Вы находитесь на странице: 1из 106

[G.R. No. L-32409. February 27, 1971.

] Revenue Code, in relation to all other pertinent provisions thereof, respondents, thru the Solicitor General, filed an answer to the petition.
particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue After hearing, the court, presided over by respondent Judge, issued on
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, Examiner Rodolfo de Leon, one of herein respondents, to make and file July 29, 1970, an order dismissing the petition for dissolution of the
v. HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as the application for search warrant which was attached to the letter. search warrant. In the meantime, or on April 16, 1970, the Bureau of
Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE Internal Revenue made tax assessments on petitioner corporation in
LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, In the afternoon of the following day, February 25, 1970, respondent the total sum of P2,594,729.97, partly, if not entirely, based on the
JOHN DOE, JOHN DOE, JOHN DOE, and JOHN DOE, Respondents. De Leon and his witness, respondent Arturo Logronio, went to the Court documents thus seized. Petitioners came to this Court.
of First Instance of Rizal. They brought with them the following papers:
San Juan, Africa, Gonzales & San Agustin, for Petitioners. respondent Veras aforesaid letter-request; an application for search The petition should be granted for the following reasons:chanrob1es
warrant already filled up but still unsigned by respondent De Leon; an virtual 1aw library
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V affidavit of respondent Logronio subscribed before respondent De
. Bautista, Solicitor Pedro A. Ramirez and Special Attorney Jaime M. Leon; a deposition in printed form of respondent Logronio already 1. Respondent Judge failed to personally examine the complainant and
Maza for Respondents. accomplished and signed by him but not yet subscribed; and a search his witness.
warrant already accomplished but still unsigned by respondent Judge.
The pertinent provisions of the Constitution of the Philippines and of
DECISION At that time respondent Judge was hearing a certain case; so, by means the Revised Rules of Court are:jgc:chanrobles.com.ph
of a note, he instructed his Deputy Clerk of Court to take the
depositions of respondents De Leon and Logronio. After the session had "(3) The right of the people to be secure in their persons, houses,
VILLAMOR, J.: adjourned, respondent Judge was informed that the depositions had papers and effects against unreasonable searches and seizures shall not
already been taken. The stenographer, upon request of respondent be violated, and no warrants shall issue but upon probable cause, to be
Judge, read to him her stenographic notes; and thereafter, respondent determined by the judge after examination under oath or affirmation of
This is an original action of certiorari, prohibition and mandamus, with Judge asked respondent Logronio to take the oath and warned him that the complainant and the witnesses he may produce, and particularly
prayer for a writ of preliminary mandatory and prohibitory injunction. if his deposition was found to be false and without legal basis, he could describing the place to be searched, and the persons or things to be
In their petition Bache & Co. (Phil.), Inc., a corporation duly organized be charged for perjury. Respondent Judge signed respondent de Leons seized." (Art. III, Sec. 1, Constitution.)
and existing under the laws of the Philippines, and its President, application for search warrant and respondent Logronios deposition,
Frederick E. Seggerman, pray this Court to declare null and void Search Search Warrant No. 2-M-70 was then sign by respondent Judge and "SEC. 3. Requisites for issuing search warrant. A search warrant shall
Warrant No. 2-M-70 issued by respondent Judge on February 25, 1970; accordingly issued. not issue but upon probable cause in connection with one specific
to order respondents to desist from enforcing the same and/or keeping offense to be determined by the judge or justice of the peace after
the documents, papers and effects seized by virtue thereof, as well as Three days later, or on February 28, 1970, which was a Saturday, the examination under oath or affirmation of the complainant and the
from enforcing the tax assessments on petitioner corporation alleged BIR agents served the search warrant petitioners at the offices of witnesses he may produce, and particularly describing the place to be
by petitioners to have been made on the basis of the said documents, petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners searched and the persons or things to be seized.
papers and effects, and to order the return of the latter to petitioners. lawyers protested the search on the ground that no formal complaint or
We gave due course to the petition but did not issue the writ of transcript of testimony was attached to the warrant. The agents "No search warrant shall issue for more than one specific offense.
preliminary injunction prayed for therein. nevertheless proceeded with their search which yielded six boxes of
documents. "SEC. 4. Examination of the applicant. The judge or justice of the
The pertinent facts of this case, as gathered from record, are as peace must, before issuing the warrant, personally examine on oath or
follows:chanrob1es virtual 1aw library On March 3, 1970, petitioners filed a petition with the Court of First affirmation the complainant and any witnesses he may produce and
Instance of Rizal praying that the search warrant be quashed, dissolved take their depositions in writing, and attach them to the record, in
On February 24, 1970, respondent Misael P. Vera, Commissioner of or recalled, that preliminary prohibitory and mandatory writs of addition to any affidavits presented to him." (Rule 126, Revised Rules of
Internal Revenue, wrote a letter addressed to respondent Judge injunction be issued, that the search warrant be declared null and void, Court.)
Vivencio M. Ruiz requesting the issuance of a search warrant against and that the respondents be ordered to pay petitioners, jointly and
petitioners for violation of Section 46(a) of the National Internal severally, damages and attorneys fees. On March 18, 1970, the The examination of the complainant and the witnesses he may
produce, required by Art. III, Sec. 1, par. 3, of the Constitution, and by After respondent Judge was through with the hearing, Deputy Clerk
Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be Gonzales, stenographer Gaspar, complainant De Leon and witness
conducted by the judge himself and not by others. The phrase "which "MR. LAUREL. . . . The reason why we are in favor of this amendment is Logronio went to respondent Judges chamber and informed the Judge
shall be determined by the judge after examination under oath or because we are incorporating in our constitution something of a that they had finished the depositions. Respondent Judge then
affirmation of the complainant and the witnesses he may produce," fundamental character. Now, before a judge could issue a search requested the stenographer to read to him her stenographic notes.
appearing in the said constitutional provision, was introduced by warrant, he must be under the obligation to examine personally under Special Deputy Clerk Gonzales testified as
Delegate Francisco as an amendment to the draft submitted by the Sub- oath the complainant and if he has any witness, the witnesses that he follows:jgc:chanrobles.com.ph
Committee of Seven. The following discussion in the Constitutional may produce . . ."cralaw virtua1aw library
Convention (Laurel, Proceedings of the Philippine Constitutional "A And after finishing reading the stenographic notes, the Honorable
Convention, Vol. III, pp. 755-757) is enlightening:jgc:chanrobles.com.ph The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is Judge requested or instructed them, requested Mr. Logronio to raise his
more emphatic and candid, for it requires the judge, before issuing a hand and warned him if his deposition will be found to be false and
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano. search warrant, to "personally examine on oath or affirmation the without legal basis, he can be charged criminally for perjury. The
complainant and any witnesses he may produce . . ."cralaw virtua1aw Honorable Court told Mr. Logronio whether he affirms the facts
En los casos de una necesidad de actuar inmediatamente para que no library contained in his deposition and the affidavit executed before Mr.
se frusten los fines de la justicia mediante el registro inmediato y la Rodolfo de Leon.
incautacion del cuerpo del delito, no cree Su Seoria que causaria cierta Personal examination by the judge of the complainant and his
demora el procedimiento apuntado en su enmienda en tal forma que witnesses is necessary to enable him to determine the existence or non- "Q And thereafter?
podria frustrar los fines de la justicia o si Su Seoria encuentra un existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
remedio para esto casos con el fin de compaginar los fines de la justicia Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of "A And thereafter, he signed the deposition of Mr. Logronio.
con los derechos del individuo en su persona, bienes etcetera, etcetera. which prohibit the issuance of warrants except "upon probable cause."
The determination of whether or not a probable cause exists calls for "Q Who is this he?
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su the exercise of judgment after a judicial appraisal of facts and should
Seoria pregunta por la siguiente razon: el que solicita un mandamiento not be allowed to be delegated in the absence of any rule to the "A The Honorable Judge.
de registro tiene que hacerlo por escrito y ese escrito no aparecer en la contrary.
Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o "Q The deposition or the affidavit?
peticion de sucuestro. Esa persona que presenta el registro puede ser el In the case at bar, no personal examination at all was conducted by
mismo denunciante o alguna persona que solicita dicho mandamiento respondent Judge of the complainant (respondent De Leon) and his "A The affidavit, Your Honor."cralaw virtua1aw library
de registro. Ahora toda la enmienda en esos casos consiste en que haya witness (respondent Logronio). While it is true that the complainants
peticion de registro y el juez no se atendra solamente a sea peticion application for search warrant and the witness printed-form deposition Thereafter, respondent Judge signed the search warrant.
sino que el juez examiner a ese denunciante y si tiene testigos tambin were subscribed and sworn to before respondent Judge, the latter did
examiner a los testigos. not ask either of the two any question the answer to which could The participation of respondent Judge in the proceedings which led to
possibly be the basis for determining whether or not there was the issuance of Search Warrant No. 2-M-70 was thus limited to listening
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese probable cause against herein petitioners. Indeed, the participants to the stenographers readings of her notes, to a few words of warning
denunciante por escrito siempre requeriria algun tiempo?. seem to have attached so little significance to the matter that notes of against the commission of perjury, and to administering the oath to the
the proceedings before respondent Judge were not even taken. At this complainant and his witness. This cannot be consider a personal
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado juncture it may be well to recall the salient facts. The transcript of examination. If there was an examination at all of the complainant and
minimizamos en todo lo posible las vejaciones injustas con la stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) his witness, it was the one conducted by the Deputy Clerk of Court. But,
expedicion arbitraria de los mandamientos de registro. Creo que entre taken at the hearing of this case in the court below shows that per as stated, the Constitution and the rules require a personal examination
dos males debemos escoger. el menor. instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special by the judge. It was precisely on account of the intention of the
Deputy Clerk of Court, took the depositions of the complainant and his delegates to the Constitutional Convention to make it a duty of the
x x x witness, and that stenographic notes thereof were taken by Mrs. issuing judge to personally examine the complainant and his witnesses
Gaspar. At that time respondent Judge was at the sala hearing a case. that the question of how much time would be consumed by the judge
in examining them came up before the Convention, as can be seen from business, or gross value of output removed, or to pay the tax due Search Warrant No. 2-M-70 in this manner:jgc:chanrobles.com.ph
the record of the proceedings quoted above. The reading of the thereon.
stenographic notes to respondent Judge did not constitute sufficient "Unregistered and private books of accounts (ledgers, journals,
compliance with the constitutional mandate and the rule; for by that The search warrant in question was issued for at least four distinct columnars, receipts and disbursements books, customers ledgers);
manner respondent Judge did not have the opportunity to observe the offenses under the Tax Code. The first is the violation of Sec. 46(a), Sec. receipts for payments received; certificates of stocks and securities;
demeanor of the complainant and his witness, and to propound initial 72 and Sec. 73 (the filing of income tax returns), which are interrelated. contracts, promissory notes and deeds of sale; telex and coded
and follow-up questions which the judicial mind, on account of its The second is the violation of Sec. 53 (withholding of income taxes at messages; business communications, accounting and business records;
training, was in the best position to conceive. These were important in source). The third is the violation of Sec. 208 (unlawful pursuit of checks and check stubs; records of bank deposits and withdrawals; and
arriving at a sound inference on the all-important question of whether business or occupation); and the fourth is the violation of Sec. 209 records of foreign remittances, covering the years 1966 to 1970."cralaw
or not there was probable cause. (failure to make a return of receipts, sales, business or gross value of virtua1aw library
output actually removed or to pay the tax due thereon). Even in their
2. The search warrant was issued for more than one specific offense. classification the six above-mentioned provisions are embraced in two The description does not meet the requirement in Art III, Sec. 1, of the
different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of while Secs. 208 and 209 are under Title V (Privilege Tax on Business and the warrant should particularly describe the things to be seized.
the National Internal Revenue Code in relation to all other pertinent Occupation).
provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto
question is: Was the said search warrant issued "in connection with one Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June Concepcion, said:jgc:chanrobles.com.ph
specific offense," as required by Sec. 3, Rule 126? 19, 1967 (20 SCRA 383), is not applicable, because there the search
warrants were issued for "violation of Central Bank Laws, Internal "The grave violation of the Constitution made in the application for the
To arrive at the correct answer it is essential to examine closely the Revenue (Code) and Revised Penal Code;" whereas, here Search contested search warrants was compounded by the description therein
provisions of the Tax Code referred to above. Thus we find the Warrant No 2-M-70 was issued for violation of only one code, i.e., the made of the effects to be searched for and seized, to wit:chanrob1es
following:chanrob1es virtual 1aw library National Internal Revenue Code. The distinction more apparent than virtual 1aw library
real, because it was precisely on account of the Stonehill incident,
Sec. 46(a) requires the filing of income tax returns by corporations. which occurred sometime before the present Rules of Court took effect Books of accounts, financial records, vouchers, journals,
on January 1, 1964, that this Court amended the former rule by correspondence, receipts, ledgers, portfolios, credit journals,
Sec. 53 requires the withholding of income taxes at source. inserting therein the phrase "in connection with one specific offense," typewriters, and other documents and/or paper showing all business
and adding the sentence "No search warrant shall issue for more than transactions including disbursement receipts, balance sheets and
Sec. 72 imposes surcharges for failure to render income tax returns and one specific offense," in what is now Sec. 3, Rule 126. Thus we said in related profit and loss statements.
for rendering false and fraudulent returns. Stonehill:jgc:chanrobles.com.ph
"Thus, the warrants authorized the search for and seizure of records
Sec. 73 provides the penalty for failure to pay the income tax, to make a "Such is the seriousness of the irregularities committed in connection pertaining to all business transactions of petitioners herein, regardless
return or to supply the information required under the Tax Code. with the disputed search warrants, that this Court deemed it fit to of whether the transactions were legal or illegal. The warrants
amend Section 3 of Rule 122 of the former Rules of Court that a search sanctioned the seizure of all records of the petitioners and the
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, warrant shall not issue but upon probable cause in connection with one aforementioned corporations, whatever their nature, thus openly
compounds, or manufactures any article subject to a specific tax, specific offense. Not satisfied with this qualification, the Court added contravening the explicit command of our Bill of Rights that the
without having paid the privilege tax therefore, or who aids or abets in thereto a paragraph, directing that no search warrant shall issue for things to be seized be particularly described as well as tending to
the conduct of illicit distilling, rectifying, compounding, or illicit more than one specific offense." defeat its major objective: the elimination of general warrants."cralaw
manufacture of any article subject to specific tax . . .," and provides that virtua1aw library
in the case of a corporation, partnership, or association, the official 3. The search warrant does not particularly describe the things to be
and/or employee who caused the violation shall be responsible. seized. While the term "all business transactions" does not appear in Search
Warrant No. 2-M-70, the said warrant nevertheless tends to defeat the
Sec. 209 penalizes the failure to make a return of receipts, sales, The documents, papers and effects sought to be seized are described in major objective of the Bill of Rights, i.e., the elimination of general
warrants, for the language used therein is so all-embracing as to include enumerated in the warrant. "In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was
all conceivable records of petitioner corporation, which, if seized, could thought that a different rule applied to a corporation, the ground that it
possibly render its business inoperative. Respondents contend that certiorari does not lie because petitioners was not privileged from producing its books and papers. But the rights
failed to file a motion for reconsideration of respondent Judges order of a corporation against unlawful search and seizure are to be
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court of July 29, 1970. The contention is without merit. In the first place, protected even if the same result might have been achieved in a lawful
had occasion to explain the purpose of the requirement that the when the questions raised before this Court are the same as those way." (Silverthorne Lumber Company, Et. Al. v. United States of
warrant should particularly describe the place to be searched and the which were squarely raised in and passed upon by the court below, the America, 251 U.S. 385, 64 L. ed. 319.)
things to be seized, to wit:jgc:chanrobles.com.ph filing of a motion for reconsideration in said court before certiorari can
be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) v. Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring the recognized the right of a corporation to object against unreasonable
specifically require that a search warrant should particularly describe filing of a motion for reconsideration before an application for a writ searches and seizures, thus:jgc:chanrobles.com.ph
the place to be searched and the things to be seized. The evident of certiorari can be entertained was never intended to be applied
purpose and intent of this requirement is to limit the things to be seized without considering the circumstances. (Matutina v. Buslon, Et Al., 109 "As regards the first group, we hold that petitioners herein have no
to those, and only those, particularly described in the search warrant Phil., 140.) In the case at bar time is of the essence in view of the tax cause of action to assail the legality of the contested warrants and of
to leave the officers of the law with no discretion regarding what assessments sought to be enforced by respondent officers of the the seizures made in pursuance thereof, for the simple reason that said
articles they shall seize, to the end that unreasonable searches and Bureau of Internal Revenue against petitioner corporation, On account corporations have their respective personalities, separate and distinct
seizures may not be made, that abuses may not be committed. That of which immediate and more direct action becomes necessary. from the personality of herein petitioners, regardless of the amount of
this is the correct interpretation of this constitutional provision is borne (Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does shares of stock or the interest of each of them in said corporations,
out by American authorities."cralaw virtua1aw library not apply where, as in this case, the deprivation of petitioners whatever, the offices they hold therein may be. Indeed, it is well settled
fundamental right to due process taints the proceeding against them in that the legality of a seizure can be contested only by the party whose
The purpose as thus explained could, surely and effectively, be defeated the court below not only with irregularity but also with nullity. (Matute rights have been impaired thereby, and that the objection to an
under the search warrant issued in this case. v. Court of Appeals, Et Al., supra.) unlawful search and seizure is purely personal and cannot be availed of
by third parties. Consequently, petitioners herein may not validly object
A search warrant may be said to particularly describe the things to be It is next contended by respondents that a corporation is not entitled to to the use in evidence against them of the documents, papers and
seized when the description therein is as specific as the circumstances protection against unreasonable search and seizures. Again, we find no things seized from the offices and premises of the corporations
will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the merit in the contention. adverted to above, since the right to object to the admission of said
description expresses a conclusion of fact not of law by which the papers in evidence belongs exclusively to the corporations, to whom
warrant officer may be guided in making the search and seizure (idem., "Although, for the reasons above stated, we are of the opinion that an the seized effects belong, and may not be invoked by the corporate
dissent of Abad Santos, J.,); or when the things described are limited to officer of a corporation which is charged with a violation of a statute of officers in proceedings against them in their individual capacity . .
those which bear direct relation to the offense for which the warrant is the state of its creation, or of an act of Congress passed in the exercise ."cralaw virtua1aw library
being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein of its constitutional powers, cannot refuse to produce the books and
search warrant does not conform to any of the foregoing tests. If the papers of such corporation, we do not wish to be understood as holding In the Stonehill case only the officers of the various corporations in
articles desired to be seized have any direct relation to an offense that a corporation is not entitled to immunity, under the 4th whose offices documents, papers and effects were searched and seized
committed, the applicant must necessarily have some evidence, other Amendment, against unreasonable searches and seizures. A were the petitioners. In the case at bar, the corporation to whom the
than those articles, to prove the said offense; and the articles subject of corporation is, after all, but an association of individuals under an seized documents belong, and whose rights have thereby been
search and seizure should come in handy merely to strengthen such assumed name and with a distinct legal entity. In organizing itself as a impaired, is itself a petitioner. On that score, petitioner corporation
evidence. In this event, the description contained in the herein disputed collective body it waives no constitutional immunities appropriate to here stands on a different footing from the corporations in Stonehill.
warrant should have mentioned, at least, the dates, amounts, persons, such body. Its property cannot be taken without compensation. It can
and other pertinent data regarding the receipts of payments, only be proceeded against by due process of law, and is protected, The tax assessments referred to earlier in this opinion were, if not
certificates of stocks and securities, contracts, promissory notes, deeds under the 14th Amendment, against unlawful discrimination . . ." (Hale entirely as claimed by petitioners at least partly as in effect
of sale, messages and communications, checks, bank deposits and v. Henkel, 201 U.S. 43, 50 L. ed. 652.) admitted by respondents based on the documents seized by virtue of
withdrawals, records of foreign remittances, among others, Search Warrant No. 2-M-70. Furthermore, the fact that the assessments
were made some one and one-half months after the search and seizure purpose of engaging in business as a common carrier, he caused it to of incorporation was issued by the Securities and Exchange
on February 25, 1970, is a strong indication that the documents thus appear in said article of incorporation that one Arsenio Baylon, a Commission.
seized served as basis for the assessments. Those assessments should Filipino citizen, had subscribed to and was the owner of 60.005 per cent
therefore not be enforced. of the subscribed capital stock of the corporation when in reality, as the There is no question that Baylon actually subscribed to 60.005 per cent
accused well knew, such was not the case, the truth being that the of the subscribed capital stock of the corporation. But it is admitted
PREMISES CONSIDERED, the petition is granted. Accordingly, Search owner of the portion of the capital stock subscribed to by Baylon and that the money paid on his subscription did not belong to him but to
Warrant No. 2-M-70 issued by respondent Judge is declared null and the money paid thereon were American citizen whose name did not the Americans subscribers to the corporate stock. In explanation, the
void; respondents are permanently enjoined from enforcing the said appear in the article of incorporation, and that the purpose for making accused testified, without contradiction, that in the process of
search warrant; the documents, papers and effects seized thereunder this false statement was to circumvent the constitutional mandate that organization Baylon was made a trustee for the American
are ordered to be returned to petitioners; and respondent officials the no corporation shall be authorize to operate as a public utility in the incorporators, and that the reason for making Baylon such trustee was
Bureau of Internal Revenue and their representatives are permanently Philippines unless 60 per cent of its capital stock is owned by Filipinos. as follows:
enjoined from enforcing the assessments mentioned in Annex "G" of
the present petition, as well as other assessments based on the Found guilty after trial and sentenced to a term of imprisonment and a Q. According to this article of incorporation Arsenio Baylon
documents, papers and effects seized under the search warrant herein fine, the accused has appealed to this Court. subscribed to 1,135 preferred shares with a total value of
nullified, and from using the same against petitioners in any criminal or
P1,135. Do you know how that came to be?
other proceeding. No pronouncement as to costs.
The essential facts are not in dispute. On November 4,1946, the Pacific
Airways Corporation registered its articles of incorporation with the A. Yes.
Securities and Exchanged Commission. The article were prepared and
the registration was effected by the accused, who was in fact the
The people who were desirous of forming the corporation, whose
organizer of the corporation. The article stated that the primary
names are listed on page 7 of this certified copy came to my house,
purpose of the corporation was to carry on the business of a common
Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas
carrier by air, land or water; that its capital stock was P1,000,000,
one evening. There was considerable difficulty to get them all together
represented by 9,000 preferred and 100,000 common shares, each
at one time because they were pilots. They had difficulty in deciding
preferred share being of the par value of p100 and entitled to 1/3 vote
G.R. No. L-6055 June 12, 1953 what their respective share holdings would be. Onstott had invested a
and each common share, of the par value of P1 and entitled to one
certain amount of money in airplane surplus property and they had
vote; that the amount capital stock actually subscribed was P200,000,
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, obtained a considerable amount of money on those planes and as I
and the names of the subscribers were Arsenio Baylon, Eruin E.
vs. recall they were desirous of getting a corporation formed right away.
Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and
WILLIAM H. QUASHA, defendant-appellant. And they wanted to have their respective shares holdings resolved at a
William H. Quasha, the first being a Filipino and the other five all
latter date. They stated that they could get together that they feel that
Americans; that Baylon's subscription was for 1,145 preferred shares, of
they had no time to settle their respective share holdings. We discussed
Jose P. Laurel for appellant and William H. Quasha in his own behalf. the total value of P114,500, and for 6,500 common shares, of the total
the matter and finally it was decided that the best way to handle the
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor par value of P6,500, while the aggregate subscriptions of the American
things was not to put the shares in the name of anyone of the
General Francisco Carreon for appellee. subscribers were for 200 preferred shares, of the total par value of
interested parties and to have someone act as trustee for their
P20,000, and 59,000 common shares, of the total par value of P59,000;
respective shares holdings. So we looked around for a trustee. And he
REYES, J.: and that Baylon and the American subscribers had already paid 25 per
said "There are a lot of people whom I trust." He said, "Is there
cent of their respective subscriptions. Ostensibly the owner of, or
someone around whom we could get right away?" I said, "There is
subscriber to, 60.005 per cent of the subscribed capital stock of the
William H. Quasha, a member of the Philippine bar, was charged in the Arsenio. He was my boy during the liberation and he cared for me when
corporation, Baylon nevertheless did not have the controlling vote
Court of First Instance of Manila with the crime of falsification of a i was sick and i said i consider him my friend." I said. They all knew
because of the difference in voting power between the preferred shares
public and commercial document in that, having been entrusted with Arsenio. He is a very kind man and that was what was done. That is how
and the common shares. Still, with the capital structure as it was, the
the preparation and registration of the article of incorporation of the it came about.
article of incorporation were accepted for registration and a certificate
Pacific Airways Corporation, a domestic corporation organized for the
Defendant is accused under article 172 paragraph 1, in connection with Now, as we see it, the falsification imputed in the accused in the Baylon was a mere trustee of his American co-incorporation and that
article 171, paragraph 4, of the Revised Penal Code, which read: present case consists in not disclosing in the articles of incorporation for that reason the subscribed capital stock of the corporation was
that Baylon was a mere trustee ( or dummy as the prosecution chooses wholly American? For the mere formation of the corporation such
ART. 171. Falsification by public officer, employee, or notary or to call him) of his American co-incorporators, thus giving the impression revelation was not essential, and the Corporation Law does not require
ecclesiastic minister. The penalty of prision mayor and a that Baylon was the owner of the shares subscribed to by him which, as it. Defendant was, therefore, under no obligation to make it. In the
fine not to exceed 5,000 pesos shall be imposed upon any above stated, amount to 60.005 per cent of the sub-scribed capital absence of such obligation and of the allege wrongful intent, defendant
public officer, employee, or notary who, taking advantage of stock. This, in the opinion of the trial court, is a malicious perversion of cannot be legally convicted of the crime with which he is charged.
his official position, shall falsify a document by committing the truth made with the wrongful intent circumventing section 8,
any of the following acts: Article XIV of the Constitution, which provides that " no franchise, It is urged, however, that the formation of the corporation with 60 per
certificate, or any other form of authorization for the operation of a cent of its subscribed capital stock appearing in the name of Baylon was
public utility shall be granted except to citizens of the Philippines or to an indispensable preparatory step to the subversion of the
xxx xxx xxx
corporation or other entities organized under the law of the Philippines, constitutional prohibition and the laws implementing the policy
sixty per centum of the capital of which is owned by citizens of the expressed therein. This view is not correct. For a corporation to be
4. Making untruthful statements in a narration of facts. Philippines . . . ." Plausible though it may appear at first glance, this entitled to operate a public utility it is not necessary that it be organized
opinion loses validity once it is noted that it is predicated on the with 60 per cent of its capital owned by Filipinos from the start. A
ART. 172. Falsification by private individuals and use of erroneous assumption that the constitutional provision just quoted was corporation formed with capital that is entirely alien may subsequently
falsified documents. The penalty of prision correccional in meant to prohibit the mere formation of a public utility corporation change the nationality of its capital through transfer of shares to
its medium and maximum period and a fine of not more than without 60 per cent of its capital being owned by the Filipinos, a Filipino citizens. conversely, a corporation originally formed with
5,000 pesos shall be imposed upon: mistaken belief which has induced the lower court to that the accused Filipino capital may subsequently change the national status of said
was under obligation to disclose the whole truth about the nationality capital through transfer of shares to foreigners. What need is there
xxx xxx xxx of the subscribed capital stock of the corporation by revealing that then for a corporation that intends to operate a public utility to have, at
Baylon was a mere trustee or dummy of his American co-incorporators, the time of its formation, 60 per cent of its capital owned by Filipinos
and that in not making such disclosure defendant's intention was to alone? That condition may anytime be attained thru the necessary
1. Any private individual who shall commit any of the circumvent the Constitution to the detriment of the public interests.
falsifications enumerated in the next preceding article in any transfer of stocks. The moment for determining whether a corporation
Contrary to the lower court's assumption, the Constitution does not is entitled to operate as a public utility is when it applies for a franchise,
public or official document or letter of exchange or any other prohibit the mere formation of a public utility corporation without the
kind of commercial document. certificate, or any other form of authorization for that purpose. And
required formation of Filipino capital. What it does prohibit is the that can be done after the corporation has already come into being and
granting of a franchise or other form of authorization for the operation not while it is still being formed. And at that moment, the corporation
Commenting on the above provision, Justice Albert, in his well-known of a public utility to a corporation already in existence but without the must show that it has complied not only with the requirement of the
work on the Revised Penal Code ( new edition, pp. 407-408), observes, requisite proportion of Filipino capital. This is obvious from the context, Constitution as to the nationality of its capital, but also with the
on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of for the constitutional provision in question qualifies the terms " requirements of the Civil Aviation Law if it is a common carrier by air,
truth in the narration of facts must be made with the wrongful intent of franchise", "certificate", or "any other form of authorization" with the the Revised Administrative Code if it is a common carrier by water, and
injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil., phrase "for the operation of a public utility," thereby making it clear the Public Service Law if it is a common carrier by land or other kind of
515), the same author further maintains that even if such wrongful that the franchise meant is not the "primary franchise" that invest a public service.
intent is proven, still the untruthful statement will not constitute the body of men with corporate existence but the "secondary franchise" or
crime of falsification if there is no legal obligation on the part of the the privilege to operate as a public utility after the corporation has
narrator to disclose the truth. Wrongful intent to injure a third person Equally untenable is the suggestion that defendant should at least be
already come into being.
and obligation on the part of the narrator to disclose the truth are thus held guilty of an "impossible crime" under article 59 of the Revised
essential to a conviction for a crime of falsification under the above Penal Code. It not being possible to suppose that defendant had
If the Constitution does not prohibit the mere formation of a public intended to commit a crime for the simple reason that the alleged
article of the Revised Penal Code. utility corporation with the alien capital, then how can the accused be constitutional prohibition which he is charged for having tried to
charged with having wrongfully intended to circumvent that circumvent does not exist, conviction under that article is out of the
fundamental law by not revealing in the articles of incorporation that question.
The foregoing consideration can not but lead to the conclusion
CHAIRMAN thatANTHONI
the SALIM OF FIRST PACIFIC CO., LTD. BRION,
defendant can not be held guilty of the crime charged. The majority
IN HIS CAPACITY of AS DIRECTOR OF METRO PACIFIC ASSET
the court, however, are also of the opinion that, even supposing
HOLDINGSthat INC., CHAIRMAN MANUEL V. PANGILINAN OF PERALTA,
the act imputed to the defendant constituted falsification at the time
PHILIPPINE it DISTANCE TELEPHONE COMPANY
LONG
was perpetrated, still with the approval of the Party Amendment
(PLDT) IN HISto the
CAPACITY AS MANAGING DIRECTOR OF
Constitution in March, 1947, which placed Americans on the same BERSAMIN,
FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L.
footing as Filipino citizens with respect to the right to operate
NAZARENOpublicOF PHILIPPINE LONG DISTANCE TELEPHONE
utilities in the Philippines, thus doing away with the prohibition
COMPANY, in CHAIR FE BARIN OF THE SECURITIES DEL CASTILLO,
section 8, Article XIV of the Constitution in so far as American
EXCHANGEcitizens
COMMISSION, and PRESIDENT FRANCIS LIM
are concerned, the said act has ceased to be an offenseOF within
THE the
PHILIPPINE STOCK EXCHANGE, ABAD,
meaning of the law, so that defendant can no longer be held criminally
liable therefor.
Respondents. VILLARAMA, JR.,
In view of the foregoing, the judgment appealed from is reversed and
the defendant William H. Quasha acquitted, with costs de oficio. PEREZ,

MENDOZA, and
PABLITO V. SANIDAD and Promulgated:
SERENO, JJ.
ARNO V. SANIDAD,

Petitioners-in-Intervention. June 28, 2011

ON P. GAMBOA, G.R. No. 176579


x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

oner,
Present:
us -

CORONA, C.J., DECISION

NCE SECRETARY MARGARITO B. TEVES, FINANCE CARPIO,


RSECRETARY JOHN P. SEVILLA, AND
MISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL VELASCO, JR.,
MISSION ON GOOD GOVERNMENT (PCGG) IN THEIR
CITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF CARPIO, J.:
LEONARDO-DE CASTRO,
RIVATIZATION COUNCIL,
On the other hand, public respondents Finance
Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG
The Case In 1999, First Pacific, a Bermuda-registered, Hong Kong-based Commissioner Ricardo Abcede allege the following relevant facts:
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 On 9 November 1967, PTIC was incorporated and had since engaged in
This is an original petition for prohibition, injunction, declaratory relief
outstanding capital stock of PTIC, through a public bidding to be the business of investment holdings. PTIC held 26,034,263 PLDT
and declaration of nullity of the sale of shares of stock of Philippine
conducted on 4 December 2006. Subsequently, the public bidding was common shares, or 13.847 percent of the total PLDT outstanding
Telecommunications Investment Corporation (PTIC) by the government
reset to 8 December 2006, and only two bidders, Parallax Venture Fund common shares. PHI, on the other hand, was incorporated in 1977, and
of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc.
XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. became the owner of 111,415 PTIC shares or 46.125 percent of the
(MPAH), an affiliate of First Pacific Company Limited (First Pacific).
Parallax won with a bid of P25.6 billion or US$510 million. 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
The Antecedents former President Ferdinand Marcos. The sequestered PTIC shares
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 were reconveyed to the Republic of the Philippines in accordance with
matching the bid price of Parallax. However, First Pacific failed to do so this Courts decision4 which became final and executory on 8 August
by the 1 February 2007 deadline set by IPC and instead, yielded its right 2006.
The facts, according to petitioner Wilson P. Gamboa, a stockholder of to PTIC itself which was then given by IPC until 2 March 2007 to buy the
Philippine Long Distance Telephone Company (PLDT), are as follows:1 PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, The Philippine Government decided to sell the 111,415 PTIC shares,
MPAH, entered into a Conditional Sale and Purchase Agreement of the which represent 6.4 percent of the outstanding common shares of stock
111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PLDT, and designated the Inter-Agency Privatization Council (IPC),
of PTIC, with the Philippine Government for the price composed of the Department of Finance and the PCGG, as the disposing
of P25,217,556,000 or US$510,580,189. The sale was completed on 28 entity. An invitation to bid was published in seven different newspapers
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 February 2007. from 13 to 24 November 2006. On 20 November 2006, a pre-bid
which granted PLDT a franchise and the right to engage in conference was held, and the original deadline for bidding scheduled on
telecommunications business. In 1969, General Telephone and 4 December 2006 was reset to 8 December 2006. The extension was
Electronics Corporation (GTE), an American company and a major PLDT published in nine different newspapers.
stockholder, sold 26 percent of the outstanding common shares of PLDT
to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several Since PTIC is a stockholder of PLDT, the sale by the Philippine
persons, including Roland Gapud and Jose Campos, Jr. Subsequently, Government of 46.125 percent of PTIC shares is actually an indirect sale
PHI became the owner of 111,415 shares of stock of PTIC by virtue of of 12 million shares or about 6.3 percent of the outstanding common
three Deeds of Assignment executed by PTIC stockholders shares of PLDT. With the sale, First Pacifics common shareholdings in During the 8 December 2006 bidding, Parallax Capital Management LP
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of PLDT increased from 30.7 percent to 37 percent, thereby increasing emerged as the highest bidder with a bid of P25,217,556,000. The
stock of PTIC held by PHI were sequestered by the Presidential the common shareholdings of foreigners in PLDT to about 81.47 government notified First Pacific, the majority owner of PTIC shares, of
Commission on Good Government (PCGG). The 111,415 PTIC shares, percent. This violates Section 11, Article XII of the 1987 Philippine the bidding results and gave First Pacific until 1 February 2007 to
which represent about 46.125 percent of the outstanding capital stock Constitution which limits foreign ownership of the capital of a public exercise its right of first refusal in accordance with PTICs Articles of
of PTIC, were later declared by this Court to be owned by the Republic utility to not more than 40 percent.3 Incorporation. First Pacific announced its intention to match Parallaxs
of the Philippines.2 bid.
shareholdings in PLDT of 51.56 percent which is over the 40 percent On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a
constitutional limit.6 Petitioner asserts: Motion for Leave to Intervene and Admit Attached Petition-in-
On 31 January 2007, the House of Representatives (HR) Committee on Intervention. In the Resolution of 28 August 2007, the Court granted
Good Government conducted a public hearing on the particulars of the the motion and noted the Petition-in-Intervention.
then impending sale of the 111,415 PTIC shares.
Respondents Teves and Sevilla were among those who attended the If and when the sale is completed, First Pacifics equity in PLDT
public hearing. The HR Committee Report No. 2270 concluded that: (a) will go up from 30.7 percent to 37.0 percent of its common or
the auction of the governments 111,415 PTIC shares bore due diligence, voting- stockholdings, x x x. Hence, the consummation of the Petitioners-in-intervention join petitioner Wilson Gamboa x x x in
transparency and conformity with existing legal procedures; and sale will put the two largest foreign investors in PLDT First seeking, among others, to enjoin and/or nullify the sale by respondents
(b) First Pacifics intended acquisition of the governments 111,415 PTIC Pacific and Japans NTT DoCoMo, which is the worlds largest of the 111,415 PTIC shares to First Pacific or assignee. Petitioners-in-
shares resulting in First Pacifics 100% ownership of PTIC will not wireless telecommunications firm, owning 51.56 percent of intervention claim that, as PLDT subscribers, they have a stake in the
violate the 40 percent constitutional limit on foreign ownership of a PLDT common equity. x x x With the completion of the sale, outcome of the controversy x x x where the Philippine Government is
public utility since PTIC holds only 13.847 percent of the total data culled from the official website of the New York Stock completing the sale of government owned assets in [PLDT],
outstanding common shares of PLDT.5 On 28 February 2007, First Exchange (www.nyse.com) showed that those foreign unquestionably a public utility, in violation of the nationality restrictions
Pacific completed the acquisition of the 111,415 shares of stock of PTIC. entities, which own at least five percent of common equity, of the Philippine Constitution.
will collectively own 81.47 percent of PLDTs common equity.
xxx

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC x x x as the annual disclosure reports, also
conducted a public bidding for the sale of 111,415 PTIC shares or 46 referred to as Form 20-K reports
percent of the outstanding capital stock of PTIC (the remaining 54 x x x which PLDT submitted to the New
The Issue
percent of PTIC shares was already owned by First Pacific and its York Stock Exchange for the period 2003-
affiliates); (b) Parallax offered the highest bid amounting 2005, revealed that First Pacific and
to P25,217,556,000; (c) pursuant to the right of first refusal in favor of several other foreign entities breached
PTIC and its shareholders granted in PTICs Articles of Incorporation, the constitutional limit of 40 percent
MPAH, a First Pacific affiliate, exercised its right of first refusal by ownership as early as 2003. x x x7
matching the highest bid offered for PTIC shares on 13 February 2007;
and (d) on 28 February 2007, the sale was consummated when MPAH This Court is not a trier of facts. Factual questions such as those raised
paid IPC P25,217,556,000 and the government delivered the certificates by petitioner,9 which indisputably demand a thorough examination of
for the 111,415 PTIC shares. Respondent Pangilinan denies the other the evidence of the parties, are generally beyond this Courts
Petitioner raises the following issues: (1) whether the consummation of
allegations of facts of petitioner. jurisdiction. Adhering to this well-settled principle, the Court shall
the then impending sale of 111,415 PTIC shares to First Pacific violates
the constitutional limit on foreign ownership of a public utility; (2) confine the resolution of the instant controversy solely on
whether public respondents committed grave abuse of discretion in the threshold and purely legal issue of whether the term capital in
allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) Section 11, Article XII of the Constitution refers to the total common
On 28 February 2007, petitioner filed the instant petition for whether the sale of common shares to foreigners in excess of 40 shares only or to the total outstanding capital stock (combined total of
prohibition, injunction, declaratory relief, and declaration of nullity of percent of the entire subscribed common capital stock violates the common and non-voting preferred shares) of PLDT, a public utility.
sale of the 111,415 PTIC shares. Petitioner claims, among others, that constitutional limit on foreign ownership of a public utility.8
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 The Ruling of the Court
shareholdings in PLDT, would result to a total foreign common
In that case, which involved the crime of rape committed by a foreign The Court has no original and exclusive jurisdiction over a
tourist against a Filipino minor and the execution of the final judgment petition for declaratory relief. However, exceptions to this
The petition is partly meritorious. in the civil case for damages on the tourists dollar deposit with a local rule have been recognized. Thus, where the petition has far-
bank, the Court declared Section 113 of Central Bank Circular No. 960, reaching implications and raises questions that should be
exempting foreign currency deposits from attachment, garnishment or resolved, it may be treated as one for
any other order or process of any court, inapplicable due to the peculiar mandamus.15 (Emphasis supplied)
circumstances of the case. The Court held that injustice would result
Petition for declaratory relief treated as petition for mandamus 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
At the outset, petitioner is faced with a procedural barrier. Among the therefore required respondents Central Bank of the Philippines, the
local bank, and the accused to comply with the writ of execution issued In the present case, petitioner seeks primarily the interpretation of the
remedies petitioner seeks, only the petition for prohibition is within the
in the civil case for damages and to release the dollar deposit of the term capital in Section 11, Article XII of the Constitution. He prays that
original jurisdiction of this court, which however is not exclusive but is
accused to satisfy the judgment. this Court declare that the term capital refers to common shares only,
concurrent with the Regional Trial Court and the Court of Appeals. The
and that such shares constitute the sole basis in determining foreign
actions for declaratory relief,10 injunction, and annulment of sale are
equity in a public utility. Petitioner further asks this Court to declare any
not embraced within the original jurisdiction of the Supreme Court. On
ruling inconsistent with such interpretation unconstitutional.
this ground alone, the petition could have been dismissed outright.
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 The interpretation of the term capital in Section 11, Article XII of the
While direct resort to this Court may be justified in a petition for
petitioners, who were government employees, from the enjoyment of Constitution has far-reaching implications to the national economy. In
prohibition,11 the Court shall nevertheless refrain from discussing the
rights to which they were entitled under the law. Specifically, the fact, a resolution of this issue will determine whether Filipinos are
grounds in support of the petition for prohibition since on 28 February
question was: Are the branches, agencies, subdivisions, and masters, or second class citizens, in their own country. What is at stake
2007, the questioned sale was consummated when MPAH paid
instrumentalities of the Government, including government owned or here is whether Filipinos or foreigners will have effective control of the
IPC P25,217,556,000 and the government delivered the certificates for
controlled corporations included among the four employers under national economy. Indeed, if ever there is a legal issue that has far-
the 111,415 PTIC shares.
Presidential Decree No. 851 which are required to pay their employees reaching implications to the entire nation, and to future generations of
x x x a thirteenth (13th) month pay x x x ? The Constitutional principle Filipinos, it is the threshhold legal issue presented in this case.
involved therein affected all government employees, clearly justifying a
relaxation of the technical rules of procedure, and certainly requiring
However, since the threshold and purely legal issue on the definition of the interpretation of the assailed presidential decree.
the term capital in Section 11, Article XII of the Constitution has far-
The Court first encountered the issue on the definition of the term
reaching implications to the national economy, the Court treats the
capital in Section 11, Article XII of the Constitution in the case
petition for declaratory relief as one for mandamus.12
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case
In short, it is well-settled that this Court may treat a petition for involved the same public utility (PLDT) and substantially the same
declaratory relief as one for mandamus if the issue involved has far- private respondents. Despite the importance and novelty of the
reaching implications. As this Court held in Salvacion: constitutional issue raised therein and despite the fact that the petition
In Salvacion v. Central Bank of the Philippines,13 the Court treated the involved a purely legal question, the Court declined to resolve the case
petition for declaratory relief as one for mandamus considering the on the merits, and instead denied the same for disregarding the
grave injustice that would result in the interpretation of a banking law. hierarchy of courts.17 There, petitioner Fernandez assailed on a pure
question of law the Regional Trial Courts Decision of 21 February There is no dispute that petitioner is a stockholder of PLDT. As such, he a public right, the requirement of personal interest is satisfied by the
2003 via a petition for review under Rule 45. The Courts Resolution, has the right to question the subject sale, which he claims to violate the mere fact that petitioner is a citizen and, therefore, part of the general
denying the petition, became final on 21 December 2004. nationality requirement prescribed in Section 11, Article XII of the public which possesses the right.
Constitution. If the sale indeed violates the Constitution, then there is a
The instant petition therefore presents the Court with another possibility that PLDTs franchise could be revoked, a dire consequence Further, in Albano v. Reyes, we said that while expenditure of public
opportunity to finally settle this purely legal issue which is of directly affecting petitioners interest as a stockholder. funds may not have been involved under the questioned contract for
transcendental importance to the national economy and a fundamental the development, management and operation of the Manila
requirement to a faithful adherence to our Constitution. The Court International Container Terminal, public interest [was] definitely
must forthwith seize such opportunity, not only for the benefit of the involved considering the important role [of the subject contract] . . . in
litigants, but more significantly for the benefit of the entire Filipino More importantly, there is no question that the instant petition raises the economic development of the country and the magnitude of the
people, to ensure, in the words of the Constitution, a self-reliant and matters of transcendental importance to the public. The fundamental financial consideration involved. We concluded that, as a consequence,
independent national economy effectively controlled by and threshold legal issue in this case, involving the national economy the disclosure provision in the Constitution would constitute sufficient
Filipinos.18 Besides, in the light of vague and confusing positions taken and the economic welfare of the Filipino people, far outweighs any authority for upholding the petitioners standing. (Emphasis supplied)
by government agencies on this purely legal issue, present and future perceived impediment in the legal personality of the petitioner to bring
foreign investors in this country deserve, as a matter of basic fairness, a this action.
categorical ruling from this Court on the extent of their participation in
the capital of public utilities and other nationalized businesses.
Clearly, since the instant petition, brought by a citizen, involves matters
of transcendental public importance, the petitioner has the
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a requisite locus standi.
suit on matters of transcendental importance to the public, thus:
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
Definition of the Term Capital in
recurring fundamental issue and delay again defining the term capital,
which appears not only in Section 11, Article XII of the Constitution, but In Taada v. Tuvera, the Court asserted that when the issue concerns a
also in Section 2, Article XII on co-production and joint venture public right and the object of mandamus is to obtain the enforcement Section 11, Article XII of the 1987 Constitution
agreements for the development of our natural resources,19 in Section of a public duty, the people are regarded as the real parties in
7, Article XII on ownership of private lands,20 in Section 10, Article XII on interest; and because it is sufficient that petitioner is a citizen and as
the reservation of certain investments to Filipino citizens,21 in Section such is interested in the execution of the laws, he need not show that
4(2), Article XIV on the ownership of educational institutions,22 and in he has any legal or special interest in the result of the action. In the
Section 11, Article XII (National Economy and Patrimony) of the 1987
Section 11(2), Article XVI on the ownership of advertising companies.23 aforesaid case, the petitioners sought to enforce their right to be
Constitution mandates the Filipinization of public utilities, to wit:
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
Petitioner has locus standi fundamental law of the land. Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
Legaspi v. Civil Service Commission, while reiterating Taada, further granted except to citizens of the Philippines or to
declared that when a mandamus proceeding involves the assertion of corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is prevent aliens from assuming control of public utilities, which may be
owned by such citizens; nor shall such franchise, certificate, inimical to the national interest.27 This specific provision explicitly
or authorization be exclusive in character or for a longer reserves to Filipino citizens control of public utilities, pursuant to an
period than fifty years. Neither shall any such franchise or overriding economic goal of the 1987 Constitution: to conserve and
right be granted except under the condition that it shall be develop our patrimony28 and ensure a self-reliant and independent
subject to amendment, alteration, or repeal by the Congress national economy effectively controlled by Filipinos.29
when the common good so requires. The State shall
encourage equity participation in public utilities by the The foregoing provision in the 1973 Constitution reproduced Section 8,
general public. The participation of foreign investors in the Article XIV of the 1935 Constitution, viz:
governing body of any public utility enterprise shall be limited
Any citizen or juridical entity desiring to operate a public utility must
to their proportionate share in its capital, and all the
therefore meet the minimum nationality requirement prescribed in
executive and managing officers of such corporation or
Section 11, Article XII of the Constitution. Hence, for a corporation to be
association must be citizens of the Philippines. (Emphasis Section 8. No franchise, certificate, or any other form of granted authority to operate a public utility, at least 60 percent of its
supplied) authorization for the operation of a public utility shall be capital must be owned by Filipino citizens.
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 The crux of the controversy is the definition of the term capital. Does
longer period than fifty years. No franchise or right shall be the term capital in Section 11, Article XII of the Constitution refer to
The above provision substantially reiterates Section 5, Article XIV of the common shares or to the total outstanding capital stock (combined
granted to any individual, firm, or corporation, except under
1973 Constitution, thus: total of common and non-voting preferred shares)?
the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the public interest
so requires. (Emphasis supplied)

Section 5. No franchise, certificate, or any other form of Petitioner submits that the 40 percent foreign equity limitation in
authorization for the operation of a public utility shall be domestic public utilities refers only to common shares because such
granted except to citizens of the Philippines or to shares are entitled to vote and it is through voting that control over a
corporations or associations organized under the laws of the corporation is exercised. Petitioner posits that the term capital in
Philippines at least sixty per centum of the capital of which Section 11, Article XII of the Constitution refers to the ownership of
is owned by such citizens, nor shall such franchise, certificate, Father Joaquin G. Bernas, S.J., a leading member of the 1986
common capital stock subscribed and outstanding, which class of shares
or authorization be exclusive in character or for a longer Constitutional Commission, reminds us that the Filipinization provision
alone, under the corporate set-up of PLDT, can vote and elect members
period than fifty years. Neither shall any such franchise or in the 1987 Constitution is one of the products of the spirit of
of the board of directors. It is undisputed that PLDTs non-voting
right be granted except under the condition that it shall be nationalism which gripped the 1935 Constitutional Convention.25 The
preferred shares are held mostly by Filipino citizens.30 This arose from
subject to amendment, alteration, or repeal by the National 1987 Constitution provides for the Filipinization of public utilities by
Presidential Decree No. 217,31 issued on 16 June 1973 by then President
Assembly when the public interest so requires. The State shall requiring that any form of authorization for the operation of public
Ferdinand Marcos, requiring every applicant of a PLDT telephone line to
encourage equity participation in public utilities by the utilities should be granted only to citizens of the Philippines or to
subscribe to non-voting preferred shares to pay for the investment cost
general public. The participation of foreign investors in the corporations or associations organized under the laws of the Philippines
of installing the telephone line.32
governing body of any public utility enterprise shall be limited at least sixty per centum of whose capital is owned by such citizens. The
to their proportionate share in the capital thereof. (Emphasis provision is [an express] recognition of the sensitive and vital position
supplied) of public utilities both in the national economy and for national
security.26 The evident purpose of the citizenship requirement is to
Petitioners-in-intervention basically reiterate petitioners arguments and compliance with the 40% constitutional limitation on foreign parties, and lack of basis for injunction. The OSG does not present any
adopt petitioners definition of the term capital.33 Petitioners-in- ownership in public utilities.35 definition or interpretation of the term capital in Section 11, Article XII
intervention allege that the approximate foreign ownership of common of the Constitution. The OSG contends that the petition actually
capital stock of PLDT x x x already amounts to at least 63.54% of the partakes of a collateral attack on PLDTs franchise as a public utility,
total outstanding common stock, which means that foreigners exercise which in effect requires a full-blown trial where all the parties in
significant control over PLDT, patently violating the 40 percent foreign interest are given their day in court.38
Similarly, respondent Manuel V. Pangilinan does not define the term
equity limitation in public utilities prescribed by the Constitution.
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 Respondent Francisco Ed Lim, impleaded as President and Chief
Respondents, on the other hand, do not offer any definition of the term process rights of foreigners. Respondent Pangilinan emphasizes in his Executive Officer of the Philippine Stock Exchange (PSE), does not also
capital in Section 11, Article XII of the Constitution. More importantly, Memorandum (1) the absence of this Courts jurisdiction over the define the term capital and seeks the dismissal of the petition on the
private respondents Nazareno and Pangilinan of PLDT do not dispute petition; (2) petitioners lack of standing; (3) mootness of the petition; following grounds: (1) failure to state a cause of action against Lim; (2)
that more than 40 percent of the common shares of PLDT are held by (4) non-availability of declaratory relief; and (5) the denial of due the PSE allegedly implemented its rules and required all listed
foreigners. process rights. Moreover, respondent Pangilinan alleges that the issue companies, including PLDT, to make proper and timely disclosures; and
should be whether owners of shares in PLDT as well as owners of shares (3) the reliefs prayed for in the petition would adversely impact the
in companies holding shares in PLDT may be required to relinquish their stock market.
shares in PLDT and in those companies without any law requiring them
to surrender their shares and also without notice and trial.
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 In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who
common shareholders. Respondent Nazareno does not deny petitioners claimed to be a stockholder of record of PLDT, contended that the term
allegation of foreigners dominating the common shareholdings of Respondent Pangilinan further asserts that Section 11, [Article XII of capital in the 1987 Constitution refers to shares entitled to vote or the
PLDT. Nazarenostressed mainly that the petition seeks to divest foreign the Constitution] imposes no nationality requirement on the common shares. Fernandez explained thus:
common shareholders purportedly exceeding 40% of the total shareholders of the utility company as a condition for keeping their
common shareholdings in PLDT of their ownership over their shares. shares in the utility company. According to him, Section 11 does not
Thus, the foreign natural and juridical PLDT shareholders must authorize taking one persons property (the shareholders stock in the
be impleaded in this suit so that they can be utility company) on the basis of another partys alleged failure to satisfy
The forty percent (40%) foreign equity limitation in public
heard.34 Essentially, Nazareno invokes denial of due process on behalf a requirement that is a condition only for that other partys retention of
utilities prescribed by the Constitution refers to ownership of
of the foreign common shareholders. another piece of property (the utility company being at least 60%
shares of stock entitled to vote, i.e., common shares,
Filipino-owned to keep its franchise).36
considering that it is through voting that control is being
exercised. x x x

While Nazareno does not introduce any definition of the term capital,
he states that among the factual assertions that need to be The OSG, representing public respondents Secretary Margarito Teves,
established to counter petitioners allegations is the uniform Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and
Obviously, the intent of the framers of the Constitution in
interpretation by government agencies (such as the SEC), institutions Chairman Fe Barin, is likewise silent on the definition of the term
imposing limitations and restrictions on fully nationalized and
and corporations (such as the Philippine National Oil Company-Energy capital. In its Memorandum37 dated 24 September 2007, the OSG also
partially nationalized activities is for Filipino nationals to be
Development Corporation or PNOC-EDC) of including both preferred limits its discussion on the supposed procedural defects of the petition,
always in control of the corporation undertaking said
shares and common shares in controlling interest in view of testing i.e. lack of standing, lack of jurisdiction, non-inclusion of interested
activities. Otherwise, if the Trial Courts ruling upholding
respondents arguments were to be given credence, it would Parenthetically, the Opinions dated February 15, 1988 and
be possible for the ownership structure of a public utility April 14, 1987 cited by the Trial Court to support the
corporation to be divided into one percent (1%) common proposition that the meaning of the word capital as used in In this connection, the Corporation Code which was already in
stocks and ninety-nine percent (99%) preferred stocks. Section 11, Article XII of the Constitution allegedly refers to force at the time the present (1987) Constitution was drafted
Following the Trial Courts ruling adopting respondents the sum total of the shares subscribed and paid-in by the defined outstanding capital stock as follows:
arguments, the common shares can be owned entirely by shareholder and it allegedly is immaterial how the stock is
foreigners thus creating an absurd situation wherein classified, whether as common or preferred, cannot stand in
foreigners, who are supposed to be minority shareholders, the face of a clear legislative policy as stated in the FIA which
control the public utility corporation. took effect in 1991 or way after said opinions were rendered,
and as clarified by the above-quoted Amendments. In this Section 137. Outstanding capital stock defined. The term
regard, suffice it to state that as between the law and an outstanding capital stock, as used in this Code, means the
opinion rendered by an administrative agency, the law total shares of stock issued under binding subscription
indubitably prevails. Moreover, said Opinions are merely agreements to subscribers or stockholders, whether or not
xxxx fully or partially paid, except treasury shares.
advisory and cannot prevail over the clear intent of the
framers of the Constitution.

Thus, the 40% foreign ownership limitation should be Section 137 of the Corporation Code also does not distinguish
interpreted to apply to both the beneficial ownership and the between common and preferred shares, nor exclude either
In the same vein, the SECs construction of Section 11, Article
controlling interest. class of shares, in determining the outstanding capital stock
XII of the Constitution is at best merely advisory for it is the
courts that finally determine what a law means.39 (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
xxxx language of the Constitution should be understood in the
sense it has in common use.

xxxx
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel
Clearly, therefore, the forty percent (40%) foreign equity V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B.
limitation in public utilities prescribed by the Constitution Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa,
refers to ownership of shares of stock entitled to vote, i.e., Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea,
common shares. Furthermore, ownership of record of shares argued that the term capital in Section 11, Article XII of the Constitution 17. But even assuming that resort to the proceedings of the
will not suffice but it must be shown that the legal and includes preferred shares since the Constitution does not distinguish Constitutional Commission is necessary, there is nothing in
beneficial ownership rests in the hands of Filipino citizens. among classes of stock, thus: the Record of the Constitutional Commission (Vol. III) which
Consequently, in the case of petitioner PLDT, since it is petitioner misleadingly cited in the Petition x x x which
already admitted that the voting interests of foreigners which supports petitioners view that only common shares should
would gain entry to petitioner PLDT by the acquisition of form the basis for computing a public utilitys foreign equity.
SMART shares through the Questioned Transactions is
equivalent to 82.99%, and the nominee arrangements 16. The Constitution applies its foreign ownership limitation on
xxxx
between the foreign principals and the Filipino owners is the corporations capital, without distinction as to classes of
likewise admitted, there is, therefore, a violation of Section shares. x x x
11, Article XII of the Constitution.
18. In addition, the SEC the government agency primarily Preferred shares of stock issued by any corporation may be 3. Sale, lease, exchange, mortgage, pledge or other
responsible for implementing the Corporation Code, and given preference in the distribution of the assets of the disposition of all or substantially all of the corporate
which also has the responsibility of ensuring compliance with corporation in case of liquidation and in the distribution of property;
the Constitutions foreign equity restrictions as regards dividends, or such other preferences as may be stated in the
nationalized activities x x x has categorically ruled that both articles of incorporation which are not violative of the 4. Incurring, creating or increasing bonded
common and preferred shares are properly considered in provisions of this Code: Provided, That preferred shares of indebtedness;
determining outstanding capital stock and the nationality stock may be issued only with a stated par value. The Board of
composition thereof.40 Directors, where authorized in the articles of incorporation,
5. Increase or decrease of capital stock;
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 6. Merger or consolidation of the corporation with
thereof with the Securities and Exchange Commission. another corporation or other corporations;

Shares of capital stock issued without par value shall be 7. Investment of corporate funds in another
We agree with petitioner and petitioners-in-intervention. The term corporation or business in accordance with this
deemed fully paid and non-assessable and the holder of such
capital in Section 11, Article XII of the Constitution refers only to shares Code; and
shares shall not be liable to the corporation or to its creditors
of stock entitled to vote in the election of directors, and thus in the
in respect thereto: Provided; That shares without par value
present case only to common shares,41 and not to the total outstanding
may not be issued for a consideration less than the value of 8. Dissolution of the corporation.
capital stock comprising both common and non-voting preferred
five (P5.00) pesos per share: Provided, further, That the entire
shares.
consideration received by the corporation for its no-par value Except as provided in the immediately preceding paragraph,
shares shall be treated as capital and shall not be available for the vote necessary to approve a particular corporate act as
The Corporation Code of the Philippines42 classifies shares as common distribution as dividends. provided in this Code shall be deemed to refer only to stocks
or preferred, thus:
with voting rights.
A corporation may, furthermore, classify its shares for the
purpose of insuring compliance with constitutional or legal
requirements.
Sec. 6. Classification of shares. - The shares of stock of stock
corporations may be divided into classes or series of shares, Except as otherwise provided in the articles of incorporation
or both, any of which classes or series of shares may have and stated in the certificate of stock, each share shall be equal
such rights, privileges or restrictions as may be stated in the in all respects to every other share. Indisputably, one of the rights of a stockholder is the right to participate
articles of incorporation: Provided, That no share may be in the control or management of the corporation.43 This is exercised
deprived of voting rights except those classified and issued through his vote in the election of directors because it is the board of
Where the articles of incorporation provide for non-voting directors that controls or manages the corporation.44 In the absence of
as preferred or redeemable shares, unless otherwise
shares in the cases allowed by this Code, the holders of such provisions in the articles of incorporation denying voting rights to
provided in this Code: Provided, further, That there shall
shares shall nevertheless be entitled to vote on the following preferred shares, preferred shares have the same voting rights as
always be a class or series of shares which have complete
matters: common shares. However, preferred shareholders are often excluded
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 from any control, that is, deprived of the right to vote in the election of
in the articles of incorporation: Provided, 1. Amendment of the articles of incorporation; directors and on other matters, on the theory that the preferred
however, That banks, trust companies, insurance companies, shareholders are merely investors in the corporation for income in the
public utilities, and building and loan associations shall not be 2. Adoption and amendment of by-laws; same manner as bondholders.45 In fact, under the Corporation Code
permitted to issue no-par value shares of stock. 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 or on the paid-up capital stock of a corporation? Will the MR. NOLLEDO. Therefore, we need additional Filipino capital?
restricting the right of common shareholders to vote is invalid. 47 Committee please enlighten me on this?

MR. VILLEGAS. Yes.48


Considering that common shares have voting rights which translate to MR. VILLEGAS. We have just had a long discussion with the
control, as opposed to preferred shares which usually have no voting members of the team from the UP Law Center who provided
rights, the term capital in Section 11, Article XII of the Constitution us a draft. The phrase that is contained here which we
refers only to common shares. However, if the preferred shares also adopted from the UP draft is 60 percent of voting stock.
xxxx
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 MR. AZCUNA. May I be clarified as to that portion that was
right to vote in the election of directors. In short, the term capital in accepted by the Committee.
MR. NOLLEDO. That must be based on the subscribed capital
Section 11, Article XII of the Constitution refers only to shares of stock
stock, because unless declared delinquent, unpaid capital
that can vote in the election of directors.
stock shall be entitled to vote.

MR. VILLEGAS. The portion accepted by the Committee is the


deletion of the phrase voting stock or controlling interest.
This interpretation is consistent with the intent of the framers of the
MR. VILLEGAS. That is right.
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 MR. AZCUNA. Hence, without the Davide amendment, the
or controlling interest of a corporation, to wit: committee report would read: corporations or associations at
MR. NOLLEDO. Thank you. least sixty percent of whose CAPITAL is owned by such
citizens.

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated


local or Filipino equity and foreign equity; namely, 60-40 in With respect to an investment by one corporation in another
Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15. corporation, say, a corporation with 60-40 percent equity MR. VILLEGAS. Yes.
invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather
rule?
MR. VILLEGAS. That is right. 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. Yes, that is the understanding of the


Committee.
MR. NOLLEDO. In teaching law, we are always faced with this
question: Where do we base the equity requirement, is it on MR. VILLEGAS. That is right.
the authorized capital stock, on the subscribed capital stock,
SEC. 3. Definitions. - As used in this Act: [60%] of the capital stock outstanding and entitled to vote is
owned and held by citizens of the Philippines; or a trustee of
MR. AZCUNA. But the control can be with the foreigners funds for pension or other employee retirement or separation
even if they are the minority. Let us say 40 percent of the benefits, where the trustee is a Philippine national and at
capital is owned by them, but it is the voting capital, least sixty percent [60%] of the fund will accrue to the benefit
a. The term Philippine national shall mean a citizen of the
whereas, the Filipinos own the nonvoting shares. So we can of the Philippine nationals; Provided,that where a corporation
Philippines; or a domestic partnership or association wholly
have a situation where the corporation is controlled by its non-Filipino stockholders own stocks in a Securities and
owned by citizens of the Philippines; or a corporation
foreigners despite being the minority because they have the Exchange Commission [SEC] registered enterprise, at least
organized under the laws of the Philippines of which at least
voting capital. That is the anomaly that would result here. sixty percent [60%] of the capital stock outstanding and
sixty percent (60%) of the capital stock
entitled to vote of both corporations must be owned and held
outstanding and entitled to vote is owned and held by
by citizens of the Philippines and at least sixty percent [60%]
citizens of the Philippines; or a corporation organized abroad
of the members of the Board of Directors of each of both
and registered as doing business in the Philippines under the
corporation must be citizens of the Philippines, in order that
MR. BENGZON. No, the reason we eliminated the word stock Corporation Code of which one hundred percent (100%) of
the corporation shall be considered a Philippine national. The
as stated in the 1973 and 1935 Constitutions is that the capital stock outstanding and entitled to vote is wholly
control test shall be applied for this purpose.
according to Commissioner Rodrigo, there are associations owned by Filipinos or a trustee of funds for pension or other
that do not have stocks. That is why we say CAPITAL. 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- Compliance with the required Filipino ownership of a
Filipino stockholders own stocks in a Securities and Exchange corporation shall be determined on the basis of outstanding
MR. AZCUNA. We should not eliminate the phrase Commission (SEC) registered enterprise, at least sixty percent capital stock whether fully paid or not, but only such stocks
controlling interest. (60%) of the capital stock outstanding and entitled to vote of which are generally entitled to vote are considered.
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
MR. BENGZON. In the case of stock corporations, it is corporations must be citizens of the Philippines, in order that
For stocks to be deemed owned and held by Philippine
assumed.49 (Emphasis supplied) the corporation, shall be considered a Philippine national.
citizens or Philippine nationals, mere legal title is not enough
(Emphasis supplied)
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
In explaining the definition of a Philippine national, the Implementing considered held by Philippine citizens or Philippine
Rules and Regulations of the Foreign Investments Act of 1991 provide: nationals.
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: b. Philippine national shall mean a citizen of the Philippines or Individuals or juridical entities not meeting the
a domestic partnership or association wholly owned by the aforementioned qualifications are considered as non-
citizens of the Philippines; or a corporation organized under Philippine nationals. (Emphasis supplied)
the laws of the Philippines of which at least sixty percent
To construe broadly the term capital as the total outstanding capital Holders of PLDT preferred shares are explicitly denied of the right to
stock, including both common and non-voting preferred shares, grossly vote in the election of directors. PLDTs Articles of Incorporation
contravenes the intent and letter of the Constitution that the State shall expressly state that the holders of Serial Preferred Stock shall not be
develop a self-reliant and independent national economy effectively entitled to vote at any meeting of the stockholders for the election of
controlled by Filipinos. A broad definition unjustifiably disregards who directors or for any other purpose or otherwise participate in any
owns the all-important voting stock, which necessarily equates to action taken by the corporation or its stockholders, or to receive notice
control of the public utility. of any meeting of stockholders.51

We shall illustrate the glaring anomaly in giving a broad definition to the On the other hand, holders of common shares are granted the exclusive
Mere legal title is insufficient to meet the 60 percent Filipino-owned term capital. Let us assume that a corporation has 100 common shares right to vote in the election of directors. PLDTs Articles of
capital required in the Constitution. Full beneficial ownership of 60 owned by foreigners and 1,000,000 non-voting preferred shares owned Incorporation52 state that each holder of Common Capital Stock shall
percent of the outstanding capital stock, coupled with 60 percent of the by Filipinos, with both classes of share having a par value of one peso have one vote in respect of each share of such stock held by him on all
voting rights, is required. The legal and beneficial ownership of 60 (P1.00) per share. Under the broad definition of the term capital, such matters voted upon by the stockholders, and the holders of Common
percent of the outstanding capital stock must rest in the hands of corporation would be considered compliant with the 40 percent Capital Stock shall have the exclusive right to vote for the election of
Filipino nationals in accordance with the constitutional mandate. constitutional limit on foreign equity of public utilities since the directors and for all other purposes.53
Otherwise, the corporation is considered as non-Philippine national[s]. overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.

In short, only holders of common shares can vote in the election of


Under Section 10, Article XII of the Constitution, Congress may reserve directors, meaning only common shareholders exercise control over
to citizens of the Philippines or to corporations or associations at least In the example given, only the foreigners holding the common shares PLDT. Conversely, holders of preferred shares, who have no voting
sixty per centum of whose capital is owned by such citizens, or such have voting rights in the election of directors, even if they hold only 100 rights in the election of directors, do not have any control over PLDT. In
higher percentage as Congress may prescribe, certain areas of shares. The foreigners, with a minuscule equity of less than 0.001 fact, under PLDTs Articles of Incorporation, holders of common shares
investments. Thus, in numerous laws Congress has reserved certain percent, exercise control over the public utility. On the other hand, the have voting rights for all purposes, while holders of preferred shares
areas of investments to Filipino citizens or to corporations at least sixty Filipinos, holding more than 99.999 percent of the equity, cannot vote have no voting right for any purpose whatsoever.
percent of the capital of which is owned by Filipino citizens. Some of in the election of directors and hence, have no control over the public
these laws are: (1) Regulation of Award of Government Contracts or utility. This starkly circumvents the intent of the framers of the
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; Constitution, as well as the clear language of the Constitution, to place
(3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. the control of public utilities in the hands of Filipinos. It also renders
6977; (4) Philippine Overseas Shipping Development Act or R.A. No. It must be stressed, and respondents do not dispute, that foreigners
illusory the State policy of an independent national economy effectively
7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; hold a majority of the common shares of PLDT. In fact, based on PLDTs
controlled by Filipinos.
(6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and 2010 General Information Sheet (GIS),54which is a document required
(7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term capital in to be submitted annually to the Securities and Exchange
Section 11, Article XII of the Constitution is also used in the same Commission,55 foreigners hold 120,046,690 common shares of PLDT
context in numerous lawsreserving certain areas of investments to whereas Filipinos hold only 66,750,622 common shares.56 In other
Filipino citizens. The example given is not theoretical but can be found in the real words, foreigners hold 64.27% of the total number of PLDTs common
world, and in fact exists in the present case. shares, while Filipinos hold only 35.73%. Since holding a majority of the
common shares equates to control, it is clear that foreigners exercise 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the Indisputably, construing the term capital in Section 11, Article XII of the
control over PLDT. Such amount of control unmistakably exceeds the dividends that PLDT common shares earn, grossly violates the Constitution to include both voting and non-voting shares will result in
allowable 40 percent limit on foreign ownership of public utilities constitutional requirement of 60 percent Filipino control and Filipino the abject surrender of our telecommunications industry to foreigners,
expressly mandated in Section 11, Article XII of the Constitution. beneficial ownership of a public utility. amounting to a clear abdication of the States constitutional duty to limit
control of public utilities to Filipino citizens. Such an interpretation
In short, Filipinos hold less than 60 percent of the voting stock, and certainly runs counter to the constitutional provision reserving certain
earn less than 60 percent of the dividends, of PLDT. This directly areas of investment to Filipino citizens, such as the exploitation of
contravenes the express command in Section 11, Article XII of the natural resources as well as the ownership of land, educational
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted
Constitution that [n]o franchise, certificate, or any other form of institutions and advertising businesses. The Court should never open to
to the SEC, shows that per share the SIP58 preferred shares earn a
authorization for the operation of a public utility shall be granted foreign control what the Constitution has expressly reserved to Filipinos
pittance in dividends compared to the common shares. PLDT declared
except to x x xcorporations x x x organized under the laws of the for that would be a betrayal of the Constitution and of the national
dividends for the common shares at P70.00 per share, while the
Philippines, at least sixty per centum of whose capital is owned by interest. The Court must perform its solemn duty to defend and uphold
declared dividends for the preferred shares amounted to a
such citizens x x x. the intent and letter of the Constitution to ensure, in the words of the
measly P1.00 per share.59 So the preferred shares not only cannot vote
Constitution, a self-reliant and independent national
in the election of directors, they also have very little and obviously
economy effectively controlled by Filipinos.
negligible dividend earning capacity compared to common shares.

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 Section 11, Article XII of the Constitution, like other provisions of the
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of
35.73% of PLDTs common shares, constituting a minority of the voting Constitution expressly reserving to Filipinos specific areas of
PLDT common shares is P5.00 per share, whereas the par value of
stock, and thus do not exercise control over PLDT; (3) preferred shares, investment, such as the development of natural resources and
preferred shares is P10.00 per share. In other words, preferred shares
99.44% owned by Filipinos, have no voting rights; (4) preferred shares ownership of land, educational institutions and advertising business,
have twice the par value of common shares but cannot elect directors
earn only 1/70 of the dividends that common shares earn;63 (5) is self-executing. There is no need for legislation to implement these
and have only 1/70 of the dividends of common shares. Moreover,
preferred shares have twice the par value of common shares; and (6) self-executing provisions of the Constitution. The rationale why these
99.44% of the preferred shares are owned by Filipinos while foreigners
preferred shares constitute 77.85% of the authorized capital stock of constitutional provisions are self-executing was explained in Manila
own only a minuscule 0.56% of the preferred shares.61 Worse, preferred
PLDT and common shares only 22.15%. This kind of ownership and Prince Hotel v. GSIS,66 thus:
shares constitute 77.85% of the authorized capital stock of PLDT while
common shares constitute only 22.15%.62 This undeniably shows that control of a public utility is a mockery of the Constitution.
beneficial interest in PLDT is not with the non-voting preferred shares x x x Hence, unless it is expressly provided that a legislative
but with the common shares, blatantly violating the constitutional act is necessary to enforce a constitutional mandate, the
requirement of 60 percent Filipino control and Filipino beneficial presumption now is that all provisions of the constitution are
ownership in a public utility. self-executing. If the constitutional provisions are treated as
Incidentally, the fact that PLDT common shares with a par value
requiring legislation instead of self-executing, the legislature
of P5.00 have a current stock market value of P2,328.00 per
would have the power to ignore and practically nullify the
share,64 while PLDT preferred shares with a par value of P10.00 per
mandate of the fundamental law. This can be cataclysmic.
share have a current stock market value ranging from only P10.92
That is why the prevailing view is, as it has always been, that
The legal and beneficial ownership of 60 percent of the outstanding to P11.06 per share,65 is a glaring confirmation by the market that
capital stock must rest in the hands of Filipinos in accordance with the control and beneficial ownership of PLDT rest with the common shares,
constitutional mandate. Full beneficial ownership of 60 percent of the not with the preferred shares.
outstanding capital stock, coupled with 60 percent of the voting rights,
is constitutionally required for the States grant of authority to operate a . . . in case of doubt, the Constitution should be considered
public utility. The undisputed fact that the PLDT preferred shares, 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 Thus, we have treated as self-executing the provisions in the
contrary rule would give the legislature discretion to Bill of Rights on arrests, searches and seizures, the rights of a
determine when, or whether, they shall be effective. These person under custodial investigation, the rights of an accused, To treat Section 11, Article XII of the Constitution as not self-executing
provisions would be subordinated to the will of the and the privilege against self-incrimination. It is recognized would mean that since the 1935 Constitution, or over the last 75 years,
lawmaking body, which could make them entirely that legislation is unnecessary to enable courts to effectuate not one of the constitutional provisions expressly reserving specific
meaningless by simply refusing to pass the needed constitutional provisions guaranteeing the fundamental rights areas of investments to corporations, at least 60 percent of the capital
implementing statute. (Emphasis supplied) of life, liberty and the protection of property. The same of which is owned by Filipinos, was enforceable. In short, the framers of
treatment is accorded to constitutional provisions forbidding the 1935, 1973 and 1987 Constitutions miserably failed to effectively
the taking or damaging of property for public use without just reserve to Filipinos specific areas of investment, like the operation by
compensation. (Emphasis supplied) 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.
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,68 this Court ruled:
In Manila Prince Hotel, even the Dissenting Opinion of then Associate This Court has held that the SEC has both regulatory and adjudicative
Justice Reynato S. Puno, later Chief Justice, agreed that constitutional functions.69 Under its regulatory functions, the SEC can be compelled by
provisions are presumed to be self-executing. Justice Puno stated: mandamus to perform its statutory duty when it unlawfully neglects to
perform the same. Under its adjudicative or quasi-judicial functions, the
x x x As the Constitution is silent as to the effects or
SEC can be also be compelled by mandamus to hear and decide a
consequences of a sale by a citizen of his land to an alien, and
possible violation of any law it administers or enforces when it is
as both the citizen and the alien have violated the law, none
Courts as a rule consider the provisions of the Constitution as mandated by law to investigate such violation.
of them should have a recourse against the other, and it
self-executing, rather than as requiring future legislation for should only be the State that should be allowed to intervene
their enforcement. The reason is not difficult to discern. For if and determine what is to be done with the property subject
they are not treated as self-executing, the mandate of the of the violation. We have said that what the State should do
fundamental law ratified by the sovereign people can be or could do in such matters is a matter of public policy, Under Section 17(4)70 of the Corporation Code, the SEC has the
easily ignored and nullified by Congress. Suffused with entirely beyond the scope of judicial authority. (Dinglasan, et regulatory function to reject or disapprove the Articles of Incorporation
wisdom of the ages is the unyielding rule that legislative al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, of any corporation where the required percentage of ownership of the
actions may give breath to constitutional rights but 1956.) While the legislature has not definitely decided what capital stock to be owned by citizens of the Philippines has not been
congressional inaction should not suffocate them. policy should be followed in cases of violations against the complied with as required by existing laws or the Constitution. Thus,
constitutional prohibition, courts of justice cannot go the SEC is the government agency tasked with the statutory duty to
beyond by declaring the disposition to be null and void enforce the nationality requirement prescribed in Section 11, Article XII
as violative of the Constitution. x x x (Emphasis supplied) 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 Province of Palawan and EPA-IVB-44 which includes an area of 3,720
SEC. hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP
were then transferred to Madridejos Mining Corporation (MMC) and,
Under Section 5(m) of the Securities Regulation Code,71 the SEC is on November 6, 2006, assigned to petitioner McArthur.2
vested with the power and function to suspend or revoke, after proper G.R. No. 195580 April 21, 2014
notice and hearing, the franchise or certificate of registration of Petitioner Narra acquired its MPSA from Alpha Resources and
corporations, partnerships or associations, upon any of the grounds NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING Development Corporation and Patricia Louise Mining & Development
provided by law. The SEC is mandated under Section 5(d) of the same AND DEVELOPMENT, INC., and MCARTHUR MINING, INC., Petitioners, Corporation (PLMDC) which previously filed an application for an MPSA
Code with the power and function to investigate x x x the activities of vs. with the MGB, Region IV-B, DENR on January 6, 1992. Through the said
persons to ensure compliance with the laws and regulations that SEC REDMONT CONSOLIDATED MINES CORP., Respondent. application, the DENR issued MPSA-IV-1-12 covering an area of 3.277
administers or enforces. The GIS that all corporations are required to hectares in barangays Calategas and San Isidro, Municipality of Narra,
submit to SEC annually should put the SEC on guard against violations of Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned
DECISION
the nationality requirement prescribed in the Constitution and existing its rights and interests over the MPSA application in favor of Narra.
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 VELASCO, JR., J.:
Another MPSA application of SMMI was filed with the DENR Region IV-
hear and decide a possible violation of Section 11, Article XII of the B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402
Constitution in view of the ownership structure of PLDTs voting shares, Before this Court is a Petition for Review on Certiorari under Rule 45 hectares in Barangays Malinao and Princesa Urduja, Municipality of
as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT filed by Narra Nickel and Mining Development Corp. (Narra), Tesoro Narra, Province of Palawan. SMMI subsequently conveyed, transferred
submitted to SEC. Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. and assigned its rights and interest over the said MPSA application to
(McArthur), which seeks to reverse the October 1, 2010 Decision1 and Tesoro.
the February 15, 2011 Resolution of the Court of Appeals (CA).
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA)
WHEREFORE, we PARTLY GRANT the petition and rule that the term The Facts of the DENR three (3) separate petitions for the denial of petitioners
capital in Section 11, Article XII of the 1987 Constitution refers only to applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and
shares of stock entitled to vote in the election of directors, and thus in Sometime in December 2006, respondent Redmont Consolidated Mines MPSA IV-1-12.
the present case only to common shares, and not to the total Corp. (Redmont), a domestic corporation organized and existing under
outstanding capital stock (common and non-voting preferred shares). Philippine laws, took interest in mining and exploring certain areas of In the petitions, Redmont alleged that at least 60% of the capital stock
Respondent Chairperson of the Securities and Exchange Commission the province of Palawan. After inquiring with the Department of of McArthur, Tesoro and Narra are owned and controlled by MBMI
is DIRECTED to apply this definition of the term capital in determining Environment and Natural Resources (DENR), it learned that the areas Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont
the extent of allowable foreign ownership in respondent Philippine where it wanted to undertake exploration and mining activities where reasoned that since MBMI is a considerable stockholder of petitioners,
Long Distance Telephone Company, and if there is a violation of Section already covered by Mineral Production Sharing Agreement (MPSA) it was the driving force behind petitioners filing of the MPSAs over the
11, Article XII of the Constitution, to impose the appropriate sanctions applications of petitioners Narra, Tesoro and McArthur. areas covered by applications since it knows that it can only participate
under the law. in mining activities through corporations which are deemed Filipino
Petitioner McArthur, through its predecessor-in-interest Sara Marie citizens. Redmont argued that given that petitioners capital stocks
Mining, Inc. (SMMI), filed an application for an MPSA and Exploration were mostly owned by MBMI, they were likewise disqualified from
Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV- engaging in mining activities through MPSAs, which are reserved only
SO ORDERED. B, Office of the Department of Environment and Natural Resources for Filipino citizens.
(DENR).
In their Answers, petitioners averred that they were qualified persons
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area under Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine
of over 1,782 hectares in Barangay Sumbiling, Municipality of Bataraza, Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the [I]t is clearly established that respondents are not qualified applicants Commission (SEC), seeking the revocation of the certificates for
following terms, whether in singular or plural, shall mean: to engage in mining activities. On the other hand, [Redmont] having registration of petitioners on the ground that they are foreign-owned or
filed its own applications for an EPA over the areas earlier covered by controlled corporations engaged in mining in violation of Philippine
xxxx the MPSA application of respondents may be considered if and when laws. Thereafter, Redmont filed on September 1, 2008 a Manifestation
they are qualified under the law. The violation of the requirements for and Motion to Suspend Proceeding before the MAB praying for the
the issuance and/or grant of permits over mining areas is clearly suspension of the proceedings on the appeals filed by McArthur, Tesoro
(aq) "Qualified person" means any citizen of the Philippines with
established thus, there is reason to believe that the cancellation and/or and Narra.
capacity to contract, or a corporation, partnership, association, or
revocation of permits already issued under the premises is in order and
cooperative organized or authorized for the purpose of engaging in
open the areas covered to other qualified applicants. Subsequently, on September 8, 2008, Redmont filed before the
mining, with technical and financial capability to undertake mineral
resources development and duly registered in accordance with law at Regional Trial Court of Quezon City, Branch 92 (RTC) a Complaint16 for
least sixty per cent (60%) of the capital of which is owned by citizens of xxxx injunction with application for issuance of a temporary restraining order
the Philippines: Provided, That a legally organized foreign-owned (TRO) and/or writ of preliminary injunction, docketed as Civil Case No.
corporation shall be deemed a qualified person for purposes of granting WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur 08-63379. Redmont prayed for the deferral of the MAB proceedings
an exploration permit, financial or technical assistance agreement or Mining Inc., Tesoro Mining and Development, Inc., and Narra Nickel pending the resolution of the Complaint before the SEC.
mineral processing permit. Mining and Development Corp. as, DISQUALIFIED for being considered
as Foreign Corporations. Their Mineral Production Sharing Agreement But before the RTC can resolve Redmonts Complaint and applications
Additionally, they stated that their nationality as applicants is (MPSA) are hereby x x x DECLARED NULL AND VOID.6 for injunctive reliefs, the MAB issued an Order on September 10, 2008,
immaterial because they also applied for Financial or Technical finding the appeal meritorious. It held:
Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for The POA considered petitioners as foreign corporations being
McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which "effectively controlled" by MBMI, a 100% Canadian company and WHEREFORE, in view of the foregoing, the Mines Adjudication Board
are granted to foreign-owned corporations. Nevertheless, they claimed declared their MPSAs null and void. In the same Resolution, it gave due hereby REVERSES and SETS ASIDE the Resolution dated 14 December
that the issue on nationality should not be raised since McArthur, course to Redmonts EPAs. Thereafter, on February 7, 2008, the POA 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-
Tesoro and Narra are in fact Philippine Nationals as 60% of their capital issued an Order7 denying the Motion for Reconsideration filed by DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07
is owned by citizens of the Philippines. They asserted that though MBMI petitioners. February 2008 denying the Motions for Reconsideration of the
owns 40% of the shares of PLMC (which owns 5,997 shares of Appellants. The Petition filed by Redmont Consolidated Mines
Narra),3 40% of the shares of MMC (which owns 5,997 shares of Aggrieved by the Resolution and Order of the POA, McArthur and Corporation on 02 January 2007 is hereby ordered DISMISSED.17
McArthur)4 and 40% of the shares of SLMC (which, in turn, owns 5,997 Tesoro filed a joint Notice of Appeal8 and Memorandum of Appeal9 with
shares of Tesoro),5 the shares of MBMI will not make it the owner of at the Mines Adjudication Board (MAB) while Narra separately filed its Belatedly, on September 16, 2008, the RTC issued an Order18 granting
least 60% of the capital stock of each of petitioners. They added that Notice of Appeal10 and Memorandum of Appeal.11 Redmonts application for a TRO and setting the case for hearing the
the best tool used in determining the nationality of a corporation is the prayer for the issuance of a writ of preliminary injunction on September
"control test," embodied in Sec. 3 of RA 7042 or the Foreign 19, 2008.
In their respective memorandum, petitioners emphasized that they are
Investments Act of 1991. They also claimed that the POA of DENR did
qualified persons under the law. Also, through a letter, they informed
not have jurisdiction over the issues in Redmonts petition since they
the MAB that they had their individual MPSA applications converted to Meanwhile, on September 22, 2008, Redmont filed a Motion for
are not enumerated in Sec. 77 of RA 7942. Finally, they stressed that
FTAAs. McArthurs FTAA was denominated as AFTA-IVB-0912 on May Reconsideration19 of the September 10, 2008 Order of the MAB.
Redmont has no personality to sue them because it has no pending
2007, while Tesoros MPSA application was converted to AFTA-IVB- Subsequently, it filed a Supplemental Motion for Reconsideration20 on
claim or application over the areas applied for by petitioners.
0813 on May 28, 2007, and Narras FTAA was converted to AFTA-IVB- September 29, 2008.
0714 on March 30, 2006.
On December 14, 2007, the POA issued a Resolution disqualifying
Before the MAB could resolve Redmonts Motion for Reconsideration
petitioners from gaining MPSAs. It held:
Pending the resolution of the appeal filed by petitioners with the MAB, and Supplemental Motion for Reconsideration, Redmont filed before
Redmont filed a Complaint15 with the Securities and Exchange the RTC a Supplemental Complaint21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order22 granting the issuance of other laws pertaining to the exploitation of natural resources, the CA Secretary of the DENR is vested with the power to approve or reject
a writ of preliminary injunction enjoining the MAB from finally disposing used the "grandfather rule" to determine the nationality of petitioners. applications for MPSA.
of the appeals of petitioners and from resolving Redmonts Motion for It provided:
Reconsideration and Supplement Motion for Reconsideration of the Finally, the CA upheld the findings of the POA in its December 14, 2007
MABs September 10, 2008 Resolution. Shares belonging to corporations or partnerships at least 60% of the Resolution which considered petitioners McArthur, Tesoro and Narra as
capital of which is owned by Filipino citizens shall be considered as of foreign corporations. Nevertheless, the CA determined that the POAs
On July 1, 2009, however, the MAB issued a second Order denying Philippine nationality, but if the percentage of Filipino ownership in the declaration that the MPSAs of McArthur, Tesoro and Narra are void is
Redmonts Motion for Reconsideration and Supplemental Motion for corporation or partnership is less than 60%, only the number of shares highly improper.
Reconsideration and resolving the appeals filed by petitioners. corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a While the petition was pending with the CA, Redmont filed with the
Hence, the petition for review filed by Redmont before the CA, assailing corporation or partnership at least 60% of the capital stock or capital, Office of the President (OP) a petition dated May 7, 2010 seeking the
the Orders issued by the MAB. On October 1, 2010, the CA rendered a respectively, of which belong to Filipino citizens, all of the shares shall cancellation of petitioners FTAAs. The OP rendered a Decision26 on
Decision, the dispositive of which reads: be recorded as owned by Filipinos. But if less than 60%, or say, 50% of April 6, 2011, wherein it canceled and revoked petitioners FTAAs for
the capital stock or capital of the corporation or partnership, violating and circumventing the "Constitution x x x[,] the Small Scale
respectively, belongs to Filipino citizens, only 50,000 shares shall be Mining Law and Environmental Compliance Certificate as well as
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders,
recorded as belonging to aliens.24(emphasis supplied) Sections 3 and 8 of the Foreign Investment Act and E.O. 584."27 The OP,
dated September 10, 2008 and July 1, 2009 of the Mining Adjudication
Board are reversed and set aside. The findings of the Panel of in affirming the cancellation of the issued FTAAs, agreed with Redmont
Arbitrators of the Department of Environment and Natural Resources In determining the nationality of petitioners, the CA looked into their stating that petitioners committed violations against the
that respondents McArthur, Tesoro and Narra are foreign corporations corporate structures and their corresponding common shareholders. abovementioned laws and failed to submit evidence to negate them.
is upheld and, therefore, the rejection of their applications for Mineral Using the grandfather rule, the CA discovered that MBMI in effect The Decision further quoted the December 14, 2007 Order of the POA
Product Sharing Agreement should be recommended to the Secretary owned majority of the common stocks of the petitioners as well as at focusing on the alleged misrepresentation and claims made by
of the DENR. least 60% equity interest of other majority shareholders of petitioners petitioners of being domestic or Filipino corporations and the admitted
through joint venture agreements. The CA found that through a "web of continued mining operation of PMDC using their locally secured Small
corporate layering, it is clear that one common controlling investor in Scale Mining Permit inside the area earlier applied for an MPSA
With respect to the applications of respondents McArthur, Tesoro and
all mining corporations involved x x x is MBMI."25 Thus, it concluded application which was eventually transferred to Narra. It also agreed
Narra for Financial or Technical Assistance Agreement (FTAA) or
that petitioners McArthur, Tesoro and Narra are also in partnership with the POAs estimation that the filing of the FTAA applications by
conversion of their MPSA applications to FTAA, the matter for its
with, or privies-in-interest of, MBMI. petitioners is a clear admission that they are "not capable of conducting
rejection or approval is left for determination by the Secretary of the
a large scale mining operation and that they need the financial and
DENR and the President of the Republic of the Philippines.
Furthermore, the CA viewed the conversion of the MPSA applications of technical assistance of a foreign entity in their operation, that is why
petitioners into FTAA applications suspicious in nature and, as a they sought the participation of MBMI Resources, Inc."28 The Decision
SO ORDERED.23 further quoted:
consequence, it recommended the rejection of petitioners MPSA
applications by the Secretary of the DENR.
In a Resolution dated February 15, 2011, the CA denied the Motion for The filing of the FTAA application on June 15, 2007, during the
Reconsideration filed by petitioners. pendency of the case only demonstrate the violations and lack of
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 qualification of the respondent corporations to engage in mining. The
After a careful review of the records, the CA found that there was doubt also has the power to determine the of nationality of petitioners as a filing of the FTAA application conversion which is allowed foreign
as to the nationality of petitioners when it realized that petitioners had prerequisite of the Constitution prior the conferring of rights to "co- corporation of the earlier MPSA is an admission that indeed the
a common major investor, MBMI, a corporation composed of 100% production, joint venture or production-sharing agreements" of the respondent is not Filipino but rather of foreign nationality who is
Canadians. Pursuant to the first sentence of paragraph 7 of Department state to mining rights. However, it also stated that the POAs disqualified under the laws. Corporate documents of MBMI Resources,
of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC jurisdiction is limited only to the resolution of the dispute and not on Inc. furnished its stockholders in their head office in Canada suggest
Rules which implemented the requirement of the Constitution and the approval or rejection of the MPSAs. It stipulated that only the
that they are conducting operation only through their local Foreign Investments Act of 1991, as amended, and the FIA 3.) When constitutional issue raised requires formulation of
counterparts.29 Rules. controlling principles to guide the bench, the bar, and the
public; and
The Motion for Reconsideration of the Decision was further denied by V.
the OP in a Resolution30 dated July 6, 2011. Petitioners then filed a 4.) The case is capable of repetition yet evading review.34
Petition for Review on Certiorari of the OPs Decision and Resolution The Court of Appeals erred when it applied the exceptions to
with the CA, docketed as CA-G.R. SP No. 120409. In the CA Decision the res inter alios acta rule. All of the exceptions stated above are present in the instant case. We of
dated February 29, 2012, the CA affirmed the Decision and Resolution this Court note that a grave violation of the Constitution, specifically
of the OP. Thereafter, petitioners appealed the same CA decision to this Section 2 of Article XII, is being committed by a foreign corporation
VI.
Court which is now pending with a different division. right under our countrys nose through a myriad of corporate layering
under different, allegedly, Filipino corporations. The intricate corporate
The Court of Appeals erred when it concluded that the
Thus, the instant petition for review against the October 1, 2010 layering utilized by the Canadian company, MBMI, is of exceptional
conversion of the MPSA Applications into FTAA Applications
Decision of the CA. Petitioners put forth the following errors of the CA: character and involves paramount public interest since it undeniably
were of "suspicious nature" as the same is based on mere
affects the exploitation of our Countrys natural resources. The
conjectures and surmises without any shred of evidence to
I. corresponding actions of petitioners during the lifetime and existence
show the same.31
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
The Court of Appeals erred when it did not dismiss the case We find the petition to be without merit. pronounced by the Court; hence, the disposition of the issues or errors
for mootness despite the fact that the subject matter of the
in the instant case will serve as a guide "to the bench, the bar and the
controversy, the MPSA Applications, have already been
This case not moot and academic public."35 Finally, the instant case is capable of repetition yet evading
converted into FTAA applications and that the same have
review, since the Canadian company, MBMI, can keep on utilizing
already been granted.
The claim of petitioners that the CA erred in not rendering the instant dummy Filipino corporations through various schemes of corporate
case as moot is without merit. layering and conversion of applications to skirt the constitutional
II. prohibition against foreign mining in Philippine soil.

Basically, a case is said to be moot and/or academic when it "ceases to


The Court of Appeals erred when it did not dismiss the case Conversion of MPSA applications to FTAA applications
present a justiciable controversy by virtue of supervening events, so
for lack of jurisdiction considering that the Panel of
that a declaration thereon would be of no practical use or
Arbitrators has no jurisdiction to determine the nationality of
value."32 Thus, the courts "generally decline jurisdiction over the case or We shall discuss the first error in conjunction with the sixth error
Narra, Tesoro and McArthur.
dismiss it on the ground of mootness."33 presented by petitioners since both involve the conversion of MPSA
applications to FTAA applications. Petitioners propound that the CA
III. erred in ruling against them since the questioned MPSA applications
The "mootness" principle, however, does accept certain exceptions and
the mere raising of an issue of "mootness" will not deter the courts were already converted into FTAA applications; thus, the issue on the
The Court of Appeals erred when it did not dismiss the case from trying a case when there is a valid reason to do so. In David v. prohibition relating to MPSA applications of foreign mining corporations
on account of Redmonts willful forum shopping. Macapagal-Arroyo (David), the Court provided four instances where is academic. Also, petitioners would want us to correct the CAs finding
courts can decide an otherwise moot case, thus: which deemed the aforementioned conversions of applications as
IV. suspicious in nature, since it is based on mere conjectures and surmises
and not supported with evidence.
1.) There is a grave violation of the Constitution;
The Court of Appeals ruling that Narra, Tesoro and McArthur
are foreign corporations based on the "Grandfather Rule" is We disagree.
2.) The exceptional character of the situation and paramount
contrary to law, particularly the express mandate of the public interest is involved;
The CAs analysis of the actions of petitioners after the case was filed On October 1, 2010, the CA rendered a Decision which partially granted Again, it is quite evident that petitioners have been trying to have this
against them by respondent is on point. The changing of applications by the petition, reversing and setting aside the September 10, 2008 and case dismissed for being "moot." Their final act, wherein MBMI was
petitioners from one type to another just because a case was filed July 1, 2009 Orders of the MAB. In the said Decision, the CA upheld the able to allegedly sell/assign all its shares and interest in the petitioner
against them, in truth, would raise not a few sceptics eyebrows. What findings of the POA of the DENR that the herein petitioners are in fact "holding companies" to DMCI, only proves that they were in fact not
is the reason for such conversion? Did the said conversion not stem foreign corporations thus a recommendation of the rejection of their Filipino corporations from the start. The recent divesting of interest by
from the case challenging their citizenship and to have the case MPSA applications were recommended to the Secretary of the DENR. MBMI will not change the stand of this Court with respect to the
dismissed against them for being "moot"? It is quite obvious that it is With respect to the FTAA applications or conversion of the MPSA nationality of petitioners prior the suspicious change in their corporate
petitioners strategy to have the case dismissed against them for being applications to FTAAs, the CA deferred the matter for the determination structures. The new documents filed by petitioners are factual evidence
"moot." of the Secretary of the DENR and the President of the Republic of the that this Court has no power to verify.
Philippines.37
Consider the history of this case and how petitioners responded to The only thing clear and proved in this Court is the fact that the OP
every action done by the court or appropriate government agency: on In their Motion for Reconsideration dated October 26, 2010, petitioners declared that petitioner corporations have violated several mining laws
January 2, 2007, Redmont filed three separate petitions for denial of prayed for the dismissal of the petition asserting that on April 5, 2010, and made misrepresentations and falsehood in their applications for
the MPSA applications of petitioners before the POA. On June 15, 2007, then President Gloria Macapagal-Arroyo signed and issued in their favor FTAA which lead to the revocation of the said FTAAs, demonstrating
petitioners filed a conversion of their MPSA applications to FTAAs. The FTAA No. 05-2010-IVB, which rendered the petition moot and that petitioners are not beyond going against or around the law using
POA, in its December 14, 2007 Resolution, observed this suspect change academic. However, the CA, in a Resolution dated February 15, 2011 shifty actions and strategies. Thus, in this instance, we can say that their
of applications while the case was pending before it and held: denied their motion for being a mere "rehash of their claims and claim of mootness is moot in itself because their defense of conversion
defenses."38 Standing firm on its Decision, the CA affirmed the ruling of MPSAs to FTAAs has been discredited by the OP Decision.
The filing of the Financial or Technical Assistance Agreement application that petitioners are, in fact, foreign corporations. On April 5, 2011,
is a clear admission that the respondents are not capable of conducting petitioners elevated the case to us via a Petition for Review on Grandfather test
a large scale mining operation and that they need the financial and Certiorari under Rule 45, questioning the Decision of the CA.
technical assistance of a foreign entity in their operation that is why Interestingly, the OP rendered a Decision dated April 6, 2011, a day
The main issue in this case is centered on the issue of petitioners
they sought the participation of MBMI Resources, Inc. The participation after this petition for review was filed, cancelling and revoking the
nationality, whether Filipino or foreign. In their previous petitions, they
of MBMI in the corporation only proves the fact that it is the Canadian FTAAs, quoting the Order of the POA and stating that petitioners are
had been adamant in insisting that they were Filipino corporations, until
company that will provide the finances and the resources to operate foreign corporations since they needed the financial strength of MBMI,
they submitted their Manifestation and Submission dated October 19,
the mining areas for the greater benefit and interest of the same and Inc. in order to conduct large scale mining operations. The OP Decision
2012 where they stated the alleged change of corporate ownership to
not the Filipino stockholders who only have a less substantial financial also based the cancellation on the misrepresentation of facts and the
reflect their Filipino ownership. Thus, there is a need to determine the
stake in the corporation. violation of the "Small Scale Mining Law and Environmental Compliance
nationality of petitioner corporations.
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
xxxx Basically, there are two acknowledged tests in determining the
Motion for Reconsideration filed by the petitioners.
nationality of a corporation: the control test and the grandfather rule.
x x x The filing of the FTAA application on June 15, 2007, during the Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967
Respondent Redmont, in its Comment dated October 10, 2011, made
pendency of the case only demonstrate the violations and lack of SEC Rules which implemented the requirement of the Constitution and
known to the Court the fact of the OPs Decision and Resolution. In
qualification of the respondent corporations to engage in mining. The other laws pertaining to the controlling interests in enterprises engaged
their Reply, petitioners chose to ignore the OP Decision and continued
filing of the FTAA application conversion which is allowed foreign in the exploitation of natural resources owned by Filipino citizens,
to reuse their old arguments claiming that they were granted FTAAs
corporation of the earlier MPSA is an admission that indeed the provides:
and, thus, the case was moot. Petitioners filed a Manifestation and
respondent is not Filipino but rather of foreign nationality who is
Submission dated October 19, 2012,40 wherein they asserted that the
disqualified under the laws. Corporate documents of MBMI Resources, Shares belonging to corporations or partnerships at least 60% of the
present petition is moot since, in a remarkable turn of events, MBMI
Inc. furnished its stockholders in their head office in Canada suggest capital of which is owned by Filipino citizens shall be considered as of
was able to sell/assign all its shares/interest in the "holding companies"
that they are conducting operation only through their local Philippine nationality, but if the percentage of Filipino ownership in the
to DMCI Mining Corporation (DMCI), a Filipino corporation and, in
counterparts.36 corporation or partnership is less than 60%, only the number of shares
effect, making their respective corporations fully-Filipino owned.
corresponding to such percentage shall be counted as of Philippine at least sixty percent (60%) of the members of the Board of Directors, in The President may enter into agreements with Foreign-owned
nationality. Thus, if 100,000 shares are registered in the name of a order that the corporation shall be considered a Philippine national. corporations involving either technical or financial assistance for large-
corporation or partnership at least 60% of the capital stock or capital, (emphasis supplied) scale exploration, development, and utilization of minerals, petroleum,
respectively, of which belong to Filipino citizens, all of the shares shall and other mineral oils according to the general terms and conditions
be recorded as owned by Filipinos. But if less than 60%, or say, 50% of The grandfather rule, petitioners reasoned, has no leg to stand on in the provided by law, based on real contributions to the economic growth
the capital stock or capital of the corporation or partnership, instant case since the definition of a "Philippine National" under Sec. 3 and general welfare of the country. In such agreements, the State shall
respectively, belongs to Filipino citizens, only 50,000 shares shall be of the FIA does not provide for it. They further claim that the promote the development and use of local scientific and technical
counted as owned by Filipinos and the other 50,000 shall be recorded grandfather rule "has been abandoned and is no longer the applicable resources. (emphasis supplied)
as belonging to aliens. 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. The emphasized portion of Sec. 2 which focuses on the State entering
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares Petitioners claim that the clear and unambiguous wordings of the into different types of agreements for the exploration, development,
belonging to corporations or partnerships at least 60% of the capital of statute preclude the court from construing it and prevent the courts and utilization of natural resources with entities who are deemed
which is owned by Filipino citizens shall be considered as of Philippine use of discretion in applying the law. They said that the plain, literal Filipino due to 60 percent ownership of capital is pertinent to this case,
nationality," pertains to the control test or the liberal rule. On the other meaning of the statute meant the application of the control test is since the issues are centered on the utilization of our countrys natural
hand, the second part of the DOJ Opinion which provides, "if the obligatory. resources or specifically, mining. Thus, there is a need to ascertain the
percentage of the Filipino ownership in the corporation or partnership nationality of petitioners since, as the Constitution so provides, such
is less than 60%, only the number of shares corresponding to such We disagree. "Corporate layering" is admittedly allowed by the FIA; but agreements are only allowed corporations or associations "at least 60
percentage shall be counted as Philippine nationality," pertains to the if it is used to circumvent the Constitution and pertinent laws, then it percent of such capital is owned by such citizens." The deliberations in
stricter, more stringent grandfather rule. becomes illegal. Further, the pronouncement of petitioners that the the Records of the 1986 Constitutional Commission shed light on how a
grandfather rule has already been abandoned must be discredited for citizenship of a corporation will be determined:
Prior to this recent change of events, petitioners were constant in lack of basis.
advocating the application of the "control test" under RA 7042, as Mr. BENNAGEN: Did I hear right that the Chairmans interpretation of
amended by RA 8179, otherwise known as the Foreign Investments Act Art. XII, Sec. 2 of the Constitution provides: an independent national economy is freedom from undue foreign
(FIA), rather than using the stricter grandfather rule. The pertinent control? What is the meaning of undue foreign control?
provision under Sec. 3 of the FIA 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 MR. VILLEGAS: Undue foreign control is foreign control which sacrifices
SECTION 3. Definitions. - As used in this Act: timber, wildlife, flora and fauna, and other natural resources are owned national sovereignty and the welfare of the Filipino in the economic
by the State. With the exception of agricultural lands, all other natural sphere.
a.) The term Philippine national shall mean a citizen of the Philippines; resources shall not be alienated. The exploration, development, and
or a domestic partnership or association wholly owned by the citizens utilization of natural resources shall be under the full control and MR. BENNAGEN: Why does it have to be qualified still with the word
of the Philippines; a corporation organized under the laws of the supervision of the State. The State may directly undertake such "undue"? Why not simply freedom from foreign control? I think that is
Philippines of which at least sixty percent (60%) of the capital stock activities, or it may enter into co-production, joint venture or the meaning of independence, because as phrased, it still allows for
outstanding and entitled to vote is wholly owned by Filipinos or a production-sharing agreements with Filipino citizens, or corporations or foreign control.
trustee of funds for pension or other employee retirement or associations at least sixty per centum of whose capital is owned by such
separation benefits, where the trustee is a Philippine national and at citizens. Such agreements may be for a period not exceeding twenty- MR. VILLEGAS: It will now depend on the interpretation because if, for
least sixty percent (60%) of the fund will accrue to the benefit of five years, renewable for not more than twenty-five years, and under example, we retain the 60/40 possibility in the cultivation of natural
Philippine nationals: Provided, That were a corporation and its non- such terms and conditions as may be provided by law. resources, 40 percent involves some control; not total control, but
Filipino stockholders own stocks in a Securities and Exchange some control.
Commission (SEC) registered enterprise, at least sixty percent (60%) of xxxx
the capital stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of the Philippines and
MR. BENNAGEN: In any case, I think in due time we will propose some another corporation which is permitted by the Corporation Code, does there is no need to further trace the ownership of the 60% (or more)
amendments. the Committee adopt the grandfather rule? Filipino stockholdings of the Investing Corporation since a corporation
which is at least 60% Filipino-owned is considered as Filipino.
MR. VILLEGAS: Yes. But we will be open to improvement of the MR. VILLEGAS: Yes, that is the understanding of the Committee.
phraseology. The second case is the Strict Rule or the Grandfather Rule Proper and
MR. NOLLEDO: Therefore, we need additional Filipino capital? pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
Mr. BENNAGEN: Yes. states, "but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding
MR. VILLEGAS: Yes.42 (emphasis supplied)
to such percentage shall be counted as of Philippine nationality." Under
Thank you, Mr. Vice-President.
the Strict Rule or Grandfather Rule Proper, the combined totals in the
It is apparent that it is the intention of the framers of the Constitution Investing Corporation and the Investee Corporation must be traced (i.e.,
xxxx to apply the grandfather rule in cases where corporate layering is "grandfathered") to determine the total percentage of Filipino
present. ownership.
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 Elementary in statutory construction is when there is conflict between Moreover, the ultimate Filipino ownership of the shares must first be
Section 9, and 2/3-1/3 in Section 15. the Constitution and a statute, the Constitution will prevail. In this traced to the level of the Investing Corporation and added to the shares
instance, specifically pertaining to the provisions under Art. XII of the directly owned in the Investee Corporation x x x.
MR. VILLEGAS: That is right. Constitution on National Economy and Patrimony, Sec. 3 of the FIA will
have no place of application. As decreed by the honorable framers of
xxxx
our Constitution, the grandfather rule prevails and must be applied.
MR. NOLLEDO: In teaching law, we are always faced with the question:
Where do we base the equity requirement, is it on the authorized In other words, based on the said SEC Rule and DOJ Opinion, the
capital stock, on the subscribed capital stock, or on the paid-up capital Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
Grandfather Rule or the second part of the SEC Rule applies only when
stock of a corporation? Will the Committee please enlighten me on the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases
this? The above-quoted SEC Rules provide for the manner of calculating the where the joint venture corporation with Filipino and foreign
Filipino interest in a corporation for purposes, among others, of stockholders with less than 60% Filipino stockholdings [or 59%] invests
MR. VILLEGAS: We have just had a long discussion with the members of determining compliance with nationality requirements (the Investee in other joint venture corporation which is either 60-40% Filipino-alien
the team from the UP Law Center who provided us with a draft. The Corporation). Such manner of computation is necessary since the or the 59% less Filipino). Stated differently, where the 60-40 Filipino-
phrase that is contained here which we adopted from the UP draft is shares in the Investee Corporation may be owned both by individual foreign equity ownership is not in doubt, the Grandfather Rule will not
60 percent of the voting stock. stockholders (Investing Individuals) and by corporations and apply. (emphasis supplied)
partnerships (Investing Corporation). The said rules thus provide for
the determination of nationality depending on the ownership of the
MR. NOLLEDO: That must be based on the subscribed capital stock, After a scrutiny of the evidence extant on record, the Court finds that
Investee Corporation and, in certain instances, the Investing
because unless declared delinquent, unpaid capital stock shall be this case calls for the application of the grandfather rule since, as ruled
Corporation.
entitled to vote. 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
Under the above-quoted SEC Rules, there are two cases in determining present in the 60-40 Filipino equity ownership of petitioners Narra,
MR. VILLEGAS: That is right.
the nationality of the Investee Corporation. The first case is the liberal McArthur and Tesoro, since their common investor, the 100% Canadian
rule, later coined by the SEC as the Control Test in its 30 May 1990 corporationMBMI, funded them. However, petitioners also claim that
MR. NOLLEDO: Thank you. Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC there is "doubt" only when the stockholdings of Filipinos are less than
Rules which states, (s)hares belonging to corporations or partnerships 60%.43
With respect to an investment by one corporation in another at least 60% of the capital of which is owned by Filipino citizens shall be
corporation, say, a corporation with 60-40 percent equity invests in considered as of Philippine nationality. Under the liberal Control Test,
The assertion of petitioners that "doubt" only exists when the B. Esguerra
Fernando Filipino 1 PhP 1,000.00 PhP 1,000.00
stockholdings are less than 60% fails to convince this Court. DOJ
Opinion No. 20, which petitioners quoted in their petition,
Manuelonly made
A. Agcaoili Filipino 1 PhP Hernando
1,000.00 PhP 1,000.00
an example of an instance where "doubt" as to the ownership of the
Michael T. Mason
corporation exists. It would be ludicrous to limit the application of the American 1 PhP Michael
1,000.00T. Mason PhPAmerican
1,000.00 1 PhP 1,000.00 PhP 1,000

said word only to the instances where the stockholdings of non-Filipino


Kenneth Cawkell Canadian 1 PhP Kenneth
1,000.00 Cawkell PhPCanadian
1,000.00 1 PhP 1,000.00 PhP 1,000
stockholders are more than 40% of the total stockholdings in a
corporation. The corporations interested in circumventing our laws Total 10,000 PhP 10,000,000.00 Total
PhP 2,708,174.60 10,000 PhP 10,000,000.00 PhP 2,809,9
would clearly strive to have "60% Filipino Ownership" at face value. It (emphasis supplied)
would be senseless for these applying corporations to state in their (emphasis su
respective articles of incorporation that they have less than 60% Filipino
stockholders since the applications will be denied instantly. Thus, Interestingly, looking at the corporate structure of MMC, we take note
that it has a similar structure and composition as McArthur. In fact, it Noticeably, Olympic Mines & Development Corporation (Olympic) did
various corporate schemes and layerings are utilized to circumvent the
would seem that MBMI is also a major investor and "controls"45 MBMI not pay any amount with respect to the number of shares they
application of the Constitution.
and also, similar nominal shareholders were present, i.e. Fernando B. subscribed to in the corporation, which is quite absurd since Olympic is
Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason the major stockholder in MMC. MBMIs 2006 Annual Report sheds light
Obviously, the instant case presents a situation which exhibits a scheme on why Olympic failed to pay any amount with respect to the number
(Mason) and Kenneth Cawkell (Cawkell):
employed by stockholders to circumvent the law, creating a cloud of of shares it subscribed to. It states that Olympic entered into joint
doubt in the Courts mind. To determine, therefore, the actual venture agreements with several Philippine companies, wherein it holds
participation, direct or indirect, of MBMI, the grandfather rule must be Madridejos Mining Corporation
directly and indirectly a 60% effective equity interest in the Olympic
used. Properties.46 Quoting the said Annual report:
Name Nationality Number of Shares Amount Subscribed Amount Paid
McArthur Mining, Inc. On September 9, 2004, the Company and Olympic Mines &
Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0
Development Corporation ("Olympic") entered into a series of
To establish the actual ownership, interest or participation of MBMI in agreements including a Property Purchase and Development
each of petitioners corporate structure, they have toDevelopment
be Agreement (the Transaction Documents) with respect to three nickel
"grandfathered." laterite properties in Palawan, Philippines (the "Olympic Properties").
Corp. The Transaction Documents effectively establish a joint venture
As previously discussed, McArthur acquired its MPSAMBMIapplication from between the Company and Olympic for purposes of developing the
Resources, Canadian 3,331 PhP 3,331,000.00 PhPOlympic
2,803,900.00
Properties. The Company holds directly and indirectly an initial
MMC, which acquired its application from SMMI. McArthur has a
capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 60% interest in the joint venture. Under certain circumstances and
common shares at one thousand pesos (PhP 1,000) per Inc.share, upon achieving certain milestones, the Company may earn up to a
subscribed to by the following: 44 100% interest, subject to a 2.5% net revenue royalty.47 (emphasis
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
supplied)
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Name Nationality Number of Shares Amount Subscribed Amount Paid Thus, as demonstrated in this first corporation, McArthur, when it is
ejos Mining Filipino 5,997 PhP 5,997,000.00
Esguerra PhP 825,000.00 "grandfathered," company layering was utilized by MBMI to gain
tion control over McArthur. It is apparent that MBMI has more than 60% or
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
more equity interest in McArthur, making the latter a foreign
esources, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60 corporation.
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital Except for the name "Sara Marie Mining, Inc.," the table above shows
stock of ten million pesos (PhP 10,000,000) divided into ten thousand exactly the same figures as the corporate structure of petitioner
(10,000) common shares at PhP 1,000 per share, as demonstrated McArthur, down to the last centavo. All the other shareholders are the Hernando
below: same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The
figures under "Nationality," "Number of Shares," "Amount Subscribed," Michael T. Mason American 1 PhP 1,000.00
[[reference and "Amount Paid" are exactly the same. Delving deeper, we scrutinize
SMMIs corporate structure: Kenneth Cawkell Canadian 1 PhP 1,000.00
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2
014/april2014/195580.pdf]]
Total 10,000 PhP 10,000,000.0
Sara Marie Mining, Inc.

Name Nationality Number of Amount Amount Paid


[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2
Shares Subscribed
014/april2014/195580.pdf]] After subsequently studying SMMIs corporate structure, it is not
farfetched for us to spot the glaring similarity between SMMI and
Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
MMCs corporate structure. Again, the presence of identical
Name Nationality Number of Amount Amount Paid
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
Mining, Inc. Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the
Shares Subscribed
headings "Nationality," "Number of Shares," "Amount Subscribed," and
MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60 "Amount Paid" are exactly the same except for the amount paid by
Olympic Mines & Filipino 6,663 PhP 6,663,000.00
MBMI which now reflects the PhPamount
0 of two million seven hundred
Resources, Inc. ninety four thousand pesos (PhP 2,794,000). Oddly, the total value of
Development the amount paid is two million eight hundred nine thousand nine
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00 hundred pesos (PhP 2,809,900).
Corp.
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00 Accordingly, after "grandfathering" petitioner Tesoro and factoring in
MBMI Resources, Canadian 3,331 Olympics participation
PhP 3,331,000.00 PhPin2,794,000.00
SMMIs corporate structure, it is clear that
Esguerra MBMI is in control of Tesoro and owns 60% or more equity interest in
Inc. Tesoro. This makes petitioner Tesoro a non-Filipino corporation and,
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00 thus, disqualifies it to participate in the exploitation, utilization and
Amanti Limson Filipino 1 development of our natural
PhP 1,000.00 resources.
PhP 1,000.00
Agcaoili
Fernando B. Filipino 1 Narra Nickel Mining and
PhP 1,000.00 Development
PhP 1,000.00 Corporation
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Esguerra Moving on to the last petitioner, Narra, which is the transferee and
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 assignee of PLMDCs MPSA application, whose corporate structures
Lauro Salazar Filipino 1 arrangement is similar PhP
PhP 1,000.00 to that of the first two petitioners discussed. The
1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60 capital stock of Narra is ten million pesos (PhP 10,000,000), which is
Emmanuel G. Filipino 1 divided into ten thousand
PhP 1,000.00 PhPcommon
1,000.00shares (10,000) at one thousand
(emphasis supplied) pesos (PhP 1,000) per share, shown as follows:
[[reference Total 10,000 PhP 10,000,000.00 PhP 2,7
Robert L. American 1 PhP 1,000.00 PhP 1,000.00
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2 (em
014/april2014/195580.pdf]] sup
McCurdy

Name Nationality Number of Kenneth Cawkell


Amount Canadian
Amount Paid 1 PhP 1,000.00 PhP 1,000.00
Yet again, the usual players in petitioners corporate structures are
present. Similarly, the amount of money paid by the 2nd tier majority
Shares Subscribed Total 10,000 PhP 10,000,000.00 PhP 2,800,000.00
stock holder, in this case, Palawan Alpha South Resources and
Development Corp.(emphasis
(PASRDC),supplied)
is zero.
Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00
Again, MBMI, along with other nominal stockholders, i.e., Mason, Studying MBMIs Summary of Significant Accounting Policies dated
Mining & October 31, 2005 explains the reason behind the intricate corporate
Agcaoili and Esguerra, is present in this corporate structure.
layering that MBMI immersed itself in:
Development Patricia Louise Mining & Development Corporation
JOINT VENTURES The Companys ownership interests in various mining
ventures engaged in the acquisition, exploration and development of
Corp. Using the grandfather method, we further look and examine PLMDCs mineral properties in the Philippines is described as follows:
corporate structure:
MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00
(a) Olympic Group
Name Nationality Number of Amount Amount Paid
Resources, Inc.
Shares Subscribed The Philippine companies holding the Olympic Property, and the
Higinio C. Filipino 1 PhP 1,000.00Development PhP 1,000.00 ownership and interests therein, are as follows:
Palawan Alpha South Resources Filipino 6,596 PhP 6,596,000.00 PhP 0
Corporation
Mendoza, Jr. Olympic- Philippines (the "Olympic Group")
MBMI Resources, Canadian 3,396 PhP 3,396,000.00 PhP 2,796,000.00
Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00 Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Inc.
Fernandez Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 Tesoro
PhPMining & Development, Inc. (Tesoro) 60.0%
1,000.00

Manuel A. Filipino Fernando


1 B. Esguerra
PhP 1,000.00 Filipino
PhP 1,000.00 1 PhP 1,000.00 PhP 1,000.00
Pursuant to the Olympic joint venture agreement the Company holds
Henry E. Fernandez Filipino 1 PhP 1,000.00 directly and indirectly an effective equity interest in the Olympic
PhP 1,000.00
Agcaoili Property of 60.0%. Pursuant to a shareholders agreement, the
Lauro L. Salazar Filipino 1 PhP 1,000.00 Company exercises joint control over the companies in the Olympic
PhP 1,000.00
Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00 Group.
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bocalan Bayani H. Agabin Filipino 1 PhP 1,000.00 (b) Alpha Group
PhP 1,000.00

Bayani H. Agabin Filipino Michael


1 T. Mason PhP 1,000.00 PhP American
1,000.00 1 PhP 1,000.00 PhP 1,000.00
The Philippine companies holding the Alpha Property, and the
Kenneth Cawkell Canadian 1 PhP 1,000.00 ownership interests therein, are as follows:
PhP 1,000.00
Alpha- Philippines (the "Alpha Group") Sec. 29. Admission by co-partner or agent.- The act or declaration of a since it is difficult to distinguish between joint ventures and
partner or agent of the party within the scope of his authority and partnerships. Thus:
Patricia Louise Mining Development Inc. ("Patricia") 34.0% during the existence of the partnership or agency, may be given in
evidence against such party after the partnership or agency is shown by [T]he relations of the parties to a joint venture and the nature of their
evidence other than such act or declaration itself. The same rule applies association are so similar and closely akin to a partnership that it is
Narra Nickel Mining & Development Corporation (Narra) 60.4%
to the act or declaration of a joint owner, joint debtor, or other person ordinarily held that their rights, duties, and liabilities are to be tested by
jointly interested with the party. rules which are closely analogous to and substantially the same, if not
Under a joint venture agreement the Company holds directly and
exactly the same, as those which govern partnership. In fact, it has been
indirectly an effective equity interest in the Alpha Property of 60.4%.
Sec. 31. Admission by privies.- Where one derives title to property from said that the trend in the law has been to blur the distinctions between
Pursuant to a shareholders agreement, the Company exercises joint
another, the act, declaration, or omission of the latter, while holding a partnership and a joint venture, very little law being found applicable
control over the companies in the Alpha Group.48 (emphasis supplied)
the title, in relation to the property, is evidence against the former. to one that does not apply to the other.51

Concluding from the above-stated facts, it is quite safe to say that


Petitioners claim that before the above-mentioned Rule can be applied Though some claim that partnerships and joint ventures are totally
petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a
to a case, "the partnership relation must be shown, and that proof of different animals, there are very few rules that differentiate one from
100% Canadian corporation, owns 60% or more of their equity
the fact must be made by evidence other than the admission the other; thus, joint ventures are deemed "akin" or similar to a
interests. Such conclusion is derived from grandfathering petitioners
itself."49 Thus, petitioners assert that the CA erred in finding that a partnership. In fact, in joint venture agreements, rules and legal
corporate owners, namely: MMI, SMMI and PLMDC. Going further and
partnership relationship exists between them and MBMI because, in incidents governing partnerships are applied.52
adding to the picture, MBMIs Summary of Significant Accounting
fact, no such partnership exists.
Policies statement regarding the "joint venture" agreements that it
entered into with the "Olympic" and "Alpha" groupsinvolves SMMI, Accordingly, culled from the incidents and records of this case, it can be
Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered" Partnerships vs. joint venture agreements assumed that the relationships entered between and among petitioners
corporations boils down to MBMI, Olympic or corporations under the and MBMI are no simple "joint venture agreements." As a rule,
"Alpha" group wherein MBMI has joint venture agreements with, Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the corporations are prohibited from entering into partnership agreements;
practically exercising majority control over the corporations mentioned. Rules by stating that "by entering into a joint venture, MBMI have a consequently, corporations enter into joint venture agreements with
In effect, whether looking at the capital structure or the underlying joint interest" with Narra, Tesoro and McArthur. They challenged the other corporations or partnerships for certain transactions in order to
relationships between and among the corporations, petitioners are NOT conclusion of the CA which pertains to the close characteristics of form "pseudo partnerships."
Filipino nationals and must be considered foreign since 60% or more of
their capital stocks or equity interests are owned by MBMI. "partnerships" and "joint venture agreements." Further, they asserted Obviously, as the intricate web of "ventures" entered into by and
that before this particular partnership can be formed, it should have among petitioners and MBMI was executed to circumvent the legal
Application of the res inter alios acta rule been formally reduced into writing since the capital involved is more prohibition against corporations entering into partnerships, then the
than three thousand pesos (PhP 3,000). Being that there is no evidence relationship created should be deemed as "partnerships," and the laws
of written agreement to form a partnership between petitioners and on partnership should be applied. Thus, a joint venture agreement
Petitioners question the CAs use of the exception of the res inter alios
MBMI, no partnership was created. between and among corporations may be seen as similar to
acta or the "admission by co-partner or agent" rule and "admission by
partnerships since the elements of partnership are present.
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 We disagree.
since it is not a party to the case and that it is not a "partner" of Considering that the relationships found between petitioners and
petitioners. MBMI are considered to be partnerships, then the CA is justified in
A partnership is defined as two or more persons who bind themselves
applying Sec. 29, Rule 130 of the Rules by stating that "by entering into
to contribute money, property, or industry to a common fund with the
a joint venture, MBMI have a joint interest" with Narra, Tesoro and
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide: intention of dividing the profits among themselves.50 On the other
McArthur.
hand, joint ventures have been deemed to be "akin" to partnerships
Panel of Arbitrators jurisdiction announcement, with the concerned Regional Office or through any to those disputes relative to the applications for a mineral agreement or
concerned PENRO or CENRO for filing in the concerned Regional Office conferment of mining rights.
We affirm the ruling of the CA in declaring that the POA has jurisdiction for purposes of its resolution by the Panel of Arbitrators pursuant to the
over the instant case. The POA has jurisdiction to settle disputes over provisions of this Act and these implementing rules and regulations. The jurisdiction of the POA over adverse claims, protest, or oppositions
rights to mining areas which definitely involve the petitions filed by Upon final resolution of any adverse claim, protest or opposition, the to a mining right application is further elucidated by Secs. 219 and 43 of
Redmont against petitioners Narra, McArthur and Tesoro. Redmont, by Panel of Arbitrators shall likewise issue a certification to that effect DENR AO 95-936, which read:
filing its petition against petitioners, is asserting the right of Filipinos within five (5) working days from the date of finality of resolution
over mining areas in the Philippines against alleged foreign-owned thereof. Where there is no adverse claim, protest or opposition, the
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
mining corporations. Such claim constitutes a "dispute" found in Sec. 77 Panel of Arbitrators shall likewise issue a Certification to that effect
Notwithstanding the provisions of Sections 28, 43 and 57 above, any
of RA 7942: within five working days therefrom.
adverse claim, protest or opposition specified in said sections may also
be filed directly with the Panel of Arbitrators within the concerned
Within thirty (30) days, after the submission of the case by the parties xxxx periods for filing such claim, protest or opposition as specified in said
for the decision, the panel shall have exclusive and original jurisdiction Sections.
to hear and decide the following: No Mineral Agreement shall be approved unless the requirements
under this Section are fully complied with and any adverse Sec. 43. Publication/Posting of Mineral Agreement.-
(a) Disputes involving rights to mining areas claim/protest/opposition is finally resolved by the Panel of Arbitrators.
xxxx
(b) Disputes involving mineral agreements or permits Sec. 41.
The Regional Director or concerned Regional Director shall also cause
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia xxxx the posting of the application on the bulletin boards of the Bureau,
Corp.:53 concerned Regional office(s) and in the concerned province(s) and
Within fifteen (15) working days form the receipt of the Certification municipality(ies), copy furnished the barangays where the proposed
The phrase "disputes involving rights to mining areas" refers to any issued by the Panel of Arbitrators as provided in Section 38 hereof, the contract area is located once a week for two (2) consecutive weeks in a
adverse claim, protest, or opposition to an application for mineral concerned Regional Director shall initially evaluate the Mineral language generally understood in the locality. After forty-five (45) days
agreement. The POA therefore has the jurisdiction to resolve any Agreement applications in areas outside Mineral reservations. He/She from the last date of publication/posting has been made and no
adverse claim, protest, or opposition to a pending application for a shall thereafter endorse his/her findings to the Bureau for further adverse claim, protest or opposition was filed within the said forty-five
mineral agreement filed with the concerned Regional Office of the evaluation by the Director within fifteen (15) working days from receipt (45) days, the concerned offices shall issue a certification that
MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40, which of forwarded documents. Thereafter, the Director shall endorse the publication/posting has been made and that no adverse claim, protest
provide: same to the secretary for consideration/approval within fifteen working or opposition of whatever nature has been filed. On the other hand, if
days from receipt of such endorsement. there be any adverse claim, protest or opposition, the same shall be
filed within forty-five (45) days from the last date of
Sec. 38.
In case of Mineral Agreement applications in areas with Mineral publication/posting, with the Regional Offices concerned, or through
Reservations, within fifteen (15) working days from receipt of the the Departments Community Environment and Natural Resources
xxxx Officers (CENRO) or Provincial Environment and Natural Resources
Certification issued by the Panel of Arbitrators as provided for in
Section 38 hereof, the same shall be evaluated and endorsed by the Officers (PENRO), to be filed at the Regional Office for resolution of the
Within thirty (30) calendar days from the last date of Director to the Secretary for consideration/approval within fifteen days Panel of Arbitrators. However previously published valid and subsisting
publication/posting/radio announcements, the authorized officer(s) of from receipt of such endorsement. (emphasis supplied) mining claims are exempted from posted/posting required under this
the concerned office(s) shall issue a certification(s) that the Section.
publication/posting/radio announcement have been complied with.
It has been made clear from the aforecited provisions that the "disputes
Any adverse claim, protest, opposition shall be filed directly, within
involving rights to mining areas" under Sec. 77(a) specifically refer only
thirty (30) calendar days from the last date of publication/posting/radio
No mineral agreement shall be approved unless the requirements Officers (CENRO) or Provincial Environment and Natural Resources Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
under this section are fully complied with and any opposition/adverse Officers (PENRO), to be filed at the Regional Office for resolution of the
claim is dealt with in writing by the Director and resolved by the Panel Panel of Arbitrators. However, previously published valid and subsisting Act of 1980" reads:
of Arbitrators. (Emphasis supplied.) mining claims are exempted from posted/posting required under this
Section.
Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall exercise
It has been made clear from the aforecited provisions that the "disputes exclusive original jurisdiction:
involving rights to mining areas" under Sec. 77(a) specifically refer only No mineral agreement shall be approved unless the requirements
to those disputes relative to the applications for a mineral agreement or under this section are fully complied with and any opposition/adverse
1. In all civil actions in which the subject of the litigation is incapable of
conferment of mining rights. claim is dealt with in writing by the Director and resolved by the Panel
pecuniary estimation.
of Arbitrators. (Emphasis supplied.)
The jurisdiction of the POA over adverse claims, protest, or oppositions
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77
to a mining right application is further elucidated by Secs. 219 and 43 of These provisions lead us to conclude that the power of the POA to
of RA 7942:
DENRO AO 95-936, which reads: 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 Section 77. Panel of Arbitrators.
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.-
Notwithstanding the provisions of Sections 28, 43 and 57 above, any mineral rights.
adverse claim, protest or opposition specified in said sections may also x x x Within thirty (30) days, after the submission of the case
be filed directly with the Panel of Arbitrators within the concerned POAs jurisdiction is confined only to resolutions of such adverse claims, by the parties for the decision, the panel shall have exclusive
periods for filing such claim, protest or opposition as specified in said conflicts and oppositions and it has no authority to approve or reject and original jurisdiction to hear and decide the following:
Sections. said applications. Such power is vested in the DENR Secretary upon
recommendation of the MGB Director. Clearly, POAs jurisdiction over (c) Disputes involving rights to mining areas
Sec. 43. Publication/Posting of Mineral Agreement Application.- "disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. (emphasis ours) (d) Disputes involving mineral agreements or permits
xxxx
Accordingly, as we enunciated in Celestial, the POA unquestionably has It is clear that POA has exclusive and original jurisdiction over any and
jurisdiction to resolve disputes over MPSA applications subject of all disputes involving rights to mining areas. One such dispute is an
The Regional Director or concerned Regional Director shall also cause
Redmonts petitions. However, said jurisdiction does not include either MPSA application to which an adverse claim, protest or opposition is
the posting of the application on the bulletin boards of the Bureau,
the approval or rejection of the MPSA applications, which is vested only filed by another interested applicant.1wphi1 In the case at bar, the
concerned Regional office(s) and in the concerned province(s) and
upon the Secretary of the DENR. Thus, the finding of the POA, with dispute arose or originated from MPSA applications where petitioners
municipality(ies), copy furnished the barangays where the proposed
respect to the rejection of petitioners MPSA applications being that are asserting their rights to mining areas subject of their respective
contract area is located once a week for two (2) consecutive weeks in a
they are foreign corporation, is valid. MPSA applications. Since respondent filed 3 separate petitions for the
language generally understood in the locality. After forty-five (45) days
from the last date of publication/posting has been made and no denial of said applications, then a controversy has developed between
adverse claim, protest or opposition was filed within the said forty-five Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the parties and it is POAs jurisdiction to resolve said disputes.
(45) days, the concerned offices shall issue a certification that the regular courts, not the POA, that has jurisdiction over the MPSA
publication/posting has been made and that no adverse claim, protest applications of petitioners. Moreover, the jurisdiction of the RTC involves civil actions while what
or opposition of whatever nature has been filed. On the other hand, if petitioners filed with the DENR Regional Office or any concerned DENRE
there be any adverse claim, protest or opposition, the same shall be This postulation is incorrect. or CENRO are MPSA applications. Thus POA has jurisdiction.
filed within forty-five (45) days from the last date of
publication/posting, with the Regional offices concerned, or through It is basic that the jurisdiction of the court is determined by the statute
the Departments Community Environment and Natural Resources in force at the time of the commencement of the action.54
Furthermore, the POA has jurisdiction over the MPSA applications In ending, the "control test" is still the prevailing mode of determining CARPIO, J.:
under the doctrine of primary jurisdiction. Euro-med Laboratories v. whether or not a corporation is a Filipino corporation, within the ambit
Province of Batangas55 elucidates: of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the Prologue
exploration, development and utilization of the natural resources of the
The doctrine of primary jurisdiction holds that if a case is such that its Philippines. When in the mind of the Court there is doubt, based on the
This case is an anatomy of a 6.185 billion1 pillage of the public coffers
determination requires the expertise, specialized training and attendant facts and circumstances of the case, in the 60-40 Filipino-
that ranks among one of the most brazen and hideous in the history of
knowledge of an administrative body, relief must first be obtained in an equity ownership in the corporation, then it may apply the "grandfather
this country. This case answers the questions why our Government
administrative proceeding before resort to the courts is had even if the rule."
perennially runs out of funds to provide basic services to our people,
matter may well be within their proper jurisdiction. why the great masses of the Filipino people wallow in poverty, and why
WHEREFORE, premises considered, the instant petition is DENIED. The a very select few amass unimaginable wealth at the expense of the
Whatever may be the decision of the POA will eventually reach the assailed Court of Appeals Decision dated October 1, 2010 and Filipino people.
court system via a resort to the CA and to this Court as a last recourse. Resolution dated February 15, 2011 are hereby AFFIRMED.
On 1 May 2007, the 30-year old franchise of Philippine National
Selling of MBMIs shares to DMCI SO ORDERED. Construction Corporation (PNCC) under Presidential Decree No. 1113
(PD 1113), as amended by Presidential Decree No. 1894 (PD 1894),
As stated before, petitioners Manifestation and Submission dated expired. During the 13th Congress, PNCC sought to extend its franchise.
October 19, 2012 would want us to declare the instant petition moot PNCC won approval from the House of Representatives, which passed
and academic due to the transfer and conveyance of all the House Bill No. 57492 renewing PNCCs franchise for another 25 years.
shareholdings and interests of MBMI to DMCI, a corporation duly However, PNCC failed to secure approval from the Senate, dooming the
organized and existing under Philippine laws and is at least 60% extension of PNCCs franchise. Led by Senator Franklin M. Drilon, the
Philippine-owned.56 Petitioners reasoned that they now cannot be Senate opposed PNCCs plea for extension of its franchise.3 Senator
considered as foreign-owned; the transfer of their shares supposedly Drilons privilege speech4 explains why the Senate chose not to renew
cured the "defect" of their previous nationality. They claimed that their G.R. No. 178158 December 4, 2009 PNCCs franchise:
current FTAA contract with the State should stand since "even wholly-
owned foreign corporations can enter into an FTAA with the STRATEGIC ALLIANCE DEVELOPMENT CORPORATION, Petitioner, I repeat, Mr. President. PNCC has agreed in a compromise agreement
State."57Petitioners stress that there should no longer be any issue left vs. dated 17 August 2006 to transfer to Radstock Securities Limited
as regards their qualification to enter into FTAA contracts since they are RADSTOCK SECURITIES LIMITED and PHILIPPINE NATIONAL 17,676,063,922, no small money, Mr. President, my dear colleagues,
qualified to engage in mining activities in the Philippines. Thus, whether CONSTRUCTION CORPORATION,Respondents. 17.6 billion.
the "grandfather rule" or the "control test" is used, the nationalities of ASIAVEST MERCHANT BANKERS BERHAD, Intervenor.
petitioners cannot be doubted since it would pass both tests. What does it consist of? It consists of the following: 19 pieces of real
x - - - - - - - - - - - - - - - - - - - - - - -x estate properties with an appraised value of 5,993,689,000. Do we
The sale of the MBMI shareholdings to DMCI does not have any bearing know what is the bulk of this? An almost 13-hectare property right here
in the instant case and said fact should be disregarded. The G.R. No. 180428 in the Financial Center. As we leave the Senate, as we go out of this
manifestation can no longer be considered by us since it is being tackled Hall, as we drive thru past the GSIS, we will see on the right a vacant lot,
in G.R. No. 202877 pending before this Court.1wphi1 Thus, the that is PNCC property. As we turn right on Diosdado Macapagal, we see
question of whether petitioners, allegedly a Philippine-owned LUIS SISON, Petitioner, on our right new buildings, these are all PNCC properties. That is 12.9
corporation due to the sale of MBMI's shareholdings to DMCI, are vs. hectares of valuable asset right in this Financial Center that is worth
allowed to enter into FTAAs with the State is a non-issue in this case. PHILIPPINE NATIONAL CONSTRUCTION CORPORATION and RADSTOCK 5,993,689.000.
SECURITIES LIMITED,Respondents.

DECISION
What else, Mr. President? The 20% of the outstanding capital stock of Mr. President, are we not entitled, as members of the Committee, to More importantly, Mr. President, equally recognized is the obligation of
PNCC with a par value of 2,300,000,000-- I repeat, 20% of the know who is Radstock Securities Limited? PNCC to the Philippine government to the tune of 36 billion. PNCC
outstanding capital stock of PNCC worth 2,300 billion-- was assigned owes the Philippine government 36 billion recognized in its books,
to Radstock. Radstock Securities Limited was allegedly incorporated under the laws apart from 3 billion in taxes. Why in the face of all of these is Radstock
of the British Virgin Islands. It has no known board of directors, except given preference? Why is it that Radstock is given preference to claim
In addition, Mr. President and my dear colleagues, please hold on to for its recently appointed attorney-in-fact, Mr. Carlos Dominguez. 17.676 billion of the assets of PNCC and give it superior status over the
your seats because part of the agreement is 50% of PNCCs 6% share in claim of the Philippine government, of the Filipino people to the extent
the gross toll revenue of the Manila North Tollways Corporation for 27 of 36 billion and taxes in the amount of P3 billion? Why, Mr.
Mr. President, are the members of the Committee not entitled to know
years, from 2008 to 2035, is being assigned to Radstock. How much is President? Why is Radstock given preference not only over the
why 20 years after the account to Marubeni Corporation, which gave
this worth? It is worth 9,382,374,922. I repeat, 9,382,374,922. Philippine government claims of 39 billion but also over other
rise to the compromise agreement 20 years after the obligation was
creditors including a certain best merchant banker in Asia, which has
allegedly incurred, PNCC suddenly recognized this obligation in its
already a final and executory judgment against PNCC for about 300
xxxx books when in fact this obligation was not found in its books for 20
million? Why, Mr. President? Are we not entitled to know why the
years?
compromise agreement assigned 17.676 billion to Radstock? Why was
Mr. President, 17,676,000,000, however, was made to appear in the it executed?5 (Emphasis supplied)
agreement to be only worth 6,196,156,488. How was this achieved? In other words, Mr. President, for 20 years, the financial statements of
How was an aggregate amount of 17,676,000,000 made to appear to PNCC did not show any obligation to Marubeni, much less, to Radstock.
Aside from Senator Drilon, Senator Sergio S. Osmea III also saw
be only 6,196,156,488? First, the 19 pieces of real estate worth Why suddenly on October 20, 2000, 10 billion in obligation was
irregularities in the transactions involving the Marubeni loans, thus:
5,993,689,000 were only assigned a value of 4,195,000,000 or only recognized? Why was it recognized?
70% of their appraised value.
SEN. OSMEA. Ah okay. Good.
During the hearing on December 18, Mr. President, we asked this
Second, the PNCC shares of stock with a par value of 2.3 billion were question to the Asset Privatization Trust (APT) trustee, Atty. Raymundo
marked to market and therefore were valued only at 713 million. Francisco, and he was asked: "What is the basis of your Now, I'd like to point out to the Committee that it seems that this was
recommendation to recognize this?" He said: "I based my a politically driven deal like IMPSA. Because the acceptance of the 10
recommendation on a legal opinion of Feria and Feria." I asked him: billion or 13 billion debt came in October 2000 and the Radstock
Third, the share of the toll revenue assigned was given a net present
"Who knew of this opinion?" He said: "Only me and the chairman of assignment was January 10, 2001. Now, why would Marubeni sell for $2
value of only 1,287,000,000 because of a 15% discounted rate that
PNCC, Atty. Renato Valdecantos." I asked him: "Did you share this million three months after there was a recognition that it was owed 10
was applied.
opinion with the members of the board who recognized the obligation billion. Can you explain that, Mr. Dominguez?
of 10 billion?" He said: "No." "Can you produce this opinion now?" He
In other words, Mr. President, the toll collection of 9,382,374,922 for
said: "I have no copy." MR. DOMINGUEZ. Your Honor, I am not aware of the decision making
27 years was given a net present value of only 1,287,000,000 so that it
process of Marubeni. But my understanding was, the Japanese culture
is made to appear that the compromise agreement is only worth
Mysteriously, Mr. President, an obligation of 10 billion based on a is not a litigious one and they didn't want to get into a, you know, a
6,196,000,000.
legal opinion which, even Mr. Arthur Aguilar, the chairman of PNCC, is court situation here in the Philippines having a lot of other interest, et
not aware of, none of the members of the PNCC board on October 20, cetera.
Mr. President, my dear colleagues, this agreement will substantially
2000 who recognized this obligation had seen this opinion. It is
wipe out all the assets of PNCC. It will be left with nothing else except,
mysterious. SEN. OSMEA. Well, but that is beside the point, Mr. Dominguez. All I
probably, the collection for the next 25 years or so from the North
am asking is does it stand to reason that after you get an acceptance by
Luzon Expressway. This agreement brought PNCC to the cleaners and
Mr. President, are the members of our Committee not entitled to know a debtor that he owes you 10 billion, you sell your note for 100 million.
literally cleaned the PNCC of all its assets. They brought PNCC to the
cleaners and cleaned it to the tune of 17,676,000,000. why Radstock Securities Limited is given preference over all other
creditors notwithstanding the fact that this is an unsecured obligation? Now, if that had happened a year before, maybe I would have
There is no mortgage to secure this obligation. understood why he sold for such a low amount. But right after, it seems
xxxx
that this was part of an orchestrated deal wherein with certain only $2 million plus all the lawyer fees, under-the-table, etcetera. All SEN. OSMEA. x x x CDCP Mining, how many percent of the equity of
powerful interest would be able to say, "Yes, we will push through. right. Okay. So its pretty obvious to me that if anybody were using his CDCP Mining was owned by PNCC, formerly CDCP?
We'll fix the courts. We'll fix the board. We'll fix the APT. And we will be brain, I would have gone up to Radstock and say, "Heres $4 million.
able to do it, just give us 55 percent of whatever is recovered," am I Heres P200 million. Okay." They would have walked away. But MS. PASETES. Thirteen percent.
correct? evidently, the "ninongs" of Radstock See, I dont care who owns
Radstock. I want to know who is the ninong here who stands to make a
SEN. OSMEA. Thirteen. And as a 13 percent owner, they agreed to sign
MR. DOMINGUEZ. As I said, Your Honor, I am not familiar with the lot of money by being able to get to courts, the government agencies,
jointly and severally?
decision making process of Marubeni. But my understanding was, as I OGCC, or whoever else has been involved in this, to agree to 6 billion or
said, they didn't want to get into a whatever it was. Thats a lot of money. And believe me, Radstock will
probably get one or two billion and four billion will go into somebody MS. PASETES. Yes.
elses pocket. Or Radstock will turn around, sell that claim for 4 billion
SEN. OSMEA. All right.
and let the new guy just collect the payments over the years. SEN. OSMEA. One-three? So poor PNCC and CDCP got taken to the
cleaners here. They sign for a 100 percent and they only own 13
MR. DOMINGUEZ. ...litigious situation.6 percent.
x x x x7

xxxx x x x x8 (Emphasis supplied)


SEN. OSMEA. x x x I just wanted to know is CDCP Mining a 100 percent
subsidiary of PNCC?
SEN. OSMEA. All of these financial things can be arranged. They can I.
hire a local bank, Filipino, to be trustee for the real estate. So ... The Case
MR. AGUILAR. Hindi ho. Ah, no.

SEN. DRILON. Well, then, thats a dummy relationship. Before this Court are the consolidated petitions for review9 filed by
SEN. OSMEA. If theyre not a 100 percent, why would they sign jointly
and severally? I just want to plug the loopholes. Strategic Alliance Development Corporation (STRADEC) and Luis Sison
SEN. OSMEA. In any case, to me the main point here is that a third (Sison), with a motion for intervention filed by Asiavest Merchant
party, Radstock, whoever owns it, bought Marubenis right for $2 Bankers Berhad (Asiavest), challenging the validity of the Compromise
MR. AGUILAR. I think it was if I may just speculate. It was just
million or 100 million. Then, they are able to go through all these legal Agreement between PNCC and Radstock. The Court of Appeals
common ownership at that time.
machinations and get awarded with the consent of PNCC of 6 billion. approved the Compromise Agreement in its Decision of 25 January
Thats a 100 million to 6 billion. Now, Mr. Aguilar, you have been in the 200710 in CA-G.R. CV No. 87971.
business for such a long time. I mean, this hedge funds whether its SEN. OSMEA. Al right. Now Also, the ...
Radstock or New Bridge or Texas Pacific Group or Carlyle or Avenue II.
Capital, they look at their returns. So if Avenue Capital buys something MR. AGUILAR. Ah, 13 percent daw, Your Honor. The Antecedents
for $2 million and you give him $4 million in one year, its a 100 percent
return. Theyll walk away and dance to their stockholders. So here in SEN. OSMEA. Huh? PNCC was incorporated in 1966 for a term of fifty years under the
this particular case, if you know that Radstock only bought it for $2
Corporation Code with the name Construction Development
million, I would have gotten board approval and say, "Okay, lets settle
MR. AGUILAR. Thirteen percent ho. Corporation of the Philippines (CDCP).11 PD 1113, issued on 31 March
this for $4 million." And Radstock would have jumped up and down. So
1977, granted CDCP a 30-year franchise to construct, operate and
what looks to me is that this was already a scheme. Marubeni wrote it
SEN. OSMEA. Whats 13 percent? maintain toll facilities in the North and South Luzon Tollways. PD 1894,
off already. Marubeni wrote everything off. They just got a $2 million
issued on 22 December 1983, amended PD 1113 to include in CDCPs
and they probably have no more residual rights or maybe theres a
franchise the Metro Manila Expressway, which would "serve as an
clause there, a secret clause, that says, "I want 20 percent of whatever MR. AGUILAR. We owned ...
additional artery in the transportation of trade and commerce in the
youre able to eventually collect." So $2 million. But whatever it is,
Metro Manila area."
Marubeni practically wrote it off. Radstocks liability now or exposure is xxxx
Sometime between 1978 and 1981, Basay Mining Corporation (Basay a). the Government of the Republic of the amount. Radstock immediately sent a notice and demand letter to
Mining), an affiliate of CDCP, obtained loans from Marubeni Philippines in the amount of 36,023,784,751.00; PNCC.
Corporation of Japan (Marubeni) amounting to 5,460,000,000 yen and and
US$5 million. A CDCP official issued letters of guarantee for the loans, On 15 January 2001, Radstock filed an action for collection and
committing CDCP to pay solidarily for the full amount of the b). Marubeni Corporation in the amount of damages against PNCC before the Regional Trial Court of Mandaluyong
5,460,000,000 yen loan and to the extent of 20 million for the US$5 10,743,103,388.00. (Emphasis supplied) City, Branch 213 (trial court). In its order of 23 January 2001, the trial
million loan. However, there was no CDCP Board Resolution authorizing court issued a writ of preliminary attachment against PNCC. The trial
the issuance of the letters of guarantee. Later, Basay Mining changed its court ordered PNCCs bank accounts garnished and several of its real
This was the first PNCC Board Resolution admitting PNCCs liability for
name to CDCP Mining Corporation (CDCP Mining). CDCP Mining secured properties attached. On 14 February 2001, PNCC moved to set aside the
the Marubeni loans. Previously, for two decades the PNCC Board
the Marubeni loans when CDCP and CDCP Mining were still privately 23 January 2001 Order and to discharge the writ of attachment. PNCC
consistently refused to admit any liability for the Marubeni loans.
owned and managed. also filed a motion to dismiss the case. The trial court denied both
motions. PNCC filed motions for reconsideration, which the trial court
Less than two months later, or on 22 November 2000, the PNCC Board
Subsequently in 1983, CDCP changed its corporate name to PNCC to also denied. PNCC filed a petition for certiorari before the Court of
passed Board Resolution No. BD-099-2000 amending Board Resolution
reflect the extent of the Government's equity investment in the Appeals, docketed as CA-G.R. SP No. 66654, assailing the denial of the
No. BD-092-2000. PNCC Board Resolution No. BD-099-2000 reads as
company, which arose when government financial institutions motion to dismiss. On 30 August 2002, the Court of Appeals denied
follows:
converted their loans to PNCC into equity following PNCCs inability to PNCCs petition. PNCC filed a motion for reconsideration, which the
pay the loans.12 Various government financial institutions held a total of Court of Appeals also denied in its 22 January 2003 Resolution. PNCC
seventy-seven point forty-eight percent (77.48%) of PNCCs voting RESOLUTION NO. BD-099-2000 filed a petition for review before this Court, docketed as G.R. No.
equity, most of which were later transferred to the Asset Privatization 156887.
Trust (APT) under Administrative Orders No. 14 and 64, series of 1987 RESOLVED, That the Board hereby amends its Resolution No. BD-092-
and 1988, respectively.13 Also, the Presidential Commission on Good 2000 dated October 20, 2000 so as to read as follows: Meanwhile, on 19 June 2001, at the start of the Arroyo Administration,
Government holds some 13.82% of PNCCs voting equity under a writ of the PNCC Board, under a new President and Chairman, revoked Board
sequestration and through the voluntary surrender of certain PNCC RESOLVED, That the Board recognizes, acknowledges and confirms its Resolution No. BD-099-2000.
shares. In fine, the Government owns 90.3% of the equity of PNCC and obligations as of September 30, 1999 with the following entities,
only 9.70% of PNCCs voting equity is under private ownership.14 exclusive of the interests and other charges that may subsequently The trial court continued to hear the main case. On 10 December 2002,
accrue and still due thereon, subject to the final determination by the the trial court ruled in favor of Radstock, as follows:
Meanwhile, the Marubeni loans to CDCP Mining remained unpaid. On Commission on Audit (COA) of the amount of obligation involved, and
20 October 2000, during the short-lived Estrada Administration, the subject further to the declaration of the legality of said obligations by
WHEREFORE, premises considered, judgment is hereby rendered in
PNCC Board of Directors15 (PNCC Board) passed Board Resolution No. the Office of the Government Corporate Counsel (OGCC), to wit:
favor of the plaintiff and the defendant is directed to pay the total
BD-092-2000 admitting PNCCs liability to Marubeni for
amount of Thirteen Billion One Hundred Fifty One Million Nine Hundred
10,743,103,388 as of 30 September 1999. PNCC Board Resolution No. a). the Government of the Republic of the Fifty Six thousand Five Hundred Twenty Eight Pesos
BD-092-2000 reads as follows: Philippines in the amount of 36,023,784,751.00; (13,151,956,528.00) with interest from October 15, 2001 plus Ten
and Million Pesos (10,000,000.00) as attorneys fees.
RESOLUTION NO. BD-092-2000
b). Marubeni Corporation in the amount of SO ORDERED.16
RESOLVED, That the Board recognizes, acknowledges and confirms 10,743,103,388.00. (Emphasis supplied)
PNCCs obligations as of September 30, 1999 with the following entities,
PNCC appealed the trial courts decision to the Court of Appeals,
exclusive of the interests and other charges that may subsequently In January 2001, barely three months after the PNCC Board first docketed as CA-G.R. CV No. 87971.
accrue and still become due therein, to wit: admitted liability for the Marubeni loans, Marubeni assigned its entire
credit to Radstock for US$2 million or less than 100 million. In short,
Radstock paid Marubeni less than 10% of the 10.743 billion admitted
On 19 March 2003, this Court issued a temporary restraining order in pending before the Regional Trial Court of Makati, Branch 146 (RTC On 26 November 2007, Sison filed a petition for review before this
G.R. No. 156887 forbidding the trial court from implementing the writ Branch 146). Court, docketed as G.R. No. 180428.
of preliminary attachment and ordering the suspension of the
proceedings before the trial court and the Court of Appeals. In its 3 The Court of Appeals treated STRADECs motion for reconsideration as In a Resolution dated 18 February 2008, this Court consolidated G.R.
October 2005 Decision, this Court ruled as follows: a motion for intervention and denied it in its 31 May 2007 Resolution. Nos. 178158 and 180428.
STRADEC filed a petition for review before this Court, docketed as G.R.
WHEREFORE, the petition is partly GRANTED and insofar as the Motion No. 178158. On 13 January 2009, the Court held oral arguments on the following
to Set Aside the Order and/or Discharge the Writ of Attachment is issues:
concerned, the Decision of the Court of Appeals on August 30, 2002 and Rodolfo Cuenca (Cuenca), a stockholder and former PNCC President and
its Resolution of January 22, 2003 in CA-G.R. SP No. 66654 are Board Chairman, filed an intervention before the Court of Appeals. 1. Does the Compromise Agreement violate public policy?
REVERSED and SET ASIDE. The attachments over the properties by the Cuenca alleged that PNCC had no obligation to pay Radstock. The Court
writ of preliminary attachment are hereby ordered LIFTED effective of Appeals also denied Cuencas motion for intervention in its
upon the finality of this Decision. The Decision and Resolution of the 2. Does the subject matter involve an assumption by the
Resolution of 31 May 2007. Cuenca did not appeal the denial of his
Court of Appeals are AFFIRMED in all other respects. The Temporary government of a private entitys obligation in violation of the
motion.
Restraining Order is DISSOLVED immediately and the Court of Appeals is law and/or the Constitution? Is the PNCC Board Resolution of
directed to PROCEED forthwith with the appeal filed by PNCC. 20 October 2000 defective or illegal?
On 2 July 2007, this Court issued an order directing PNCC and Radstock,
their officers, agents, representatives, and other persons under their
No costs. 3. Is the Compromise Agreement viable in the light of the
control, to maintain the status quo ante.
non-renewal of PNCCs franchise by Congress and its inclusion
of all or substantially all of PNCCs assets?
SO ORDERED.17 Meanwhile, on 20 February 2007, Sison, also a stockholder and former
PNCC President and Board Chairman, filed a Petition for Annulment of
4. Is the Decision of the Court of Appeals annullable even if
On 17 August 2006, PNCC and Radstock entered into the Compromise Judgment Approving Compromise Agreement before the Court of
final and executory on grounds of fraud and violation of
Agreement where they agreed to reduce PNCCs liability to Radstock, Appeals. The case was docketed as CA-G.R. SP No. 97982.
public policy and the Constitution?
supposedly from 17,040,843,968, to 6,185,000,000. PNCC and
Radstock submitted the Compromise Agreement to this Court for Asiavest, a judgment creditor of PNCC, filed an Urgent Motion for Leave
approval. In a Resolution dated 4 December 2006 in G.R. No. 156887, III.
to Intervene and to File the Attached Opposition and Motion-in-
this Court referred the Compromise Agreement to the Commission on Propriety of Actions
Intervention before the Court of Appeals in CA-G.R. SP No. 97982.
Audit (COA) for comment. The COA recommended approval of the
Compromise Agreement. In a Resolution dated 22 November 2006, this The Court of Appeals denied STRADECs motion for intervention on the
In a Resolution dated 12 June 2007, the Court of Appeals dismissed
Court noted the Compromise Agreement and referred it to the Court of ground that the motion was filed only after the Court of Appeals and
Sisons petition on the ground that it had no jurisdiction to annul a final
Appeals in CA-G.R. CV No. 87971. In its 25 January 2007 Decision, the the trial court had promulgated their respective decisions.
and executory judgment also rendered by the Court of Appeals. In the
Court of Appeals approved the Compromise Agreement.
same resolution, the Court of Appeals also denied Asiavests urgent
motion. Section 2, Rule 19 of the 1997 Rules of Civil Procedure provides:
STRADEC moved for reconsideration of the 25 January 2007 Decision.
STRADEC alleged that it has a claim against PNCC as a bidder of the SECTION 2. Time to intervene. The motion to intervene may be filed at
Asiavest filed its Urgent Motion for Leave to Intervene and to File the
National Governments shares, receivables, securities and interests in any time before rendition of judgment by the trial court. A copy of the
Attached Opposition and Motion-in-Intervention in G.R. No. 178158.18
PNCC. The matter is subject of a complaint filed by STRADEC against pleading-in-intervention shall be attached to the motion and served on
PNCC and the Privatization and Management Office (PMO) for the the original parties.
issuance of a Notice of Award of Sale to Dong-A Consortium of which Sison filed a motion for reconsideration. In its 5 November 2007
STRADEC is a partner. The case, docketed as Civil Case No. 05-882, is Resolution, the Court of Appeals denied Sisons motion.
The rule is not absolute. The rule on intervention, like all other rules of of contending parties. It was created not to hinder and delay but to A derivative action is a suit by a stockholder to enforce a corporate
procedure, is intended to make the powers of the Court completely facilitate and promote the administration of justice. It does not cause of action.25 Under the Corporation Code, where a corporation is
available for justice.19 It is aimed to facilitate a comprehensive constitute the thing itself which courts are always striving to secure to an injured party, its power to sue is lodged with its board of directors or
adjudication of rival claims, overriding technicalities on the timeliness of litigants. It is designed as the means best adopted to obtain that thing. trustees.26 However, an individual stockholder may file a derivative suit
the filing of the claims.20 This Court has ruled: In other words, it is a means to an end. on behalf of the corporation to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or are the ones
[A]llowance or disallowance of a motion for intervention rests on the Concededly, STRADEC has no legal interest in the subject matter of the to be sued, or hold control of the corporation.27 In such actions, the
sound discretion of the court after consideration of the appropriate Compromise Agreement. Section 1, Rule 19 of the 1997 Rules of Civil corporation is the real party-in-interest while the suing stockholder, on
circumstances. Rule 19 of the Rules of Court is a rule of procedure Procedure states: behalf of the corporation, is only a nominal party.28
whose object is to make the powers of the court fully and completely
available for justice. Its purpose is not to hinder or delay but to facilitate SECTION 1. Who may intervene. - A person who has a legal interest in In this case, the PNCC Board cannot conceivably be expected to attack
and promote the administration of justice. Thus, interventions have the matter in litigation, or in the success of either of the parties, or an the validity of the Compromise Agreement since the PNCC Board itself
been allowed even beyond the prescribed period in the Rule in the interest against both, or is so situated as to be adversely affected by a approved the Compromise Agreement. In fact, the PNCC Board
higher interest of justice. Interventions have been granted to afford distribution or other disposition of property in the custody of the court steadfastly defends the Compromise Agreement for allegedly being
indispensable parties, who have not been impleaded, the right to be or of an officer thereof may, with leave of court, be allowed to advantageous to PNCC.
heard even after a decision has been rendered by the trial court, when intervene in the action. The Court shall consider whether or not the
the petition for review of the judgment was already submitted for intervention will unduly delay or prejudice the adjudication of the rights Besides, the circumstances in this case are peculiar. Sison, as former
decision before the Supreme Court, and even where the assailed order of the original parties, and whether or not the intervenors rights may PNCC President and Chairman of the PNCC Board, was responsible for
has already become final and executory. In Lim v. Pacquing (310 Phil. be fully protected in a separate proceeding. the approval of the Board Resolution issued on 19 June 2001 revoking
722 (1995)], the motion for intervention filed by the Republic of the the previous Board Resolution admitting PNCCs liability for the
Philippines was allowed by this Court to avoid grave injustice and injury Marubeni loans.29 Such revocation, however, came after Radstock had
STRADECs interest is dependent on the outcome of Civil Case No. 05-
and to settle once and for all the substantive issues raised by the filed an action for collection and damages against PNCC on 15 January
882. Unless STRADEC can show that RTC Branch 146 had already
parties.21 2001. Then, when the trial court rendered its decision on 10 December
decided in its favor, its legal interest is simply contingent and expectant.
2002 in favor of Radstock, Sison was no longer the PNCC President and
In Collado v. Court of Appeals,22 this Court reiterated that exceptions to Chairman, although he remains a stockholder of PNCC.
However, Asiavest has a direct and material interest in the approval or
Section 2, Rule 12 could be made in the interest of substantial justice.
disapproval of the Compromise Agreement. Asiavest is a judgment
Citing Mago v. Court of Appeals,23 the Court stated: When the case was on appeal before the Court of Appeals, there was
creditor of PNCC in G.R. No. 110263 and a court has already issued a
writ of execution in its favor. Asiavests interest is actual and material, no need for Sison to avail of any remedy, until PNCC and Radstock
It is quite clear and patent that the motions for intervention filed by the direct and immediate characterized by either gain or loss from the entered into the Compromise Agreement, which disposed of all or
movants at this stage of the proceedings where trial had already been judgment that this Court may render.24 Considering that the substantially all of PNCCs assets. Sison came to know of the
concluded x x x and on appeal x x x the same affirmed by the Court of Compromise Agreement involves the disposition of all or substantially Compromise Agreement only in December 2006. PNCC and Radstock
Appeals and the instant petition for certiorari to review said judgments all of the assets of PNCC, Asiavest, as PNCCs judgment creditor, will be submitted the Compromise Agreement to the Court of Appeals for
is already submitted for decision by the Supreme Court, are obviously greatly prejudiced if the Compromise Agreement is eventually upheld. approval on 10 January 2007. The Court of Appeals approved the
and, manifestly late, beyond the period prescribed under x x x Section Compromise Agreement on 25 January 2007. To require Sison at this
2, Rule 12 of the Rules of Court. stage to exhaust all the remedies within the corporation will render
Sison has legal standing to challenge the Compromise Agreement.
such remedies useless as the Compromise Agreement had already been
Although there was no allegation that Sison filed the case as a
But Rule 12 of the Rules of Court, like all other Rules therein approved by the Court of Appeals. PNCCs assets are in danger of being
derivative suit in the name of PNCC, it could be fairly deduced that
promulgated, is simply a rule of procedure, the whole purpose and dissipated in favor of a private foreign corporation. Thus, Sison had no
Sison was assailing the Compromise Agreement as a stockholder of
object of which is to make the powers of the Court fully and completely recourse but to avail of an extraordinary remedy to protect PNCCs
PNCC. In such a situation, a stockholder of PNCC can sue on behalf of
available for justice. The purpose of procedure is not to thwart justice. assets.
PNCC to annul the Compromise Agreement.
Its proper aim is to facilitate the application of justice to the rival claims
Besides, in the interest of substantial justice and for compelling pecuniary interest in conflict with their duty as such directors or SEN. DRILON. Yes. In fact, the filing of the case came three months after
reasons, such as the nature and importance of the issues raised in this trustees.36 the acknowledgement.
case,30 this Court must take cognizance of Sisons action. This Court
should exercise its prerogative to set aside technicalities in the Rules, In the present case, the PNCC Board blatantly violated its duty of MR. CIMAFRANCA. Yes. And that made it difficult to handle on our part.
because after all, the power of this Court to suspend its own rules diligence as it miserably failed to act in good faith in handling the affairs
whenever the interest of justice requires is well recognized.31 In of PNCC. SEN. DRILON. That is correct. So, that it was an obligation which was
Solicitor General v. The Metropolitan Manila Authority,32 this Court
not recognized in the financial statements of PNCC but revived in the
held:
First. For almost two decades, the PNCC Board had consistently refused financial statements because it has prescribed but revived by the
to admit liability for the Marubeni loans because of the absence of a board effectively. That's the theory, at least, of the plaintiff. Is that
Unquestionably, the Court has the power to suspend procedural rules PNCC Board resolution authorizing the issuance of the letters of correct? Who can answer that?
in the exercise of its inherent power, as expressly recognized in the guarantee.
Constitution, to promulgate rules concerning pleading, practice and
Ms. Pasetes, yes.
procedure in all courts. In proper cases, procedural rules may be
There is no dispute that between 1978 and 1980, Marubeni Corporation
relaxed or suspended in the interest of substantial justice, which
extended two loans to Basay Mining (later renamed CDCP Mining): (1) MS. PASETES. It is not an obligation of PNCC that is why it is not
otherwise may be miscarried because of a rigid and formalistic
US$5 million to finance the purchase of copper concentrates by Basay reflected in the financial statements.39 (Emphasis supplied)
adherence to such rules. x x x
Mining; and (2) Y5.46 billion to finance the completion of the expansion
project of Basay Mining including working capital.
We have made similar rulings in other cases, thus: In short, after two decades of consistently refuting its liability for the
Marubeni loans, the PNCC Board suddenly and inexplicably reversed
There is also no dispute that it was only on 20 October 2000 when the itself by admitting in October 2000 liability for the Marubeni loans. Just
Be it remembered that rules of procedure are but mere tools designed PNCC Board approved a resolution expressly admitting PNCCs liability three months after the PNCC Board recognized the Marubeni loans,
to facilitate the attainment of justice. Their strict and rigid application, for the Marubeni loans. This was the first Board Resolution admitting Radstock acquired Marubeni's receivable and filed the present
which would result in technicalities that tend to frustrate rather than liability for the Marubeni loans, for PNCC never admitted liability for collection case.
promote substantial justice, must always be avoided. x x x Time and these debts in the past. Even Radstock admitted that PNCCs 1994
again, this Court has suspended its own rules and excepted a particular Financial Statements did not reflect the Marubeni loans.37 Also, former
case from their operation whenever the higher interests of justice so Second. The PNCC Board admitted liability for the Marubeni loans
PNCC Chairman Arthur Aguilar stated during the Senate hearings that
require. despite PNCCs total liabilities far exceeding its assets. There is no
"the Marubeni claim was never in the balance sheet x x x nor was it in a
dispute that the Marubeni loans, once recognized, would wipe out the
contingent account."38 Miriam M. Pasetes, SVP Finance of PNCC, and
assets of PNCC, "virtually emptying the coffers of the PNCC."40 While
IV. Atty. Herman R. Cimafranca of the Office of the Government Corporate
PNCC insists that it remains financially viable, the figures in the COA
The PNCC Board Acted in Bad Faith and with Gross Negligence Counsel, confirmed this fact, thus:
Audit Reports tell otherwise.41 For 2006 and 2005, "the Corporation
has incurred negative gross margin of 84.531 Million and 80.180
in Directing the Affairs of PNCC SEN. DRILON. x x x And so, PNCC itself did not recognize this as an Million, respectively, and net losses that had accumulated in a deficit
obligation but the board suddenly recognized it as an obligation. It was of 14.823 Billion as of 31 December 2006."42 The COA even opined
In this jurisdiction, the members of the board of directors have a three- on that basis that the case was filed, is that correct? In fact, the case that "unless [PNCC] Management addresses the issue on net losses in
fold duty: duty of obedience, duty of diligence, and duty of hinges on they knew that this claim has prescribed but because of its financial rehabilitation plan, x x x the Corporation may not be able
loyalty.33 Accordingly, the members of the board of directors (1) shall that board resolution which recognized the obligation they filed their to continue its operations as a going concern."
direct the affairs of the corporation only in accordance with the complaint, is that correct?
purposes for which it was organized;34 (2) shall not willfully and Notably, during the oral arguments before this Court, the Government
knowingly vote for or assent to patently unlawful acts of the MR. CIMAFRANCA. Apparently, it's like that, Senator, because the filing Corporate Counsel admitted the PNCCs huge negative net worth, thus:
corporation or act in bad faith or with gross negligence in directing the of the case came after the acknowledgement.
affairs of the corporation;35 and (3) shall not acquire any personal or
JUSTICE CARPIO
x x x what is the net worth now of PNCC? Negative what? Negative 6 the PNCC Board admitted liability for the Marubeni loans despite the SEN. DRILON. So, even assuming that all of those were demand letters,
Billion at least[?] fact that the same might no longer be judicially collectible. Although the the 10 years prescription set in and it should have prescribed in 1998,
legal advantage was obviously on its side, the PNCC Board threw in the whatever is the date, or before the case was filed in 2001.
ATTY. AGRA towel even before the fight could begin. During the Senate hearings,
the matter of prescription was discussed, thus: MR. CIMAFRANCA. The 10-year period for if the contract is written,
Yes, your Honor.43 (Emphasis supplied) it's 10 years and it should have prescribed in 10 years and we did raise
SEN. DRILON. ... the prescription period is 10 years and there were no that in our answer, in our motion to dismiss.
payments the last demands were made, when? The last demands for
Clearly, the PNCC Boards admission of liability for the Marubeni loans,
payment? SEN. DRILON. I know. You raised this in your motion to dismiss and you
given PNCCs huge negative net worth of at least 6 billion as admitted
by PNCCs counsel, or 14.823 billion based on the 2006 COA Audit raised this in your answer. Now, we are not saying that you were
Report, would leave PNCC an empty shell, without any assets to pay its MS. OGAN. It was made January 2001 prior to the filing of the case. negligent in not raising that. What we are just putting on the record
biggest creditor, the National Government with an admitted receivable that indeed there is basis to argue that these claims have prescribed.
of 36 billion from PNCC. SEN. DRILON. Yes, all right. Before that, when was the last demand
made? By the time they filed the complaint more than 10 years already Now, the reason why there was a colorable basis on the complaint filed
Third. In a debilitating self-inflicted injury, the PNCC Board revived what lapsed. in 2001 was that somehow the board of PNCC recognized the obligation
appeared to have been a dead claim by abandoning one of PNCCs in a special board meeting on October 20, 2000. Hindi ba ganoon 'yon?
strong defenses, which is the prescription of the action to collect the MS. OGAN. On record, Mr. Chairman, we have demands starting from -
Marubeni loans. - a series of demands which started from May 23, 1984, letter from MS. OGAN. Yes, that is correct.
Marubeni to PNCC, demand payment. And we also have the letter of
Settled is the rule that actions prescribe by the mere lapse of time fixed September 3, 1986, letter of Marubeni to then PNCC Chair Mr. Jaime. SEN. DRILON. Why did the PNCC recognize this obligation in 2000 when
by law.44 Under Article 1144 of the Civil Code, an action upon a written We have the June 24, 1986 letter from Marubeni to the PNCC it was very clear that at that point more than 10 years have lapsed since
contract, such as a loan contract, must be brought within ten years Chairman. Also the March 4, 1988 letter... the last demand letter?
from the time the right of action accrues. The prescription of such an
action is interrupted when the action is filed before the court, when SEN. DRILON. The March 4, 1988 letter is not a demand letter. MR. AGUILAR. May I volunteer an answer?
there is a written extrajudicial demand by the creditor, or when there is
any written acknowledgment of the debt by the debtor.45 MS. OGAN. It is exactly addressed to the Asset Privatization Trust. SEN. DRILON. Please.

In this case, Basay Mining obtained the Marubeni loans sometime SEN. DRILON. It is not a demand letter? Okay. MR. AGUILAR. I looked into that, Mr. Chairman, Your Honor. It was as a
between 1978 and 1981. While Radstock claims that numerous demand
result of and I go to the folder letter "N." In our own demand research it
letters were sent to PNCC, based on the records, the extrajudicial
MS. OGAN. And we have also... was not period, Your Honor, that Punongbayan in the big folder, sir,
demands to pay the loans appear to have been made only in 1984 and
letter "N" it was the period where PMO was selling PNCC and
1986. Meanwhile, the written acknowledgment of the debt, in the form
SEN. DRILON. Anyway... Punongbayan and Araullo Law Office came out with an investment
of Board Resolution No. BD-092-2000, was issued only on 20 October
brochure that indicated liabilities both to national government and to
2000.
Marubeni/Radstock. So, PMO said, "For good order, can you PNCC
THE CHAIRMAN. Please answer when you are asked, Ms. Ogan. We
board confirm that by board resolution?" That's the tone of the letter.
Thus, more than ten years would have already lapsed between want to put it on the record whether it is "yes" or "no".
Marubenis extrajudicial demands in 1984 and 1986 and the
SEN. DRILON. Confirm what? Confirm the liabilities that are contained
acknowledgment by the PNCC Board of the Marubeni loans in 2000. MS. OGAN. Yes, sir.
in the Punongbayan investment prospectus both to the national
However, the PNCC Board suddenly passed Board Resolution No. BD-
government and to PNCC. That is the reason at least from the record,
092-2000 expressly admitting liability for the Marubeni loans. In short,
Your Honor, how the PNCC board got to deliberate on the Marubeni.
THE CHAIRMAN. What paragraph? Second to the last paragraph? SEN. DRILON. Now that we have read this, what was the opinion of the I bidded out these engagements, the financial advisership went to
Government Corporate Counsel, Mr. Cimafranca? Punongbayan and Araullo. The legal audit went to the Feria Law Offices.
MR. AGUILAR. Yes. Yes, Mr. Chairman. Ito po 'yong that"s to our
recollection, in the records, that was the reason. MR. CIMAFRANCA. Yes, Senator, we did issue an opinion upon the THE CHAIRMAN. Spell it. Boy Feria?
request of PNCC and our opinion was that there was no valid obligation,
SEN. DRILON. Is that the only reason why ... no valid guarantee. And we incorporated that in our pleadings in MR. FRANCISCO. Feria-- Feria.
court.48 (Emphasis supplied)
MR. AGUILAR. From just the records, Mr. Chairman, and then THE CHAIRMAN. Lugto?
interviews with people who are still around. Clearly, PNCC had strong defenses against the collection suit filed by
Radstock, as originally opined by the OGCC. It is quite puzzling,
MR. FRANCISCO. Yes. Yes, Your Honor. And this was the findings of the
therefore, that the PNCC Board, which had solid grounds to refute the
SEN. DRILON. You mean, you acknowledged a prescribed obligation Feria Law Office that the Marubeni account was a legal obligation.
legitimacy of the Marubeni loans, admitted its liability and entered into
because of this paragraph?
a Compromise Agreement that is manifestly and grossly prejudicial to
PNCC. So, I presented this to our board. Based on the findings of the legal
MR. AGUILAR. I dont know what legal advice we were following at that audit conducted by the Ferial Law Offices, sir.
time, Mr. Chairman.46 (Emphasis supplied)
Fourth. The basis for the admission of liability for the Marubeni loans,
which was an opinion of the Feria Law Office, was not even shown to THE CHAIRMAN. Why did you not ask the government corporate
Besides prescription, the Office of the Government Corporate Counsel the PNCC Board. counsel? Why did you have to ask for the opinion of an outside
(OGCC) originally believed that PNCC had another formidable legal counsel?
weapon against Radstock, that is, the lack of authority of Alfredo
Atty. Raymundo Francisco, the APT trustee overseeing the proposed
Asuncion, then Executive Vice-President of PNCC, to sign the letter of MR. FRANCISCO. That was the that was the mandate given to us, sir,
privatization of PNCC at the time, was responsible for recommending to
guarantee on behalf of CDCP. During the Senate hearings, the following that we have to engage the ...
the PNCC Board the admission of PNCCs liability for the Marubeni
exchange reveals the OGCCs original opinion:
loans. Atty. Francisco based his recommendation solely on a mere
alleged opinion of the Feria Law Office. Atty. Francisco did not bother to THE CHAIRMAN. Mandate given by whom?
THE CHAIRMAN. What was the opinion of the Office of the Government show this "Feria opinion" to the members of the PNCC Board, except to
Corporate Counsel? Atty. Renato Valdecantos, who as the then PNCC Chairman did not also MR. FRANCISCO. That is what we usually do, sir, in the APT.
show the "Feria opinion" to the other PNCC Board members. During the
MS. OGAN. The opinion of the Office of the Government Corporate Senate hearings, Atty. Francisco could not produce a copy of the "Feria
opinion." The Senators grilled Atty. Francisco on his recommendation to THE CHAIRMAN. Ah, you get outside counsel?
Counsel is that PNCC should exhaust all means to resist the case using
all defenses available to a guarantee and a surety that there is a valid recognize PNCCs liability for the Marubeni loans, thus:
ground for PNCC's refusal to honor or make good the alleged guarantee MR. FRANCISCO. Yes, we...
obligation. It appearing that from the documents submitted to the THE CHAIRMAN. x x x You were the one who wrote this letter or rather
OGCC that there is no board authority in favor or authorizing Mr. this memorandum dated 17 October 2000 to Atty. Valdecantos. Can THE CHAIRMAN. Not necessarily the government corporate counsel?
Asuncion, then EVP, to sign or execute the letter of guarantee in behalf you tell us the background why you wrote the letter acknowledging a
of CDCP and that said letter of guarantee is not legally binding upon or debt which is non-existent? MR. FRANCISCO. No, sir.
enforceable against CDCP as principals, your Honors.47
MR. FRANCISCO. I was appointed as the trustee in charge of the THE CHAIRMAN. So, on the basis of the opinion of outside counsel,
xxxx privatization of the PNCC at that time, sir. And I was tasked to do a private, you proceeded to, in effect, recognize an obligation which is
study and engage the services of financial advisors as well as legal not even entered in the books of the PNCC? You probably resuscitated a
advisors to do a legal audit and financial study on the position of PNCC. non-existing obligation anymore?
MR. FRANCISCO. Sir, I just based my recommendation on the SEN. DRILON. Thank you, Mr. Chairman. MS. OGAN. (Handing the document to Mr. Francisco.)
professional findings of the law office that we engaged, sir.
Yes, Atty. Francisco, you have a copy of the minutes of October 20, MR. FRANCISCO. Your Honor, I have here a memorandum to the PNCC
THE CHAIRMAN. Did you not ask for the opinion of the government 2000? board through Atty. Valdecantos, which says that in the last
corporate counsel? paragraph, if I may read? "May we request therefore, that a board
MR. FRANCISCO. Im sorry, sir, we dont have a copy. resolution be adopted, acknowledging and confirming the
MR. FRANCISCO. No, sir. aforementioned PNCC obligations with the national government and
Marubeni as borne out by the due diligence audit."
SEN. DRILON. May we ask the corporate secretary of PNCC to provide
THE CHAIRMAN. Why? us with a copy?
SEN. DRILON. This is the memorandum referred to in these minutes.
This memorandum dated 17 October 2000 is the memorandum
MR. FRANCISCO. I felt that the engagements of the law office was Okay naman andiyan siya.
referred to in the minutes.
sufficient, anyway we were going to raise it to the Committee on
Privatization for their approval or disapproval, sir. (Ms. Ogan handing the document to Mr. Francisco.)
MR. FRANCISCO. I would assume, Mr. Chairman.
THE CHAIRMAN. The COP? You have familiarized yourselves with the minutes, Atty. Francisco?
SEN. DRILON. Right.
MR. FRANCISCO. Yes, sir. MR. FRANCISCO. Yes, sir.
Now, the Punongbayan representative who was here yesterday, Mr...
THE CHAIRMAN. Thats a cabinet level? SEN. DRILON. Now, mention is made of a memorandum here on line 8,
THE CHAIRMAN. Navarro.
page 3 of this boards minutes. It says, "Director Francisco has prepared
MR. FRANCISCO. Yes, sir. And we did that, sir. a memorandum requesting confirmation, acknowledgement, and
ratification of this indebtedness of PNCC to the national government SEN. DRILON. ... Navarro denied that he made this recommendation.
THE CHAIRMAN. Now... So you sent your memo to Atty. Renato B. which was determined by Bureau of Treasury as of September 30, 1999
Valdecantos, who unfortunately is not here but I think we have to get is 36,023,784,751. And with respect to PNCCs obligation to Marubeni, THE CHAIRMAN. He asked for opinion, legal opinion.
his response to this. And as part of the minutes of special meeting with this has been determined to be in the total amount of 10,743,103,388,
the board of directors on October 20, 2000, the board resolved in its also as of September 30, 1999; that there is need to ratify this because SEN. DRILON. He said that they never made this representation and the
Board Resolution No. 092-2000, the board resolved to recognize, there has already been a representation made with respect to the transcript will bear us out. They said that they never made this
acknowledge and confirm PNCCs obligations as of September 30, 1999, review of the financial records of PNCC by Punongbayan and Araullo, representation that the account of Marubeni should be recognized.
etcetera, etcetera. (A), or rather (B), Marubeni Corporation in the which have been included as part of the package of APTs disposition to
amount of 10,740,000. the national governments interest in PNCC."
MR. FRANCISCO. Mr. Chairman, in the memorandum, I only mentioned
here the acknowledgement and confirmation of the PNCC obligations. I
Now, we asked to be here because the franchise of PNCC is hanging in a You recall having made this representation as found in the minutes, I was not asking for a ratification. I never mentioned ratification in the
balance because of the on the questions on this acknowledgement. So assume, Atty. Francisco? memorandum. I just based my memo based on the due diligence audit
we want to be educated. of the Feria Law Offices.
MR. FRANCISCO. Yes, sir. But Id like to be refreshed on the
Now, the paper trail starts with your letter. So, thats it thats my memorandum, sir, because I dont have a copy. SEN. DRILON. Can you say that again? You never asked for a
kuwan, Frank. ratification...
SEN. DRILON. Yes, this memorandum was cited earlier by Senator
Yes, Senator Drilon. Arroyo, and maybe the secretary can give him a copy? Give him a copy?
MR. FRANCISCO. No. I never mentioned in my memorandum that I was THE CHAIRMAN. ... but yet the action of or rather the opinion of the THE CHAIRMAN. Yet you adopted it.
asking for a ratification. I was just in my memo it says, "acknowledging Feria Law Offices was in effect adopted by the board of directors of
and confirming the PNCC obligation." This was what ... PNCC in its minutes of October 20, 2000 where you are the corporate MS. OGAN. Yes, sir.
secretary, Ms. Ogan.
SEN. DRILON. Isnt it the same as ratification? I mean, whats the SEN DRILON. Considering you were the corporate secretary.
difference? MS. OGAN. Yes, Mr. Chairman.
THE CHAIRMAN. She was the corporate secretary.
MR. FRANCISCO. I well, my memorandum was meant really just to THE CHAIRMAN. So, what I am saying is that this opinion or rather the
confirm the findings of the legal audit as ... opinion of the Feria Law Offices of which you dont have a copy?
SEN. DRILON. She was just recording the minutes.

SEN. DRILON. In your mind as a lawyer, Atty. Francisco, theres a MS. OGAN. Yes, sir.
THE CHAIRMAN. Yes, she was recording.
difference between ratification and whats your term? --
acknowledgment and confirmation? THE CHAIRMAN. And the reason being that, it does not concern the
Now, we are asking you now why it was taken up?
PNCC because thats an opinion rendered for APT and not for the PNCC.
MR. FRANCISCO. Well, I guess theres no difference, Mr. Chairman.
MS. OGAN. Yes, sir, Mr. Chairman, this was mentioned in the
MS. OGAN. Yes, Mr. Chairman, that was what we were told although we
memorandum of Atty. Francisco, memorandum to the board.
SEN. DRILON. Right. made several requests to the APT, sir.

SEN. DRILON. Mr. Chairman, Mr. Francisco represented APT in the


Anyway, just of record, the Punongbayan representatives here THE CHAIRMAN. All right. Now, since it was for the APT and not for the
board of PNCC. And is that correct, Mr. Francisco?
yesterday said that they never made such representation. PNCC, I ask the question why did PNCC adopt it? That was not for the
consumption of PNCC. It was for the consumption of the Asset
Privatization Trust. And that is what Atty. Francisco says and its THE CHAIRMAN. Youre an ex-officio member.
In any case, now youre saying its the Feria Law Office who rendered
that opinion? Can we you know, yesterday we were asking for a copy confirmed by you saying that this was a memo you dont have a copy
of this opinion but we were never furnished one. The ... no less than the because this was sought for by APT and the Feria Law Offices just SEN. DRILON. Yes.
Chairman of this Committee was asking for a copy. provided an opinion provided the APT with an opinion. So, as
corporate secretary, the board of directors of PNCC adopted it, MR. FRANCISCO. Ex-officio member only, sir, as trustee in charge of the
recognized the Marubeni Corporation. privatization of PNCC.
THE CHAIRMAN. Well, copy of the opinion...

You read the minutes of the October 20, 2000 meeting of the board of SEN. DRILON. With the permission of Mr. Chair, may I ask a question...
MS. OGAN. Yes, Mr. Chairman, we were never furnished a copy of this
directors on Item V. The resolution speaks of .. so, go ahead.
opinion because its opinion rendered for the Asset Privatization Trust
which is its client, not the PNCC, Mr. Chairman. THE CHAIRMAN. Oh, yes, Senator Drilon.
MS. OGAN. I gave my copies. Yes, sir.
THE CHAIRMAN. All right. The question is whether but you see, this is SEN. DRILON. Atty. Francisco, you sat in the PNCC board as APT
a memorandum of Atty. Francisco to the Chairman of the Asset THE CHAIRMAN. In effect the Feria Law Offices opinion was for the representative, you are a lawyer, there was a legal opinion of Feria,
Privatization Trust. You say now that you were never furnished a copy consumption of the APT. Feria, Lugto, Lao Law Offices which you cited in your memorandum. Did
because thats supposed to be with the Asset ... you discuss first, did you give a copy of this opinion to PNCC?
MS. OGAN. That was what we were told, Mr. Chairman.
MS. OGAN. Yes, Mr. Chairman. MR. FRANCISCO. I gave a copy of this opinion, sir, to our chairman who
THE CHAIRMAN. And you were not even provided with a copy. was also a member of the board of PNCC, Mr. Valdecantos, sir.
SEN. DRILON. And because he was... private law firm, without consulting the OGCC and without showing this x x x x50 (Emphasis supplied)
opinion to the members of the PNCC Board except to Atty. Valdecantos,
MR. FRANCISCO. Because he was my immediate boss in the APT. reflects how shockingly little his concern was for PNCC, contrary to his This is a clear admission by Atty. Francisco of bad faith in directing the
claim that "he only had the interest of PNCC at heart." In fact, if what affairs of PNCC - that he would not have recognized the Marubeni loans
was involved was his own money, Atty. Francisco would have preferred if his own funds were involved or if he were the owner of PNCC.
SEN. DRILON. Apparently, [it] just ended up in the personal possession
not just two, but at least three different opinions on how to deal with
of Mr. Valdecantos because the corporate secretary, Glenda Ogan, who
the matter, and he would have maintained his non-liability.
is supposed to be the custodian of the records of the board never saw a The PNCC Board admitted liability for the 10.743 billion Marubeni
copy of this. loans without seeing, reading or discussing the "Feria opinion" which
SEN. OSMEA. x x x was the sole basis for its admission of liability. Such act surely goes
MR. FRANCISCO. Well, sir, my the copy that I gave was to Mr. against ordinary human nature, and amounts to gross negligence and
Valdecantos because he was the one sitting in the PNCC board, sir. All right. And lastly, just to clear our minds, there has always been this utter bad faith, even bordering on fraud, on the part of the PNCC Board
finger-pointing, of course, whenever this is typical Filipino. When in directing the affairs of the corporation. Owing loyalty to PNCC and its
they're caught in a bind, they always point a finger, they pretend they stockholders, the PNCC Board should have exercised utmost care and
SEN. DRILON. No, you sit in the board.
don't know. And it just amazes me that you have been appointed diligence in admitting a gargantuan debt of 10.743 billion that would
trustees, meaning, representatives of the Filipino people, that's what certainly force PNCC into insolvency, a debt that previous PNCC Boards
MR. FRANCISCO. I was just an ex-officio member. And all my reports you were at APT, right? You were not Erap's representatives, you were in the last two decades consistently refused to admit.
were coursed through our Chairman, Mr. Valdecantos, sir. representative of the Filipino people and you were tasked to conserve
the assets that that had been confiscated from various cronies of the Instead, the PNCC Board admitted PNCCs liability for the Marubeni
SEN. DRILON. Now, did you ever tell the board that there is a legal previous administration. And here, you are asked to recognize the P10 loans relying solely on a mere opinion of a private law office, which
position taken or at least from the documents it is possible that the billion debt and you point only to one law firm. If you have cancer, don't opinion the PNCC Board members never saw, except for Atty.
claim has prescribed? you to a second opinion, a second doctor or a third doctor? This is just a Valdecantos and Atty. Francisco. The PNCC Board knew that PNCC, as a
question. I am just asking you for your opinion if you would take the government owned and controlled corporation (GOCC), must rely
MR. FRANCISCO. I took this up in the board meeting of the PNCC at that advice of the first doctor who tells you that he's got to open you up. "exclusively" on the opinion of the OGCC. Section 1 of Memorandum
time and I told them about this matter, sir. Circular No. 9 dated 27 August 1998 issued by the President states:
MR. FRANCISCO. I would go to three or more doctors, sir.
SEN. DRILON. No, you told them that the claim could have, under the SECTION 1. All legal matters pertaining to government-owned or
law, could have prescribed? SEN. OSMEA. Three or more. Yeah, that's right. And in this case the controlled corporations, their subsidiaries, other corporate off-springs
APT did not do so. and government acquired asset corporations (GOCCs) shall be
MR. FRANCISCO. No, sir. exclusively referred to and handled by the Office of the Government
MR. FRANCISCO. We relied on the findings of the Corporate Counsel (OGCC). (Emphasis supplied)

SEN. DRILON. Why? You mean, you didnt tell the board that it is
possible that this liability is no longer a valid liability because it has SEN. OSMEA. If these were your money, would you have gone also to The PNCC Board acted in bad faith in relying on the opinion of a private
prescribed? obtain a second, third opinion from other law firms. Kung pera mo itong lawyer knowing that PNCC is required to rely "exclusively" on the
10 billion na ito. Siguro you're not gonna give it up that easily ano, 'di OGCCs opinion. Worse, the PNCC Board, in admitting liability for
ba? 10.743 billion, relied on the recommendation of a private lawyer
MR. FRANCISCO. I did not dwell into the findings anymore, sir, because I whose opinion the PNCC Board members have not even seen.
found the professional opinion of the Feria Law Office to be
sufficient.49 (Emphasis supplied) MR. FRANCISCO. Yes, sir.
During the oral arguments, Atty. Sison explained to the Court that the
intention of APT was for the PNCC Board merely to disclose the claim of
Atty. Franciscos act of recommending to the PNCC Board the SEN. OSMEA. You'll probably keep it in court for the next 20 years.
Marubeni as part of APT's full disclosure policy to prospective buyers of
acknowledgment of the Marubeni loans based only on an opinion of a
PNCC. Atty. Sison stated that it was not the intention of APT for the liability or account was also discussed. Mr. Macasaet, if I may try to MR. LAYA. That's my understanding of the proceedings at that time,
PNCC Board to admit liability for the Marubeni loans, thus: refresh. And there was some discussion, sir, and in fact, they were that's why in the subsequent November 22 meeting, we raised this
saying even at that stage that there should be a COA or an OGCC audit. point about obtaining a COA and OGCC opinion.
x x x It was the Asset Privatization Trust A-P-T that was tasked to sell the Now, that was during the discussion of October 20. Later on, the
company. The A-P-T, for purposes of disclosure statements, tasked the minutes came out. The practice, then, sir, was for the minutes to come SEN. DRILON. Yes. But you know, the November 22 meeting repeated
Feria Law Office to handle the documentation and the study of all legal out at the start of the meeting of the subsequent. So the minutes of the wording of the resolution previously adopted only now you are
issues that had to be resolved or clarified for the information of October 20 came out on November 22 and then we were going over it. saying subject to final determination which is completely of different
prospective bidders and or buyers. In the performance of its assigned And that is in the subsequent minutes of the meeting import from what you are saying was your understanding of the
task the Feria Law Office came upon the Marubeni claim and decision arrived at on October 20.
mentioned that the APTC and/or PNCC must disclose that there is a THE CHAIRMAN. May I interrupt. You were taking up in your November
claim by Marubeni against PNCC for purposes of satisfying the 22 meeting the October 20 minutes? MR. LAYA. Yes, sir. Because our thinking then...
requirements of full disclosure. This seemingly innocent statement or
requirement made by the Feria Law Office was then taken by two MR. LAYA. Yes, sir. SEN. DRILON. What do you mean, yes, sir?
officials of the Asset Privatization Trust and with malice aforethought
turned it into the basis for a multi-billion peso debt by the now
THE CHAIRMAN. This minutes that we have? MR. LAYA. It's just a claim under discussion but then the way it is
government owned and/or controlled PNCC. x x x.51 (Emphasis
supplied) translated, as the minutes of October 20 were not really verbatim.
MR. LAYA. Yes, sir.
While the PNCC Board passed Board Resolution No. BD-099-2000 SEN. DRILON. So, you never intended to recognize the obligation.
amending Board Resolution No. BD-092-2000, such amendment merely THE CHAIRMAN. All right, go ahead.
added conditions for the recognition of the Marubeni loans, namely, MR. LAYA. I think so, sir. That was our personally, that was my
subjecting the recognition to a final determination by COA of the MR. LAYA. Now, in the November 22 meeting, we noticed this position.
amount involved and to the declaration by OGCC of the legality of resolution already for confirmation of the board proceedings of
PNCCs liability. However, the PNCC Board reiterated and stood firm October 20. So immediately we made actually, protest would be a SEN. DRILON. How did it happen, Corporate Secretary Ogan, that the
that it "recognizes, acknowledges and confirms its obligations" for the better term for that we protested the wording of the resolution and minutes did not reflect what the board
Marubeni loans. Apparently, Board Resolution No. BD-099-2000 was a that's why we came up with this resolution amending the October 20
futile attempt to "revoke" Board Resolution No. BD-092-2000. Atty. resolution.
Alfredo Laya, Jr., a former PNCC Director, spoke on his protests against THE CHAIRMAN. Ms. Pasetes
Board Resolution No. BD-092-2000 at the Senate hearings, thus: SEN. DRILON. So you are saying, Mr. Laya, that the minutes of October
MS. PASETES. Yes, Mr. Chairman.
20 did not accurately reflect the decisions that you made on October 20
MR. LAYA. Mr. Chairman, if I can because you were saying that this recognition should be subject to
OGCC and COA? You seem to imply and we want to make it and I THE CHAIRMAN. you are the chief financial officer of PNCC.
THE CHAIRMAN. Were you also at the board? want to get that for the record. You seem to imply that there was no
decision to recognize the obligation during that meeting because you MS. PASETES. Your Honor, before that November 22 board meeting,
wanted it to subject it to COA and OGCC, is that correct? management headed by Mr. Rolando Macasaet, myself and Atty. Ogan
MR. LAYA. At that time, yes, sir.
had a discussion about the recognition of the obligations of 10 billion of
MR. LAYA. Yes, your Honor. Marubeni and 36 billion of the national government on whether to
THE CHAIRMAN. Okay, go ahead. recognize this as an obligation in our books or recognize it as an
obligation in the pro forma financial statement to be used for the
SEN. DRILON. So how did...
MR. LAYA. That's why if maybe this can help clarify the sequence. privatization of PNCC because recognizing both obligations in the books
There was this meeting on October 20. This matter of the Marubeni of PNCC would defeat our going concern status and that is where the
position of the president then, Mr. Macasaet, stemmed from and he x x x After President Estrada was ousted, I was appointed as President only, truth and in fact, the agreement agrees to convey to Radstock all
went back to the board and moved to reconsider the position of and Chairman of PNCC in April of 2001, this particular board resolution or substantially all of the assets of PNCC worth 18 Billion Pesos. There
October 20, 2000, Mr. Chair.52 (Emphasis supplied) was brought to my attention and I immediately put the matter before are three items that are undervalued here, the real estate that was
the board. I had no problem in convincing them to reverse the turned over as a result of the controversial agreement, the toll
In other words, despite Atty. Layas objections to PNCCs admitting recognition as it was illegal and had no basis in fact. The vote to revenues that were being assigned and the value of the new shares of
liability for the Marubeni loans, the PNCC Board still admitted the same overturn that resolution was unanimous. Strange to say that some who PNCC the difference is about 12 Billion Pesos. x x x (Emphasis supplied)
and merely imposed additional conditions to temper somehow the voted to overturn the recognition were part of the old board that
devastating effects of Board Resolution No. BD-092-2000. approved it. Stranger still, Renato Valdecantos who was still a member V.
of the Board voted in favor of reversing the resolution he himself The Compromise Agreement is Void
instigated and pushed. Some of the board members who voted to for Being Contrary to the Constitution,
The act of the PNCC Board in issuing Board Resolution No. BD-092-2000
recognize the obligation of Marubeni even came to me privately and Existing Laws, and Public Policy
expressly admitting liability for the Marubeni loans demonstrates the
said "pinilit lang kami." x x x.53 (Emphasis supplied)
PNCC Boards gross and willful disregard of the requisite care and
diligence in managing the affairs of PNCC, amounting to bad faith and For a better understanding of the present case, the pertinent terms and
resulting in grave and irreparable injury to PNCC and its stockholders. In approving PNCC Board Resolution Nos. BD-092-2000 and BD-099- conditions of the Compromise Agreement between PNCC and Radstock
This reckless and treacherous move on the part of the PNCC Board 2000, the PNCC Board caused undue injury to the Government and gave are quoted below:
clearly constitutes a serious breach of its fiduciary duty to PNCC and its unwarranted benefits to Radstock, through manifest partiality, evident
stockholders, rendering the members of the PNCC Board liable under bad faith or gross inexcusable negligence of the PNCC Board. Such acts
COMPROMISE AGREEMENT
Section 31 of the Corporation Code, which provides: are declared under Section 3(e) of RA 3019 or the Anti-Graft and
Corrupt Practices Act, as "corrupt practices xxx and xxx unlawful." Being
unlawful and criminal acts, these PNCC Board Resolutions are void ab KNOW ALL MEN BY THESE PRESENTS:
SEC. 31. Liability of directors, trustees or officers. -- Directors or trustees
initio and cannot be implemented or in any way given effect by the
who willfully and knowingly vote for or assent to patently unlawful acts
Executive or Judicial branch of the Government. This Agreement made and entered into this 17th day of August 2006, in
of the corporation or who are guilty of gross negligence or bad faith in
Mandaluyong City, Metro Manila, Philippines, by and between:
directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or Not content with forcing PNCC to commit corporate suicide with the
trustees shall be liable jointly and severally for all damages resulting admission of liability for the Marubeni loans under Board Resolution PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, a government
therefrom suffered by the corporation, its stockholders or members Nos. BD-092-2000 and BD-099-2000, the PNCC Board drove the last nail acquired asset corporation, created and existing under the laws of the
and other persons. on PNCCs coffin when the PNCC Board entered into the manifestly and Republic of the Philippines, with principal office address at EDSA corner
grossly disadvantageous Compromise Agreement with Radstock. This Reliance Street, Mandaluyong City, Philippines, duly represented herein
time, the OGCC, headed by Agnes DST Devanadera, reversed itself and by its Chairman ARTHUR N. AGUILAR, pursuant to a Board Resolution
When a director, trustee or officer attempts to acquire or acquires, in
recommended approval of the Compromise Agreement to the PNCC attached herewith as Annex "A" and made an integral part hereof,
violation of his duty, any interest adverse to the corporation in respect
Board. As Atty. Sison explained to the Court during the oral arguments: hereinafter referred to as PNCC;
of any matter which has been reposed in him 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 x x x While the case was pending in the Court of Appeals, Radstock in a - and -
profits which otherwise would have accrued to the corporation. rare display of extreme generosity, conveniently convinced the Board of
PNCC to enter into a compromise agreement for the amount of the RADSTOCK SECURITIES LIMITED, a private corporation incorporated in
judgment rendered by the RTC or 6.5 Billion Pesos. This time the the British Virgin Islands, with office address at Suite 1402 1 Duddell
Soon after the short-lived Estrada Administration, the PNCC Board
OGCC, under the leadership of now Solicitor General Agnes Street, Central Hongkong duly-represented herein by its Director,
revoked its previous admission of liability for the Marubeni loans.
Devanadera, approved the compromise agreement abandoning the CARLOS G. DOMINGUEZ, pursuant to a Board Resolution attached
During the oral arguments, Atty. Sison narrated to the Court:
previous OGCC position that PNCC had a meritorious case and would be herewith as Annex "B" and made an integral part hereof, hereinafter
hard press to lose the case. What is strange is that although the referred to as RADSTOCK.
compromise agreement we seek to stop ostensibly is for 6.5 Billion
WITNESSETH: claims not only to avoid litigation but also to put an end to one already fully aware and recognizes that PNCC has an
commenced (Articles 2028 and 2029, Civil Code); undertaking to cede at least 2 hectares of this
WHEREAS, on January 15, 2001, RADSTOCK, as assignee of Marubeni property to its creditor, the Philippine National
Corporation, filed a complaint for sum of money and damages with WHEREAS, this Compromise Agreement has been approved by the Bank; and that furthermore, the Government
application for a writ of preliminary attachment with the Regional Trial respective Board of Directors of both PNCC and RADSTOCK, subject to Service Insurance System has also a current and
Court (RTC), Mandaluyong City, docketed as Civil Case No. MC-01-1398, the approval of the Honorable Court; existing claim in the nature of boundary conflicts,
to collect on PNCCs guarantees on the unpaid loan obligations of CDCP which undertaking and claim will not result in the
Mining Corporation as provided under an Advance Payment Agreement diminution of area or value of the property.
NOW, THEREFORE, for and in consideration of the foregoing premises,
and Loan Agreement; Radstock recognizes and acknowledges the rights
and the mutual covenants, stipulations and agreements herein
and interests of GSIS over the said property.
contained, PNCC and RADSTOCK have agreed to amicably settle the
WHEREAS, on December 10, 2002, the RTC of Mandaluyong rendered a above captioned Radstock case under the following terms and
decision in favor of plaintiff RADSTOCK directing PNCC to pay the total conditions: (2) T-452587 (T-23646) - Paraaque (5,123 sq. m.)
amount of Thirteen Billion One Hundred Fifty One Million Nine Hundred subject to the clarification of the Privatization and
Fifty-Six Thousand Five Hundred Twenty-Eight Pesos Management Office (PMO) claims thereon. The
1. RADSTOCK agrees to receive and accept from
(13,151,956,528.00) with interest from October 15, 2001 plus Ten transfer value is 45,000,900.00.
PNCC in full and complete settlement of the
Million Pesos (10,000,000.00) as attorney's fees. Judgment Debt, the reduced amount of Six Billion,
One Hundred Ninety-Six Million Pesos (3) T-49499 (529715 including T-68146-G (S-29716)
WHEREAS, PNCC had elevated the case to the Court of Appeals (CA-G.R. (6,196,000,000.00) (the "Compromise Amount"). (1,9747-A)-Paraaque (107 sq. m.) (54 sq. m.)
SP No. 66654) on Certiorari and thereafter, to the Supreme Court (G.R. subject to the clarification of the Privatization and
No. 156887) which Courts have consistently ruled that the RTC did not Management Office (PMO) claims thereon. The
2. This Compromise Amount shall be paid by PNCC
commit grave abuse of discretion when it denied PNCCs Motion to transfer value is 1,409,100.00.
to RADSTOCK in the following manner:
Dismiss which sets forth similar or substantially the same grounds or
defenses as those raised in PNCC's Answer; (4) 5-29716-Paraaque (27,762 sq. m.) subject to
a. PNCC shall assign to a third party assignee to be designated by
the clarification of the Privatization and
RADSTOCK all its rights and interests to the following real properties
WHEREAS, the case has remained pending for almost six (6) years even Management Office (PMO) claims thereon. The
provided the assignee shall be duly qualified to own real properties in
after the main action was appealed to the Court of Appeals; transfer value is 242,917,500.00.
the Philippines;

WHEREAS, on the basis of the RTC Decision dated December 10, 2002, (5) P-169 - Tagaytay (49,107 sq. m.). The transfer
(1) PNCCs rights over that parcel of land located in
the current value of the judgment debt against PNCC stands at value is 13,749,400.00.
Pasay City with a total area of One Hundred Twenty-
17,040,843,968.00 as of July 31, 2006 (the "Judgment Debt"); Nine Thousand Five Hundred Forty-Eight (129,548)
square meters, more or less, and which is covered (6) P-170 - Tagaytay (49,100 sq. m.). The transfer
WHEREAS, RADSTOCK is willing to settle the case at the reduced by and more particularly described in Transfer value is 13,749,400.00.
Compromise Amount of Six Billion One Hundred Ninety-Six Million Certificate of Title No. T-34997 of the Registry of
Pesos (6,196,000,000.00) which may be paid by PNCC, either in cash or Deeds for Pasay City. The transfer value is (7) N-3320 - Town and Country Estate, Antipolo
in kind to avoid the trouble and inconvenience of further litigation as a 3,817,779,000.00. (10,000 sq. m.). The transfer value is
gesture of goodwill and cooperation; 16,800,000.00.
PNCCs rights and interests in Transfer Certificate of
WHEREAS, it is an established legal policy or principle that litigants in Title No. T-34997 of the Registry of Deeds for Pasay (8) N-7424 - Antipolo (840 sq. m.). The transfer
civil cases should be encouraged to compromise or amicably settle their City is defined and delineated by Administrative value is 940,800.00.
Order No. 397, Series of 1998, and RADSTOCK is
(9) N-7425 - Antipolo (850 sq. m.). The transfer the outstanding capital stock of PNCC after the conversion to equity of stock of PNCC; and (3) assign to Radstock or its assignee 50% of PNCCs
value is 952,000.00. the debt exposure of the Privatization Management Office (PMO) and 6% share, for the next 27 years (2008-2035), in the gross toll revenues
the National Development Company (NDC) and other government of the Manila North Tollways Corporation.
(10) N-7426 - Antipolo (958 sq. m.). The transfer agencies and creditors such that the total government holdings shall
value is 1,073,100.00. not fall below 70% voting equity subject to the approval of the A. The PNCC Board has no power to compromise
Securities and Exchange Commission (SEC) and ratification of PNCCs the 6.185 billion amount.
stockholders, if necessary. The assigned value of the shares issued to
(11) T-485276 - Antipolo (741 sq. m.). The transfer
RADSTOCK is 713 Million based on the approximate last trading price
value is 830,200.00. Does the PNCC Board have the power to compromise the 6.185 billion
of PNCC shares in the Philippine Stock Exchange as the date of this
"reduced" amount? The answer is in the negative.1avvphi1
agreement, based further on current generally accepted accounting
(12) T-485277 - Antipolo (680 sq. m.). The transfer standards which stipulates the valuation of shares to be based on the
value is 761,600.00. lower of cost or market value. The Dissenting Opinion asserts that PNCC has the power, citing Section
36(2) of Presidential Decree No. 1445 (PD 1445), otherwise known as
(13) T-485278 - Antipolo (701 sq. m.). The transfer the Government Auditing Code of the Philippines, enacted in 1978.
Subject to the procurement of any and all necessary approvals from the
value is 785,400.00. Section 36 states:
relevant governmental authorities, PNCC shall deliver to RADSTOCK an
instrument evidencing an undertaking of the Privatization and
(14) T-131500 - Bulacan (CDCP Farms Corp.) (4,945 Management Office (PMO) to give RADSTOCK or its assignee the right SECTION 36. Power to Compromise Claims. (1) When the interest of
sq, m.). The transfer value is 6,475,000.00. to match any offer to buy the shares of the capital stock and debts of the government so requires, the Commission may compromise or
PNCC held by PMO, in the event the same shares and debt are offered release in whole or in part, any claim or settled liability to any
for privatization. government agency not exceeding ten thousand pesos and with the
(15) T-131501 - Bulacan (678 sq. m.). The transfer
written approval of the Prime Minister, it may likewise compromise or
value is 887,600.00.
release any similar claim or liability not exceeding one hundred
c. PNCC shall assign to RADSTOCK or its assignee 50% of the PNCC's 6%
thousand pesos, the application for relief therefrom shall be submitted,
(16) T-26,154 (M) - Bocaue, Bulacan (2,841 sq. m.). share in the gross toll revenue of the Manila North Tollways
through the Commission and the Prime Minister, with their
The transfer value is 3,779,300.00. Corporation (MNTC), with a Net Present Value of 1.287 Billion
recommendations, to the National Assembly.
computed in the manner outlined in Annex "C" herein attached as an
integral part hereof, that shall be due and owing to PNCC pursuant to
(17) T-29,308 (M) - Bocaue, Bulacan (733 sq. m.). the Joint Venture Agreement between PNCC and First Philippine (2) The respective governing bodies of government-owned or controlled
The transfer value is 974,400.00. Infrastructure Development Corp. dated August 29, 1995 and other corporations, and self-governing boards, commissions or agencies of
related existing agreements, commencing in 2008. It shall be the government shall have the exclusive power to compromise or
(18) T-29,309 (M) Bocaue, Bulacan (1,141 sq. m.). understood that as a result of this assignment, PNCC shall charge and release any similar claim or liability when expressly authorized by their
The transfer value is 1,517,600.00. withhold the amounts, if any, pertaining to taxes due on the amounts charters and if in their judgment, the interest of their respective
assigned. corporations or agencies so requires. When the charters do not so
(19) T-260578 (R. Bengzon) Sta. Rita, Guiguinto, provide, the power to compromise shall be exercised by the
Bulacan (20,000 sq. m.). The transfer value is Commission in accordance with the preceding paragraph. (Emphasis
Under the Compromise Agreement, PNCC shall pay Radstock the
25,200,000.00. supplied)
reduced amount of 6,185,000,000.00 in full settlement of PNCCs
guarantee of CDCP Minings debt allegedly totaling 17,040,843,968.00
The transfer values of the foregoing properties are based on 70% of the as of 31 July 2006. To satisfy its reduced obligation, PNCC undertakes to The Dissenting Opinion asserts that since PNCC is incorporated under
appraised value of the respective properties. (1) "assign to a third party assignee to be designated by Radstock all its the Corporation Code, the PNCC Board has all the powers granted to
rights and interests" to the listed real properties therein; (2) issue to the governing boards of corporations incorporated under the
Radstock or its assignee common shares of the capital stock of PNCC Corporation Code, which includes the power to compromise claims or
b. PNCC shall issue to RADSTOCK or its assignee common shares of the liabilities.
issued at par value which shall comprise 20% of the outstanding capital
capital stock of PNCC issued at par value which shall comprise 20% of
Section 36 of PD 1445, enacted on 11 June 1978, has been superseded In the same vein, the COAs stamp of approval on the Compromise claim settled through admission by a government agency without the
by a later law -- Section 20(1), Chapter IV, Subtitle B, Title I, Book V of Agreement is void for violating Section 20(1), Chapter IV, Subtitle B, approval of Congress for amounts exceeding 100,000.00. What makes
Executive Order No. 292 or the Administrative Code of 1987, which Title I, Book V of the Administrative Code of 1987. Clearly, the the application of the law even more necessary is that the PNCC Boards
provides: Dissenting Opinions reliance on the COAs finding that the terms and twin moves are manifestly and grossly disadvantageous to the
conditions of the Compromise Agreement are "fair and above board" is Government. First, the PNCC admitted solidary liability for a staggering
Section 20. Power to Compromise Claims. - (1) When the interest of the patently erroneous. 10.743 billion private debt incurred by a private corporation which
Government so requires, the Commission may compromise or release PNCC does not even control. Second, the PNCC Board agreed to pay
in whole or in part, any settled claim or liability to any government Citing Benedicto v. Board of Administrators of Television Stations RPN, Radstock 6.185 billion as a compromise settlement ahead of all other
agency not exceeding ten thousand pesos arising out of any matter or BBC and IBC,55 the Dissenting Opinion views that congressional approval creditors, including the Government which is the biggest creditor.
case before it or within its jurisdiction, and with the written approval of is not required for the validity of the Compromise Agreement because
the President, it may likewise compromise or release any similar claim the liability of PNCC is not yet "settled." The Dissenting Opinion further argues that since the PNCC is
or liability not exceeding one hundred thousand pesos. In case the claim incorporated under the Corporation Code, it has the power, through its
or liability exceeds one hundred thousand pesos, the application for In Benedicto, the PCGG filed in the Sandiganbayan a civil case to Board of Directors, to compromise just like any other private
relief therefrom shall be submitted, through the Commission and the recover from the defendants (including Roberto S. Benedicto) their ill- corporation organized under the Corporation Code. Thus, the
President, with their recommendations, to the Congress[.] x x x gotten wealth consisting of funds and other properties. The PCGG Dissenting Opinion states:
(Emphasis supplied) executed a compromise agreement with Roberto S. Benedicto ceding to
the latter a substantial part of his ill-gotten assets and the State Not being a government corporation created by special law, PNCC does
Under this provision,54 the authority to compromise a settled claim or granting him immunity from further prosecution. The Court held that not owe its creation to some charter or special law, but to the
liability exceeding 100,000.00 involving a government agency, as in prior congressional approval is not required for the PCGG to enter into Corporation Code. Its powers are enumerated in the Corporation Code
this case where the liability amounts to 6.185 billion, is vested not in a compromise agreement with persons against whom it has filed and its articles of incorporation. As an autonomous entity, it
COA but exclusively in Congress. Congress alone has the power to actions for recovery of ill-gotten wealth. undoubtedly has the power to compromise, and to enter into a
compromise the 6.185 billion purported liability of PNCC. Without settlement through its Board of Directors, just like any other private
congressional approval, the Compromise Agreement between PNCC In Benedicto, the Court found that the governments claim against corporation organized under the Corporation Code. To maintain
and Radstock involving 6.185 billion is void for being contrary to Benedicto was not yet settled unlike here where the PNCC Board otherwise is to ignore the character of PNCC as a corporate entity
Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the expressly admitted the liability of PNCC for the Marubeni loans. In organized under the Corporation Code, by which it was vested with a
Administrative Code of 1987. Benedicto, the ownership of the alleged ill-gotten assets was still being personality and identity distinct and separate from those of its
litigated in the Sandiganbayan and no party ever admitted any liability, stockholders or members. (Boldfacing and underlining supplied)
PNCC is a "government agency" because Section 2 on Introductory unlike here where the PNCC Board had already admitted through a
Provisions of the Revised Administrative Code of 1987 provides that formal Board Resolution PNCCs liability for the Marubeni loans. PNCCs The Dissenting Opinion is woefully wide off the mark. The PNCC is not
express admission of liability for the Marubeni loans is essentially the "just like any other private corporation" precisely because it is not a
Agency of the Government refers to any of the various units of the premise of the execution of the Compromise Agreement. In short, private corporation but indisputably a government owned corporation.
Government, including a department, bureau, office, instrumentality, or Radstocks claim against PNCC is settled by virtue of PNCCs express Neither is PNCC "an autonomous entity" considering that PNCC is under
government-owned or controlled corporation, or a local government or admission of liability for the Marubeni loans. The Compromise the Department of Trade and Industry, over which the President
a distinct unit therein. (Boldfacing supplied) Agreement merely reduced this settled liability from 17 billion to exercises control. To claim that PNCC is an "autonomous entity" is to
6.185 billion. say that it is a lost command in the Executive branch, a concept that
violates the President's constitutional power of control over the entire
Thus, Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the
The provision of the Revised Administrative Code on the power to settle Executive branch of government.56
Administrative Code of 1987 applies to PNCC, which indisputably is a
government owned or controlled corporation. claims or liabilities was precisely enacted to prevent government
agencies from admitting liabilities against the government, then The government nominees in the PNCC Board, who practically compose
compromising such "settled" liabilities. The present case is exactly what the entire PNCC Board, are public officers subject to the Anti-Graft and
the law seeks to prevent, a compromise agreement on a creditors Corrupt Practices Act, accountable to the Government and the Filipino
people. To hold that a corporation incorporated under the Corporation (2) The Commission shall have exclusive authority, subject to the Corporation Code. This means that Section 20(1), Chapter IV, Subtitle B,
Code, despite its being 90.3% owned by the Government, is "an limitations in this Article, to define the scope of its audit and Title I, Book V of the Administrative Code of 1987 on the power to
autonomous entity" that could solely through its Board of Directors examination, establish the techniques and methods required therefor, compromise, which superseded Section 36 of the Government Auditing
compromise, and transfer ownership of, substantially all its assets to a and promulgate accounting and auditing rules and regulations, Code, applies to the present case in determining PNCCs power to
private third party without the approval required under the including those for the prevention and disallowance of irregular, compromise. In fact, the COA has been regularly auditing PNCC on a
Administrative Code of 1987,57 is to invite the plunder of all such unnecessary, excessive, extravagant, or unconscionable expenditures, post-audit basis in accordance with Section 2, Article IX-D of the
government owned corporations. or uses of government funds and properties. (Emphasis supplied) Constitution, the Government Auditing Code, and COA rules and
regulations.
The Dissenting Opinions claim that PNCC is an autonomous entity just In explaining the extent of the jurisdiction of COA over government
like any other private corporation is inconsistent with its assertion that owned or controlled corporations, this Court declared in Feliciano v. B. PNCCs toll fees are public funds.
Section 36(2) of the Government Auditing Code is the governing law in Commission on Audit:58
determining PNCC's power to compromise. Section 36(2) of the PD 1113 granted PNCC a 30-year franchise to construct, operate and
Government Auditing Code expressly states that it applies to the The COA's audit jurisdiction extends not only to government "agencies maintain toll facilities in the North and South Luzon Expressways.
governing bodies of "government-owned or controlled corporations." or instrumentalities," but also to "government-owned and controlled Section 1 of PD 111359 provides:
The phrase "government-owned or controlled corporations" refers to corporations with original charters" as well as "other government-
both those created by special charter as well as those incorporated owned or controlled corporations" without original charters. Section 1. Any provision of law to the contrary notwithstanding, there is
under the Corporation Code. Section 2, Article IX-D of the Constitution
hereby granted to the Construction and Development Corporation of
provides:
xxxx the Philippines (CDCP), a corporation duly organized and registered
under the laws of the Philippines, hereinafter called the GRANTEE, for a
SECTION 2. (1) The Commission on Audit shall have the power, period of thirty (30) years from May 1, 1977 the right, privilege and
Petitioner forgets that the constitutional criterion on the exercise of
authority, and duty to examine, audit, and settle all accounts pertaining authority to construct, operate and maintain toll facilities covering the
COA's audit jurisdiction depends on the government's ownership or
to the revenue and receipts of, and expenditures or uses of funds and expressways from Balintawak (Station 9 + 563) to Carmen, Rosales,
control of a corporation. The nature of the corporation, whether it is
property, owned or held in trust by, or pertaining to, the Government, Pangasinan and from Nichols, Pasay City (Station 10 + 540) to Lucena,
private, quasi-public, or public is immaterial.
or any of its subdivisions, agencies, or instrumentalities, including Quezon, hereinafter referred to collectively as North Luzon Expressway,
government-owned or controlled corporations with original charters, respectively.
and on a post-audit basis: (a) constitutional bodies, commissions and The Constitution vests in the COA audit jurisdiction over "government-
offices that have been granted fiscal autonomy under this Constitution; owned and controlled corporations with original charters," as well as
"government-owned or controlled corporations" without original The franchise herein granted shall include the right to collect toll fees at
(b) autonomous state colleges and universities; (c) other government-
charters. GOCCs with original charters are subject to COA pre-audit, such rates as may be fixed and/or authorized by the Toll Regulatory
owned or controlled corporations and their subsidiaries; and (d) such
while GOCCs without original charters are subject to COA post-audit. Board hereinafter referred to as the Board created under Presidential
non-governmental entities receiving subsidy or equity, directly or
GOCCs without original charters refer to corporations created under the Decree No. 1112 for the use of the expressways above-mentioned.
indirectly, from or through the Government, which are required by law
Corporation Code but are owned or controlled by the government. The (Emphasis supplied)
or the granting institution to submit to such audit as a condition of
subsidy or equity. However, where the internal control system of the nature or purpose of the corporation is not material in determining
audited agencies is inadequate, the Commission may adopt such COA's audit jurisdiction. Neither is the manner of creation of a Section 2 of PD 1894,60 which amended PD 1113 to include in PNCCs
measures, including temporary or special pre-audit, as are necessary corporation, whether under a general or special law. franchise the Metro Manila expressway, also provides:
and appropriate to correct the deficiencies. It shall keep the general
accounts of the Government and, for such period as may be provided Clearly, the COAs audit jurisdiction extends to government owned or Section 2. The term of the franchise provided under Presidential Decree
by law, preserve the vouchers and other supporting papers pertaining controlled corporations incorporated under the Corporation Code. No. 1113 for the North Luzon Expressway and the South Luzon
thereto. Thus, the COA must apply the Government Auditing Code in the audit Expressway which is thirty (30) years from 1 May 1977 shall remain the
and examination of the accounts of such government owned or same; provided that, the franchise granted for the Metro Manila
controlled corporations even though incorporated under the Expressway and all extensions linkages, stretches and diversions that
may be constructed after the date of approval of this decree shall This contention is devoid of merit. on 1 May 2007. Whatever power the TRB may have to grant authority
likewise have a term of thirty (30) years commencing from the date of to operate a toll facility or to issue a "Tollway Operation Certificate,"
completion of the project. (Emphasis supplied) With the expiration of PNCCs franchise, the assets and facilities of such power does not obviously include the authority to transfer back to
PNCC were automatically turned over, by operation of law, to the PNCC ownership of National Government assets, like the toll assets and
Based on these provisions, the franchise of the PNCC expired on 1 May government at no cost. Sections 2(e) and 9 of PD 1113 and Section 5 of facilities, which have become National Government property upon the
2007 or thirty years from 1 May 1977. PD 1894 provide: expiry of PNCCs franchise. Such act by the TRB would repeal Section 5
of PD 1894 which automatically vested in the National Government
ownership of PNCCs toll assets and facilities upon the expiry of PNCCs
PNCC, however, claims that under PD 1894, the North Luzon Section 2 [of PD 1113]. In consideration of this franchise, the GRANTEE
franchise. The TRB obviously has no power to repeal a law. Further, PD
Expressway (NLEX) shall have a term of 30 years from the date of its shall:
1113, as amended by PD 1894, granting the franchise to PNCC, is a later
completion in 2005. PNCC argues that the proviso in Section 2 of PD
law that must necessarily prevail over PD 1112 creating the TRB. Hence,
1894 gave "toll road projects completed within the franchise period and (e) Turn over the toll facilities and all equipment directly related thereto the provisions of PD 1113, as amended by PD 1894, are controlling.
after the approval of PD No. 1894 on 12 December 1983 their own to the government upon expiration of the franchise period without
thirty-year term commencing from the date of the completion of the cost.
said project, notwithstanding the expiry of the said franchise." The governments ownership of PNCC's toll assets and facilities
inevitably results in the governments ownership of the toll fees and the
Section 9 [of PD 1113]. For the purposes of this franchise, the net income derived from these toll assets and facilities. Thus, the toll
This contention is untenable. Government, shall turn over to the GRANTEE (PNCC) not later than April fees form part of the National Governments General Fund, which
30, 1977 all physical assets and facilities including all equipment and includes public moneys of every sort and other resources pertaining to
The proviso in Section 2 of PD 1894 refers to the franchise granted for appurtenances directly related to the operations of the North and any agency of the government.61 Even Radstocks counsel admits that
the Metro Manila Expressway and all extensions linkages, stretches and South Toll Expressways: Provided, That, the extensions of such the toll fees are public funds, to wit:
diversions constructed after the approval of PD 1894. It does not Expressways shall also be turned over to GRANTEE upon completion of
pertain to the NLEX because the term of the NLEX franchise, "which is their construction or of functional sections thereof: Provided, However,
ASSOCIATE JUSTICE CARPIO:
30 years from 1 May 1977, shall remain the same," as expressly That upon termination of the franchise period, said physical assets and
provided in the first sentence of the same Section 2 of PD 1894. To facilities including improvements thereon, together with equipment
construe that the NLEX franchise had a new term of 30 years starting and appurtenances directly related to their operations, shall be turned Okay. Now, when the franchise of PNCC expired on May 7, 2007, under
from 2005 glaringly conflicts with the plain, clear and unequivocal over to the Government without any cost or obligation on the part of the terms of the franchise under PD 1896, all the assets, toll way assets,
language of the first sentence of Section 2 of PD 1894. That would be the latter. (Emphasis supplied) equipment, etcetera of PNCC became owned by government at no cost,
clearly absurd. correct, under the franchise?
Section 5 [of PD No. 1894]. In consideration of this franchise, the
There is no dispute that Congress did not renew PNCCs franchise after GRANTEE shall: DEAN AGABIN:
its expiry on 1 May 2007. However, PNCC asserts that it "remains a
viable corporate entity even after the expiration of its franchise under (a) Construct, operate and maintain at its own expense the Yes, Your Honor.
Presidential Decree No. 1113." PNCC points out that the Toll Regulatory Expressways; and
Board (TRB) granted PNCC a "Tollway Operation Certificate" (TOC) ASSOCIATE JUSTICE CARPIO:
which conferred on PNCC the authority to operate and maintain toll
(b) Turn over, without cost, the toll facilities and all
facilities, which includes the power to collect toll fees. PNCC further
equipment, directly related thereto to the Government upon Okay. So this is now owned by the national government. [A]ny income
posits that the toll fees are private funds because they represent "the
expiration of the franchise period. (Emphasis supplied) from these assets of the national government is national government
consideration given to tollway operators in exchange for costs they
income, correct?
incurred or will incur in constructing, operating and maintaining the
tollways." The TRB does not have the power to give back to PNCC the toll assets
and facilities which were automatically turned over to the Government, DEAN AGABIN:
by operation of law, upon the expiration of the franchise of the PNCC
Yes, Your Honor.62 DEAN AGABIN: DEAN AGABIN:

xxxx Yes, Your Honor. Yes.64 (Emphasis supplied)

ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO: Forming part of the General Fund, the toll fees can only be disposed of
in accordance with the fundamental principles governing financial
x x x My question is very simple x x x Is the income from these assets of But its part of the general fund. Now, if it is part of the general fund, transactions and operations of any government agency, to wit: (1) no
the national government (interrupted) who has the authority to spend that money? money shall be paid out of the Treasury except in pursuance of an
appropriation made by law, as expressly mandated by Section 29(1),
Article VI of the Constitution; and (2) government funds or property
DEAN AGABIN: DEAN AGABIN:
shall be spent or used solely for public purposes, as expressly mandated
by Section 4(2) of PD 1445 or the Government Auditing Code.65
Yes, Your Honor.63 Well, the National Government itself.
Section 29(1), Article VI of the Constitution provides:
xxxx ASSOCIATE JUSTICE CARPIO:
Section 29(1). No money shall be paid out of the Treasury except in
ASSOCIATE JUSTICE CARPIO: Who in the National Government, the Executive, Judiciary or pursuance of an appropriation made by law.
Legislative?
So, its the government [that] decides whether it goes to the general The power to appropriate money from the General Funds of the
fund or another fund. [W]hat is that other fund? Is there another fund DEAN AGABIN: Government belongs exclusively to the Legislature. Any act in violation
where revenues of the government go? of this iron-clad rule is unconstitutional.
Well, the funds are usually appropriated by the Congress.
DEAN AGABIN: Reinforcing this Constitutional mandate, Sections 84 and 85 of PD 1445
ASSOCIATE JUSTICE CARPIO: require that before a government agency can enter into a contract
Its the same fund, Your Honor, except that (interrupted) involving the expenditure of government funds, there must be an
x x x you mean to say there are exceptions that money from the general appropriation law for such expenditure, thus:
ASSOCIATE JUSTICE CARPIO: fund can be spent by the Executive without going t[hrough] Congress,
or xxx is [that] the absolute rule? Section 84. Disbursement of government funds.
So it goes to the general fund?
DEAN AGABIN: 1. Revenue funds shall not be paid out of any public treasury or
DEAN AGABIN: depository except in pursuance of an appropriation law or other specific
Well, in so far as the general fund is concerned, that is the absolute rule statutory authority.

Except that it can be categorized as a private fund in a commercial set aside by the National Government.
sense, and it can be categorized as a public fund in a Public Law sense. xxxx
ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO: Section 85. Appropriation before entering into contract.
x x x you are saying this is general fund money - the collection from the
Okay. So we agree that, okay, it goes to the general fund. I agree with assets[?] 1. No contract involving the expenditure of public funds shall be
you, but you are saying it is categorized still as a private funds? entered into unless there is an appropriation therefor, the unexpended
balance of which, free of other obligations, is sufficient to cover the The Auditing Code of the Philippines (P.D. 1445) further provides that Okay, I agree with you. Now, you are saying that money can be paid out
proposed expenditure. no contract involving the expenditure of public funds shall be entered of the general fund only through an appropriation by Congress, correct?
into unless there is an appropriation therefor and the proper Thats what you are saying.
xxxx accounting official of the agency concerned shall have certified to the
officer entering into the obligation that funds have been duly DEAN AGABIN:
appropriated for the purpose and the amount necessary to cover the
Section 86 of PD 1445, on the other hand, requires that the proper
proposed contract for the current fiscal year is available for expenditure
accounting official must certify that funds have been appropriated for Yes, Your Honor.
on account thereof. Any contract entered into contrary to the foregoing
the purpose.66 Section 87 of PD 1445 provides that any contract
requirements shall be VOID.
entered into contrary to the requirements of Sections 85 and 86 shall ASSOCIATE JUSTICE CARPIO:
be void, thus:
Clearly then, the contract entered into by the former Mayor Duterte
was void from the very beginning since the agreed cost for the project I agree with you also. Okay, now, can PNCC xxx use this money to pay
Section 87. Void contract and liability of officer. Any contract entered Radstock without Congressional approval?
(,368,920.00) was way beyond the appropriated amount
into contrary to the requirements of the two immediately preceding
(,419,180.00) as certified by the City Treasurer. Hence, the contract
sections shall be void, and the officer or officers entering into the
was properly declared void and unenforceable in COA's 2nd DEAN AGABIN:
contract shall be liable to the government or other contracting party for
Indorsement, dated September 4, 1986. The COA declared and we
any consequent damage to the same extent as if the transaction had
agree, that: Well, I believe that that may not be necessary. Your Honor, because
been wholly between private parties. (Emphasis supplied)
earlier, the government had already decreed that PNCC should be
The prohibition contained in Sec. 85 of PD 1445 (Government Auditing properly paid for the reclamation works which it had done. And so
Applying Section 29(1), Article VI of the Constitution, as implanted in
Code) is explicit and mandatory. Fund availability is, as it has always (interrupted)
Sections 84 and 85 of the Government Auditing Code, a law must first
been, an indispensable prerequisite to the execution of any
be enacted by Congress appropriating 6.185 billion as compromise
government contract involving the expenditure of public funds by all ASSOCIATE JUSTICE CARPIO:
money before payment to Radstock can be made.67 Otherwise, such
government agencies at all levels. Such contracts are not to be
payment violates a prohibitory law and thus void under Article 5 of the
considered as final or binding unless such a certification as to funds
Civil Code which states that "[a]cts executed against the provisions of No. I am talking of the funds.
availability is issued (Letter of Instruction No. 767, s. 1978). Antecedent
mandatory or prohibitory laws shall be void, except when the law itself
of advance appropriation is thus essential to government liability on
authorizes their validity." DEAN AGABIN:
contracts (Zobel vs. City of Manila, 47 Phil. 169). This contract being
violative of the legal requirements aforequoted, the same contravenes
Indisputably, without an appropriation law, PNCC cannot lawfully pay Sec. 85 of PD 1445 and is null and void by virtue of Sec. 87. And so it is like a foreign obligation.
6.185 billion to Radstock. Any contract allowing such payment, like the
Compromise Agreement, "shall be void" as provided in Section 87 of
Verily, the contract, as expressly declared by law, is inexistent and void ASSOCIATE JUSTICE CARPIO:
the Government Auditing Code. In Comelec v. Quijano-Padilla,68 this
ab initio. This is to say that the proposed contract is without force and
Court ruled:
effect from the very beginning or from its incipiency, as if it had never
Counsel, I'm talking of the general funds, collection from the toll fees.
been entered into, and hence, cannot be validated either by lapse of
Petitioners are justified in refusing to formalize the contract with Okay. You said, they go to the general fund. You also said, money from
time or ratification. (Emphasis supplied)
PHOTOKINA. Prudence dictated them not to enter into a contract not the general fund can be spent only if there is an appropriation law by
backed up by sufficient appropriation and available funds. Definitely, to Congress.
Significantly, Radstocks counsel admits that an appropriation law is
act otherwise would be a futile exercise for the contract would
needed before PNCC can use toll fees to pay Radstock, thus:
inevitably suffer the vice of nullity. In Osmea vs. Commission on Audit, DEAN AGABIN:
this Court held:
ASSOCIATE JUSTICE CARPIO:
Yes, Your Honor.
There is no law. ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO:

DEAN AGABIN: No, no. I am saying that You just agreed that all those collections now Yeah, but that is not the six percent. Out of the six percent, that goes
will go to the National Government forming part of the general fund. If, now to PNCC, thats entirely national government. But the National
Yes, except that, Your Honor, this fund has not yet gone to the general somehow, PNCC is holding this money in the meantime, it holds xxx it in Government and the PNCC can agree on service fees for collecting, to
fund. trust, correct? Because you said, it goes to the general fund, National pay toll collectors.
Government. So it must be holding this in trust for the National
Government. DEAN AGABIN:
ASSOCIATE JUSTICE CARPIO:

DEAN AGABIN: Yes, Your Honor.


No. Its being collected everyday. As of May 7, 2007, national
government owned those assets already. All those x x x collections that
would have gone to PNCC are now national government owned. It goes Yes, Your Honor. ASSOCIATE JUSTICE CARPIO:
to the general fund. And any body who uses that without appropriation
from Congress commits malversation, I tell you. ASSOCIATE JUSTICE CARPIO: But those are expenses. We are talking of the net income. It goes to the
general fund. And its only Congress that can authorize that
DEAN AGABIN: Okay. Can the person holding in trust use it to pay his private debt? expenditure. Not even the Court of Appeals can give its stamp of
approval that it goes to Radstock, correct?
That is correct, Your Honor, as long as it has already gone into the DEAN AGABIN:
general fund. DEAN AGABIN:
No, Your Honor.
ASSOCIATE JUSTICE CARPIO: Yes, Your Honor.69 (Emphasis supplied)
ASSOCIATE JUSTICE CARPIO:
Oh, you mean to say that its still being held now by the agent, PNCC. It Without an appropriation law, the use of the toll fees to pay Radstock
has not been remitted to the National Government? Cannot be. would constitute malversation of public funds. Even counsel for
Radstock expressly admits that the use of the toll fees to pay Radstock
DEAN AGABIN: constitutes malversation of public funds, thus:
DEAN AGABIN:

Well, if PNCC (interrupted) ASSOCIATE JUSTICE CARPIO:


But I assume that there must be some portion of the collections which
properly pertain to PNCC.
ASSOCIATE JUSTICE CARPIO: x x x As of May 7, 2007, [the] national government owned those assets
already. All those x x x collections that would have gone to PNCC are
ASSOCIATE JUSTICE CARPIO:
now national government owned. It goes to the general fund. And any
But if (interrupted)
body who uses that without appropriation from Congress commits
If there is some portion that xxx may be [for] operating expenses of malversation, I tell you.
DEAN AGABIN: PNCC. But that is not
DEAN AGABIN:
If this is the share that properly belongs to PNCC as a private entity DEAN AGABIN:
(interrupted)
That is correct, Your Honor, as long as it has already gone into the
Even profit, Your Honor. general fund.
ASSOCIATE JUSTICE CARPIO: Auditing Code,71 that government funds or property shall be spent or MR. AGUILAR. I think it was if I may just speculate. It was just
used solely for pubic purposes, thus: common ownership at that time.
Oh, you mean to say that its still being held now by the agent, PNCC. It
has not been remitted to the National Government? Section 4. Fundamental Principles. x x x (2) Government funds or SEN. OSMEA. Al right. Now Also, the ...
property shall be spent or used solely for public purposes. (Emphasis
DEAN AGABIN: supplied) MR. AGUILAR. Ah, 13 percent daw, your Honor.

Well, if PNCC (interrupted) There is no question that the subject of the Compromise Agreement is SEN. OSMEA. Huh?
CDCP Minings private debt to Marubeni, which Marubeni subsequently
assigned to Radstock. Counsel for Radstock admits that Radstock holds
ASSOCIATE JUSTICE CARPIO: MR. AGUILAR. Thirteen percent ho.
a private debt of CDCP Mining, thus:

But if (interrupted) SEN. OSMEA. Whats 13 percent?


ASSOCIATE JUSTICE CARPIO:

DEAN AGABIN: MR. AGUILAR. We owned ...


So your client is holding a private debt of CDCP Mining, correct?

If this is the share that properly belongs to PNCC as a private entity MS. PASETES. Thirteen percent of ...
DEAN AGABIN:
(interrupted)
SEN. OSMEA. PNCC owned ...
Correct, Your Honor.72 (Emphasis supplied)
ASSOCIATE JUSTICE CARPIO:
MS. PASETES. (Mike off) CDCP ...
CDCP Mining obtained the Marubeni loans when CDCP Mining and
No, no. I am saying that You just agreed that all those collections now
PNCC (then CDCP) were still privately owned and managed
will go to the National Government forming part of the general fund. If, SEN. DRILON. Use the microphone, please.
corporations. The Government became the majority stockholder of
somehow, PNCC is holding this money in the meantime, it holds x x x it
PNCC only because government financial institutions converted their
in trust, correct? Because you said, it goes to the general fund, National
loans to PNCC into equity when PNCC failed to pay the loans. However, MS. PASETES. Sorry. Your Honor, the ownership of CDCP of CDCP Basay
Government. So it must be holding this in trust for the National
CDCP Mining have always remained a majority privately owned Mining ...
Government.
corporation with PNCC owning only 13% of its equity as admitted by
former PNCC Chairman Arthur N. Aguilar and PNCC SVP Finance Miriam SEN. OSMEA. No, no, the ownership of CDCP. CDCP Mining, how many
DEAN AGABIN: M. Pasetes during the Senate hearings, thus: percent of the equity of CDCP Mining was owned by PNCC, formerly
CDCP?
Yes, Your Honor.70 (Emphasis supplied) SEN. OSMEA. x x x I just wanted to know is CDCP Mining a 100
percent subsidiary of PNCC? MS. PASETES. Thirteen percent.
Indisputably, funds held in trust by PNCC for the National Government
cannot be used by PNCC to pay a private debt of CDCP Mining to MR. AGUILAR. Hindi ho. Ah, no. SEN. OSMEA. Thirteen. And as a 13 percent owner, they agreed to sign
Radstock, otherwise the PNCC Board will be liable for malversation of
jointly and severally?
public funds.
SEN. OSMEA. If theyre not a 100 percent, why would they sign jointly
and severally? I just want to plug the loopholes. MS. PASETES. Yes.
In addition, to pay Radstock 6.185 billion violates the fundamental
public policy, expressly articulated in Section 4(2) of the Government
SEN. OSMEA. One-three?
So poor PNCC and CDCP got taken to the cleaners here. They sign for a five hundred hectares, or acquire not more than twelve hectares Yes, xxx you said, Radstock will assign the right of ownership to the
100 percent and they only own 13 percent. thereof by purchase, homestead, or grant. qualified assignee[.] So my question is, can a foreigner own the right to
ownership of a land when it cannot own the land itself?
x x x x73 (Emphasis supplied) Taking into account the requirements of conservation, ecology, and
development, and subject to the requirements of agrarian reform, the ATTY. AGRA:
PNCC cannot use public funds, like toll fees that indisputably form part Congress shall determine, by law, the size of lands of the public domain
of the General Fund, to pay a private debt of CDCP Mining to Radstock. which may be acquired, developed, held, or leased and the conditions The foreigner cannot own the land, Your Honor.
Such payment cannot qualify as expenditure for a public purpose. The therefor.
toll fees are merely held in trust by PNCC for the National Government, ASSOCIATE JUSTICE CARPIO:
which is the owner of the toll fees. xxxx
But you are saying it can own the right of ownership to the land,
Considering that there is no appropriation law passed by Congress for Section 7. Save in cases of hereditary succession, no private lands shall because you are saying, the right of ownership will be assigned by
the 6.185 billion compromise amount, the Compromise Agreement is be transferred or conveyed except to individuals, corporations, or Radstock.
void for being contrary to law, specifically Section 29(1), Article VI of the associations qualified to acquire or hold lands of the public domain.
Constitution and Section 87 of PD 1445. And since the payment of the
ATTY. AGRA:
6.185 billion pertains to CDCP Minings private debt to Radstock, the The OGCC admits that Radstock cannot own lands in the Philippines.
Compromise Agreement is also void for being contrary to the However, the OGCC claims that Radstock can own the rights to
fundamental public policy that government funds or property shall be The rights over the properties, Your Honors, if theres a valid
ownership of lands in the Philippines, thus:
spent or used solely for public purposes, as provided in Section 4(2) of assignment made to a qualified party, then the assignment will be
the Government Auditing Code. made.
ASSOCIATE JUSTICE CARPIO:

C. Radstock is not qualified to own land in the Philippines. ASSOCIATE JUSTICE CARPIO:
Under the law, a foreigner cannot own land, correct?

Radstock is a private corporation incorporated in the British Virgin Who makes the assignment?
ATTY. AGRA:
Islands. Its office address is at Suite 14021 Duddell Street, Central
Hongkong. As a foreign corporation, with unknown owners whose ATTY. AGRA:
nationalities are also unknown, Radstock is not qualified to own land in Yes, Your Honor.
the Philippines pursuant to Section 7, in relation to Section 3, Article XII It will be Radstock, Your Honor.
of the Constitution. These provisions state: ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO:
Section. 3. Lands of the public domain are classified into agricultural, Can a foreigner who xxx cannot own land assign the right of ownership
forest or timber, mineral lands, and national parks. Agricultural lands of to the land?
the public domain may be further classified by law according to the uses So, if Radstock makes the assignment, it must own its rights, otherwise,
to which they may be devoted. Alienable lands of the public domain it cannot assign it, correct?
ATTY. AGRA:
shall be limited to agricultural lands. Private corporations or
associations may not hold such lands of the public domain except by ATTY. AGRA:
lease, for a period not exceeding twenty-five years, renewable for not Again, Your Honor, at that particular time, it will be PNCC, not through
more than twenty-five years, and not to exceed one hundred thousand Radstock, that chain of events should be, theres a qualified nominee
Pursuant to the compromise agreement, once approved, yes, Your
hectares in area. Citizens of the Philippines may lease not more than (interrupted)
Honors.

ASSOCIATE JUSTICE CARPIO:


ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO: No, Your Honor, I believe it (interrupted)

So, you are saying that Radstock can own the rights to ownership of the But if it cannot - - Its not perfected, how can it assign? ASSOCIATE JUSTICE CARPIO:
land?
ATTY. AGRA: Yeah, but it does not own the land, but it still holding the land in favor
ATTY. AGRA: of the other party to the Compromise Agreement
Not directly, Your Honors. Again, there must be a qualified nominee
Yes, Your Honors. assigned by Radstock. ATTY. AGRA:

ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO: Pursuant to the compromise agreement, that will happen.

Yes? Its very clear, its an indirect way of selling property that is prohibited ASSOCIATE JUSTICE CARPIO:
by law, is it not?
ATTY. AGRA: Okay. May I (interrupted)
ATTY. AGRA:
The premise, Your Honor, you mentioned a while ago was, if this Court ATTY. AGRA:
approves said compromise (interrupted) Again, Your Honor, know, believe this is a Compromise Agreement. This
is a dacion en pago. Again, Your Honor, if the compromise agreement ended with a
ASSOCIATE JUSTICE CARPIO: statement that Radstock will be the owner of the property (interrupted)
ASSOCIATE JUSTICE CARPIO:
No, no. Whether there is such a compromise agreement - - Its an ASSOCIATE JUSTICE CARPIO:
academic question I am asking you, can a foreigner assign rights to So, dacion en pago is an exception to the constitutional prohibition.
ownership of a land in the Philippines? Yeah. Unfortunately, it says, to a qualified assignee.
ATTY. AGRA:
ATTY. AGRA: ATTY. AGRA:
No, Your Honor. PNCC, will still hold on to the property, absent a valid
Under the Compromise Agreement, Your Honors, these rights should be assignment of properties. Yes, Your Honor.
respected.
ASSOCIATE JUSTICE CARPIO: ASSOCIATE JUSTICE CARPIO:
ASSOCIATE JUSTICE CARPIO:
But what rights will PNCC have over that land when it has already And at this point, when it is signed and execut[ed] and approved, PNCC
So, it can? signed the compromise? It is just waiting for instruction xxx from has no dominion over that land anymore. Who has dominion over it?
Radstock what to do with it? So, its a trustee of somebody, because it
ATTY. AGRA: does not, it cannot, [it] has no dominion over it anymore? Its just
ATTY. AGRA:
holding it for Radstock. So, PNCC becomes a dummy, at that point, of
Radstock, correct?
It can. Your Honor. But again, this right must, cannot be perfected or Pending the assignment to a qualified party, Your Honor, PNCC will hold
cannot be, could not take effect. on to the property.
ATTY. AGRA:
ASSOCIATE JUSTICE CARPIO: of government lands to private parties requires public bidding.78 COA It is understood that the Government reserves the right to reject any or
Circular No. 89-926, issued on 27 January 1989, sets forth the guidelines all of the tenders. (Emphasis supplied)
Hold on, but who x x x can exercise acts of dominion, to sell it, to lease on the disposal of property and other assets of the government. Part V
it? of the COA Circular provides: Under the Compromise Agreement, PNCC shall dispose of substantial
parcels of land, by way of dacion en pago, in favor of Radstock. Citing
ATTY. AGRA: V. MODE OF DISPOSAL/DIVESTMENT: - Uy v. Sandiganbayan,79 PNCC argues that a dacion en pago is an
exception to the requirement of a public bidding.
Again, Your Honor, without the valid assignment to a qualified nominee, This Commission recognizes the following modes of
the compromise agreement in so far as the transfer of these properties disposal/divestment of assets and property of national government PNCCs reliance on Uy is misplaced. There is nothing in Uy declaring that
will not become effective. It is subject to such condition. Your agencies, local government units and government-owned or controlled public bidding is dispensed with in a dacion en pago transaction. The
Honor.74 (Emphasis supplied) corporations and their subsidiaries, aside from other such modes as Court explained the transaction in Uy as follows:
may be provided for by law.
There is no dispute that Radstock is disqualified to own lands in the We do not see any infirmity in either the MOA or the SSA executed
Philippines. Consequently, Radstock is also disqualified to own the 1. Public Auction between PIEDRAS and respondent banks. By virtue of its shareholdings
rights to ownership of lands in the Philippines. Contrary to the OGCCs in OPMC, PIEDRAS was entitled to subscribe to 3,749,906,250 class "A"
claim, Radstock cannot own the rights to ownership of any land in the Conformably to existing state policy, the divestment or disposal of and 2,499,937,500 class "B" OPMC shares. Admittedly, it was financially
Philippines because Radstock cannot lawfully own the land itself. government property as contemplated herein shall be undertaken sound for PIEDRAS to exercise its pre-emptive rights as an existing
Otherwise, there will be a blatant circumvention of the Constitution, primarily thru public auction. Such mode of divestment or disposal shall shareholder of OPMC lest its proportionate shareholdings be diluted to
which prohibits a foreign private corporation from owning land in the observe and adhere to established mechanics and procedures in public its detriment. However, PIEDRAS lacked the necessary funds to pay for
Philippines. In addition, Radstock cannot transfer the rights to bidding, viz: the additional subscription. Thus, it resorted to contract loans from
ownership of land in the Philippines if it cannot own the land itself. It is respondent banks to finance the payment of its additional subscription.
basic that an assignor or seller cannot assign or sell something he does The mode of payment agreed upon by the parties was that the payment
a. adequate publicity and notification so as to attract the
not own at the time the ownership, or the rights to the ownership, are would be made in the form of part of the shares subscribed to by
greatest number of interested parties; (vide, Sec. 79, P.D.
to be transferred to the assignee or buyer.75 PIEDRAS. The OPMC shares therefore were agreed upon by the parties
1445)
to be equivalent payment for the amount advanced by respondent
banks. We see the wisdom in the conditions of the loan transaction. In
The third party assignee under the Compromise Agreement who will be b. sufficient time frame between publication and date of order to save PIEDRAS and/or the government from the trouble of
designated by Radstock can only acquire rights duplicating those which auction; selling the shares in order to raise funds to pay off the loans, an easier
its assignor (Radstock) is entitled by law to exercise.76 Thus, the
and more direct way was devised in the form of the dacion en pago
assignee can acquire ownership of the land only if its assignor,
c. opportunity afforded to interested parties to inspect the agreements.
Radstock, owns the land. Clearly, the assignment by PNCC of the real
property or assets to be disposed of;
properties to a nominee to be designated by Radstock is a
circumvention of the Constitutional prohibition against a private foreign Moreover, we agree with the Sandiganbayan that neither PIEDRAS nor
corporation owning lands in the Philippines. Such circumvention d. confidentiality of sealed proposals; the government sustained any loss in these transactions. In fact, after
renders the Compromise Agreement void. deducting the shares to be given to respondent banks as payment for
e. bond and other prequalification requirements to guarantee the shares, PIEDRAS stood to gain about 1,540,781,554 class "A" and
performance; and 710,550,000 class "B" OPMC shares virtually for free. Indeed, the
D. Public bidding is required for
question that must be asked is whether or not PIEDRAS, in the exercise
the disposal of government properties.
of its pre-emptive rights, would have been able to acquire any of these
f. fair evaluation of tenders and proper notification of award. shares at all if it did not enter into the financing agreements with the
Under Section 79 of the Government Auditing Code,77 the disposition respondent banks.80
Suffice it to state that in Uy, neither PIEDRAS81 nor the government SEN. OSMEA. All right. So if you owe the national government 36 MS. PASETES. Sir, the amount of 36 billion is principal plus interest and
suffered any loss in the dacion en pagotransactions, unlike here where billion and you owe Marubeni 10 billion, you know, I would just declare penalties.
the government stands to lose at least 6.185 billion worth of assets. bankruptcy and let an orderly disposition of assets be done. What
happened in this case to the claim, the 36 billion claim of the national SEN. OSMEA. And what about Marubeni? Is that just principal only?
Besides, a dacion en pago is in essence a form of sale, which basically government? How was that disposed of by the PNCC? Mas malaki ang
involves a disposition of a property. In Filinvest Credit Corp. v. utang ninyo sa national government, 36 billion. Ang gagawin ninyo,
MS. PASETES. Principal and interest.
Philippine Acetylene, Co., Inc.,82 the Court defined dacion en pago in babayaran lahat ang utang ninyo sa Marubeni without any assets left to
this wise: satisfy your obligations to the national government. There should have
been, at least, a pari passu payment of all your obligations, 'di ba? SEN. OSMEA. So, I mean, you know, it's equal treatment. Ten point
seven billion is principal plus penalties plus interest, hindi ba?
Dacion en pago, according to Manresa, is the transmission of the
ownership of a thing by the debtor to the creditor as an accepted MS. PASETES. Mr. Chairman...
MS. PASETES. Yes, sir. Yes, Your Honor.
equivalent of the performance of obligation. In dacion en pago, as a
special mode of payment, the debtor offers another thing to the SEN. OSMEA. Yes.
creditor who accepts it as equivalent of payment of an outstanding SEN. OSMEA. All right. So now, what you are saying is that you gonna
debt. The undertaking really partakes in one sense of the nature of sale, pay Marubeni 6 billion and change and the national government is only
MS. PASETES. PNCC still carries in its books an equity account called
that is, the creditor is really buying the thing or property of the debtor, recognizing 5 billion. I don't think that's protecting the interest of the
equity adjustments arising from transfer of obligations to national
payment for which is to be charged against the debtor's debt.As such, national government at all.86
government - - 5.4 billion - - in addition to shares held by government
the essential elements of a contract of sale, namely, consent, object amounting to 1.2 billion.
certain, and cause or consideration must be present. In its modern In giving priority and preference to Radstock, the Compromise
concept, what actually takes place in dacion en pago is an objective Agreement is certainly in fraud of PNCCs other creditors, including the
SEN. OSMEA. What is the 36 billion?
novation of the obligation where the thing offered as an accepted National Government, and violates the provisions of the Civil Code on
equivalent of the performance of an obligation is considered as the concurrence and preference of credits.
object of the contract of sale, while the debt is considered as the THE CHAIRMAN. Ms. Pasetes...
purchase price. In any case, common consent is an essential This Court has held that while the Corporation Code allows the transfer
prerequisite, be it sale or innovation to have the effect of totally SEN. OSMEA. Wait, wait, wait. of all or substantially all of the assets of a corporation, the transfer
extinguishing the debt or obligation.83 (Emphasis supplied) should not prejudice the creditors of the assignor
THE CHAIRMAN. Baka ampaw yun eh. corporation.87 Assuming that PNCC may transfer all or substantially all
E. PNCC must follow rules on preference of credit. its assets, to allow PNCC to do so without the consent of its creditors or
SEN. OSMEA. Teka muna. What is the 36 billion that appear in the without requiring Radstock to assume PNCCs debts will defraud the
Radstock is only one of the creditors of PNCC. Asiavest is PNCCs resolution of the board in September 2000 (sic)? This is the same other PNCC creditors88 since the assignment will place PNCCs assets
judgment creditor. In its Board Resolution No. BD-092-2000, PNCC resolution that recognizes, acknowledges and confirms PNCC's beyond the reach of its other creditors.89 As this Court held in Caltex
admitted not only its debt to Marubeni but also its debt to the National obligations to Marubeni. And subparagraph (a) says "Government of (Phil.), Inc. v. PNOC Shipping and Transport Corporation:90
Government84 in the amount of 36 billion.85 During the Senate the Philippines, in the amount of 36,023,784,000 and change. And then
hearings, PNCC admitted that it owed the Government 36 billion, thus: (b) Marubeni Corporation in the amount of 10,743,000,000. So, While the Corporation Code allows the transfer of all or substantially all
therefore, in the same resolution, you acknowledged that had the properties and assets of a corporation, the transfer should not
SEN. OSMEA. All right. Now, second question is, the management of something like P46.7 billion in obligations. Why did PNCC settle the 10 prejudice the creditors of the assignor. The only way the transfer can
PNCC also recognize the obligation to the national government of 36 billion and did not protect the national government's 36 billion? And proceed without prejudice to the creditors is to hold the assignee liable
billion. It is part of the board resolution. then, number two, why is it now in your books, the 36 billion is now for the obligations of the assignor. The acquisition by the assignee of all
down to five? If you use that ratio, then Marubeni should be down to or substantially all of the assets of the assignor necessarily includes the
one. assumption of the assignor's liabilities, unless the creditors who did not
MS. OGAN. Yes, sir, it is part of the October 20 board resolution.
consent to the transfer choose to rescind the transfer on the ground of
fraud. To allow an assignor to transfer all its business, properties and 3. A sale upon credit by an insolvent debtor. PNCC owes the National Government 36 billion, a substantial part of
assets without the consent of its creditors and without requiring the which constitutes taxes and fees, thus:
assignee to assume the assignor's obligations will defraud the creditors. 4. Evidence of large indebtedness or complete insolvency.
The assignment will place the assignor's assets beyond the reach of its SEN. ROXAS. Thank you, Mr. Chairman.
creditors. (Emphasis supplied)
5. The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly Mr. PNCC Chairman, could you describe for us the composition of your
Also, the law, specifically Article 138791 of the Civil Code, presumes that embarrassed financially. debt of about five billion there are in thousands, so this looks like five
there is fraud of creditors when property is alienated by the debtor and half billion. Current portion of long-term debt, about five billion.
after judgment has been rendered against him, thus: What is this made of?
6. The fact that the transfer is made between father and son,
when there are present other of the above circumstances.
Alienations by onerous title are also presumed fraudulent when made MS. PASETES. The five billion is composed of what is owed the Bureau
by persons against whom some judgment has been rendered in any of Treasury and the Toll Regulatory Board for concession fees thats
7. The failure of the vendee to take exclusive possession of all
instance or some writ of attachment has been issued. The decision or almost three billion and another 2.4 billion owed Philippine National
the property. (Emphasis supplied)
attachment need not refer to the property alienated, and need not Bank.
have been obtained by the party seeking rescission. (Emphasis supplied)
Among the circumstances indicating fraud is a transfer of all or nearly
all of the debtors assets, especially when the debtor is greatly SEN. ROXAS. So, how much is the Bureau of Treasury?
As stated earlier, Asiavest is a judgment creditor of PNCC in G.R. No.
embarrassed financially. Accordingly, neither a declaration of insolvency
110263 and a court has already issued a writ of execution in its favor.
nor the institution of insolvency proceedings is a condition sine qua non MS. PASETES. Three billion.
Thus, when PNCC entered into the Compromise Agreement conveying
for a transfer of all or nearly all of a debtors assets to be regarded in
several prime lots in favor of Radstock, by way of dacion en pago, there
fraud of creditors. It is sufficient that a debtor is greatly embarrassed SEN. ROXAS. Three Why do you owe the Bureau of Treasury three
is a legal presumption that such conveyance is fraudulent under Article
financially. billion?
1387 of the Civil Code.92 This presumption is strengthened by the fact
that the conveyance has virtually left PNCCs other creditors, including
the biggest creditor the National Government - with no other asset to In this case, PNCCs huge negative net worth - at least 6 billion as MS. PASETES. That represents the concession fees due Toll Regulatory
garnish or levy. expressly admitted by PNCCs counsel during the oral arguments, or Board principal plus interest, Your Honor.
14 billion based on the 2006 COA Audit Report - necessarily translates
to an extremely embarrassing financial situation. With its huge negative
Notably, the presumption of fraud or intention to defraud creditors is x x x x94 (Emphasis supplied)
net worth arising from unpaid billions of pesos in debt, PNCC cannot
not just limited to the two instances set forth in the first and second
claim that it is financially stable. As a consequence, the Compromise
paragraphs of Article 1387 of the Civil Code. Under the third paragraph In addition, PNCCs 2006 Audit Report by COA states as follows:
Agreement stipulating a transfer in favor of Radstock of substantially all
of the same article, "the design to defraud creditors may be proved in
of PNCCs assets constitutes fraud. To legitimize the Compromise
any other manner recognized by the law of evidence." In Oria v.
Agreement just because there is still no judicial declaration of PNCCs TAX MATTERS
Mcmicking,93 this Court considered the following instances as badges of
insolvency will work fraud on PNCCs other creditors, the biggest
fraud:
creditor of which is the National Government. To insist that PNCC is The Company was assessed by the Bureau of Internal Revenue (BIR) of
very much liquid, given its admitted huge negative net worth, is nothing its deficiencies in various taxes. However, no provision for any liability
1. The fact that the consideration of the conveyance is but denial of the truth. The toll fees that PNCC collects belong to the
fictitious or is inadequate. has been made yet in the Companys financial statements.
National Government. Obviously, PNCC cannot claim it is liquid based
on its collection of such toll fees, because PNCC merely holds such toll
2. A transfer made by a debtor after suit has begun and while fees in trust for the National Government. PNCC does not own the toll 1980 deficiency income tax, deficiency contractors tax and deficiency
it is pending against him. fees, and such toll fees do not form part of PNCCs assets. documentary stamp tax assessments by the BIR totaling 212.523
Million.
xxxx noted that in the PNCC books at the time of the hearing, the 36 billion Government was less than the obligation to Marubeni. It is another
obligation to the National Government was reduced to 5 billion. obvious ploy to justify the preferential treatment given to Radstock to
Deficiency business tax of 64 Million due the Belgian Consortium, PNCCs Miriam M. Pasetes could not properly explain this discrepancy, the great prejudice of the National Government.
PNCCs partner in its LRT Project. except by stating that the 36 billion includes the principal plus interest
and penalties, thus: VI.
1992 deficiency income tax, deficiency value-added tax and deficiency Supreme Court is Not Legitimizer of Violations of Laws
expanded withholding tax of 1.04 Billion which was reduced to 709 SEN. OSMEA. Teka muna. What is the 36 billion that appear in the
Million after the Companys written protest. resolution of the board in September 2000 (sic)? This is the same During the oral arguments, counsels for Radstock and PNCC admitted
resolution that recognizes, acknowledges and confirms PNCC's that the Compromise Agreement violates the Constitution and existing
obligations to Marubeni. And subparagraph (a) says "Government of laws. However, they rely on this Court to approve the Compromise
xxxx
the Philippines, in the amount of 36,023,784,000 and change. And then Agreement to shield their clients from possible criminal acts arising
(b) Marubeni Corporation in the amount of 10,743,000,000. So, from violation of the Constitution and existing laws. In their view, once
2002 deficiency internal revenue taxes totaling 72.916 Million. therefore, in the same resolution, you acknowledged that had this Court approves the Compromise Agreement, their clients are home
something like P46.7 billion in obligations. Why did PNCC settle the 10 free from prosecution, and can enjoy the 6.185 billion loot. The
x x x x.95 (Emphasis supplied) billion and did not protect the national government's 36 billion? And following exchanges during the oral arguments reveal this view:
then, number two, why is it now in your books, the 36 billion is now
Clearly, PNCC owes the National Government substantial taxes and fees down to five? If you use that ratio, then Marubeni should be down to
ASSOCIATE JUSTICE CARPIO:
amounting to billions of pesos. one.

If there is no agreement, they better remit all of that to the National


The 36 billion debt to the National Government was acknowledged by MS. PASETES. Sir, the amount of 36 billion is principal plus interest and
Government. They cannot just hold that. They are holding that [in]
the PNCC Board in the same board resolution that recognized the penalties.
trust, as you said, x x x you agree, for the National Government.
Marubeni loans. Since PNCC is clearly insolvent with a huge negative
net worth, the government enjoys preference over Radstock in the SEN. OSMEA. And what about Marubeni? Is that just principal only?
DEAN AGABIN:
satisfaction of PNCCs liability arising from taxes and duties, pursuant to
the provisions of the Civil Code on concurrence and preference of MS. PASETES. Principal and interest.
credits. Articles 2241,96 224297 and 224398 of the Civil Code expressly Yes, thats why, they are asking the Honorable Court to approve the
mandate that taxes and fees due the National Government "shall be compromise agreement.
SEN. OSMEA. So, I mean, you know, it's equal treatment. Ten point
preferred" and "shall first be satisfied" over claims like those arising
seven billion is principal plus penalties plus interest, hindi ba?
from the Marubeni loans which "shall enjoy no preference" under ASSOCIATE JUSTICE CARPIO:
Article 2244.99
MS. PASETES. Yes, sir. Yes, Your Honor.
We cannot approve that if the power to authorize the expenditure
However, in flagrant violation of the Civil Code, the PNCC Board favored [belongs] to Congress. How can we usurp x x x the power of Congress
Radstock over the National Government in the order of credits. This SEN. OSMEA. All right. So now, what you are saying is that you gonna to authorize that expenditure[?] Its only Congress that can authorize
would strip PNCC of its assets leaving virtually nothing for the National pay Marubeni 6 billion and change and the national government is only the expenditure of funds from the general funds.
Government. This action of the PNCC Board is manifestly and grossly recognizing 5 billion. I don't think that's protecting the interest of the
disadvantageous to the National Government and amounts to fraud. national government at all.100
DEAN AGABIN:

During the Senate hearings, Senator Osmea pointed out that in the PNCC failed to explain satisfactorily why in its books the obligation to
But, Your Honor, if the Honorable Court would approve of this
Board Resolution of 20 October 2000, PNCC acknowledged its the National Government was reduced when no payment to the
compromise agreement, I believe that this would be binding on
obligations to the National Government amounting to 36,023,784,000 National Government appeared to have been made. PNCC failed to
Congress.
and to Marubeni amounting to 10,743,000,000. Yet, Senator Osmea justify why it made it appear that the obligation to the National
ASSOCIATE JUSTICE CARPIO: The premise, Your Honor, you mentioned a while ago was, if this Court ratified." No court, not even this Court, can ratify or approve the
approves said compromise (interrupted).102(Emphasis supplied) Compromise Agreement. This Court must perform its duty to defend
Ignore the Constitutional provision that money shall be paid out of the and uphold the Constitution, existing laws, and fundamental public
National Treasury only pursuant to an appropriation by law. You want This Court is not, and should never be, a rubber stamp for litigants policy. This Court must not shirk in declaring the Compromise
us to ignore that[?] hankering to pocket public funds for their selfish private gain. This Court Agreement inexistent and void ab initio.
is the ultimate guardian of the public interest, the last bulwark against
DEAN AGABIN: those who seek to plunder the public coffers. This Court cannot, and WHEREFORE, we GRANT the petition in G.R. No. 180428. We SET ASIDE
must never, bring itself down to the level of legitimizer of violations of the Decision dated 25 January 2007 and the Resolutions dated 12 June
the Constitution, existing laws or public policy. 2007 and 5 November 2007 of the Court of Appeals. We DECLARE (1)
Not really, Your Honor, but I suppose that Congress would have no
PNCC Board Resolution Nos. BD-092-2000 and BD-099-2000 admitting
choice, because this is a final judgment of the Honorable Court. 101
Conclusion liability for the Marubeni loans VOID AB INITIO for causing undue injury
to the Government and giving unwarranted benefits to a private party,
xxxx constituting a corrupt practice and unlawful act under Section 3(e) of
In sum, the acts of the PNCC Board in (1) issuing Board Resolution Nos.
the Anti-Graft and Corrupt Practices Act, and (2) the Compromise
BD-092-2000 and BD-099-2000 expressly admitting liability for the
ASSOCIATE JUSTICE CARPIO: Agreement between the Philippine National Construction Corporation
Marubeni loans, and (2) entering into the Compromise Agreement,
and Radstock Securities Limited INEXISTENT AND VOID AB INITIO for
constitute evident bad faith and gross inexcusable negligence,
So, if Radstock makes the assignment, it must own its rights, otherwise, being contrary to Section 29(1), Article VI and Sections 3 and 7, Article
amounting to fraud, in the management of PNCCs affairs. Being public
it cannot assign it, correct? XII of the Constitution; Section 20(1), Chapter IV, Subtitle B, Title I, Book
officers, the government nominees in the PNCC Board must answer not
V of the Administrative Code of 1987; Sections 4(2), 79, 84(1), and 85 of
only to PNCC and its stockholders, but also to the Filipino people for
the Government Auditing Code; and Articles 2241, 2242, 2243 and 2244
ATTY. AGRA: grossly mishandling PNCCs finances.
of the Civil Code.

Pursuant to the compromise agreement, once approved, yes, Your Under Article 1409 of the Civil Code, the Compromise Agreement is
We GRANT the intervention of Asiavest Merchant Bankers Berhad in
Honors. "inexistent and void from the beginning," and "cannot be ratified," thus:
G.R. No. 178158 but DECLARE that Strategic Alliance Development
Corporation has no legal standing to sue.
ASSOCIATE JUSTICE CARPIO: Art. 1409. The following contracts are inexistent and void from the
beginning:
SO ORDERED.
So, you are saying that Radstock can own the rights to ownership of the
land? (1) Those whose cause, object or purpose is contrary to law,
ANTONIO T. CARPIO
morals, good customs, public order or public policy;
Associate Justice
ATTY. AGRA:
xxx
WE CONCUR:
Yes, Your Honors.
(7) Those expressly prohibited or declared void by law.
REYNATO S. PUNO
ASSOCIATE JUSTICE CARPIO: Chief Justice
These contracts cannot be ratified. x x x. (Emphasis supplied)
Yes?
The Compromise Agreement is indisputably contrary to the CONCHITA CARPIO
RENATO C. CORONA
ATTY. AGRA: Constitution, existing laws and public policy. Under Article 1409, the MORALES
Associate Justice
Compromise Agreement is expressly declared void and "cannot be Associate Justice
Franklin M. Drilon puts the actual value of the compromise at 10Rollo, pp. 31-43. Penned by Associate Justice (now a
PRESBITERO J. VELASCO, 17.676 billion. member of this Court) Mariano C. Del Castillo, concurred in by
MINITA V. CHICO-NAZARIO
JR. then Presiding Justice Ruben T. Reyes and Associate Justice
Associate Justice
Associate Justice 2AN Arcangelita Romilla Lontok.
ACT RENEWING THE FRANCHISE OF THE PHILIPPINE
NATIONAL CONSTRUCTION CORPORATION (PNCC),
ANTONIO EDUARDO B. TERESITA J. LEONARDO-DE FORMERLY KNOWN AS THE CONSTRUCTION AND 11 http://www.pncc.com.ph/
NACHURA CASTRO DEVELOPMENT CORPORATION OF THE PHILIPPINES (CDCP),
Associate Justice Associate Justice GRANTED UNDER PRESIDENTIAL DECREE NO. 1113, AS 12 http://www.pncc.com.ph/
AMENDED BY PRESIDENTIAL DECREE NO. 1894, TO ANOTHER
(25) YEARS FROM THE DATE OF THE APPROVAL OF THIS ACT
ARTURO D. BRION DIOSDADO M. PERALTA 13 Id.
AND FOR OTHER PURPOSES.
Associate Justice Associate Justice
14 Id.
3On 7 February 2007, Senator Franklin Drilon introduced P.S.
LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO Res. No. 618 or the RESOLUTION DIRECTING THE SENATE
Associate Justice Associate Justice COMMITTEE ON FINANCE TO CONDUCT AN INQUIRY, IN AID 15 The members of the PNCC Board who were present during
OF LEGISLATION, INTO THE COMPROMISE AGREEMENT the meeting were Renato B. Valdecantos, Chairman, Rolando
ROBERTO A. ABAD MARTIN S. VILLARAMA, JR. ENTERED INTO BY THE PHILIPPINE NATIONAL CONSTRUCTION L. Macasaet, President and Chief Executive Officer, Braulio B.
Associate Justice Associate Justice CORPORATION (PNCC) WITH RADSTOCK SECURITIES LIMITED, Balbas, Jr., Romulo F. Coronado, Basilio R. Cruz, Jr., Alfredo F.
FOR THE PURPOSE OF PROVIDING REMEDIAL LEGISLATION Laya, Jr., Victor Pineda, Edwin Tanonliong, Jose Luis Vera,
AND POLICY PARAMETERS ON COMPROMISE AGREEMENTS Hermogenes Concepcion, Jr., and Raymundo Francisco,
TO PROTECT GOVERNMENT ASSETS AND ENSURE THE Directors.
CERTIFICATION
JUDICIOUS USE OF GOVERNMENT FUNDS. This Resolution was
submitted to the Senate and referred to the Committee on 16 Penned by Judge Amalia F. Dy.
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
Finance.
conclusions in the above Decision had been reached in consultation
17Philippine National Construction Corporation v. Dy, G.R. No.
before the case was assigned to the writer of the opinion of the Court.
4 Delivered on 21 December 2006 during the Plenary Session. 156887, 3 October 2005, 472 SCRA 1, 12.
REYNATO S. PUNO
5Record of the Senate, Vol. III, Session No. 55, 21 December 18
Chief Justice Rollo, pp. 237-290.
2006.
19 Pinlac v. Court of Appeals, 457 Phil. 527 (2003).
6Transcript of Committee Hearings, 19 December 2006, pp.
69-70. 20 Id.
Footnotes
7 Id., 14 December 2006, pp. 62-64. 21Office of the Ombudsman v. Masing, G.R. No. 165416, 22
1 This is a conservative amount since the real properties January 2008, 542 SCRA 253, 265.
8 Id. at 64-66.
conveyed under the Compromise Agreement are valued only
at 70% of their appraised value. In addition, payment from 22439 Phil. 149 (2002), citing Mago v. Court of Appeals, 363
50% of the toll fees for 27 years, amounting to 9.382 billion, 9 Under Rule 45 of the Rules of Court. Phil. 225 (1999) and Director of Lands v. Court of Appeals, No.
is given a net present value of only 1.287 billion. Senator L-45168, 25 September 1979, 93 SCRA 239.
23363 Phil. 225, 234 (1999), which in turn cited Director of 35 Section 31 of the Corporation Code. stock of 445.68 million would not be sufficient to
Lands v. Court of Appeals, No. L-45168, 25 September 1979, cover the recorded outstanding obligations of 5.55
93 SCRA 239, 245-246. 36 Id. billion or the BTr confirmed amount of 48.05
billion.
24
National Power Corporation v. Province of Quezon and 37Philippine National Construction Corporation v. Dy, supra
Municipality of Pagbilao, G.R. No. 171586, 15 July 2009. 42Annual Audit Report on the PNCC For the Year Ended
note 17 at 10.
December 31, 2006.
25Hi-Yield Realty Incorporated v. Court of Appeals, G.R. No. 38No stopping PNCC-Radstock deal, Daxim Lucas, 26 April
168863, 23 June 2009. 43 TSN, Oral Arguments, pp. 299-304.
2007
(http://business.inquirer.net/ money/topstories/view/200704
26 Id. 26-62559/No stopping PNCC-Radstock_deal). 44 Article 1139 of the Civil Code.

27 Id. 39Transcript of Committee Hearings, 14 December 2006, pp. 45 Article 1155 of the Civil Code.
26-28.
28 Id. 46Transcript of Committee Hearings, 14 December 2006, pp.
40 P.S. Res. No. 618, introduced by Senator Franklin M. Drilon. 23-26.
29 TSN, Oral Arguments, pp. 19-20.
41The Annual Audit Report on the PNCC For the Year Ended 47 Id., 19 December 2006, p. 47.
30 Del Mar v. PAGCOR, 400 Phil. 307 (2000). December 31, 2006 pertinently provides: "There is a variance
of 43.959 Billion between PNCC recorded balance of 48 Id., 14 December 2006, p. 108.
31
obligations to various Government Financial Institutions (GFIs)
Agote v. Lorenzo, G.R. No. 142675, 22 July 2005, 464 SCRA
and the amount confirmed by the Bureau of Treasury (BTr). 49
60. Id., 19 December 2006, pp. 13-25.
Said obligations are still not fully converted to equity as
prescribed under LOI 1295. If converted, the available capital
32G.R. No. 102782, 11 December 1991, 204 SCRA 837, 842- 50 Id. at 82-83.
stock of 44.568 Million would not be sufficient to cover the
843. recorded outstanding obligations of 5.552 Billion or the BTr
confirmed amount of 50.893 Billion." 51 TSN, Oral Arguments, pp. 12-13.
33Villanueva, Philippine Corporate Law, 2001, p. 318. Section
31 of the Corporation Code. The Annual Audit Report on the PNCC For the Year 52Transcript of Committee Hearings, 19 December 2006, pp.
Ended December 31, 2007 pertinently provides: 36-39.
34Villanueva, Philippine Corporate Law, 2001, pp. 321-322. "The Corporation's liabilities are understated by
Section 25 of the Corporation Code pertinently provides: 42.50 billion due to non-recognition of advances 53 TSN, Oral Arguments, pp. 19-20.
made by the Bureau of Treasury for the account of
xxxx PNCC. x x x The Corporation has designed a
54See The Alexandra Condominium Corporation v. Laguna
corporate strategic plan to include the servicing of
accounts with the BTr via conversion of the Lake Development Authority, G.R. No.169228, 11 September
The directors or trustees and officers to be elected obligations into long-term debt or equity. However, 2009.
shall perform the duties enjoined on them by law said obligations are still not converted to long term-
and by the by-laws of the corporation. x x x x debt and fully converted to equity as prescribed 55 G.R. No. 87710, 31 March 1992, 207 SCRA 659.
under LOI 1295. If converted, the available capital
56Rufino v. Endriga, G.R. Nos. 139554 and 139565, 21 July 1. No money shall be paid out of any 66Section 86. Certificate showing appropriation to meet
2006, 496 SCRA 13. public treasury of depository except in contract. Except in the case of a contract for personal service,
pursuance of an appropriation law or for supplies for current consumption or to be carried in stock
57Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the other specific statutory authority; not exceeding the estimated consumption for three months,
Administrative Code of 1987. or banking transactions of government-owned or controlled
2. Government funds or property shall be banks no contract involving the expenditure of public funds
58 spent or used solely for public purposes; by any government agency shall be entered into or authorized
464 Phil. 441, 453, 461-462 (2004).
unless the proper accounting official of the agency concerned
shall have certified to the officer entering into the obligation
59PRESIDENTIAL DECREE NO. 1113 - GRANTING THE 3. Trust funds shall be available and may
that funds have been duly appropriated for the purpose and
CONSTRUCTION AND DEVELOPMENT CORPORATION OF THE be spent only for the specific purpose for
that the amount necessary to cover the proposed contract for
PHILIPPINES (CDCP) A FRANCHISE TO OPERATE, CONSTRUCT which the trust was created or the funds
the current fiscal year is available for expenditure on account
AND MAINTAIN TOLL FACILITIES IN THE NORTH AND SOUTH received;
thereof, subject to verification by the auditor concerned. The
LUZON TOLL EXPRESSWAYS AND FOR OTHER PURPOSES. certificate signed by the proper accounting official and the
4. Fiscal responsibility shall, to the auditor who verified it, shall be attached to and become an
60PRESIDENTIAL DECREE NO. 1894 - AMENDING THE greatest extent, be shared by all those integral part of the proposed contract, and the sum so
FRANCHISE OF THE PHILIPPINE NATIONAL CONSTRUCTION exercising authority over the financial certified shall not thereafter be available for expenditure for
CORPORATION TO CONSTRUCT, MAINTAIN AND OPERATE affairs, transactions, and operations of the any other purpose until the obligation of the government
TOLL FACILITIES IN THE NORTH LUZON AND SOUTH LUZON government agency; agency concerned under the contract is fully extinguished.
EXPRESSWAYS TO INCLUDE THE METRO MANILA
EXPRESSWAY TO SERVE AS AN ADDITIONAL ARTERY IN THE 5. Disbursements or disposition of See Melchor v. COA, G.R. No. 95398, 16 August
TRANSPORTATION OF TRADE AND COMMERCE IN THE METRO government funds or property shall 1991, 200 SCRA 704; Osmea v. COA, G.R. No.
MANILA AREA invariably bear the approval of the proper 98355, 2 March 1994, 230 SCRA 585; Comelec v.
officials; Quijano-Padilla, 438 Phil. 72 (2002).
61 Section 3, Definition of Terms, Government Auditing Code.
6. Claims against government funds shall 67See Guingona, Jr. v. Carague, G.R. No. 94571, 22 April 1991,
62 TSN, Oral Arguments, pp. 504-506. be supported with complete 196 SCRA 221.
documentation;
63 68 438 Phil. 72, 96-98 (2002).
Id. at 508.
7. All laws and regulations applicable to
financial transactions shall be faithfully 69
64 Id. at 515-518. TSN, Oral Arguments, pp. 518-526.
adhered to;
65 70 Id. at 521-523.
Section 4 of the Government Auditing Code provides:
8. Generally accepted principles and
practices of accounting as well as of sound
71The Court applied this provision in Brgy. Sindalan, San
"Fundamental principles. Financial transactions and management and fiscal administration
operations of any government agency shall be shall be observed, provided that they do Fernando, Pampanga v. Court of Appeals, G.R. No. 150640, 22
governed by the fundamental principles set forth not contravene existing laws and March 2007, 518 SCRA 649.
hereunder, to wit: regulations. (Emphasis supplied)
72 TSN, Oral Arguments, p. 504.
73Transcript of Committee Hearings, 14 December 2006, pp. 78 Chavez v. Public Estates Authority, 433 Phil. 506 (2002). Alienations by onerous title are also presumed
64-66. fraudulent when made by persons against whom
79 G.R. No. 111544, 6 July 2004, 433 SCRA 424. some judgment has been rendered in any instance
74 TSN, Oral Arguments, pp. 470-480. or some writ of attachment has been issued. The
80
decision or attachment need not refer to the
Id. at 438-439.
75Article
property alienated, and need not have been
1459 of the Civil Code provides: "The thing must be
obtained by the party seeking rescission.
licit and the vendor must have a right to transfer the 81 Piedras Petroleum Company, Inc.
ownership thereof at the time it is delivered." The vendor
cannot transfer ownership of the thing if he does not own the In addition to these presumptions, the design to
82 197 Phil. 394 (1982).
thing or own rights of ownership to the thing. The only defraud creditors may be proved in any other
possible exception is in a short sale of securities or manner recognized by law and of evidence.
83 Id. at 402-403.
commodities, where the seller borrows from the broker or
third party the securities or commodities the ownership of 92See China Banking Corporation v. Court of Appeals, 384
which is immediately transferred to the buyer. This is feasible 84 TSN, Oral Arguments, pp. 355-356. Phil. 116 (2000).
only when the subject matter of the transaction is a fungible
object. 85According to this article, the current amount of PNCCs debt 9321 Phil. 243 (1912), cited in China Banking Corporation v.
is 50 billion. The PNCCs Legacy of Debt by GEMMA B. Court of Appeals, 384 Phil. 116 (2000) and Caltex v. PNOC
76 See Casabuena v. Court of Appeals, 350 Phil. 237 (1998). Shipping and Transport Corporation, G.R. No. 150711, 10
BAGAYAUA, abs-cbnNEWS.com/Newsbreak 01/13/2009
(http://www.abs- August 2006, 498 SCRA 400.
77 Section 79 of the Government Auditing Codes provides as cbnnews.com/nation/01/13/09/pncc%E2%80%99s-legacy-
follows: "When government property has become debt#comment-form) 94Transcript of Committee Hearings, 18 December 2006, pp.
unserviceable for any cause, or is no longer needed, it shall, 163-165.
upon application of the officer accountable therefor, be 86Transcript of the Committee Hearings, 18 December 2006,
inspected by the head of the agency or his duly authorized pp. 122-124. 952006 Annual Audit Report, pp. 23-24; 2007 Annual Audit
representative in the presence of the auditor concerned and, Report, pp. 23-24.
if found to be valueless or unsaleable, it may be destroyed in 87Caltex (Philippines), Inc. v. PNOC Shipping and Transport
their presence. If found to be valuable, it may be sold at Corporation, G.R. No. 150711, 10 August 2006, 498 SCRA 400. 96Article 2241. With reference to specific movable property
public auction to the highest bidder under the supervision of
of the debtor, the following claims or liens shall be preferred:
the proper committee on award or similar body in the
88 Id.
presence of the auditor concerned or other authorized
representative of the Commission, after advertising by (1) Duties, taxes and fees due thereon to the State
printed notice in the Official Gazette, or for not less than 89 Id. or any subdivision thereof;
three consecutive days in any newspaper of general
circulation, or where the value of the property does not 90 Id. (2) Claims arising from misappropriation, breach of
warrant the expense of publication, by notices posted for a trust, or malfeasance by public officials committed
like period in at least three public places in the locality where 91Article in the performance of their duties, on the movables,
1387. All contracts by virtue of which the debtor
the property is to be sold. In the event that the public auction money or securities obtained by them;
alienates property by gratuitous title are presumed to have
fails, the property may be sold at a private sale at such price
been entered into in fraud of creditors, when the donor did
as may be fixed by the same committee or body concerned (3) Claims for the unpaid price of movable sold, on
not reserve sufficient property to pay all debts contracted
and approved by the Commission." (Emphasis supplied) said movables, so long as they are in the possession
before the donation.
of the debtor, up to the amount of the same; and if
the movable has been resold by the debtor and the (11) Credits for seeds and expenses for cultivation (5) Mortgage credits recorded in the Registry of
price is still unpaid, the lien may be enforced on the and harvest advanced to the debtor, upon the fruits Property, upon the real estate mortgaged;
price; this right is not lost by the immobilization of harvested.
the thing by destination, provided it has not lost its (6) Expenses for the preservation or improvement
form, substance and identity; neither is the right (12) Credits for rent for one year, upon the personal of real property when the law authorizes
lost by the sale of the thing together with other property of the lessee existing on the immovable reimbursement, upon the immovable preserved or
property for a lump sum, when the price thereof leased and on the fruits of the same, but not on improved;
can be determined proportionally; money or instruments of credits;
(7) Credits annotated in the Registry of Property, in
(4) Credits guaranteed with a pledge so long as the (13) Claims in favor of the depositor if the virtue of a judicial order, by attachments or
things pledged are in the hands of the creditor, or depositary has wrongfully sold the thing deposited, executions, upon the property affected, and only as
those guaranteed by a chattel mortgage, upon the upon the price of the sale. to later credits;
things pledged or mortgaged, up to the value
thereof;
In the foregoing cases, if the movables to which the (8) Claims or co-heirs for warranty in the partition of
lieu or preference attaches have been wrongfully an immovable among them, upon the real property
(5) Credits for the making, repair, safekeeping or taken, the creditor may demand them from any thus divided;
preservation of personal property, on the movable possessor, within thirty days from the unlawful
thus made, repaired, kept or possessed; seizure. (Emphasis supplied) (9) Claims of donors of real property for pecuniary
charges or other conditions imposed upon the
(6) Claims for laborers wages, on the goods 97Article2242. With reference to specific immovable property donee, upon the immovable donated;
manufactured or the work done; and real rights of the debtor, the following claims, mortgages
and liens shall be preferred, and shall constitute an (10) Credits of insurers, upon the property insured,
(7) For expenses of salvage, upon the goods encumbrance on the immovable or real right: for the insurance premium for two years. (Emphasis
salvaged; supplied
(1) Taxes due upon the land or building;
(8) Credits between the landlord and the tenant,
arising from the contract of tenancy on shares, on (2) For the unpaid price of real property sold, upon
the share of each in the fruits or harvest; the immovable sold;

(9) Credits for transportation, upon the goods (3) Claims of laborers, masons, mechanics and other
carried, for the price of the contract and incidental G.R. No. L-14441 December 17, 1966
workmen, as well as of architects, engineers and
expenses, until their delivery and for thirty days contractors, engaged in the construction,
thereafter; reconstruction or repair of buildings, canals or other PEDRO R. PALTING, petitioner,
works, upon said buildings, canals or other works; vs.
(10) Credits for lodging and supplies usually SAN JOSE PETROLEUM INCORPORATED, respondent.
furnished to travelers by hotel keepers, on the (4) Claims of furnishers of materials used in the
movables belonging to the guest as long as such construction, reconstruction, or repair of buildings, BARRERA, J.:
movables are in the hotel, but not for money loaned canals or other works, upon said buildings, canals or
to the guests; other works; 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 the foregoing opposition of Palting, et al., the registrant SAN JOSE 1. In answer to the notice and order of the Securities and Exchange
instead, granting the registration, and licensing the sale in the PETROLEUM claimed that it was a "business enterprise" enjoying parity Commissioner, published in 2 newspapers of general circulation in the
Philippines, of 5,000,000 shares of the capital stock of the respondent- rights under the Ordinance appended to the Constitution, which parity Philippines, for "any person who is opposed" to the petition for
appellee San Jose Petroleum, Inc. (hereafter referred to as SAN JOSE right, with respect to mineral resources in the Philippines, may be registration and licensing of respondent's securities, to file his
PETROLEUM), a corporation organized and existing in the Republic of exercised, pursuant to the Laurel-Langley Agreement, only through the opposition in 7 days, herein petitioner so filed an opposition. And, the
Panama. medium of a corporation organized under the laws of the Philippines. Commissioner, having denied his opposition and instead, directed the
Thus, registrant which is allegedly qualified to exercise rights under the registration of the securities to be offered for sale, oppositor Palting
On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Parity Amendment, had to do so through the medium of a domestic instituted the present proceeding for review of said order.
Securities and Exchange Commission a sworn registration statement, corporation, which is the SAN JOSE OIL. It refused the contention that
for the registration and licensing for sale in the Philippines Voting Trust the Corporation Law was being violated, by alleging that Section 13 Respondent raises the question of the personality of petitioner to bring
Certificates representing 2,000,000 shares of its capital stock of a par thereof applies only to foreign corporations doing business in the this appeal, contending that as a mere "prospective investor", he is not
value of $0.35 a share, at P1.00 per share. It was alleged that the entire Philippines, and registrant was not doing business here. The mere fact an "Aggrieved" or "interested" person who may properly maintain the
proceeds of the sale of said securities will be devoted or used that it was a holding company of SAN JOSE OIL and that registrant suit. Citing a 1931 ruling of Utah State Supreme Court2 it is claimed that
exclusively to finance the operations of San Jose Oil Company, Inc. (a undertook the financing of and giving technical assistance to said the phrase "party aggrieved" used in the Securities Act3and the Rules of
domestic mining corporation hereafter to be referred to as SAN JOSE corporation did not constitute transaction of business in the Philippines. Court4 as having the right to appeal should refer only to issuers, dealers
OIL) which has 14 petroleum exploration concessions covering an area Registrant also denied that the offering for sale in the Philippines of its and salesmen of securities.
of a little less than 1,000,000 hectares, located in the provinces of shares of capital stock was fraudulent or would work or tend to work
Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and fraud on the investors. On August 29, 1958, and on September 9, 1958
It is true that in the cited case, it was ruled that the phrase "person
Agusan. It was the express condition of the sale that every purchaser of the Securities and Exchange Commissioner issued the orders object of
aggrieved" is that party "aggrieved by the judgment or decree where it
the securities shall not receive a stock certificate, but a registered or the present appeal.
operates on his rights of property or bears directly upon his interest",
bearer-voting-trust certificate from the voting trustees named therein that the word "aggrieved" refers to "a substantial grievance, a denial of
James L. Buckley and Austin G.E. Taylor, the first residing in The issues raised by the parties in this appeal are as follows: some personal property right or the imposition upon a party of a
Connecticut, U.S.A., and the second in New York City. While this burden or obligation." But a careful reading of the case would show
application for registration was pending consideration by the Securities 1. Whether or not petitioner Pedro R. Palting, as a that the appeal therein was dismissed because the court held that an
and Exchange Commission, SAN JOSE PETROLEUM filed an amended "prospective investor" in respondent's securities, has order of registration was not final and therefore not appealable. The
Statement on June 20, 1958, for registration of the sale in the personality to file the present petition for review of the order foregoing pronouncement relied upon by herein respondent was made
Philippines of its shares of capital stock, which was increased from of the Securities and Exchange Commission; in construing the provision regarding an order of revocation which the
2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to court held was the one appealable. And since the law provides that in
P0.70 per share. At this time the par value of the shares has also been revoking the registration of any security, only the issuer and every
2. Whether or not the issue raised herein is already moot and
reduced from $.35 to $.01 per share.1 registered dealer of the security are notified, excluding any person or
academic;
group of persons having no such interest in the securities, said court
Pedro R. Palting and others, allegedly prospective investors in the concluded that the phrase "interested person" refers only to issuers,
3. Whether or not the "tie-up" between the respondent SAN
shares of SAN JOSE PETROLEUM, filed with the Securities and Exchange dealers or salesmen of securities.
JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL
Commission an opposition to registration and licensing of the securities
COMPANY, INC., a domestic mining corporation, is violative of
on the grounds that (1) the tie-up between the issuer, SAN JOSE We cannot consider the foregoing ruling by the Utah State Court as
the Constitution, the Laurel-Langley Agreement, the
PETROLEUM, a Panamanian corporation and SAN JOSE OIL, a domestic controlling on the issue in this case. Our Securities Act in Section 7(c)
Petroleum Act of 1949, and the Corporation Law; and
corporation, violates the Constitution of the Philippines, the thereof, requires the publication and notice of the registration
Corporation Law and the Petroleum Act of 1949; (2) the issuer has not statement. Pursuant thereto, the Securities and Exchange
been licensed to transact business in the Philippines; (3) the sale of the 4. Whether or not the sale of respondent's securities is
Commissioner caused the publication of an order in part reading as
shares of the issuer is fraudulent, and works or tends to work a fraud fraudulent, or would work or tend to work fraud to
follows:
upon Philippine purchasers; and (4) the issuer as an enterprise, as well purchasers of such securities in the Philippines.
as its business, is based upon unsound business principles. Answering
. . . Any person who is opposed with this petition must file his Our position on this procedural matter that the order is appealable 3. We now come to the meat of the controversy the "tie-up"
written opposition with this Commission within said period (2 and the appeal taken here is proper is strengthened by the between SAN JOSE OIL on the one hand, and the respondent SAN JOSE
weeks). . . . intervention of the Solicitor General, under Section 23 of Rule 3 of the PETROLEUM and its associates, on the other. The relationship of these
Rules of Court, as the constitutional issues herein presented affect the corporations involved or affected in this case is admitted and
In other words, as construed by the administrative office entrusted with validity of Section 13 of the Corporation Law, which, according to the established through the papers and documents which are parts of the
the enforcement of the Securities Act, any person (who may not be respondent, conflicts with the Parity Ordinance and the Laurel-Langley records: SAN JOSE OIL, is a domestic mining corporation, 90% of the
"aggrieved" or "interested" within the legal acceptation of the word) is Agreement recognizing, it is claimed, its right to exploit our petroleum outstanding capital stock of which is owned by respondent SAN JOSE
allowed or permitted to file an opposition to the registration of resources notwithstanding said provisions of the Corporation Law. PETROLEUM, a foreign (Panamanian) corporation, the majority interest
securities for sale in the Philippines. And this is in consonance with the of which is owned by OIL INVESTMENTS, Inc., another foreign
generally accepted principle that Blue Sky Laws are enacted to protect 2. Respondent likewise contends that since the order of (Panamanian) company. This latter corporation in turn is wholly (100%)
investors and prospective purchasers and to prevent fraud and preclude Registration/Licensing dated September 9, 1958 took effect 30 days owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL
the sale of securities which are in fact worthless or worth substantially from September 3, 1958, and since no stay order has been issued by the PETROLEUM COMPANY, C.A., both organized and existing under the
less than the asking price. It is for this purpose that herein petitioner Supreme Court, respondent's shares became registered and licensed laws of Venezuela. As of September 30, 1956, there were 9,976
duly filed his opposition giving grounds therefor. Respondent SAN JOSE under the law as of October 3, 1958. Consequently, it is asserted, the stockholders of PANCOASTAL PETROLEUM found in 49 American states
PETROLEUM was required to reply to the opposition. Subsequently present appeal has become academic. Frankly we are unable to follow and U.S. territories, holding 3,476,988 shares of stock; whereas, as of
both the petition and the opposition were set for hearing during which respondent's argumentation. First it claims that the order of August 29 November 30, 1956, PANTEPEC OIL COMPANY was said to have
the petitioner was allowed to actively participate and did so by cross- and that of September 9, 1958 are not final orders and therefor are not 3,077,916 shares held by 12,373 stockholders scattered in 49 American
examining the respondent's witnesses and filing his memorandum in appealable. Then when these orders, according to its theory became state. In the two lists of stockholders, there is no indication of the
support of his opposition. He therefore to all intents and purposes final and were implemented, it argues that the orders can no longer be citizenship of these stockholders,7 or of the total number of authorized
became a party to the proceedings. And under the New Rules of appealed as the question of registration and licensing became moot stocks of each corporation, for the purpose of determining the
Court,5 such a party can appeal from a final order, ruling or decision of and academic. corresponding percentage of these listed stockholders in relation to the
the Securities and Exchange Commission. This new Rule eliminating the respective capital stock of said corporation.
word "aggrieved" appearing in the old Rule, being procedural in But the fact is that because of the authority to sell, the securities are, in
nature,6 and in view of the express provision of Rule 144 that the new all probabilities, still being traded in the open market. Consequently the Petitioner, as well as the amicus curiae and the Solicitor
rules made effective on January 1, 1964 shall govern not only cases issue is much alive as to whether respondent's securities should General8 contend that the relationship between herein respondent SAN
brought after they took effect but all further proceedings in cases continue to be the subject of sale. The purpose of the inquiry on this JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates the
then pending, except to the extent that in the opinion of the Court their matter is not fully served just because the securities had passed out of Petroleum Law of 1949, the Philippine Constitution, and Section 13 of
application would not be feasible or would work injustice, in which the hands of the issuer and its dealers. Obviously, so long as the the Corporation Law, which inhibits a mining corporation from
event the former procedure shall apply, we hold that the present securities are outstanding and are placed in the channels of trade and acquiring an interest in another mining corporation. It is respondent's
appeal is properly within the appellate jurisdiction of this Court. commerce, members of the investing public are entitled to have the theory, on the other hand, that far from violating the Constitution; such
question of the worth or legality of the securities resolved one way or relationship between the two corporations is in accordance with the
The order allowing the registration and sale of respondent's securities is another. Laurel-Langley Agreement which implemented the Ordinance
clearly a final order that is appealable. The mere fact that such Appended to the Constitution, and that Section 13 of the Corporation
authority may be later suspended or revoked, depending on future Law is not applicable because respondent is not licensed to do business,
But more fundamental than this consideration, we agree with the late
developments, does not give it the character of an interlocutory or as it is not doing business, in the Philippines.
Senator Claro M. Recto, who appeared as amicus curiae in this case,
provisional ruling. And the fact that seven days after the publication of that while apparently the immediate issue in this appeal is the right of
the order, the securities are deemed registered (Sec. 7, Com. Act 83, as respondent SAN JOSE PETROLEUM to dispose of and sell its securities to Article XIII, Section 1 of the Philippine Constitution provides:
amended), points to the finality of the order. Rights and obligations the Filipino public, the real and ultimate controversy here would
necessarily arise therefrom if not reviewed on appeal. actually call for the construction of the constitutional provisions SEC. 1. All agricultural, timber, and mineral lands of the public
governing the disposition, utilization, exploitation and development of domain, waters, minerals, coal, petroleum, and other mineral
our natural resources. And certainly this is neither moot nor academic. oils, all forces of potential energy, and other natural resources
of the Philippines belong to the State, and their disposition, 1. The disposition, exploitation, development and utilization There could be no serious doubt as to the meaning of the word
exploitation, development, or utilization shall be limited to of all agricultural, timber, and mineral lands of the public "citizens" used in the aforementioned provisions of the Constitution.
citizens of the Philippines, or to corporations or associations at domain, waters, minerals, coal, petroleum and other mineral The right was granted to 2 types of persons: natural persons (Filipino or
least sixty per centum of the capital of which is owned by such oils, all forces and sources of potential energy, and other American citizens) and juridical persons (corporations 60% of which
citizens, subject to any existing right, grant, lease or natural resources of either Party, and the operation of public capital is owned by Filipinos and business enterprises owned or
concession at the time of the inauguration of this utilities, shall, if open to any person, be open to citizens of the controlled directly or indirectly, by citizens of the United States). In
Government established under this Constitution. . . . other Party and to all forms of business enterprise owned or American law, "citizen" has been defined as "one who, under the
(Emphasis supplied) controlled, directly or indirectly, by citizens of such other Party constitution and laws of the United States, has a right to vote for
in the same manner as to and under the same conditions representatives in congress and other public officers, and who is
In the 1946 Ordinance Appended to the Constitution, this right (to imposed upon citizens or corporations or associations owned qualified to fill offices in the gift of the people. (1 Bouvier's Law
utilize and exploit our natural resources) was extended to citizens of the or controlled by citizens of the Party granting the right. Dictionary, p. 490.) A citizen is
United States, thus:
2. The rights provided for in Paragraph 1 may be exercised, . . One of the sovereign people. A constituent member of the
Notwithstanding the provisions of section one, Article . in the case of citizens of the United States, with respect to sovereignty, synonymous with the people." (Scott v. Sandford,
Thirteen, and section eight, Article Fourteen, of the foregoing natural resources in the public domain in the Philippines, only 19 Ho. [U.S.] 404, 15 L. Ed. 691.)
Constitution, during the effectivity of the Executive through the medium of a corporation organized under the
Agreement entered into by the President of the Philippines laws of the Philippines and at least 60% of the capital stock of A member of the civil state entitled to all its privileges.
with the President of the United States on the fourth of July, which is owned or controlled by citizens of the United States. . (Cooley, Const. Lim. 77. See U.S. v. Cruikshank 92 U.S. 542, 23
nineteen hundred and forty-six, pursuant to the provisions of .. L. Ed. 588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed.
Commonwealth Act Numbered Seven hundred and thirty- 627.)
three, but in no case to extend beyond the third of July, 3. The United States of America reserves the rights of the
nineteen hundred and seventy-four, the disposition, several States of the United States to limit the extent to which These concepts clarified, is herein respondent SAN JOSE PETROLEUM an
exploitation, development, and utilization of all agricultural, citizens or corporations or associations owned or controlled American business enterprise entitled to parity rights in the Philippines?
timber, and mineral lands of the public domain, waters, by citizens of the Philippines may engage in the activities The answer must be in the negative, for the following reasons:
minerals, coal, petroleum, and other mineral oils, all forces of specified in this Article. The Republic of the Philippines
potential energy, and other natural resources of the reserves the power to deny any of the rights specified in this
Firstly It is not owned or controlled directly by citizens of the United
Philippines, and the operation of public utilities shall, if open Article to citizens of the United States who are citizens of
States, because it is owned and controlled by a corporation, the OIL
to any person, be open to citizens of the United States, and to States, or to corporations or associations at least 60% of
INVESTMENTS, another foreign (Panamanian) corporation.
all forms of business enterprises owned or controlled, directly whose capital stock or capital is owned or controlled by
or indirectly, by citizens of the United States in the same citizens of States, which deny like rights to citizens of the
manner as to, and under the same conditions imposed upon, Philippines, or to corporations or associations which are Secondly Neither can it be said that it is indirectly owned and
citizens of the Philippines or corporations or associations owned or controlled by citizens of the Philippines. . . controlled by American citizens through the OIL INVESTMENTS, for this
owned or controlled by citizens of the Philippines (Emphasis . (Emphasis supplied.) latter corporation is in turn owned and controlled, not by citizens of the
supplied.) United States, but still by two foreign (Venezuelan) corporations, the
PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM.
Re-stated, the privilege to utilize, exploit, and develop the natural
In the 1954 Revised Trade Agreement concluded between the United resources of this country was granted, by Article XIII of the Constitution,
States and the Philippines, also known as the Laurel-Langley to Filipino citizens or to corporations or associations 60% of the capital Thirdly Although it is claimed that these two last corporations are
Agreement, embodied in Republic Act 1355, the following provisions of which is owned by such citizens. With the Parity Amendment to the owned and controlled respectively by 12,373 and 9,979 stockholders
appear: Constitution, the same right was extended to citizens of the United residing in the different American states, there is no showing in the
States and business enterprises owned or controlled directly or certification furnished by respondent that the stockholders of
ARTICLE VI indirectly, by citizens of the United States.
PANCOASTAL or those of them holding the controlling stock, are lawfully "be in anywise interested in any other corporation (domestic or months, for which respondent issued in favor of OIL INVESTMENTS
citizens of the United States. foreign) organized for the purpose of engaging in agriculture or in 16,000,000 shares of its capital stock, at $0.01 per share or with a value
mining," in the Philippines or whether an American citizen owning stock of $160,000.00, plus a note for $230,297.97 maturing in 2 years at 6%
Fourthly Granting that these individual stockholders are American in more than one corporation organized for the purpose of engaging in per annum interest,9 and the assumption of payment of the unpaid
citizens, it is yet necessary to establish that the different states of which agriculture or in mining, may own more than 15% of the capital stock price of 7,500,000 (of the 8,000,000 shares of SAN JOSE OIL).
they are citizens, allow Filipino citizens or corporations or associations then outstanding and entitled to vote, of each of such corporations, in
owned or controlled by Filipino citizens, to engage in the exploitation, view of the express prohibition contained in Section 13 of the Philippine On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was
etc. of the natural resources of these states (see paragraph 3, Article VI Corporation Law. The petitioner in this case contends that the increased from $500,000.00 to $17,500,000.00 by increasing the par
of the Laurel-Langley Agreement, supra). Respondent has presented no provisions of the Corporation Law must be applied to American citizens value of the same 50,000,000 shares, from $0.01 to $0.35. Without any
proof to this effect. and business enterprise otherwise entitled to exercise the parity additional consideration, the 16,000,000 shares of $0.01 previously
privileges, because both the Laurel-Langley Agreement (Art. VI, par. 1) issued to OIL INVESTMENTS with a total value of $160,000.00 were
and the Petroleum Act of 1948 (Art. 31), specifically provide that the changed with 16,000,000 shares of the recapitalized stock at $0.35 per
Fifthly But even if the requirements mentioned in the two
enjoyment by them of the same rights and obligations granted under share, or valued at $5,600,000.00. And, to make it appear that cash was
immediately preceding paragraphs are satisfied, nevertheless to hold
the provisions of both laws shall be "in the same manner as to, and received for these re-issued 16,000,000 shares, the board of directors
that the set-up disclosed in this case, with a long chain of intervening
under the same conditions imposed upon, citizens of the Philippines or of respondent corporation placed a valuation of $5,900,000.00 on the
foreign corporations, comes within the purview of the Parity
corporations or associations owned or controlled by citizens of the 8,000,000 shares of SAN JOSE OIL (still having par value of $0.10 per
Amendment regarding business enterprises indirectly owned or
Philippines." The petitioner further contends that, as the enjoyment of share) which were received from OIL INVESTMENTS as part-
controlled by citizens of the United States, is to unduly stretch and
the privilege of exploiting mineral resources in the Philippines by consideration for the 16,000,000 shares at $0.01 per share.
strain the language and intent of the law. For, to what extent must the
Filipino citizens or corporations owned or controlled by citizens of the
word "indirectly" be carried? Must we trace the ownership or control of
Philippines (which corporation must necessarily be organized under the
these various corporations ad infinitum for the purpose of determining In the Balance Sheet of respondent, dated July 12, 1956, from the
Corporation Law), is made subject to the limitations provided in Section
whether the American ownership-control-requirement is satisfied? Add $5,900,000.00, supposedly the value of the 8,000,000 shares of SAN
13 of the Corporation Law, so necessarily the exercise of the parity
to this the admitted fact that the shares of stock of the PANTEPEC and JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the
rights by citizens of the United States or business enterprise owned or
PANCOASTAL which are allegedly owned or controlled directly by alleged difference between the "value" of the said shares and the
controlled, directly or indirectly, by citizens of the United States, must
citizens of the United States, are traded in the stock exchange in New subscription price thereof which is $800,000.00 (at $0.10 per share).
equally be subject to the same limitations contained in the aforesaid
York, and you have a situation where it becomes a practical From this $800,000.00, the subscription price of the SAN JOSE OIL
Section 13 of the Corporation Law.
impossibility to determine at any given time, the citizenship of the shares, the amount of $319,702.03 was deducted, as allegedly unpaid
controlling stock required by the law. In the circumstances, we have to subscription price, thereby giving a difference of $480,297.97, which
hold that the respondent SAN JOSE PETROLEUM, as presently In view of the conclusions we have already arrived at, we deem it not was placed as the amount allegedly paid in on the subscription price of
constituted, is not a business enterprise that is authorized to exercise indispensable for us to pass upon this legal question, especially taking the 8,000,000 SAN JOSE OIL shares. Then, by adding thereto the note
the parity privileges under the Parity Ordinance, the Laurel-Langley into account the statement of the respondent (SAN JOSE PETROLEUM) receivable from OIL INVESTMENTS, for $250,000.00 (part-consideration
Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, that it is essentially a holding company, and as found by the Securities for the 16,000,000 SAN JOSE PETROLEUM shares), and the sum of
consequently, illegal. and Exchange Commissioner, its principal activity is limited to the $6,516.21, as deferred expenses, SAN JOSE PETROLEUM appeared to
financing and giving technical assistance to SAN JOSE OIL. have assets in the sum of $736,814.18.
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 4. Respondent SAN JOSE PETROLEUM, whose shares of stock were These figures are highly questionable. Take the item $5,900,000.00 the
need not resolve in this case as SAN JOSE OIL is not a party and it is not allowed registration for sale in the Philippines, was incorporated under valuation placed on the 8,000,000 shares of SAN JOSE OIL. There
necessary to do so to dispose of the present controversy. But it is a the laws of Panama in April, 1956 with an authorized capital stock of appears no basis for such valuation other than belief by the board of
matter that probably the Solicitor General would want to look into. $500,000.00, American currency, divided into 50,000,000 shares at par directors of respondent that "should San Jose Oil Company be granted
value of $0.01 per share. By virtue of a 3-party Agreement of June 14, the bulk of the concessions applied for upon reasonable terms, that it
1956, respondent was supposed to have received from OIL would have a reasonable value of approximately $10,000,000." 10 Then,
There is another issue which has been discussed extensively by the
INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at of this amount, the subscription price of $800,000.00 was deducted and
parties. This is whether or not an American mining corporation may
par value of $0.01 per share), plus a note for $250,000.00 due in 6
called it "difference between the (above) valuation and the subscription director or officer of the corporation shall be relieved from all as holder of the only subscribed stock of the former corporation and
price for the 8,000,000 shares." Of this $800,000.00 subscription price, responsibility for which they may otherwise be liable by acting "on behalf of all future holders of voting trust certificates,"
they deducted the sum of $480,297.97 and the difference was placed as reason of any contract entered into with the corporation, entered into a voting trust agreement12 with James L. Buckley and
the unpaid portion of the subscription price. In other words, it was whether it be for his benefit or for the benefit of any other Austin E. Taylor, whereby said Trustees were given authority to vote the
made to appear that they paid in $480,297.97 for the 8,000,000 shares person, firm, association or partnership in which he may be shares represented by the outstanding trust certificates (including those
of SAN JOSE OIL. This amount ($480,297.97) was supposedly that interested. that may henceforth be issued) in the following manner:
$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 These provisions are in direct opposition to our corporation law and (a) At all elections of directors, the Trustees will designate a
amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. corporate practices in this country. These provisions alone would suitable proxy or proxies to vote for the election of directors
And yet, there is still an item among respondent's liabilities, for outlaw any corporation locally organized or doing business in this designated by the Trustees in their own discretion, having in
$230,297.97 appearing as note payable to Oil Investments, maturing in jurisdiction. Consider the unique and unusual provision that no contract mind the best interests of the holders of the voting trust
two (2) years at six percent (6%) per annum. 11 As far as it appears from or transaction between the company and any other association or certificates, it being understood that any and all of the
the records, for the 16,000,000 shares at $0.35 per share issued to OIL corporation shall be affected except in case of fraud, by the fact that Trustees shall be eligible for election as directors;
INVESTMENTS, respondent SAN JOSE PETROLEUM received from OIL any of the directors or officers of the company may be interested in or
INVESTMENTS only the note for $250,000.00 plus the 8,000,000 shares are directors or officers of such other association or corporation; and (b) On any proposition for removal of a director, the Trustees
of SAN JOSE OIL, with par value of $0.10 per share or a total of that none of such contracts or transactions of this company with any shall designate a suitable proxy or proxies to vote for or
$1,050,000.00 the only assets of the corporation. In other words, person or persons, firms, associations or corporations shall be affected against such proposition as the Trustees in their own
respondent actually lost $4,550,000.00, which was received by OIL by the fact that any director or officer of this company is a party to or discretion may determine, having in mind the best interest of
INVESTMENTS. has an interest in such contract or transaction or has any connection the holders of the voting trust certificates;
with such person or persons, firms associations or corporations; and
But this is not all. Some of the provisions of the Articles of Incorporation that any and all persons who may become directors or officers of this
(c) With respect to all other matters arising at any meeting of
of respondent SAN JOSE PETROLEUM are noteworthy; viz: company are hereby relieved of all responsibility which they would
stockholders, the Trustees will instruct such proxy or proxies
otherwise incur by reason of any contract entered into which this
attending such meetings to vote the shares of stock held by
(1) the directors of the Company need not be shareholders; company either for their own benefit, or for the benefit of any person,
the Trustees in accordance with the written instructions of
firm, association or corporation in which they may be interested.
each holder of voting trust certificates. (Emphasis supplied.)
(2) that in the meetings of the board of directors, any director
may be represented and may vote through a proxy who also The impact of these provisions upon the traditional judiciary
It was also therein provided that the said Agreement shall be binding
need not be a director or stockholder; and relationship between the directors and the stockholders of a
upon the parties thereto, their successors, and upon all holders of
corporation is too obvious to escape notice by those who are called
voting trust certificates.
upon to protect the interest of investors. The directors and officers of
(3) that no contract or transaction between the corporation
the company can do anything, short of actual fraud, with the affairs of
and any other association or partnership will be affected, And these are the voting trust certificates that are offered to investors
the corporation even to benefit themselves directly or other persons or
except in case of fraud, by the fact that any of the directors or as authorized by Security and Exchange Commissioner. It can not be
entities in which they are interested, and with immunity because of the
officers of the corporation is interested in, or is a director or doubted that the sale of respondent's securities would, to say the least,
advance condonation or relief from responsibility by reason of such
officer of, such other association or partnership, and that no work or tend to work fraud to Philippine investors.
acts. This and the other provision which authorizes the election of non-
such contract or transaction of the corporation with any other
stockholders as directors, completely disassociate the stockholders
person or persons, firm, association or partnership shall be
from the government and management of the business in which they FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent
affected by the fact that any director or officer of the
have invested. to dismiss this appeal, is denied and the orders of the Securities and
corporation is a party to or has an interest in, such contract or
Exchange Commissioner, allowing the registration of Respondent's
transaction, or has in anyway connected with such other
To cap it all on April 17, 1957, admittedly to assure continuity of the securities and licensing their sale in the Philippines are hereby set aside.
person or persons, firm, association or partnership; and
management and stability of SAN JOSE PETROLEUM, OIL INVESTMENTS, The case is remanded to the Securities and Exchange Commission for
finally, that all and any of the persons who may become
appropriate action in consonance with this decision. With costs. Let a notarized and authenticated at the Philippine Consuls Office. Dr. In a Decision dated June 9, 1997, RTC Judge Leonardo B. Caares
copy of this decision be furnished the Solicitor General for whatever Lozada then forwarded the deed, special power of attorney, and disposed of the consolidated cases as follows:
action he may deem advisable to take in the premises. So ordered. owners copies of the titles to Antonio in the Philippines. Upon receipt
of said documents, the latter recorded the sale with the Register of WHEREFORE, judgment is hereby rendered in Civil Case No. CEB-16145,
Deeds of Cebu. Accordingly, TCT Nos. 12832210 and 12832311 were to wit:
issued in the name of Antonio Lozada.
1. Plaintiff Antonio J.P. Lozada is declared the absolute owner
Pending registration of the deed, petitioner Marissa R. Unchuan caused of the properties in question;
the annotation of an adverse claim on the lots. Marissa claimed that
Anita donated an undivided share in the lots to her under an
2. The Deed of Donation (Exh. "9") is declared null and void,
G.R. No. 172671 April 16, 2009 unregistered Deed of Donation12 dated February 4, 1987.
and Defendant Marissa R. Unchuan is directed to surrender
the original thereof to the Court for cancellation;
MARISSA R. UNCHUAN, Petitioner, Antonio and Anita brought a case against Marissa for quieting of title
vs. with application for preliminary injunction and restraining order.
3. The Register of Deeds of Cebu City is ordered to cancel the
ANTONIO J.P. LOZADA, ANITA LOZADA and THE REGISTER OF DEEDS Marissa for her part, filed an action to declare the Deed of Sale void and
annotations of the Affidavit of Adverse Claim of defendant
OF CEBU CITY, Respondents. to cancel TCT Nos. 128322 and 128323. On motion, the cases were
Marissa R. Unchuan on TCT Nos. 53257 and 53258 and on
consolidated and tried jointly.
such all other certificates of title issued in lieu of the
DECISION aforementioned certificates of title;
At the trial, respondents presented a notarized and duly authenticated
sworn statement, and a videotape where Anita denied having donated
QUISUMBING, J.: 4. Defendant Marissa R. Unchuan is ordered to pay Antonio
land in favor of Marissa. Dr. Lozada testified that he agreed to advance
J.P. Lozada and Anita Lozada Slaughter the sum of
payment for Antonio in preparation for their plan to form a
For review are the Decision1 dated February 23, 2006 and 100,000.00 as moral damages; exemplary damages of
corporation. The lots are to be eventually infused in the capitalization of
Resolution2 dated April 12, 2006 of the Court of Appeals in CA-G.R. CV. 50,000.00; 50,000.00 for litigation expenses and attorneys
Damasa Corporation, where he and Antonio are to have 40% and 60%
No. 73829. The appellate court had affirmed with modification the fees of 50,000.00; and
stake, respectively. Meanwhile, Lourdes G. Vicencio, a witness for
Order3 of the Regional Trial Court (RTC) of Cebu City, Branch 10 respondents confirmed that she had been renting the ground floor of
reinstating its Decision4 dated June 9, 1997. Anitas house since 1983, and tendering rentals to Antonio. 5. The counterclaims of defendant Marissa R. Unchuan [are]
DISMISSED.
The facts of the case are as follows: For her part, Marissa testified that she accompanied Anita to the office
of Atty. Cresencio Tomakin for the signing of the Deed of Donation. She In Civil Case No. CEB-16159, the complaint is hereby DISMISSED.
Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the allegedly kept it in a safety deposit box but continued to funnel monthly
registered co-owners of Lot Nos. 898-A-3 and 898-A-4 covered by rentals to Peregrinas account. In both cases, Marissa R. Unchuan is ordered to pay the costs of suit.
Transfer Certificates of Title (TCT) Nos. 532585 and 532576 in Cebu City.
A witness for petitioner, one Dr. Cecilia Fuentes, testified on Peregrinas SO ORDERED.13
The sisters, who were based in the United States, sold the lots to their medical records. According to her interpretation of said records, it was
nephew Antonio J.P. Lozada (Antonio) under a Deed of Sale7 dated physically impossible for Peregrina to have signed the Deed of Sale on On motion for reconsideration by petitioner, the RTC of Cebu City,
March 11, 1994. Armed with a Special Power of Attorney8 from Anita, March 11, 1994, when she was reported to be suffering from edema. Branch 10, with Hon. Jesus S. dela Pea as Acting Judge, issued an
Peregrina went to the house of their brother, Dr. Antonio Lozada (Dr. Peregrina died on April 4, 1994. Order14 dated April 5, 1999. Said order declared the Deed of Sale void,
Lozada), located at 4356 Faculty Avenue, Long Beach California.9Dr. ordered the cancellation of the new TCTs in Antonios name, and
Lozada agreed to advance the purchase price of US$367,000 or directed Antonio to pay Marissa 200,000 as moral damages, 100,000
10,000,000 for Antonio, his nephew. The Deed of Sale was later
as exemplary damages, 100,000 attorneys fees and 50,000 for WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING petitioners right to due process inasmuch as it resolved collectively all
expenses of litigation. The trial court also declared the Deed of THAT THE DEED OF DONATION EXECUTED IN FAVOR OF PETITIONER IS the factual and legal issues on the validity of the sale.
Donation in favor of Marissa valid. The RTC gave credence to the VOID.
medical records of Peregrina. Faithful adherence to Section 14,19 Article VIII of the 1987 Constitution
V. is indisputably a paramount component of due process and fair play.
Respondents moved for reconsideration. On July 6, 2000, now with The parties to a litigation should be informed of how it was decided,
Hon. Soliver C. Peras, as Presiding Judge, the RTC of Cebu City, Branch WHETHER THE HONORABLE COURT OF APPEALS ERRED IN NOT with an explanation of the factual and legal reasons that led to the
10, reinstated the Decision dated June 9, 1997, but with the HOLDING THAT ANITA LOZADAS VIDEOTAPED STATEMENT IS conclusions of the court.20
modification that the award of damages, litigation expenses and HEARSAY.15
attorneys fees were disallowed. In the assailed Decision, the Court of Appeals reiterates the rule that a
Simply stated, the issues in this appeal are: (1) Whether the Court of notarized and authenticated deed of sale enjoys the presumption of
Petitioner appealed to the Court of Appeals. On February 23, 2006 the Appeals erred in upholding the Decision of the RTC which declared regularity, and is admissible without further proof of due execution. On
appellate court affirmed with modification the July 6, 2000 Order of the Antonio J.P. Lozada the absolute owner of the questioned properties; the basis thereof, it declared Antonio a buyer in good faith and for
RTC. It, however, restored the award of 50,000 attorneys fees and (2) Whether the Court of Appeals violated petitioners right to due value, despite petitioners contention that the sale violates public
50,000 litigation expenses to respondents. process; and (3) Whether petitioners case is barred by laches. policy. While it is a part of the right of appellant to urge that the
decision should directly meet the issues presented for
Thus, the instant petition which raises the following issues: resolution,21 mere failure by the appellate court to specify in its
Petitioner contends that the appellate court violated her right to due
decision all contentious issues raised by the appellant and the reasons
process when it did not rule on the validity of the sale between the
for refusing to believe appellants contentions is not sufficient to hold
I. sisters Lozada and their nephew, Antonio. Marissa finds it anomalous
the appellate courts decision contrary to the requirements of the
that Dr. Lozada, an American citizen, had paid the lots for Antonio.
law22 and the Constitution.23 So long as the decision of the Court of
WHETHER THE COURT OF APPEALS ERRED AND VIOLATED PETITIONERS Thus, she accuses the latter of being a mere dummy of the former.
Appeals contains the necessary findings of facts to warrant its
RIGHT TO DUE PROCESS WHEN IT FAILED TO RESOLVE PETITIONERS Petitioner begs the Court to review the conflicting factual findings of
conclusions, we cannot declare said court in error if it withheld "any
THIRD ASSIGNED ERROR. the trial and appellate courts on Peregrinas medical condition on
specific findings of fact with respect to the evidence for the
March 11, 1994 and Dr. Lozadas financial capacity to advance payment
defense."24 We will abide by the legal presumption that official duty has
for Antonio. Likewise, petitioner assails the ruling of the Court of
II. been regularly performed,25 and all matters within an issue in a case
Appeals which nullified the donation in her favor and declared her case
were laid down before the court and were passed upon by it.26
barred by laches. Petitioner finally challenges the admissibility of the
WHETHER THE HONORABLE SUPREME COURT MAY AND SHOULD videotaped statement of Anita who was not presented as a witness.
REVIEW THE CONFLICTING FACTUAL FINDINGS OF THE HONORABLE In this case, we find nothing to show that the sale between the sisters
REGIONAL TRIAL COURT IN ITS OWN DECISION AND RESOLUTIONS ON Lozada and their nephew Antonio violated the public policy prohibiting
On their part, respondents pray for the dismissal of the petition for
THE MOTIONS FOR RECONSIDERATION, AND THAT OF THE HONORABLE aliens from owning lands in the Philippines. Even as Dr. Lozada
petitioners failure to furnish the Register of Deeds of Cebu City with a
COURT OF APPEALS. advanced the money for the payment of Antonios share, at no point
copy thereof in violation of Sections 316 and 4,17 Rule 45 of the Rules. In
were the lots registered in Dr. Lozadas name. Nor was it contemplated
addition, they aver that Peregrinas unauthenticated medical records
III. that the lots be under his control for they are actually to be included as
were merely falsified to make it appear that she was confined in the
capital of Damasa Corporation. According to their agreement, Antonio
hospital on the day of the sale. Further, respondents question the
and Dr. Lozada are to hold 60% and 40% of the shares in said
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING credibility of Dr. Fuentes who was neither presented in court as an
corporation, respectively. Under Republic Act No. 7042,27 particularly
THAT PETITIONERS CASE IS BARRED BY LACHES. expert witness18 nor professionally involved in Peregrinas medical care.
Section 3,28 a corporation organized under the laws of the Philippines of
which at least 60% of the capital stock outstanding and entitled to vote
IV. Further, respondents impugn the validity of the Deed of Donation in is owned and held by citizens of the Philippines, is considered a
favor of Marissa. They assert that the Court of Appeals did not violate Philippine National. As such, the corporation may acquire disposable
lands in the Philippines. Neither did petitioner present proof to belie The acceptance may be made in the same deed of donation or in a circumstances in this case calls for no other conclusion than that the
Antonios capacity to pay for the lots subjects of this case. separate public document, but it shall not take effect unless it is done Deed of Donation allegedly in favor of petitioner is void. Having said
during the lifetime of the donor. that, we deem it unnecessary to rule on the issue of laches as the
Petitioner, likewise, calls on the Court to ascertain Peregrinas physical execution of the deed created no right from which to reckon delay in
ability to execute the Deed of Sale on March 11, 1994. This essentially If the acceptance is made in a separate instrument, the donor shall be making any claim of rights under the instrument.
necessitates a calibration of facts, which is not the function of this notified thereof in an authentic form, and this step shall be noted in
Court.29 Nevertheless, we have sifted through the Decisions of the RTC both instruments. Finally, we note that petitioner faults the appellate court for not
and the Court of Appeals but found no reason to overturn their factual excluding the videotaped statement of Anita as hearsay evidence.
findings. Both the trial court and appellate court noted the lack of When the law requires that a contract be in some form in order that it Evidence is hearsay when its probative force depends, in whole or in
substantial evidence to establish total impossibility for Peregrina to may be valid or enforceable, or that a contract be proved in a certain part, on the competency and credibility of some persons other than the
execute the Deed of Sale. way, that requirement is absolute and indispensable.34 Here, the Deed witness by whom it is sought to be produced. There are three reasons
of Donation does not appear to be duly notarized. In page three of the for excluding hearsay evidence: (1) absence of cross-examination; (2)
In support of its contentions, petitioner submits a copy of Peregrinas deed, the stamped name of Cresencio Tomakin appears above the absence of demeanor evidence; and (3) absence of oath.41 It is a
medical records to show that she was confined at the Martin Luther words Notary Public until December 31, 1983 but below it were the hornbook doctrine that an affidavit is merely hearsay evidence where
Hospital from February 27, 1994 until she died on April 4, 1994. typewritten words Notary Public until December 31, 1987. A closer its maker did not take the witness stand.42 Verily, the sworn statement
However, a Certification30 from Randy E. Rice, Manager for the Health examination of the document further reveals that the of Anita was of this kind because she did not appear in court to affirm
Information Management of the hospital undermines the authenticity number 7 in 1987 and Series of 1987 were merely superimposed.35 This her averments therein. Yet, a more circumspect examination of our
of said medical records. In the certification, Rice denied having certified was confirmed by petitioners nephew Richard Unchuan who testified rules of exclusion will show that they do not cover admissions of a
or having mailed copies of Peregrinas medical records to the that he saw petitioners husband write 7 over 1983 to make it appear party;43 the videotaped statement of Anita appears to belong to this
Philippines. As a rule, a document to be admissible in evidence, should that the deed was notarized in 1987. Moreover, a Certification36 from class. Section 26 of Rule 130 provides that "the act, declaration or
be previously authenticated, that is, its due execution or genuineness Clerk of Court Jeoffrey S. Joaquino of the Notarial Records Division omission of a party as to a relevant fact may be given in evidence
should be first shown.31 Accordingly, the unauthenticated medical disclosed that the Deed of Donation purportedly identified in Book No. against him. It has long been settled that these admissions are
records were excluded from the evidence. Even assuming that 4, Document No. 48, and Page No. 35 Series of 1987 was not reported admissible even if they are hearsay.44 Indeed, there is a vital distinction
Peregrina was confined in the cited hospital, the Deed of Sale was and filed with said office. Pertinent to this, the Rules require a party between admissions against interest and declaration against interest.
executed on March 11, 1994, a month before Peregrina reportedly producing a document as genuine which has been altered and appears Admissions against interest are those made by a party to a litigation or
succumbed to Hepato Renal Failure caused by Septicemia due to to have been altered after its execution, in a part material to the by one in privity with or identified in legal interest with such party, and
Myflodysplastic Syndrome.32 Nothing in the records appears to show question in dispute, to account for the alteration. He may show that the are admissible whether or not the declarant is available as a witness.
that Peregrina was so incapacitated as to prevent her from executing alteration was made by another, without his concurrence, or was made Declaration against interest are those made by a person who is neither
the Deed of Sale. Quite the contrary, the records reveal that close to with the consent of the parties affected by it, or was otherwise properly a party nor in privity with a party to the suit, are secondary evidence
the date of the sale, specifically on March 9, 1994, Peregrina was even or innocently made, or that the alteration did not change the meaning and constitute an exception to the hearsay rule. They are admissible
able to issue checks33 to pay for her attorneys professional fees and her or language of the instrument. If he fails to do that, the document shall, only when the declarant is unavailable as a witness.45 Thus, a mans
own hospital bills. At no point in the course of the trial did petitioner as in this case, not be admissible in evidence.371avvphi1 acts, conduct, and declaration, wherever made, if voluntary, are
dispute this revelation. admissible against him, for the reason that it is fair to presume that
they correspond with the truth, and it is his fault if they do
Remarkably, the lands described in the Deed of Donation are covered
not.46 However, as a further qualification, object evidence, such as the
Now, as to the validity of the donation, the provision of Article 749 of by TCT Nos. 7364538 and 73646,39 both of which had been previously
videotape in this case, must be authenticated by a special testimony
the Civil Code is in point: cancelled by an Order40 dated April 8, 1981 in LRC Record No. 5988. We
showing that it was a faithful reproduction.47 Lacking this, we are
find it equally puzzling that on August 10, 1987, or six months after
constrained to exclude as evidence the videotaped statement of Anita.
art. 749. In order that the donation of an immovable may be valid, it Anita supposedly donated her undivided share in the lots to petitioner,
Even so, this does not detract from our conclusion concerning
must be made in a public document, specifying therein the property the Unchuan Development Corporation, which was represented by
petitioners failure to prove, by preponderant evidence, any right to the
donated and the value of the charges which the donee must satisfy. petitioners husband, filed suit to compel the Lozada sisters to
lands subject of this case.
surrender their titles by virtue of a sale. The sum of all the
Anent the award of moral damages in favor of respondents, we find no This is a petition under Rule 65 of the Revised Rules of Court to prohibit Republic Act No. 6957 provides for two schemes for the financing,
factual and legal basis therefor. Moral damages cannot be awarded in respondents from further implementing and enforcing the "Revised and construction and operation of government projects through private
the absence of a wrongful act or omission or fraud or bad faith. When Restated Agreement to Build, Lease and Transfer a Light Rail Transit initiative and investment: Build-Operate-Transfer (BOT) or Build-
the action is filed in good faith there should be no penalty on the right System for EDSA" dated April 22, 1992, and the "Supplemental Transfer (BT).
to litigate. One may have erred, but error alone is not a ground for Agreement to the 22 April 1992 Revised and Restated Agreement To
moral damages.48 The award of moral damages must be solidly Build, Lease and Transfer a Light Rail Transit System for EDSA" dated In accordance with the provisions of R.A. No. 6957 and to set the EDSA
anchored on a definite showing that respondents actually experienced May 6, 1993. LRT III project underway, DOTC, on January 22, 1991 and March 14,
emotional and mental sufferings. Mere allegations do not suffice; they 1991, issued Department Orders Nos. 91-494 and 91-496, respectively
must be substantiated by clear and convincing proof.49 As exemplary Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon creating the Prequalification Bids and Awards Committee (PBAC) and
damages can be awarded only after the claimant has shown are members of the Philippine Senate and are suing in their capacities the Technical Committee.
entitlement to moral damages,50 neither can it be granted in this case. as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the
incumbent Secretary of the Department of Transportation and After its constitution, the PBAC issued guidelines for the
WHEREFORE, the instant petition is DENIED. The Decision dated Communications (DOTC), while private respondent EDSA LRT prequalification of contractors for the financing and implementation of
February 23, 2006, and Resolution dated April 12, 2006 of the Court of Corporation, Ltd. is a private corporation organized under the laws of the project The notice, advertising the prequalification of bidders, was
Appeals in CA-G.R. CV. No. 73829 are AFFIRMED with MODIFICATION. Hongkong. published in three newspapers of general circulation once a week for
The awards of moral damages and exemplary damages in favor of three consecutive weeks starting February 21, 1991.
respondents are deleted. No pronouncement as to costs. I
The deadline set for submission of prequalification documents was
SO ORDERED. In 1989, DOTC planned to construct a light railway transit line along March 21, 1991, later extended to April 1, 1991. Five groups responded
EDSA, a major thoroughfare in Metropolitan Manila, which shall to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd.
traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co.,
plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and
intended to provide a mass transit system along EDSA and alleviate the domestic corporations: namely, Kaiser Engineers International, Inc.,
congestion and growing transportation problem in the metropolis. ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD
Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All
On March 3, 1990, a letter of intent was sent by the Eli Levin Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L.
Enterprises, Inc., represented by Elijahu Levin to DOTC Secretary Oscar Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction
G.R. No. 114222 April 6, 1995 Orbos, proposing to construct the EDSA LRT III on a Build-Operate- Group, Inc, and F. F. Cruz & co., Inc.
Transfer (BOT) basis.
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. On the last day for submission of prequalification documents, the
BIAZON, petitioners, On March 15, 1990, Secretary Orbos invited Levin to send a technical prequalification criteria proposed by the Technical Committee were
vs. team to discuss the project with DOTC. adopted by the PBAC. The criteria totalling 100 percent, are as follows:
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the (a) Legal aspects 10 percent; (b) Management/Organizational
Department of Transportation and Communications, and EDSA LRT capability 30 percent; and (c) Financial capability 30 percent; and
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the
CORPORATION, LTD., respondents. (d) Technical capability 30 percent (Rollo, p. 122).
Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector, and For Other Purposes," was signed by
President Corazon C. Aquino. Referred to as the Build-Operate-Transfer On April 3, 1991, the Committee, charged under the BOT Law with the
(BOT) Law, it took effect on October 9, 1990. formulation of the Implementation Rules and Regulations thereof,
approved the same.
QUIASON, J.:
After evaluating the prequalification, bids, the PBAC issued a Resolution that congressional approval of the list of priority projects under the BOT is 1,080 days or approximately three years from the implementation
on May 9, 1991 declaring that of the five applicants, only the EDSA LRT or BT Scheme provided in the law had not yet been granted at the time date of the contract inclusive of mobilization, site works, initial and final
Consortium "met the requirements of garnering at least 21 points per the contract was awarded (Rollo, pp. 178-179). testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83).
criteria [sic], except for Legal Aspects, and obtaining an over-all passing Upon full or partial completion and viability thereof, private respondent
mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to In view of the comments of Executive Secretary Drilon, the DOTC and shall deliver the use and possession of the completed portion to DOTC
provided that the BOT/BT contractor-applicant meet the requirements private respondents re-negotiated the agreement. On April 22, 1992, which shall operate the same (Supplemental Agreement, Sec. 5; Revised
specified in the Constitution and other pertinent laws (Rollo, p. 114). the parties entered into a "Revised and Restated Agreement to Build, and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay
Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47- private respondent rentals on a monthly basis through an Irrevocable
Subsequently, Secretary Orbos was appointed Executive Secretary to 78) inasmuch as "the parties [are] cognizant of the fact the DOTC has Letter of Credit. The rentals shall be determined by an independent and
the President of the Philippines and was replaced by Secretary Pete full authority to sign the Agreement without need of approval by the internationally accredited inspection firm to be appointed by the
Nicomedes Prado. The latter sent to President Aquino two letters dated President pursuant to the provisions of Executive Order No. 380 and parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed
May 31, 1991 and June 14, 1991, respectively recommending the award that certain events [had] supervened since November 7, 1991 which upon, private respondent's capital shall be recovered from the rentals
of the EDSA LRT III project to the sole complying bidder, the EDSA LRT necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, to be paid by the DOTC which, in turn, shall come from the earnings of
Consortium, and requesting for authority to negotiate with the said firm 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p.
for the contract pursuant to paragraph 14(b) of the Implementing Rules Prado, and private respondent entered into a "Supplemental 54). After 25 years and DOTC shall have completed payment of the
and Regulations of the BOT Law (Rollo, pp. 298-302). Agreement to the 22 April 1992 Revised and Restated Agreement to rentals, ownership of the project shall be transferred to the latter for a
Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec.
"clarify their respective rights and responsibilities" and to submit [the] 11.1; Rollo, p. 67).
In July 1991, Executive Secretary Orbos, acting on instructions of the
President, issued a directive to the DOTC to proceed with the Supplemental Agreement to the President, of the Philippines for his
negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its approval" (Rollo, pp. 79-80). On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of
bid proposal to DOTC. Republic Act No. 6957, Entitled "An Act Authorizing the Financing,
Secretary Garcia submitted the two Agreements to President Fidel V. Construction, Operation and Maintenance of Infrastructure Projects by
Ramos for his consideration and approval. In a Memorandum to the Private Sector, and for Other Purposes" was signed into law by the
Finding this proposal to be in compliance with the bid requirements,
Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, President. The law was published in two newspapers of general
DOTC and respondent EDSA LRT Corporation, Ltd., in substitution of the
p. 194). circulation on May 12, 1994, and took effect 15 days thereafter or on
EDSA LRT Consortium, entered into an "Agreement to Build, Lease and
May 28, 1994. The law expressly recognizes BLT scheme and allows
Transfer a Light Rail Transit System for EDSA" under the terms of the
direct negotiation of BLT contracts.
BOT Law (Rollo, pp. 147-177). According to the agreements, the EDSA LRT III will use light rail vehicles
from the Czech and Slovak Federal Republics and will have a maximum
carrying capacity of 450,000 passengers a day, or 150 million a year to II
Secretary Prado, thereafter, requested presidential approval of the
contract. be achieved-through 54 such vehicles operating simultaneously. The
EDSA LRT III will run at grade, or street level, on the mid-section of EDSA In their petition, petitioners argued that:
for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon,
Avenue, Quezon City. The system will have its own power facility (1) THE AGREEMENT OF APRIL 22, 1992, AS
who replaced Executive Secretary Orbos, informed Secretary Prado that
(Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also AMENDED BY THE SUPPLEMENTAL AGREEMENT OF
the President could not grant the requested approval for the following
have thirteen (13) passenger stations and one depot in 16-hectare MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT
reasons: (1) that DOTC failed to conduct actual public bidding in
government property at North Avenue (Supplemental Agreement, Sec. CORPORATION, LTD., A FOREIGN CORPORATION,
compliance with Section 5 of the BOT Law; (2) that the law authorized
11; Rollo, pp. 91-92). THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY,
public bidding as the only mode to award BOT projects, and the
prequalification proceedings was not the public bidding contemplated VIOLATES THE CONSTITUTION AND, HENCE, IS
under the law; (3) that Item 14 of the Implementing Rules and Private respondents shall undertake and finance the entire project UNCONSTITUTIONAL;
Regulations of the BOT Law which authorized negotiated award of required for a complete operational light rail transit system (Revised
contract in addition to public bidding was of doubtful legality; and (4) and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED (5) The Agreements executed by and between respondents have been corporations, not foreign corporations like private
IN THE AGREEMENTS IS NOT DEFINED NOR approved by President Ramos and are not disadvantageous to the respondent;
RECOGNIZED IN R.A. NO. 6957 OR ITS government;
IMPLEMENTING RULES AND REGULATIONS AND, (2) the Build-Lease-Transfer (BLT) scheme provided
HENCE, IS ILLEGAL; (6) The award of the contract to private respondent through in the agreements is not the BOT or BT Scheme
negotiation and not public bidding is allowed by the BOT Law; and under the law;
(3) THE AWARD OF THE CONTRACT ON A
NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND, (7) Granting that the BOT Law requires public bidding, this has been (3) the contract to construct the EDSA LRT III was
HENCE, IS UNLAWFUL; amended by R.A No. 7718 passed by the Legislature On May 12, 1994, awarded to private respondent not through public
which provides for direct negotiation as a mode of award of bidding which is the only mode of awarding
(4) THE AWARD OF THE CONTRACT IN FAVOR OF infrastructure projects. infrastructure projects under the BOT law; and
RESPONDENT EDSA LRT CORPORATION, LTD.
VIOLATES THE REQUIREMENTS PROVIDED IN THE III (4) the agreements are grossly disadvantageous to
IMPLEMENTING RULES AND REGULATIONS OF THE the government.
BOT LAW AND, HENCE, IS ILLEGAL;
Respondents claimed that petitioners had no legal standing to initiate
the instant action. Petitioners, however, countered that the action was 1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER filed by them in their capacity as Senators and as taxpayers. to construct the EDSA LRT III was awarded by public respondent, is
NO 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL admittedly a foreign corporation "duly incorporated and existing under
APPROVAL AND, HENCE, ARE ILLEGAL AND the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that
The prevailing doctrines in taxpayer's suits are to allow taxpayers to
INEFFECTIVE; AND once the EDSA LRT III is constructed, private respondent, as lessor, will
question contracts entered into by the national government or
government-owned or controlled corporations allegedly in turn it over to DOTC, as lessee, for the latter to operate the system and
(6) THE AGREEMENTS ARE GROSSLY contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 pay rentals for said use.
DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, [1994]) and to disallow the same when only municipal contracts are
pp. 15-16). involved (Bugnay Construction and Development Corporation v. Laron, The question posed by petitioners is:
176 SCRA. 240 [1989]).
Secretary Garcia and private respondent filed their comments Can respondent EDSA LRT Corporation, Ltd., a
separately and claimed that: For as long as the ruling in Kilosbayan on locus standi is not reversed, foreign corporation own EDSA LRT III; a public
we have no choice but to follow it and uphold the legal standing of utility? (Rollo, p. 17).
(1) Petitioners are not the real parties-in-interest and have no legal petitioners as taxpayers to institute the present action.
standing to institute the present petition; The phrasing of the question is erroneous; it is loaded. What private
IV respondent owns are the rail tracks, rolling stocks like the coaches, rail
(2) The writ of prohibition is not the proper remedy and the petition stations, terminals and the power plant, not a public utility. While a
requires ascertainment of facts; In the main, petitioners asserted that the Revised and Restated franchise is needed to operate these facilities to serve the public, they
Agreement of April 22, 1992 and the Supplemental Agreement of May do not by themselves constitute a public utility. What constitutes a
(3) The scheme adopted in the Agreements is actually a build-transfer 6, 1993 are unconstitutional and invalid for the following reasons: public utility is not their ownership but their use to serve the public
scheme allowed by the BOT Law; (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557
558 [1923]).
(1) the EDSA LRT III is a public utility, and the
(4) The nationality requirement for public utilities mandated by the ownership and operation thereof is limited by the
Constitution does not apply to private respondent; Constitution to Filipino citizens and domestic The Constitution, in no uncertain terms, requires a franchise for the
operation of a public utility. However, it does not require a franchise
before one can own the facilities needed to operate a public utility so done by the owner or by the person in control thereof who may not construction period and upon commencement of normal revenue
long as it does not operate them to serve the public. necessarily be the owner thereof. operation, DOTC shall be able to operate the EDSA LRT III on its own
and train all new personnel by itself.
Section 11 of Article XII of the Constitution provides: This dichotomy between the operation of a public utility and the
ownership of the facilities used to serve the public can be very well Fees for private respondent' s services shall be included in the rent,
No franchise, certificate or any other form of appreciated when we consider the transportation industry. which likewise includes the project cost, cost of replacement of plant
authorization for the operation of a public Enfranchised airline and shipping companies may lease their aircraft equipment and spare parts, investment and financing cost, plus a
utility shall be granted except to citizens of the and vessels instead of owning them themselves. reasonable rate of return thereon (Revised and Restated Agreement,
Philippines or to corporations or associations Sec. 1; Rollo, p. 54).
organized under the laws of the Philippines at least While private respondent is the owner of the facilities necessary to
sixty per centum of whose capital is owned by such operate the EDSA. LRT III, it admits that it is not enfranchised to operate Since DOTC shall operate the EDSA LRT III, it shall assume all the
citizens, nor shall such franchise, certificate or a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). obligations and liabilities of a common carrier. For this purpose, DOTC
authorization be exclusive character or for a longer In view of this incapacity, private respondent and DOTC agreed that on shall indemnify and hold harmless private respondent from any losses,
period than fifty years . . . (Emphasis supplied). completion date, private respondent will immediately deliver damages, injuries or death which may be claimed in the operation or
possession of the LRT system by way of lease for 25 years, during which implementation of the system, except losses, damages, injury or death
In law, there is a clear distinction between the "operation" of a public period DOTC shall operate the same as a common carrier and private due to defects in the EDSA LRT III on account of the defective condition
utility and the ownership of the facilities and equipment used to serve respondent shall provide technical maintenance and repair services to of equipment or facilities or the defective maintenance of such
the public. DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, equipment facilities (Revised and Restated Agreement, Secs. 12.1 and
pp. 57-58, 61-62). Technical maintenance consists of providing (1) 12.2; Rollo, p. 68).
repair and maintenance facilities for the depot and rail lines, services
Ownership is defined as a relation in law by virtue of which a thing
for routine clearing and security; and (2) producing and distributing In sum, private respondent will not run the light rail vehicles and collect
pertaining to one person is completely subjected to his will in
maintenance manuals and drawings for the entire system (Revised and fees from the riding public. It will have no dealings with the public and
everything not prohibited by law or the concurrence with the rights of
Restated Agreement, Annex F). the public will have no right to demand any services from it.
another (Tolentino, II Commentaries and Jurisprudence on the Civil
Code of the Philippines 45 [1992]).
Private respondent shall also train DOTC personnel for familiarization It is well to point out that the role of private respondent as lessor
with the operation, use, maintenance and repair of the rolling stock, during the lease period must be distinguished from the role of the
The exercise of the rights encompassed in ownership is limited by law
power plant, substations, electrical, signaling, communications and all Philippine Gaming Management Corporation (PGMC) in the case
so that a property cannot be operated and used to serve the public as a
other equipment as supplied in the agreement (Revised and Restated of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the
public utility unless the operator has a franchise. The operation of a rail
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical Contract of Lease between PGMC and the Philippine Charity
system as a public utility includes the transportation of passengers from
and live training of DOTC operational personnel which includes actual Sweepstakes Office (PCSO) was actually a collaboration or joint venture
one point to another point, their loading and unloading at designated
dri