its real property alone in the amount of
aforementioned municipality.
107
sum of P57,646.59, plus 6% annual interest therefore from September 23, 1961,
On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for
attorney's fees equivalent to 10% of the amount due and the costs and expenses of
which the plaintiff signed a promissory note wherein it promised to pay to the PNB the
the sale. On the same day, the PNB sent notice to the plaintiff that the former was
said sum in five equal yearly installments at the rate of P6,528.40 beginning July 31,
foreclosing extrajudicially the chattels mortgaged by the latter and that the auction
1957, and every year thereafter, the last of which would be on July 31, 1961.
sale thereof would be held on November 21, 1961, between 9:00 and 12:00 a.m., in
Mambulao, Camarines Norte, where the mortgaged chattels were situated.
On October 19, 1956, the PNB made another release of P15,500 as part of the
approved loan granted to the plaintiff and so on the said date, the latter executed
another promissory note wherein it agreed to pay to the former the said sum in five
the chattels mortgaged by the plaintiff and made an inventory thereof in the presence
equal yearly installments at the rate of P3,679.64 beginning July 31, 1957, and ending
November 9, 1961, the said Deputy Sheriff issued the corresponding notice of public
auction sale of the mortgaged chattels to be held on November 21, 1961, at 10:00
The plaintiff failed to pay the amortization on the amounts released to and received by
it. Repeated demands were made upon the plaintiff to pay its obligation but it failed or
On November 19, 1961, the plaintiff sent separate letters, posted as registered air
mail matter, one to the Naga Branch of the PNB and another to the Provincial Sheriff
of Camarines Norte, protesting against the foreclosure of the real estate and chattel
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines
mortgages on the grounds that they could not be effected unless a Court's order was
Norte requesting him to take possession of the parcel of land, together with the
issued against it (plaintiff) for said purpose and that the foreclosure proceedings,
improvements existing thereon, covered by Transfer Certificate of Title No. 381 of the
according to the terms of the mortgage contracts, should be made in Manila. In said
land records of Camarines Norte, and to sell it at public auction in accordance with
letter to the Naga Branch of the PNB, it was intimated that if the public auction sale
the provisions of Act No. 3135, as amended, for the satisfaction of the unpaid
would be suspended and the plaintiff would be given an extension of ninety (90) days,
excluding attorney's fees. In compliance with the request, on October 16, 1961, the
then going on for the sale of its "whole interest" for an amount more than sufficient to
sale and sent a copy thereof to the plaintiff. According to the notice, the mortgaged
property would be sold at public auction at 10:00 a.m. on November 21, 1961, at the
The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as
a request for extension of the foreclosure sale of the mortgaged chattels and so it
advised the Sheriff of Camarines Norte to defer it to December 21, 1961, at the same
On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines
time and place. A copy of said advice was sent to the plaintiff for its information and
Norte requesting him to take possession of the chattels mortgaged to it by the plaintiff
guidance.
and sell them at public auction also on November 21, 1961, for the satisfaction of the
108
The foreclosure sale of the parcel of land, together with the buildings and
On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at
improvements thereon, covered by Transfer Certificate of Title No. 381, was, however,
10:00 a.m. and they were awarded to the PNB for the sum of P4,200 and the
held on November 21, 1961, and the said property was sold to the PNB for the sum of
corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo.
P56,908.00, subject to the right of the plaintiff to redeem the same within a period of
one year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate
In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB
of sale in favor of the PNB and a copy thereof was sent to the plaintiff.
advised the plaintiff giving it priority to repurchase the chattels acquired by the former
at public auction. This offer was reiterated in a letter dated January 3, 1962, of the
In a letter dated December 14, 1961 (but apparently posted several days later), the
Attorney of the Naga Branch of the PNB to the plaintiff, with the suggestion that it
plaintiff sent a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full
exercise its right of redemption and that it apply for the condonation of the attorney's
settlement of the balance of the obligation of the plaintiff after the application thereto
fees. The plaintiff did not follow the advice but on the contrary it made known of its
of the sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel
intention to file appropriate action or actions for the protection of its interests.
of land described in Transfer Certificate of Title No. 381. In the said letter, the plaintiff
reiterated its request that the foreclosure sale of the mortgaged chattels be
On May 24, 1962, several employees of the PNB arrived in the compound of the
discontinued on the grounds that the mortgaged indebtedness had been fully paid
plaintiff in Jose Panganiban, Camarines Norte, and they informed Luis Salgado, Chief
and that it could not be legally effected at a place other than the City of Manila.
Security Guard of the premises, that the properties therein had been auctioned and
bought by the PNB, which in turn sold them to Mariano Bundok. Upon being advised
In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of
that the purchaser would take delivery of the things he bought, Salgado was at first
Camarines Norte that it had fully paid its obligation to the PNB, and enclosed
reluctant to allow any piece of property to be taken out of the compound of the
therewith a copy of its letter to the latter dated December 14, 1961.
plaintiff. The employees of the PNB explained that should Salgado refuse, he would
be exposing himself to a litigation wherein he could be held liable to pay big sum of
On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the
money by way of damages. Apprehensive of the risk that he would take, Salgado
plaintiff acknowledging the remittance of P738.59 with the advice, however, that as of
immediately sent a wire to the President of the plaintiff in Manila, asking advice as to
that date the balance of the account of the plaintiff was P9,161.76, to which should be
what he should do. In the meantime, Mariano Bundok was able to take out from the
added the expenses of guarding the mortgaged chattels at the rate of P4.00 a day
beginning December 19, 1961. It was further explained in said letter that the sum of
P57,646.59, which was stated in the request for the foreclosure of the real estate
In the afternoon of the same day, Salgado received a telegram from plaintiff's
mortgage, did not include the 10% attorney's fees and expenses of the sale.
President directing him not to deliver the "chattels" without court order, with the
Accordingly, the plaintiff was advised that the foreclosure sale scheduled on the 21st
information that the company was then filing an action for damages against the PNB.
On the following day, May 25, 1962, two trucks and men of Mariano Bundok arrived
but Salgado did not permit them to take out any equipment from inside the compound
of the plaintiff. Thru the intervention, however, of the local police and PC soldiers, the
trucks of Mariano Bundok were able finally to haul the properties originally mortgaged
109
by the plaintiff to the PNB, which were bought by it at the foreclosure sale and
from the time the various amortizations of the loan became due until the real estate
Upon the foregoing facts, the trial court rendered the decision appealed from which,
as stated in the first paragraph of this opinion, sentenced the Mambulao Lumber
Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at
thereof, whenever the debt is judicially claimed. This is also the clear mandate of
the rate of 6% per annum from December 22, 1961 (day following the date of the
Article 2212 of the new Civil Code which provides that interest due shall earn legal
questioned foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao
interest only from the time it is judicially demanded, and of Article 1959 of the same
code which ordains that interest due and unpaid shall not earn interest. Of course, the
parties may, by stipulation, capitalize the interest due and unpaid, which as added
principal shall earn new interest; but such stipulation is nowhere to be found in the
terms of the promissory notes involved in this case. Clearly therefore, the trial court
The first question Mambulao Lumber Company poses is that which relates to the
fell into error when it awarded interest on accrued interests, without any agreement to
amount of its indebtedness to the PNB arising out of the principal loans and the
accrued interest thereon. It is contended that its obligation under the terms of the two
promissory notes it had executed in favor of the PNB amounts only to P56,485.87 as
Appellant next assails the award of attorney's fees and the expenses of the
of November 21, 1961, when the sale of real property was effected, and not
foreclosure sale in favor of the PNB. With respect to the amount of P298.54 allowed
as expenses of the extra-judicial sale of the real property, appellant maintains that the
same has no basis, factual or legal, and should not have been awarded. It likewise
There is merit to this claim. Examining the terms of the promissory note executed by
decries the award of attorney's fees which, according to the appellant, should not be
the appellant in favor of the PNB, we find that the agreed interest on the loan of
deducted from the proceeds of the sale of the real property, not only because there is
no express agreement in the real estate mortgage contract to pay attorney's fees in
even date (Exhibit C-3), and P15,500.00 released on October 19, 1956, as per
case the same is extra-judicially foreclosed, but also for the reason that the PNB
promissory note of the same date (Exhibit C-4) was six per cent (6%) per annum
neither spent nor incurred any obligation to pay attorney's fees in connection with the
from the respective date of said notes "until paid". In the statement of account of the
appellant as of September 22, 1961, submitted by the PNB, it appears that in arriving
at the total indebtedness of P57,646.59 as of that date, the PNB had compounded the
There is reason for the appellant to assail the award of P298.54 as expenses of the
principal of the loan and the accrued 6% interest thereon each time the yearly
amortizations became due, and on the basis of these compounded amounts charged
additional delinquency interest on them up to September 22, 1961; and to this
The parcel of land, together with the buildings and improvements existing thereon
erroneously computed total of P57,646.59, the trial court added 6% interest per
covered by Transfer Certificate of Title No. 381, was sold for P56,908. There was,
annum from September 23, 1961 to November 21 of the same year. In effect, the PNB
however, no evidence how much was the expenses of the foreclosure sale although
has claimed, and the trial court has adjudicated to it, interest on accrued interests
from the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for
110
advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his
. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the
commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a total of
Mortgagee his attorney-in-fact to sell the property mortgaged under Act 3135, as
P298.54.
amended, to sign all documents and to perform all acts requisite and necessary to
accomplish said purpose and to appoint its substitute as such attorney-in-fact with the
There is really no evidence of record to support the conclusion that the PNB is entitled
same powers as above specified. In case of judicial foreclosure, the Mortgagor hereby
to the amount awarded as expenses of the extra-judicial foreclosure sale. The court
below committed error in applying the provisions of the Rules of Court for purposes of
without any bond, to take charge of the mortgaged property at once, and to hold
arriving at the amount awarded. It is to be borne in mind that the fees enumerated
possession of the same and the rents, benefits and profits derived from the
under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are demandable,
mortgaged property before the sale, less the costs and expenses of the receivership;
only by a sheriff serving processes of the court in connection with judicial foreclosure
the Mortgagor hereby agrees further that in all cases, attorney's fees hereby fixed at
of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial
Ten Per cent (10%) of the total indebtedness then unpaid which in no case shall be
foreclosure of mortgages under Act 3135. The law applicable is Section 4 of Act 3135
less than P100.00 exclusive of all fees allowed by law, and the expenses of collection
which provides that the officer conducting the sale is entitled to collect a fee of P5.00
shall be the obligation of the Mortgagor and shall with priority, be paid to the
for each day of actual work performed in addition to his expenses in connection with
Mortgagee out of any sums realized as rents and profits derived from the mortgaged
the foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case,
property or from the proceeds realized from the sale of the said property and this
that it actually spent any amount in connection with the said foreclosure sale. Neither
may expenses for publication of the notice be legally allowed in the absence of
evidence on record to support it. 1 It is true, as pointed out by the appellee bank, that
We find the above stipulation to pay attorney's fees clear enough to cover both cases
courts should take judicial notice of the fees provided for by law which need not be
proved; but in the absence of evidence to show at least the number of working days
phrase "in all cases" appears to be part of the second sentence, a reading of the
the sheriff concerned actually spent in connection with the extra-judicial foreclosure
whole context of the stipulation would readily show that it logically refers to extra-
sale, the most that he may be entitled to, would be the amount of P10.00 as a
judicial foreclosure found in the first sentence and to judicial foreclosure mentioned in
reasonable allowance for two day's work one for the preparation of the necessary
the next sentence. And the ambiguity in the stipulation suggested and pointed out by
notices of sale, and the other for conducting the auction sale and issuance of the
the appellant by reason of the faulty sentence construction should not be made to
corresponding certificate of sale in favor of the buyer. Obviously, therefore, the award
attorney's fees were applicable to the extra-judicial foreclosure sale of its real
properties, still, the award of P5,821.35 for attorney's fees has no legal justification,
considering the circumstance that the PNB did not actually spend anything by way of
of the mortgage contract. The parties to the mortgage appear to have stipulated under
attorney's fees in connection with the sale. In support of this proposition, appellant
cites authorities to the effect: (1) that when the mortgagee has neither paid nor
incurred any obligation to pay an attorney in connection with the foreclosure sale, the
111
claim for such fees should be denied; 2 and (2) that attorney's fees will not be allowed
corporation (mortgagee) who receives a salary for all the legal services performed by
compensation for his services; and even when an express contract is made the court
him for the corporation. 3 These authorities are indeed enlightening; but they should
can ignore it and limit the recovery to reasonable compensation if the amount of the
not be applied in this case. The very same authority first cited suggests that said
stipulated fee is found by the court to be unreasonable. This is a very different rule
principle is not absolute, for there is authority to the contrary. As to the fact that the
from that announced in section 1091 of the Civil Code with reference to the obligation
foreclosure proceeding's were handled by an attorney of the legal staff of the PNB, we
of contracts in general, where it is said that such obligation has the force of law
are reluctant to exonerate herein appellant from the payment of the stipulated
between the contracting parties. Had the plaintiff herein made an express contract to
attorney's fees on this ground alone, considering the express agreement between the
pay his attorney an uncontingent fee of P2,115.25 for the services to be rendered in
parties in the mortgage contract under which appellant became liable to pay the
reducing the note here in suit to judgment, it would not have been enforced against
same. At any rate, we find merit in the contention of the appellant that the award of
him had he seen fit to oppose it, as such a fee is obviously far greater than is
necessary to remunerate the attorney for the work involved and is therefore
considering that all that the branch attorney of the said bank did in connection with the
foreclosure sale of the real property was to file a petition with the provincial sheriff of
Camarines Norte requesting the latter to sell the same in accordance with the
morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable. 4
The principle that courts should reduce stipulated attorney's fees whenever it is found
Since then this Court has invariably fixed counsel fees on a quantum meruit basis
under the circumstances of the case that the same is unreasonable, is now deeply
rooted in this jurisdiction to entertain any serious objection to it. Thus, this Court has
because a lawyer is primarily a court officer charged with the duty of assisting the
explained:
court in administering impartial justice between the parties, and hence, the fees
should be subject to judicial control. Nor should it be ignored that sound public policy
But the principle that it may be lawfully stipulated that the legal expenses involved in
demands that courts disregard stipulations for counsel fees, whenever they appear to
the collection of a debt shall be defrayed by the debtor does not imply that such
stipulations must be enforced in accordance with the terms, no matter how injurious or
not material that the present action is between the debtor and the creditor, and not
oppressive they may be. The lawful purpose to be accomplished by such a stipulation
between attorney and client. As court have power to fix the fee as between attorney
is to permit the creditor to receive the amount due him under his contract without a
and client, it must necessarily have the right to say whether a stipulation like this,
deduction of the expenses caused by the delinquency of the debtor. It should not be
permitted for him to convert such a stipulation into a source of speculative profit at the
expense of the debtor.
Contracts for attorney's services in this jurisdiction stands upon an entirely different
imposed; the amount of money or the value of the property affected by the
footing from contracts for the payment of compensation for any other services. By
controversy, or involved in the employment; the skill and experience called for in the
112
performance of the service; the professional standing of the attorney; the results
secured; and whether or not the fee is contingent or absolute, it being a recognized
P57,495.86
rule that an attorney may properly charge a much larger fee when it is to be
B. -
contingent than when it is not. 7 From the stipulation in the mortgage contract earlier
I.
Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21,
quoted, it appears that the agreed fee is 10% of the total indebtedness, irrespective of
1961
P56,908.00
II.
738.59
perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but,
surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra-
judicially, and all that the attorney did was to file a petition for foreclosure with the
P57,646.59
sheriff concerned. It is to be assumed though, that the said branch attorney of the
PNB made a study of the case before deciding to file the petition for foreclosure; but
even with this in mind, we believe the amount of P5,821.35 is far too excessive a fee
P57,495.86
considered opinion that the amount of P1,000.00 would be more than sufficient to
P 150.73
========
From the foregoing illustration or computation, it is clear that there was no further
The next issue raised deals with the claim that the proceeds of the sale of the real
properties alone together with the amount it remitted to the PNB later was more than
1961; and on this ground alone, we may declare the sale of appellant's chattels on the
sufficient to liquidate its total obligation to herein appellee bank. Again, we find merit in
said date, illegal and void. But we take into consideration the fact that the PNB must
this claim. From the foregoing discussion of the first two errors assigned, and for
have been led to believe that the stipulated 10% of the unpaid loan for attorney's fees
in the real estate mortgage was legally maintainable, and in accordance with such
November 21, 1961 when the real estate mortgage was foreclosed, we have the
belief, herein appellee bank insisted that the proceeds of the sale of appellant's real
property was deficient to liquidate the latter's total indebtedness. Be that as it may,
however, we still find the subsequent sale of herein appellant's chattels illegal and
A. I.
P27,500.00
(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961
That appellant vigorously objected to the foreclosure of its chattel mortgage after the
8,751.78
foreclosure of its real estate mortgage on November 21, 1961, can not be doubted, as
shown not only by its letter to the PNB on November 19, 1961, but also in its letter to
4,734.08
the provincial sheriff of Camarines Norte on the same date. These letters were
II.
followed by another letter to the appellee bank on December 14, 1961, wherein herein
III.
Attorney's fee
appellant, in no uncertain terms, reiterated its objection to the scheduled sale of its
1,000.00
chattels on December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons
113
therein stated that: (1) it had settled in full its total obligation to the PNB by the sale of
To the foregoing conclusion, We disagree. While the law grants power and authority to
the real estate and its subsequent remittance of the amount of P738.59; and (2) that
the mortgagee to sell the mortgaged property at a public place in the municipality
the contemplated sale at Jose Panganiban would violate their agreement embodied
where the mortgagor resides or where the property is situated, 8 this Court has held
that the sale of a mortgaged chattel may be made in a place other than that where it is
found, provided that the owner thereof consents thereto; or that there is an agreement
(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended,
to this effect between the mortgagor and the mortgagee. 9 But when, as in this case,
the parties hereto agree that the corresponding complaint for foreclosure or the
the parties agreed to have the sale of the mortgaged chattels in the City of Manila,
petition for sale should be filed with the courts or the sheriff of the City of Manila, as
which, any way, is the residence of the mortgagor, it cannot be rightly said that
the case may be; and that the Mortgagor shall pay attorney's fees hereby fixed at ten
mortgagee still retained the power and authority to select from among the places
per cent (10%) of the total indebtedness then unpaid but in no case shall it be less
provided for in the law and the place designated in their agreement over the objection
than P100.00, exclusive of all costs and fees allowed by law and of other expenses
of the mortgagor. In providing that the mortgaged chattel may be sold at the place of
residence of the mortgagor or the place where it is situated, at the option of the
mortgagee, the law clearly contemplated benefits not only to the mortgagor but to the
mortgagee as well. Their right arising thereunder, however, are personal to them; they
utter disregard of the objection of herein appellant to the sale of its chattels at Jose
do not affect either public policy or the rights of third persons. They may validly be
Panganiban, Camarines Norte and not in the City of Manila as agreed upon, the PNB
waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract
proceeded with the foreclosure sale of said chattels. The trial court, however, justified
that in cases of both judicial and extra-judicial foreclosure under Act 1508, as
said action of the PNB in the decision appealed from in the following rationale:
amended, the corresponding complaint for foreclosure or the petition for sale should
be filed with the courts or the Sheriff of Manila, as the case may be, they waived their
While it is true that it was stipulated in the chattel mortgage contract that a petition for
corresponding rights under the law. The correlative obligation arising from that
the extra-judicial foreclosure thereof should be filed with the Sheriff of the City of
agreement have the force of law between them and should be complied with in good
Manila, nevertheless, the effect thereof was merely to provide another place where
faith. 10
the mortgage chattel could be sold in addition to those specified in the Chattel
Mortgage Law. Indeed, a stipulation in a contract cannot abrogate much less impliedly
By said agreement the parties waived the legal venue, and such waiver is valid and
repeal a specific provision of the statute. Considering that Section 14 of Act No. 1508
legally effective, because it, was merely a personal privilege they waived, which is not
vests in the mortgagee the choice where the foreclosure sale should be held, hence,
in the case under consideration, the PNB had three places from which to select,
that a person may renounce any right which the law gives unless such renunciation is
namely: (1) the place of residence of the mortgagor; (2) the place of the mortgaged
expressly prohibited or the right conferred is of such nature that its renunciation would
chattels were situated; and (3) the place stipulated in the contract. The PNB selected
the second and, accordingly, the foreclosure sale held in Jose Panganiban,
Camarines Norte, was legal and valid.
On the other hand, if a place of sale is specified in the mortgage and statutory
requirements in regard thereto are complied with, a sale is properly conducted in that
place. Indeed, in the absence of a statute to the contrary, a sale conducted at a place
114
other than that stipulated for in the mortgage is invalid, unless the mortgagor consents
who is not a party to this case, that was responsible for the forcible taking of the
to such sale. 12
property; but assuming this to be so, still the PNB cannot escape liability for the
conversion of the mortgaged chattels by parting with its interest in the property.
Moreover, Section 14 of Act 1508, as amended, provides that the officer making the
Neither would its claim that it afterwards gave a chance to herein appellant to
sale should make a return of his doings which shall particularly describe the articles
repurchase or redeem the chattels, improve its position, for the mortgagor is not under
sold and the amount received from each article. From this, it is clear that the law
obligation to take affirmative steps to repossess the chattels that were converted by
requires that sale be made article by article, otherwise, it would be impossible for him
the mortgagee. 15 As a consequence of the said wrongful acts of the PNB and the
to state the amount received for each item. This requirement was totally disregarded
by the Deputy Sheriff of Camarines Norte when he sold the chattels in question in
appellant is entitled to collect from them, jointly and severally, the full value of the
bulk, notwithstanding the fact that the said chattels consisted of no less than twenty
chattels in question at the time they were illegally sold by them. To this effect was the
different items as shown in the bill of sale. 13 This makes the sale of the chattels
manifestly objectionable. And in the absence of any evidence to show that the
mortgagor had agreed or consented to such sale in gross, the same should be set
The effect of this irregularity was, in our opinion to make the plaintiff liable to the
aside.
defendant for the full value of the truck at the time the plaintiff thus carried it off to be
sold; and of course, the burden is on the defendant to prove the damage to which he
It is said that the mortgagee is guilty of conversion when he sells under the mortgage
but not in accordance with its terms, or where the proceedings as to the sale of
foreclosure do not comply with the statute. 14 This rule applies squarely to the facts of
This brings us to the problem of determining the value of the mortgaged chattels at
this case where, as earlier shown, herein appellee bank insisted, and the appellee
the time of their sale in 1961. The trial court did not make any finding on the value of
deputy sheriff of Camarines Norte proceeded with the sale of the mortgaged chattels
the chattels in the decision appealed from and denied altogether the right of the
at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of the
appellant to recover the same. We find enough evidence of record, however, which
mortgagor thereto for the reason that it is not the place of sale agreed upon in the
may be used as a guide to ascertain their value. The record shows that at the time
mortgage contract; and the said deputy sheriff sold all the chattels (among which were
herein appellant applied for its loan with the PNB in 1956, for which the chattels in
a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and
question were mortgaged as part of the security therefore, herein appellant submitted
Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws
a list of the chattels together with its application for the loan with a stated value of
etc.) as a single lot in violation of the requirement of the law to sell the same article by
P107,115.85. An official of the PNB made an inspection of the chattels in the same
article. The PNB has resold the chattels to another buyer with whom it appears to
The same chattels with some additional equipment acquired by herein appellant with
chattels from appellant compound by force, as shown by the circumstance that they
part of the proceeds of the loan were reappraised in a re-inspection conducted by the
had to take along PC soldiers and municipal policemen of Jose Panganiban who
same official in 1958, in the report of which he gave all the chattels an appraised
placed the chief security officer of the premises in jail to deprive herein appellant of its
possession thereof. To exonerate itself of any liability for the breach of peace thus
report in 1959 gave the appraised value as P19,400.00 and the market value at
committed, the PNB would want us to believe that it was the subsequent buyer alone,
P25,600.00. 19 The said official of the PNB who made the foregoing reports of
115
inspection and re-inspections testified in court that in giving the values appearing in
appellant company had thereafter been added to the chattels; and that the real value
expected of an official of the appellee bank. And it appears that the values were
maintained because the depreciation is off-set by the marked increase in the cost of
considerably reduced in all the re-inspection reports for the reason that when he went
heavy equipment in the market, it is our opinion that the market value of the chattels
to herein appellant's premises at the time, he found the chattels no longer in use with
at the time of the sale should be fixed at the original appraised value of P42,850.00.
some of the heavier equipments dismantled with parts thereof kept in the bodega; and
finding it difficult to ascertain the value of the dismantled chattels in such condition, he
Herein appellant's claim for moral damages, however, seems to have no legal or
did not give them anymore any value in his reports. Noteworthy is the fact, however,
factual basis. Obviously, an artificial person like herein appellant corporation cannot
that in the last re-inspection report he made of the chattels in 1961, just a few months
before the foreclosure sale, the same inspector of the PNB reported that the heavy
feelings, moral shock or social humiliation which are basis of moral damages. 21 A
equipment of herein appellant were "lying idle and rusty" but were "with a shed free
corporation may have a good reputation which, if besmirched, may also be a ground
from rains" 20 showing that although they were no longer in use at the time, they were
for the award of moral damages. The same cannot be considered under the facts of
kept in a proper place and not exposed to the elements. The President of the
this case, however, not only because it is admitted that herein appellant had already
appellant company, on the other hand, testified that its caterpillar (tractor) alone is
ceased in its business operation at the time of the foreclosure sale of the chattels, but
worth P35,000.00 in the market, and that the value of its two trucks acquired by it with
also for the reason that whatever adverse effects of the foreclosure sale of the
part of the proceeds of the loan and included as additional items in the mortgaged
chattels could have upon its reputation or business standing would undoubtedly be
chattels were worth no less than P14,000.00. He likewise appraised the worth of its
the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or
Murphy engine at P16,000.00 which, according to him, when taken together with the
in Manila which is the place agreed upon by the parties in the mortgage contract.
heavy equipments he mentioned, the sawmill itself and all other equipment forming
part of the chattels under consideration, and bearing in mind the current cost of
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines
equipments these days which he alleged to have increased by about five (5) times,
Norte in proceeding with the sale in utter disregard of the agreement to have the
could safely be estimated at P120,000.00. This testimony, except for the appraised
chattels sold in Manila as provided for in the mortgage contract, to which their
and market values appearing in the inspection and re-inspection reports of the PNB
attentions were timely called by herein appellant, and in disposing of the chattels in
official earlier mentioned, stand uncontroverted in the record; but We are not inclined
gross for the miserable amount of P4,200.00, herein appellant should be awarded
to accept such testimony at its par value, knowing that the equipments of herein
exemplary damages in the sum of P10,000.00. The circumstances of the case also
appellant had been idle and unused since it stopped operating its sawmill in 1958 up
to the time of the sale of the chattels in 1961. We have no doubt that the value of
chattels was depreciated after all those years of inoperation, although from the
evidence aforementioned, We may also safely conclude that the amount of P4,200.00
from should be, as hereby, it is set aside. The Philippine National Bank and the
for which the chattels were sold in the foreclosure sale in question was grossly unfair
Deputy Sheriff of the province of Camarines Norte are ordered to pay, jointly and
to the mortgagor. Considering, however, the facts that the appraised value of
P42,850.00 and the market value of P85,700.00 originally given by the PNB official
follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the
chattels at the time of the sale with interest at the rate of 6% per annum from
116
December 21, 1961, until fully paid, P10,000.00 in exemplary damages, and
Sometime in November 1992 a bidding for the supply and installation of the
generators was held. Several suppliers and dealers were invited to attend a pre-
bidding conference to discuss the conditions, propose scheme and specifications that
would best suit the needs of PUREFOODS. Out of the eight (8) prospective bidders
JARDINE DAVIES INC., petitioner,
who attended the pre-bidding conference, only three (3) bidders, namely, respondent
vs.
COURT
OF APPEALS
and FAR
EAST
MILLS
SUPPLY
CORPORATION,
ADVANCE POWER submitted bid proposals and gave bid bonds equivalent to 5% of
respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
This will confirm that Pure Foods Corporation has awarded to your firm the project:
OF APPEALS
and FAR
EAST
MILLS
SUPPLY
CORPORATION,
Supply and Installation of two (2) units of 1500 KW/unit Generator Sets at the
respondents.
Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number
PC 28-92 dated November 20, 1992, subject to the following basic terms and
BELLOSILLO, J.:
conditions:
This is rather a simple case for specific performance with damages which could have
1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials
been resolved through mediation and conciliation during its infancy stage had the
and labor for the local portion and the labor for the imported materials, payable by
parties been earnest in expediting the disposal of this case. They opted however to
progress billing twice a month, with ten percent (10%) retention. The retained amount
resort to full court proceedings and denied themselves the benefits of alternative
shall be released thirty (30) days after acceptance of the completed project and upon
dispute resolution, thus making the process more arduous and long-drawn.
The controversy started in 1992 at the height of the power crisis which the country
and acceptance of project. The contract price includes future increase/s in costs of
was then experiencing. To remedy and curtail further losses due to the series of
understood that any item required to complete the project, and those not included in
the list of items shall be deemed included and covered and shall be performed;
117
JARDINE to cease and desist from delivering and installing the two (2) generators at
working days after the delivery of Generator Set to Marikina Plant, penalty equivalent
PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and
JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its
unwarranted interference and inducement. Trial ensued. After FEMSCO presented its
5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the
contract price, and shall procure All Risk Insurance equivalent to the contract price
upon commencement of the project. The All Risk Insurance Policy shall be endorsed
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's
Demurrer to Evidence. The trial court concluded that "[w]hile it may seem to the
plaintiff that by the actions of the two defendants there is something underhanded
going on, this is all a matter of perception, and unsupported by hard evidence, mere
suspicions and suppositions would not stand up very well in a court of law." 2
Once finalized, we shall ask you to sign the formal contract embodying the foregoing
services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso
arrangements with its principal and started the PUREFOODS project by purchasing
and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE
and noting that construction had already started thereon; (c) to pay attorney's fees in
an amount equivalent to 20% of the total amount due; and, (d) to pay the costs. The
trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and
Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior
legal basis.
and warrant a total review and re-bid of (the) project." Consequently, FEMSCO
appealed the 27 June 1994 Resolution of the trial court which granted the Demurrer
protested the cancellation of the award and sought a meeting with PUREFOODS.
to Evidence filed by JARDINE resulting in the dismissal of the complaint against it,
while PUREFOODS appealed the 28 July 1994 Decision of the same court which
already awarded the project and entered into a contract with JARDINE NELL, a
division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally was not one
of the bidders.1wphi1.nt
118
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of
granting there existed a perfected contract, whether there is any showing that
the trial court. 3 It also reversed the 27 June 1994 Resolution of the lower court and
JARDINE induced or connived with PUREFOODS to violate the latter's contract with
ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the
FEMSCO.
latter's contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO
P2,000,000.00 for moral damages. In addition, PUREFOODS was also directed to
reciprocally, to the fulfillment of a prestation to give, to do, or not to do." 4 There can
be no contract unless the following requisites concur: (a) consent of the contracting
On 31 January 1997 the Court of Appeals denied for lack of merit the separate
parties; (b) object certain which is the subject matter of the contract; and, (c) cause of
motions for reconsideration filed by PUREFOODS and JARDINE. Hence, these two
the obligation which is established. 5 A contract binds both contracting parties and
(2) petitions for review filed by PUREFOODS and JARDINE which were subsequently
consolidated.
Contracts are perfected by mere consent, upon the acceptance by the offeree of the
PUREFOODS maintains that the conclusions of both the trial court and the appellate
offer made by the offeror. From that moment, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences
1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award
which, according to their nature, may be in keeping with good faith, usage and law. 6
To produce a contract, the acceptance must not qualify the terms of the offer.
However, the acceptance may be express or implied. 7 For a contract to arise, the
FEMSCO's conforme, PUREFOODS was very well within reason to revoke its
acceptance must be made known to the offeror. Accordingly, the acceptance can be
PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad
faith when it dealt with FEMSCO. Hence moral and exemplary damages should not
In the instant case, there is no issue as regards the subject matter of the contract and
the cause of the obligation. The controversy lies in the consent whether there was
an acceptance of the offer, and if so, if it was communicated, thereby perfecting the
Corollarily, JARDINE asserts that the records are bereft of any showing that it had
contract.
prior knowledge of the supposed contract between PUREFOODS and FEMSCO, and
that it induced PUREFOODS to violate the latter's alleged contract with FEMSCO.
To resolve the dispute, there is a need to determine what constituted the offer and the
acceptance. Since petitioner PUREFOODS started the process of entering into the
moral damages. But granting arguendo that the award of moral damages is proper,
contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that
In the main, these consolidated cases present two (2) issues: first, whether there
PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals
119
are the offers. And, the reply of petitioner PUREFOODS, the acceptance or rejection
As can be inferred from the actual phrase used in the first portion of the letter, the
decision to award the contract has already been made. The letter only serves as a
confirmation of such decision. Hence, to the Court's mind, there is already an
acceptance made of the offer received by Purefoods. Notwithstanding the terms and
conditions enumerated therein, the offer has been accepted and/or amplified the
tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm
details of the terms and conditions contained in the Terms and Conditions of Bidding
(FEMSCO) the project," could not be more categorical. While the same letter
enumerated certain "basic terms and conditions," these conditions were imposed on
the performance of the obligation rather than on the perfection of the contract. Thus,
But even granting arguendo that the 12 December 1992 letter of petitioner
the first "condition" was merely a reiteration of the contract price and billing scheme
based on the Terms and Conditions of Bidding and the bid or previous offer of
respondent FEMSCO. The second and third "conditions" were nothing more than
implied acceptance, if not a clear indication of its acquiescence to, the "conditional
general statements that all items and materials including those excluded in the list but
counter-offer," which expressly stated that the performance bond and the contractor's
necessary to complete the project shall be deemed included and should be brand
new. The fourth "condition" concerned the completion of the work to be done, i.e.,
within twenty (20) days from the delivery of the generator set, the purchase of which
return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that
was part of the contract. The fifth "condition" had to do with the putting up of a
performance bond and an all-risk insurance, both of which should be given upon
earlier adverted to, an acceptance may either be express or implied, 10 and this can
commencement of the project. The sixth "condition" related to the standard warranty
be inferred from the contemporaneous and subsequent acts of the contracting parties.
of one (1) year. In fine, the enumerated "basic terms and conditions" were
prescriptions on how the obligation was to be performed and implemented. They were
Accordingly, for all intents and purposes, the contract at that point has been perfected,
PUREFOODS on respondent FEMSCO to lower the price even after the contract had
obligation. While failure to comply with the first condition results in the failure of a
been perfected. Indeed from the facts, it can easily be surmised that petitioner
contract, failure to comply with the second merely gives the other party options and/or
PUREFOODS was haggling for a lower price even after agreeing to the earlier
quotation, and was threatening to unilaterally cancel the contract, which it eventually
did. Petitioner PUREFOODS also makes an issue out of the absence of a purchase
We thus agree with the conclusion of respondent appellate court which affirmed the
order (PO). Suffice it to say that purchase orders or POs do not make or break a
trial court
contract. Thus, even the tenor of the subsequent letter of petitioner PUREFOODS,
i.e., "Pure Foods Corporation is hereby canceling the award to your company of the
120
project," presupposes that the contract has been perfected. For, there can be no
both petitioner JARDINE and respondent FEMSCO, and the tender of a lower
Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the
FEMSCO.
contrary, it believed in good faith that no such contract was perfected. We are not
convinced. We subscribe to the factual findings and conclusions of the trial court
of Appeals reversing the 27 June 1994 resolution of the trial court and ordering
FOODS) has acted with bad faith and this was further aggravated by the subsequent
petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS
Jardine. It is very evident that Purefoods thought that by the expedient means of
merely writing a letter would automatically cancel or nullify the existing contract
entered into by both parties after a process of bidding. This, to the Court's mind, is a
(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of
flagrant violation of the express provisions of the law and is contrary to fair and just
This Court has awarded in the past moral damages to a corporation whose reputation
has been besmirched. 12 In the instant case, respondent FEMSCO has sufficiently
as attorney's fees equivalent to twenty percent (20%) of the total amount due, is
shown that its reputation was tarnished after it immediately ordered equipment from
its suppliers on account of the urgency of the project, only to be canceled later. We
reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never
intended to enrich the recipient. Likewise, the award of exemplary damages by way of
example for the public good is excessive and should be reduced to P100,000.00.
SO ORDERED.
G.R. No. 131723
Petitioner JARDINE maintains on the other hand that respondent appellate court
erred in ordering it to pay moral damages to respondent FEMSCO as it supposedly
induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may
vs.
T.E.A.M.
ASSEMBLY
121
ELECTRONICS
and
CORPORATION,
MANAGEMENT
PACIFIC
TECHNOLOGY
CORPORATION;
ELECTRONICS
and
ULTRA
DECISION
On September 28, 1987, a team of petitioner's inspectors conducted a surprise
NACHURA, J.:
inspection of the electric meters installed at the DCIM building, witnessed by Ultra's6
representative, Mr. Willie Abangan. The two meters covered by account numbers
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking
the reversal of the Decision1 of the Court of Appeals (CA) dated June 18, 1997 and
did not register the actual power consumption in the building. The results of the
its Resolution2 dated December 3, 1997 in CA-G.R. CV No. 40282 denying the
inspection were reflected in the Service Inspection Reports7 prepared by the team.
inspection and demanded from the latter the payment of P7,040,401.01 representing
its unregistered consumption from February 10, 1986 until September 28, 1987, as a
result of the alleged tampering of the meters.8 TEC received the letters on January 7,
1988. Since Ultra was in possession of the subject building during the covered period,
TEC's Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra9 which,
and Management Pacific Corporation (TPC). On the other hand, petitioner Manila
in turn, informed TEC that its Executive Vice-President had met with petitioner's
representative. Ultra further intimated that assuming that there was tampering of the
Manila area.
meters, petitioner's assessment was excessive.10 For failure of TEC to pay the
differential billing, petitioner disconnected the electricity supply to the DCIM building
TEC demanded from petitioner the reconnection of electrical service, claiming that it
had nothing to do with the alleged tampering but the latter refused to heed the
demand. Hence, TEC filed a complaint on May 27, 1988 before the Energy
Electronics Avenue, Food Terminal Complex, Taguig, Metro Manila, with electric
Regulatory Board (ERB) praying that electric power be restored to the DCIM
power. Another contract was entered into for the supply of electric power to TEC's NS
building.11 The ERB immediately ordered the reconnection of the service but
petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00,
under protest. The complaint before the ERB was later withdrawn as the parties
In September 1986, TEC, under its former name National Semi-Conductors (Phils.)
deemed it best to have the issues threshed out in the regular courts. Prior to the
entered into a Contract of Lease5 with respondent Ultra Electronics Industries, Inc.
(Ultra) for the use of the former's DCIM building for a period of five years or until
September 1991. Ultra was, however, ejected from the premises on February 12,
1988 by virtue of a court order, for repeated violation of the terms and conditions of
Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in
TEC's NS Building. The inspection allegedly revealed that the electric meters were not
122
registering the correct power consumption. Petitioner, thus, sent a letter dated June
MILLION PESOS with legal rate of interest from the date of the filing of this case on
January 19, 1989 until the said amount shall have been fully paid;
TEC denied petitioner's allegations and claim in a letter dated June 29, 1988.14
Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount,
(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as
with a warning that the electric service would be disconnected in case of continued
actual damages with legal rate of interest also from January 19, 1989;
(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as
actual damages with interest at legal rate from January 19, 1989;
On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner
and Ultra17 before the Regional Trial Court (RTC) of Pasig. The case was raffled to
(4) Condemning defendant Meralco to pay both plaintiffs moral damages in the
Branch 162 and was docketed as Civil Case No. 56851.18 Upon the filing of the
amount pf P500,000.00;
1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of
(6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00
SO ORDERED.20
The trial court found the evidence of petitioner insufficient to prove that TEC was
guilty of tampering the meter installations. The deformed condition of the meter seal
For failure of the parties to reach an amicable settlement, trial on the merits ensued.
and the existence of an opening in the wire duct leading to the transformer vault did
On June 17, 1992, the trial court rendered a Decision in favor of respondents TEC
not, in themselves, prove the alleged tampering, especially since access to the
and TPC, and against respondent Ultra and petitioner. The pertinent portion of the
transformer was given only to petitioner's employees.21 The sudden drop in TEC's (or
decision reads:
Ultra's) electric consumption did not, per se, show meter tampering. The delay in the
sending of notice of the results of the inspection was likewise viewed by the court as
WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and
petitioner's act of disconnecting the DCIM building's electric supply constituted bad
faith and thus makes it liable for damages.22 The court further denied petitioner's
(1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to
jointly and severally reimburse plaintiff TEC actual damages in the amount of ONE
Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of
123
electric power; and because Ultra manifested to settle the claims of petitioner, the
2. In not finding that the issue is: whether or not, based on the tampered meters,
court imposed solidary liability on both Ultra and petitioner for the payment of the
whether or not petitioner is entitled to differential billing, and if so, how much.
P1,000,000.00.
3. In declaring that petitioner ME RALCO had the burden of proof to show by clear
Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a
and convincing evidence that with respect to the tampered meters that TEC and/or
modification of the amount of actual damages and interest thereon. The dispositive
the trial court with the slight modification that the interest at legal rate shall be
computed from January 13, 1989 and that Meralco shall pay plaintiff T.E.A.M.
5. In finding that TEC should not be held liable for the tampering of this electric meter
Pacific Corporation the sum of P150,000.00 per month for five (5) months for actual
damages incurred when it was compelled to lease a generator set with interest at the
tampering.
The appellate court agreed with the RTC's conclusion. In addition, it considered
8. In making the finding that it is difficult to believe that when petitioner MERALCO
petitioner negligent for failing to discover the alleged defects in the electric meters; in
inspected on June 7, 1988 the meter installations, they were found to be tampered.
belatedly notifying TEC and TPC of the results of the inspection; and in disconnecting
the electric power without prior notice.
9. In declaring that petitioner MERALCO estopped from claiming any tampering of the
meters.
Petitioner now comes before this Court in this petition for review on certiorari
contending that:
10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct'
amount of electricity consumed is questionable";
The Court of Appeals committed grievous errors and decided matters of substance
contrary to law and the rulings of this Honorable Court:
11. In declaring that MERALCO all throughout its dealings with TEC took on an
"attitude" which is oppressive, wanton and reckless.
1. In finding that the issue in the case is whether there was deliberate tampering of
the metering installations at the building owned by TEC.
12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building
and the NS building.
124
13. In declaring that respondents TEC and TPC are entitled to the damages which it
The first instance was supposedly discovered on September 28, 1987. The inspector
awarded.
allegedly found the presence of a short circuiting device and saw that the meter seal
was deformed. In addition, petitioner, through the Supervising Engineer of its Special
Billing Analysis Department,27 claimed that there was a sudden and unexplainable
drop in TEC's electrical consumption starting February 10, 1986. On the basis of the
15. In not declaring that respondents are liable to petitioner for exemplary damages,
foregoing, petitioner concluded that the electric meters were tampered with.
in TEC's electric consumption during the affected period, the Pattern of TEC's
Electrical Consumption28 shows that the sudden drop is not peculiar to the said
The issues for resolution can be summarized as follows: 1) whether or not TEC
tampered with the electric meters installed at its DCIM and NS buildings; 2) If so,
whether or not it is liable for the differential billing as computed by petitioner; and 3)
whether or not petitioner was justified in disconnecting the electric power supply in
as evidenced by Exhibits "35" and "35-A," there was likewise a sudden drop of
electrical consumption from the year 1984 which recorded an average 141,300
kwh/month to 1985 which recorded an average kwh/month at 87,600 or a difference-
Petitioner insists that the tampering of the electric meters installed at the DCIM and
drop of 53,700 kwh/month; from 1985's 87,600 recorded consumption, the same
evidence, as specifically shown by the shorting devices found during the inspection.
It is obvious that petitioner wants this Court to revisit the factual findings of the lower
The witnesses for petitioner who testified on the alleged tampering of the electric
courts. Well-established is the doctrine that under Rule 45 of the Rules of Court, only
meters, declared that tampering is committed by consumers to prevent the meter from
questions of law, not of fact, may be raised before the Court. We would like to stress
that this Court is not a trier of facts and may not re-examine and weigh anew the
monthly electric bill, while continuing to enjoy the same power supply. Only the
respective evidence of the parties. Factual findings of the trial court, especially those
affected when a meter is tampered with.30 The witnesses claimed that after the
inspection, the tampered electric meters were corrected, so that they would register
Looking at the record, we note that petitioner claims to have discovered three
the correct consumption of TEC. Logically, then, after the correction of the allegedly
and June 7, 1988; and once in the NS building on April 24, 1988.
In this case, the period claimed to have been affected by the tampered electric meters
is from February 1986 until September 1987. Based on petitioner's Billing Record31
125
(for the DCIM building), TEC's monthly electric consumption on Account No. 9341-
may encourage neglect of public utilities to the detriment of the consuming public.
1322-16 was between 4,500 and 27,000 kwh.32 Account No. 9341-1812-13 showed a
Corollarily, it must be underscored that petitioner has the imperative duty to make a
monthly consumption between 9,600 and 34,200 kwh.33 It is interesting to note that,
reasonable and proper inspection of its apparatus and equipment to ensure that they
after correction of the allegedly tampered meters, TEC's monthly electric consumption
do not malfunction, and the due diligence to discover and repair defects therein.
from October 1987 to February 1988 (the last month that Ultra occupied the DCIM
building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800
negligence, public utilities run the risk of forfeiting amounts originally due from their
customers.37
Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200
kwh consumption on the first and second accounts, respectively, a month prior to the
state that the allegation was not proven, considering that the meters therein were
inspection. On the first month after the meters were corrected, TEC's electric
enclosed in a metal cabinet the metal seal of which was unbroken, with petitioner
consumption registered at 9,300 kwh and 22,200 kwh on the respective accounts.
These figures clearly show that there was no palpably drastic difference between the
consumption before and after the inspection, casting a cloud of doubt over petitioner's
In view of the negative finding on the alleged tampering of electric meters on TEC's
claim of meter-tampering. Indeed, Ultra's explanation that the corporation was losing;
DCIM and NS buildings, petitioner's claim of differential billing was correctly denied by
thus, it had lesser consumption of electric power appear to be the more plausible
the trial and appellate courts. With greater reason, therefore, could petitioner not
Petitioner likewise claimed that when the subject meters were again inspected on
The law in force at the time material to this controversy was Presidential Decree (P.D.)
June 7, 1988, they were found to have been tampered anew. The Court notes that
prior to the inspection, TEC was informed about it; and months before the inspection,
installation of water, electrical or telephone connections and such acts as the use of
there was an unsettled controversy between TEC and petitioner, brought about by the
tampered electrical meters. It was issued in answer to the urgent need to put an end
to illegal activities that prejudice the economic well-being of both the companies
more disposed to accept the trial court's conclusion that it is hard to believe that a
concerned and the consuming public.41 P.D. 401 granted the electric companies the
right to conduct inspections of electric meters and the criminal prosecution42 of erring
would further jeopardize itself in the eyes of petitioner.34 If it is true that there was
consumers who were found to have tampered with their electric meters. It did not
evidence of tampering found on September 28, 1987 and again on June 7, 1988, the
expressly provide for more expedient remedies such as the charging of differential
better view would be that the defective meters were not actually corrected after the
first inspection. If so, then Manila Electric Company v. Macro Textile Mills
into their service contracts (or agreements for the sale of electric energy) a provision
wherein the defects in the electric meter are allowed to continue indefinitely until
for differential billing with the option of disconnection upon non-payment by the erring
suddenly, the public utilities demand payment for the unrecorded electricity utilized
consumer. The Court has recognized the validity of such stipulations.43 However,
when they could have remedied the situation immediately. Petitioner's failure to do so
126
recourse to differential billing with disconnection was subject to the prior requirement
tampered meter, it is absurd to make the lawful occupant liable. It was petitioner who
received the P1 million; thus, it alone should be held liable for the return of the
amount.
Petitioner, in the instant case, resorted to the remedy of disconnection without prior
notice. While it is true that petitioner sent a demand letter to TEC for the payment of
TEC also sufficiently established its claim for the reimbursement of the amount paid
differential billing, it did not include any notice that the electric supply would be
as rentals for the generator set it was constrained to rent by reason of the illegal
disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and
Revised General Order No. 1 by outrightly depriving TEC of electrical services without
submitted by TEC as evidence sufficiently show that such rentals were indeed made.
first notifying it of the impending disconnection. Accordingly, the CA did not err in
However, the amount of P150,000.00 per month for five months, awarded by the CA,
As to the damages awarded by the CA, we deem it proper to modify the same. Actual
damages are compensation for an injury that will put the injured party in the position
reason to disturb the same. Exemplary damages are imposed by way of example or
where it was before the injury. They pertain to such injuries or losses that are actually
stipulation, a party is entitled to adequate compensation only for such pecuniary loss
as is duly proven. Basic is the rule that to recover actual damages, not only must the
amount of loss be capable of proof; it must also be actually proven with a reasonable
damages. With the award of exemplary damages, the award of attorney's fees is
likewise proper, pursuant to Article 220848 of the Civil Code. It is obvious that TEC
obtainable.45
needed the services of a lawyer to argue its cause through three levels of the judicial
hierarchy. Thus, the award of P200,000.00 is in order.49
Respondent TEC sufficiently established, and petitioner in fact admitted, that the
former paid P1,000,000.00 and P280,813.72 under protest, the amounts representing
We, however, deem it proper to delete the award of moral damages. TEC's claim was
a portion of the latter's claim of differential billing. With the finding that no tampering
was committed and, thus, no differential billing due, the aforesaid amounts should be
corporation is not entitled to moral damages because, not being a natural person, it
returned by petitioner, with interest, as ordered by the Court of Appeals and pursuant
anxiety, mental anguish and moral shock. The only exception to this rule is when the
corporation has a reputation that is debased, resulting in its humiliation in the
However, despite the appellate court's conclusion that no tampering was committed, it
business realm.51 But in such a case, it is imperative for the claimant to present proof
held Ultra solidarily liable with petitioner for P1,000,000.00, only because the former,
to justify the award. It is essential to prove the existence of the factual basis of the
as occupant of the building, promised to settle the claims of the latter. This ruling is
damage and its causal relation to petitioner's acts.52 In the present case, the records
erroneous. Ultra's promise was conditioned upon the finding of defect or tampering of
are bereft of any evidence that the name or reputation of TEC/TPC has been debased
the meters. It did not acknowledge any culpability and liability, and absent any
127
as a result of petitioner's acts. Besides, the trial court simply awarded moral damages
in the dispositive portion of its decision without stating the basis thereof.
and Hermogenes Jun Alegre (Alegre).[5] Expos is aired every morning over
DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-
is heard over Legazpi City, the Albay municipalities and other Bicol areas.[6]
G.R. CV No. 40282 dated June 18, 1997 and its Resolution dated December 3, 1997
are AFFIRMED with the following MODIFICATIONS: (1) the award of P150,000.00 per
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various
month for five months as reimbursement for the rentals of the generator set is
alleged complaints from students, teachers and parents against Ago Medical and
Educational
hereby DELETED.
administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita
Center-Bicol
Christian
College
of
Medicine
(AMEC)
and
its
damages[7] against FBNI, Rima and Alegre on 27 February 1990. Quoted are
JUN ALEGRE:
EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMECBCCM) and ANGELITA F. AGO, respondents.
Let us begin with the less burdensome: if you have children taking medical course at
DECISION
AMEC-BCCM, advise them to pass all subjects because if they fail in any subject they
CARPIO, J.:
will repeat their year level, taking up all subjects including those they have passed
already. Several students had approached me stating that they had consulted with
The Case
the DECS which told them that there is no such regulation. If [there] is no such
regulation why is AMEC doing the same?
This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January
2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of
xxx
Appeals affirmed with modification the 14 December 1992 Decision[3] of the Regional
Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals
Second: Earlier AMEC students in Physical Therapy had complained that the course
held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre
and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and
Educational Center-Bicol Christian College of Medicine moral damages, attorneys
Third: Students are required to take and pay for the subject even if the subject does
not have an instructor - such greed for money on the part of AMECs administration.
Take the subject Anatomy: students would pay for the subject upon enrolment
The Antecedents
because it is offered by the school. However there would be no instructor for such
subject. Students would be informed that course would be moved to a later date
because the school is still searching for the appropriate instructor.
128
scholarship in AMEC. She had retired from Bicol University a long time ago but
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived
xxx
and has been surviving for the past few years since its inception because of funds
support from foreign foundations. If you will take a look at the AMEC premises youll
MEL RIMA:
find out that the names of the buildings there are foreign soundings. There is a
McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and
xxx My friends based on the expose, AMEC is a dumping ground for moral and
undeniable evidence that the support of foreign foundations for AMEC is substantial,
physically misfit people. What does this mean? Immoral and physically misfits as
isnt it? With the report which is the basis of the expose in DZRC today, it would be
teachers.
very easy for detractors and enemies of the Ago family to stop the flow of support of
foreign foundations who assist the medical school on the basis of the latters purpose.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that
But if the purpose of the institution (AMEC) is to deceive students at cross purpose
your are no longer fit to teach. You are too old. As an aviation, your case is zero
with its reason for being it is possible for these foreign foundations to lift or suspend
because an old person is not fastidious, so long as she has money to buy the
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School
ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in
as Dean.
in terms of salary are absorbing or continues to accept rejects. For example how
many teachers in AMEC are former teachers of Aquinas University but were removed
xxx
because of immorality? Does it mean that the present administration of AMEC have
the total definite moral foundation from catholic administrator of Aquinas University. I
xxx On our end our task is to attend to the interests of students. It is likely that the
will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of
students would be influenced by evil. When they become members of society outside
moral and physical misfits. Probably they only qualify in terms of intellect. The Dean
of campus will be liabilities rather than assets. What do you expect from a doctor who
of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old
do you expect from a student who aside from peculiar problems because not all
students are rich in their struggle to improve their social status are even more
patiently making use of Dean Justita Lola were if she is very old. As in atmospheric
situation zero visibility the plane cannot land, meaning she is very old, low pay
follows. By the way, Dean Justita Lola is also the chairman of the committee on
The complaint further alleged that AMEC is a reputable learning institution. With the
supposed exposs, FBNI, Rima and Alegre transmitted malicious imputations, and
129
as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included
FBNI as defendant for allegedly failing to exercise due diligence in the selection and
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the
degree of damages caused by the controversial utterances, which are not found by
this court to be really very serious and damaging, and there being no showing that
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an
Answer[10] alleging that the broadcasts against AMEC were fair and true. FBNI,
Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are
Rima and Alegre claimed that they were plainly impelled by a sense of public duty to
hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational
report the goings-on in AMEC, [which is] an institution imbued with public interest.
amount of
a separate Answer claiming that it exercised due diligence in the selection and
supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on
broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an
the other, appealed the decision to the Court of Appeals. The Court of Appeals
FBNI likewise
affirmed the trial courts judgment with modification. The appellate court made Rima
claimed that it always reminds its broadcasters to observe truth, fairness and
solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for
objectivity in their broadcasts and to refrain from using libelous and indecent
damages and attorneys fees because the broadcasts were directed against AMEC,
language. Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga
and not against her. The dispositive portion of the Court of Appeals decision reads:
modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I]
Alegre liable for libel except Rima. The trial court held that the broadcasts are libelous
per se. The trial court rejected the broadcasters claim that their utterances were the
result of straight reporting because it had no factual basis. The broadcasters did not
SO ORDERED.[14]
even verify their reports before airing them to show good faith. In holding FBNI liable
for libel, the trial court found that FBNI failed to exercise diligence in the selection and
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals
In absolving Rima from the charge, the trial court ruled that Rimas only participation
was when he agreed with Alegres expos. The trial court found Rimas statement
within the bounds of freedom of speech, expression, and of the press. The
130
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are
libelous per se and that FBNI, Rima and Alegre failed to overcome the legal
II.
III.
presumption of malice. The Court of Appeals found Rima and Alegres claim that they
were actuated by their moral and social duty to inform the public of the students
gripes as insufficient to justify the utterance of the defamatory remarks.
IV.
Finding no factual basis for the imputations against AMECs administrators, the Court
of Appeals ruled that the broadcasts were made with reckless disregard as to
whether they were true or false. The appellate court pointed out that FBNI, Rima and
Alegre failed to present in court any of the students who allegedly complained against
AMEC. Rima and Alegre merely gave a single name when asked to identify the
students. According to the Court of Appeals, these circumstances cast doubt on the
veracity of the broadcasters claim that they were impelled by their moral and social
This is a civil action for damages as a result of the allegedly defamatory remarks of
Rima and Alegre against AMEC.[17] While AMEC did not point out clearly the legal
basis for its complaint, a reading of the complaint reveals that AMECs cause of action
The Court of Appeals found Rima also liable for libel since he remarked that (1)
is based on Articles 30 and 33 of the Civil Code. Article 30[18] authorizes a separate
AMEC-BCCM is a dumping ground for morally and physically misfit teachers; (2)
civil action to recover civil liability arising from a criminal offense. On the other hand,
AMEC obtained the services of Dean Justita Lola to minimize expenses on its
Article 33[19] particularly provides that the injured party may bring a separate civil
employees salaries; and (3) AMEC burdened the students with unreasonable
action for damages in cases of defamation, fraud, and physical injuries. AMEC also
invokes Article 19[20] of the Civil Code to justify its claim for damages. AMEC cites
Articles 2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with
The Court of Appeals held that FBNI failed to exercise due diligence in the selection
and supervision of its employees for allowing Rima and Alegre to make the radio
broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos
I.
claim for damages and attorneys fees because the libelous remarks were directed
against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and
Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.
Issues
131
and Alegres remarks such as greed for money on the part of AMECs
misfits; and AMEC students who graduate will be liabilities rather than assets of the
society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a
accusation.[29] Rima and Alegre cannot invoke the privilege of neutral reportage
However, FBNI contends that the broadcasts are not malicious. FBNI claims that
of neutral reportage applies where the defamed person is a public figure who is
Rima and Alegre were plainly impelled by their civic duty to air the students gripes.
FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre
defamatory statement.[30]
in making the broadcasts. FBNI further points out that Rima and Alegre exerted
efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its
However, FBNI argues vigorously that malice in law does not apply to this case.
Citing Borjal v. Court of Appeals,[31] FBNI contends that the broadcasts fall within
the coverage of qualifiedly privileged communications for being commentaries on
matters of public interest. Such being the case, AMEC should prove malice in fact or
actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine
gripes of the students. As hosts of a documentary or public affairs program, Rima and
Alegre should have presented the public issues free from inaccurate and misleading
information.[26] Hearing the students alleged complaints a month before the expos,
[F]air commentaries on matters of public interest are privileged and constitute a valid
[27] they had sufficient time to verify their sources and information. However, Rima
defense in an action for libel or slander. The doctrine of fair comment means that
and Alegre hardly made a thorough investigation of the students alleged gripes.
Neither did they inquire about nor confirm the purported irregularities in AMEC from
because every man is presumed innocent until his guilt is judicially proved, and every
the Department of Education, Culture and Sports. Alegre testified that he merely went
to AMEC to verify his report from an alleged AMEC official who refused to disclose
any information. Alegre simply relied on the words of the students because they
were many and not because there is proof that what they are saying is true.[28] This
plainly shows Rima and Alegres reckless disregard of whether their report was true or
not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting.
Significantly, some courts in the United States apply the privilege of neutral
reportage in libel cases involving matters of public interest or public figures. Under
132
AMECs students in particular is a matter which the public has the right to know.
plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants
Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with
over the air, not a single centavo appears to be received by plaintiff school from the
matters of public interest. However, unlike in Borjal, the questioned broadcasts are
not based on established facts. The record supports the following findings of the trial
court:
Defendants did not even also bother to prove their claim, though denied by Dra. Ago,
that when medical students fail in one subject, they are made to repeat all the other
xxx Although defendants claim that they were motivated by consistent reports of
subject[s], even those they have already passed, nor their claim that the school
students and parents against plaintiff, yet, defendants have not presented in court, nor
charges laboratory fees even if there are no laboratories in the school. No evidence
even gave name of a single student who made the complaint to them, much less
was presented to prove the bases for these claims, at least in order to give semblance
of good faith.
defendants is too dangerous because it could easily give license to the media to
malign people and establishments based on flimsy excuses that there were reports to
As for the allegation that plaintiff is the dumping ground for misfits, and immoral
them although they could not satisfactorily establish it. Such laxity would encourage
teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with
zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found
to be 75 years old. xxx Even older people prove to be effective teachers like Supreme
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the
Court Justices who are still very much in demand as law professors in their late years.
mandates of their duties, did not verify and analyze the truth of the reports before they
Counsel for defendants is past 75 but is found by this court to be still very sharp and
Alegre contended that plaintiff school had no permit and is not accredited to offer
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally
Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS that
as of Sept. 22, 1987 or more than 2 years before the controversial broadcast,
accreditation to offer Physical Therapy course had already been given the plaintiff,
The contention that plaintiffs graduates become liabilities rather than assets of our
which certificate is signed by no less than the Secretary of Education and Culture
society is a mere conclusion. Being from the place himself, this court is aware that
majority of the medical graduates of plaintiffs pass the board examination easily and
categorical and sounded too positive when they made the erroneous report that
plaintiff had no permit to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like
inferred from the facts.[34] However, the comments of Rima and Alegre were not
Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald
backed up by facts. Therefore, the broadcasts are not privileged and remain libelous
Foundation existing. Although a big building of plaintiff school was given the name
per se.
Mcdonald building, that was only in order to honor the first missionary in Bicol of
133
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster
also provides the standards for determining whether a person who willfully causes
sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio Code provides:
loss or injury to another has acted in a manner contrary to morals or good customs
under Article 21[38] of the Civil Code.
xxx
Public affairs program shall present public issues free from personal bias,
corporation.[39]
7.
The station shall be responsible at all times in the supervision of public affairs,
cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral damages.
public issues and commentary programs so that they conform to the provisions and
However, the Courts statement in Mambulao that a corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral
damages is an obiter dictum.[42]
8.
announcer to protect public interest, general welfare and good order in the
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219[43]
of the Civil Code. This provision expressly authorizes the recovery of moral damages
in cases of libel, slander or any other form of defamation. Article 2219(7) does not
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays
down the code of ethical conduct governing practitioners in the radio broadcast
person such as a corporation can validly complain for libel or any other form of
industry.
broadcast industry on its own members. The Radio Code is a public warranty by the
radio broadcast industry that radio broadcast practitioners are subject to a code by
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In
which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up
to the code of conduct of their profession, just like other professionals. A professional
the recovery of some damages.[47] In this case, the broadcasts are libelous per se.
code of conduct provides the standards for determining whether a person has acted
justly, honestly and with good faith in the exercise of his rights and performance of his
duties as required by Article 19[37] of the Civil Code. A professional code of conduct
134
However, we find the award of P300,000 moral damages unreasonable. The record
shows that even though the broadcasts were libelous per se, AMEC has not suffered
any substantial or material damage to its reputation. Therefore, we reduce the award
of moral damages from P300,000 to P150,000.
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of
damages and attorneys fees because it exercised due diligence in the selection and
III.
supervision of its employees, particularly Rima and Alegre. FBNI maintains that its
broadcasters, including Rima and Alegre, undergo a very regimented process before
they are allowed to go on air. Those who apply for broadcaster are subjected to
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for
the award of attorneys fees. FBNI adds that the instant case does not fall under the
enumeration in Article 2208[48] of the Civil Code.
FBNI further argues that Alegres age and lack of training are irrelevant to his
competence as a broadcaster. FBNI points out that the minor deficiencies in the KBP
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily
accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise
its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of
the diligence of a good father of a family in selecting and supervising them. Rimas
attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in
accreditation lapsed due to his non-payment of the KBP annual fees while Alegres
their respective decisions the rationale for the award of attorneys fees.[49] In Inter-
accreditation card was delayed allegedly for reasons attributable to the KBP Manila
Office. FBNI claims that membership in the KBP is merely voluntary and not required
by any law or government regulation.
[I]t is an accepted doctrine that the award thereof as an item of damages is the
exception rather than the rule, and counsels fees are not to be awarded every time a
party wins a suit. The power of the court to award attorneys fees under Article 2208
of the Civil Code demands factual, legal and equitable justification, without which the
The basis of the present action is a tort. Joint tort feasors are jointly and severally
award is a conclusion without a premise, its basis being improperly left to speculation
liable for the tort which they commit.[52] Joint tort feasors are all the persons who
and conjecture. In all events, the court must explicitly state in the text of the decision,
and not only in the decretal portion thereof, the legal reason for the award of
abet the commission of a tort, or who approve of it after it is done, if done for their
benefit.[53] Thus, AMEC correctly anchored its cause of action against FBNI on
Articles 2176 and 2180 of the Civil Code.
While it mentioned about the award of attorneys fees by stating that it lies within the
discretion of the court and depends upon the circumstances of each case, the Court
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to
pay for damages arising from the libelous broadcasts. As stated by the Court of
Appeals, recovery for defamatory statements published by radio or television may be
IV.
had from the owner of the station, a licensee, the operator of the station, or a person
135
employer and employee are solidarily liable for a defamatory statement by the
employee within the course and scope of his or her employment, at least when the
1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No.
employer authorizes or ratifies the defamation.[55] In this case, Rima and Alegre were
40151 with the MODIFICATION that the award of moral damages is reduced from
clearly performing their official duties as hosts of FBNIs radio program Expos when
P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against
they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre
petitioner.
went beyond the scope of their work at that time. There was likewise no showing that
FBNI did not authorize and ratify the defamatory broadcasts.
SO ORDERED.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI
merely showed that it exercised diligence in the selection of its broadcasters without
introducing any evidence to prove that it observed the same diligence in the
supervision of Rima and Alegre. FBNI did not show how it exercised diligence in
supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to
observe truth, fairness and objectivity and to refrain from using libelous and indecent
language is not enough to prove due diligence in the supervision of its broadcasters.
EN BANC
DANTE V. LIBAN,
REYNALDO M. BERNARDO,
are but a few of the many ways of showing diligence in the supervision of
broadcasters.
Respondent.
G.R. No. 175352
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as
Promulgated:
evidence shows that Rima and Alegre underwent FBNIs regimented process of
The Case
application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their
This is a petition to declare Senator Richard J. Gordon (respondent) as having
The Facts
filed with this Court a Petition to Declare Richard J. Gordon as Having Forfeited His
Seat in the Senate. Petitioners are officers of the Board of Directors of the Quezon
136
City Red Cross Chapter while respondent is Chairman of the Philippine National Red
Rules of Civil Procedure, the action should be commenced within one year after the
cause of the public officers forfeiture of office. In this case, respondent has been
working as a Red Cross volunteer for the past 40 years. Respondent was already
Chairman of the PNRC Board of Governors when he was elected Senator in May
[1] he was elected Chairman of the PNRC during the 23 February 2006 meeting of the
PNRC Board of Governors. Petitioners allege that by accepting the chairmanship of
the PNRC Board of Governors, respondent has ceased to be a member of the Senate
SEC. 13. No Senator or Member of the House of Representatives may hold any
when there is a claim of illegal disbursement of public funds, or that public money is
respondent from enforcing an invalid law that results in wastage of public funds.
their subsidiaries, during his term without forfeiting his seat. Neither shall he be
appointed to any office which may have been created or the emoluments thereof
increased during the term for which he was elected.
Respondent also maintains that if the petition is treated as one for declaratory
relief, this Court would have no jurisdiction since original jurisdiction for declaratory
holding the position of Chairman of the PNRC Board of Governors, respondent has
automatically forfeited his seat in the Senate, pursuant to Flores v. Drilon,[3] which
Respondent further insists that the PNRC is not a government-owned or
held that incumbent national legislators lose their elective posts upon their
controlled corporation and that the prohibition under Section 13, Article VI of the
Constitution does not apply in the present case since volunteer service to the PNRC
is neither an office nor an employment.
In his Comment, respondent asserts that petitioners have no standing to file
In their Reply, petitioners claim that their petition is neither an action for quo
this petition which appears to be an action for quo warranto, since the petition alleges
warranto nor an action for declaratory relief. Petitioners maintain that the present
that respondent committed an act which, by provision of law, constitutes a ground for
forfeiture of his public office. Petitioners do not claim to be entitled to the Senate office
considering that respondent has been drawing his salaries and other compensation
as a Senator even if he is no longer entitled to his office. Petitioners point out that this
Court has jurisdiction over this petition since it involves a legal or constitutional issue
may bring an action for quo warranto in his own name. If the petition is one for quo
warranto, it is already barred by prescription since under Section 11, Rule 66 of the
The Issues
137
owned or
controlled corporation;
2. Whether Section 13, Article VI of the Philippine Constitution applies to the case of
respondent who is Chairman of the PNRC and at the same time a Member of the
Senate;
3.
The substantial issue boils down to whether the office of the PNRC Chairman is
during his incumbency as a Member of the House of Senate of the Congress of the
Philippines, having been elected as such during the national elections last May 2004.
6. Since his election as Chairman of the PNRC Board of Governors, which
position he duly accepted, respondent has been exercising the powers and
discharging the functions and duties of said office, despite the fact that he is still a
senator.
7. It is the respectful submission of the petitioner[s] that by accepting the
A careful reading of the petition reveals that it is an action for quo warranto.
Constitution, x x x
xxxx
10. It is respectfully submitted that in accepting the position of Chairman of the
Board of Governors of the PNRC on February 23, 2006, respondent has automatically
forfeited his seat in the House of Senate and, therefore, has long ceased to be a
138
Senator, pursuant to the ruling of this Honorable Court in the case of FLORES, ET AL.
On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95,[7]
act as such and still performs the powers, functions and duties of a senator, contrary
12. Unless restrained, therefore, respondent will continue to falsely act and
of nationality, race, religion, gender, social status, or political affiliation.[8] The PNRC
provides six major services: Blood Services, Disaster Management, Safety Services,
and due only to the legitimate senators, to the damage, great and irreparable injury of
The Republic of the Philippines, adhering to the Geneva Conventions,
established the PNRC as a voluntary organization for the purpose contemplated in the
Geneva Convention of 27 July 1929.[10] The Whereas clauses of the PNRC Charter
Thus, petitioners are alleging that by accepting the position of Chairman of the
read:
PNRC Board of Governors, respondent has automatically forfeited his seat in the
Senate. In short, petitioners filed an action for usurpation of public office against
1864, a convention by which the nations of the world were invited to join together in
ground for the forfeiture of his public office. Clearly, such an action is for quo
diminishing, so far lies within their power, the evils inherent in war;
WHEREAS, more than sixty nations of the world have ratified or adhered to
the subsequent revision of said convention, namely the Convention of Geneva of July
Quo warranto is generally commenced by the Government as the proper party
29 [sic], 1929 for the Amelioration of the Condition of the Wounded and Sick of
plaintiff. However, under Section 5, Rule 66 of the Rules of Court, an individual may
Armies in the Field (referred to in this Charter as the Geneva Red Cross Convention);
usurped by another, in which case he can bring the action in his own name. The
each country of a voluntary organization to assist in caring for the wounded and sick
person instituting quo warranto proceedings in his own behalf must claim and be able
to show that he is entitled to the office in dispute, otherwise the action may be
dismissed at any stage.[6] In the present case, petitioners do not claim to be entitled
July 4, 1946 and proclaimed its adherence to the Geneva Red Cross Convention on
to the Senate office of respondent. Clearly, petitioners have no standing to file the
February 14, 1947, and by that action indicated its desire to participate with the
present petition.
nations of the world in mitigating the suffering caused by war and to establish in the
Philippines a voluntary organization for that purpose as contemplated by the Geneva
Even if the Court disregards the infirmities of the petition and treats it as a
139
5.
which have ratified or adhered to the Geneva Red Cross Convention assist in
promoting the health and welfare of their people in peace and in war, and through
6. UNITY There can be only one Red Cross or one Red Crescent Society in any
their mutual assistance and cooperation directly and through their international
one country. It must be open to all. It must carry on its humanitarian work throughout
organizations promote better understanding and sympathy among the peoples of the
its territory.
The PNRC is a member National Society of the International Red Cross and
Red Crescent Movement (Movement), which is composed of the International
Committee of the Red Cross (ICRC), the International Federation of Red Cross and
Red Crescent Societies (International Federation), and the National Red Cross and
Red Crescent Societies (National Societies). The Movement is united and guided by
Movement, has the duty to uphold the Fundamental Principles and ideals of the
Movement. In order to be recognized as a National Society, the PNRC has to be
1. HUMANITY The International Red Cross and Red Crescent Movement, born of a
autonomous and must operate in conformity with the Fundamental Principles of the
Movement.[11]
endeavors, in its international and national capacity, to prevent and alleviate human
suffering wherever it may be found. Its purpose is to protect life and health and to
ensure respect for the human being. It promotes mutual understanding, friendship,
PNRC volunteers must not be seen as belonging to any side of the armed conflict. In
2.
being guided solely by their needs, and to give priority to the most urgent cases of
distress.
volunteers as enemies when the volunteers tend to the wounded in the battlefield or
3.
NEUTRALITY
Movement may not take sides in hostilities or engage at any time in controversies of a
Thus, the PNRC must not only be, but must also be seen to be, autonomous,
neutral and independent in order to conduct its activities in accordance with the
auxiliaries in the humanitarian services of their governments and subject to the laws
of their respective countries, must always maintain their autonomy so that they may
that implements government policy; otherwise, it cannot merit the trust of all and
be able at all times to act in accordance with the principles of the Movement.
cannot effectively carry out its mission as a National Red Cross Society.[12] It is
140
imperative that the PNRC must be autonomous, neutral, and independent in relation
already chosen a select group where the private sector members have three-
to the State.
To ensure and maintain its autonomy, neutrality, and independence, the PNRC
cannot be owned or controlled by the government. Indeed, the Philippine government
The PNRC Board of Governors, which exercises all corporate powers of the
does not own the PNRC. The PNRC does not have government assets and does not
PNRC, elects the PNRC Chairman and all other officers of the PNRC.
The
receive any appropriation from the Philippine Congress.[13] The PNRC is financed
primarily by contributions from private individuals and private entities obtained through
Under Section 16, Article VII of the Constitution,[14] the President appoints all
officials and employees in the Executive branch whose appointments are vested in the
campaigns throughout the year which shall be organized by the Board of Governors
President by the Constitution or by law. The President also appoints those whose
and conducted by the Chapters in their respective jurisdictions. These fund raising
appointments are not otherwise provided by law. Under this Section 16, the law may
Under Section 16, Article VII of the 1987 Constitution, the President appoints
fifths (4/5), of the PNRC Board of Governors are not appointed by the President.
three groups of officers. The first group refers to the heads of the Executive
departments, ambassadors, other public ministers and consuls, officers of the armed
forces from the rank of colonel or naval captain, and other officers whose
appointments are vested in the President by the Constitution. The second group
refers to those whom the President may be authorized by law to appoint. The third
group refers to all other officers of the Government whose appointments are not
conventions and the remaining six shall be selected by the twenty-four members of
chapter delegates of the PNRC, and six are elected by the twenty-four members
141
In Rufino v. Endriga,[18] the Court explained the Presidents power of control over all
xxx
Every government office, entity, or agency must fall under the Executive,
in the head of the agency for it would be preposterous to vest it in the agency itself. In
Otherwise, such government office, entity, or agency has no legal and constitutional
a commission, the head is the chairperson of the commission. In a board, the head is
also the chairperson of the board. In the last three situations, the law may not also
authorize officers other than the heads of the agency, commission, or board to appoint
The CCP does not fall under the Legislative or Judicial branches of
lower-ranked officers.
government. The CCP is also not one of the independent constitutional bodies.
Neither is the CCP a quasi-judicial body nor a local government unit. Thus, the CCP
xxx
must fall under the Executive branch. Under the Revised Administrative Code of 1987,
any agency not placed by law or order creating them under any specific department
The Constitution authorizes Congress to vest the power to appoint lower-
ranked officers specifically in the heads of the specified offices, and in no other
person. The word heads refers to the chairpersons of the commissions or boards
Since the President exercises control over all the executive departments,
bureaus, and offices, the President necessarily exercises control over the CCP which
is an office in the Executive branch. In mandating that the President shall have
control of all executive . . . offices, Section 17, Article VII of the 1987 Constitution
The President does not appoint the Chairman of the PNRC. Neither does the
does not exempt any executive office one performing executive functions outside of
head of any department, agency, commission or board appoint the PNRC Chairman.
the independent constitutional bodies from the Presidents power of control. There
Thus, the PNRC Chairman is not an official or employee of the Executive branch
is no dispute that the CCP performs executive, and not legislative, judicial, or quasi-
since his appointment does not fall under Section 16, Article VII of the Constitution.
judicial functions.
The Presidents power of control applies to the acts or decisions of all officers
in the Executive branch. This is true whether such officers are appointed by the
or employee, the PNRC Chairman, as such, does not hold a government office or
employment.
of control means the power to revise or reverse the acts or decisions of a subordinate
officer involving the exercise of discretion.
Under Section 17, Article VII of the Constitution,[17] the President exercises
control over all government offices in the Executive branch. If an office is legally not
In short, the President sits at the apex of the Executive branch, and exercises
under the control of the President, then such office is not part of the Executive branch.
control of all the executive departments, bureaus, and offices. There can be no
142
instance under the Constitution where an officer of the Executive branch is outside the
control of the President. The Executive branch is unitary since there is only one
President vested with executive power exercising control over the entire Executive
Any office in the Executive branch that is not under the control of the
SEC. 5. Membership in the Philippine National Red Cross shall be open to the
Philippine National Red Cross Annual Fund Campaign shall entitle the contributor to
branch.
membership for one year and said contribution shall be deductible in full for taxation
purposes.
An overwhelming four-fifths majority of the PNRC Board are private sector
individuals elected to the PNRC Board by the private sector members of the PNRC.
Thus, the PNRC is a privately owned, privately funded, and privately run charitable
The PNRC is
controlled by private sector individuals. Decisions or actions of the PNRC Board are
The President cannot reverse or modify the
decisions or actions of the PNRC Board. Neither can the President reverse or modify
ruling that the PNRC is a government-owned or controlled corporation, the simple test
review, reverse or modify the decisions or actions of the PNRC Chairman. This proves
used was whether the corporation was created by its own special charter for the
again that the office of the PNRC Chairman is a private office, not a government
office.
Since the PNRC was created under a special charter, the Court then ruled that it is a
government corporation. However, the Camporedondo ruling failed to consider the
Although the State is often represented in the governing bodies of a National
Society, this can be justified by the need for proper coordination with the public
governing bodies.[19]
the thousands of PNRC members are private individuals, including students. Under
the PNRC Charter, those who contribute to the annual fund campaign of the PNRC
are entitled to membership in the PNRC for one year. Thus, any one between 6 and
case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
65 years of age can be a PNRC member for one year upon contributing P35, P100,
P300, P500 or P1,000 for the year.[20] Even foreigners, whether residents or not, can
categorized by the Department of the Budget, the Civil Service Commission, and the
Commission on Audit for purposes of the exercise and discharge of their respective
143
government, and in the case of a stock corporation, at least a majority of its capital
We begin by explaining the general framework under the fundamental law. The
and as discussed earlier, the government does not own or control PNRC.
The PNRC Charter is Violative of the Constitutional Proscription against the Creation
Constitution provides:
created by special charter on 22 March 1947. Section 7, Article XIV of the 1935
SEC. 7. The Congress shall not, except by general law, provide for the formation,
except by general law applicable to all citizens. The purpose of this constitutional
The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting
Congress from creating private corporations except by general law. Section 1 of the
only under a general law. If the corporation is private, it must necessarily exist under a
PNRC Charter, as amended, creates the PNRC as a body corporate and politic,
general law. Stated differently, only corporations created under a general law can
thus:
qualify as private corporations. Under existing laws, the general law is the Corporation
Code, except that the Cooperative Code governs the incorporation of cooperatives.
SECTION 1. There is hereby created in the Republic of the Philippines a body
corporate and politic to be the voluntary organization officially designated to assist the
Republic of the Philippines in discharging the obligations set forth in the Geneva
corporations through special charters. Since private corporations cannot have special
Conventions and to perform such other duties as are inherent upon a National Red
charters, it follows that Congress can create corporations with special charters only if
such corporations are government-owned or controlled.[24] (Emphasis supplied)
144
In Feliciano, the Court held that the Local Water Districts are government-owned or
controlled corporations since they exist by virtue of Presidential Decree No. 198,
The other provisions[41] of the PNRC Charter remain valid as they can be considered
which constitutes their special charter. The seed capital assets of the Local Water
as a recognition by the State that the unincorporated PNRC is the local National
Districts, such as waterworks and sewerage facilities, were public property which
Society of the International Red Cross and Red Crescent Movement, and thus entitled
were managed, operated by or under the control of the city, municipality or province
to the benefits, exemptions and privileges set forth in the PNRC Charter. The other
before the assets were transferred to the Local Water Districts. The Local Water
Districts also receive subsidies and loans from the Local Water Utilities Administration
obligations under Article 4(5) of the Statutes of the International Red Cross and Red
(LWUA). In fact, under the 2009 General Appropriations Act,[25] the LWUA has a
Society must be duly recognized by the legal government of its country on the basis
private capital invested in the Local Water Districts. The capital assets and operating
of the Geneva Conventions and of the national legislation as a voluntary aid society,
funds of the Local Water Districts all come from the government, either through
transfer of assets, loans, subsidies or the income from such assets or funds.
In sum, we hold that the office of the PNRC Chairman is not a government office or
an office in a government-owned or controlled corporation for purposes of the
The government also controls the Local Water Districts because the municipal
prohibition in Section 13, Article VI of the 1987 Constitution. However, since the
or city mayor, or the provincial governor, appoints all the board directors of the Local
PNRC Charter is void insofar as it creates the PNRC as a private corporation, the
Water Districts. Furthermore, the board directors and other personnel of the Local
PNRC should incorporate under the Corporation Code and register with the Securities
Water Districts are government employees subject to civil service laws and anti-graft
controlled corporations not only because of their creation by special charter but also
because the government in fact owns and controls the Local Water Districts.
Just like the Local Water Districts, the PNRC was created through a special
charter. However, unlike the
controlled corporation for purposes of the prohibition in Section 13, Article VI of the
1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12,
ownership and control are clearly lacking in the PNRC. Thus, although the PNRC is
and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as
amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create
government-owned or
control by the government. In creating the PNRC as a corporate entity, Congress was
in fact creating a private corporation. However, the constitutional prohibition against
SO ORDERED.
the creation of private corporations by special charters provides no exception even for
non-profit or charitable corporations. Consequently, the PNRC Charter, insofar as it
creates the PNRC as a private corporation and grants it corporate powers,[27] is void
for being unconstitutional.
ANTONIO M. CARANDANG,
Petitioner,
-versus -
145
Respondent.
the Government, through the PCGG, all his shares of stock in RPN. Consequently,
x-----------------------------------------x
upon motion of the PCGG, the Sandiganbayan (Second Division) directed the
ANTONIO M. CARANDANG,
president and corporate secretary of RPN to transfer to the PCGG Benedictos shares
Petitioner,
representing 72.4% of the total issued and outstanding capital stock of RPN.
-versusHowever, Benedicto moved for a reconsideration, contending that his RPN shares
ceded to the Government, through the PCGG, represented only 32.4% of RPNs
Respondent.
G.R. No. 148076
outstanding capital stock, not 72.4%. Benedictos motion for reconsideration has
BERSAMIN, J.:
Administrative Complaint for Grave Misconduct
Petitioner Antonio M. Carandang (Carandang) challenges the jurisdiction over him of
the Ombudsman and of the Sandiganbayan on the ground that he was being held to
On July 28, 1998, Carandang assumed office as general manager and chief operating
account for acts committed while he was serving as general manager and chief
officer of RPN.[8]
operating officer of Radio Philippines Network, Inc. (RPN), which was not a
government-owned or -controlled corporation; hence, he was not a public official or
On April 19, 1999, Carandang and other RPN officials were charged with grave
employee.
misconduct before the Ombudsman. The charge alleged that Carandang, in his
In G.R. No. 148076, Carandang seeks the reversal of the decision[1] and resolution[2]
capacity as the general manager of RPN, had entered into a contract with AF
of that corporation; that he had thus held financial and material interest in a contract
that had required the approval of his office; and that the transaction was prohibited
In G.R. No. 153161, Carandang assails on certiorari the resolutions dated October
under Section 7 (a) and Section 9 of Republic Act No. 6713 (Code of Conduct and
17, 2001[4] and March 14, 2002[5] of the Sandiganbayan (Fifth Division) that
Ethical Standards for Public Officials and Employees), thereby rendering him
sustained the Sandiganbayans jurisdiction over the criminal complaint charging him
with violation of Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act).
Carandang sought the dismissal of the administrative charge on the ground that the
Ombudsman had no jurisdiction over him because RPN was not a government-owned
Antecedents
or -controlled corporation.[9]
Roberto S. Benedicto (Benedicto) was a stockholder of RPN, a private corporation
On May 7, 1999, the Ombudsman suspended Carandang from his positions in RPN.
duly registered with the Securities and Exchange Commission (SEC).[6] In March
1986, the Government ordered the sequestration of RPNs properties, assets, and
business. On November 3, 1990, the Presidential Commission on Good Government
146
Republic Act No. 3019 as amended. Unless the powers conferred are of this nature,
had no further claim to his positions in RPN. He was subsequently replaced by Edgar
San Luis.[10]
With these time-honored definitions and the substantial findings of the Ombudsman,
In its decision dated January 26, 2000,[11] the Ombudsman found Carandang guilty
Carandang moved for reconsideration on two grounds: (a) that the Ombudsman had
operating officer of RPN-9 (page 127 of the Rollo). As a presidential appointee, the
petitioner derives his authority from the Philippine Government. It is luce clarius that
corporation; and (b) that he had no financial and material interest in the contract that
the function of the herein petitioner (as a presidential appointee), relates to public
duty, i.e., to represent the interest of the Philippine Government in RPN-9 and not
purely personal matter, thus, the matter transcends the petitioners personal pique or
The Ombudsman denied Carandangs motion for reconsideration on March 15, 2000.
pride.
[13]
xxx
On appeal (CA G.R. SP No. 58204),[14] the CA affirmed the decision of the
Ombudsman on February 12, 2001, stating:
Having declared earlier that the herein petitioner is a public officer, it follows therefore
that, that jurisdiction over him is lodged in the Office of the Ombudsman.
The threshold question to be resolved in the present case is whether or not the Office
of the Ombudsman has jurisdiction over the herein petitioner.
It is worth remembering that as protector of the people, the Ombudsman has the
power, function and duty to act promptly on complaints filed in any form or manner
basic terms, to wit: A public office is the right, authority and duty, created and
conferred by law, by which for a given period, either fixed by law or enduring at the
enforce their administrative, civil and criminal liability in every case where the
pleasure of the creating power, an individual is invested with some portion of the
sovereign functions of the state to be exercised by him for the benefit of the public.
(San Andres, Catanduanes vs. Court of Appeals, 284 SCRA 276: Chapter I, Section
1, Mechem, A Treatise on Law of Public Offices and Officers). The individual so
xxx
invested is called the public officer which includes elective and appointive officials
and employees, permanent or temporary, whether in the classified or unclassified or
Accordingly, the Office of the Ombudsman is, therefore, clothed with the proper armor
when it assumed jurisdiction over the case filed against the herein petitioner. x x x
defined in xxx [Sec. 2 (a) of Republic Act No. 3019 as amended]. (Sec. 2 (b) of
xxx
147
irrefutable that RPN-9 also performs governmental roles in the interest of health,
It appears that RPN-9 is a private corporation established to install, operate and
safety and for the advancement of public good and welfare, affecting the public in
manage radio broadcasting and/or television stations in the Philippines (pages 59-79
general.
of the Rollo). On March 2, 1986, when RPN-9 was sequestered by the Government
on ground that the same was considered as an illegally obtained property (page 3 of
xxx
the Petition for Review; page 2 of the Respondents Comment; pages 10 and 302 of
the Rollo), RPN-9 has shed-off its private status. In other words, there can be no
Coming now to the last assignment of error- While it may be considered in substance
gainsaying that as of the date of its sequestration by the Government, RPN-9, while
that the latest GIS clearly shows that petitioner was no longer a stockholder of record
(Petitioners Reply [to Comment]; page 317 of the Rollo), still severing ties from AF
Broadcasting Corporation does not convince this Court fully well to reverse the finding
Misconduct (page 10 of the Assailed Decision; page 36 of the Rollo). Note that, as a
directly or through its instrumentalities either wholly, or, where applicable as in the
petitioner was completely oblivious of the developments therein and unaware of the
case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
categorized by the department of Budget, the Civil Service, and the Commission on
it is unbelievable that herein petitioner could simply have ignored the contract entered
Audit for purposes of the exercise and discharge of their respective powers, functions
into between RPN-9 and AF Broadcasting Corporation and not at all felt to reap the
benefits thereof. Technically, it is true that herein petitioner did not directly act on
Contrary to the claim of the petitioner, this Court is of the view and so holds that RPN-
approval of his officea fact that could not have eluded Our attention.
9 perfectly falls under the foregoing definition. For one, the governments interest to
RPN-9 amounts to 72.4% of RPNs capital stock with an uncontested portion of
xxx
32.4% and a contested or litigated portion of 40%. (page 3 of the Petition for Review;
pages 8-9 of the Respondents Comment). On this score, it ought to be pointed out
that while the forty percent (40%) of the seventy two point four percent (72.4%) is still
jurisprudence on the matter, the present Petition for Review is hereby DENIED for lack
contested and litigated, until the matter becomes formally settled, the government, for
of merit. The assailed decision (dated January 26, 2000) of the Office of the
all interests and purposes still has the right over said portion, for the law is on its side.
Ombudsman
Hence, We can safely say that for the moment, RPN-9 is a government owned and
pronouncement as to costs.
in
148
OMB-ADM-0-99-0349
is
hereby
AFFIRMED
in
toto.
No
After the denial of his motion for reconsideration,[16] Carandang commenced G.R.
No. 148076.
On May 27, 2002, Carandang moved to defer his arraignment and pre-trial, citing the
pendency of G.R. No. 153161.[22]
On July 29, 2002, the Court directed the parties in G.R. No. 153161 to maintain the
[24]
Issue
Network, Inc. (RPN-9), then a government owned and controlled corporation, did then
and there willfully, unlawfully and criminally give unwarranted benefits to On Target
Carandang insists that he was not a public official considering that RPN was not a
Media Concept, Inc. (OTMCI) through manifest partiality and gross inexcusable
government-owned
negligence and caused the government undue injury, by pre-terminating the existing
Ombudsman and the Sandiganbayan had no jurisdiction over him. He prays that the
block time contract between RPN 9 and OTMCI for the telecast of Isumbong Mo Kay
Tulfo which assured the government an income of Sixty Four Thousand and Nine
Pesos (P 64,009.00) per telecast and substituting the same with a more onerous co-
corporation.
or
-controlled
corporation;
and
that,
consequently,
the
production agreement without any prior study as to the profitability thereof, by which
Ruling
agreement RPN-9 assumed the additional obligation of taking part in the promotions,
sales and proper marketing of the program, with the end result in that in a period of
five (5) months RPN-9 was able to realize an income of only Seventy One Thousand
One Hundred Eighty Five Pesos (P 71,185.00), and further, by waiving RPN-9s
collectible from OTMCI for August 1-30, 1998 in the amount of Three Hundred Twenty
It is not disputed that the Ombudsman has jurisdiction over administrative cases
involving grave misconduct committed by the officials and employees of governmentowned or -controlled corporations; and that the Sandiganbayan has jurisdiction to try
and decide criminal actions involving violations of R.A. 3019 committed by public
jurisdiction because he was not a public official due to RPN not being a government-
149
1987, i.e., any agency organized as a stock or non-stock corporation vested with
least fifty-one (51) percent of its capital stock. The definition mentions three (3)
directly chartered by a special law or if organized under the general corporation law is
proprietary in nature; and, third, owned by the Government directly or through its
Section 2 (13) of Executive Order No. 292 (Administrative Code of 1987)[26] renders
a similar definition of government-owned or -controlled corporations:
In the present case, all three (3) corporations comprising the CIIF companies were
organized as stock corporations. The UCPB-CIIF owns 44.10% of the shares of
Section 2. General Terms Defined. Unless the specific words of the text or the
LEGASPI OIL, xxx. Obviously, the below 51% shares of stock in LEGASPI OIL
removes this firm from the definition of a government owned or controlled corporation.
x x x The Court thus concludes that the CIIF are, as found by public respondent,
xxx
because of the Governments total share in RPNs capital stock being only 32.4%.
indirectly through its instrumentalities either wholly, or where applicable as in the case
of stock corporations to the extent of at least 51% of its capital stock.
controls at least a majority or 51% share of the capital stock. Applying this statutory
reconsideration whereby he clarified and insisted that the shares ceded to the PCGG
had accounted for only 32.4%, not 72.4%, of RPNs outstanding capital stock. With
the extent of Benedictos holdings in RPN remaining unresolved with finality,
But these jurisprudential rules invoked by petitioner in support of his claim that the
concluding that the Government held the majority of RPNs capital stock as to make
CIIF companies are government owned and/or controlled corporations are incomplete
150
through PCGG, ordered the president and corporate secretary of the RPN-9 to effect
Even the PCGG and the Office of the President (OP) have recognized RPNs status
In its Opinion/Clarification dated August 18, 1999, the PCGG communicated to San
vs. Roberto Benedicto, et. al.) Benedicto, however, filed a motion for reconsideration
Luis as the president and general manager of RPN regarding a case involving RPN
of said Resolution, contending that the number of RPN-9 shares ceded by him
and Carandang:[29]
embraces only his personal holdings and those of his immediate family and nominees
totaling 4,161,207.5 shares but excluding the RPN-9 shares in the name of Far East
Managers and Investors, Inc. (FEMIE), which is about 40%, as they are corporate
properties/assets of FEMIE and not his personal holdings. Said motion for
xxx
Sir:
We agree with your x x x view that RPN-9 is not a government owned or controlled
corporation within the contemplation of the Administrative Code of 1987, for
This refers to your letter dated August 4, 1999, seeking PCGGs position on the
admittedly, RPN-9 was organized for private needs and profits, and not for public
following:
needs and was not specifically vested with functions relating to public needs.
under Presidential Decree (PD) No. 2029 dated February 4, 1986, which defines said
terms as follows:
xxx
Sec.2. Definition. A government owned- or controlled corporation is a stock or nonIt appears that under the RP-Benedicto Compromise Agreement dated November 3,
1990 validity of which has been sustained by the Supreme Court in G.R. No. 96087,
directly chartered by special law or organized under the general corporation law is
March 31, 1992, (Guingona, Jr. vs. PCGG, 207 SCRA 659) Benedicto ceded all his
rights, interest and/or participation, if he has any, in RPN-9, among others, to the
include 9,494,327.50 shares of stock, i.e, about 72.4% of the total issued and
outstanding capital stock of RPN-9.
151
Provided, that a corporation organized under the general corporation law under
2.
said 32.4% shares of stock, together with the contested/litigated 40%, were not
private ownership at least a majority of the shares of stock of which were conveyed to
3.
satisfaction of debts incurred therewith, and which in any case by enunciated policy of
incurred therewith.
It should be parenthetically noted that the 32.4% or 72.4% shares of stocks were
created by special law (Sec. 3 (a), PD 2029) or a subsidiary corporation, i.e, one
others, to recover from them ill-gotten wealth (Amended Complaint, Aug. 12, 1987,
created pursuant to law where at least a majority of the outstanding voting capital
Civil Case No. 0034, p. 2.) As the case between the government and Benedicto, his
the character or nature of the assets and properties turned over by Benedicto to the
government whether they are ill-gotten wealth or not.[30]
The PCGGs Opinion/Clarification was affirmed by the OP itself on February 10, 2000:
[31]
152
Lastly, the conclusion that Carandang was a public official by virtue of his having been
appointed as general manager and chief operating officer of RPN by President
xxx
Relative thereto, please be informed that we affirm the PCGGs opinion that RPNI is
of RPN to the PCGG, which then cast the vote in his favor vis--vis said positions.[36]
Under the circumstances, it was RPNs Board of Directors that appointed Carandang
In fine, Carandang was correct in insisting that being a private individual he was not
applicable as in the case of stock corporations to the extent of at least 51% of its
capital stock. As government ownership over RPNI is only 32.4% of its capital stock,
pending the final judicial determination of the true and legal ownership of RPNI, the
WHEREFORE, we grant the petitions in G.R. No. 148076 and G.R. No. 153161.
We annul and set aside the resolutions dated October 17, 2001 and March 14, 2002,
as well as the order dated March 15, 2002, all issued by the Sandiganbayan (Fifth
Division) in Criminal Case No. 25802, and dismiss Criminal Case No. 25802 as
This is not to mention the fact that the other respondents, the RPN officials, are
outside the jurisdiction of this Office (Office of the Ombudsman); they are employed
by a private corporation registered with the Securities and Exchange Commission, the
SO ORDERED.
February 4, 2014
Respondents.
DECISION
153
PEREZ, J.:
The Philippines formally ended its official diplomatic relations with the government in
This is a petition for mandamus1 to compel:
Taiwan on 9 June 1975, when the country and the PROC expressed mutual
recognition thru the Joint Communiqu of the Government of the Republic of the
1.) the Commission on Audit (COA) to audit and examine the funds of the Manila
Communiqu).8
Under the Joint Communiqu, the Philippines categorically stated its adherence to the
One China policy of the PROC. The pertinent portion of the Joint Communiqu
The antecedents:
reads:9
Prelude
The aftermath of the Chinese civil war2 left the country of China with two (2)
position of the Chinese Government that there is but one China and that Taiwan is an
integral part of Chinese territory, and decides to remove all its official representations
hand is the communist Peoples Republic of China (PROC) which controls the
from Taiwan within one month from the date of signature of this communiqu.
mainland territories, and on the other hand is the nationalist Republic of China (ROC)
(Emphasis supplied)
which controls the island of Taiwan. For a better part of the past century, both the
PROC and ROC adhered to a policy of "One China" i.e., the view that there is only
The Philippines commitment to the One China policy of the PROC, however, did not
preclude the country from keeping unofficial relations with Taiwan on a "people-to-
people" basis.10 Maintaining ties with Taiwan that is permissible by the terms of the
Joint Communiqu, however, necessarily required the Philippines, and Taiwan, to
With the existence of two governments having conflicting claims of sovereignty over
course any such relations thru offices outside of the official or governmental organs.
one country, came the question as to which of the two is deserving of recognition as
that countrys legitimate government. Even after its relocation to Taiwan, the ROC
Hence, despite ending their diplomatic ties, the people of Taiwan and of the
used to enjoy diplomatic recognition from a majority of the worlds states, partly due to
being a founding member of the United Nations (UN).5 The number of states partial to
Economic and Cultural Office, for the former, and the MECO, for the latter.11
the PROCs version of the One China policy, however, gradually increased in the
1960s and 70s, most notably after the UN General Assembly adopted the
monumental Resolution 2758 in 1971.6 Since then, almost all of the states that had
corporation under Batas Pambansa Blg. 68 or the Corporation Code.13 The purposes
erstwhile recognized the ROC as the legitimate government of China, terminated their
official relations with the said government, in favor of establishing diplomatic relations
as follows:
154
the request on the belief that the MECO, being under the "operational supervision" of
nationals here and abroad, and assist on all measures designed to promote and
the Department of Trade and Industry (DTI), is a government owned and controlled
maintain the trade relations of the country with the citizens of other foreign countries;
corporation (GOCC) and thus subject to the audit jurisdiction of the COA.19
2. To receive and accept grants and subsidies that are reasonably necessary in
Petitioners letter was received by COA Assistant Commissioner Jaime P. Naranjo, the
carrying out the corporate purposes provided they are not subject to conditions
following day.
referring the petitioners request to COA Assistant Commissioner Emma M. Espina for
as may be necessary for the use and need of the corporation, and to dispose of the
same in like manner when they are no longer needed or useful; and
revealed that the MECO was "not among the agencies audited by any of the three
Clusters of the Corporate Government Sector."21
4. To do and perform any and all acts which are deemed reasonably necessary to
carry out the purposes. (Emphasis supplied)
From the moment it was incorporated, the MECO became the corporate entity
"entrusted" by the Philippine government with the responsibility of fostering "friendly"
Mandamus Petition
and "unofficial" relations with the people of Taiwan, particularly in the areas of trade,
economic cooperation, investment, cultural, scientific and educational exchanges.15
Taking the 25 August 2010 memorandum as an admission that the COA had never
To enable it to carry out such responsibility, the MECO was "authorized" by the
audited and examined the accounts of the MECO, the petitioner filed the instant
government to perform certain "consular and other functions" that relates to the
petition for mandamus on 8 September 2010. Petitioner filed the suit in his capacities
as "taxpayer, concerned citizen, a member of the Philippine Bar and law book
author."22 He impleaded both the COA and the MECO.
At present, it is the MECO that oversees the rights and interests of Overseas Filipino
Workers (OFWs) in Taiwan; promotes the Philippines as a tourist and investment
Petitioner posits that by failing to audit the accounts of the MECO, the COA is
destination for the Taiwanese; and facilitates the travel of Filipinos and Taiwanese
neglecting its duty under Section 2(1), Article IX-D of the Constitution to audit the
or, at least, a government instrumentality, the funds of which partake the nature of
public funds.23
On 23 August 2010, petitioner sent a letter18 to the COA requesting for a "copy of the
latest financial and audit report" of the MECO invoking, for that purpose, his
GOCC and an instrumentality under the Executive Order No. (EO) 292, s. 1987 or the
155
the case of Wood, Jr., ex rel. United States of America v. The American Institute in
Taiwan, et al.32
appointed by the President of the Philippines; and while not integrated within the
executive departmental framework, it is nonetheless under the operational and policy
substantial grounds.
On procedure, the MECO argues that the mandamus petition was prematurely
reveals that they are substantially the same functions performed by the Department of
filed.33
Foreign Affairs (DFA), through its diplomatic and consular missions, per the
Administrative Code.26
The MECO posits that a cause of action for mandamus to compel the performance of
a ministerial duty required by law only ripens once there has been a refusal by the
tribunal, board or officer concerned to perform such a duty.34 The MECO claims that
that actually appoints the directors of the MECO, albeit indirectly, by way of "desire
there was, in this case, no such refusal either on its part or on the COAs because the
petitioner never made any demand for it to submit to an audit by the COA or for the
is the assumption by Mr. Antonio Basilio as chairman of the board of directors of the
COA to perform such an audit, prior to filing the instant mandamus petition.35 The
MECO in 2001, which was accomplished when former President Gloria Macapagal-
MECO further points out that the only "demand" that the petitioner made was his
request to the COA for a copy of the MECOs latest financial and audit report which
the board of directors of the MECO for the election of Mr. Basilio as chairman.29
request was not even finally disposed of by the time the instant petition was filed.36
3. The MECO is under the operational and policy supervision of the DTI. The MECO
On the petitions merits, the MECO denies the petitioners claim that it is a GOCC or a
was placed under the operational supervision of the DTI by EO No. 328, s. of 2004,
and again under the policy supervision of the same department by EO No. 426, s.
maintains that it is not owned or controlled by the government, and its funds are
2005.30
To further bolster his position that the accounts of the MECO ought to be audited by
the COA, the petitioner calls attention to the practice, allegedly prevailing in the United
petitioner, the President of the Philippines does not appoint its board of directors.39
The "desire letter" that the President transmits is merely recommendatory and not
entity of the MECO in the United Statesis supposedly audited by that countrys
Comptroller General.31 Petitioner claims that this practice had been confirmed in a
Code, matters relating to the election of its directors and officers, as well as its
decision of the United States Court of Appeals for the District of Columbia Circuit, in
membership, are governed by the appropriate provisions of the said code, its articles
of incorporation and its by-laws.41 Thus, it is the directors who elect the corporations
156
officers; the members who elect the directors; and the directors who admit the
members by way of a unanimous resolution. All of its officers, directors, and members
At any rate, the COA argues that the instant petition already became moot when COA
Chairperson Maria Gracia M. Pulido-Tan (Pulido-Tan) issued Office Order No. 201169850 on 6 October 2011.51 The COA notes that under Office Order No. 2011-698,
2. The government merely has policy supervision over it. Policy supervision is a lesser
form of supervision wherein the governments oversight is limited only to ensuring that
specifically for the purpose of auditing the accounts of, among other government
the corporations activities are in tune with the countrys commitments under the One
China policy of the PROC.43 The day-to-day operations of the corporation, however,
remain to be controlled by its duly elected board of directors.44
In conceding that it has audit jurisdiction over the accounts of the MECO, however,
the COA clarifies that it does not consider the former as a GOCC or a government
instrumentality. On the contrary, the COA maintains that the MECO is a non-
instrumentality can potentially violate the countrys commitment to the One China
governmental entity.53
policy of the PROC.45 Thus, the MECO cautions against applying to the present
mandamus petition the pronouncement in the Wood decision regarding the alleged
The COA argues that, despite being a non-governmental entity, the MECO may still
be audited with respect to the "verification fees" for overseas employment documents
that it collects from Taiwanese employers on behalf of the DOLE.54 The COA claims
that, under Joint Circular No. 3-99,55 the MECO is mandated to remit to the
Department of Labor and Employment (DOLE) a portion of such "verification fees."56
The COA, on the other hand, advances that the mandamus petition ought to be
pay xxx government share" subject to a partial audit of its accounts under Section 26
of the Presidential Decree No. 1445 or the State Audit Code of the Philippines (Audit
The COA argues that the mandamus petition suffers from the following procedural
Code).57
defects:
OUR RULING
1. The petitioner lacks locus standi to bring the suit. The COA claims that the
petitioner has not shown, at least in a concrete manner, that he had been aggrieved or
We grant the petition in part. We declare that the MECO is a non-governmental entity.
However, under existing laws, the accounts of the MECO pertaining to the "verification
fees" it collects on behalf of the DOLE as well as the fees it was authorized to collect
2. The petition was filed in violation of the doctrine of hierarchy of courts. The COA
under Section 2(6) of EO No. 15, s. 2001, are subject to the audit jurisdiction of the
faults the filing of the instant mandamus petition directly with this Court, when such
COA. Such fees pertain to the government and should be audited by the COA.
petition could have very well been presented, at the first instance, before the Court of
Appeals or any Regional Trial Court.48 The COA claims that the petitioner was not
able to provide compelling reasons to justify a direct resort to the Supreme Court.49
157
COA to audit the accounts of the MECO would certainly be a mere superfluity, when
the former had already obliged itself to do the same.
Mootness of Petition
Be that as it may, this Court refrains from dismissing outright the petition. We believe
The first preliminary issue relates to the alleged mootness of the instant mandamus
that the mandamus petition was able to craft substantial issues presupposing the
petition, occasioned by the COAs issuance of Office Order No. 2011-698. The COA
claims that by issuing Office Order No. 2011-698, it had already conceded its
jurisdiction over the accounts of the MECO and so fulfilled the objective of the instant
petition.58 The COA thus urges that the instant petition be dismissed for being moot
First. The petition makes a serious allegation that the COA had been remiss in its
and academic.59
the failure of the COA to audit the accounts of the MECO. The propriety or impropriety
supervening event, it ceases to present any justiciable controversy.60 Since they lack
of such a refusal is determinative of whether the COA was able to faithfully fulfill its
constitutional role as the guardian of the public treasury, in which any citizen has an
dismissible.61
interest.
The rule that requires dismissal of moot cases, however, is not absolute. It is subject
Third. There is also paramount public interest in the resolution of the issue regarding
the legal status of the MECO; a novelty insofar as our jurisprudence is concerned. We
The "moot and academic" principle is not a magical formula that can automatically
dissuade the courts in resolving a case. Courts will decide cases, otherwise moot and
academic, if: first, there is a grave violation of the Constitution;63 second, the
exceptional character of the situation and the paramount public interest is involved;64
the pressing public interest in the resolution of all related issues, prompts this Court to
pursue a definitive ruling thereon, if not for the proper guidance of the government or
guide the bench, the bar, and the public;65 and fourth, the case is capable of
agency concerned, then for the formulation of controlling principles for the education
of the bench, bar and the public in general.68 For this purpose, the Court invokes its
symbolic function.69
In this case, We find that the issuance by the COA of Office Order No. 2011-698
indeed qualifies as a supervening event that effectively renders moot and academic
If the foregoing reasons are not enough to convince, We still add another:
the main prayer of the instant mandamus petition. A writ of mandamus to compel the
158
Assuming that the allegations of neglect on the part of the COA were true, Office
The rules regarding legal standing in bringing public suits, or locus standi, are already
Order No. 2011-698 does not offer the strongest certainty that they would not be
well-defined in our case law. Again, We cite David, which summarizes jurisprudence
replicated in the future. In the first place, Office Order No. 2011-698 did not state any
on this point:73
legal justification as to why, after decades of not auditing the accounts of the MECO,
the COA suddenly decided to do so. Neither does it state any determination regarding
By way of summary, the following rules may be culled from the cases decided by this
the true status of the MECO. The justifications provided by the COA, in fact, only
appears in the memorandum70 it submitted to this Court for purposes of this case.
accorded standing to sue, provided that the following requirements are met:
Thus, the inclusion of the MECO in Office Order No. 2011-698 appears to be entirely
dependent upon the judgment of the incumbent chairperson of the COA; susceptible
of being undone, with or without reason, by her or even her successor. Hence, the
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that
case now before this Court is dangerously capable of being repeated yet evading
review.
(3) for voters, there must be a showing of obvious interest in the validity of the election
Verily, this Court should not dismiss the mandamus petition on the ground of
law in question;
mootness.
(4) for concerned citizens, there must be a showing that the issues raised are of
Standing of Petitioner
The second preliminary issue is concerned with the standing of the petitioner to file
(5) for legislators, there must be a claim that the official action complained of infringes
the instant mandamus petition. The COA claims that petitioner has none, for the latter
was not able to concretely establish that he had been aggrieved or prejudiced by its
failure to audit the accounts of the MECO.71
We rule that the instant petition raises issues of transcendental importance, involved
as they are with the performance of a constitutional duty, allegedly neglected, by the
Related to the issue of lack of standing is the MECOs contention that petitioner has
COA. Hence, We hold that the petitioner, as a concerned citizen, has the requisite
no cause of action to file the instant mandamus petition. The MECO faults petitioner
for not making any demand for it to submit to an audit by the COA or for the COA to
perform such an audit, prior to filing the instant petition.72
To be sure, petitioner does not need to make any prior demand on the MECO or the
COA in order to maintain the instant petition. The duty of the COA sought to be
compelled by mandamus, emanates from the Constitution and law, which explicitly
require, or "demand," that it perform the said duty. To the mind of this Court, petitioner
already established his cause of action against the COA when he alleged that the
COA had neglected its duty in violation of the Constitution and the law.
159
principle of hierarchy of courts. The COA assails the filing of the instant mandamus
petition directly with this Court, when such petition could have very well been
presented, at the first instance, before the Court of Appeals or any Regional Trial
through the government, which are required by law or the granting institution to submit
Court.74 The COA claims that the petitioner was not able to provide compelling
"revenue," "receipts," "expenditures" and "uses of funds and property" of the foregoing
petition, as earlier mentioned, this Court waives this last procedural issue in favor of a
entities.79
governmental entities receiving subsidy or equity xxx from or through the government"
is Section 29(1)80 of the Audit Code, which grants the COA visitorial authority over
The single most crucial question asked by this case is whether the COA is, under
prevailing law, mandated to audit the accounts of the MECO. Conversely, are the
accounts of the MECO subject to the audit jurisdiction of the COA?
Law, of course, identifies which accounts of what entities are subject to the audit
government"; and
Under Section 2(1) of Article IX-D of the Constitution,77 the COA was vested with the
"power, authority and duty" to "examine, audit and settle" the "accounts" of the
following entities:
Section 29(1) of the Audit Code, however, limits the audit of the foregoing nongovernmental entities only to "funds xxx coming from or through the government."81
This section of the Audit Code is, in turn, substantially reproduced in Section 14(1),
Book V of the Administrative Code.82
160
In addition to the foregoing, the Administrative Code also empowers the COA to
examine and audit "the books, records and accounts" of public utilities "in connection
with the fixing of rates of every nature, or in relation to the proceedings of the proper
"operational autonomy" and are "not integrated within the department framework."88
Subsumed under the rubric "government instrumentality" are the following entities:89
Both petitioner and the COA claim that the accounts of the MECO are within the audit
1. regulatory agencies,
jurisdiction of the COA, but vary on the extent of the audit and on what type of
auditable entity the MECO is. The petitioner posits that all accounts of the MECO are
2. chartered institutions,
"verification fees" it collects on behalf of the DOLE are auditable because the former
is merely a non-governmental entity "required to pay xxx government share" per the
Audit Code.85
4. GOCCs
Government Instrumentality
stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) per cent of its capital stock: x x x.
Petitioner claims that the accounts of the MECO ought to be audited by the COA
because the former is a GOCC or government instrumentality. Petitioner points out
The above definition is, in turn, replicated in the more recent Republic Act No. 10149
the DTI."86 The MECO thus possesses, petitioner argues, the essential
of the Republic of the Philippines directly or through its instrumentalities either wholly
or, where applicable as in the case of stock corporations, to the extent of at least a
161
4. To do and perform any and all acts which are deemed reasonably necessary to
The purposes for which the MECO was organized are somewhat analogous to those
of a trade, business or industry chamber,98 but only on a much larger scale i.e.,
In this case, there is not much dispute that the MECO possesses the first and second
in a foreign land.
Records disclose that the MECO was incorporated as a non-stock corporation under
the Corporation Code on 16 December 1977.95 The incorporators of the MECO were
Simeon R. Roxas, Florencio C. Guzon, Manuel K. Dayrit, Pio K. Luz and Eduardo B.
Ledesma, who also served as the corporations original members and directors.96
The public character of the functions vested in the MECO cannot be doubted either.
Indeed, to a certain degree, the functions of the MECO can even be said to partake of
The purposes for which the MECO was organized also establishes its non-profit
character, to wit:97
behalf of the people of the Philippines, currently facilitates unofficial relations with the
people in Taiwan.
Consistent with its corporate purposes, the MECO was "authorized" by the Philippine
maintain the trade relations of the country with the citizens of other foreign countries;
2. To receive and accept grants and subsidies that are reasonably necessary in
carrying out the corporate purposes provided they are not subject to conditions
as may be necessary for the use and need of the corporation, and in like manner
162
1. Issuance of temporary visitors visas and transit and crew list visas, and such other
accordance with existing regulations, and provision of such other passport services as
authentication;
transfer, banking and finance, scientific, cultural, educational and other modes of
cooperative endeavors between the Philippines and Taiwan, on a people-to-people
Taiwan for the promotion of Philippine exports, manpower and management services,
by local and international law on their behalf before civil and juridical authorities of
and tourism;
Taiwan; and
6. Collection of reasonable fees on the first four (4) functions enumerated above to
trade, tourism, labor, economic cooperation, and cultural, educational and scientific
endeavors;
A perusal of the above functions of the MECO reveals its uncanny similarity to some
6. Conduct of periodic assessment of market conditions in Taiwan, including
of the functions typically performed by the DFA itself, through the latters diplomatic
submission of trade statistics and commercial reports for use of Philippine industries
and consular missions.100 The functions of the MECO, in other words, are of the kind
that would otherwise be performed by the Philippines own diplomatic and consular
organs, if not only for the governments acquiescence that they instead be exercised
by the MECO.
stock corporation and the mere performance of functions with a public aspect,
however, are not by themselves sufficient to consider the MECO as a GOCC. In order
163
The fact of the incorporation of the MECO under the Corporation Code is key. The
the government.
articles of incorporation and its by-laws. In this case, it is the by-laws109 of the MECO
that stipulates that its directors are elected by its members; its officers are elected by
assured by its ownership of at least fifty-one percent (51%) of the corporate capital
its directors; and its members, other than the original incorporators, are admitted by
stock.101 In a non-stock corporation, like the MECO, jurisprudence teaches that the
controlling interest of the government is affirmed when "at least majority of the
members are government officials holding such membership by appointment or
In this case, the petitioner argues that the government has controlling interest in the
(a) Regular members shall consist of the original incorporators and such other
MECO because it is the President of the Philippines that indirectly appoints the
members who, upon application for membership, are unanimously admitted by the
directors of the corporation.104 The petitioner claims that the President appoints
Board of Directors.
directors of the MECO thru "desire letters" addressed to the corporations board.105
As evidence, the petitioner cites the assumption of one Mr. Antonio Basilio as
chairman of the board of directors of the MECO in 2001, which was allegedly
merely recommendatory and not binding on it.107 The MECO maintains that, as a
Chairman, each of whom as to serve until such time as his own successor shall have
corporation organized under the Corporation Code, matters relating to the election of
been elected by the regular members in an election called for the purpose. The
its directors and officers, as well as its membership, are ultimately governed by the
number of members of the Board shall be increased to seven (7) when circumstances
appropriate provisions of the said code, its articles of incorporation and its by-
so warrant and by means of a majority vote of the Board members and appropriate
laws.108
As between the contrasting arguments, We find the contention of the MECO to be the
164
Chairman shall also carry the title Chief Executive Officer. The officer who shall head
strictly legal perspective, it appears that the presidential "desire letters" pointed out by
the branch or office for the agency that may be established abroad shall have the title
petitionerif such letters even exist outside of the case of Mr. Basilioare, no matter
of Director and Resident Representative. He will also be the Vice-Chairman. All other
same from any other class of government instrumentality. The other government
instrumentalities i.e., the regulatory agencies, chartered institutions and GCE/GICP
are all, by explicit or implicit definition, creatures of the law.110 The MECO cannot be
three (3) members of the Board. The members of the Executive Committee shall be
xxxx
Hence, unless its legality is questioned, and in this case it was not, the fact that the
MECO is operating under the policy supervision of the DTI is no longer a relevant
Article 8. The officers of the corporation shall consist of a Chairman of the Board,
For whatever it is worth, however, and without justifying anything, it is easy enough for
Vice-Chairman, Chief Finance Officer, and a Secretary. Except for the Secretary, who
this Court to understand the rationale, or necessity even, of the executive branch
is appointed by the Chairman of the Board, other officers and employees of the
placing the MECO under the policy supervision of one of its agencies.
MECO was not intended to operate as any other ordinary corporation. And it is not.
agency abroad are appointed solely by the Vice Chairman and Resident
Despite its private origins, and perhaps deliberately so, the MECO was "entrusted"111
by the Board.
"unofficial"113 relations with the people of a foreign land whose government the
Philippines is bound not to recognize. The intricacy involved in such undertaking is the
It is significant to note that none of the original incorporators of the MECO were
possibility that, at any given time in fulfilling the purposes for which it was
incorporated, the MECO may find itself engaged in dealings or activities that can
none of the members, officers or board of directors of the MECO, from its
directly contradict the Philippines commitment to the One China policy of the PROC.
Such a scenario can only truly be avoided if the executive department exercises some
public officers designated by reason of their office. There is, in fact, no law or
form of oversight, no matter how limited, over the operations of this otherwise private
entity.
165
In its comment,117 the MECO admitted that roughly 9% of its income is derived from
Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared
its share in the "verification fees" for overseas employment documents it collects on
with other private corporations. From its over-reaching corporate objectives, its special
duty and authority to exercise certain consular functions, up to the oversight by the
executive department over its operationsall the while maintaining its legal status as
The "verification fees" mentioned here refers to the "service fee for the verification of
a non-governmental entitythe MECO is, for all intents and purposes, sui generis.
1022,118 which was issued by President Ferdinand E. Marcos on 1 May 1985. These
fees are supposed to be collected by the DOLE from the foreign employers of OFWs
and are intended to be used for "the promotion of overseas employment and for
The COA argues that, despite being a non-governmental entity, the MECO may still
be audited with respect to the "verification fees" for overseas employment documents
Joint Circular 3-99 was issued by the DOLE, DFA, the Department of Budget
that the latter collects from Taiwanese employers on behalf of the DOLE.114 The
COA claims that, under Joint Circular No. 3-99, the MECO is mandated to remit to the
Section 7 of Executive Order No. 1022.120 Thus, under Joint Circular 3-99, the
following officials have been tasked to be the "Verification Fee Collecting Officer" on
fees" is subject to the audit jurisdiction of the COA. However, We digress from the
view that such accounts are the only ones that ought to be audited by the COA. Upon
2. In foreign posts where there is no labor attach or duly authorized overseas labor
careful evaluation of the information made available by the records vis--vis the spirit
officer, the finance officer or collecting officer of the DFA duly deputized by the DOLE
and the letter of the laws and executive issuances applicable, We find that the
accounts of the MECO pertaining to the fees it was authorized to collect under
Section 2(6) of EO No. 15, s. 2001, are likewise subject to the audit jurisdiction of the
3. In the absence of such finance officer or collecting officer, the alternate duly
COA.
Since the Philippines does not maintain an official post in Taiwan, however, the DOLE
entered into a "series" of Memorandum of Agreements with the MECO, which made
the latter the formers collecting agent with respect to the "verification fees" that may
be due from Taiwanese employers of OFWs.122 Under the 27 February 2004
166
Memorandum of Agreement between DOLE and the MECO, the "verification fees" to
be collected by the latter are to be allocated as follows: (a) US$ 10 to be retained by
The "consular fees," although held and expended by the MECO by virtue of EO No.
the MECO as administrative fee, (b) US $10 to be remitted to the DOLE, and (c) US$
15, s. 2001, are, without question, derived from the exercise by the MECO of consular
Evidently, the entire "verification fees" being collected by the MECO are receivables of
documents that the MECO issues pursuant to its authorized functions still emanate
the DOLE.124 Such receipts pertain to the DOLE by virtue of Section 7 of EO No.
1022.
Such fees, therefore, are received by the MECO to be used strictly for the purpose set
Consular Fees Collected by the MECO
out under EO No. 15, s. 2001. They must be reasonable as the authorization requires.
It is the government that has ultimate control over the disposition of the "consular
Aside from the DOLE "verification fees," however, the MECO also collects "consular
fees," which control the government did exercise when it provided in Section 2(6) of
fees," or fees it collects from the exercise of its delegated consular functions.
EO No. 15, s. 2001 that such funds may be kept by the MECO "to defray the cost of
its operations."
The authority behind "consular fees" is Section 2(6) of EO No. 15, s. 2001. The said
section authorizes the MECO to collect "reasonable fees" for its performance of the
The Accounts of the MECO Pertaining to the Verification Fees and Consular Fees
1. Issuance of temporary visitors visas and transit and crew list visas, and such other
Section 14(1), Book V of the Administrative Code authorizes the COA to audit
accordance with existing regulations, and provision of such other passport services as
may be required under the circumstances;
First. The MECO receives the "verification fees" by reason of being the collection
agent of the DOLEa government agency. Out of its collections, the MECO is
required, by agreement, to remit a portion thereof to the DOLE. Hence, the MECO is
authentication; and
accountable to the government for its collections of such "verification fees" and, for
that purpose, may be audited by the COA.
MECO through the government, having been derived from the exercise of consular
is no consular office for the collection of the "consular fees." Thus, the authority for the
functions entrusted to the MECO by the government. Hence, the MECO remains
MECO to collect the "reasonable fees," vested unto it by the executive order.
167
accountable to the government for its collections of "consular fees" and, for that
purpose, may be audited by the COA.
Tersely put, the 27 February 2008 Memorandum of Agreement between the DOLE
and the MECO and Section 2(6) of EO No. 15, s. 2001, vis--vis, respectively, the
"verification fees" and the "consular fees," grant and at the same time limit the
authority of the MECO to collect such fees. That grant and limit require the audit by
Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and
Conclusion
SYLLABUS
The MECO is not a GOCC or government instrumentality. It is a sui generis private
entity especially entrusted by the government with the facilitation of unofficial relations
with the people in Taiwan without jeopardizing the countrys faithful commitment to the
One China policy of the PROC. However, despite its non-governmental character, the
designed to facilitate the exercise of the functions of ownership of the church which
MECO handles government funds in the form of the "verification fees" it collects on
behalf of the DOLE and the "consular fees" it collects under Section 2(6) of EO No.
consists of one person only, and his successors (who will always be one at a time), in
15, s. 2001. Hence, under existing laws, the accounts of the MECO pertaining to its
some particular, who are incorporated by law in order to give them some legal
collection of such "verification fees" and "consular fees" should be audited by the
advantages particularly that of perpetuity which in their natural persons they could not
COA.
have . . . (Reid v. Barry, 93 Fla. 849 112 So. 846). Through this legal fiction, church
properties acquired by the incumbent of a corporation sole pass, by operation of law,
upon his death not to his personal heirs but to his successor in office. A corporation
sole, therefore, is created not only to administer the temporalities of the church or
However, the accounts of the Manila Economic and Cultural Office pertaining to: the
religious society where he belongs, but also to hold and transmit the same to his
verification fees contemplated by Section 7 of Executive Order No. 1022 issued 1 May
1985, that the former collects on behalf of the Department of Labor and Employment,
and the fees it was authorized to collect under Section 2(6) of Executive Order No. 15
issued 16 May 2001, are subject to the audit jurisdiction of the COA.
No costs.
every Roman Catholic Church in different countries, if it exercises its mission and is
SO ORDERED.
168
the Roman Pontiff or the Holy See, without prejudice to its religious relations with the
form of operation have no designed owner of its temporalities, although by the terms
latter which are governed by the Common Law or their rules and regulations.
of the law it can be safely implied that they ordinarily hold them in trust for the benefit
of the Roman Catholic faithful of their respective locality or diocese. They can not be
SOLE. Under the circumstances of the present case, it is safe to state that even
applicable to corporations sole, the nationality of the constituents of the diocese, and
before the establishment of the Philippine Commonwealth and of the Republic of the
not the nationality of the actual incumbent of the parish, must be taken into
Philippines every corporation sole then organized and registered had by express
provision of law (Corporation Law, Public Act. 1459) the necessary power and
the aforesaid constitutional requirement is fully met and satisfied, considering that the
qualification to purchase in its name private lands located in the territory in which it
exercised its functions or ministry and for which it was created, independently of the
nationality of its incumbent unique and single number and head, the bishop of the
diocese. It can be also maintained without fear of being gainsaid that the Roman
DECISION
Catholic Apostolic Church in the Philippines has no nationality and that the frames of
the Constitution did not have in mind the religious corporation sole when they
provided that 60 per centum of the capital thereof be owned by Filipino citizens. Thus,
FELIX, J.:
if this constitutional provision were not intended for corporation sole, it is obvious that
this could not be regulated or restricted by said provision.
This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of
4. ID.; ID.; ID.; ID.; CONSTITUTIONAL REQUIREMENT LIMITED TO OWNERSHIP
NOT TO CONTROL. But the Corporation Law and the Canon Law are explicit in
Commissioner in L.R.C. Consulta No. 14. The facts of the case are as
their provisions that a corporation sole or "ordinary" is not the owner of the properties
that he may acquire but merely the administrator thereof and holds the same in trust
for the church to which the corporation is an organized and constituents part. Being
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of
Davao, executed a deed of sale of a parcel of land located in the same city covered by
Transfer Certificate of Title No. 2263, in favor of the Roman Catholic Administrator of
The said constitutional provision is limited by it terms to ownership alone and does not
Davao, Inc., a corporation sole organized and existing in accordance with Philippine
extend to control unless the control over the property affected has been devised to
laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. When the
deed of sale was presented to the Register of Deeds of Davao for registration, the
latter
having in mind a previous resolution of the Fourth Branch of the Court of First
Instance of Manila wherein the Carmelite Nuns of Davao were made to prepare an
169
affidavit to the effect that 60 per cent of the members of their corporation were Filipino
citizens when they sought to register in favor of their congregation a deed of donation
After the motion to reconsider said resolution was denied, an action for mandamus
of a parcel of land
was instituted with this Court by said corporation sole, alleging that under the
Corporation Law, the Canon Law as well as the settled jurisprudence on the matter,
required said corporation sole to submit a similar affidavit declaring that 60 per cent of
the deed of sale executed by Mateo L. Rodis in favor of petitioner is actually a deed of
sale in favor of the Catholic Church which is qualified to acquire private agricultural
lands for the establishment and maintenance of places of worship, and prayed that
The vendee in a letter dated June 28, 1954, expressed willingness to submit an
judgment be rendered reserving and setting aside the resolution of the Land
affidavit, but not in the same tenor as that made by the Prioress of the Carmelite Nuns
because the two cases were not similar, for whereas the congregation of the
Court gave due course to this petition providing that the procedure prescribed for
Carmelite Nuns had five incorporators, the corporation sole has only one; that
appeals from the Public Service Commission or the Securities and Exchange
became the owner of properties donated to it, whereas the case at bar, the totality of
the Catholic population of Davao would become the owner of the property sought to
be registered.
consulta for resolution in accordance with section 4 of Republic Act No. 1151. Proper
hearing on the matter was conducted by the Commissioner and after the petitioner
corporation had filed its memorandum, a resolution was rendered on September 21,
Section 1 of the same Article also provides the following:chanrob1es virtual 1aw
1954, holding that in view of the provisions of Sections 1 and 5 of Article XIII of the
library
Philippine Constitution, the vendee was not qualified to acquire private lands in the
Philippines in the absence of proof that at least 60 per centum of the capital, property,
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters,
or assets of the Roman Catholic Administrator of Davao, Inc., was actually owned or
minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and
controlled by Filipino citizens, there being no question that the present incumbent of
other natural resources of the Philippines belong to the State, and their disposition,
the corporation sole was a Canadian citizen. It was also the opinion of the Land
Registration Commissioner that section 159 of the Corporation Law relied upon by the
with respect to real estate, unless the precise condition set therein that at least 60
per cent of its capital is owned by Filipino citizens be present, and, therefore,
ordered the Register of Deeds of Davao to deny registration of the deed of sale in the
of public agricultural land, shall not be alienated, and no license, concession, or lease
for the exploitation, development, or utilization of any of the natural resources shall be
170
granted for a period exceeding twenty-five years, renewable for another twenty-five
Respondents, on the other hand, averred that although it might be true that petitioner
years, except as to water rights for irrigation, water supply, fisheries, or industrial uses
is not the owner of the land purchased, yet he has control over the same, with full
other than the development of water power, in which cases beneficial use may be the
power to administer, take possession of, alienate, transfer, encumber, sell or dispose
of any or all lands and their improvements registered in the name of the corporation
sole and can collect, receive, demand or sue for all money or values of any kind that
In virtue of the foregoing mandates of the Constitution, who are considered "qualified"
may become due or owing to said corporation, and vested with authority to enter into
to acquire and hold agricultural lands in the Philippines? What is the effect of these
agreements with any persons, concerns or entities in connection with said real
properties, or in other words, actually exercising all rights of ownership over the
properties. It was their stand that the theory that properties registered in the name of
register real estates in its name when the Head, Manager, Administrator or actual
the corporation sole are held in trust for the benefit of the Catholic population of a
incumbent is an alien?
recipient of the benefits from the property allegedly administered in their behalf.
citizenship of its incumbent, is not prohibited or disqualified to acquire and hold real
Neither can it be said that the mass of people referred to as such beneficiary exercise
properties. The Corporation Law and the Canon Law are explicit in their provisions
any right of ownership over the same. This set-up, respondents argued, falls short of
that a corporation sole or "ordinary" is not the owner of the properties that he may
acquire but merely the administrator thereof. The Canon Law also specified that
ecclesiastical properties are not the members or faithful of the church but someone
church temporalities are owned by the Catholic Church as a "moral person" or by the
else, by quoting a portion of the oath of fidelity subscribed by a bishop upon his
members. The 1948 figures of the Bureau of Census and Statistics showed that there
provision calling for 60 per cent Filipino citizenship, the criterion is not membership in
were 277,551 Catholics in Davao and aliens residing therein numbered 3,465. Even
granting that all these foreigners are Catholics, petitioner contends that Filipino
citizens form more than 80 per cent of the entire Catholics population of that area. As
In solving the problem thus submitted to our consideration, We can say the following:
to its clergy and religious composition, counsel for petitioner presented the Catholic
A corporation sole is a special form of corporation usually associated with the clergy.
Directory of the Philippines for 1954 (Annex A) which revealed that as of that year,
Conceived and introduced into the common law by sheer necessity, this legal creation
Filipino clergy and women novices comprise already 60.5 per cent of the group. It
which was referred to as "that unhappy freak of English law" was designed to facilitate
was, therefore, alleged that the constitutional requirement was fully met and satisfied.
the exercise of the functions of ownership carried on by the clerics for and on behalf
of the church which was regarded as the property owner (See I Bouviers Law
Dictionary, p. 682-683).
171
describing it;
be one at a time), in some particular station, who are incorporated by law in order to
give them some legal capacities and advantages, particularly that of perpetuity, which
in their natural persons they could not have had. In this sense, the king is a sole
corporation; so is a bishop, or deans, distinct from their several chapters (Reid v.
Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are illuminating and
SEC. 157. From and after the filing with the Securities & Exchange Commissioner of
sustain the stand of petitioner. Section 154 thereof provides:chanrob1es virtual 1aw
library
SEC 154. For the administration of the temporalities of any religious denomination,
in the section immediately preceding such bishop, chief priest, or presiding elder, as
society or church and the management of the estates and properties thereof, it shall
the case may be, shall become a corporation sole, and all temporalities, estates, and
be lawful for the bishop, chief priest, or presiding elder of any such religious
managed by him as such bishop, chief priest, or presiding elder shall be held in trust
by him as a corporation sole, for the use, purpose, behoof, and sole benefit of his
See also the pertinent provisions of the succeeding sections of the same Corporation
SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding
SEC. 163. The right to administer all temporalities and all property held or owned by a
elder of any religious denomination, society, or church must file with the Securities
and shall be held in trust for the use, purpose, behoof, and benefit of the religious
society, or order so incorporated or of the church of which the diocese, synod, or
(3)
That as such bishop, chief priest, or presiding elder he is charged with the
sole
administration of the temporalities and the management of the estates, and properties
or
ordinary
as
follows:jgc:chanrobles.com.ph
172
administrator
of
the
church
properties,
as
owner of all church property; but merely that he is the supreme guardian" (Bouscaren
And this Court, citing Campos y Pulido, Legislacion y Jurisprudencia Canonica, ruled
in the case of Trinidad v. Roman Catholic Archbishop of Manila, 63 Phil. 881,
that:jgc:chanrobles.com.ph
del derecho comun." (Title XXVIII, Codigo da Derecho Canonico, Lib. III, Canon
1519). *
Canonists entertain different opinions as to the person in whom the ownership of the
That leaves no room for doubt that the bishops or archbishops, as the case may be,
ecclesiastical properties is vested, with respect to which we shall, for our purpose,
as corporations sole are merely administrators of the church properties that come to
confine ourselves to stating with Donoso that, while many doctors cited by Fagnano
their possession, and which they hold in trust for the church. It can also be said that
believe that it resides in the Roman Pontiff as Head of the Universal Church, it is more
probable that ownership, strictly speaking, does not reside in the latter, and,
problems regarding succession to said properties can not be avoided to rise upon his
death. Through this legal fiction, however, church properties acquired by the
incumbent of a corporation sole pass, by operation of law, upon his death not to his
personal heirs but to his successor in office. It could be seen, therefore, that a
corporation sole is created not only to administer the temporalities of the church or
Considering that nowhere can We find any provision conferring ownership of church
religious society where he belongs but also to hold and transmit the same to his
successor in said office. If the ownership or title to the properties do not pass to the
guardian of his flock, nor on the corporations sole or heads of dioceses as they are
Bouscaren
and
Elis,
S.
J.,
authorities
on
canon
law,
on
their
treatise
same. Although this question of ownership of ecclesiastical properties has off and on
comment:jgc:chanrobles.com.ph
been mentioned in several decisions of this Court yet in no instance was the subject
of citizenship of this religious society been passed upon.
"In matters regarding property belonging to the Universal Church and to the Apostolic
See, the Supreme Pontiff exercises his office of supreme administrator through the
We are not unaware of the opinion expressed by the late Justice Perfecto in his
Roman Curia; in matters regarding other church property, through the administrators
dissent in the case of Agustines v. Court of First Instance of Bulacan, 80 Phil. 565, to
of the individual moral persons in the Church according to that norms, laid down in the
the effect that "the Roman Catholic Archbishop of Manila is only a branch of a
Code of Cannon Law. This does not mean, however, that the Roman Pontiff is the
universal church by the Pope, with permanent residence in Rome, Italy." There is no
question that the Roman Catholic Church existing in the Philippines is a tributary and
173
part of that international religious organization, for the word "Roman" clearly
independent from one another in jurisdiction, governed by different laws under which
expresses its unity with and recognizes the authority of the Pope in Rome. However,
they are incorporated, and entirely independent of the others in the management and
lest We become hasty in drawing conclusions, We have to analyze and take note of
ownership of their temporalities. To allow theory that the Roman Catholic Churches all
the nature of the government established in the Vatican City, of which it was
over the world follow the citizenship of their Supreme Head, the Pontifical Father,
said:jgc:chanrobles.com.ph
would lead to the absurdity of finding the citizens of a country who embrace the
Catholic faith and become members of that religious society, likewise citizens of the
Vatican or of Italy. And this is more so if We consider that the Pope himself may be an
over clergy and laity alike is held by the pope who (since the Middle Ages) is elected
Italian or national of any other country of the world. The same thing may be said with
by the cardinals assembled in conclave, and holds office until his death or legitimate
regard to the nationality or citizenship of the corporation sole created under the laws
abdication. . . . While the pope is obviously independent of the laws made, and the
of the Philippines, which is not altered by the change of citizenship of the incumbent
administrative authority according to the code of canon law and through the
congregations, tribunals and offices of the Curia Romana. In their respective territories
We must, therefore, declare that although a branch of the Universal Roman Catholic
(called generally dioceses) and over their respective subjects, the patriarchs,
its mission and is lawfully incorporated in accordance with the laws of the country
where it is located, is considered an entity or person with all the rights and privileges
jurisdiction which is given to a person. . . . ." (Colliers Encyclopedia, Vol. 17, p. 93.)
granted to such artificial being under the laws of that country, separate and distinct
from the personality of the Roman Pontiff or the Holy See, without prejudice to its
While it is true and We have to concede that in the profession of their faith, the Roman
religious relations with the latter which are governed by the Canon Law or their rules
Pontiff is the supreme head; that in religious matters, in the exercise of their belief, the
and regulations.
Catholic congregation of the faithful throughout world seeks the guidance and
direction of their Spiritual Father in the Vatican, yet it cannot be said that there is a
We certainly are conscious of the fact that whatever conclusion We may draw on this
merger of personalities resultant therein. Neither can it be said that the political and
matter will have a far reaching influence, nor can We overlook the pages of history
civil rights of the faithful, inherent or acquired under the laws of their country, are
that arouse indignation and criticisms against church landholdings. This nurtured
affected by that relationship with the Pope. The fact that the Roman Catholic Church
feeling that showballed into a strong nationalistic sentiment manifested itself when the
in almost every country springs from that society that saw its beginning in Europe and
the fact that the clergy of this faith derive their authorities and receive orders from the
framed, but all that has been said on this regard referred more particularly to
Holy See do not give or bestow the citizenship of the Pope upon these branches.
been acquired by our Government, and not to properties held corporations sole
have to realize that although there is a fraternity among all the catholic countries and
which, We repeat, are properties held in trust for the benefit of the faithful residing
the dioceses therein all over the globe, this universality that the word "catholic"
within its territorial jurisdiction. Though that same feeling probably precipitated and
implies, merely characterize their faith, a uniformity in the practice and interpretation
influenced to a large extent the doctrine laid down in the celebrated Krivenko decision,
of their dogma and in the exercise of their belief, but certainly they are separate and
174
We have to take this matter in the light of legal provisions and jurisprudence actually
"temporalities" is meant estates and properties not used exclusively for religious
worship. The successors in office of such religious head or chief priest incorporated
as a corporation sole shall become the corporation sole on ascension to office, and
The question now left for our determination is whether the Roman Catholic Apostolic
shall be permitted to transact business as such on filing with the Securities and
Church in the Philippines, or better still, the corporation sole named the Roman
appointment duly certified by any notary public or clerk of court of record (Guevaras
agricultural lands in the Philippines pursuant to the provisions of Article XIII of the
Constitution.
The Corporation Law also contains the following provisions:chanrob1es virtual 1aw
We see from sections 1 and 5 of said Article quoted before, that only persons or
library
corporations qualified to acquire or hold lands of the public domain in the Philippines
may acquire or be assigned and hold private agricultural lands. Consequently, the
SECTION 159. Any corporation sole may purchase and hold real estate and personal
decisive factor in the present controversy hinges on the proposition of whether or not
property for its church, charitable, benevolent, or educational purposes, and may
the petitioner in this case can acquire agricultural lands of the public domain.
receive bequests or gifts for such purposes. Such corporation may mortgage or sell
real property held by it upon obtaining an order for that purpose from the Court of
From the data secured from the Securities and Exchange Commission, We find that
First Instance of the province in which the property is situated; but before making the
order proof must be made to the satisfaction of the Court that notice of the application
September, 1912, principally to administer its temporalities and manage its properties.
for leave to mortgage or sell has been given by publication or otherwise in such
Probably due to the ravages of the last war, its articles of incorporation were
manner and for such time as said Court or the Judge thereof may have directed, and
that it is to the interest of the corporation that leave to mortgage or sell should be
this corporation sole administered all the temporalities of the church existing or
granted. The application for leave to mortgage or sell must be made by petition, duly
located in the island of Mindanao. Later on, however, new dioceses were formed and
verified by the bishop, chief priest, or presiding elder, acting as corporation sole, and
new corporations sole were created to correspond with the territorial jurisdiction of the
new dioceses, one of them being petitioner herein, the Roman Catholic Apostolic
represented by the corporation sole: Provided, however, That in cases where the
Administrator of Davao, Inc., which was registered with the Securities and Exchange
Commission on September 12, 1950, and succeeded in the administration of all the
holding, selling and mortgaging real estate and personal property, such rules,
regulations, and discipline shall control and the intervention of the Courts shall not be
According to our Corporation Law, Public Act No. 1459, approved April 1, 1906, a
necessary.
corporation sole
It can, therefore, be noticed that the power of a corporation sole to purchase real
is organized and composed of a single individual, the head of any religious society or
property, like the power exercised in the case at bar, is not restricted although the
power to sell or mortgage sometimes is, depending upon the rules, regulations, and
175
Corporation Law). In outlining the general powers of a corporation, Public Act No.
corporations sole can purchase and sell real estate for its church, charitable,
SEC. 13. Every corporation has the power:chanrob1es virtual 1aw library
(section 69, Act 496), and the capacity of a corporation sole, like petitioner herein, to
register lands belonging to it is acknowledged, and title thereto may be issued in its
(5)
cemeteries which they are expressly authorized by law to acquire in connection with
otherwise deal with such real and personal property as the purposes for which the
corporation was formed may permit, and the transaction of the lawful business of the
freedom of religion, they could not register said properties in their name. As professor
Javier J. Nepomuceno very well says "Man in his search for the immortal and
this Act: . . . .
imponderable, has, even before the dawn of recorded history, erected temples to the
Unknown God, and there is no doubt that he will continue to do so for all time to
corporation recognized by the same law, Section 159 aforequoted expressly allowed
the corporation sole to purchase and hold real as well as personal properties
1956). Under the circumstances of this case, We might safely state that even before
necessary for the promotion of the objects for which said corporation sole is created.
Philippines every corporation sole then organized and registered had by express
Philippine Constitution is a later enactment than Public Act No. 1459, the provisions of
provision of law the necessary power and qualification to purchase in its name private
lands located in the territory in which it exercised its functions or ministry and for
which it was created, independently of the nationality of its incumbent unique and
single member and head, the bishop of the diocese. It can be also maintained without
There is reason to believe that when the specific provision of the Constitution invoked
fear of being gainsaid that the Roman Catholic Apostolic Church in the Philippines
by respondent Commissioner was under consideration, the framers of the same did
has no nationality and that the framers of the Constitution, as will be hereunder
not have in mind or overlooked this particular form of corporation. It is undeniable that
explained, did not have in mind the religious corporations sole when they provided
the nationalization and conservation of our natural resources was one of the
dominating objectives of the Convention and in drafting the present Article XIII of the
Constitution, the delegates were goaded by the desire (1) to insure their conservation
There could be no controversy as to the fact that a duly registered corporation sole is
for Filipino posterity; (2) to serve as an instrument of national defense, helping prevent
an artificial being having the right of succession and the power, attributes, and
the extension into the country of foreign control through peaceful economic
176
provision allowing the Government to break big landed estates to put an end to
to the Constitutional Convention, Vol. II. P. 592-604). In the same book Delegate
absentee landlordism.
Aruego,
explaining
the
reason
behind
the
first
consideration,
wrote:jgc:chanrobles.com.ph
But let us suppose, for the sake of argument, that the above referred to inhibitory
clause of Section 1 of Article XIII of the Constitution does have bearing on the
"At the time of the framing of the Philippine Constitution. Filipino capital had been
petitioners case; even so the clause requiring that at least 60 per centum of the
sum of their capital for the development, exploitation and utilization of the natural
aforesaid right already existing at the time of the inauguration of the Commonwealth
resources of the country. They had not as yet been so used to corporate enterprises
and the Republic of the Philippines. In the language of Mr. Justice Jose P. Laurel (a
as the peoples of the west. This general apathy, the delegates knew, would mean the
retardation of the development of the natural resources, unless foreign capital would
be encouraged to come and help in that development. They knew that the
Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau of Mines,
INVESTMENT OF FOREIGN CAPITAL, into them. But there was a general feeling in
the Convention that it was better to have such a development retarded or even
"The saving clause in the section involved of the Constitution was originally embodied
postponed together until such time when the Filipinos would be ready and willing to
undertake it rather than permit the natural resources to be placed under the
17, 1934. It was later inserted in the first draft of the Constitution as section 13 of
with the Filipinos of the future serving not as owners but utmosts as tenants or
Article XIII thereof, and finally incorporated as we find it now. Slight have been the
workers under foreign masters. By all means, the delegates believed, the natural
changes undergone by the proviso from the time when it came out of the committee
until it was finally adopted. When first submitted and as inserted in the first draft of the
Constitution it reads: subject to any right, grant, lease or concession existing in
It could be distilled from the foregoing that the framers of the Constitution intended
respect thereto as the date of the adoption of the Constitution. As finally adopted, the
proviso reads: subject to any existing right, grant, lease or concession at the time of
acquire, exploit and develop our natural resources, saving these undeveloped wealth
for our people to clear and enrich when they are already prepared and capable of
recognition is not mere graciousness but springs from the just character of the
doing so. But that is not the case of corporations sole in the Philippines, for, We
government established. The framers of the Constitution were not obscured by the
repeat, they are mere administrators of the "temporalities" or properties titled in their
name and for the benefit of the members of their respective religion composed of an
well knew that conservation of our natural resources did not mean destruction or
Constitution as to the prohibition against or the ability of the Roman Catholic Church
episodic nor stationary but well-nigh conservative in the protection of property rights.
in the Philippines to acquire and hold agricultural lands. Although there were some
177
to purchases or acquisitions made prior to the effectivity of the Constitution and not to
virtua1aw library
later transactions. This argument would imply that even assuming that petitioner had
at the time of the enactment of the Constitution the right to purchase real property,
The writer of this decision wishes to state at this juncture that during the deliberation
that power or right could not be exercised after the effectivity of our Constitution,
of this case he submitted to the consideration of the Court the question that may be
because said power or right of corporations sole, like the herein petitioner, conferred
termed the "vested right saving clause" contained in Section 1, Article XIII of the
Constitution, but some of the members of this Court either did not agree with the
exercised in view of the requisite therein prescribed that at least 60 per centum of the
theory of the writer, or were not ready to take a definite stand on the particular point I
capital of the corporation had to be Filipino. It has been shown before that: (1) the
am now to discuss deferring our ruling on such debatable question for a better
corporation sole, unlike the ordinary corporations which are formed by no less than 5
occasion, inasmuch as the determination thereof is not absolutely necessary for the
incorporators, is composed of only one person, usually the head or bishop of the
solution of the problem involved in this case. In his desire to face the issues squarely,
diocese, a unit which is not subject to expansion for the purpose of determining any
the writer will endeavour, at least as a digression, to explain and develop his theory,
percentage whatsoever; (2) the corporation sole is only the administrator and not the
not as a lucubration of the Court, but of his own, for he deems it better and convenient
owner of the temporalities located in the territory comprised by said corporation sole;
to go over the cycle of reasons that are linked to one another and that step by step
(3) such temporalities are administered for and on behalf of the faithful residing in the
diocese or territory of the corporation sole; and (4) the latter, as such, has no
nationality and the citizenship of the incumbent Ordinary has nothing to do with the
It will be noticed that Section 1 of Article XIII of the Constitution provides, among other
things, that "all agricultural lands of the public domain and their disposition shall be
citizenship of the faithful connected with their respective diocese or corporation sole.
In view of these peculiarities of the corporation sole, it would seem obvious that when
(section 1, Art. XIII), was under consideration, the framers of the same did not have in
mind or overlooked this particular form of corporation. If this were so, as the facts and
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining
Corporation v. Rodriguez Et. Al., 66 Phil. 259, "this recognition (in the clause already
conclusion would be that this requirement of at least 60 per cent of Filipino capital was
quoted), is not mere graciousness but springs from the just character of the
never intended to apply to corporations sole, and the existence or not of a vested right
government established. The framers of the Constitution were not obscured by the
But let us assume that the questioned proviso is material, yet We might say that a
reading of said Section 1 will show that it does not refer to any actual acquisition of
land but to the right, qualification or power to acquire and hold private real property.
But respondents counsel may argue that the preexisting right of acquisition of public
or private lands by a corporation which does not fulfill this 60 per cent requisite, refers
the practice of religion of their faithful the corporation sole may be in need of more
178
temples where to pray, more schools where the children of the congregation could be
In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a
taught in the principles of their religion, more hospitals where their sick could be
all of Chinese nationality, and that is why this Court laid down the doctrine just quoted.
buried, many more than those actually existing at the time of the enactment of our
With regard to petitioner, the Roman Catholic Administrator of Davao, Inc., which
Constitution. This being the case, could it be logically maintained that because the
corporation sole which, by express provision of law, has the power to hold and acquire
real estate and personal property for its churches, charitable benevolent, or
temporalities and manage the properties belonging to the faithful of said church
educational purposes (section 159, Corporation Law) it has to stop its growth and
residing in Davao. But even if we were to go over the record to inquire into the
restrain its necessities just because the corporation sole is a non-stock corporation
composed of only one person who in his unity does not admit of any percentage,
or not, we would find undeniable proof that the members of the Roman Catholic
especially when that person is not the owner but merely an administrator of the
Apostolic faith within the territory of Davao are predominantly Filipino citizens. As
temporalities of the corporation sole? The writer leaves the answer to whoever may
indicated before, petitioner has presented evidence to establish that the clergy and lay
members of this religion fully covers the percentage of Filipino citizens required by the
Constitution. These facts are not controverted by respondents and our conclusion in
Anyway, as stated before, this question is not a decisive factor in disposing this case,
for even if We were to disregard such saving clause of the Constitution, which reads:
subject to any existing right, grant, etc., at the time of the inauguration of the
Dissenting Opinion Discussed. After having developed our theory in this case
Government established under this Constitution, yet We would have, under the
and arrived at the findings and conclusions already expressed in this decision. We
now deem it proper to analyze and delve into the basic foundation on which the
dissenting opinion stands up. Being aware of the transcendental and far-reaching
In this case of the Register of Deeds of Rizal v. Ung Sui Si Temple, * G. R. No. L-
effects that Our ruling on the matter might have, this case was thoroughly considered
6776, promulgated May 21, 1955, wherein this question was considered from a
from all points of view, the Court sparing no effort to solve the delicate problems
different
involved herein.
angle,
this
Court,
through
Mr.
Justice
J.
B.
L.
Reyes,
said:jgc:chanrobles.com.ph
At the deliberations had to attain this end, two ways were open to a prompt dispatch
"The fact that the appellant religious organization has no capital stock does not suffice
of the case: (1) the reversal of the doctrine We laid down in the celebrated Krivenko
to escape the Constitutional inhibition, since it is admitted that its members are of
case by excluding urban lots and properties from the grasp of the term "private
foreign nationality. The purpose of the sixty per centum requirement is obviously to
agricultural lands" used in section 5, Article XIII of the Constitution; and (2) by driving
Our reasons to a point that might indirectly cause the appointment of Filipino bishops
exploit natural resources shall be controlled by Filipinos; and the spirit of the
Constitution demands that in the absence of capital stock, the controlling membership
the Roman Catholic Church in the Philippines. With regard to the first way, a great
majority of the members of this Court were not yet prepared nor agreeable to follow
that course, for reasons that are obvious. As to the second way, it seems to be
179
conjunction with Section 159 of the same law which provides that a corporation sole
corporation sole has no material bearing on the functions of the latter, which are
may only "purchase and hold real estate and personal properties for its church,
Upon going over the grounds on which the dissenting opinion is based, it may be
or gifts of real properties (which were the main source that the friars had to acquire
noticed that its author lingered on the outskirts of the issues, thus throwing the main
their big haciendas during the Spanish regime), is a clear indication that the requisite
Aruego, that the framers of our Constitution had at heart to insure the conservation of
purposes, was, in the opinion of the legislators, considered sufficient and adequate
the natural resources of Our motherland for Filipino posterity; to serve them as an
instrument of national defense, helping prevent the extension into the country of
foreign control through peaceful economic penetration; and to prevent making the
Finally, and as previously stated, We have reason to believe that when the Delegates
to the Constitutional Convention drafted and approved Article XIII of the Constitution,
internal security and independence. But all these precautions adopted by the
they did not have in mind the corporation sole. We come to this finding because the
Delegates to Our Constitutional Assembly could not have been intended for or
directed against cases like the one at bar. The emphasis and wanderings on the
and jurists, was like any other legislative body empowered to enact either the
statement that once the capacity of a corporation sole to acquire private agricultural
Constitution of the country or any public statute, presumed to know the conditions
lands is admitted there will be no limit to the areas that it may hold and that this will
pave the way for the "revival or revitalization of religious landholdings that proved so
troublesome in our past", cannot even furnish the "penumbra" of a threat to the future
of the Filipino people. In the first place, the right of Filipino citizens, including those of
"Immemorial customs are presumed to have been always in the mind of the
foreign extraction, and Philippine corporations, to acquire private lands is not subject
Legislature in enacting legislation." (In re Krugers Estate, 121 A. 109; 277 Pa. 326).
to any restriction or limit as to quantity or area, and We certainly do not see any wrong
in that. The right of Filipino citizens and corporations to acquire public agricultural
"The Legislative is presumed to have a knowledge of the state of the law on the
lands is already limited by law. In the second place, corporations sole cannot be
subjects upon which it legislates." (Clover Valley Land & Stock Co. v. Lamb Et. Al.,
considered as aliens because they have no nationality at all. Corporations sole are,
under the law, mere administrators of the temporalities of the Roman Catholic Church
in the Philippines. In the third place, every corporation, be it aggregate or sole, is only
"The Court in construing a statute, will assume that the legislators acted with full
entitled to purchase, convey, sell, lease, let, mortgage, encumber and otherwise deal
knowledge of the prior legislation on the subject and its construction by the courts."
with real properties when it is pursuant to or in consonance with the purposes for
which the corporation was formed, and when the transactions of the lawful business
of the corporation reasonably and necessarily require such dealing section 13-(5)
"The Legislature is presumed to have been familiar with the subject with which it was
of the Corporation Law, Public Act No. 1459 and considering these provisions in
180
6. That in approving our Magna Carta the Delegates to the Constitutional Convention,
"The Legislature is presumed to know principles of statutory construction" (People v.
almost all of whom were Roman Catholics, could not have intended to curtail all the
Lowell, 230 N. W. 202, 250 Mich. 349, followed in P. v. Woodworth, 230 N. W. 211,
propagation of the Roman Catholic faith or the expansion of the activities of their
church, knowing pretty well that with the growth of our population more places of
worship, more schools where our youth could be taught and trained; more hallow
grounds where to bury our dead would be needed in the course of time.
without reason, or that a result was intended inconsistent with the judgment of men of
common sense guided by reason." (Mitchell v. Lawden, 123 N. E. 566, 288 Ill. 326.)
Long before the enactment of our Constitution the law authorized the corporations
See City of Decatur v. German, 142 N. E. 252, 310 Ill. 591, and many other authorities
sole even to receive bequests or gifts of real estates send this Court could not,
without any clear and specific provision of the Constitution, declare that any real
property donated, let us say this year, could no longer be registered in the name of the
corporation sole to which it was conveyed. That would be an absurdity that should not
library
receive our sanction on the pretext that corporations sole which have no nationality
and are non-stock corporations composed of only one person in the capacity of
administrator, have to establish first that at least sixty per centum of their capital
head of any religious society or church operating within the zone, area or jurisdiction
covered by said corporation sole (Article 155, Public Act No. 1459);
"ART. 10. In case of doubt in the interpretation or application of laws, it is presumed
2. That a corporation sole is a non-stock corporation;
that the lawmaking body intended right and justice to prevail."cralaw virtua1aw library
3. That the Ordinary (the corporation sole proper) does not own the temporalities
Moreover, under the laws of the Philippines, the administrator of the properties of a
Filipino can acquire, in the name of the latter, private lands without any limitation
whatsoever, and that is so because the properties thus acquired are not for and would
4. That under the law the nationality of said Ordinary or of any administrator has
not belong to the administrator but to the Filipino whom he represents. But the
absolutely no bearing on the nationality of the person desiring to acquire real property
dissenting Justice inquires: If the Ordinary is only the administrator, for whom does he
administer? And who can alter or overrule his acts? We will forthwith proceed to
answer these questions. The corporations sole by reason of their peculiar constitution
Article XIII);
and form of operation have no designed owner of its temporalities, although by the
terms of the law it can be safely implied that the Ordinary holds them in trust for the
5. That section 159 of the Corporation Law expressly authorized the corporation sole
benefit of the Roman Catholic faithful of their respective locality or diocese. Borrowing
to purchase and hold real estate for its church, charitable, benevolent or educational
the very words of the law, We may say that the temporalities of every corporation sole
are held in trust for the use, purpose, behoof and benefit of the religious society, or
order so incorporated or of the church to which the diocese, synod, or district
181
Law).
It has been held that the courts have jurisdiction over an action brought by persons
In connection with the powers of the Ordinary over the temporalities of the corporation
sole, let us see now what is the meaning and scope of the word "control." According
of the church property to uses foreign to the purposes of the church, since no
to the Merriam-Websters New International Dictionary, 2nd ed., p. 580, one of the
ecclesiastical question is involved and equity will protect from wrongful diversion of
the property (Hendryx v. Peoples United Church, 42 Wash. 336, 4 L.R.A. n.s.
-1154).
The courts of the State have no general jurisdiction and control over the officers of
such corporations in respect to the performance of their official duties; but as in
"SYN:
respect to the property which they hold for the corporation, they stand in position of
TRUSTEES and the courts may exercise the same supervision as in other cases of
It is true that under section 159 of the Corporation Law, the intervention of the courts
trust (Ramsey v. Hicks, 174 Ind. 428, 91 N. E. 344, 92 N. E. 164, 30 L.R.A. n.s.
is not necessary, to mortgage or sell real property held by the corporation sole where
the rules, regulations and discipline of the religious denomination, society or church
concerned represented by such corporation sole regulate the methods of acquiring,
Courts of the state do not interfere with the administration of church rules or discipline
holding, selling and mortgaging real estate, and that the Roman Catholic faithful
unless civil rights become involved and which must be protected (Morris St., Baptist
residing in the jurisdiction of the corporation sole has no say either in the manner of
Church v. Dart, 67 S. C. 338, 45 S. E. 753, and others). (All cited in Vol. II, Cooleys
acquiring or of selling real property. It may be also admitted that the faithful of the
diocese cannot govern or overrule the acts of the Ordinary, but all this does not mean
that the latter can administer the temporalities of the corporation sole without check or
If the Constitutional Assembly was aware of all the facts above enumerated and of the
restraint. We must not forget that when a corporation sole is incorporated under
Philippine laws, the head and only member thereof subjects himself to the jurisdiction
corporations sole in the Philippines, and if, on the other hand, almost all of the
of the Philippine courts of justice and these tribunals can thus entertain grievances
Delegates thereto embraced the Roman Catholic faith, can it be imagined even for an
arising out of or with respect to the temporalities of the church which came into the
instant that when Article XIII of the Constitution was approved the framers thereof
possession of the corporation sole as administrator. It may be alleged that the courts
intended to prevent or curtail from then on the acquisition by corporations sole, either
by purchase or donation, of real properties that they might need for the propagation of
Church. That is correct, but the courts may step in, at the instance of the faithful for
the faith and for other religious and Christian activities such as the moral education of
whom the temporalities are being held in trust, to check undue exercise by the
the youth, the care, attention and treatment of the sick and the burial of the dead of
corporation sole of its powers as administrator to insure that they are used for the
the Roman Catholic faithful residing in the jurisdiction of the respective corporations
sole? The mere indulgence in said thought would impress upon Us a feeling of
182
apprehension and absurdity. And that is precisely the leit motiv that permeates the
of the statute the courts rationalize a restricted meaning of the latter. A restricted
interpretation is usually applied where the effect of a literal interpretation will make for
injustice and absurdity or, in the words of one court, the language must be so
It seems from the foregoing that the main problem We are confronted With in this
sections 1 and 5 of Article XIII of the Constitution. Let Us then be guided by the
principles
of
statutory
construction
laid
down
by
the
authorities
on
the
matter:jgc:chanrobles.com.ph
an obstruction to its progress and foreign relations" (Moscow Fire Inc. Co. of Moscow,
Russia v. Bank of New York & Trust Co., 294 N. Y. S. 648; 56 N. E. 2d 745, 293 N. Y.
"The most important single factor in determining the intention of the people from
749).
whom the constitution emanated is the language in which it is expressed. The words
employed are to be taken in their natural sense, except that legal or technical terms
from the time of its adoption, a constitution must be construed as if intended to stand
for a great length of time, and it is progressive and not static. Accordingly, it should not
extraneous aids for discovering the intent of the framers. Among the more important
receive too narrow or literal an interpretation but rather the meaning given it should be
of these are a consideration of the history of the times when the provision was
applied in such manner as to meet new or changed conditions as they arise" (U.S. v.
adopted and of the purposes aimed at in its adoption. The debates of constitutional
language used and that construction which effectuates, rather than that which
destroys a plain intent or purpose of a constitutional provision, is not only favored but
limitations were the promotion of policies that do not lend themselves to definite and
specific formulation. The courts have had to define those policies and have often
"It is quite generally held that in arriving at the intent and purpose the Construction
drawn on natural law and natural rights theories in doing so. The interpretation of
intent, rather than technical" (Great Southern Life Ins. Co. v. City of Austin, 243 S.W.
The extent to which these extraneous aids affect the judicial construction of
778).
All these authorities uphold our conviction that the framers of the constitution had not
in mind the corporations sole, nor intended to apply them the provisions of sections 1
and 5 of said Article XIII when they passed and approved the same. And if it were so
"There are times when even the literal expression of legislation may be inconsistent
with the general objectives of policy behind it, and on the basis of the equity or spirit
Davao, Inc., could not be deprived of the right to acquire by purchase or donation real
183
properties for charitable, benevolent and educational purposes, nor of the right to
Company v. Eulogio Rodriguez Et. Al., 66 Phil. 269. Anyway the majority of the Court
register the same in its name with the Register of Deeds of Davao, an indispensable
did not deem necessary to pass upon said "vested right saving clause" for the final
requisite prescribed by the Land Registration Act for lands covered by the Torrens
system.
JUDGMENT
We leave as the last theme for discussion the much debated question above referred
to as "the vested right saving clause" contained in section 1, Article XIII of the
Constitution. The dissenting Justice hurls upon the personal opinion expressed on the
September 21, 1954, holding that in view of the provisions of sections 1 and 5 of
matter by the writer of the decision the most pointed darts of his severe criticism. We
Article XIII of the Philippine Constitution the vendee (petitioner) is not qualified to
think, however, that this strong dissent should have been spared, because as clearly
acquire lands in the Philippines in the absence of proof that at least 60 per centum of
indicated before, some members of this Court either did not agree with the theory of
the writer or were not ready to take a definite stand on that particular point, so that
Davao, Inc., is actually owned or controlled by Filipino citizens, and denying the
there being no majority opinion thereon there was no need of any dissension
registration of the deed of sale in the absence of proof of compliance with such
therefrom. But as the criticism has been made the writer deems it necessary to say a
City of Davao is ordered to register the deed of sale executed by Mateo L. Rodis in
favor of the Roman Catholic Apostolic Administrator of Davao, Inc., which is the
The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire
(property) in futuro, is not in itself a vested or existing property right that the
ordered.
Constitution protects from impairment. For a property right to be vested (or acquired)
there must be a transition from the potential or contingent to the actual, and the
proprietary interest must have attached to a thing; it must have become fixed and
established" (Balboa v. Farrales, 51 Phil. 498). But the case at bar has to be
considered as an exception to the rule because among the rights granted by section
159 of the Corporation Law was the right to receive bequests or gifts of real properties
vs.
for charitable, benevolent and educational purposes. And this right to receive such
bequests or gifts (which implies donations in futuro), is not a mere potentiality that
could be impaired without any specific provision in the Constitution to that effect,
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
especially when the impairment would disturbingly affect the propagation of the
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General
religious faith of the immense majority of the Filipino people and the curtailment of the
activities of their Church. That is why the writer gave as a basis of his contention what
Professor Aruego said in his book "The Framing of the Philippine Constitution" and
REYES, J.:
the enlightening opinion of Mr. Justice Jose P. Laurel, another Delegate to the
Constitutional Convention, in his concurring opinion in the case of Goldcreek Mining
184
William H. Quasha, a member of the Philippine bar, was charged in the Court of First
59,000 common shares, of the total par value of P59,000; and that Baylon and the
Instance of Manila with the crime of falsification of a public and commercial document
American subscribers had already paid 25 per cent of their respective subscriptions.
in that, having been entrusted with the preparation and registration of the article of
Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital
stock of the corporation, Baylon nevertheless did not have the controlling vote
because of the difference in voting power between the preferred shares and the
said article of incorporation that one Arsenio Baylon, a Filipino citizen, had subscribed
common shares. Still, with the capital structure as it was, the article of incorporation
to and was the owner of 60.005 per cent of the subscribed capital stock of the
were accepted for registration and a certificate of incorporation was issued by the
corporation when in reality, as the accused well knew, such was not the case, the
truth being that the owner of the portion of the capital stock subscribed to by Baylon
and the money paid thereon were American citizen whose name did not appear in the
There is no question that Baylon actually subscribed to 60.005 per cent of the
article of incorporation, and that the purpose for making this false statement was to
subscribed capital stock of the corporation. But it is admitted that the money paid on
his subscription did not belong to him but to the Americans subscribers to the
operate as a public utility in the Philippines unless 60 per cent of its capital stock is
corporate stock. In explanation, the accused testified, without contradiction, that in the
owned by Filipinos.
process of organization Baylon was made a trustee for the American incorporators,
and that the reason for making Baylon such trustee was as follows:
Found guilty after trial and sentenced to a term of imprisonment and a fine, the
accused has appealed to this Court.
The essential facts are not in dispute. On November 4,1946, the Pacific Airways
Corporation registered its articles of incorporation with the Securities and Exchanged
A. Yes.
Commission. The article were prepared and the registration was effected by the
accused, who was in fact the organizer of the corporation. The article stated that the
The people who were desirous of forming the corporation, whose names are listed on
primary purpose of the corporation was to carry on the business of a common carrier
by air, land or water; that its capital stock was P1,000,000, represented by 9,000
O'Bannon, Caven, Perry and Anastasakas one evening. There was considerable
preferred and 100,000 common shares, each preferred share being of the par value of
difficulty to get them all together at one time because they were pilots. They had
p100 and entitled to 1/3 vote and each common share, of the par value of P1 and
difficulty in deciding what their respective share holdings would be. Onstott had
entitled to one vote; that the amount capital stock actually subscribed was P200,000,
invested a certain amount of money in airplane surplus property and they had
and the names of the subscribers were Arsenio Baylon, Eruin E. Shannahan, Albert
obtained a considerable amount of money on those planes and as I recall they were
W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being
desirous of getting a corporation formed right away. And they wanted to have their
a Filipino and the other five all Americans; that Baylon's subscription was for 1,145
respective shares holdings resolved at a latter date. They stated that they could get
preferred shares, of the total value of P114,500, and for 6,500 common shares, of the
together that they feel that they had no time to settle their respective share holdings.
total par value of P6,500, while the aggregate subscriptions of the American
We discussed the matter and finally it was decided that the best way to handle the
subscribers were for 200 preferred shares, of the total par value of P20,000, and
things was not to put the shares in the name of anyone of the interested parties and to
185
have someone act as trustee for their respective shares holdings. So we looked
vs. Lopez (15 Phil., 515), the same author further maintains that even if such wrongful
around for a trustee. And he said "There are a lot of people whom I trust." He said, "Is
intent is proven, still the untruthful statement will not constitute the crime of
there someone around whom we could get right away?" I said, "There is Arsenio. He
falsification if there is no legal obligation on the part of the narrator to disclose the
was my boy during the liberation and he cared for me when i was sick and i said i
truth. Wrongful intent to injure a third person and obligation on the part of the narrator
consider him my friend." I said. They all knew Arsenio. He is a very kind man and that
to disclose the truth are thus essential to a conviction for a crime of falsification under
Defendant is accused under article 172 paragraph 1, in connection with article 171,
Now, as we see it, the falsification imputed in the accused in the present case
consists in not disclosing in the articles of incorporation that Baylon was a mere
trustee ( or dummy as the prosecution chooses to call him) of his American co-
incorporators, thus giving the impression that Baylon was the owner of the shares
The penalty of prision mayor and a fine not to exceed 5,000 pesos shall be
subscribed to by him which, as above stated, amount to 60.005 per cent of the sub-
imposed upon any public officer, employee, or notary who, taking advantage of his
scribed capital stock. This, in the opinion of the trial court, is a malicious perversion of
official position, shall falsify a document by committing any of the following acts:
the truth made with the wrongful intent circumventing section 8, Article XIV of the
Constitution, which provides that " no franchise, certificate, or any other form of
xxx
xxx
xxx
authorization for the operation of a public utility shall be granted except to citizens of
the Philippines or to corporation or other entities organized under the law of the
Philippines, sixty per centum of the capital of which is owned by citizens of the
Philippines . . . ." Plausible though it may appear at first glance, this opinion loses
ART. 172. Falsification by private individuals and use of falsified documents. The
validity once it is noted that it is predicated on the erroneous assumption that the
penalty of prision correccional in its medium and maximum period and a fine of not
constitutional provision just quoted was meant to prohibit the mere formation of a
public utility corporation without 60 per cent of its capital being owned by the Filipinos,
a mistaken belief which has induced the lower court to that the accused was under
xxx
xxx
xxx
obligation to disclose the whole truth about the nationality of the subscribed capital
stock of the corporation by revealing that Baylon was a mere trustee or dummy of his
1. Any private individual who shall commit any of the falsifications enumerated in the
next preceding article in any public or official document or letter of exchange or any
intention was to circumvent the Constitution to the detriment of the public interests.
Contrary to the lower court's assumption, the Constitution does not prohibit the mere
formation of a public utility corporation without the required formation of Filipino
Commenting on the above provision, Justice Albert, in his well-known work on the
Revised Penal Code ( new edition, pp. 407-408), observes, on the authority of U.S.
vs. Reyes, (1 Phil., 341), that the perversion of truth in the narration of facts must be
but without the requisite proportion of Filipino capital. This is obvious from the context,
made with the wrongful intent of injuring a third person; and on the authority of U.S.
for the constitutional provision in question qualifies the terms " franchise", "certificate",
186
or "any other form of authorization" with the phrase "for the operation of a public
And at that moment, the corporation must show that it has complied not only with the
utility," thereby making it clear that the franchise meant is not the "primary franchise"
requirement of the Constitution as to the nationality of its capital, but also with the
that invest a body of men with corporate existence but the "secondary franchise" or
requirements of the Civil Aviation Law if it is a common carrier by air, the Revised
the privilege to operate as a public utility after the corporation has already come into
Administrative Code if it is a common carrier by water, and the Public Service Law if it
being.
If the Constitution does not prohibit the mere formation of a public utility corporation
Equally untenable is the suggestion that defendant should at least be held guilty of an
with the alien capital, then how can the accused be charged with having wrongfully
"impossible crime" under article 59 of the Revised Penal Code. It not being possible to
suppose that defendant had intended to commit a crime for the simple reason that the
incorporation that Baylon was a mere trustee of his American co-incorporation and
that for that reason the subscribed capital stock of the corporation was wholly
does not exist, conviction under that article is out of the question.
American? For the mere formation of the corporation such revelation was not
essential, and the Corporation Law does not require it. Defendant was, therefore,
The foregoing consideration can not but lead to the conclusion that the defendant can
under no obligation to make it. In the absence of such obligation and of the allege
not be held guilty of the crime charged. The majority of the court, however, are also of
wrongful intent, defendant cannot be legally convicted of the crime with which he is
the opinion that, even supposing that the act imputed to the defendant constituted
charged.
falsification at the time it was perpetrated, still with the approval of the Party
Amendment to the Constitution in March, 1947, which placed Americans on the same
It is urged, however, that the formation of the corporation with 60 per cent of its
footing as Filipino citizens with respect to the right to operate public utilities in the
Philippines, thus doing away with the prohibition in section 8, Article XIV of the
preparatory step to the subversion of the constitutional prohibition and the laws
Constitution in so far as American citizens are concerned, the said act has ceased to
implementing the policy expressed therein. This view is not correct. For a corporation
be an offense within the meaning of the law, so that defendant can no longer be held
per cent of its capital owned by Filipinos from the start. A corporation formed with
capital that is entirely alien may subsequently change the nationality of its capital
In view of the foregoing, the judgment appealed from is reversed and the defendant
formed with Filipino capital may subsequently change the national status of said
capital through transfer of shares to foreigners. What need is there then for a
corporation that intends to operate a public utility to have, at the time of its formation,
60 per cent of its capital owned by Filipinos alone? That condition may anytime be
vs.
attained thru the necessary transfer of stocks. The moment for determining whether a
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
certificate, or any other form of authorization for that purpose. And that can be done
respondents.
after the corporation has already come into being and not while it is still being formed.
187
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the Private
QUIASON, J.:
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,
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents
1990.
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,
Republic Act No. 6957 provides for two schemes for the financing, construction and
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.
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members
project underway, DOTC, on January 22, 1991 and March 14, 1991, issued
of the Philippine Senate and are suing in their capacities as Senators and as
Department
Prequalification Bids and Awards Committee (PBAC) and the Technical Committee.
Orders
Nos.
91-494
and
91-496,
respectively
creating
the
After its constitution, the PBAC issued guidelines for the prequalification of contractors
Hongkong.
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.
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major
The deadline set for submission of prequalification documents was March 21, 1991,
thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon,
later extended to April 1, 1991. Five groups responded to the invitation namely, ABB
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
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
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc.,
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 March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss
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)
188
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
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of
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;
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9,
(3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which
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,
legality; and (4) that congressional approval of the list of priority projects under the
and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal
BOT or BT Scheme provided in the law had not yet been granted at the time the
requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).
In view of the comments of Executive Secretary Drilon, the DOTC and private
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of
respondents re-negotiated the agreement. On April 22, 1992, the parties entered into
the Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent
a "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit
to President Aquino two letters dated May 31, 1991 and June 14, 1991, respectively
System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the
recommending the award of the EDSA LRT III project to the sole complying bidder,
fact the DOTC has full authority to sign the Agreement without need of approval by the
the EDSA LRT Consortium, and requesting for authority to negotiate with the said firm
President pursuant to the provisions of Executive Order No. 380 and that certain
for the contract pursuant to paragraph 14(b) of the Implementing Rules and
events [had] supervened since November 7, 1991 which necessitate[d] the revision of
issued a directive to the DOTC to proceed with the negotiations. On July 16, 1991, the
Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their
Finding this proposal to be in compliance with the bid requirements, DOTC and
respondent EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his
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).
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
189
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,
II
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).
(1)
complete operational light rail transit system (Revised and Restated Agreement, Sec.
EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE,
4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately three years
IS UNCONSTITUTIONAL;
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).
(2)
Upon full or partial completion and viability thereof, private respondent shall deliver
THE
BUILD-LEASE-TRANSFER
SCHEME
PROVIDED
IN
THE
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
(3)
(4)
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
ILLEGAL;
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.
(5)
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
(6)
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,
Secretary Garcia and private respondent filed their comments separately and claimed
1994. The law expressly recognizes BLT scheme and allows direct negotiation of BLT
that:
contracts.
190
(1)
Petitioners are not the real parties-in-interest and have no legal standing to
240 [1989]).
(2)
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no
The writ of prohibition is not the proper remedy and the petition requires
ascertainment of facts;
choice but to follow it and uphold the legal standing of petitioners as taxpayers to
institute the present action.
(3)
IV
(4)
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:
(5)
(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
(6)
The award of the contract to private respondent through negotiation and not
Granting that the BOT Law requires public bidding, this has been amended
by R.A No. 7718 passed by the Legislature On May 12, 1994, which provides for
direct negotiation as a mode of award of infrastructure projects.
(3)
the contract to construct the EDSA LRT III was awarded to private
respondent not through public bidding which is the only mode of awarding
III
Respondents claimed that petitioners had no legal standing to initiate the instant
(4)
1.
action. Petitioners, however, countered that the action was filed by them in their
capacity as Senators and as taxpayers.
construct the EDSA LRT III was awarded by public respondent, is admittedly a foreign
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question
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
SCRA 110 [1994]) and to disallow the same when only municipal contracts are
191
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
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
times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7
power plant, not a public utility. While a franchise is needed to operate these facilities
A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d.
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 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
public utility. However, it does not require a franchise before one can own the facilities
facilities used to serve the public. The devotion of property to serve the public may be
needed to operate a public utility so long as it does not operate them to serve the
done by the owner or by the person in control thereof who may not necessarily be the
public.
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
No franchise, certificate or any other form of authorization for the operation of a public
transportation industry. Enfranchised airline and shipping companies may lease their
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
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
(Emphasis supplied).
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
In law, there is a clear distinction between the "operation" of a public utility and the
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).
person is completely subjected to his will in everything not prohibited by law or the
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
192
and distributing maintenance manuals and drawings for the entire system (Revised
and Restated Agreement, Annex F).
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
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
It is well to point out that the role of private respondent as lessor during the lease
agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training
period must be distinguished from the role of the Philippine Gaming Management
consists of theoretical and live training of DOTC operational personnel which includes
Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110
actual driving of light rail vehicles under simulated operating conditions, control of
(1994). Therein, the Contract of Lease between PGMC and the Philippine Charity
operations, dealing with emergencies, collection, counting and securing cash from the
fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3).
prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the
Personnel of DOTC will work under the direction and control of private respondent
lessor obligated itself to build, at its own expense, all the facilities necessary to
only during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The
operate and maintain a nationwide on-line lottery system from whom PCSO was to
training objectives, however, shall be such that upon completion of the EDSA LRT III
lease the facilities and operate the same. Upon due examination of the contract, the
and upon opening of normal revenue operation, DOTC shall have in their employ
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,
(Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of
highly technical and sophisticated lottery system. In effect, the PCSO leased out its
operation, DOTC shall be able to operate the EDSA LRT III on its own and train all
utility (Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa
includes the project cost, cost of replacement of plant equipment and spare parts,
Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246
investment and financing cost, plus a reasonable rate of return thereon (Revised and
[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
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and
utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]).
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
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
injury or death due to defects in the EDSA LRT III on account of the defective
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]).
facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
193
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
(b)
Regulations.
facility, and its turnover after completion to the government agency or local
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
government unit concerned which shall pay the contractor its total investment
expended on the project, plus a reasonable rate of return thereon. This arrangement
(a)
facilities which for security or strategic reasons, must be operated directly by the
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
The BOT scheme is expressly defined as one where the contractor undertakes the
recover its operating and maintenance expenses and its investment in the project plus
construction and financing in infrastructure facility, and operates and maintains the
a reasonable rate of return thereon. The contractor transfers the facility to the
same. The contractor operates the facility for a fixed period during which it may
government agency or local government unit concerned at the end of the fixed term
recover its expenses and investment in the project plus a reasonable rate of return
which shall not exceed fifty (50) years. For the construction stage, the contractor may
thereon. After the expiration of the agreed term, the contractor transfers the ownership
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
In the BT scheme, the contractor undertakes the construction and financing of the
franchise must be in accordance with the Constitution: Provided, however, That in 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
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,
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
the total cost of the infrastructure facility or project: Provided, finally, That financing
facility must comply with the citizenship requirement of the Constitution on the
There is no mention in the BOT Law that the BOT and BT schemes bar any other
whereby the supplier of equipment and machinery for a given infrastructure facility, if
arrangement for the payment by the government of the project cost. The law must not
the interest of the Government so requires, operates the facility providing in the
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
194
the fine points and details for the multifarious and complex situations that may be
therefore, outside the application of the Uniform Currency Act (R.A. No. 529), which
reads as follows:
[1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29
Phil. 119 [1914]).
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
The BLT scheme in the challenged agreements is but a variation of the BT scheme
to give the obligee the right to require payment in gold or in a particular kind of coin or
As a matter of fact, the burden on the government in raising funds to pay for the
of no effect, and no such provision shall be contained in, or made with respect to, any
project is made lighter by allowing it to amortize payments out of the income from the
obligation hereafter incurred. The above prohibition shall not apply to (a) . . .; (b)
In form and substance, the challenged agreements provide that rentals are to be paid
the National Economic Council which are financed by or through foreign funds; . . . .
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;
3.
Rollo, p. 85). At the end of 25 years and when full payment shall have been made to
The fact that the contract for the construction of the EDSA LRT III was
and received by private respondent, it shall transfer to DOTC, free from any lien or
23, 1992 of the List of National Projects to be undertaken by the private sector
encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00
pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award.
A lease is a contract where one of the parties binds himself to give to another the
LRT III projects falls, amounts to a ratification of the prior award of the EDSA LRT III
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
Petitioners insist that the prequalifications process which led to the negotiated award
stipulate that title to the leased premises shall be transferred to the lessee at the end
of the contract appears to have been rigged from the very beginning to do away with
of the lease period upon the payment of an agreed sum, the lease becomes a lease-
the usual open international public bidding where qualified internationally known
purchase agreement.
The records show that only one applicant passed the prequalification process. Since
currency, not Philippine pesos. The EDSA LRT III Project is a high priority project
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.
falling under the Investment Priorities Plan of Government (Rollo, pp. 310-311). It is,
195
or intervened in this case before us (cf. Malayan Integrated Industries Corp. v. Court
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT
of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205
Law in relation to Presidential Decree No. 1594 allows the negotiated award of
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
government projects in exceptional cases. Sections 4 of the said law reads as follows:
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
the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and
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
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
(e)
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
xxx
xxx
xxx
Section 5-A of the law, which expressly allows direct negotiation of contracts,
provides:
No. 1594 is the general law on government infrastructure contracts while the BOT
Law governs particular arrangements or schemes aimed at encouraging private
sector participation in government infrastructure projects. The two laws are not
inconsistent with each other but are in pari materia and should be read together
accordingly.
(a)
If, after advertisement, only one contractor applies for prequalification and it
wonders why none of the competing firms ever brought the matter before the PBAC,
be complying.
196
If, after advertisement, more than one contractor applied for prequalification
incentives and "a climate of minimum government regulations and procedures and
but only one meets the prequalification requirements, after which it submits
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,
complying.
whatever doubts and alleged procedural lapses private respondent and DOTC may
have engendered and committed in entering into the questioned contracts, these have
(c)
If, after prequalification of more than one contractor only one submits a bid
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].
(d)
If, after prequalification, more than one contractor submit bids but only one is
4.
prospective bidder [sic] may appeal the decision of the implementing agency,
the government because the rental rates are excessive and private respondent's
agency/LGUs prequalification bids and awards committee within fifteen (15) working
development rights over the 13 stations and the depot will rob DOTC of the best terms
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,
It must be noted that as part of the EDSA LRT III project, private respondent has been
That the implementing agency/LGUs concerned should act on the appeal within forty-
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
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,
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
into contract with any duly prequalified proponent for the financing, construction,
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
operate),
DOTC upon expiration of the 25-year period. (Supplemental Agreement, Sec. 11;
DOT
(Develop-operate-and-transfer),
ROT
(Rehabilitate-operate-and-
From the law itself, once and applicant has prequalified, it can enter into any of the
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
197
Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of
PARAS, C.J.:
The matter of valuation is an esoteric field which is better left to the experts and which
this Court is not eager to undertake.
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc.,
after payment of corresponding premium, obtained from the petitioner ,Filipinas Cia.
That the grantee of a government contract will profit therefrom and to that extent the
de Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise
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
February 27, 1942, or during the Japanese military occupation, the building and
government, he does so, not out of charity and not to lose money, but to gain
insured merchandise were burned. In due time the respondent submitted to the
pecuniarily.
petitioner its claim under the policy. The salvage goods were sold at public auction
and, after deducting their value, the total loss suffered by the respondent was fixed at
5.
P92,650. The petitioner refused to pay the claim on the ground that the policy in favor
the exercise of its governmental function. DOTC is the primary policy, planning,
of the respondent had ceased to be in force on the date the United States declared
war against Germany, the respondent Corporation (though organized under and by
virtue of the laws of the Philippines) being controlled by the German subjects and the
petitioner being a company under American jurisdiction when said policy was issued
fast, safe, efficient and reliable postal, transportation and communications services
on October 1, 1941. The petitioner, however, in pursuance of the order of the Director
(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
The present action was filed on August 6, 1946, in the Court of First Instance of
vested in the government agencies entrusted with that function (Bureau Veritas v.
Manila for the purpose of recovering from the respondent the sum of P92,650 above
mentioned. The theory of the petitioner is that the insured merchandise were burned
up after the policy issued in 1941 in favor of the respondent corporation has ceased to
SO ORDERED
be effective because of the outbreak of the war between the United States and
Germany on December 10, 1941, and that the payment made by the petitioner to the
respondent corporation during the Japanese military occupation was under pressure.
After trial, the Court of First Instance of Manila dismissed the action without
vs.
pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the
198
Court of First Instance of Manila was affirmed, with costs. The case is now before us
on appeal by certiorari from the decision of the Court of Appeals.
World War II revived the problem again. It was known that German and other enemy
interests were cloaked by domestic corporation structure. It was not only by legal
The Court of Appeals overruled the contention of the petitioner that the respondent
corporation became an enemy when the United States declared war against
of the corporation but also by long term loans and other factual situations. For that
Germany, relying on English and American cases which held that a corporation is a
reason, legislation on enemy property enacted in various countries during World War
citizen of the country or state by and under the laws of which it was created or
degrees, the incidents of control. Court decisions were rendered on the basis of such
The United States did not, in the amendments of the Trading with the Enemy Act
an enemy corporation upon the outbreak of the war between the United States and
during the last war, include as did other legislations the applications of the control test
Germany. The English and American cases relied upon by the Court of Appeals have
and again, as in World War I, courts refused to apply this concept whereby the enemy
lost their force in view of the latest decision of the Supreme Court of the United States
in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed.
Advance Opinions, No. 4, pp. 148-153, in which the controls test has been adopted.
In "Enemy Corporation" by Martin Domke, a paper presented to the Second
Measures of blocking foreign funds, the so called freezing regulations, and other
Since World War I, the determination of enemy nationality of corporations has been
administrative practice enacted under the First War Powers Act of 1941, and more
recently, on December 8, 1947, the Supreme Court of the United States definitely
enemy legislation when it was controlled by enemies, namely managed under the
approved of the control theory. In Clark vs. Uebersee Finanz Korporation, A. G.,
dealing with a Swiss corporation allegedly controlled by German interest, the Court:
English courts which first the Daimler case applied this new concept of "piercing the
"The property of all foreign interest was placed within the reach of the vesting power
corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed
(of the Alien Property Custodian) not to appropriate friendly or neutral assets but to
reach enemy interest which masqueraded under those innocent fronts. . . . The power
of seizure and vesting was extended to all property of any foreign country or national
The United States of America did not adopt the control test during the First World War.
support of the appealed decision. However, we may add that, in Haw Pia vs. China
199
Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China
Banking Corporation came within the meaning of the word "enemy" as used in the
The respondent having become an enemy corporation on December 10, 1941, the
Trading with the Enemy Acts of civilized countries not only because it was
insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine
incorporated under the laws of an enemy country but because it was controlled by
corporation) had ceased to be valid and enforcible, and since the insured goods were
enemies.
burned after December 10, 1941, and during the war, the respondent was not entitled
to any indemnity under said policy from the petitioner. However, elementary rules of
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that
justice (in the absence of specific provision in the Insurance Law) require that the
"anyone except a public enemy may be insured." It stands to reason that an insurance
premium paid by the respondent for the period covered by its policy from December
The Court of Appeals, in deciding the case, stated that the main issue hinges on the
which is inconsistent with a state of war is prohibited by the law of nations. Such
question of whether the policy in question became null and void upon the declaration
prohibition includes all negotiations, commerce, or trading with the enemy; all acts
of war between the United States and Germany on December 10, 1941, and its
which will increase, or tend to increase, its income or resources; all acts of voluntary
judgment in favor of the respondent corporation was predicated on its conclusion that
submission to it; or receiving its protection; also all acts concerning the transmission
the policy did not cease to be in force. The Court of Appeals necessarily assumed
of money or goods; and all contracts relating thereto are thereby nullified. It further
that, even if the payment by the petitioner to the respondent was involuntary, its action
prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens
is not tenable in view of the ruling on the validity of the policy. As a matter of fact, the
engaged in service with the enemy; this for the reason that the subjects of one
Court of Appeals held that "any intimidation resorted to by the appellee was not unjust
but the exercise of its lawful right to claim for and received the payment of the
insurance policy," and that the ruling of the Bureau of Financing to the effect that "the
their country's interest. The purpose of war is to cripple the power and exhaust the
appellee was entitled to payment from the appellant was, well founded." Factually,
resources of the enemy, and it is inconsistent that one country should destroy its
there can be no doubt that the Director of the Bureau of Financing, in ordering the
enemy's property and repay in insurance the value of what has been so destroyed, or
petitioner to pay the claim of the respondent, merely obeyed the instruction of the
that it should in such manner increase the resources of the enemy, or render it aid,
Japanese Military Administration, as may be seen from the following: "In view of the
and the commencement of war determines, for like reasons, all trading intercourse
findings and conclusion of this office contained in its decision on Administrative Case
with the enemy, which prior thereto may have been lawful. All individuals therefore,
dated February 9, 1943 copy of which was sent to your office and the concurrence
who compose the belligerent powers, exist, as to each other, in a state of utter
exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
following the instruction of said authority, you are hereby ordered to pay the claim of
Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should
In the case of an ordinary fire policy, which grants insurance only from year, or for
some other specified term it is plain that when the parties become alien enemies, the
contractual tie is broken and the contractual rights of the parties, so far as not vested.
It results that the petitioner is entitled to recover what paid to the respondent under the
circumstances on this case. However, the petitioner will be entitled to recover only the
200
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
Wherefore, the appealed decision is hereby reversed and the respondent corporation
purchaser of the securities shall not receive a stock certificate, but a registered or
is ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the
Buckley and Austin G.E. Taylor, the first residing in Connecticut, U.S.A., and the
petitioner for the unexpired term of the policy in question, beginning December 11,
second in New York City. While this application for registration was pending
opposition to registration and licensing of the securities on the grounds that (1) the tie-
respondent.
SAN JOSE OIL, a domestic corporation, violates the Constitution of the Philippines,
BARRERA, J.:
the Corporation Law and the Petroleum Act of 1949; (2) the issuer has not been
This is a petition for review of the order of August 29, 1958, later supplemented and
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)
Commission denying the opposition to, and instead, granting the registration, and
the issuer as an enterprise, as well as its business, is based upon unsound business
licensing the sale in the Philippines, of 5,000,000 shares of the capital stock of the
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-
On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities
Langley Agreement, only through the medium of a corporation organized under the
and Exchange Commission a sworn registration statement, for the registration and
laws of the Philippines. Thus, registrant which is allegedly qualified to exercise rights
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
corporation, which is the SAN JOSE OIL. It refused the contention that the
alleged that the entire proceeds of the sale of said securities will be devoted or used
Corporation Law was being violated, by alleging that Section 13 thereof applies only
exclusively to finance the operations of San Jose Oil Company, Inc. (a domestic
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
201
that registrant undertook the financing of and giving technical assistance to said
"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
also denied that the offering for sale in the Philippines of its shares of capital stock
Securities Act3 and the Rules of Court4 as having the right to appeal should refer only
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.
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
respondent's securities, has personality to file the present petition for review of the
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
2. Whether or not the issue raised herein is already moot and academic;
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
3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a
dealer of the security are notified, excluding any person or group of persons having no
foreign corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining
such interest in the securities, said court concluded that the phrase "interested
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
1. In answer to the notice and order of the Securities and Exchange Commissioner,
follows:
. . . Any person who is opposed with this petition must file his written opposition with
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
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
Respondent raises the question of the personality of petitioner to bring this appeal,
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
202
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
2.
asking price. It is for this purpose that herein petitioner duly filed his opposition giving
dated September 9, 1958 took effect 30 days from September 3, 1958, and since no
grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply to the
stay order has been issued by the Supreme Court, respondent's shares became
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-
asserted, the present appeal has become academic. Frankly we are unable to follow
examining the respondent's witnesses and filing his memorandum in support of his
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
proceedings. And under the New Rules of Court,5 such a party can appeal from a
these orders, according to its theory became final and were implemented, it argues
final order, ruling or decision of the Securities and Exchange Commission. This new
that the orders can no longer be appealed as the question of registration and
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 the fact is that because of the authority to sell, the securities are, in all
but all further proceedings in cases then pending, except to the extent that in the
probabilities, still being traded in the open market. Consequently the issue is much
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
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,
The order allowing the registration and sale of respondent's securities is clearly a final
members of the investing public are entitled to have the question of the worth or
order that is appealable. The mere fact that such authority may be later suspended or
But more fundamental than this consideration, we agree with the late Senator Claro
the order, the securities are deemed registered (Sec. 7, Com. Act 83, as amended),
M. Recto, who appeared as amicus curiae in this case, that while apparently the
points to the finality of the order. Rights and obligations necessarily arise therefrom if
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
Our position on this procedural matter that the order is appealable and the appeal
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
3. We now come to the meat of the controversy the "tie-up" between SAN JOSE
the respondent, conflicts with the Parity Ordinance and the Laurel-Langley Agreement
OIL on the one hand, and the respondent SAN JOSE PETROLEUM and its
this case is admitted and established through the papers and documents which are
203
parts of the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the
owned by such citizens, subject to any existing right, grant, lease or concession at the
(Emphasis supplied)
In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit
PANCOASTAL PETROLEUM COMPANY, C.A., both organized and existing under the
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
COMPANY was said to have 3,077,916 shares held by 12,373 stockholders scattered
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
case to extend beyond the third of July, nineteen hundred and seventy-four, the
Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the
mineral oils, all forces of potential energy, and other natural resources of the
relationship between herein respondent SAN JOSE PETROLEUM and its subsidiary,
Philippines, and the operation of public utilities shall, if open to any person, be open to
SAN JOSE OIL, violates the Petroleum Law of 1949, the Philippine Constitution, and
citizens of the United States, and to all forms of business enterprises owned or
Section 13 of the Corporation Law, which inhibits a mining corporation from acquiring
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
that far from violating the Constitution; such relationship between the two corporations
(Emphasis supplied.)
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
In the 1954 Revised Trade Agreement concluded between the United States and the
other natural resources of the Philippines belong to the State, and their disposition,
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
204
to citizens of the other Party and to all forms of business enterprise owned or
law, "citizen" has been defined as "one who, under the constitution and laws of the
controlled, directly or indirectly, by citizens of such other Party in the same manner as
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
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
with the people." (Scott v. Sandford, 19 Ho. [U.S.] 404, 15 L. Ed. 691.)
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
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.)
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
business enterprise entitled to parity rights in the Philippines? The answer must be in
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
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
With the Parity Amendment to the Constitution, the same right was extended to
PETROLEUM.
citizens of the United States and business enterprises owned or controlled directly or
indirectly, by citizens of the United States.
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
There could be no serious doubt as to the meaning of the word "citizens" used in the
the stockholders of PANCOASTAL or those of them holding the controlling stock, are
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Fourthly Granting that these individual stockholders are American citizens, it is yet
in any other corporation (domestic or foreign) organized for the purpose of engaging
necessary to establish that the different states of which they are citizens, allow Filipino
stock in more than one corporation organized for the purpose of engaging in
engage in the exploitation, etc. of the natural resources of these states (see
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
Fifthly But even if the requirements mentioned in the two immediately preceding
citizens and business enterprise otherwise entitled to exercise the parity privileges,
paragraphs are satisfied, nevertheless to hold that the set-up disclosed in this case,
because both the Laurel-Langley Agreement (Art. VI, par. 1) and the Petroleum Act of
with a long chain of intervening foreign corporations, comes within the purview of the
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
citizens of the United States, is to unduly stretch and strain the language and intent of
to, and under the same conditions imposed upon, citizens of the Philippines or
the law. For, to what extent must the word "indirectly" be carried? Must we trace the
petitioner further contends that, as the enjoyment of the privilege of exploiting mineral
this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL
citizens of the Philippines (which corporation must necessarily be organized under the
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
Corporation Law, so necessarily the exercise of the parity rights by citizens of the
controlling stock required by the law. In the circumstances, we have to hold that the
citizens of the United States, must equally be subject to the same limitations
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
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,
What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is
and as found by the Securities and Exchange Commissioner, its principal activity is
owned by SAN JOSE PETROLEUM? This is a query which we need not resolve in
limited to the financing and giving technical assistance to SAN JOSE OIL.
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
4.
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,
There is another issue which has been discussed extensively by the parties. This is
divided into 50,000,000 shares at par value of $0.01 per share. By virtue of a 3-party
whether or not an American mining corporation may lawfully "be in anywise interested
Agreement of June 14, 1956, respondent was supposed to have received from OIL
206
INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at par value
valuation other than belief by the board of directors of respondent that "should San
of $0.01 per share), plus a note for $250,000.00 due in 6 months, for which
Jose Oil Company be granted the bulk of the concessions applied for upon
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
deducted and called it "difference between the (above) valuation and the subscription
unpaid price of 7,500,000 (of the 8,000,000 shares of SAN JOSE OIL).
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
On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from
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)
shares, from $0.01 to $0.35. Without any additional consideration, the 16,000,000
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
$160,000.00 were changed with 16,000,000 shares of the recapitalized stock at $0.35
amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet,
per share, or valued at $5,600,000.00. And, to make it appear that cash was received
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
JOSE OIL (still having par value of $0.10 per share) which were received from OIL
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
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
But this is not all. Some of the provisions of the Articles of Incorporation of respondent
$0.10 per share). From this $800,000.00, the subscription price of the SAN JOSE OIL
(1)
Then, by adding thereto the note receivable from OIL INVESTMENTS, for
(2)
represented and may vote through a proxy who also need not be a director or
shares), and the sum of $6,516.21, as deferred expenses, SAN JOSE PETROLEUM
stockholder; and
allegedly paid in on the subscription price of the 8,000,000 SAN JOSE OIL shares.
These figures are highly questionable. Take the item $5,900,000.00 the valuation
association or partnership will be affected, except in case of fraud, by the fact that any
placed on the 8,000,000 shares of SAN JOSE OIL. There appears no basis for such
207
of, such other association or partnership, and that no such contract or transaction of
from responsibility by reason of such acts. This and the other provision which
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
stockholders from the government and management of the business in which they
or has an interest in, such contract or transaction, or has in anyway connected with
have invested.
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
To cap it all on April 17, 1957, admittedly to assure continuity of the management and
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
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.
interested.
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
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
(a) At all elections of directors, the Trustees will designate a suitable proxy or proxies
provision that no contract or transaction between the company and any other
to vote for the election of directors designated by the Trustees in their own discretion,
association or corporation shall be affected except in case of fraud, by the fact that
having in mind the best interests of the holders of the voting trust certificates, it being
any of the directors or officers of the company may be interested in or are directors or
understood that any and all of the Trustees shall be eligible for election as directors;
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
(b) On any proposition for removal of a director, the Trustees shall designate a
corporations shall be affected by the fact that any director or officer of this company is
suitable proxy or proxies to vote for or against such proposition as the Trustees in their
a party to or has an interest in such contract or transaction or has any connection with
own discretion may determine, having in mind the best interest of the holders of the
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
(c) With respect to all other matters arising at any meeting of stockholders, the
into which this company either for their own benefit, or for the benefit of any person,
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.)
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
It was also therein provided that the said Agreement shall be binding upon the parties
those who are called upon to protect the interest of investors. The directors and
thereto, their successors, and upon all holders of voting trust certificates.
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
And these are the voting trust certificates that are offered to investors as authorized
they are interested, and with immunity because of the advance condonation or relief
by Security and Exchange Commissioner. It can not be doubted that the sale of
208
respondent's securities would, to say the least, work or tend to work fraud to
Philippine investors.
EXCHANGE,
Respondents.
CORONA, C.J.,
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
The Case
and Exchange Commission for appropriate action in consonance with this decision.
This is an original petition for prohibition, injunction, declaratory relief and declaration
With costs. Let a copy of this decision be furnished the Solicitor General for whatever
WILSON P. GAMBOA,Petitioner,
and a major PLDT stockholder, sold 26 percent of the outstanding common shares of
PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several
Present:
persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became
- versus -
the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment
executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the
111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential
CAPACITIES
represent about 46.125 percent of the outstanding capital stock of PTIC, were later
AS
CHAIR
AND
MEMBERS,
RESPECTIVELY,
OF
THE
PRIVATIZATION COUNCIL,
Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent
4 December 2006. Subsequently, the public bidding was reset to 8 December 2006,
209
and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio
The Philippine Government decided to sell the 111,415 PTIC shares, which represent
Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510
6.4 percent of the outstanding common shares of stock of PLDT, and designated the
million.
Thereafter, First Pacific announced that it would exercise its right of first refusal as a
the PCGG, as the disposing entity. An invitation to bid was published in seven
PTIC stockholder and buy the 111,415 PTIC shares by matching the bid price of
Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by
conference was held, and the original deadline for bidding scheduled on 4 December
IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2
2006 was reset to 8 December 2006. The extension was published in nine different
March 2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its
newspapers.
subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the
111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, with
the highest bidder with a bid of P25,217,556,000. The government notified First
Pacific, the majority owner of PTIC shares, of the bidding results and gave First
Pacific until 1 February 2007 to exercise its right of first refusal in accordance with
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125
percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3
Parallaxs bid.
percent of the outstanding common shares of PLDT. With the sale, First Pacifics
Government conducted a public hearing on the particulars of the then impending sale
of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who
This violates Section 11, Article XII of the 1987 Philippine Constitution which limits
attended the public hearing. The HR Committee Report No. 2270 concluded that: (a)
foreign ownership of the capital of a public utility to not more than 40 percent.3
the auction of the governments 111,415 PTIC shares bore due diligence,
transparency and conformity with existing legal procedures; and (b) First Pacifics
Undersecretary John P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the
Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on
On 9 November 1967, PTIC was incorporated and had since engaged in the business
foreign ownership of a public utility since PTIC holds only 13.847 percent of the total
percent of the total PLDT outstanding common shares. PHI, on the other hand, was
incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a
public bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding
Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the
capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by
111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently
First Pacific and its affiliates); (b) Parallax offered the highest bid amounting to
declared by this Court as part of the ill-gotten wealth of former President Ferdinand
P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its
Marcos. The sequestered PTIC shares were reconveyed to the Republic of the
Philippines in accordance with this Courts decision4 which became final and
affiliate, exercised its right of first refusal by matching the highest bid offered for PTIC
shares on 13 February 2007; and (d) on 28 February 2007, the sale was
210
consummated when MPAH paid IPC P25,217,556,000 and the government delivered
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave
the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other
August 2007, the Court granted the motion and noted the Petition-in-Intervention.
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction,
declaratory relief, and declaration of nullity of sale of the 111,415 PTIC shares.
others, to enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to
Petitioner claims, among others, that the sale of the 111,415 PTIC shares would
they have a stake in the outcome of the controversy x x x where the Philippine
percent to 37 percent, and this, combined with Japanese NTT DoCoMos common
of 51.56 percent which is over the 40 percent constitutional limit.6 Petitioner asserts:
Philippine Constitution.
The Issue
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7
percent to 37.0 percent of its common or voting- stockholdings, x x x. Hence, the
This Court is not a trier of facts. Factual questions such as those raised by petitioner,9
consummation of the sale will put the two largest foreign investors in PLDT First
which indisputably demand a thorough examination of the evidence of the parties, are
Pacific and Japans NTT DoCoMo, which is the worlds largest wireless
generally beyond this Courts jurisdiction. Adhering to this well-settled principle, the
Court shall confine the resolution of the instant controversy solely on the threshold
the completion of the sale, data culled from the official website of the New York Stock
and purely legal issue of whether the term capital in Section 11, Article XII of the
Exchange (www.nyse.com) showed that those foreign entities, which own at least five
Constitution refers to the total common shares only or to the total outstanding capital
percent of common equity, will collectively own 81.47 percent of PLDTs common
stock (combined total of common and non-voting preferred shares) of PLDT, a public
equity. x x x
utility.
Petitioner raises the following issues: (1) whether the consummation of the then
impending sale of 111,415 PTIC shares to First Pacific violates the constitutional limit
At the outset, petitioner is faced with a procedural barrier. Among the remedies
petitioner seeks, only the petition for prohibition is within the original jurisdiction of this
grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First
court, which however is not exclusive but is concurrent with the Regional Trial Court
Pacific; and (3) whether the sale of common shares to foreigners in excess of 40
and the Court of Appeals. The actions for declaratory relief,10 injunction, and
percent of the entire subscribed common capital stock violates the constitutional limit
annulment of sale are not embraced within the original jurisdiction of the Supreme
Court. On this ground alone, the petition could have been dismissed outright.
211
While direct resort to this Court may be justified in a petition for prohibition,11 the
Court shall nevertheless refrain from discussing the grounds in support of the petition
affected all government employees, clearly justifying a relaxation of the technical rules
for prohibition since on 28 February 2007, the questioned sale was consummated
when MPAH paid IPC P25,217,556,000 and the government delivered the certificates
decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as
mandamus.12
one for mandamus if the issue involved has far-reaching implications. As this Court
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for
held in Salvacion:
declaratory relief as one for mandamus considering the grave injustice that would
result in the interpretation of a banking law. In that case, which involved the crime of
The Court has no original and exclusive jurisdiction over a petition for declaratory
rape committed by a foreign tourist against a Filipino minor and the execution of the
relief. However, exceptions to this rule have been recognized. Thus, where the petition
final judgment in the civil case for damages on the tourists dollar deposit with a local
has far-reaching implications and raises questions that should be resolved, it may be
bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting
foreign currency deposits from attachment, garnishment or any other order or process
In the present case, petitioner seeks primarily the interpretation of the term capital in
of any court, inapplicable due to the peculiar circumstances of the case. The Court
Section 11, Article XII of the Constitution. He prays that this Court declare that the
held that injustice would result especially to a citizen aggrieved by a foreign guest like
term capital refers to common shares only, and that such shares constitute the sole
accused x x x that would negate Article 10 of the Civil Code which provides that in
basis in determining foreign equity in a public utility. Petitioner further asks this Court
lawmaking body intended right and justice to prevail. The Court therefore required
respondents Central Bank of the Philippines, the local bank, and the accused to
The interpretation of the term capital in Section 11, Article XII of the Constitution
comply with the writ of execution issued in the civil case for damages and to release
has far-reaching implications to the national economy. In fact, a resolution of this issue
will determine whether Filipinos are masters, or second class citizens, in their own
country. What is at stake here is whether Filipinos or foreigners will have effective
control of the national economy. Indeed, if ever there is a legal issue that has far-
aside the procedural infirmity of the petition for declaratory relief and treated the same
as one for mandamus. In Alliance, the issue was whether the government unlawfully
excluded petitioners, who were government employees, from the enjoyment of rights
to which they were entitled under the law. Specifically, the question was: Are the
The Court first encountered the issue on the definition of the term capital in Section
11, Article XII of the Constitution in the case of Fernandez v. Cojuangco, docketed as
G.R. No. 157360.16 That case involved the same public utility (PLDT) and
under Presidential Decree No. 851 which are required to pay their employees x x x a
substantially the same private respondents. Despite the importance and novelty of the
212
constitutional issue raised therein and despite the fact that the petition involved a
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right
purely legal question, the Court declined to resolve the case on the merits, and
to question the subject sale, which he claims to violate the nationality requirement
instead denied the same for disregarding the hierarchy of courts.17 There, petitioner
prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates the
Fernandez assailed on a pure question of law the Regional Trial Courts Decision of
Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire
21 February 2003 via a petition for review under Rule 45. The Courts Resolution,
More importantly, there is no question that the instant petition raises matters of
transcendental importance to the public. The fundamental and threshold legal issue in
The instant petition therefore presents the Court with another opportunity to finally
this case, involving the national economy and the economic welfare of the Filipino
settle this purely legal issue which is of transcendental importance to the national
people, far outweighs any perceived impediment in the legal personality of the
The Court must forthwith seize such opportunity, not only for the benefit of the
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters
litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right
and the object of mandamus is to obtain the enforcement of a public duty, the people
positions taken by government agencies on this purely legal issue, present and future
are regarded as the real parties in interest; and because it is sufficient that petitioner
is a citizen and as such is interested in the execution of the laws, he need not show
ruling from this Court on the extent of their participation in the capital of public utilities
that he has any legal or special interest in the result of the action. In the aforesaid
case, the petitioners sought to enforce their right to be informed on matters of public
concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, in
connection with the rule that laws in order to be valid and enforceable must be
published in the Official Gazette or otherwise effectively promulgated. In ruling for the
Despite its far-reaching implications to the national economy, this purely legal issue
petitioners legal standing, the Court declared that the right they sought to be enforced
has remained unresolved for over 75 years since the 1935 Constitution. There is no
is a public right recognized by no less than the fundamental law of the land.
reason for this Court to evade this ever recurring fundamental issue and delay again
defining the term capital, which appears not only in Section 11, Article XII of the
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that
Constitution, but also in Section 2, Article XII on co-production and joint venture
agreements for the development of our natural resources,19 in Section 7, Article XII
requirement of personal interest is satisfied by the mere fact that petitioner is a citizen
on ownership of private lands,20 in Section 10, Article XII on the reservation of certain
and, therefore, part of the general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not
advertising companies.23
have been involved under the questioned contract for the development, management
and operation of the Manila International Container Terminal, public interest [was]
definitely involved considering the important role [of the subject contract] . . . in the
213
years. Neither shall any such franchise or right be granted except under the condition
provision in the Constitution would constitute sufficient authority for upholding the
when the public interest so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate
share in the capital thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of
transcendental public importance, the petitioner has the requisite locus standi.
Section 8. No franchise, certificate, or any other form of authorization for the operation
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution
than fifty years. No franchise or right shall be granted to any individual, firm, or
Section 11. No franchise, certificate, or any other form of authorization for the
alteration, or repeal by the Congress when the public interest so requires. (Emphasis
corporations or associations organized under the laws of the Philippines, at least sixty
supplied
per centum of whose capital is owned by such citizens; nor shall such franchise,
years. Neither shall any such franchise or right be granted except under the condition
one of the products of the spirit of nationalism which gripped the 1935 Constitutional
that it shall be subject to amendment, alteration, or repeal by the Congress when the
Convention.25 The 1987 Constitution provides for the Filipinization of public utilities
common good so requires. The State shall encourage equity participation in public
by requiring that any form of authorization for the operation of public utilities should be
utilities by the general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate share in its
under the laws of the Philippines at least sixty per centum of whose capital is owned
capital, and all the executive and managing officers of such corporation or association
by such citizens. The provision is [an express] recognition of the sensitive and vital
position of public utilities both in the national economy and for national security.26
The above provision substantially reiterates Section 5, Article XIV of the 1973
The evident purpose of the citizenship requirement is to prevent aliens from assuming
Constitution, thus:
control of public utilities, which may be inimical to the national interest.27 This specific
Section 5. No franchise, certificate, or any other form of authorization for the operation
overriding economic goal of the 1987 Constitution: to conserve and develop our
corporations or associations organized under the laws of the Philippines at least sixty
per centum of the capital of which is owned by such citizens, nor shall such franchise,
controlled by Filipinos.29
214
Nazareno does not deny petitioners allegation of foreigners dominating the common
shareholdings of PLDT. Nazareno stressed mainly that the petition seeks to divest
shareholdings in PLDT of their ownership over their shares. Thus, the foreign natural
The crux of the controversy is the definition of the term capital. Does the term
and juridical PLDT shareholders must be impleaded in this suit so that they can be
capital in Section 11, Article XII of the Constitution refer to common shares or to the
heard.34 Essentially, Nazareno invokes denial of due process on behalf of the foreign
total outstanding capital stock (combined total of common and non-voting preferred
common shareholders.
shares)?
While Nazareno does not introduce any definition of the term capital, he states that
Petitioner submits that the 40 percent foreign equity limitation in domestic public
utilities refers only to common shares because such shares are entitled to vote and it
is through voting that control over a corporation is exercised. Petitioner posits that the
term capital in Section 11, Article XII of the Constitution refers to the ownership of
common capital stock subscribed and outstanding, which class of shares alone, under
common shares in controlling interest in view of testing compliance with the 40%
the corporate set-up of PLDT, can vote and elect members of the board of directors.
It is undisputed that PLDTs non-voting preferred shares are held mostly by Filipino
Similarly, respondent Manuel V. Pangilinan does not define the term capital in
citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June 1973
Section 11, Article XII of the Constitution. Neither does he refute petitioners claim of
line to subscribe to non-voting preferred shares to pay for the investment cost of
respondent Pangilinan focuses on the procedural flaws of the petition and the alleged
in his Memorandum (1) the absence of this Courts jurisdiction over the petition; (2)
declaratory relief; and (5) the denial of due process rights. Moreover, respondent
amounts to at least 63.54% of the total outstanding common stock, which means that
Pangilinan alleges that the issue should be whether owners of shares in PLDT as
foreigners exercise significant control over PLDT, patently violating the 40 percent
relinquish their shares in PLDT and in those companies without any law requiring
Respondents, on the other hand, do not offer any definition of the term capital in
them to surrender their shares and also without notice and trial.
Section 11, Article XII of the Constitution. More importantly, private respondents
Nazareno and Pangilinan of PLDT do not dispute that more than 40 percent of the
Respondent Pangilinan further asserts that Section 11, [Article XII of the
215
him, Section 11 does not authorize taking one persons property (the shareholders
Obviously, the intent of the framers of the Constitution in imposing limitations and
stock in the utility company) on the basis of another partys alleged failure to satisfy a
requirement that is a condition only for that other partys retention of another piece of
property (the utility company being at least 60% Filipino-owned to keep its
franchise).36
given credence, it would be possible for the ownership structure of a public utility
corporation to be divided into one percent (1%) common stocks and ninety-nine
The
OSG,
representing
public
respondents
Secretary
Margarito
Teves,
percent (99%) preferred stocks. Following the Trial Courts ruling adopting
Barin, is likewise silent on the definition of the term capital. In its Memorandum37
thus creating an absurd situation wherein foreigners, who are supposed to be minority
dated 24 September 2007, the OSG also limits its discussion on the supposed
procedural defects of the petition, i.e. lack of standing, lack of jurisdiction, noninclusion of interested parties, and lack of basis for injunction. The OSG does not
present any definition or interpretation of the term capital in Section 11, Article XII of
the Constitution. The OSG contends that the petition actually partakes of a collateral
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the
attack on PLDTs franchise as a public utility, which in effect requires a full-blown trial
where all the parties in interest are given their day in court.38
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer
of the Philippine Stock Exchange (PSE), does not also define the term capital and
i.e., common shares. Furthermore, ownership of record of shares will not suffice but it
seeks the dismissal of the petition on the following grounds: (1) failure to state a
must be shown that the legal and beneficial ownership rests in the hands of Filipino
cause of action against Lim; (2) the PSE allegedly implemented its rules and required
citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that
all listed companies, including PLDT, to make proper and timely disclosures; and (3)
the voting interests of foreigners which would gain entry to petitioner PLDT by the
the reliefs prayed for in the petition would adversely impact the stock market.
Filipino owners is likewise admitted, there is, therefore, a violation of Section 11,
be a stockholder of record of PLDT, contended that the term capital in the 1987
explained thus:
Trial Court to support the proposition that the meaning of the word capital as used in
The forty percent (40%) foreign equity limitation in public utilities prescribed by the
Section 11, Article XII of the Constitution allegedly refers to the sum total of the
shares subscribed and paid-in by the shareholder and it allegedly is immaterial how
the stock is classified, whether as common or preferred, cannot stand in the face of a
clear legislative policy as stated in the FIA which took effect in 1991 or way after said
216
17.
regard, suffice it to state that as between the law and an opinion rendered by an
administrative agency, the law indubitably prevails. Moreover, said Opinions are
Commission (Vol. III) which petitioner misleadingly cited in the Petition x x x which
merely advisory and cannot prevail over the clear intent of the framers of the
supports petitioners view that only common shares should form the basis for
Constitution.
In the same vein, the SECs construction of Section 11, Article XII of the Constitution
is at best merely advisory for it is the courts that finally determine what a law
xxxx
means.39
18.
implementing the Corporation Code, and which also has the responsibility of ensuring
activities x x x has categorically ruled that both common and preferred shares are
and Orlando B. Vea, argued that the term capital in Section 11, Article XII of the
Constitution includes preferred shares since the Constitution does not distinguish
composition thereof.40
16.
11, Article XII of the Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares,41 and not
In this connection, the Corporation Code which was already in force at the time the
to the total outstanding capital stock comprising both common and non-voting
present (1987) Constitution was drafted defined outstanding capital stock as follows:
preferred shares.
Section 137. Outstanding capital stock defined. The term outstanding capital
stock, as used in this Code, means the total shares of stock issued under binding
thus:
Section 137 of the Corporation Code also does not distinguish between common and
divided into classes or series of shares, or both, any of which classes or series of
preferred shares, nor exclude either class of shares, in determining the outstanding
shares may have such rights, privileges or restrictions as may be stated in the articles
reckon PLDTs foreign equity only on the basis of PLDTs outstanding common shares
is without legal basis. The language of the Constitution should be understood in the
provided in this Code: Provided, further, That there shall always be a class or series of
shares which have complete voting rights. Any or all of the shares or series of shares
xxxx
may have a par value or have no par value as may be provided for in the articles of
incorporation: Provided, however, That banks, trust companies, insurance companies,
public utilities, and building and loan associations shall not be permitted to issue nopar value shares of stock.
217
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution
preferred shares of stock may be issued only with a stated par value. The Board of
Directors, where authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided, That such
terms and conditions shall be effective upon the filing of a certificate thereof with the
corporations;
Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to
its creditors in respect thereto: Provided; That shares without par value may not be
issued for a consideration less than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration received by the corporation for its nopar value shares shall be treated as capital and shall not be available for distribution
as dividends.
approve a particular corporate act as provided in this Code shall be deemed to refer
only to stocks with voting rights.
A corporation may, furthermore, classify its shares for the purpose of insuring
Indisputably, one of the rights of a stockholder is the right to participate in the control
or management of the corporation.43 This is exercised through his vote in the election
of directors because it is the board of directors that controls or manages the
certificate of stock, each share shall be equal in all respects to every other share.
voting rights to preferred shares, preferred shares have the same voting rights as
common shares. However, preferred shareholders are often excluded from any
Where the articles of incorporation provide for non-voting shares in the cases allowed
control, that is, deprived of the right to vote in the election of directors and on other
by this Code, the holders of such shares shall nevertheless be entitled to vote on the
matters, on the theory that the preferred shareholders are merely investors in the
following matters:
corporation for income in the same manner as bondholders.45 In fact, under the
Corporation Code only preferred or redeemable shares can be deprived of the right to
vote.46 Common shares cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation restricting the right of
218
Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term capital in
Section 11, Article XII of the Constitution refers only to common shares. However, if
the preferred shares also have the right to vote in the election of directors, then the
MR. NOLLEDO. Thank you.
term capital shall include such preferred shares because the right to participate in
the control or management of the corporation is exercised through the right to vote in
the election of directors. In short, the term capital in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of directors.
place in the hands of Filipino citizens the control and management of public utilities.
permitted by the Corporation Code, does the Committee adopt the grandfather rule?
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity
and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in
Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this question: Where do
we base the equity requirement, is it on the authorized capital stock, on the
subscribed capital stock, or on the paid-up capital stock of a corporation? Will the
Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team
from the UP Law Center who provided us a draft. The phrase that is contained here
which we adopted from the UP draft is 60 percent of voting stock.
xxxx
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless
MR. AZCUNA. May I be clarified as to that portion that was accepted by the
Committee.
219
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase
MR. AZCUNA. Hence, without the Davide amendment, the committee report would
corporation organized under the laws of the Philippines of which at least sixty percent
by such citizens.
(60%) of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a corporation organized abroad and registered as doing
business in the Philippines under the Corporation Code of which one hundred percent
(100%) of the capital stock outstanding and entitled to vote is wholly owned by
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital
stock outstanding and entitled to vote of each of both corporations must be owned
and held by citizens of the Philippines and at least sixty percent (60%) of the
MR. AZCUNA. But the control can be with the foreigners even if they are the minority.
Let us say 40 percent of the capital is owned by them, but it is the voting capital,
whereas, the Filipinos own the nonvoting shares. So we can have a situation where
the corporation is controlled by foreigners despite being the minority because they
have the voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973
and 1935 Constitutions is that according to Commissioner Rodrigo, there are
associations that do not have stocks. That is why we say CAPITAL.
corporation organized under the laws of the Philippines of which at least sixty percent
[60%] of the capital stock outstanding and entitled to vote is owned and held by
supplied)
Thus, 60 percent of the capital assumes, or should result in, controlling interest in
least sixty percent [60%] of the fund will accrue to the benefit of the Philippine
220
nationals; Provided, that where a corporation its non-Filipino stockholders own stocks
9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship
Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11, Article XII
percent [60%] of the capital stock outstanding and entitled to vote of both corporations
of the Constitution is also used in the same context in numerous laws reserving
must be owned and held by citizens of the Philippines and at least sixty percent [60%]
of the members of the Board of Directors of each of both corporation must be citizens
of the Philippines, in order that the corporation shall be considered a Philippine
To construe broadly the term capital as the total outstanding capital stock, including
both common and non-voting preferred shares, grossly contravenes the intent and
letter of the Constitution that the State shall develop a self-reliant and independent
on the basis of outstanding capital stock whether fully paid or not, but only such
disregards who owns the all-important voting stock, which necessarily equates to
nationals, mere legal title is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate voting rights is essential.
Thus, stocks, the voting rights of which have been assigned or transferred to aliens
cannot be considered held by Philippine citizens or Philippine nationals.
We shall illustrate the glaring anomaly in giving a broad definition to the term capital.
Let us assume that a corporation has 100 common shares owned by foreigners and
1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share
Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required
having a par value of one peso (P1.00) per share. Under the broad definition of the
term capital, such corporation would be considered compliant with the 40 percent
stock, coupled with 60 percent of the voting rights, is required. The legal and
constitutional limit on foreign equity of public utilities since the overwhelming majority,
beneficial ownership of 60 percent of the outstanding capital stock must rest in the
or more than 99.999 percent, of the total outstanding capital stock is Filipino owned.
In the example given, only the foreigners holding the common shares have voting
Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of
rights in the election of directors, even if they hold only 100 shares. The foreigners,
with a minuscule equity of less than 0.001 percent, exercise control over the public
utility. On the other hand, the Filipinos, holding more than 99.999 percent of the
equity, cannot vote in the election of directors and hence, have no control over the
public utility. This starkly circumvents the intent of the framers of the Constitution, as
sixty percent of the capital of which is owned by Filipino citizens. Some of these laws
well as the clear language of the Constitution, to place the control of public utilities in
are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine
the hands of Filipinos. It also renders illusory the State policy of an independent
Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development
The example given is not theoretical but can be found in the real world, and in fact
Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No.
221
Holders of PLDT preferred shares are explicitly denied of the right to vote in the
election of directors, they also have very little and obviously negligible dividend
election of directors. PLDTs Articles of Incorporation expressly state that the holders
of Serial Preferred Stock shall not be entitled to vote at any meeting of the
stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive
notice of any meeting of stockholders.51
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT
On the other hand, holders of common shares are granted the exclusive right to vote
common shares is P5.00 per share, whereas the par value of preferred shares is
in the election of directors. PLDTs Articles of Incorporation52 state that each holder
P10.00 per share. In other words, preferred shares have twice the par value of
of Common Capital Stock shall have one vote in respect of each share of such stock
common shares but cannot elect directors and have only 1/70 of the dividends of
held by him on all matters voted upon by the stockholders, and the holders of
common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos
Common Capital Stock shall have the exclusive right to vote for the election of
while foreigners own only a minuscule 0.56% of the preferred shares.61 Worse,
preferred shares constitute 77.85% of the authorized capital stock of PLDT while
In short, only holders of common shares can vote in the election of directors, meaning
common shares constitute only 22.15%.62 This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred shares but with the common
preferred shares, who have no voting rights in the election of directors, do not have
any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of
common shares have voting rights for all purposes, while holders of preferred shares
The legal and beneficial ownership of 60 percent of the outstanding capital stock must
rest in the hands of Filipinos in accordance with the constitutional mandate. Full
It must be stressed, and respondents do not dispute, that foreigners hold a majority of
the common shares of PLDT. In fact, based on PLDTs 2010 General Information
percent of the voting rights, is constitutionally required for the States grant of authority
to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44%
owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT
shares of PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other
words, foreigners hold 64.27% of the total number of PLDTs common shares, while
Filipinos hold only 35.73%. Since holding a majority of the common shares equates to
control, it is clear that foreigners exercise control over PLDT. Such amount of control
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60
percent of the dividends, of PLDT. This directly contravenes the express command in
Section 11, Article XII of the Constitution that [n]o franchise, certificate, or any other
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC,
form of authorization for the operation of a public utility shall be granted except to x x x
shows that per share the SIP58 preferred shares earn a pittance in dividends
corporations x x x organized under the laws of the Philippines, at least sixty per
compared to the common shares. PLDT declared dividends for the common shares at
P70.00 per share, while the declared dividends for the preferred shares amounted to
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of
a measly P1.00 per share.59 So the preferred shares not only cannot vote in the
shares exercises the sole right to vote in the election of directors, and thus exercise
222
control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares,
constituting a minority of the voting stock, and thus do not exercise control over PLDT;
provisions are self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:
(3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred
shares earn only 1/70 of the dividends that common shares earn;63 (5) preferred
shares have twice the par value of common shares; and (6) preferred shares
enforce a constitutional mandate, the presumption now is that all provisions of the
constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%. This kind of ownership and control of a public utility is a mockery of the
legislation instead of self-executing, the legislature would have the power to ignore
Constitution.
and practically nullify the mandate of the fundamental law. This can be cataclysmic.
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a
That is why the prevailing view is, as it has always been, that
current stock market value of P2,328.00 per share,64 while PLDT preferred shares
with a par value of P10.00 per share have a current stock market value ranging from
only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that
control and beneficial ownership of PLDT rest with the common shares, not with the
preferred shares.
provisions would be subordinated to the will of the lawmaking body, which could make
Indisputably, construing the term capital in Section 11, Article XII of the Constitution
to include both voting and non-voting shares will result in the abject surrender of our
In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice
States constitutional duty to limit control of public utilities to Filipino citizens. Such an
Reynato S. Puno, later Chief Justice, agreed that constitutional provisions are
The Court should never open to foreign control what the Constitution has expressly
than as requiring future legislation for their enforcement. The reason is not difficult to
reserved to Filipinos for that would be a betrayal of the Constitution and of the national
discern. For if they are not treated as self-executing, the mandate of the fundamental
interest. The Court must perform its solemn duty to defend and uphold the intent and
law ratified by the sovereign people can be easily ignored and nullified by Congress.
letter of the Constitution to ensure, in the words of the Constitution, a self-reliant and
Suffused with wisdom of the ages is the unyielding rule that legislative actions may
give breath to constitutional rights but congressional inaction should not suffocate
them.
Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests,
searches and seizures, the rights of a person under custodial investigation, the rights
Section 11, Article XII of the Constitution, like other provisions of the Constitution
guaranteeing the fundamental rights of life, liberty and the protection of property. The
223
damaging of property for public use without just compensation. (Emphasis supplied)
Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function
legislation, applied directly the provisions of the 1935, 1973 and 1987 Constitutions
limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68 this Court ruled:
Philippines has not been complied with as required by existing laws or the
citizen of his land to an alien, and as both the citizen and the alien have violated the
Constitution. Thus, the SEC is the government agency tasked with the statutory duty
law, none of them should have a recourse against the other, and it should only be the
to enforce the nationality requirement prescribed in Section 11, Article XII of the
State that should be allowed to intervene and determine what is to be done with the
property subject of the violation. We have said that what the State should do or could
declaratory relief that is treated as a petition for mandamus as in the present case,
do in such matters is a matter of public policy, entirely beyond the scope of judicial
can direct the SEC to perform its statutory duty under the law, a duty that the SEC
authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27,
has apparently unlawfully neglected to do based on the 2010 GIS that respondent
1956.) While the legislature has not definitely decided what policy should be followed
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the
x x x (Emphasis supplied)
power and function to suspend or revoke, after proper notice and hearing, the
To treat Section 11, Article XII of the Constitution as not self-executing would mean
that since the 1935 Constitution, or over the last 75 years, not one of the constitutional
upon any of the grounds provided by law. The SEC is mandated under Section 5(d)
of the same Code with the power and function to investigate x x x the activities of
persons to ensure compliance with the laws and regulations that SEC administers or
the framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively
enforces. The GIS that all corporations are required to submit to SEC annually should
put the SEC on guard against violations of the nationality requirement prescribed in
the Constitution and existing laws. This Court can compel the SEC, in a petition for
corporations of real estate, and the ownership of educational institutions. All the
declaratory relief that is treated as a petition for mandamus as in the present case, to
legislatures that convened since 1935 also miserably failed to enact legislations to
hear and decide a possible violation of Section 11, Article XII of the Constitution in
implement these vital constitutional provisions that determine who will effectively
control the national economy, Filipinos or foreigners. This Court cannot allow such an
WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in
This Court has held that the SEC has both regulatory and adjudicative functions.69
Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled
Under its regulatory functions, the SEC can be compelled by mandamus to perform
to vote in the election of directors, and thus in the present case only to common
its statutory duty when it unlawfully neglects to perform the same. Under its
shares, and not to the total outstanding capital stock (common and non-voting
224
agrees with the Court's definition of the term "capital" in Section 11, Article XII of the
Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution. During the Oral Arguments on 26 June 2012, the OSG reiterated its
SO ORDERED.
G.R. No. 176579
October 9, 2012
I.
vs.
FINANCE
B.
TEVES,
FINANCE
As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term
"capital" in Section 11, Article XII of the Constitution has far-reaching implications to
the national economy. In fact, a resolution of this issue will determine whether
Filipinos are masters, or second-class citizens, in their own country. What is at stake
here is whether Filipinos or foreigners will have effective control of the Philippine
national economy. Indeed, if ever there is a legal issue that has far-reaching
undoubtedly demand an immediate adjudication of this issue. Simply put, the far-
RESOLUTION
reaching implications of this issue justify the treatment of the petition as one for
CARPIO, J.:
mandamus.7
This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1)
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise and
expedient to resolve the case although the petition for declaratory relief could be
(Pangilinan),2 (3) Napoleon L. Nazareno (Nazareno ),3 and ( 4) the Securities and
outrightly dismissed for being procedurally defective. There, appellant admittedly had
already committed a breach of the Public Service Act in relation to the Anti-Dummy
Law since it had been employing non- American aliens long before the decision in a
The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on
prior similar case. However, the main issue in Luzon Stevedoring was of
privileges, properties and businesses which only Filipinos and qualified corporations
225
could exercise or enjoy under the Constitution and the statutes. Moreover, the same
of stock, whether voting or non-voting. To repeat, until the present case there has
never been a Court ruling categorically defining the term "capital" found in the various
Stevedoring the Court deemed it necessary to finally dispose of the case for the
guidance of all concerned, despite the apparent procedural flaw in the petition.
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the
The circumstances surrounding the present case, such as the supposed procedural
definition of the term "capital" as referring to both voting and non-voting shares
defect of the petition and the pivotal legal issue involved, resemble those in Luzon
(combined total of common and preferred shares) are, in the first place, conflicting
and inconsistent. There is no basis whatsoever to the claim that the SEC and the DOJ
to the Constitution, we opted to resolve this case for the guidance of the public and all
have consistently and uniformly adopted a definition of the term "capital" contrary to
concerned parties.
the definition that this Court adopted in its 28 June 2011 Decision.
II.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term
"capital" in Section 9, Article XIV of the 1973 Constitution was raised, that is, whether
the term "capital" includes "both preferred and common stocks." The issue was raised
in relation to a stock-swap transaction between a Filipino and a Japanese corporation,
Movants contend that the term "capital" in Section 11, Article XII of the Constitution
both stockholders of a domestic corporation that owned lands in the Philippines. Then
has long been settled and defined to refer to the total outstanding shares of stock,
Minister of Justice Estelito P. Mendoza ruled that the resulting ownership structure of
whether voting or non-voting. In fact, movants claim that the SEC, which is the
the corporation would be unconstitutional because 60% of the voting stock would be
owned by Japanese while Filipinos would own only 40% of the voting stock, although
Filipino citizens in the Constitution and various statutes, has consistently adopted this
when the non-voting stock is added, Filipinos would own 60% of the combined voting
particular definition in its numerous opinions. Movants point out that with the 28 June
and non-voting stock. This ownership structure is remarkably similar to the current
redefinition"9 of the term "capital" in Section 11, Article XII of the Constitution.
xxxx
This is egregious error.
Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock
For more than 75 years since the 1935 Constitution, the Court has not interpreted or
(common and preferred) while the Japanese investors control sixty percent (60%) of
defined the term "capital" found in various economic provisions of the 1935, 1973 and
1987 Constitutions. There has never been a judicial precedent interpreting the term
"capital" in the 1935, 1973 and 1987 Constitutions, until now. Hence, it is patently
It is your position that x x x since Section 9, Article XIV of the Constitution uses the
wrong and utterly baseless to claim that the Court in defining the term "capital" in its
word "capital," which is construed "to include both preferred and common shares" and
28 June 2011 Decision modified, reversed, or set aside the purported long-standing
"that where the law does not distinguish, the courts shall not distinguish."
definition of the term "capital," which supposedly refers to the total outstanding shares
226
xxxx
Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction
nationals, considering that: (1) sixty percent (60%) of their respective outstanding
capital stock entitled to vote is owned by a Philippine national (i.e., by the Trustee, in
practice to classify corporate shares into common voting shares and preferred non-
the case of MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% of their
voting shares, any arrangement which attempts to defeat the constitutional purpose
should be eschewed. Thus, the resultant equity arrangement which would place
supplied)
ownership of 60%11 of the common (voting) shares in the Japanese group, while
retaining 60% of the total percentage of common and preferred shares in Filipino
Clearly, these DOJ and SEC opinions are compatible with the Courts interpretation of
Constitution for certain economic activities. At the same time, these opinions highlight
the conflicting, contradictory, and inconsistent positions taken by the DOJ and the
SEC on the definition of the term "capital" found in the economic provisions of the
In short, Minister Mendoza categorically rejected the theory that the term "capital" in
Constitution.
Section 9, Article XIV of the 1973 Constitution includes "both preferred and common
stocks" treated as the same class of shares regardless of differences in voting rights
The opinions issued by SEC legal officers do not have the force and effect of SEC
and privileges. Minister Mendoza stressed that the 60-40 ownership requirement in
rules and regulations because only the SEC en banc can adopt rules and regulations.
favor of Filipino citizens in the Constitution is not complied with unless the corporation
As expressly provided in Section 4.6 of the Securities Regulation Code,12 the SEC
"satisfies the criterion of beneficial ownership" and that in applying the same "the
cannot delegate to any of its individual Commissioner or staff the power to adopt any
rule or regulation. Further, under Section 5.1 of the same Code, it is the SEC as a
collegial body, and not any of its legal officers, that is empowered to issue opinions
On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo
Laman Tan Pantaleon & San Jose, then SEC General Counsel Vernette G. UmaliPaco applied the Voting Control Test, that is, using only the voting stock to determine
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to
Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine
national because: (1) sixty percent (60%) of its outstanding capital stock entitled to
vote is owned by a Philippine national, the Trustee; and (2) at least sixty percent
The Commission may review upon its own initiative or upon the petition of any
(60%) of the ERF will accrue to the benefit of Philippine nationals. Still pursuant to the
Control Test, MLRCs investment in 60% of BFDCs outstanding capital stock entitled
227
SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act
with transparency and shall have the powers and functions provided by this Code,
Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law,
the Financing Company Act and other existing laws. Pursuant thereto the Commission
JUSTICE CARPIO:
opinions that have the effect of SEC rules or regulations is ultra vires. Under Sections
4.6 and 5.1(g) of the Code, only the SEC en banc can "issue opinions" that have the
COMMISSIONER GAITE:
force and effect of rules or regulations. Section 4.6 of the Code bars the SEC en banc
from delegating to any individual Commissioner or staff the power to adopt rules or
JUSTICE CARPIO:
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of
What cannot be delegated, among others, is the power to adopt or amend rules and
its individual commissioners or legal staff, is empowered to issue opinions which have
regulations, correct?
opinion but that opinion does not constitute a rule or regulation, correct?
228
The avowed purpose of the Constitution is to place in the hands of Filipinos the
COMMISSIONER GAITE:
exploitation of our natural resources. Necessarily, therefore, the Rule interpreting the
constitutional provision should not diminish that right through the legal fiction of
corporate ownership and control. But the constitutional provision, as interpreted and
practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of
JUSTICE CARPIO:
So, all of these opinions that you mentioned they are not rules and regulations,
correct?
Compliance with the constitutional limitation(s) on engaging in nationalized activities
COMMISSIONER GAITE:
JUSTICE CARPIO:
stop until the citizenships of the individual or natural stockholders of layer after layer of
investing corporations have been established, the very essence of the Grandfather
If they are not rules and regulations, they apply only to that particular situation and will
Rule.
Grandfather Rule. In one of the discussions on what is now Article XII of the present
Constitution, the framers made the following exchange:
and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in
issue rules and opinions on behalf of the SEC, has adopted even the Grandfather
Section 15.
prevailing SEC ruling, which the SEC correctly adopted to thwart any circumvention of
the required Filipino "ownership and control," is laid down in the 25 March 2010 SEC
MR. NOLLEDO. In teaching law, we are always faced with the question: Where do we
base the equity requirement, is it on the authorized capital stock, on the subscribed
al.,15 to wit:
capital stock, or on the paid-up capital stock of a corporation? Will the Committee
please enlighten me on this?
229
MR. VILLEGAS. We have just had a long discussion with the members of the team
from the UP Law Center who provided us a draft. The phrase that is contained here
Both the Voting Control Test and the Beneficial Ownership Test must be applied to
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless
The interpretation by legal officers of the SEC of the term "capital," embodied in
various opinions which respondents relied upon, is merely preliminary and an opinion
only of such officers. To repeat, any such opinion does not constitute an SEC rule or
and relevant only to the particular issue raised therein and shall not be used in the
another corporation, say, a corporation with 60-40 percent equity invests in another
nature of a standing rule binding upon the Commission in other cases whether of
corporation which is permitted by the Corporation Code, does the Committee adopt
similar or dissimilar circumstances."16 Thus, the opinions clearly make a caveat that
they do not constitute binding precedents on any one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law
are neither conclusive nor controlling and thus, do not bind the Court. It is hornbook
doctrine that any interpretation of the law that administrative or quasi-judicial agencies
make is only preliminary, never conclusive on the Court. The power to make a final
interpretation of the law, in this case the term "capital" in Section 11, Article XII of the
original)
1987 Constitution, lies with this Court, not with any other government entity.
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40
In his motion for reconsideration, the PSE President cites the cases of National
certain economic activities applies not only to voting control of the corporation, but
also to the beneficial ownership of the corporation. Thus, in our 28 June 2011
the Court has already defined the term "capital" in Section 11, Article XII of the 1987
Decision we stated:
Constitution.19
Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in
The
stock, coupled with 60 percent of the voting rights, is required. The legal and
beneficial ownership of 60 percent of the outstanding capital stock must rest in the
the term "capital" as found in Section 11, Article XII of the 1987 Constitution. In fact,
these two cases never mentioned, discussed or cited Section 11, Article XII of the
Constitution or any of its economic provisions, and thus cannot serve as precedent in
230
PSE
President
is
grossly
mistaken.
In
both
cases
of
National
the interpretation of Section 11, Article XII of the Constitution. These two cases dealt
and secure to ourselves and our posterity, the blessings of independence and
solely with the determination of the correct regulatory fees under Section 40(e) and (f)
democracy under the rule of law and a regime of truth, justice, freedom, love, equality,
(e) For annual reimbursement of the expenses incurred by the Commission in the
Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares
supervision of other public services and/or in the regulation or fixing of their rates,
twenty centavos for each one hundred pesos or fraction thereof, of the capital stock
Filipinos:
subscribed or paid, or if no shares have been issued, of the capital invested, or of the
property and equipment whichever is higher.
Section 19. The State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos.
(f) For the issue or increase of capital stock, twenty centavos for each one hundred
pesos or fraction thereof, of the increased capital. (Emphasis supplied)
The Courts interpretation in these two cases of the terms "capital stock subscribed or
Section 10. The Congress shall, upon recommendation of the economic and planning
paid," "capital stock" and "capital" does not pertain to, and cannot control, the
agency, when the national interest dictates, reserve to citizens of the Philippines or to
definition of the term "capital" as used in Section 11, Article XII of the Constitution, or
any of the economic provisions of the Constitution where the term "capital" is found.
such citizens, or such higher percentage as Congress may prescribe, certain areas of
The definition of the term "capital" found in the Constitution must not be taken out of
investments. The Congress shall enact measures that will encourage the formation
context. A careful reading of these two cases reveals that the terms "capital stock
subscribed or paid," "capital stock" and "capital" were defined solely to determine the
basis for computing the supervision and regulation fees under Section 40(e) and (f) of
In the grant of rights, privileges, and concessions covering the national economy and
III.
The State shall regulate and exercise authority over foreign investments within its
national jurisdiction and in accordance with its national goals and priorities.23
The Preamble of the 1987 Constitution, as the prologue of the supreme law of the
Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to
land, embodies the ideals that the Constitution intends to achieve.22 The Preamble
reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build
a just and humane society, and establish a Government that shall embody our ideals
sixty percent of the "capital" of which is owned by Filipino citizens. Some of these
and aspirations, promote the common good, conserve and develop our patrimony,
laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2)
231
Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small
owned by Filipino citizens. In other words, under Section 11, Article XII of the 1987
and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping
Constitution, to own and operate a public utility a corporations capital must at least be
Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004
or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055;
and (7) Ship Mortgage Decree or P.D. No. 1521.
IV.
Definition of "Philippine National"
Congress enacted Republic Act No. 7042 or the Foreign Investments Act of 1991
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,
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic
that it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in public
corporation organized under the laws of the Philippines of which at least sixty percent
utilities by the general public. The participation of foreign investors in the governing
(60%) of the capital stock outstanding and entitled to vote is owned and held by
body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or association
business in the Philippines under the Corporation Code of which one hundred percent
(100%) of the capital stock outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee retirement or separation
This provision, which mandates the Filipinization of public utilities, requires that any
benefits, where the trustee is a Philippine national and at least sixty percent (60%) of
form of authorization for the operation of public utilities shall be granted only to
the fund will accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
of the Philippines at least sixty per centum of whose capital is owned by such
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital
citizens." "The provision is [an express] recognition of the sensitive and vital position
stock outstanding and entitled to vote of each of both corporations must be owned
of public utilities both in the national economy and for national security."24
and held by citizens of the Philippines and at least sixty percent (60%) of the
members of the Board of Directors of each of both corporations must be citizens of
The 1987 Constitution reserves the ownership and operation of public utilities
232
Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine
citizen, or a domestic corporation at least "60% of the capital stock outstanding and
Investments Code of 1987 was a reiteration of the meaning of such term as provided
in Article 14 of the Omnibus Investments Code of 1981,28 to wit:
The definition of a "Philippine national" in the FIA reiterated the meaning of such term
as provided in its predecessor statute, Executive Order No. 226 or the Omnibus
Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic
corporation organized under the laws of the Philippines of which at least sixty per cent
(60%) of the capital stock outstanding and entitled to vote is owned and held by
Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic
corporation organized under the laws of the Philippines of which at least sixty per cent
least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals:
(60%) of the capital stock outstanding and entitled to vote is owned and held by
Provided, That where a corporation and its non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and
entitled to vote of both corporations must be owned and held by the citizens of the
least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals:
Philippines and at least sixty per cent (60%) of the members of the Board of Directors
Provided, That where a corporation and its non-Filipino stockholders own stock in a
of both corporations must be citizens of the Philippines in order that the corporation
registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and
entitled to vote of both corporations must be owned and held by the citizens of the
supplied)
Philippines and at least sixty per cent (60%) of the members of the Board of Directors
of both corporations must be citizens of the Philippines in order that the corporation
Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x
supplied)
without first securing a written certificate from the Board of Investments to the effect
that such business or economic activity x x x would not conflict with the Constitution
Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x
operate a reserved economic activity like a public utility. Again, this means that only a
"Philippine national" can own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630 or the
national" cannot own and operate a reserved economic activity like a public utility.
This means, of course, that only a "Philippine national" can own and operate a public
utility.
233
The FIA is the basic law governing foreign investments in the Philippines, irrespective
of the nature of business and area of investment. The FIA spells out the procedures
under the laws of the Philippines of which at least sixty per cent of the capital stock
by which non-Philippine nationals can invest in the Philippines. Among the key
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
features of this law is the concept of a negative list or the Foreign Investments
where the trustee is a Philippine National and at least sixty per cent of the fund will
accrue to the benefit of Philippine Nationals: Provided, That where a corporation and
its non-Filipino stockholders own stock in a registered enterprise, at least sixty per
Investment Negative List]. - The Foreign Investment Negative List shall have two 2
cent of the capital stock outstanding and entitled to vote of both corporations must be
owned and held by the citizens of the Philippines and at least sixty per cent of the
members of the Board of Directors of both corporations must be citizens of the
non-Philippine nationals exceeds 30% of its outstanding capital stock, such enterprise
from the Department of National Defense [DND] to engage in such activity, such as
must obtain prior approval from the Board of Investments before accepting such
investment. Such approval shall not be granted if the investment "would conflict with
existing constitutional provisions and laws regulating the degree of required ownership
and operate a reserved economic activity like a public utility. Again, this means that
or
distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beer houses,
Filipino citizen, or a domestic corporation "at least sixty percent (60%) of the capital
dance halls, sauna and steam bathhouses and massage clinics. (Boldfacing,
corporation is a "Philippine national" only if at least 60% of its voting stock is owned
by Filipino citizens. This definition of a "Philippine national" is crucial in the present
case because the FIA reiterates and clarifies Section 11, Article XII of the 1987
Constitution, which limits the ownership and operation of public utilities to Filipino
234
to own and operate a public utility in the Philippines one must be a "Philippine
Counsel, I have some questions. You are aware of the Foreign Investments Act of
national" as defined in the FIA. The FIA is abundant notice to foreign investors to what
1991, x x x? And the FIA of 1991 took effect in 1991, correct? Thats over twenty (20)
COMMISSIONER GAITE:
Negative List A is the ownership and operation of public utilities, which the
Constitution expressly reserves to Filipino citizens and to corporations at least 60%
owned by Filipino citizens. In other words, Negative List A of the FIA reserves the
ownership and operation of public utilities only to "Philippine nationals," defined in
JUSTICE CARPIO:
Section 3(a) of the FIA as "(1) a citizen of the Philippines; x x x or (3) a corporation
organized under the laws of the Philippines of which at least sixty percent (60%) of
And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine
the capital stock outstanding and entitled to vote is owned and held by citizens of the
COMMISSIONER GAITE:
the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty percent (60%) of the fund
will accrue to the benefit of Philippine nationals."
JUSTICE CARPIO:
Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of
And the same Foreign Investments Act of 1991 defines a "Philippine national" either
Investments Code of 1987, and to the passage of the present Foreign Investments
Act of 1991, or for more than four decades, the statutory definition of the term
"Philippine national" has been uniform and consistent: it means a Filipino citizen, or a
COMMISSIONER GAITE:
domestic corporation at least 60% of the voting stock is owned by Filipinos. Likewise,
these same statutes have uniformly and consistently required that only "Philippine
nationals" could own and operate public utilities in the Philippines. The following
exchange during the Oral Arguments is revealing:
JUSTICE CARPIO:
JUSTICE CARPIO:
And, you are also aware that under the predecessor law of the Foreign Investments
Act of 1991, the Omnibus Investments Act of 1987, the same provisions apply: x x x
only Philippine nationals can own and operate a public utility and the Philippine
235
is a corporation, x x x at least sixty percent (60%) of the voting stock must be owned
COMMISSIONER GAITE:
COMMISSIONER GAITE:
JUSTICE CARPIO:
Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the
FIA which categorically prescribe that certain economic activities, like the ownership
And even prior to the Omnibus Investments Act of 1987, under the Omnibus
and operation of public utilities, are reserved to corporations "at least sixty percent
Investments Act of 1981, the same rules apply: x x x only a Philippine national can
(60%) of the capital stock outstanding and entitled to vote is owned and held by
own and operate a public utility and a Philippine national, if it is a corporation, sixty
percent (60%) of its x x x voting stock, must be owned by citizens of the Philippines,
correct?
The FIA is the basic statute regulating foreign investments in the Philippines.
Government agencies tasked with regulating or monitoring foreign investments, as
COMMISSIONER GAITE:
well as counsels of foreign investors, should start with the FIA in determining to what
extent a particular foreign investment is allowed in the Philippines. Foreign investors
and their counsels who ignore the FIA do so at their own peril. Foreign investors and
their counsels who rely on opinions of SEC legal officers that obviously contradict the
JUSTICE CARPIO:
And even prior to that, under [the]1967 Investments Incentives Act and the Foreign
Occasional opinions of SEC legal officers that obviously contradict the FIA should
immediately raise a red flag. There are already numerous opinions of SEC legal
officers that cite the definition of a "Philippine national" in Section 3(a) of the FIA in
COMMISSIONER GAITE:
legal officers are not only aware of, but also rely on and invoke, the provisions of the
FIA in ascertaining the eligibility of a corporation to engage in partially nationalized
JUSTICE CARPIO:
So, for the last four (4) decades, x x x, the law has been very consistent only a
Philippine national can own and operate a public utility, and a Philippine national, if it
236
The FIA is the applicable law regulating foreign investments in nationalized or partially
nationalized industries. There is nothing in the FIA, or even in the Omnibus
Jardeleza;
impliedly, that the FIA or its predecessor statutes do not apply to enterprises not
availing of tax and fiscal incentives under the Code. The FIA and its predecessor
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De
Los Angeles;
enterprises enjoy tax and fiscal incentives under the Omnibus Investments Code of
1987 or its predecessor statutes. The reason is quite obvious mere non-availment of
tax and fiscal incentives by a non-Philippine national cannot exempt it from Section
11, Article XII of the Constitution regulating foreign investments in public utilities. In
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard
S. Arbolado.
The SEC legal officers occasional but blatant disregard of the definition of the term
"Philippine national" in the FIA signifies their lack of integrity and competence in
resolving issues on the 60-40 ownership requirement in favor of Filipino citizens in
Investors who do not seek incentives and/or whose chosen activities do not qualify for
incentives, (i.e., the activity is not listed in the IPP, and they are not exporting at least
70% of their production) may go ahead and make the investments without seeking
The PSE President argues that the term "Philippine national" defined in the FIA
incentives. They only have to be guided by the Foreign Investments Negative List
should be limited and interpreted to refer to corporations seeking to avail of tax and
(FINL).
fiscal incentives under investment incentives laws and cannot be equated with the
term "capital" in Section 11, Article XII of the 1987 Constitution. Pangilinan similarly
The FINL clearly defines investment areas requiring at least 60% Filipino ownership.
contends that the FIA and its predecessor statutes do not apply to "companies which
All other areas outside of this list are fully open to foreign investors. (Emphasis
have not registered and obtained special incentives under the schemes established
supplied)
by those laws."
V.
Both are desperately grasping at straws. The FIA does not grant tax or fiscal
incentives to any enterprise. Tax and fiscal incentives to investments are granted
separately under the Omnibus Investments Code of 1987, not under the FIA. In fact,
237
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required
shares may be denied such right. Nonetheless, preferred shares, even if denied the
by the Constitution to engage in certain economic activities applies not only to voting
right to vote in the election of directors, are entitled to vote on the following corporate
control of the corporation, but also to the beneficial ownership of the corporation. To
repeat, we held:
capital stock; (3) incurring, creating or increasing bonded indebtedness; (4) sale,
lease, mortgage or other disposition of substantially all corporate assets; (5)
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required
investment of funds in another business or corporation or for a purpose other than the
primary purpose for which the corporation was organized; (6) adoption, amendment
stock, coupled with 60 percent of the voting rights, is required. The legal and
and repeal of by-laws; (7) merger and consolidation; and (8) dissolution of
beneficial ownership of 60 percent of the outstanding capital stock must rest in the
corporation.37
Since a specific class of shares may have rights and privileges or restrictions different
from the rest of the shares in a corporation, the 60-40 ownership requirement in favor
This is consistent with Section 3 of the FIA which provides that where 100% of the
of Filipino citizens in Section 11, Article XII of the Constitution must apply not only to
capital stock is held by "a trustee of funds for pension or other employee retirement or
shares with voting rights but also to shares without voting rights. Preferred shares,
separation benefits," the trustee is a Philippine national if "at least sixty percent (60%)
denied the right to vote in the election of directors, are anyway still entitled to vote on
of the fund will accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of
the eight specific corporate matters mentioned above. Thus, if a corporation, engaged
the Implementing Rules of the FIA provides that "for stocks to be deemed owned and
held by Philippine citizens or Philippine nationals, mere legal title is not enough to
voting shares, at least 60 percent of the common shares and at least 60 percent of
meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
corporation issues only a single class of shares, at least 60 percent of such shares
must necessarily be owned by Filipinos. In short, the 60-40 ownership requirement in
favor of Filipino citizens must apply separately to each class of shares, whether
not only to voting control of the corporation but also to the beneficial ownership of the
common, preferred non-voting, preferred voting or any other class of shares. This
across the board to all classes of shares, regardless of nomenclature and category,
clearly breathes life to the constitutional command that the ownership and operation
comprising the capital of a corporation. Under the Corporation Code, capital stock35
consists of all classes of shares issued to stockholders, that is, common shares as
well as preferred shares, which may have different rights, privileges or restrictions as
The Corporation Code allows denial of the right to vote to preferred and redeemable
shares, but disallows denial of the right to vote in specific corporate matters. Thus,
Moreover, such uniform application to each class of shares insures that the
common shares have the right to vote in the election of directors, while preferred
"controlling interest" in public utilities always lies in the hands of Filipino citizens. This
238
addresses and extinguishes Pangilinans worry that foreigners, owning most of the
non-voting shares, will exercise greater control over fundamental corporate matters
permitted by the Corporation Code, does the Committee adopt the grandfather rule?
deliberations of the Constitutional Commission to support his claim that the term
"capital" refers to the total outstanding shares of stock, whether voting or non-voting,
the following excerpts of the deliberations reveal otherwise. It is clear from the
following exchange that the term "capital" refers to controlling interest of a corporation,
thus:
xxxx
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity
and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in
MR. AZCUNA. May I be clarified as to that portion that was accepted by the
Section 15.
Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase
"voting stock or controlling interest."
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do
we base the equity requirement, is it on the authorized capital stock, on the
MR. AZCUNA. Hence, without the Davide amendment, the committee report would
subscribed capital stock, or on the paid-up capital stock of a corporation"? Will the
by such citizens."
MR. VILLEGAS. We have just had a long discussion with the members of the team
from the UP Law Center who provided us a draft. The phrase that is contained here
which we adopted from the UP draft is "60 percent of voting stock."
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of
the capital to be owned by citizens.
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall be entitled to vote.
239
MR. AZCUNA. But the control can be with the foreigners even if they are the minority.
explains that the deletion of the phrase "controlling interest" and replacement of the
Let us say 40 percent of the capital is owned by them, but it is the voting capital,
word "stock" with the term "capital" were intended specifically to extend the scope of
whereas, the Filipinos own the nonvoting shares. So we can have a situation where
the entities qualified to operate public utilities to include associations without stocks.
the corporation is controlled by foreigners despite being the minority because they
The framers omission of the phrase "controlling interest" did not mean the inclusion of
have the voting capital. That is the anomaly that would result here.
all shares of stock, whether voting or non-voting. The OSG reiterated essentially the
Courts declaration that the Constitution reserved exclusively to Philippine nationals
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973
the ownership and operation of public utilities consistent with the States policy to
Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the
total outstanding capital stock, treated as a single class regardless of the actual
classification of shares, grossly contravenes the intent and letter of the Constitution
underscoring supplied)
that the "State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos." We illustrated the glaring anomaly which would
Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest"
result in defining the term "capital" as the total outstanding capital stock of a
in the corporation.
The use of the term "capital" was intended to replace the word "stock" because
associations without stocks can operate public utilities as long as they meet the 60-40
Let us assume that a corporation has 100 common shares owned by foreigners and
ownership requirement in favor of Filipino citizens prescribed in Section 11, Article XII
1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share
of the Constitution. However, this did not change the intent of the framers of the
having a par value of one peso (P 1.00) per share. Under the broad definition of the
term "capital," such corporation would be considered compliant with the 40 percent
public utilities.
constitutional limit on foreign equity of public utilities since the overwhelming majority,
or more than 99.999 percent, of the total outstanding capital stock is Filipino owned.
During the drafting of the 1935 Constitution, economic protectionism was "the battle-
cry of the nationalists in the Convention."41 The same battle-cry resulted in the
nationalization of the public utilities.42 This is also the same intent of the framers of
In the example given, only the foreigners holding the common shares have voting
the 1987 Constitution who adopted the exact formulation embodied in the 1935 and
rights in the election of directors, even if they hold only 100 shares. The foreigners,
with a minuscule equity of less than 0.001 percent, exercise control over the public
utility. On the other hand, the Filipinos, holding more than 99.999 percent of the
The OSG, in its own behalf and as counsel for the State,43 agrees fully with the
equity, cannot vote in the election of directors and hence, have no control over the
Courts interpretation of the term "capital." In its Consolidated Comment, the OSG
public utility. This starkly circumvents the intent of the framers of the Constitution, as
240
well as the clear language of the Constitution, to place the control of public utilities in
Indeed, the only point of contention during the deliberations of the Constitutional
Commission on 23 August 1986 was the extent of majority Filipino control of public
utilities. This is evident from the following exchange:
Further, even if foreigners who own more than forty percent of the voting shares elect
an all-Filipino board of directors, this situation does not guarantee Filipino control and
does not in any way cure the violation of the Constitution. The independence of the
Filipino board members so elected by such foreign shareholders is highly doubtful. As
the OSG pointed out, quoting Justice George Sutherlands words in Humphreys
delete the phrase "two thirds of whose voting stock or controlling interest," and instead
Executor v. US,44 "x x x it is quite evident that one who holds his office only during
substitute the words "SIXTY PERCENT OF WHOSE CAPITAL" so that the sentence
will read: "No franchise, certificate, or any other form of authorization for the operation
controlling majority of the board, even if all the directors are Filipinos, grossly
circumvents the letter and intent of the Constitution and defeats the very purpose of
The last sentence of Section 11, Article XII of the 1987 Constitution reads:
MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two
previous sections in which we fixed the Filipino equity to 60 percent as against 40
The participation of foreign investors in the governing body of any public utility
percent for foreigners. It is only in this Section 15 with respect to public utilities that
enterprise shall be limited to their proportionate share in its capital, and all the
harmonize this provision by providing that even in the case of public utilities, the
of the Philippines.
During the Oral Arguments, the OSG emphasized that there was never a question on
the intent of the framers of the Constitution to limit foreign ownership, and assure
majority Filipino ownership and control of public utilities. The OSG argued, "while the
MR. ROMULO. My reason for supporting the amendment is based on the discussions
and is obtained only through the election of a majority of the members of the board."
I have had with representatives of the Filipino majority owners of the international
record carriers, and the subsequent memoranda they submitted to me. x x x
241
Their second point is that under the Corporation Code, the management and control
participation of foreign investors in the governing body of any public utility enterprise
of a corporation is vested in the board of directors, not in the officers but in the board
shall be limited to their proportionate share in its capital, and all the executive and
of directors. The officers are only agents of the board. And they believe that with 60
percent of the equity, the Filipino majority stockholders undeniably control the board.
Philippines." In other words, the last sentence of Section 11, Article XII of the
Only on important corporate acts can the 40-percent foreign equity exercise a veto, x
Constitution mandates that (1) the participation of foreign investors in the governing
x x.
x x x x45
Filipino citizens.
Commissioner Rosario Braid proposed the inclusion of the phrase requiring the
managing officers of the corporation or association to be Filipino citizens specifically
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a
memorandum by the spokesman of the Philippine Chamber of Communications on
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision
why they would like to maintain the present equity, I am referring to the 66 2/3. They
would prefer to have a 75-25 ratio but would settle for 66 2/3. x x x
xxxx
THE PRESIDENT. The Commissioner may proceed.
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the
proposal of two-thirds rather than the 60 percent?
MS. ROSARIO BRAID. The three major international record carriers in the
Philippines,
which
Commissioner
Romulo
mentioned
Philippine
Global
MS. ROSARIO BRAID. I have added a clause that will put management in the hands
of Filipino citizens.
x x x x46
these foreign companies Philcom with RCA, ETPI with Cable and Wireless PLC,
and GMCR with ITT. Up to the present time, the general managers of these carriers
While they had differing views on the percentage of Filipino ownership of capital, it is
are foreigners. While the foreigners in these common carriers are only minority
clear that the framers of the Constitution intended public utilities to be majority
owners, the foreign multinationals are the ones managing and controlling their
Filipino-owned and controlled. To ensure that Filipinos control public utilities, the
framers of the Constitution approved, as additional safeguard, the inclusion of the last
sentence of Section 11, Article XII of the Constitution commanding that "[t]he
242
xxxx
FR. BERNAS. Will the committee accept a reformulation of the first part?
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to
FR. BERNAS. The reformulation will be essentially the formula of the 1973
Thank you.
AND
ASSOCIATIONS
MUST
BE
CITIZENS
OF
THE
PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the whole thing again?
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new section to read: THE
MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN
This will prevent management contracts and assure control by Filipino citizens. Will
the committee assure us that this amendment will insure that past activities such as
We accept the amendment. Is that all right with Commissioner Rosario Braid?
xxxx
243
MR. DE LOS REYES. The governing body refers to the board of directors and
trustees.
MR. BENGZON. Yes, the governing body refers to the board of directors.
MR.
MR. REGALADO. It is accepted.
VILLEGAS.
"NOR
SHALL
SUCH
FRANCHISE,
CERTIFICATE
OR
YEARS. Neither shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal by Congress
VOTING
when the common good so requires. The State shall encourage equity participation in
public utilities by the general public."
xxxx
VOTING
The results show 29 votes in favor and none against; so the proposed amendment is
approved.
xxxx
xxxx
The results show 29 votes in favor and 4 against; Section 15, as amended, is
approved.48 (Emphasis supplied)
THE PRESIDENT. All right. Can we proceed now to vote on Section 15?
The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the committee please read Section 15?
MR. VILLEGAS. The entire Section 15, as amended, reads: "No franchise, certificate,
or any other form of authorization for the operation of a public utility shall be granted
VIII.
There is no dispute, and respondents do not claim the contrary, that (1) foreigners
own 64.27% of the common shares of PLDT, which class of shares exercises the sole
right to vote in the election of directors, and thus foreigners control PLDT; (2) Filipinos
244
own only 35.73% of PLDTs common shares, constituting a minority of the voting
stock, and thus Filipinos do not control PLDT; (3) preferred shares, 99.44% owned by
7. For the Honorable Court to direct the Securities and Exchange Commission and
Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends
Philippine Stock Exchange to require PLDT to make a public disclosure of all of its
that common shares earn;50 (5) preferred shares have twice the par value of common
shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of
PLDT and common shares only 22.15%.
Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)
Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling
As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the
on the question of whether PLDT violated the 60-40 ownership requirement in favor of
SEC to perform its statutory duty to investigate whether "the required percentage of
Filipino citizens in Section 11, Article XII of the 1987 Constitution. Such question
ownership of the capital stock to be owned by citizens of the Philippines has been
complied with [by PLDT] as required by x x x the Constitution."51 Such plea clearly
which is generally outside the province of the Courts jurisdiction, but well within the
SECs statutory powers. Thus, for obvious reasons, the Court limited its decision on
the purely legal and threshold issue on the definition of the term "capital" in Section
Granting that only the SEC Chairman was impleaded in this case, the Court has
11, Article XII of the Constitution and directed the SEC to apply such definition in
ample powers to order the SECs compliance with its directive contained in the 28
June 2011 Decision in view of the far-reaching implications of this case. In Domingo v.
Scheer,52 the Court dispensed with the amendment of the pleadings to implead the
IX.
Bureau of Customs considering (1) the unique backdrop of the case; (2) the utmost
need to avoid further delays; and (3) the issue of public interest involved. The Court
held:
The Court may be curing the defect in this case by adding the BOC as partypetitioner. The petition should not be dismissed because the second action would only
xxxx
be a repetition of the first. In Salvador, et al., v. Court of Appeals, et al., we held that
this Court has full powers, apart from that power and authority which is inherent, to
5. For the Honorable Court to issue a declaratory relief that ownership of common or
voting shares is the sole basis in determining foreign equity in a public utility and that
plaintiff the real party-in-interest. The Court has the power to avoid delay in the
any other government rulings, opinions, and regulations inconsistent with this
disposition of this case, to order its amendment as to implead the BOC as party-
declaratory relief be declared unconstitutional and a violation of the intent and spirit of
unique backdrop in this case, involving as it does an issue of public interest. After all,
the Office of the Solicitor General has represented the petitioner in the instant
6. For the Honorable Court to declare null and void all sales of common stocks to
proceedings, as well as in the appellate court, and maintained the validity of the
deportation order and of the BOCs Omnibus Resolution. It cannot, thus, be claimed
245
by the State that the BOC was not afforded its day in court, simply because only the
petitioner, the Chairperson of the BOC, was the respondent in the CA, and the
Notably, the foregoing issues were left untouched by the Court. The Court did not rule
petitioner in the instant recourse. In Alonso v. Villamor, we had the occasion to state:
on the factual issues raised by Gamboa, except the single and purely legal issue on
the definition of the term "capital" in Section 11, Article XII of the Constitution. The
There is nothing sacred about processes or pleadings, their forms or contents. Their
Court confined the resolution of the instant case to this threshold legal issue in
sole purpose is to facilitate the application of justice to the rival claims of contending
parties. They were created, not to hinder and delay, but to facilitate and promote, the
administration of justice. They do not constitute the thing itself, which courts are
Needless to state, the Court can validly, properly, and fully dispose of the fundamental
always striving to secure to litigants. They are designed as the means best adapted to
legal issue in this case even without the participation of PLDT since defining the term
obtain that thing. In other words, they are a means to an end. When they lose the
"capital" in Section 11, Article XII of the Constitution does not, in any way, depend on
character of the one and become the other, the administration of justice is at fault and
whether PLDT was impleaded. Simply put, PLDT is not indispensable for a complete
resolution of the purely legal question in this case.55 In fact, the Court, by treating the
(Emphasis supplied)
petition as one for mandamus,56 merely directed the SEC to apply the Courts
definition of the term "capital" in Section 11, Article XII of the Constitution in
In any event, the SEC has expressly manifested54 that it will abide by the Courts
decision and defer to the Courts definition of the term "capital" in Section 11, Article
provision. The dispositive portion of the Courts ruling is addressed not to PLDT but
XII of the Constitution. Further, the SEC entered its special appearance in this case
solely to the SEC, which is the administrative agency tasked to enforce the 60-40
and argued during the Oral Arguments, indicating its submission to the Courts
ownership requirement in favor of Filipino citizens in Section 11, Article XII of the
jurisdiction. It is clear, therefore, that there exists no legal impediment against the
Constitution.
term "capital" in Section 11, Article XII of the 1987 Constitution, and directed the SEC
factual questions, are concerned. In other words, PLDT must be impleaded in order to
fully resolve the issues on (1) whether the sale of 111,415 PTIC shares to First Pacific
violates the constitutional limit on foreign ownership of PLDT; (2) whether the sale of
common shares to foreigners exceeded the 40 percent limit on foreign equity in PLDT;
misimpression. Due process will be afforded to PLDT when it presents proof to the
and (3) whether the total percentage of the PLDT common shares with voting rights
SEC that it complies, as it claims here, with Section 11, Article XII of the Constitution.
complies with the 60-40 ownership requirement in favor of Filipino citizens under the
Constitution for the ownership and operation of PLDT. These issues indisputably call
X.
for an examination of the parties respective evidence, and thus are clearly within the
jurisdiction of the SEC. In short, PLDT must be impleaded, and must necessarily be
heard, in the proceedings before the SEC where the factual issues will be thoroughly
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as
it may result in a sudden flight of existing foreign investors to "friendlier" countries and
246
simultaneously deterring new foreign investors to our country. In particular, the PSE
to save our ailing economy contradicts his own theory that the solution is for
claims that the 28 June 2011 Decision may result in the following: (1) loss of more
government to take over these companies. Dr. Villegas is barking up the wrong tree
than P 630 billion in foreign investments in PSE-listed shares; (2) massive decrease in
since State ownership of public utilities and foreign investments in such industries are
foreign trading transactions; (3) lower PSE Composite Index; and (4) local investors
argument to decide the present case differently for two reasons. First, the
governments of our neighboring countries have, as claimed by Dr. Villegas, taken over
ownership and control of their strategic public utilities like the telecommunications
which boast of growing economies. Further, Dr. Villegas explained that the solution to
industry. Second, our Constitution has specific provisions limiting foreign ownership in
our economic woes is for the government to "take-over" strategic industries, such as
public utilities which the Court is sworn to uphold regardless of the experience of our
neighboring countries.
JUSTICE CARPIO:
In our jurisdiction, the Constitution expressly reserves the ownership and operation of
public utilities to Filipino citizens, or corporations or associations at least 60 percent of
I would like also to get from you Dr. Villegas if you have additional information on
whose capital belongs to Filipinos. Following Dr. Villegass claim, the Philippines
whether this high FDI59 countries in East Asia have allowed foreigners x x x control
[of] their public utilities, so that we can compare apples with apples.
utilities, unlike in other Asian countries whose governments own and operate such
industries.
DR. VILLEGAS:
XI.
Correct, but let me just make a comment. When these neighbors of ours find an
In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning
enterprises. So, in these countries, nationalization means the government takes over.
And because their governments are competent and honest enough to the public, that
PLDT violated Section 11, Article XII of the Constitution. Thus, there is no dispute that
our public utilities serve no purpose. Obviously, there can never be foreign
it is only after the SEC has determined PLDTs violation, if any exists at the time of the
investments in public utilities if, as Dr. Villegas claims, the "solution is to make sure
commencement of the administrative case or investigation, that the SEC may impose
that those industries are in the hands of state enterprises." Dr. Villegass argument
the statutory sanctions against PLDT. In other words, once the 28 June 2011 Decision
that foreign investments in telecommunication companies like PLDT are badly needed
becomes final, the SEC shall impose the appropriate sanctions only if it finds after
247
due hearing that, at the start of the administrative case or investigation, there is an
Filipinos have only to remind themselves of how this country was exploited under the
existing violation of Section 11, Article XII of the Constitution. Under prevailing
Parity Amendment, which gave Americans the same rights as Filipinos in the
jurisprudence, public utilities that fail to comply with the nationality requirement under
exploitation of natural resources, and in the ownership and control of public utilities, in
Section 11, Article XII and the FIA can cure their deficiencies prior to the start of the
the Philippines. To do this the 1935 Constitution, which contained the same 60
percent Filipino ownership and control requirement as the present 1987 Constitution,
had to be amended to give Americans parity rights with Filipinos. There was bitter
XII.
opposition to the Parity Amendment62 and many Filipinos eagerly awaited its
Final Word
expiration. In late 1968, PLDT was one of the American-controlled public utilities that
became Filipino-controlled when the controlling American stockholders divested in
"effectively controlled" by Filipinos. Consistent with such State policy, the Constitution
suicide happened when control of public utilities and mining corporations passed to
nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens,
or corporations or associations at least 60 percent of whose capital with voting rights
Movants interpretation of the term "capital" would bring us back to the same evils
belongs to Filipinos. The FIAs implementing rules explain that "[f]or stocks to be
spawned by the Parity Amendment, effectively giving foreigners parity rights with
deemed owned and held by Philippine citizens or Philippine nationals, mere legal title
Filipinos, but this time even without any amendment to the present Constitution.
is not enough to meet the required Filipino equity. Full beneficial ownership of the
Worse, movants interpretation opens up our national economy to effective control not
stocks, coupled with appropriate voting rights is essential." In effect, the FIA clarifies,
reiterates and confirms the interpretation that the term "capital" in Section 11, Article
Chinese, even in the absence of reciprocal treaty arrangements. At least the Parity
XII of the 1987 Constitution refers to shares with voting rights, as well as with full
beneficial ownership. This is precisely because the right to vote in the election of
starved Filipinos theoretical parity the same rights as Americans to exploit natural
resources, and to own and control public utilities, in the United States of America.
control of a corporation.
Any other construction of the term "capital" in Section 11, Article XII of the
mean that Indonesians, Malaysians and Chinese nationals could effectively control
Constitution contravenes the letter and intent of the Constitution. Any other meaning
our mining companies and public utilities while Filipinos, even if they have the capital,
of the term "capital" openly invites alien domination of economic activities reserved
The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership
and control requirement for public utilities like PLOT. Any deviation from this
own country.
248
The subject matter of these consolidated petitions is the decision of the Court of
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further
Appeals in CA-G.R. CV No. 66195 which modified the decision of the then Court of
First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in
G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was
dismissed but in all other respects the trial court's decision was affirmed.
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT,
pay plaintiff the amount of P311,056.02, with interest at the rate of 12% per annum
respondents.
compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's fees
from July 2,1966, until full payment is made; plus P70,000.00 moral and exemplary
damages.
It is found in the records that the cross party plaintiffs incurred additional
vs.
Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco, the
Cervanteses one-half and Maglana the other half, the amount of Pl84,878.74 with
interest from the filing of the cross-complaints until the amount is fully paid; plus moral
and exemplary damages in the amount of P184,878.84 with interest from the filing of
the cross-complaints until the amount is fully paid; plus moral and exemplary
damages in the amount of P50,000.00 for each of the two Cervanteses.
xxx
xxx
xxx
249
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco),
No moral or exemplary damages is awarded against plaintiff for this action was filed in
above aircrafts and spare parts. The funds were supposed to be their contributions to
good faith. The fact that the properties of the Bormaheco and the Cervanteses were
a new corporation proposed by Lim to expand his airline business. They executed two
attached and that they were required to file a counterbond in order to dissolve the
(2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one
attachment, is not an act of bad faith. When a man tries to protect his rights, he
signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the
should not be saddled with moral or exemplary damages. Furthermore, the rights
exercised were provided for in the Rules of Court, and it was the court that ordered it,
agree and bind themselves jointly and severally to indemnify and hold and save
harmless Pioneer from and against any/all damages, losses, costs, damages, taxes,
penalties, charges and expenses of whatever kind and nature which Pioneer may
incur in consequence of having become surety upon the bond/note and to pay,
defendant, for it only secured the attachment prayed for by the plaintiff Pioneer. If an
reimburse and make good to Pioneer, its successors and assigns, all sums and
insurance company would be liable for damages in performing an act which is clearly
within its power and which is the reason for its being, then nobody would engage in
On June 10, 1965, Lim doing business under the name and style of SAL executed in
favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline
favor of the former. It was stipulated therein that Lim transfer and convey to the surety
the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the
Register of Deeds of the City of Manila and with the Civil Aeronautics Administration
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered
pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act
into and executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-
3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of
US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-
718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on
July 18,1965.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in
mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however,
G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C)
filed a third party claim alleging that they are co-owners of the aircrafts,
in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and
spare parts.
250
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for
for the recovery of the amount of P298,666.28 from defendants will no longer prosper.
Plaintiff Pioneer is not the real party in interest to institute the instant action as it does
not stand to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount
way of counterclaim, sought for damages for being exposed to litigation and for
from defendants, hence, it instituted the action is utterly devoid of merit. Plaintiff did
recovery of the sums of money they advanced to Lim for the purchase of the aircrafts
not even present any evidence that it is the attorney-in-fact of the reinsurance
in question.
company, authorized to institute an action for and in behalf of the latter. To qualify a
person to be a real party in interest in whose name an action must be prosecuted, he
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but
must appear to be the present real owner of the right sought to be enforced (Moran,
Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has been held that the
real party in interest is the party who would be benefited or injured by the judgment or
As stated earlier, the appellate court modified the trial court's decision in that the
the party entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88
plaintiffs complaint against all the defendants was dismissed. In all other respects the
Phil. 125, 131). By real party in interest is meant a present substantial interest as
Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City
of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
party in interest as it has already been paid by the reinsurer the sum of P295,000.00
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from
RECOVER
its reinsurer, the former was able to foreclose extra-judicially one of the subject
THE AMOUNT
FROM
HEREIN PRIVATE
RESPONDENTS
AS
airplanes and its spare engine, realizing the total amount of P37,050.00 from the sale
of the mortgaged chattels. Adding the sum of P37,050.00, to the proceeds of the
to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the amount
reinsured its risk of liability under the surety bond in favor of JDA and subsequently
been paid by the reinsurance company of the amount plaintiff has paid to JDA as
251
surety of defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled is the
It appearing that Pioneer reinsured its risk of liability under the surety bond it had
rule that no person should unjustly enrich himself at the expense of another (Article
executed in favor of JDA, collected the proceeds of such reinsurance in the sum of
P295,000, and paid with the said amount the bulk of its alleged liability to JDA under
the said surety bond, it is plain that on this score it no longer has any right to collect to
The petitioner contends that-(1) it is at a loss where respondent court based its finding
that petitioner was paid by its reinsurer in the aforesaid amount, as this matter has
never been raised by any of the parties herein both in their answers in the court below
On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing
and in their respective briefs with respondent court; (Rollo, p. 11) (2) even assuming
defendants for the amount paid to it by the reinsurers, notwithstanding that the cause
hypothetically that it was paid by its reinsurer, still none of the respondents had any
of action pertains to the latter, Pioneer says: The reinsurers opted instead that the
interest in the matter since the reinsurance is strictly between the petitioner and the
Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . . Pioneer
re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity
Insurance & Surety Corporation is representing the reinsurers to recover the amount.'
In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing
Maglana; and (4) the principle of unjust enrichment is not applicable considering that
whatever amount he would recover from the co-indemnitor will be paid to the
reinsurer.
But in the first place, there is not the slightest indication in the complaint that Pioneer
is suing as attorney-in- fact of the reinsurers for any amount. Lastly, and most
The records belie the petitioner's contention that the issue on the reinsurance money
important of all, Pioneer has no right to institute and maintain in its own name an
action for the benefit of the reinsurers. It is well-settled that an action brought by an
attorney-in-fact in his own name instead of that of the principal will not prosper, and
A cursory reading of the trial court's lengthy decision shows that two of the issues
this is so even where the name of the principal is disclosed in the complaint.
xxx
xxx
prosecuted in the name of the real party in interest.' This provision is mandatory. The
real party in interest is the party who would be benefitted or injured by the judgment or
1.
claim against defendants, considering the amount it has realized from the sale of the
Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo,
19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L22347,1968, 23 SCRA 706, 710-714.
In resolving these issues, the trial court made the following findings:
252
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected
P295,000.00 from the reinsurers, the uninsured portion of what it paid to JDA is the
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v.
difference between the two amounts, or P3,666.28. This is the amount for which
Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila
Pioneer may sue defendants, assuming that the indemnity agreement is still valid and
effective. But since the amount realized from the sale of the mortgaged chattels are
P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a total of
Note that if a property is insured and the owner receives the indemnity from the
insurer, it is provided in said article that the insurer is deemed subrogated to the rights
of the insured against the wrongdoer and if the amount paid by the insurer does not
fully cover the loss, then the aggrieved party is the one entitled to recover the
The payment to the petitioner made by the reinsurers was not disputed in the
deficiency. Evidently, under this legal provision, the real party in interest with regard to
appellate court. Considering this admitted payment, the only issue that cropped up
the portion of the indemnity paid is the insurer and not the insured. (Emphasis
was the effect of payment made by the reinsurers to the petitioner. Therefore, the
supplied).
petitioner's argument that the respondents had no interest in the reinsurance contract
as this is strictly between the petitioner as insured and the reinsuring company
It is clear from the records that Pioneer sued in its own name and not as an attorney-
pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis.
Accordingly, the appellate court did not commit a reversible error in dismissing the
as are acquired in similar cases where the original insurer pays a loss (Universal Ins.
petitioner's complaint as against the respondents for the reason that the petitioner
was not the real party in interest in the complaint and, therefore, has no cause of
action against the respondents.
The rules of practice in actions on original insurance policies are in general applicable
to actions or contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins.
Nevertheless, the petitioner argues that the appeal as regards the counter
indemnitors should not have been dismissed on the premise that the evidence on
record shows that it is entitled to recover from the counter indemnitors. It does not,
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
however, cite any grounds except its allegation that respondent "Maglanas defense
and evidence are certainly incredible" (p. 12, Rollo) to back up its contention.
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
On the other hand, we find the trial court's findings on the matter replete with evidence
contract complained of, the insurance company shall be subrogated to the rights of
to substantiate its finding that the counter-indemnitors are not liable to the petitioner.
the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
Apart from the foregoing proposition, the indemnity agreement ceased to be valid and
loss or injury.
253
SAL or Lim, having failed to pay the second to the eight and last installments to JDA
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
and Pioneer as surety having made of the payments to JDA, the alternative remedies
open to Pioneer were as provided in Article 1484 of the New Civil Code, known as the
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved,
Recto Law.
agreed to issue the bond provided that the same would be mortgaged to it, but this
was not possible because the planes were still in Japan and could not be mortgaged
here in the Philippines. As soon as the aircrafts were brought to the Philippines, they
extrajudicial foreclosure and the instant suit. Such being the case, as provided by the
would be mortgaged to Pioneer Insurance to cover the bond, and this indemnity
aforementioned provisions, Pioneer shall have no further action against the purchaser
to recover any unpaid balance and any agreement to the contrary is void.' Cruz, et al.
v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23 SCRA 791,
795-6.
The various conflicting claims over the mortgaged properties have impaired and
The operation of the foregoing provision cannot be escaped from through the
rendered insufficient the security under the chattel mortgage and there is thus no
contention that Pioneer is not the vendor but JDA. The reason is that Pioneer is
other sufficient security for the claim sought to be enforced by this action.
actually exercising the rights of JDA as vendor, having subrogated it in such rights.
Nor may the application of the provision be validly opposed on the ground that these
This is judicial admission and aside from the chattel mortgage there is no other
defendants and defendant Maglana are not the vendee but indemnitors. Pascual, et
security for the claim sought to be enforced by this action, which necessarily means
al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.
that the indemnity agreement had ceased to have any force and effect at the time this
action was instituted. Sec 2, Rule 129, Revised Rules of Court.
The restructuring of the obligations of SAL or Lim, thru the change of their maturity
dates discharged these defendants from any liability as alleged indemnitors. The
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on
change of the maturity dates of the obligations of Lim, or SAL extinguish the original
the planes and spare parts, no longer has any further action against the defendants
as indemnitors to recover any unpaid balance of the price. The indemnity agreement
was ipso jure extinguished upon the foreclosure of the chattel mortgage. These
The principal hereof shall be paid in eight equal successive three months interval
installments, the first of which shall be due and payable 25 August 1965, the
should they make payments to the latter. Articles 2067 and 2080 of the New Civil
remainder of which ... shall be due and payable on the 26th day x x x of each
succeeding three months and the last of which shall be due and payable 26th May
1967.
However, at the trial of this case, Pioneer produced a memorandum executed by SAL
or Lim and JDA, modifying the maturity dates of the obligations, as follows:
254
The principal hereof shall be paid in eight equal successive three month interval
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the
installments the first of which shall be due and payable 4 September 1965, the
same. Consequently, Pioneer has no more cause of action to recover from these
remainder of which ... shall be due and payable on the 4th day ... of each succeeding
months and the last of which shall be due and payable 4th June 1967.
express stipulation in the surety bond, the failure of JDA to present its claim to
Pioneer within ten days from default of Lim or SAL on every installment, released
Not only that, Pioneer also produced eight purported promissory notes bearing
maturity dates different from that fixed in the aforesaid memorandum; the due date of
the first installment appears as October 15, 1965, and those of the rest of the
Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru
installments, the 15th of each succeeding three months, that of the last installment
the indemnity.
his co-debtors if such payment is made after the obligation has prescribed or became
twice, were done without the knowledge, much less, would have it believed that these
illegal.
These defendants are entitled to recover damages and attorney's fees from Pioneer
modification of the obligations. But if that were so, there would have been the
and its surety by reason of the filing of the instant case against them and the
conformity of these defendants, and there are no such document. The consequence
of this was the extinguishment of the obligations and of the surety bond secured by
the indemnity agreement which was thereby also extinguished. Applicable by analogy
are the rulings of the Supreme Court in the case of Kabankalan Sugar Co. v.
Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45
Phil. 532, 538.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
Art. 2079. An extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty The mere failure on the part of the creditor to
demand payment after the debt has become due does not of itself constitute any
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co.,
agreement was to do business through the corporate vehicle but who failed to
incorporate the entity in which they had chosen to invest? How are the losses to be
treated in situations where their contributions to the intended 'corporation' were
invested not through the corporate form? This Petition presents these fundamental
255
questions which we believe were resolved erroneously by the Court of Appeals ('CA').
rights as members of the company to the property acquired by the company will be
(Rollo, p. 6).
recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v.
Parker, 29 Mich. 369). So, where certain persons associated themselves as a
These questions are premised on the petitioner's theory that as a result of the failure
corporation for the development of land for irrigation purposes, and each conveyed
land to the corporation, and two of them contracted to pay a third the difference in the
Lim to incorporate, a de facto partnership among them was created, and that as a
proportionate value of the land conveyed by him, and no stock was ever issued in the
consequence of such relationship all must share in the losses and/or gains of the
corporation, it was treated as a trustee for the associates in an action between them
for an accounting, and its capital stock was treated as partnership assets, sold, and
appellate court's findings ordering him to reimburse certain amounts given by the
the proceeds distributed among them in proportion to the value of the property
contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does
not necessarily exist, for ordinarily persons cannot be made to assume the relation of
However, defendant Lim should be held liable to pay his co-defendants' cross-claims
partners, as between themselves, when their purpose is that no partnership shall exist
in the total amount of P184,878.74 as correctly found by the trial court, with interest
(London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed.
from the filing of the cross-complaints until the amount is fully paid. Defendant Lim
688), and it should be implied only when necessary to do justice between the parties;
should pay one-half of the said amount to Bormaheco and the Cervanteses and the
thus, one who takes no part except to subscribe for stock in a proposed corporation
which is never legally formed does not become a partner with other subscribers who
Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and
as such in an action for settlement of the alleged partnership and contribution (Ward
airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred
v. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and
other stockholders, who were also directors, will not be implied in the absence of an
agreement, so as to make the former liable to contribute for payment of debts illegally
contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris
Secundum, Vol. 68, p. 464). (Italics supplied).
While it has been held that as between themselves the rights of the stockholders in a
defectively incorporated association should be governed by the supposed charter and
In the instant case, it is to be noted that the petitioner was declared non-suited for his
the laws of the state relating thereto and not by the rules governing partners (Cannon
failure to appear during the pretrial despite notification. In his answer, the petitioner
v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held
denied having received any amount from respondents Bormaheco, the Cervanteses
that persons who attempt, but fail, to form a corporation and who carry on business
and Maglana. The trial court and the appellate court, however, found through Exhibit
under the corporate name occupy the position of partners inter se (Lynch v.
58, that the petitioner received the amount of P151,000.00 representing the
Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons
subject airplanes and spare parts. The record shows that defendant Maglana gave
corporation within the statute, they become in legal effect partners inter se, and their
256
It is therefore clear that the petitioner never had the intention to form a corporation
file an adverse claim in the form of third party claim. Notwithstanding repeated oral
with the respondents despite his representations to them. This gives credence to the
cross-claims of the respondents to the effect that they were induced and lured by the
surrender the possession of the two planes and their accessories and or return the
because the petitioner reneged on their agreement. Maglana alleged in his cross-
claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and
Applying therefore the principles of law earlier cited to the facts of the case,
Maglana to expand his airline business. Lim was to procure two DC-3's from Japan
necessarily, no de facto partnership was created among the parties which would
and secure the necessary certificates of public convenience and necessity as well as
the required permits for the operation thereof. Maglana sometime in May 1965, gave
corporation. The record shows that the petitioner was acting on his own and not in
Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim
behalf of his other would-be incorporators in transacting the sale of the airplanes and
spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the
the planes on his own account. Since then up to the filing of this answer, Lim has
refused, failed and still refuses to set up the corporation or return the money of
Maglana. (Record on Appeal, pp. 337-338).
SO ORDERED.
Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel
DECISION
mortgage and surety bond agreement in his personal capacity as the alleged
proprietor of the SAL. The answering defendants learned for the first time of this
trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff
The Securities and Exchange Commission is the government agency, under the direct
chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to
general supervision of the Office of the President,[1] with the immense task of
257
enforcing the Revised Securities Act, and all other duties assigned to it by pertinent
among the stockholders of PALI, likewise appears to have been held and continue to
laws.
Among its inumerable functions, and one of the most important, is the
be held in trust by one Rebecco Panlilio for then President Marcos and now,
effectively for his estate, and requested PALIs application to be deferred. PALI was
the Philippines.[2] Just how far this regulatory authority extends, particularly, with
regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar.
PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and
Resort Complex were not claimed by PALI as its assets. On the contrary, the resort is
In this Petition for Review of Certiorari, petitioner assails the resolution of the
actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club,
respondent Court of Appeals, dated June 27, 1996, which affirmed the decision of the
entities distinct from PALI. Furthermore, the Ternate Development Corporation owns
only 1.20% of PALI. The Marcoses responded that their claim is not confined to the
Exchange, Inc. to allow the private respondent Puerto Azul Land, Inc. to be listed in its
facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying
stock market, thus paving the way for the public offering of PALIs shares.
that they are also asserting legal and beneficial ownership of other properties titled
under the name of PALI.
The facts of the case are undisputed, and are hereby restated in sum.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to
offer its shares to the public in order to raise funds allegedly to develop its properties
the letter of the PALI and the Marcoses. On March 4, 1996, the PSE was informed
and pay its loans with several banking institutions. In January, 1995, PALI was issued
that the Marcoses received a Temporary Restraining Order on the same date,
a Permit to Sell its shares to the public by the Securities and Exchange Commission
enjoining the Marcoses from, among others, further impeding, obstructing, delaying
(SEC). To facilitate the trading of its shares among investors, PALI sought to course
or interfering in any manner by or any means with the consideration, processing and
the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which
approval by the PSE of the initial public offering of PALI. The TRO was issued by
purpose it filed with the said stock exchange an application to list its shares, with
Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE
reached its decision to reject PALIs application, citing the existence of serious claims,
listing application.
issues and circumstances surrounding PALIs ownership over its assets that adversely
affect the suitability of listing PALIs shares in the stock exchange.
On February 14, 1996, before it could act upon PALIs application, the Board of
Governors of PSE received a letter from the heirs of Ferdinand E. Marcos, claiming
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting
that the late President Marcos was the legal and beneficial owner of certain properties
Chairman, Perfecto R. Yasay, Jr., bringing to the SECs attention the action taken by
forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims
the PSE in the application of PALI for the listing of its shares with the PSE, and
to be among its assets and that the Ternate Development Corporation, which is
requesting that the SEC, in the exercise of its supervisory and regulatory powers over
258
stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSEs action on
regard, PALI is hereby ordered to amend its registration statements filed with the
PALIs listing application and institute such measures as are just and proper and
Commission to incorporate the full disclosure of these material facts and information.
a Petition for Review (with application for Writ of Preliminary Injunction and Temporary
the letter of PALI and directing the PSE to file its comments thereto within five days
Restraining Order), assailing the above mentioned orders of the SEC, submitting the
from its receipt and for its authorized representative to appear for an inquiry on the
matter. On April 22, 1996, the PSE submitted a letter to the SEC containing its
comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The
3, 6(j) and 6(m) of the Presidential Decree No. 902-A, the decision of the Board of
Governors of the Philippine Stock Exchange denying the listing of shares of Puerto
Azul Land, Inc., is hereby set aside, and the PSE is hereby ordered to immediately
cause the listing of the PALI shares in the Exchange, without prejudice to its authority
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING
to require PALI to disclose such other material information it deems necessary for the
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED
AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was,
On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently,
however denied by the Commission in its May 9, 1996 Order which states:
On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the
adverse claim against the PALI properties, PSE should require PALI to submit full
disclosure of material facts and information to protect the investing public. In this
259
The appellate court had ruled that the SEC had both jurisdiction and authority to look
3.
It appears that the claims and issues on the title to PALIs properties were
into the decision of the petitioner PSE, pursuant to Section 3[3] of the Revised
even less serious than the claims against the assets of the other companies in that,
Securities Act in relation to Section 6(j) and 6(m)[4] of P.D. No. 902-A, and Section
the assertions of the Marcoses that they are owners of the disputed properties were
38(b)[5] of the Revised Securities Act, and for the purpose of ensuring fair
4.
nullify PALIs ownership over the disputed properties, neither has the government
instituted recovery proceedings against these properties. Yet the import of PSEs
Abuse is not remote if the public respondent is left without any system of control. If
decision in denying PALIs application is that it would be PALI, not the Marcoses, that
the securities act vested the public respondent with jurisdiction and control over all
must go to court to prove the legality of its ownership on these properties before its
corporations; the power to authorize the establishment of stock exchanges; the right
to supervise and regulate the same; and the power to alter and supplement rules of
the exchange in the listing or delisting of securities, then the law certainly granted to
In addition, the argument that the PALI properties belong to the Military/Naval
the public respondent the plenary authority over the petitioner; and the power of
Reservation does not inspire belief. The point is, the PALI properties are now titled.
A property losses its public character the moment it is covered by a title. As a matter
of fact, the titles have long been settled by a final judgment; and the final decree
All in all, the court held that PALI complied with all the requirements for public listing,
having been registered, they can no longer be re-opened considering that the one
year period has already passed. Lastly, the determination of what standard to apply in
allowing PALIs application for listing, whether the discretion method or the system of
x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in
disapproving the application of PALI for listing of its shares in the face of the following
Commission, it being the government agency that exercises both supervisory and
considerations:
1.
On August 15, 1996, the PSE, after it was granted an extension, filed an instant
PALI has clearly and admittedly complied with the Listing Rules and full
Petition for Review on Certiorari, taking exception to the rulings of the SEC and the
Court of Appeals. Respondent PALI filed its Comment to the petition on October 17,
2.
In applying its clear and reasonable standards on the suitability for listing of
1996. On the same date, the PCGG filed a Motion for Leave to file a Petition for
shares, PSE has failed to justify why it acted differently on the application of PALI, as
Intervention. This was followed up by the PCGGs Petition for Intervention on October
compared to the IPOs of other companies similarly that were allowed listing in the
21, 1996. A supplemental Comment was filed by PALI on October 25, 1997. The
Exchange;
Office of the Solicitor General, representing the SEC and the Court of Appeals,
likewise filed its Comment on December 26, 1996. In answer to the PCGGs motion
260
for leave to file petition for intervention, PALI filed its Comment thereto on January 17,
Corporation (MSDC), are under sequestration by the PCGG, and the subject of
1997, whereas the PSE filed its own Comment on January 20, 1997.
forfeiture proceedings in the Sandiganbayan. This ruling of the Court is the law of
the case between the Republic and the TDC and MSDC. It categorically declares
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of
that the assets of these corporations were sequestered by the PCGG on March 10,
respondent PALI (October 17, 1996) and the Solicitor General (December 26, 1996).
On may 16, 1997, PALI filed its Rejoinder to the said consolidated reply of PSE.
It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to
over its properties can no longer be questioned, since certificates of title have been
order the PSE to list the shares of PALI in the stock exchange. Under presidential
issued to PALI and more than one year has since lapsed, is erroneous and ignores
decree No. 902-A, the powers of the SEC over stock exchanges are more limited as
well settled jurisprudence on land titles. That a certificate of title issued under the
compared to its authority over ordinary corporations. In connection with this, the
powers of the SEC over stock exchanges under the Revised Securities Act are
specifically enumerated, and these do not include the power to reverse the decisions
are non-alienable.
of the stock exchange. Authorities are in abundance even in the United States, from
which the countrys security policies are patterned, to the effect of giving the
Securities Commission less control over stock exchanges, which in turn are given
PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged
more lee-way in making the decision whether or not to allow corporations to offer their
policy of full disclosure to uphold the listing of the PALIs shares with the PSE, in the
stock to the public through the stock exchange. This is in accord with the business
absence of a clear mandate for the effectivity of such policy. As it is, the case records
judgment rule whereby the SEC and the courts are barred from intruding into
reveal the truth that PALI did not comply with the listing rules and disclosure
business judgments of corporations, when the same are made in good faith. The said
rule precludes the reversal of the decision of the PSE to deny PALIs listing
application, absent a showing a bad faith on the part of the PSE. Under the listing
The matter of sequestration of PALIs properties and the fact that the same form part
rule of the PSE, to which PALI had previously agreed to comply, the PSE retains the
discretion to accept or reject applications for listing. Thus, even if an issuer has
complied with the PSE listing rules and requirements, PSE retains the discretion to
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although
accept or reject the issuers listing application if the PSE determines that the listing
it is clothed with the marking of a corporate entity, its functions as the primary channel
through which the vessels of capital trade ply. The PSEs relevance to the continued
operation and filtration of the securities transactions in the country gives it a distinct
Moreover, PSE argues that the SEC has no jurisdiction over sequestered
color of importance such that government intervention in its affairs becomes justified,
if not necessary. Indeed, as the only operational stock exchange in the country today,
reading of Republic of the Philippines vs. Sandiganbayan, G.R. No. 105205, 240
SCRA 376, would reveal that the properties of PALI, which were derived from the
Ternate Development Corporation (TDC) and the Monte del Sol Development
261
Due to this special nature of stock exchanges, the countrys lawmakers has seen it
We affirm that the SEC is the entity with the primary say as to whether or not
wise to give special treatment to the administration and regulation of stock exchanges.
securities, including shares of stock of a corporation, may be traded or not in the stock
[6]
exchange. This is in line with the SECs mission to ensure proper compliance with the
laws, such as the Revised Securities Act and to regulate the sale and disposition of
These provisions, read together with the general grant of jurisdiction, and right of
supervision and control over all corporations under Sec. 3 of P.D. 902-A, give the SEC
the special mandate to be vigilant in the supervision of the affairs of stock exchanges
Paramount policy also supports the authority of the public respondent to review
petitioners denial of the listing. Being a stock exchange, the petitioner performs a
function that is vital to the national economy, as the business is affected with public
interest. As a matter of fact, it has often been said that the economy moves on the
the SECs challenged control authority over the petitioner PSE even as it provides that
basis of the rise and fall of stocks being traded. By its economic power, the petitioner
the Commission shall have absolute jurisdiction, supervision, and control over all
certainly can dictate which and how many users are allowed to sell securities thru the
facilities of a stock exchange, if allowed to interpret its own rules liberally as it may
please. Petitioner can either allow or deny the entry to the market of securities. To
a wide margin of areas, touching nearly all of a corporations concerns. This authority
springs from the fact that a corporation owes its existence to the concession of its
corporate franchise from the state.
The role of the SEC in our national economy cannot be minimized. The legislature,
through the Revised Securities Act, Presidential Decree No. 902-A, and other
The SECs power to look into the subject ruling of the PSE, therefore, may be implied
pertinent laws, has entrusted to it the serious responsibility of enforcing all laws
affecting corporations and other forms of associations not otherwise vested in some
express power to insure fair dealing in securities traded upon a stock exchange or to
ensure the fair administration of such exchange.[7] It is, likewise, observed that the
principal function of the SEC is the supervision and control over corporations,
This is not to say, however, that the PSEs management prerogatives are under the
partnerships and associations with the end in view that investment in these entities
absolute control of the SEC. The PSE is, after all, a corporation authorized by its
may be encouraged and protected, and their activities pursued for the promotion of
corporate franchise to engage in its proposed and duly approved business. One of
economic development.[8]
the PSEs main concerns, as such, is still the generation of profit for its stockholders.
Moreover, the PSE has all the rights pertaining to corporations, including the right to
Thus, it was in the alleged exercise of this authority that the SEC reversed the
sue and be sued, to hold property in its own name, to enter (or not to enter) into
decision of the PSE to deny the application for listing in the stock exchange of the
contracts with third persons, and to perform all other legal acts within its allocated
private respondent PALI. The SECs action was affirmed by the Court of Appeals.
262
assumed corporate name, and with a distinct legal personality. In organizing itself as
It is to be observed that the U.S. Securities Act emphasized its avowed protection to
generally not interfere with the same. Questions of policy and of management are left
to the honest decision of the officers and directors of a corporation, and the courts are
without authority to substitute their judgment for the judgment of the board of
The Securities Act, often referred to as the truth in securities Act, was designed not
directors. The board is the business manager of the corporation, and so long as it
only to provide investors with adequate information upon which to base their decisions
acts in good faith, its orders are not reviewable by the courts.[12]
to buy and sell securities, but also to protect legitimate business seeking to obtain
capital through honest presentation against competition form crooked promoters and
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the
to prevent
fraud in the sale of securities. (Tenth Annual Report, U.S. Securities and
resultant authority to reverse the PSEs decision in matters of application for listing in
the market, the SEC may exercise such power only if the PSEs judgment is attended
by bad faith. In board of Liquidators vs. Kalaw,[13] it was held that bad faith does not
As has been pointed out, the effects of such an act are chiefly (1) prevention of
moral obliquity and conscious doing of wrong. It means a breach of a known duty
revealed; (2) placing the market during the early stages of the offering of a security a
through some motive or interest of ill will, partaking of the nature of fraud.
body of information, which operating indirectly through investment services and expert
investors, will tend to produce a more accurate appraisal of a security. x x x. Thus,
In reaching its decision to deny the application for listing of PALI, the PSE considered
important facts, which in the general scheme, brings to serious question the
qualification of PALI to sell its shares to the public through the stock exchange.
empower the Commission to issue a stop order suspending the effectiveness of any
During the time for receiving objections to the application, the PSE heard from the
registration statement which is found to include any untrue statement of a material fact
representative of the late President Ferdinand E. Marcos and his family who claim the
or to omit to state any material fact required to be stated therein or necessary to make
properties of the private respondent to be part of the Marcos estate. In time, the
covering the properties of PALI, and suit for reconveyance to the state has been filed
Also, as the primary market for securities, the PSE has established its name and
in the Sandiganbayan Court. How the properties were effectively transferred, despite
goodwill, and it has the right to protect such goodwill by maintaining a reasonable
the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the
standard of propriety in the entities who choose to transact through its facilities. It
private respondent PALI, in only a short span of time, are not yet explained to the
was reasonable for PSE, therefore, to exercise its judgment in the manner it deems
Court, but it is clear that such circumstances give rise to serious doubt as to the
appropriate for its business identity, as long as no rights are trampled upon, and
integrity of PALI as a stock issuer. The petitioner was in the right when it refused
application of PALI, for a contrary ruling was not to the best interest of the general
public. The purpose of the Revised Securities Act, after all, is to give adequate and
263
consider appropriate in the public interest for the enforcement of the said laws. The
second paragraph of Section 4 of the said law, on the other hand, provides that no
security, unless exempt by law, shall be issued, endorsed, sold, transferred or in any
The observation that the title of PALI over its properties is absolute and can no longer
other manner conveyed to the public, unless registered in accordance with the rules
be assailed is of no moment. At this juncture, there is the claim that the properties
and regulations that shall be promulgated in the public interest and for the protection
were owned by the TDC and MSDC and were transferred in violation of sequestration
of investors by the Commission. Presidential Decree No. 902-A, on the other hand,
orders, to Rebecco Panlilio and later on to PALI, besides the claim of the Marcoses
provides that the SEC, as regulatory agency, has supervision and control over all
that such properties belong to Marcos estate, and were held only in trust by Rebecco
corporations and over the securities market as a whole, and as such, is given ample
Panlilio. It is also alleged by the petitioner that these properties belong to naval and
forest reserves, and therefore beyond private dominion. If any of these claims is
SEC has manifested that it has adopted the policy of full material disclosure where
established to be true, the certificates of title over the subject properties now held by
all companies, listed or applying for listing, are required to divulge truthfully and
accurately, all material information about themselves and the securities they sell, for
of title does not confer ownership over the properties described therein to the person
the protection of the investing public, and under pain of administrative, criminal and
civil sanctions. In connection with this, a fact is deemed material if it tends to induce
good faith. The defense of indefeasibility of a Torrens Title does not extend to a
or otherwise effect the sale or purchase of its securities.[15] While the employment of
this policy is recognized and sanctioned by laws, nonetheless, the Revised Securities
Act sets substantial and procedural standards which a proposed issuer of securities
In any case, for the purpose of determining whether PSE acted correctly in refusing
must satisfy.[16] Pertinently, Section 9 of the Revised Securities Act sets forth the
the application of PALI, the true ownership of the properties of PALI need not be
properties ownership and alienability exists, and this puts to question the qualification
- - The Commission may reject a registration statement and refuse to issue a permit
of PALIs public offering. In sum, the Court finds that the SEC had acted arbitrarily in
arrogating unto itself the discretion of approving the application for listing in the PSE
of the private respondent PALI, since this is a matter addressed to the sound
(1)
discretion of the PSE, a corporate entity, whose business judgments are respected in
material respect or includes any untrue statement of a material fact or omits to state a
The question as to what policy is, or should be relied upon in approving the
registration and sale of securities in the SEC is not for the Court to determine, but is
left to the sound discretion of the Securities and Exchange Commission.
(2)
In
mandating the SEC to administer the Revised Securities Act, and in performing its
(i)
other functions under pertinent laws, the Revised Securities Act, under Section 3
thereof, gives the SEC the power to promulgate such rules and regulations as it may
264
(ii)
has violated or has not complied with the provisions of this Act, or the rules
PALI, on at least two points (nos. 1 and 5) has failed to support the propriety of the
issue of its shares with unfailing clarity, thereby lending support to the conclusion that
the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does
(iii) has failed to comply with any of the applicable requirements and conditions that
not discount the effectivity of whatever method the SEC, in the exercise of its vested
the Commission may, in the public interest and for the protection of investors, impose
authority, chooses in setting the standard for public offerings of corporations wishing
to do so. However, the SEC must recognize and implement the mandate of the law,
particularly the Revised Securities Act, the provisions of which cannot be amended or
(iv)
transactions;
In resum, the Court finds that the PSE has acted with justified circumspection,
(v)
(vi)
the Petition for Review on Certiorari. The decisions of the Court of Appeals and the
Securities and Exchage Commission dated July 27, 1996 and April 24, 1996,
respectively, are hereby REVERSED and SET ASIDE, and a new Judgment is hereby
(4)
ENTERED, affirming the decision of the Philippine Stock Exchange to deny the
application for listing of the private respondent Puerto Azul Land, Inc.
(5)
SO ORDERED.
The issuer or registrant has not shown to the satisfaction of the Commission
that the sale of its security would not work to the prejudice to the public interest or as
a fraud upon the purchaser or investors. (Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the lawmakers to make the
registration and issuance of securities dependent, to a certain extent, on the merits of
the securities themselves, and of the issuer, to be determined by the Securities and
Exchange Commission.
investing public against fraudulent and worthless securities, and the SEC is mandated
by law to safeguard these interests, following the policies and rules therefore
provided. The absolute reliance on the full disclosure method in the registration of
securities is, therefore, untenable. At it is, the Court finds that the private respondent
265
equivalent amount in foreign currency based on the prevailing exchange rate within
five (5) consecutive banking days except those between a covered institution and a
person who, at the time of the transaction was a properly identified client and the
amount is commensurate with the business or financial capacity of the client; or those
Congress assembled:
SECTION 1. Short Title. This Act shall be known as the "Anti-Money Laundering
Act of 2001."
protect and preserve the integrity and confidentiality of bank accounts and to ensure
that the Philippines shall not be used as a money laundering site for the proceeds of
any unlawful activity. Consistent with its foreign policy, the State shall extend
(1) coins or currency of legal tender of the Philippines, or of any other country;
(2) drafts, checks and notes;
266
(11) Violations under Republic Act No. 8792, otherwise known as the Electronic
(12) Hijacking and other violations under Republic Act No. 6235; destructive arson
and murder, as defined under the Revised Penal Code, as amended, including those
(4) other similar instruments where title thereto passes to another by endorsement,
assignment or delivery.
(13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise
(d) "Offender" refers to any person who commits a money laundering offense.
(14) Felonies or offenses of a similar nature that are punishable under the penal laws
of other countries.
proceeds of an unlawful activity are transacted, thereby making them appear to have
Section 3(a).
(h) "Transaction" refers to any act establishing any right or obligation or giving rise to
(a) Any person knowing that any monetary instrument or property represents,
any contractual or legal relationship between the parties thereto. It also includes any
involves, or relates to, the proceeds of any unlawful activity, transacts or attempts to
(i) "Unlawful activity" refers to any act or omission or series or combination thereof
(b) Any person knowing that any monetary instrument or property involves the
proceeds of any unlawful activity, performs or fails to perform any act as a result of
(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the
above.
(2) Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended,
(c) Any person knowing that any monetary instrument or property is required under
this Act to be disclosed and filed with the Anti-Money Laundering Council (AMLC),
fails to do so.
SEC. 5. Jurisdiction of Money Laundering Cases. The regional trial courts shall
have jurisdiction to try all cases on money laundering. Those committed by public
(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the
officers and private persons who are in conspiracy with such public officers shall be
(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No.
1602;
(a) Any person may be charged with and convicted of both the offense of money
(7) Piracy on the high seas under the Revised Penal Code, as amended and
(b) Any proceeding relating to the unlawful activity shall be given precedence over the
(8) Qualified theft under Article 310 of the Revised Penal Code, as amended;
prosecution of any offense or violation under this Act without prejudice to the freezing
(9) Swindling under Article 315 of the Revised Penal Code, as amended;
267
Laundering Council is hereby created and shall be composed of the Governor of the
of offenders.
members. The AMLC shall act unanimously in the discharge of its functions as
Council for a term of five (5) years. He must be a member of the Philippine Bar, at
defined hereunder:
least thirty-five (35) years of age and of good moral character, unquestionable
(1) to require and receive covered transaction reports from covered institutions;
integrity and known probity. All members of the Secretariat must have served for at
(2) to issue orders addressed to the appropriate Supervising Authority or the covered
least five (5) years either in the Insurance Commission, the Securities and Exchange
institution to determine the true identity of the owner of any monetary instrument or
Commission or the Bangko Sentral ng Pilipinas (BSP) and shall hold full-time
foreign State, or believed by the Council, on the basis of substantial evidence, to be,
(a) Customer Identification. - Covered institutions shall establish and record the true
(3) to institute civil forfeiture proceedings and all other remedial proceedings through
identity of its clients based on official documents. They shall maintain a system of
verifying the true identity of their clients and, in case of corporate clients, require a
(4) to cause the filing of complaints with the Department of Justice or the Ombudsman
system of verifying their legal existence and organizational structure, as well as the
accounts under fictitious names, and all other similar accounts shall be absolutely
unlawful activity;
allowed. The BSP may conduct annual testing solely limited to the determination of
(7) to implement such measures as may be necessary and justified under this Act to
(b) Record Keeping. - All records of all transactions of covered institutions shall be
(8) to receive and take action in respect of, any request from foreign states for
maintained and safely stored for five (5) years from the dates of transactions. With
respect to closed accounts, the records on customer identification, account files and
business correspondence, shall be preserved and safely stored for at least five (5)
the methods and techniques used in money laundering, the viable means of
preventing money laundering and the effective ways of prosecuting and punishing
(c) Reporting of Covered Transactions. - Covered institutions shall report to the AMLC
offenders; and
all covered transactions within five (5) working days from occurrence thereof, unless
(10) to enlist the assistance of any branch, department, bureau, office, agency or
the Supervising Authority concerned prescribes a longer period not exceeding ten
corporations, in undertaking any and all anti-money laundering operations, which may
When reporting covered transactions to the AMLC, covered institutions and their
include the use of its personnel, facilities and resources for the more resolute
268
not be deemed to have violated Republic Act No. 1405, as amended; Republic Act
No court shall issue a temporary restraining order or writ of injunction against any
No. 6426, as amended; Republic Act No. 8791 and other similar laws, but are
freeze order issued by the AMLC except the Court of Appeals or the Supreme Court.
SEC. 11. Authority to Inquire into Bank Deposits. Notwithstanding the provisions
to any person the fact that a covered transaction report was made, the contents
of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended;
thereof, or any other information in relation thereto. In case of violation thereof, the
Republic Act No. 8791, and other laws, the AMLC may inquire into or examine any
institution upon order of any competent court in cases of violation of this Act when it
or civil proceedings, shall lie against any person for having made a covered
has been established that there is probable cause that the deposits or investments
transaction report in the regular performance of his duties and in good faith, whether
involved are in any way related to a money laundering offense: Provided, That this
or not such reporting results in any criminal prosecution under this Act or any other
provision shall not apply to deposits and investments made prior to the effectivity of
Philippine law.
this Act.
When reporting covered transactions to the AMLC, covered institutions and their
(a) Civil Forfeiture. - When there is a covered transaction report made, and the court
has, in a petition filed for the purpose ordered seizure of any monetary instrument or
to any person, entity, the media, the fact that a covered transaction report was made,
property, in whole or in part, directly or indirectly, related to said report, the Revised
the contents thereof, or any other information in relation thereto. Neither may such
reporting be published or aired in any manner or form by the mass media, electronic
(b) Claim on Forfeited Assets. - Where the court has issued an order of forfeiture of
mail, or other similar devices. In case of violation thereof, the concerned officer,
laundering offense defined under Section 4 of this Act, the offender or any other
person claiming an interest therein may apply, by verified petition, for a declaration
SEC. 10. Authority to Freeze. Upon determination that probable cause exists that
that the same legitimately belongs to him and for segregation or exclusion of the
any deposit or similar account is in any way related to an unlawful activity, the AMLC
may issue a freeze order, which shall be effective immediately, on the account for a
filed with the court which rendered the judgment of conviction and order of forfeiture,
period not exceeding fifteen (15) days. Notice to the depositor that his account has
within fifteen (15) days from the date of the order of forfeiture, in default of which the
been frozen shall be issued simultaneously with the issuance of the freeze order. The
said order shall become final and executory. This provision shall apply in both civil
depositor shall have seventy-two (72) hours upon receipt of the notice to explain why
the freeze order should be lifted. The AMLC has seventy-two (72) hours to dispose of
(c) Payment in Lieu of Forfeiture. - Where the court has issued an order of forfeiture of
the depositors explanation. If it fails to act within seventy-two (72) hours from receipt
of the depositors explanation, the freeze order shall automatically be dissolved. The
under Section 4, and said order cannot be enforced because any particular monetary
fifteen (15)-day freeze order of the AMLC may be extended upon order of the court,
provided that the fifteen (15)-day period shall be tolled pending the courts decision to
by any act or omission, directly or indirectly, attributable to the offender, or it has been
concealed, removed, converted or otherwise transferred to prevent the same from
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being found or to avoid forfeiture thereof, or it is located outside the Philippines or has
foreign State, applying with the proper court therein for an order to enter any premises
been placed or brought outside the jurisdiction of the court, or it has been
belonging to or in the possession or control of, any or all of the persons named in said
request, and/or search any or all such persons named therein and/or remove any
offender himself or a third person or entity, thereby rendering the same difficult to
document, material or object named in said request: Provided, That the documents
identify or be segregated for purposes of forfeiture, the court may, instead of enforcing
accompanying the request in support of the application have been duly authenticated
the order of forfeiture of the monetary instrument or property or part thereof or interest
in accordance with the applicable law or regulation of the foreign State; and (4)
therein, accordingly order the convicted offender to pay an amount equal to the value
applying for an order of forfeiture of any monetary instrument or property in the proper
of said monetary instrument or property. This provision shall apply in both civil and
criminal forfeiture.
authenticated copy of the order of the regional trial court ordering the forfeiture of said
(a) Request for Assistance from a Foreign State. - Where a foreign State makes a
court stating that the conviction and the order of forfeiture are final and that no further
offense, the AMLC may execute the request or refuse to execute the same and inform
(d) Limitations on Requests for Mutual Assistance. - The AMLC may refuse to comply
the foreign State of any valid reason for not executing the request or for delaying the
with any request for assistance where the action sought by the request contravenes
execution thereof. The principles of mutuality and reciprocity shall, for this purpose, be
any provision of the Constitution or the execution of a request is likely to prejudice the
national interest of the Philippines unless there is a treaty between the Philippines and
(b) Powers of the AMLC to Act on a Request for Assistance from a Foreign State. -
The AMLC may execute a request for assistance from a foreign State by: (1) tracking
laundering offenses.
down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful
(e) Requirements for Requests for Mutual Assistance from Foreign States. - A request
activity under the procedures laid down in this Act; (2) giving information needed by
for mutual assistance from a foreign State must (1) confirm that an investigation or
the foreign State within the procedures laid down in this Act; and (3) applying for an
order of forfeiture of any monetary instrument or property in the court: Provided, That
he has been convicted of any money laundering offense; (2) state the grounds on
the court shall not issue such an order unless the application is accompanied by an
which any person is being investigated or prosecuted for money laundering or the
authenticated copy of the order of a court in the requesting State ordering the
details of his conviction; (3) give sufficient particulars as to the identity of said person;
forfeiture of said monetary instrument or property of a person who has been convicted
(4) give particulars sufficient to identify any covered institution believed to have any
affidavit of a competent officer of the requesting State stating that the conviction and
investigation or prosecution; (5) ask from the covered institution concerned any
the order of forfeiture are final and that no further appeal lies in respect of either.
(c) Obtaining Assistance from Foreign States. - The AMLC may make a request to any
investigation or prosecution; (6) specify the manner in which and to whom said
foreign State for assistance in (1) tracking down, freezing, restraining and seizing
assets alleged to be proceeds of any unlawful activity; (2) obtaining information that it
produced; (7) give all the particulars necessary for the issuance by the court in the
needs relating to any covered transaction, money laundering offense or any other
requested State of the writs, orders or processes needed by the requesting State; and
matter directly or indirectly related thereto; (3) to the extent allowed by the law of the
(8) contain such other information as may assist in the execution of the request.
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against any person shall be subject to a penalty of six (6) months to four (4) years
imprisonment and a fine of not less than One hundred thousand Philippine pesos
officer in or of, the requesting State, and authenticated by the oath or affirmation of a
(Php100, 000.00) but not more than Five hundred thousand Philippine pesos
(Php500, 000.00), at the discretion of the court: Provided, That the offender is not
officer in or of, the government of the requesting State, or of the person administering
penalty shall be imposed upon the responsible officers, as the case may be, who
legation, consul general, consul, vice consul, consular agent or any officer in the
participated in the commission of the crime or who shall have knowingly permitted or
foreign service of the Philippines stationed in the foreign State in which the record is
failed to prevent its commission. If the offender is a juridical person, the court may
suspend or revoke its license. If the offender is an alien, he shall, in addition to the
(g) Extradition. - The Philippines shall negotiate for the inclusion of money laundering
penalties herein prescribed, be deported without further proceedings after serving the
(a) Penalties for the Crime of Money Laundering. The penalty of imprisonment
ranging from seven (7) to fourteen (14) years and a fine of not less than Three million
Any public official or employee who is called upon to testify and refuses to do the
Philippine pesos (Php 3,000,000.00) but not more than twice the value of the
same or purposely fails to testify shall suffer the same penalties prescribed herein.
(d) Breach of Confidentiality. The punishment of imprisonment ranging from three (3)
to eight (8) years and a fine of not less than Five hundred thousand Philippine pesos
The penalty of imprisonment from four (4) to seven (7) years and a fine of not less
(Php500,000.00) but not more than One million Philippine pesos (Php1,000,000.00),
than One million five hundred thousand Philippine pesos (Php1,500,000.00) but not
more than Three million Philippine pesos (Php3,000,000.00), shall be imposed upon a
SEC. 15. System of Incentives and Rewards. A system of special incentives and
The penalty of imprisonment from six (6) months to four (4) years or a fine of not less
its personnel that led and initiated an investigation, prosecution and conviction of
than One hundred thousand Philippine pesos (Php100,000.00) but not more than Five
SEC. 16. Prohibitions Against Political Harassment. This Act shall not be used
(b) Penalties for Failure to Keep Records. The penalty of imprisonment from six (6)
months to one (1) year or a fine of not less than One hundred thousand Philippine
No case for money laundering may be filed against and no assets shall be frozen,
pesos (Php100,000.00) but not more than Five hundred thousand Philippine pesos
election period.
of this Act.
SEC. 17. Restitution. Restitution for any aggrieved party shall be governed by the
(c) Malicious Reporting. Any person who, with malice, or in bad faith, reports or files a
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SEC. 18. Implementing Rules and Regulations. Within thirty (30) days from the
SEC. 20. Appropriations Clause. The AMLC shall be provided with an initial
effectivity of this Act, the Bangko Sentral ng Pilipinas, the Insurance Commission and
the Securities and Exchange Commission shall promulgate the rules and regulations
from the national government. Appropriations for the succeeding years shall be
to implement effectively the provisions of this Act. Said rules and regulations shall be
SEC. 21. Separability Clause. If any provision or section of this Act or the
programs in accordance with this Act including, but not limited to, information
provisions or sections of this Act, and the application of such provision or section to
SEC. 22. Repealing Clause. All laws, decrees, executive orders, rules and
institutions.
regulations or parts thereof, including the relevant provisions of Republic Act No.
1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, as
amended and other similar laws, as are inconsistent with this Act, are hereby
Senate and seven (7) members from the House of Representatives. The members
from the Senate shall be appointed by the Senate President based on the proportional
SEC. 23. Effectivity. This Act shall take effect fifteen (15) days after its complete
representation of the parties or coalitions therein with at least two (2) Senators
publication in the Official Gazette or in at least two (2) national newspapers of general
representing the minority. The members from the House of Representatives shall be
circulation.
The provisions of this Act shall not apply to deposits and investments made prior to its
coalitions therein with at least two (2) members representing the minority.
effectivity.
The Oversight Committee shall have the power to promulgate its own rules, to
oversee the implementation of this Act, and to review or revise the implementing rules
issued by the Anti-Money Laundering Council within thirty (30) days from the
promulgation of the said rules.
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