G.R. No.

L-19550 June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his capacity as Acting Director, National Bureau
of Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL
MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal Court of Manila;
JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court
of Quezon City, respondents.

Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro, Assistant Solicitor General Frine C.
Zaballero, Solicitor Camilo D. Quiason and Solicitor C. Padua for respondents.

CONCEPCION, C.J.:

Upon application of the officers of the government named on the margin 1 hereinafter referred to as Respondents-Prosecutors
several judges2 hereinafter referred to as Respondents-Judges issued, on different dates, 3 a total of 42 search warrants against
petitioners herein4 and/or the corporations of which they were officers,5 directed to the any peace officer, to search the persons
above-named and/or the premises of their offices, warehouses and/or residences, and to seize and take possession of the following
personal property to wit:

Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit journals,
typewriters, and other documents and/or papers showing all business transactions including disbursements receipts,
balance sheets and profit and loss statements and Bobbins (cigarette wrappers).

as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to be used as the
means of committing the offense," which is described in the applications adverted to above as "violation of Central Bank Laws, Tariff
and Customs Laws, Internal Revenue (Code) and the Revised Penal Code."

Alleging that the aforementioned search warrants are null and void, as contravening the Constitution and the Rules of Court
because, inter alia: (1) they do not describe with particularity the documents, books and things to be seized; (2) cash money, not
mentioned in the warrants, were actually seized; (3) the warrants were issued to fish evidence against the aforementioned
petitioners in deportation cases filed against them; (4) the searches and seizures were made in an illegal manner; and (5) the
documents, papers and cash money seized were not delivered to the courts that issued the warrants, to be disposed of in accordance
with law on March 20, 1962, said petitioners filed with the Supreme Court this original action for certiorari,
prohibition, mandamus and injunction, and prayed that, pending final disposition of the present case, a writ of preliminary injunction
be issued restraining Respondents-Prosecutors, their agents and /or representatives from using the effects seized as aforementioned
or any copies thereof, in the deportation cases already adverted to, and that, in due course, thereafter, decision be rendered
quashing the contested search warrants and declaring the same null and void, and commanding the respondents, their agents or
representatives to return to petitioners herein, in accordance with Section 3, Rule 67, of the Rules of Court, the documents, papers,
things and cash moneys seized or confiscated under the search warrants in question.

In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are valid and have been issued in
accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners' consent; and (3) that, in any event, the
effects seized are admissible in evidence against herein petitioners, regardless of the alleged illegality of the aforementioned
searches and seizures.

On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the petition. However, by resolution dated June
29, 1962, the writ was partially lifted or dissolved, insofar as the papers, documents and things seized from the offices of the
corporations above mentioned are concerned; but, the injunction was maintained as regards the papers, documents and things
found and seized in the residences of petitioners herein. 7

Thus, the documents, papers, and things seized under the alleged authority of the warrants in question may be split into two (2)
major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and (b) those found and seized
in the residences of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and
of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate
and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the interest of each of them
in said corporations, and whatever the offices they hold therein may be. 8 Indeed, it is well settled that the legality of a seizure can be
contested only by the party whose rights have been impaired thereby, 9 and that the objection to an unlawful search and seizure
is purely personal and cannot be availed of by third parties. 10 Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to
above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the
seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual
capacity. 11 Indeed, it has been held:

. . . that the Government's action in gaining possession of papers belonging to the corporation did not relate to nor did it
affect the personal defendants. If these papers were unlawfully seized and thereby the constitutional rights of or any one
were invaded, they were the rights of the corporation and not the rights of the other defendants. Next, it is clear that a
question of the lawfulness of a seizure can be raised only by one whose rights have been invaded. Certainly, such a seizure, if
unlawful, could not affect the constitutional rights of defendants whose property had not been seized or the privacy of
whose homes had not been disturbed; nor could they claim for themselves the benefits of the Fourth Amendment, when its
violation, if any, was with reference to the rights of another. Remus vs. United States (C.C.A.)291 F. 501, 511. It follows,
therefore, that the question of the admissibility of the evidence based on an alleged unlawful search and seizure
does not extend to the personal defendants but embraces only the corporation whose property was taken. . . . (A
Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)

With respect to the documents, papers and things seized in the residences of petitioners herein, the aforementioned resolution of
June 29, 1962, lifted the writ of preliminary injunction previously issued by this Court, 12 thereby, in effect, restraining herein
Respondents-Prosecutors from using them in evidence against petitioners herein.

In connection with said documents, papers and things, two (2) important questions need be settled, namely: (1) whether the search
warrants in question, and the searches and seizures made under the authority thereof, are valid or not, and (2) if the answer to the
preceding question is in the negative, whether said documents, papers and things may be used in evidence against petitioners
herein.1wph1.t

Petitioners maintain that the aforementioned search warrants are in the nature of general warrants and that accordingly, the seizures
effected upon the authority there of are null and void. In this connection, the Constitution 13 provides:

The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and
seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after
examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing
the place to be searched, and the persons or things to be seized.

Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue but upon
probable cause, to be determined by the judge in the manner set forth in said provision; and (2) that the warrant
shall particularly describe the things to be seized.

None of these requirements has been complied with in the contested warrants. Indeed, the same were issued upon applications
stating that the natural and juridical person therein named had committed a "violation of Central Ban Laws, Tariff and Customs Laws,
Internal Revenue (Code) and Revised Penal Code." In other words, no specific offense had been alleged in said applications. The
averments thereof with respect to the offense committed were abstract. As a consequence, it was impossible for the judges who
issued the warrants to have found the existence of probable cause, for the same presupposes the introduction of competent proof
that the party against whom it is sought has performed particular acts, or committed specific omissions, violating a given provision of
our criminal laws. As a matter of fact, the applications involved in this case do not allege any specific acts performed by herein
petitioners. It would be the legal heresy, of the highest order, to convict anybody of a "violation of Central Bank Laws, Tariff and
Customs Laws, Internal Revenue (Code) and Revised Penal Code," as alleged in the aforementioned applications without
reference to any determinate provision of said laws or

To uphold the validity of the warrants in question would be to wipe out completely one of the most fundamental rights guaranteed in
our Constitution, for it would place the sanctity of the domicile and the privacy of communication and correspondence at the mercy
of the whims caprice or passion of peace officers. This is precisely the evil sought to be remedied by the constitutional provision
above quoted to outlaw the so-called general warrants. It is not difficult to imagine what would happen, in times of keen political
strife, when the party in power feels that the minority is likely to wrest it, even though by legal means.

Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court deemed it fit
to amend Section 3 of Rule 122 of the former Rules of Court 14 by providing in its counterpart, under the Revised Rules of
Court 15 that "a search warrant shall not issue but upon probable cause in connection with one specific offense." Not satisfied with
this qualification, the Court added thereto a paragraph, directing that "no search warrant shall issue for more than one specific
offense."

The grave violation of the Constitution made in the application for the contested search warrants was compounded by the
description therein made of the effects to be searched for and seized, to wit:

Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or papers showing all business transactions including disbursement receipts, balance
sheets and related profit and loss statements.

Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners herein,
regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and
the aforementioned corporations, whatever their nature, thus openly contravening the explicit command of our Bill of Rights that
the things to be seized be particularly described as well as tending to defeat its major objective: the elimination
of general warrants.

Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, even if the searches and seizures
under consideration were unconstitutional, the documents, papers and things thus seized are admissible in evidence against
petitioners herein. Upon mature deliberation, however, we are unanimously of the opinion that the position taken in the Moncado
case must be abandoned. Said position was in line with the American common law rule, that the criminal should not be allowed to
go free merely "because the constable has blundered," 16 upon the theory that the constitutional prohibition against unreasonable
searches and seizures is protected by means other than the exclusion of evidence unlawfully obtained, 17 such as the common-law
action for damages against the searching officer, against the party who procured the issuance of the search warrant and against
those assisting in the execution of an illegal search, their criminal punishment, resistance, without liability to an unlawful seizure, and
such other legal remedies as may be provided by other laws.

However, most common law jurisdictions have already given up this approach and eventually adopted the exclusionary rule, realizing
that this is the only practical means of enforcing the constitutional injunction against unreasonable searches and seizures. In the
language of Judge Learned Hand:

As we understand it, the reason for the exclusion of evidence competent as such, which has been unlawfully acquired, is
that exclusion is the only practical way of enforcing the constitutional privilege. In earlier times the action of trespass against
the offending official may have been protection enough; but that is true no longer. Only in case the prosecution which itself
controls the seizing officials, knows that it cannot profit by their wrong will that wrong be repressed.18

In fact, over thirty (30) years before, the Federal Supreme Court had already declared:

If letters and private documents can thus be seized and held and used in evidence against a citizen accused of an offense,
the protection of the 4th Amendment, declaring his rights to be secure against such searches and seizures, is of no value,
and, so far as those thus placed are concerned, might as well be stricken from the Constitution. The efforts of the courts and
their officials to bring the guilty to punishment, praiseworthy as they are, are not to be aided by the sacrifice of those great
principles established by years of endeavor and suffering which have resulted in their embodiment in the fundamental law of
the land.19

This view was, not only reiterated, but, also, broadened in subsequent decisions on the same Federal Court. 20After reviewing
previous decisions thereon, said Court held, in Mapp vs. Ohio (supra.):

. . . Today we once again examine the Wolf's constitutional documentation of the right of privacy free from unreasonable
state intrusion, and after its dozen years on our books, are led by it to close the only courtroom door remaining open to
evidence secured by official lawlessness in flagrant abuse of that basic right, reserved to all persons as a specific guarantee
 against that very same unlawful conduct. We hold that all evidence obtained by searches and seizures in violation of the
Constitution is, by that same authority, inadmissible in a State.

Since the Fourth Amendment's right of privacy has been declared enforceable against the States through the Due Process
Clause of the Fourteenth, it is enforceable against them by the same sanction of exclusion as it used against the Federal
Government. Were it otherwise, then just as without the Weeks rule the assurance against unreasonable federal searches
and seizures would be "a form of words," valueless and underserving of mention in a perpetual charter of inestimable
human liberties, so too, without that rule the freedom from state invasions of privacy would be so ephemeral and so neatly
severed from its conceptual nexus with the freedom from all brutish means of coercing evidence as not to permit this Court's
high regard as a freedom "implicit in the concept of ordered liberty." At the time that the Court held in Wolf that the
amendment was applicable to the States through the Due Process Clause, the cases of this Court as we have seen, had
steadfastly held that as to federal officers the Fourth Amendment included the exclusion of the evidence seized in violation
of its provisions. Even Wolf "stoutly adhered" to that proposition. The right to when conceded operatively enforceable
against the States, was not susceptible of destruction by avulsion of the sanction upon which its protection and enjoyment
had always been deemed dependent under the Boyd, Weeks and Silverthorne Cases. Therefore, in extending the
substantive protections of due process to all constitutionally unreasonable searches state or federal it was logically and
constitutionally necessarily that the exclusion doctrine an essential part of the right to privacy be also insisted upon as
an essential ingredient of the right newly recognized by the Wolf Case. In short, the admission of the new constitutional
Right by Wolf could not tolerate denial of its most important constitutional privilege, namely, the exclusion of the evidence
which an accused had been forced to give by reason of the unlawful seizure. To hold otherwise is to grant the right but in
reality to withhold its privilege and enjoyment. Only last year the Court itself recognized that the purpose of the exclusionary
rule to "is to deter to compel respect for the constitutional guaranty in the only effectively available way by removing
the incentive to disregard it" . . . .

The ignoble shortcut to conviction left open to the State tends to destroy the entire system of constitutional restraints on
which the liberties of the people rest. Having once recognized that the right to privacy embodied in the Fourth Amendment
is enforceable against the States, and that the right to be secure against rude invasions of privacy by state officers is,
therefore constitutional in origin, we can no longer permit that right to remain an empty promise. Because it is enforceable
in the same manner and to like effect as other basic rights secured by its Due Process Clause, we can no longer permit it to
be revocable at the whim of any police officer who, in the name of law enforcement itself, chooses to suspend its enjoyment.
Our decision, founded on reason and truth, gives to the individual no more than that which the Constitution guarantees him
to the police officer no less than that to which honest law enforcement is entitled, and, to the courts, that judicial integrity so
necessary in the true administration of justice. (emphasis ours.)

Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the constitutional injunction against
unreasonable searches and seizures. To be sure, if the applicant for a search warrant has competent evidence to establish probable
cause of the commission of a given crime by the party against whom the warrant is intended, then there is no reason why the
applicant should not comply with the requirements of the fundamental law. Upon the other hand, if he has no such competent
evidence, then it is not possible for the Judge to find that there is probable cause, and, hence, no justification for the issuance of the
warrant. The only possible explanation (not justification) for its issuance is the necessity of fishing evidence of the commission of a
crime. But, then, this fishing expedition is indicative of the absence of evidence to establish a probable cause.

Moreover, the theory that the criminal prosecution of those who secure an illegal search warrant and/or make unreasonable
searches or seizures would suffice to protect the constitutional guarantee under consideration, overlooks the fact that violations
thereof are, in general, committed By agents of the party in power, for, certainly, those belonging to the minority could not possibly
abuse a power they do not have. Regardless of the handicap under which the minority usually but, understandably finds itself
in prosecuting agents of the majority, one must not lose sight of the fact that the psychological and moral effect of the possibility 21 of
securing their conviction, is watered down by the pardoning power of the party for whose benefit the illegality had been committed.

In their Motion for Reconsideration and Amendment of the Resolution of this Court dated June 29, 1962, petitioners allege that
Rooms Nos. 81 and 91 of Carmen Apartments, House No. 2008, Dewey Boulevard, House No. 1436, Colorado Street, and Room No.
304 of the Army-Navy Club, should be included among the premises considered in said Resolution as residences of herein petitioners,
Harry S. Stonehill, Robert P. Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore, the records, papers and other
effects seized in the offices of the corporations above referred to include personal belongings of said petitioners and other effects
under their exclusive possession and control, for the exclusion of which they have a standing under the latest rulings of the federal
courts of federal courts of the United States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and control over the aforementioned records,
papers and effects, and the alleged "personal" nature thereof, has Been Advanced, not in their petition or amended petition herein,
but in the Motion for Reconsideration and Amendment of the Resolution of June 29, 1962. In other words, said theory would appear
to be readjustment of that followed in said petitions, to suit the approach intimated in the Resolution sought to be reconsidered and
amended. Then, too, some of the affidavits or copies of alleged affidavits attached to said motion for reconsideration, or submitted in
support thereof, contain either inconsistent allegations, or allegations inconsistent with the theory now advanced by petitioners
herein.

Upon the other hand, we are not satisfied that the allegations of said petitions said motion for reconsideration, and the contents of
the aforementioned affidavits and other papers submitted in support of said motion, have sufficiently established the facts or
conditions contemplated in the cases relied upon by the petitioners; to warrant application of the views therein expressed, should
we agree thereto. At any rate, we do not deem it necessary to express our opinion thereon, it being best to leave the matter open for
determination in appropriate cases in the future.

We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby, abandoned; that the warrants for the
search of three (3) residences of herein petitioners, as specified in the Resolution of June 29, 1962, are null and void; that the
searches and seizures therein made are illegal; that the writ of preliminary injunction heretofore issued, in connection with the
documents, papers and other effects thus seized in said residences of herein petitioners is hereby made permanent; that the writs
prayed for are granted, insofar as the documents, papers and other effects so seized in the aforementioned residences are
concerned; that the aforementioned motion for Reconsideration and Amendment should be, as it is hereby, denied; and that the
petition herein is dismissed and the writs prayed for denied, as regards the documents, papers and other effects seized in the twenty-
nine (29) places, offices and other premises enumerated in the same Resolution, without special pronouncement as to costs.

It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,

vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA,
COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et
al., respondents.

Apostol, Bernas, Gumaru, Ona and Associates for petitioner.

Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:

Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co., Inc.
are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively,
and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential
Commission on Good Government and/or its Commissioners and agents, affecting said corporation.

1. The Sequestration, Takeover, and Other Orders Complained of

a. The Basic Sequestration Order

The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by Commissioner Mary
Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as PCGG. It reads as follows:

RE: SEQUESTRATION ORDER

By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of the
Philippines, you are hereby directed to sequester the following companies.

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. And all affiliate companies of Alfredo "Bejo" Romualdez

You are hereby ordered:

1. To implement this sequestration order with a minimum disruption of these companies' business activities.

2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until such time that
the Office of the President through the Commission on Good Government should decide otherwise.
 3. To report to the Commission on Good Government periodically.

Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other acts
essential to the achievement of this sequestration order. 1

b. Order for Production of Documents

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President
and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit:

1. Stock Transfer Book

2. Legal documents, such as:

2.1. Articles of Incorporation

2.2. By-Laws

2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986

2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986

2.5. Minutes of the Executive Committee Meetings from 1973 to 1986

2.6. Existing contracts with suppliers/contractors/others.

3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate
Secretary.

4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985.

5. Monthly Financial Statements for the current year up to March 31, 1986.

6. Consolidated Cash Position Reports from January to April 15, 1986.

7. Inventory listings of assets up dated up to March 31, 1986.

8. Updated schedule of Accounts Receivable and Accounts Payable.

9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof.

10. Schedule of company investments and placements. 2

The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in
pursuance with Presidential Executive Order Nos. 1 and 2."

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B.
Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's Vice-President for
Finance, 3 terminating the contract for security services within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and
"other civilian security agencies," CAPCOM military personnel having already been assigned to the area,

(2) Change of Mode of Payment of Entry Charges

On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr. Buddy Ondivilla
National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that the stipulated charges for use of
the BASECO road network were made payable "upon entry and not anymore subject to monthly billing as was originally agreed upon." 4

d. Aborted Contract for Improvement of Wharf at Engineer Island

On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine Integrated Port Services, Inc., in
virtue of which the latter undertook to introduce improvements costing approximately P210,000.00 on the BASECO wharf at Engineer Island,
allegedly then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue which would flow into the government
coffers," in consideration of Deltamarine's being granted "priority in using the improved portion of the wharf ahead of anybody" and exemption
"from the payment of any charges for the use of wharf including the area where it may install its bagging equipments" "until the improvement
remains in a condition suitable for port operations." 5 It seems however that this contract was never consummated. Capt. Jorge B. Siacunco, "Head-
(PCGG) BASECO Management Team," advised Deltamarine by letter dated July 30, 1986 that "the new management is not in a position to honor the
said contract" and thus "whatever improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own
risk." 6

e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan

By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and implement
progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;" but afterwards,
Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan,
an agreement to this effect having been executed by them on September 17, 1986. 7

f. Order to Dispose of Scrap, etc.

By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized to clean and beautify the
Company's compound," and in this connection, to dispose of or sell "metal scraps" and other materials, equipment and machineries no longer
usable, subject to specified guidelines and safeguards including audit and verification. 8

g. The TAKEOVER Order

By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of BASECO, "the Philippine Dockyard
Corporation and all their affiliated companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission

* * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and properties
taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the
transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities.

A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following powers:

1. Conducts all aspects of operation of the subject companies;

2. Installs key officers, hires and terminates personnel as necessary;

3. Enters into contracts related to management and operation of the companies;

4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently; revenues are duly accounted
for; and disburses funds only as may be necessary;

5. Does actions including among others, seeking of military support as may be necessary, that will ensure compliance to this
order;

6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this take-over
order.

h. Termination of Services of BASECO Officers

Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I,
advising of the termination of their services by the PCGG. 10
 2. Petitioner's Plea and Postulates

It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have this Court
nullify. More particularly, BASECO prays that this Court-

1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof, inclusive of the
takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11

a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders

While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2
before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a
revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on
March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that
"No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12

It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order * * issued
purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing was accorded * *
(it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not
competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding, process or
remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been effected; and Fourthly, being directed
against specified persons, and in disregard of the constitutional presumption of innocence and general rules and procedures, they constitute a Bill
of Attainder." 13

b. Re Order to Produce Documents

It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued without court
authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14

c. Re PCGG's Exercise of Right of Ownership and Management

BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by

1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting parties; and
amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage Corporation, these acts being
in violation of the non-impairment clause of the constitution; 15

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc., giving the latter
free use of BASECO premises; 16

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17

4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18

5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;

6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto
Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19

7) planning to elect its own Board of Directors; 20

8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls of cable wires, worth
P600,000.00 on May 11, 1986; 21

9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 22

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders

Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by misapprehension,
or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is needful that these misconceptions and
doubts be dispelled so that uninformed and useless debates about them may be avoided, and arguments tainted b sophistry or intellectual
dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the process many
of the objections raised by BASECO will be dealt with.

4. The Governing Law

a. Proclamation No. 3

The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by Proclamation
No. 3, 23 that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a legislature is elected and
convened under a new Constitution" "shall give priority to measures to achieve the mandate of the people," among others to (r)ecover ill-gotten
properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or
freezing of assets or accounts." 24

b. Executive Order No. 1

Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government have been
amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad." 25 Upon these
premises, the Presidential Commission on Good Government was created, 26 "charged with the task of assisting the President in regard to (certain
specified) matters," among which was precisely-

* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all
business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by
taking undue advantage of their public office and/or using their powers, authority, influence, connections or relationship. 27

In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was granted "power and
authority" to do the following particular acts, to wit:

1. To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth
or properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or
disappearance which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its
task.

2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and properties
taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the
transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities.

3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and
academic, or frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order. 28

So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of evidence by
subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 29 It was given power also to promulgate such rules and
regulations as may be necessary to carry out the purposes of * * (its creation). 30

c. Executive Order No. 2

Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten properties amassed by the
leaders and supporters of the previous regime." It declares that:

1) * * the Government of the Philippines is in possession of evidence showing that there are assets and properties purportedly
pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or
as a result of the improper or illegal use of funds or properties owned by the government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority,
influence, connections or relationship, resulting in their unjust enrichment and causing grave damage and prejudice to the
Filipino people and the Republic of the Philippines:" and
 2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping
centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in
various countries of the world." 31

Upon these premises, the President-

1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or
participation;

2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates,
duties, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the
Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such
assets or properties were acquired by them through or as a result of improper or illegal use of or the conversion of funds
belonging to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly
enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the
Philippines;

3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and
properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such
penalties as are prescribed by law;" and

4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in
their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government
within thirty (30) days from publication of * (the) Executive Order, * *. 32

d. Executive Order No. 14

A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the assistance of the Office of the Solicitor
General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its findings." 34 All such
cases, whether civil or criminal, are to be filed "with the Sandiganbayan which shall have exclusive and original jurisdiction thereof." 35 Executive
Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or indemnification for consequential damages,
forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws, in connection
with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and proceed independently of any criminal proceedings and may
be proved by a preponderance of evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly applied to* *
(said)civil cases." 36

5. Contemplated Situations

The situations envisaged and sought to be governed are self-evident, these being:

1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime"; 37

a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate family,
relatives, subordinates and close associates, * * located in the Philippines or abroad, * * (and) business enterprises and entities
(came to be) owned or controlled by them, during * * (the Marcos) administration, directly or through nominees, by taking
undue advantage of their public office and/or using their powers, authority, influence, Connections or relationship; 38

b) otherwise stated, that "there are assets and properties purportedly pertaining to former President Ferdinand E. Marcos,
and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or
nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of
funds or properties owned by the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in
their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines"; 39

c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks, buildings,
shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the
Philippines and in various countries of the world;" 40 and
 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

6. Government's Right and Duty to Recover All Ill-gotten Wealth

There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth."

Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his dominions of the assets
and properties involved, is not only a right but a duty on the part of Government.

But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a proper respect
be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are deemed pillars of a free
society such as ours, and to which all members of that society may without exception lay claim.

* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience,
freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and
freedom of enterprise within reasonable bounds and under proper control. * * Evincing much concern for the protection of
property, the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is
bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. The Constitution realizes
the indispensable role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to
economic effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the
backbone of every progressive and happy country. 42

a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by adequate proof in
each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged and consummated;
although there are some who maintain that the fact-that an immense fortune, and "vast resources of the government have been amassed by
former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have resorted to all
sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial notice, being of so extensive
notoriety as to dispense with proof thereof, Be this as it may, the requirement of evidentiary substantiation has been expressly acknowledged, and
the procedure to be followed explicitly laid down, in Executive Order No. 14.

b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits

Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may reveal, there
is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance, destruction, dissipation, or
loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or
negate efforts to recover the same.

7. Provisional Remedies Prescribed by Law

To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3) provisional
takeover.

Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional takeover" is
peculiar to cases where "business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities or
persons close to former President Marcos." 43

a. Sequestration

By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be placed under its
possession or control said property, or any building or office wherein any such property and any records pertaining thereto may be found, including
"business enterprises and entities,"-for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and
preserving, the same-until it can be determined, through appropriate judicial proceedings, whether the property was in truth will- gotten," i.e.,
acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority relationship, connection or
influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which
the term is commonly understood in other jurisdictions. 45
 b. "Freeze Order"

A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its transfer, encumbrance,
concealment, or dissipation." 46 In other words, it commands the possessor to hold the property and conserve it subject to the orders and
disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or ostensible owner of property
is enjoined not to deliver, transfer, or otherwise dispose of any effects or credits in his possession or control, and thus becomes in a sense an
involuntary depositary thereof. 47

c. Provisional Takeover

In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business enterprises and
entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it being necessarily inferred
that the remedy entails no interference, or the least possible interference with the actual management and operations thereof; and "business
enterprises which were taken over by the government government of the Marcos Administration or by entities or persons close to him," in particular,
as to which a "provisional takeover" is authorized, "in the public interest or to prevent disposal or dissipation of the enterprises." 48 Such a
"provisional takeover" imports something more than sequestration or freezing, more than the placing of the business under physical possession and
control, albeit without or with the least possible interference with the management and carrying on of the business itself. In a "provisional
takeover," what is taken into custody is not only the physical assets of the business enterprise or entity, but the business operation as well. It is in
fine the assumption of control not only over things, but over operations or on- going activities. But, to repeat, such a "provisional takeover" is
allowed only as regards "business enterprises * * taken over by the government of the Marcos Administration or by entities or persons close to
former President Marcos."

d. No Divestment of Title Over Property Seized

It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the law plainly
qualifies the remedy of take-over by the adjective, "provisional." These remedies may be resorted to only for a particular exigency: to prevent in the
public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment in appropriate proceedings of the
primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly. None
of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest it in
the sequestering agency, the Government or other person. This can be done only for the causes and by the processes laid down by law.

That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the language of the
executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of which is suspect
shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate authorities." 49 Executive Order No. 2 declares
that the assets or properties therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in the Philippines to
determine whether any such assets or properties were acquired" by illegal means. Executive Order No. 14 makes clear that judicial proceedings are
essential for the resolution of the basic issue of whether or not particular assets are "ill-gotten," and resultant recovery thereof by the Government
is warranted.

e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command

There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional takeover is designed to be an end in
itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is intended to bring about a
permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared by the governing rules.

Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26 of its Transitory
Provisions, 51 lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although not really necessary) to the
institution by presidential fiat of the remedy of sequestration and freeze orders:

SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation to the
recovery of ill-gotten wealth shag remain operative for not more than eighteen months after the ratification of this Constitution.
However, in the national interest, as certified by the President, the Congress may extend said period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the
sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification of
this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its ratification. For those
issued after such ratification, the judicial action or proceeding shall be commenced within six months from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein
provided. 52
 f. Kinship to Attachment Receivership

As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the satisfaction of any
judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the action. 54 By receivership,
property, real or personal, which is subject of litigation, is placed in the possession and control of a receiver appointed by the Court, who shall
conserve it pending final determination of the title or right of possession over it. 55 All these remedies sequestration, freezing, provisional,
takeover, attachment and receivership are provisional, temporary, designed for-particular exigencies, attended by no character of permanency or
finality, and always subject to the control of the issuing court or agency.

g. Remedies, Non-Judicial

Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General draws
attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law authorized to issue against
property of a delinquent taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence on sequestration as a purely judicial
remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to change." What it insists on, what it pronounces to
be its "unyielding position, is that any change in procedure, or the institution of a new one, should conform to due process and the other
prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which there can be no disagreement.

h. Orders May Issue Ex Parte

Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevin suits, sequestration and provisional
takeover writs may issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of personality, no objection of any significance
may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of temporariness or
conditionality; and taking account specially of the constitutionally expressed "mandate of the people to recover ill-gotten properties amassed by the
leaders and supporters of the previous regime and protect the interest of the people;" 59 as well as the obvious need to avoid alerting suspected
possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of property precisely sought to be prevented, and the fact, just as
self-evident, that "any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or hamper the
efforts of the Government" at the just recovery thereof. 60

8. Requisites for Validity

What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at least, for the
sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its negation or nullification. 61

Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.

a. Prima Facie Evidence as Basis for Orders

Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." 62Executive Order No. 2 declares that
with respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new democratic government that President Marcos *
* (and other parties affected) be afforded fair opportunity to contest these claims before appropriate Philippine authorities." 63 Section 7 of the
Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two
commissioners, based on the affirmation or complaint of an interested party, or motu proprio when the Commission has reasonable grounds to
believe that the issuance thereof is warranted. 64 A similar requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which
requires that a "sequestration or freeze order shall be issued only upon showing of a prima facie case." 65

b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to set aside a writ of sequestration or
freeze order, viz:

SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold order is directed may request
the lifting thereof in writing, either personally or through counsel within five (5) days from receipt of the writ or order, or in the
case of a hold order, from date of knowledge thereof.

SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause shown, the Commission may
lift the writ or order unconditionally or subject to such conditions as it may deem necessary, taking into consideration the
evidence and the circumstance of the case. The resolution of the commission may be appealed by the party concerned to the
Office of the President of the Philippines within fifteen (15) days from receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed by some rule or regulation as a
condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it would nevertheless be exigible in
this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis in fact or law, or are whimsical and capricious,
are condemned and struck down. 66

9. Constitutional Sanction of Remedies

If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and takeover
orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have received constitutional
approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of the President to
enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters of the
previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." And as also already
adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of, and ratifies the "authority to issue sequestration or freeze orders under
Proclamation No. 3 dated March 25, 1986."

The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of promoting the
public welfare by restraining and regulating the use of liberty and property," 68 and as "the most essential, insistent and illimitable of powers * * in
the promotion of general welfare and the public interest," 69and said to be co-extensive with self-protection and * * not inaptly termed (also)
the'law of overruling necessity." " 70

10. PCGG not a "Judge"; General Functions

It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as, a judge. Its
general function is to conduct investigations in order to collect evidence establishing instances of "ill-gotten wealth;" issue sequestration, and such
orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of which it takes custody
and control and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent jurisdiction all
cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and determine, or adjudicate with any character of
finality or compulsion, cases involving the essential issue of whether or not property should be forfeited and transferred to the State because "ill-
gotten" within the meaning of the Constitution and the executive orders. This function is reserved to the designated court, in this case, the
Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation, leveled by BASECO, 72 that the PCGG plays the perfidious
role of prosecutor and judge at the same time.

11. Facts Preclude Grant of Relief to Petitioner

Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed, the petition cannot succeed.
The writs of certiorari and prohibition prayed for will not be issued.

The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration, through nominees,
by taking undue advantage of his public office and/or using his powers, authority, or influence, " and that it was by and through the same means,
that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or
controlled entities.

12. Organization and Stock Distribution of BASECO

BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * * (on Aug. 30,
1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area, Manila, where its Engineer
Island Shipyard is housed, and its main shipyard is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital
stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been subscribed, and on said
subscription, the aggregate sum of P3,035,000.00 has been paid by the incorporators. 74 The same articles Identify the incorporators, numbering
fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7)
Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S.
Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.

By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3)
Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there were twenty (20) stockholders listed in
BASECO's Stock and Transfer Book. 75 Their names and the number of shares respectively held by them are as follows:

1. Jose A. Rojas 1,248 shares

2. Severino G. de la 1,248 shares
Cruz

3. Emilio T. Yap 2,508 shares

4. Jose Fernandez 1,248 shares

5. Jose Francisco 128 shares

6. Manuel S. Mendoza 96 shares

7. Anthony P. Lee 1,248 shares

8. Hilario M. Ruiz 32 shares

9. Constante L. Farias 8 shares

10. Fidelity 65,882 shares

Management, Inc.

11. Trident 7,412 shares

Management

12. United Phil. Lines 1,240 shares

13. Renato M. Tanseco 8 shares

14. Fidel Ventura 8 shares

15. Metro Bay Drydock 136,370 shares

 16. Manuel Jacela 1 share

17. Jonathan G. Lu 1 share

18. Jose J. Tanchanco 1 share

19. Dioscoro Papa 128 shares

20. Edward T. Marcelo 4 shares

TOTAL 218,819 shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a government-owned or
controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except for NASSCO's
Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation all its structures, buildings, shops, quarters, houses,
plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on
February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00,
convertible into cash within twenty-four (24) hours from completion of the inventory undertaken pursuant to the contract. The balance of
P41,600,000.00, with interest at seven percent (7%) per annum, compounded semi-annually, was stipulated to be paid in equal semi-annual
installments over a term of nine (9) years, payment to commence after a grace period of two (2) years from date of turnover of the shipyard to
BASECO. 76

14. Subsequent Reduction of Price; Intervention of Marcos

Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A document to
this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by Arturo Pacificador, as Presiding
Officer of the Board of Directors, and David R. Ines, as General Manager. 77 This agreement bore, at the top right corner of the first page, the word
"APPROVED" in the handwriting of President Marcos, followed by his usual full signature. The document recited that a down payment of
P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-annual installments over nine (9) years
after a grace period of two (2) years, with interest at 7% per annum.

15. Acquisition of 300 Hectares from Export Processing Zone Authority

On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority for the price of
P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in
installments. 78

16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired ownership of
the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. This was accomplished by a deed entitled
"Contract of Purchase and Sale," 79which, like the Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-hand
corner of its first page, the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual full
signature. Transferred to BASECO were NASSCO's "ownership and all its titles, rights and interests over all equipment and facilities including
structures, buildings, shops, quarters, houses, plants and expendable or semi-expendable assets, located at the Engineer Island, known as the
Engineer Island Shops, including all the equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but
retained by BASECO and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO
committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate Government entity of Engineer
Island. Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been made, and the balance was
stipulated to be paid at 7% interest per annum in equal semi annual installments over a term of nine (9) years, to commence after a grace period of
two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager, Mr. David R. Ines.

17. Loans Obtained

It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available Japanese war damage fund of
$19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80On September 3, 1975, it got another loan also from the NDC in the
amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The
claim has been made that not a single centavo has been paid on these loans. 82

18. Reports to President Marcos

In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in a letter dated September 5,
1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in a confidential memorandum dated September 16, 1977 of Capt. A.T.
Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity.

a. BASECO President's Report

In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship construction" for
some time and expressed the fear that if that state of affairs persisted, BASECO would not be able to pay its debts to the Government, which at the
time stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spin-off (of their)
shipbuilding activities which shall be handled exclusively by an entirely new corporation to be created;" and towards this end, he informed Marcos
that BASECO was

* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to P341.165M
and assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total of
P83.365M as NDC's equity contribution in the new corporation. LUSTEVECO will participate by absorbing and converting a
portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to P32.538M. 86

b. Romualdez' Report

Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption:

MEMORANDUM:

FOR : The President

SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission

FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to build ships as
expected * * did not materialize."

He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3)
Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a
major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate recommendation, to wit:

* * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation of your
instructions to pass a board resolution to legalize the transfers under SEC regulations;
 2. By getting their replacements, the families cannot question us later on; and

3. We will owe no further favors from them. 87

He also transmitted to Marcos, together with the report, the following documents: 88

1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89

2. The articles of incorporation, the amended articles, and the by-laws of BASECO;

3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area, Manila;

4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";

5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at Mariveles, Bataan;

6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at Engineer Island, Port Area Manila;

7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at Mariveles, Bataan;

8. List of BASECO's fixed assets;

9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;

10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for BASECO's rank-and-file
employees. 90

Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders for ships in
order for the company to meet loan obligations," and that

An LOI may be issued to government agencies using floating equipment, that a linkage scheme be applied to a certain percent of
BASECO's net profit as part of BASECO's amortization payments to make it justifiable for you, Sir. 91

It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has presented a report on BASECO to
President Marcos, and his report demonstrates intimate familiarity with the firm's affairs and problems.

19. Marcos' Response to Reports

President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and the "linkage scheme"
relative to "BASECO's amortization payments."

a. Instructions re "Spin-Off"

Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil Company and
Chairman Constante Farias of the National Development Company, directing them "to participate in the formation of a new corporation resulting
from the spin-off of the shipbuilding component of BASECO along the following guidelines:

a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115,903,000 consisting of the
following obligations of BASECO which are hereby authorized to be converted to equity of the said new corporation, to wit:

1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting shares.

 For immediate compliance. 92

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their president's memorandum,
Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in representation of their respective corporations, executed a PRE-
INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding corporation to be known as "PHIL-ASIA
SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would seem that the new corporation ultimately formed was
actually named "Philippine Dockyard Corporation (PDC)." 94

b. Letter of Instructions No. 670

Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of Instructions No.
670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon Stevedoring Company
(LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by the Solicitor General, with pithy and
not inaccurate observations as to the effects thereof (in italics), as follows:

* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to reimbursement by
NDC to BASECO (of) the amount of s allegedly representing the handling and incidental expenses incurred by BASECO in the
installation of said equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO instead the
amount of P18.285M); 2) the shipbuilding equipment procured from reparations through EPZA, now in the possession of
BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding
equipment (thus) transferred be invested by LUSTEVECO, acting through PNOC and NDC, as the government's equity
participation in a shipbuilding corporation to be established in partnership with the private sector.

xxx xxx xxx

And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM * * in the total
amount of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and converted into non-voting preferred shares. 95

20. Evidence of Marcos'

Ownership of BASECO

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of BASECO has been
sufficiently shown.

Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO, but also that
he actually owns well nigh one hundred percent of its outstanding stock.

It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly owned by
twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity
Management, Inc., 65,882 shares; (3) Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations,
among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.

Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the sudden flight of
President Marcos, were certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO,
endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above
mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. 97

More specifically, found in Malacanang (and now in the custody of the PCGG) were:

1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which supposedly owns as aforesaid
65,882 shares of BASECO stock;

2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation which
allegedly owns 136,370 shares of BASECO stock;

3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. which allegedly owns 7,412 shares of
BASECO stock, assigned in blank; 98 and
 4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all but 5 % all
endorsed in blank. 99

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders were still in possession of
their respective stock certificates and had "never endorsed * * them in blank or to anyone else," 100 that denial is exposed by his own prior and
subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual declaration.

By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT, as undertaken by him, * * the
certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter
moved for extension; and in his motion dated October 2, 1986, he declared inter alia that "said certificates of stock are in the possession of third
parties, among whom being the respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them." 102 On the
same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc.,
and of all other Certificates, of Stock of petitioner's stockholders in possession of respondents." 103

In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to secure copies
of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their) certificates of stock," and
the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in Malacaang after the former President
and his family fled the country." To this manifestation BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting
that the firm's stockholders had not really assigned their stock. 105

In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the petitioner * *
to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its possession or accessible to
it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on
December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in the premises, that "it will negotiate with the owners (of the
BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates referred to" but that "it needs a more sufficient time
therefor" (sic). BASECO's counsel however eventually had to confess inability to produce the originals of the stock certificates, putting up the feeble
excuse that while he had "requested the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had
delivered the certificates to third parties by way of pledge and/or to secure performance of obligations, while others allegedly have entrusted them
to third parties in view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions
adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of
their present custody of the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so
that the originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that
he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth no
longer have them in their possession, these having already been assigned in blank to then President Marcos.

21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April,
1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in
the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing
and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets,
properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president.

From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as BASECO was
"owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage of * * (his)
public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the government had been taken over
by BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation in the public interest, in accordance
with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to cause divestment of title
thereto from Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14.

As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration and takeover
by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to be without merit the
theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not according to the parties affected prior
notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and
judge at the same time.

22. Executive Orders Not a Bill of Attainder

Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative act which
inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the
executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten
wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the
second place, no punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately make apparent. In no
sense, therefore, may the executive orders be regarded as a bill of attainder.

23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures

BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April
18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The
order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the
production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation
conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding *
* (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make
full disclosure of the same * *." The contention lacks merit.

It is elementary that the right against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not
follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an
abuse ofsuchprivileges * * 113

Relevant jurisprudence is also cited by the Solicitor General. 114

* * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all
within the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely
with the 4th Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to
produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press
Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).

* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain
special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are
limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so
long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out
whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make
use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and
whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense
amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the
criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual
may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such
privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence
before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of
testimony or information he is compelled to present. As amended, said Section 4 now provides that

xxx xxx xxx

The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or
other information compelled under the order (or any information directly or indirectly derived from such testimony, or other
information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or
otherwise failing to comply with the order.

The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search
undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.

24. Scope and Extent of Powers of the PCGG

One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG with regard to
the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to which an answer can be easily
given, much less one which will suffice for every conceivable situation.

a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or
provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover of property
does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property
sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and
this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises
effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion.

Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or
activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner
as far as possible in the same condition as it was at the time of sequestration.

b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-
appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally
do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or
restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make
ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the
assistance of any office, agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns,
businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker,
"watchdog" or overseer. It is not that of manager, or innovator, much less an owner.

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon

Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally
take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously employed in reference to going
concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some
measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into
management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or
dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials
or change of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible,
and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying
that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention - should accompany
that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this
area by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The business is not to be
experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of
the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten." Reason
dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises
provisionally taken over may legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered
stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes
the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as
it may have sequestered in corporations at all stockholders' meetings called for the election of directors, declaration of dividends, amendment of
the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not contradictory of the
Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the right exists, or
because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace
directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for
demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to
prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists.
Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only when
essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the replacements are
truly possessed of competence, experience and probity.
In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence
showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all.
This is why, in its Resolution of October 28, 1986; 118 this Court declared that

Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a
stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated
June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control
and management over what appear to be properties and assets owned and belonging to the government itself and over which
the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said
corporation.

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should
henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget that they are
conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises,
required.

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts, inclusive of the
termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It
is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the appropriate action. But the Court will
state that absent any showing of any important cause therefor, it will not normally substitute its judgment for that of the PCGG in these individual
transactions. It is clear however, that as things now stand, the petitioner cannot be said to have established the correctness of its submission that
the acts of the PCGG in question were done without or in excess of its powers, or with grave abuse of discretion.

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.

Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

G.R. No. L-27155 May 18, 1978

PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC., respondents.

Medina, Locsin, Corua, & Sumbillo for petitioner.

Manuel Lim & Associates for private respondents.

ANTONIO, J.:

Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila in Civil
Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as third-party plaintiff, the sum
of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully paid, P200.00 attorney's fees and costs,
the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine American General Insurance Co., Inc., to be paid
directly to the Philippine American General Insurance Co., Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio
in favor of the former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action is the complaint filed by
Philamgen (Philippine American General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery
of the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf of respondents Tapnio and Gueco, pursuant to
an indemnity agreement. Petitioner Bank was made third-party defendant by Tapnio and Gueco on the theory that their failure to
pay the debt was due to the fault or negligence of petitioner.

The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila, are quoted
hereunder:

Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the Philippine National
Bank Branch at San Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco Tapnio's account with
said Bank. In turn, to guarantee the payment of whatever amount the bonding company would pay to the
Philippine National Bank, both defendants executed the indemnity agreement, Exh. B. Under the terms and
conditions of this indemnity agreement, whatever amount the plaintiff would pay would earn interest at the rate of
12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of court litigation.

The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00.

It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00, plus
accumulated interests unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to
plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on September 18, 1957, the full amount due and owing
in the sum of P2,379.91, for and on account of defendant Rita Gueco's obligation (Exhs. D and D-1).

Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F), but to no avail.

Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was made upon
her by plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that she did not consider herself to be
indebted to the Bank at all because she had an agreement with one Jacobo-Nazon whereby she had leased to the
latter her unused export sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the rate of
P2.80 per picul, or for a total of P2,800.00, which was already in excess of her obligation guaranteed by plaintiff's
bond, Exh. A. This lease agreement, according to her, was with the knowledge of the bank. But the Bank has placed
obstacles to the consummation of the lease, and the delay caused by said obstacles forced 'Nazon to rescind the
lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint against the Bank to recover from the latter
any and all sums of money which may be adjudged against her and in favor of the plaitiff plus moral damages,
attorney's fees and costs.

Insofar as the contentions of the parties herein are concerned, we quote with approval the following findings of the
lower court based on the evidence presented at the trial of the case:
 It has been established during the trial that Mrs. Tapnio had an export sugar quota of 1,000 piculs
for the agricultural year 1956-1957 which she did not need. She agreed to allow Mr. Jacobo C.
Tuazon to use said quota for the consideration of P2,500.00 (Exh. "4"-Gueco). This agreement
was called a contract of lease of sugar allotment.

At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank at San
Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured by a
mortgage on her standing crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop. This arrangement was necessary in order that when Mrs.
Tapnio harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against
her. Her sugar cannot be exported without sugar quota allotment Sometimes, however, a planter
harvest less sugar than her quota, so her excess quota is utilized by another who pays her for its
use. This is the arrangement entered into between Mrs. Tapnio and Mr. Tuazon regarding the
former's excess quota for 1956-1957 (Exh. "4"-Gueco).

Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said
Bank, The same was submitted to the branch manager at San Fernando, Pampanga. The latter
required the parties to raise the consideration of P2.80 per picul or a total of P2,800.00 (Exh. "2-
Gueco") informing them that "the minimum lease rental acceptable to the Bank, is P2.80 per
picul." In a letter addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the
manager that he was agreeable to raising the consideration to P2.80 per picul. He further
informed the manager that he was ready to pay said amount as the funds were in his folder
which was kept in the bank.

Explaining the meaning of Tuazon's statement as to the funds, it was stated by him that he had an
approved loan from the bank but he had not yet utilized it as he was intending to use it to pay for
the quota. Hence, when he said the amount needed to pay Mrs. Tapnio was in his folder which
was in the bank, he meant and the manager understood and knew he had an approved loan
available to be used in payment of the quota. In said Exh. "6-Gueco", Tuazon also informed the
manager that he would want for a notice from the manager as to the time when the bank needed
the money so that Tuazon could sign the corresponding promissory note.

Further Consideration of the evidence discloses that when the branch manager of the Philippine National Bank at
San Fernando recommended the approval of the contract of lease at the price of P2.80 per picul (Exh. 1 1-Bank),
whose recommendation was concurred in by the Vice-president of said Bank, J. V. Buenaventura, the board of
directors required that the amount be raised to 13.00 per picul. This act of the board of directors was
communicated to Tuazon, who in turn asked for a reconsideration thereof. On November 19, 1956, the branch
manager submitted Tuazon's request for reconsideration to the board of directors with another recommendation
for the approval of the lease at P2.80 per picul, but the board returned the recommendation unacted upon,
considering that the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank).

The parties were notified of the refusal on the part of the board of directors of the Bank to grant the motion for
reconsideration. The matter stood as it was until February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank
informing the Bank that he was no longer interested to continue the deal, referring to the lease of sugar quota
allotment in favor of defendant Rita Gueco Tapnio. The result is that the latter lost the sum of P2,800.00 which she
should have received from Tuazon and which she could have paid the Bank to cancel off her indebtedness,

The court below held, and in this holding we concur that failure of the negotiation for the lease of the sugar quota
allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of the Philippine National Bank, The
refusal on the part of the bank to approve the lease at the rate of P2.80 per picul which, as stated above, would
have enabled Rita Gueco Tapnio to realize the amount of P2,800.00 which was more than sufficient to pay off her
indebtedness to the Bank, and its insistence on the rental price of P3.00 per picul thus unnecessarily increasing the
value by only a difference of P200.00. inevitably brought about the rescission of the lease contract to the damage
and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The unreasonableness of the position
adopted by the board of directors of the Philippine National Bank in refusing to approve the lease at the rate of
P2.80 per picul and insisting on the rate of P3.00 per picul, if only to increase the retail value by only P200.00 is
shown by the fact that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel mortgage on
standing crops, assignment of leasehold rights and interests on her properties, and surety bonds, aside from the
 fact that from Exh. 8-Bank, it appears that she was offering to execute a real estate mortgage in favor of the Bank to
replace the surety bond This statement is further bolstered by the fact that Rita Gueco Tapnio apparently had the
means to pay her obligation fact that she has been granted several value of almost P80,000.00 for the agricultural
years from 1952 to 56. 1

Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present petition.

The petitioner contends that the Court of Appeals erred:

(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita Gueco Tapnio by
Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and its unreasonable insistence on
the rental price of P3.00 instead of P2.80 per picul; and

(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner, the latter's
Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by respondent Rita Gueco Tapnio
to Jacobo C. Tuazon at P3.00 per picul.

Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under the
Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which include the right to approve
or disapprove the said lease of sugar quota and in the exercise of that authority, its

Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota subject of the lease
between private respondents and Jacobo C. Tuazon. It argued further that both under its Charter and the Corporation Law,
petitioner, acting thru its Board of Directors, has the perfect right to adopt a policy with respect to fixing of rental prices of export
sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not act arbitrarily since the said Board was guided by
statistics of sugar price and prices of sugar quotas prevailing at the time. Since the fixing of the rental of the sugar quota is a function
lodged with petitioner's Board of Directors and is a matter of policy, the respondent Court of Appeals could not substitute its own
judgment for that of said Board of Directors, which acted in good faith, making as its basis therefore the prevailing market price as
shown by statistics which were then in their possession.

Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it shall be
deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to respondent Philamgen
the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by said insurance company in behalf of the
principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against respondent Rita Gueco Tapnio.

We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing only errors of
law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own assessment of the evidence. 2

The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was executed on
April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San Fernando, Pampanga. This
arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a mortgage on her standing crop including
her sugar quota allocation for the agricultural year corresponding to said standing crop. The latter required the parties to raise the
consideration to P2.80 per picul, the minimum lease rental acceptable to the Bank, or a total of P2,800.00. Tuazon informed the
Branch Manager, thru a letter dated August 10, 1956, that he was agreeable to raising the consideration to P2.80 per picul. He
further informed the manager that he was ready to pay the said sum of P2,800.00 as the funds were in his folder which was kept in
the said Bank. This referred to the approved loan of Tuazon from the Bank which he intended to use in paying for the use of the sugar
quota. The Branch Manager submitted the contract of lease of sugar quota allocation to the Head Office on September 7, 1956, with
a recommendation for approval, which recommendation was concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura.
This notwithstanding, the Board of Directors of petitioner required that the consideration be raised to P3.00 per picul.

Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On November 19, 1956, the
Branch Manager submitted the request for reconsideration and again recommended the approval of the lease at P2.80 per picul, but
the Board returned the recommendation unacted, stating that the current price prevailing at that time was P3.00 per picul.

On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the lease of sugar
quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her loss in the sum of
P2,800.00 which she should have received had the lease in favor of Tuazon been implemented.
It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the lease
from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch Manager of the Bank on
August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was acceptable to him and that he even
offered to use the loan secured by him from petitioner to pay in full the sum of P2,800.00 which was the total consideration of the
lease. This arrangement was not only satisfactory to the Branch Manager but it was also approves by Vice-President J. V.
Buenaventura of the PNB. Under that arrangement, Rita Gueco Tapnio could have realized the amount of P2,800.00, which was more
than enough to pay the balance of her indebtedness to the Bank which was secured by the bond of Philamgen.

There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the disapproval of the
lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is liable for the damage caused.

As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the same must be
utilized during the milling season, because any allotment which is not filled during such milling season may be reallocated by the
Sugar Quota Administration to other holders of allotments. 3 There was no proof that there was any other person at that time willing
to lease the sugar quota allotment of private respondents for a price higher than P2.80 per picul. "The fact that there were isolated
transactions wherein the consideration for the lease was P3.00 a picul", according to the trial court, "does not necessarily mean that
there are always ready takers of said price. " The unreasonableness of the position adopted by the petitioner's Board of Directors is
shown by the fact that the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul demanded by
the Board amounted only to a total sum of P200.00. Considering that all the accounts of Rita Gueco Tapnio with the Bank were
secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and surety bonds and
that she had apparently "the means to pay her obligation to the Bank, as shown by the fact that she has been granted several sugar
crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to 1956", there was no reasonable basis for
the Board of Directors of petitioner to have rejected the lease agreement because of a measly sum of P200.00.

While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was mortgaged to the
Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest of private respondents, that
degree of care, precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar
quota. The law makes it imperative that every person "must in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith, 4 This petitioner failed to do. Certainly, it knew that the
agricultural year was about to expire, that by its disapproval of the lease private respondents would be unable to utilize the sugar
quota in question. In failing to observe the reasonable degree of care and vigilance which the surrounding circumstances reasonably
impose, petitioner is consequently liable for the damages caused on private respondents. Under Article 21 of the New Civil Code,
"any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage." The afore-cited provisions on human relations were intended to expand the concept of torts
in this jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight
to specifically provide in the statutes. 5

A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules governing the
liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a
natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a
principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of a
natural person, A corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express direction
or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body." 6

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.

Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.

G.R. No. L-35262 March 15, 1930

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

vs.
TAN BOON KONG, defendant-appellee.
Attorney-General Jaranilla for appellant.
Alejandro de Aboitiz Pinaga for appellee.

OSTRAND, J.:

This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to demurrer to an information charging
the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711 as amended. The information reads as follows:

That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province of Iloilo, Philippine Islands, the
said accused, as corporation organized under the laws of the Philippine Islands and engaged in the purchase and the sale of
sugar, "bayon," coprax, and other native products and as such object to the payment of internal-revenue taxes upon its
sales, did then and there voluntarily, illegally, and criminally declare in 1924 for the purpose of taxation only the sum of
P2,352,761.94, when in truth and in fact, and the accused well knew that the total gross sales of said corporation during
that year amounted to P2543,303.44, thereby failing to declare for the purpose of taxation the amount of P190,541.50, and
voluntarily and illegally not paying the Government as internal-revenue percentage taxes the sum of P2,960.12,
corresponding to 1 per cent of said undeclared sales.

The question to be decided is whether the information sets forth facts rendering the defendant, as manager of the corporation liable
criminally under section 2723 of Act No. 2711 for violation of section 1458 of the same act for the benefit of said corporation.
Section 1458 and 2723 read as follows:

SEC. 1458. Payment of percentage taxes Quarterly reports of earnings. The percentage taxes on business shall be
payable at the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter; and
it shall be on the duty of every person conducting a business subject to such tax, within the same period as is allowed for
the payment of the quarterly installments of the fixed taxes without penalty, to make a true and complete return of the
amount of the receipts or earnings of his business during the preceeding quarter and pay the tax due thereon. . . . (Act No.
2711.)

SEC. 2723. Failure to make true return of receipts and sales. Any person who, being required by law to make a return of
the amount of his receipts, sales, or business, shall fail or neglect to make such return within the time required, shall be
punished by a fine not exceeding two thousand pesos or by imprisonment for a term not exceeding one year, or both.

And any such person who shall make a false or fraudulent return shall be punished by a fine not exceeding ten thousand
pesos or by imprisonment for a term not exceeding two years, or both. (Act No. 2711.)

Apparently, the court below based the appealed ruling on the ground that the offense charged must be regarded as committed by
the corporation and not by its officials or agents. This view is in direct conflict with the great weight of authority. a corporation can
act only through its officers and agent s, and where the business itself involves a violation of the law, the correct rule is that all who
participate in it are liable (Grall and Ostrand's Case, 103 Va., 855, and authorities there cited.)

In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary corporation was criminally
liable for the violation of a statute by the corporation through he was not present when the offense was committed.

In the present case the information or complaint alleges that he defendant was the manager of a corporation which was engaged in
business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the total amount of sale made by
said false return constitutes a violation of law, the defendant, as the author of the illegal act, must necessarily answer for its
consequences, provided that the allegation are proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be returned to said
court for further proceedings not inconsistent with our view as hereinafter stated. Without costs. So ordered.

G.R. No. L-22973 January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte, defendants-appellees.
Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.
Tomas Besa and Jose B. Galang for defendants-appellees.

ANGELES, J.:

An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No. 52089, entitled "Mambulao
Lumber Company, plaintiff, versus Philippine National Bank and Anacleto Heraldo, defendants", dismissing the complaint against both
defendants and sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum of P3,582.52 with
interest thereon at the rate of 6% per annum from December 22, 1961 until fully paid, and the costs of suit.

In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be restated as follows:

1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concluded
by the court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on
that date, added to the sum of P738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation,
thereby rendering the subsequent foreclosure sale of its chattels unlawful;

2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional sum of P298.54 as expenses
of the foreclosure sale;

3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had already settled its
indebtedness to the PNB at the time the sale was effected, but also for the reason that the said sale was not conducted in
accordance with the provisions of the Chattel Mortgage Law and the venue agreed upon by the parties in the mortgage
contract;

4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and

5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff's vigorous opposition
thereto, and in taking possession thereof after the sale thru force, intimidation, coercion, and by detaining its "man-in-
charge" of said properties, the PNB is liable to plaintiff for damages and attorney's fees.

The antecedent facts of the case, as found by the trial court, are as follows:

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of defendant PNB and the
former offered real estate, machinery, logging and transportation equipments as collaterals. The application, however, was
approved for a loan of P100,000 only. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel
of land, together with the buildings and improvements existing thereon, situated in the poblacion of Jose Panganiban
(formerly Mambulao), province of Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land records
of said province, as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in its
compound in the aforementioned municipality.

On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the plaintiff signed a promissory
note wherein it promised to pay to the PNB the said sum in five equal yearly installments at the rate of P6,528.40 beginning
July 31, 1957, and every year thereafter, the last of which would be on July 31, 1961.

On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan granted to the plaintiff and so
on the said date, the latter executed another promissory note wherein it agreed to pay to the former the said sum in five
equal yearly installments at the rate of P3,679.64 beginning July 31, 1957, and ending on July 31, 1961.

The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated demands were made
upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon inspection and verification made by
employees of the PNB, it was found that the plaintiff had already stopped operation about the end of 1957 or early part of
1958.

On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession
of the parcel of land, together with the improvements existing thereon, covered by Transfer Certificate of Title No. 381 of
the land records of Camarines Norte, and to sell it at public auction in accordance with the provisions of Act No. 3135, as
amended, for the satisfaction of the unpaid obligation of the plaintiff, which as of September 22, 1961, amounted to
P57,646.59, excluding attorney's fees. In compliance with the request, on October 16, 1961, the Provincial Sheriff of
Camarines Norte issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. According to
the notice, the mortgaged property would be sold at public auction at 10:00 a.m. on November 21, 1961, at the ground
floor of the Court House in Daet, Camarines Norte.

On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession
of the chattels mortgaged to it by the plaintiff and sell them at public auction also on November 21, 1961, for the
satisfaction of the sum of P57,646.59, plus 6% annual interest therefore from September 23, 1961, attorney's fees
equivalent to 10% of the amount due and the costs and expenses of the sale. On the same day, the PNB sent notice to the
plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the latter and that the auction sale thereof
would be held on November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged
chattels were situated.

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels mortgaged by the plaintiff
and made an inventory thereof in the presence of a PC Sergeant and a policeman of the municipality of Jose Panganiban. On
November 9, 1961, the said Deputy Sheriff issued the corresponding notice of public auction sale of the mortgaged chattels
to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's compound situated in the municipality of Jose Panganiban,
Province of Camarines Norte.

On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the Naga Branch of
the PNB and another to the Provincial Sheriff of Camarines Norte, protesting against the foreclosure of the real estate and
chattel mortgages on the grounds that they could not be effected unless a Court's order was issued against it (plaintiff) for
said purpose and that the foreclosure proceedings, according to the terms of the mortgage contracts, should be made in
Manila. In said letter to the Naga Branch of the PNB, it was intimated that if the public auction sale would be suspended and
the plaintiff would be given an extension of ninety (90) days, its obligation would be settled satisfactorily because an
important negotiation was then going on for the sale of its "whole interest" for an amount more than sufficient to liquidate
said obligation.

The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for extension of the
foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines Norte to defer it to December 21, 1961,
at the same time and place. A copy of said advice was sent to the plaintiff for its information and guidance.

The foreclosure sale of the parcel of land, together with the buildings and improvements thereon, covered by Transfer
Certificate of Title No. 381, was, however, held on November 21, 1961, and the said property was sold to the PNB for the
sum of P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year. On the same date,
Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof was sent to the
plaintiff.

In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a bank draft for P738.59 to
the Naga Branch of the PNB, allegedly in full settlement of the balance of the obligation of the plaintiff after the application
thereto of the sum of P56,908.00 representing the proceeds of the foreclosure sale of parcel of land described in Transfer
Certificate of Title No. 381. In the said letter, the plaintiff reiterated its request that the foreclosure sale of the mortgaged
chattels be discontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not be
legally effected at a place other than the City of Manila.

In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that it had fully paid its
obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated December 14, 1961.

On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff acknowledging the remittance of
P738.59 with the advice, however, that as of that date the balance of the account of the plaintiff was P9,161.76, to which
should be added the expenses of guarding the mortgaged chattels at the rate of P4.00 a day beginning December 19, 1961.
It was further explained in said letter that the sum of P57,646.59, which was stated in the request for the foreclosure of the
real estate mortgage, did not include the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised
that the foreclosure sale scheduled on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest
thereon and guarding fees, would be made.
 On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and they were awarded to the
PNB for the sum of P4,200 and the corresponding bill of sale was issued in its favor by Deputy Provincial Sheriff Heraldo.

In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the plaintiff giving it priority to
repurchase the chattels acquired by the former at public auction. This offer was reiterated in a letter dated January 3, 1962,
of the Attorney of the Naga Branch of the PNB to the plaintiff, with the suggestion that it exercise its right of redemption and
that it apply for the condonation of the attorney's fees. The plaintiff did not follow the advice but on the contrary it made
known of its intention to file appropriate action or actions for the protection of its interests.

On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose Panganiban, Camarines
Norte, and they informed Luis Salgado, Chief Security Guard of the premises, that the properties therein had been
auctioned and bought by the PNB, which in turn sold them to Mariano Bundok. Upon being advised that the purchaser
would take delivery of the things he bought, Salgado was at first reluctant to allow any piece of property to be taken out of
the compound of the plaintiff. The employees of the PNB explained that should Salgado refuse, he would be exposing
himself to a litigation wherein he could be held liable to pay big sum of money by way of damages. Apprehensive of the risk
that he would take, Salgado immediately sent a wire to the President of the plaintiff in Manila, asking advice as to what he
should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's compound two truckloads of
equipment.

In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing him not to deliver the
"chattels" without court order, with the information that the company was then filing an action for damages against the
PNB. On the following day, May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit them
to take out any equipment from inside the compound of the plaintiff. Thru the intervention, however, of the local police and
PC soldiers, the trucks of Mariano Bundok were able finally to haul the properties originally mortgaged by the plaintiff to the
PNB, which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok.

Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first paragraph of this opinion,
sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of
6% per annum from December 22, 1961 (day following the date of the questioned foreclosure of plaintiff's chattels) until fully paid,
and the costs. Mambulao Lumber Company interposed the instant appeal.

We shall discuss the various points raised in appellant's brief in seriatim.

The first question Mambulao Lumber Company poses is that which relates to the amount of its indebtedness to the PNB arising out
of the principal loans and the accrued interest thereon. It is contended that its obligation under the terms of the two promissory
notes it had executed in favor of the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real property was
effected, and not P58,213.51 as found by the trial court.

There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor of the PNB, we find that
the agreed interest on the loan of P43,000.00 P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit
C-3), and P15,500.00 released on October 19, 1956, as per promissory note of the same date (Exhibit C-4) was six per cent (6%)
per annum from the respective date of said notes "until paid". In the statement of account of the appellant as of September 22,
1961, submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that date, the PNB had
compounded the principal of the loan and the accrued 6% interest thereon each time the yearly amortizations became due, and on
the basis of these compounded amounts charged additional delinquency interest on them up to September 22, 1961; and to this
erroneously computed total of P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to November 21 of
the same year. In effect, the PNB has claimed, and the trial court has adjudicated to it, interest on accrued interests from the time the
various amortizations of the loan became due until the real estate mortgage executed to secure the loan was extra-judicially
foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly provides that in computing the interest on any
obligation, promissory note or other instrument or contract, compound interest shall not be reckoned, except by agreement, or in
default thereof, whenever the debt is judicially claimed. This is also the clear mandate of Article 2212 of the new Civil Code which
provides that interest due shall earn legal interest only from the time it is judicially demanded, and of Article 1959 of the same code
which ordains that interest due and unpaid shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest
due and unpaid, which as added principal shall earn new interest; but such stipulation is nowhere to be found in the terms of the
promissory notes involved in this case. Clearly therefore, the trial court fell into error when it awarded interest on accrued interests,
without any agreement to that effect and before they had been judicially demanded.
Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the PNB. With respect to the
amount of P298.54 allowed as expenses of the extra-judicial sale of the real property, appellant maintains that the same has no
basis, factual or legal, and should not have been awarded. It likewise decries the award of attorney's fees which, according to the
appellant, should not be deducted from the proceeds of the sale of the real property, not only because there is no express
agreement in the real estate mortgage contract to pay attorney's fees in case the same is extra-judicially foreclosed, but also for the
reason that the PNB neither spent nor incurred any obligation to pay attorney's fees in connection with the said extra-judicial
foreclosure under consideration.

There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the trial court said:

The parcel of land, together with the buildings and improvements existing thereon covered by Transfer Certificate of Title
No. 381, was sold for P56,908. There was, however, no evidence how much was the expenses of the foreclosure sale
although from the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for advertising the sale (par. k,
Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of the Old Rules) or a
total of P298.54.

There is really no evidence of record to support the conclusion that the PNB is entitled 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
arriving at the amount awarded. It is to be borne in mind that the fees enumerated under paragraphs k and n, Section 7, of Rule 130
(now Rule 141) are demandable, only by a sheriff serving processes of the court in connection with judicial foreclosure of mortgages
under Rule 68 of the new Rules, and not in cases of extra-judicial foreclosure of mortgages under Act 3135. The law applicable is
Section 4 of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual
work performed in addition to his expenses in connection with the foreclosure sale. Admittedly, the PNB failed to prove during the
trial of the case, that it actually spent any amount in connection with the said foreclosure sale. Neither may expenses for publication
of the notice be legally allowed in the absence of evidence on record to support it. 1It is true, as pointed out by the appellee bank,
that courts should take judicial notice of the fees provided for by law which need not be proved; but in the absence of evidence to
show at least the number of working days the sheriff concerned actually spent in connection with the extra-judicial foreclosure sale,
the most that he may be entitled to, would be the amount of P10.00 as a reasonable allowance for two day's work one for the
preparation of the necessary notices of sale, and the other for conducting the auction sale and issuance of the corresponding
certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses of the sale should be set aside.

But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the same is extra-judicially
foreclosed, cannot be favorably considered, as would readily be revealed by an examination of the pertinent provision of the
mortgage contract. The parties to the mortgage appear to have stipulated under paragraph (c) thereof, inter alia:

. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell
the property mortgaged under Act 3135, as amended, to sign all documents and to perform all acts requisite and necessary
to accomplish said purpose and to appoint its substitute as such attorney-in-fact with the same powers as above specified.
In case of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee or any of its employees
as receiver, without any bond, to take charge of the mortgaged property at once, and to hold possession of the same and
the rents, benefits and profits derived from the mortgaged property before the sale, less the costs and expenses of the
receivership; the Mortgagor hereby agrees further that in all cases, attorney's fees hereby fixed at Ten Per cent (10%) of the
total indebtedness then unpaid which in no case shall be less than P100.00 exclusive of all fees allowed by law, and the
expenses of collection shall be the obligation of the Mortgagor and shall with priority, be paid to the Mortgagee out of any
sums realized as rents and profits derived from the mortgaged property or from the proceeds realized from the sale of the
said property and this mortgage shall likewise stand as security therefor. . . .

We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale mentioned thereunder, i.e.,
judicially or extra-judicially. While the phrase "in all cases" appears to be part of the second sentence, a reading of the whole context
of the stipulation would readily show that it logically refers to extra-judicial foreclosure found in the first sentence and to judicial
foreclosure mentioned in the next sentence. And the ambiguity in the stipulation suggested and pointed out by the appellant by
reason of the faulty sentence construction should not be made to defeat the otherwise clear intention of the parties in the
agreement.

It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were applicable to the extra-
judicial foreclosure sale of its real properties, still, the award of P5,821.35 for attorney's fees has no legal justification, considering the
circumstance that the PNB did not actually spend anything by way of attorney's fees in connection with the sale. In support of this
proposition, appellant cites authorities to the effect: (1) that when the mortgagee has neither paid nor incurred any obligation to pay
an attorney in connection with the foreclosure sale, the claim for such fees should be denied; 2 and (2) that attorney's fees will not be
allowed when the attorney conducting the foreclosure proceedings is an officer of the corporation (mortgagee) who receives a salary
for all the legal services performed by him for the corporation. 3 These authorities are indeed enlightening; but they should not be
applied in this case. The very same authority first cited suggests that said principle is not absolute, for there is authority to the
contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the legal staff of the PNB, we are reluctant
to exonerate herein appellant from the payment of the stipulated attorney's fees on this ground alone, considering the express
agreement between the parties in the mortgage contract under which appellant became liable to pay the same. At any rate, we find
merit in the contention of the appellant that the award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable and
unreasonable, considering that all that the branch attorney of the said bank did in connection with the foreclosure sale of the real
property was to file a petition with the provincial sheriff of Camarines Norte requesting the latter to sell the same in accordance with
the provisions of Act 3135.

The principle that courts should reduce stipulated attorney's fees whenever it is found under the circumstances of the case that the
same is unreasonable, is now deeply rooted in this jurisdiction to entertain any serious objection to it. Thus, this Court has explained:

But the principle that it may be lawfully stipulated that the legal expenses involved in the collection of a debt shall be
defrayed by the debtor does not imply that such stipulations must be enforced in accordance with the terms, no matter how
injurious or oppressive they may be. The lawful purpose to be accomplished by such a stipulation is to permit the creditor to
receive the amount due him under his contract without a deduction of the expenses caused by the delinquency of the
debtor. It should not be permitted for him to convert such a stipulation into a source of speculative profit at the expense of
the debtor.

Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from contracts for the payment
of compensation for any other services. By express provision of section 29 of the Code of Civil Procedure, an attorney is not
entitled in the absence of express contract to recover more than a reasonable compensation for his services; and even when
an express contract is made the court can ignore it and limit the recovery to reasonable compensation if the amount of the
stipulated fee is found by the court to be unreasonable. This is a very different rule from that announced in section 1091 of
the Civil Code with reference to the obligation of contracts in general, where it is said that such obligation has the force of
law between the contracting parties. Had the plaintiff herein made an express contract to pay his attorney an uncontingent
fee of P2,115.25 for the services to be rendered in reducing the note here in suit to judgment, it would not have been
enforced against him had he seen fit to oppose it, as such a fee is obviously far greater than is necessary to remunerate the
attorney for the work involved and is therefore unreasonable. In order to enable the court to ignore an express contract for
an attorney's fees, it is not necessary to show, as in other contracts, that it is contrary to morality or public policy (Art. 1255,
Civil Code). It is enough that it is unreasonable or unconscionable. 4

Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear excessive,
unconscionable, or unreasonable, because a lawyer is primarily a court officer charged with the duty of assisting the court in
administering impartial justice between the parties, and hence, the fees should be subject to judicial control. Nor should it be
ignored that sound public policy demands that courts disregard stipulations for counsel fees, whenever they appear to be a source of
speculative profit at the expense of the debtor or mortgagor. 5 And it is not material that the present action is between the debtor
and the creditor, and not between attorney and client. As court have power to fix the fee as between attorney and client, it must
necessarily have the right to say whether a stipulation like this, inserted in a mortgage contract, is valid. 6

In determining the compensation of an attorney, the following circumstances should be considered: the amount and character of the
services rendered; the responsibility imposed; the amount of money or the value of the property affected by the controversy, or
involved in the employment; the skill and experience called for in the performance of the service; the professional standing of the
attorney; the results secured; and whether or not the fee is contingent or absolute, it being a recognized rule that an attorney may
properly charge a much larger fee when it is to be contingent than when it is not. 7 From the stipulation in the mortgage contract
earlier quoted, it appears that the agreed fee is 10% of the total indebtedness, irrespective of the manner the foreclosure of the
mortgage is to be effected. The agreement is perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but,
surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra-judicially, and all that the attorney did was to file a
petition for foreclosure with the sheriff concerned. It is to be assumed though, that the said branch attorney of the PNB made a
study of the case before deciding to file the petition for foreclosure; but even with this in mind, we believe the amount of P5,821.35
is far too excessive a fee for such services. Considering the above circumstances mentioned, it is our considered opinion that the
amount of P1,000.00 would be more than sufficient to compensate the work aforementioned.
The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together with the amount it
remitted to the PNB later was more than sufficient to liquidate its total obligation to herein appellee bank. Again, we find merit in
this claim. From the foregoing discussion of the first two errors assigned, and for purposes of determining the total obligation of
herein appellant to the PNB as of November 21, 1961 when the real estate mortgage was foreclosed, we have the following
illustration in support of this conclusion:1wph1.t

A. -
I. Principal Loan
(a) Promissory note dated August 2, 1956 P27,500.00
(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 8,751.78
(b) Promissory note dated October 19, 1956 P15,500.00
(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08
II. Sheriff's fees [for two (2) day's work] 10.00
III. Attorney's fee 1,000.00

Total obligation as of Nov. 21, 1961 P57,495.86

B. -
I. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 P56,908.00
II. Additional amount remitted to the PNB on Dec. 18, 1961 738.59

Total amount of Payment made to PNB as of Dec. 18, 1961 P57,646.59

Deduct: Total obligation to the PNB P57,495.86

Excess Payment to the PNB P 150.73

========

From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose the mortgage of herein
appellant's chattels on December 21, 1961; and on this ground alone, we may declare the sale of appellant's chattels on the said
date, illegal and void. But we take into consideration the fact that the PNB must have been led to believe that the stipulated 10% of
the unpaid loan for attorney's fees in the real estate mortgage was legally maintainable, and in accordance with such belief, herein
appellee bank insisted that the proceeds of the sale of appellant's real property was deficient to liquidate the latter's total
indebtedness. Be that as it may, however, we still find the subsequent sale of herein appellant's chattels illegal and objectionable on
other grounds.

That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real estate mortgage on
November 21, 1961, can not be doubted, as shown not only by its letter to the PNB on November 19, 1961, but also in its letter to
the provincial sheriff of Camarines Norte on the same date. These letters were followed by another letter to the appellee bank on
December 14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objection to the scheduled sale of its chattels on
December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full its total
obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount of P738.59; and (2) that the
contemplated sale at Jose Panganiban would violate their agreement embodied under paragraph (i) in the Chattel Mortgage which
provides as follows:

(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the parties hereto agree that the
corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the sheriff of the City of
Manila, as the case may be; and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the total
 indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all costs and fees allowed by law and of
other expenses incurred in connection with the said foreclosure. [Emphasis supplied]

Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard of the objection of herein
appellant to the sale of its chattels at Jose Panganiban, Camarines Norte and not in the City of Manila as agreed upon, the PNB
proceeded with the foreclosure sale of said chattels. The trial court, however, justified said action of the PNB in the decision
appealed from in the following rationale:

While it is true that it was stipulated in the chattel mortgage contract that a petition for the extra-judicial foreclosure
thereof should be filed with the Sheriff of the City of Manila, nevertheless, the effect thereof was merely to provide another
place where the mortgage chattel could be sold in addition to those specified in the Chattel Mortgage Law. Indeed, a
stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of the statute. Considering that
Section 14 of Act No. 1508 vests in the mortgagee the choice where the foreclosure sale should be held, hence, in the case
under consideration, the PNB had three places from which to select, namely: (1) the place of residence of the mortgagor; (2)
the place of the mortgaged chattels were situated; and (3) the place stipulated in the contract. The PNB selected the second
and, accordingly, the foreclosure sale held in Jose Panganiban, Camarines Norte, was legal and valid.

To the foregoing conclusion, We disagree. While the law grants power and authority to the mortgagee to sell the mortgaged property
at a public place in the municipality where the mortgagor resides or where the property is situated, 8 this Court has held that the sale
of a mortgaged chattel may be made in a place other than that where it is found, provided that the owner thereof consents thereto;
or that there is an agreement to this effect between the mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed
to have the sale of the mortgaged chattels in the City of Manila, which, any way, is the residence of the mortgagor, it cannot be
rightly said that mortgagee still retained the power and authority to select from among the places provided for in the law and the
place designated in their agreement over the objection of the mortgagor. In providing that the mortgaged chattel may be sold at the
place of residence of the mortgagor or the place where it is situated, at the option of the mortgagee, the law clearly contemplated
benefits not only to the mortgagor but to the mortgagee as well. Their right arising thereunder, however, are personal to them; they
do not affect either public policy or the rights of third persons. They may validly be waived. So, when herein mortgagor and
mortgagee agreed in the mortgage contract that in cases of both judicial and extra-judicial foreclosure under Act 1508, as amended,
the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the Sheriff of Manila, as the case
may be, they waived their corresponding rights under the law. The correlative obligation arising from that agreement have the force
of law between them and should be complied with in good faith. 10

By said agreement the parties waived the legal venue, and such waiver is valid and legally effective, because it, was merely a
personal privilege they waived, which is not contrary, to public policy or to the prejudice of third persons. It is a general
principle that a person may renounce any right which the law gives unless such renunciation is expressly prohibited or the
right conferred is of such nature that its renunciation would be against public policy. 11

On the other hand, if a place of sale is specified in the mortgage and statutory requirements in regard thereto are complied
with, a sale is properly conducted in that place. Indeed, in the absence of a statute to the contrary, a sale conducted at a
place other than that stipulated for in the mortgage is invalid, unless the mortgagor consents to such sale. 12

Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a return of his doings which
shall particularly describe the articles sold and the amount received from each article. From this, it is clear that the law requires that
sale be made article by article, otherwise, it would be impossible for him to state the amount received for each item. This
requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the chattels in question in bulk,
notwithstanding the fact that the said chattels consisted of no less than twenty different items as shown in the bill of sale. 13 This
makes the sale of the chattels manifestly objectionable. And in the absence of any evidence to show that the mortgagor had agreed
or consented to such sale in gross, the same should be set aside.

It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance with its terms, or where
the proceedings as to the sale of foreclosure do not comply with the statute. 14 This rule applies squarely to the facts of this case
where, as earlier shown, herein appellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded with the sale
of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of the mortgagor thereto for
the reason that it is not the place of sale agreed upon in the mortgage contract; and the said deputy sheriff sold all the chattels
(among which were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and Sawmill equipment consisting of
a 150 HP Murphy Engine, plainer, large circular saws etc.) as a single lot in violation of the requirement of the law to sell the same
article by article. The PNB has resold the chattels to another buyer with whom it appears to have actively cooperated in subsequently
taking possession of and removing the chattels from appellant compound by force, as shown by the circumstance that they had to
take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief security officer of the premises in jail to
deprive herein appellant of its possession thereof. To exonerate itself of any liability for the breach of peace thus committed, the PNB
would want us to believe that it was the subsequent buyer alone, who is not a party to this case, that was responsible for the forcible
taking of the property; but assuming this to be so, still the PNB cannot escape liability for the conversion of the mortgaged chattels
by parting with its interest in the property. Neither would its claim that it afterwards gave a chance to herein appellant to repurchase
or redeem the chattels, improve its position, for the mortgagor is not under obligation to take affirmative steps to repossess the
chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts of the PNB and the Deputy Sheriff of
Camarines Norte, therefore, We have to declare that herein appellant is entitled to collect from them, jointly and severally, the full
value of the chattels in question at the time they were illegally sold by them. To this effect was the holding of this Court in a similar
situation. 16

The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant for the full value of the truck at
the time the plaintiff thus carried it off to be sold; and of course, the burden is on the defendant to prove the damage to
which he was thus subjected. . . .

This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in 1961. The trial court did
not make any finding on the value of the chattels in the decision appealed from and denied altogether the right of the appellant to
recover the same. We find enough evidence of record, however, which may be used as a guide to ascertain their value. The record
shows that at the time herein appellant applied for its loan with the PNB in 1956, for which the chattels in question were mortgaged
as part of the security therefore, herein appellant submitted a list of the chattels together with its application for the loan with a
stated value of P107,115.85. An official of the PNB made an inspection of the chattels in the same year giving it an appraised value of
P42,850.00 and a market value of P85,700.00. 17 The same chattels with some additional equipment acquired by herein appellant
with part of the proceeds of the loan were reappraised in a re-inspection conducted by the same official in 1958, in the report of
which he gave all the chattels an appraised value of P26,850.00 and a market value of P48,200.00. 18 Another re-inspection report in
1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19 The said official of the PNB who made the
foregoing reports of inspection and re-inspections testified in court that in giving the values appearing in the reports, he used a
conservative method of appraisal which, of course, is to be expected of an official of the appellee bank. And it appears that the
values were considerably reduced in all the re-inspection reports for the reason that when he went to herein appellant's premises at
the time, he found the chattels no longer in use with some of the heavier equipments dismantled with parts thereof kept in the
bodega; and finding it difficult to ascertain the value of the dismantled chattels in such condition, he did not give them anymore any
value in his reports. Noteworthy is the fact, however, that in the last re-inspection report he made of the chattels in 1961, just a few
months before the foreclosure sale, the same inspector of the PNB reported that the heavy equipment of herein appellant were
"lying idle and rusty" but were "with a shed free from rains" 20 showing that although they were no longer in use at the time, they
were kept in a proper place and not exposed to the elements. The President of the appellant company, on the other hand, testified
that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value of its two trucks acquired by it with part of
the proceeds of the loan and included as additional items in the mortgaged chattels were worth no less than P14,000.00. He likewise
appraised the worth of its Murphy engine at P16,000.00 which, according to him, when taken together with the heavy equipments
he mentioned, the sawmill itself and all other equipment forming part of the chattels under consideration, and bearing in mind the
current cost of equipments these days which he alleged to have increased by about five (5) times, could safely be estimated at
P120,000.00. This testimony, except for the appraised and market values appearing in the inspection and re-inspection reports of the
PNB official earlier mentioned, stand uncontroverted in the record; but We are not inclined to accept such testimony at its par value,
knowing that the equipments of herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the
time of the sale of the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those years of
inoperation, although from the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which the
chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor. Considering, however, the facts that the
appraised value of P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly conservative;
that two 6 x 6 trucks subsequently bought by the appellant company had thereafter been added to the chattels; and that the real
value thereof, although depreciated after several years of inoperation, was in a way maintained because the depreciation is off-set by
the marked increase in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at the time
of the sale should be fixed at the original appraised value of P42,850.00.

Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like
herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral
shock or social humiliation which are basis of moral damages. 21 A corporation may have a good reputation which, if besmirched, may
also be a ground for the award of moral damages. The same cannot be considered under the facts of this case, however, not only
because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation
or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in
Manila which is the place agreed upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter
disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions
were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein
appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the award of
P3,000.00 as attorney's fees for herein appellant.

WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as hereby, it is set aside. The Philippine
National Bank and the Deputy Sheriff of the province of Camarines Norte are ordered to pay, jointly and severally, to Mambulao
Lumber Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value
of the chattels at the time of the sale with interest at the rate of 6% per annum from December 21, 1961, until fully paid, P10,000.00
in exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Fernando, JJ., concur.
Bengzon, J.P. J., took no part.

G.R. No. 121171 December 29, 1998

ASSET PRIVATIZATION TRUST, petitioner,

vs.
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO
S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock-Holders of Marinduque Mining and Industrial
Corporation, respondents.
KAPUNAN, J.:

The petition for review on certiorari before us seeks to reverse and set aside the decision of the Court of Appeals which denied due
course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC)
Branch 62, Makati City. The Makati RTC's order upheld and confirmed the award made by the Arbitration Committee in favor of
Marinduque Mining and Industrial Corporation (MMIC) and against the Government, represented by herein petitioner APT for
damages in the amount of P2.5 BILLION (or approximately P4.5 BILLION, including interest).

Ironically, the staggering amount of damages was imposed on the Government for exercising its legitimate right of foreclosure as
creditor against the debtor MMIC as a consequence of the latter's failure to pay its overdue and unpaid obligation of P22 billion to
the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP).

The antecedent facts

of the case.

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by
Republic Act No. 1528, as amended by Republic Acts Nos. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was
drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC the
exclusive right to explore, develop and exploit nickel, cobalt and other minerals in the Surigao mineral reservation. 1 MMIC is a
domestic corporation engaged in mining with respondent Jesus S. Cabarrus, Sr. as President and among its original stockholders.

The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture bonds and extension of
guarantees. Further, the Philippine Government obtained a firm commitment form the DBP and/or other government financing
institutions to subscribe in MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from the US
Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100 Million. 2

DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized portion of the
Government commitment. Thereafter, the Government extended accommodations to MMIC in various amounts.

On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement 3 whereby MMIC, as mortgagor, agreed to constitute a
mortgage in favor or PNB and DBP as mortgagees, over all MMIC's assets; subject of real estate and chattel mortgage executed by the
mortgagor, and additional assets described and identified, including assets of whatever kind, nature or description, which the
mortgagor may acquire whether in substitution of, in replenishment, or in addition thereto.

Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the MORTGAGOR
shall fail to pay any amount secured by this Mortgage Trust Agreement when due. 4

Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of defaults, circumstances
by which the mortgagor may be declared in default, the procedure therefor, waiver of period to foreclose, authority of Trustee
before, during and after foreclosure, including taking possession of the mortgaged properties. 5

In various requests for advances/remittances of loans if huge amounts, Deeds of Undertaking, Promissory Notes, Loan Documents,
Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand or under certain terms the loans and
accommodations secured from or guaranteed by both DBP and PNB.

By 1984, DBP and PNB's financial both in loans and in equity in MMIC had reached tremendous proportions, and MMIC was having a
difficult time meeting its financial obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of
August 31, 1984 and with PNB in the amount of P8,789,028,249.38 as July 15, 1984 or a total Government expose of Twenty Two
Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Hundred Seventy and 05/100 (P22, 668,537,770.05), Philippine
Currency. 6 Thus, a financial restructuring plan (FRP) designed to reduce MMIC's interest expense through debt conversion to equity
was drafted by the Sycip Gorres Velayo accounting firm. 7 On April 30, 1984, the FRP was approved by the Board of Directors of the
MMIC. 8 However, the proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP. 9

In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had become overdue and since
any restructuring program relative to the loans was no longer feasible, and in compliance with the directive of Presidential Decree
No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the mortgages in
accordance with the Mortgage Trust Agreement. 10

The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations, namely, Nonoc
Mining Corporation, Maricalum Mining and Industrial Corporation, and Island Cement Corporation. In 1986, these assets were
transferred to the Asset Privatization Trust (APT). 11

On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative suit against DBP and
PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and Damages. 12 The suit, docketed as
Civil Case No. 9900, prayed that the court: (1) annul the foreclosures, restore the foreclosed assets to MMIC, and require the banks
to account for their use and operation in the interim; (2) direct the banks to honor and perform their commitments under the alleged
FRP; and (3) pay moral and exemplary damages, attorney's fees, litigation expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor of the DBP and the PNB's interest in MMIC, mutually
agreed to submit the case to arbitration by entering into a "Compromise and Arbitration Agreement," stipulating, inter alia:

NOW THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contained herein
the parties agree as follows:

1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the Trial Court
and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment
based on this Compromise and Arbitration Agreement.

In withdrawing their dispute from the court and in choosing to resolve it through arbitration, the parties have
agreed that:

(a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interests in MMIC and the MMIC accounts, APT shall likewise
succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to
be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility
be discharged by and be enforceable against APT, the parties having agreed to drop PNB and DBP from the
arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to
arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial
Court of this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money claims
with the parties waiving and foregoing all other forms of reliefs which they prayed for or should have prayed for in
Civil Case No. 9900. 13

The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues The issues to be submitted for the Committee's resolution shall be (a) Whether PLAINTIFFS have the
capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors, (b) Whether or not
the actions leading to, and including,. the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good
faith. 14

This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch 61, issued an order, to
wit:

WHEREFORE, this Court orders:

1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant.

2. Approving the Compromise and Arbitration Agreement dated October 6, 1997, attached as
Annex "C" of the Omnibus Motion.
 3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure
money claims; and

4. The Complaint is hereby DISMISSED. 15

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman, Atty. Jose C. Sison and
former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after conducting several hearings, the
Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows:

Since, as this Committee finds, there is no foreclosure at all as it was not legally and validly done, the Committee
holds and so declares that the loans of PNB and DBP to MMIC. for the payment and recovery of which the void
foreclosure sales were undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-in-
interest of PNB and DBP to the said loans is therefore entitled and retains the right, to collect the same from MMIC
pursuant to, and based on the loan documents signed by MMIC, subject to the legal and valid defenses that the
latter may duly and seasonably interpose. Such loans shall, however, be reduced by the amount which APT may
have realized from the sale of the seized assets of MMIC which by agreement should no longer be returned even if
the foreclosures were found to be null and void.

The documentary evidence submitted and adopted by the parties (Exhibits "3", "3-B"; Exhibit "100"; and also
Exhibit "ZZZ") as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date
of foreclosure is P22,668,537,770.05, more or less.

Therefore defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05, more or less, with interest thereon as stipulated in the loan documents from
the date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of
the total capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in the
obligations of, MMIC in proportion to its 87% equity in tile total capital stock of MMIC.

xxx xxx xxx

As this Committee holds that the FRP is valid, DBP's equity in MMIC is raised to 87%. So pursuant to the above
provision of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the
actual damages of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest.

DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of
P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August 3, 9,
and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT from
the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into equity. Should
there be any balance due to MMIC after the offsetting, the same shall be satisfied from the funds representing the
purchase price of the sale of the shares of Island Cement Corporation in the amount of P503,000,000.00 held
under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement
that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;

2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of
P13,000.000.00, as and for moral and exemplary damages. Payment of these moral and exemplary damages shall
be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been
converted into equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied
from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;
 3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to paragraph (9) of the Compromise and
Arbitration Agreement, as and for moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED. 16

Motions for reconsideration were filed by both parties, but the same were denied.

On October 17, 1993, private respondents filed in the same Civil Case No. 9900 an "Application/Motion for Confirmation of
Arbitration Award." Petitioner countered with an "Opposition and Motion to Vacate Judgment" raising the following grounds.

1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said
motion is neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon
motion of the parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the
Philippines and the Philippine National Bank (PNB);

2. Under Section 71 of Rep. Act 876, an arbitration under a contract or submission shall be deemed a special
proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction, (not
necessarily with this Honorable Court) for an order confirming the award;

3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative
suit and (2) the regularity of the foreclosure proceedings. The arbitration award sought to be confirmed herein, far
exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs;

4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where the arbitrators
exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject
matter submitted to them was not made. 17

Private respondents filed a "REPLY AND OPPOSITION" dated November 10, 1984, arguing that a dismissal of Civil Case No. 9900 was
merely a "qualified dismissal" to pave the way for the submission of the controversy to arbitration and operated simply as "a mere
suspension of the proceedings" They denied that the Arbitration Committee had exceeded its powers.

In an Order dated November 28, 1993, the trial court confirmed the award of the Arbitration Committee. The dispositive portion of
said order reads:

WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement
dated October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as affirmed
in a Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated September 2,
1994 of Committee Member Elma, and the pertinent provisions of RA 876, also known as the Arbitration Law, this
Court GRANTS PLAINTIFFS' APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS
HEREBY RENDERED:

(a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC), except the DBP, the
sum of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held under
escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The balance of
the award, after the escrow funds are fully applied, shall be executed against the APT;

(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and for moral and
exemplary damages;
 (c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages;
and

(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.23 as arbitration
costs.

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration Committee's decision, and with this Court's
Confirmation, the issuance of the Arbitration Committee's Award shall henceforth be final and executory.

SO ORDERED. 18

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28, 1994. Private respondents,
in turn, submitted their reply and opposition thereto.

On January 18, 1995, the trial court handed down its order denying APT's motion for reconsideration for lack of merit and for having
been filed out of time. The trial court declared that "considering that the defendant APT, through counsel, officially and actually
received a copy of the Order of this Court dated November 28, 1994 on December 6, 1994, the Motion for Reconsideration thereof
filed by the defendant APT on December 27, 1994, or after the lapse of 21 days, was clearly filed beyond the 15-day reglementary
period prescribed or provided for by law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of
any court in all cases, and by necessary implication for the filing of a motion for reconsideration thereof."

On February 7, 1995, petitioner received private respondents' Motion for Execution and Appointment of Custodian of Proceeds of
Execution dated February 6, 1995.

Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary restraining order and/or
preliminary injunction dated February 13, 1996 to annul and declare as void the Orders of the RTC-Makati dated November 28, 1994
and January 18, 1995 for having been issued without or in excess of jurisdiction and/or with grave abuse of discretion. 19 As ground
therefor, petitioner alleged that:

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO
CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY
BEEN DISMISSED.

II

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF
JURISDICTION, IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE
MOTION FOR RECONSIDERATION OF ORDER OF AWARD.

III

THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND
WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION,
NOT FROM THE DATE OF SERVICE OF THE COURT'S COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A
XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING COUNSEL'S COPY THEREOF. 20

On July 12, 1995, he Court of Appeals, through its Fifth-Division, denied due course and dismissed the petition for certiorari.

Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following errors:

ASSIGNMENT OF ERRORS

I
 THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH
HAS PREVIOUSLY DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD
UNDER THE SAME CIVIL CASE AND NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN
FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC.

II

THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED FROM QUESTIONING THE
ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND
AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER
DISMISSED/DENIED PRIVATE RESPONDENTS' MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD
AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL AWARD.

IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APT'S PETITION FOR CERTIORARI AS AN APPEAL
TAKEN FROM THE ORDER CONFIRMING THE AWARD.

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE
PERIOD TO FILE A MOTION FOR RECONSIDERATION. 21

The petition is impressed with merit.

The RTC of Makati, Branch 62,

did not have jurisdiction to confirm

the arbitral award.

The use of the term "dismissed" is not "a mere semantic imperfection". The dispositive portion of the Order of the trial court dated
October 14, 1992 stated in no uncertain terms:

4. The Complaint is hereby DISMISSED. 22

The term "dismiss" has a precise definition in law. "To dispose of an action, suit, or motion without trial on the issues
involved. Conclude, discontinue, terminate, quash." 23

Admittedly, the correct procedure was for the parties to go back to the court where the case was pending to have the award
confirmed by said court. However, Branch 62 made the fatal mistake of issuing a final order dismissing the case. While Branch 62
should have merely suspended the case and not dismissed it, 24 neither of the parties questioned said dismissal. Thus, both parties as
well as said court are bound by such error.

It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the knowledge that the "case was
merely stayed until arbitration finished," as again, the order of Branch 62 in very clear terms stated that the "complaint was
dismissed." By its own action, Branch 62 had lost jurisdiction over the case. It could not have validly reacquired jurisdiction over the
said case on mere motion of one of the parties. The Rules of Court is specific on how a new case may be initiated and such is not
done by mere motion in a particular branch of the RTC. Consequently, as there was no "pending action" to speak of, the petition to
confirm the arbitral award should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial
Court.

II

Petitioner was not estopped from

questioning the jurisdiction of

Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm the arbitral award
because it sought affirmative relief in said court by asking that the arbitral award be vacated.

The rule is that "Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the invocation
of this defense may be done at any time. It is neither for the courts nor for the parties to violate or disregard that rule, let alone to
confer that jurisdiction this matter being legislative in character." 25 As a rule then, neither waiver nor estoppel shall apply to confer
jurisdiction upon a court barring highly meritorious and exceptional circumstances. 26 One such exception was enunciated in Tijam vs.
Sibonghanoy, 27 where it was held that "after voluntarily submitting a cause and encountering an adverse decision on the merits, it is
too late for the loser to question the jurisdiction or power of the court."

Petitioner's situation is different because from the outset, it has consistently held the position that the RTC, Branch 62 had no
jurisdiction to confirm the arbitral award; consequently, it cannot be said that it was estopped from questioning the RTC's
jurisdiction. Petitioner's prayer for the setting aside of the arbitral award was not inconsistent with its disavowal of the court's
jurisdiction.

III

Appeal of petitioner to the

Court of Appeals thru certiorari

under Rule 65 was proper.

The Court of Appeals in dismissing APT's petition for certiorari upheld the trial court's denial of APT's motion for reconsideration of
the trial court's order confirming the arbitral award, on the ground that said motion was filed beyond the 15-day reglementary
period; consequently, the petition for certiorari could not be resorted to as substitute to the lost right of appeal.

We do not agree.

Section 99 of Republic Act No. 876, 28 provides that:

. . . An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon
an award through certiorari proceedings, but such appeals shall be limited to questions of law. . . ..

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from resorting to the extraordinary
remedy of certiorari under Rule 65 of the Rules of Court where, as in this case, the Regional Trial Court to which the award was
submitted for confirmation has acted without jurisdiction or with grave abuse of discretion and there is no appeal, nor any plain,
speedy remedy in the course of law.

Thus, Section 1 of Rule 65 provides:

Sec 1. Petition for Certiorari: When any tribunal, board or officer exercising judicial functions, has acted without
or in excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speed,
and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the
 proper court alleging the facts with certainty and praying that judgment be rendered annulling or modifying the
proceedings, as the law requires, of such tribunal, board or officer.

In the instant case, the respondent court erred in dismissing the special civil action for certiorari, it being clear from the pleadings
and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of discretion in taking cognizance of private
respondents' motion to confirm the arbitral award and, worse, in confirming said award which is grossly and patently not in accord
with the arbitration agreement, as will be hereinafter demonstrated.

IV

The nature and limits of the

Arbitrators' power.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to the facts. 29 Courts
are without power to amend or overrule merely because of disagreement with matters of law or facts determined by the
arbitrators. 30 They will not review the findings of law and fact contained in an award, and will not undertake to substitute their
judgment for that of the arbitrators, since any other rule would make an award the commencement, not the end, of
litigation. 31 Errors of law and fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient
to invalidate an award fairly and honestly made. 32 Judicial review of an arbitration is thus, more limited than judicial review of a
trial. 33

Nonetheless, the arbitrators' award is not absolute and without exceptions. The arbitrators cannot resolve issues beyond the scope
of the submission agreement. 34 The parties to such an agreement are bound by the arbitrators' award only to the extent and in the
manner prescribed by the contract and only if the award is rendered in conformity thereto. 35 Thus, Sections 24 and 25 of the
Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration award. Where the conditions described in
Articles 2038, 36
2039, 37 and 1040 38 of the Civil Code applicable to compromises and arbitration are attendant, the arbitration award may also be
annulled.

In Chung Fu Industries (Phils.) vs. Court of Appeals, 39 we held:

. . . . It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators' award is not absolute
and without exceptions. Where the conditions described in Articles 2038, 2039 and 2040 applicable to both
compromises and arbitrations are obtaining, the arbitrator's award may be annulled or rescended. Additionally,
under Sections 24 and 25 of the Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrator's award. Thus, if and when the factual circumstances referred to the above-cited provisions are present,
judicial review of the award is properly warranted.

According, Section 20 of R.A. 876 provides:

Sec. 20. Form and contents of award. The award must be made in writing and signed and acknowledge by a
majority of the arbitrators, if more than one; and by the sole arbitrator, if there is only only. Each party shall be
furnished with a copy of the award. The arbitrators in their award may grant any remedy or relief which they deem
just and equitable and within the scope of the agreement of the parties, which shall include, but not be limited to,
the specific performance of a contract.

xxx xxx xxx

The arbitrators shall have the power to decide only those matters which have been submitted to them. The terms of
the award shall be confined to such disputes. (Emphasis ours).

xxx xxx xxx

Sec. 24 of the same law enumerating the grounds for vacating an award states:
 Sec. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating
the award upon the petition of any party to the controversy when such party proves affirmatively that in the
arbitration proceeding:

(a) The award was procured by corruption, fraud, or other undue means; or

(b) That there was evident partiality or corruption in the arbitrators or any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown,
or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was
disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or
any other misbehavior by which the rights of any party have been materially prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not made. (Emphasis ours)

xxx xxx xxx.

Section 25 which enumerates the grounds for modifying the award provides:

Sec. 25. Grounds for modifying or correcting award In anyone of the following cases, the court must make an
order modifying or correcting the award, upon the application of any party to the controversy which was
arbitrated:

(a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person,
thing or property referred to in the award; or

(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the
decision upon the matter submitted; or

(c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a
commissioner's report, the defect could have been amended or disregarded by the court.

xxx xxx xxx

Finally, it should be stressed that while a court is precluded from overturning an award for errors in the determination of factual
issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators determinations, their award
must be vacated. 40 in the same manner, an award must be vacated if it was made in "manifest disregard of the law." 41

Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came out with an award in excess of
their powers and palpably devoid of factual and legal basis.

There was no financial

structuring program:

foreclosure of mortgage

was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of MMIC whose
obligations were past due. The foreclosure was not a wrongful act of the banks and, therefore, could not be the basis of any award of
damages. There was no financial restructuring agreement to speak of that could have constituted an impediment to the exercise of
the banks' right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate opinion:

1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. The
fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan
agreement. Restructuring simply connotes that the obligations are past due that is why it is "restructurable";

2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had been
informed or notified that its obligations were past due and that foreclosure is forthcoming;

3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the
foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet
Cabarrus himself opposed the FRP;

4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with the honest and
sincere belief that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who
testified that foreclosure was, in the judgment of PNB, the best move to save MMIC itself.

Q : Now in this portion of Exh. "L" which was marked as Exh. "L-1", and we adopted as Exh. 37-A for the
respondent, may I know from you, Dr. Mapa what you meant by "that the decision to foreclose was neither
precipitate nor arbitrary"?

A : Well, it is not a whimsical decision but rather decision arrived at after weighty consideration of the information
that we have received, and listening to the prospects which reported to us that what we had assumed would be
the premises of the financial rehabilitation plan was not materialized nor expected to materialize.

Q : And this statement that "it was premised upon the known fact" that means, it was referring to the decision to
foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was
no longer feasible, just what is meant "by no longer feasible"?

A : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore
expected to be forthcoming because it will result in a short fall compared to the prices that were actually taking
place in the market.

Q : And I suppose that was what you were referring to when you stated that the production targets and assumed
prices of MMIC's products, among other projections, used in the financial reorganization program that will make it
viable were not met nor expected to be met?

A : Yes.

xxx xxx xxx

Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing
the mortgages?

In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past
due. The drawing up of the FRP is the best proof of this. When MMIC adopted a restructuring program for its loan,
it only meant that these loans were already due and unpaid. If these loans were restructurable because they were
already due and unpaid, they are likewise "forecloseable". The option is with the PNB-DBP on what steps to take.

The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. Neither does
it mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect,
supersede the existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement between
the lenders and the borrowers. As in all other contracts, there must therefore be a meeting of minds of the parties;
the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it; before it can be
implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP
 ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its
allegations in this regard. 42

Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took effect on January 31, 1974.
The decree requires government financial institutions to foreclose collaterals for loans where the arrearages amount to 20% of the
total outstanding obligations. The pertinent provisions of said decree read as follow:

Sec. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the
issuance of this Decree, to foreclose the collaterals and/or securities for any loan, credit, accommodation, and/or
guarantees granted by them whenever the arrearages on such account, including accrued interest and other
charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other
charges, as appearing in the books of account and/or related records of the financial institutions concerned. This
shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies
available to them under their respective contracts with their debtors, including the right to foreclosure on loans,
credits, accommodations and/or guarantees on which the arrearages are less than twenty percent (20%).

Sec. 2. No restraining order temporary or permanent injunction shall be issued by the court against any
government financial institution in any action taken by such institution in compliance with the mandatory
foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is
sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the
borrower and admitted by the government financial institution concerned that twenty percent (20%) of the
outstanding arrearages has been paid after the filing of foreclosure proceedings. (Emphasis supplied.)

Private respondents' thesis that the foreclosure proceedings were null and void because of lack of publication in the newspaper is
nothing more than a mere unsubstantiated aliegation not borne out by the evidence. In any case, a disputable presumption exists in
favor of petitioner that official duty has been regularly performed and ordinary course of business has been followed. 43

VI

Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case, the arbitrators in making
the award went beyond the arbitration agreement.

In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their favor:

1. Declaring the foreclosures effected by the defendants DBP and PNB on the assets of MMIC null and void and
directing said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of
their use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the
deterioration thereof;

2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial
reorganization plan which was approved at the annual stockholders' meeting of MMIC on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting of
the loss of value of their investments amounting to not less than P80,000,000, the damnum emergens and lucrum
cessans in such amount as may be established during the trial, moral damages in such amount as this Honorable
Court may deem just and equitable in the premises, exemplary damages in such amount as this Honorable Court
may consider appropriate for the purpose of setting an example for the public good, attorney's fees and litigation
expenses in such amounts as may be proven during the trial, and the costs legally taxable in this litigation.

Further, plaintiffs pray for such other reliefs as may be just and equitable in the premises. 44

Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and explicitly defined and limited
the issues to the following:

(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or
its directors;
 (b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper,
valid and in good faith. 45

Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as well as the nature
thereof:

8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from the date of
its constitution.

In the event the committee finds that PLAINTIFFS have the personality to file this suit and the extra-judicial
foreclosure of the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an
amount as may be established or warranted by the evidence which shall be payable in Philippine Pesos at the time
of the award. Such award shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of
the award in accordance with the provisions of par. 9 hereunder. . . . . The PLAINTIFFS' remedies under this Section
shall be in addition to other remedies that may be available to the PLAINTIFFS, all such remedies being cumulative
and not exclusive of each other.

On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the
extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the counterclaims
of DBP and PNB in an amount as may be established or warranted by the evidence. This decision of the arbitration
committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so that
the funds held in escrow mentioned in par. 9 hereunder will thus be released in full in favor of
APT. 46

The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded its powers or so
imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages to MMIC which was not a party to
the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.

The arbiters overstepped

their powers by declaring as

valid the proposed Financial

Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the validity of, and gave
effect to, the proposed FRP.

In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the "validity of the foreclosure" and to
transform the relief prayed for therein into pure money claims.

There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It cannot be
overemphasized that a FRP, as a contract, requires the consent of the parties thereto. 47 The contract must bind both contracting
parties. 48 Private respondents even by their own admission recognized that the FRP had yet not been carried out and that the loans
of MMIC had not yet been converted into equity. 49

However, the Arbitration Committee not only declared the FRP valid and effective, but also converted the loans of MMIC into equity
raising the equity of DBP to 87%. 50

The Arbitration Committee ruled that there was "a commitment to carry out the FRP" 51 on the ground of promissory estoppel.

Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact that
the government (that is, Alfredo Velayo) was the FRP's proponent. Although the plaintiffs are agreed that the
government executed no formal agreement, the fact remains that the DBP itself which made representations that
the FRP constituted a "way out" for MMIC. The Committee believes that although the DBP did not formally agree
 (assuming that the board and stockholders' approvals were not formal enough), it is bound nonetheless if only for
its conspicuous representations.

Although the DBP sat in the board in a dual capacity as holder of 36% of MMIC's equity (at that time) and as
MMIC's creditor the DBP can not validly renege on its commitments simply because at the same time, it held
interests against the MMIC.

The fact, of course, is that as APT itself asserted, the FRP was being "carried out" although apparently, it would
supposedly fall short of its targets. Assuming that the FRP would fail to meet its targets, the DBP and so this
Committee holds can not, in any event, brook any denial that it was bound to begin with, and the fact is that
adequate or not (the FRP), the government is still bound by virtue of its acts.

The FRP, of course, did not itself promise a resounding success, although it raised DBP's equity in MMIC to 87%. It is
not an excuse, however, for the government to deny its commitments. 52

Atty. Sison, however, did not agree and correctly observed that:

But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any
estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted, mostly
composed of PNB and DBP representatives. But those representatives, singly or collectively, are not themselves
PNB or DBP. They are individuals with personalities separate and distinct from the banks they represent. PNB and
DBP have different boards with different members who may have different decisions. It is unfair to impose upon
them the decision of the board of another company and thus pin them down on the equitable principle of
estoppel. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this particular
situation. Otherwise the rights of entirely separate distinct and autonomous legal entities like PNB and DBP with
thousands of stockholders will be suppressed and rendered nugatory. 53

As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While a
corporation may appoint agents to enter into a contract in its behalf, the agent should not exceed his authority. 54 In the case at bar,
there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-for-
equity swap. And if they had such authority, there was no showing that the banks, through their board of directors, had ratified the
FRP.

Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to
be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a
corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous
amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about. As Atty. Sison in his separate opinion
persuasively put it:

Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the
Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs.
PNB, 22 SCRA 359, such ruling cannot find application in this case. It must be pointed out that when the supposed
wrongful act of foreclosure was done, MMIC's credit reputation was no longer a desirable one. The company then
was already suffering from serious financial crisis which definitely projects an image not compatible with good and
wholesome reputation. So it could not be said that there was a "reputation" besmirched by the act of
foreclosure. 55

The arbiters exceeded their

authority in awarding damages

to MMIC, which is not impleaded

as a party to the derivative suit.

Civil Case No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a party. It was not joined as a
party plaintiff or party defendant at any stage of the proceedings. As it is, the award of damages to MMIC, which was not a party
before the Arbitration Committee, is a complete nullity.

Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the
corporation's behalf is only a nominal party. The corporation should be included as a party in the suit.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds
stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as
a nominal party, with the corporation as the real party in interest. . . . . 56

It is a condition sine qua non that the corporation be impleaded as a party because

. . . Not only is the corporation an indispensable party, but it is also the present rule that it must be served with
process. The reason given is that the judgment must be made binding upon the corporation in order that the
corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for
the same cause of action. In other words the corporation must be joined as party because it is its cause of action
that is being litigated and because judgment must be a res ajudicata against it. 57

The reasons given for not allowing direct individual suit are:

(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the
corporate property; that both of these are in the corporation itself for the benefit of the stockholders." In other
words, to allow shareholders to sue separately would conflict with the separate corporate entity principle;

(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case
of Evangelista v. Santos, that "the stockholders may not directly claim those damages for themselves for that would
result in the appropriation by, and the distribution among them of part of the corporate assets before the
dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally
done in view of section 16 of the Corporation Law . . .;

(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all
concerned;

(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages
recoverable by the corporation for the same act. 58

If at all an award was due MMIC, which it was not, the same should have been given sans deduction, regardless of whether or not
the party liable had equity in the corporation, in view of the doctrine that a corporation has a personality separate and distinct from
its individual stockholders or members. DBP's alleged equity, even if it were indeed 87%, did not give it ownership over any corporate
property, including the monetary award, its right over said corporate property being a mere expectancy or inchoate right. 59 Notably,
the stipulation even had the effect of prejudicing the other creditors of MMIC.

The arbiters, likewise,

exceeded their authority

in awarding moral damages

to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit, in which the
aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award moral damages to an individual
stockholder, to wit:

WHEREFORE, premises considered, judgment is hereby rendered:

xxx xxx xxx

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to paragraph (9), Compromise and Arbitration
Agreement, as and for moral damages; . . . 60

The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S. Cabarrus, Sr. by pointing
to the fact that among the assets seized by the government were assets belonging to Industrial Enterprise Inc. (IEI), of which
Cabarrus is the majority stockholder. It then acknowledged that Cabarrus had already recovered said assets in the RTC, but that "he
won no more than actual damages. While the Committee cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus,
Sr., suffered moral damages on account of that specific foreclosure, damages the Committee believes and so holds, he, Jesus S.
Cabarrus, Sr., may be awarded in this proceeding." 61

Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder, having been ventilated
in a complaint he previously filed with the RTC, from which he obtained actual damages, he was barred by res judicata from filing a
similar case in another court, this time asking for moral damages which he failed to get from the earlier case. 62 Worse, private
respondents violated the rule against non-forum shopping.

It is a basic postulate that a corporation has a personality separate and distinct from its stockholders. 63 The properties foreclosed
belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the foreclosure, it was done against the corporation.
Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in the appropriation
by, and the distribution to, him part of the corporation's assets before the dissolution of the corporation and the liquidation of its
debts and liabilities. The Arbitration Committee, therefore, passed upon matters nor submitted to it. Moreover, said cause of action
had already been decided in a separate case. It is thus quite patent that the arbitration committee exceeded the authority granted to
it by the parties' Compromise and Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus, Sr.

Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus S. Cabarrus, Sr.:

It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves
have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the corporation
(MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this stipulation, PLAINTIFFS themselves
(Cabarrus, et al.) admit that the cause of action pertains only to the corporation (MMIC) and that they are filing this
for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in Corporation Law that "the shareholders have no title, legal
or equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In
Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that "a stockholder is not the co-
owner of corporate property." Since the property or assets foreclosed belongs [sic] to MMIC, the wrong committed,
if any, is done against the corporation. There is therefore no direct injury or direct violation of the rights of Cabarrus
et al. There is no way, legal or equitable, by which Cabarrus et al. could recover damages in their personal
capacities even assuming or just because the foreclosure is improper or invalid. The Compromise and Arbitration
Agreement itself and the elementary principles of Corporation Law say so. Therefore, I am constrained to dissent
from the award of moral damages to Cabarrus. 64

From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers or so imperfectly execute
them, but also, its findings and conclusions are palpably devoid of any factual basis, and in manifest disregard of the law.

We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and memoranda filed with this
Court, as well as in the Court of Appeals, raised and extensively discussed the issues on the merits. Such being the case, there is
sufficient basis for us to resolve the controversy between the parties anchored on the records and the pleadings before us. 65
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the Regional Trial Court of Makati,
Branch 62, dated November 28, 1994 and January 19, 1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration
Committee is hereby VACATED.

SO ORDERED.

Romero, J., Please see dissenting opinion.

Purisima, J., Concur and also with the separate concurring opinion of Justice Pardo.

Pardo, J., With separate concurring opinion.

G.R. No. 128690 January 21, 1999

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL
ROSARIO, respondents.
DAVIDE, JR., CJ.:

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set aside the
decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former
affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No.
Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996.

The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:

In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an
exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of
said agreement stating that .

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such
terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-
CBN from the actual offer in writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of
three(3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said
agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off only
ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore did not accept said list (TSN, June 8,
1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film ''Maging
Sino Ka Man."

For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby quoted:

6 January 1992

Dear Vic,

This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending
the purchase of the three film packages you are offering ABS-CBN.

From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will
understand my position. Most of the action pictures in the list do not have big action stars in the cast. They are not
for primetime. In line with this I wish to mention that I have not scheduled for telecast several action pictures in out
very first contract because of the cheap production value of these movies as well as the lack of big action stars. As a
film producer, I am sure you understand what I am trying to say as Viva produces only big action pictures.

In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our non-
primetime slots. We have to cover the amount that was paid for these movies because as you very well know that
non-primetime advertising rates are very low. These are the unaired titles in the first contract.

1. Kontra Persa [sic].

2. Raider Platoon.

3. Underground guerillas

4. Tiger Command

5. Boy de Sabog

6. Lady Commando

7. Batang Matadero
 8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to
have them aired at 9:00 p.m. due to their very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies
produced last year. I have quite an attractive offer to make.

Thanking you and with my warmest regards.

(Signed)

Charo Santos-Concio

On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting of 52 original
movie titles (i.e. not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-
runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles,
proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of
which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. "4" to "4-C" Viva; "9"
-Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the Tamarind Grill
Restaurant in Quezon City to discuss the package proposal of Viva. What transpired in that lunch meeting is the
subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN was
granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this
agreement as to the price and number of films in a "napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D;
TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied having made any agreement with
Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and insisted
that what he and Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and
52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the
form of a proposal contract Annex "C" of the complaint (Exh. "1"- Viva; Exh. "C" - ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms
and conditions of Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio, (Exh.
"5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything in order," to which was
attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal covering 53
films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a
consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted films right to 53 films and contains a right
of first refusal to "1992 Viva Films." The said counter proposal was however rejected by Viva's Board of Directors [in
the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the package of 104 films for
P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del
Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April
24, 1992. granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4"
- RBS) including the fourteen (14) films subject of the present case. 4

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction
and/or temporary restraining order against private respondents Republic Broadcasting Corporation 5 (hereafter RBS ), Viva
Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with the airing,
broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino Ka Man, which
was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date.

On 17 June 1992, after appropriate proceedings, the RTC issued an

order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN moved for the
reduction of the bond, 8 while private respondents moved for reconsideration of the order and offered to put up a counterbound. 9

In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a cross-claim against VIVA..

On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting by RBS of a P30 million
counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioner's
injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction should private
respondents be unable to post a counterbond.

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 1992 a counterbond, which the RTC approved in
its Order of 15 October 1992. 13

On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October 1992 Orders, which RBS
opposed. 15

On 29 October 1992, the RTC conducted a pre-trial. 16

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17challenging the RTC's
Orders 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 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the airing, broadcasting, and televising
of any or all of the films involved in the controversy.

On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -G.R. 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
as G.R. No. 108363.

In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April 1993, it rendered
a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in favor of
defendants and against the plaintiff.

(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00, the amount of premium paid by RBS to the surety which issued
defendant RBS's bond to lift the injunction;

b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka

Man" in various newspapers;

c) Attorney's fees in the amount of P1 million;

 d) P5 million as and by way of moral damages;

e) P5 million as and by way of exemplary damages;

(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable
attorney's fees.

(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.

(5) Plaintiff to pay the costs.

According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III
and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the meeting
of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition Agreement.
Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concio's
letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract.

On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was committed by the
Court of Appeals in its challenged decision and the case had "become moot and academic in view of the dismissal of the main action
by the court a quo in its decision" of 28 April 1993.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between
ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also
appealed seeking moral and exemplary damages and additional attorney's fees.

In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and VIVA had not
been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with Lopez
III. The appellate court did not even believe ABS-CBN's 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-CBN's insistence on its right of first refusal and ratiocinated as
follows:

As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into
between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4 thereof provides:

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however, that
such right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer
in writing (Records, p. 14).

[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to such terms as
may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15)
days from the actual offer in writing.

Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film right to the
twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties.

In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10)
films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks of
the next twenty-four (24) films.

The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11,
Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of
ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN
exercised its right of refusal by rejecting the offer of VIVA.. As aptly observed by the trial court, with the said letter
of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15)
day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of Mrs.
 Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already
expired. 22

Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the premium
payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had 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
RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film "Maging
Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way of example or correction for the
public good in view of the filing of the complaint despite petitioner's knowledge that the contract with VIVA had not been perfected,
It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was
"unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary
damages to P2 million, and attorney's fees to P500, 000.00.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA which was
actually prejudiced when the complaint was filed by ABS-CBN."

Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals
gravely erred in

. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA
NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY.

II

. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.

III

. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.

IV

. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.

ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition
Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del
Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition
Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already been
effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the Court of
Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons
Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of
Appeals, 25 and Villonco Realty Company v. Bormaheco. Inc. 26

Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the counterbond of its
own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions
during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can hardly be argued that
ABS-CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the dissolution or the
injunction; or if it was determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article 2203 of
the Civil Code, the party suffering loss or injury is also required to exercise the diligence of a good father of a family to minimize the
damages resulting from the act or omission. As regards the cost of print advertisements, RBS had not convincingly established that
this was a loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or
without the case or the injunction, RBS would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The controversy involving
ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise
from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton,
fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not
warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. 27 In any case, free
resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of every one to sue for that which he
honestly believes to be his right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, or
a different interpretation of the laws on the matter, the case would lose ground. 28 One who makes use of his own legal right does no
injury. 29 If damage results front the filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages are generally not
awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in social
humiliation. 31

As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In
sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in Buan
v. Camaganacan 32 that the text of the decision should state the reason why attorney's fees are being awarded; otherwise, the award
should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-CBN. It has
been held that "where no sufficient showing of bad faith would be reflected in a party' s persistence in a case other than an
erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." 33

On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting of minds
between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first
refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss
upon which it may recover. It was obliged to put up the counterbound due to the injunction procured by ABS-CBN. Since the trial
court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS
could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to
be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30 million came from its
funds or was borrowed from banks.

RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino Ka Man"
because the print advertisements were put out to announce the showing on a particular day and hour on Channel 7, i.e., in its
entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for the
particular date showing, and since the film could not be shown on that particular date and hour because of the injunction, the
expenses for the advertisements had gone to waste.

As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of
harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such
damages. Citing Tolentino, 34 damages may be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse
of rights were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant.

In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBS cited People
v. Manero, 35 where it was stated that such entity may recover moral and exemplary damages if it has a good reputation that is
debased resulting in social humiliation. it then ratiocinates; thus:

There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. When RBS was not
able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on the scheduled dates
and times (and on two occasions that RBS advertised), it suffered serious embarrassment and social humiliation.
When the showing was canceled, late viewers called up RBS' offices and subjected RBS to verbal abuse ("Announce
kayo nang 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 planned to happen.

The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of
the award.

The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting company is [sic]
nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an
exaggeration to state, and it is a matter of judicial notice that almost every other person in the country watches
television. The humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated the
 showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it owing to the
cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom RBS
had a commitment in consideration of the placement to show the film in the dates and times specified.

The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury are far
greater in degree when caused by an entity whose ultimate business objective is to lure customers (viewers in this
case) away from the competition. 36

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not
support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition for
review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they
adopted the arguments of RBS.

The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether
RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor of VIVA is not
assigned as another error.

I.

The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds
himself to give something or to render some service to another 37 for a consideration. there is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the
obligation, which is established. 38 A contract undergoes three stages:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the
moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the
contract; and

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 39

Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence between the offer
and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain.
To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation
from the terms of the offer annuls the offer. 40

When Mr. Del Rosario of VIVA met with 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 VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent,
through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films for a consideration of P35
million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which substantially
varied the terms of the offer.

ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of

Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that an acceptance may contain
a request for certain changes in the terms of the offer and yet be a binding acceptance as long as "it is clear that the meaning of the
acceptance is positively and unequivocally to accept the offer, whether such request is granted or not." This ruling was, however,
reversed in the resolution of 29 March 1996, 43 which ruled that the acceptance of all 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 meeting of the minds."

On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely
clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance Co. 44 that "a vendor's
change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer." 45However, when any of the elements of the contract is modified upon
acceptance, such alteration amounts to a counter-offer.

In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN
then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Board of Directors, rejected such counter-
offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there
was no proof whatsoever that Del Rosario had the specific authority to do so.

Under Corporation Code, 46 unless otherwise provided by said Code, corporate powers, such as the power; to enter into contracts;
are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials
or contracted managers. The delegation, except for the executive committee, must be for specific purposes, 47 Delegation to officers
makes the latter agents of the corporation; accordingly, the general rules of agency as to the bindings effects of their acts would
apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially
authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best evidenced by his
submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was between Del Rosario
and Lopez III no meeting of minds. The following findings of the trial court are instructive:

A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch meeting
on April 02, 1992 at the Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of
films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions which, were not discussed at
the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically written on a napkin.
There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what were written in Exhibit
"C'' were not discussed, and therefore could not have been agreed upon, by the parties. How then could this court
compel the parties to sign Exhibit "C" when the provisions thereof were not previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The
complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its subject matter. Which is
which If Exhibits "C" reflected the true intent of the parties, then ABS-CBN's 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 contracts,
so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is no object
which is its subject matter (Art. 1318, NCC).

THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states:

We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen
(14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva
commercial slots worth P19,950,000.00. We had already earmarked this P16, 050,000.00.

which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals P36,000,000.00).

On cross-examination Mr. Lopez testified:

Q. What was written in this napkin?

A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the
other 7 Viva movies because the price was broken down accordingly. The none [sic] Viva and the
seven other Viva movies and the sharing between the cash portion and the concerned spot
portion in the total amount of P35 million pesos.

Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del Rosario with a
handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said
draft has a well defined meaning.
 Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms
and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not
therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions
embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion on said terms and
conditions. . . .

As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there was no evidence
whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The
fact that Viva refused to sign Exhibit "C" reveals only two [sic] well that it did not agree on its terms and conditions,
and this court has no authority to compel Viva to agree thereto.

FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only
provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified:

Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you
claimed that you have the meeting of the minds between you and Mr. Vic del Rosario, what
happened?

A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion
with the Board of Directors.

Q. And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?

A. Yes, sir.

Q. So, he was going to forward that to the board of Directors for approval?

A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)

Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval?

A. Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva
to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that
Mr. Del Rosario "is the Executive Producer of defendant Viva" which "is a corporation." (par. 2, complaint). As a
mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its Board of Directors. (Vicente
vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by
plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his inclusion as party defendant has
no legal basis. (Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to
have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is
as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23,
Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario
arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA
763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit "C" and insisted that the film
package for 140 films be maintained (Exh. "7-1" - Viva ). 49

The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition
Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As
observed by the trial court, ABS-CBN right of first refusal had already 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. Ms. Concio herself admitted on cross-examination to having used or exercised the right of first refusal.
 She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10).
Even Mr. Lopez himself admitted that the right of the first refusal may have been already exercised by Ms. Concio
(as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost
its rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) 50

II

However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the
Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to
compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. 51 The indemnification shall
comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. 52 In contracts and
quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise, It
case of good faith, the damages recoverable are those which are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If
the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all damages
which are the natural and probable consequences of the act or omission complained of, whether or not such damages has been
foreseen or could have reasonably been foreseen by the defendant. 54

Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal
injury, or for injury to the plaintiff's business standing or commercial credit. 55

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing
of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with
Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:

12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result thereof, RBS
suffered actual damages in the amount of P6,621,195.32. 56

Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only
probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the
latter for tile same.

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may
suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not yet filed the required bond; as
a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter,
Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS
paid for the counterbond.

Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a
temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient ground
for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but because of the
plea of RBS that it be allowed to put up a counterbond.

As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or compensatory
damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58

The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on
the right to litigate. 59 They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under
Article 2208 demands factual, legal, and equitable justification. 60 Even when claimant is compelled to litigate with third persons or to incur
expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a
party's persistence in a case other than erroneous conviction of the righteousness of his cause. 61

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are included in
moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that moral damages may be
recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall
only under item (10) of Article 2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to impose a penalty
on the wrongdoer. 62 The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to
obtain means, diversion, or amusements that will serve to obviate then moral suffering he has undergone. It is aimed at the restoration,
within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted. 63 Trial courts must
then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion
that it was due to passion, prejudice, or corruption on the part of the trial court. 64

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in
legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish,
which call be experienced only by one having a nervous system. 65 The statement in People v. Manero 66 and Mambulao Lumber
Co. v. PNB 67 that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is
an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. 68 They are recoverable in criminal
cases as part of the civil liability when the crime was committed with one or more aggravating circumstances; 69 in quasi-contracts, if the
defendant acted with gross negligence; 70 and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner. 71

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the claims
for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code.

The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in bad faith,
and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other provisions of law which do
not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the following elements; (1) there
is an act which is legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3) and it is done with intent to
injure. 72

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by evidence. 74

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it
had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the adverse result of an
action does not per se make the action wrongful and subject the actor to damages, for the law could not have meant to impose a penalty on
the right to litigate. If damages result from a person's exercise of a right, it is damnum absque injuria. 75

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED
except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc.1wphi1.nt

G.R. No. 128066 June 19, 2000

JARDINE DAVIES INC., petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 128069

PURE FOODS CORPORATION, petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

BELLOSILLO, J.:

This is rather a simple case for specific performance with damages which could have been resolved through mediation and
conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however to resort
to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus making the process more
arduous and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and curtail
further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to install
two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and dealers were
invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best suit the
needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3) bidders,
namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid
proposals and gave bid bonds equivalent to 5% of their respective bids, as required.

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

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2) units of 1500
KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-92 dated
November 20, 1992, subject to the following basic terms and conditions:

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

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

3. All materials shall be brand new;

4. The project shall commence immediately and must be completed within twenty (20) working days after the delivery of
Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for every day of delay;

5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall procure All Risk
Insurance equivalent to the contract price upon commencement of the project. The All Risk Insurance Policy shall be
endorsed in favor of and shall be delivered to Pure Foods Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.
Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's all-risk insurance
policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a letter
dated 18 December 1992. FEMSCO also made arrangements with its principal and started the PUREFOODS project by purchasing the
necessary materials. PUREFOODS on the other hand returned FEMSCO's Bidder's Bond in the amount of P1,000,000.00, as
requested.

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga unilaterally
canceled the award as "significant factors were uncovered and brought to (their) attention which dictate (the) cancellation and
warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award and sought a
meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already awarded the
project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally was
not one of the bidders.1wphi1.nt

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from delivering and
installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE:
PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement. Trial ensued. After FEMSCO
presented its evidence, JARDINE filed a Demurrer to Evidence.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial court concluded that
"[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on, this is all a
matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well in a court
of law." 2 Meanwhile trial proceeded as regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of P2,300,000.00
representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, and
P900,000.00 representing contractor's mark-up on installation work, considering that it would be impossible to compel PUREFOODS
to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that construction
had already started thereon; (c) to pay attorney's fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the
costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the trial court
which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it, while PUREFOODS
appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also reversed the 27 June
1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latter's
contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition, PUREFOODS
was also directed to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well as 20% of the
total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by PUREFOODS and
JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a misapprehension of
facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the
project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's express conforme. Since
PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within reason to revoke its qualified acceptance or
counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in
bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been awarded.

Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract between
PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latter's alleged contract with FEMSCO. Moreover, JARDINE
reasons that FEMSCO, an artificial person, is not entitled to moral damages. But granting arguendo that the award of moral damages
is proper, P2,000,000.00 is extremely excessive.
In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between PUREFOODS
and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that JARDINE induced or
connived with PUREFOODS to violate the latter's contract with FEMSCO.

A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in
favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do." 4 There can be no contract
unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the
contract; and, (c) cause of the obligation which is established. 5 A contract binds both contracting parties and has the force of law
between them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment,
the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. 6 To produce a contract, the acceptance must not qualify
the terms of the offer. However, the acceptance may be express or implied. 7 For a contract to arise, the acceptance must be made
known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The controversy lies
in the consent whether there was an acceptance of the offer, and if so, if it was communicated, thereby perfecting the contract.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner PUREFOODS
started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that
"[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, the Terms and Conditions of the
Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of petitioner
PUREFOODS, the acceptance or rejection of the respective offers.

Quite obviously, the 12 December 1992 letter of petitioner. PUREFOODS to FEMSCO constituted acceptance of respondent FEMSCO's
offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm (FEMSCO) the
project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions," these conditions
were imposed on the performance of the obligation rather than on the perfection of the contract. Thus, the first "condition" was
merely a reiteration of the contract price and billing scheme based on the Terms and Conditions of Bidding and the bid or previous
offer of respondent FEMSCO. The second and third "conditions" were nothing more than general statements that all items and
materials including those excluded in the list but necessary to complete the project shall be deemed included and should be brand
new. The fourth "condition" concerned the completion of the work to be done, i.e., within twenty (20) days from the delivery of the
generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the putting up of a performance
bond and an all-risk insurance, both of which should be given upon commencement of the project. The sixth "condition" related to
the standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions" were prescriptions on how the obligation
was to be performed and implemented. They were far from being conditions imposed on the perfection of the contract.

In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party options and/or remedies to protect his interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court

As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has
already been made. The letter only serves as a confirmation of such decision. Hence, to the Court's mind, there is already an
acceptance made of the offer received by Purefoods. Notwithstanding the terms and conditions enumerated therein, the
offer has been accepted and/or amplified the details of the terms and conditions contained in the Terms and Conditions of
Bidding given out by Purefoods to prospective bidders. 9

But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-offer,"
respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not a clear
indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the contractor's all-
risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment thereof by petitioner
PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that respondent FEMSCO
indeed consented to the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either be express or implied, 10 and
this can be inferred from the contemporaneous and subsequent acts of the contracting parties.
Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent FEMSCO's conforme would only be
a mere surplusage. The discussion of the price of the project two (2) months after the 12 December 1992 letter can be deemed as nothing
more than a pressure being exerted by petitioner PUREFOODS on respondent FEMSCO to lower the price even after the contract had been
perfected. Indeed from the facts, it can easily be surmised that petitioner PUREFOODS was haggling for a lower price even after agreeing to
the earlier quotation, and was threatening to unilaterally cancel the contract, which it eventually did. Petitioner PUREFOODS also makes an
issue out of the absence of a purchase order (PO). Suffice it to say that purchase orders or POs do not make or break a contract. Thus, even
the tenor of the subsequent letter of petitioner PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to your company
of the project," presupposes that the contract has been perfected. For, there can be no cancellation if the contract was not perfected in the
first place.

Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary, it believed in good faith that no such contract
was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which were affirmed by the
appellate court

Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith and this was
further aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile co-defendant Jardine. It is
very evident that Purefoods thought that by the expedient means of merely writing a letter would automatically cancel or nullify
the existing contract entered into by both parties after a process of bidding. This, to the Court's mind, is a flagrant violation of the
express provisions of the law and is contrary to fair and just dealings to which every man is due. 11

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. 12In the instant case,
respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on
account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's award of moral damages. We
however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the recipient. Likewise,
the award of exemplary damages by way of example for the public good is excessive and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages to respondent
FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem that petitioners
PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on record to support such perception.
Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The similarity in the design submitted to
petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are
insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June 1994
resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS SUPPLY
CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner PUREFOODS
CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00 representing the value
of engineering services it rendered, US$14,000.00 or its peso equivalent, and P900,000.00 representing the contractor's mark-up
on installation work, as well as attorney's fees equivalent to twenty percent (20%) of the total amount due, is AFFIRMED. In
addition, petitioner PURE FOODS CORPORATION is ordered to pay private respondent FAR EAST MILLS SUPPLY CORPORATION
moral damages in the amount of P1,000,000.00 and exemplary damages in the amount of P1,000,000.00. Costs against petitioner.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

G.R. No. 131723 December 13, 2007

MANILA ELECTRIC COMPANY, petitioner,

vs.
T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and
ULTRA ELECTRONICS INSTRUMENTS, INC., respondents.
 DECISION

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision 1of the Court of
Appeals (CA) dated June 18, 1997 and its Resolution 2 dated December 3, 1997 in CA-G.R. CV No. 40282 denying the appeal filed by
petitioner Manila Electric Company.

The facts of the case, as culled from the records, are as follows:

Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982 and National
Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology Electronics Assembly and Management Pacific
Corporation (TPC). On the other hand, petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the
Metro Manila area.

Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to two separate
contracts denominated as Agreements for the Sale of Electric Energy under the following account numbers: 09341-1322-16 3 and
09341-1812-13.4 Under the aforesaid agreements, petitioner undertook to supply TEC's building known as Dyna Craft International
Manila (DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig, Metro Manila, with electric power. Another contract
was entered into for the supply of electric power to TEC's NS Building under Account No. 19389-0900-10.

In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of Lease 5 with respondent
Ultra Electronics Industries, Inc. (Ultra) for the use of the former's DCIM building for a period of five years or until September 1991.
Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms
and conditions of the lease contract.

On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters installed at the DCIM
building, witnessed by Ultra's6 representative, Mr. Willie Abangan. The two meters covered by account numbers 09341-1322-16 and
09341-1812-13, were found to be allegedly tampered with and did not register the actual power consumption in the building. The
results of the inspection were reflected in the Service Inspection Reports 7 prepared by the team.

In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from the latter the
payment of P7,040,401.01 representing its unregistered consumption from February 10, 1986 until September 28, 1987, as a result
of the alleged tampering of the meters.8 TEC received the letters on January 7, 1988. Since Ultra was in possession of the subject
building during the covered period, TEC's Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra 9 which, in turn,
informed TEC that its Executive Vice-President had met with petitioner's representative. Ultra further intimated that assuming that
there was tampering of the meters, petitioner's assessment was excessive. 10 For failure of TEC to pay the differential billing,
petitioner disconnected the electricity supply to the DCIM building on April 29, 1988.

TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged tampering
but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before the Energy Regulatory Board (ERB)
praying that electric power be restored to the DCIM building. 11 The ERB immediately ordered the reconnection of the service but
petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00, under protest. The complaint before the ERB was
later withdrawn as the parties deemed it best to have the issues threshed out in the regular courts. Prior to the reconnection, or on
June 7, 1988, petitioner conducted a scheduled inspection of the questioned meters and found them to have been tampered anew. 12

Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspection allegedly
revealed that the electric meters were not registering the correct power consumption. Petitioner, thus, sent a letter dated June 18,
1988 demanding payment of P280,813.72 representing the differential billing.13 TEC denied petitioner's allegations and claim in a
letter dated June 29, 1988.14 Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount, with a warning
that the electric service would be disconnected in case of continued refusal to pay the differential billing. 15 To avert the impending
disconnection of electrical service, TEC paid the above amount, under protest. 16

On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra 17 before the Regional Trial Court (RTC) of
Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851. 18 Upon the filing of the parties' answer to the
complaint, pre-trial was scheduled.
At the pre-trial, the parties agreed to limit the issues, as follows:

1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at DCIM Building.

2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount of P7,040,401.01.

3. Whether or not the plaintiff is liable to defendant for exemplary damages. 19

For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court rendered a
Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinent portion of the decision
reads:

WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants as follows:

(1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severally reimburse
plaintiff TEC actual damages in the amount of ONE MILLION PESOS with legal rate of interest from the date of the
filing of this case on January 19, 1989 until the said amount shall have been fully paid;

(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual damages with legal rate
of interest also from January 19, 1989;

(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages with interest
at legal rate from January 19, 1989;

(4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount pf P500,000.00;

(5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the amount
of P200,000.00;

(6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00

Costs against defendant Meralco.

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 and the existence of an opening in the wire duct leading to the transformer vault did not, in
themselves, prove the alleged tampering, especially since access to the transformer was given only to petitioner's employees. 21 The
sudden drop in TEC's (or Ultra's) electric consumption did not, per se, show meter tampering. The delay in the sending of notice of
the results of the inspection was likewise viewed by the court as evidence of inefficiency and arbitrariness on the part of petitioner.
More importantly, petitioner's act of disconnecting the DCIM building's electric supply constituted bad faith and thus makes it liable
for damages.22 The court further denied petitioner's claim of differential billing primarily on the ground of equitable
negligence.23 Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of electric power; and because Ultra
manifested to settle the claims of petitioner, the court imposed solidary liability on both Ultra and petitioner for the payment of
the P1,000,000.00.

Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the amount of actual damages and
interest thereon. The dispositive portion of the CA decision dated June 18, 1997, states:

WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with the slight
modification that the interest at legal rate shall be computed from January 13, 1989 and that Meralco shall pay plaintiff
T.E.A.M. Electronics Corporation and Technology Electronics Assembly and Management Pacific Corporation the sum
of P150,000.00 per month for five (5) months for actual damages incurred when it was compelled to lease a generator set
with interest at the legal rate from the above-stated date.

SO ORDERED.24
The appellate court agreed with the RTC's conclusion. In addition, it considered petitioner negligent for failing to discover the alleged
defects in the electric meters; in belatedly notifying TEC and TPC of the results of the inspection; and in disconnecting the electric
power without prior notice.

Petitioner now comes before this Court in this petition for review on certiorari contending that:

The Court of Appeals committed grievous errors and decided matters of substance contrary to law and the rulings of this
Honorable Court:

1. In finding that the issue in the case is whether there was deliberate tampering of the metering installations at the building
owned by TEC.

2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner is entitled to
differential billing, and if so, how much.

3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing evidence that with
respect to the tampered meters that TEC and/or TPC authored their tampering.

4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of Ultra.

5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM Building.

6. In finding that there was no notice of disconnection.

7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering.

8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7, 1988 the meter
installations, they were found to be tampered.

9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters.

10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct' amount of electricity consumed is
questionable";

11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is oppressive, wanton and
reckless.

12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building and the NS building.

13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded.

14. In not declaring that petitioner is entitled to the differential bill.

15. In not declaring that respondents are liable to petitioner for exemplary damages, attorney's fee and expenses for
litigation.25

The petition must fail.

The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric meters installed at its
DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by petitioner; and 3) whether or not
petitioner was justified in disconnecting the electric power supply in TEC's DCIM building.

Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by respondent TEC has been
established by overwhelming evidence, as specifically shown by the shorting devices found during the inspection. Thus, says
petitioner, tampering of the meter is no longer an issue.
It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Well-established is the doctrine that
under Rule 45 of the Rules of Court, only questions of law, not of fact, may be raised before the Court. We would like to stress that
this Court is not a trier of facts and may not re-examine and weigh anew the respective evidence of the parties. Factual findings of
the trial court, especially those affirmed by the Court of Appeals, are binding on this Court. 26

Looking at the record, we note that petitioner claims to have discovered three incidences of meter-tampering; twice in the DCIM
building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988.

The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence of a short circuiting
device and saw that the meter seal was deformed. In addition, petitioner, through the Supervising Engineer of its Special Billing
Analysis Department,27 claimed that there was a sudden and unexplainable drop in TEC's electrical consumption starting February 10,
1986. On the basis of the foregoing, petitioner concluded that the electric meters were tampered with.

However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric consumption during the
affected period, the Pattern of TEC's Electrical Consumption 28 shows that the sudden drop is not peculiar to the said period.
Noteworthy is the observation of the RTC in this wise:

In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by Exhibits "35" and "35-
A," there was likewise a sudden drop of electrical consumption from the year 1984 which recorded an average 141,300
kwh/month to 1985 which recorded an average kwh/month at 87,600 or a difference-drop of 53,700 kwh/month; from
1985's 87,600 recorded consumption, the same dropped to 18,600 kwh/month or a difference-drop of 69,000
kwh/month. Surely, a drop of 53,700 could be equally categorized as a sudden drop amounting to 69,000 which,
incidentally, the Meralco claimed as "unexplainable. x x x. 29

The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering is committed by
consumers to prevent the meter from registering the correct amount of electric consumption, and result in a reduced monthly
electric bill, while continuing to enjoy the same power supply. Only the registration of actual electric energy consumption, not the
supply of electricity, is affected when a meter is tampered with. 30 The witnesses claimed that after the inspection, the tampered
electric meters were corrected, so that they would register the correct consumption of TEC. Logically, then, after the correction of
the allegedly tampered meters, the customer's registered consumption would go up.

In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until September 1987.
Based on petitioner's Billing Record31 (for the DCIM building), TEC's monthly electric consumption on Account No. 9341-1322-16 was
between 4,500 and 27,000 kwh.32 Account No. 9341-1812-13 showed a monthly consumption between 9,600 and 34,200 kwh. 33 It is
interesting to note that, after correction of the allegedly tampered meters, TEC's monthly electric consumption from October 1987 to
February 1988 (the last month that Ultra occupied the DCIM building) was between 8,700 and 24,300 kwh in its first account, and
16,200 to 46,800 kwh on the second account.

Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200 kwh consumption on the first and second
accounts, respectively, a month prior to the inspection. On the first month after the meters were corrected, TEC's electric
consumption registered at 9,300 kwh and 22,200 kwh on the respective accounts. These figures clearly show that there was no
palpably drastic difference between the consumption before and after the inspection, casting a cloud of doubt over petitioner's claim
of meter-tampering. Indeed, Ultra's explanation that the corporation was losing; thus, it had lesser consumption of electric power
appear to be the more plausible reason for the drop in electric consumption.

Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found to have been
tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and months before the inspection, there
was an unsettled controversy between TEC and petitioner, brought about by the disconnection of electric power and the non-
payment of differential billing. We are more disposed to accept the trial court's conclusion that it is hard to believe that a customer
previously apprehended for tampered meters and assessed P7 million would further jeopardize itself in the eyes of petitioner. 34 If it is
true that there was evidence of tampering found on September 28, 1987 and again on June 7, 1988, the better view would be that
the defective meters were not actually corrected after the first inspection. If so, then Manila Electric Company v. Macro Textile Mills
Corporation35 would apply, where we said that we cannot sanction a situation wherein the defects in the electric meter are allowed
to continue indefinitely until suddenly, the public utilities demand payment for the unrecorded electricity utilized when they could
have remedied the situation immediately. Petitioner's failure to do so may encourage neglect of public utilities to the detriment of
the consuming public. Corollarily, it must be underscored that petitioner has the imperative duty to make a reasonable and proper
inspection of its apparatus and equipment to ensure that they do not malfunction, and the due diligence to discover and repair
defects therein. Failure to perform such duties constitutes negligence. 36 By reason of said negligence, public utilities run the risk of
forfeiting amounts originally due from their customers.37

As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was not proven,
considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken, with petitioner having
sole access to the said meters.38

In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings, petitioner's claim of
differential billing was correctly denied by the trial and appellate courts. With greater reason, therefore, could petitioner not exercise
the right of immediate disconnection.

The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 401 39 issued on March 1, 1974.40 The
decree penalized unauthorized installation of water, electrical or telephone connections and such acts as the use of tampered
electrical meters. It was issued in answer to the urgent need to put an end to illegal activities that prejudice the economic well-being
of both the companies concerned and the consuming public. 41 P.D. 401 granted the electric companies the right to conduct
inspections of electric meters and the criminal prosecution 42 of erring consumers who were found to have tampered with their
electric meters. It did not expressly provide for more expedient remedies such as the charging of differential billing and immediate
disconnection against erring consumers. Thus, electric companies found a creative way of availing themselves of such remedies by
inserting into their service contracts (or agreements for the sale of electric energy) a provision for differential billing with the option
of disconnection upon non-payment by the erring consumer. The Court has recognized the validity of such stipulations. 43 However,
recourse to differential billing with disconnection was subject to the prior requirement of a 48-hour written notice of disconnection. 44

Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that petitioner sent a
demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be
disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and Revised General Order No. 1 by outrightly
depriving TEC of electrical services without first notifying it of the impending disconnection. Accordingly, the CA did not err in
affirming the RTC decision.

As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation for an injury that
will put the injured party in the position where it was before the injury. They pertain to such injuries or losses that are actually
sustained and susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to adequate compensation
only for such pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only must the amount of loss be
capable of proof; it must also be actually proven with a reasonable degree of certainty, premised upon competent proof or the best
evidence obtainable.45

Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00 and P280,813.72 under
protest, the amounts representing a portion of the latter's claim of differential billing. With the finding that no tampering was
committed and, thus, no differential billing due, the aforesaid amounts should be returned by petitioner, with interest, as ordered by
the Court of Appeals and pursuant to the guidelines set forth by the Court. 46

However, despite the appellate court's conclusion that no tampering was committed, it held Ultra solidarily liable with petitioner
for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims of the latter. This ruling is
erroneous. Ultra's promise was conditioned upon the finding of defect or tampering of the meters. It did not acknowledge any
culpability and liability, and absent any tampered meter, it is absurd to make the lawful occupant liable. It was petitioner who
received the P1 million; thus, it alone should be held liable for the return of the amount.

TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator set it was
constrained to rent by reason of the illegal disconnection of electrical service. The official receipts and purchase orders submitted by
TEC as evidence sufficiently show that such rentals were indeed made. However, the amount of P150,000.00 per month for five
months, awarded by the CA, is excessive. Instead, a total sum of P150,000.00, as found by the RTC, is proper.

As to the payment of exemplary damages and attorney's fees, we find no cogent reason to disturb the same. Exemplary damages are
imposed by way of example or correction for the public good in addition to moral, temperate, liquidated, or compensatory
damages.47 In this case, to serve as an example that before a disconnection of electrical supply can be effected by a public utility,
the requisites of law must be complied with we affirm the award of P200,000.00 as exemplary damages. With the award of
exemplary damages, the award of attorney's fees is likewise proper, pursuant to Article 2208 48 of the Civil Code. It is obvious that TEC
needed the services of a lawyer to argue its cause through three levels of the judicial hierarchy. Thus, the award of P200,000.00 is in
order.49

We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on the damage to its
goodwill and reputation.50 As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot
experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only
exception to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in the business realm. 51 But
in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the
factual basis of the damage and its causal relation to petitioner's acts. 52 In the present case, the records are bereft of any evidence
that the name or reputation of TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded
moral damages in the dispositive portion of its decision without stating the basis thereof.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282 dated June 18, 1997 and its
Resolution dated December 3, 1997 are AFFIRMED with the following MODIFICATIONS: (1) the award of P150,000.00 per month for
five months as reimbursement for the rentals of the generator set is REDUCED to P150,000.00; and (2) the award of P500,000.00 as
moral damages is hereby DELETED.

SO ORDERED.

Ynares-Santiago, Chairperson, Austria-Marinez, Chico-Nazario, Reyes, JJ., concur.

G.R. No. L-6776 May 21, 1955

THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,

vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for appellee.

REYES, J.B.L., J.:

The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in due form on January 22,
1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan, Rizal, known as lot No. 2, block 48-D, PSD-
4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious organization "Ung Siu Si Temple", operating through three
trustees all of Chinese nationality. The donation was duly accepted by Yu Juan, of Chinese nationality, founder and deaconess of the
Temple, acting in representation and in behalf of the latter and its trustees.

The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance of Manila. On March 14, 1953,
the Court upheld the action of the Rizal Register of Deeds, saying:

The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of donation of a parcel of
land executed in favor of a religious organization whose founder, trustees and administrator are Chinese citizens should be
registered or not.

It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious organization whose deaconess, founder,
trustees and administrator are all Chinese citizens, this Court is of the opinion and so hold that in view of the provisions of
the sections 1 and 5 of Article XIII of the Constitution of the Philippines limiting the acquisition of land in the Philippines to
its citizens, or to corporations or associations at least sixty per centum of the capital stock of which is owned by such citizens
adopted after the enactment of said Act No. 271, and the decision of the Supreme Court in the case of Krivenko vs. the
Register of Deeds of Manila, the deed of donation in question should not be admitted for admitted for registration. (Printed
Rec. App. pp 17-18).

Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has appealed to this Court,
claiming: (1) that the acquisition of the land in question, for religious purposes, is authorized and permitted by Act No. 271 of the old
Philippine Commission, providing as follows:

SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination, whether incorporated in the
Philippine Islands or in the name of other country, or not incorporated at all, to hold land in the Philippine Islands upon
which to build churches, parsonages, or educational or charitable institutions.

SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of three Trustees for the use of such
associations; . . .. (Printed Rec. App. p. 5.)

and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our Constitution [Art. III, Sec. 1(7)].

We are of the opinion that the Court below has correctly held that in view of the absolute terms of section 5, Title XIII, of the
Constitution, the provisions of Act No. 271 of the old Philippine Commission must be deemed repealed since the Constitution was
enacted, in so far as incompatible therewith. In providing that,

Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals,
corporations or associations qualified to acquire or hold lands of the public domain in the Philippines,

the Constitution makes no exception in favor of religious associations. Neither is there any such saving found in sections 1 and 2 of
Article XIII, restricting the acquisition of public agricultural lands and other natural resources to "corporations or associations at least
sixty per centum of the capital of which is owned by such citizens" (of the Philippines).

The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional inhibition, since it
is admitted that its members are of foreign nationality. The purpose of the sixty per centum requirement is obviously to ensure that
corporations or associations allowed to acquire agricultural land or to exploit natural resources shall be controlled by Filipinos; and
the spirit of the Constitution demands that in the absence of capital stock, the controlling membership should be composed of
Filipino citizens.
To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive the opening wedge to
revive alien religious land holdings in this country. We can not ignore the historical fact that complaints against land holdings of that
kind were among the factors that sparked the revolution of 1896.

As to the complaint that the disqualification under article XIII is violative of the freedom of religion guaranteed by Article III of the
Constitution, we are by no means convinced (nor has it been shown) that land tenure is indispensable to the free exercise and
enjoyment of religious profession or worship; or that one may not worship the Deity according to the dictates of his own conscience
unless upon land held in fee simple.

The resolution appealed from is affirmed, with costs against appellant.

Pablo, Acting C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, and Concepcion, JJ., concur.

G.R. No. L-8451 December 20, 1957

THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., petitioner,

vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO CITY, respondents.
Teodoro Padilla, for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and Troadio T. Quianzon, Jr., for
respondents.

FELIX, J.:

This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao seeking the reversal of a resolution by
the Land Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case are as follows:

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 No. 2263, in favor of the Roman Catholic Apostolic Administrator of Davao
Inc., s corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as
actual incumbent. When the deed of sale was presented to Register of Deeds of Davao for registration, the latter.

having in mind a previous resolution of the Fourth Branch of the Court of First Instance of Manila wherein the Carmelite
Nuns of Davao were made to prepare an affidavit to the effect that 60 per cent of the members of their corporation were
Filipino citizens when they sought to register in favor of their congregation of deed of donation of a parcel of land

required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof were Filipino citizens.

The vendee in the letter dated June 28, 1954, expressed willingness to submit an affidavit, both not in the same tenor as that made
the Progress of the Carmelite Nuns because the two cases were not similar, for whereas the congregation of the Carmelite Nuns had
five incorporators, the corporation sole has only one; that according to their articles of incorporation, the organization of the
Carmelite Nuns became the owner of properties donated to it, whereas the case at bar, the totality of the Catholic population of
Davao would become the owner of the property bought to be registered.

As the Register of Deeds entertained some doubts as to the registerability if the document, the matter was referred to the Land
Registration Commissioner en consulta for resolution in accordance with section 4 of Republic Act No. 1151. Proper hearing on the
matter was conducted by the Commissioner and after the petitioner corporation had filed its memorandum, a resolution was
rendered on September 21, 1954, holding that in view of the provisions of Section 1 and 5 of Article XIII of the Philippine
Constitution, the vendee was not qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per
centum of the capital, property, or assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or
controlled by Filipino citizens, there being no question that the present incumbent of the corporation sole was a Canadian citizen. It
was also the opinion of the Land Registration Commissioner that section 159 of the corporation Law relied upon by the vendee was
rendered operative by the aforementioned provisions of the Constitution with respect to real estate, unless the precise condition set
therein that at least 60 per cent of its capital is owned by Filipino citizens be present, and, therefore, ordered the Registered
Deeds of Davao to deny registration of the deed of sale in the absence of proof of compliance with such condition.

After the motion to reconsider said resolution was denied, an action for mandamus was instituted with this Court by said corporation
sole, alleging that under the Corporation Law as well as the settled jurisprudence on the matter, the deed of sale executed by Mateo
L. Rodis in favor of petitioner is actually a deed of sale in favor of the Catholic Church which is qualified to acquire private agricultural
lands for the establishment and maintenance of places of worship, and prayed that judgment be rendered reserving and setting aside
the resolution of the Land Registration Commissioner in question. In its resolution of November 15, 1954, this Court gave due course
to this petition providing that the procedure prescribed for appeals from the Public Service Commission of the Securities and
Exchange Commissions (Rule 43), be followed.

Section 5 of Article XIII of the Philippine Constitution reads as follows:

SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines.

Section 1 of the same Article also provides the following:

SECTION 1. All agricultural, timber, and mineral lands of the public domain, water, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, and other natural resources of the Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to cititzens of the Philippines, or to corporations or associations at least sixty per centum
of the capital of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER CONSTITUTION. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license, concession, or leases for the exploitation, development, or utilization of any
of the natural resources shall be granted for a period exceeding twenty-five years, renewable for another twenty-five years, except as
to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases
other than the development and limit of the grant.

In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold agricultural lands in the
Philippines? What is the effect of these constitutional prohibition of the right of a religious corporation recognized by our
Corporation Law and registered as a corporation sole, to possess, acquire and register real estates in its name when the Head,
Manager, Administrator or actual incumbent is an alien?

Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not prohibited or
disqualified to acquire and hold real properties. The Corporation Law and the Canon Law are explicit in their provisions that a
corporation sole or "ordinary" is not the owner of the of the properties that he may acquire but merely the administrator thereof.
The Canon Law also specified that church temporalities are owned by the Catholic Church as a "moral person" or by the diocess as
minor "moral persons" with the ordinary or bishop as administrator.

And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a religious society or
organization, it is made up of 2 elements or divisions the clergy or religious members and the faithful or lay members. The 1948
figures of the Bureau of Census showed that there were 277,551 Catholics in Davao and aliens residing therein numbered 3,465. Ever
granting that all these foreigners are Catholics, petitioner contends that Filipino citizens form more than 80 per cent of the entire
Catholics population of that area. As to its clergy and religious composition, counsel for petitioner presented the Catholic Directory of
the Philippines for 1954 (Annex A) which revealed that as of that year, Filipino clergy and women novices comprise already 60.5 per
cent of the group. It was, therefore, allowed that the constitutional requirement was fully met and satisfied.

Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the land purchased, yet
he has control over the same, with full power to administer, take possession of, alienate, transfer, encumber, sell or dispose of any or
all lands and their improvements registered in the name of the corporation sole and can collect, receive, demand or sue for all
money or values of any kind that may be kind that may become due or owing to said corporation, and vested with authority to enter
into agreements with any persons, concerns or entities in connection with said real properties, or in other words, actually exercising
all rights of ownership over the properties. It was their stand that the theory that properties registered in the name of the
corporation sole are held in true for the benefit of the Catholic population of a place, as of Davao in the case at bar should be
sustained because a conglomeration of persons cannot just be pointed out as the cestui que trust or recipient of the benefits from
the property allegedly administered in their behalf. Neither can it be said that the mass of people referred to as such beneficiary
exercise ant right of ownership over the same. This set-up, respondents argued, falls short of a trust. The respondents instead tried
to prove that in reality, the beneficiary of ecclesiastical properties are not members or faithful of the church but someone else, by
quoting a portion a portion of the ought of fidelity subscribed by a bishop upon his elevation to the episcopacy wherein he promises
to render to the Pontificial Father or his successors an account of his pastoral office and of all things appertaining to the state of this
church.

Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per cent of Filipino
citizenship, the criterion of the properties or assets thereof.

In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is a special form of
corporation usually associated with the clergy. Conceived and introduced into the common law by sheer necessity, this legal creation
which was referred to as "that unhappy freak of English law" was designed to facilitate the exercise of the functions of ownership
carried on by the clerics for and on behalf of the church which was regarded as the property owner (See I Couvier's Law Dictionary, p.
682-683).

A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular station, who
are incorporated by law in order to give them some legal capacities and advantages, particularly that of perpetuity, which in their
natural persons they could not have had. In this sense, the king is a sole corporation; so is a bishop, or dens, distinct from their
several chapters (Reid vs. Barry, 93 Fla. 849, 112 So. 846).
The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of petitioner. Section 154
thereof provides:

SEC. 154. For the administration of the temporalities of any religious denomination, society or church and the
management of the estates and the properties thereof, it shall be lawful for the bishop, chief priest, or presiding either of
any such religious denomination, society or church to become a corporation sole, unless inconsistent wit the rules,
regulations or discipline of his religious denomination, society or church or forbidden by competent authority thereof.

See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:

SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any religious denomination,
society or church must file with the Securities and Exchange Commissioner articles of incorporation setting forth the
following facts:

xxx xxx xxx.

(3) That as such bishop, chief priest, or presiding elder he is charged with the administration of the temporalities and the
management of the estates and properties of his religious denomination, society, or church within its territorial jurisdiction,
describing it;

xxx xxx xxx.

(As amended by Commonwealth Act No. 287).

SEC. 157. From and after the filing with the Securities and Exchange Commissioner of the said articles of incorporation,
which verified by affidavit or affirmation as aforesaid and accompanied by the copy of the commission, certificate of
election, or letters of appointment of the bishop, chief priest, or presiding elder, duly certified as prescribed in the section
immediately preceding such the bishop, chief priest, or presiding elder, as the case may be, shall become a corporation sole
and all temporalities, estates, and properties the religious denomination, society, or church therefore administered or
managed by him as such bishop, chief priest, or presiding elder, shall be held in trust by him as a corporation sole, for the
use, purpose, behalf, and sole benefit of his religious denomination, society, or church, including hospitals, schools, colleges,
orphan, asylums, parsonages, and cemeteries thereof. For the filing of such articles of incorporation, the Securities and
Exchange Commissioner shall collect twenty-five pesos. (As amended by Commonwealth Act. No. 287); and.

SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or society, or by the
diocese, synod, or district organization of any religious denomination or church shall, on its incorporation, pass to the
corporation and shall be held in trust for the use, purpose behalf, and benefit of the religious society, or order so
incorporated or of the church of which the diocese, or district organization is an organized and constituent part.

The Cannon Law contains similar provisions regarding the duties of the corporation sole or ordinary as administrator of the church
properties, as follows:

Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes eclesiasticos que se hallan
en su territorio y no estuvieren sustraidos de su jurisdiccion, salvs las prescriciones legitimas que le concedan mas aamplios
derechos.

Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los Ordinarios regular todo lo
concerniente a la administracion de los bienes eclesciasticos, dando las oportunas instucciones particularles dentro del
narco del derecho comun. (Title XXVIII, Codigo de Derecho Canonico, Lib. III, Canon 1519).1

That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are
merely administrators of the church properties that come to their possession, in which they hold in trust for the church. It can also
be said that while it is true that church properties could be administered by a natural persons, 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 his personal heirs but to his successor in office. It could
be seen, therefore, that a corporation sole is created not only to administer the temporalities of the church or religious society where
he belongs but also to hold and transmit the same to his successor in said office. If the ownership or title to the properties do not
pass to the administrators, who are the owners of church properties?.

Bouscaren and Elis, S.J., authorities on cannon law, on their treatise comment:

In matters regarding property belonging to the Universal Church and to the Apostolic See, the Supreme Pontiff exercises his
office of supreme administrator through the Roman Curia; in matters regarding other church property, through the
administrators of the individual moral persons in the Church according to that norms, laid down in the Code of Cannon
Law. This does not mean, however, that the Roman Pontiff is the owner of all the church property; but merely that he is the
supreme guardian (Bouscaren and Ellis, Cannon Law, A Text and Commentary, p. 764).

and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of Trinidad vs. Roman Catholic
Archbishop of Manila, 63 Phil. 881, that:

The second question to be decided is in whom the ownership of the properties constituting the endowment of the
ecclesiastical or collative chaplaincies is vested.

Canonists entertain different opinions as to the persons in whom the ownership of the ecclesiastical properties is vested,
with respect to which we shall, for our purpose, confine ourselves to stating with Donoso that, while many doctors cited by
Fagnano believe that it resides in the Roman Pontiff as Head of the Universal Church, it is more probable that ownership,
strictly speaking, does not reside in the latter, and, consequently, ecclesiastical properties are owned by the churches,
institutions and canonically established private corporations to which said properties have been donated.

Considering that nowhere can We find any provision conferring ownership of church properties on the Pope although he appears to
be the supreme administrator or guardian of his flock, nor on the corporation sole or heads of dioceses as they are admittedly
mere administrators of said properties, ownership of these temporalities logically fall and develop upon the church, diocese or
congregation acquiring the same. Although this question of ownership of ecclesiastical properties has off and on been mentioned in
several decisions of the Court yet in no instance was the subject of citizenship of this religious society been passed upon.

We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of Agustines vs. Court of First
Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila is only a branch of a universal church
by the Pope, with permanent residence in Rome, Italy". There is no question that the Roman Catholic Church existing in the
Philippines is a tributary and part of the international religious organization, for the word "Roman" clearly expresses its unity with
and recognizes the authority of the Pope in Rome. However, lest We become hasty in drawing conclusions, We have to analyze and
take note of the nature of the government established in the Vatican City, of which it was said:

GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy and laity alike as held by the
pope who (since the Middle Ages) is elected by the cardinals assembled in conclave, and holds office until his death or
legitimate abdication. . . While the pope is obviously independent of the laws made, and the officials appointed, by himself
or his predecessors, he usually exercises his administrative authority according to the code of canon law and through the
congregations, tribunals and offices of the Curia Romana. In their respective territories (called generally dioceses) and over
their respective subjects, the patriarchs, metropolitans or archbishops and bishops exercise a jurisdiction which is called
ordinary (as attached by law to an office given to a person. . . (Collier's Encyclopedia, Vol. 17, p. 93).

While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the supreme head; that in the
religious matters, in the exercise of their belief, the Catholic congregation of the faithful throughout the world seeks the guidance
and direction of their Spiritual Father in the Vatican, yet it cannot be said that there is a merger of personalities resultant therein.
Neither can it be said that the political and civil rights of the faithful, inherent or acquired under the laws of their country, are
affected by that relationship with the Pope. The fact that the Roman Catholic Church in almost every country springs from that
society that saw its beginning in Europe and the fact that the clergy of this faith derive their authorities and receive orders from the
Holy See do not give or bestow the citizenship of the Pope upon these branches. Citizenship is a political right which cannot be
acquired by a sort of "radiation". We have to realize that although there is a fraternity among all the catholic countries and the
dioceses therein all over the globe, the universality that the word "catholic" implies, merely characterize their faith, a uniformity in
the practice and the interpretation of their dogma and in the exercise of their belief, but certainly they are separate and independent
from one another in jurisdiction, governed by different laws under which they are incorporated, and entirely independent on the
others in the management and ownership of their temporalities. To allow theory that the Roman Catholic Churches all over the world
follow the citizenship of their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of a country
who embrace the Catholic faith and become members of that religious society, likewise citizens of the Vatican or of Italy. And this is
more so if We consider that the Pope himself may be an Italian or national of any other country of the world. The same thing be said
with regard to the nationality or citizenship of the corporation sole created under the laws of the Philippines, which is not altered by
the change of citizenship of the incumbent bishops or head of said corporation sole.

We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every Roman Catholic Church
in different countries, if it exercises its mission and is lawfully incorporated in accordance with the laws of the country where it is
located, is considered an entity or person with all the rights and privileges granted to such artificial being under the laws of that
country, separate and distinct from the personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations
with the latter which are governed by the Canon Law or their rules and regulations.

We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far reaching influence, nor
can We overlook the pages of history that arouse indignation and criticisms against church landholdings. This nurtured feeling that
snowbailed into a strong nationalistic sentiment manifested itself when the provisions on natural to be embodied in the Philippine
Constitution were framed, but all that has been said on this regard referred more particularly to landholdings of religious
corporations known as "Friar Estates" which have already bee acquired by our government, and not to properties held by
corporations sole which, We repeat, are properties held in trust for the benefit of the faithful residing within its territorial
jurisdiction. Though that same feeling probably precipitated and influenced to a large extent the doctrine laid down in the celebrated
Krivenco decision, We have to take this matter in the light of legal provisions and jurisprudence actually obtaining, irrespective of
sentiments.

The question now left for our determination is whether the Universal Roman Catholic Apostolic Church in the Philippines, or better
still, the corporation sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is qualified to acquire private agricultural
lands in the Philippines pursuant to the provisions of Article XIII of the Constitution.

We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to acquire hold lands of the
public domain in the Philippines may acquire or be assigned and hold private agricultural lands. Consequently, the decisive factor in
the present controversy hinges on the proposition or whether or not the petitioner in this case can acquire agricultural lands of the
public domain.

From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic Bishop of Zamboanga was
incorporated (as a corporation sole) in September, 1912, principally to administer its temporalities and manage its properties.
Probably due to the ravages of the last war, its articles of incorporation were reconstructed in the Securities and Exchange
Commission on April 8, 1948. At first, this corporation sole administered all the temporalities of the church existing or located in the
island of Mindanao. Later on, however, new dioceses were formed and new corporations sole were created to correspond with the
territorial jurisdiction of the new dioceses, one of them being petitioner herein, the Roman Catholic Apostolic Administrator of
Davao, Inc., which was registered with the Securities and Exchange Commission on September 12, 1950, and succeeded in the
administrative for all the "temporalities" of the Roman Catholic Church existing in Davao.

According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a corporation sole.

is organized and composed of a single individual, the head of any religious society or church, for the ADMINISTRATION of
the temporalities of such society or church. By "temporalities" is meant estate and properties not used exclusively for
religious worship. The successor in office of such religious head or chief priest incorporated as a corporation sole shall
become the corporation sole on ascension to office, and shall be permitted to transact business as such on filing with the
Securities and Exchange Commission a copy of his commission, certificate of election or letter of appointment duly certified
by any notary public or clerk of court of record (Guevara's The Philippine Corporation Law, p. 223).

The Corporation Law also contains the following provisions:

SECTION 159. Any corporation sole may purchase and hold real estate and personal; property for its church, charitable,
benevolent, or educational purposes, and may receive bequests or gifts of such purposes. Such corporation may mortgage
or sell real property held by it upon obtaining an order for that purpose from the Court of First Instance of the province in
which the property is situated; but before making the order proof must be made to the satisfaction of the Court that notice
of the application for leave to mortgage or sell has been given by publication or otherwise in such manner and for such time
as said Court or the Judge thereof may have directed, and that it is to the interest of the corporation that leave to mortgage
or sell must be made by petition, duly verified by the bishop, chief priest, or presiding elder acting as corporation sole, and
 may be opposed by any member of the religious denomination, society or church represented by the corporation sole:
Provided, however, That in cases where the rules, regulations, and discipline of the religious denomination, society or
church concerned represented by such corporation sole regulate the methods of acquiring, holding, selling and mortgaging
real estate and personal property, such rules, regulations, and discipline shall control and the intervention of the Courts shall
not be necessary.

It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power exercised in the case at
bar, it is not restricted although the power to sell or mortgage sometimes is, depending upon the rules, regulations, and discipline of
the church concerned represented by said corporation sole. If corporations sole can purchase and sell real estate for its church,
charitable, benevolent, or educational purposes, can they register said real properties? As provided by law, lands held in trust for
specific purposes me be subject of registration (section 69, Act 496), and the capacity of a corporation sole, like petitioner herein, to
register lands belonging to it is acknowledged, and title thereto may be issued in its name (Bishop of Nueva Segovia vs. Insular
Government, 26 Phil. 300-1913). Indeed it is absurd that while the corporations sole that might be in need of acquiring lands for the
erection of temples where the faithful can pray, or schools and cemeteries which they are expressly authorized by law to acquire in
connection with the propagation of the Roman Catholic Apostolic faith or in furtherance of their freedom of religion they could not
register said properties in their name. As professor Javier J. Nepomuceno very well says "Man in his search for the immortal and
imponderable, has, even before the dawn of recorded history, erected temples to the Unknown God, and there is no doubt that he
will continue to do so for all time to come, as long as he continues 'imploring the aid of Divine Providence'" (Nepomuceno's
Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41, September, 1956). Under the circumstances of this case, We might safely state
that even before the establishment of the Philippine Commonwealth and of the Republic of the Philippines every corporation sole
then organized and registered had by express provision of law the necessary power and qualification to purchase in its name private
lands located in the territory in which it exercised its functions or ministry and for which it was created, independently of the
nationality of its incumbent unique and single member and head, the bishop of the dioceses. It can be also maintained without fear
of being gainsaid that the Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of the
Constitution, as will be hereunder explained, did not have in mind the religious corporations sole when they provided that 60 per
centum of the capital thereof be owned by Filipino citizens.

There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having the right of succession
and the power, attributes, and properties expressly authorized by law or incident to its existence (section 1, Corporation Law). In
outlining the general powers of a corporation. Public Act. No. 1459 provides among others:

SEC. 13. Every corporation has the power:

(5) To purchase, hold, convey, sell, lease, lot, mortgage, encumber, and otherwise deal with such real and personal property
as the purpose for which the corporation was formed may permit, and the transaction of the lawful business of the
corporation may reasonably and necessarily require, unless otherwise prescribed in this Act: . . .

In implementation of the same and specially made applicable to a form of corporation recognized by the same law, Section 159
aforequoted expressly allowed the corporation sole to purchase and hold real as well as personal properties necessary for the
promotion of the objects for which said corporation sole is created. Respondent Land Registration Commissioner, however,
maintained that since the Philippine Constitution is a later enactment than public Act No. 1459, the provisions of Section 159 in
amplification of Section 13 thereof, as regard real properties, should be considered repealed by the former.

There is a reason to believe that when the specific provision of the Constitution invoked by respondent Commissioner was under
consideration, the framers of the same did not have in mind or overlooked this particular form of corporation. It is undeniable that
the naturalization and conservation of our national resources was one of the dominating objectives of the Convention and in drafting
the present Article XII of the Constitution, the delegates were goaded by the desire (1) to insure their conservation for Filipino
posterity; (2) to serve as an instrument of national defense, helping prevent the extension into the country of foreign control through
peaceful economic penetration; and (3) to prevent making the Philippines a source of international conflicts with the consequent
danger to its internal security and independence (See The Framing of the Philippine Constitution by Professor Jose M. Aruego, a
Delegate to the Constitutional Convention, Vol. II. P. 592-604). In the same book Delegate Aruego, explaining the reason behind the
first consideration, wrote:

At the time of the framing of Philippine Constitution, Filipino capital had been to be rather shy. Filipinos hesitated s a
general rule to invest a considerable sum of their capital for the development, exploitation and utilization of the natural
resources of the country. They had not as yet been so used to corporate 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 naturalization of the natural resources would
certainly not encourage the INVESTMENT OF FOREIGN CAPITAL into them. But there was a general feeling in the Convention
that it was better to have such a development retarded or even postpone together until such time when the Filipinos would
be ready and willing to undertake it rather than permit the natural resources to be placed under the ownership or control of
foreigners in order that they might be immediately be developed, with the Filipinos of the future serving not as owners but
utmost as tenants or workers under foreign masters. By all means, the delegates believed, the natural resources should be
conserved for Filipino posterity.

It could be distilled from the foregoing that the farmers of the Constitution intended said provisions as barrier for foreigners or
corporations financed by such foreigners to acquire, exploit and develop our natural resources, saving these undeveloped wealth for
our people to clear and enrich when they are already prepared and capable of doing so. But that is not the case of corporations sole
in the Philippines, for, We repeat, they are mere administrators of the "temporalities" or properties titled in their name and for the
benefit of the members of their respective religion composed of an overwhelming majority of Filipinos. No mention nor allusion
whatsoever is made in the Constitution as to the prohibition against or the liability of the Roman Catholic Church in the Philippines to
acquire and hold agricultural lands. Although there were some discussions on landholdings, they were mostly confined in the
inclusion of the provision allowing the Government to break big landed estates to put an end to absentee landlordism.

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 petitioner's case; even so the clause requiring that at least 60 per centum of the capital of the
corporation be owned by Filipinos is subordinated to the petitioner's aforesaid right already existing at the time of the inauguration
of the Commonwealth and the Republic of the Philippines. In the language of Mr. Justice Jose P. Laurel (a delegate to the
Constitutional Convention), in his concurring opinion of the case of Gold Creek mining Corporation, petitioner vs. Eulogio Rodriguez,
Secretary of Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau of Mines, respondent, 66 Phil. 259:

The saving clause in the section involved of the Constitution was originally embodied in the report submitted by the
Committee on Naturalization and Preservation of Land and Other Natural Resources to the Constitutional Convention on
September 17, 1954. It was later inserted in the first draft of the Constitution as section 13 of Article XIII thereof, and finally
incorporated as we find it now. Slight have been the changes undergone by the proviso from the time when it comes out of
the committee until it was finally adopted. When first submitted and as inserted to the first draft of the Constitution it reads:
'subject to any right, grant, lease, or concession existing in respect thereto on the date of the adoption of the Constitution'.
As finally adopted, the proviso reads: 'subject to any existing right, grant, lease, or concession at the time of the
inauguration of the Government established under this Constitution'. This recognition is not mere graciousness but springs
form the just character of the government established. The framers of the Constitution were not obscured by the rhetoric of
democracy or swayed to hostility by an intense spirit of nationalism. They well knew that conservation of our natural
resources did not mean destruction or annihilation of acquired property rights. Withal, they erected a government neither
episodic nor stationary but well-nigh conservative in the protection of property rights. This notwithstanding nationalistic and
socialistic traits discoverable upon even a sudden dip into a variety of the provisions embodied in the instrument.

The writer of this decision wishes to state at this juncture that during the deliberation of this case he submitted to the consideration
of the Court the question that may be termed the "vested right saving clause" contained in Section 1, Article XII of the Constitution,
but some of the members of this Court either did not agree with the theory of the writer, or were not ready to take a definite stand
on the particular point I am now to discuss deferring our ruling on such debatable question for a better occasion, inasmuch as the
determination thereof is not absolutely necessary for the solution of the problem involved in this case. In his desire to face the issues
squarely, the writer will endeavor, at least as a disgression, to explain and develop his theory, not as a lucubration of the Court, but of
his own, for he deems it better and convenient to go over the cycle of reasons that are linked to one another and that step by step
lead Us to conclude as We do in the dispositive part of this decision.

It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all agricultural lands of the
public domain and their disposition shall be limited to citizens of the Philippines or to corporations at least 60 per centum of the
capital of which is owned by such citizens, SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE
GOVERNMENT ESTABLISHED UNDER THIS CONSTITUTION."

As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs. Rodriguez et al., 66 Phil. 259,
"this recognition (in the clause already quoted), is not mere graciousness but springs from the just character of the government
established. The farmers of the Constitution were not obscured by the rhetoric of democracy or swayed to hostility by an intense spirit
of nationalism. They well knew that conservation of our natural resources did not mean destruction or annihilation of ACQUIRED
PROPERTY RIGHTS".
But respondents' counsel may argue that the preexisting right of acquisition of public or private lands by a corporation which does
not fulfill this 60 per cent requisite, refers to purchases of the Constitution and not to later transactions. This argument would imply
that even assuming that petitioner had at the time of the enactment of the Constitution the right to purchase real property or right
could not be exercised after the effectivity of our Constitution, because said power or right of corporations sole, like the herein
petitioner, conferred in virtue of the aforequoted provisions of the Corporation Law, could no longer be exercised in view of the
requisite therein prescribed that at least 60 per centum of the capital of the corporation had to be Filipino. It has been shown before
that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less than 5 incorporators, is composed of only
one persons, usually the head or bishop of the diocese, a unit which is not subject to expansion for the purpose of determining any
percentage whatsoever; (2) the corporation sole is only the administrator and not the owner of the temporalities located in the
territory comprised by said corporation sole; (3) such temporalities are administered for and on behalf of the faithful residing in the
diocese or territory of the corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent
Ordinary has nothing to do with the operation, management or administration of the corporation sole, nor effects the citizenship of
the faithful connected with their respective dioceses or corporation sole.

In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of the Constitution
invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers of the same did not have in mind or
overlooked this particular form of corporation. If this were so, as the facts and circumstances already indicated tend to prove it to be
so, then the inescapable conclusion would be that this requirement of at least 60 per cent of Filipino capital was never intended to
apply to corporations sole, and the existence or not a vested right becomes unquestionably immaterial.

But let us assumed 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 up to the right, qualification or power to acquire and hold private real property. The
population of the Philippines, Catholic to a high percentage, is ever increasing. In the practice of religion of their faithful the
corporation sole may be in need of more temples where to pray, more schools where the children of the congregation could be
taught in the principles of their religion, more hospitals where their sick could be treated, more hallow or consecrated grounds or
cemeteries where Catholics could be buried, many more than those actually existing at the time of the enactment of our
Constitution. This being the case, could it be logically maintained that because the corporation sole which, by express provision of
law, has the power to hold and acquire real estate and personal property of its churches, charitable benevolent, or educational
purposes (section 159, Corporation Law) it has to stop its growth and restrain its necessities just because the corporation sole is a
non-stock corporation composed of only one person who in his unity does not admit of any percentage, especially when that person
is not the owner but merely an administrator of the temporalities of the corporation sole? The writer leaves the answer to whoever
may read and consider this portion of the decision.

Anyway, as stated before, this question is not a decisive factor in disposing the 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 same time of the inauguration of the
Government established under this Constitution, yet We would have, under the evidence on record, sufficient grounds to uphold
petitioner's contention on this matter.

In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. No. L-6776, promulgated May 21, 1955, wherein this
question was considered from a different angle, this Court through Mr. Justice J.B.L. Reyes, said:

The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional
inhibition, since it is admitted that its members are of foreign nationality. The purpose of the sixty per centum requirement
is obviously to ensure that corporation or associations allowed to acquire agricultural land or to exploit natural resources
shall be controlled by Filipinos; and the spirit of the Constitution demands that in the absence of capital stock, the
controlling membership should be composed of Filipino citizens.

In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation aggregate, i.e., an unregistered
organization operating through 3 trustees, all of Chinese nationality, and that is why this Court laid down the doctrine just quoted.
With regard to petitioner, which likewise is a non-stock corporation, the case is different, because it is a registered corporation sole,
evidently of no nationality and registered mainly to administer the temporalities and manage the properties belonging to the faithful
of said church residing in Davao. But even if we were to go over the record to inquire into the composing membership to determine
whether the citizenship requirement is satisfied or not, we would find undeniable proof that the members of the Roman Catholic
Apostolic faith within the territory of Davao are predominantly Filipino citizens. As indicated before, petitioner has presented
evidence to establish that the clergy and lay members of this religion fully covers the percentage of Filipino citizens required by the
Constitution. These facts are not controverted by respondents and our conclusion in this point is sensibly obvious.
Dissenting OpinionDiscussed. After having developed our theory in the case and arrived at the findings and conclusions already
expressed in this decision. We now deem it proper to analyze and delve into the basic foundation on which the dissenting opinion
stands up. Being aware of the transcendental and far-reaching effects that Our ruling on the matter might have, this case was
thoroughly considered from all points of view, the Court sparing no effort to solve the delicate problems involved herein.

At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the reversal of the doctrine We
laid down in the celebrated Krivenko case by excluding urban lots and properties from the group of the term "private agricultural
lands" use in this section 5, Article XIII of the Constitution; and (2) by driving Our reasons to a point that might indirectly cause the
appointment of Filipino bishops or Ordinary to head the corporations sole created to administer the temporalities of the Roman
Catholic Church in the Philippines. With regard to the first way, a great majority of the members of this Court were not yet prepared
nor agreeable to follow that course, for reasons that are obvious. As to the second way, it seems to be misleading because the
nationality of the head of a diocese constituted as a corporation sole has no material bearing on the functions of the latter, which are
limited to the administration of the temporalities of the Roman Catholic Apostolic Church in the Philippines.

Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author lingered on the outskirts of
the issues, thus throwing the main points in controversy out of focus. Of course We fully agree, as stated by Professor Aruego, that
the framers of our Constitution had at heart to insure the conservation of the natural resources of Our motherland of 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 Philippines a source of international conflicts with the
consequent danger to its internal security and independence. But all these precautions adopted by the Delegates to Our
Constitutional Assembly could have not been intended for or directed against cases like the one at bar. The emphasis and wonderings
on the statement that once the capacity of a corporation sole to acquire private agricultural lands is admitted there will be no limit to
the areas that it may hold and that this will pave the way for the "revival or revitalization of religious landholdings that proved so
troublesome in our past", cannot even furnish the "penumbra" of a threat to the future of the Filipino people. In the first place, the
right of Filipino citizens, including those of foreign extraction, and Philippine corporations, to acquire private lands is not subject to
any restriction or limit as to quantity or area, and We certainly do not see any wrong in that. The right of Filipino citizens and
corporations to acquire public agricultural lands is already limited by law. In the second place, corporations sole cannot be
considered as aliens because they have no nationality at all. Corporations sole are, under the law, mere administrators of the
temporalities of the Roman Catholic Church in the Philippines. In the third place, every corporation, be it aggregate or sole, is only
entitled to purchase, convey, sell, lease, let, mortgage, encumber and otherwise deal with real properties when it is pursuant to or in
consonance with the purposes for which the corporation was formed, and when the transactions of the lawful business of the
corporation reasonably and necessarily require such dealing section 13-(5) of the Corporation Law, Public Act No. 1459 and
considering these provisions in conjunction with Section 159 of the same law which provides that a corporation sole may only
"purchase and hold real estate and personal properties for its church, charitable, benevolent or educational purposes", the above
mentioned fear of revitalization of religious landholdings in the Philippines is absolutely dispelled. The fact that the law
thus expressly authorizes the corporations sole to receive bequests or gifts of real properties (which were the main source that the
friars had to acquire their big haciendas during the Spanish regime), is a clear indication that the requisite that bequests or gifts of
real estate be for charitable, benevolent, or educational purposes, was, in the opinion of the legislators, considered sufficient and
adequate protection against the revitalization of religious landholdings.

Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional Convention drafted and
approved Article XIII of the Constitution they do not have in mind the corporation sole. We come to this finding because the
Constitutional Assembly, composed as it was by a great number of eminent lawyers and jurists, was like any other legislative body
empowered to enact either the Constitution of the country or any public statute, presumed to know the conditions existing as to
particular subject matter when it enacted a statute (Board of Commerce of Orange Country vs. Bain, 92 S.E. 176; N. C. 377).

Immemorial customs are presumed to have been always in the mind of the Legislature in enacting legislation. (In re Kruger's
Estate, 121 A. 109; 277 P. 326).

The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which it legislates. (Clover
Valley Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)

The Court in construing a statute, will assume that the legislature acted with full knowledge of the prior legislation on the
subject and its construction by the courts. (Johns vs. Town of Sheridan, 89 N. E. 899, 44 Ind. App. 620.).

The Legislature is presumed to have been familiar with the subject with which it was dealing . . . . (Landers vs.
Commonwealth, 101 S. E. 778, 781.).
 The Legislature is presumed to know principles of statutory construction. (People vs. Lowell, 230 N. W. 202, 250 Mich. 349,
followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).

It is not to be presumed that a provision was inserted in a constitution or statute without reason, or that a result was
intended inconsistent with the judgment of men of common sense guided by reason" (Mitchell vs. Lawden, 123 N.E. 566,
288 Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310 Ill. 591, and may other authorities that can be cited in
support hereof.

Consequently, the Constitutional Assembly must have known:

1. That a corporation sole is organized by and composed of a single individual, the head of any religious society or church
operating within the zone, area or jurisdiction covered by said corporation sole (Article 155, Public Act No. 1459);

2. That a corporation sole is a non-stock corporation;

3. That the Ordinary ( the corporation sole proper) does not own the temporalities which he merely administers;

4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing on the nationality of
the person desiring to acquire real property in the Philippines by purchase or other lawful means other than by hereditary
succession, who according to the Constitution must be a Filipino (sections 1 and 5, Article XIII).

5. That section 159 of the Corporation Law expressly authorized the corporation sole to purchase and hold real estate for its
church, charitable, benevolent or educational purposes, and to receive bequests or gifts for such purposes;

6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost all of whom were Roman
Catholics, could not have intended to curtail the propagation of the Roman Catholic faith or the expansion of the activities
of their church, knowing pretty well that with the growth of our population more places of worship, more schools where our
youth could be taught and trained; more hallow grounds where to bury our dead would be needed in the course of time.

Long before the enactment of our Constitution the law authorized the corporations sole even to receive bequests or gifts of real
estates and this Court could not, without any clear and specific provision of the Constitution, declare that any real property donated,
let as 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 receive our sanction on the pretext that corporations sole which have no nationality and are non-stock
corporations composed of only one person in the capacity of administrator, have to establish first that at least sixty per centum of
their capital belong to Filipino citizens. The new Civil Code even provides:

ART. 10. In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended
right and justice to prevail.

Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can acquire, in the name of the latter,
private lands without any limitation whatsoever, and that is so because the properties thus acquired are not for and would not
belong to the administrator but to the Filipino whom he represents. But the dissenting Justice inquires: If the Ordinary is only the
administrator, for whom does he administer? And who can alter or overrule his acts? We will forthwith proceed to answer these
questions. The corporations sole by reason of their peculiar constitution and form of operation have no designed owner of its
temporalities, although by the terms of the law it can be safely implied that the Ordinary holds them in trust for the benefit of the
Roman Catholic faithful to their respective locality or diocese. Borrowing the very words of the law, We may say that the
temporalities of every corporation sole are held in trust for the use, purpose, behalf and benefit of the religious society, or order so
incorporated or of the church to which the diocese, synod, or district organization is an organized and constituent part (section 163
of the Corporation Law).

In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see now what is the meaning and
scope of the word "control". According to the Merriam-Webster's New International Dictionary, 2nd ed., p. 580, on of the
acceptations of the word "control" is:

4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold from action; to curb; subject;
also, Obs. to overpower.
 SYN: restrain, rule, govern, guide, direct; check, subdue.

It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary, to mortgage or sell real
property held by the corporation sole where the rules, regulations and discipline of the religious denomination, society or church
concerned presented by such corporation sole regulates the methods of acquiring, holding, selling and mortgaging real estate, and
that the Roman Catholic faithful residing in the jurisdiction of the corporation sole has no say either in the manner of acquiring or of
selling real property. It may be also admitted that the faithful of the diocese cannot govern or overrule the acts of the Ordinary, but
all this does not mean that the latter can administer the temporalities of the corporation sole without check or restraint. We must
not forget that when a corporation sole is incorporated under Philippine laws, the head and only member thereof subjects himself to
the jurisdiction of the Philippine courts of justice and these tribunals can thus entertain grievances arising out of or with respect to
the temporalities of the church which came into the possession of the corporation sole as administrator. It may be alleged that the
courts cannot intervene as to the matters of doctrine or teachings of the Roman Catholic Church. That is correct, but the courts may
step in, at the instance of the faithful for whom the temporalities are being held in trust, to check undue exercise by the corporation
sole of its power as administrator to insure that they are used for the purpose or purposes for which the corporation sole was
created.

American authorities have these to say:

It has been held that the courts have jurisdiction over an action brought by persons claiming to be members of a church,
who allege a wrongful and fraudulent diversion of the church property to uses foreign to the purposes of the church, since
no ecclesiastical question is involved and equity will protect from wrongful diversion of the property (Hendryx vs. Peoples
United Church, 42 Wash. 336, 4 L.R.A. n.s. 1154).

The courts of the State have no general jurisdiction and control over the officers of such corporations in respect to the
performance of their official duties; but as in respect to the property which they hold for the corporation, they stand in
position of TRUSTEES and the courts may exercise the same supervision as in other cases of trust (Ramsey vs. Hicks, 174 Ind.
428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. n.s. 665; Hendryx vs. Peoples United Church, supra.).

Courts of the state do not interfere with the administration of church rules or discipline unless civil rights become involved
and which must be protected (Morris St., Baptist Church vs. Dart, 67 S.C. 338, 45 S.E. 753, and others). (All cited in Vol. II,
Cooley's Constitutional Limitations, p. 960-964.).

If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law relative to existing
conditions as to management and operation of corporations sole in the Philippines, and if, on the other hand, almost all of the
Delegates thereto embraced the Roman Catholic faith, can it be imagined even for an instant that when Article XIII of the
Constitution was approved the framers thereof intended to prevent or curtail from then on the acquisition sole, either by purchase
or donation, of real properties that they might need for the propagation of the faith and for there religious and Christian activities
such as the moral education of the youth, the care, attention and treatment of the sick and the burial of the dead of the Roman
Catholic faithful residing in the jurisdiction of the respective corporations sole? The mere indulgence in said thought would impress
upon Us a feeling of apprehension and absurdity. And that is precisely the leit motiv that permeates the whole fabric of the
dissenting opinion.

It seems from the foregoing that the main problem We are confronted with in this appeal, hinges around the necessity of a proper
and adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us then be guided by the principles of statutory
construction laid down by the authorities on the matter:

The most important single factor in determining the intention of the people from whom the constitution emanated is the
language in which it is expressed. The words employed are to be taken in their natural sense, except that legal or technical
terms are to be given their technical meaning. The imperfections of language as a vehicle for conveying meanings result in
ambiguities that must be resolved by result to extraneous aids for discovering the intent of the framers. Among the more
important of these are a consideration of the history of the times when the provision was adopted and of the purposes
aimed at in its adoption. The debates of constitutional convention, contemporaneous construction, and practical
construction by the legislative and executive departments, especially if long continued, may be resorted to resolve, but not
to create, ambiguities. . . . Consideration of the consequences flowing from alternative constructions of doubtful provisions
constitutes an important interpretative device. . . . The purposes of many of the broadly phrased constitutional limitations
were the promotion of policies that do not lend themselves to definite and specific formulation. The courts have had to
define those policies and have often drawn on natural law and natural rights theories in doing so. The interpretation of
 constitutions tends to respond to changing conceptions of political and social values. The extent to which these extraneous
aids affect the judicial construction of constitutions cannot be formulated in precise rules, but their influence cannot be
ignored in describing the essentials of the process (Rottschaeffer on Constitutional Law, 1939 ed., p. 18-19).

There are times that when even the literal expression of legislation may be inconsistent with the general objectives of policy
behind it, and on the basis of equity or spirit of the statute the courts rationalize a restricted meaning of the latter. A
restricted interpretation is usually applied where the effect of literal interpretation will make for injustice and absurdity or, in
the words of one court, the language must be so unreasonable 'as to shock general common sense'. (Vol. 3, Sutherland on
Statutory Construction, 3rd ed., 150.).

A constitution is not intended to be a limitation on the development of a country nor an obstruction to its progress and
foreign relations (Moscow Fire Ins. Co. of Moscow, Russia vs. Bank of New York and Trust Co., 294 N. Y. S.648; 56 N.E. 2d.
745, 293 N.Y. 749).

Although the meaning or principles of a constitution remain fixed and unchanged from the time of its adoption, a
constitution must be construed as if intended to stand for a great length of time, and it is progressive and not static.
Accordingly, it should not receive too narrow or literal an interpretation but rather the meaning given it should be applied in
such manner as to meet new or changed conditions as they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed., 1368).

Effect should be given to the purpose indicated by a fair interpretation of the language used and that construction which
effectuates, rather than that which destroys a plain intent or purpose of a constitutional provision, is not only favored but
will be adopted (State ex rel. Randolph Country vs. Walden, 206 S.W. 2d 979).

It is quite generally held that in arriving at the intent and purpose the construction should be broad or liberal or equitable,
as the better method of ascertaining that intent, rather than technical (Great Southern Life Ins. Co. vs. City of Austin, 243
S.W. 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 section 1 and 5 of said Article XIII when they passed and approved the same. And if it were so as We
think it is, herein petitioner, the Roman Catholic Apostolic Administrator of Davao, Inc., could not be deprived of the right to acquire
by purchase or donation real properties for charitable, benevolent and educational purposes, nor of the right to register the same in
its name with the Register of Deeds of Davao, an indispensable requisite prescribed by the Land Registration Act for lands covered by
the Torrens system.

We leave as the last theme for discussion the much debated question above referred to as "the vested right saving clause" contained
in section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the personal opinion expressed on the matter by the
writer of the decision the most pointed darts of his severe criticism. We think, however, that this strong dissent should have been
spared, because as clearly indicated before, some members of this Court either did not agree with the theory of the writer or were
not ready to take a definite stand on that particular point, so that there being no majority opinion thereon there was no need of any
dissension therefrom. But as the criticism has been made the writer deems it necessary to say a few words of explanation.

The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro, is not in itself a vested or
existing property right that the Constitution protects from impairment. For a property right to be vested (or acquired) there must be
a transition from the potential or contingent to the actual, and the proprietary interest must have attached to a thing; it must have
become 'fixed and established'" (Balboa vs. Farrales, 51 Phil. 498). But the case at bar has to be considered as an exception to the
rule because among the rights granted by section 159 of the Corporation Law was the right to receive bequests or gifts of real
properties for charitable, benevolent and educational purposes. And this right to receive such bequests or gifts (which implies
donations in futuro), is not a mere potentiality that could be impaired without any specific provision in the Constitution to that
effect, especially when the impairment would disturbingly affect the propagation of the religious faith of the immense majority of
the Filipino people and the curtailment of the activities of their Church. That is why the writer gave us a basis of his contention what
Professor Aruego said in his book "The Framing of the Philippine Constitution" and the enlightening opinion of Mr. Justice Jose P.
Laurel, another Delegate to the Constitutional Convention, in his concurring opinion in the case of Goldcreek Mining Co. vs. Eulogio
Rodriguez et al., 66 Phil. 259. Anyway the majority of the Court did not deem necessary to pass upon said "vested right saving clause"
for the final determination of this case.

JUDGMENT
Wherefore, the resolution of the respondent Land Registration Commission of September 21, 1954, holding that in view of the
provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee (petitioner) is not qualified to acquire lands in
the Philippines in the absence of proof that at least 60 per centum of the capital, properties or assets of the Roman Catholic
Apostolic Administrator of Davao, Inc. is actually owned or controlled by Filipino citizens, and denying the registration of the deed of
sale in the absence of proof of compliance with such requisite, is hereby reversed. Consequently, the respondent Register of Deeds of
the City of Davao is ordered to register the deed of sale executed by Mateo L. Rodis in favor of the Roman Catholic Apostolic
Administrator of Davao, Inc., which is the subject of the present litigation. No pronouncement is made as to costs. It is so ordered.

Bautista Angelo and Endencia, JJ., concur.

Paras, C.J., and Bengzon, J., concur in the result.

G.R. No. L-6055 June 12, 1953

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
WILLIAM H. QUASHA, defendant-appellant.

Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for appellee.

REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with the crime of falsification
of a public and commercial document in that, having been entrusted with the preparation and registration of the article of
incorporation of the Pacific Airways Corporation, a domestic corporation organized for the purpose of engaging in business as a
common carrier, he caused it to appear in said article of incorporation that one Arsenio Baylon, a Filipino citizen, had subscribed to
and was the owner of 60.005 per cent of the subscribed capital stock of the corporation when in reality, as the accused well knew,
such was not the case, the truth being that the owner of the portion of the capital stock subscribed to by Baylon and the money paid
thereon were American citizen whose name did not appear in the article of incorporation, and that the purpose for making this false
statement was to circumvent the constitutional mandate that no corporation shall be authorize to operate as a public utility in the
Philippines unless 60 per cent of its capital stock is owned by Filipinos.

Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed to this Court.

The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered its articles of incorporation
with the Securities and Exchanged Commission. The article were prepared and the registration was effected by the accused, who was
in fact the organizer of the corporation. The article stated that the primary purpose of the corporation was to carry on the business
of a common carrier by air, land or water; that its capital stock was P1,000,000, represented by 9,000 preferred and 100,000 common
shares, each preferred share being of the par value of p100 and entitled to 1/3 vote and each common share, of the par value of P1
and entitled to one vote; that the amount capital stock actually subscribed was P200,000, and the names of the subscribers were
Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being a
Filipino and the other five all Americans; that Baylon's subscription was for 1,145 preferred shares, of the total value of P114,500,
and for 6,500 common shares, of the total par value of P6,500, while the aggregate subscriptions of the American subscribers were
for 200 preferred shares, of the total par value of P20,000, and 59,000 common shares, of the total par value of P59,000; and that
Baylon and the American subscribers had already paid 25 per cent of their respective subscriptions. Ostensibly the owner of, or
subscriber to, 60.005 per cent of the subscribed capital stock of the corporation, Baylon nevertheless did not have the controlling
vote because of the difference in voting power between the preferred shares and the common shares. Still, with the capital structure
as it was, the article of incorporation were accepted for registration and a certificate of incorporation was issued by the Securities
and Exchange Commission.

There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the corporation. But it is
admitted that the money paid on his subscription did not belong to him but to the Americans subscribers to the corporate stock. In
explanation, the accused testified, without contradiction, that in the process of organization Baylon was made a trustee for the
American incorporators, and that the reason for making Baylon such trustee was as follows:

Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred shares with a total value of
P1,135. Do you know how that came to be?

A. Yes.

The people who were desirous of forming the corporation, whose names are listed on page 7 of this certified copy came to my
house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one evening. There was considerable difficulty to get
them all together at one time because they were pilots. They had difficulty in deciding what their respective share holdings would be.
Onstott had invested a certain amount of money in airplane surplus property and they had obtained a considerable amount of
money on those planes and as I recall they were desirous of getting a corporation formed right away. And they wanted to have their
respective shares holdings resolved at a latter date. They stated that they could get together that they feel that they had no time to
settle their respective share holdings. We discussed the matter and finally it was decided that the best way to handle the things was
not to put the shares in the name of anyone of the interested parties and to have someone act as trustee for their respective shares
holdings. So we looked around for a trustee. And he said "There are a lot of people whom I trust." He said, "Is there someone around
whom we could get right away?" I said, "There is Arsenio. He was my boy during the liberation and he cared for me when i was sick
and i said i consider him my friend." I said. They all knew Arsenio. He is a very kind man and that was what was done. That is how it
came about.

Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the Revised Penal Code, which
read:

ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. The penalty of prision mayor and a
fine not to exceed 5,000 pesos shall be imposed upon any public officer, employee, or notary who, taking advantage of his
official position, shall falsify a document by committing any of the following acts:
 xxx xxx xxx

4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. The penalty of prision correccional in its
medium and maximum period and a fine of not more than 5,000 pesos shall be imposed upon:

xxx xxx xxx

1. Any private individual who shall commit any of the falsifications enumerated in the next preceding article in any public or
official document or letter of exchange or any other kind of commercial document.

Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code ( new edition, pp. 407-408),
observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in the narration of facts must be made with
the wrongful intent of injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the same author further
maintains that even if such wrongful intent is proven, still the untruthful statement will not constitute the crime of falsification if
there is no legal obligation on the part of the narrator to disclose the truth. Wrongful intent to injure a third person and obligation on
the part of the narrator to disclose the truth are thus essential to a conviction for a crime of falsification under the above article of
the Revised Penal Code.

Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing in the articles of incorporation
that Baylon was a mere trustee ( or dummy as the prosecution chooses to call him) of his American co-incorporators, thus giving the
impression that Baylon was the owner of the shares subscribed to by him which, as above stated, amount to 60.005 per cent of the
sub-scribed capital stock. This, in the opinion of the trial court, is a malicious perversion of the truth made with the wrongful intent
circumventing section 8, Article XIV of the Constitution, which provides that " no franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporation or other
entities organized under the law of the Philippines, sixty per centum of the capital of which is owned by citizens of the
Philippines . . . ." Plausible though it may appear at first glance, this opinion loses validity once it is noted that it is predicated on the
erroneous assumption that the constitutional provision just quoted was meant to prohibit the mere formation of a public utility
corporation without 60 per cent of its capital being owned by the Filipinos, a mistaken belief which has induced the lower court to
that the accused was under obligation to disclose the whole truth about the nationality of the subscribed capital stock of the
corporation by revealing that Baylon was a mere trustee or dummy of his American co-incorporators, and that in not making such
disclosure defendant's intention was to circumvent the Constitution to the detriment of the public interests. Contrary to the lower
court's assumption, the Constitution does not prohibit the mere formation of a public utility corporation without the required
formation of Filipino capital. What it does prohibit is the granting of a franchise or other form of authorization for the operation of a
public utility to a corporation already in existence but without the requisite proportion of Filipino capital. This is obvious from the
context, for the constitutional provision in question qualifies the terms " franchise", "certificate", or "any other form of
authorization" with the phrase "for the operation of a public utility," thereby making it clear that the franchise meant is not the
"primary franchise" that invest a body of men with corporate existence but the "secondary franchise" or the privilege to operate as a
public utility after the corporation has already come into being.

If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then how can the
accused be charged with having wrongfully intended to circumvent that fundamental law by not revealing in the articles of
incorporation that Baylon was a mere trustee of his American co-incorporation and that for that reason the subscribed capital stock
of the corporation was wholly American? For the mere formation of the corporation such revelation was not essential, and the
Corporation Law does not require it. Defendant was, therefore, under no obligation to make it. In the absence of such obligation and
of the allege wrongful intent, defendant cannot be legally convicted of the crime with which he is charged.

It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing in the name of
Baylon was an indispensable preparatory step to the subversion of the constitutional prohibition and the laws implementing the
policy expressed therein. This view is not correct. For a corporation to be entitled to operate a public utility it is not necessary that it
be organized with 60 per cent of its capital owned by Filipinos from the start. A corporation formed with capital that is entirely alien
may subsequently change the nationality of its capital through transfer of shares to Filipino citizens. conversely, a corporation
originally formed with Filipino capital may subsequently change the national status of said capital through transfer of shares to
foreigners. What need is there then for a corporation that intends to operate a public utility to have, at the time of its formation, 60
per cent of its capital owned by Filipinos alone? That condition may anytime be attained thru the necessary transfer of stocks. The
moment for determining whether a corporation is entitled to operate as a public utility is when it applies for a franchise, certificate,
or any other form of authorization for that purpose. And that can be done after the corporation has already come into being and not
while it is still being formed. And at that moment, the corporation must show that it has complied not only with the requirement of
the Constitution as to the nationality of its capital, but also with the requirements of the Civil Aviation Law if it is a common carrier by
air, the Revised Administrative Code if it is a common carrier by water, and the Public Service Law if it is a common carrier by land or
other kind of public service.

Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime" under article 59 of the
Revised Penal Code. It not being possible to suppose that defendant had intended to commit a crime for the simple reason that the
alleged constitutional prohibition which he is charged for having tried to circumvent does not exist, conviction under that article is
out of the question.

The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of the crime charged. The
majority of the court, however, are also of the opinion that, even supposing that the act imputed to the defendant constituted
falsification at the time it was perpetrated, still with the approval of the Party Amendment to the Constitution in March, 1947, which
placed Americans on the same footing as Filipino citizens with respect to the right to operate public utilities in the Philippines, thus
doing away with the prohibition in section 8, Article XIV of the Constitution in so far as American citizens are concerned, the said act
has ceased to be an offense within the meaning of the law, so that defendant can no longer be held criminally liable therefor.

In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha acquitted, with costs de
oficio.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Jugo, Bautista Angelo, and Labrador, JJ., concur.

G.R. No. L-2294 May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.

PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding premium,
obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise
contained in a building located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military
occupation, the building and insured merchandise were burned. In due time the respondent submitted to the petitioner its claim
under the policy. The salvage goods were sold at public auction and, after deducting their value, the total loss suffered by the
respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent
had ceased to be in force on the date the United States declared war against Germany, the respondent Corporation (though
organized under and by virtue of the laws of the Philippines) being controlled by the German subjects and the petitioner being a
company under American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in pursuance of the
order of the Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the sum
of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering from the
respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise were burned up after
the policy issued in 1941 in favor of the respondent corporation has ceased to be effective because of the outbreak of the war
between the United States and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent
corporation during the Japanese military occupation was under pressure. After trial, the Court of First Instance of Manila dismissed
the action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of
Manila was affirmed, with costs. The case is now before us on appeal by certiorari from the decision of the Court of Appeals.

The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy when the United
States declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country
or state by and under the laws of which it was created or organized. It rejected the theory that nationality of private corporation is
determine by the character or citizenship of its controlling stockholders.

There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, we have
to rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany.
The English and American cases relied upon by the Court of Appeals have lost their force in view of the latest decision of the
Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance
Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper
presented to the Second International Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the
following enlightening passages appear:

Since World War I, the determination of enemy nationality of corporations has been discussion in many countries,
belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely managed
under the influence of individuals or corporations, themselves considered as enemies. It was the English courts which first
the Daimler case applied this new concept of "piercing the corporate veil," which was adopted by the peace of Treaties of
1919 and the Mixed Arbitral established after the First World War.

The United States of America did not adopt the control test during the First World War. Courts refused to recognized the
concept whereby American-registered corporations could be considered as enemies and thus subject to domestic legislation
and administrative measures regarding enemy property.

World War II revived the problem again. It was known that German and other enemy interests were cloaked by domestic
corporation structure. It was not only by legal ownership of shares that a material influence could be exercised on the
management of the corporation but also by long term loans and other factual situations. For that reason, legislation on
enemy property enacted in various countries during World War II adopted by statutory provisions to the control test and
determined, to various degrees, the incidents of control. Court decisions were rendered on the basis of such newly enacted
statutory provisions in determining enemy character of domestic corporation.

The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as did other
legislations the applications of the control test and again, as in World War I, courts refused to apply this concept whereby
the enemy character of an American or neutral-registered corporation is determined by the enemy nationality of the
controlling stockholders.

Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the treatment of
foreign-owned property in the United States allowed to large degree the determination of enemy interest in domestic
 corporations and thus the application of the control test. Court decisions sanctioned such administrative practice enacted
under the First War Powers Act of 1941, and more recently, on December 8, 1947, the Supreme Court of the United States
definitely approved of the control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation
allegedly controlled by German interest, the Court: "The property of all foreign interest was placed within the reach of the
vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to reach enemy interest
which masqueraded under those innocent fronts. . . . The power of seizure and vesting was extended to all property of any
foreign country or national so that no innocent appearing device could become a Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision. However, we may
add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came
within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not only because it was
incorporated under the laws of an enemy country but because it was controlled by enemies.

The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy may be
insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a state of war is
prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading with the enemy; all acts
which will increase, or tend to increase, its income or resources; all acts of voluntary submission to it; or receiving its
protection; also all acts concerning the transmission of money or goods; and all contracts relating thereto are thereby
nullified. It further prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in service
with the enemy; this for the reason that the subjects of one country cannot be permitted to lend their assistance to protect
by insurance the commerce or property of belligerent, alien subjects, or to do anything detrimental too their country's
interest. The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one
country should destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it
should in such manner increase the resources of the enemy, or render it aid, and the commencement of war determines, for
like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful. All individuals therefore,
who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch,
Cyc. of Ins. Law, pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it is plain that
when the parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not
vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1,
1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods were burned
after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the
petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium
paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in question
became null and void upon the declaration of war between the United States and Germany on December 10, 1941, and its judgment
in favor of the respondent corporation was predicated on its conclusion that the policy did not cease to be in force. The Court of
Appeals necessarily assumed that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable
in view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by
the appellee was not unjust but the exercise of its lawful right to claim for and received the payment of the insurance policy," and
that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to payment from the appellant was, well
founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of
the respondent, merely obeyed the instruction of the Japanese Military Administration, as may be seen from the following: "In view
of the findings and conclusion of this office contained in its decision on Administrative Case dated February 9, 1943 copy of which
was sent to your office and the concurrence therein of the Financial Department of the Japanese Military Administration,
and following the instruction of said authority, you are hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc.
The payment of said claim, however, should be made by means of crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case. However, the
petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in
accordance with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the petitioner the sum of
P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that should be returned by the petitioner
for the unexpired term of the policy in question, beginning December 11, 1941. Without costs. So ordered.

Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo, JJ., concur.

G.R. No. L-14441 December 17, 1966

PEDRO R. PALTING, petitioner,

vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.

BARRERA, J.:

This is a petition for review of the order of August 29, 1958, later supplemented and amplified by another dated September 9, 1958,
of the Securities and Exchange Commission denying the opposition to, and instead, granting the registration, and licensing the sale in
the Philippines, of 5,000,000 shares of the capital stock of the respondent-appellee San Jose Petroleum, Inc. (hereafter referred to as
SAN JOSE PETROLEUM), a corporation organized and existing in the Republic of Panama.

On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and Exchange Commission a sworn registration
statement, for the registration and licensing for sale in the Philippines Voting Trust Certificates representing 2,000,000 shares of its
capital stock of a par value of $0.35 a share, at P1.00 per share. It was alleged that the entire proceeds of the sale of said securities
will be devoted or used exclusively to finance the operations of San Jose Oil Company, Inc. (a domestic mining corporation hereafter
to be referred to as SAN JOSE OIL) which has 14 petroleum exploration concessions covering an area of a little less than 1,000,000
hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and Agusan. It was the express
condition of the sale that every purchaser of the securities shall not receive a stock certificate, but a registered or bearer-voting-trust
certificate from the voting trustees named therein James L. Buckley and Austin G.E. Taylor, the first residing in Connecticut, U.S.A.,
and the second in New York City. While this application for registration was pending consideration by the Securities and Exchange
Commission, SAN JOSE PETROLEUM filed an amended Statement on June 20, 1958, for registration of the sale in the Philippines of its
shares of capital stock, which was increased from 2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to P0.70 per
share. At this time the par value of the shares has also been reduced from $.35 to $.01 per share. 1

Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with the Securities and
Exchange Commission an opposition to registration and licensing of the securities on the grounds that (1) the tie-up between the
issuer, SAN JOSE PETROLEUM, a Panamanian corporation and SAN JOSE OIL, a domestic corporation, violates the Constitution of the
Philippines, the Corporation Law and the Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the
Philippines; (3) the sale of the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers; and
(4) the issuer as an enterprise, as well as its business, is based upon unsound business principles. Answering the foregoing opposition
of Palting, et al., the registrant SAN JOSE PETROLEUM claimed that it was a "business enterprise" enjoying parity rights under the
Ordinance appended to the Constitution, which parity right, with respect to mineral resources in the Philippines, may be exercised,
pursuant to the Laurel-Langley Agreement, only through the medium of a corporation organized under the laws of the Philippines.
Thus, registrant which is allegedly qualified to exercise rights under the Parity Amendment, had to do so through the medium of a
domestic corporation, which is the SAN JOSE OIL. It refused the contention that the Corporation Law was being violated, by alleging
that Section 13 thereof applies only to foreign corporations doing business in the Philippines, and registrant was not doing business
here. The mere fact that it was a holding company of SAN JOSE OIL and that registrant undertook the financing of and giving
technical assistance to said corporation did not constitute transaction of business in the Philippines. Registrant also denied that the
offering for sale in the Philippines of its shares of capital stock was fraudulent or would work or tend to work fraud on the investors.
On August 29, 1958, and on September 9, 1958 the Securities and Exchange Commissioner issued the orders object of the present
appeal.

The issues raised by the parties in this appeal are as follows:

1. Whether or not petitioner Pedro R. Palting, as a "prospective investor" in respondent's securities, has personality to file
the present petition for review of the order of the Securities and Exchange Commission;

2. Whether or not the issue raised herein is already moot and academic;

3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL
COMPANY, INC., a domestic mining corporation, is violative of the Constitution, the Laurel-Langley Agreement, the
Petroleum Act of 1949, and the Corporation Law; and

4. Whether or not the sale of respondent's securities is fraudulent, or would work or tend to work fraud to purchasers of
such securities in the Philippines.

1. In answer to the notice and order of the Securities and Exchange Commissioner, published in 2 newspapers of general circulation
in the Philippines, for "any person who is opposed" to the petition for registration and licensing of respondent's securities, to file his
opposition in 7 days, herein petitioner so filed an opposition. And, the Commissioner, having denied his opposition and instead,
directed the registration of the securities to be offered for sale, oppositor Palting instituted the present proceeding for review of said
order.

Respondent raises the question of the personality of petitioner to bring this appeal, contending that as a mere "prospective
investor", he is not an "Aggrieved" or "interested" person who may properly maintain the suit. Citing a 1931 ruling of Utah State
Supreme Court2 it is claimed that the phrase "party aggrieved" used in the Securities Act 3 and the Rules of Court4 as having the right
to appeal should refer only to issuers, dealers and salesmen of securities.

It is true that in the cited case, it was ruled that the phrase "person aggrieved" is that party "aggrieved by the judgment or decree
where it operates on his rights of property or bears directly upon his interest", that the word "aggrieved" refers to "a substantial
grievance, a denial of some personal property right or the imposition upon a party of a burden or obligation." But a careful reading of
the case would show that the appeal therein was dismissed because the court held that an order of registration was not final and
therefore not appealable. The foregoing pronouncement relied upon by herein respondent was made in construing the provision
regarding an order of revocation which the court held was the one appealable. And since the law provides that in revoking the
registration of any security, only the issuer and every registered dealer of the security are notified, excluding any person or group of
persons having no such interest in the securities, said court concluded that the phrase "interested person" refers only to issuers,
dealers or salesmen of securities.

We cannot consider the foregoing ruling by the Utah State Court as controlling on the issue in this case. Our Securities Act in Section
7(c) thereof, requires the publication and notice of the registration statement. Pursuant thereto, the Securities and Exchange
Commissioner caused the publication of an order in part reading as follows:

. . . Any person who is opposed with this petition must file his written opposition with this Commission within said period (2
weeks). . . .

In other words, as construed by the administrative office entrusted with the enforcement of the Securities Act, any person (who may
not be "aggrieved" or "interested" within the legal acceptation of the word) is allowed or permitted to file an opposition to the
registration of securities for sale in the Philippines. And this is in consonance with the generally accepted principle that Blue Sky Laws
are enacted to protect investors and prospective purchasers and to prevent fraud and preclude the sale of securities which are in fact
worthless or worth substantially less than the asking price. It is for this purpose that herein petitioner duly filed his opposition giving
grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply to the opposition. Subsequently both the petition and the
opposition were set for hearing during which the petitioner was allowed to actively participate and did so by cross-examining the
respondent's witnesses and filing his memorandum in support of his opposition. He therefore to all intents and purposes became a
party to the proceedings. And under the New Rules of Court, 5 such a party can appeal from a final order, ruling or decision of the
Securities and Exchange Commission. This new Rule eliminating the word "aggrieved" appearing in the old Rule, being procedural in
nature,6 and in view of the express provision of Rule 144 that the new rules made effective on January 1, 1964 shall govern not only
cases brought after they took effect but all further proceedings in cases then pending, except to the extent that in the opinion of the
Court their application would not be feasible or would work injustice, in which event the former procedure shall apply, we hold that
the present appeal is properly within the appellate jurisdiction of this Court.

The order allowing the registration and sale of respondent's securities is clearly a final order that is appealable. The mere fact that
such authority may be later suspended or revoked, depending on future developments, does not give it the character of an
interlocutory or provisional ruling. And the fact that seven days after the publication of the order, the securities are deemed
registered (Sec. 7, Com. Act 83, as amended), points to the finality of the order. Rights and obligations necessarily arise therefrom if
not reviewed on appeal.

Our position on this procedural matter that the order is appealable and the appeal taken here is proper is strengthened by the
intervention of the Solicitor General, under Section 23 of Rule 3 of the Rules of Court, as the constitutional issues herein presented
affect the validity of Section 13 of the Corporation Law, which, according to the respondent, conflicts with the Parity Ordinance and
the Laurel-Langley Agreement recognizing, it is claimed, its right to exploit our petroleum resources notwithstanding said provisions
of the Corporation Law.

2. Respondent likewise contends that since the order of Registration/Licensing dated September 9, 1958 took effect 30 days from
September 3, 1958, and since no stay order has been issued by the Supreme Court, respondent's shares became registered and
licensed under the law as of October 3, 1958. Consequently, it is asserted, the present appeal has become academic. Frankly we are
unable to follow respondent's argumentation. First it claims that the order of August 29 and that of September 9, 1958 are not final
orders and therefor are not appealable. Then when these orders, according to its theory became final and were implemented, it
argues that the orders can no longer be appealed as the question of registration and licensing became moot and academic.

But the fact is that because of the authority to sell, the securities are, in all probabilities, still being traded in the open market.
Consequently the issue is much alive as to whether respondent's securities should continue to be the subject of sale. The purpose of
the inquiry on this matter is not fully served just because the securities had passed out of the hands of the issuer and its dealers.
Obviously, so long as the securities are outstanding and are placed in the channels of trade and commerce, members of the investing
public are entitled to have the question of the worth or legality of the securities resolved one way or another.

But more fundamental than this consideration, we agree with the late Senator Claro M. Recto, who appeared as amicus curiae in this
case, that while apparently the immediate issue in this appeal is the right of respondent SAN JOSE PETROLEUM to dispose of and sell
its securities to the Filipino public, the real and ultimate controversy here would actually call for the construction of the
constitutional provisions governing the disposition, utilization, exploitation and development of our natural resources. And certainly
this is neither moot nor academic.

3. We now come to the meat of the controversy the "tie-up" between SAN JOSE OIL on the one hand, and the respondent SAN
JOSE PETROLEUM and its associates, on the other. The relationship of these corporations involved or affected in this case is admitted
and established through the papers and documents which are parts of the records: SAN JOSE OIL, is a domestic mining corporation,
90% of the outstanding capital stock of which is owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation,
the majority interest of which is owned by OIL INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation in
turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A., both organized and
existing under the laws of Venezuela. As of September 30, 1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM found in
49 American states and U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL
COMPANY was said to have 3,077,916 shares held by 12,373 stockholders scattered in 49 American state. In the two lists of
stockholders, there is no indication of the citizenship of these stockholders, 7 or of the total number of authorized stocks of each
corporation, for the purpose of determining the corresponding percentage of these listed stockholders in relation to the respective
capital stock of said corporation.

Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the relationship between herein respondent SAN JOSE
PETROLEUM and its subsidiary, SAN JOSE OIL, violates the Petroleum Law of 1949, the Philippine Constitution, and Section 13 of the
Corporation Law, which inhibits a mining corporation from acquiring an interest in another mining corporation. It is respondent's
theory, on the other hand, that far from violating the Constitution; such relationship between the two corporations is in accordance
with the Laurel-Langley Agreement which implemented the Ordinance Appended to the Constitution, and that Section 13 of the
Corporation Law is not applicable because respondent is not licensed to do business, as it is not doing business, in the Philippines.

Article XIII, Section 1 of the Philippine Constitution provides:

SEC. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, and other natural resources of the Philippines belong to the State, and their disposition,
exploitation, development, or utilization shall be limited to citizens of the Philippines, or to corporations or associations at
least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease or
concession at the time of the inauguration of this Government established under this Constitution. . . . (Emphasis supplied)

In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit our natural resources) was extended to citizens
of the United States, thus:

Notwithstanding the provisions of section one, Article Thirteen, and section eight, Article Fourteen, of the foregoing
Constitution, during the effectivity of the Executive Agreement entered into by the President of the Philippines with the
President of the United States on the fourth of July, nineteen hundred and forty-six, pursuant to the provisions of
Commonwealth Act Numbered Seven hundred and thirty-three, but in no case to extend beyond the third of July, nineteen
hundred and seventy-four, the disposition, exploitation, development, and utilization of all agricultural, timber, and mineral
lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and
other natural resources of the Philippines, and the operation of public utilities shall, if open to any person, be open to
citizens of the United States, and to all forms of business enterprises owned or controlled, directly or indirectly, by citizens of
the United States in the same manner as to, and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the Philippines (Emphasis supplied.)

In the 1954 Revised Trade Agreement concluded between the United States and the Philippines, also known as the Laurel-Langley
Agreement, embodied in Republic Act 1355, the following provisions appear:

ARTICLE VI
 1. The disposition, exploitation, development and utilization of all agricultural, timber, and mineral lands of the public
domain, waters, minerals, coal, petroleum and other mineral oils, all forces and sources of potential energy, and other
natural resources of either Party, and the operation of public utilities, shall, if open to any person, be open to citizens of the
other Party and to all forms of business enterprise owned or controlled, directly or indirectly, by citizens of such other Party
in the same manner as to and under the same conditions imposed upon citizens or corporations or associations owned or
controlled by citizens of the Party granting the right.

2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the United States, with respect to
natural resources in the public domain in the Philippines, only through the medium of a corporation organized under the
laws of the Philippines and at least 60% of the capital stock of which is owned or controlled by citizens of the United
States. . . .

3. The United States of America reserves the rights of the several States of the United States to limit the extent to which
citizens or corporations or associations owned or controlled by citizens of the Philippines may engage in the activities
specified in this Article. The Republic of the Philippines reserves the power to deny any of the rights specified in this Article to
citizens of the United States who are citizens of States, or to corporations or associations at least 60% of whose capital stock
or capital is owned or controlled by citizens of States, which deny like rights to citizens of the Philippines, or to corporations
or associations which are owned or controlled by citizens of the Philippines. . . . (Emphasis supplied.)

Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was granted, by Article XIII of the
Constitution, to Filipino citizens or to corporations or associations 60% of the capital of which is owned by such citizens. With the
Parity Amendment to the Constitution, the same right was extended to citizens of the United States and business enterprises owned
or controlled directly or indirectly, by citizens of the United States.

There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned provisions of the Constitution.
The right was granted to 2 types of persons: natural persons (Filipino or American citizens) and juridical persons (corporations 60% of
which capital is owned by Filipinos and business enterprises owned or controlled directly or indirectly, by citizens of the United
States). In American law, "citizen" has been defined as "one who, under the constitution and laws of the United States, has a right to
vote for representatives in congress and other public officers, and who is qualified to fill offices in the gift of the people. (1 Bouvier's
Law Dictionary, p. 490.) A citizen is

One of the sovereign people. A constituent member of the sovereignty, synonymous with the people." (Scott v. Sandford, 19
Ho. [U.S.] 404, 15 L. Ed. 691.)

A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See U.S. v. Cruikshank 92 U.S. 542, 23 L. Ed.
588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed. 627.)

These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled to parity rights in the
Philippines? The answer must be in the negative, for the following reasons:

Firstly It is not owned or controlled directly by citizens of the United States, because it is owned and controlled by a corporation,
the OIL INVESTMENTS, another foreign (Panamanian) corporation.

Secondly Neither can it be said that it is indirectly owned and controlled by American citizens through the OIL INVESTMENTS, for
this latter corporation is in turn owned and controlled, not by citizens of the United States, but still by two foreign (Venezuelan)
corporations, the PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM.

Thirdly Although it is claimed that these two last corporations are owned and controlled respectively by 12,373 and 9,979
stockholders residing in the different American states, there is no showing in the certification furnished by respondent that the
stockholders of PANCOASTAL or those of them holding the controlling stock, are citizens of the United States.

Fourthly Granting that these individual stockholders are American citizens, it is yet necessary to establish that the different states
of which they are citizens, allow Filipino citizens or corporations or associations owned or controlled by Filipino citizens, to engage in
the exploitation, etc. of the natural resources of these states (see paragraph 3, Article VI of the Laurel-Langley Agreement, supra).
Respondent has presented no proof to this effect.
Fifthly But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied, nevertheless to hold
that the set-up disclosed in this case, with a long chain of intervening foreign corporations, comes within the purview of the Parity
Amendment regarding business enterprises indirectly owned or controlled by citizens of the United States, is to unduly stretch and
strain the language and intent of the law. For, to what extent must the word "indirectly" be carried? Must we trace the ownership or
control of these various corporations ad infinitum for the purpose of determining whether the American ownership-control-
requirement is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which are allegedly
owned or controlled directly by citizens of the United States, are traded in the stock exchange in New York, and you have a situation
where it becomes a practical impossibility to determine at any given time, the citizenship of the controlling stock required by the law.
In the circumstances, we have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a business
enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley Agreement and the
Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.

What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is owned by SAN JOSE PETROLEUM? This is a query
which we need not resolve in this case as SAN JOSE OIL is not a party and it is not necessary to do so to dispose of the present
controversy. But it is a matter that probably the Solicitor General would want to look into.

There is another issue which has been discussed extensively by the parties. This is whether or not an American mining corporation
may lawfully "be in anywise interested in any other corporation (domestic or foreign) organized for the purpose of engaging in
agriculture or in mining," in the Philippines or whether an American citizen owning stock in more than one corporation organized for
the purpose of engaging in agriculture or in mining, may own more than 15% of the capital stock then outstanding and entitled to
vote, of each of such corporations, in view of the express prohibition contained in Section 13 of the Philippine Corporation Law. The
petitioner in this case contends that the provisions of the Corporation Law must be applied to American citizens and business
enterprise otherwise entitled to exercise the parity privileges, because both the Laurel-Langley Agreement (Art. VI, par. 1) and the
Petroleum Act of 1948 (Art. 31), specifically provide that the enjoyment by them of the same rights and obligations granted under
the provisions of both laws shall be "in the same manner as to, and under the same conditions imposed upon, citizens of the
Philippines or corporations or associations owned or controlled by citizens of the Philippines." The petitioner further contends that,
as the enjoyment of the privilege of exploiting mineral resources in the Philippines by Filipino citizens or corporations owned or
controlled by citizens of the Philippines (which corporation must necessarily be organized under the Corporation Law), is made
subject to the limitations provided in Section 13 of the Corporation Law, so necessarily the exercise of the parity rights by citizens of
the United States or business enterprise owned or controlled, directly or indirectly, by citizens of the United States, must equally be
subject to the same limitations contained in the aforesaid Section 13 of the Corporation Law.

In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass upon this legal question, especially
taking into account the statement of the respondent (SAN JOSE PETROLEUM) that it is essentially a holding company, and as found by
the Securities and Exchange Commissioner, its principal activity is limited to the financing and giving technical assistance to SAN JOSE
OIL.

4. Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed registration for sale in the Philippines, was incorporated
under the laws of Panama in April, 1956 with an authorized capital stock of $500,000.00, American currency, divided into 50,000,000
shares at par value of $0.01 per share. By virtue of a 3-party Agreement of June 14, 1956, respondent was supposed to have received
from OIL INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at par value of $0.01 per share), plus a note for
$250,000.00 due in 6 months, for which respondent issued in favor of OIL INVESTMENTS 16,000,000 shares of its capital stock, at
$0.01 per share or with a value of $160,000.00, plus a note for $230,297.97 maturing in 2 years at 6% per annum interest, 9 and the
assumption of payment of the unpaid price of 7,500,000 (of the 8,000,000 shares of SAN JOSE OIL).

On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from $500,000.00 to $17,500,000.00 by increasing the
par value of the same 50,000,000 shares, from $0.01 to $0.35. Without any additional consideration, the 16,000,000 shares of $0.01
previously issued to OIL INVESTMENTS with a total value of $160,000.00 were changed with 16,000,000 shares of the recapitalized
stock at $0.35 per share, or valued at $5,600,000.00. And, to make it appear that cash was received for these re-issued 16,000,000
shares, the board of directors of respondent corporation placed a valuation of $5,900,000.00 on the 8,000,000 shares of SAN JOSE
OIL (still having par value of $0.10 per share) which were received from OIL INVESTMENTS as part-consideration for the 16,000,000
shares at $0.01 per share.

In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00, supposedly the value of the 8,000,000 shares of
SAN JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the alleged difference between the "value" of the said
shares and the subscription price thereof which is $800,000.00 (at $0.10 per share). From this $800,000.00, the subscription price of
the SAN JOSE OIL shares, the amount of $319,702.03 was deducted, as allegedly unpaid subscription price, thereby giving a
difference of $480,297.97, which was placed as the amount allegedly paid in on the subscription price of the 8,000,000 SAN JOSE OIL
shares. Then, by adding thereto the note receivable from OIL INVESTMENTS, for $250,000.00 (part-consideration for the 16,000,000
SAN JOSE PETROLEUM shares), and the sum of $6,516.21, as deferred expenses, SAN JOSE PETROLEUM appeared to have assets in
the sum of $736,814.18.

These figures are highly questionable. Take the item $5,900,000.00 the valuation placed on the 8,000,000 shares of SAN JOSE OIL.
There appears no basis for such valuation other than belief by the board of directors of respondent that "should San Jose Oil
Company be granted the bulk of the concessions applied for upon reasonable terms, that it would have a reasonable value of
approximately $10,000,000." 10 Then, of this amount, the subscription price of $800,000.00 was deducted and called it "difference
between the (above) valuation and the subscription price for the 8,000,000 shares." Of this $800,000.00 subscription price, they
deducted the sum of $480,297.97 and the difference was placed as the unpaid portion of the subscription price. In other words, it
was made to appear that they paid in $480,297.97 for the 8,000,000 shares of SAN JOSE OIL. This amount ($480,297.97) was
supposedly that $250,000.00 paid by OIL INVESMENTS for 7,500,000 shares of SAN JOSE OIL, embodied in the June 14 Agreement,
and a sum of $230,297.97 the amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet, there is still an item
among respondent's liabilities, for $230,297.97 appearing as note payable to Oil Investments, maturing in two (2) years at six percent
(6%) per annum. 11 As far as it appears from the records, for the 16,000,000 shares at $0.35 per share issued to OIL INVESTMENTS,
respondent SAN JOSE PETROLEUM received from OIL INVESTMENTS only the note for $250,000.00 plus the 8,000,000 shares of SAN
JOSE OIL, with par value of $0.10 per share or a total of $1,050,000.00 the only assets of the corporation. In other words,
respondent actually lost $4,550,000.00, which was received by OIL INVESTMENTS.

But this is not all. Some of the provisions of the Articles of Incorporation of respondent SAN JOSE PETROLEUM are noteworthy; viz:

(1) the directors of the Company need not be shareholders;

(2) that in the meetings of the board of directors, any director may be represented and may vote through a proxy who also
need not be a director or stockholder; and

(3) that no contract or transaction between the corporation and any other association or partnership will be affected, except
in case of fraud, by the fact that any of the directors or officers of the corporation is interested in, or is a director or officer
of, such other association or partnership, and that no such contract or transaction of the corporation with any other person
or persons, firm, association or partnership shall be affected by the fact that any director or officer of the corporation is a
party to or has an interest in, such contract or transaction, or has in anyway connected with such other person or persons,
firm, association or partnership; and finally, that all and any of the persons who may become director or officer of the
corporation shall be relieved from all responsibility for which they may otherwise be liable by reason of any contract
entered into with the corporation, whether it be for his benefit or for the benefit of any other person, firm, association or
partnership in which he may be interested.

These provisions are in direct opposition to our corporation law and corporate practices in this country. These provisions alone would
outlaw any corporation locally organized or doing business in this jurisdiction. Consider the unique and unusual provision that no
contract or transaction between the company and any other association or corporation shall be affected except in case of fraud, by
the fact that any of the directors or officers of the company may be interested in or are directors or officers of such other association
or corporation; and that none of such contracts or transactions of this company with any person or persons, firms, associations or
corporations shall be affected by the fact that any director or officer of this company is a party to or has an interest in such contract
or transaction or has any connection with such person or persons, firms associations or corporations; and that any and all persons
who may become directors or officers of this company are hereby relieved of all responsibility which they would otherwise incur by
reason of any contract entered into which this company either for their own benefit, or for the benefit of any person, firm,
association or corporation in which they may be interested.

The impact of these provisions upon the traditional judiciary relationship between the directors and the stockholders of a
corporation is too obvious to escape notice by those who are called upon to protect the interest of investors. The directors and
officers of the company can do anything, short of actual fraud, with the affairs of the corporation even to benefit themselves directly
or other persons or entities in which they are interested, and with immunity because of the advance condonation or relief from
responsibility by reason of such acts. This and the other provision which authorizes the election of non-stockholders as directors,
completely disassociate the stockholders from the government and management of the business in which they have invested.

To cap it all on April 17, 1957, admittedly to assure continuity of the management and stability of SAN JOSE PETROLEUM, OIL
INVESTMENTS, as holder of the only subscribed stock of the former corporation and acting "on behalf of all future holders of voting
trust certificates," entered into a voting trust agreement 12 with James L. Buckley and Austin E. Taylor, whereby said Trustees were
given authority to vote the shares represented by the outstanding trust certificates (including those that may henceforth be issued)
in the following manner:

(a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to vote for the election of directors
designated by the Trustees in their own discretion, having in mind the best interests of the holders of the voting trust
certificates, it being understood that any and all of the Trustees shall be eligible for election as directors;

(b) On any proposition for removal of a director, the Trustees shall designate a suitable proxy or proxies to vote for or against
such proposition as the Trustees in their own discretion may determine, having in mind the best interest of the holders of the
voting trust certificates;

(c) With respect to all other matters arising at any meeting of stockholders, the Trustees will instruct such proxy or proxies
attending such meetings to vote the shares of stock held by the Trustees in accordance with the written instructions of each
holder of voting trust certificates. (Emphasis supplied.)

It was also therein provided that the said Agreement shall be binding upon the parties thereto, their successors, and upon all holders
of voting trust certificates.

And these are the voting trust certificates that are offered to investors as authorized by Security and Exchange Commissioner. It can
not be doubted that the sale of respondent's securities would, to say the least, work or tend to work fraud to Philippine investors.

FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied and the orders of the
Securities and Exchange Commissioner, allowing the registration of Respondent's securities and licensing their sale in the Philippines
are hereby set aside. The case is remanded to the Securities and Exchange Commission for appropriate action in consonance with
this decision. With costs. Let a copy of this decision be furnished the Solicitor General for whatever action he may deem advisable to
take in the premises. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

Castro, J., took no part.

G.R. No. 195580 April 21, 2014

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,
INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
 DECISION

VELASCO, JR., J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining Development Corp. (Narra),
Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which seeks to reverse the October 1, 2010
Decision1 and the February 15, 2011 Resolution of the Court of Appeals (CA).

The Facts

Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and
existing under Philippine laws, took interest in mining and exploring certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it learned that the areas where it wanted to undertake exploration and
mining activities where already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro
and McArthur.

Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA and
Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of Environment and
Natural Resources (DENR).

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling, Municipality of
Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan.
The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006, assigned to petitioner
McArthur.2

Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining & Development
Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992.
Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and San
Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned its rights and interests over the
MPSA application in favor of Narra.

Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over
3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan. SMMI subsequently conveyed,
transferred and assigned its rights and interest over the said MPSA application to Tesoro.

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the denial of
petitioners applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.

In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by
MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of
petitioners, it was the driving force behind petitioners filing of the MPSAs over the areas covered by applications since it knows that
it can only participate in mining activities through corporations which are deemed Filipino citizens. Redmont argued that given that
petitioners capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities through
MPSAs, which are reserved only for Filipino citizens.

In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA) 7942 or the
Philippine Mining Act of 1995 which provided:

Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in singular or plural, shall mean:

xxxx

(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or
cooperative organized or authorized for the purpose of engaging in mining, with technical and financial capability to undertake
mineral resources development and duly registered in accordance with law at least sixty per cent (60%) of the capital of which is
owned by citizens of the Philippines: Provided, That a legally organized foreign-owned corporation shall be deemed a qualified
person for purposes of granting an exploration permit, financial or technical assistance agreement or mineral processing permit.

Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial or Technical
Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which
are granted to foreign-owned corporations. Nevertheless, they claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of the Philippines. They
asserted that though MBMI owns 40% of the shares of PLMC (which owns 5,997 shares of Narra), 3 40% of the shares of MMC (which
owns 5,997 shares of McArthur)4and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro), 5 the shares of MBMI
will not make it the owner of at least 60% of the capital stock of each of petitioners. They added that the best tool used in
determining the nationality of a corporation is the "control test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of
1991. They also claimed that the POA of DENR did not have jurisdiction over the issues in Redmonts petition since they are not
enumerated in Sec. 77 of RA 7942. Finally, they stressed that Redmont has no personality to sue them because it has no pending
claim or application over the areas applied for by petitioners.

On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held:

[I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On the other hand, [Redmont]
having filed its own applications for an EPA over the areas earlier covered by the MPSA application of respondents may be considered
if and when they are qualified under the law. The violation of the requirements for the issuance and/or grant of permits over mining
areas is clearly established thus, there is reason to believe that the cancellation and/or revocation of permits already issued under
the premises is in order and open the areas covered to other qualified applicants.

xxxx

WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and Development, Inc., and Narra
Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as Foreign Corporations. Their Mineral Production
Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND VOID. 6

The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian company and
declared their MPSAs null and void. In the same Resolution, it gave due course to Redmonts EPAs. Thereafter, on February 7, 2008,
the POA issued an Order7 denying the Motion for Reconsideration filed by petitioners.

Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal 8 and Memorandum of
Appeal9 with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of Appeal 10 and Memorandum of Appeal.11

In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also, through a letter, they
informed the MAB that they had their individual MPSA applications converted to FTAAs. McArthurs FTAA was denominated as AFTA-
IVB-0912 on May 2007, while Tesoros MPSA application was converted to AFTA-IVB-08 13 on May 28, 2007, and Narras FTAA was
converted to AFTA-IVB-0714 on March 30, 2006.

Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint 15 with the Securities and Exchange
Commission (SEC), seeking the revocation of the certificates for registration of petitioners on the ground that they are foreign-owned
or controlled corporations engaged in mining in violation of Philippine laws. Thereafter, Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend Proceeding before the MAB praying for the suspension of the proceedings on the appeals filed
by McArthur, Tesoro and Narra.

Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch 92 (RTC) a Complaint 16 for
injunction with application for issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil
Case No. 08-63379. Redmont prayed for the deferral of the MAB proceedings pending the resolution of the Complaint before the
SEC.

But before the RTC can resolve Redmonts Complaint and applications for injunctive reliefs, the MAB issued an Order on September
10, 2008, finding the appeal meritorious. It held:

WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS ASIDE the Resolution dated 14
December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and 2007-03, and
its Order dated 07 February 2008 denying the Motions for Reconsideration of the Appellants. The Petition filed by Redmont
Consolidated Mines Corporation on 02 January 2007 is hereby ordered DISMISSED. 17

Belatedly, on September 16, 2008, the RTC issued an Order 18 granting Redmonts application for a TRO and setting the case for
hearing the prayer for the issuance of a writ of preliminary injunction on September 19, 2008.

Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration 19 of the September 10, 2008 Order of the MAB.
Subsequently, it filed a Supplemental Motion for Reconsideration 20 on September 29, 2008.

Before the MAB could resolve Redmonts Motion for Reconsideration and Supplemental Motion for Reconsideration, Redmont filed
before the RTC a Supplemental Complaint21 in Civil Case No. 08-63379.

On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary injunction enjoining the MAB from
finally disposing of the appeals of petitioners and from resolving Redmonts Motion for Reconsideration and Supplement Motion for
Reconsideration of the MABs September 10, 2008 Resolution.

On July 1, 2009, however, the MAB issued a second Order denying Redmonts Motion for Reconsideration and Supplemental Motion
for Reconsideration and resolving the appeals filed by petitioners.

Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. On October 1, 2010, the CA
rendered a Decision, the dispositive of which reads:

WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008 and July 1, 2009 of the Mining
Adjudication Board are reversed and set aside. The findings of the Panel of Arbitrators of the Department of Environment and
Natural Resources that respondents McArthur, Tesoro and Narra are foreign corporations is upheld and, therefore, the rejection of
their applications for Mineral Product Sharing Agreement should be recommended to the Secretary of the DENR.

With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical Assistance Agreement (FTAA)
or conversion of their MPSA applications to FTAA, the matter for its rejection or approval is left for determination by the Secretary of
the DENR and the President of the Republic of the Philippines.

SO ORDERED.23

In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by petitioners.

After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when it realized that
petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians. Pursuant to the first sentence of
paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the exploitation of natural resources, the CA used the "grandfather
rule" to determine the nationality of petitioners. It provided:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are
registered in the name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or
capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be recorded as belonging
to aliens.24 (emphasis supplied)

In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding common
shareholders. Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of other majority shareholders of petitioners through joint venture agreements.
The CA found that through a "web of corporate layering, it is clear that one common controlling investor in all mining corporations
involved x x x is MBMI."25 Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in partnership with, or privies-in-
interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA applications suspicious in nature and,
as a consequence, it recommended the rejection of petitioners MPSA applications by the Secretary of the DENR.

With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the POA has jurisdiction over them and
that it also has the power to determine the of nationality of petitioners as a prerequisite of the Constitution prior the conferring of
rights to "co-production, joint venture or production-sharing agreements" of the state to mining rights. However, it also stated that
the POAs jurisdiction is limited only to the resolution of the dispute and not on the approval or rejection of the MPSAs. It stipulated
that only the Secretary of the DENR is vested with the power to approve or reject applications for MPSA.

Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which considered petitioners McArthur, Tesoro
and Narra as foreign corporations. Nevertheless, the CA determined that the POAs declaration that the MPSAs of McArthur, Tesoro
and Narra are void is highly improper.

While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a petition dated May 7, 2010
seeking the cancellation of petitioners FTAAs. The OP rendered a Decision 26 on April 6, 2011, wherein it canceled and revoked
petitioners FTAAs for violating and circumventing the "Constitution x x x[,] the Small Scale Mining Law and Environmental
Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584." 27 The OP, in affirming the cancellation
of the issued FTAAs, agreed with Redmont stating that petitioners committed violations against the abovementioned laws and failed
to submit evidence to negate them. The Decision further quoted the December 14, 2007 Order of the POA focusing on the alleged
misrepresentation and claims made by petitioners of being domestic or Filipino corporations and the admitted continued mining
operation of PMDC using their locally secured Small Scale Mining Permit inside the area earlier applied for an MPSA application
which was eventually transferred to Narra. It also agreed with the POAs estimation that the filing of the FTAA applications by
petitioners is a clear admission that they are "not capable of conducting a large scale mining operation and that they need the
financial and technical assistance of a foreign entity in their operation, that is why they sought the participation of MBMI Resources,
Inc."28 The Decision further quoted:

The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining. The filing of the FTAA application conversion which is allowed
foreign corporation of the earlier MPSA is an admission that indeed the respondent is not Filipino but rather of foreign nationality
who is disqualified under the laws. Corporate documents of MBMI Resources, Inc. furnished its stockholders in their head office in
Canada suggest that they are conducting operation only through their local counterparts. 29

The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution 30 dated July 6, 2011. Petitioners then
filed a Petition for Review on Certiorari of the OPs Decision and Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the
CA Decision dated February 29, 2012, the CA affirmed the Decision and Resolution of the OP. Thereafter, petitioners appealed the
same CA decision to this Court which is now pending with a different division.

Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners put forth the following errors of the
CA:

I.

The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the subject matter of the
controversy, the MPSA Applications, have already been converted into FTAA applications and that the same have already
been granted.

II.

The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering that the Panel of Arbitrators
has no jurisdiction to determine the nationality of Narra, Tesoro and McArthur.

III.

The Court of Appeals erred when it did not dismiss the case on account of Redmonts willful forum shopping.

IV.
 The Court of Appeals ruling that Narra, Tesoro and McArthur are foreign corporations based on the "Grandfather Rule" is
contrary to law, particularly the express mandate of the Foreign Investments Act of 1991, as amended, and the FIA Rules.

V.

The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.

VI.

The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA Applications were of
"suspicious nature" as the same is based on mere conjectures and surmises without any shred of evidence to show the
same.31

We find the petition to be without merit.

This case not moot and academic

The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit.

Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable controversy by virtue of supervening
events, so that a declaration thereon would be of no practical use or value." 32 Thus, the courts "generally decline jurisdiction over the
case or dismiss it on the ground of mootness."33

The "mootness" principle, however, does accept certain exceptions and the mere raising of an issue of "mootness" will not deter the
courts from trying a case when there is a valid reason to do so. In David v. Macapagal-Arroyo (David), the Court provided four
instances where courts can decide an otherwise moot case, thus:

1.) There is a grave violation of the Constitution;

2.) The exceptional character of the situation and paramount public interest is involved;

3.) When constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and the
public; and

4.) The case is capable of repetition yet evading review. 34

All of the exceptions stated above are present in the instant case. We of this Court note that a grave violation of the Constitution,
specifically Section 2 of Article XII, is being committed by a foreign corporation right under our countrys nose through a myriad of
corporate layering under different, allegedly, Filipino corporations. The intricate corporate layering utilized by the Canadian company,
MBMI, is of exceptional character and involves paramount public interest since it undeniably affects the exploitation of our Countrys
natural resources. The corresponding actions of petitioners during the lifetime and existence of the instant case raise questions as
what principle is to be applied to cases with similar issues. No definite ruling on such principle has been pronounced by the Court;
hence, the disposition of the issues or errors in the instant case will serve as a guide "to the bench, the bar and the public." 35 Finally,
the instant case is capable of repetition yet evading review, since the Canadian company, MBMI, can keep on utilizing dummy Filipino
corporations through various schemes of corporate layering and conversion of applications to skirt the constitutional prohibition
against foreign mining in Philippine soil.

Conversion of MPSA applications to FTAA applications

We shall discuss the first error in conjunction with the sixth error presented by petitioners since both involve the conversion of MPSA
applications to FTAA applications. Petitioners propound that the CA erred in ruling against them since the questioned MPSA
applications were already converted into FTAA applications; thus, the issue on the prohibition relating to MPSA applications of
foreign mining corporations is academic. Also, petitioners would want us to correct the CAs finding which deemed the
aforementioned conversions of applications as suspicious in nature, since it is based on mere conjectures and surmises and not
supported with evidence.
We disagree.

The CAs analysis of the actions of petitioners after the case was filed against them by respondent is on point. The changing of
applications by petitioners from one type to another just because a case was filed against them, in truth, would raise not a few
sceptics eyebrows. What is the reason for such conversion? Did the said conversion not stem from the case challenging their
citizenship and to have the case dismissed against them for being "moot"? It is quite obvious that it is petitioners strategy to have
the case dismissed against them for being "moot."

Consider the history of this case and how petitioners responded to every action done by the court or appropriate government
agency: on January 2, 2007, Redmont filed three separate petitions for denial of the MPSA applications of petitioners before the POA.
On June 15, 2007, petitioners filed a conversion of their MPSA applications to FTAAs. The POA, in its December 14, 2007 Resolution,
observed this suspect change of applications while the case was pending before it and held:

The filing of the Financial or Technical Assistance Agreement application is a clear admission that the respondents are not capable of
conducting a large scale mining operation and that they need the financial and technical assistance of a foreign entity in their
operation that is why they sought the participation of MBMI Resources, Inc. The participation of MBMI in the corporation only proves
the fact that it is the Canadian company that will provide the finances and the resources to operate the mining areas for the greater
benefit and interest of the same and not the Filipino stockholders who only have a less substantial financial stake in the corporation.

xxxx

x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the violations and lack of
qualification of the respondent corporations to engage in mining. The filing of the FTAA application conversion which is allowed
foreign corporation of the earlier MPSA is an admission that indeed the respondent is not Filipino but rather of foreign nationality
who is disqualified under the laws. Corporate documents of MBMI Resources, Inc. furnished its stockholders in their head office in
Canada suggest that they are conducting operation only through their local counterparts. 36

On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing and setting aside the September 10,
2008 and July 1, 2009 Orders of the MAB. In the said Decision, the CA upheld the findings of the POA of the DENR that the herein
petitioners are in fact foreign corporations thus a recommendation of the rejection of their MPSA applications were recommended to
the Secretary of the DENR. With respect to the FTAA applications or conversion of the MPSA applications to FTAAs, the CA deferred
the matter for the determination of the Secretary of the DENR and the President of the Republic of the Philippines. 37

In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of the petition asserting that on
April 5, 2010, then President Gloria Macapagal-Arroyo signed and issued in their favor FTAA No. 05-2010-IVB, which rendered the
petition moot and academic. However, the CA, in a Resolution dated February 15, 2011 denied their motion for being a mere "rehash
of their claims and defenses."38 Standing firm on its Decision, the CA affirmed the ruling that petitioners are, in fact, foreign
corporations. On April 5, 2011, petitioners elevated the case to us via a Petition for Review on Certiorari under Rule 45, questioning
the Decision of the CA. Interestingly, the OP rendered a Decision dated April 6, 2011, a day after this petition for review was filed,
cancelling and revoking the FTAAs, quoting the Order of the POA and stating that petitioners are foreign corporations since they
needed the financial strength of MBMI, Inc. in order to conduct large scale mining operations. The OP Decision also based the
cancellation on the misrepresentation of facts and the violation of the "Small Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584." 39 On July 6, 2011, the OP issued a Resolution,
denying the Motion for Reconsideration filed by the petitioners.

Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the OPs Decision and
Resolution. In their Reply, petitioners chose to ignore the OP Decision and continued to reuse their old arguments claiming that they
were granted FTAAs and, thus, the case was moot. Petitioners filed a Manifestation and Submission dated October 19,
2012,40 wherein they asserted that the present petition is moot since, in a remarkable turn of events, MBMI was able to sell/assign all
its shares/interest in the "holding companies" to DMCI Mining Corporation (DMCI), a Filipino corporation and, in effect, making their
respective corporations fully-Filipino owned.

Again, it is quite evident that petitioners have been trying to have this case dismissed for being "moot." Their final act, wherein
MBMI was able to allegedly sell/assign all its shares and interest in the petitioner "holding companies" to DMCI, only proves that they
were in fact not Filipino corporations from the start. The recent divesting of interest by MBMI will not change the stand of this Court
with respect to the nationality of petitioners prior the suspicious change in their corporate structures. The new documents filed by
petitioners are factual evidence that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations have violated several
mining laws and made misrepresentations and falsehood in their applications for FTAA which lead to the revocation of the said
FTAAs, demonstrating that petitioners are not beyond going against or around the law using shifty actions and strategies. Thus, in this
instance, we can say that their claim of mootness is moot in itself because their defense of conversion of MPSAs to FTAAs has been
discredited by the OP Decision.

Grandfather test

The main issue in this case is centered on the issue of petitioners nationality, whether Filipino or foreign. In their previous petitions,
they had been adamant in insisting that they were Filipino corporations, until they submitted their Manifestation and Submission
dated October 19, 2012 where they stated the alleged change of corporate ownership to reflect their Filipino ownership. Thus, there
is a need to determine the nationality of petitioner corporations.

Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule.
Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural resources
owned by Filipino citizens, provides:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are
registered in the name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or
capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as belonging to aliens.

The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of Philippine nationality," pertains to the control test or the liberal
rule. On the other hand, the second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as
Philippine nationality," pertains to the stricter, more stringent grandfather rule.

Prior to this recent change of events, petitioners were constant in advocating the application of the "control test" under RA 7042, as
amended by RA 8179, otherwise known as the Foreign Investments Act (FIA), rather than using the stricter grandfather rule. The
pertinent provision under Sec. 3 of the FIA provides:

SECTION 3. Definitions. - As used in this Act:

a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by the
citizens of the Philippines; a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to
the benefit of Philippine nationals: Provided, That were a corporation and its non-Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of
the Board of Directors, in order that the corporation shall be considered a Philippine national. (emphasis supplied)

The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a "Philippine National"
under Sec. 3 of the FIA does not provide for it. They further claim that the grandfather rule "has been abandoned and is no longer
the applicable rule."41 They also opined that the last portion of Sec. 3 of the FIA admits the application of a "corporate layering"
scheme of corporations. Petitioners claim that the clear and unambiguous wordings of the statute preclude the court from
construing it and prevent the courts use of discretion in applying the law. They said that the plain, literal meaning of the statute
meant the application of the control test is obligatory.

We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and pertinent
laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has already been abandoned must
be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter
into co-production, joint venture or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty
per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law.

xxxx

The President may enter into agreements with Foreign-owned corporations involving either technical or financial assistance for large-
scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and
conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local scientific and technical resources. (emphasis supplied)

The emphasized portion of Sec. 2 which focuses on the State entering into different types of agreements for the exploration,
development, and utilization of natural resources with entities who are deemed Filipino due to 60 percent ownership of capital is
pertinent to this case, since the issues are centered on the utilization of our countrys natural resources or specifically, mining. Thus,
there is a need to ascertain the nationality of petitioners since, as the Constitution so provides, such agreements are only allowed
corporations or associations "at least 60 percent of such capital is owned by such citizens." The deliberations in the Records of the
1986 Constitutional Commission shed light on how a citizenship of a corporation will be determined:

Mr. BENNAGEN: Did I hear right that the Chairmans interpretation of an independent national economy is freedom from undue
foreign control? What is the meaning of undue foreign control?

MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and the welfare of the Filipino in the
economic sphere.

MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply freedom from foreign control? I think
that is the meaning of independence, because as phrased, it still allows for foreign control.

MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the 60/40 possibility in the cultivation of
natural resources, 40 percent involves some control; not total control, but some control.

MR. BENNAGEN: In any case, I think in due time we will propose some amendments.

MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.

Mr. BENNAGEN: Yes.

Thank you, Mr. Vice-President.

xxxx

MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3,
60-40 in Section 9, and 2/3-1/3 in Section 15.

MR. VILLEGAS: That is right.

MR. NOLLEDO: In teaching law, we are always faced with the question: Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation? Will the Committee please
enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the members of the team from the UP Law Center who provided us with a
draft. The phrase that is contained here which we adopted from the UP draft is 60 percent of the voting stock.

MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be
entitled to vote.

MR. VILLEGAS: That is right.

MR. NOLLEDO: Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS: Yes, that is the understanding of the Committee.

MR. NOLLEDO: Therefore, we need additional Filipino capital?

MR. VILLEGAS: Yes.42 (emphasis supplied)

It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases where corporate layering
is present.

Elementary in statutory construction is when there is conflict between the Constitution and a statute, the Constitution will prevail. In
this instance, specifically pertaining to the provisions under Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of
the FIA will have no place of application. As decreed by the honorable framers of our Constitution, the grandfather rule prevails and
must be applied.

Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:

The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation for purposes, among others,
of determining compliance with nationality requirements (the Investee Corporation). Such manner of computation is necessary
since the shares in the Investee Corporation may be owned both by individual stockholders (Investing Individuals) and by
corporations and partnerships (Investing Corporation). The said rules thus provide for the determination of nationality depending
on the ownership of the Investee Corporation and, in certain instances, the Investing Corporation.

Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee Corporation. The first case is
the liberal rule, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph
7 of the 1967 SEC Rules which states, (s)hares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality. Under the liberal Control Test, there is no need to further
trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least 60%
Filipino-owned is considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of the 1967 SEC
Rules which states, "but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number
of shares corresponding to such percentage shall be counted as of Philippine nationality." Under the Strict Rule or Grandfather Rule
Proper, the combined totals in the Investing Corporation and the Investee Corporation must be traced (i.e., "grandfathered") to
determine the total percentage of Filipino ownership.

Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and added to
the shares directly owned in the Investee Corporation x x x.

xxxx

In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only
when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and
foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-
40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the
Grandfather Rule will not apply. (emphasis supplied)

After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the grandfather rule since,
as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as found by
the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common
investor, the 100% Canadian corporationMBMI, funded them. However, petitioners also claim that there is "doubt" only when the
stockholdings of Filipinos are less than 60%.43

The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Court. DOJ
Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where "doubt" as to the ownership
of the corporation exists. It would be ludicrous to limit the application of the said word only to the instances where the stockholdings
of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The corporations interested in
circumventing our laws would clearly strive to have "60% Filipino Ownership" at face value. It would be senseless for these applying
corporations to state in their respective articles of incorporation that they have less than 60% Filipino stockholders since the
applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the application of the
Constitution.

Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, creating a
cloud of doubt in the Courts mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule
must be used.

McArthur Mining, Inc.

To establish the actual ownership, interest or participation of MBMI in each of petitioners corporate structure, they have to be
"grandfathered."

As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its application from SMMI. McArthur
has a capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 common shares at one thousand pesos (PhP 1,000) per
share, subscribed to by the following:44

Name Nationality Number of Shares Amount Subscribed Amount Paid

Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Corporation
MBMI Resources, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
(emphasis supplied)

Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition as McArthur. In
fact, it would seem that MBMI is also a major investor and "controls" 45 MBMI and also, similar nominal shareholders were present,
i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):

Madridejos Mining Corporation

Name Nationality Number of Shares Amount Subscribed Amount Paid

 Olympic Mines & Filipino 6,663 PhP 6,663,000.00
PhP 0
Development

Corp.

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00

Inc.

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

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

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

Hernando

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

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the number of shares they
subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder in MMC. MBMIs 2006 Annual Report
sheds light on why Olympic failed to pay any amount with respect to the number of shares it subscribed to. It states that Olympic
entered into joint venture agreements with several Philippine companies, wherein it holds directly and indirectly a 60% effective
equity interest in the Olympic Properties. 46 Quoting the said Annual report:

On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into a series of
agreements including a Property Purchase and Development Agreement (the Transaction Documents) with respect to three nickel
laterite properties in Palawan, Philippines (the "Olympic Properties"). The Transaction Documents effectively establish a joint venture
between the Company and Olympic for purposes of developing the Olympic Properties. The Company holds directly and indirectly an
initial 60% interest in the joint venture. Under certain circumstances and upon achieving certain milestones, the Company may earn
up to a 100% interest, subject to a 2.5% net revenue royalty. 47 (emphasis supplied)

Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized by MBMI to gain
control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur, making the latter a foreign
corporation.

Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP 10,000,000) divided into ten
thousand (10,000) common shares at PhP 1,000 per share, as demonstrated below:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]
 Name Nationality Number of Amount Amount Paid

Shares Subscribed

Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Mining, Inc.

MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60

Resources, Inc.

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

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

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

Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60

(emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate structure of
petitioner McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason
and Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same.
Delving deeper, we scrutinize SMMIs corporate structure:

Sara Marie Mining, Inc.

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Development

Corp.

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00

Inc.

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

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

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

Hernando

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

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

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

After subsequently studying SMMIs corporate structure, it is not farfetched for us to spot the glaring similarity between SMMI and
MMCs corporate structure. Again, the presence of identical stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the headings "Nationality," "Number of Shares," "Amount
Subscribed," and "Amount Paid" are exactly the same except for the amount paid by MBMI which now reflects the amount of two
million seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, the total value of the amount paid is two million eight
hundred nine thousand nine hundred pesos (PhP 2,809,900).

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympics participation in SMMIs corporate structure, it is clear
that MBMI is in control of Tesoro and owns 60% or more equity interest in Tesoro. This makes petitioner Tesoro a non-Filipino
corporation and, thus, disqualifies it to participate in the exploitation, utilization and development of our natural resources.

Narra Nickel Mining and Development Corporation

Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDCs MPSA application, whose corporate
structures arrangement is similar to that of the first two petitioners discussed. The capital stock of Narra is ten million pesos (PhP
10,000,000), which is divided into ten thousand common shares (10,000) at one thousand pesos (PhP 1,000) per share, shown as
follows:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]
 Name Nationality Number of Amount Amount Paid

Shares Subscribed

Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00

Mining &

Development

Corp.

MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00

Resources, Inc.

Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00

Mendoza, Jr.

Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernandez

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Bocalan

Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00

Robert L. American 1 PhP 1,000.00 PhP 1,000.00

McCurdy

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

Total 10,000 PhP 10,000,000.00 PhP 2,800,000.00

(emphasis supplied)

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate structure.

Patricia Louise Mining & Development Corporation

Using the grandfather method, we further look and examine PLMDCs corporate structure:

Name Nationality Amount Amount Paid

Number of Subscribed
Shares

Palawan Alpha South Resources Filipino 6,596 PhP 6,596,000.00 PhP 0

Development Corporation
MBMI Resources, Canadian 3,396 PhP 3,396,000.00 PhP
2,796,000.00
Inc.

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

Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP PhP
10,000,000.00 2,708,174.60
(emphasis
supplied)

Yet again, the usual players in petitioners corporate structures are present. Similarly, the amount of money paid by the 2nd tier
majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.

Studying MBMIs Summary of Significant Accounting Policies dated October 31, 2005 explains the reason behind the intricate
corporate layering that MBMI immersed itself in:

JOINT VENTURES The Companys ownership interests in various mining ventures engaged in the acquisition, exploration and
development of mineral properties in the Philippines is described as follows:

(a) Olympic Group

The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as follows:

Olympic- Philippines (the "Olympic Group")

Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%

Tesoro Mining & Development, Inc. (Tesoro) 60.0%

Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective equity interest in the
Olympic Property of 60.0%. Pursuant to a shareholders agreement, the Company exercises joint control over the companies in the
Olympic Group.

(b) Alpha Group

The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows:

Alpha- Philippines (the "Alpha Group")

Patricia Louise Mining Development Inc. ("Patricia") 34.0%

Narra Nickel Mining & Development Corporation (Narra) 60.4%

Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in the Alpha Property of
60.4%. Pursuant to a shareholders agreement, the Company exercises joint control over the companies in the Alpha
Group.48 (emphasis supplied)

Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino since
MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering
petitioners corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to the picture, MBMIs Summary of
Significant Accounting Policies statement regarding the "joint venture" agreements that it entered into with the "Olympic" and
"Alpha" groupsinvolves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered" corporations boils down to
MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has joint venture agreements with, practically exercising
majority control over the corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships
between and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of
their capital stocks or equity interests are owned by MBMI.

Application of the res inter alios acta rule

Petitioners question the CAs use of the exception of the res inter alios acta or the "admission by co-partner or agent" rule and
"admission by privies" under the Rules of Court in the instant case, by pointing out that statements made by MBMI should not be
admitted in this case since it is not a party to the case and that it is not a "partner" of petitioners.

Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:

Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the party within the scope of his authority
and during the existence of the partnership or agency, may be given in evidence against such party after the partnership or agency is
shown by evidence other than such act or declaration itself. The same rule applies to the act or declaration of a joint owner, joint
debtor, or other person jointly interested with the party.

Sec. 31. Admission by privies.- Where one derives title to property from another, the act, declaration, or omission of the latter, while
holding the title, in relation to the property, is evidence against the former.

Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership relation must be shown, and that
proof of the fact must be made by evidence other than the admission itself." 49 Thus, petitioners assert that the CA erred in finding
that a partnership relationship exists between them and MBMI because, in fact, no such partnership exists.

Partnerships vs. joint venture agreements

Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI
have a joint interest" with Narra, Tesoro and McArthur. They challenged the conclusion of the CA which pertains to the close
characteristics of

"partnerships" and "joint venture agreements." Further, they asserted that before this particular partnership can be formed, it should
have been formally reduced into writing since the capital involved is more than three thousand pesos (PhP 3,000). Being that there is
no evidence of written agreement to form a partnership between petitioners and MBMI, no partnership was created.

We disagree.
A partnership is defined as two or more persons who bind themselves to contribute money, property, or industry to a common fund
with the intention of dividing the profits among themselves. 50 On the other hand, joint ventures have been deemed to be "akin" to
partnerships since it is difficult to distinguish between joint ventures and partnerships. Thus:

[T]he relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that
it is ordinarily held that their rights, duties, and liabilities are to be tested by rules which are closely analogous to and substantially
the same, if not exactly the same, as those which govern partnership. In fact, it has been said that the trend in the law has been to
blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to
the other.51

Though some claim that partnerships and joint ventures are totally different animals, there are very few rules that differentiate one
from the other; thus, joint ventures are deemed "akin" or similar to a partnership. In fact, in joint venture agreements, rules and legal
incidents governing partnerships are applied.52

Accordingly, culled from the incidents and records of this case, it can be assumed that the relationships entered between and among
petitioners and MBMI are no simple "joint venture agreements." As a rule, corporations are prohibited from entering into
partnership agreements; consequently, corporations enter into joint venture agreements with other corporations or partnerships for
certain transactions in order to form "pseudo partnerships."

Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was executed to circumvent the legal
prohibition against corporations entering into partnerships, then the relationship created should be deemed as "partnerships," and
the laws on partnership should be applied. Thus, a joint venture agreement between and among corporations may be seen as similar
to partnerships since the elements of partnership are present.

Considering that the relationships found between petitioners and MBMI are considered to be partnerships, then the CA is justified in
applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI have a joint interest" with Narra,
Tesoro and McArthur.

Panel of Arbitrators jurisdiction

We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The POA has jurisdiction to settle
disputes over rights to mining areas which definitely involve the petitions filed by Redmont against petitioners Narra, McArthur and
Tesoro. Redmont, by filing its petition against petitioners, is asserting the right of Filipinos over mining areas in the Philippines against
alleged foreign-owned mining corporations. Such claim constitutes a "dispute" found in Sec. 77 of RA 7942:

Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have exclusive and original
jurisdiction to hear and decide the following:

(a) Disputes involving rights to mining areas

(b) Disputes involving mineral agreements or permits

We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53

The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or opposition to an application for mineral
agreement. The POA therefore has the jurisdiction to resolve any adverse claim, protest, or opposition to a pending application for a
mineral agreement filed with the concerned Regional Office of the MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40,
which provide:

Sec. 38.

xxxx

Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the authorized officer(s) of the
concerned office(s) shall issue a certification(s) that the publication/posting/radio announcement have been complied with. Any
adverse claim, protest, opposition shall be filed directly, within thirty (30) calendar days from the last date of
publication/posting/radio announcement, with the concerned Regional Office or through any concerned PENRO or CENRO for filing
in the concerned Regional Office for purposes of its resolution by the Panel of Arbitrators pursuant to the provisions of this Act and
these implementing rules and regulations. Upon final resolution of any adverse claim, protest or opposition, the Panel of Arbitrators
shall likewise issue a certification to that effect within five (5) working days from the date of finality of resolution thereof. Where
there is no adverse claim, protest or opposition, the Panel of Arbitrators shall likewise issue a Certification to that effect within five
working days therefrom.

xxxx

No Mineral Agreement shall be approved unless the requirements under this Section are fully complied with and any adverse
claim/protest/opposition is finally resolved by the Panel of Arbitrators.

Sec. 41.

xxxx

Within fifteen (15) working days form the receipt of the Certification issued by the Panel of Arbitrators as provided in Section 38
hereof, the concerned Regional Director shall initially evaluate the Mineral Agreement applications in areas outside Mineral
reservations. He/She shall thereafter endorse his/her findings to the Bureau for further evaluation by the Director within fifteen (15)
working days from receipt of forwarded documents. Thereafter, the Director shall endorse the same to the secretary for
consideration/approval within fifteen working days from receipt of such endorsement.

In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15) working days from receipt of the
Certification issued by the Panel of Arbitrators as provided for in Section 38 hereof, the same shall be evaluated and endorsed by the
Director to the Secretary for consideration/approval within fifteen days from receipt of such endorsement. (emphasis supplied)

It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec. 77(a) specifically
refer only to those disputes relative to the applications for a mineral agreement or conferment of mining rights.

The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further elucidated by Secs.
219 and 43 of DENR AO 95-936, which read:

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel of Arbitrators within the
concerned periods for filing such claim, protest or opposition as specified in said Sections.

Sec. 43. Publication/Posting of Mineral Agreement.-

xxxx

The Regional Director or concerned Regional Director shall also cause the posting of the application on the bulletin boards of the
Bureau, concerned Regional office(s) and in the concerned province(s) and municipality(ies), copy furnished the barangays where the
proposed contract area is located once a week for two (2) consecutive weeks in a language generally understood in the locality. After
forty-five (45) days from the last date of publication/posting has been made and no adverse claim, protest or opposition was filed
within the said forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been made and that
no adverse claim, protest or opposition of whatever nature has been filed. On the other hand, if there be any adverse claim, protest
or opposition, the same shall be filed within forty-five (45) days from the last date of publication/posting, with the Regional Offices
concerned, or through the Departments Community Environment and Natural Resources Officers (CENRO) or Provincial Environment
and Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of Arbitrators. However
previously published valid and subsisting mining claims are exempted from posted/posting required under this Section.

No mineral agreement shall be approved unless the requirements under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators. (Emphasis supplied.)

It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec. 77(a) specifically
refer only to those disputes relative to the applications for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further elucidated by Secs.
219 and 43 of DENRO AO 95-936, which reads:

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel of Arbitrators within the
concerned periods for filing such claim, protest or opposition as specified in said Sections.

Sec. 43. Publication/Posting of Mineral Agreement Application.-

xxxx

The Regional Director or concerned Regional Director shall also cause the posting of the application on the bulletin boards of the
Bureau, concerned Regional office(s) and in the concerned province(s) and municipality(ies), copy furnished the barangays where the
proposed contract area is located once a week for two (2) consecutive weeks in a language generally understood in the locality. After
forty-five (45) days from the last date of publication/posting has been made and no adverse claim, protest or opposition was filed
within the said forty-five (45) days, the concerned offices shall issue a certification that publication/posting has been made and that
no adverse claim, protest or opposition of whatever nature has been filed. On the other hand, if there be any adverse claim, protest
or opposition, the same shall be filed within forty-five (45) days from the last date of publication/posting, with the Regional offices
concerned, or through the Departments Community Environment and Natural Resources Officers (CENRO) or Provincial Environment
and Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of Arbitrators. However,
previously published valid and subsisting mining claims are exempted from posted/posting required under this Section.

No mineral agreement shall be approved unless the requirements under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators. (Emphasis supplied.)

These provisions lead us to conclude that the power of the POA to resolve any adverse claim, opposition, or protest relative to
mining rights under Sec. 77(a) of RA 7942 is confined only to adverse claims, conflicts and oppositions relating to applications for the
grant of mineral rights.

POAs jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions and it has no authority to approve
or reject said applications. Such power is vested in the DENR Secretary upon recommendation of the MGB Director. Clearly, POAs
jurisdiction over "disputes involving rights to mining areas" has nothing to do with the cancellation of existing mineral agreements.
(emphasis ours)

Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve disputes over MPSA applications
subject of Redmonts petitions. However, said jurisdiction does not include either the approval or rejection of the MPSA applications,
which is vested only upon the Secretary of the DENR. Thus, the finding of the POA, with respect to the rejection of petitioners MPSA
applications being that they are foreign corporation, is valid.

Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the POA, that has jurisdiction over the
MPSA applications of petitioners.

This postulation is incorrect.

It is basic that the jurisdiction of the court is determined by the statute in force at the time of the commencement of the action. 54

Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization

Act of 1980" reads:

Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall exercise exclusive original jurisdiction:

1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation.

On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.

x x x Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have exclusive
and original jurisdiction to hear and decide the following:

(c) Disputes involving rights to mining areas

(d) Disputes involving mineral agreements or permits

It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to mining areas. One such dispute
is an MPSA application to which an adverse claim, protest or opposition is filed by another interested applicant.1wphi1 In the case
at bar, the dispute arose or originated from MPSA applications where petitioners are asserting their rights to mining areas subject of
their respective MPSA applications. Since respondent filed 3 separate petitions for the denial of said applications, then a controversy
has developed between the parties and it is POAs jurisdiction to resolve said disputes.

Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR Regional Office or any
concerned DENRE or CENRO are MPSA applications. Thus POA has jurisdiction.

Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. Euro-med Laboratories
v. Province of Batangas55 elucidates:

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

Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA and to this Court as a last
recourse.

Selling of MBMIs shares to DMCI

As stated before, petitioners Manifestation and Submission dated October 19, 2012 would want us to declare the instant petition
moot and academic due to the transfer and conveyance of all the shareholdings and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at least 60% Philippine-owned. 56 Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares supposedly cured the "defect" of their previous nationality. They claimed
that their current FTAA contract with the State should stand since "even wholly-owned foreign corporations can enter into an FTAA
with the State."57Petitioners stress that there should no longer be any issue left as regards their qualification to enter into FTAA
contracts since they are qualified to engage in mining activities in the Philippines. Thus, whether the "grandfather rule" or the
"control test" is used, the nationalities of petitioners cannot be doubted since it would pass both tests.

The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact should be disregarded. The
manifestation can no longer be considered by us since it is being tackled in G.R. No. 202877 pending before this Court.1wphi1 Thus,
the question of whether petitioners, allegedly a Philippine-owned corporation due to the sale of MBMI's shareholdings to DMCI, are
allowed to enter into FTAAs with the State is a non-issue in this case.

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

WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals Decision dated October 1, 2010 and
Resolution dated February 15, 2011 are hereby AFFIRMED.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice
G.R. No. 176579 June 28, 2011

WILSON P. GAMBOA, Petitioner,

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

DECISION

CARPIO, J.:

The Case

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of stock of
Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines to Metro Pacific
Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific).

The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), are as
follows:1

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major
PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was
incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415
shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla.
In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government
(PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared
by this Court to be owned by the Republic of the Philippines. 2

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the outstanding
capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government announced
that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public bidding to be
conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two bidders, Parallax
Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510
million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415 PTIC
shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and
instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007,
First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or
46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale
of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacifics common
shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in
PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership
of the capital of a public utility to not more than 40 percent. 3

On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner
Ricardo Abcede allege the following relevant facts:

On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held 26,034,263
PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other hand, was incorporated in
1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue of three
Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were
sequestered by the PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former President Ferdinand
Marcos. The sequestered PTIC shares were reconveyed to the Republic of the Philippines in accordance with this Courts
decision4 which became final and executory on 8 August 2006.

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding common shares
of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the Department of Finance and the PCGG,
as the disposing entity. An invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On 20
November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8
December 2006. The extension was published in nine different newspapers.

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of P25,217,556,000.
The government notified First Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February
2007 to exercise its right of first refusal in accordance with PTICs Articles of Incorporation. First Pacific announced its intention to
match Parallaxs bid.

On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing on the
particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who attended
the public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the governments 111,415 PTIC shares bore
due diligence, transparency and conformity with existing legal procedures; and (b) First Pacifics intended acquisition of the
governments 111,415 PTIC shares resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional
limit on foreign ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding common shares of
PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415 PTIC
shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First
Pacific and its affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to the right of first refusal in
favor of PTIC and its shareholders granted in PTICs Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first
refusal by matching the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was
consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of petitioner.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity of
sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an increase
in First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT DoCoMos
common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent which is over the 40
percent constitutional limit.6 Petitioner asserts:

If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its common or
voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign investors in PLDT First Pacific and
Japans NTT DoCoMo, which is the worlds largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity. x
x x With the completion of the sale, data culled from the official website of the New York Stock Exchange (www.nyse.com) showed
that those foreign entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDTs common
equity. x x x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New York Stock
Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities breached the constitutional limit of
40 percent ownership as early as 2003. x x x"7

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares to First
Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public respondents committed grave
abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to
foreigners in excess of 40 percent of the entire subscribed common capital stock violates the constitutional limit on foreign
ownership of a public utility.8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached Petition-in-
Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the Petition-in-Intervention.

Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the sale by
respondents of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-intervention claim that, as PLDT subscribers, they
have a "stake in the outcome of the controversy x x x where the Philippine Government is completing the sale of government owned
assets in [PLDT], unquestionably a public utility, in violation of the nationality restrictions of the Philippine Constitution."

The Issue

This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which indisputably demand a thorough
examination of the evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this well-settled principle, the
Court shall confine the resolution of the instant controversy solely on the threshold and purely legal issue of whether the term
"capital" in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock
(combined total of common and non-voting preferred shares) of PLDT, a public utility.

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for prohibition is
within the original jurisdiction of this court, which however is not exclusive but is concurrent with the Regional Trial Court and the
Court of Appeals. The actions for declaratory relief, 10 injunction, and annulment of sale are not embraced within the original
jurisdiction of the Supreme Court. On this ground alone, the petition could have been dismissed outright.

While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall nevertheless refrain from discussing
the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale was consummated when MPAH
paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.

However, since the threshold and purely legal issue on the definition of the term "capital" in Section 11, Article XII of the Constitution
has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one for mandamus. 12

In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for mandamus considering
the grave injustice that would result in the interpretation of a banking law. In that case, which involved the crime of rape committed
by a foreign tourist against a Filipino minor and the execution of the final judgment in the civil case for damages on the tourists
dollar deposit with a local bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting foreign currency
deposits from attachment, garnishment or any other order or process of any court, inapplicable due to the peculiar circumstances of
the case. The Court held that "injustice would result especially to a citizen aggrieved by a foreign guest like accused x x x" that would
"negate Article 10 of the Civil Code which provides that in case of doubt in the interpretation or application of laws, it is presumed
that the lawmaking body intended right and justice to prevail." The Court therefore required respondents Central Bank of the
Philippines, the local bank, and the accused to comply with the writ of execution issued in the civil case for damages and to release
the dollar deposit of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity of the petition for
declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether the government unlawfully
excluded petitioners, who were government employees, from the enjoyment of rights to which they were entitled under the law.
Specifically, the question was: "Are the branches, agencies, subdivisions, and instrumentalities of the Government, including
government owned or controlled corporations included among the four employers under Presidential Decree No. 851 which are
required to pay their employees x x x a thirteenth (13th) month pay x x x ?" The Constitutional principle involved therein affected all
government employees, clearly justifying a relaxation of the technical rules of procedure, and certainly requiring the interpretation of
the assailed presidential decree.

In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has far-
reaching implications. As this Court held in Salvacion:

The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this rule have been
recognized. Thus, where the petition has far-reaching implications and raises questions that should be resolved, it may be treated
as one for mandamus.15 (Emphasis supplied)

In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section 11, Article XII of the Constitution. He
prays that this Court declare that the term "capital" refers to common shares only, and that such shares constitute "the sole basis in
determining foreign equity in a public utility." Petitioner further asks this Court to declare any ruling inconsistent with such
interpretation unconstitutional.

The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching implications to the national
economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class citizens, in their own country.
What is at stake here is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if ever there is a
legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshhold legal issue
presented in this case.

The Court first encountered the issue on the definition of the term "capital" in Section 11, Article XII of the Constitution in the case
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same public utility (PLDT) and substantially the
same private respondents. Despite the importance and novelty of the constitutional issue raised therein and despite the fact that the
petition involved a purely legal question, the Court declined to resolve the case on the merits, and instead denied the same for
disregarding the hierarchy of courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts
Decision of 21 February 2003 via a petition for review under Rule 45. The Courts Resolution, denying the petition, became final on
21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is of
transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our Constitution. The
Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more significantly for the benefit of the
entire Filipino people, to ensure, in the words of the Constitution, "a self-reliant and independent national economy effectively
controlled by Filipinos."18 Besides, in the light of vague and confusing positions taken by government agencies on this purely legal
issue, present and future foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court
on the extent of their participation in the capital of public utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over 75 years since
the 1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental issue and delay again defining the
term "capital," which appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on co-production
and joint venture agreements for the development of our natural resources, 19 in Section 7, Article XII on ownership of private
lands,20 in Section 10, Article XII on the reservation of certain investments to Filipino citizens, 21 in Section 4(2), Article XIV on the
ownership of educational institutions,22 and in Section 11(2), Article XVI on the ownership of advertising companies. 23

Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which he claims to
violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates the
Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire consequence directly affecting petitioners
interest as a stockholder.

More importantly, there is no question that the instant petition raises matters of transcendental importance to the public. The
fundamental and threshold legal issue in this case, involving the national economy and the economic welfare of the Filipino people,
far outweighs any perceived impediment in the legal personality of the petitioner to bring this action.

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to the public,
thus:

In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain the
enforcement of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that petitioner is a
citizen and as such is interested in the execution of the laws, he need not show that he has any legal or special interest in the
result of the action. In the aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a
right then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and
enforceable must be published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners legal
standing, the Court declared that the right they sought to be enforced is a public right recognized by no less than the fundamental
law of the land.

Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus proceeding involves the
assertion of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and,
therefore, part of the general public which possesses the right.

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned
contract for the development, management and operation of the Manila International Container Terminal, public interest [was]
definitely involved considering the important role [of the subject contract] . . . in the economic development of the country and
the magnitude of the financial consideration involved. We concluded that, as a consequence, the disclosure provision in the
Constitution would constitute sufficient authority for upholding the petitioners standing. (Emphasis supplied)

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner has the
requisite locus standi.

Definition of the Term "Capital" in

Section 11, Article XII of the 1987 Constitution

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities, to
wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation
or association must be citizens of the Philippines. (Emphasis supplied)

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:

Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per
centum of the capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that
it shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shall
encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:

Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines sixty per centum of
the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except
under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest so requires.
(Emphasis supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the Filipinization provision
in the 1987 Constitution is one of the products of the spirit of nationalism which gripped the 1935 Constitutional Convention. 25 The
1987 Constitution "provides for the Filipinization of public utilities by requiring that any form of authorization for the operation of
public utilities should be granted only to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens. The provision is [an express] recognition of the
sensitive and vital position of public utilities both in the national economy and for national security." 26 The evident purpose of the
citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national
interest.27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding economic
goal of the 1987 Constitution: to "conserve and develop our patrimony" 28 and ensure "a self-reliant and independent national
economy effectively controlled by Filipinos."29

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement
prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public utility, at
least 60 percent of its "capital" must be owned by Filipino citizens.

The crux of the controversy is the definition of the term "capital." Does the term "capital" in Section 11, Article XII of the Constitution
refer to common shares or to the total outstanding capital stock (combined total of common and non-voting preferred shares)?

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares because
such shares are entitled to vote and it is through voting that control over a corporation is exercised. Petitioner posits that the term
"capital" in Section 11, Article XII of the Constitution refers to "the ownership of common capital stock subscribed and outstanding,
which class of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of directors." It is
undisputed that PLDTs non-voting preferred shares are held mostly by Filipino citizens. 30 This arose from Presidential Decree No.
217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to
non-voting preferred shares to pay for the investment cost of installing the telephone line. 32

Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term
"capital."33 Petitioners-in-intervention allege that "the approximate foreign ownership of common capital stock of PLDT x x x already
amounts to at least 63.54% of the total outstanding common stock," which means that foreigners exercise significant control over
PLDT, patently violating the 40 percent foreign equity limitation in public utilities prescribed by the Constitution.

Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XII of the Constitution. More
importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40 percent of the common shares
of PLDT are held by foreigners.

In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of the petition
and the supposed violation of the due process rights of the "affected foreign common shareholders." Respondent Nazareno does not
deny petitioners allegation of foreigners dominating the common shareholdings of PLDT. Nazareno stressed mainly that the petition
"seeks to divest foreign common shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their
ownership over their shares." Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they
can be heard."34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term "capital," he states that "among the factual assertions that need to be
established to counter petitioners allegations is the uniform interpretation by government agencies (such as the SEC), institutions
and corporations (such as the Philippine National Oil Company-Energy Development Corporation or PNOC-EDC) of including both
preferred shares and common shares in "controlling interest" in view of testing compliance with the 40% constitutional limitation
on foreign ownership in public utilities."35

Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article XII of the Constitution. Neither
does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs common shares. Instead, respondent
Pangilinan focuses on the procedural flaws of the petition and the alleged violation of the due process rights of foreigners.
Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this Courts jurisdiction over the petition; (2) petitioners
lack of standing; (3) mootness of the petition; (4) non-availability of declaratory relief; and (5) the denial of due process rights.
Moreover, respondent Pangilinan alleges that the issue should be whether "owners of shares in PLDT as well as owners of shares in
companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those companies without any law
requiring them to surrender their shares and also without notice and trial."

Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution] imposes no nationality requirement on the
shareholders of the utility company as a condition for keeping their shares in the utility company." According to him, "Section 11
does not authorize taking one persons property (the shareholders stock in the utility company) on the basis of another partys
alleged failure to satisfy a requirement that is a condition only for that other partys retention of another piece of property (the utility
company being at least 60% Filipino-owned to keep its franchise)." 36

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner Ricardo Abcede,
and Chairman Fe Barin, is likewise silent on the definition of the term "capital." In its Memorandum 37 dated 24 September 2007, the
OSG also limits its discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack of jurisdiction, non-
inclusion of interested parties, and lack of basis for injunction. The OSG does not present any definition or interpretation of the term
"capital" in Section 11, Article XII of the Constitution. The OSG contends that "the petition actually partakes of a collateral attack on
PLDTs franchise as a public utility," which in effect requires a "full-blown trial where all the parties in interest are given their day in
court."38

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange (PSE), does not
also define the term "capital" and seeks the dismissal of the petition on the following grounds: (1) failure to state a cause of action
against Lim; (2) the PSE allegedly implemented its rules and required all listed companies, including PLDT, to make proper and timely
disclosures; and (3) the reliefs prayed for in the petition would adversely impact the stock market.

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of PLDT, contended
that the term "capital" in the 1987 Constitution refers to shares entitled to vote or the common shares. Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of
stock entitled to vote, i.e., common shares, considering that it is through voting that control is being exercised. x x x

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and partially
nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said activities. Otherwise, if the
Trial Courts ruling upholding respondents arguments were to be given credence, it would be possible for the ownership structure of
a public utility corporation to be divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks.
Following the Trial Courts ruling adopting respondents arguments, the common shares can be owned entirely by foreigners thus
creating an absurd situation wherein foreigners, who are supposed to be minority shareholders, control the public utility corporation.

xxxx

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the controlling
interest.

xxxx

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to
ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares will not suffice but it
must be shown that the legal and beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner
PLDT, since it is already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the acquisition
of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign
principals and the Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the proposition that the
meaning of the word "capital" as used in Section 11, Article XII of the Constitution allegedly refers to the sum total of the shares
subscribed and paid-in by the shareholder and it allegedly is immaterial how the stock is classified, whether as common or preferred,
cannot stand in the face of a clear legislative policy as stated in the FIA which took effect in 1991 or way after said opinions were
rendered, and as clarified by the above-quoted Amendments. In this regard, suffice it to state that as between the law and an
opinion rendered by an administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot
prevail over the clear intent of the framers of the Constitution.

In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory for it is the courts that
finally determine what a law means.39

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B.
Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B.
Vea, argued that the term "capital" in Section 11, Article XII of the Constitution includes preferred shares since the Constitution does
not distinguish among classes of stock, thus:

16. The Constitution applies its foreign ownership limitation on the corporations "capital," without distinction as to classes of shares.
xxx

In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution was drafted
defined outstanding capital stock as follows:

Section 137. Outstanding capital stock defined. The term "outstanding capital stock", as used in this Code, means the total shares
of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except
treasury shares.

Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude either class of
shares, in determining the outstanding capital stock (the "capital") of a corporation. Consequently, petitioners suggestion to reckon
PLDTs foreign equity only on the basis of PLDTs outstanding common shares is without legal basis. The language of the Constitution
should be understood in the sense it has in common use.

xxxx

17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is nothing in the Record of
the Constitutional Commission (Vol. III) which petitioner misleadingly cited in the Petition x x x which supports petitioners view
that only common shares should form the basis for computing a public utilitys foreign equity.

xxxx
18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code, and which also has
the responsibility of ensuring compliance with the Constitutions foreign equity restrictions as regards nationalized activities x x x
has categorically ruled that both common and preferred shares are properly considered in determining outstanding capital stock and
the nationality composition thereof.40

We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article XII of the Constitution refers only
to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, 41 and not to the
total outstanding capital stock comprising both common and non-voting preferred shares.

The Corporation Code of the Philippines 42 classifies shares as common or preferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of shares, or both, any
of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation:
Provided, That no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable"
shares, unless otherwise provided in this Code: Provided, further, That there shall always be a class or series of shares which have
complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for
in the articles of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building
and loan associations shall not be permitted to issue no-par value shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in
case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation
which are not violative of the provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated par
value. The Board of Directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares
of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with
the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall
not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a
consideration less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the
corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all
respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in
this Code shall be deemed to refer only to stocks with voting rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. 43 This is
exercised through his vote in the election of directors because it is the board of directors that controls or manages the
corporation.44 In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares
have the same voting rights as common shares. However, preferred shareholders are often excluded from any control, that is,
deprived of the right to vote in the election of directors and on other matters, on the theory that the preferred shareholders are
merely investors in the corporation for income in the same manner as bondholders. 45 In fact, under the Corporation Code only
preferred or redeemable shares can be deprived of the right to vote. 46 Common shares cannot be deprived of the right to vote in any
corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid. 47

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no
voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred
shares also have the right to vote in the election of directors, then the term "capital" shall include such preferred shares because the
right to participate in the control or management of the corporation is exercised through the right to vote in the election of
directors. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control
and management of public utilities. As revealed in the deliberations of the Constitutional Commission, "capital" refers to the voting
stock or controlling interest of a corporation, to wit:

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."

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be
entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.48

xxxx

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or associations at least sixty
percent of whose CAPITAL is owned by such citizens."

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.

MR. VILLEGAS. That is right.

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."

MR. AZCUNA. We should not eliminate the phrase "controlling interest."

MR. BENGZON. In the case of stock corporations, it is assumed. 49 (Emphasis supplied)

Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the corporation. Reinforcing this interpretation
of the term "capital," as referring to controlling interest or shares entitled to vote, is the definition of a "Philippine national" in the
Foreign Investments Act of 1991,50 to wit:

SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad
and registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital
stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the
Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation, shall be considered
a "Philippine national." (Emphasis supplied)

In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of the Foreign Investments Act of 1991
provide:

b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens
of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital
stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund
will accrue to the benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a
Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and
entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the
members of the Board of Directors of each of both corporation must be citizens of the Philippines, in order that the corporation shall
be considered a Philippine national. The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock
whether fully paid or not, but only such stocks which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks,
the voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or
Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine
nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full beneficial ownership
of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]."

Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may
prescribe, certain areas of investments." Thus, in numerous laws Congress has reserved certain areas of investments to Filipino
citizens or to corporations at least sixty percent of the "capital" of which is owned by Filipino citizens. Some of these laws are: (1)
Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna
Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471;
(5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055;
and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term "capital" in Section 11, Article XII of the Constitution is also used in
the same context in numerous laws reserving certain areas of investments to Filipino citizens.

To construe broadly the term "capital" as the total outstanding capital stock, including both common and non-voting preferred
shares, grossly contravenes the intent and letter of the Constitution that the "State shall develop a self-reliant and independent
national economy effectively controlled by Filipinos." A broad definition unjustifiably disregards who owns the all-important voting
stock, which necessarily equates to control of the public utility.

We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us assume that a corporation has 100
common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share
having a par value of one peso (P1.00) per share. Under the broad definition of the term "capital," such corporation would be
considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or
more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold
only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the
other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no
control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of
the Constitution, to place the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of an
independent national economy effectively controlled by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the present case.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation
expressly state that "the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the
election of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or
to receive notice of any meeting of stockholders." 51

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of
Incorporation52 state that "each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by
him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote
for the election of directors and for all other purposes."53

In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise control
over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control
over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders
of preferred shares have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on
PLDTs 2010 General Information Sheet (GIS), 54 which is a document required to be submitted annually to the Securities and
Exchange Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common
shares.56 In other words, foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%.
Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount
of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section
11, Article XII of the Constitution.

Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the SIP 58 preferred shares earn
a pittance in dividends compared to the common shares. PLDT declared dividends for the common shares at P70.00 per share, while
the declared dividends for the preferred shares amounted to a measly P1.00 per share.59 So the preferred shares not only cannot
vote in the election of directors, they also have very little and obviously negligible dividend earning capacity compared to common
shares.

As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par
value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but
cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned
by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. 61 Worse, preferred shares constitute 77.85% of the
authorized capital stock of PLDT while common shares constitute only 22.15%. 62 This undeniably shows that beneficial interest in
PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of
60 percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance
with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of
the voting rights, is constitutionally required for the States grant of authority to operate a public utility. The undisputed fact that the
PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares
earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This
directly contravenes the express command in Section 11, Article XII of the Constitution that "[n]o franchise, certificate, or any other
form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws
of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x."

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the
election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a
minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no
voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; 63 (5) preferred shares have twice the par
value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per
share,64 while PLDT preferred shares with a par value of P10.00 per share have a current stock market value ranging from only P10.92
to P11.06 per share,65 is a glaring confirmation by the market that control and beneficial ownership of PLDT rest with the common
shares, not with the preferred shares.

Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include both voting and non-voting shares
will result in the abject surrender of our telecommunications industry to foreigners, amounting to a clear abdication of the States
constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the
constitutional provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as well
as the ownership of land, educational institutions and advertising businesses. The Court should never open to foreign control what
the Constitution has expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The
Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words of the
Constitution, "a self-reliant and independent national economy effectively controlled by Filipinos."

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinos specific areas of
investment, such as the development of natural resources and ownership of land, educational institutions and advertising business,
is self-executing. There is no need for legislation to implement these self-executing provisions of the Constitution. The rationale why
these constitutional provisions are self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:

x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the presumption
now is that all provisions of the constitution are self-executing. If the constitutional provisions are treated as requiring legislation
instead of self-executing, the legislature would have the power to ignore and practically nullify the mandate of the fundamental law.
This can be cataclysmic. That is why the prevailing view is, as it has always been, that

. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . . Unless the contrary is
clearly intended, the provisions of the Constitution should be considered self-executing, as a contrary rule would give the
legislature discretion to determine when, or whether, they shall be effective. These provisions would be subordinated to the will of
the lawmaking body, which could make them entirely meaningless by simply refusing to pass the needed implementing statute.
(Emphasis supplied)

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed that
constitutional provisions are presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future legislation for their
enforcement. The reason is not difficult to discern. For if they are not treated as self-executing, the mandate of the fundamental
law ratified by the sovereign people can be easily ignored and nullified by Congress. Suffused with wisdom of the ages is the
unyielding rule that legislative actions may give breath to constitutional rights but congressional inaction should not suffocate
them.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the rights of a person
under custodial investigation, the rights of an accused, and the privilege against self-incrimination. It is recognized that legislation is
unnecessary to enable courts to effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty and the
protection of property. The same treatment is accorded to constitutional provisions forbidding the taking or damaging of property for
public use without just compensation. (Emphasis supplied)

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the provisions of the 1935,
1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68this Court ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as both the citizen
and the alien have violated the law, none of them should have a recourse against the other, and it should only be the State that
should be allowed to intervene and determine what is to be done with the property subject of the violation. We have said that what
the State should do or could do in such matters is a matter of public policy, entirely beyond the scope of judicial authority. (Dinglasan,
et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy should
be followed in cases of violations against the constitutional prohibition, courts of justice cannot go beyond by declaring the
disposition to be null and void as violative of the Constitution. x x x (Emphasis supplied)

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or over the last
75 years, not one of the constitutional provisions expressly reserving specific areas of investments to corporations, at least 60
percent of the "capital" of which is owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987
Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment, like the operation by corporations of
public utilities, the exploitation by corporations of mineral resources, the ownership by corporations of real estate, and the
ownership of educational institutions. All the legislatures that convened since 1935 also miserably failed to enact legislations to
implement these vital constitutional provisions that determine who will effectively control the national economy, Filipinos or
foreigners. This Court cannot allow such an absurd interpretation of the Constitution.

This Court has held that the SEC "has both regulatory and adjudicative functions." 69 Under its regulatory functions, the SEC can be
compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same. Under its adjudicative or
quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it
administers or enforces when it is mandated by law to investigate such violation.1awphi1

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of
Incorporation of any corporation where "the required percentage of ownership of the capital stock to be owned by citizens of the
Philippines has not been complied with as required by existing laws or the Constitution." Thus, the SEC is the government agency
tasked with the statutory duty to enforce the nationality requirement prescribed in Section 11, Article XII of the Constitution on the
ownership of public utilities. This Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present
case, can direct the SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do
based on the 2010 GIS that respondent PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the "power and function" to "suspend or revoke, after
proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the
grounds provided by law." The SEC is mandated under Section 5(d) of the same Code with the "power and function" to "investigate
x x x the activities of persons to ensure compliance" with the laws and regulations that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually should put the SEC on guard against violations of the nationality requirement
prescribed in the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief that is treated as a
petition for mandamus as in the present case, to hear and decide a possible violation of Section 11, Article XII of the Constitution in
view of the ownership structure of PLDTs voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT
submitted to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the 1987 Constitution refers
only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to
the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and
Exchange Commission is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

G.R. No. 207246, November 22, 2016

JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA HERBOSA,THE SECURITIES AND EXCHANGE COMMISSION, AND PHILILIPPINE
LONG DISTANCE TELEPHONE COMPANY, Respondents.

WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P. GABINETE, ANTONIO V. PESINA, JR., MODESTO MARTIN Y.
MAMON III, AND GERARDO C. EREBAREN, Petitioners-in-Intervention,

PHILIPPINE STOCK EXCHANGE, INC., Respondent-in-Intervention,

SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES, INC., Respondent-in-Intervention.

DECISION

CAGUIOA, J.:

The petitions1 before the Court are special civil actions for certiorari under Rule 65 of the Rules of Court seeking to annul
Memorandum Circular No. 8, Series of 2013 ("SEC-MC No. 8") issued by the Securities and Exchange Commission ("SEC") for allegedly
being in violation of the Court's Decision2("Gamboa Decision") and Resolution3 ("Gamboa Resolution") in Gamboa v. Finance
Secretary Teves, G.R. No. 176579, respectively promulgated on June 28, 2011, and October 9, 2012, which jurisprudentially
established the proper interpretation of Section 11, Article XII of the Constitution.chanroblesvirtuallawlibrary

The Antecedents

On June 28, 2011, the Court issued the Gamboa Decision, the dispositive portion of which reads:chanRoblesvirtualLawlibrary
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the 1987 Constitution refers
only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to
the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and
Exchange Commission is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law.

SO ORDERED.4
Several motions for reconsideration were filed assailing the Gamboa Decision. They were denied in the Gamboa Resolution issued by
the Court on October 9, 2012, viz:chanRoblesvirtualLawlibrary
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be entertained.

SO ORDERED.5
The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was thereafter issued on December 11, 2012. 6

On November 6, 2012, the SEC posted a Notice in its website inviting the public to attend a public dialogue and to submit comments
on the draft memorandum circular (attached thereto) on the guidelines to be followed in determining compliance with the Filipino
ownership requirement in public utilities under Section 11, Article XII of the Constitution pursuant to the Court's directive in
the Gamboa Decision.7

On November 9, 2012, the SEC held the scheduled dialogue and more than 100 representatives from various organizations,
government agencies, the academe and the private sector attended. 8

On January 8, 2013, the SEC received a copy of the Entry of Judgment 9 from the Court certifying that on October 18, 2012,
the Gamboa Decision had become final and executory.10

On March 25, 2013, the SEC posted another Notice in its website soliciting from the public comments and suggestions on the draft
guidelines.11

On April 22, 2013, petitioner Atty. Jose M. Roy III ("Roy") submitted his written comments on the draft guidelines. 12

On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-MC No. 8 entitled "Guidelines on
Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations
Engaged in Nationalized and Partly Nationalized Activities." It was published in the Philippine Daily Inquirer and the Business
Mirror on May 22, 2013.13 Section 2 of SEC-MC No. 8 provides:chanRoblesvirtualLawlibrary
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of
determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of
outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock,
whether or not entitled to vote in the election of directors.

Corporations covered by special laws which provide specific citizenship requirements shall comply with the provisions of said law. 14
On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the Petition, 15 assailing the validity of SEC-MC No. 8 for not
conforming to the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with grave abuse of
discretion. Petitioner Roy seeks to apply the 60-40 Filipino ownership requirement separately to each class of shares of a public utility
corporation, whether common, preferred nonvoting, preferred voting or any other class of shares. Petitioner Roy also questions the
ruling of the SEC that respondent Philippine Long Distance Telephone Company ("PLDT") is compliant with the constitutional rule on
foreign ownership. He prays that the Court declare SEC-MC No. 8 unconstitutional and direct the SEC to issue new guidelines
regarding the determination of compliance with Section 11, Article XII of the Constitution in accordance with Gamboa.

Wilson C. Gamboa, Jr.,16 Daniel V. Cartagena, John Warren P. Gabinete, Antonio V. Pesina, Jr., Modesto Martin Y. Mamon III, and
Gerardo C. Erebaren ("intervenors Gamboa, et al.") filed a Motion for Leave to File Petition-in-Intervention 17 on July 30, 2013, which
the Court granted. The Petition-in-Intervention18 filed by intervenors Gamboa, et al. mirrored the issues, arguments and prayer of
petitioner Roy.

On September 5, 2013, respondent PLDT filed its Comment (on the Petition dated 10 June 2013). 19PLDT posited that the Petition
should be dismissed because it violates the doctrine of hierarchy of courts as there are no compelling reasons to invoke the Court's
original jurisdiction; it is prematurely filed because petitioner Roy failed to exhaust administrative remedies before the SEC; the
principal actions/remedies of mandamus and declaratory relief are not within the exclusive and/or original jurisdiction of the Court;
the petition for certiorari is an inappropriate remedy since the SEC issued SEC-MC No. 8 in the exercise of its quasi-legislative power;
it deprives the necessary and indispensable parties of their constitutional right to due process; and the SEC merely implemented the
dispositive portion of the Gamboa Decision.
On September 20, 2013, respondents Chairperson Teresita Herbosa and SEC filed their Consolidated Comment. 20 They sought the
dismissal of the petitions on the following grounds: (1) the petitioners do not possess locus standi to assail the constitutionality of
SEC-MC No. 8; (2) a petition for certiorari under Rule 65 is not the appropriate and proper remedy to assail the validity and
constitutionality of the SEC-MC No. 8; (3) the direct resort to the Court violates the doctrine of hierarchy of courts; (4) the SEC did
not abuse its discretion; (5) on PLDT's compliance with the capital requirement as stated in the Gamboa ruling, the petitioners'
challenge is premature considering that the SEC has not yet issued a definitive ruling thereon.

On October 22, 2013, PLDT filed its Comment (on the Petition-in-Intervention dated 16 July 2013).21PLDT adopted the position that
intervenors Gamboa, et al. have no standing and are not the proper party to question the constitutionality of SEC-MC No. 8; they are
in no position to assail SEC-MC No. 8 considering that they did not participate in the public consultations or give comments thereon;
and their Petition-in-Intervention is a disguised motion for reconsideration of the Gamboa Decision and Resolution.

On May 7, 2014, Petitioner Roy and intervenors Gamboa, et al.22 filed their Joint Consolidated Reply with Motion for Issuance of
Temporary Restraining Order.23

On May 22, 2014, PLDT filed its Rejoinder [To Petitioner and Petitioners-in-Intervention's Joint Consolidated Reply dated 7 May 2014]
and Opposition [To Petitioner and Petitioners-in-Intervention's Motion for Issuance of a Temporary Restraining Order dated 7 May
2014].24

On June 18, 2014, the Philippine Stock Exchange, Inc. ("PSE") filed its Motion to Intervene with Leave of Court 25 and its Comment-in
Intervention.26 The PSE alleged that it has standing to intervene as the primary regulator of the stock exchange and will sustain direct
injury should the petitions be granted. The PSE argued that in the Gamboa ruling, "capital" refers only to shares entitled to vote in
the election of directors, and excludes those not so entitled; and the dispositive portion of the decision is the controlling factor that
determines and settles the questions presented in the case. The PSE further argued that adopting a new interpretation of Section 11,
Article XII of the Constitution violates the policy of conclusiveness of judgment, stare decisis, and the State's obligation to maintain a
stable and predictable legal framework for foreign investors under international treaties; and adopting a new definition of "capital"
will prove disastrous for the Philippine stock market. The Court granted the Motion to Intervene filed by PSE. 27

PLDT filed its Consolidated Memorandum28 on February 10, 2015.

On June 1, 2016, Shareholders' Association of the Philippines, Inc. 29 ("SHAREPHIL") filed an Omnibus Motion [1] For Leave to
Intervene; and [2] To Admit Attached Comment-in-Intervention.30 The Court granted the Omnibus Motion of SHAREPHIL.31

On June 30, 2016, petitioner Roy filed his Opposition and Reply to Interventions of Philippine Stock Exchange and
Sharephil.32 Intervenors Gamboa, et al. then filed on September 14, 2016, their Reply (to Interventions by Philippine Stock Exchange
and Sharephil).33

The Issues

The twin issues of the Petition and the Petition-in-Intervention are: (1) whether the SEC gravely abused its discretion in issuing SEC-
MC No. 8 in light of the Gamboa Decision and Gamboa Resolution, and (2) whether the SEC gravely abused its discretion in ruling
that PLDT is compliant with the constitutional limitation on foreign ownership.chanroblesvirtuallawlibrary

The Court's Ruling

At the outset, the Court disposes of the second issue for being without merit. In its Consolidated Comment dated September 13,
2013,34 the SEC already clarified that it "has not yet issued a definitive ruling anent PLDT's compliance with the limitation on foreign
ownership imposed under the Constitution and relevant laws [and i]n fact, a careful perusal of x x x SEC-MC No. 8 readily reveals that
all existing covered corporations which are non-compliant with Section 2 thereof were given a period of one (1) year from the
effectivity of the same within which to comply with said ownership requirement. x x x." 35 Thus, in the absence of a definitive ruling by
the SEC on PLDT's compliance with the capital requirement pursuant to the Gamboa Decision and Resolution, any question relative
to the inexistent ruling is premature.

Also, considering that the Court is not a trier of facts and is in no position to make a factual determination of PLDT's compliance with
the constitutional provision under review, the Court can only resolve the first issue, which is a pure question of law. However, before
the Court tackles the first issue, it has to rule on certain procedural challenges that have been raised.chanroblesvirtuallawlibrary

The Procedural Issues

The Court may exercise its power of judicial review and take cognizance of a case when the following specific requisites are met: (1)
there is an actual case or controversy calling for the exercise of judicial power; (2) the petitioner has standing to question the validity
of the subject act or issuance, i.e., he has a personal and substantial interest in the case that he has sustained, or will sustain, direct
injury as a result of the enforcement of the act or issuance; (3) the question of constitutionality is raised at the earliest opportunity;
and (4) the constitutional question is the very lis mota of the case.36

The first two requisites of judicial review are not met.

Petitioners' failure to sufficiently allege, much less establish, the existence of the first two requisites for the exercise of judicial review
warrants the perfunctory dismissal of the petitions.

a. No actual controversy.

Regarding the first requisite, the Court in Belgica v. Ochoa37 stressed anew that an actual case or controversy is one which involves a
conflict of legal rights, an assertion of opposite legal claims, susceptible of judicial resolution as distinguished from a hypothetical or
abstract difference or dispute since the courts will decline to pass upon constitutional issues through advisory opinions, bereft as
they are of authority to resolve hypothetical or moot questions. Related to the requirement of an actual case or controversy is the
requirement of "ripeness", and a question is ripe for adjudication when the act being challenged has a direct adverse effect on the
individual challenging it.

Petitioners have failed to show that there IS an actual case or controversy which is ripe for adjudication.

The Petition and the Petition-in-Intervention identically allege:chanRoblesvirtualLawlibrary

3. The standing interpretation of the SEC found in MC8 practically encourages circumvention of the 60-40 ownership rule by impliedly
allowing the creation of several classes of voting shares with different degrees of beneficial ownership over the same, but at the
same time, not imposing a 40% limit on foreign ownership of the higher yielding stocks. 38

4. For instance, a situation may arise where a corporation may issue several classes of shares of stock, one of which are common
shares with rights to elect directors, another are preferred shares with rights to elect directors but with much lesser entitlement to
dividends, and still another class of preferred shares with no rights to elect the directors and even less dividends. In this situation, the
corporation may issue common shares to foreigners amounting to forty percent (40%) of the outstanding capital stock and issue
preferred shares entitled to vote the directors of the corporation to Filipinos consisting of 60% 39 percent (sic) of the outstanding
capital stock entitled to vote. Although it may appear that the 60-40 rule has been complied with, the beneficial ownership of the
corporation remains with the foreign stockholder since the Filipino owners of the preferred shares have only a miniscule share in the
dividends and profit of the corporation. Plainly, this situation runs contrary to the Constitution and the ruling of this x x x Court. 40
Petitioners' hypothetical illustration as to how SEC-MC No. 8 "practically encourages circumvention of the 60-40 ownership rule" is
evidently speculative and fraught with conjectures and assumptions. There is clearly wanting specific facts against which the veracity
of the conclusions purportedly following from the speculations and assumptions can be validated. The lack of a specific factual milieu
from which the petitions originated renders any pronouncement from the Court as a purely advisory opinion and not a decision
binding on identified and definite parties and on a known set of facts.

Firstly, unlike in Gamboa, the identity of the public utility corporation, the capital of which is at issue, is unknown. Its outstanding
capital stock and the actual composition thereof in terms of numbers, classes, preferences and features are all theoretical. The
description "preferred shares with rights to elect directors but with much lesser entitlement to dividends, and still another class of
preferred shares with no rights to elect the directors and even less dividends" is ambiguous. What are the specific dividend policies
or entitlements of the purported preferred shares? How are the preferred shares' dividend policies different from those of the
common shares? Why and how did the fictional public utility corporation issue those preferred shares intended to be owned by
Filipinos? What are the actual features of the foreign-owned common shares which make them superior over those owned by
Filipinos? How did it come to be that Filipino holders of preferred shares ended up with "only a miniscule share in the dividends and
profit of the [hypothetical] corporation"? Any answer to any of these questions will, at best, be contingent, conjectural, indefinite or
anticipatory.

Secondly, preferred shares usually have preference over the common shares in the payment of dividends. If most of the "preferred
shares with rights to elect directors but with much lesser entitlement to dividends" and the other "class of preferred shares with no
rights to elect the directors and even less dividends" are owned by Filipinos, they stand to receive their dividend entitlement ahead
of the foreigners, who are common shareholders. For the common shareholders to have "bigger dividends" as compared to the
dividends paid to the preferred shareholders, which are supposedly predominantly owned by Filipinos, there must still be
unrestricted retained earnings of the fictional corporation left after payment of the dividends declared in favor of the preferred
shareholders. The fictional illustration does not even intimate how this situation can be possible. No permutation of unrestricted
retained earnings of the hypothetical corporation is shown that makes the present conclusion of the petitioners achievable. Also, no
concrete meaning to the petitioners' claim of the Filipinos' "miniscule share in the dividends and profit of the [fictional] corporation"
is demonstrated.

Thirdly, petitioners fail to allege or show how their hypothetical illustration will directly and adversely affect them. That is impossible
since their relationship to the fictional corporation is a matter of guesswork.

From the foregoing, it is evident that the Court can only surmise or speculate on the situation or controversy that the petitioners
contemplate to present for judicial determination. Petitioners are likewise conspicuously silent on the direct adverse impact to them
of the implementation of SEC-MC No. 8. Thus, the petitions must fail because the Court is barred from rendering a decision based on
assumptions, speculations, conjectures and hypothetical or fictional illustrations, more so in the present case which is not even ripe
for decision.

b. No locus standi.

The personal and substantial interest that enables a party to have legal standing is one that is both material, an interest in issue and
to be affected by the government action, as distinguished from mere interest in the issue involved, or a mere incidental interest,
and real, which means a present substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate,
or consequential interest.41cralawred

As to injury, the party must show that (1) he will personally suffer some actual or threatened injury because of the allegedly illegal
conduct of the government; (2) the injury is fairly traceable to the challenged action; and (3) the injury is likely to be redressed by a
favorable action.42 If the asserted injury is more imagined than real, or is merely superficial and insubstantial, an excursion into
constitutional adjudication by the courts is not warranted. 43

Petitioners have no legal standing to question the constitutionality of SEC-MC No. 8.

To establish his standing, petitioner Roy merely claimed that he has standing to question SEC-MC No. 8 "as a concerned citizen, an
officer of the Court and as a taxpayer" as well as "the senior law partner of his own law firm[, which] x x x is a subscriber of
PLDT."44 On the other hand, intervenors Gamboa, et al. allege, as basis of their locus standi, their "[b]eing lawyers and officers of the
Court" and "citizens x x x and taxpayers."45

The Court has previously emphasized that the locus standi requisite is not met by the expedient invocation of one's citizenship or
membership in the bar who has an interest in ensuring that laws and orders of the Philippine government are legally and validly
issued as these supposed interests are too general, which are shared by other groups and by the whole citizenry. 46 Per their
allegations, the personal interest invoked by petitioners as citizens and members of the bar in the validity or invalidity of SEC-MC No.
8 is at best equivocal, and totally insufficient.

Petitioners' status as taxpayers is also of no moment. As often reiterated by the Court, a taxpayer's suit is allowed only when the
petitioner has demonstrated the direct correlation of the act complained of and the disbursement of public funds in contravention of
law or the Constitution, or has shown that the case involves the exercise of the spending or taxing power of Congress. 47 SEC-MC No. 8
does not involve an additional expenditure of public funds and the taxing or spending power of Congress.

The allegation that petitioner Roy's law firm is a "subscriber of PLDT" is ambiguous. It is unclear whether his law firm is a "subscriber"
of PLDT's shares of stock or of its various telecommunication services. Petitioner Roy has not identified the specific direct and
substantial injury he or his law firm stands to suffer as "subscriber of PLDT" as a result of the issuance of SEC-MC No. 8 and its
enforcement.

As correctly observed by respondent PLDT, "(w]hether or not the constitutionality of SEC-MC No. 8 is upheld, the rights and privileges
of all PLDT subscribers, as with all the rest of subscribers of other corporations, are necessarily and equally preserved and protected.
Nothing is added [to] or removed from a PLDT subscriber in terms of the extent of his or her participation, relative to what he or she
had originally enjoyed from the beginning. In the most practical sense, a PLDT subscriber loses or gains nothing in the event that SEC-
MC No. 8 is either sustained or struck down by [the Court]." 48

More importantly, the issue regarding PLDT's compliance with Section 11, Article XII of the Constitution has been earlier ruled as
premature and beyond the Court's jurisdiction. Thus, petitioner Roy's allegation that his law firm is a "subscriber of PLDT" is
insufficient to clothe him with locus standi.
Petitioners' cursory incantation of "transcendental importance x x x of the rules on foreign ownership of corporations or entities
vested with public interest"49 does not automatically justify the brushing aside of the strict observance of the requisites for the
Court's exercise of judicial review. An indiscriminate disregard of the requisites every time "transcendental or paramount importance
or significance" is invoked would result in an unacceptable corruption of the settled doctrine of locus standi, as every worthy cause is
an interest shared by the general public.50

In the present case, the general and equivocal allegations of petitioners on their legal standing do not justify the relaxation of
the locus standi rule. While the Court has taken an increasingly liberal approach to the rule of locus standi, evolving from the
stringent requirements of personal injury to the broader transcendental importance doctrine, such liberality is not to be abused. 51

The Rule on the Hierarchy of Courts has been violated.

The Court in Baez, Jr. v. Concepcion52 stressed that:chanRoblesvirtualLawlibrary

The Court must enjoin the observance of the policy on the hierarchy of courts, and now affirms that the policy is not to be ignored
without serious consequences. The strictness of the policy is designed to shied the Court from having to deal with causes that are
also well within the competence of the lower courts, and thus leave time to the Court to deal with the more fundamental and more
essential tasks that the Constitution has assigned to it. The Court may act on petitions for the extraordinary writs of certiorari,
prohibition and mandamus only when absolutely necessary or when serious and important reasons exist to justifY an exception to
the policy. x x x
x x x Where the issuance of an extraordinary writ is also within the competence of the Court of Appeals or a Regional Trial Court, it is
in either of these courts that the specific action for the writ's procurement must be presented. This is and should continue to be the
policy in this regard, a policy that courts and lawyers must strictly observe. x x x 53
Petitioners' invocation of "transcendental importance" is hollow and does not merit the relaxation of the rule on hierarchy of courts.
There being no special, important or compelling reason that justified the direct filing of the petitions in the Court in violation of the
policy on hierarchy of courts, their outright dismissal on this ground is further warranted. 54

The petitioners failed to implead indispensable parties.

The cogent submissions of the PSE in its Comment-in-Intervention dated June 16, 2014 55 and SHAREPHIL in its Omnibus Motion [1]
For Leave to Intervene; and [2] To Admit Attached Comment-in-Intervention dated May 30, 2016 56 demonstrate how petitioners
should have impleaded not only PLDT but all other corporations in nationalized and partlynationalized industries because the
propriety of the SEC's enforcement of the Court's interpretation of "capital" through SEC-MC No. 8 affects them as well.

Under Section 3, Rule 7 of the Rules of Court, an indispensable party is a party-in-interest without whom there can be no final
determination of an action. Indispensable parties are those with such a material and direct interest in the controversy that a final
decree would necessarily affect their rights, so that the court cannot proceed without their presence. 57 The interests of such
indispensable parties in the subject matter of the suit and the relief are so bound with those of the other parties that their legal
presence as parties to the proceeding is an absolute necessity and a complete and efficient determination of the equities and rights
of the parties is not possible if they are not joined.58

Other than PLDT, the petitions failed to join or implead other public utility corporations subject to the same restriction imposed by
Section 11, Article XII of the Constitution. These corporations are in danger of losing their franchise and property if they are found
not compliant with the restrictive interpretation of the constitutional provision under review which is being espoused by petitioners.
They should be afforded due notice and opportunity to be heard, lest they be deprived of their property without due process.

Not only are public utility corporations other than PLDT directly and materially affected by the outcome of the petitions, their
shareholders also stand to suffer in case they will be forced to divest their shareholdings to ensure compliance with the said
restrictive interpretation of the term "capital". As explained by SHAREPIDL, in five corporations alone, more than Php158 Billion
worth of shares must be divested by foreign shareholders and absorbed by Filipino investors if petitioners' position is upheld. 59

Petitioners' disregard of the rights of these other corporations and numerous shareholders constitutes another fatal procedural flaw,
justifYing the dismissal of their petitions. Without giving all of them their day in court, they will definitely be deprived of their
property without due process of law.

During the deliberations, Justice Velasco stressed on the foregoing procedural objections to the granting of the petitions; and Justice
Bersamin added that the special civil action for certiorari and prohibition is not the proper remedy to assail SEC-MC No. 8 because it
was not issued under the adjudicatory or quasi-judicial functions of the SEC.chanroblesvirtuallawlibrary
 The Substantive Issue

The only substantive issue that the petitions assert is whether the SEC's issuance of SEC-MC No. 8 is tainted with grave abuse of
discretion.

The Court holds that, even if the resolution of the procedural issues were conceded in favor of petitioners, the petitions, being
anchored on Rule 65, must nonetheless fail because the SEC did not commit grave abuse of discretion amounting to lack or excess of
jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in fealty to
the Gamboa Decision and Resolution.

The ratio in the Gamboa Decision and Gamboa Resolution.

To determine what the Court directed the SEC to do - and therefore resolve whether what the SEC did amounted to grave abuse of
discretion - the Court resorts to the decretal portion of the Gamboa Decision, as this is the portion of the decision that a party relies
upon to determine his or her rights and duties,60viz:chanRoblesvirtualLawlibrary
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section II, Article XII of the I987 Constitution refers
only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to
the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and
Exchange Commission is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section II, Article XII of the
Constitution, to impose the appropriate sanctions under the law. 61
In turn, the Gamboa Resolution stated:chanRoblesvirtualLawlibrary
In any event, the SEC has expressly manifested62 that it will abide by the Court's decision and defer to the Court's definition of the
term "capital" in Section II, Article XII of the Constitution. Further, the SEC entered its special appearance in this case and argued
during the Oral Arguments, indicating its submission to the Court's jurisdiction. It is clear, therefore, that there exists no legal
impediment against the proper and immediate implementation of the Court's directive to the SEC.

xxxx

x x x The dispositive portion of the Court's ruling is addressed not to PLDT but solely to the SEC, which is the administrative agency
tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution. 63
To recall, the sole issue in the Gamboa case was: "whether the term 'capital' in Section 11, Article XII of the Constitution refers to the
total common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of
PLDT, a public utility."64

The Court directly answered the Issue and consistently defined the term "capital" as follows:chanRoblesvirtualLawlibrary
x x x The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common shares, and not to the total outstanding capital stock comprising both
common and non voting preferred shares.

xxxx

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no
voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred
shares also have the right to vote in the election of directors, then the term "capital" shall include such preferred shares because the
right to participate in the control or management of the corporation is exercised through the right to vote in the election of
directors. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors.65
The decretal portion of the Gamboa Decision follows the definition of the term "capital" in the body of the decision, to wit: "x x x we
x x x rule that the term 'capital' in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common
and non-voting preferred shares)."66

The Court adopted the foregoing definition of the term "capital" in Section 11, Article XII of the 1987 Constitution in furtherance of
"the intent and letter of the Constitution that the 'State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos' [because a] broad definition unjustifiably disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility." 67 The Court, recognizing that the provision is an express recognition of the
sensitive and vital position of public utilities both in the national economy and for national security, also pronounced that the evident
purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the
national interest.68 Further, the Court noted that the foregoing interpretation is consistent with the intent of the framers of the
Constitution to place in the hands of Filipino citizens the control and management of public utilities; and, as revealed in the
deliberations of the Constitutional Commission, "capital" refers to the voting stock or controlling interest of a corporation.69

In this regard, it would be apropos to state that since Filipinos own at least 60% of the outstanding shares of stock entitled to vote
directors, which is what the Constitution precisely requires, then the Filipino stockholders control the corporation, i.e., they dictate
corporate actions and decisions, and they have all the rights of ownership including, but not limited to, offering certain preferred
shares that may have greater economic interest to foreign investors - as the need for capital for corporate pursuits (such as
expansion), may be good for the corporation that they own. Surely, these "true owners" will not allow any dilution of their ownership
and control if such move will not be beneficial to them.

As owners of the corporation, the economic benefits will necessarily accrue to them. There is thus no logical reason why Filipino
shareholders will allow foreigners to have greater economic benefits than them. It is illogical to speculate that they will create shares
which have features that will give greater economic interests or benefits than they are holding and not benefit from such offering, or
that they will allow foreigners to profit more than them from their own corporation - unless they are dummies. But, Commonwealth
Act No. 108, the Anti-Dummy Law, is NOT in issue in these petitions. Notably, even if the shares of a particular public utility were
owned 100% Filipino, that does not discount the possibility of a dummy situation from arising. Hence, even if the 60-40 ownership in
favor of Filipinos rule is applied separately to each class of shares of a public utility corporation, as the petitioners insist, the rule can
easily be side-stepped by a dummy relationship. In other words, even applying the 60-40 Filipino foreign ownership rule to each class
of shares will not assure the lofty purpose enunciated by petitioners.

The Court observed further in the Gamboa Decision that reinforcing this interpretation of the term "capital", as referring to interests
or shares entitled to vote, is the definition of a Philippine national in the Foreign Investments Act of 1991 ("FIA"), which is explained
in the Implementing Rules and Regulations of the FIA ("FIA-IRR"). The FIA-IRR provides:chanRoblesvirtualLawlibrary
Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock
whether fully paid or not, but only such stocks which are generally entitled to vote are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the
voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine
nationals.70
Echoing the FIA-IRR, the Court stated in the Gamboa Decision that:chanRoblesvirtualLawlibrary
Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Full beneficial ownership
of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]."

xxxx

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance
with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of
the voting rights, is constitutionally required for the State's grant of authority to operate a public utility. x x x 71
Was the definition of the term "capital" in Section 11, Article XII of the 1987 Constitution declared for the first time by the Court in
the Gamboa Decision modified in the Gamboa Resolution?

The Court is convinced that it was not. The Gamboa Resolution consists of 51 pages (excluding the dissenting opinions of Associate
Justices Velasco and Abad). For the most part of the Gamboa Resolution, the Court, after reviewing SEC and DOJ72 Opinions as well as
the provisions of the FIA and its predecessor statutes,73 reiterated that both the Voting Control Test and the Beneficial Ownership
Test must be applied to determine whether a corporation is a "Philippine national" 74 and that a "Philippine national," as defined in
the FIA and all its predecessor statutes, is "a Filipino citizen, or a domestic corporation "at least sixty percent (60%) of the capital
stock outstanding and entitled to vote," is owned by Filipino citizens. A domestic corporation is a "Philippine national" only if at least
60% of its voting stock is owned by Filipino citizens."75 The Court also reiterated that, from the deliberations of the Constitutional
Commission, it is evident that the term "capital" refers to controlling interest of a corporation,76 and the framers of the Constitution
intended public utilities to be majority Filipino-owned and controlled.
The "Final Word" of the Gamboa Resolution put to rest the Court's interpretation of the term "capital", and this is quoted verbatim,
to wit:chanRoblesvirtualLawlibrary
XII.
Final Word

The Constitution expressly declares as State policy the development of an economy "effectively controlled" by Filipinos. Consistent
with such State policy, the Constitution explicitly reserves the ownership and operation of public utilities to Philippine nationals, who
are defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose
capital with voting rights belongs to Filipinos. The FIA's implementing rules explain that "[f]or stocks to be deemed owned and held
by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial
ownership of stocks, coupled with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as well as
with full beneficial ownership. This is precisely because the right to vote in the election of directors, coupled with full beneficial
ownership of stocks, translates to effective control of a corporation. 77
Everything told, the Court, in both the Gamboa Decision and Gamboa Resolution, finally settled with the PIA's definition of
"Philippine national" as expounded in the FIA-IRR in construing the term "capital" in Section 11, Article XII of the 1987 Constitution.

The assailed SEC-MC No. 8.

The relevant provision in the assailed SEC-MC No. 8 IS Section 2, which provides:chanRoblesvirtualLawlibrary
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of
determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of
outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock,
whether or not entitled to vote in the election of directors. 78
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest requirement. In fact, Section 2 goes
beyond requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it moreover requires the 60-40 percentage
ownership in the total number of outstanding shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere
to the Court's unambiguous pronouncement that "[f]ull beneficial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights is required." 79Clearly, SEC-MC No. 8 cannot be said to have been issued with grave abuse of
discretion.

A simple illustration involving Company X with three kinds of shares of stock, easily shows how compliance with the requirements of
SEC-MC No. 8 will necessarily result to full and faithful compliance with the Gamboa Decision as well as the Gamboa Resolution.

The following is the composition of the outstanding capital stock of Company X:chanRoblesvirtualLawlibrary
100 common shares
100 Class A preferred shares (with right to elect directors)
100 Class B preferred shares (without right to elect directors)

SEC-MC No. 8 GAMBOA DECISION

(1) 60% (required percentage of Filipino) applied to the total "shares of stock entitled to vote in the election of
number of outstanding shares of stock entitled to vote in the directors"80 (60% of the voting rights)
election of directors

If at least a total of 120 of common shares and Class A preferred shares (in any combination) are owned and controlled by Filipinos,
Company X is compliant with the 60% of the voting rights in favor of Filipinos requirement of both SEC-MC No. 8 and
the Gamboa Decision.

SEC-MC No. 8 GAMBOA DECISION/RESOLUTION

(2) 60% (required percentage of Filipino) applied to BOTH (a) the
total number of outstanding shares of stock, entitled to vote in
the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote in
the election of directors.
"Full beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting rights" 81 or
"Full beneficial ownership of the stocks, coupled with
appropriate voting rights x x x shares with voting rights, as well
as with full beneficial ownership"82

If at least a total of 180 shares of all the outstanding capital stock of Company X are owned and controlled by Filipinos, provided that
among those 180 shares a total of 120 of the common shares and Class A preferred shares (in any combination) are owned and
controlled by Filipinos, then Company X is compliant with both requirements of voting rights and beneficial ownership under SEC-MC
No. 8 and the Gamboa Decision and Resolution.

From the foregoing illustration, SEC-MC No. 8 simply implemented, and is fully in accordance with, the Gamboa Decision and
Resolution.

While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial ownership of stocks requirement in
the FIA, this will not, as it does not, render it invalid meaning, it does not follow that the SEC will not apply this test in determining
whether the shares claimed to be owned by Philippine nationals are Filipino, i.e., are held by them by mere title or in full beneficial
ownership. To be sure, the SEC takes its guiding lights also from the FIA and its implementing rules, the Securities Regulation Code
(Republic Act No. 8799; "SRC") and its implementing rules.83

The full beneficial ownership test.

The minority justifies the application of the 60-40 Filipino-foreign ownership rule separately to each class of shares of a public utility
corporation in this fashion:chanRoblesvirtualLawlibrary
x x x The words "own and control," used to qualify the minimum Filipino participation in Section 11, Article XII of the Constitution,
reflects the importance of Filipinos having both the ability to influence the corporation through voting rights and economic benefits.
In other words, full ownership up to 60% of a public utility encompasses both control and economic rights, both of which must stay
in Filipino hands. Filipinos, who own 60% of the controlling interest, must also own 60% of the economic interest in a public utility.

x x x In mixed class or dual structured corporations, however, there is variance in the proportion of stockholders' controlling interest
visa-vis their economic ownership rights. This resulting variation is recognized by the Implementing Rules and Regulations (IRR) of the
Securities Regulation Code, which defined beneficial ownership as that may exist either through voting power and/or through
investment returns. By using and/or in defining beneficial ownership, the IRR, in effect, recognizes a possible situation where voting
power is not commensurate to investment power.
The definition of "beneficial owner" or "beneficial ownership" in the Implementing Rules and Regulations of the Securities Regulation
Code ("SRC-IRR") is consistent with the concept of"full beneficial ownership" in the FIA-IRR.

As defined in the SRC-IRR, "[b]eneficial owner or beneficial ownership means any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or shares voting power (which includes the power to vote or
direct the voting of such security) and/or investment returns or power (which includes the power to dispose of, or direct the
disposition of such security) x x x."84

While it is correct to state that beneficial ownership is that which may exist either through voting power and/or investment returns,
it does not follow, as espoused by the minority opinion, that the SRC-IRR, in effect, recognizes a possible situation where voting
power is not commensurate to investment power. That is a wrong syllogism. The fallacy arises from a misunderstanding on what the
definition is for. The "beneficial ownership" referred to in the definition, while it may ultimately and indirectly refer to the overall
ownership of the corporation, more pertinently refers to the ownership of the share subject of the question: is it Filipino-owned or
not?

As noted earlier, the FIA-IRR states:chanRoblesvirtualLawlibrary

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock
whether fully paid or not, but only such stocks which are generally entitled to vote are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the
voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine
nationals.85
The emphasized portions in the foregoing provision is the equivalent of the so-called "beneficial ownership test". That is all.

The term "full beneficial ownership" found in the FIA-IRR is to be understood in the context of the entire paragraph defining the term
"Philippine national". Mere legal title is not enough to meet the required Filipino equity, which means that it is not sufficient that a
share is registered in the name of a Filipino citizen or national, i.e., he should also have full beneficial ownership of the share. If the
voting right of a share held in the name of a Filipino citizen or national is assigned or transferred to an alien, that share is not to be
counted in the determination of the required Filipino equity. In the same vein, if the dividends and other fruits and accessions of the
share do not accrue to a Filipino citizen or national, then that share is also to be excluded or not counted.
In this regard, it is worth reiterating the Court's pronouncement in the Gamboa Decision, which is consistent with the FIA-
IRR, viz:chanRoblesvirtualLawlibrary
Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Full beneficial ownership
of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. x x x

xxxx

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance
with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent
of the voting rights, is constitutionally required (or the State's grant of authority to operate a public utility. x x x.86
And the "Final Word" of the Gamboa Resolution is in full accord with the foregoing pronouncement of the Court, to
wit:chanRoblesvirtualLawlibrary
XII.
Final Word

x x x The FIA's implementing rules explain that "[f]or stocks to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential."87
Given that beneficial ownership of the outstanding capital stock of the public utility corporation has to be determined for purposes of
compliance with the 60% Filipino ownership requirement, the definition in the SRC-IRR can now be applied to resolve only the
question of who is the beneficial owner or who has beneficial ownership of each "specific stock" of the said corporation. Thus, if a
"specific stock" is owned by a Filipino in the books of the corporation, but the stock's voting power or disposing power belongs to a
foreigner, then that "specific stock" will not be deemed as "beneficially owned" by a Filipino.

Stated inversely, if the Filipino has the "specific stock's" voting power (he can vote the stock or direct another to vote for him), or the
Filipino has the investment power over the "specific stock" (he can dispose of the stock or direct another to dispose it for him), or he
has both (he can vote and dispose of the "specific stock" or direct another to vote or dispose it for him), then such Filipino is the
"beneficial owner" of that "specific stock" and that "specific stock" is considered (or counted) as part of the 60% Filipino ownership
of the corporation. In the end, all those "specific stocks" that are determined to be Filipino (per definition of "beneficial owner" or
"beneficial ownership") will be added together and their sum must be equivalent to at least 60% of the total outstanding shares of
stock entitled to vote in the election of directors and at least 60% of the total number of outstanding shares of stock, whether or not
entitled to vote in the election of directors.

To reiterate, the "beneficial owner or beneficial ownership" definition in the SRC-IRR is understood only in determining the respective
nationalities of the outstanding capital stock of a public utility corporation in order to determine its compliance with the percentage
of Filipino ownership required by the Constitution.

The restrictive re-interpretation of "capital" as insisted by the petitioners is unwarranted.

Petitioners' insistence that the 60% Filipino equity requirement must be applied to each class of shares is simply beyond the literal
text and contemplation of Section 11, Article XII of the 1987 Constitution, viz:chanRoblesvirtualLawlibrary
Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum or
whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation
or association must be citizens of the Philippines.
As worded, effective control by Filipino citizens of a public utility is already assured in the provision. With respect to a stock
corporation engaged in the business of a public utility, the constitutional provision mandates three safeguards: (1) 60% of its capital
must be owned by Filipino citizens; (2) participation of foreign investors in its board of directors is limited to their proportionate
share in its capital; and (3) all its executive and managing officers must be citizens of the Philippines.

In the exhaustive review made by the Court in the Gamboa Resolution of the deliberations of the Constitutional Commission, the
opinions of the framers of the 1987 Constitution, the opinions of the SEC and the DOJ as well as the provisions of the FIA, its
implementing rules and its predecessor statutes, the intention to apply the voting control test and the beneficial ownership test
was not mentioned in reference to "each class of shares." Even the Gamboa Decision was silent on this point.

To be sure, the application of the 60-40 Filipino-foreign ownership requirement separately to each class of shares, whether common,
preferred non-voting, preferred voting or any other class of shares fails to understand and appreciate the nature and features of
stocks as financial instruments.88

There are basically only two types of shares or stocks, i.e., common stock and preferred stock. However, the classes and variety of
shares that a corporation may issue are dictated by the confluence of the corporation's financial position and needs, business
opportunities, short-term and long term targets, risks involved, to name a few; and they can be classified and re-classified from time
to time. With respect to preferred shares, there are cumulative preferred shares, non-cumulative preferred shares, convertible
preferred shares, participating preferred shares.

Because of the different features of preferred shares, it is required that the presentation and disclosure of these financial instruments
in financial statements should be in accordance with the substance of the contractual arrangement and the definitions of a financial
liability, a financial asset and an equity instrument. 89

Under IAS90 32.16, a financial instrument is an equity instrument only if (a) the instrument includes no contractual obligation to
deliver cash or another financial asset to another entity, and (b) if the instrument will or may be settled in the issuer's own equity
instruments, it is either: (i) a non derivative that includes no contractual obligation for the issuer to deliver a variable number of its
own equity instruments; or (ii) a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another
financial asset for a fixed number of its own equity instruments. 91

The following are illustrations of how preferred shares should be presented and disclosed:chanRoblesvirtualLawlibrary
Illustration - preference shares

If an entity issues preference (preferred) shares that pay a fixed rate of dividend and that have a mandatory redemption feature at a
future date, the substance is that they are a contractual obligation to deliver cash and, therefore, should be recognized as a liability.
[IAS 32.18(a)] In contrast, preference shares that do not have a fixed maturity, and where the issuer does not have a contractual
obligation to make any payment are equity. In this example even though both instruments are legally termed preference shares they
have different contractual terms and one is a financial liability while the other is equity.

Illustration - issuance of fixed monetary amount of equity instruments

A contractual right or obligation to receive or deliver a number of its own shares or other equity instruments that varies so that the
fair value of the entity's own equity instruments to be received or delivered equals the fixed monetary amount of the contractual
right or obligation is a financial liability. [IAS 32.20]

Illustration - one party bas a choice over bow an instrument is settled

When a derivative financial instrument gives one party a choice over how it is settled (for instance, the issuer or the holder can
choose settlement net in cash or by exchanging shares for cash), it is a financial asset or a financial liability unless all of the
settlement alternatives would result in it being an equity instrument. [IAS 32.26] 92
The fact that from an accounting standpoint, the substance or essence of the financial instrument is the key determinant whether it
should be categorized as a financial liability or an equity instrument, there is no compelling reason why the same treatment may not
be recognized from a legal perspective. Thus, to require Filipino shareholders to acquire preferred shares that are substantially debts,
in order to meet the "restrictive" Filipino ownership requirement that petitioners espouse, may not bode well for the Philippine
corporation and its Filipino shareholders.

Parenthetically, given the innumerable permutations that the types and classes of stocks may take, requiring the SEC and other
government agencies to keep track of the ever-changing capital classes of corporations will be impracticable, if not downright
impossible. And the law does not require the impossible. (Lex non cogit ad impossibilia.)93

That stock corporations are allowed to create shares of different classes with varying features is a flexibility that is granted, among
others, for the corporation to attract and generate capital (funds) from both local and foreign capital markets. This access to capital -
which a stock corporation may need for expansion, debt relief/repayment, working capital requirement and other corporate pursuits
- will be greatly eroded with further unwarranted limitations that are not articulated in the Constitution. The intricacies and delicate
balance between debt instruments (liabilities) and equity (capital) that stock corporations need to calibrate to fund their business
requirements and achieve their financial targets are better left to the judgment of their boards and officers, whose bounden duty is
to steer their companies to financial stability and profitability and who are ultimately answerable to their shareholders.

Going back to the illustration above, the restrictive meaning of the term "capital" espoused by petitioners will definitely be complied
with if 60% of each of the three classes of shares of Company X, consisting of 100 common shares, 100 Class A preferred shares (with
right to elect directors) and 100 Class B preferred shares (without right to elect directors), is owned by Filipinos. However, what if the
60% Filipino ownership in each class of preferred shares, i.e., 60 Class A preferred shares and 60 Class B preferred shares, is not fully
subscribed or achieved because there are not enough Filipino takers? Company X will be deprived of capital that would otherwise be
accessible to it were it not for this unwarranted "restrictive" meaning of "capital".

The fact that all shares have the right to vote in 8 specific corporate actions as provided in Section 6 of the Corporation Code does
not per se justify the favorable adoption of the restrictive re-interpretation of "capital" as the petitioners espouse. As observed in
the Gamboa Decision, viz:chanRoblesvirtualLawlibrary
The Corporation Code of the Philippines classifies shares as common or preferred, thus:chanRoblesvirtualLawlibrary
Sec. 6. Classification of shares. The shares of stock of stock corporations may be divided into classes or series of shares, or both, any
of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation:
Provided, That no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable"
shares, unless otherwise provided in this Code: Provided, further, That there shall always be a class or series of shares which have
complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for
in the articles of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building
and loan associations shall not be permitted to issue no-par value shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in
case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation
which are not violative of the provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated par
value. The Board of Directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares
of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with
the Securities and Exchange Commission.

xxxx

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all
respects to every other share.

Where the articles of incorporation provide for non voting shares in the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:cralawlawlibrary

1. Amendment of the articles of incorporation;ChanRoblesVirtualawlibrary

2. Adoption and amendment of by-laws;ChanRoblesVirtualawlibrary

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;ChanRoblesVirtualawlibrary

4. Incurring, creating or increasing bonded indebtedness;ChanRoblesVirtualawlibrary

5. Increase or decrease of capital stock;ChanRoblesVirtualawlibrary

6. Merger or consolidation of the corporation with another corporation or other corporations;ChanRoblesVirtualawlibrary

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in
this Code shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. This is
exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation. In
the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same
voting rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right
to vote in the election of directors and on other matters, on the theory that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders. In fact, under the Corporation Code only preferred or redeemable
shares can be deprived of the right to vote. Common shares cannot be deprived of the right to vote in any corporate meeting, and
any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid.

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no
voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred
shares also have the right to vote in the election of directors, then the term "capital" shall include such preferred shares because the
right to participate in the control or management of the corporation is exercised through the right to vote in the election of
directors. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control
and management of public utilities. As revealed in the deliberations of the Constitutional Commission, "capital" refers to the voting
stock or controlling interest of a corporation x x x.94
The Gamboa Decision held that preferred shares are to be factored in only if they are entitled to vote in the election of directors. If
preferred shares have no voting rights, then they cannot elect members of the board of directors, which wields control of the
corporation. As to the right of non voting preferred shares to vote in the 8 instances enumerated in Section 6 of the Corporation
Code, the Gamboa Decision considered them but, in the end, did not find them significant in resolving the issue of the proper
interpretation of the word "capital" in Section 11, Article XII of the Constitution.

Therefore, to now insist in the present case that preferred shares be regarded differently from their unambiguous treatment in
the Gamboa Decision is enough proof that the Gamboa Decision, which had attained finality more than 4 years ago, is being
drastically changed or expanded.

In this regard, it should be noted that the 8 corporate matters enumerated in Section 6 of the Corporation Code require, at the
outset, a favorable recommendation by the management to the board. As mandated by Section 11, Article XII of the Constitution, all
the executive and managing officers of a public utility company must be Filipinos. Thus, the all-Filipino management team must first
be convinced that any of the 8 corporate actions in Section 6 will be to the best interest of the company. Then, when the all-Filipino
management team recommends this to the board, a majority of the board has to approve the recommendation and, as required by
the Constitution, foreign participation in the board cannot exceed 40% of the total number of board seats. Since the Filipino directors
comprise the majority, they, if united, do not even need the vote of the foreign directors to approve the intended corporate act. After
approval by the board, all the shareholders (with and without voting rights) will vote on the corporate action. The required vote in
the shareholders' meeting is 2/3 of the outstanding capital stock. 95 Given the super majority vote requirement, foreign shareholders
cannot dictate upon their Filipino counterpart. However, foreigners (if owning at least a third of the outstanding capital stock) must
agree with Filipino shareholders for the corporate action to be approved. The 2/3 voting requirement applies to all corporations,
given the significance of the 8 corporate actions contemplated in Section 6 of the Corporation Code.

In short, if the Filipino officers, directors and shareholders will not approve of the corporate act, the foreigners are helpless.

Allowing stockholders holding preferred shares without voting rights to vote in the 8 corporate matters enumerated in Section 6 is an
acknowledgment of their right of ownership. If the owners of preferred shares without right to vote/elect directors are not allowed
to vote in any of those 8 corporate actions, then they will not be entitled to the appraisal right provided under Section 81 96 of the
Corporation Code in the event that they dissent in the corporate act. As required in Section 82, the appraisal right can only be
exercised by any stockholder who voted against the proposed action. Thus, without recognizing the right of every stockholder to vote
in the 8 instances enumerated in Section 6, the stockholder cannot exercise his appraisal right in case he votes against the corporate
action. In simple terms, the right to vote in the 8 instances enumerated in Section 6 is more in furtherance of the stockholder's right
of ownership rather than as a mode of control.

As to financial interest, giving short-lived preferred or superior terms to certain classes or series of shares may be a welcome option
to expand capital, without the Filipino shareholders putting up additional substantial capital and/or losing ownership and control of
the company. For shareholders who are not keen on the creation of those shares, they may opt to avail themselves of their appraisal
right. As acknowledged in the Gamboa Decision, preferred shareholders are merely investors in the company for income in the same
manner as bondholders. Without a lucrative package, including an attractive return of investment, preferred shares will not be
subscribed and the much-needed additional capital will be elusive. A too restrictive definition of "capital", one which was never
contemplated in the Gamboa Decision, will surely have a dampening effect on the business milieu by eroding the flexibility inherent
in the issuance of preferred shares with varying terms and conditions. Consequently, the rights and prerogatives of the owners of the
corporation will be unwarrantedly stymied.

Moreover, the restrictive interpretation of the term "capital" would have a tremendous impact on the country as a whole and to all
Filipinos.

The PSE's Comment-in-Intervention dated June 16, 2014 97 warns that:chanRoblesvirtualLawlibrary

80. [R]edefining "capital" as used in Section 11, Article XII of the 1987 Constitution and adopting the supposed "Effective Control
Test" will lead to disastrous consequences to the Philippine stock market.

81. Current data of the PSE show that, if the "Effective Control Test" were applied, the total value of shares that would be deemed in
excess of the foreign-ownership limits based on stock prices as of 30 April 2014 is One Hundred Fifty Nine Billion Six Hundred Thirty
Eight Million Eight Hundred Forty Five Thousand Two Hundred Six Pesos and Eighty Nine Cents (Php159,638,845,206.89).

82. The aforementioned value of investments would have to be discharged by foreign holders, and consequently must be absorbed
by Filipino investors. Needless to state, the lack of investments may lead to shutdown of the affected enterprises and to
immeasurable consequences to the Philippine economy. 98
In its Omnibus Motion [1] For Leave to Intervene; and [2] To Admit Attached Comment-in-Intervention dated May 30,
2016,99 SHAREPHIL further warns that "[t]he restrictive re-interpretation of the term "capital" will result in massive forced divestment
of foreign stockholdings in Philippine corporations."100 SHAREPHIL explains:chanRoblesvirtualLawlibrary
4.51. On 16 October 2012, Deutsche Bank released a Market Research Study, which analyzed the implications of the ruling
in Gamboa. The Market Research Study stated that:chanRoblesvirtualLawlibrary
"If this thinking is applied and becomes established precedent, it would significantly expand on the rules for determining nationality
in partially nationalized industries. If that were to happen, not only will PLDT's move to issue the 150m voting prefs be inadequate to
address the issue, a large number of listed companies with similar capital structures could also be affected."
4.52. In five (5) companies alone, One Hundred Fifty Eight Billion Pesos (PhP158,000,000,000.00) worth of shares will have to be sold
by foreign shareholders in a forced divestment, if the obiter in Gamboa were to be implemented. Foreign shareholders of PLDT will
have to divest One Hundred Three Billion Eight Hundred Sixty Million Pesos (PhP103,860,000,000.00) worth of shares.

a. Foreign shareholders of Globe Telecom will have to divest Thirty Eight Billion Two Hundred Fifty Million Pesos
(PhP38,250,000,000.00) worth of shares.

b. Foreign shareholders of Ayala Land will have to divest Seventeen Billion Five Hundred Fifty Million Pesos
(PhP17,550,000,000.00) worth of shares.

c. Foreign shareholders of ICTSI will have to divest Six Billion Four Hundred Ninety Million Pesos
(PhP6,490,000,000.00) worth of shares.

d. Foreign shareholders of MWC will have to divest Seven Billion Seven Hundred Fourteen Million Pesos
(PhP7,714,000,000.00) worth of shares.

4.53. Clearly, the local stock market which has an average value turn-over of Seven Billion Pesos cannot adequately absorb the influx
of shares caused by the forced divestment. As a result, foreign stockholders will have to sell these shares at bargain prices just to
comply with the Obiter.

4.54. These shares being part of the Philippine index, their forced divestment vis-a-vis the inability of the local stock market to absorb
these shares will necessarily bring immense downward pressure on the index. A domino-effect implosion of the Philippine stock
market and the Philippine economy, in general is not remote. x x x. 101
Petitioners have failed to counter or refute these submissions of the PSE and SHAREPHIL. These unrefuted observations indicate to
the Court that a restrictive interpretation - or rather, re-interpretation, of "capital", as already defined with finality in
the Gamboa Decision and Resolution - directly affects the well-being of the country and cannot be labelled as "irrelevant and
impertinent concerns x x x add[ing] burden [to] the Court." 102 These observations by the PSE103 and SHAREPHIL,104 unless refuted,
must be considered by the Court to be valid and sound.

The Court in Abacus Securities Corp. v. Ampil105 observed that: "[s]tock market transactions affect the general public and the national
economy. The rise and fall of stock market indices reflect to a considerable degree the state of the economy. Trends in stock prices
tend to herald changes in business conditions. Consequently, securities transactions are impressed with public interest x x x." 106 The
importance of the stock market in the economy cannot simply be glossed over.

In view of the foregoing, the pronouncement of the Court in the Gamboa Resolution - the constitutional requirement to apply
uniformly and across the board to all classes of shares, regardless of nomenclature and category, comprising the capital of a
corporation107 - is clearly an obiter dictum that cannot override the Court's unequivocal definition of the term "capital" in both
the Gamboa Decision and Resolution.

Nowhere in the discussion of the definition of the term "capital" in Section 11, Article XII of the 1987 Constitution in
the Gamboa Decision did the Court mention the 60% Filipino equity requirement to be applied to each class of shares. The definition
of "Philippine national" in the FIA and expounded in its IRR, which the Court adopted in its interpretation of the term "capital", does
not support such application. In fact, even the Final Word of the Gamboa Resolution does not even intimate or suggest the need for
a clarification or re-interpretation.

To revisit or even clarify the unequivocal definition of the term "capital" as referring "only to shares of stock entitled to vote in the
election of directors" and apply the 60% Filipino ownership requirement to each class of share is effectively and unwarrantedly
amending or changing the Gamboa Decision and Resolution. The Gamboa Decision and Resolution Doctrine did NOT make any
definitive ruling that the 60% Filipino ownership requirement was intended to apply to each class of share.

In Malayang Manggagawa ng Stayfast Phils., Inc. v. NLRC,108 the Court stated:chanRoblesvirtualLawlibrary

Where a petition for certiorari under Rule 65 of the Rules of Court alleges grave abuse of discretion, the petitioner should establish
that the respondent court or tribunal acted in a capricious, whimsical, arbitrary or despotic manner in the exercise of its
jurisdiction as to be equivalent to lack of jurisdiction. This is so because "grave abuse of discretion" is well-defined and not an
amorphous concept that may easily be manipulated to suit one's purpose. In this connection, Yu v. Judge Reyes-Carpio, is
instructive:chanRoblesvirtualLawlibrary
The term "grave abuse of discretion" has a specific meaning. An act of a court or tribunal can only be considered as with grave abuse
of discretion when such act is done in a "capricious or whimsical exercise of judgment as is equivalent to lack of jurisdiction." The
abuse of discretion must be so patent and gross as to amount to an "evasion of a positive duty or to a virtual refusal to perform a
duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by
reason of passion and hostility." Furthermore, the use of a petition for certiorari is restricted only to "truly extraordinary cases
wherein the act of the lower court or quasi-judicial body is wholly void." From the foregoing definition, it is clear that the special civil
action of certiorari under Rule 65 can only strike an act down for having been done with grave abuse of discretion if the petitioner
could manifestly show that such act was patent and gross. x x x.
The onus rests on petitioners to clearly and sufficiently establish that the SEC, in issuing SEC-MC No. 8, acted in a capricious,
whimsical, arbitrary or despotic manner in the exercise of its jurisdiction as to be equivalent to lack of jurisdiction or that the SEC's
abuse of discretion is so patent and gross as to amount to an evasion of a positive duty or to a virtual refusal to perform a duty
enjoined by law, or to act at all in contemplation of law and the Gamboa Decision and Resolution. Petitioners miserably failed in this
respect.

The clear and unequivocal definition of "capital" in Gamboa has attained finality.

It is an elementary principle in procedure that the resolution of the court in a given issue as embodied in the dispositive portion
or fallo of a decision controls the settlement of rights of the parties and the questions, notwithstanding statement in the body of the
decision which may be somewhat confusing, inasmuch as the dispositive part of a final decision is definite, clear and unequivocal and
can be wholly given effect without need of interpretation or construction. 109

As explained above, the fallo or decretal/dispositive portions of both the Gamboa Decision and Resolution are definite, clear and
unequivocaL While there is a passage in the body of the Gamboa Resolution that might have appeared contrary to the fallo of
the Gamboa Decision - capitalized upon by petitioners to espouse a restrictive re-interpretation of "capital" - the definiteness and
clarity of the fallo of the Gamboa Decision must control over the obiter dictum in the Gamboa Resolution regarding the application
of the 60-40 Filipino-foreign ownership requirement to "each class of shares, regardless of differences in voting rights, privileges and
restrictions."

The final judgment as rendered is the judgment of the court irrespective of all seemingly contrary statements in the decision because
at the root of the doctrine that the premises must yield to the conclusion is, side by side with the need of writing finis to litigations,
the recognition of the truth that "the trained intuition of the judge continually leads him to right results for which he is puzzled to
give unimpeachable legal reasons."110
Petitioners cannot, after Gamboa has attained finality, seek a belated correction or reconsideration of the Court's unequivocal
definition of the term "capital". At the core of the doctrine of finality of judgments is that public policy and sound practice demand
that, at the risk of occasional errors, judgments of courts should become final at some definite date fixed by law and the very objects
for which courts were instituted was to put an end to controversies. 111 Indeed, the definition of the term "capital" in the fallo of
the Gamboa Decision has acquired finality.

Because the SEC acted pursuant to the Court's pronouncements in both the Gamboa Decision and Gamboa Resolution, then it could
not have gravely abused its discretion. That portion found in the body of the Gamboa Resolution which the petitioners rely upon is
nothing more than an obiter dictum and the SEC could not be expected to apply it as it was not - is not - a binding pronouncement of
the Court.112

Furthermore, as opined by Justice Bersamin during the deliberations, the doctrine of immutability of judgment precludes the Court
from re examining the definition of "capital" under Section 11, Article XII of the Constitution. Under the doctrine of finality and
immutability of judgment, a decision that has acquired finality becomes immutable and unalterable, and may no longer be modified
in any respect, even if the modification is meant to correct erroneous conclusions of fact and law, and even if the modification is
made by the court that rendered it or by the Highest Court of the land. Any act that violates the principle must be immediately
stricken down.113 The petitions have not succeeded in pointing to any exceptions to the doctrine of finality of judgments, under which
the present case falls, to wit: (1) the correction of clerical errors; (2) the so-called nunc pro tunc entries which cause no prejudice to
any party; (3) void judgments; and (4) whenever circumstances transpire after the finality of the decision rendering its execution
unjust and inequitable.114

With the foregoing disquisition, the Court rules that SEC-MC No. 8 is not contrary to the Court's definition and interpretation of the
term "capital". Accordingly, the petitions must be denied for failing to show grave abuse of discretion in the issuance of SEC-MC No.
8.

The petitions are second motions for Reconsideration, which are proscribed.

As Justice Bersamin further noted during the deliberations, the petitions are in reality second motions for reconsideration prohibited
by the Internal Rules of the Supreme Court.115 The parties, particularly intervenors Gamboa, et al., could have filed a motion for
clarification in Gamboa in order to fill in the perceived shortcoming occasioned by the non-inclusion in the dispositive portion of
the Gamboa Resolution of what was discussed in the body.116 The statement in the fallo of the Gamboa Resolution to the effect that
"[n]o further pleadings shall be entertained" could not be a hindrance to a motion for clarification that sought an unadulterated
inquiry arising upon an ambiguity in the decision. 117

Closing

Ultimately, the key to nationalism is in the individual. Particularly for a public utility corporation or association, whether stock or non-
stock, it starts with the Filipino shareholder or member who, together with other Filipino shareholders or members wielding 60%
voting power, elects the Filipino director who, in turn, together with other Filipino directors comprising a majority of the board of
directors or trustees, appoints and employs the all-Filipino management team. This is what is envisioned by the Constitution to
assure effective control by Filipinos. If the safeguards, which are already stringent, fail, i.e., a public utility corporation whose voting
stocks are beneficially owned by Filipinos, the majority of its directors are Filipinos, and all its managing officers are Filipinos, is pro-
alien (or worse, dummies), then that is not the fault or failure of the Constitution. It is the breakdown of nationalism in each of the
Filipino shareholders, Filipino directors and Filipino officers of that corporation. No Constitution, no decision of the Court, no
legislation, no matter how ultranationalistic they are, can guarantee nationalism.

WHEREFORE, premises considered, the Court DENIES the Petition and Petition-in-Intervention.

SO ORDERED.
G.R. No. 169752 September 25, 2007

PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS, Petitioners,

vs.
COMMISSION ON AUDIT, DIR. RODULFO J. ARIESGA (in his official capacity as Director of the Commission on Audit), MS. MERLE M.
VALENTIN and MS. SUSAN GUARDIAN (in their official capacities as Team Leader and Team Member, respectively, of the audit
Team of the Commission on Audit), Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a special civil action for Certiorari and Prohibition under Rule 65 of the Rules of Court, in relation to Section 2 of
Rule 64, filed by the petitioner assailing Office Order No. 2005-021 1 dated September 14, 2005 issued by the respondents which
constituted the audit team, as well as its September 23, 2005 Letter 2informing the petitioner that respondents audit team shall
conduct an audit survey on the petitioner for a detailed audit of its accounts, operations, and financial transactions. No temporary
restraining order was issued.

The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No. 1285, enacted on January 19,
1905, by the Philippine Commission. The petitioner, at the time it was created, was composed of animal aficionados and animal
propagandists. The objects of the petitioner, as stated in Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted
upon animals or the protection of animals in the Philippine Islands, and generally, to do and perform all things which may tend in any
way to alleviate the suffering of animals and promote their welfare. 3

At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in existence. Act No. 1285
antedated both the Corporation Law and the constitution of the Securities and Exchange Commission. Important to note is that the
nature of the petitioner as a corporate entity is distinguished from the sociedad anonimas under the Spanish Code of Commerce.

For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the protection of animals, the petitioner
was initially imbued under its charter with the power to apprehend violators of animal welfare laws. In addition, the petitioner was
to share one-half (1/2) of the fines imposed and collected through its efforts for violations of the laws related thereto. As originally
worded, Sections 4 and 5 of Act No. 1285 provide:

SEC. 4. The said society is authorized to appoint not to exceed five agents in the City of Manila, and not to exceed two in each of the
provinces of the Philippine Islands who shall have all the power and authority of a police officer to make arrests for violation of the
laws enacted for the prevention of cruelty to animals and the protection of animals, and to serve any process in connection with the
execution of such laws; and in addition thereto, all the police force of the Philippine Islands, wherever organized, shall, as occasion
requires, assist said society, its members or agents, in the enforcement of all such laws.
SEC. 5. One-half of all the fines imposed and collected through the efforts of said society, its members or its agents, for violations of
the laws enacted for the prevention of cruelty to animals and for their protection, shall belong to said society and shall be used to
promote its objects.

(emphasis supplied)

Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the fines collected for violation of
animal-related laws were recalled by virtue of Commonwealth Act (C.A.) No. 148, 4 which reads, in its entirety, thus:

Be it enacted by the National Assembly of the Philippines:

Section 1. Section four of Act Numbered Twelve hundred and eighty-five as amended by Act Numbered Thirty five hundred and forty-
eight, is hereby further amended so as to read as follows:

Sec. 4. The said society is authorized to appoint not to exceed ten agents in the City of Manila, and not to exceed one in each
municipality of the Philippines who shall have the authority to denounce to regular peace officers any violation of the laws enacted
for the prevention of cruelty to animals and the protection of animals and to cooperate with said peace officers in the prosecution of
transgressors of such laws.

Sec. 2. The full amount of the fines collected for violation of the laws against cruelty to animals and for the protection of
animals, shall accrue to the general fund of the Municipality where the offense was committed.

Sec. 3. This Act shall take effect upon its approval.

Approved, November 8, 1936. (Emphasis supplied)

Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.) No. 63 dated November 12, 1936, portions of
which provide:

Whereas, during the first regular session of the National Assembly, Commonwealth Act Numbered One Hundred Forty Eight
was enacted depriving the agents of the Society for the Prevention of Cruelty to Animals of their power to arrest persons who have
violated the laws prohibiting cruelty to animals thereby correcting a serious defect in one of the laws existing in our statute books.

xxxx

Whereas, the cruel treatment of animals is an offense against the State, penalized under our statutes, which the Government is duty
bound to enforce;

Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the authority conferred upon me by the Constitution,
hereby decree, order, and direct the Commissioner of Public Safety, the Provost Marshal General as head of the Constabulary
Division of the Philippine Army, every Mayor of a chartered city, and every municipal president to detail and organize special
members of the police force, local, national, and the Constabulary to watch, capture, and prosecute offenders against the laws
enacted to prevent cruelty to animals. (Emphasis supplied)

On December 1, 2003, an audit team from respondent Commission on Audit (COA) visited the office of the petitioner to conduct an
audit survey pursuant to COA Office Order No. 2003-051 dated November 18, 2003 5addressed to the petitioner. The petitioner
demurred on the ground that it was a private entity not under the jurisdiction of COA, citing Section 2(1) of Article IX of the
Constitution which specifies the general jurisdiction of the COA, viz:

Section 1. General Jurisdiction. The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled
corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and officers that have been
granted fiscal autonomy under the Constitution; (b) autonomous state colleges and universities; (c) other government-owned or
controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the government, which are required by law or the granting institution to submit to such audit as a
condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission
may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It
shall keep the general accounts of the Government, and for such period as may be provided by law, preserve the vouchers and other
supporting papers pertaining thereto. (Emphasis supplied)

Petitioner explained thus:

a. Although the petitioner was created by special legislation, this necessarily came about because in January 1905 there was
as yet neither a Corporation Law or any other general law under which it may be organized and incorporated, nor a
Securities and Exchange Commission which would have passed upon its organization and incorporation.

b. That Executive Order No. 63, issued during the Commonwealth period, effectively deprived the petitioner of its power to
make arrests, and that the petitioner lost its operational funding, underscore the fact that it exercises no governmental
function. In fine, the government itself, by its overt acts, confirmed petitioners status as a private juridical entity.

The COA General Counsel issued a Memorandum6 dated May 6, 2004, asserting that the petitioner was subject to its audit authority.
In a letter dated May 17, 2004,7 respondent COA informed the petitioner of the result of the evaluation, furnishing it with a copy of
said Memorandum dated May 6, 2004 of the General Counsel.

Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated May 19, 2004, 8 insisting that it was a private
domestic corporation.

Acting on the said request, the General Counsel of respondent COA, in a Memorandum dated July 13, 2004, 9affirmed her earlier
opinion that the petitioner was a government entity that was subject to the audit jurisdiction of respondent COA. In a letter dated
September 14, 2004, the respondent COA informed the petitioner of the result of the re-evaluation, maintaining its position that the
petitioner was subject to its audit jurisdiction, and requested an initial conference with the respondents.

In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA Assistant Commissioner Juanito Espino,
Corporate Government Sector, that the audit survey was not conducted due to the refusal of the petitioner because the latter
maintained that it was a private corporation.

Petitioner received on September 27, 2005 the subject COA Office Order 2005-021 dated September 14, 2005 and the COA Letter
dated September 23, 2005.

Hence, herein Petition on the following grounds:

A.

RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT RULED THAT PETITIONER IS SUBJECT TO ITS AUDIT AUTHORITY.

B.

PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE BEING NO APPEAL, NOR ANY PLAIN, SPEEDY AND ADEQUATE
REMEDY IN THE ORDINARY COURSE OF LAW AVAILABLE TO IT.10

The essential question before this Court is whether the petitioner qualifies as a government agency that may be subject to audit by
respondent COA.

Petitioner argues: first, even though it was created by special legislation in 1905 as there was no general law then existing under
which it may be organized or incorporated, it exercises no governmental functions because these have been revoked by C.A. No. 148
and E.O. No. 63; second, nowhere in its charter is it indicated that it is a public corporation, unlike, for instance, C.A. No. 111 which
created the Boy Scouts of the Philippines, defined its powers and purposes, and specifically stated that it was "An Act to Create a
Public Corporation" in which, even as amended by Presidential Decree No. 460, the law still adverted to the Boy Scouts of the
Philippines as a "public corporation," all of which are not obtaining in the charter of the petitioner; third, if it were a government
body, there would have been no need for the State to grant it tax exemptions under Republic Act No. 1178, and the fact that it was so
exempted strengthens its position that it is a private institution; fourth, the employees of the petitioner are registered and covered
by the Social Security System at the latters initiative and not through the Government Service Insurance System, which should have
been the case had the employees been considered government employees; fifth, the petitioner does not receive any form of
financial assistance from the government, since C.A. No. 148, amending Section 5 of Act No. 1285, states that the "full amount of the
fines, collected for violation of the laws against cruelty to animals and for the protection of animals, shall accrue to the general fund
of the Municipality where the offense was committed"; sixth, C.A. No. 148 effectively deprived the petitioner of its powers to make
arrests and serve processes as these functions were placed in the hands of the police force; seventh, no government appointee or
representative sits on the board of trustees of the petitioner; eighth, a reading of the provisions of its charter (Act No. 1285) fails to
show that any act or decision of the petitioner is subject to the approval of or control by any government agency, except to the
extent that it is governed by the law on private corporations in general; and finally, ninth, the Committee on Animal Welfare, under
the Animal Welfare Act of 1998, includes members from both the private and the public sectors.

The respondents contend that since the petitioner is a "body politic" created by virtue of a special legislation and endowed with a
governmental purpose, then, indubitably, the COA may audit the financial activities of the latter. Respondents in effect divide their
contentions into six strains: first, the test to determine whether an entity is a government corporation lies in the manner of its
creation, and, since the petitioner was created by virtue of a special charter, it is thus a government corporation subject to
respondents auditing power; second, the petitioner exercises "sovereign powers," that is, it is tasked to enforce the laws for the
protection and welfare of animals which "ultimately redound to the public good and welfare," and, therefore, it is deemed to be a
government "instrumentality" as defined under the Administrative Code of 1987, the purpose of which is connected with the
administration of government, as purportedly affirmed by American jurisprudence; third, by virtue of Section 23,11Title II, Book III of
the same Code, the Office of the President exercises supervision or control over the petitioner; fourth, under the same Code, the
requirement under its special charter for the petitioner to render a report to the Civil Governor, whose functions have been inherited
by the Office of the President, clearly reflects the nature of the petitioner as a government instrumentality; fifth, despite the passage
of the Corporation Code, the law creating the petitioner had not been abolished, nor had it been re-incorporated under any general
corporation law; and finally, sixth, Republic Act No. 8485, otherwise known as the "Animal Welfare Act of 1998," designates the
petitioner as a member of its Committee on Animal Welfare which is attached to the Department of Agriculture.

In view of the phrase "One-half of all the fines imposed and collected through the efforts of said society," the Court, in a Resolution
dated January 30, 2007, required the Office of the Solicitor General (OSG) and the parties to comment on: a) petitioner's authority to
impose fines and the validity of the provisions of Act No. 1285 and Commonwealth Act No. 148 considering that there are no
standard measures provided for in the aforecited laws as to the manner of implementation, the specific violations of the law, the
person/s authorized to impose fine and in what amount; and, b) the effect of the 1935 and 1987 Constitutions on whether petitioner
continues to exist or should organize as a private corporation under the Corporation Code, B.P. Blg. 68 as amended.

Petitioner and the OSG filed their respective Comments. Respondents filed a Manifestation stating that since they were being
represented by the OSG which filed its Comment, they opted to dispense with the filing of a separate one and adopt for the purpose
that of the OSG.

The petitioner avers that it does not have the authority to impose fines for violation of animal welfare laws; it only enjoyed the
privilege of sharing in the fines imposed and collected from its efforts in the enforcement of animal welfare laws; such privilege,
however, was subsequently abolished by C.A. No. 148; that it continues to exist as a private corporation since it was created by the
Philippine Commission before the effectivity of the Corporation law, Act No. 1459; and the 1935 and 1987 Constitutions.

The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the authority to impose fines for violation of
laws12 relating to the prevention of cruelty to animals and the protection of animals; that even prior to the amendment of Act No.
1285, petitioner was only entitled to share in the fines imposed; C.A. No. 148 abolished that privilege to share in the fines collected;
that petitioner is a public corporation and has continued to exist since Act No. 1285; petitioner was not repealed by the 1935 and
1987 Constitutions which contain transitory provisions maintaining all laws issued not inconsistent therewith until amended,
modified or repealed.

The petition is impressed with merit.

The arguments of the parties, interlaced as they are, can be disposed of in five points.

First, the Court agrees with the petitioner that the "charter test" cannot be applied.

Essentially, the "charter test" as it stands today provides:

[T]he test to determine whether a corporation is government owned or controlled, or private in nature is simple. Is it created by its
own charter for the exercise of a public function, or by incorporation under the general corporation law? Those with special charters
are government corporations subject to its provisions, and its employees are under the jurisdiction of the Civil Service Commission,
and are compulsory members of the Government Service Insurance System. xxx (Emphasis supplied) 13

The petitioner is correct in stating that the charter test is predicated, at best, on the legal regime established by the 1935
Constitution, Section 7, Article XIII, which states:

Sec. 7. The National Assembly shall not, except by general law, provide for the formation, organization, or regulation of private
corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof. 14

The foregoing proscription has been carried over to the 1973 and the 1987 Constitutions. Section 16 of Article XII of the present
Constitution provides:

Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or established by special charters in the interest of the common good
and subject to the test of economic viability.

Section 16 is essentially a re-enactment of Section 7 of Article XVI of the 1935 Constitution and Section 4 of Article XIV of the 1973
Constitution.

During the formulation of the 1935 Constitution, the Committee on Franchises recommended the foregoing proscription to prevent
the pressure of special interests upon the lawmaking body in the creation of corporations or in the regulation of the same. To permit
the lawmaking body by special law to provide for the organization, formation, or regulation of private corporations would be in effect
to offer to it the temptation in many cases to favor certain groups, to the prejudice of others or to the prejudice of the interests of
the country.15

And since the underpinnings of the charter test had been introduced by the 1935 Constitution and not earlier, it follows that the test
cannot apply to the petitioner, which was incorporated by virtue of Act No. 1285, enacted on January 19, 1905. Settled is the rule
that laws in general have no retroactive effect, unless the contrary is provided. 16 All statutes are to be construed as having only a
prospective operation, unless the purpose and intention of the legislature to give them a retrospective effect is expressly declared or
is necessarily implied from the language used. In case of doubt, the doubt must be resolved against the retrospective effect. 17

There are a few exceptions. Statutes can be given retroactive effect in the following cases: (1) when the law itself so expressly
provides; (2) in case of remedial statutes; (3) in case of curative statutes; (4) in case of laws interpreting others; and (5) in case of laws
creating new rights.18 None of the exceptions is present in the instant case.

The general principle of prospectivity of the law likewise applies to Act No. 1459, otherwise known as the Corporation Law, which
had been enacted by virtue of the plenary powers of the Philippine Commission on March 1, 1906, a little over a year after January
19, 1905, the time the petitioner emerged as a juridical entity. Even the Corporation Law respects the rights and powers of juridical
entities organized beforehand, viz:

SEC. 75. Any corporation or sociedad anonima formed, organized, and existing under the laws of the Philippine Islands and lawfully
transacting business in the Philippine Islands on the date of the passage of this Act, shall be subject to the provisions hereof so far as
such provisions may be applicable and shall be entitled at its option either to continue business as such corporation or to reform and
organize under and by virtue of the provisions of this Act, transferring all corporate interests to the new corporation which, if a stock
corporation, is authorized to issue its shares of stock at par to the stockholders or members of the old corporation according to their
interests. (Emphasis supplied).

As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory provisions maintaining all laws issued not
inconsistent therewith until amended, modified or repealed. 19

In a legal regime where the charter test doctrine cannot be applied, the mere fact that a corporation has been created by virtue of a
special law does not necessarily qualify it as a public corporation.

What then is the nature of the petitioner as a corporate entity? What legal regime governs its rights, powers, and duties?
As stated, at the time the petitioner was formed, the applicable law was the Philippine Bill of 1902, and, emphatically, as also stated
above, no proscription similar to the charter test can be found therein.

The textual foundation of the charter test, which placed a limitation on the power of the legislature, first appeared in the 1935
Constitution. However, the petitioner was incorporated in 1905 by virtue of Act No. 1258, a law antedating the Corporation Law (Act
No. 1459) by a year, and the 1935 Constitution, by thirty years. There being neither a general law on the formation and organization
of private corporations nor a restriction on the legislature to create private corporations by direct legislation, the Philippine
Commission at that moment in history was well within its powers in 1905 to constitute the petitioner as a private juridical
entity.1wphi1

Time and again the Court must caution even the most brilliant scholars of the law and all constitutional historians on the danger of
imposing legal concepts of a later date on facts of an earlier date. 20

The amendments introduced by C.A. No. 148 made it clear that the petitioner was a private corporation and not an agency of the
government. This was evident in Executive Order No. 63, issued by then President of the Philippines Manuel L. Quezon, declaring
that the revocation of the powers of the petitioner to appoint agents with powers of arrest "corrected a serious defect" in one of the
laws existing in the statute books.

As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to be given retroactive effect, thereby freeing all
doubt as to which class of corporations the petitioner belongs, that is, it is a quasi-public corporation, a kind of private domestic
corporation, which the Court will further elaborate on under the fourth point.

Second, a reading of petitioners charter shows that it is not subject to control or supervision by any agency of the State, unlike
government-owned and -controlled corporations. No government representative sits on the board of trustees of the petitioner. Like
all private corporations, the successors of its members are determined voluntarily and solely by the petitioner in accordance with its
by-laws, and may exercise those powers generally accorded to private corporations, such as the powers to hold property, to sue and
be sued, to use a common seal, and so forth. It may adopt by-laws for its internal operations: the petitioner shall be managed or
operated by its officers "in accordance with its by-laws in force." The pertinent provisions of the charter provide:

Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker, Mary S. Fergusson, Amasa S. Crossfield, Spencer Cosby,
Sealy B. Rossiter, Richard P. Strong, Jose Robles Lahesa, Josefina R. de Luzuriaga, and such other persons as may be associated with
them in conformity with this act, and their successors, are hereby constituted and created a body politic and corporate at law, under
the name and style of "The Philippines Society for the Prevention of Cruelty to Animals."

As incorporated by this Act, said society shall have the power to add to its organization such and as many members as it desires, to
provide for and choose such officers as it may deem advisable, and in such manner as it may wish, and to remove members as it shall
provide.

It shall have the right to sue and be sued, to use a common seal, to receive legacies and donations, to conduct social enterprises for
the purpose of obtaining funds, to levy dues upon its members and provide for their collection to hold real and personal estate such
as may be necessary for the accomplishment of the purposes of the society, and to adopt such by-laws for its government as may not
be inconsistent with law or this charter.

xxxx

Sec. 3. The said society shall be operated under the direction of its officers, in accordance with its by-laws in force, and this charter.

xxxx

Sec. 6. The principal office of the society shall be kept in the city of Manila, and the society shall have full power to locate and
establish branch offices of the society wherever it may deem advisable in the Philippine Islands, such branch offices to be under the
supervision and control of the principal office.

Third. The employees of the petitioner are registered and covered by the Social Security System at the latters initiative, and not
through the Government Service Insurance System, which should be the case if the employees are considered government
employees. This is another indication of petitioners nature as a private entity. Section 1 of Republic Act No. 1161, as amended by
Republic Act No. 8282, otherwise known as the Social Security Act of 1997, defines the employer:
Employer Any person, natural or juridical, domestic or foreign, who carries on in the Philippines any trade, business, industry,
undertaking or activity of any kind and uses the services of another person who is under his orders as regards the
employment, except the Government and any of its political subdivisions, branches or instrumentalities, including corporations
owned or controlled by the Government: Provided, That a self-employed person shall be both employee and employer at the same
time. (Emphasis supplied)

Fourth. The respondents contend that the petitioner is a "body politic" because its primary purpose is to secure the protection and
welfare of animals which, in turn, redounds to the public good.

This argument, is, at best, specious. The fact that a certain juridical entity is impressed with public interest does not, by that
circumstance alone, make the entity a public corporation, inasmuch as a corporation may be private although its charter contains
provisions of a public character, incorporated solely for the public good. This class of corporations may be considered quasi-public
corporations, which are private corporations that render public service, supply public wants, 21 or pursue other eleemosynary
objectives. While purposely organized for the gain or benefit of its members, they are required by law to discharge functions for the
public benefit. Examples of these corporations are utility, 22 railroad, warehouse, telegraph, telephone, water supply corporations and
transportation companies.23 It must be stressed that a quasi-public corporation is a species of private corporations, but the
qualifying factor is the type of service the former renders to the public: if it performs a public service, then it becomes a quasi-public
corporation.241wphi1

Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe guide, for the fact is that almost all
corporations are nowadays created to promote the interest, good, or convenience of the public. A bank, for example, is a private
corporation; yet, it is created for a public benefit. Private schools and universities are likewise private corporations; and yet, they are
rendering public service. Private hospitals and wards are charged with heavy social responsibilities. More so with all common
carriers. On the other hand, there may exist a public corporation even if it is endowed with gifts or donations from private
individuals.

The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the relation of the
corporation to the State. If the corporation is created by the State as the latters own agency or instrumentality to help it in carrying
out its governmental functions, then that corporation is considered public; otherwise, it is private. Applying the above test,
provinces, chartered cities, and barangays can best exemplify public corporations. They are created by the State as its own device
and agency for the accomplishment of parts of its own public works. 25

It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the petitioner to arrest offenders of animal welfare
laws and the power to serve processes in connection therewith.

Fifth. The respondents argue that since the charter of the petitioner requires the latter to render periodic reports to the Civil
Governor, whose functions have been inherited by the President, the petitioner is, therefore, a government instrumentality.

This contention is inconclusive. By virtue of the fiction that all corporations owe their very existence and powers to the State, the
reportorial requirement is applicable to all corporations of whatever nature, whether they are public, quasi-public, or private
corporationsas creatures of the State, there is a reserved right in the legislature to investigate the activities of a corporation to
determine whether it acted within its powers. In other words, the reportorial requirement is the principal means by which the State
may see to it that its creature acted according to the powers and functions conferred upon it. These principles were extensively
discussed in Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on Good Government.26 Here, the Court, in holding
that the subject corporation could not invoke the right against self-incrimination whenever the State demanded the production of its
corporate books and papers, extensively discussed the purpose of reportorial requirements, viz:

x x x The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain
special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are
limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long
as it obeys the laws of its creation. There is a reserve[d] right in the legislature to investigate its contracts and find out whether it has
exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain
franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been
abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer
of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal
to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow that a corporation vested with special privileges and franchises
may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780.) 27

WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a private domestic corporation subject to the jurisdiction of the
Securities and Exchange Commission. The respondents are ENJOINED from investigating, examining and auditing the petitioner's
fiscal and financial affairs.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

G.R. No. 193462 February 4, 2014

DENNIS A.B. FUNA, Petitioner,

vs.
MANILA ECONOMIC AND CULTURAL OFFICE and the COMMISSION ON AUDIT, Respondents.

DECISION

PEREZ, J.:

This is a petition for mandamus1 to compel:

1.) the Commission on Audit (COA) to audit and examine the funds of the Manila Economic and Cultural Office (MECO), and

2.) the MECO to submit to such audit and examination.

The antecedents:

Prelude

The aftermath of the Chinese civil war2 left the country of China with two (2) governments in a stalemate espousing competing
assertions of sovereignty.3 On one hand is the communist Peoples Republic of China (PROC) which controls the mainland territories,
and on the other hand is the nationalist Republic of China (ROC) which controls the island of Taiwan. For a better part of the past
century, both the PROC and ROC adhered to a policy of "One China" i.e., the view that there is only one legitimate government in
China, but differed in their respective interpretation as to which that government is. 4

With the existence of two governments having conflicting claims of sovereignty over one country, came the question as to which of
the two is deserving of recognition as that countrys legitimate government. Even after its relocation to Taiwan, the ROC used to
enjoy diplomatic recognition from a majority of the worlds states, partly due to being a founding member of the United Nations
(UN).5 The number of states partial to the PROCs version of the One China policy, however, gradually increased in the 1960s and 70s,
most notably after the UN General Assembly adopted the monumental Resolution 2758 in 1971. 6 Since then, almost all of the states
that had erstwhile recognized the ROC as the legitimate government of China, terminated their official relations with the said
government, in favor of establishing diplomatic relations with the PROC. 7 The Philippines is one of such states.

The Philippines formally ended its official diplomatic relations with the government in Taiwan on 9 June 1975, when the country and
the PROC expressed mutual recognition thru the Joint Communiqu of the Government of the Republic of the Philippines and the
Government of the Peoples Republic of China (Joint Communiqu). 8

Under the Joint Communiqu, the Philippines categorically stated its adherence to the One China policy of the PROC. The pertinent
portion of the Joint Communiqu reads:9
The Philippine Government recognizes the Government of the Peoples Republic of China as the sole legal government of China, fully
understands and respects the position of the Chinese Government that there is but one China and that Taiwan is an integral part of
Chinese territory, and decides to remove all its official representations from Taiwan within one month from the date of signature of
this communiqu. (Emphasis supplied)

The Philippines commitment to the One China policy of the PROC, however, did not preclude the country from keeping unofficial
relations with Taiwan on a "people-to-people" basis. 10 Maintaining ties with Taiwan that is permissible by the terms of the Joint
Communiqu, however, necessarily required the Philippines, and Taiwan, to course any such relations thru offices outside of the
official or governmental organs.

Hence, despite ending their diplomatic ties, the people of Taiwan and of the Philippines maintained an unofficial relationship
facilitated by the offices of the Taipei Economic and Cultural Office, for the former, and the MECO, for the latter. 11

The MECO12 was organized on 16 December 1997 as a non-stock, non-profit corporation under Batas Pambansa Blg. 68 or the
Corporation Code.13 The purposes underlying the incorporation of MECO, as stated in its articles of incorporation, 14 are as follows:

1. To establish and develop the commercial and industrial interests of Filipino nationals here and abroad, and assist on all
measures designed to promote and maintain the trade relations of the country with the citizens of other foreign countries;

2. To receive and accept grants and subsidies that are reasonably necessary in carrying out the corporate purposes provided
they are not subject to conditions defeatist for or incompatible with said purpose;

3. To acquire by purchase, lease or by any gratuitous title real and personal properties as may be necessary for the use and
need of the corporation, and to dispose of the same in like manner when they are no longer needed or useful; and

4. To do and perform any and all acts which are deemed reasonably necessary to carry out the purposes. (Emphasis
supplied)

From the moment it was incorporated, the MECO became the corporate entity "entrusted" by the Philippine government with the
responsibility of fostering "friendly" and "unofficial" relations with the people of Taiwan, particularly in the areas of trade, economic
cooperation, investment, cultural, scientific and educational exchanges. 15 To enable it to carry out such responsibility, the MECO was
"authorized" by the government to perform certain "consular and other functions" that relates to the promotion, protection and
facilitation of Philippine interests in Taiwan. 16

At present, it is the MECO that oversees the rights and interests of Overseas Filipino Workers (OFWs) in Taiwan; promotes the
Philippines as a tourist and investment destination for the Taiwanese; and facilitates the travel of Filipinos and Taiwanese from
Taiwan to the Philippines, and vice versa. 17

Facts Leading to the Mandamus Petition

On 23 August 2010, petitioner sent a letter18 to the COA requesting for a "copy of the latest financial and audit report" of the MECO
invoking, for that purpose, his "constitutional right to information on matters of public concern." The petitioner made the request on
the belief that the MECO, being under the "operational supervision" of the Department of Trade and Industry (DTI), is a government
owned and controlled corporation (GOCC) and thus subject to the audit jurisdiction of the COA. 19

Petitioners letter was received by COA Assistant Commissioner Jaime P. Naranjo, the following day.

On 25 August 2010, Assistant Commissioner Naranjo issued a memorandum 20 referring the petitioners request to COA Assistant
Commissioner Emma M. Espina for "further disposition." In this memorandum, however, Assistant Commissioner Naranjo revealed
that the MECO was "not among the agencies audited by any of the three Clusters of the Corporate Government Sector." 21

On 7 September 2010, petitioner learned about the 25 August 2010 memorandum and its contents.

Mandamus Petition
Taking the 25 August 2010 memorandum as an admission that the COA had never audited and examined the accounts of the MECO,
the petitioner filed the instant petition for mandamus on 8 September 2010. Petitioner filed the suit in his capacities as "taxpayer,
concerned citizen, a member of the Philippine Bar and law book author." 22He impleaded both the COA and the MECO.

Petitioner posits that by failing to audit the accounts of the MECO, the COA is neglecting its duty under Section 2(1), Article IX-D of
the Constitution to audit the accounts of an otherwise bona fide GOCC or government instrumentality. It is the adamant claim of the
petitioner that the MECO is a GOCC without an original charter or, at least, a government instrumentality, the funds of which partake
the nature of public funds.23

According to petitioner, the MECO possesses all the essential characteristics of a GOCC and an instrumentality under the Executive
Order No. (EO) 292, s. 1987 or the Administrative Code: it is a non-stock corporation vested with governmental functions relating to
public needs; it is controlled by the government thru a board of directors appointed by the President of the Philippines; and while
not integrated within the executive departmental framework, it is nonetheless under the operational and policy supervision of the
DTI.24 As petitioner substantiates:

1. The MECO is vested with government functions. It performs functions that are equivalent to those of an embassy or a
consulate of the Philippine government.25 A reading of the authorized functions of the MECO as found in EO No. 15, s. 2001,
reveals that they are substantially the same functions performed by the Department of Foreign Affairs (DFA), through its
diplomatic and consular missions, per the Administrative Code. 26

2. The MECO is controlled by the government. It is the President of the Philippines that actually appoints the directors of the
MECO, albeit indirectly, by way of "desire letters" addressed to the MECOs board of directors. 27 An illustration of this
exercise is the assumption by Mr. Antonio Basilio as chairman of the board of directors of the MECO in 2001, which was
accomplished when former President Gloria Macapagal-Arroyo, through a memorandum 28 dated 20 February 2001,
expressed her "desire" to the board of directors of the MECO for the election of Mr. Basilio as chairman. 29

3. The MECO is under the operational and policy supervision of the DTI. The MECO was placed under the operational
supervision of the DTI by EO No. 328, s. of 2004, and again under the policy supervision of the same department by EO No.
426, s. 2005.30

To further bolster his position that the accounts of the MECO ought to be audited by the COA, the petitioner calls attention to the
practice, allegedly prevailing in the United States of America, wherein the American Institute in Taiwan (AIT)the counterpart entity
of the MECO in the United Statesis supposedly audited by that countrys Comptroller General. 31 Petitioner claims that this practice
had been confirmed in a decision of the United States Court of Appeals for the District of Columbia Circuit, in the case of Wood, Jr.,
ex rel. United States of America v. The American Institute in Taiwan, et al. 32

The Position of the MECO

The MECO prays for the dismissal of the mandamus petition on procedural and substantial grounds.

On procedure, the MECO argues that the mandamus petition was prematurely filed. 33

The MECO posits that a cause of action for mandamus to compel the performance of a ministerial duty required by law only ripens
once there has been a refusal by the tribunal, board or officer concerned to perform such a duty. 34 The MECO claims that there was,
in this case, no such refusal either on its part or on the COAs because the petitioner never made any demand for it to submit to an
audit by the COA or for the COA to perform such an audit, prior to filing the instant mandamus petition. 35 The MECO further points
out that the only "demand" that the petitioner made was his request to the COA for a copy of the MECOs latest financial and audit
report which request was not even finally disposed of by the time the instant petition was filed. 36

On the petitions merits, the MECO denies the petitioners claim that it is a GOCC or a government instrumentality. 37 While
performing public functions, the MECO maintains that it is not owned or controlled by the government, and its funds are private
funds.38 The MECO explains:

1. It is not owned or controlled by the government. Contrary to the allegations of the petitioner, the President of the
Philippines does not appoint its board of directors.39 The "desire letter" that the President transmits is merely
recommendatory and not binding on the corporation.40 As a corporation organized under the Corporation Code, matters
relating to the election of its directors and officers, as well as its membership, are governed by the appropriate provisions of
 the said code, its articles of incorporation and its by-laws. 41 Thus, it is the directors who elect the corporations officers; the
members who elect the directors; and the directors who admit the members by way of a unanimous resolution. All of its
officers, directors, and members are private individuals and are not government officials. 42

2. The government merely has policy supervision over it. Policy supervision is a lesser form of supervision wherein the
governments oversight is limited only to ensuring that the corporations activities are in tune with the countrys
commitments under the One China policy of the PROC.43 The day-to-day operations of the corporation, however, remain to
be controlled by its duly elected board of directors. 44

The MECO emphasizes that categorizing it as a GOCC or a government instrumentality can potentially violate the countrys
commitment to the One China policy of the PROC.45 Thus, the MECO cautions against applying to the present mandamus petition the
pronouncement in the Wood decision regarding the alleged auditability of the AIT in the United States. 46

The Position of the COA

The COA, on the other hand, advances that the mandamus petition ought to be dismissed on procedural grounds and on the ground
of mootness.

The COA argues that the mandamus petition suffers from the following procedural defects:

1. The petitioner lacks locus standi to bring the suit. The COA claims that the petitioner has not shown, at least in a concrete
manner, that he had been aggrieved or prejudiced by its failure to audit the accounts of the MECO. 47

2. The petition was filed in violation of the doctrine of hierarchy of courts. The COA faults the filing of the instant mandamus
petition directly with this Court, when such petition could have very well been presented, at the first instance, before the
Court of Appeals or any Regional Trial Court.48 The COA claims that the petitioner was not able to provide compelling
reasons to justify a direct resort to the Supreme Court. 49

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. 2011-69850 on 6 October 2011.51 The COA notes that under Office Order No. 2011-698,
Chairperson Pulido-Tan already directed a team of auditors to proceed to Taiwan, specifically for the purpose of auditing the
accounts of, among other government agencies based therein, the MECO. 52

In conceding that it has audit jurisdiction over the accounts of the MECO, however, the COA clarifies that it does not consider the
former as a GOCC or a government instrumentality. On the contrary, the COA maintains that the MECO is a non-governmental
entity.53

The COA argues that, despite being a non-governmental entity, the MECO may still be audited with respect to the "verification fees"
for overseas employment documents that it collects from Taiwanese employers on behalf of the DOLE. 54 The COA claims that, under
Joint Circular No. 3-99,55 the MECO is mandated to remit to the Department of Labor and Employment (DOLE) a portion of such
"verification fees."56 The COA, therefore, classifies the MECO as a non-governmental entity "required to pay xxx government share"
subject to a partial audit of its accounts under Section 26 of the Presidential Decree No. 1445 or the State Audit Code of the
Philippines (Audit Code).57

OUR RULING

We grant the petition in part. We declare that the MECO is a non-governmental entity. However, under existing laws, the accounts of
the MECO pertaining to the "verification fees" it collects on behalf of the DOLE as well as the fees it was authorized to collect under
Section 2(6) of EO No. 15, s. 2001, are subject to the audit jurisdiction of the COA. Such fees pertain to the government and should
be audited by the COA.

We begin with the preliminary issues.

Mootness of Petition
The first preliminary issue relates to the alleged mootness of the instant mandamus petition, occasioned by the COAs issuance of
Office Order No. 2011-698. The COA claims that by issuing Office Order No. 2011-698, it had already conceded its jurisdiction over
the accounts of the MECO and so fulfilled the objective of the instant petition. 58 The COA thus urges that the instant petition be
dismissed for being moot and academic.59

We decline to dismiss the mandamus petition on the ground of mootness.

A case is deemed moot and academic when, by reason of the occurrence of a supervening event, it ceases to present any justiciable
controversy.60 Since they lack an actual controversy otherwise cognizable by courts, moot cases are, as a rule, dismissible. 61

The rule that requires dismissal of moot cases, however, is not absolute. It is subject to exceptions. In David v. Macapagal-
Arroyo,62 this Court comprehensively captured these exceptions scattered throughout our jurisprudence:

The "moot and academic" principle is not a magical formula that can automatically dissuade the courts in resolving a case. Courts will
decide cases, otherwise moot and academic, if: first, there is a grave violation of the Constitution; 63 second, the exceptional character
of the situation and the paramount public interest is involved; 64third, when constitutional issue raised requires formulation of
controlling principles to guide the bench, the bar, and the public; 65 and fourth, the case is capable of repetition yet evading review. 66

In this case, We find that the issuance by the COA of Office Order No. 2011-698 indeed qualifies as a supervening event that
effectively renders moot and academic the main prayer of the instant mandamus petition. A writ of mandamus to compel the COA to
audit the accounts of the MECO would certainly be a mere superfluity, when the former had already obliged itself to do the same.

Be that as it may, this Court refrains from dismissing outright the petition. We believe that the mandamus petition was able to craft
substantial issues presupposing the commission of a grave violation of the Constitution and involving paramount public interest,
which need to be resolved nonetheless:

First. The petition makes a serious allegation that the COA had been remiss in its constitutional or legal duty to audit and examine the
accounts of an otherwise auditable entity in the MECO.

Second. There is paramount public interest in the resolution of the issue concerning the failure of the COA to audit the accounts of
the MECO. The propriety or impropriety of such a refusal is determinative of whether the COA was able to faithfully fulfill its
constitutional role as the guardian of the public treasury, in which any citizen has an interest.

Third. There is also paramount public interest in the resolution of the issue regarding the legal status of the MECO; a novelty insofar
as our jurisprudence is concerned. We find that the status of the MECOwhether it may be considered as a government agency or
nothas a direct bearing on the countrys commitment to the One China policy of the PROC. 67

An allegation as serious as a violation of a constitutional or legal duty, coupled with the pressing public interest in the resolution of all
related issues, prompts this Court to pursue a definitive ruling thereon, if not for the proper guidance of the government or agency
concerned, then for the formulation of controlling principles for the education of the bench, bar and the public in general. 68 For this
purpose, the Court invokes its symbolic function.69

If the foregoing reasons are not enough to convince, We still add another:

Assuming that the allegations of neglect on the part of the COA were true, Office Order No. 2011-698 does not offer the strongest
certainty that they would not be replicated in the future. In the first place, Office Order No. 2011-698 did not state any legal
justification as to why, after decades of not auditing the accounts of the MECO, the COA suddenly decided to do so. Neither does it
state any determination regarding the true status of the MECO. The justifications provided by the COA, in fact, only appears in the
memorandum70 it submitted to this Court for purposes of this case.

Thus, the inclusion of the MECO in Office Order No. 2011-698 appears to be entirely dependent upon the judgment of the incumbent
chairperson of the COA; susceptible of being undone, with or without reason, by her or even her successor. Hence, the case now
before this Court is dangerously capable of being repeated yet evading review.

Verily, this Court should not dismiss the mandamus petition on the ground of mootness.
Standing of Petitioner

The second preliminary issue is concerned with the standing of the petitioner to file the instant mandamus petition. The COA claims
that petitioner has none, for the latter was not able to concretely establish that he had been aggrieved or prejudiced by its failure to
audit the accounts of the MECO.71

Related to the issue of lack of standing is the MECOs contention that petitioner has no cause of action to file the instant mandamus
petition. The MECO faults petitioner for not making any demand for it to submit to an audit by the COA or for the COA to perform
such an audit, prior to filing the instant petition.72

We sustain petitioners standing, as a concerned citizen, to file the instant petition.

The rules regarding legal standing in bringing public suits, or locus standi, are already well-defined in our case law. Again, We cite
David, which summarizes jurisprudence on this point: 73

By way of summary, the following rules may be culled from the cases decided by this Court.1a\^/phi1 Taxpayers, voters, concerned
citizens, and legislators may be accorded standing to sue, provided that the following requirements are met:

(1) the cases involve constitutional issues;

(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure is unconstitutional;

(3) for voters, there must be a showing of obvious interest in the validity of the election law in question;

(4) for concerned citizens, there must be a showing that the issues raised are of transcendental importance which must be
settled early; and

(5) for legislators, there must be a claim that the official action complained of infringes upon their prerogatives as legislators.

We rule that the instant petition raises issues of transcendental importance, involved as they are with the performance of a
constitutional duty, allegedly neglected, by the COA. Hence, We hold that the petitioner, as a concerned citizen, has the requisite
legal standing to file the instant mandamus petition.

To be sure, petitioner does not need to make any prior demand on the MECO or the COA in order to maintain the instant petition.
The duty of the COA sought to be compelled by mandamus, emanates from the Constitution and law, which explicitly require, or
"demand," that it perform the said duty. To the mind of this Court, petitioner already established his cause of action against the COA
when he alleged that the COA had neglected its duty in violation of the Constitution and the law.

Principle of Hierarchy of Courts

The last preliminary issue is concerned with the petitions non-observance of the principle of hierarchy of courts. The COA assails the
filing of the instant mandamus petition directly with this Court, when such petition could have very well been presented, at the first
instance, before the Court of Appeals or any Regional Trial Court. 74 The COA claims that the petitioner was not able to provide
compelling reasons to justify a direct resort to the Supreme Court. 75

In view of the transcendental importance of the issues raised in the mandamus petition, as earlier mentioned, this Court waives this
last procedural issue in favor of a resolution on the merits. 76

II

To the merits of this petition, then.

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 jurisdiction of the COA.
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:

1. The government, or any of its subdivisions, agencies and instrumentalities;

2. GOCCs with original charters;

3. GOCCs without original charters;

4. Constitutional bodies, commissions and offices that have been granted fiscal autonomy under the Constitution; and

5. Non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are
required by law or the granting institution to submit to the COA for audit as a condition of subsidy or equity. 78

The term "accounts" mentioned in the subject constitutional provision pertains to the "revenue," "receipts," "expenditures" and
"uses of funds and property" of the foregoing entities. 79

Complementing the constitutional power of the COA to audit accounts of "non-governmental entities receiving subsidy or equity xxx
from or through the government" is Section 29(1)80 of the Audit Code, which grants the COA visitorial authority over the following
non-governmental entities:

1. Non-governmental entities "subsidized by the government";

2. Non-governmental entities "required to pay levy or government share";

3. Non-governmental entities that have "received counterpart funds from the government"; and

4. Non-governmental entities "partly funded by donations through the government."

Section 29(1) of the Audit Code, however, limits the audit of the foregoing non-governmental entities only to "funds xxx coming from
or through the government."81 This section of the Audit Code is, in turn, substantially reproduced in Section 14(1), Book V of the
Administrative Code.82

In addition to the foregoing, the Administrative Code also empowers the COA to examine and audit "the books, records and
accounts" of public utilities "in connection with the fixing of rates of every nature, or in relation to the proceedings of the proper
regulatory agencies, for purposes of determining franchise tax." 83

Both petitioner and the COA claim that the accounts of the MECO are within the audit jurisdiction of the COA, but vary on the extent
of the audit and on what type of auditable entity the MECO is. The petitioner posits that all accounts of the MECO are auditable as
the latter is a bona fide GOCC or government instrumentality. 84 On the other hand, the COA argues that only the accounts of the
MECO that pertain to the "verification fees" it collects on behalf of the DOLE are auditable because the former is merely a non-
governmental entity "required to pay xxx government share" per the Audit Code. 85

We examine both contentions.

The MECO Is Not a GOCC or

Government Instrumentality

We start with the petitioners contention.

Petitioner claims that the accounts of the MECO ought to be audited by the COA because the former is a GOCC or government
instrumentality. Petitioner points out that the MECO is a non-stock corporation "vested with governmental functions relating to
public needs"; it is "controlled by the government thru a board of directors appointed by the President of the Philippines"; and it
operates "outside of the departmental framework," subject only to the "operational and policy supervision of the DTI." 86 The MECO
thus possesses, petitioner argues, the essential characteristics of a bona fide GOCC and government instrumentality. 87
We take exception to petitioners characterization of the MECO as a GOCC or government instrumentality. The MECO is not a GOCC
or government instrumentality.

Government instrumentalities are agencies of the national government that, by reason of some "special function or jurisdiction" they
perform or exercise, are allotted "operational autonomy" and are "not integrated within the department framework." 88 Subsumed
under the rubric "government instrumentality" are the following entities: 89

1. regulatory agencies,

2. chartered institutions,

3. government corporate entities or government instrumentalities with corporate powers (GCE/GICP), 90 and

4. GOCCs

The Administrative Code defines a GOCC:91

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through
its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) per
cent of its capital stock: x x x.

The above definition is, in turn, replicated in the more recent Republic Act No. 10149 or the GOCC Governance Act of 2011, to wit: 92

(o) Government-Owned or -Controlled Corporation (GOCC) refers to any agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government of the
Republic of the Philippines directly or through its instrumentalities either wholly or, where applicable as in the case of stock
corporations, to the extent of at least a majority of its outstanding capital stock: x x x.

GOCCs, therefore, are "stock or non-stock" corporations "vested with functions relating to public needs" that are "owned by the
Government directly or through its instrumentalities." 93 By definition, three attributes thus make an entity a GOCC: first, its
organization as stock or non-stock corporation;94 second, the public character of its function; and third, government ownership over
the same.

Possession of all three attributes is necessary to deem an entity a GOCC.

In this case, there is not much dispute that the MECO possesses the first and second attributes. It is the third attribute, which the
MECO lacks.

The MECO Is Organized as a Non-Stock Corporation

The organization of the MECO as a non-stock corporation cannot at all be denied. Records disclose that the MECO was incorporated
as a non-stock corporation under the Corporation Code on 16 December 1977. 95 The incorporators of the MECO were Simeon R.
Roxas, Florencio C. Guzon, Manuel K. Dayrit, Pio K. Luz and Eduardo B. Ledesma, who also served as the corporations original
members and directors.96

The purposes for which the MECO was organized also establishes its non-profit character, to wit: 97

1. To establish and develop the commercial and industrial interests of Filipino nationals here and abroad and assist on all
measures designed to promote and maintain the trade relations of the country with the citizens of other foreign countries;

2. To receive and accept grants and subsidies that are reasonably necessary in carrying out the corporate purposes provided
they are not subject to conditions defeatist for or incompatible with said purpose;

3. To acquire by purchase, lease or by any gratuitous title real and personal properties as may be necessary for the use and
need of the corporation, and in like manner when they are
 4. To do and perform any and all acts which are deemed reasonably necessary to carry out the purposes. (Emphasis
supplied)

The purposes for which the MECO was organized are somewhat analogous to those of a trade, business or industry chamber, 98 but
only on a much larger scale i.e., instead of furthering the interests of a particular line of business or industry within a local sphere,
the MECO seeks to promote the general interests of the Filipino people in a foreign land.

Finally, it is not disputed that none of the income derived by the MECO is distributable as dividends to any of its members, directors
or officers.

Verily, the MECO is organized as a non-stock corporation.

The MECO Performs Functions with a Public Aspect.

The public character of the functions vested in the MECO cannot be doubted either. Indeed, to a certain degree, the functions of the
MECO can even be said to partake of the nature of governmental functions. As earlier intimated, it is the MECO that, on behalf of the
people of the Philippines, currently facilitates unofficial relations with the people in Taiwan.

Consistent with its corporate purposes, the MECO was "authorized" by the Philippine government to perform certain "consular and
other functions" relating to the promotion, protection and facilitation of Philippine interests in Taiwan. 99 The full extent of such
authorized functions are presently detailed in Sections 1 and 2 of EO No. 15, s. 2001:

SECTION 1. Consistent with its corporate purposes and subject to the conditions stated in Section 3 hereof, MECO is hereby
authorized to assist in the performance of the following functions:

1. Formulation and implementation of a program to attract and promote investments from Taiwan to Philippine industries
and businesses, especially in manufacturing, tourism, construction and other preferred areas of investments;

2. Promotion of the export of Philippine products and Filipino manpower services, including Philippine management
services, to Taiwan;

3. Negotiation and/or assistance in the negotiation and conclusion of agreements or other arrangements concerning trade,
investment, economic cooperation, technology transfer, banking and finance, scientific, cultural, educational and other
modes of cooperative endeavors between the Philippines and Taiwan, on a people-to-people basis, in accordance with
established rules and regulations;

4. Reporting on, and identification of, employment and business opportunities in Taiwan for the promotion of Philippine
exports, manpower and management services, and tourism;

5. Dissemination in Taiwan of information on the Philippines, especially in the fields of trade, tourism, labor, economic
cooperation, and cultural, educational and scientific endeavors;

6. Conduct of periodic assessment of market conditions in Taiwan, including submission of trade statistics and commercial
reports for use of Philippine industries and businesses; and

7. Facilitation, fostering and cultivation of cultural, sports, social, and educational exchanges between the peoples of the
Philippines and Taiwan.

SECTION 2. In addition to the above-mentioned authority and subject to the conditions stated in Section 3 hereof, MECO, through its
branch offices in Taiwan, is hereby authorized to perform the following functions:

1. Issuance of temporary visitors visas and transit and crew list visas, and such other visa services as may be authorized by
the Department of Foreign Affairs;

2. Issuance, renewal, extension or amendment of passports of Filipino citizens in accordance with existing regulations, and
provision of such other passport services as may be required under the circumstances;
 3. Certification or affirmation of the authenticity of documents submitted for authentication;

4. Providing translation services;

5. Assistance and protection to Filipino nationals and other legal/juridical persons working or residing in Taiwan, including
making representations to the extent allowed by local and international law on their behalf before civil and juridical
authorities of Taiwan; and

6. Collection of reasonable fees on the first four (4) functions enumerated above to defray the cost of its operations.

A perusal of the above functions of the MECO reveals its uncanny similarity to some of the functions typically performed by the DFA
itself, through the latters diplomatic and consular missions. 100 The functions of the MECO, in other words, are of the kind that would
otherwise be performed by the Philippines own diplomatic and consular organs, if not only for the governments acquiescence that
they instead be exercised by the MECO.

Evidently, the functions vested in the MECO are impressed with a public aspect.

The MECO Is Not Owned or Controlled by the Government Organization as a non-stock corporation and the mere performance of
functions with a public aspect, however, are not by themselves sufficient to consider the MECO as a GOCC. In order to qualify as a
GOCC, a corporation must also, if not more importantly, be owned by the government.

The government owns a stock or non-stock corporation if it has controlling interest in the corporation. In a stock corporation, the
controlling interest of the government is assured by its ownership of at least fifty-one percent (51%) of the corporate capital
stock.101 In a non-stock corporation, like the MECO, jurisprudence teaches that the controlling interest of the government is affirmed
when "at least majority of the members are government officials holding such membership by appointment or designation" 102 or
there is otherwise "substantial participation of the government in the selection" of the corporations governing board. 103

In this case, the petitioner argues that the government has controlling interest in the MECO because it is the President of the
Philippines that indirectly appoints the directors of the corporation. 104 The petitioner claims that the President appoints directors of
the MECO thru "desire letters" addressed to the corporations board. 105 As evidence, the petitioner cites the assumption of one Mr.
Antonio Basilio as chairman of the board of directors of the MECO in 2001, which was allegedly accomplished when former President
Macapagal-Arroyo, through a memorandum dated 20 February 2001, expressed her "desire" to the board of directors of the MECO
for the election of Mr. Basilio as chairman.106

The MECO, however, counters that the "desire letters" that the President transmits are merely recommendatory and not binding on
it.107 The MECO maintains that, as a corporation organized under the Corporation Code, matters relating to the election of its
directors and officers, as well as its membership, are ultimately governed by the appropriate provisions of the said code, its articles of
incorporation and its by-laws.108

As between the contrasting arguments, We find the contention of the MECO to be the one more consistent with the law.

The fact of the incorporation of the MECO under the Corporation Code is key. The MECO was correct in postulating that, as a
corporation organized under the Corporation Code, it is governed by the appropriate provisions of the said code, its articles of
incorporation and its by-laws. In this case, it is the by-laws 109 of the MECO that stipulates that its directors are elected by its
members; its officers are elected by its directors; and its members, other than the original incorporators, are admitted by way of a
unanimous board resolution, to wit:

SECTION II. MEMBERSHIP

Article 2. Members shall be classified as (a) Regular and (b) Honorary.

(a) Regular members shall consist of the original incorporators and such other members who, upon application for
membership, are unanimously admitted by the Board of Directors.

(b) Honorary member A person of distinction in business who as sympathizer of the objectives of the corporation, is
invited by the Board to be an honorary member.
SECTION III. BOARD OF DIRECTORS

Article 3. At the first meeting of the regular members, they shall organize and constitute themselves as a Board composed of five (5)
members, including its Chairman, each of whom as to serve until such time as his own successor shall have been elected by the
regular members in an election called for the purpose. The number of members of the Board shall be increased to seven (7) when
circumstances so warrant and by means of a majority vote of the Board members and appropriate application to and approval by the
Securities and Exchange Commission. Unless otherwise provided herein or by law, a majority vote of all Board members present shall
be necessary to carry out all Board resolutions.

During the same meeting, the Board shall also elect its own officers, including the designation of the principal officer who shall be
the Chairman. In line with this, the Chairman shall also carry the title Chief Executive Officer. The officer who shall head the branch or
office for the agency that may be established abroad shall have the title of Director and Resident Representative. He will also be the
Vice-Chairman. All other members of the Board shall have the title of Director.

xxxx

SECTION IV. EXECUTIVE COMMITTEE

Article 5. There shall be established an Executive Committee composed of at least three (3) members of the Board. The members of
the Executive Committee shall be elected by the members of the Board among themselves.

xxxx

SECTION VI. OFFICERS: DUTIES, COMPENSATION

Article 8. The officers of the corporation shall consist of a Chairman of the Board, Vice-Chairman, Chief Finance Officer, and a
Secretary. Except for the Secretary, who is appointed by the Chairman of the Board, other officers and employees of the corporation
shall be appointed by the Board.

The Deputy Representative and other officials and employees of a branch office or agency abroad are appointed solely by the Vice
Chairman and Resident Representative concerned. All such appointments however are subject to ratification by the Board.

It is significant to note that none of the original incorporators of the MECO were shown to be government officials at the time of the
corporations organization. Indeed, none of the members, officers or board of directors of the MECO, from its incorporation up to the
present day, were established as government appointees or public officers designated by reason of their office. There is, in fact, no
law or executive order that authorizes such an appointment or designation. Hence, from a strictly legal perspective, it appears that
the presidential "desire letters" pointed out by petitionerif such letters even exist outside of the case of Mr. Basilioare, no matter
how strong its persuasive effect may be, merely recommendatory.

The MECO Is Not a Government Instrumentality; It Is a Sui Generis Entity.

The categorical exclusion of the MECO from a GOCC makes it easier to exclude the same from any other class of government
instrumentality. The other government instrumentalities i.e., the regulatory agencies, chartered institutions and GCE/GICP are all, by
explicit or implicit definition, creatures of the law.110 The MECO cannot be any other instrumentality because it was, as mentioned
earlier, merely incorporated under the Corporation Code.

Hence, unless its legality is questioned, and in this case it was not, the fact that the MECO is operating under the policy supervision of
the DTI is no longer a relevant issue to be reckoned with for purposes of this case.

For whatever it is worth, however, and without justifying anything, it is easy enough for this Court to understand the rationale, or
necessity even, of the executive branch placing the MECO under the policy supervision of one of its agencies.

It is evident, from the peculiar circumstances surrounding its incorporation, that the MECO was not intended to operate as any other
ordinary corporation. And it is not. Despite its private origins, and perhaps deliberately so, the MECO was "entrusted" 111 by the
government with the "delicate and precarious"112 responsibility of pursuing "unofficial"113 relations with the people of a foreign land
whose government the Philippines is bound not to recognize. The intricacy involved in such undertaking is the possibility that, at any
given time in fulfilling the purposes for which it was incorporated, the MECO may find itself engaged in dealings or activities that can
directly contradict the Philippines commitment to the One China policy of the PROC. Such a scenario can only truly be avoided if the
executive department exercises some form of oversight, no matter how limited, over the operations of this otherwise private entity.

Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared with other private corporations. From its over-
reaching corporate objectives, its special duty and authority to exercise certain consular functions, up to the oversight by the
executive department over its operationsall the while maintaining its legal status as a non-governmental entitythe MECO is, for
all intents and purposes, sui generis.

Certain Accounts of the MECO May

Be Audited By the COA.

We now come to the COAs contention.

The COA argues that, despite being a non-governmental entity, the MECO may still be audited with respect to the "verification fees"
for overseas employment documents that the latter collects from Taiwanese employers on behalf of the DOLE. 114 The COA claims
that, under Joint Circular No. 3-99, the MECO is mandated to remit to the national government a portion of such "verification
fees."115 The COA, therefore, classifies the MECO as a non-governmental entity "required to pay xxx government share" per the Audit
Code.116We agree that the accounts of the MECO pertaining to its collection of "verification fees" is subject to the audit jurisdiction of
the COA. However, We digress from the view that such accounts are the only ones that ought to be audited by the COA. Upon careful
evaluation of the information made available by the records vis--vis the spirit and the letter of the laws and executive issuances
applicable, We find that the accounts of the MECO pertaining to the fees it was authorized to collect under Section 2(6) of EO No. 15,
s. 2001, are likewise subject to the audit jurisdiction of the COA.

Verification Fees Collected by the MECO

In its comment,117 the MECO admitted that roughly 9% of its income is derived from its share in the "verification fees" for overseas
employment documents it collects on behalf of the DOLE.

The "verification fees" mentioned here refers to the "service fee for the verification of overseas employment contracts, recruitment
agreement or special powers of attorney" that the DOLE was authorized to collect under Section 7 of EO No. 1022, 118 which was
issued by President Ferdinand E. Marcos on 1 May 1985. These fees are supposed to be collected by the DOLE from the foreign
employers of OFWs and are intended to be used for "the promotion of overseas employment and for welfare services to Filipino
workers within the area of jurisdiction of [concerned] foreign missions under the administration of the [DOLE]." 119

Joint Circular 3-99 was issued by the DOLE, DFA, the Department of Budget Management, the Department of Finance and the COA in
an effort to implement Section 7 of Executive Order No. 1022. 120 Thus, under Joint Circular 3-99, the following officials have been
tasked to be the "Verification Fee Collecting Officer" on behalf of the DOLE: 121

1. The labor attach or duly authorized overseas labor officer at a given foreign post, as duly designated by the DOLE
Secretary;

2. In foreign posts where there is no labor attach or duly authorized overseas labor officer, the finance officer or collecting
officer of the DFA duly deputized by the DOLE Secretary as approved by the DFA Secretary;

3. In the absence of such finance officer or collecting officer, the alternate duly designated by the head of the foreign post.

Since the Philippines does not maintain an official post in Taiwan, however, the DOLE entered into a "series" of Memorandum of
Agreements with the MECO, which made the latter the formers collecting agent with respect to the "verification fees" that may be
due from Taiwanese employers of OFWs.122 Under the 27 February 2004 Memorandum of Agreement between DOLE and the MECO,
the "verification fees" to be collected by the latter are to be allocated as follows: (a) US$ 10 to be retained by the MECO as
administrative fee, (b) US $10 to be remitted to the DOLE, and (c) US$ 10 to be constituted as a common fund of the MECO and
DOLE.123

Evidently, the entire "verification fees" being collected by the MECO are receivables of the DOLE. 124 Such receipts pertain to the DOLE
by virtue of Section 7 of EO No. 1022.
Consular Fees Collected by the MECO

Aside from the DOLE "verification fees," however, the MECO also collects "consular fees," or fees it collects from the exercise of its
delegated consular functions.

The authority behind "consular fees" is Section 2(6) of EO No. 15, s. 2001. The said section authorizes the MECO to collect
"reasonable fees" for its performance of the following consular functions:

1. Issuance of temporary visitors visas and transit and crew list visas, and such other visa services as may be authorized by
the DFA;

2. Issuance, renewal, extension or amendment of passports of Filipino citizens in accordance with existing regulations, and
provision of such other passport services as may be required under the circumstances;

3. Certification or affirmation of the authenticity of documents submitted for authentication; and

4. Providing translation services.

Evidently, and just like the peculiarity that attends the DOLE "verification fees," there is no consular office for the collection of the
"consular fees." Thus, the authority for the MECO to collect the "reasonable fees," vested unto it by the executive order.

The "consular fees," although held and expended by the MECO by virtue of EO No. 15, s. 2001, are, without question, derived from
the exercise by the MECO of consular functionsfunctions it performs by and only through special authority from the government.
There was never any doubt that the visas, passports and other documents that the MECO issues pursuant to its authorized functions
still emanate from the Philippine government itself.

Such fees, therefore, are received by the MECO to be used strictly for the purpose set out under EO No. 15, s. 2001. They must be
reasonable as the authorization requires. It is the government that has ultimate control over the disposition of the "consular fees,"
which control the government did exercise when it provided in Section 2(6) of EO No. 15, s. 2001 that such funds may be kept by the
MECO "to defray the cost of its operations."

The Accounts of the MECO Pertaining to the Verification Fees and Consular Fees May Be Audited by the COA.

Section 14(1), Book V of the Administrative Code authorizes the COA to audit accounts of non-governmental entities "required to pay
xxx or have government share" but only with respect to "funds xxx coming from or through the government." This provision of law
perfectly fits the MECO:

First. The MECO receives the "verification fees" by reason of being the collection agent of the DOLEa government agency. Out of its
collections, the MECO is required, by agreement, to remit a portion thereof to the DOLE. Hence, the MECO is accountable to the
government for its collections of such "verification fees" and, for that purpose, may be audited by the COA.

Second. Like the "verification fees," the "consular fees" are also received by the MECO through the government, having been derived
from the exercise of consular functions entrusted to the MECO by the government. Hence, the MECO remains accountable to the
government for its collections of "consular fees" and, for that purpose, may be audited by the COA.

Tersely put, the 27 February 2008 Memorandum of Agreement between the DOLE and the MECO and Section 2(6) of EO No. 15, s.
2001, vis--vis, respectively, the "verification fees" and the "consular fees," grant and at the same time limit the authority of the
MECO to collect such fees. That grant and limit require the audit by the COA of the collections thereby generated.

Conclusion

The MECO is not a GOCC or government instrumentality. It is a sui generis private entity especially entrusted by the government with
the facilitation of unofficial relations with the people in Taiwan without jeopardizing the countrys faithful commitment to the One
China policy of the PROC. However, despite its non-governmental character, the MECO handles government funds in the form of the
"verification fees" it collects on behalf of the DOLE and the "consular fees" it collects under Section 2(6) of EO No. 15, s. 2001. Hence,
under existing laws, the accounts of the MECO pertaining to its collection of such "verification fees" and "consular fees" should be
audited by the COA.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Manila Economic and Cultural Office is hereby declared a
non-governmental entity. However, the accounts of the Manila Economic and Cultural Office pertaining to: the verification fees
contemplated by Section 7 of Executive Order No. 1022 issued 1 May 1985, that the former collects on behalf of the Department of
Labor and Employment, and the fees it was authorized to collect under Section 2(6) of Executive Order No. 15 issued 16 May 2001,
are subject to the audit jurisdiction of the COA.

No costs.

SO ORDERED.

G.R. No. L-12719 May 31, 1962

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.

Office of the Solicitor General for petitioner.

V. Jaime and L. E. Petilla for respondent.

PAREDES, J.:

This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of Internal Revenue,
assessing against and demanding from the "Club Filipino, Inc. de Cebu", the sum of P12,068.84 as fixed and percentage taxes,
surcharge and compromise penalty, allegedly due from it as a keeper of bar and restaurant.

As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation organized under the
laws of the Philippines with an original authorized capital stock of P22,000.00, which was subsequently increased to P200,000.00,
among others, to it "proporcionar, operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling
alleys), mesas de billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas generales; y desarollar y cultivar
deportes de toda clase y denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2,
Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or by-laws is there a provision relative to dividends
and their distribution, although it is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be
donated to a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.).

The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant
where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-restaurant was a
necessary incident to the operation of the club and its golf-course. The club is operated mainly with funds derived from membership
fees and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In 1951. as a result
of a capital surplus, arising from the re-valuation of its real properties, the value or price of which increased, the Club declared stock
dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never
paid percentage tax on the gross receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In a letter dated
December 22, 1852, the Collector of Internal Revenue assessed against and demanded from the Club, the following sums:

As percentage tax on its gross receipts

during the tax years 1946 to 1951 P9,599.07
Surcharge therein 2,399.77
As fixed tax for the years 1946 to 1952 70.00
Compromise penalty 500.00

The Club wrote the Collector, requesting for the cancellation of the assessment. The request having been denied, the Club filed the
instant petition for review.
The dominant issues involved in this case are twofold:

1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and percentage taxes and surcharges
prescribed in sections 182, 183 and 191 of the Tax Code, under which the assessment was made, in connection with the operation of
its bar and restaurant, during the periods mentioned above; and

2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.

Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on which the percentage tax is
imposed shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction thereof in which such person shall engage
in said business." Section 183 provides in general that "the percentage taxes on business shall be payable at the end of each calendar
quarter in the amount lawfully due on the business transacted during each quarter; etc." And section 191, same Tax Code, provides
"Percentage tax . . . Keepers of restaurants, refreshment parlors and other eating places shall pay a tax three per centum, and keepers
of bar and cafes where wines or liquors are served five per centum of their gross receipts . . .". It has been held that the liability for
fixed and percentage taxes, as provided by these sections, does not ipso facto attach by mere reason of the operation of a bar and
restaurant. For the liability to attach, the operator thereof must be engaged in the business as a barkeeper and restaurateur. The
plain and ordinary meaning of business is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and
the term business when used without qualification, should be construed in its plain and ordinary meaning, restricted to activities for
profit or livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R. No. L-
11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et al. [International Club of Iloilo,
Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-
10854, Jan. 27, 1960).

Having found as a fact that the Club was organized to develop and cultivate sports of all class and denomination, for the healthful
recreation and entertainment of its stockholders and members; that upon its dissolution, its remaining assets, after paying debts,
shall be donated to a charitable Philippine Institution in Cebu; that it is operated mainly with funds derived from membership fees
and dues; that the Club's bar and restaurant catered only to its members and their guests; that there was in fact no cash dividend
distribution to its stockholders and that whatever was derived on retail from its bar and restaurant was used to defray its overall
overhead expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to reason that the Club is not engaged in the
business of an operator of bar and restaurant (same authorities, cited above).

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it
into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the Club to foster its purposes and the profits
derived therefrom are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation
and entertainment of the stockholders and members. That a Club makes some profit, does not make it a profit-making Club. As has
been remarked a club should always strive, whenever possible, to have surplus (Jesus Sacred Heart College v. Collector of Int. Rev.,
G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. No. L-9276, Oct. 23, 1956).1wph1.t

It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock corporation. This is
unmeritorious. The facts that the capital stock of the respondent Club is divided into shares, does not detract from the finding of the
trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club
is engaged in such business is its object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is
not controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic
evidence, including the by-laws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the
Club is not engaged in the business as a barkeeper and restaurateur.

Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital stock divided into shares and (2)
an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held
(sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of incorporation or by-laws could be found an authority for the
distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the
contemplation of the corporation law.

A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock organizations, unless the
intent to the contrary is manifest and patent" (Collector v. BPOE Elks Club, et al., supra), which is not the case in the present appeal.

Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a bar and restaurant, and
therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty, much less of a compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.

G.R. No. 108734 May 29, 1996

CONCEPT BUILDERS, INC., petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel
Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,
Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno
Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

HERMOSISIMA, JR., J.:p

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of
another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified
thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the
corporation as a mere association of persons and, in case of two corporations, merge them into one.

Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the corporation may not
be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes
into play.

This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of
discretion when it issued a "break-open order" to the sheriff to be enforced against personal property found in the premises of
petitioner's sister company.

Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is
engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers.

On November, 1981, private respondents were served individual written notices of termination of employment by petitioner,
effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the
project in which they were hired had been completed.

Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's employment, the
project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors
whose workers performed the functions of private respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay,
overtime pay and thirteenth-month pay against petitioner.

On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private respondents and to pay them
back wages equivalent to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner
on the ground that the said decision had already become final and executory. 2

On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents' back wages
amounted to P199,800.00. 3

On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19,
1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks and
Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC.

On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner
the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former
positions.

On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the
security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises.

On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution.

The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989:

1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees
of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. 4

The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's premises so that he
could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.

On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought
to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.

On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and petitioner
corporation were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its
business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity
bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order.

In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated
May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and the General Information Sheet, dated May
25, 1987, submitted by HPPI to the Securities and Exchange Commission.

The General Information Sheet submitted by the petitioner revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P 6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

 Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila. 5

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P 400,000.00

Elisa C. Lim 57,700.00

AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Elisa C. Lim Member

 Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa C. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road, Valenzuela, Metro Manila. 6

On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a break-open order, contending that
HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two
different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction.

On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open order.

Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a break-
open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the
properties already levied upon. It dismissed the third-party claim for lack of merit.

Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992.

Hence, the resort to the present petition.

Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-
party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been
applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also
contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate
from petitioner's construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same
President and the same set of officers and subscribers. 7

We find petitioner's contention to be unmeritorious.

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from
other corporations to which it may be connected. 8 But, this separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. 9 So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, 10 this separate personality
of the corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true likewise when the corporation is merely
an adjunct, a business conduit or an alter ego of another corporation. 12

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each
case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

 2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business. 13

The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate juridical personality
of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be
disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such
domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be
shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of
duty must proximately cause the injury or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality"
or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and
the individual defendant's relationship to that operation. 14

Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely
one of fact. 15

In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an
Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan
Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information
sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.

Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of both corporations. It
would also not be amiss to note that both corporations had the same president, the same board of directors,
the same corporate officers, and substantially the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party
claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the
property levied upon by the sheriff were not of respondents. 16

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar
their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was
skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.

The facts in this case are analogous to Claparols v. Court of Industrial Relations, 17 where we had the occasion to rule:
 Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30,
1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7,
1962, when the latter finally ceased to operate, were not disputed by petitioner. It is very clear that the latter
corporation was a continuation and successor of the first entity . . . . Both predecessors and successor were owned
and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the
same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of
stock of the Claparols Steel Corporation (the second corporation) was owned by respondent . . . Claparols himself,
and all the assets of the dissolved Claparols Steel and Nail plant were turned over to the emerging Claparols Steel
Corporation.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the
present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial
obligation to its employees.

In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents
had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the
NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the
place where the property subject of execution is located or kept, the judgment creditor may apply to the
Commission or Labor Arbiter concerned for a break-open order.

Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner
and the third-party claimant were given the opportunity to submit evidence in support of their claim.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter.

Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial evidence
are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion. 18

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are
AFFIRMED.

SO ORDERED.

Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.

G.R. No. 182729 September 29, 2010

KUKAN INTERNATIONAL CORPORATION, Petitioner,

vs.
HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES,
doing business under the name and style "RM Morales Trophies and Plaques," Respondents.

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23, 2008 Decision 1and the April 16, 2008
Resolution2 rendered by the Court of Appeals (CA) in CA-G.R. SP No. 100152.

The assailed CA decision affirmed the March 12, 2007 3 and June 7, 20074 Orders of the Regional Trial Court (RTC) of Manila, Branch
21, in Civil Case No. 99-93173, entitled Romeo M. Morales, doing business under the name and style RM Morales Trophies and
Plaques v. Kukan, Inc. In the said orders, the RTC disregarded the separate corporate identities of Kukan, Inc. and Kukan International
Corporation and declared them to be one and the same entity. Accordingly, the RTC held Kukan International Corporation, albeit not
impleaded in the underlying complaint of Romeo M. Morales, liable for the judgment award decreed in a Decision dated November
28, 20025 in favor of Morales and against Kukan, Inc.

The Facts

Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being constructed
in Makati City. Morales tendered the winning bid and was awarded the PhP 5 million contract. Some of the items in the project
award were later excluded resulting in the corresponding reduction of the contract price to PhP 3,388,502. Despite his compliance
with his contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93,
which Kukan, Inc. refused to pay despite demands. Shortchanged, Morales filed a Complaint 6 with the RTC against Kukan, Inc. for a
sum of money, the case docketed as Civil Case No. 99-93173 and eventually raffled to Branch 17 of the court.

Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial ensued. However, starting November 2000,
Kukan, Inc. no longer appeared and participated in the proceedings before the trial court, prompting the RTC to declare Kukan, Inc. in
default and paving the way for Morales to present his evidence ex parte.

On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc., disposing as follows:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is
hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:

1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS
(P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment;

2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable attorneys fees; and
 4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.

For lack of factual foundation, the counterclaim is DISMISSED.

IT IS SO ORDERED.7

After the above decision became final and executory, Morales moved for and secured a writ of execution 8 against Kukan, Inc. The
sheriff then levied upon various personal properties found at what was supposed to be Kukan, Inc.s office at Unit 2205, 88 Corporate
Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was a different corporation from
Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party Claim. Notably, KIC was incorporated in August
2000, or shortly after Kukan, Inc. had stopped participating in Civil Case No. 99-93173.

In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30, 2003. In it, Morales prayed, applying the
principle of piercing the veil of corporate fiction, that an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with
the properties under the name or in the possession of KIC, it being alleged that both corporations are but one and the same entity.
KIC opposed Morales motion. By Order of May 29, 2003 9as reiterated in a subsequent order, the court denied the omnibus motion.

In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true relationship between the two, Morales filed a
Motion for Examination of Judgment Debtors dated May 4, 2005. In this motion Morales sought that subponae be issued against the
primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court in an Order
dated May 24, 2005.10

Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted the motion. The case was
re-raffled to Branch 21, presided by public respondent Judge Amor Reyes.

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence
separate from Kukan, Inc. This time around, the RTC, by Order dated March 12, 2007, granted the motion, the dispositive portion of
which reads:

WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby declares as follows:

1. defendant Kukan, Inc. and newly created Kukan International Corp. as one and the same corporation;

2. the levy made on the properties of Kukan International Corp. is hereby valid;

3. Kukan International Corp. and Michael Chan are jointly and severally liable to pay the amount awarded to plaintiff
pursuant to the decision of November [28], 2002 which has long been final and executory.

SO ORDERED.

From the above order, KIC moved but was denied reconsideration in another Order dated June 7, 2007.

KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC Orders.

On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of which states:

WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders dated March 12, 2007 and June 7, 2007 of
the court a quo are both AFFIRMED. No costs.

SO ORDERED.11

The CA later denied KICs motion for reconsideration in the assailed resolution.

Hence, the instant petition for review, with the following issues KIC raises for the Courts consideration:
 1. There is no legal basis for the [CA] to resolve and declare that petitioners Constitutional Right to Due Process was not
violated by the public respondent in rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring
petitioner to be liable for the judgment obligations of the corporation "Kukan, Inc." to private respondent as petitioner is a
stranger to the case and was never made a party in the case before the trial court nor was it ever served a summons and a
copy of the complaint.

2. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007
rendered by public respondent declaring the petitioner liable to the judgment obligations of the corporation "Kukan, Inc." to
private respondent are valid as said orders of the public respondent modify and/or amend the trial courts final and
executory decision rendered on November 28, 2002.

3. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007
rendered by public respondent declaring the petitioner [KIC] and the corporation "Kukan, Inc." as one and the same, and,
therefore, the Veil of Corporate Fiction between them be pierced as the procedure undertaken by public respondent
which the [CA] upheld is not sanctioned by the Rules of Court and/or established jurisprudence enunciated by this
Honorable Supreme Court.12

In gist, the issues to be resolved boil down to the question of, first, whether the trial court can, after the judgment against Kukan, Inc.
has attained finality, execute it against the property of KIC; second, whether the trial court acquired jurisdiction over KIC; and third,
whether the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of corporate fiction.

The Ruling of the Court

The petition is meritorious.

First Issue: Against Whom Can a Final and

Executory Judgment Be Executed

The preliminary question that must be answered is whether or not the trial court can, after adjudging Kukan, Inc. liable for a sum of
money in a final and executory judgment, execute such judgment debt against the property of KIC.

The poser must be answered in the negative.

In Carpio v. Doroja,13 the Court ruled that the deciding court has supervisory control over the execution of its judgment:

A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in
the suit. There is no question that the court which rendered the judgment has a general supervisory control over its process of
execution, and this power carries with it the right to determine every question of fact and law which may be involved in the
execution.

We reiterated the above holding in Javier v. Court of Appeals 14 in this wise: "The said branch has a general supervisory control over its
processes in the execution of its judgment with a right to determine every question of fact and law which may be involved in the
execution."

The courts supervisory control does not, however, extend as to authorize the alteration or amendment of a final and executory
decision, save for certain recognized exceptions, among which is the correction of clerical errors. Else, the court violates the principle
of finality of judgment and its immutability, concepts which the Court, in Tan v. Timbal, 15 defined:

As we held in Industrial Management International Development Corporation vs. NLRC:

It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a
decision or order is the controlling factor as to settlement of rights of the parties. Once a decision or order becomes final and
executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. It thereby
becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is
null and void for lack of jurisdiction, including the entire proceedings held for that purpose. An order of execution which varies the
tenor of the judgment or exceeds the terms thereof is a nullity. (Emphasis supplied.)
Republic v. Tango16 expounded on the same principle and its exceptions:

Deeply ingrained in our jurisprudence is the principle that a decision that has acquired finality becomes immutable and
unalterable. As such, it may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions
of fact or law and whether it will be made by the court that rendered it or by the highest court of the land. x x x

The doctrine of finality of judgment is grounded on the fundamental principle of public policy and sound practice that, at the risk of
occasional error, the judgment of courts and the award of quasi-judicial agencies must become final on some definite date fixed by
law. The only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no
prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision which render its
execution unjust and inequitable. None of the exceptions obtains here to merit the review sought. (Emphasis added.)

So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment, order the execution of its final decision in a
manner as would amount to its prohibited alteration or modification?

We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it provides:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is
hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:

1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS
(P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment;

2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorneys fees; and

4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.

x x x x (Emphasis supplied.)

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned awards to Morales. Thus,
making KIC, thru the medium of a writ of execution, answerable for the above judgment liability is a clear case of altering a decision,
an instance of granting relief not contemplated in the decision sought to be executed. And the change does not fall under any of the
recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule that a writ of execution must
conform to the fallo of the judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a nullity. 17

Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other issues raised by KIC
would be proper.

Second Issue: Propriety of the RTC

Assuming Jurisdiction over KIC

The next issue turns on the validity of the execution the trial court authorized against KIC and its property, given that it was neither
made a party nor impleaded in Civil Case No. 99-93173, let alone served with summons. In other words, did the trial court acquire
jurisdiction over KIC?

In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself to the jurisdiction of the trial court owing
to its filing of four (4) pleadings adverted to earlier, namely: (a) the Affidavit of Third-Party Claim; 18 (b) the Comment and Opposition
to Plaintiffs Omnibus Motion;19 (c) the Motion for Reconsideration of the RTC Order dated March 12, 2007; 20 and (d) the Motion for
Leave to Admit Reply.21 The CA, citing Section 20, Rule 14 of the Rules of Court, stated that "the procedural rule on service of
summons can be waived by voluntary submission to the courts jurisdiction through any form of appearance by the party or its
counsel."22

We cannot give imprimatur to the appellate courts appreciation of the thrust of Sec. 20, Rule 14 of the Rules in concluding that the
trial court acquired jurisdiction over KIC.
Orion Security Corporation v. Kalfam Enterprises, Inc. 23 explains how courts acquire jurisdiction over the parties in a civil case:

Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other hand, jurisdiction over the defendants in
a civil case is acquired either through the service of summons upon them or through their voluntary appearance in court and their
submission to its authority. (Emphasis supplied.)

In the fairly recent Palma v. Galvez,24 the Court reiterated its holding in Orion Security Corporation, stating: "[I]n civil cases, the trial
court acquires jurisdiction over the person of the defendant either by the service of summons or by the latters voluntary appearance
and submission to the authority of the former."

The courts jurisdiction over a party-defendant resulting from his voluntary submission to its authority is provided under Sec. 20, Rule
14 of the Rules, which states:

Section 20. Voluntary appearance. The defendants voluntary appearance in the actions shall be equivalent to service of summons.
The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be
deemed a voluntary appearance.

To be sure, the CAs ruling that any form of appearance by the party or its counsel is deemed as voluntary appearance finds support
in the kindred Republic v. Ker & Co., Ltd. 25 and De Midgely v. Ferandos.26

Republic and De Midgely, however, have already been modified if not altogether superseded 27 by La Naval Drug Corporation v. Court
of Appeals,28 wherein the Court essentially ruled and elucidated on the current view in our jurisdiction, to wit: "[A] special
appearance before the courtchallenging its jurisdiction over the person through a motion to dismiss even if the movant invokes
other groundsis not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person; and such is
not constitutive of a voluntary submission to the jurisdiction of the court." 29

In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded that it raised affirmative
defenses through its aforementioned pleadings, KIC never abandoned its challenge, however implicit, to the RTCs jurisdiction over
its person. The challenge was subsumed in KICs primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in its
Comment and Opposition to Plaintiffs Omnibus Motion dated May 20, 2003, KIC entered its "special but not voluntary appearance"
alleging therein that it was a different entity and has a separate legal personality from Kukan, Inc. And KIC would consistently
reiterate this assertion in all its pleadings, thus effectively resisting all along the RTCs jurisdiction of its person. It cannot be
overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely
because KIC was neither impleaded nor served with summons. Consequently, KIC could only assert and claim through its affidavits,
comments, and motions filed by special appearance before the RTC that it is separate and distinct from Kukan, Inc.

Following La Naval Drug Corporation,30 KIC cannot be deemed to have waived its objection to the courts lack of jurisdiction over its
person. It would defy logic to say that KIC unequivocally submitted itself to the jurisdiction of the RTC when it strongly asserted that
it and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other option but to insist on its separate
identity and plead for relief consistent with that position.

Third Issue: Piercing the

Veil of Corporate Fiction

The third and main issue in this case is whether or not the trial and appellate courts correctly applied the principle of piercing the veil
of corporate entitycalled also as disregarding the fiction of a separate juridical personality of a corporationto support a
conclusion that Kukan, Inc. and KIC are but one and the same corporation with respect to the contract award referred to at the
outset. This principle finds its context on the postulate that a corporation is an artificial being invested with a personality separate
and distinct from those of the stockholders and from other corporations to which it may be connected or related. 31

In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission, 32 the Court revisited the subject principle
of piercing the veil of corporate fiction and wrote:

Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a mere collection of individuals or
an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying
the group. Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or as one and the same.

Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved.
However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate
veil when it is misused or when necessary in the interest of justice. x x x (Emphasis supplied.)

The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.:

While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two
corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of
piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation
is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It
cannot be presumed.33 (Emphasis supplied.)

Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to due process when, in the execution of
its November 28, 2002 Decision, the court authorized the issuance of the writ against KIC for Kukan, Inc.s judgment debt, albeit KIC
has never been a party to the underlying suit. As a counterpoint, Morales argues that KICs specific concern on due process and on
the validity of the writ to execute the RTCs November 28, 2002 Decision would be mooted if it were established that KIC and Kukan,
Inc. are indeed one and the same corporation.

Morales contention is untenable.

The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same
juridical person with respect to a given transaction, is basically applied only to determine established liability; 34 it is not available to
confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a
corporation not impleaded in a suit cannot be subject to the courts process of piercing the veil of its corporate fiction. In that
situation, the court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that corporation
and its property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as
much:

23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x

This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court
has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence presented,
it is imperative that the court must first have jurisdiction over the corporation. 35 x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or corporations
involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing the veil of corporate entity can
only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of
the court by way of service of summons or what passes as such service.

The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the matter of the time and manner of raising the
principle in question, it is undisputed that no full-blown trial involving KIC was had when the RTC disregarded the corporate veil of
KIC. The reason for this actuality is simple and undisputed: KIC was not impleaded in Civil Case No. 99-93173 and that the RTC did not
acquire jurisdiction over it. It was dragged to the case after it reacted to the improper execution of its properties and veritably hauled
to court, not thru the usual process of service of summons, but by mere motion of a party with whom it has no privity of contract
and after the decision in the main case had already become final and executory. As to the propriety of a plea for the application of
the principle by mere motion, the following excerpts are instructive:

Generally, a motion is appropriate only in the absence of remedies by regular pleadings, and is not available to settle important
questions of law, or to dispose of the merits of the case. A motion is usually a proceeding incidental to an action, but it may be a
wholly distinct or independent proceeding. A motion in this sense is not within this discussion even though the relief demanded is
denominated an "order."

A motion generally relates to procedure and is often resorted to in order to correct errors which have crept in along the line of the
principal actions progress. Generally, where there is a procedural defect in a proceeding and no method under statute or rule of
court by which it may be called to the attention of the court, a motion is an appropriate remedy. In many jurisdictions, the motion
has replaced the common-law pleas testing the sufficiency of the pleadings, and various common-law writs, such as writ of error
coram nobis and audita querela. In some cases, a motion may be one of several remedies available. For example, in some
jurisdictions, a motion to vacate an order is a remedy alternative to an appeal therefrom.

Statutes governing motions are given a liberal construction. 36 (Emphasis supplied.)

The bottom line issue of whether Morales can proceed against KIC for the judgment debt of Kukan, Inc.assuming hypothetically
that he can, applying the piercing the corporate veil principleresolves itself into the question of whether a mere motion is the
appropriate vehicle for such purpose.

Verily, Morales espouses the application of the principle of piercing the corporate veil to hold KIC liable on theory that Kukan, Inc.
was out to defraud him through the use of the separate and distinct personality of another corporation, KIC. In net effect, Morales
adverted motion to pierce the veil of corporate fiction dated January 3, 2007 stated a new cause of action, i.e., for the liability of
judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two corporations. This new cause of action should be
properly ventilated in another complaint and subsequent trial where the doctrine of piercing the corporate veil can, if appropriate,
be applied, based on the evidence adduced. Establishing the claim of Morales and the corresponding liability of KIC for Kukan Inc.s
indebtedness could hardly be the subject, under the premises, of a mere motion interposed after the principal action against Kukan,
Inc. alone had peremptorily been terminated. After all, a complaint is one where the plaintiff alleges causes of action.

In any event, the principle of piercing the veil of corporate fiction finds no application to the instant case.

As a general rule, courts should be wary of lifting the corporate veil between corporations, however related. Philippine National Bank
v. Andrada Electric Engineering Company37 explains why:

A corporation is an artificial being created by operation of law. x x x It has a personality separate and distinct from the persons
composing it, as well as from any other legal entity to which it may be related. This is basic.

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is
just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil
will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the
milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or
crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it
cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.

This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of
the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to promote or to
shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against forum-shopping. Only in these and
similar instances may the veil be pierced and disregarded. (Emphasis supplied.)

In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the separate and
distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a
fraud or like wrongdoings. To be sure, the Court has, on numerous occasions, 38 applied the principle where a corporation is dissolved
and its assets are transferred to another to avoid a financial liability of the first corporation with the result that the second
corporation should be considered a continuation and successor of the first entity.

In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a confluence of the following
factors:

1. A first corporation is dissolved;

 2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first
corporation; and

3. Both corporations are owned and controlled by the same persons such that the second corporation should be considered
as a continuation and successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously absent. There is, therefore, no compelling justification
for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. In applying the principle, both the RTC and the CA
miserably failed to identify the presence of the abovementioned factors. Consider:

The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on the following premises and arguments:

While it is true that a corporation has a separate and distinct personality from its stockholder, director and officers, the law expressly
provides for an exception. When Michael Chan, the Managing Director of defendant Kukan, Inc. (majority stockholder of the newly
formed corporation [KIC]) confirmed the award to plaintiff to supply and install interior signages in the Enterprise Center he (Michael
Chan, Managing Director of defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay its obligation/account,
thus implying bad faith on his part and fraud in contracting the obligation. Michael Chan neither returned the interior signages nor
tendered payment to the plaintiff. This circumstance may warrant the piercing of the veil of corporation fiction. Having been guilty of
bad faith in the management of corporate matters the corporate trustee, director or officer may be held personally liable. x x x

Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. x x x
[A]nd the circumstances are: the signature of Michael Chan, Managing Director of Kukan, Inc. appearing in the confirmation of the
award sent to the plaintiff; signature of Chan Kai Kit, a British National appearing in the Articles of Incorporation and signature of
Michael Chan also a British National appearing in the Articles of Incorporation [of] Kukan International Corp. give the impression that
they are one and the same person, that Michael Chan and Chan Kai Kit are both majority stockholders of Kukan International Corp.
and Kukan, Inc. holding 40% of the stocks; that Kukan International Corp. is practically doing the same kind of business as that of
Kukan, Inc.39 (Emphasis supplied.)

As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of Kukan, Inc. and KIC on the main
argument that Michael Chan owns 40% of the common shares of both corporations, obviously oblivious that overlapping stock
ownership is a common business phenomenon. It must be remembered, however, that KICs properties were the ones seized upon
levy on execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere ownership by a single stockholder or by
another corporation of a substantial block of shares of a corporation does not, standing alone, provide sufficient justification for
disregarding the separate corporate personality. 40 For this ground to hold sway in this case, there must be proof that Chan had
control or complete dominion of Kukan and KICs finances, policies, and business practices; he used such control to commit fraud;
and the control was the proximate cause of the financial loss complained of by Morales. The absence of any of the elements prevents
the piercing of the corporate veil.41 And indeed, the records do not show the presence of these elements.

On the other hand, the CA held:

In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x x worth more than three million pesos
although it had only Php5,000.00 paid-up capital; [KIC] was incorporated shortly before Kukan, Inc. suddenly ceased to appear and
participate in the trial; [KICs] purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC] Michael Chan, a.k.a., Chan Kai
Kit, holds forty percent of the outstanding stocks, while he formerly held the same amount of stocks in Kukan Inc. These would lead
to the inescapable conclusion that Kukan, Inc. committed fraudulent representation by awarding to the private respondent the
contract with full knowledge that it was not in a position to comply with the obligation it had assumed because of inadequate paid-
up capital. It bears stressing that shareholders should in good faith put at the risk of the business, unencumbered capital reasonably
adequate for its prospective liabilities. The capital should not be illusory or trifling compared with the business to be done and the
risk of loss.

Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc. Michael Chan, a.k.a. Chan Kai Kit has the largest block of
shares in both business enterprises. The emergence of the former was cleverly timed with the hasty withdrawal of the latter during
the trial to avoid the financial liability that was eventually suffered by the latter. The two companies have a related business purpose.
Considering these circumstances, the obvious conclusion is that the creation of Kukan International Corporation served as a device to
evade the obligation incurred by Kukan, Inc. and yet profit from the goodwill attained by the name "Kukan" by continuing to engage
in the same line of business with the same list of clients. 42 (Emphasis supplied.)
Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity of the business activities in which both
corporations are engaged as a jumping board to its conclusion that the creation of KIC "served as a device to evade the obligation
incurred by Kukan, Inc." The appellate court, however, left a gaping hole by failing to demonstrate that Kukan, Inc. and its
stockholders defrauded Morales. In fine, there is no showing that the incorporation, and the separate and distinct personality, of KIC
was used to defeat Morales right to recover from Kukan, Inc. Judging from the records, no serious attempt was made to levy on the
properties of Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried to avoid liability or had no property against
which to proceed.

Morales further contends that Kukan, Inc.s closure is evidenced by its failure to file its 2001 General Information Sheet (GIS) with the
Securities and Exchange Commission. However, such fact does not necessarily mean that Kukan, Inc. had altogether ceased
operations, as Morales would have this Court believe, for it is stated on the face of the GIS that it is only upon a failure to file the
corporate GIS for five (5) consecutive years that non-operation shall be presumed.

The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up capital of PhP 5,000 is not an indication of
the intent on the part of its management to defraud creditors. Paid-up capital is merely seed money to start a corporation or a
business entity. As in this case, it merely represented the capitalization upon incorporation in 1997 of Kukan, Inc. Paid-up
capitalization of PhP 5,000 is not and should not be taken as a reflection of the firms capacity to meet its recurrent and long-term
obligations. It must be borne in mind that the equity portion cannot be equated to the viability of a business concern, for the best
test is the working capital which consists of the liquid assets of a given business relating to the nature of the business
concern.lawphil

Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as a badge of fraud, for it is in compliance
with Sec. 13 of the Corporation Code,43 which only requires a minimum paid-up capital of PhP 5,000.1avvphi1

The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they are by the same
stockholders, stands without factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock
of both corporations. But such circumstance, standing alone, is insufficient to establish identity. There must be at least a substantial
identity of stockholders for both corporations in order to consider this factor to be constitutive of corporate identity.

It would not avail Morales any to rely44 on General Credit Corporation v. Alsons Development and Investment Corporation. 45 General
Credit Corporation is factually not on all fours with the instant case. There, the common stockholders of the corporations
represented 90% of the outstanding capital stock of the companies, unlike here where Michael Chan merely represents 40% of the
outstanding capital stock of both KIC and Kukan, Inc., not even a majority of it. In that case, moreover, evidence was adduced to
support the finding that the funds of the second corporation came from the first. Finally, there was proof in General Credit
Corporation of complete control, such that one corporation was a mere dummy or alter ego of the other, which is absent in the
instant case.

Evidently, the aforementioned case relied upon by Morales cannot justify the application of the principle of piercing the veil of
corporate fiction to the instant case. As shown by the records, the name Michael Chan, the similarity of business activities engaged
in, and incidentally the word "Kukan" appearing in the corporate names provide the nexus between Kukan, Inc. and KIC. As
illustrated, these circumstances are insufficient to establish the identity of KIC as the alter ego or successor of Kukan, Inc.

It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who seek to pierce the veil must
clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect fraud, or
perpetrate a deception. In the concrete and on the assumption that the RTC has validly acquired jurisdiction over the party
concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC purposely formed
and operated to defraud him. Morales has not to us discharged his burden.

WHEREFORE, the petition is hereby GRANTED. The CAs January 23, 2008 Decision and April 16, 2008 Resolution in CA-G.R. SP No.
100152 are hereby REVERSED and SET ASIDE. The levy placed upon the personal properties of Kukan International Corporation is
hereby ordered lifted and the personal properties ordered returned to Kukan International Corporation. The RTC of Manila, Branch
21 is hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable dispatch.

No costs.

SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

G.R. No. 165442 August 25, 2010

NASECO GUARDS ASSOCIATION-PEMA (NAGA-PEMA), Petitioner,

vs.
NATIONAL SERVICE CORPORATION (NASECO), Respondent.

DECISION

VILLARAMA, JR., J.:

This petition for review on certiorari under Rule 45 assails the Decision1 dated May 27, 2004 of the Court of Appeals (CA) in CA-G.R.
SP No. 76667. The appellate court set aside the January 15, 2003 2 and March 11, 20033 Orders of the Department of Labor and
Employment (DOLE) and ordered the latter to allow the parties to adduce evidence in support of their respective positions.

The facts follow.

Respondent National Service Corporation (NASECO) is a wholly-owned subsidiary of the Philippine National Bank (PNB) organized
under the Corporation Code in 1975. It supplies security and manpower services to different clients such as the Securities and
Exchange Commission, the Philippine Deposit Insurance Corporation, Food Terminal Incorporated, Forex Corporation and PNB.
Petitioner NASECO Guards Association-PEMA (NAGA-PEMA) is the collective bargaining representative of the regular rank and file
security guards of respondent. NASECO Employees Union-PEMA (NEMU-PEMA) is the collective bargaining representative of the
regular rank and file (non-security) employees of respondent such as messengers, janitors, typists, clerks and radio-telephone
operators.4

On December 2, 1993, respondent entered into a memorandum of agreement 5 with petitioner. The terms of the agreement covered
the monetary claims of the petitioner such as salary adjustments, conversion of salary scheme under Republic Act (R.A.) No. 6758 6 to
R.A. No. 6727,7 signing bonus, leaves and other benefits. A year after, petitioner demanded full negotiation for a collective bargaining
agreement (CBA) with the respondent and submitted its proposals thereto.

On June 8, 1995, petitioner and respondent agreed to sign a CBA on non-economic terms. 8

On September 24, 1996, petitioner filed a notice of strike because of respondents refusal to bargain for economic benefits in the
CBA. Following conciliation hearings, the parties again commenced CBA negotiations and started to resolve the issues on wage
increase, productivity bonus, incentive bonus, allowances, and other benefits but failed to reach an agreement.

Meanwhile, respondent and NEMU-PEMA entered into a CBA on non-economic terms. 9 Unfortunately, a dispute among the leaders
of NEMU-PEMA arose and at a certain point, leadership of the organization was unclear. Hence, the negotiations concerning the
economic terms of the CBA were put on hold until the internal dispute could be resolved.

On April 29, 1997, petitioner filed a notice of strike before the National Conciliation and Mediation Board (NCMB) against respondent
and PNB due to a bargaining deadlock. The following day, NEMU-PEMA likewise filed a notice of strike against respondent and PNB
on the ground of unfair labor practices.10 Efforts by the NCMB to conciliate failed and pursuant to Article 263(g) of the Labor
Code,11 as amended, then DOLE Secretary Cresenciano B. Trajano assumed jurisdiction over the strike notices on June 25, 1998. 12

On November 19, 1999, then DOLE Secretary Bienvenido E. Laguesma issued a Resolution 13 directing petitioner and respondent to
execute a new CBA incorporating therein his dispositions regarding benefits of the employees as to wage increase, productivity
bonus, vacation and sick leave, medical allowances and signing bonus. Respondent was further ordered to negotiate, for purposes of
collective bargaining agreement, with NEMU-PEMA led by its president, Ligaya Valencia. The charge of unfair labor practice against
respondent and PNB was dismissed.14
Respondent promptly filed a petition for certiorari before the CA questioning the DOLE Secretarys order and arguing that the ruling
of the DOLE Secretary in favor of the unions and awarding them monetary benefits totaling five hundred thirty-one million four
hundred forty-six thousand six hundred sixty-six and 67/100 (P531,446,666.67) was inimical and deleterious to its financial standing
and will result in closure and cessation of business for the company.

By Decision15 dated March 19, 2001 (first CA Decision), the CA partly granted the petition and ruled that a recomputation and
reevaluation of the benefits awarded was in order.

WHEREFORE, the instant petition is partly GRANTED in that the case is remanded to the Secretary of Labor for purposes of
recomputation and reevaluation of the CBA benefits.

SO ORDERED.16

In compliance with the CA directive, then DOLE Secretary Patricia A. Sto. Tomas conducted several clarificatory hearings. On January
15, 2003, Secretary Sto. Tomas issued an Order which provides:

From the above, it is indubitable that the total cost to NASECO of our questioned award would amount to only P322,725,000,
not P531,446,666.67 as claimed by the company. Thus, our November 19, 1999 Order is hereby affirmed en toto.

WHEREFORE, judgment is hereby rendered:

1. [D]irecting NAGA-PEMA and NASECO to execute a new collective bargaining agreement effective November 1, 1993,
incorporating therein the dispositions contained in our November 19, 1999 Order as well as all other items agreed upon by
the parties.

2. Ordering NASECO to negotiate with NEMA-PEMA for a new collective bargaining agreement.

The charges of unfair labor practice against NASECO and PNB are dismissed for lack of merit.

SO ORDERED.17

Respondent filed a motion for reconsideration with the DOLE Secretary which was denied on March 11, 2003.

Respondent thus filed a petition for certiorari with the CA arguing that the DOLE Secretary, in issuing the January 15, 2003 Order
deprived respondent of due process of law for there was no reevaluation that took place in the DOLE. It also argued that the order
merely recomputed the DOLE Secretarys initial award of P531,446,666.67 and reduced it to P322,725,000.00, contrary to the ruling
of the CA to recompute and reevaluate. Respondent claimed that what the DOLE Secretary should have done was to let the parties
introduce evidence to show the proper computation of the monetary awards under the approved CBA.

In its second Decision dated May 27, 2004, the CA granted the petition, thus:

WHEREFORE, the orders dated 15 January 2003 and 11 March 2003 are hereby SET ASIDE and the case remanded to the public
respondent to allow the parties to adduce evidence in support of their respective positions.

SO ORDERED.18

A motion for reconsideration was filed by herein petitioner but the same was denied by the CA on September 22, 2004 19 finding no
reason to reverse and set aside its earlier decision.

Petitioner now comes to this Court for relief by way of a petition for review on certiorari seeking to set aside and reverse the May 27,
2004 Decision and the September 22, 2004 Resolution of the CA.

The main issue in this case is whether or not the respondents right to due process was violated. A side issue raised by the petitioner
is whether or not PNB, being the undisputed owner of and exercising control over respondent, should be made liable to pay the CBA
benefits awarded to the petitioner.
Petitioner argues first that there was no violation of due process because respondent was never prohibited by the DOLE Secretary to
submit supporting documents when the instant case was pending on remand. Petitioner contends that due process is properly
observed when there is an opportunity to be heard, to present evidence and to file pleadings, which was never denied to
respondent.

Second, petitioner argues that the CA erred in stating that respondent was a company operating at a loss and therefore cannot be
expected to act generously and confer upon its employees additional benefits exceeding what is mandated by law. It is the
petitioners position that based on the "no loss, no profit" policy of respondent with PNB, respondent in truth has no "pocket" of its
own and is, in effect, one (1) and the same with PNB with regard to financial gains and/or liabilities. Thus, petitioners contend that
the CBA benefits should be shouldered by PNB considering the poor financial condition of respondent. To support such claim,
petitioner submitted evidence20 to show that PNB is in superb financial condition and is very much capable of shouldering the CBA
award.21

Respondent on the other hand maintains that the DOLE Secretary violated its right to due process when she merely recomputed the
CBA award instead of reevaluating the entire case and allowing it to present supporting documents in accordance with the first CA
decision.22 It claims that the order of the CA to reevaluate included and required a full assessment of the case together with
reception of evidence such as financial statements, and the omission of such is a violation of its right to due process.

As to the petitioners argument that respondent and PNB are essentially the same when it comes to financial condition, respondent
contends that although a subsidiary, it has a separate and distinct personality from PNB with its own charter. Hence, the issue of
PNBs financial well-being is immaterial in this case.

The petition is partly meritorious.

In simple terms, the constitutional guarantee of due process requires that a litigant be given "a day in court." It is the availability of
the opportunity to be heard that determines whether or not due process was violated. A litigant may or may not avail of the
opportunity to be heard but as long as such was made available to him/her, there is no violation of the due process clause. In the
case of Lumiqued v. Exevea,23 this Court declared that "[a]s long as a party was given the opportunity to defend his interests in due
course, he cannot be said to have been denied due process of law, for this opportunity to be heard is the very essence of due
process. Moreover, this constitutional mandate is deemed satisfied if a person is granted an opportunity to seek reconsideration of
the action or ruling complained of."

The respondents right to due process in this case has not been denied. The order in the first CA decision to recompute and
reevaluate was satisfied when the DOLE Secretary reexamined their initial findings and adjusted the awarded benefits. A
reevaluation, contrary to what the respondent claims, is a process by which a person or office (in this case the DOLE secretary)
revisits its own initial pronouncement and makes another assessment of its findings. In simple terms, to reevaluate is to take another
look at a previous matter in issue. A reevaluation does not necessitate the introduction of new materials for review nor does it
require a full hearing for new arguments.

From a procedural standpoint, a reevaluation is a continuation of the original case and not a new proceeding. Hence, the evidence,
financial reports and other documents submitted by the parties in the course of the original proceeding are to be visited and
reviewed again. In this light, the respondent has been given the opportunity to be heard by the DOLE Secretary.

Also, contrary to the claim of the respondent that it was barred by the DOLE Secretary to introduce supporting documents during the
recomputation and reevaluation, the records show that an Order by then Secretary of Labor Patricia A. Sto. Tomas dated July 11,
2002 specifically allowed both parties to submit their respective computations as regards the awarded benefits. To wit:

WHEREFORE, the Bureau of Working Conditions is hereby directed to submit to this Office a detailed computation of the CBA
benefits indicated in the resolution of November 19, 2001 within twenty (20) days from receipt of this Order. The parties may submit
their own computations to the Bureau for validation.

SO ORDERED.24 (Italics supplied.)

It is thus inaccurate for the respondent to claim that it was denied due process because it had all the opportunity to introduce any
supporting document in the course of the recomputation and reevaluation of the DOLE Secretary. Respondent admits that it did
attach the financial statements and other documents in support of its alleged financial incapacity to pay the CBA awarded benefits,
the same evidence it had earlier submitted before the CA (Memorandum in the first CA decision) in the motion for reconsideration of
the DOLE Secretarys January 15, 2003 Order.25 There is thus no showing that the DOLE Secretary denied respondent this basic
constitutional right.

On the issue of liability, petitioner contends that PNB should be held liable to shoulder the CBA benefits awarded to them by virtue
of it being a company having full financial, managerial and functional control over respondent as its subsidiary, and by reason of the
unique "no loss, no profit" scheme implemented between respondent and PNB.

We are not persuaded.

Verily, what the petitioner is asking this Court to do is to pierce the veil of corporate fiction of respondent and hold PNB (being the
mother company) liable for the CBA benefits.

In Concept Builders, Inc. v. NLRC,26 we explained the doctrine of piercing the corporate veil, as follows:

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from
other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of
the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation.

Also in Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission, 27 this Court ruled:

Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved.
However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate
veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to
promote unfair objectives.

Applying the doctrine to the case at bar, we find no reason to pierce the corporate veil of respondent and go beyond its legal
personality. Control, by itself, does not mean that the controlled corporation is a mere instrumentality or a business conduit of the
mother company. Even control over the financial and operational concerns of a subsidiary company does not by itself call for
disregarding its corporate fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or illegal purpose
behind the control in order to justify piercing the veil of corporate fiction. Such fraudulent intent is lacking in this case.

Petitioner argues that the appreciation, analysis and inquiry of this case may go beyond the presentation of respondent, and
therefore must include the PNB, the bank being the undisputed whole owner of respondent and the sole provider of funds for the
companys operations and for the payment of wages and benefits of the employees, under the "no loss, no profit" scheme. 28

We disagree. There is no showing that such "no loss, no profit" scheme between respondent and PNB was implemented to defeat
public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, nor does the scheme
show that respondent is a mere business conduit or alter ego of PNB. Absent proof of these circumstances, respondents corporate
personality cannot be pierced.1wphi1

It is apparent that petitioner wants the Court to disregard the corporate personality of respondent and directly go after PNB in order
for it to collect the CBA benefits. On the same breath, however, petitioner argues that ultimately it is PNB, by virtue of the "no loss,
no profit" scheme, which shoulders and provides the funds for financial liabilities of respondent including wages and benefits of
employees. If such scheme was indeed true as the petitioner presents it, then there was absolutely no need to pierce the veil of
corporate fiction of respondent. Moreover, the Court notes the pendency of a separate suit for absorption or regularization of
NASECO employees filed by petitioner and NEMU-PEMA against PNB and respondent, docketed as NLRC NCR Case No. 06-03944-96),
which is still on appeal with the National Labor Relations Commission (NLRC), as per manifestation by respondent. In the said case,
petitioner submitted for resolution by the labor tribunal the issues of whether PNB is the employer of NASECOs work force and
whether NASECO is a labor-only contractor.29

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated May 27, 2004 and Resolution dated September 22, 2004 in CA-
G.R. SP No. 76667 are hereby REVERSED and SET ASIDE as to the order to remand the case to the Secretary of Labor for introduction
of supporting evidence. Accordingly, the Orders of the Secretary of Labor dated January 15, 2003 and March 11, 2003 are
REINSTATED and UPHELD.
No costs.

G.R. No. 160236 October 16, 2009

"G" HOLDINGS, INC., Petitioner,

vs.
NATIONAL MINES AND ALLIED WORKERS UNION Local 103 (NAMAWU); SHERIFFS RICHARD H. APROSTA and ALBERTO MUNOZ, all
acting Sheriffs; DEPARTMENT OF LABOR AND EMPLOYMENT, Region VI, Bacolod District Office, Bacolod City, Respondents.

DECISION

NACHURA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the October 14, 2003 Decision 1 of
the Court of Appeals (CA) in CA-G.R. SP No. 75322.

The Facts

The petitioner, "G" Holdings, Inc. (GHI), is a domestic corporation primarily engaged in the business of owning and holding shares of
stock of different companies.2 It was registered with the Securities and Exchange Commission on August 3, 1992. Private respondent,
National Mines and Allied Workers Union Local 103 (NAMAWU), was the exclusive bargaining agent of the rank and file employees of
Maricalum Mining Corporation (MMC),3 an entity operating a copper mine and mill complex at Sipalay, Negros Occidental. 4

MMC was incorporated by the Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB) on October 19,
1984, on account of their foreclosure of Marinduque Mining and Industrial Corporations assets. MMC started its commercial
operations in August 1985. Later, DBP and PNB transferred it to the National Government for disposition or privatization because it
had become a non-performing asset.5

On October 2, 1992, pursuant to a Purchase and Sale Agreement 6 executed between GHI and Asset Privatization Trust (APT), the
former bought ninety percent (90%) of MMCs shares and financial claims. 7 These financial claims were converted into three
Promissory Notes8 issued by MMC in favor of GHI totaling P500M and secured by mortgages over MMCs properties. The notes,
which were similarly worded except for their amounts, read as follows:

PROMISSORY NOTE

AMOUNT - Php114,715,360.00 [Php186,550,560.00 in the second

note, and Php248,734,080.00 in the
third note.]

MAKATI, METRO MANILA, PHILIPPINES, October 2, 1992

For Value Received, MARICALUM MINING CORPORATION (MMC) with postal address at 4th Floor, Manila Memorial Park Bldg., 2283
Pasong Tamo Extension, Makati, Metro Manila, Philippines, hereby promises to pay "G" HOLDINGS, INC., at its office at Phimco
Compound, F. Manalo Street, Punta, Sta. Ana, Manila, the amount of PESOS ONE HUNDRED FOURTEEN MILLION, SEVEN HUNDRED
FIFTEEN THOUSAND AND THREE HUNDRED SIXTY (Php114,715,360.00) ["PESOS ONE HUNDRED EIGHTY SIX MILLION FIVE HUNDRED
FIFTY THOUSAND FIFE HUNDRED AND SIXTY (Php186,550,560.00)" in the second note, and "PESOS TWO HUNDRED FORTY EIGHT
MILLION, SEVEN HUNDRED THIRTY FOUR THOUSAND AND EIGHTY (Php248,734,080.00)" in the third note], PHILIPPINE CURRENCY,
on or before October 2, 2002. Interest shall accrue on the amount of this Note at a rate per annum equal to the interest of 90-day
Treasury Bills prevailing on the Friday preceding the maturity date of every calendar quarter.

As collateral security, MMC hereby establishes and constitutes in favor of "G" HOLDINGS, INC., its successors and/or assigns:

1. A mortgage over certain parcels of land, more particularly listed and described in the Sheriffs Certificate of Sale dated
September 7, 1984 issued by the Ex-Officio Provincial Sheriff of Negros Occidental, Rolando V. Ramirez, with office at
Bacolod City following the auction sale conducted pursuant to the provisions of Act 3135, a copy of which certificate of sale
is hereto attached as Annex "A" and made an integral part hereof;
 2. A chattel mortgage over assets and personal properties more particularly listed and described in the Sheriffs Certificate
of Sale dated September 7, 1984 issued by the Ex-Officio Provincial Sheriff of Negros Occidental, Rolando V. Ramirez, with
office at Bacolod City following the auction conducted pursuant to the provisions of Act 1508, a copy of which Certificate of
Sale is hereto attached as Annex "B" and made an integral part hereof.

3. Mortgages over assets listed in APT Specific Catalogue GC-031 for MMC, a copy of which Catalogue is hereby made an
integral part hereof by way of reference, as well as assets presently in use by MMC but which are not listed or included in
paragraphs 1 and 2 above and shall include all assets that may hereinafter be acquired by MMC.

MARICALUM MINING CORPORATION

(Maker)

x x x x9

Upon the signing of the Purchase and Sale Agreement and upon the full satisfaction of the stipulated down payment, GHI
immediately took physical possession of the mine site and its facilities, and took full control of the management and operation of
MMC.10

Almost four years thereafter, or on August 23, 1996, a labor dispute (refusal to bargain collectively and unfair labor practice) arose
between MMC and NAMAWU, with the latter eventually filing with the National Conciliation and Mediation Board of Bacolod City a
notice of strike.11 Then Labor Secretary, now Associate Justice of this Court, Leonardo A. Quisumbing, later assumed jurisdiction over
the dispute and ruled in favor of NAMAWU. In his July 30, 1997 Order in OS-AJ-10-96-014 (Quisumbing Order), Secretary Quisumbing
declared that the lay-off (of workers) implemented on May 7, 1996 and October 7, 1996 was illegal and that MMC committed unfair
labor practice. He then ordered the reinstatement of the laid-off workers, with payment of full backwages and benefits, and directed
the execution of a new collective bargaining agreement (CBA) incorporating the terms and conditions of the previous CBA providing
for an annual increase in the workers daily wage. 12 In two separate casesG.R. Nos. 133519 and 138996filed with this Court, we
sustained the validity of the Quisumbing Order, which became final and executory on January 26, 2000. 13

On May 11, 2001, then Acting Department of Labor and Employment (DOLE) Secretary, now also an Associate Justice of this Court,
Arturo D. Brion, on motion of NAMAWU, directed the issuance of a partial writ of execution (Brion Writ), and ordered the DOLE
sheriffs to proceed to the MMC premises for the execution of the same. 14Much later, in 2006, this Court, in G.R. Nos. 157696-97,
entitled Maricalum Mining Corporation v. Brion and NAMAWU, 15 affirmed the propriety of the issuance of the Brion Writ.

The Brion Writ was not fully satisfied because MMCs resident manager resisted its enforcement. 16 On motion of NAMAWU, then
DOLE Secretary Patricia A. Sto. Tomas ordered the issuance of the July 18, 2002 Alias Writ of Execution and Break-Open Order (Sto.
Tomas Writ).17 On October 11, 2002, the respondent acting sheriffs, the members of the union, and several armed men implemented
the Sto. Tomas Writ, and levied on the properties of MMC located at its compound in Sipalay, Negros Occidental. 18

On October 14, 2002, GHI filed with the Regional Trial Court (RTC) of Kabankalan City, Negros Occidental, Special Civil Action (SCA)
No. 1127 for Contempt with Prayer for the Issuance of a Temporary Restraining Order (TRO) and Writ of Preliminary Injunction and to
Nullify the Sheriffs Levy on Properties.19 GHI contended that the levied properties were the subject of a Deed of Real Estate and
Chattel Mortgage, dated September 5, 199620executed by MMC in favor of GHI to secure the aforesaid P550M promissory notes; that
this deed was registered on February 24, 2000; 21 and that the mortgaged properties were already extrajudicially foreclosed in July
2001 and sold to GHI as the highest bidder on December 3, 2001, as evidenced by the Certificate of Sale dated December 4, 2001. 22

The trial court issued ex parte a TRO effective for 72 hours, and set the hearing on the application for a writ of injunction. 23 On
October 17, 2002, the trial court ordered the issuance of a Writ of Injunction (issued on October 18, 2002) 24 enjoining the DOLE
sheriffs from further enforcing the Sto. Tomas Writ and from conducting any public sale of the levied-on properties, subject to GHIs
posting of a P5M bond.25

Resolving, among others, NAMAWUs separate motions for the reconsideration of the injunction order and for the dismissal of the
case, the RTC issued its December 4, 2002 Omnibus Order, 26 the dispositive portion of which reads:

WHEREFORE, premises considered, respondent NAMAWU Local 103s Motion for Reconsideration dated October 23, 2002 for the
reconsideration of the Order of this Court directing the issuance of Writ of Injunction prayed for by petitioner and the Order dated
October 18, 2002 approving petitioners Injunction Bond in the amount of P5,000,000.00 is hereby DENIED.
Respondents Motion to Dismiss as embodied in its Opposition to Extension of Temporary Restraining Order and Issuance of Writ of
Preliminary Injunction with Motion to Dismiss and Suspend Period to File Answer dated October 15, 2002 is likewise DENIED.

Petitioners Urgent Motion for the return of the levied firearms is GRANTED. Pursuant thereto, respondent sheriffs are ordered to
return the levied firearms and handguns to the petitioner provided the latter puts [up] a bond in the amount of P332,200.00.

Respondents lawyer, Atty. Jose Lapak, is strictly warned not to resort again to disrespectful and contemptuous language in his
pleadings, otherwise, the same shall be dealt with accordingly.

SO ORDERED.27

Aggrieved, NAMAWU filed with the CA a petition for certiorari under Rule 65, assailing the October 17, 18 and December 4, 2002
orders of the RTC.28

After due proceedings, on October 14, 2003, the appellate court rendered a Decision setting aside the RTC issuances and directing
the immediate execution of the Sto. Tomas Writ. The CA ruled, among others, that the circumstances surrounding the execution of
the September 5, 1996 Deed of Real Estate and Chattel Mortgage yielded the conclusion that the deed was sham, fictitious and
fraudulent; that it was executed two weeks after the labor dispute arose in 1996, but surprisingly, it was registered only on February
24, 2000, immediately after the Court affirmed with finality the Quisumbing Order. The CA also found that the certificates of title to
MMCs real properties did not contain any annotation of a mortgage lien, and, suspiciously, GHI did not intervene in the long drawn-
out labor proceedings to protect its right as a mortgagee of virtually all the properties of MMC. 29

The CA further ruled that the subsequent foreclosure of the mortgage was irregular, effected precisely to prevent the satisfaction of
the judgment against MMC. It noted that the foreclosure proceedings were initiated in July 2001, shortly after the issuance of the
Brion Writ; and, more importantly, the basis for the extrajudicial foreclosure was not the failure of MMC to pay the mortgage debt,
but its failure "to satisfy any money judgment against it rendered by a court or tribunal of competent jurisdiction, in favor of any
person, firm or entity, without any legal ground or reason." 30 Further, the CA pierced the veil of corporate fiction of the two
corporations.31 The dispositive portion of the appellate courts decision reads:

WHEREFORE, in view of the foregoing considerations, the petition is GRANTED. The October 17, 2002 and the December 4, 2002
Order of the RTC, Branch 61 of Kabankalan City, Negros Occidental are hereby ANNULLED and SET ASIDE for having been issued in
excess or without authority. The Writ of Preliminary Injunction issued by the said court is lifted, and the DOLE Sheriff is directed to
immediately enforce the Writ of Execution issued by the Department of Labor and Employment in the case "In re: Labor Dispute in
Maricalum Mining Corporation" docketed as OS-AJ-10-96-01 (NCMB-RB6-08-96). 32

The Issues

Dissatisfied, GHI elevated the case to this Court via the instant petition for review on certiorari, raising the following issues:

WHETHER OR NOT GHI IS A PARTY TO THE LABOR DISPUTE BETWEEN NAMAWU AND MMC.

II

WHETHER OR NOT, ASSUMING ARGUENDO THAT THE PERTINENT DECISION OR ORDER IN THE SAID LABOR DISPUTE BETWEEN MMC
AND NAMAWU MAY BE ENFORCED AGAINST GHI, THERE IS ALREADY A FINAL DEETERMINATION BY THE SUPREME COURT OF THE
RIGHTS OF THE PARTIES IN SAID LABOR DISPUTE CONSIDERING THE PENDENCY OF G.R. NOS. 157696-97.

III

WHETHER OR NOT GHI IS THE ABSOLUTE OWNER OF THE PROPERTIES UNLAWFULLY GARNISHED BY RESPONDENTS SHERIFFS.

IV
WHETHER OR NOT THE HONORABLE HENRY D. ARLES CORRECTLY ISSUED A WRIT OF INJUNCTION AGAINST THE UNLAWFUL
EXECUTIOIN ON GHIS PROPERTIES.

WHETHER OR NOT THE VALIDITY OF THE DEED OF REAL AND CHATTEL MORTGAGE OVER THE SUBJECT PROPERTIES BETWEEN MMC
AND GHI MAY BE COLLATERALLY ATTACKED.

VI

WHETHER OR NOT, ASSUMING ARGUENDO THAT THE VALIDITY OF THE SAID REAL AND CHATTEL MORTGAGE MAY BE COLLATERALLY
ATTACKED, THE SAID MORTGAGE IS SHAM, FICTITIOUS AND FRAUDULENT.

VII

WHETHER OR NOT GHI IS A DISTINCT AND SEPARATE CORPORATE ENTITY FROM MMC.

VIII

WHETHER OR NOT GHI CAN BE PREVENTED THROUGH THE ISSUANCE OF A RESTRAINING ORDER OR INJUNCTION FROM TAKING
POSSESSION OR BE DISPOSSESSED OF ASSETS PURCHASED BY IT FROM APT. 33

Stripped of non-essentials, the core issue is whether, given the factual circumstances obtaining, the RTC properly issued the writ of
injunction to prevent the enforcement of the Sto. Tomas Writ. The resolution of this principal issue, however, will necessitate a ruling
on the following key and interrelated questions:

1. Whether the mortgage of the MMCs properties to GHI was a sham;

2. Whether there was an effective levy by the DOLE upon the MMCs real and personal properties; and

3. Whether it was proper for the CA to pierce the veil of corporate fiction between MMC and GHI.

Our Ruling

Before we delve into an extended discussion of the foregoing issues, it is essential to take judicial cognizance of cases intimately
linked to the present controversy which had earlier been elevated to and decided by this Court.

Judicial Notice.

Judicial notice must be taken by this Court of its Decision in Maricalum Mining Corporation v. Hon. Arturo D. Brion and NAMAWU, 34 in
which we upheld the right of herein private respondent, NAMAWU, to its labor claims. Upon the same principle of judicial notice, we
acknowledge our Decision in Republic of the Philippines, through its trustee, the Asset Privatization Trust v. "G" Holdings, Inc., 35 in
which GHI was recognized as the rightful purchaser of the shares of stocks of MMC, and thus, entitled to the delivery of the company
notes accompanying the said purchase. These company notes, consisting of three (3) Promissory Notes, were part of the documents
executed in 1992 in the privatization sale of MMC by the Asset Privatization Trust (APT) to GHI. Each of these notes uniformly
contains stipulations "establishing and constituting in favor of GHI" mortgages over MMCs real and personal properties. The
stipulations were subsequently formalized in a separate document denominated Deed of Real Estate and Chattel Mortgage on
September 5, 1996. Thereafter, the Deed was registered on February 4, 2000. 36

We find both decisions critically relevant to the instant dispute. In fact, they should have guided the courts below in the disposition
of the controversy at their respective levels. To repeat, these decisions respectively confirm the right of NAMAWU to its labor
claims37 and affirm the right of GHI to its financial and mortgage claims over the real and personal properties of MMC, as will be
explained below. The assailed CA decision apparently failed to consider the impact of these two decisions on the case at bar. Thus,
we find it timely to reiterate that: "courts have also taken judicial notice of previous cases to determine whether or not the case
pending is a moot one or whether or not a previous ruling is applicable to the case under consideration." 38
However, the CA correctly assessed that the authority of the lower court to issue the challenged writ of injunction depends on the
validity of the third partys (GHIs) claim of ownership over the property subject of the writ of execution issued by the labor
department. Accordingly, the main inquiry addressed by the CA decision was whether GHI could be treated as a third party or a
stranger to the labor dispute, whose properties were beyond the reach of the Writ of Execution dated December 18, 2001. 39

In this light, all the more does it become imperative to take judicial notice of the two cases aforesaid, as they provide the necessary
perspective to determine whether GHI is such a party with a valid ownership claim over the properties subject of the writ of
execution. In Juaban v. Espina,40 we held that "in some instances, courts have also taken judicial notice of proceedings in other cases
that are closely connected to the matter in controversy. These cases may be so closely interwoven, or so clearly interdependent, as to
invoke a rule of judicial notice." The two cases that we have taken judicial notice of are of such character, and our review of the
instant case cannot stray from the findings and conclusions therein.

Having recognized these crucial Court rulings, situating the facts in proper perspective, we now proceed to resolve the questions
identified above.

The mortgage was not a sham.

Republic etc., v. "G" Holdings, Inc. acknowledged the existence of the Purchase and Sale Agreement between the APT and the GHI,
and recounts the facts attendant to that transaction, as follows:

The series of negotiations between the petitioner Republic of the Philippines, through the APT as its trustee, and "G" Holdings
culminated in the execution of a purchase and sale agreement on October 2, 1992. Under the agreement, the Republic undertook to
sell and deliver 90% of the entire issued and outstanding shares of MMC, as well as its company notes, to "G" Holdings in
consideration of the purchase price of P673,161,280. It also provided for a down payment of P98,704,000 with the balance divided
into four tranches payable in installment over a period of ten years." 41

The "company notes" mentioned therein were actually the very same three (3) Promissory Notes amounting to P550M, issued by
MMC in favor of GHI. As already adverted to above, these notes uniformly contained stipulations "establishing and constituting"
mortgages over MMCs real and personal properties.

It may be remembered that APT acquired the MMC from the PNB and the DBP. Then, in compliance with its mandate to privatize
government assets, APT sold the aforesaid MMC shares and notes to GHI. To repeat, this Court has recognized this Purchase and Sale
Agreement in Republic, etc., v. "G" Holdings, Inc.

The participation of the Government, through APT, in this transaction is significant. Because the Government had actively negotiated
and, eventually, executed the agreement, then the transaction is imbued with an aura of official authority, giving rise to the
presumption of regularity in its execution. This presumption would cover all related transactional acts and documents needed to
consummate the privatization sale, inclusive of the Promissory Notes. It is obvious, then, that the Government, through APT,
consented to the "establishment and constitution" of the mortgages on the assets of MMC in favor of GHI, as provided in the notes.
Accordingly, the notes (and the stipulations therein) enjoy the benefit of the same presumption of regularity accorded to
government actions. Given the Government consent thereto, and clothed with the presumption of regularity, the mortgages cannot
be characterized as sham, fictitious or fraudulent.

Indeed, as mentioned above, the three (3) Promissory Notes, executed on October 2, 1992, "established and constituted" in favor of
GHI the following mortgages:

1. A mortgage over certain parcels of land, more particularly listed and described in the Sheriffs Certificate of Sale dated
September 7, 1984 issued by the Ex-Officio Provincial Sheriff of Negros Occidental, Rolando V. Ramirez, with office at
Bacolod City following the auction sale conducted pursuant to the provisions of Act 3135, a copy of which certificate of sale
is hereto attached as Annex "A" and made an integral part hereof;

2. A chattel mortgage over assets and personal properties more particularly listed and described in the Sheriffs Certificate
of Sale dated September 7, 1984 issued by the Ex-Officio Provincial Sheriff of Negros Occidental, Rolando V. Ramirez, with
office at Bacolod City following the auction conducted pursuant to the provision of Act 1508, a copy of which Certificate of
Sale is hereto attached as Annex "B" and made an integral part hereof.
 3. Mortgages over assets listed in APT Specific catalogue GC-031 for MMC, a copy of which Catalogue is hereby made an
integral part hereof by way of reference, as well as assets presently in use by MMC but which are not listed or included in
paragraphs 1 and 2 above and shall include all assets that may hereinafter be acquired by MMC. 42

It is difficult to conceive that these mortgages, already existing in 1992, almost four (4) years before NAMAWU filed its notice of
strike, were a "fictitious" arrangement intended to defraud NAMAWU. After all, they were agreed upon long before the seeds of the
labor dispute germinated.

While it is true that the Deed of Real Estate and Chattel Mortgage was executed only on September 5, 1996, it is beyond cavil that
this formal document of mortgage was merely a derivative of the original mortgage stipulations contained in the Promissory Notes of
October 2, 1992. The execution of this Deed in 1996 does not detract from, but instead reinforces, the manifest intention of the
parties to "establish and constitute" the mortgages on MMCs real and personal properties.

Apparently, the move to execute a formal document denominated as the Deed of Real Estate and Chattel Mortgage came about after
the decision of the RTC of Manila in Civil Case No. 95-76132 became final in mid-1996. This conclusion surfaces when we consider
the genesis of Civil Case No. 95-76132 and subsequent incidents thereto, as narrated in Republic, etc. v. "G" Holdings, Inc., viz:

Subsequently, a disagreement on the matter of when installment payments should commence arose between the parties. The
Republic claimed that it should be on the seventh month from the signing of the agreement while "G" Holdings insisted that it should
begin seven months after the fulfillment of the closing conditions.

Unable to settle the issue, "G" Holdings filed a complaint for specific performance and damages with the Regional Trial Court of
Manila, Branch 49, against the Republic to compel it to close the sale in accordance with the purchase and sale agreement. The
complaint was docketed as Civil Case No. 95-76132.

During the pre-trial, the respective counsels of the parties manifested that the issue involved in the case was one of law and
submitted the case for decision. On June 11, 1996, the trial court rendered its decision. It ruled in favor of "G" Holdings and held:

"In line with the foregoing, this Court having been convinced that the Purchase and Sale Agreement is indeed subject to the final
closing conditions prescribed by Stipulation No. 5.02 and conformably to Rule 39, Section 10 of the Rules of Court, accordingly
orders that the Asset Privatization Trust execute the corresponding Document of Transfer of the subject shares and financial notes
and cause the actual delivery of subject shares and notes to "G" Holdings, Inc., within a period of thirty (30) days from receipt of
this Decision, and after "G" Holdings Inc., shall have paid in full the entire balance, at its present value of P241,702,122.86, computed
pursuant to the prepayment provisions of the Agreement. Plaintiff shall pay the balance simultaneously with the delivery of the Deed
of Transfer and actual delivery of the shares and notes.

SO ORDERED."

The Solicitor General filed a notice of appeal on behalf of the Republic on June 28, 1996. Contrary to the rules of procedure, however,
the notice of appeal was filed with the Court of Appeals (CA), not with the trial court which rendered the judgment appealed from.

No other judicial remedy was resorted to until July 2, 1999 when the Republic, through the APT, filed a petition for annulment of
judgment with the CA. It claimed that the decision should be annulled on the ground of abuse of discretion amounting to lack of
jurisdiction on the part of the trial court. x x x

Finding that the grounds necessary for the annulment of judgment were inexistent, the appellate court dismissed the petition. x x x
x43

With the RTC decision having become final owing to the failure of the Republic to perfect an appeal, it may have become necessary
to execute the Deed of Real Estate and Chattel Mortgage on September 5, 1996, in order to enforce the trial courts decision of June
11, 1996. This appears to be the most plausible explanation for the execution of the Deed of Real Estate and Chattel Mortgage only in
September 1996. Even as the parties had already validly constituted the mortgages in 1992, as explicitly provided in the Promissory
Notes, a specific deed of mortgage in a separate document may have been deemed necessary for registration purposes. Obviously,
this explanation is more logical and more sensible than the strained conjecture that the mortgage was executed on September 5,
1996 only for the purpose of defrauding NAMAWU.
It is undeniable that the Deed of Real Estate and Chattel Mortgage was formally documented two weeks after NAMAWU filed its
notice of strike against MMC on August 23, 1996. However, this fact alone cannot give rise to an adverse inference for two
reasons. First, as discussed above, the mortgages had already been "established and constituted" as early as October 2, 1992 in the
Promissory Notes, showing the clear intent of the parties to impose a lien upon MMCs properties. Second, the mere filing of a notice
of strike by NAMAWU did not, as yet, vest in NAMAWU any definitive right that could be prejudiced by the execution of the mortgage
deed.

The fact that MMCs obligation to GHI is not reflected in the formers financial statementsa circumstance made capital of by
NAMAWU in order to cast doubt on the validity of the mortgage deedis of no moment. By itself, it does not provide a sufficient basis
to invalidate this public document. To say otherwise, and to invalidate the mortgage deed on this pretext, would furnish MMC a
convenient excuse to absolve itself of its mortgage obligations by adopting the simple strategy of not including the obligations in its
financial statements. It would ignore our ruling in Republic, etc. v. "G" Holdings, Inc., which obliged APT to deliver the MMC shares
and financial notes to GHI. Besides, the failure of the mortgagor to record in its financial statements its loan obligations is surely not
an essential element for the validity of mortgage agreements, nor will it independently affect the right of the mortgagee to foreclose.

Contrary to the CA decision, Tanongon v. Samson44 is not "on all fours" with the instant case. There are material differences between
the two cases. At issue in Tanongon was a third-party claim arising from a Deed of Absolute Sale executed between Olizon and
Tanongon on July 29, 1997, after the NLRC decision became final and executory on April 29, 1997. In the case at bar, what is involved
is a loan with mortgage agreement executed on October 2, 1992, well ahead of the unions notice of strike on August 23, 1996. No
presumption of regularity inheres in the deed of sale in Tanongon, while the participation of APT in this case clothes the transaction
in 1992 with such a presumption that has not been successfully rebutted. In Tanongon, the conduct of a full-blown trial led to the
findingduly supported by evidencethat the voluntary sale of the assets of the judgment debtor was madein bad faith. Here, no trial
was held, owing to the motion to dismiss filed by NAMAWU, and the CA failed to consider the factual findings made by this Court
in Republic, etc. v. "G" Holdings, Inc. Furthermore, in Tanongon, the claimant did not exercise his option to file a separate action in
court, thus allowing the NLRC Sheriff to levy on execution and to determine the rights of third-party claimants. 45 In this case, a
separate action was filed in the regular courts by GHI, the third-party claimant. Finally, the questioned transaction in Tanongon was a
plain, voluntary transfer in the form of a sale executed by the judgment debtor in favor of a dubious third-party, resulting in the
inability of the judgment creditor to satisfy the judgment. On the other hand, this case involves an involuntary transfer (foreclosure
of mortgage) arising from a loan obligation that well-existed long before the commencement of the labor claims of the private
respondent.

Three other circumstances have been put forward by the CA to support its conclusion that the mortgage contract is a sham. First, the
CA considered it highly suspect that the Deed of Real Estate and Chattel Mortgage was registered only on February 4, 2000, "three
years after its execution, and almost one month after the Supreme Court rendered its decision in the labor dispute." 46 Equally
suspicious, as far as the CA is concerned, is the fact that the mortgages were foreclosed on July 31, 2001, after the DOLE had already
issued a Partial Writ of Execution on May 9, 2001.47 To the appellate court, the timing of the registration of the mortgage deed was
too coincidental, while the date of the foreclosure signified that it was "effected precisely to prevent the satisfaction of the judgment
awards."48 Furthermore, the CA found that the mortgage deed itself was executed without any consideration, because at the time of
its execution, all the assets of MMC had already been transferred to GHI. 49

These circumstances provided the CA with sufficient justification to apply Article 1387 of the Civil Code on presumed fraudulent
transactions, and to declare that the mortgage deed was void for being simulated and fictitious. 50

We do not agree. We find this Courts ruling in MR Holdings, Ltd. v. Sheriff Bajar51 pertinent and instructive:

Article 1387 of the Civil Code of the Philippines provides:

"Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into
in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered
in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated,
and need not have been obtained by the party seeking rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by law and of
evidence."
This article presumes the existence of fraud made by a debtor. Thus, in the absence of satisfactory evidence to the contrary, an
alienation of a property will be held fraudulent if it is made after a judgment has been rendered against the debtor making the
alienation. This presumption of fraud is not conclusive and may be rebutted by satisfactory and convincing evidence. All that is
necessary is to establish affirmatively that the conveyance is made in good faith and for a sufficient and valuable consideration.

The "Assignment Agreement" and the "Deed of Assignment" were executed for valuable considerations. Patent from the
"Assignment Agreement" is the fact that petitioner assumed the payment of US$18,453,450.12 to ADB in satisfaction of Marcoppers
remaining debt as of March 20, 1997. Solidbank cannot deny this fact considering that a substantial portion of the said payment, in
the sum of US$13,886,791.06, was remitted in favor of the Bank of Nova Scotia, its major stockholder.

The facts of the case so far show that the assignment contracts were executed in good faith. The execution of the "Assignment
Agreement" on March 20, 1997 and the "Deed of Assignment" on December 8,1997 is not the alpha of this case. While the execution
of these assignment contracts almost coincided with the rendition on May 7, 1997 of the Partial Judgment in Civil Case No. 96-80083
by the Manila RTC, however, there was no intention on the part of petitioner to defeat Solidbanks claim. It bears reiterating that as
early as November 4, 1992, Placer Dome had already bound itself under a "Support and Standby Credit Agreement" to provide
Marcopper with cash flow support for the payment to ADB of its obligations. When Marcopper ceased operations on account of
disastrous mine tailings spill into the Boac River and ADB pressed for payment of the loan, Placer Dome agreed to have its subsidiary,
herein petitioner, pay ADB the amount of US$18,453,450.12.

Thereupon, ADB and Marcopper executed, respectively, in favor of petitioner an "Assignment Agreement" and a "Deed of
Assignment." Obviously, the assignment contracts were connected with transactions that happened long before the rendition in
1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila RTC. Those contracts cannot be viewed in isolation. If we
may add, it is highly inconceivable that ADB, a reputable international financial organization, will connive with Marcopper to feign or
simulate a contract in 1992 just to defraud Solidbank for its claim four years thereafter. And it is equally incredible for petitioner to be
paying the huge sum of US$18,453,450.12 to ADB only for the purpose of defrauding Solidbank of the sum of P52,970,756.89.

It is said that the test as to whether or not a conveyance is fraudulent is does it prejudice the rights of creditors? We cannot see
how Solidbanks right was prejudiced by the assignment contracts considering that substantially all of Marcoppers properties were
already covered by the registered "Deed of Real Estate and Chattel Mortgage" executed by Marcopper in favor of ADB as early as
November 11, 1992. As such, Solidbank cannot assert a better right than ADB, the latter being a preferred creditor. It is basic that
mortgaged properties answer primarily for the mortgaged credit, not for the judgment credit of the mortgagors unsecured
creditor. Considering that petitioner assumed Marcoppers debt to ADB, it follows that Solidbanks right as judgment creditor over
the subject properties must give way to that of the former.52

From this ruling in MR Holdings, we can draw parallel conclusions. The execution of the subsequent Deed of Real Estate and Chattel
Mortgage on September 5, 1996 was simply the formal documentation of what had already been agreed in the seminal transaction
(the Purchase and Sale Agreement) between APT and GHI. It should not be viewed in isolation, apart from the original agreement of
October 2, 1992. And it cannot be denied that this original agreement was supported by an adequate consideration. The APT was
even ordered by the court to deliver the shares and financial notes of MMC in exchange for the payments that GHI had made.

It was also about this time, in 1996, that NAMAWU filed a notice of strike to protest non-payment of its rightful labor claims. 53 But, as
already mentioned, the outcome of that labor dispute was yet unascertainable at that time, and NAMAWU could only have hoped
for, or speculated about, a favorable ruling. To paraphrase MR Holdings, we cannot see how NAMAWUs right was prejudiced by the
Deed of Real Estate and Chattel Mortgage, or by its delayed registration, when substantially all of the properties of MMC were
already mortgaged to GHI as early as October 2, 1992. Given this reality, the Court of Appeals had no basis to conclude that this Deed
of Real Estate and Chattel Mortgage, by reason of its late registration, was a simulated or fictitious contract.

The importance of registration and its binding effect is stated in Section 51 of the Property Registration Decree or Presidential Decree
(P.D.) No. 1529,54 which reads:

SECTION 51. Conveyance and other dealings by registered owner.An owner of registered land may convey, mortgage, lease, charge
or otherwise deal with the same in accordance with existing laws. He may use such forms, deeds, mortgages, leases or other
voluntary instrument as are sufficient in law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to
convey or effect registered land, shall take effect as a conveyance or bind the land, but shall operate only as a contract between the
parties and as evidence of authority to the Registry of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases
under this Decree, the registration shall be made in the Office of the Register of Deeds for the province or the city where the land
lies.55

Under the Torrens system, registration is the operative act which gives validity to the transfer or creates a lien upon the land. Further,
entrenched in our jurisdiction is the doctrine that registration in a public registry creates constructive notice to the whole
world.56 Thus, Section 51 of Act No. 496, as amended by Section 52 of P.D. No. 1529, provides:

SECTION 52. Constructive notice upon registration.Every conveyance, mortgage, lease, lien, attachment, order, judgment,
instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds for the
province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or
entering.

But, there is nothing in Act No. 496, as amended by P.D. No. 1529, that imposes a period within which to register annotations of
"conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land." If liens were not so
registered, then it "shall operate only as a contract between the parties and as evidence of authority to the Registry of Deeds to
make registration." If registered, it "shall be the operative act to convey or affect the land insofar as third persons are concerned."
The mere lapse of time from the execution of the mortgage document to the moment of its registration does not affect the rights of
a mortgagee.

Neither will the circumstance of GHIs foreclosure of MMCs properties on July 31, 2001, or after the DOLE had already issued a
Partial Writ of Execution on May 9, 2001 against MMC, support the conclusion of the CA that GHIs act of foreclosing on MMCs
properties was "effected to prevent satisfaction of the judgment award." GHIs mortgage rights, constituted in 1992, antedated the
Partial Writ of Execution by nearly ten (10) years. GHIs resort to foreclosure was a legitimate enforcement of a right to liquidate a
bona fide debt. It was a reasonable option open to a mortgagee which, not being a party to the labor dispute between NAMAWU
and MMC, stood to suffer a loss if it did not avail itself of the remedy of foreclosure.

The well-settled rule is that a mortgage lien is inseparable from the property mortgaged. 57 While it is true that GHIs foreclosure of
MMCs mortgaged properties may have had the "effect to prevent satisfaction of the judgment award against the specific mortgaged
property that first answers for a mortgage obligation ahead of any subsequent creditors," that same foreclosure does not necessarily
translate to having been "effected to prevent satisfaction of the judgment award" against MMC.

Likewise, we note the narration of subsequent facts contained in the Comment of the Office of the Solicitor General. Therein, it is
alleged that after the Partial Writ of Execution was issued on May 9, 2001, a motion for reconsideration was filed by MMC; that the
denial of the motion was appealed to the CA; that when the appeal was dismissed by the CA on January 24, 2002, it eventually
became the subject of a review petition before this Court, docketed as G.R. No. 157696; and that G.R. No. 157696 was decided by
this Court only on February 9, 2006.

This chronology of subsequent events shows that February 9, 2006 would have been the earliest date for the unimpeded
enforcement of the Partial Writ of Execution, as it was only then that this Court resolved the issue. This happened four and a half
years after July 31, 2001, the date when GHI foreclosed on the mortgaged properties. Thus, it is not accurate to say that the
foreclosure made on July 31, 2001 was "effected [only] to prevent satisfaction of the judgment award."

We also observe the error in the CAs finding that the 1996 Deed of Real Estate and Chattel Mortgage was not supported by any
consideration since at the time the deed was executed, "all the real and personal property of MMC had already been transferred in
the hands of G Holdings."58 It should be remembered that the Purchase and Sale Agreement between GHI and APT involved large
amounts (P550M) and even spawned a subsequent court action (Civil Case No. 95-76132, RTC of Manila). Yet, nowhere in the
Agreement or in the RTC decision is there any mention of real and personal properties of MMC being included in the sale to GHI in
1992. These properties simply served as mortgaged collateral for the 1992 Promissory Notes. 59 The Purchase and Sale Agreement
and the Promissory Notes themselves are the best evidence that there was ample consideration for the mortgage.

Thus, we must reject the conclusion of the CA that the Deed of Real Estate and Chattel Mortgage executed in 1996 was a simulated
transaction.

On the issue of whether there had been an effective levy upon the properties of GHI.
The well-settled principle is that the rights of a mortgage creditor over the mortgaged properties are superior to those of a
subsequent attaching creditor. In Cabral v. Evangelista,60 this Court declared that:

Defendants-appellants purchase of the mortgaged chattels at the public sheriff's sale and the delivery of the chattels to them with a
certificate of sale did not give them a superior right to the chattels as against plaintiffs-mortgagees. Rule 39, Section 22 of the old
Rules of Court (now Rule 39, Section 25 of the Revised Rules), cited by appellants precisely provides that "the sale conveys to the
purchaser all the right which the debtor had in such property on the day the execution or attachment was levied." It has long been
settled by this Court that "The right of those who so acquire said properties should not and can not be superior to that of the
creditor who has in his favor an instrument of mortgage executed with the formalities of the law, in good faith, and without the least
indication of fraud. This is all the more true in the present case, because, when the plaintiff purchased the automobile in question on
August 22, 1933, he knew, or at least, it is presumed that he knew, by the mere fact that the instrument of mortgage, Exhibit 2, was
registered in the office of the register of deeds of Manila, that said automobile was subject to a mortgage lien. In purchasing it, with
full knowledge that such circumstances existed, it should be presumed that he did so, very much willing to respect the lien existing
thereon, since he should not have expected that with the purchase, he would acquire a better right than that which the vendor then
had." In another case between two mortgagees, we held that "As between the first and second mortgagees, therefore, the second
mortgagee has at most only the right to redeem, and even when the second mortgagee goes through the formality of an extrajudicial
foreclosure, the purchaser acquires no more than the right of redemption from the first mortgagee." The superiority of the
mortgagee's lien over that of a subsequent judgment creditor is now expressly provided in Rule 39, Section 16 of the Revised Rules of
Court, which states with regard to the effect of levy on execution as to third persons that "The levy on execution shall create a lien in
favor of the judgment creditor over the right, title and interest of the judgment debtor in such property at the time of the levy,
subject to liens or encumbrances then existing."

Even in the matter of possession, mortgagees over chattel have superior, preferential and paramount rights thereto, and the
mortgagor has mere rights of redemption.61

Similar rules apply to cases of mortgaged real properties that are registered. Since the properties were already mortgaged to GHI, the
only interest remaining in the mortgagor was its right to redeem said properties from the mortgage. The right of redemption was the
only leviable or attachable property right of the mortgagor in the mortgaged real properties. We have held that

The main issue in this case is the nature of the lien of a judgment creditor, like the petitioner, who has levied an attachment on the
judgment debtor's (CMI) real properties which had been mortgaged to a consortium of banks and were subsequently sold to a third
party, Top Rate.

xxxx

The sheriff's levy on CMI's properties, under the writ of attachment obtained by the petitioner, was actually a levy on the interest
only of the judgment debtor CMI on those properties. Since the properties were already mortgaged to the consortium of banks, the
only interest remaining in the mortgagor CMI was its right to redeem said properties from the mortgage. The right of redemption
was the only leviable or attachable property right of CMI in the mortgaged real properties. The sheriff could not have attached the
properties themselves, for they had already been conveyed to the consortium of banks by mortgage (defined as a "conditional sale"),
so his levy must be understood to have attached only the mortgagor's remaining interest in the mortgaged property the right to
redeem it from the mortgage.62

xxxx

There appears in the record a factual contradiction relating to whether the foreclosure by GHI on July 13, 2001 63over some of the
contested properties came ahead of the levy thereon, or the reverse. NAMAWU claims that the levy on two trucks was effected on
June 22, 2001,64 which GHI disputes as a misstatement because the levy was attempted on July 18, 2002, and not 2001 65 What is
undisputed though is that the mortgage of GHI was registered on February 4, 2000, 66 well ahead of any levy by NAMAWU. Prior
registration of a lien creates a preference, as the act of registration is the operative act that conveys and affects the land, 67 even
against subsequent judgment creditors, such as respondent herein. Its registration of the mortgage was not intended to defraud
NAMAWU of its judgment claims, since even the courts were already judicially aware of its existence since 1992. Thus, at that
moment in time, with the registration of the mortgage, either NAMAWU had no properties of MMC to attach because the same had
been previously foreclosed by GHI as mortgagee thereof; or by virtue of the DOLEs levy to enforce NAMAWUs claims, the latters
rights are subject to the notice of the foreclosure on the subject properties by a prior mortgagees right. GHIs mortgage right had
already been registered by then, and "it is basic that mortgaged properties answer primarily for the mortgaged credit, not for the
judgment credit of the mortgagors unsecured creditor." 68
On the issue of piercing the veil of corporate fiction.

The CA found that:

"Ordinarily, the interlocking of directors and officers in two different corporations is not a conclusive indication that the corporations
are one and the same for purposes of applying the doctrine of piercing the veil of corporate fiction. However, when the legal fiction
of the separate corporate personality is abused, such as when the same is used for fraudulent or wrongful ends, the courts have not
hesitated to pierce the corporate veil (Francisco vs. Mejia, 362 SCRA 738). In the case at bar, the Deed of Real Estate and Chattel
Mortgage was entered into between MMC and G Holdings for the purpose of evading the satisfaction of the legitimate claims of the
petitioner against MMC. The notion of separate personality is clearly being utilized by the two corporations to perpetuate the
violation of a positive legal duty arising from a final judgment to the prejudice of the petitioners right." 69

Settled jurisprudence70 has it that

"(A) corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons
composing it as well as from any other legal entity to which it may be related. By this attribute, a stockholder may not, generally, be
made to answer for acts or liabilities of the said corporation, and vice versa. This separate and distinct personality is, however, merely
a fiction created by law for convenience and to promote the ends of justice. For this reason, it may not be used or invoked for ends
subversive to the policy and purpose behind its creation or which could not have been intended by law to which it owes its being.
This is particularly true when the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse
legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law. This is likewise true where the corporate
entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate
entity. In all these cases, the notion of corporate entity will be pierced or disregarded with reference to the particular transaction
involved.

Given this jurisprudential principle and the factual circumstances obtaining in this case, we now ask: Was the CA correct in piercing
the veil of corporate identity of GHI and MMC?

In our disquisition above, we have shown that the CAs finding that there was a "simulated mortgage" between GHI and MMC to
justify a wrong or protect a fraud has struggled vainly to find a foothold when confronted with the ruling of this Court in Republic v.
"G" Holdings, Inc.

The negotiations between the GHI and the Government--through APT, dating back to 1992--culminating in the Purchase and Sale
Agreement, cannot be depicted as a contrived transaction. In fact, in the said Republic, etc., v. "G" Holdings, Inc., this Court adjudged
that GHI was entitled to its rightful claims not just to the shares of MMC itself, or just to the financial notes that already contained
the mortgage clauses over MMCs disputed assets, but also to the delivery of those instruments. Certainly, we cannot impute to this
Courts findings on the case any badge of fraud. Thus, we reject the CAs conclusion that it was right to pierce the veil of corporate
fiction, because the foregoing circumstances belie such an inference. Furthermore, we cannot ascribe to the Government, or the APT
in particular, any undue motive to participate in a transaction designed to perpetrate fraud. Accordingly, we consider the CA
interpretation unwarranted.

We also cannot agree that the presumption of fraud in Article 1387 of the Civil Code relative to property conveyances, when there
was already a judgment rendered or a writ of attachment issued, authorizes piercing the veil of corporate identity in this case. We
find that Article 1387 finds less application to an involuntary alienation such as the foreclosure of mortgage made before any final
judgment of a court. We thus hold that when the alienation is involuntary, and the foreclosure is not fraudulent because the
mortgage deed has been previously executed in accordance with formalities of law, and the foreclosure is resorted to in order to
liquidate a bona fide debt, it is not the alienation by onerous title contemplated in Article 1387 of the Civil Code wherein fraud is
presumed.

Since the factual antecedents of this case do not warrant a finding that the mortgage and loan agreements between MMC and GHI
were simulated, then their separate personalities must be recognized. To pierce the veil of corporate fiction would require that their
personalities as creditor and debtor be conjoined, resulting in a merger of the personalities of the creditor (GHI) and the debtor
(MMC) in one person, such that the debt of one to the other is thereby extinguished. But the debt embodied in the 1992 Financial
Notes has been established, and even made subject of court litigation (Civil Case No. 95-76132, RTC Manila). This can only mean that
GHI and MMC have separate corporate personalities.
Neither was MMC used merely as an alter ego, adjunct, or business conduit for the sole benefit of GHI, to justify piercing the
formers veil of corporate fiction so that the latter could be held liable to claims of third-party judgment creditors, like NAMAWU. In
this regard, we find American jurisprudence persuasive. In a decision by the Supreme Court of New York 71 bearing upon similar facts,
the Court denied piercing the veil of corporate fiction to favor a judgment creditor who sued the parent corporation of the debtor,
alleging fraudulent corporate asset-shifting effected after a prior final judgment. Under a factual background largely resembling this
case at bar, viz:

In this action, plaintiffs seek to recover the balance due under judgments they obtained against Lake George Ventures Inc.
(hereinafter LGV), a subsidiary of defendant that was formed to develop the Top O the World resort community overlooking Lake
George, by piercing the corporate veil or upon the theory that LGV's transfer of certain assets constituted fraudulent transfers under
the Debtor and Creditor Law. We previously upheld Supreme Court's denial of defendant's motion for summary judgment dismissing
the complaint (252 A.D.2d 609, 675 N.Y.S.2d 234) and the matter proceeded to a nonjury trial. Supreme Court thereafter rendered
judgment in favor of defendant upon its findings that, although defendant dominated LGV, it did not use that domination to commit
a fraud or wrong on plaintiffs. Plaintiffs appealed.1avvphi1

The trial evidence showed that LGV was incorporated in November 1985. Defendant's principal, Francesco Galesi, initially held 90%
of the stock and all of the stock was ultimately transferred to defendant. Initial project funding was provided through a $2.5 million
loan from Chemical Bank, secured by defendant's guarantee of repayment of the loan and completion of the project. The loan
proceeds were utilized to purchase the real property upon which the project was to be established. Chemical Bank thereafter loaned
an additional $3.5 million to LGV, again guaranteed by defendant, and the two loans were consolidated into a first mortgage loan of
$6 million. In 1989, the loan was modified by splitting the loan into a $1.9 term note on which defendant was primary obligor and a
$4.1 million project note on which LGV was the obligor and defendant was a guarantor.

Due to LGV's lack of success in marketing the project's townhouses and in order to protect itself from the exercise of Chemical
Bank's enforcement remedies, defendant was forced to make monthly installments of principal and interest on LGV's behalf.
Ultimately, defendant purchased the project note from Chemical Bank for $3.1 million, paid the $1.5 million balance on the term
note and took an assignment of the first mortgage on the project's realty. After LGV failed to make payments on the indebtedness
over the course of the succeeding two years, defendant brought an action to foreclose its mortgage. Ultimately, defendant obtained
a judgment of foreclosure and sale in the amount of $6,070,246.50. Defendant bid in the property at the foreclosure sale and
thereafter obtained a deficiency judgment in the amount of $3,070,246.50.

Following the foreclosure sale, LGV transferred to defendant all of the shares of Top of the World Water Company, a separate entity
that had been organized to construct and operate the water supply and delivery system for the project, in exchange for a $950,000
reduction in the deficiency judgment.

the U.S. Supreme Court of New York held

Based on the foregoing, and accepting that defendant exercised complete domination and control over LGV, we are at a loss as to
how plaintiffs perceive themselves to have been inequitably affected by defendant's foreclosure action against LGV, by LGV's
divestiture of the water company stock or the sports complex property, or by defendant's transfer to LGV of a third party's
uncollectible note, accomplished solely for tax purposes. It is undisputed that LGV was, and for some period of time had been,
unable to meet its obligations and, at the time of the foreclosure sale, liens against its property exceeded the value of its assets by
several million dollars, even including the water company and sports complex at the values plaintiffs would assign to them. In fact,
even if plaintiffs' analysis were utilized to eliminate the entire $3 million deficiency judgment, the fact remains that subordinate
mortgages totaling nearly an additional $2 million have priority over plaintiffs' judgments.

As properly concluded by Supreme Court, absent a finding of any inequitable consequence to plaintiffs, both causes of action
pleaded in the amended complaint must fail. Fundamentally, a party seeking to pierce the corporate veil must show complete
domination and control of the subsidiary by the parent and also that such domination was used to commit a fraud or wrong against
the plaintiff that resulted in the plaintiff's injury ( 252 A.D.2d 609, 610, 675 N.Y.S.2d 234, supra; see, Matter of Morris v. New York
State Dept. of Taxation & Fin., 82 N.Y.2d 135, 141, 603 N.Y.S.2d 807, 623 N.E.2d 1157). Notably, "[e]vidence of domination alone does
not suffice without an additional showing that it led to inequity, fraud or malfeasance" (TNS Holdings v. MKI Sec. Corp., 92 N.Y.2d 335,
339, 680 N.Y.S.2d 891, 703 N.E.2d 749).

xxxx
In reaching that conclusion, we specifically reject a number of plaintiffs' assertions, including the entirely erroneous claims that our
determination on the prior appeal (252 A.D.2d 609, 675 N.Y.S.2d 234, supra) set forth a "roadmap" for the proof required at trial and
mandated a verdict in favor of plaintiffs upon their production of evidence that supported the decision's "listed facts". To the
contrary, our decision was predicated upon the existence of such evidence, absent which we would have granted summary judgment
in favor of defendant. We are equally unpersuaded by plaintiffs' continued reliance upon defendant's December 1991 unilateral
conversion of its intercompany loans with LGV from debt to equity, which constituted nothing more than a "bookkeeping
transaction" and had no apparent effect on LGV's obligations to defendant or defendant's right to foreclose on its mortgage. 72

This doctrine is good law under Philippine jurisdiction.

In Concept Builders, Inc. v. National Labor Relations Commission,73 we laid down the test in determining the applicability of the
doctrine of piercing the veil of corporate fiction, to wit:

1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own.

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory
or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

xxxx

Time and again, we have reiterated that mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not, by itself, a sufficient ground for disregarding a separate corporate personality. 74 It is basic that a
corporation has a personality separate and distinct from that composing it as well as from that of any other legal entity to which it
may be related. Clear and convincing evidence is needed to pierce the veil of corporate fiction. 75

In this case, the mere interlocking of directors and officers does not warrant piercing the separate corporate personalities of MMC
and GHI. Not only must there be a showing that there was majority or complete control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked, so that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its own. The mortgage deed transaction attacked as a basis for piercing the
corporate veil was a transaction that was an offshoot, a derivative, of the mortgages earlier constituted in the Promissory Notes
dated October 2, 1992. But these Promissory Notes with mortgage were executed by GHI with APT in the name of MMC, in a full
privatization process. It appears that if there was any control or domination exercised over MMC, it was APT, not GHI, that wielded it.
Neither can we conclude that the constitution of the loan nearly four (4) years prior to NAMAWUs notice of strike could have been
the proximate cause of the injury of NAMAWU for having been deprived of MMCs corporate assets.

On the propriety of injunction to prevent execution by the NLRC on the properties of third-party claimants

It is settled that a Regional Trial Court can validly issue a Temporary Restraining Order (TRO) and, later, a writ of preliminary
injunction to prevent enforcement of a writ of execution issued by a labor tribunal on the basis of a third-partys claim of ownership
over the properties levied upon.76 While, as a rule, no temporary or permanent injunction or restraining order in any case involving
or growing out of a labor dispute shall be issued by any court--where the writ of execution issued by a labor tribunal is sought to be
enforced upon the property of a stranger to the labor dispute, even upon a mere prima facie showing of ownership of such
claimant--a separate action for injunctive relief against such levy may be maintained in court, since said action neither involves nor
grows out of a labor dispute insofar as the third party is concerned. 77 Instructively, National Mines and Allied Workers Union v. Vera78

Petitioners' reliance on the provision of Art. 254 of the New Labor Code (herein earlier quoted) which prohibits injunctions or
restraining orders in any case involving or growing out of a 'labor dispute' is not well-taken. This has no application to the case at bar.
Civil Case No. 2749 is one which neither "involves" nor "grows out" of a labor dispute. What 'involves' or 'grows out' of a labor
dispute is the NLRC case between petitioners and the judgment debtor, Philippine Iron Mines. The private respondents are not
parties to the said NLRC case. Civil Case No. 2749 does not put in issue either the fact or validity of the proceeding in theNLRC case
nor the decision therein rendered, much less the writ of execution issued thereunder. It does not seek to enjoin the execution of the
decision against the properties of the judgment debtor. What is sought to be tried in Civil Case No. 2749 is whether the NLRC's
decision and writ of execution, above mentioned, shall be permitted to be satisfied against properties of private respondents, and
not of the judgment debtor named in the NLRC decision and writ of execution. Such a recourse is allowed under the provisions of
Section 17, Rule 39 of the Rules of Court.

To sustain petitioners' theory will inevitably lead to disastrous consequences and lend judicial imprimatur to deprivation of property
without due process of law. Simply because a writ of execution was issued by the NLRC does not authorize the sheriff implementing
the same to levy on anybody's property. To deny the victim of the wrongful levy, the recourse such as that availed of by the herein
private respondents, under the pretext that no court of general jurisdiction can interfere with the writ of execution issued in a labor
dispute, will be sanctioning a greater evil than that sought to be avoided by the Labor Code provision in question. Certainly, that
could not have been the intendment of the law creating the NLRC. For well-settled is the rule that the power of a court to execute its
judgment extends only over properties unquestionably belonging to the judgment debtor."

Likewise, since the third-party claimant is not one of the parties to the action, he cannot, strictly speaking, appeal from the order
denying his claim, but he should file a separate reivindicatory action against the execution creditor or the purchaser of the property
after the sale at public auction, or a complaint for damages against the bond filed by the judgment creditor in favor of the sheriff. 79

A separate civil action for recovery of ownership of the property would not constitute interference with the powers or processes of
the labor tribunal which rendered the judgment to execute upon the levied properties. The property levied upon being that of a
stranger is not subject to levy. Thus, a separate action for recovery, upon a claim and prima facie showing of ownership by the
petitioner, cannot be considered as interference.80

Upon the findings and conclusions we have reached above, petitioner is situated squarely as such third-party claimant. The
questioned restraining order of the lower court, as well as the order granting preliminary injunction, does not constitute interference
with the powers or processes of the labor department. The registration of the mortgage document operated as notice to all on the
matter of the mortgagees prior claims. Official proceedings relative to the foreclosure of the subject properties constituted a prima
facie showing of ownership of such claimant to support the issuance of injunctive reliefs.

As correctly held by the lower court:

The subject incidents for TRO and/or Writ of Injunction were summarily heard and in resolving the same, the Court believes, that the
petitioner has a clear and unmistakable right over the levied properties. The existence of the subject Deed of Real Estate and Chattel
Mortgage, the fact that petitioner initiated a foreclosure of said properties before the Clerk of Court and Ex-Officio Sheriff, RTC
Branch 61, Kabankalan City on July 13, 2001, the fact that said Ex-Officio Sheriff and the Clerk of Court issue a Notice of Foreclosure,
Possession and Control over said mortgaged properties on July 19, 2001 and the fact that a Sheriffs Certificate of Sale was issued on
December 3, 2001 are the basis of its conclusion. Unless said mortgage contract is annulled or declared null and void, the
presumption of regularity of transaction must be considered and said document must be looked [upon] as valid.

Notably, the Office of the Solicitor General also aptly observed that when the respondent maintained that the Deed of Real Estate
and Chattel mortgage was entered into in fraud of creditors, it thereby admitted that the mortgage was not void, but merely
rescissible under Article 1381(3) of the Civil Code; and, therefore, an independent action is needed to rescind the contract of
mortgage.81 We, however, hold that such an independent action cannot now be maintained, because the mortgage has been
previously recognized to exist, with a valid consideration, in Republic, etc., v. "G" Holdings, Inc.

A final word

The Court notes that the case filed with the lower court involves a principal action for injunction to prohibit execution over
properties belonging to a third party not impleaded in the legal dispute between NAMAWU and MMC. We have observed, however,
that the lower court and the CA failed to take judicial notice of, or to consider, our Decisions in Republic, etc., v. "G" Holdings, Inc.,
and Maricalum Mining Corporation v. Brion and NAMAWU, in which we respectively recognized the entitlement of GHI to the shares
and the company notes of MMC (under the Purchase and Sale Agreement), and the rights of NAMAWU to its labor claims. At this
stage, therefore, neither the lower court nor the CA, nor even this Court, can depart from our findings in those two cases because of
the doctrine of stare decisis.

From our discussion above, we now rule that the trial court, in issuing the questioned orders, did not commit grave abuse of
discretion, because its issuance was amply supported by factual and legal bases.

We are not unmindful, however, of the fact that the labor claims of NAMAWU, acknowledged by this Court in Maricalum, still awaits
final execution. As success fades from NAMAWUs efforts to execute on the properties of MMC, which were validly foreclosed by GHI,
we see that NAMAWU always had, and may still have, ample supplemental remedies found in Rule 39 of the Rules of Court in order
to protect its rights against MMC. These include the examination of the judgment obligor when judgment is unsatisfied, 82 the
examination of the obligors of judgment obligors,83 or even the resort to receivership.841avvphi1

While, theoretically, this case is not ended by this decision, since the lower court is still to try the case filed with it and decide it on
the merits, the matter of whether the mortgage and foreclosure of the assets that are the subject of said foreclosure is ended herein,
for the third and final time. So also is the consequential issue of the separate and distinct personalities of GHI and MMC. Having
resolved these principal issues with certainty, we find no more need to remand the case to the lower court, only for the

purpose of resolving again the matter of whether GHI owns the properties that were the subject of the latters foreclosure.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated October 14, 2003 is SET ASIDE. The Omnibus
Order dated December 4, 2002 of the Regional Trial Court, Branch 61 of Kabankalan City, Negros Occidental is AFFIRMED. No costs.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

G.R. No. 170689 March 17, 2009

PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) and PANTRANCO RETRENCHED EMPLOYEES ASSOCIATION

(PANREA), Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), PANTRANCO NORTH EXPRESS, INC. (PNEI), PHILIPPINE NATIONAL BANK (PNB),
PHILIPPINE NATIONAL BANK-MANAGEMENT AND DEVELOPMENT CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY AND
HOLDINGS CORPORATION (MEGA PRIME), Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 170705 March 17, 2009

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
PANTRANCO EMPLOYEES ASSOCIATION, INC. (PEA-PTGWO), PANTRANCO RETRENCHED EMPLOYEES ASSOCIATION (PANREA) AND
PANTRANCO ASSOCIATION OF CONCERNED EMPLOYEES (PACE), ET AL., PHILIPPINE NATIONAL BANK-MANAGEMENT
DEVELOPMENT CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY HOLDINGS, INC., Respondents.

DECISION

NACHURA, J.:

Before us are two consolidated petitions assailing the Court of Appeals (CA) Decision 1 dated June 3, 2005 and its Resolution2 dated
December 7, 2005 in CA-G.R. SP No. 80599.

In G.R. No. 170689, the Pantranco Employees Association (PEA) and Pantranco Retrenched Employees Association (PANREA) pray
that the CA decision be set aside and a new one be entered, declaring the Philippine National Bank (PNB) and PNB Management and
Development Corporation (PNB-Madecor) jointly and solidarily liable for the P722,727,150.22 National Labor Relations Commission
(NLRC) judgment in favor of the Pantranco North Express, Inc. (PNEI) employees; 3 while in G.R. No. 170705, PNB prays that the
auction sale of the Pantranco properties be declared null and void. 4

The facts of the case, as found by the CA,5 and established in Republic of the Phils. v. NLRC,6 Pantranco North Express, Inc. v.
NLRC,7 and PNB MADECOR v. Uy,8 follow:

The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation (Macris). PNEI provided
transportation services to the public, and had its bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The
terminal stood on four valuable pieces of real estate (known as Pantranco properties) registered under the name of Macris. 9 The
Gonzales family later incurred huge financial losses despite attempts of rehabilitation and loan infusion. In March 1975, their
creditors took over the management of PNEI and Macris. By 1978, full ownership was transferred to one of their creditors, the
National Investment Development Corporation (NIDC), a subsidiary of the PNB.

Macris was later renamed as the National Realty Development Corporation (Naredeco) and eventually merged with the National
Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor.

In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio Araneta III. In 1986, PNEI was among
the several companies placed under sequestration by the Presidential Commission on Good Government (PCGG) shortly after the
historic events in EDSA. In January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the private
sector through the Asset Privatization Trust (APT). APT thus took over the management of PNEI.

In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for suspension of payments. A management committee
was thereafter created which recommended to the SEC the sale of the company through privatization. As a cost-saving measure, the
committee likewise suggested the retrenchment of several PNEI employees. Eventually, PNEI ceased its operation. Along with the
cessation of business came the various labor claims commenced by the former employees of PNEI where the latter obtained
favorable decisions.

On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution 10 commanding the NLRC Sheriffs to levy on the assets of
PNEI in order to satisfy the P722,727,150.22 due its former employees, as full and final satisfaction of the judgment awards in the
labor cases. The sheriffs were likewise instructed to proceed against PNB, PNB-Madecor and Mega Prime. 11 In implementing the writ,
the sheriffs levied upon the four valuable pieces of real estate located at the corner of Quezon and Roosevelt Avenues, on which the
former Pantranco Bus Terminal stood. These properties were covered by Transfer Certificate of Title (TCT) Nos. 87881-87884,
registered under the name of PNB-Madecor.12 Subsequently, Notice of Sale of the foregoing real properties was published in the
newspaper and the sale was set on July 31, 2002. Having been notified of the auction sale, motions to quash the writ were separately
filed by PNB-Madecor and Mega Prime, and PNB. They likewise filed their Third-Party Claims. 13 PNB-Madecor anchored its motion on
its right as the registered owner of the Pantranco properties, and Mega Prime as the successor-in-interest. For its part, PNB sought
the nullification of the writ on the ground that it was not a party to the labor case. 14 In its Third-Party Claim, PNB alleged that PNB-
Madecor was indebted to the former and that the Pantranco properties

would answer for such debt. As such, the scheduled auction sale of the aforesaid properties was not legally in order. 15

On September 10, 2002, the Labor Arbiter declared that the subject Pantranco properties were owned by PNB-Madecor. It being a
corporation with a distinct and separate personality, its assets could not answer for the liabilities of PNEI. Considering, however, that
PNB-Madecor executed a promissory note in favor of PNEI for P7,884,000.00, the writ of execution to the extent of the said amount
was concerned was considered valid.16

PNBs third-party claim to nullify the writ on the ground that it has an interest in the Pantranco properties being a creditor of PNB-
Madecor, on the other hand, was denied because it only had an inchoate interest in the properties. 17

The dispositive portion of the Labor Arbiters September 10, 2002 Resolution is quoted hereunder:

WHEREFORE, the Third Party Claim of PNB Madecor and/or Mega Prime Holdings, Inc. is hereby GRANTED and concomitantly the
levies made by the sheriffs of the NLRC on the properties of PNB Madecor should be as it (sic) is hereby LIFTED subject to the
payment by PNB Madecor to the complainants the amount of P7,884,000.00.

The Motion to Quash and Third Party Claim of PNB is hereby DENIED.

The Motion to Quash of PNB Madecor and Mega Prime Holdings, Inc. is hereby PARTIALLY GRANTED insofar as the amount of the
writ exceeds P7,884,000.00.

The Motion for Recomputation and Examination of Judgment Awards is hereby DENIED for want of merit.

The Motion to Expunge from the Records claimants/complainants Opposition dated August 3, 2002 is hereby DENIED for lack of
merit.

SO ORDERED.18

On appeal to the NLRC, the same was denied and the Labor Arbiters disposition was affirmed. 19 Specifically, the NLRC concluded as
follows:

(1) PNB-Madecor and Mega Prime contended that it would be impossible for them to comply with the requirement of the
labor arbiter to pay to the PNEI employees the amount of P7.8 million as a condition to the lifting of the levy on the
properties, since the credit was already garnished by Gerardo Uy and other creditors of PNEI. The NLRC found no evidence
that Uy had satisfied his judgment from the promissory note, and opined that even if the credit was in custodia legis, the
claim of the PNEI employees should enjoy preference under the Labor Code.

(2) The PNEI employees contested the finding that PNB-Madecor was indebted to the PNEI for only P7.8 million without
considering the accrual of interest. But the NLRC said that there was no evidence that demand was made as a basis for
reckoning interest.

(3) The PNEI employees further argued that the labor arbiter may not properly conclude from a decision of Judge Demetrio
Macapagal Jr. of the RTC of Quezon City that PNB-Madecor was the owner of the properties as his decision was
reconsidered by the next presiding judge, nor from a decision of the Supreme Court that PNEI was a mere lessee of the
properties, the fact being that the transfer of the properties to PNB-Madecor was done to avoid satisfaction of the claims of
the employees with the NLRC and that as a result of a civil case filed by Mega Prime, the subsequent sale of the properties
by PNB to Mega Prime was rescinded. The NLRC pointed out that while the Macapagal decision was set aside by Judge
Bruselas and hence, his findings could not be invoked by the labor arbiter, the titles of PNB-Madecor are conclusive and
 there is no evidence that PNEI had ever been an owner. The Supreme Court had observed in its decision that PNEI owed
back rentals of P8.7 million to PNB-Madecor.

(4) The PNEI employees faulted the labor arbiter for not finding that PNEI, PNB, PNB-Madecor and Mega Prime were all
jointly and severally liable for their claims. The NLRC underscored the fact that PNEI and Macris were subsidiaries of NIDC
and had passed through and were under the Asset Privatization Trust (APT) when the labor claims accrued. The labor arbiter
was correct in not granting PNBs third-party claim because at the time the causes of action accrued, the PNEI was managed
by a management committee appointed by the PNB as the new owner of PNRI (sic) and Macris through a deed of
assignment or transfer of ownership. The NLRC says at length that the same is not true with PNB-Madecor which is now the
registered owner of the properties.20

The parties separate motions for reconsideration were likewise denied. 21 Thereafter, the matter was elevated to the CA by PANREA,
PEA-PTGWO and the Pantranco Association of Concerned Employees. The latter group, however, later withdrew its petition. The
former employees petition was docketed as CA-G.R. SP No. 80599.

PNB-Madecor and Mega Prime likewise filed their separate petition before the CA which was docketed as CA-G.R. SP No. 80737, but
the same was dismissed.22

In view of the P7,884,000.00 debt of PNB-Madecor to PNEI, on June 23, 2004, an auction sale was conducted over the Pantranco
properties to satisfy the claim of the PNEI employees, wherein CPAR Realty was adjudged as the highest bidder. 23

On June 3, 2005, the CA rendered the assailed decision affirming the NLRC resolutions.

The appellate court pointed out that PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct
from PNEI. As such, there being no cogent reason to pierce the veil of corporate fiction, the separate personalities of the above
corporations should be maintained. The CA added that the Pantranco properties were never owned by PNEI; rather, their titles were
registered under the name of PNB-Madecor. If PNB and PNB-Madecor could not answer for the liabilities of PNEI, with more reason
should Mega Prime not be held liable being a mere successor-in-interest of PNB-Madecor.

Unsatisfied, PEA-PTGWO and PANREA filed their motion for reconsideration; 24 while PNB filed its Partial Motion for
Reconsideration.25 PNB pointed out that PNB-Madecor was made to answer for P7,884,000.00 to the PNEI employees by virtue of the
promissory note it (PNB-Madecor) earlier executed in favor of PNEI. PNB, however, questioned the June 23, 2004 auction sale as
the P7.8 million debt had already been satisfied pursuant to this Courts decision in PNB MADECOR v. Uy. 26

Both motions were denied by the appellate court. 27

In two separate petitions, PNB and the former PNEI employees come up to this Court assailing the CA decision and resolution. The
former PNEI employees raise the lone error, thus:

The Honorable Court of Appeals palpably departed from the established rules and jurisprudence in ruling that private respondents
Pantranco North Express, Inc. (PNEI), Philippine National Bank (PNB), Philippine National Bank Management and Development
Corporation (PNB-MADECOR), Mega Prime Realty and Holdings, Inc. (Mega Prime) are not jointly and severally answerable to
the P722,727,150.22 Million NLRC money judgment awards in favor of the 4,000 individual members of the Petitioners. 28

They claim that PNB, through PNB-Madecor, directly benefited from the operation of PNEI and had complete control over the funds
of PNEI. Hence, they are solidarily answerable with PNEI for the unpaid money claims of the employees. 29 Citing A.C. Ransom Labor
Union-CCLU v. NLRC,30 the employees insist that where the employer corporation ceases to exist and is no longer able to satisfy the
judgment awards in favor of its employees, the owner of the employer corporation should be made jointly and severally liable. 31 They
added that malice or bad faith need not be proven to make the owners liable.

On the other hand, PNB anchors its petition on this sole assignment of error, viz.:

THE AUCTION SALE OF THE PROPERTY COVERED BY TCT NO. 87884 INTENDED TO PARTIALLY SATISFY THE CLAIMS OF FORMER
WORKERS OF PNEI IN THE AMOUNT OF P7,884,000.00 (THE AMOUNT OF PNB-MADECORS PROMISSORY NOTE IN FAVOR OF PNEI) IS
NOT IN ORDER AS THE SAID PROPERTY IS NOT OWNED BY PNEI. FURTHER, THE SAID PROMISSORY NOTE HAD ALREADY BEEN
GARNISHED IN FAVOR OF GERARDO C. UY WHICH LED TO THREE (3) PROPERTIES UNDER THE NAME OF PNB-MADECOR, NAMELY TCT
NOS. 87881, 87882 AND 87883, BEING LEVIED AND SOLD ON EXECUTION IN THE "PNB-MADECOR VS. UY" CASE (363 SCRA 128
[2001]) AND "GERARDO C. UY VS. PNEI" (CIVIL CASE NO. 95-72685, RTC MANILA, BRANCH 38). 32

PNB insists that the Pantranco properties could no longer be levied upon because the promissory note for which the Labor Arbiter
held PNB-Madecor liable to PNEI, and in turn to the latters former employees, had already been satisfied in favor of Gerardo C. Uy. It
added that the properties were in fact awarded to the highest bidder. Besides, says PNB, the subject properties were not owned by
PNEI, hence, the execution sale thereof was not validly effected. 33

Both petitions must fail.

G.R. No. 170689

Stripped of the non-essentials, the sole issue for resolution raised by the former PNEI employees is whether they can attach the
properties (specifically the Pantranco properties) of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims against
PNEI.

We answer in the negative.

First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the records was it shown that PNEI owned
the Pantranco properties. Petitioners, in fact, never alleged in any of their pleadings the fact of such ownership. What was
established, instead, in PNB MADECOR v. Uy34 and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and
Holdings Corporation v. PNB35 was that the properties were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot
be pursued against by the creditors of PNEI.

We would like to stress the settled rule that the power of the court in executing judgments extends only to properties
unquestionably belonging to the judgment debtor alone.36 To be sure, one mans goods shall not be sold for another mans debts. 37 A
sheriff is not authorized to attach or levy on property not belonging to the judgment debtor, and even incurs liability if he wrongfully
levies upon the property of a third person. 38

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from that of PNEI. PNB is
sought to be held liable because it acquired PNEI through NIDC at the time when PNEI was suffering financial reverses. PNB-Madecor
is being made to answer for petitioners labor claims as the owner of the subject Pantranco properties and as a subsidiary of PNB.
Mega Prime is also included for having acquired PNBs shares over PNB-Madecor.

The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to
which it may be connected.39 This is a fiction created by law for convenience and to prevent injustice. 40 Obviously, PNB, PNB-
Madecor, Mega Prime, and PNEI are corporations with their own personalities. The "separate personalities" of the first three
corporations had been recognized by this Court in PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and
Holdings Corporation v. PNB41 where we stated that PNB was only a stockholder of PNB-Madecor which later sold its shares to Mega
Prime; and that PNB-Madecor was the owner of the Pantranco properties. Moreover, these corporations are registered as separate
entities and, absent any valid reason, we maintain their separate identities and we cannot treat them as one.

Neither can we merge the personality of PNEI with PNB simply because the latter acquired the former. Settled is the rule that where
one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable
for the debts and liabilities of the transferor. 42

Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to warrant the piercing of the
corporate veil, 43 none applies in the present case whether between PNB and PNEI; or PNB and PNB-Madecor.

Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a mere collection of individuals or
an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying
the group.44 Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or as one and the same. 45

Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved.
However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate
veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to
promote unfair objectives.46

As between PNB and PNEI, petitioners want us to disregard their separate personalities, and insist that because the company, PNEI,
has already ceased operations and there is no other way by which the judgment in favor of the employees can be satisfied, corporate
officers can be held jointly and severally liable with the company. Petitioners rely on the pronouncement of this Court in A.C. Ransom
Labor Union-CCLU v. NLRC47 and subsequent cases.48

This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case.

For one, in the said cases, the persons made liable after the companys cessation of operations were the officers and agents of the
corporation. The rationale is that, since the corporation is an artificial person, it must have an officer who can be presumed to be the
employer, being the person acting in the interest of the employer. The corporation, only in the technical sense, is the employer. 49 In
the instant case, what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI).

Moreover, in the recent cases Carag v. National Labor Relations Commission 50 and McLeod v. National Labor Relations
Commission,51 the Court explained the doctrine laid down in AC Ransom relative to the personal liability of the officers and agents of
the employer for the debts of the latter. In AC Ransom, the Court imputed liability to the officers of the corporation on the strength
of the definition of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Under the said provision, employer includes
any person acting in the interest of an employer, directly or indirectly, but does not include any labor organization or any of its
officers or agents except when acting as employer. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by
itself, does not make a corporate officer personally liable for the debts of the corporation. It added that the governing law on
personal liability of directors or officers for debts of the corporation is still Section 31 52 of the Corporation Code.

More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom, foreseeing the possibility or probability of
payment of backwages to its employees, organized Rosario to replace Ransom, with the latter to be eventually phased out if the
strikers win their case. The execution could not be implemented against Ransom because of the disposition posthaste of its leviable
assets evidently in order to evade its just and due obligations. 53 Hence, the Court sustained the piercing of the corporate veil and
made the officers of Ransom personally liable for the debts of the latter.

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil applies only in three (3) basic
areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.54 In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such
corporate officer cannot be made personally liable for corporate liabilities. 55

Applying the foregoing doctrine to the instant case, we quote with approval the CA disposition in this wise:

It would not be enough, then, for the petitioners in this case, the PNEI employees, to rest on their laurels with evidence that PNB was
the owner of PNEI. Apart from proving ownership, it is necessary to show facts that will justify us to pierce the veil of corporate
fiction and hold PNB liable for the debts of PNEI. The burden undoubtedly falls on the petitioners to prove their affirmative
allegations. In line with the basic jurisprudential principles we have explored, they must show that PNB was using PNEI as a mere
adjunct or instrumentality or has exploited or misused the corporate privilege of PNEI.

We do not see how the burden has been met. Lacking proof of a nexus apart from mere ownership, the petitioners have not
provided us with the legal basis to reach the assets of corporations separate and distinct from PNEI. 56

Assuming, for the sake of argument, that PNB may be held liable for the debts of PNEI, petitioners still cannot proceed against the
Pantranco properties, the same being owned by PNB-Madecor, notwithstanding the fact that PNB-Madecor was a subsidiary of PNB.
The general rule remains that PNB-Madecor has a personality separate and distinct from PNB. The mere fact that a corporation owns
all of the stocks of another corporation, taken alone, is not sufficient to justify their being treated as one entity. If used to perform
legitimate functions, a subsidiarys separate existence shall be respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective businesses. 57
In PNB v. Ritratto Group, Inc.,58 we outlined the circumstances which are useful in the determination of whether a subsidiary is but a
mere instrumentality of the parent-corporation, to wit:

1. The parent corporation owns all or most of the capital stock of the subsidiary;

2. The parent and subsidiary corporations have common directors or officers;

3. The parent corporation finances the subsidiary;

4. The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation;

5. The subsidiary has grossly inadequate capital;

6. The parent corporation pays the salaries and other expenses or losses of the subsidiary;

7. The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or
by the parent corporation;

8. In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or
division of the parent corporation, or its business or financial responsibility is referred to as the parent corporations own;

9. The parent corporation uses the property of the subsidiary as its own;

10. The directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take their
orders from the parent corporation;

11. The formal legal requirements of the subsidiary are not observed.

None of the foregoing circumstances is present in the instant case. Thus, piercing of PNB-Madecors corporate veil is not warranted.
Being a mere successor-in-interest of PNB-Madecor, with more reason should no liability attach to Mega Prime.

G.R. No. 170705

In its petition before this Court, PNB seeks the annulment of the June 23, 2004 execution sale of the Pantranco properties on the
ground that the judgment debtor (PNEI) never owned said lots. It likewise contends that the levy and the eventual sale on execution
of the subject properties was null and void as the promissory note on which PNB-Madecor was made liable had already been
satisfied.

It has been repeatedly stated that the Pantranco properties which were the subject of execution sale were owned by Macris and
later, the PNB-Madecor. They were never owned by PNEI or PNB. Following our earlier discussion on the separate personalities of the
different corporations involved in the instant case, the only entity which has the right and interest to question the execution sale and
the eventual right to annul the same, if any, is PNB-Madecor or its successor-in-interest. Settled is the rule that proceedings in court
must be instituted by the real party in interest.

A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit.59 "Interest" within the meaning of the rule means material interest, an interest in issue and to be affected by the
decree, as distinguished from mere interest in the question involved, or a mere incidental interest. 60 The interest of the party must
also be personal and not one based on a desire to vindicate the constitutional right of some third and unrelated party. 61 Real interest,
on the other hand, means a present substantial interest, as distinguished from a mere expectancy or a future, contingent,
subordinate, or consequential interest.62

Specifically, in proceedings to set aside an execution sale, the real party in interest is the person who has an interest either in the
property sold or the proceeds thereof. Conversely, one who is not interested or is not injured by the execution sale cannot question
its validity.63
In justifying its claim against the Pantranco properties, PNB alleges that Mega Prime, the buyer of its entire stockholdings in PNB-
Madecor was indebted to it (PNB). Considering that said indebtedness remains unpaid, PNB insists that it has an interest over PNB-
Madecor and Mega Primes assets.

Again, the contention is bereft of merit. While PNB has an apparent interest in Mega Primes assets being the creditor of the latter for
a substantial amount, its interest remains inchoate and has not yet ripened into a present substantial interest, which would give it
the standing to maintain an action involving the subject properties. As aptly observed by the Labor Arbiter, PNB only has an inchoate
right to the properties of Mega Prime in case the latter would not be able to pay its indebtedness. This is especially true in the instant
case, as the debt being claimed by PNB is secured by the accessory contract of pledge of the entire stockholdings of Mega Prime to
PNB-Madecor.64

The Court further notes that the Pantranco properties (or a portion thereof ) were sold on execution to satisfy the unpaid obligation
of PNB-Madecor to PNEI. PNB-Madecor was thus made liable to the former PNEI employees as the judgment debtor of PNEI. It has
long been established in PNB-Madecor v. Uy and other similar cases that PNB-Madecor had an unpaid obligation to PNEI amounting
to more or less P7 million which could be validly pursued by the creditors of the latter. Again, this strengthens the proper parties
right to question the validity of the execution sale, definitely not PNB.

Besides, the issue of whether PNB has a substantial interest over the Pantranco properties has already been laid to rest by the Labor
Arbiter.65 It is noteworthy that in its Resolution dated September 10, 2002, the Labor Arbiter denied PNBs Third-Party Claim primarily
because PNB only has an inchoate right over the Pantranco properties. 66 Such conclusion was later affirmed by the NLRC in its
Resolution dated June 30, 2003.67Notwithstanding said conclusion, PNB did not elevate the matter to the CA via a petition for review.
Hence it is presumed to be satisfied with the adjudication therein. 68 That decision of the NLRC has become final as against PNB and
can no longer be reviewed, much less reversed, by this Court. 69 This is in accord with the doctrine that a party who has not appealed
cannot obtain from the appellate court any affirmative relief other than the ones granted in the appealed decision. 70

WHEREFORE, premises considered, the petitions are hereby DENIED for lack of merit.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

G.R. No. 166282 February 13, 2013

HEIRS OF FE TAN UY (Represented by her heir, Mauling Uy Lim), Petitioners,
vs.
INTERNATIONAL EXCHANGE BANK, Respondent.

x-----------------------x

G.R. No. 166283

GOLDKEYDEVELOPMENT CORPORATION, Petitioner,

vs.
INTERNATIONAL EXCHANGE BANK, Respondent.

DECISION

MENDOZA, J.:

Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure,
assailing the August 16, 2004 Decision1 and the December 2, 2004 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 69817
entitled "International Exchange Bank v. Hammer Garments Corp., et al."

The Facts

On several occasions, from June 23, 1997 to September 3, 1997, respondent International Exchange Bank (iBank), granted loans to
Hammer Garments Corporation (Hammer), covered by promissory notes and deeds of assignment, in the following amounts: 3

Date of Promissory Note Amount

June 23, 1997 P 5,599,471.33
July 24, 1997 2,700,000.00
July 25, 1997 2,300,000.00
August 1, 1997 2,938,505.04
August 1, 1997 3,361,494.96
August 14, 1997 980,000.00
August 21, 1997 2,527,200.00
August 21, 1997 3,146,715.00
September 3, 1997 1,385,511.75
Total P24,938,898.08

These were made pursuant to the Letter-Agreement,4 dated March 23, 1996, between iBank and Hammer, represented by its
President and General Manager, Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso
Omnibus Line.5 The loans were secured by a P 9 Million-Peso Real Estate Mortgage 6 executed on July 1, 1997 by Goldkey
Development Corporation (Goldkey) over several of its properties and a P 25 Million-Peso Surety Agreement 7 signed by Chua and his
wife, Fe Tan Uy (Uy), on April 15, 1996.

As of October 28, 1997, Hammer had an outstanding obligation of P25,420,177.62 to iBank.8 Hammer defaulted in the payment of its
loans, prompting iBank to foreclose on Goldkeys third-party Real Estate Mortgage. The mortgaged properties were sold for P 12
million during the foreclosure sale, leaving an unpaid balance of P 13,420,177.62. 9 For failure of Hammer to pay the deficiency, iBank
filed a Complaint10 for sum of money on December 16, 1997 against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court,
Makati City (RTC).11

Despite service of summons, Chua and Hammer did not file their respective answers and were declared in default. In her separate
answer, Uy claimed that she was not liable to iBank because she never executed a surety agreement in favor of iBank. Goldkey, on
the other hand, also denies liability, averring that it acted only as a third-party mortgagor and that it was a corporation separate and
distinct from Hammer.12
Meanwhile, iBank applied for the issuance of a writ of preliminary attachment which was granted by the RTC in its December 17,
1997 Order.13 The Notice of Levy on Attachment of Real Properties, dated July 15, 1998, covering the properties under the name of
Goldkey, was sent by the sheriff to the Registry of Deeds of Quezon City. 14

The RTC, in its Decision,15 dated December 27, 2000, ruled in favor of iBank. While it made the pronouncement that the signature of
Uy on the Surety Agreement was a forgery, it nevertheless held her liable for the outstanding obligation of Hammer because she was
an officer and stockholder of the said corporation. The RTC agreed with Goldkey that as a third-party mortgagor, its liability was
limited to the properties mortgaged. It came to the conclusion, however, that Goldkey and Hammer were one and the same entity
for the following reasons: (1) both were family corporations of Chua and Uy, with Chua as the President and Chief Operating Officer;
(2) both corporations shared the same office and transacted business from the same place, (3) the assets of Hammer and Goldkey
were co-mingled; and (4) when Chua absconded, both Hammer and Goldkey ceased to operate. As such, the piercing of the veil of
corporate fiction was warranted. Uy, as an officer and stockholder of Hammer and Goldkey, was found liable to iBank together with
Chua, Hammer and Goldkey for the deficiency of P13,420,177.62.

Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA. On August 16, 2004, it promulgated its decision
affirming the findings of the RTC. The CA found that iBank was not negligent in evaluating the financial stability of Hammer.
According to the appellate court, iBank was induced to grant the loan because petitioners, with intent to defraud the bank,
submitted a falsified Financial Report for 1996 which incorrectly declared the assets and cashflow of Hammer. 16 Because petitioners
acted maliciously and in bad faith and used the corporate fiction to defraud iBank, they should be treated as one and the same as
Hammer.17

Hence, these petitions filed separately by the heirs of Uy and Goldkey. On February 9, 2005, this Court ordered the consolidation of
the two cases.18

The Issues

Petitioners raise the following issues:

Whether or not a trial court, under the facts of this case, can go out of the issues raised by the pleadings; 19

Whether or not there is guilt by association in those cases where the veil of corporate fiction may be pierced; 20 and

Whether or not the "alter ego" theory in disregarding the corporate personality of a corporation is applicable to Goldkey. 21

Simplifying the issues in this case, the Court must resolve the following: (1) whether Uy can be held liable to iBank for the loan
obligation of Hammer as an officer and stockholder of the said corporation; and (2) whether Goldkey can be held liable for the
obligation of Hammer for being a mere alter ego of the latter.

The Courts Ruling

The petitions are partly meritorious.

Uy is not liable; The piercing of the

veil of corporate fiction is not justified

The heirs of Uy argue that the latter could not be held liable for being merely an officer of Hammer and Goldkey because it was not
shown that she had committed any actionable wrong22 or that she had participated in the transaction between Hammer and iBank.
They further claim that she had cut all ties with Hammer and her husband long before the execution of the loan. 23

The Court finds in favor of Uy.

Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct
from those acting for and in its behalf and, in general, from the people comprising it. Following this principle, obligations incurred by
the corporation, acting through its directors, officers and employees, are its sole liabilities. A director, officer or employee of a
corporation is generally not held personally liable for obligations incurred by the corporation. 24 Nevertheless, this legal fiction may be
disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues. 25 This is consistent with the provisions of the Corporation Code of the
Philippines, which states:

Sec. 31. Liability of directors, trustees or officers. Directors or trustees who wilfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally
for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

Solidary liability will then attach to the directors, officers or employees of the corporation in certain circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently
unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; and (c) are
guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable
with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. 26

Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites
must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly
prove such unlawful acts, negligence or bad faith. 27

While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of
corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45, this Court can
take cognizance of factual issues if the findings of the lower court are not supported by the evidence on record or are based on a
misapprehension of facts.28

In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed an act as an officer of
Hammer that would permit the piercing of the corporate veil. A reading of the complaint reveals that with regard to Uy, iBank did not
demand that she be held liable for the obligations of Hammer because she was a corporate officer who committed bad faith or gross
negligence in the performance of her duties such that the lifting of the corporate mask would be merited. What the complaint simply
stated is that she, together with her errant husband Chua, acted as surety of Hammer, as evidenced by her signature on the Surety
Agreement which was later found by the RTC to have been forged. 29

Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a falsified document, there was no
sufficient justification for the RTC to have ruled that Uy should be held jointly and severally liable to iBank for the unpaid loan of
Hammer. Neither did the CA explain its affirmation of the RTCs ruling against Uy. The Court cannot give credence to the simplistic
declaration of the RTC that liability would attach directly to Uy for the sole reason that she was an officer and stockholder of
Hammer.

At most, Uy could have been charged with negligence in the performance of her duties as treasurer of Hammer by allowing the
company to contract a loan despite its precarious financial position. Furthermore, if it was true, as petitioners claim, that she no
longer performed the functions of a treasurer, then she should have formally resigned as treasurer to isolate herself from any liability
that could result from her being an officer of the corporation. Nonetheless, these shortcomings of Uy are not sufficient to justify the
piercing of the corporate veil which requires that the negligence of the officer must be so gross that it could amount to bad faith and
must be established by clear and convincing evidence. Gross negligence is one that is characterized by the lack of the slightest care,
acting or failing to act in a situation where there is a duty to act, wilfully and intentionally with a conscious indifference to the
consequences insofar as other persons may be affected.30

It behooves this Court to emphasize that the piercing of the veil of corporate fiction is frowned upon and can only be done if it has
been clearly established that the separate and distinct personality of the corporation is used to justify a wrong, protect fraud, or
perpetrate a deception.31 As aptly explained in Philippine National Bank v. Andrada Electric & Engineering Company:32
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the
milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or
crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it
cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application. 33

Indeed, there is no showing that Uy committed gross negligence. And in the absence of any of the aforementioned requisites for
making a corporate officer, director or stockholder personally liable for the obligations of a corporation, Uy, as a treasurer and
stockholder of Hammer, cannot be made to answer for the unpaid debts of the corporation.

Goldkey is a mere alter ego of Hammer

Goldkey contends that it cannot be held responsible for the obligations of its stockholder, Chua. 34 Moreover, it theorizes that iBank is
estopped from expanding Goldkeys liability beyond the real estate mortgage. 35 It adds that it did not authorize the execution of the
said mortgage.36 Finally, it passes the blame on to iBank for failing to exercise the requisite due diligence in properly evaluating
Hammers creditworthiness before it was extended an omnibus line. 37

The Court disagrees with Goldkey.

There is no reason to discount the findings of the CA that iBank duly inspected the viability of Hammer and satisfied itself that the
latter was a good credit risk based on the Financial Statement submitted. In addition, iBank required that the loan be secured by
Goldkeys Real Estate Mortgage and the Surety Agreement with Chua and Uy. The records support the factual conclusions made by
the RTC and the CA.

To the Courts mind, Goldkeys argument, that iBank is barred from pursuing Goldkey for the satisfaction of the unpaid obligation of
Hammer because it had already limited its liability to the real estate mortgage, is completely absurd. Goldkey needs to be reminded
that it is being sued not as a consequence of the real estate mortgage, but rather, because it acted as an alter ego of Hammer.
Accordingly, they must be treated as one and the same entity, making Goldkey accountable for the debts of Hammer.

In fact, it is Goldkey who is now precluded from denying the validity of the Real Estate Mortgage. In its Answer with Affirmative
Defenses and Compulsory Counterclaim, dated January 5, 1998, it already admitted that it acted as a third-party mortgagor to secure
the obligation of Hammer to iBank.38 Thus, it cannot, at this late stage, question the due execution of the third-party mortgage.

Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is seeking to enforce an obligation of Chua. The records clearly
show that it was Hammer, of which Chua was the president and a stockholder, which contracted a loan from iBank. What iBank
sought was redress from Goldkey by demanding that the veil of corporate fiction be lifted so that it could not raise the defense of
having a separate juridical personality to evade liability for the obligations of Hammer.

Under a variation of the doctrine of piercing the veil of corporate fiction, when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as identical or one and the same. 39

While the conditions for the disregard of the juridical entity may vary, the following are some probative factors of identity that will
justify the application of the doctrine of piercing the corporate veil, as laid down in Concept Builders, Inc. v NLRC:40

(1) Stock ownership by one or common ownership of both corporations;

(2) Identity of directors and officers;

(3) The manner of keeping corporate books and records, and

(4) Methods of conducting the business.41

These factors are unquestionably present in the case of Goldkey and Hammer, as observed by the RTC, as follows:

1. Both corporations are family corporations of defendants Manuel Chua and his wife Fe Tan Uy. The other incorporators and
shareholders of the two corporations are the brother and sister of Manuel Chua (Benito Ng Po Hing and Nenita Chua Tan) and the
sister of Fe Tan Uy, Milagros Revilla. The other incorporator/share holder is Manling Uy, the daughter of Manuel Chua Uy Po Tiong
and Fe Tan Uy.

The stockholders of Hammer Garments as of March 23, 1987, aside from spouses Manuel and Fe Tan Uy are: Benito Chua, brother
Manuel Chua, Nenita Chua Tan, sister of Manuel Chua and Tessie See Chua Tan. On March 8, 1988, the shares of Tessie See Chua Uy
were assigned to Milagros T. Revilla, thereby consolidating the shares in the family of Manuel Chua and Fe Tan Uy.

2. Hammer Garments and Goldkey share the same office and practically transact their business from the same place.

3. Defendant Manuel Chua is the President and Chief Operating Officer of both corporations. All business transactions of Goldkey and
Hammer are done at the instance of defendant Manuel Chua who is authorized to do so by the corporations.

The promissory notes subject of this complaint are signed by him as Hammers President and General Manager. The third-party real
estate mortgage of defendant Goldkey is signed by him for Goldkey to secure the loan obligation of Hammer Garments with plaintiff
"iBank". The other third-party real estate mortgages which Goldkey executed in favor of the other creditor banks of Hammer are also
assigned by Manuel Chua.

4. The assets of Goldkey and Hammer are co-mingled. The real properties of Goldkey are mortgaged to secure Hammers obligation
with creditor banks.

The proceed of at least two loans which Hammer obtained from plaintiff "iBank", purportedly to finance its export to Wal-Mart are
instead used to finance the purchase of a managers check payable to Goldkey. The defendants claim that Goldkey is a creditor of
Hammer to justify its receipt of the Managers check is not substantiated by evidence. Despite subpoenas issued by this Court,
Goldkey thru its treasurer, defendant Fe Tan Uy and or its corporate secretary Manling Uy failed to produce the Financial Statement
of Goldkey.

5. When defendant Manuel Chua "disappeared", the defendant Goldkey ceased to operate despite the claim that the other "officers"
and stockholders like Benito Chua, Nenita Chua Tan, Fe Tan Uy, Manling Uy and Milagros T. Revilla are still around and may be able to
continue the business of Goldkey, if it were different or distinct from Hammer which suffered financial set back. 42

Based on the foregoing findings of the RTC, it was apparent that Goldkey was merely an adjunct of Hammer and, as such, the legal
fiction that it has a separate personality from that of Hammer should be brushed aside as they are, undeniably, one and the same.

WHEREFORE, the petition are PARTLY GRANTED. The August 16, 2004 Decision and the December 2, 2004 Resolution of the Court of
Appeals in CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy is released from any liability arising from the debts incurred by
Hammer from iBank. Hammer Garments Corporation, Manuel Chua Uy Po Tiong and Goldkey Development Corporation are jointly
and severally liable to pay International Exchange Bank the sum of P13,420,177.62 representing the unpaid loan obligation of
Hammer as of December 12, 1997 plus interest. No costs.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

G.R. No. 174938 October 1, 2014

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,
vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND
BENJAMIN C. RAMOS, Respondents.

DECISION

LEONEN, J.:

Corporate representatives may be compelled to submit to arbitration proceedings pursuant to a contract entered into by the
corporation they represent if there are allegations of bad faith or malice in their acts representing the corporation.

This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October 5, 2006 resolution. The Court of Appeals
affirmed the trial court's decision holding that petitioners, as director, should submit themselves as parties tothe arbitration
proceedings between BF Corporation and Shangri-La Properties, Inc. (Shangri-La).

In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-Laand the members of its board of
directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos. 1

BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into agreements with Shangri-La
wherein it undertook to construct for Shangri-La a mall and a multilevel parking structure along EDSA. 2

Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing statements. 3However, by October
1991, Shangri-La started defaulting in payment.4

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction of the buildings using its own funds
and credit despite Shangri-Las default.5 According to BF Corporation, ShangriLa misrepresented that it had funds to pay for its
obligations with BF Corporation, and the delay in payment was simply a matter of delayed processing of BF Corporations progress
billing statements.6

BF Corporation eventually completed the construction of the buildings. 7 Shangri-La allegedly took possession of the buildings while
still owing BF Corporation an outstanding balance. 8

BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance owed to it. 9 It also alleged that the
Shangri-Las directors were in bad faith in directing Shangri-Las affairs. Therefore, they should be held jointly and severally liable with
Shangri-La for its obligations as well as for the damages that BF Corporation incurred as a result of Shangri-Las default. 10

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to
suspend the proceedings in view of BF Corporations failure to submit its dispute to arbitration, in accordance with the arbitration
clauseprovided in its contract, quoted in the motion as follows: 11

35. Arbitration

(1) Provided always that in case any dispute or difference shall arise between the Owner or the Project Manager on his behalf and
the Contractor, either during the progress or after the completion or abandonment of the Works as to the construction of this
Contract or as to any matter or thing of whatsoever nature arising there under or inconnection therewith (including any matter or
thing left by this Contract to the discretion of the Project Manager or the withholding by the Project Manager of any certificate to
which the Contractor may claim to be entitled or the measurement and valuation mentioned in clause 30(5)(a) of these Conditions or
the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the owner and the Contractor hereby
agree to exert all efforts to settle their differences or dispute amicably. Failing these efforts then such dispute or difference shall be
referred to arbitration in accordance with the rules and procedures of the Philippine Arbitration Law.

xxx xxx xxx

(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the Arbitrators shall be a condition
precedent to any right of legal action that either party may have against the other. . . . 12 (Underscoring in the original)
On August 19, 1993, BF Corporation opposed the motion to suspend proceedings. 13

In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend proceedings. 14

On December 8, 1993, petitioners filed an answer to BF Corporations complaint, with compulsory counter claim against BF
Corporation and crossclaim against Shangri-La.15 They alleged that they had resigned as members of Shangri-Las board of directors
as of July 15, 1991.16

After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of its November 18, 1993 order, Shangri-
La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G. Licauco III, and Benjamin Ramos filed a petition for certiorari with the Court of
Appeals.17

On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the submission of the dispute to arbitration. 18

Aggrieved by the Court of Appeals decision, BF Corporation filed a petition for review on certiorari with this court. 19 On March 27,
1998, this court affirmed the Court of Appeals decision, directing that the dispute be submitted for arbitration. 20

Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation and Shangri-La failed to agree as to
the law that should govern the arbitration proceedings. 21 On October 27, 1998, the trial court issued the order directing the parties
to conduct the proceedings in accordance with Republic Act No. 876. 22

Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both seeking to clarify the term, "parties,"
and whether Shangri-Las directors should be included in the arbitration proceedings and served with separate demands for
arbitration.23

Petitioners filed their comment on Shangri-Las and BF Corporations motions, praying that they be excluded from the arbitration
proceedings for being non-parties to Shangri-Las and BF Corporations agreement. 24

On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon all defendants in BF Corporations
complaint.25 According to the trial court, Shangri-Las directors were interested parties who "must also be served with a demand for
arbitration to give them the opportunity to ventilate their side of the controversy, safeguard their interest and fend off their
respective positions."26 Petitioners motion for reconsideration ofthis order was denied by the trial court on January 19, 2005. 27

Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of discretion in the issuance of orders
compelling them to submit to arbitration proceedings despite being third parties to the contract between Shangri-La and BF
Corporation.28

In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners petition for certiorari. The Court of Appeals ruled that
ShangriLas directors were necessary parties in the arbitration proceedings. 30 According to the Court of Appeals:

[They were] deemed not third-parties tothe contract as they [were] sued for their acts in representation of the party to the contract
pursuant to Art. 31 of the Corporation Code, and that as directors of the defendant corporation, [they], in accordance with Art. 1217
of the Civil Code, stand to be benefited or injured by the result of the arbitration proceedings, hence, being necessary parties, they
must be joined in order to have complete adjudication of the controversy. Consequently, if [they were] excluded as parties in the
arbitration proceedings and an arbitral award is rendered, holding [Shangri-La] and its board of directors jointly and solidarily liable
to private respondent BF Corporation, a problem will arise, i.e., whether petitioners will be bound bysuch arbitral award, and this will
prevent complete determination of the issues and resolution of the controversy. 31

The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings . . . would be contrary to the policy
against multiplicity of suits."32

The dispositive portion of the Court of Appeals decision reads:

WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and January 19, 2005 of public respondent RTC,
Branch 157, Pasig City, in Civil Case No. 63400, are AFFIRMED. 33
The Court of Appeals denied petitioners motion for reconsideration in the October 5, 2006 resolution. 34

On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of Appeals decision and the October 5, 2006
Court of Appeals resolution.35

The issue in this case is whether petitioners should be made parties to the arbitration proceedings, pursuant to the arbitration clause
provided in the contract between BF Corporation and Shangri-La.

Petitioners argue that they cannot be held personally liable for corporate acts or obligations. 36 The corporation is a separate being,
and nothing justifies BF Corporations allegation that they are solidarily liable with Shangri-La. 37Neither did they bind themselves
personally nor did they undertake to shoulder Shangri-Las obligations should it fail in its obligations. 38 BF Corporation also failed to
establish fraud or bad faith on their part.39

Petitioners also argue that they are third parties to the contract between BF Corporation and Shangri-La. 40Provisions including
arbitration stipulations should bind only the parties. 41 Based on our arbitration laws, parties who are strangers to an agreement
cannot be compelled to arbitrate.42

Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties in resolving their
disputes.43 Compelling them to submit to arbitration is against this purpose and may be tantamount to stipulating for the parties. 44

Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III, Alfredo C.Ramos and Benjamin C.
Ramos.45

Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that Shangri-Lasdirectors, being non-parties
to the contract, should not be made personally liable for Shangri-Las acts. 46Since the contract was executed only by BF Corporation
and Shangri-La, only they should be affected by the contracts stipulation. 47 BF Corporation also failed to specifically allege the
unlawful acts of the directors that should make them solidarily liable with Shangri-La for its obligations. 48

Meanwhile, in its comment, BF Corporation argued that the courts ruling that the parties should undergo arbitration "clearly
contemplated the inclusion of the directors of the corporation[.]" 49 BF Corporation also argued that while petitioners were not
parties to the agreement, they were still impleaded under Section 31 of the Corporation Code. 50 Section 31 makes directors solidarily
liable for fraud, gross negligence, and bad faith.51Petitioners are not really third parties to the agreement because they are being
sued as Shangri-Las representatives, under Section 31 of the Corporation Code. 52

BF Corporation further argued that because petitioners were impleaded for their solidary liability, they are necessary parties to the
arbitration proceedings.53 The full resolution of all disputes in the arbitration proceedings should also be done in the interest of
justice.54

In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral Tribunal had already promulgated its
decision on July 31, 2007.55 The Arbitral Tribunal denied BF Corporations claims against them. 56 Petitioners stated that "[they] were
included by the Arbitral Tribunal in the proceedings conducted . . . notwithstanding [their] continuing objection thereto. . . ." 57 They
also stated that "[their] unwilling participation in the arbitration case was done ex abundante ad cautela, as manifested therein on
several occasions."58 Petitioners informed the court that they already manifested with the trial court that "any action taken on [the
Arbitral Tribunals decision] should be without prejudice to the resolution of [this] case." 59

Upon the courts order, petitioners and Shangri-La filed their respective memoranda. Petitioners and Maximo G. Licauco III, Alfredo C.
Ramos, and Benjamin C. Ramos reiterated their arguments that they should not be held liable for Shangri-Las default and made
parties to the arbitration proceedings because only BF Corporation and Shangri-La were parties to the contract.

In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary liability under Section 31 of the
Corporation Code. Shangri-La added that their exclusion from the arbitration proceedings will result in multiplicity of suits, which "is
not favored in this jurisdiction."60 It pointed out that the case had already been mooted by the termination of the arbitration
proceedings, which petitioners actively participated in.61 Moreover, BF Corporation assailed only the correctness of the Arbitral
Tribunals award and not the part absolving Shangri-Las directors from liability. 62

BF Corporation filed a counter-manifestation with motion to dismiss 63 in lieu of the required memorandum.
In its counter-manifestation, BF Corporation pointed out that since "petitioners counterclaims were already dismissed with finality,
and the claims against them were likewise dismissed with finality, they no longer have any interest orpersonality in the arbitration
case. Thus, there is no longer any need to resolve the present Petition, which mainly questions the inclusion of petitioners in the
arbitration proceedings."64 The courts decision in this case will no longer have any effect on the issue of petitioners inclusion in the
arbitration proceedings.65

The petition must fail.

The Arbitral Tribunals decision, absolving petitioners from liability, and its binding effect on BF Corporation, have rendered this case
moot and academic.

The mootness of the case, however, had not precluded us from resolving issues so that principles may be established for the
guidance of the bench, bar, and the public. In De la Camara v. Hon. Enage, 66 this court disregarded the fact that petitioner in that case
already escaped from prison and ruled on the issue of excessive bails:

While under the circumstances a ruling on the merits of the petition for certiorari is notwarranted, still, as set forth at the opening of
this opinion, the fact that this case is moot and academic should not preclude this Tribunal from setting forth in language clear and
unmistakable, the obligation of fidelity on the part of lower court judges to the unequivocal command of the Constitution that
excessive bail shall not be required.67

This principle was repeated in subsequent cases when this court deemed it proper to clarify important matters for guidance. 68

Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in accordance with Shangri-Laand BF
Corporations agreement, in order to determine if the distinction between Shangri-Las personality and their personalities should be
disregarded.

This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid litigation and settle disputes amicably
and more expeditiously by themselves and through their choice of arbitrators.

The policy in favor of arbitration has been affirmed in our Civil Code, 69 which was approved as early as 1949. It was later
institutionalized by the approval of Republic Act No. 876, 70 which expressly authorized, made valid, enforceable, and irrevocable
parties decision to submit their controversies, including incidental issues, to arbitration. This court recognized this policy in
Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.:71

As a corollary to the question regarding the existence of an arbitration agreement, defendant raises the issue that, even if it be
granted that it agreed to submit its dispute with plaintiff to arbitration, said agreement is void and without effect for it amounts to
removing said dispute from the jurisdiction of the courts in which the parties are domiciled or where the dispute occurred. It is true
that there are authorities which hold that "a clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitrators and to them alone, is contrary to public policy and cannot oust the courts of jurisdiction" (Manila Electric Co.
vs. Pasay Transportation Co., 57 Phil., 600, 603), however, there are authorities which favor "the more intelligent view that
arbitration, as an inexpensive, speedy and amicable method of settling disputes, and as a means of avoiding litigation, should receive
every encouragement from the courts which may be extended without contravening sound public policy or settled law" (3 Am. Jur.,
p. 835). Congress has officially adopted the modern view when it reproduced in the new Civil Code the provisions of the old Code on
Arbitration. And only recently it approved Republic Act No. 876 expressly authorizing arbitration of future disputes. 72 (Emphasis
supplied)

In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are liberally construed to favor
arbitration. Thus, in LM Power Engineering Corporation v. Capitol Industrial Construction Groups, Inc., 73 this court said:

Being an inexpensive, speedy and amicable method of settling disputes, arbitration along with mediation, conciliation and
negotiation is encouraged by the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. It is thus regarded as the "wave of the future" in international civil and commercial
disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally construe
arbitration clauses. Provided such clause is susceptible of an interpretation that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in favor of arbitration. 74(Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to favor interpretations that would render effective an
arbitration clause was later expressed in Republic Act No. 9285: 75

SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote party autonomy in the resolution of
disputes or the freedom of the party to make their own arrangements to resolve their disputes. Towards this end, the State shall
encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and
impartial justice and declog court dockets. As such, the State shall provide means for the use of ADR as an efficient tool and an
alternative procedure for the resolution of appropriate cases. Likewise, the State shall enlist active private sector participation in the
settlement of disputes through ADR. This Act shall be without prejudice to the adoption by the Supreme Court of any ADR system,
such as mediation, conciliation, arbitration, or any combination thereof as a means of achieving speedy and efficient means of
resolving cases pending before all courts in the Philippines which shall be governed by such rules as the Supreme Court may approve
from time to time.

....

SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to the policy of the law in favor of
arbitration.Where action is commenced by or against multiple parties, one or more of whomare parties who are bound by the
arbitration agreement although the civil action may continue as to those who are not bound by such arbitration agreement.
(Emphasis supplied)

Thus, if there is an interpretation that would render effective an arbitration clause for purposes ofavoiding litigation and expediting
resolution of the dispute, that interpretation shall be adopted. Petitioners main argument arises from the separate personality given
to juridical persons vis--vis their directors, officers, stockholders, and agents. Since they did not sign the arbitration agreement in
any capacity, they cannot be forced to submit to the jurisdiction of the Arbitration Tribunal in accordance with the arbitration
agreement. Moreover, they had already resigned as directors of Shangri-Laat the time of the alleged default.

Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and distinct from Shangri-La.

A corporation is an artificial entity created by fiction of law. 76 This means that while it is not a person, naturally, the law gives it a
distinct personality and treats it as such. A corporation, in the legal sense, is an individual with a personality that is distinct and
separate from other persons including its stockholders, officers, directors, representatives, 77 and other juridical entities. The law vests
in corporations rights,powers, and attributes as if they were natural persons with physical existence and capabilities to act on their
own.78 For instance, they have the power to sue and enter into transactions or contracts. Section 36 of the Corporation Code
enumerates some of a corporations powers, thus:

Section 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate
ofincorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this
Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the corporation if it be a non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and
personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
 8. To enter into merger or consolidation with other corporations as provided in this Code;

9. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic,
or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and

11. To exercise such other powers asmay be essential or necessary to carry out its purpose or purposes as stated in its
articles of incorporation. (13a)

Because a corporations existence is only by fiction of law, it can only exercise its rights and powers through itsdirectors, officers, or
agents, who are all natural persons. A corporation cannot sue or enter into contracts without them.

A consequence of a corporations separate personality is that consent by a corporation through its representatives is not consent of
the representative, personally. Its obligations, incurred through official acts of its representatives, are its own. A stockholder, director,
or representative does not become a party to a contract just because a corporation executed a contract through that stockholder,
director or representative.

Hence, a corporations representatives are generally not bound by the terms of the contract executed by the corporation. They are
not personally liable for obligations and liabilities incurred on or in behalf of the corporation.

Petitioners are also correct that arbitration promotes the parties autonomy in resolving their disputes. This court recognized in Heirs
of Augusto Salas, Jr. v. Laperal Realty Corporation 79 that an arbitration clause shall not apply to persons who were neither parties to
the contract nor assignees of previous parties, thus:

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto,
as well as their assigns and heirs. But only they.80 (Citations omitted)

Similarly, in Del Monte Corporation-USA v. Court of Appeals, 81 this court ruled:

The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is
itself a contract. As a rule, contracts are respected as the law between the contracting parties and produce effect as between them,
their assigns and heirs. Clearly, only parties to the Agreement . . . are bound by the Agreement and its arbitration clause as they are
the only signatories thereto.82 (Citation omitted)

This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co., Inc. 83 and Stanfilco Employees v. DOLE
Philippines, Inc., et al.84

As a general rule, therefore, a corporations representative who did not personally bind himself or herself to an arbitration
agreement cannot be forced to participate in arbitration proceedings made pursuant to an agreement entered into by the
corporation. He or she is generally not considered a party to that agreement.

However, there are instances when the distinction between personalities of directors, officers,and representatives, and of the
corporation, are disregarded. We call this piercing the veil of corporate fiction.

Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as a means to perpetrate fraud or
an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate
issues."85 It is also warranted in alter ego cases "where a corporation is merely a farce since it is a mere alter ego or business conduit
of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation." 86

When corporate veil is pierced, the corporation and persons who are normally treated as distinct from the corporation are treated as
one person, such that when the corporation is adjudged liable, these persons, too, become liable as if they were the corporation.
Among the persons who may be treatedas the corporation itself under certain circumstances are its directors and officers. Section 31
of the Corporation Code provides the instances when directors, trustees, or officers may become liable for corporate acts:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally
for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in
respect of any matter which has been reposed inhim in confidence, as to which equity imposes a disability upon him to deal in his
own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued
to the corporation. (n)

Based on the above provision, a director, trustee, or officer of a corporation may be made solidarily liable with it for all damages
suffered by the corporation, its stockholders or members, and other persons in any of the following cases:

a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful corporate act;

b) The director or trustee was guilty of gross negligence or bad faith in directing corporate affairs; and

c) The director or trustee acquired personal or pecuniary interest in conflict with his or her duties as director or trustee.

Solidary liability with the corporation will also attach in the following instances:

a) "When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection thereto"; 87

b) "When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable
with the corporation";88 and

c) "When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action." 89

When there are allegations of bad faith or malice against corporate directors or representatives, it becomes the duty of courts or
tribunals to determine if these persons and the corporation should be treated as one. Without a trial, courts and tribunals have no
basis for determining whether the veil of corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge.
Thus, the courts or tribunals must first determine whether circumstances exist towarrant the courts or tribunals to disregard the
distinction between the corporation and the persons representing it. The determination of these circumstances must be made by
one tribunal or court in a proceeding participated in by all parties involved, including current representatives of the corporation, and
those persons whose personalities are impliedly the sameas the corporation. This is because when the court or tribunal finds that
circumstances exist warranting the piercing of the corporate veil, the corporate representatives are treated as the corporation itself
and should be held liable for corporate acts. The corporations distinct personality is disregarded, and the corporation is seen as a
mere aggregation of persons undertaking a business under the collective name of the corporation.

Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging malice orbad faith on their part in
directing the affairs of the corporation, complainants are effectively alleging that the directors and the corporation are not acting as
separate entities. They are alleging that the acts or omissions by the corporation that violated their rights are also the directors acts
or omissions.90 They are alleging that contracts executed by the corporation are contracts executed by the directors. Complainants
effectively pray that the corporate veilbe pierced because the cause of action between the corporation and the directors is the same.

In that case, complainants have no choice but to institute only one proceeding against the parties.1wphi1 Under the Rules of Court,
filing of multiple suits for a single cause of action is prohibited. Institution of more than one suit for the same cause of action
constitutes splitting the cause of action, which is a ground for the dismissal ofthe others. Thus, in Rule 2:

Section 3. One suit for a single cause of action. A party may not institute more than one suit for a single cause of action. (3a)
Section 4. Splitting a single cause of action;effect of. If two or more suits are instituted on the basis of the same cause of action,
the filing of one or a judgment upon the merits in any one is available as a ground for the dismissal of the others. (4a)

It is because the personalities of petitioners and the corporation may later be found to be indistinct that we rule that petitioners may
be compelled to submit to arbitration.

However, in ruling that petitioners may be compelled to submit to the arbitration proceedings, we are not overturning Heirs of
Augusto Salas wherein this court affirmed the basic arbitration principle that only parties to an arbitration agreement may be
compelled to submit to arbitration. In that case, this court recognizedthat persons other than the main party may be compelled to
submit to arbitration, e.g., assignees and heirs. Assignees and heirs may be considered parties to an arbitration agreement entered
into by their assignor because the assignors rights and obligations are transferred to them upon assignment. In other words, the
assignors rights and obligations become their own rights and obligations. In the same way, the corporations obligations are treated
as the representatives obligations when the corporate veil is pierced. Moreover, in Heirs of Augusto Salas, this court affirmed its
policy against multiplicity of suits and unnecessary delay. This court said that "to split the proceeding into arbitration for some parties
and trial for other parties would "result in multiplicity of suits, duplicitous procedure and unnecessary delay." 91 This court also
intimated that the interest of justice would be best observed if it adjudicated rights in a single proceeding. 92 While the facts of that
case prompted this court to direct the trial court to proceed to determine the issues of thatcase, it did not prohibit courts from
allowing the case to proceed to arbitration, when circumstances warrant.

Hence, the issue of whether the corporations acts in violation of complainants rights, and the incidental issue of whether piercing of
the corporate veil is warranted, should be determined in a single proceeding. Such finding would determine if the corporation is
merely an aggregation of persons whose liabilities must be treated as one with the corporation.

However, when the courts disregard the corporations distinct and separate personality from its directors or officers, the courts do
not say that the corporation, in all instances and for all purposes, is the same as its directors, stockholders, officers, and agents. It
does not result in an absolute confusion of personalities of the corporation and the persons composing or representing it. Courts
merely discount the distinction and treat them as one, in relation to a specific act, in order to extend the terms of the contract and
the liabilities for all damages to erring corporate officials who participated in the corporations illegal acts. This is done so that the
legal fiction cannot be used to perpetrate illegalities and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the corporate veil, parties who are normally
treated as distinct individuals should be made to participate in the arbitration proceedings in order to determine ifsuch distinction
should indeed be disregarded and, if so, to determine the extent of their liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the existence of circumstances that
render petitioners and the other directors solidarily liable. It ruled that petitioners and Shangri-Las other directors were not liable for
the contractual obligations of Shangri-La to BF Corporation. The Arbitral Tribunals decision was made with the participation of
petitioners, albeit with their continuing objection. In view of our discussion above, we rule that petitioners are bound by such
decision.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and resolution of October 5, 2006 are
AFFIRMED.

SO ORDERED.

MARVIC M.V.F. LEONEN

Associate Justice

G.R. No. 182770 September 17, 2014

WPM INTERNATIONAL TRADING, INC. and WARLITO P. MANLAPAZ, Petitioners,
vs.
FE CORAZON LABAYEN, Respondent.

DECISION

BRION, J.:

We review in this petition for review on certiorari1 the decision2 dated September 28, 2007 and the resolution3dated April 28, 2008 of
the Court of Appeals (CA) in CA-G.R. CV No. 68289 that affirmed with modification the decision 4 of the Regional Trial Court (RTC),
Branch 77, Quezon City.

The Factual Background

The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems Consultants, a management and consultant firm. The petitioner,
WPM International Trading, Inc. (WPM), is a domestic corporation engaged in the restaurant business, while Warlito P. Manlapaz
(Manlapaz) is its president.

Sometime in 1990, WPM entered into a management agreement with the respondent, by virtue of which the respondent was
authorized to operate, manage and rehabilitate Quickbite, a restaurant owned and operated by WPM. As part of her tasks, the
respondent looked for a contractor who would renovate the two existing Quickbite outlets in Divisoria, Manila and Lepanto St.,
University Belt, Manila. Pursuant to the agreement, the respondent engaged the services of CLN Engineering Services (CLN) to
renovate Quickbite-Divisoria at the cost of P432,876.02.

On June 13, 1990, Quickbite-Divisorias renovation was finally completed, and its possession was delivered to the respondent.
However, out of the P432,876.02 renovation cost, only the amount of P320,000.00 was paid to CLN, leaving a balance
of P112,876.02.

Complaint for Sum of Money (Civil Case No. Q-90-7013)

On October 19, 1990, CLN filed a complaint for sum of money and damages before the RTC against the respondent and Manlapaz,
which was docketed as Civil Case No. Q-90-7013. CLN later amended the complaint to exclude Manlapaz as defendant. The
respondent was declared in default for her failure to file a responsive pleading.

The RTC, in its January 28, 1991 decision, found the respondent liable to pay CLN actual damages inthe amount of P112,876.02 with
12% interest per annum from June 18,1990 (the date of first demand) and 20% of the amount recoverable as attorneys fees.

Complaint for Damages (Civil Case No. Q-92-13446)

Thereafter, the respondent instituted a complaint for damages against the petitioners, WPM and Manlapaz. The respondent alleged
that in Civil Case No. Q-90-7013, she was adjudged liable for a contract that she entered into for and in behalf of the petitioners, to
which she should be entitled to reimbursement; that her participation in the management agreement was limited only to introducing
Manlapaz to Engineer Carmelo Neri (Neri), CLNs general manager; that it was actually Manlapaz and Neri who agreed on the terms
and conditions of the agreement; that when the complaint for damages was filed against her, she was abroad; and that she did not
know of the case until she returned to the Philippines and received a copy of the decision of the RTC.

In her prayer, the respondent sought indemnification in the amount of P112,876.60 plus interest at 12%per annum from June 18,
1990 until fully paid; and 20% of the award as attorneys fees. She likewise prayed that an award of P100,000.00 as moral damages
and P20,000.00 as attorneys fees be paid to her.

In his defense, Manlapaz claims that it was his fellow incorporator/director Edgar Alcansajewho was in-charge with the daily
operations of the Quickbite outlets; that when Alcansaje left WPM, the remaining directors were compelled to hire the respondent
as manager; that the respondent had entered intothe renovation agreement with CLN in her own personal capacity; that when he
found the amount quoted by CLN too high, he instructed the respondent to either renegotiate for a lower price or to look for another
contractor; that since the respondent had exceeded her authority as agent of WPM, the renovation agreement should only bind her;
and that since WPM has a separate and distinct personality, Manlapaz cannot be made liable for the respondents claim.
Manlapaz prayed for the dismissal of the complaint for lack of cause of action, and by way of counterclaim, for the award
of P350,000.00 as moral and exemplary damages and P50,000.00 attorneys fees.

The RTC, through an order dated March 2, 1993 declared WPM in default for its failure to file a responsive pleading.

The Decision of the RTC

In its decision, the RTC held that the respondent is entitled to indemnity from Manlapaz. The RTC found that based on the records,
there is a clear indication that WPM is a mere instrumentality or business conduit of Manlapaz and as such, WPM and Manlapaz are
considered one and the same. The RTC also found that Manlapaz had complete control over WPM considering that he is its
chairman, president and treasurer at the same time. The RTC thus concluded that Manlapaz is liable in his personal capacity to
reimburse the respondent the amount she paid to CLN inconnection with the renovation agreement.

The petitioners appealed the RTC decision with the CA. There, they argued that in view of the respondents act of entering into a
renovation agreement with CLN in excess of her authority as WPMs agent, she is not entitled to indemnity for the amount she paid.
Manlapaz also contended that by virtue ofWPMs separate and distinct personality, he cannot be madesolidarily liable with WPM.

The Ruling of the Court of Appeals

On September 28, 2007, the CA affirmed, with modification on the award of attorneys fees, the decision of the RTC.The CA held that
the petitioners are barred from raising as a defense the respondents alleged lack of authority to enter into the renovation
agreement in view of their tacit ratification of the contract.

The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and the same based on the following: (1) Manlapaz is the
principal stockholder of WPM; (2) Manlapaz had complete control over WPM because he concurrently held the positions of
president, chairman of the board and treasurer, in violation of the Corporation Code; (3) two of the four other stockholders of WPM
are employed by Manlapaz either directly or indirectly; (4) Manlapazs residence is the registered principal office of WPM; and (5) the
acronym "WPM" was derived from Manlapazs initials. The CA applied the principle of piercing the veil of corporate fiction and
agreed with the RTC that Manlapaz cannot evade his liability by simply invoking WPMs separate and distinct personality.

After the CA's denial of their motion for reconsideration, the petitioners filed the present petition for review on certiorari under Rule
45 of the Rules of Court.

The Petition

The petitioners submit that the CA gravely erred in sustaining the RTCs application of the principle of piercing the veil of corporate
fiction. They argue that the legal fiction of corporate personality could only be discarded upon clear and convincing proof that the
corporation is being used as a shield to avoid liability or to commit a fraud. Since the respondent failed to establish that any of the
circumstances that would warrant the piercing is present, Manlapaz claims that he cannot be made solidarily liable with WPM to
answerfor damages allegedly incurred by the respondent.

The petitioners further argue that, assuming they may be held liable to reimburse to the respondentthe amount she paid in Civil Case
No. Q-90-7013, such liability is only limited to the amount of P112,876.02, representing the balance of the obligation to CLN, and
should not include the twelve 12% percent interest, damages and attorneys fees.

The Issues

The core issues are: (1) whether WPM is a mere instrumentality, alter-ego, and business conduit of Manlapaz; and (2) whether
Manlapaz is jointly and severally liable with WPM to the respondent for reimbursement, damages and interest.

Our Ruling

We find merit in the petition.

We note, at the outset, that the question of whether a corporation is a mere instrumentality or alter-ego of another is purely one of
fact.5 This is also true with respect to the question of whether the totality of the evidence adduced by the respondentwarrants the
application of the piercing the veil of corporate fiction doctrine. 6

Generally, factual findings of the lower courts are accorded the highest degree of respect, if not finality. When adopted and
confirmed by the CA, these findings are final and conclusive and may not be reviewed on appeal, 7save in some recognized
exceptions8 among others, when the judgment is based on misapprehension of facts.

We have reviewed the records and found that the application of the principle of piercing the veil of corporate fiction is unwarranted
in the present case.

On the Application ofthe Principle of Piercing the Veil of Corporate Fiction

The rule is settled that a corporation has a personality separate and distinct from the persons acting for and in its behalf and, in
general, from the people comprising it.9 Following this principle, the obligations incurred by the corporate officers, orother persons
acting as corporate agents, are the direct accountabilities ofthe corporation they represent, and not theirs. Thus, a director, officer or
employee of a corporation is generally not held personally liable for obligations incurred by the corporation; 10 it is only in exceptional
circumstances that solidary liability will attach to them.

Incidentally, the doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and
distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or c)
is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its affairs so conducted as to make it merely aninstrumentality, agency,
conduit or adjunct of another corporation.11

Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements, namely:

(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;

(2) Such control must have beenused by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory
or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of.

The absence of any ofthese elements prevents piercing the corporate veil. 12

In the present case, the attendantcircumstances do not establish that WPM is a mere alter ego of Manlapaz.

Aside from the fact that Manlapaz was the principal stockholder of WPM, records do not show that WPM was organized and
controlled, and its affairs conducted in a manner that made it merely an instrumentality, agency, conduit or adjunct ofManlapaz. As
held in Martinez v. Court of Appeals,13 the mere ownership by a singlestockholder of even all or nearly all of the capital stocks ofa
corporation is not by itself a sufficient ground to disregard the separate corporate personality. To disregard the separate juridical
personality of a corporation, the wrongdoing must be clearly and convincingly established. 14

Likewise, the records of the case do not support the lower courts finding that Manlapaz had control or domination over WPM or its
finances. That Manlapaz concurrentlyheld the positions of president, chairman and treasurer, or that the Manlapazs residence is the
registered principal office of WPM, are insufficient considerations to prove that he had exercised absolutecontrol over WPM.

In this connection, we stress thatthe control necessary to invoke the instrumentality or alter ego rule is not majority or even
complete stock control but such domination of finances, policies and practices that the controlled corporation has, so tospeak, no
separate mind, will or existence of its own, and is but a conduit for its principal. The control must be shown to have been exercised at
the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made.
Here, the respondent failed to prove that Manlapaz, acting as president, had absolute control over WPM.1wphi1 Even granting that
he exercised a certain degree of control over the finances, policies and practices of WPM, in view of his position as president,
chairman and treasurer of the corporation, such control does not necessarily warrant piercing the veil of corporate fiction since there
was not a single proof that WPM was formed to defraud CLN or the respondent, or that Manlapaz was guilty of bad faith or fraud.

On the contrary, the evidence establishes that CLN and the respondent knew and acted on the knowledgethat they were dealing with
WPM for the renovation of the latters restaurant, and not with Manlapaz. That WPM later reneged on its monetary obligation to
CLN, resulting to the filing of a civil case for sum of money against the respondent, does not automatically indicate fraud, in the
absence of any proof to support it.

This Court also observed that the CA failed to demonstrate how the separate and distinct personalityof WPM was used by Manlapaz
to defeat the respondents right for reimbursement. Neither was there any showing that WPM attempted to avoid liability or had no
property against which to proceed.

Since no harm could be said to have been proximately caused by Manlapaz for which the latter could be held solidarily liable with
WPM, and considering that there was no proof that WPM had insufficient funds, there was no sufficient justification for the RTC and
the CA to have ruled that Manlapaz should be held jointly and severally liable to the respondent for the amount she paid to CLN.
Hence, only WPM is liable to indemnify the respondent.

Finally, we emphasize that the piercing of the veil of corporate fiction is frowned upon and thus, must be done with caution. 15 It can
only be done if it has been clearly established that the separate and distinct personality of the corporation is used to justify a wrong,
protect fraud, or perpetrate a deception. The court must be certain that the corporate fiction was misused to such an extent that
injustice, fraud, or crime was committed against another, in disregard of its rights; it cannot be presumed.

On the Award of Moral Damages

On the award of moral damages, we find the same in order in view of WPM's unjustified refusal to pay a just debt. Under Article
2220 of the New Civil Code,16 moral damages may be awarded in cases of a breach of contract where the defendant acted
fraudulently or in bad faith or was guilty of gross negligence amounting to bad faith.

In the present case, when payment for the balance of the renovation cost was demanded, WPM, instead of complying with its
obligation, denied having authorized the respondent to contract in its behalf and accordingly refused to pay. Such cold refusal to pay
a just debt amounts to a breach of contract in bad faith, as contemplated by Article 2220. Hence, the CA's order to pay moral
damages was in order.

WHEREFORE, in light of the foregoing, the decision dated September 28, 2007 of the Court of Appeals in CA-G.R. CV No. 68289 is
MODIFIED and.that petitioner Warlito P. Manlapaz is ABSOLVED from any liability under the renovation agreement.

SO ORDERED.

ARTURO D. BRION
Associate Justice

G.R. No. 198436

PIONEER INSURANCE SURETY CORPORATION, Petitioner,
vs.
MORNING STAR TRAVEL & TOURS, INC., ESTELITA CO WONG, BENNY H. WONG, ARSENIO CHUA, SONNY CHUA, AND WONG YAN
TAK, Respondents.

DECISION

LEONEN, J.:

As a general rule, a corporation has a separate and distinct personality from those who represent it. 1 Its officers are solidarily liable
only when exceptional circumstances exist, such as cases enumerated in Section 31 of the Corporation Code. 2The liability of the
officers must be proven by evidence sufficient to overcome the burden of proof borne by the plaintiff.

This case originated from a Complaint3 for Collection of Sum of Money and Damages filed by Pioneer Insurance & Surety Corporation
(Pioneer) against Morning Star Travel & Tours, Inc. (Morning Star) for the amounts Pioneer paid the International Air Transport
Association under its credit insurance policy. The amounts of P100,479,171.59 and US$457,834.14 represent Morning Stars overdue
remittances to the International Air Transport Association.4

Pioneer filed this Petition for Review5 assailing the Court of Appeals February 28, 2011 Decision 6 "only insofar as it absolved the
individual respondents of their joint and solidary liability to petitioner[,]" 7 and August 31, 2011 Resolution8 denying reconsideration.

Morning Star is a travel and tours agency with Benny Wong, Estelita Wong, Arsenio Chua, Sonny Chua, and Wong Yan Tak as
shareholders and members of the board of directors. 9

International Air Transport Association is a Canadian corporation licensed to do business in the Philippines "to promote safe, regular
and economical air transport for all people, among others." 10

International Air Transport Association appointed Morning Star as an accredited travel agent. 11 Morning Star "avail[ed] of the
privilege of getting on credit . . . air transport tickets from various airline companies [to be sold] to passengers at prices fixed by the
airline companies[.]"12

Morning Star and International Air Transport Association entered a Passenger Sales Agency Agreement such that Morning Star must
report all air transport ticket sales to International Air Transport Association and account all payments received through the
centralized system called Billing and Settlement Plan.13 Morning Star only holds in trust all monies collected as these belong to the
airline companies.14

International Air Transport Association obtained a Credit Insurance Policy from Pioneer to assure itself of payments by accredited
travel agents for ticket sales and monies due to the airline companies under the Billing and Settlement Plan. 15 The policy was for the
period from November 1, 2001 to December 31, 2002, renewed for the period from January 1, 2003 to December 31, 2003. 16

The policy was made known to the accredited travel agents. Morning Star, through its President, Benny Wong, was among those that
declared itself liable to indemnify Pioneer for any and all claims under the policy. He executed a registration form under the Credit
Insurance Program for BSP-Philippines Agents.17

Morning Star had an accrued billing of P49,051,641.80 and US$325,865.35 for the period from December 16, 2002 to December 31,
2002. It failed to remit these amounts through the Billing and Settlement Plan, prompting the International Air Transport Association
to send a letter dated January 17, 2003 advising on the overdue remittance. 18

International Air Transport Association again declared Morning Star in default by a letter dated January 20, 2003 for its overdue
account covering the period from January 1, 2003 to January 20, 2003. 19

Pursuant to the credit insurance policies, International Air Transport Association demanded from Pioneer the sums of
P109,728,051.00 and US$457,834.14 representing Morning Stars overdue account as of April 30, 2003. Pioneer investigated,
ascertained, and validated the claims, then paid International Air Transport Association the amounts of P100,479,171.59 and
US$457,834.14.20
Consequently, Pioneer demanded these amounts from Morning Star through a letter dated September 23, 2003. 21 International Air
Transport Association executed in Pioneers favor a Release of Claim and Subrogation Receipt on December 23, 2003. 22

On November 10, 2005, Pioneer filed a Complaint for Collection of Sum of Money and Damages against Morning Star and its
shareholders and directors.23

Morning Star, Benny Wong, and Estelita Wong were served with summons and a copy of the Complaint on November 22, 2005, while
Arsenio Chua, Sonny Chua, and Wong Yan Tak were unserved. 24

The trial court granted Pioneers Motion to Declare Respondents in Default for failure to file an Answer within the period. 25 Pioneer
presented its evidence ex-parte.26

Meanwhile, Pioneer filed an Ex-Parte Motion for Issuance of Alias Summons since Morning Star was previously served through
substituted service. The trial court granted the Motion, and alias summons was served on February 5, 2007. Upon motion, Morning
Star was declared in default for failure to file an Answer within the period. 27

On June 28, 2007, Morning Star filed a Motion for Leave of Court to File Attached Answer explaining that it only received a copy of
the Complaint on February 5, 2007.28 Its counsel also alleged that he was retained only on June 22, 2007. 29 The trial court denied the
Motion on July 23, 2007, and also denied reconsideration. 30

The Regional Trial Court in its Decision 31 dated November 9, 2007 ruled in favor of Pioneer and ordered respondents to jointly and
severally pay Pioneer:

WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiff as against the defendants ordering the
latter to jointly and severally pay the following amount:

1. One Hundred Million Four Hundred Seventy Nine Thousand One Hundred Seventy One Pesos and Fifty Nine
(Php100,479,171.59) and Four Hundred Fifty Seven Thousand Eight Hundred Thirty Four Dollars and 14/100
(US$457,834.14), with interest at 12% per annum from September 23, 2003 until the sum is fully paid;

2. Php100,000.00 as attorneys fees;

3. Php100,000.00 as exemplary damages;

4. Php200,000.00 as litigation expenses[;]

5. costs of suit.

SO ORDERED.32

The Court of Appeals, in its Decision dated February 28, 2011, affirmed the trial court with modification in that only Morning Star
was liable to pay petitioner:

WHEREFORE, premises considered, the instant Appeal is DENIED. Accordingly, the assailed 9 November 2007 Decision of the
Regional Trial Court of Makati City, Branch 143 in Civil Case No. 05-993 is AFFIRMED with MODIFICATION. Insofar as the trial court
ordered Defendants-Appellants Estelita Co Wong, Benny H. Wong, Arsenio Chua, Sonny Chua and Wong Yan Tak to jointly and
severally pay the amounts awarded to Plaintiff-Appellee, the same is deleted. Only Morning Star is held personally liable for the
payment thereof. Further, exemplary damages and attorneys fees are likewise deleted for lack of basis.

SO ORDERED.33

The Court of Appeals denied Pioneers Motion for Partial Reconsideration. 34 Thus, Pioneer filed this Petition.

Pioneer submits that its Petition falls under the exceptions to the general rule that petitions for review may raise only questions of
law.35 Pioneer raises conflicting findings and conclusions by the lower courts regarding solidary liability, and misapprehension of facts
by the Court of Appeals.36
Pioneer argues that "the individual respondents were, at the very least, grossly negligent in running the affairs of respondent
Morning Star by knowingly allowing it to amass huge debts to [International Air Transport Association] despite its financial distress,
thus, giving sufficient ground for the court to pierce the corporate veil and hold said individual respondents personally liable." 37 It
cites Section 31 of the Corporation Code on the liability of directors "guilty of gross negligence or bad faith in directing the affairs of
the corporation[.]"38

Pioneer also cites jurisprudence39 on the requisites for the doctrine of piercing the corporate veil to apply. 40 It submits that all
requisites are present, thus, the individual respondents should be held solidarily liable with Morning Star. 41 It cites at length the
testimony of its witness Atty. Vincenzo Nonato M. Taggueg (Atty. Taggueg)42that based on Morning Stars General Information Sheet
and financial statements, Morning Star "has been accumulating losses as early as 1998 continuing to 1999 and 2000 resulting to a
deficit of Php26,168,1768.00 [sic] as of December 31, 2000[.]" 43

Pioneer contends that the abnormally large indebtedness to International Air Transport Association was incurred in fraud and bad
faith, with Morning Star having no intention to pay its debt.44 It cites Oria v. McMicking45 on the badges of fraud.46 Pioneer then
enumerates "the unmistakable badges of fraud and deceit committed by individual respondents" 47 such as the fact that Morning Star
had no assets,48 but the two corporations also "controlled and managed by the individual respondents were doing relatively well [at]
the time . . . Morning Star was incurring huge losses[.]" 49 Moreover, a new travel agency called Morning Star Tour Planners, Inc. now
operates at the Morning Stars former principal place of business in Pedro Gil, Manila, with the children of individual respondents as
its stockholders, directors, and officers.50

Respondents counter with the general rule clothing corporations with personality separate and distinct from their officers and
stockholders.51 They submit that "[m]ere sweeping allegations that officers acted in bad faith because it incurred obligations it cannot
pay will not hold any water."52 Respondents argue that Pioneer failed to prove bad faith, relying only on Atty. Tagguegs testimony,
but "Mr. Taggueg admitted that his knowledge about the defendant Morning Star was merely based on his assumptions and his
examination of the [Securities and Exchange Commission] documents." 53

The issues for resolution are:

First, whether this case involves an exception to the general rule that petitions for review are limited to questions of law; and

Second, whether the doctrine of piercing the corporate veil applies to hold the individual respondents solidarily liable with
respondent Morning Star Travel and Tours, Inc. to pay the award in favor of petitioner Pioneer Insurance & Surety Corporation.

Only questions of law may be raised in a petition for review. 54 Factual findings of the Court of Appeals are generally "final and
conclusive, and cannot be reviewed on appeal by [this court], provided they are borne out by the record or based on substantial
evidence."55

Issues such as whether the separate and distinct personality of a corporation was used for fraudulent ends, or whether the evidence
warrants a piercing of the corporate veil, involve questions of fact. 56

Jurisprudence established exceptions from the general rule against a factual review by this court. These exceptions include cases
when the judgment appears to be based on a "patent misappreciation of facts." 57

Petitioner invokes this exception in alleging that "the conflicting findings and conclusions between the Court of Appeals and the trial
court insofar as the solidary liability of respondents to pay petitioner and the misapprehensions of facts by the Court of Appeals
constrains petitioner to raise both questions of fact and law in the Petition." 58

In ruling against the solidary liability of the individual respondents with respondent Morning Star, the Court of Appeals discussed that
"the trial court merely stated in the dispositive portion thereof that Defendants- Appellants are ordered to pay Plaintiff-Appellee
jointly and severally the judgment award without discussing in the body of the decision the reason for such conclusion." 59

The Court of Appeals then enumerated the exceptional circumstances warranting solidary liabilities by corporate agents based on
jurisprudence, and found none to be present in this case.60
We affirm the Court of Appeals.

II

The law vests corporations with a separate and distinct personality from those that represent these corporations. 61

The corporate legal structure draws its "economic superiority" 62 from key features such as a separate corporate personality. Unlike
other business associations such as partnerships, the corporate framework encourages investment by allowing even small capital
contributors to be part of a big business endeavor made possible by the aggregation of their capital funds. 63 The consequent limited
liability feature, since corporate assets will answer for corporate debts, also proves attractive for investors. However, this legal
structure should not be abused.

A separate corporate personality shields corporate officers acting in good faith and within their scope of authority from personal
liability except for situations enumerated by law and jurisprudence, 64 thus:

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach,
as a rule, only when

1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs,
or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;

2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto;

3. He agrees to hold himself personally and solidarily liable with the corporation; or

4. He is made, by a specific provision of law, to personally answer for his corporate action. 65

The first exception comes from Section 31 of the Corporation Code:

SECTION 31. Liability of Directors, Trustees or Officers.

Directors or trustees who wilfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty
of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons. (Emphasis supplied)

Petitioner imputes gross negligence and bad faith on the part of the individual respondents for incurring the huge indebtedness to
International Air Transport Association.66

Bad faith "imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, not simply bad judgment or
negligence."67 "[I]t means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud." 68

The trial court gave weight to its finding that respondent Morning Star still availed itself of loans and/or obligations with International
Air Transport Association despite its financial standing of operating at a loss:

Based on the plaintiffs examination of the financial statements submitted by the defendant Morning Star with the Securities and
Exchange Commission (SEC) for the years 2000 and 2001 with comparative figures for the years ending 1998, 1999 and 2000, herein
defendant corporation has been accumulating losses as early as 1998 continuing to 1999 and 2000 resulting to a deficit of Php26,
168,176.80 as of December 31, 2000. It was also shown that for the prior years of 1998 and 1999, defendant Morning Star incurred a
deficit of Php3,910,763.00 as of December 31, 1998 and Php2,841,626.00 as of December 31, 1999 and in the Balance Sheet, it
indicated therein the defendants total assets of Php150,579,421.00 while the total liabilities amounted to Php160,222,966.00,
thereby making the defendant Morning Star insolvent. Despite the fact that defendant Morning Star was already incurring losses
as early as 1998 up to the year 2000, the latter still contractedloans and/or obligations with IATA sometime in 2002 and which
indebtedness ballooned to the huge amount of Php109,728,051.00 and US$496,403.21 as of April 30, 2003, which obviously it
could not pay considering its financial standing.
Further investigation by the plaintiff shows that it could not find any assets or properties in the name of defendant Morning Star
because even the land and the building where it held office was registered in the name of "Morning Star Management Ventures
Corporation", as evidenced by the certified true copies of the transfer certificates of title (TCT) nos. 192243 and 192244 in the name
of Morning Star Management Ventures Corporation and unlike the defendant Morning Star, which has practically the same officers
and members of the Board, has only an asset of Php125,392,960.00 and liabilities of Php4,306,702[.]00 and an income deficit of
Php26,922,598.00 as of December 31, 2001. Similarly, the Pic []N Pac Mart, Inc., which has the same set of officers, said corporation
has shown a total assets of Php5,423,201.30 and liabilities/stockholders equity of Php5,423,201.30 but with a retained earnings of
Php194,412[.]74 as of December 31, 1999. Plaintiff contends that in such a case, defendant Morning Star has used the separate
and distinct corporate personality accorded to it under the Corporation Code to commit said fraudulent transaction of incurring
corporate debts and allow the herein individual defendants to escape personal liability and placing the assets beyond the reach of
the creditors.69 (Emphasis supplied, citations omitted)

On the other hand, the Court of Appeals ruled that the general rule on separate corporate personality and against personal liability
by corporate officers applies since petitioner failed to prove bad faith amounting to fraud by the corporate officers:

The mere fact that Morning Star has been incurring huge losses and that it has no assets at the time it contracted large financial
obligations to IATA, cannot be considered that its officers, Defendants-Appellants Estelita Co Wong, Benny H. Wong, Arsenio Chua,
Sonny Chua and Wong Yan Tak, acted in bad faith or such circumstance would amount to fraud, warranting personal and solidary
liability of its corporate officers. The same is also true with the fact that Morning Star Management Ventures Corporation and Pic N
Pac Mart, Inc., corporations having the same set of officers as Morning Star, were doing relatively well during the time that the
former incurred huge losses. Thus, only Morning Star should be held personally liable to Plaintiff- Appellee, and not its corporate
officers.70

Piercing the corporate veil in order to hold corporate officers personally liable for the corporations debts requires that "the bad faith
or wrongdoing of the director must be established clearly and convincingly [as] [b]ad faith is never presumed."71

III

Oria v. McMicking72 enumerates several badges of fraud. Petitioner argues the existence of the fourth to sixth badges: 73

1. The fact that the consideration of the conveyance is fictitious or is inadequate.

2. A transfer made by a debtor after suit has been begun and while it is pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed
financially.

6. The fact that the transfer is made between father and son, when there are present other of the above circumstances.

7. The failure of the vendee to take exclusive possession of all the property. 74 (Emphasis supplied)

Petitioner listed the following circumstances as constituting badges of fraud by the individual respondents:

Attention is drawn to the following badges of fraud by individual respondents to use the corporate fiction of respondent Morning
Star as a veil or cloak to insulate themselves from any liability to pay its indebtedness to [sic], to wit:

a. As members of the Board of Directors and at the same time, officers of respondent Morning Star, individual respondents
Estelita Co Wong (President and Member of the Board), Benny H. Wong (Chairman of the Board), Arsenio Chua (Member of
the Board), Sonny Chua (Secretary and Member of the Board) and Wong Yan Tak (Treasurer and Member of the Board)
undoubtedly exercised complete control and direction of the financial management and business operations of respondent
Morning Star;
 b. Similarly, the individual respondents are likewise in direct control of the management of two other corporations, Morning
Star Management Ventures Corp. and Pic N Pac Mart[,] Inc., being the shareholders, members of the Board and officers of
the said corporations, as evidenced by the General Information Sheets (GIS) of the said corporations filed with the Securities
and Exchange Commission (Exhibits "O" to "O-4" and "P" to "P-3" of petitioners Formal Offer of Evidence dated August 15,
2007);

c. Respondent Morning Star has no assets or property in its name that may be levied upon for attachment and execution to
secure and to satisfy any judgment debt, as in fact the land and building where its offices can be found and situated at J.
Bocobo Street cor. Pedro Gil Street, Ermita Manila is not even registered in its name but in the name of another corporation
"Morning Star Management Ventures Corporation" which is similarly owned and controlled by the individual respondents
(Exhibits "S" to "S-2" and "T" to "T-2" of petitioners Formal Offer of Evidence dated August 15, 2007);

d. As early as 1998, respondent Morning Star had already been incurring huge losses which clearly show the inability to pay
its obligations to IATA but the individual respondents contracted its huge financial obligations from IATA knowing fully well
that respondent Morning Star will be unable to pay such obligations;

e. Strangely, on the other hand, Pic N Pac Mart, Inc. and Morning Star Management Ventures Corp., the other two (2)
corporations similarly controlled and managed by the individual respondents, were doing relatively well during the time that
respondent Morning Star was incurring huge losses (Exhibits "U" to "U-7" and "V" to "V-9" of petitioners Formal Offer of
Evidence dated August 15, 2007);

f. Individual respondents allowed the indebtedness of respondent Morning Star to balloon to a staggering amount of
Php100,479,171.59 and US$457,834.14[.]75 (Citations omitted)

This court finds that petitioner was not able to clearly and convincingly establish bad faith by the individual respondents, nor
substantiate the alleged badges of fraud.1avvphi1

IV

First, petitioner failed to substantiate the fourth badge of fraud on "[e]vidence of large indebtedness or complete insolvency." 76

In 1993, International Air Transport Association appointed respondent Morning Star as an accredited travel agent with the privilege
of getting air tickets on credit, and they entered a Passenger Sales Agency Agreement. 77 None of the parties made allegations on the
financial status or business standing of respondent Morning Star during the first five years from its accreditation in 1993.

Petitioner relies on Atty. Tagguegs testimony regarding respondent Morning Stars financial statements with the Securities and
Exchange Commission.

Atty. Taggueg testified on the comparative figures for the years ended 1998, 1999, and 2000 and how the company was
"accumulating losses as early as 1998 continuing to 1999 and 2000 resulting to a deficit of Php26,168,1768.00 [sic] as of December
31, 2000 . . . deficit of Php3,910,763.00 as of December 31, 1998 and another deficit of Php2,841,626.00 as of December 31,
1999[.]"78 He testified that as of December 31, 2000, respondent Morning Star had total assets of Php150,579,421.00 and total
liabilities of Php160,222,966.00.79

Atty. Taggueg then testified that despite this insolvency, "Morning Star Travel still contracted loans and/or obligations from the IATA
sometime in December 2002 which indebtedness with IATA ballooned to the huge amount of Php109,728,051.00 and US$496,403.21
as of April 30, 2003[.]"80

Petitioner did not present Securities and Exchange Commission documents on respondent Morning Stars total assets as of
December 2002.1a\^/phi1 It did not present respondent Morning Stars financial statements for December 2002, the year it incurred
obligations from International Air Transport Association. 81

The financial statements for years 1998 to 1999 and 1999 to 2000 testified on by Atty. Taggueg are not representative of the financial
status of respondent Morning Stars business. Year 2000 reflected total assets of P150,579,421.00 and total liabilities of
P160,222,966.00.82 On the other hand, year 1999 showed total assets of P134,361,353.00 and total liabilities of
P120,678,345.00.83 Businesses may earn profits in some years and operate at a loss in others as a result of changing economic
conditions. These two financial statements do not show that respondent Morning Star was operating at a loss in 2002. Deficits in the
years 1998 to 2000 do not necessarily mean deficits in 2002. It is unclear if these figures included previous obligations to
International Air Transport Association, or whether some or all of such obligations were paid in subsequent years as an indication of
respondent Morning Stars credit history.

In any event, it is in the nature of businesses to take risks when making business judgments, and this includes taking loans and
incurring liabilities.

Atty. Tagguegs association with respondent Morning Star, or this case, is also unclear. Respondents submit in their memorandum
that "[i]n his testimony[,] Mr. Taggueg admitted that his knowledge about . . . Morning Star was merely based on his assumptions and
his examination of the [Securities and Exchange Commission] documents." 84

Petitioners reliance on Atty. Tagguegs testimony on respondentMorning Stars financial statements for previous years fails to clearly
and convincingly establish bad faith by the individual respondents.

Second, petitioner failed to substantiate the fifth badge of fraud on the "transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed financially." 85

Mere allegations that Morning Star Management Ventures Corporation and Pic N Pac Mart, Inc. "were doing relatively well during
the time that respondent Morning Star was incurring huge losses" 86 do not establish bad faith or fraud by the individual respondents.
Such allegations alone do not prove that the individual respondents were transferring respondent Morning Stars properties in fraud
of its creditors.

Neither does the allegation that Morning Star Management Ventures Corporation has title over the land and building where the
offices can be found establish bad faith or fraud. Petitioner did not show that this title was originally in respondent Morning Stars
name and was later transferred to respondent Morning Star.

This court has held that the "existence of interlocking directors, corporate officers and shareholders is not enough justification to
pierce the veil of corporate fiction in the absence of fraud or other public policy considerations." 87

VI

Third, petitioner also failed to substantiate the sixth badge of fraud that "the transfer is made between father and son, when there
are present other of the above circumstances." 88

Petitioner submits that:

It would be the height of injustice to allow individual respondents to get away with their gross negligence to the prejudice of
petitioner, especially since there is now another travel agency in the name of Morning Star Tour Planners, Inc. operating at the
respondent Morning Stars former principal place of business at 1600 J. Bocobo St. corner Pedro Gil Malate, Manila. . . .

....

Curiously, among the stockholders, directors and officers of Morning Star Tour Planners, Inc., are the following: Belinda Wong, Billy
Wong, Barbara C. Wong and Benny C. Wong, Jr., who all have the same address as individual respondents Estelita Co Wong and
Benny H. Wong.

Given, these vital pieces of information, it is at once indubitable that respondents have established another travel agency in the
name of their children in order to escape their solidary liability to petitioner! 89 (Citation omitted)

This court has held that "compliance with the recognized modes of acquisition of jurisdiction cannot be dispensed with even in
piercing the veil of corporate fiction[.]"90 Morning Star Tour Planners, Inc. is not a party in this case. It would offend due process
rights if what petitioner ultimately seeks in its allegation is to hold Morning Star Tour Planners, Inc. responsible for respondent
Morning Stars liability.
In any event, petitioner failed to plead and prove the circumstances that would pass the following control test for the operation of
the alter ego doctrine:

(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;

(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory
or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal right; and

(3) The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss complained of. 91

The records do not show that the individual respondents controlled Morning Star Tour Planners, Inc. and that such control was used
to commit fraud against petitioner. Neither does this suspicion support petitioners position that the individual respondents were in
bad faith or gross negligence in directing the affairs of respondent Morning Star.

Finally, pursuant to this court's pronouncement in Nacar v. Gallery Frames,92 the interest rate should be 6% per annum on the
amount owing to petitioner representing respondent Morning Star's unpaid air transport tickets availed on credit.

WHEREFORE, the Petition is DENIED. The Court of Appeals Decision is AFFIRMED with MODIFICATION in that legal interest is 6% per
annum from September 23, 2003 until fully paid.

SO ORDERED.

MARVIC M.V.F. LEONEN

Associate Justice

G.R. No. 198967, March 07, 2016

JOSE EMMANUEL P. GUILLERMO, Petitioner, v. CRISANTO P. USON, Respondent.

 DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the Court of
Appeals Decision1 dated June 8, 2011 and Resolution2 dated October 7, 2011 in CA G.R. SP No. 115485, which affirmed in toto the
decision of the National Labor Relations Commission (NLRC).

The facts of the case follow.

On March 11, 1996, respondent Crisanto P. Uson (Uson) began his employment with Royal Class Venture Phils., Inc. (Royal Class
Venture) as an accounting clerk.3 Eventually, he was promoted to the position of accounting supervisor, with a salary of Php13,000.00
a month, until he was allegedly dismissed from employment on December 20, 2000. 4

On March 2, 2001, Uson filed with the Sub-Regional Arbitration . Branch No. 1, Dagupan City, of the NLRC a Complaint for Illegal
Dismissal, with prayers for backwages, reinstatement, salaries and 13 thmonth pay, moral and exemplary damages and attorney's fees
against Royal Class Venture.5

Royal Class Venture did not make an appearance in the case despite its receipt of summons. 6

On May 15, 2001, Uson filed his Position Paper7 as complainant.

On October 22, 2001, Labor Arbiter Jose G. De Vera rendered a Decision 8 in favor of the complainant Uson and ordering therein
respondent Royal Class Venture to reinstate him to his former position and pay his backwages, 13 th month pay as well as moral and
exemplary damages and attorney's fees.

Royal Class Venture, as the losing party, did not file an appeal of the decision. 9 Consequently, upon Uson's motion, a Writ of
Execution10 dated February 15, 2002 was issued to implement the Labor Arbiter's decision.

On May 17, 2002, an Alias Writ of Execution 11 was issued. But with the judgment still unsatisfied, a Second Alias Writ of
Execution12 was issued on September 11, 2002.

Again, it was reported in the Sheriff's Return that the Second Alias Writ of Execution dated September 11, 2002 remained
"unsatisfied." Thus, on November 14, 2002, Uson filed a Motion for Alias Writ of Execution and to Hold Directors and Officers of
Respondent Liable for Satisfaction of the Decision.13 The motion quoted from a portion of the Sheriffs Return, which states:
chanRoblesvirtualLawlibrary

On September 12, 2002, the undersigned proceeded at the stated present business office address of the respondent which is at
Minien East, Sta. Barbara, Pangasinan to serve the writ of execution. Upon arrival, I found out that the establishment erected thereat
is not [in] the respondent's name but JOEL and SONS CORPORATION, a family corporation owned by the Guillermos of which, Jose
Emmanuel F. Guillermo the General Manager of the respondent, is one of the stockholders who received the writ using his nickname
"Joey," [and who] concealed his real identity and pretended that he [was] the brother of Jose, which [was] contrary to the statement
of the guard-on-duty that Jose and Joey [were] one and the same person. The former also informed the undersigned that the
respondent's (sic) corporation has been dissolved.

On the succeeding day, as per [advice] by the [complainant's] counsel that the respondent has an account at the Bank of Philippine
Islands Magsaysay Branch, A.B. Fernandez Ave., Dagupan City, the undersigned immediately served a notice of garnishment, thus,
the bank replied on the same day stating that the respondent [does] not have an account with the
branch.14ChanRoblesVirtualawlibrary
On December 26, 2002, Labor Arbiter Irenarco R. Rimando issued an Order 15 granting the motion filed by Uson. The order held that
officers of a corporation are jointly and severally liable for the obligations of the corporation to the employees and there is no denial
of due process in holding them so even if the said officers were not parties to the case when the judgment in favor of the employees
was rendered.16 Thus, the Labor Arbiter pierced the veil of corporate fiction of Royal Class Venture and held herein petitioner Jose
Emmanuel Guillermo (Guillermo), in his personal capacity, jointly and severally liable with the corporation for the enforcement of the
claims of Uson.17

Guillermo filed, by way of special appearance, a Motion for Reconsideration/To Set Aside the Order of December 26, 2002. 18 The
same, however, was not granted as, this time, in an Order dated November 24, 2003, Labor Arbiter Nia Fe S. Lazaga-Rafols sustained
the findings of the labor arbiters before her and even castigated Guillenno for his unexplained absence in the prior proceedings
despite notice, effectively putting responsibility on Guillermo for the case's outcome against him. 19

On January 5, 2004, Guillermo filed a Motion for Reconsideration of the above Order, 20 but the same was promptly denied by the
Labor Arbiter in an Order dated January 7, 2004. 21

On January 26, 2004, Uson filed a Motion for Alias Writ of Execution, 22 to which Guillermo filed a Comment and Opposition on April
2, 2004.23

On May 18, 2004, the Labor Arbiter issued an Order 24 granting Uson's Motion for the Issuance of an Alias Writ of Execution and
rejecting Guillermo's arguments posed in his Comment and Opposition.

Guillermo elevated the matter to the NLRC by filing a Memorandum of Appeal with Prayer for a (Writ of) Preliminary Injunction dated
June 10, 2004.25cralawred

In a Decision26 dated May 11, 2010, the NLRC dismissed Guillermo's appeal and denied his prayers for injunction.

On August 20, 2010, Guillermo filed a Petition for Certiorari27 before the Court of Appeals, assailing the NLRC decision.

On June 8, 2011, the Court of Appeals rendered its assailed Decision 28 which denied Guillermo's petition and upheld all the findings
of the NLRC.

The appellate court found that summons was in fact served on Guillermo as President and General Manager of Royal Class Venture,
which was how the Labor Arbiter acquired jurisdiction over the company. 29 But Guillermo subsequently refused to receive all notices
of hearings and conferences as well as the order to file Royal Class Venture's position paper. 30 Then, it was learned during execution
that Royal Class Venture had been dissolved.31 However, the Court of Appeals held that although the judgment had become final and
executory, it may be modified or altered "as when its execution becomes impossible or unjust." 32 It also noted that the motion to
hold officers and directors like Guillermo personally liable, as well as the notices to hear the same, was sent to them by registered
mail, but no pleadings were submitted and no appearances were made by anyone of them during the said motion's
pendency.33 Thus, the court held Guillermo liable, citing jurisprudence that hold the president of the corporation liable for the latter's
obligation to illegally dismissed employees. 34Finally, the court dismissed Guillermo's allegation that the case is an intra-corporate
controversy, stating that jurisdiction is determined by the allegations in the complaint and the character of the relief sought. 35

From the above decision of the appellate court, Guillermo filed a Motion for Reconsideration 36 but the same was again denied by the
said court in the assailed Resolution37 dated October 7, 2011.

Hence, the instant petition.

Guillermo asserts that he was impleaded in the case only more than a year after its Decision had become final and executory, an act
which he claims to be unsupported in law and jurisprudence. 38 He contends that the decision had become final, immutable and
unalterable and that any amendment thereto is null and void. 39 Guillermo assails the so-called "piercing the veil" of corporate fiction
which allegedly discriminated against him when he alone was belatedly impleaded despite the existence of other directors and
officers in Royal Class Venture.40 He also claims that the Labor Arbiter has no jurisdiction because the case is one of an intra-
corporate controversy, with the complainant Uson also claiming to be a stockholder and director of Royal Class Venture. 41

In his Comment,42 Uson did not introduce any new arguments but merely cited verbatim the disquisitions of the Court of Appeals to
counter Guillermo's assertions in his petition.

To resolve the case, the Court must confront the issue of whether an officer of a corporation may be included as judgment obligor in
a labor case for the first time only after the decision of the Labor Arbiter had become final and executory, and whether the twin
doctrines of "piercing the veil of corporate fiction" and personal liability of company officers in labor cases apply.

The petition is denied.

In the earlier labor cases of Claparols v. Court of Industrial Relations43 and A.C. Ransom Labor Union-CCLU v. NLRC,44 persons who
were not originally impleaded in the case were, even during execution, held to be solidarity liable with the employer corporation for
the latter's unpaid obligations to complainant-employees. These included a newly-formed corporation which was considered a mere
conduit or alter ego of the originally impleaded corporation, and/or the officers or stockholders of the latter corporation. 45 Liability
attached, especially to the responsible officers, even after final judgment and during execution, when there was a failure to collect
from the employer corporation the judgment debt awarded to its workers. 46 In Naguiat v. NLRC,47 the president of the corporation
was found, for the first time on appeal, to be solidarily liable to the dismissed employees. Then, in Reynoso v. Court of Appeals,48 the
veil of corporate fiction was pierced at the stage of execution, against a corporation not previously impleaded, when it was
established that such corporation had dominant control of the original party corporation, which was a smaller company, in such a
manner that the latter's closure was done by the former in order to defraud its creditors, including a former worker.

The rulings of this Court in A.C. Ransom, Naguiat, and Reynoso, however, have since been tempered, at least in the aspects of the
lifting of the corporate veil and the assignment of personal liability to directors, trustees and officers in labor cases. The subsequent
cases of McLeod v. NLRC,49Spouses Santos v. NLRC50 and Carag v. NLRC,51 have all established, save for certain exceptions, the primacy
of Section 3152 of the Corporation Code in the matter of assigning such liability for a corporation's debts, including judgment
obligations in labor cases. According to these cases, a corporation is still an artificial being invested by law with a personality separate
and distinct from that of its stockholders and from that of other corporations to which it may be connected. 53 It is not in every
instance of inability to collect from a corporation that the veil of corporate fiction is pierced, and the responsible officials are made
liable. Personal liability attaches only when, as enumerated by the said Section 31 of the Corporation Code, there is a wilfull and
knowing assent to patently unlawful acts of the corporation, there is gross negligence or bad faith in directing the affairs of the
corporation, or there is a conflict of interest resulting in damages to the corporation. 54 Further, in another labor case, Pantranco
Employees Association (PEA-PTGWO), et al. v. NLRC, et al.,55 the doctrine of piercing the corporate veil is held to apply only in three
(3) basic areas, namely: ( 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; (2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or
(3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable,
such corporate officer cannot be made personally liable for corporate liabilities. 56 Indeed, in Reahs Corporation v. NLRC,57 the
conferment of liability on officers for a corporation's obligations to labor is held to be an exception to the general doctrine of
separate personality of a corporation.

It also bears emphasis that in cases where personal liability attaches, not even all officers are made accountable. Rather, only the
"responsible officer," i.e., the person directly responsible for and who "acted in bad faith" in committing the illegal dismissal or any
act violative of the Labor Code, is held solidarily liable, in cases wherein the corporate veil is pierced. 58 In other instances, such as
cases of so-called corporate tort of a close corporation, it is the person "actively engaged" in the management of the corporation
who is held liable.59 In the absence of a clearly identifiable officer(s) directly responsible for the legal infraction, the Court considers
the president of the corporation as such officer. 60

The common thread running among the aforementioned cases, however, is that the veil of corporate fiction can be pierced, and
responsible corporate directors and officers or even a separate but related corporation, may be impleaded and held answerable
solidarily in a labor case, even after final judgment and on execution, so long as it is established that such persons have deliberately
used the corporate vehicle to unjustly evade the judgment obligation, or have resorted to fraud, bad faith or malice in doing so.
When the shield of a separate corporate identity is used to commit wrongdoing and opprobriously elude responsibility, the courts
and the legal authorities in a labor case have not hesitated to step in and shatter the said shield and deny the usual protections to
the offending party, even after final judgment. The key element is the presence of fraud, malice or bad faith. Bad faith, in this
instance, does not connote bad judgment or negligence but imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud. 61

As the foregoing implies, there is no hard and fast rule on when corporate fiction may be disregarded; instead, each case must be
evaluated according to its peculiar circumstances.62 For the case at bar, applying the above criteria, a finding of personal and solidary
liability against a corporate officer like Guillermo must be rooted on a satisfactory showing of fraud, bad

faith or malice, or the presence of any of the justifications for disregarding the corporate fiction. As stated in McLeod,63 bad faith is a
question of fact and is evidentiary, so that the records must first bear evidence of malice before a finding of such may be made.

It is our finding that such evidence exists in the record. Like the A. C. Ransom, and Naguiat cases, the case at bar involves an apparent
family corporation. As in those two cases, the records of the present case bear allegations and evidence that Guillermo, the officer
being held liable, is the person responsible in the actual running of the company and for the malicious and illegal dismissal of the
complainant; he, likewise, was shown to have a role in dissolving the original obligor company in an obvious "scheme to avoid
liability" which jurisprudence has always looked upon with a suspicious eye in order to protect the rights of labor. 64

Part of the evidence on record is the second page of the verified Position Paper of complainant (herein respondent) Crisanto P. Uson,
where it was clearly alleged that Uson was "illegally dismissed by the President/General Manager of respondent corporation (herein
petitioner) Jose Emmanuel P. Guillermo when Uson exposed the practice of the said President/General Manager of dictating and
undervaluing the shares of stock of the corporation." 65 The statement is proof that Guillermo was the responsible officer in charge of
running the company as well as the one who dismissed Uson from employment. As this sworn allegation is uncontroverted - as
neither the company nor Guillermo appeared before the Labor Arbiter despite the service of summons and notices - such stands as a
fact of the case, and now functions as clear evidence of Guillermo's bad faith in his dismissal of Uson from employment, with the
motive apparently being anger at the latter's reporting of unlawful activities.

Then, it is also clearly reflected in the records that it was Guillermo himself, as President and General Manager of the company, who
received the summons to the case, and who also subsequently and without justifiable cause refused to receive all notices and orders
of the Labor Arbiter that followed.66This makes Guillermo responsible for his and his company's failure to participate in the entire
proceedings before the said office. The fact is clearly narrated in the Decision and Orders of the Labor Arbiter, Uson's Motions for the
Issuance of Alias Writs of Execution, as well as in the Decision of the NLRC and the assailed Decision of the Court of Appeals, 67 which
Guillermo did not dispute in any of his belated motions or pleadings, including in his petition for certiorari before the Court of
Appeals and even in the petition currently before this Court. 68 Thus, again, the same now stands as a finding of fact of the said lower
tribunals which binds this Court and which it has no power to alter or revisit. 69 Guillermo's knowledge of the case's filing and
existence and his unexplained refusal to participate in it as the responsible official of his company, again is an indicia of his bad faith
and malicious intent to evade the judgment of the labor tribunals.

Finally, the records likewise bear that Guillermo dissolved Royal Class Venture and helped incorporate a new firm, located in the
same address as the former, wherein he is again a stockl1older. This is borne by the Sherif11s Return which reported: that at Royal
Class Venture's business address at Minien East, Sta. Barbara, Pangasinan, there is a new establishment named "Joel and Sons
Corporation," a family corporation owned by the Guillermos in which Jose Emmanuel F. Guillermo is again one of the stockholders;
that Guillermo received the writ of execution but used the nickname "Joey" and denied being Jose Emmanuel F. Guillermo and,
instead, pretended to be Jose's brother; that the guard on duty confirmed that Jose and Joey are one and the same person; and that
the respondent corporation Royal Class Venture had been dissolved. 70 Again, the facts contained in the Sheriffs Return were not
disputed nor controverted by Guillermo, either in the hearings of Uson's Motions for Issuance of Alias Writs of Execution, in
subsequent motions or pleadings, or even in the petition before this Court. Essentially, then, the facts form part of the records and
now stand as further proof of Guillermo's bad faith and malicious intent to evade the judgment obligation.

The foregoing clearly indicate a pattern or scheme to avoid the obligations to Uson and frustrate the execution of the judgment
award, which this Court, in the interest of justice, will not countenance.

As for Guillermo's assertion that the case is an intra-corporate controversy, the Court sustains the finding of the appellate court that
the nature of an action and the jurisdiction of a tribunal are determined by the allegations of the complaint at the time of its filing,
irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. 71 Although Uson is
also a stockholder and director of Royal Class Venture, it is settled in jurisprudence that not all conflicts between a stockholder and
the corporation are intra-corporate; an examination of the complaint must be made on whether the complainant is involved in his
capacity as a stockholder or director, or as an employee. 72 If the latter is found and the dispute does not meet the test of what
qualities as an intra-corporate controversy, then the case is a labor case cognizable by the NLRC and is not within the jurisdiction of
any other tribunal.73 In the case at bar, Uson's allegation was that he was maliciously and illegally dismissed as an Accounting
Supervisor by Guillermo, the Company President and General Manager, an allegation that was not even disputed by the latter nor by
Royal Class Venture. It raised no intra-corporate relationship issues between him and the corporation or Guillermo; neither did it
raise any issue regarding the regulation of the corporation. As correctly found by the appellate court, Uson's complaint and redress
sought were centered alone on his dismissal as an employee, and not upon any other relationship he had with the company or with
Guillermo. Thus, the matter is clearly a labor dispute cognizable by the labor tribunals.chanrobleslaw

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated June 8, 2011 and Resolution dated October 7, 2011 in CA
G.R. SP No. 115485 are AFFIRMED.

SO ORDERED.