1.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY
ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Paraaque City under
Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order
No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA
Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter
transferred to MIAA approximately 600 hectares of land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau
of Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any
other mode unless specifically approved by the President of the Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the Local
Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable years 1992 to 2001.
MIAA's real estate tax delinquency is broken down as follows:

TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY TOTAL

E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings.
The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section 206 of the Local
Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter
is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or
temporary restraining order. The petition sought to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning
for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period. The Court of Appeals
also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5
December 2002 the present petition for review.7

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Nio, and
Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque
published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The
notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative
Session Hall Building of Paraaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the
Issuance of a Temporary Restraining Order. The motion sought to restrain respondents the City of Paraaque, City Mayor of
Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor of Paraaque ("respondents") from
auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered respondents to cease and
desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court issued it.
However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing, MIAA, respondent City
of Paraaque, and the Solicitor General subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it
cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA
Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are
devoted to public use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are thus
inalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also
exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings are owned by the Republic.
To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public
property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of "government-owned
and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction
is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section
193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real
estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the Local Government Code has
withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that since MIAA has already paid some of
the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. If so
exempt, then the real estate tax assessments issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. In
such event, the other issues raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax. Respondents claim that the
deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the
real estate tax exemption of government-owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property
Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-
owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or
controlled corporation as follows:

SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its
capital stock: x x x. (Emphasis supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or
non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting
shares. Section 10 of the MIAA Charter9provides:

SECTION 10. Capital. The capital of the Authority to be contributed by the National Government shall be increased from Two and One-
half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable and immovable[,]
which may be contributed by the National Government or transferred by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management and the Commission on Audit on the date of such contribution or
transfer after making due allowances for depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the unremitted share of the
National Government from 1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National Government in the Authority. Thereafter, the Government contribution to the
capital of the Authority shall be provided in the General Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to
distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or
voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one
where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if
we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual
gross operating income to the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. What then is the
legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, 12 police authority13 and the levying of fees and charges.14 At
the same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."15

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National
Government machinery although not integrated with the department framework. The MIAA Charter expressly states that transforming MIAA into a
"separate and autonomous body"16 will make its operation more "financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary
condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities.
However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government
units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local
governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may
only exercise such power "subject to such guidelines and limitations as the Congress may provide."18

When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government
instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants an exemption
to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality.
As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such
case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of
its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax-
liability of such agencies.19

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of
public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of
local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be express language in the law empowering local
governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax national
government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to
touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the inherent power to wield it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines.
The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

 ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the
national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial
property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and
bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and
Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of
public dominion and thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and
transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands
and Buildings as properties for public use. The operation by the government of a tollway does not change the character of the road as one for public
use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among
the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil
Code defines property of public dominion as one "intended for public use." Even if the government collects toll fees, the road is still "intended for
public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind
of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains
the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed
user's tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use
the particular public facility. A user's tax is more equitable a principle of taxation mandated in the 1987 Constitution.21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and domestic air
traffic,"22 are properties of public dominion because they are intended for public use. As properties of public dominion, they indisputably belong
to the State or the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As properties of public dominion,
the Airport Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that properties of public dominion are
outside the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use
are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town roads, the
squares, streets, fountains, and public waters, the promenades, and public works of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or exclude from
public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public
place to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract
over a thing of which it could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, and
plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision of February 12, 1895,
which says: "Communal things that cannot be sold because they are by their very nature outside of commerce are those for
public use, such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They
are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties. While in case of war
or during an emergency, town plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also cease, and the town officials
should see to it that the town plazas should ever be kept open to the public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any
encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of
Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public use the Airport Lands and Buildings.
Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral lands," 27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may designate by
proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of the Philippines or of any of its
branches, or of the inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes
when the public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power sites, irrigation
systems, communal pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other
improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall be non-alienable and shall not
be subject to occupation, entry, sale, lease, or other disposition until again declared alienable under the provisions of this Act or
by proclamation of the President. (Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties remain properties of
public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their present status as properties of public dominion,
they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership
remains with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated in Section 14,
Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. (1) The President shall have the power to
reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is
not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation from public use, they
are properties of public dominion, owned by the Republic and outside the commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code
allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized by law to be conveyed,
the deed of conveyance shall be executed in behalf of the government by the following:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is
expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of any corporate
agency or instrumentality, by the executive head of the agency or instrumentality. (Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of
conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance. 28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air Transportation of the
Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. x x x x

The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if
any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey of the area transferred within one
year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion
thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the
Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and
other property, movable or immovable, belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to the
 Bureau of Air Transportation relating to airport works or air operations, including all equipment which are necessary for the operation of
crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and Transitory Provisions.
The Manila International Airport including the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby
abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or even stock since
MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and domestic air traffic, is
required to provide standards of airport accommodation and service comparable with the best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the current and future air
traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing high standards of accommodation
and service within the context of a financially viable operation, will best be achieved by a separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the Philippines is given
continuing authority to reorganize the National Government, which authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of
these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate
and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic.
No party claims any ownership rights over MIAA's assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or through any other mode
unless specifically approved by the President of the Philippines." This only means that the Republic retained the beneficial ownership of the
Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA
cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying MIAA any
consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or disposition of the Airport Lands and
Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section
234(a) provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or
charges of any kind on the National Government, its agencies and instrumentalities x x x." The real properties owned by the Republic are titled
either in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows
real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain
owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when title of
the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does
not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax
exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted
to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land
area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use
of such land area for a consideration to a taxable person and therefore such land area is subject to real estate tax. In Lung Center of the
Philippines v. Quezon City, the Court ruled:
 Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of 1991 withdrew the tax
exemption of "all persons, whether natural or juridical" upon the effectivity of the Code. Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are
hereby withdrawn upon effectivity of this Code. (Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government Code withdrew the tax
exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from realty tax cover not
just GOCCs, but all persons. To repeat, the provisions lay down the explicit proposition that the withdrawal of realty tax exemption
applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our laws, natural and juridical persons.
Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status whether MIAA is a juridical person or not.
The minority also insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical
persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units.
(Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like
the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the
saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property
owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local governments. The
minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities specifically enumerated as exempt in
Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under Republic Act No. 6938;
and (c) non-stock and non-profit hospitals and educational institutions. It would be belaboring the obvious why the MIAA does not fall within
any of the exempt entities under Section 193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory will result in gross
absurdities. It will make the national government, which itself is a juridical person, subject to tax by local governments since the national government
is not included in the enumeration of exempt entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not
only real estate tax, on the national government.

Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to any kind of local tax, and
not only real estate tax. Some of the national government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng
Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine Ports Authority,35 Cagayan de
Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from imposing any kind of
tax on national government instrumentalities. Section 133(o) does not distinguish between national government instrumentalities with or without
juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a
juridical person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the
specific provision of law prohibiting local governments from imposing any kind of tax on the national government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This means that unless the Local
Government Code grants an express authorization, local governments have no power to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments have no power to tax the national government, its agencies and instrumentalities. As an
exception to this rule, local governments may tax the national government, its agencies and instrumentalities only if the Local Government Code
expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the national government
subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government Code
provides:

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person.

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is when the government
gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and instrumentalities are subject to
any kind of tax by local governments. The exception to the exemption applies only to real estate tax and not to any other tax. The justification for the
exception to the exemption is that the real property, although owned by the Republic, is not devoted to public use or public service but devoted to the
private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later provisions prevail over
Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of construction, in case of conflict the
subsequent provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the general exemptions
attaching to instrumentalities under Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same
law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on the other. No one has
urged that there is such a conflict, much less has any one presenteda persuasive argument that there is such a conflict. The minority's assumption of
an irreconcilable conflict in the statutory provisions is an egregious error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to other provisions of
the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits the superiority of other
provisions of the Local Government Code that limit the exercise of the taxing power in Section 193. When a provision of law grants a power but
withholds such power on certain matters, there is no conflict between the grant of power and the withholding of power. The grantee of the power
simply cannot exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits the grant to local
governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states that the taxing powers of local
governments "shall not extend to the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no clearer
limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically prevails over Section 193
which grants local governments such taxing powers. By their very meaning and purpose, the "common limitations" on the taxing power prevail over
the grant or exercise of the taxing power. If the taxing power of local governments in Section 193 prevails over the limitations on such taxing power in
Section 133, then local governments can impose any kind of tax on the national government, its agencies and instrumentalities a gross absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise provided in the Local
Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This exception which is an
exception to the exemption of the Republic from real estate tax imposed by local governments refers to Section 234(a) of the Code. The exception
to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government, its agencies
or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled corporation" is not controlling.
The minority points out that Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are not controlling when it
provides:

SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a
different meaning:

xxxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a different meaning than
that defined in the Administrative Code. However, this does not automatically mean that the definition in the Administrative Code does not apply to
the Local Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x x of a particular statute shall
require a different meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code, the
definition in the Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative Code, however, expressly defines the phrase "government-owned or controlled
corporation." The inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled corporation"
applies to the Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major structural, functional and
procedural principles and rules of governance." Thus, the Administrative Code is the governing law defining the status and relationship of
government departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status and relationship
for a specific government unit or entity, the provisions of the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations organized under the
Corporation Code, the general incorporation law, and not to corporations created by special charters. The minority sees no reason why government
corporations with special charters should have a capital stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to those corporations
owned by the government or its instrumentalities which are created not by legislative enactment, but formed and organized under the
Corporation Code through registration with the Securities and Exchange Commission. In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full ownership is limited by its
charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also result in gross
absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish between one incorporated
under the Corporation Code or under a special charter. Where the law does not distinguish, courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as stock corporations. Prime examples
are the Land Bank of the Philippines and the Development Bank of the Philippines. The special charter 40 of the Land Bank of the Philippines
provides:

SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos, divided into seven hundred and eighty million
common shares with a par value of ten pesos each, which shall be fully subscribed by the Government, and one hundred and twenty
million preferred shares with a par value of ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-
seven and eighty-three of this Code. (Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five Billion Pesos to be divided into Fifty
Million common shares with par value of P100 per share. These shares are available for subscription by the National Government. Upon
the effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion
Five Hundred Million which shall be deemed paid for by the Government with the net asset values of the Bank remaining after the transfer
of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop Insurance
Corporation,42 Philippine International Trading Corporation,43 and the Philippine National Bank44 before it was reorganized as a stock corporation
under the Corporation Code. All these government-owned corporations organized under special charters as stock corporations are subject to real
estate tax on real properties owned by them. To rule that they are not government-owned or controlled corporations because they are not registered
with the Securities and Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting
them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in
Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled corporation must be established for the
common good. The second condition is that the government-owned or controlled corporation must meet the test of economic viability. Section 16,
Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and
subject to the test of economic viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these
entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create
government-owned or controlled corporations with special charters unless they are made to comply with the two conditions of common good and
economic viability. The test of economic viability applies only to government-owned or controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good meaning for economic
development purposes these government-owned or controlled corporations with special charters are usually organized as stock corporations just
like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of
economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its
citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These
instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing
essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers
provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special
charters corporations that perform economic or commercial activities, such entities known as "government-owned or controlled corporations"
must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or controlled
corporations, which derive their income to meet operating expenses solely from commercial transactions in competition with the private sector. The
intent of the Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive on their own in the market
place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this test, as
follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in
which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the government and what is always
invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion
of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which could have
been relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on future
enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. And
so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz,
the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good. 45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the Republic of the
Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in the interest of
the common good and subject to the test of economic viability." The addition includes the ideas that they must show capacity to function
efficiently in business and that they should not go into activities which the private sector can do better. Moreover, economic viability is more
than financial viability but also includes capability to make profit and generate benefits not quantifiable in financial terms.46 (Emphasis
supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services.
The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial objectives, must
meet the test of economic viability. These are the government-owned or controlled corporations that are usually organized under their special
charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned
or controlled corporations, along with government-owned or controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market place. MIAA does not
compete in the market place because there is no competing international airport operated by the private sector. MIAA performs an essential public
service as the primary domestic and international airport of the Philippines. The operation of an international airport requires the presence of
personnel from the following government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out those without visas or
travel documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;

3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious diseases into the
country;
 4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape of criminals, as well
as to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or leave Philippine
airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises such as runway and buildings for the government personnel, passengers, and airlines,
and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues principally from the
mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or
administrative fees47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code, which
provides:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled corporation. Without a change
in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code.
More importantly, as long as MIAA renders essential public services, it need not comply with the test of economic viability. Thus, MIAA is outside the
scope of the phrase "government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as merely "clarificatory or
illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of "government-owned or controlled corporations." The
Administrative Code defines what constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is
grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative
Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under Section
16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality
vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative
Code. As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government
Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government
Code. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the
national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are intended for public use,
and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax
under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of government
units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a government-owned or controlled
corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not
subject to "[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person"
as provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax.
Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of
Paraaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus
owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes public
airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is
no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government
Code. This Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27 September
2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real
estate tax imposed by the City of Paraaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the
portions that the Manila International Airport Authority has leased to private parties. We also declare VOID the assailed auction sale, and all its
effects, of the Airport Lands and Buildings of the Manila International Airport Authority.

No costs.

SO ORDERED.

2.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 58168 December 19, 1989

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-CORPUZ, assisted be her husband,

Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the late Genaro F.
Magsaysay respondents.

FERNAN, C.J.:

In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated July l3,
1981, 1 affirming that of the Court of First Instance of Zambales and Olongapo City which denied petitioners' motion to intervene in an annulment suit
filed by herein private respondent, and [2] its resolution dated September 7, 1981, denying their motion for reconsideration.

Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly denied their motion for intervention.

The facts are not controverted.

On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought
before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas
Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint, she alleged that in 1958, she and her husband
acquired, thru conjugal funds, a parcel of land with improvements, known as "Pequena Island", covered by TCT No. 3258; that after the death of her
husband, she discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired by her husband from his separate capital;" [b]
the registration of a Deed of Assignment dated June 25, 1976 purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT
No. 3258 was cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of Mortgage dated April 28, 1977 in the
amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the foregoing acts were void and done in an attempt to defraud the
conjugal partnership considering that the land is conjugal, her marital consent to the annotation on TCT No. 3258 was not obtained, the change
made by the Register of Deeds of the titleholders was effected without the approval of the Commissioner of Land Registration and that the late
Senator did not execute the purported Deed of Assignment or his consent thereto, if obtained, was secured by mistake, violence and intimidation.
She further alleged that the assignment in favor of SUBIC was without consideration and consequently null and void. She prayed that the Deed of
Assignment and the Deed of Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No. 22431 and to issue a new title in
her favor.

On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978, their brother
conveyed to them one-half (1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total
outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal
interest in the success of the suit with respect to SUBIC.

On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation
and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a
personality separate and distinct from its stockholders.
On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate court further
stated that whatever claims the petitioners have against the late Senator or against SUBIC for that matter can be ventilated in a separate
proceeding, such that with the denial of the motion for intervention, they are not left without any remedy or judicial relief under existing law.

Petitioners' motion for reconsideration was denied. Hence, the instant recourse.

Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a certain portion of his shareholdings to them as
evidenced by a Deed of Sale dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with an interest, protected by law, in the matter of
litigation.

Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853 (1927), 3petitioners strongly argue that their
ownership of 41.66% of the entire outstanding capital stock of SUBIC entitles them to a significant vote in the corporate affairs; that they are affected
by the action of the widow of their late brother for it concerns the only tangible asset of the corporation and that it appears that they are more vitally
interested in the outcome of the case than SUBIC.

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the respondent court's holding that petitioners herein have
no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings below. In the case of Batama Farmers'
Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to
intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest
against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or
an officer thereof ."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise qualified; and [b] consideration
must be given as to whether the adjudication of the rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may
be protected in a separate proceeding or not. Both requirements must concur as the first is not more important than the second. 5

The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of such direct and immediate
character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if persons not parties of the
action could be allowed to intervene, proceedings will become unnecessarily complicated, expensive and interminable. And this is not the policy of
the law. 6

The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and which would put the intervenor in a legal position
to litigate a fact alleged in the complaint, without the establishment of which plaintiff could not recover. 7

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral. At the very least,
their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the
properties and assets thereof on dissolution, after payment of the corporate debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any
legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal
sense the owners of corporate property, which is owned by the corporation as a distinct legal person. 8

Petitioners further contend that the availability of other remedies, as declared by the Court of appeals, is totally immaterial to the availability of the
remedy of intervention.

We cannot give credit to such averment. As earlier stated, that the movant's interest may be protected in a separate proceeding is a factor to be
considered in allowing or disallowing a motion for intervention. It is significant to note at this juncture that as per records, there are four pending
cases involving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122 before the CFI of Manila, Branch XXII, entitled
"Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.", involving the validity of the transfer by the late Genaro Magsaysay of one-half
of his shareholdings in Subic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v.
Panganiban, etc.; Concepcion Labrador, et al. Intervenors", seeking to annul the purported Deed of Assignment in favor of SUBIC and its annotation
at the back of TCT No. 3258 in the name of respondent's deceased husband; [3] SEC Case No. 001770, filed by respondent praying, among other
things that she be declared in her capacity as the surviving spouse and administratrix of the estate of Genaro Magsaysay as the sole subscriber and
stockholder of SUBIC. There, petitioners, by motion, sought to intervene. Their motion to reconsider the denial of their motion to intervene was
granted; [4] SP No. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to Section 5, Rule 86, Revised
Rules of Court. 9 Petitioners' interests are no doubt amply protected in these cases.

Neither do we lend credence to petitioners' argument that they are more interested in the outcome of the case than the corporation-assignee, owing
to the fact that the latter is willing to compromise with widow-respondent and since a compromise involves the giving of reciprocal concessions, the
only conceivable concession the corporation may give is a total or partial relinquishment of the corporate assets. 10

Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of litigation.

The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to intervene on the strength of the transfer of
shares allegedly executed by the late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was ever recorded, much
less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect third persons. The law on
corporations is explicit. Section 63 of the Corporation Code provides, thus: "No transfer, however, shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares transferred."
And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred from intervening inasmuch as their rights can be
ventilated and amply protected in another proceeding.

WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-31061 August 17, 1976

SULO NG BAYAN INC., plaintiff-appellant,

vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC,
and REGISTER OF DEEDS OF BULACAN, defendants-appellees.

Hill & Associates Law Offices for appellant.

Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.

Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.

Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government Corporate Counsel for appellee National Waterworks &
Sewerage Authority.

Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.:

The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an action in behalf of its individual members for the
recovery of certain parcels of land allegedly owned by said members; for the nullification of the transfer certificates of title issued in favor of
defendants appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's members as absolute owners of the property" and the
issuance of the corresponding certificate of title; and for damages.

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial
District, Valenzuela, Bulacan, against defendants-appellees to recover the ownership and possession of a large tract of land in San Jose del Monte,
Bulacan, containing an area of 27,982,250 square meters, more or less, registered under the Torrens System in the name of defendants-appellees'
predecessors-in-interest. 1 The complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing
under the laws of the Philippines, with its principal office and place of business at San Jose del Monte, Bulacan; that its membership is composed of
natural persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation, through themselves and their predecessors-
in-interest, had pioneered in the clearing of the fore-mentioned tract of land, cultivated the same since the Spanish regime and continuously
possessed the said property openly and public under concept of ownership adverse against the whole world; that defendant-appellee Gregorio
Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members of the plaintiff corporation fro their possession of the
aforementioned vast tract of land; that upon investigation conducted by the members and officers of plaintiff corporation, they found out for the first
time in the year 1961 that the land in question "had been either fraudelently or erroneously included, by direct or constructive fraud, in Original
Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and
devoid of legal efficacy due to the fact that "no original survey nor plan whatsoever" appears to have been submitted as a basis thereof and that the
Court of First Instance of Bulacan which issued the decree of registration did not acquire jurisdiction over the land registration case because no
notice of such proceeding was given to the members of the plaintiff corporation who were then in actual possession of said properties; that as a
consequence of the nullity of the original title, all subsequent titles derived therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of
Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio
Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of, the National Waterworks & Sewerage Authority (NWSA), Transfer
Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate of title in the name of Paradise Farms, Inc.,
are therefore void. Plaintiff-appellant consequently prayed (1) that Original Certificate of Title No. 466, as well as all transfer certificates of title issued
and derived therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said property and that the
corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the
damages therein specified.

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended complaint on the grounds that (1) the
complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda
Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee National Waterworks & Sewerage Authority did not file any motion to
dismiss. However, it pleaded in its answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and the barring of
such action by prescription and laches.

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying that the case be transferred to
another branch of the Court of First Instance sitting at Malolos, Bulacan, According to defendants-appellees, they were not furnished a copy of said
motion, hence, on October 14, 1966, the lower court issued an Order requiring plaintiff-appellant to furnish the appellees copy of said motion, hence,
on October 14, 1966, defendant-appellant's motion dated October 7, 1966 and, consequently, prayed that the said motion be denied for lack of
notice and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc. filed,
on December 2, 1966, a manifestation information the court that it also did not receive a copy of the afore-mentioned of appellant. On January 24,
1967, the trial court issued an Order dismissing the amended complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the court had no jurisdiction to issue the
Order of dismissal, because its request for the transfer of the case from the Valenzuela Branch of the Court of First Instance to the Malolos Branch of
the said court has been approved by the Department of Justice; that the complaint states a sufficient cause of action because the subject matter of
the controversy in one of common interest to the members of the corporation who are so numerous that the present complaint should be treated as a
class suit; and that the action is not barred by the statute of limitations because (a) an action for the reconveyance of property registered through
fraud does not prescribe, and (b) an action to impugn a void judgment may be brought any time. This motion was denied by the trial court in its Order
dated February 22, 1967. From the afore-mentioned Order of dismissal and the Order denying its motion for reconsideration, plaintiff-appellant
appealed to the Court of Appeals.

On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but only questions of law and
jurisdiction, certified this case to this Court for resolution of the legal issues involved in the controversy.

Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction in dismissing the amended complaint
when the Secretary of Justice had already approved the transfer of the case to any one of the two branches of the Court of First Instance of Malolos,
Bulacan.

Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different branches of the same Court of
First Instance. Jurisdiction implies the power of the court to decide a case, while venue the place of action. There is no question that respondent
court has jurisdiction over the case. The venue of actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of
Court. The laying of venue is not left to the caprice of plaintiff, but must be in accordance with the aforesaid provision of the rules. 2The mere fact that
a request for the transfer of a case to another branch of the same court has been approved by the Secretary of Justice does not divest the court
originally taking cognizance thereof of its jurisdiction, much less does it change the venue of the action. As correctly observed by the trial court, the
indorsement of the Undersecretary of Justice did not order the transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but
only "authorized" it for the reason given by plaintiff's counsel that the transfer would be convenient for the parties. The trial court is not without power
to either grant or deny the motion, especially in the light of a strong opposition thereto filed by the defendant. We hold that the court a quo acted
within its authority in denying the motion for the transfer the case to Malolos notwithstanding the authorization" of the same by the Secretary of
Justice.

II

Let us now consider the substantive aspect of the Order of dismissal.

In dismissing the amended complaint, the court a quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the lack of personality of plaintiff to file the instant
action. Essentially, the term 'cause of action' is composed of two elements: (1) the right of the plaintiff and (2) the violation of
such right by the defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules require that every action must be prosecuted
and defended in the name of the real party in interest and that all persons having an interest in the subject of the action and in
obtaining the relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights
were alleged to have been violated by being deprived and dispossessed of their land are the members of the corporation and not
the corporation itself. The corporation has a separate. and distinct personality from its members, and this is not a mere
technicality but a matter of substantive law. There is no allegation that the members have assigned their rights to the corporation
or any showing that the corporation has in any way or manner succeeded to such rights. The corporation evidently did not have
any rights violated by the defendants for which it could seek redress. Even if the Court should find against the defendants,
therefore, the plaintiff corporation would not be entitled to the reliefs prayed for, which are recoveries of ownership and
possession of the land, issuance of the corresponding title in its name, and payment of damages. Neither can such reliefs be
awarded to the members allegedly deprived of their land, since they are not parties to the suit. It appearing clearly that the action
has not been filed in the names of the real parties in interest, the complaint must be dismissed on the ground of lack of cause of
action. 3

Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the amended complaint.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and
apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its
stockholders or members. 4 The property of the corporation is its property and not that of the stockholders, as owners, although they have equities in
it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. 5 Conversely, a
corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the case of a one-
man corporation. 6 The mere fact that one is president of a corporation does not render the property which he owns or possesses the property of the
corporation, since the president, as individual, and the corporation are separate similarities. 7 Similarly, stockholders in a corporation engaged in
buying and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the corporation
upon surrender of their stock certificates were considered not to have such legal or equitable title or interest in the land, as would support a suit for
title, especially against parties other than the corporation. 8

It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal
fiction introduced for the purpose of convenience and to subserve the ends of justice. 9 This separate personality of the corporation may be
disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or
where necessary to achieve equity. 10

Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, ... the law will regard the
corporation as an association of persons, or in the case of two corporations, merge them into one, the one being merely regarded as part or
instrumentality of the other. 11 The same is true where a corporation is a dummy and serves no business purpose and is intended only as a blind, or
an alter ego or business conduit for the sole benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the corporation has
been applied by the courts in those cases when the corporate entity is used for the evasion of taxes 13 or when the veil of corporate fiction is used to
confuse legitimate issue of employer-employee relationship, 14 or when necessary for the protection of creditors, in which case the veil of corporate
fiction may be pierced and the funds of the corporation may be garnished to satisfy the debts of a principal stockholder. 15 The aforecited principle is
resorted to by the courts as a measure protection for third parties to prevent fraud, illegality or injustice. 16

It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in question to the plaintiff
corporation. Absent any showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action for and in
behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal
capacities.

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law upon a person. 17 Evidently, there
can be no wrong without a corresponding right, and no breach of duty by one person without a corresponding right belonging to some other
person. 18 Thus, the essential elements of a cause of action are legal right of the plaintiff, correlative obligation of the defendant, an act or omission
of the defendant in violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it
does not have any interest in the subject matter of the case which is material and, direct so as to entitle it to file the suit as a real party in interest.

III

Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section 12 of Rule 3 of the Revised Rules of
Court.

In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the controversy is one of common or
general interest to many persons; and (2) that the parties are so numerous that it is impracticable to bring them all before the court. 20

Under the first requisite, the person who sues must have an interest in the controversy, common with those for whom he sues, and there must be
that unity of interest between him and all such other persons which would entitle them to maintain the action if suit was brought by them jointly. 21

As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott v. Donald 22 thus:

The interest that will allow parties to join in a bill of complaint, or that will enable the court to dispense with the presence of all the
parties, when numerous, except a determinate number, is not only an interest in the question, but one in common in the subject
Matter of the suit; ... a community of interest growing out of the nature and condition of the right in dispute; for, although there
may not be any privity between the numerous parties, there is a common title out of which the question arises, and which lies at
the foundation of the proceedings ... [here] the only matter in common among the plaintiffs, or between them and the defendants,
is an interest in the Question involved which alone cannot lay a foundation for the joinder of parties. There is scarcely a suit at
law, or in equity which settles a Principle or applies a principle to a given state of facts, or in which a general statute is
interpreted, that does not involved a Question in which other parties are interested. ... (Emphasis supplied )

Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject matter of the controversy, and
cannot, therefore, represent its members or stockholders who claim to own in their individual capacities ownership of the said property. Moreover, as
correctly stated by the appellees, a class suit does not lie in actions for the recovery of property where several persons claim Partnership of their
respective portions of the property, as each one could alleged and prove his respective right in a different way for each portion of the land, so that
they cannot all be held to have Identical title through acquisition prescription. 23

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot be considered as a class suit, it
would be unnecessary and an Idle exercise for this Court to resolve the remaining issue of whether or not the plaintiffs action for reconveyance of
real property based upon constructive or implied trust had already prescribed.

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC
G.R. No. 75885 May 27, 1987

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

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

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

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

NARVASA, J.:

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

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

a. The Basic Sequestration Order

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

RE: SEQUESTRATION ORDER

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

1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and
Mariveles Shipyard)

2. Baseco Quarry

3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc.

5. Romson Realty, Inc.

6. Trident Management Co.

7. New Trident Management

8. Bay Transport

9. And all affiliate companies of Alfredo "Bejo" Romualdez

You are hereby ordered:

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

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

3. To report to the Commission on Good Government periodically.

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

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

1. Stock Transfer Book

2. Legal documents, such as:

2.1. Articles of Incorporation

2.2. By-Laws

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

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

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

2.6. Existing contracts with suppliers/contractors/others.

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

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

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

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

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

8. Updated schedule of Accounts Receivable and Accounts Payable.

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

10. Schedule of company investments and placements. 2

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

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

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

(2) Change of Mode of Payment of Entry Charges

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

d. Aborted Contract for Improvement of Wharf at Engineer Island

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

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

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

f. Order to Dispose of Scrap, etc.

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

g. The TAKEOVER Order

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

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

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

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

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

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

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

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

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

h. Termination of Services of BASECO Officers

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

2. Petitioner's Plea and Postulates

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

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

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on
the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO
executives. 11
 a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders

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

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

b. Re Order to Produce Documents

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4. The Governing Law

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

b. Executive Order No. 1

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

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

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

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

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

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

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

c. Executive Order No. 2

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

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

2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of
stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other kinds
of real and personal properties in the Philippines and in various countries of the world." 31

Upon these premises, the President-

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

3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or

concealing such assets and properties or from assisting or taking part in their transfer,
encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;"
and

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

d. Executive Order No. 14

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

5. Contemplated Situations

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

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

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

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

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

2) that certain "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos. 41

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

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

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

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

* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary

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

a. Need of Evidentiary Substantiation in Proper Suit

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

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

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

7. Provisional Remedies Prescribed by Law

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

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

a. Sequestration

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

b. "Freeze Order"

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

c. Provisional Takeover

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

d. No Divestment of Title Over Property Seized

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

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

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

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

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

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

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

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

f. Kinship to Attachment Receivership

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

g. Remedies, Non-Judicial

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

h. Orders May Issue Ex Parte

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

8. Requisites for Validity

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

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

a. Prima Facie Evidence as Basis for Orders

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

b. Opportunity to Contest

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

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

SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good cause
shown, the Commission may lift the writ or order unconditionally or subject to such conditions as it
may deem necessary, taking into consideration the evidence and the circumstance of the case. The
resolution of the commission may be appealed by the party concerned to the Office of the President
of the Philippines within fifteen (15) days from receipt thereof.

Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly imposed
by some rule or regulation as a condition to warrant the sequestration or freezing of property contemplated in the
executive orders in question, it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails
and official acts which are devoid of rational basis in fact or law, or are whimsical and capricious, are condemned
and struck down. 66

9. Constitutional Sanction of Remedies

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

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

10. PCGG not a "Judge"; General Functions

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

11. Facts Preclude Grant of Relief to Petitioner

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

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

12. Organization and Stock Distribution of BASECO

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

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

1. Jose A. Rojas 1,248

shares

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

3. Emilio T. Yap 2,508

shares
 4. Jose 1,248
Fernandez shares

5. Jose Francisco 128 shares

6. Manuel S. 96 shares
Mendoza

7. Anthony P. Lee 1,248

shares

8. Hilario M. Ruiz 32 shares

9. Constante L. 8 shares
Farias

10. Fidelity 65,882

Management, Inc. shares

11. Trident 7,412

Management shares

12. United Phil. 1,240

Lines shares

13. Renato M. 8 shares

Tanseco

14. Fidel Ventura 8 shares

15. Metro Bay 136,370

Drydock shares

16. Manuel Jacela 1 share

17. Jonathan G. 1 share

Lu

18. Jose J. 1 share

Tanchanco

19. Dioscoro 128 shares

Papa

20. Edward T. 4 shares

Marcelo

TOTAL 218,819
shares.

13 Acquisition of NASSCO by BASECO

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

14. Subsequent Reduction of Price; Intervention of Marcos

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

15. Acquisition of 300 Hectares from Export Processing Zone Authority

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

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

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

17. Loans Obtained

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

18. Reports to President Marcos

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

a. BASECO President's Report

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

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

b. Romualdez' Report

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

MEMORANDUM:

FOR : The President

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

FROM: Capt. A.T. Romualdez.

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

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

* * (that) their replacements (be effected) so we can register their names in the stock book prior to
the implementation of your instructions to pass a board resolution to legalize the transfers under
SEC regulations;

2. By getting their replacements, the families cannot question us later on; and

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

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

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

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

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

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

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

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

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

8. List of BASECO's fixed assets;

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

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

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

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

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

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

19. Marcos' Response to Reports

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

a. Instructions re "Spin-Off"

Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine
National Oil Company and Chairman Constante Farias of the National Development Company, directing them "to
participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component
of BASECO along the following guidelines:
 a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of
P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to be
converted to equity of the said new corporation, to wit:

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

2. LUSTEVECO P32,538,000 (Reparation)

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

For immediate compliance. 92

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

b. Letter of Instructions No. 670

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

* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC

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

xxx xxx xxx

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

20. Evidence of Marcos'

Ownership of BASECO

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

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

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

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

More specifically, found in Malacanang (and now in the custody of the PCGG) were:
 1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which
supposedly owns as aforesaid 65,882 shares of BASECO stock;

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

3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. which
allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and

4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO
stock; that is, all but 5 % all endorsed in blank. 99

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

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

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

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

21. Facts Justify Issuance of Sequestration and Takeover Orders

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

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

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

22. Executive Orders Not a Bill of Attainder

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

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

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

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

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

Relevant jurisprudence is also cited by the Solicitor General. 114

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

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

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

xxx xxx xxx

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

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

24. Scope and Extent of Powers of the PCGG

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

a. PCGG May Not Exercise Acts of Ownership

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

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

b. PCGG Has Only Powers of Administration

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

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

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

d. Voting of Sequestered Stock; Conditions Therefor

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

In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in
their stead because the evidence showed prima facie that the former were just tools of President Marcos and were
no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28,
1986; 118 this Court declared that
 Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents'
calling and holding of a stockholders' meeting for the election of directors as authorized by the
Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this
case, the government can, through its designated directors, properly exercise control and
management over what appear to be properties and assets owned and belonging to the government
itself and over which the persons who appear in this case on behalf of BASECO have failed to show
any right or even any shareholding in said corporation.

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

25. No Sufficient Showing of Other Irregularities

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

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

FIRST DIVISION

[G.R. No. 125986. January 28, 1999]

LUXURIA HOMES, INC., and/or AIDA M. POSADAS, petitioners, vs. HONORABLE COURT OF APPEALS, JAMES BUILDER
CONSTRUCTION and/or JAIME T. BRAVO, respondents.

DECISION
MARTINEZ, J.:

This petition for review assails the decision of the respondent Court of Appeals dated March 15, 1996, [1] which affirmed with
modification the judgment of default rendered by the Regional Trial Court of Muntinlupa, Branch 276, in Civil Case No. 92-2592
granting all the reliefs prayed for in the complaint of private respondent James Builder Construction and/or Jaime T. Bravo.
As culled from the record, the facts are as follows:
Petitioner Aida M. Posadas and her two (2) minor children co-owned a 1.6 hectare property in Sucat, Muntinlupa, which was
occupied by squatters. Petitioner Posadas entered into negotiations with private respondent Jaime T. Bravo regarding the development
of the said property into a residential subdivision. On May 3, 1989, she authorized private respondent to negotiate with the squatters to
leave the said property. With a written authorization, respondent Bravo buckled down to work and started negotiations with the
squatters.
Meanwhile, some seven (7) months later, on December 11, 1989, petitioner Posadas and her two (2) children, through a Deed of
Assignment, assigned the said property to petitioner Luxuria Homes, Inc., purportedly for organizational and tax avoidance
purposes. Respondent Bravo signed as one of the witnesses to the execution of the Deed of Assignment and the Articles of
Incorporation of petitioner Luxuria Homes, Inc.
Then sometime in 1992, the harmonious and congenial relationship of petitioner Posadas and respondent Bravo turned sour
when the former supposedly could not accept the management contracts to develop the 1.6 hectare property into a residential
subdivision, the latter was proposing. In retaliation, respondent Bravo demanded payment for services rendered in connection with the
development of the land. In his statement of account dated 21 August 1991[2] respondent demanded the payment of P1,708,489.00 for
various services rendered, i.e., relocation of squatters, preparation of the architectural design and site development plan, survey and
fencing.
Petitioner Posadas refused to pay the amount demanded. Thus, in September 1992, private respondents James Builder
Construction and Jaime T. Bravo instituted a complaint for specific performance before the trial court against petitioners Posadas and
Luxuria Homes, Inc. Private respondents alleged therein that petitioner Posadas asked them to clear the subject parcel of land of
squatters for a fee of P1,100,000.00 for which they were partially paid the amount of P461,511.50, leaving a balance
of P638,488.50. They were also supposedly asked to prepare a site development plan and an architectural design for a contract price
of P450,000.00 for which they were partially paid the amount of P25,000.00, leaving a balance of P425,000.00. And in anticipation of
the signing of the land development contract, they had to construct a bunkhouse and warehouse on the property which amounted
to P300,000.00, and a hollow blocks factory for P60,000.00. Private respondents also claimed that petitioner Posadas agreed that
private respondents will develop the land into a first class subdivision thru a management contract and that petitioner Posadas is
unjustly refusing to comply with her obligation to finalize the said management contract.
The prayer in the complaint of the private respondents before the trial court reads as follows:

WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court that after hearing/trial judgment be rendered
ordering defendant to:

a) Comply with its obligation to deliver/finalize Management Contract of its land in Sucat, Muntinlupa, Metro Manila and to pay plaintiff
its balance in the amount of P1,708,489.00;

b) Pay plaintiff moral and exemplary damages in the amount of P500,000.00;

c) Pay plaintiff actual damages in the amount of P500,000.00 (Bunkhouse/warehouse P300,000.00, Hollow-block factory P60,000.00,
lumber, cement, etc., P120,000.00, guard P20,000.00);

d) Pay plaintiff attorneys fee of P50,000 plus P700 per appearance in court and 5% of that which may be awarded by the court to
plaintiff re its monetary claims;

e) Pay cost of this suit.[3]

On September 27, 1993, the trial court declared petitioner Posadas in default and allowed the private respondents to present their
evidence ex-parte. On March 8, 1994, it ordered petitioner Posadas, jointly and in solidum with petitioner Luxuria Homes, Inc., to pay
private respondents as follows:

1. x x x the balance of the payment for the various services performed by Plaintiff with respect to the land covered by TCT NO. 167895
previously No. 158290 in the total amount of P1,708,489.00.

2. x x x actual damages incurred for the construction of the warehouses/bunks, and for the materials used in the total sum
of P1,500,000.00.

3. Moral and exemplary damages of P500,000.00.

4. Attorneys fee of P50,000.00.

5. And cost of this proceedings.

Defendant Aida Posadas as the Representative of the Corporation Luxuria Homes, Incorporated, is further directed to execute the
management contract she committed to do, also in consideration of the various undertakings that Plaintiff rendered for her.[4]

Aggrieved by the aforecited decision, petitioners appealed to respondent Court of Appeals, which, as aforestated, affirmed with
modification the decision of the trial court. The appellate court deleted the award of moral damages on the ground that respondent
James Builder Construction is a corporation and hence could not experience physical suffering and mental anguish. It also reduced the
award of exemplary damages. The dispositive portion of the decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with the modification that the award of moral damages is ordered
deleted and the award of exemplary damages to the plaintiffs-appellee should only be in the amount of FIFTY THOUSAND
(P50,000.00) PESOS.[5]

Petitioners motion for reconsideration was denied, prompting the filing of this petition for review before this Court.
On January 15, 1997, the Third Division of this Court denied due course to this petition for failing to show convincingly any
reversible error on the part of the Court of Appeals. This Court however deleted the grant of exemplary damages and attorneys
fees. The Court also reduced the trial courts award of actual damages from P1,500,000.00 to P500,000.00 reasoning that the
grant should not exceed the amount prayed for in the complaint. In the prayer in the complaint respondents asked for actual damages
in the amount of P500,000.00 only.
Still feeling aggrieved with the resolution of this Court, petitioners filed a motion for reconsideration. On March 17, 1997, this Court
found merit in the petitioners motion for reconsideration and reinstated this petition for review.
From their petition for review and motion for reconsideration before this Court, we now synthesize the issues as follows:
1. Were private respondents able to present ex-parte sufficient evidence to substantiate the allegations in their complaint
and entitle them to their prayers?
2. Can petitioner Luxuria Homes, Inc., be held liable to private respondents for the transactions supposedly entered into
between petitioner Posadas and private respondents?
 3. Can petitioners be compelled to enter into a management contract with private respondents?
Petitioners who were declared in default assert that the private respondents who presented their evidence ex-parte nonetheless
utterly failed to substantiate the allegations in their complaint and as such cannot be entitled to the reliefs prayed for.
A perusal of the record shows that petitioner Posadas contracted respondents Bravo to render various services for the initial
development of the property as shown by vouchers evidencing payments made by petitioner Posadas to respondents Bravo for
squatter relocation, architectural design, survey and fencing.
Respondents prepared the architectural design, site development plan and survey in connection with petitioner Posadas
application with the Housing and Land Regulatory Board (HLRUB) for the issuance of the Development Permit, Preliminary Approval
and Locational Clearance.[6] Petitioner benefited from said services as the Development Permit and the Locational Clearance were
eventually issued by the HLURB in her favor. Petitioner Posadas is therefore liable to pay for these services rendered by
respondents. The contract price for the survey of the land is P140,000.00. Petitioner made partial payments totaling P130,000.00
leaving a payable balance of P10,000.00.
In his testimony,[7] he alleged that the agreed price for the preparation of the site development plan is P500,000.00 and that the
preparation of the architectural designs is for P450,000, or a total of P950,000.00 for the two contracts. In his complaint however,
respondent Bravo alleged that he was asked to prepare the site development plan and the architectural designs x x x for a contract
price of P450,000.00 x x x.[8] The discrepancy or inconsistency was never reconciled and clarified.
We reiterate that we cannot award an amount higher than what was claimed in the complaint. Consequently for the preparation of
both the architectural design and site development plan, respondent is entitled to the amount of P450,000.00 less partial payments
made in the amount of P25,000.00. In Policarpio v. RTC of Quezon City,[9] it was held that a court is bereft of jurisdiction to award, in
a judgment by default, a relief other than that specifically prayed for in the complaint.
As regards the contracts for the ejectment of squatters and fencing, we believe however that respondents failed to show proof
that they actually fulfilled their commitments therein. Aside from the bare testimony of respondent Bravo, no other evidence was
presented to show that all the squatter were ejected from the property. Respondent Bravo failed to show how many shanties or
structures were actually occupying the property before he entered the same, to serve as basis for concluding whether the task was
finished or not. His testimony alone that he successfully negotiated for the ejectment of all the squatters from the property will not
suffice.
Likewise, in the case of fencing, there is no proof that it was accomplished as alleged. Respondent Bravo claims that he finished
sixty percent (60%) of the fencing project but he failed to present evidence showing the area sought to be fenced and the actual area
fenced by him. We therefore have no basis to determining the veracity respondents allegations. We cannot assume that the said
services rendered for it will be unfair to require petitioner to pay the full amount claimed in case the respondents obligations were not
completely fulfilled.
For respondents failure to show proof of accomplishment of the aforesaid services, their claims cannot be granted. In P.T. Cerna
Corp. v. Court of Appeals,[10] we ruled that in civil cases, the burden of proof rests upon the party who, as determined by the
pleadings or the nature of the case, asserts the affirmative of an issue. In this case the burden lies on the complainant, who is duty
bound to prove the allegations in the complaint. As this Court has held, he who alleges a fact has the burden of proving it and A MERE
ALLEGATION IS NOT EVIDENCE.
And the rules do not change even if the defendant is declared in default. In the leading case of Lopez v. Mendezona,[11] this
Court ruled that after entry of judgment in default against a defendant who has neither appeared nor answered, and before final
judgment in favor of the plaintiff, the latter must establish by competent evidence all the material allegations of his complaint upon
which he bases his prayer for relief. In De los Santos v. De la Cruz[12] this Court declared that a judgment by default against a
defendant does not imply a waiver of rights except that of being heard and of presenting evidence in his favor. It does not imply
admission by the defendant of the facts and causes of action of the plaintiff, because the codal section requires the latter to adduce his
evidence in support of his allegations as an indispensable condition before final judgment could be given in his favor. Nor could it be
interpreted as an admission by the defendant that the plaintiffs causes of action finds support in the law or that the latter is entitled to
the relief prayed for.
We explained the rule in judgments by default in Pascua v. Florendo,[13] where we said that nowhere is it stated that the
complainants are automatically entitled to the relief prayed for, once the defendants are declared in default. Favorable relief can be
granted only after the court has ascertained that the evidence offered and the facts proven by the presenting party warrant the grant of
the same.Otherwise it would be meaningless to require presentation of evidence if everytime the other party is declared in default, a
decision would automatically be rendered in favor of the non-defaulting party and exactly according to the tenor of his prayer. In Lim
Tanhu v. Ramolete[14] we elaborated and said that a defaulted defendant is not actually thrown out of court. The rules see to it that any
judgment against him must be in accordance with law. The evidence to support the plaintiffs cause is, of course, presented in his
absence, but the court is not supposed to admit that which is basically incompetent. Although the defendant would not be in a position
to object, elementary justice requires that only legal evidence should be considered against him. If the evidence presented should not
be sufficient to justify a judgment for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should be
justifiable, it cannot exceed the amount or be different in kind from what is prayed for in the complaint.
The prayer for actual damages in the amount of P500,000.00, supposedly for the bunkhouse/warehouse, hollow-block factory,
lumber, cement, guard, etc., which the trial court granted and even increased to P1,500,000.00, and which this Court would have rightly
reduced to the amount prayed for in the complaint, was not established, as shown upon further review of the record. No receipts or
vouchers were presented by private respondents to show that they actually spent the amount. In Salas v. Court of Appeals,[15] we
said that the burden of proof of the damages suffered is on the party claiming the same. It his duty to present evidence to support his
claim for actual damages. If he failed to do so, he has only himself to blame if no award for actual damages is handed down.
 In fine, as we declared in PNOC Shipping & Transport Corp. v. Court of Appeals,[16] basic is the rule that to recover actual
damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty,
premised upon competent proof or best evidence obtainable of the actual amount thereof.
We go to the second issue of whether Luxuria Homes, Inc., was a party to the transactions entered into by petitioner Posadas and
private respondents and thus could be held jointly and severally with petitioner Posadas. Private respondents contend that petitioner
Posadas surreptitiously formed Luxuria Homes, Inc., and transferred the subject parcel of land to it to evade payment and defraud
creditors, including private respondents. This allegation does not find support in the evidence on record.
On the contrary we hold that respondents Court of Appeals committed a reversible error when it upheld the factual finding of the
trial court that petitioners liability was aggravated by the fact that Luxuria Homes, Inc., was formed by petitioner Posadas after demand
for payment had been made, evidently for her to evade payment of her obligation, thereby showing that the transfer of her property to
Luxuria Homes, Inc., was in fraud of creditors.
We easily glean from the record that private respondents sent demand letters on 21 August 1991 and 14 September 1991, or
more than a year and a half after the execution of the Deed of Assignment on 11 December 1989, and the issuance of the Articles of
Incorporation of petitioner Luxuria Homes on 26 January 1990. And, the transfer was made at the time the relationship between
petitioner Posadas and private respondents was supposedly very pleasant. In fact the Deed of Assignment dated 11 December 1989
and the Articles of Incorporation of Luxuria Homes, Inc., issued 26 January 1990 were both signed by respondent Bravo himself as
witness. It cannot be said then that the incorporation of petitioner Luxuria Homes and the eventual transfer of the subject property to it
were in fraud of private respondent as such were done with the full knowledge of respondent Bravo himself.
Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc., as erroneously stated by the lower
court. The Articles of Incorporation of petitioner Luxuria Homes, Inc., clearly show that petitioner Posadas owns approximately 33%
only of the capital stock. Hence petitioner Posadas cannot be considered as an alter ego of petitioner Luxuria Homes, Inc.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It
cannot be presumed. This is elementary. Thus in Bayer-Roxas v. Court of Appeals,[17] we said that the separate personality of the
corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or
where necessary for the protection of the creditors. Accordingly in Del Rosario v. NLRC,[18] where the Philsa International Placement
and Services Corp. was organized and registered with the POEA in 1981, several years before the complainant was filed a case in
1985, we held that this cannot imply fraud.
Obviously in the instant case, private respondents failed to show proof that petitioner Posadas acted in bad faith. Consequently
since private respondents failed to show that petitioner Luxuria Homes, Inc., was a party to any of the supposed transactions, not even
to the agreement to negotiate with and relocate the squatters, it cannot be held liable, nay jointly and in solidum, to pay private
respondents. In this case since it was petitioner Aida M. Posadas who contracted respondent Bravo to render the subject services, only
she is liable to pay the amounts adjudged herein.
We now resolved the third and final issue. Private respondents urge the court to compel petitioners to execute a management
contract with them on the basis of the authorization letter dated May 3, 1989.The full text of Exh D reads:

I hereby certify that we have duly authorized the bearer, Engineer Bravo to negotiate, in our behalf, the ejectment of squatters from our
property of 1.6 hectares, more or less, in Sucat, Muntinlupa. This authority is extended to him as the representatives of the Managers,
under our agreement for them to undertake the development of said area and the construction of housing units intended to convert the
land into a first class subdivision.

The aforecited document is nothing more than a to-whom-it-may-concern authorization letter to negotiate with the
squatters. Although it appears that there was an agreement for the development of the area, there is no showing that same was never
perfected and finalized. Private respondents presented in evidence only drafts of a proposed management contract with petitioners
handwritten marginal notes but the management contract was not put in its final form. The reason why there was no final uncorrected
draft was because the parties could not agree on the stipulations of said contract, which even the private respondents admitted as
found by the trial court.[19] As a consequence the management drafts submitted by the private respondents should at best be
considered as mere unaccepted offers. We find no cogent reason, considering that the parties no longer are in a harmonious
relationship, for the execution of a contract to develop a subdivision.
It is fundamental that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent
of the parties. To compel petitioner Posadas, whether as representatives of petitioners Luxuria Homes or in her personal capacity, to
execute a management contract under the terms and conditions of private respondents would be to violate the principle
of consensuality of contracts.In Philippine National bank v. Court of Appeals,[20] we held that if the assent is wanting on the part of
one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind. In ordering
petitioner Posadas to execute a management contract with private respondents, the trial court in effect is putting her under duress.
The parties are bound to fulfill the stipulations in a contract only upon its perfection. At anytime prior to the perfection of a
contract, unaccepted offers and proposals remain as such and cannot be considered as binding commitments; hence not demandable.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision dated March 15, 1996, of respondent Honorable
Court of Appeals and its Resolution dated August 12, 1996, are MODIFIED ordering PETITIONER AIDA M. POSADAS to pay
PRIVATE RESPONDENTS the amount of P435,000.00 as balance for the preparation of the architectural design, site development
plan and survey. All other claims of respondents are hereby DENIED for lack of merit.
SO ORDERED
6
FIRST DIVISION

[G.R. No. 108734. May 29, 1996]

CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe,
Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogello Salut,
Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.

DECISION
HERMOSISIMA, JR., J.:

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another
corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction
or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in
case of two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporations subsidiary liability for damages, the corporation may not be heard
to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of
discretion when it issued a break-open order to the sheriff to be enforced against personal property found in the premises of petitioners sister
company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in
the construction business. Private respondents were employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, effective
on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired
had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination of private respondents employment, the project in which
they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the
functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime
pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to reinstate private respondents and to pay them back wages
equivalent to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the
ground that the said decision had already become final and executory.2
On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents backwages amounted to
P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The
writ was partially satisfied through garnishment of sums from petitioners debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount
of P81,385.34. Said amount was turned over to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of
P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on
duty but the service was refused on the ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989:

1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon.4

The said special sheriff recommended that a break-open order be issued to enable him to enter petitioners premises so that he could proceed
with the public auction sale of the aforesaid personal properties on November 7, 1989.
 On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be
levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.
On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and petitioner corporation
were owned by the same incorporator! stockholders. They also alleged that petitioner temporarily suspended its business operations in order to
evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner
and HPPI may suffer because of the issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated May 15,
1987, submitted by petitioner to the Securities and Exchange Commission (SEC) and the General Information Sheet, dated May 15, 1987, submitted
by HPPI to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner1 revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

HPPI P6,999,500.00

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

Elisa C. Lim 100,000.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member

Elisa C. Lim Member

Teodulo R. Dino Member

Virgilio O. Casino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa 0. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road

Valenzuela, Metro Manila.5

On the other hand, the General Information Sheet of HPPI revealed the following:

1. Breakdown of Subscribed Capital

Name of Stockholder Amount Subscribed

Antonio W. Lim P400,000.00

Elisa C. Lim 57,700.00

AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors

Antonio W. Lim Chairman

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Virgilio O. Casino Member

Teodulo R. Dino Member

3. Corporate Officers

Antonio W. Lim President

Dennis S. Cuyegkeng Assistant to the President

Elisa O. Lim Treasurer

Virgilio O. Casino Corporate Secretary

4. Principal Office

355 Maysan Road, Valenzuela, Metro Manila.6

On February 1, 1990, HPPI filed an Opposition to private respondents motion for issuance of a break-open order, contending that HPPI is a
corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of
businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a break-open
order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already
levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-party claim
on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the
absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the
manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioners construction business. Hence, it is
of no consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and subscribers.7
We find petitioners contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected.8 But, this separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice.9 So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat the labor laws, 10 this separate personality of the corporation may be disregarded or the veil of
corporate fiction pierced.11 This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation.12
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No
hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine
of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.13

 The SEC en banc explained the instrumentality rule which the courts have applied in disregarding the separate juridical personality of
corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other,
the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not majority or even complete
stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time
the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint
is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect
to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter ego doctrine, the courts are
concerned with reality and not form, with how the corporation operated and the individual defendants relationship to that operation. 14

Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely one of
fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet
with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On
the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan
Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casino as the corporate secretary of both corporations. It would also not be amiss to note
that both corporations had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers.

From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant shared the same address
and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of respondents.16

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages and to bar their
reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to
avoid the financial liability that already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations17 where we had the occasion to rule:

Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the
Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not
disputed by petitioner. it is very clear that the latter corporation was a continuation and successor of the first entity x x x. Both predecessors and
successor were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same
business. This avoiding-the-liability scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation
(the second corporation) was owned by respondent x x x Claparols himself, and all the assets of the dissolved Claparols Steel and Nail Plant were
turned over to the emerging Claparols Steel Corporation.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and
should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no
other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in
consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:

Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject
of execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order.

Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner and the
third-party claimant were given the opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial evidence are
binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion. 18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are
AFFIRMED.
SO ORDERED.
7
SECOND DIVISION

[G.R. No. 100812. June 25, 1999]

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA
MANUEL, respondents.

DECISION
QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision[1] of the Court of Appeals in C.A. G.R. CV
No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this petition
are as follows:
On January 23, 1985, petitioner filed a complaint[2] against private respondents to recover three thousand four hundred twelve and six
centavos (P3,412.06), representing the balance of the jeep body purchased by the Manuels from petitioner; an additional sum of twenty thousand
four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and six thousand pesos
(P6,000.00) for cost of suit and attorneys fees.[3] To the original balance on the price of jeep body were added the costs of repair.[4] In their answer,
private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which
was not paid by the incorporators, directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner in
regard to the petitioners claim for money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991, the
Court of Appeals sustained the trial courts decision.[5] Hence, the present petition.
For our review in particular is the propriety of the permissive counterclaim which private respondents filed together with their answer to
petitioners complaint for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was petitioners
Assistant Legal Officer, he represented members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However,
even after the termination of the proceedings, his services were not paid. Said family members, he said, were also incorporators, directors and
officers of petitioner. Hence to counter petitioners collection suit, he filed a permissive counterclaim for the unpaid attorneys fees. [6]
For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, and evidence ex-parte was
presented on the counterclaim. The trial court ruled in favor of private respondents and found that Gregorio Manuel indeed rendered legal services to
the Francisco family in Special Proceedings Number 7803- In the Matter of Intestate Estate of Benita Trinidad. Said court also found that his legal
services were not compensated despite repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand (P50,000.00)
pesos.[7]
Dissatisfied with the trial courts order, petitioner elevated the matter to the Court of Appeals, posing the following issues:
I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER ACQUIRED JURISDICTION OVER
THE PERSON OF THE DEFENDANT.

II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE
HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.

III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED PERMISSIVE
COUNTERCLAIM.[8]

Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on it together with the copy
of the answer containing the permissive counterclaim.Further, petitioner questions the propriety of its being made party to the case because it was
not the real party in interest but the individual members of the Francisco family concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must be answered in ten (10) days,
pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if a
counterclaim was set up against him. Failure to serve summons, said respondent court, did not effectively negate trial courts jurisdiction over
petitioner in the matter of the counterclaim. It likewise pointed out that there was no reason for petitioner to be excused from answering the
counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days prior
to his withdrawal as counsel for petitioner. Moreover when petitioners new counsel, Jose N. Aquino, entered his appearance, three (3) days still
remained within the period to file an answer to the counterclaim. Having failed to answer, petitioner was correctly considered in default by the trial
court.[9] Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a motion for
reconsideration seeking relief from the said order of default, petitioner was estopped from further questioning the trial courts jurisdiction.[10]
On the question of its liability for attorneys fees owing to private respondent Gregorio Manuel, petitioner argued that being a corporation, it
should not be held liable therefor because these fees were owed by the incorporators, directors and officers of the corporation in their personal
capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis--vis the individual persons who hired the services
of private respondent, is separate and distinct,[11] hence, the liability of said individuals did not become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

However, this distinct and separate personality is merely a fiction created by law for convenience and to promote justice. Accordingly, this separate
personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic)
illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng Bayan, Inc. vs.
Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield
for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408)

In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of the heirs of the late Benita Trinidad as
directors and incorporators for whom defendant Gregorio Manuel rendered legal services in the intestate estate case of their deceased
mother. Considering the aforestated principles and circumstances established in this case, equity and justice demands plaintiff-appellants veil of
corporate identity should be pierced and the defendant be compensated for legal services rendered to the heirs, who are directors of the plaintiff-
appellant corporation.[12]

Now before us, petitioner assigns the following errors:

I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY.

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE
COUNTERCLAIM.[13]

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the transaction concerned
only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no cause of action by said respondent
against petitioner; personal concerns of the heirs should be distinguished from those involving corporate affairs.Petitioner further contends that the
present case does not fall among the instances wherein the courts may look beyond the distinct personality of a corporation. According to petitioner,
the services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have
been sued in their personal capacity, and not involve the corporation.[14]
With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer containing the permissive
counterclaim. It claims that the counterclaim is a separate case which can only be properly served upon the opposing party through
summons. Further petitioner states that by nature, a permissive counterclaim is one which does not arise out of nor is necessarily connected with the
subject of the opposing partys claim. Petitioner avers that since there was no service of summons upon it with regard to the counterclaim, then the
court did not acquire jurisdiction over petitioner.Since a counterclaim is considered an action independent from the answer, according to petitioner,
then in effect there should be two simultaneous actions between the same parties: each party is at the same time both plaintiff and defendant with
respect to the other,[15] requiring in each case separate summonses.
In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety of piercing the veil of
corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to their permissive counterclaim contained in the
answer.
Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed as assistant legal officer of
petitioner corporation, and that his services were solicited by the incorporators, directors and members to handle and represent them in Special
Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner corporation took
advantage of their positions by not compensating respondent Gregorio Manuel after the termination of the estate proceedings despite his repeated
demands for payment of his services. They cite findings of the appellate court that support piercing the veil of corporate identity in this particular
case. They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and defend
crime. It may also be pierced, according to them, where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole
benefit of the stockholders or of another corporate entity. In these instances, they aver, the corporation should be treated merely as an association of
individual persons.[16]
Private respondents dispute petitioners claim that its right to due process was violated when respondents counterclaim was granted due
course, although no summons was served upon it. They claim that no provision in the Rules of Court requires service of summons upon a defendant
in a counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial court it voluntarily submitted itself to the
jurisdiction of the court. As a consequence, the issuance of summons on it was no longer necessary. Private respondents say they served a copy of
their answer with affirmative defenses and counterclaim on petitioners former counsel, Nicanor G. Alvarez. While petitioner would have the Court
believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel for the petitioner, private respondents
assert that this contention is utterly baseless. Records disclose that the answer was received two (2) days before the former counsel for petitioner
withdrew his appearance, according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to set off
petitioners obligations to the respondents by running up more interest it could recover from them. Private respondents therefore claim damages
against petitioner.[17]
To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction.
Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and from other corporations
to which it may be connected.[18] However, under the doctrine of piercing the veil of corporate entity, the corporations separate juridical personality
may be disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and
its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality
may be ignored.[19] In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach
to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be
justifiably set aside.
In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant application
here. Respondent court erred in permitting the trial courts resort to this doctrine. The rationale behind piercing a corporations identity in a given case
is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or
persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to
answer for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has
been turned upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were solicited
as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidads estate. These estate
proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner corporation on the claims
that its management had requested his services and he acceded thereto as an employee of petitioner from whom it could be deduced he was also
receiving a salary. His move to recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the unpaid balance
of the purchase and repair of a jeep body could only result from an obvious misapprehension that petitioners corporate assets could be used to
answer for the liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily prejudice the corporation, its own
creditors, and even other stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity.When directors and officers of a corporation are unable to compensate a party for
a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by
piercing its corporate veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its
function and purpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise
an injustice, although unintended, may result from its erroneous application.
The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate in
this case. The claim for legal fees against the concerned individual incorporators, officers and directors could not be properly directed against the
corporation without violating basic principles governing corporations. Moreover, every action including a counterclaim must be prosecuted or
defended in the name of the real party in interest.[20] It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the
door of petitioner (FMC) rather than individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioners allegation, that it needed to be summoned anew in order for the court to
acquire jurisdiction over it, we agree with respondent courts view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a
counterclaim or cross-claim must be answered within ten (10) days from service. Nothing in the Rules of Court says that summons should first be
served on the defendant before an answer to counterclaim must be made. The purpose of a summons is to enable the court to acquire jurisdiction
over the person of the defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the
counterclaim, being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the
1997 Rules of Civil Procedure,[21] if a defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant may
be declared in default.This is what happened to petitioner in this case, and this Court finds no procedural error in the disposition of the appellate
court on this particular issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of default, in
effect it submitted itself to the jurisdiction of the court. As well said by respondent court:

Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request, plaintiff-appellant was granted time to file
a motion for reconsideration of the disputed decision.Plaintiff-appellant did file its motion for reconsideration to set aside the order of default and the
judgment rendered on the counterclaim.

Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously insists, plaintiff-appellant is considered to
have submitted to the courts jurisdiction when it filed the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA
447). A party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella, 159
SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).[22]

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as it held Francisco Motors
Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but this decision is without prejudice to his filing the proper
suit against the concerned members of the Francisco family in their personal capacity. No pronouncement as to costs.
SO ORDERED.

8
FIRST DIVISION

[G.R. No. 163786. February 16, 2005]

TIMES TRANSPORTATION COMPANY, INC., petitioner, vs. SANTOS SOTELO, CONRADO B. SALONGA, SAMSON C. SOLIVEN,
BIENVENIDO F. MALANA, JR., JOVITO V. ALCAUSIN, EFREN A. RAMOS, RODRIGO P. CABUSAO, JR., EDGAR G. PONCE,
RONALD ALLAN PARINAS, RODEL PALO, REYNALDO R. RAGUCOS, MARIO T. TOLEDO, BERNARDINO PADUA, DOMINGO P.
BILAN, ARNEL VALLEDORES, RAMON RETUTA, JR., PANTALEON TABANGIN, ALBERTO PANDO, VIRGILIO E. OBAR, EULOGIO
D. DIGA, SR., DANIEL LLADO, RONILO BALTAZAR, MARITO PANDO, LEOPOLDO FUNTILA, GERRY B. CARRIDO, WILLIAM A.
TABUCOL, ANTONIO L. RAMOS, SR., PABLO P. PADRE, HENRY B. GANIR, TEOTIMO R. REQUILMAN, CIPRIANO ULPINDO,
ROGER BABIDA, SAMUEL PERALTA, BONIFACIO TUMALIP, EDGAR ABLOG, EFREN ABELLA, RODRIGO RABOY, RENATO
 SILVA, GEORGE PERALTA, RONILO BARBOSA, JULIAN BUENAFE, FLORENCIO CARIO, BERNIE TUMBAGA, RODRIGO
CABAERO, ELMER TAMO, LEOPOLDO NANA, NELIE BOSE, DEMETRIO HERRERA, RODOLFO ABELLA, ALVIN ELEFANTE,
REDENTOR GARCIA, JERRY PALACPAC, JOSE PAET, ARTHUR IBEA, ELIZER BORJA, EDMUNDO ASPIRAS, JOSE V.
PESCADOR, WILLIAM GARCIA, ERNESTO P. MANGULABNAN, BENJAMIN B. BLAZA, JOSELITO P. CACABELOS, LEON R.
GALANTA, JR., MARIANO P. TEJADA, PEDRITO C. ORTIZ, JR., NESTOR E. BALCITA, FLOR BURBANO, HERNANDO A.
PIMENTEL, ALEX A. GOMEZ, ARNALDO P. BOSE, NAPOLEON BALDERAS, CARLINO V. RULLODA, JR., RANDY R. AMODO,
CORNELIO R. RAGUINI, ROBERT CERIA, JUANITO U. UGALDE, ALBERTO PAJO, ALFREDO VALOROSO, RUFINO ADRIATICO,
BARTOLOME C. EDROSOLAN, JR., REYNANTE A. ALCAIN, NOELITO SUSA and VICENTE NAVA, respondents.

DECISION
YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the decision of the Court of Appeals dated January 30, 2004 in CA-G.R. SP No. 75291,[1] which set
aside the decision and resolution of the National Labor Relations Commission, and its resolution dated May 24, 2004 [2] denying reconsideration
thereof.
Petitioner Times Transportation Company, Inc. (Times) is a corporation engaged in the business of land transportation. Prior to its closure in
1997, the Times Employees Union (TEU) was formed and issued a certificate of union registration. Times challenged the legitimacy of TEU by filing
a petition for the cancellation of its union registration.
On March 3, 1997, TEU held a strike in response to Times alleged attempt to form a rival union and its dismissal of the employees identified to
be active union members. Upon petition by Times, then Labor Secretary, and now Associate Justice of this Court, Leonardo A. Quisumbing,
assumed jurisdiction over the case and referred the matter to the NLRC for compulsory arbitration. The case was docketed as NLRC NCR CC-
000134-97. A return-to-work order was likewise issued on March 10, 1997.
In a certification election held on July 1, 1997, TEU was certified as the sole and exclusive collective bargaining agent in Times. Consequently,
TEUs president wrote the management of Times and requested for collective bargaining. Times refused on the ground that the decision of the Med-
Arbiter upholding the validity of the certification election was not yet final and executory.
TEU filed a Notice of Strike on August 8, 1997. Another conciliation/mediation proceeding was conducted for the purpose of settling the
brewing dispute. In the meantime, Times management implemented a retrenchment program and notices of retrenchment dated September 16,
1997 were sent to some of its employees, including the respondents herein, informing them of their retrenchment effective 30 days thereafter.
On October 17, 1997, TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged participation in what it
deemed was an illegal strike, Times terminated all the 123 striking employees by virtue of two notices dated October 26, 1997 and November 24,
1997.[3] On November 17, 1997, then DOLE Secretary Quisumbing issued the second return-to-work order certifying the dispute to the NLRC. While
the strike was ended, the employees were no longer admitted back to work.
In the meantime, by December 12, 1997, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over Times Certificates of
Public Convenience and a number of its bus units by virtue of several deeds of sale. [4] Mencorp is controlled and operated by Mrs. Virginia Mendoza,
daughter of Santiago Rondaris, the majority stockholder of Times.
On May 21, 1998, the NLRC rendered a decision[5] in the cases certified to it by the DOLE, the dispositive portion of which read:

WHEREFORE, the respondents first strike, conducted from March 3, 1997 to March 12, 1997, is hereby declared LEGAL; its second strike, which
commenced on October 17, 1997, is hereby declared ILLEGAL. Consequently, those 23 persons who participated in the illegal strike are deemed to
have lost their employment status and were therefore validly dismissed from employment:

The respondents Motion to Implead Mencorp Transport Systems, Inc. and/or Virginia Mendoza and/or Santiago Rondaris is hereby DENIED for lack
of merit.

SO ORDERED.[6]

Times and TEU both appealed the decision of the NLRC, which the Court of Appeals affirmed on November 17, 2000.[7] Upon denial of its
motion for reconsideration, Times filed a petition for review on certiorari,[8] docketed as G.R. Nos. 148500-01, now pending with the Third Division of
this Court. TEU likewise appealed but its petition was denied due course.
In 1998, and after the closure of Times, the retrenched employees, including practically all the respondents herein, filed cases for illegal
dismissal, money claims and unfair labor practices against Times before the Regional Arbitration Branch in San Fernando City, La Union. Times filed
a Motion to Dismiss but on October 30, 1998, the arbitration branch ordered the archiving of the cases pending resolution of G.R. Nos. 148500-01.[9]
The dismissed employees did not interpose an appeal from said Order. Instead, they withdrew their complaints with leave of court and filed a
new set of cases before the National Capital Region Arbitration Branch. This time, they impleaded Mencorp and the Spouses Reynaldo and Virginia
Mendoza. Times sought the dismissal of these cases on the ground of litis pendencia and forum shopping. On January 31, 2002, Labor Arbiter
Renaldo O. Hernandez rendered a decision stating:

WHEREFORE, premises considered, judgment is hereby entered FINDING that the dismissals of complainants, excluding the expunged ones, by
respondent Times Transit (sic) Company, Inc. effected, participated in, authorized or ratified by respondent Santiago Rondaris constituted the
prohibited act of unfair labor practice under Article 248(a) and (e) of the Labor Code, as amended and hence, illegal and that the sale of said
respondent company to respondents Mencorp Transport Systems Company (sic), Inc. and/or Virginia Mendoza and Reynaldo Mendoza was
simulated and/or effected in bad faith, ORDERING:

1. respondents Times Transit (sic) Company, Inc. and Santiago Rondaris as the officer administratively held liable of the unfair labor practice herein
to CEASE AND DESIST therefore (sic);
2. respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris and Mencorp Transport Systems Company, Inc. and/or Virginia
Mendoza and Reynaldo Mendoza to cause the reinstatement therein of complainants to their former positions without loss of seniority rights and
benefits and to pay jointly and severally said complainants full back wages reckoned from their respective dates of illegal dismissal as above-
indicated, until actually reinstated or in lieu of such reinstatement, at the option of said complainants, payment of their separation pay of one (1)
month pay per year of service, reckoned from their date of hire as above-indicated, until actual payment and/or finality of this decision;

3. and finally for respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris to pay jointly and severally said complainants as moral
and exemplary damages the combined amount of P75,000.00 and 5% of the total award as attorneys fees.

All other claims of complainants are dismissed for lack of merit.

SO ORDERED.[10]

The monetary award amounted to P43,347,341.69. On March 4, 2002, Times, Mencorp and the Spouses Mendoza submitted their respective
memorandum of appeal to the NLRC with motions to reduce the bond. Mencorp posted a P5 million bond issued by Security Pacific Assurance Corp.
(SPAC). On April 30, 2002, the NLRC issued an order disposing of the said motion, thus:

WHEREFORE, premises considered, the Urgent Motion for Reduction of Bond is denied for lack of merit. Respondents are hereby ordered to
complete the bond equivalent to the monetary award in the Labor Arbiters Decision, within an unextendible period of ten (10) days from receipt
hereof, otherwise, the appeal shall be dismissed for non-perfection thereof.

SO ORDERED.[11]

On May 18, 2002, Times moved to reconsider said order arguing mainly that it did not have sufficient funds to put up the required bond. On
July 26, 2002, Mencorp and the Spouses Mendoza posted an additional P10 million appeal bond. Thus far, the total amount of bond posted was P15
million. On August 7, 2002, the NLRC granted the Motion for Reduction of Bond and approved the P10 million additional appeal bond. [12]
On September 17, 2002, the NLRC rendered its decision, stating:

WHEREFORE, the foregoing premises duly considered, the decision appealed from is hereby VACATED. The records of these consolidated cases
are hereby ordered REMANDED to the Arbitration Branch of origin for disposition and for the conduct of appropriate proceedings for a decision to be
rendered with dispatch.

SO ORDERED.[13]

Reconsideration thereof was denied by the NLRC on October 30, 2002. Thus, the respondents appealed to the Court of Appeals by way of a
petition for certiorari, attributing grave abuse of discretion on the NLRC for: (1) not dismissing the appeals of Times, Mencorp and the Spouses
Mendoza despite their failure to post the required bond; (2) remanding the case for further proceedings despite the sufficiency of the evidence
presented by the parties; (3) not sustaining the labor arbiters ruling that they were illegally dismissed; (4) not affirming the labor arbiters ruling that
there was no litis pendencia; and (5) not ruling that Times and Mencorp are one and the same entity.
On January 30, 2004, the Court of Appeals rendered the decision now assailed in this petition, the decretal portion of which states:

WHEREFORE, based on the foregoing, the instant petition is hereby GRANTED. The assailed Decision and Resolution of the NLRC are hereby SET
ASIDE. The Decision of the Labor Arbiter dated January 31, 2002 is hereby REINSTATED.

SO ORDERED.[14]

Times, Mencorp and the Spouses Mendoza filed Motions for Reconsideration, which were denied in a resolution promulgated on May 24,
2004. Hence, this petition for review based on the following grounds:
I. Petitioner respectfully maintains that the Honorable Court a quo, in not dismissing the complaints against the petitioner on the ground
of lis pendens, decided the matter in a way not in accord with existing laws and applicable decisions of this Honorable Court.
II. Petitioner, further, respectfully maintains that the Honorable Court a quo, in determining that herein petitioners hitherto lost their right
to appeal to the NLRC on account of their purported failure to post an adequate appeal bond, radically departed from the accepted
and usual course of judicial proceedings, not to mention resolved said issue in a manner and fashion antithetical to existing
jurisprudence.
III. Petitioner, furthermore, respectfully maintains that the Honorable Court a quo, in applying wholesale the doctrine of piercing the veil of
corporate fiction and finding Times co-petitioners liable for the formers obligations, resolved the matter in a manner contradictory to
existing applicable laws and dispositions of this Honorable Court, and departed from the accepted and usual course of judicial
proceedings with regard to admitting evidence to sustain the application of such principle.[15]
The petition lacks merit.
As to the first issue, Times argues that there exists an identity of issues, rights asserted, relief sought and causes of action between the
present case and the one concerning the legality of the second strike, which is now pending with the Third Division of this Court. As such, the Court
of Appeals erred in not dismissing the case at bar on the ground of litis pendencia.
Litis pendencia as a ground for dismissal of an action refers to that situation wherein another action is pending between the same parties for
the same cause of action and the second action becomes unnecessary and vexatious. [16] We agree with the findings of the Court of Appeals that
there is no litis pendencia as the two cases involve dissimilar causes of action. The first case, now pending with the Third Division, pertains to the
alleged error of the NLRC in not upholding the dismissal of all the striking employees (not only of the 23 strikers so declared to have lost their
employment) in spite of the latters ruling that the second strike was illegal. None of the respondents herein were among those deemed terminated by
virtue of the NLRC decision.
In the instant case, the issue is the validity of the retrenchment implemented by Times prior to the second strike and the subsequent dismissal
of the striking employees. As such, there can be no question that respondents were still employees of Times when they were retrenched. In short,
the outcome of this case does not hinge on the legality of the second strike or the validity of the dismissal of the striking employees, which issues are
yet to be resolved in G.R. Nos. 148500-01. Consequently, litis pendencia does not arise.
Anent the issue on whether Times perfected its appeal to the NLRC, the right to appeal is a statutory right and one who seeks to avail of the
right must comply with the statute or rules. The rules for perfecting an appeal must be strictly followed as they are considered indispensable
interdictions against needless delays and for orderly discharge of judicial business. [17]Section 3(a), Rule VI of the NLRC Rules of Procedure outlines
the requisites for perfecting an appeal, to wit:

SECTION 3. Requisites for Perfection of Appeal. a) The Appeal shall be filed within the reglementary period as provided in Section 1 of this Rule and
shall be under oath with proof of payment of the required appeal fee and the posting of a cash or surety bond as provided in Section 6 of this Rule;
shall be accompanied by memorandum of appeal which shall state the grounds relied upon and the arguments in support thereof; the relief prayed
for and a statement of the date when the appellant received the appealed decision, order or award and proof of service on the other party of such
appeal.

A mere notice of appeal without complying with the other requisites aforestated shall not stop the running of the period for perfecting an
appeal. (Emphasis supplied)

Article 223 of the Labor Code provides that in case of a judgment involving a monetary award, an appeal by the employer may be perfected
only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the NLRC in the amount equivalent to the
monetary award in the judgment appealed from. The perfection of an appeal in the manner and within the period prescribed by law is not only
mandatory but also jurisdictional, and failure to perfect an appeal has the effect of making the judgment final and executory. [18] However, in several
cases, we have relaxed the rules regarding the appeal bond especially where it must necessarily yield to the broader interest of substantial
justice.[19] The Rules of Procedure of the NLRC allows for the reduction of the appeal bond upon motion of the appellant and on meritorious
grounds.[20] It is required however that such motion is filed within the reglementary period to appeal.
The records reveal that Times, Mencorp and the Spouses Mendozas motion to reduce the bond was denied and the NLRC ordered them to
post the required amount within an unextendible period of ten (10) days.[21] However, instead of complying with the directive, Times filed another
motion for reconsideration of the order of denial. Several weeks later, Mencorp posted an additional bond, which was still less than the required
amount. Three (3) months after the filing of the motion for reconsideration, the NLRC reversed its previous order and granted the motion for
reduction of bond.
We agree with the Court of Appeals that the foregoing constitutes grave abuse of discretion on the part of the NLRC. By delaying the resolution
of Times motion for reconsideration, it has unnecessarily prolonged the period of appeal. We have held that to extend the period of appeal is to
prolong the resolution of the case, a circumstance which would give the employer the opportunity to wear out the energy and meager resources of
the workers to the point that they would be constrained to give up for less than what they deserve in law. [22] The NLRC is well to take notice of our
pronouncement in Santos v. Velarde:[23]

The Court is aware that the NLRC is not bound by the technical rules of procedure and is allowed to be liberal in the interpretation of rules in
deciding labor cases. However, such liberality should not be applied in the instant case as it would render futile the very purpose for which the
principle of liberality is adopted. From the decision of the Labor Arbiter, it took the NLRC four months to rule on the motion for exemption to pay bond
and another four months to decide the merits of the case. This Court has repeatedly ruled that delay in the settlement of labor cases cannot be
countenanced. Not only does it involve the survival of an employee and his loved ones who are dependent on him, it also wears down the meager
resources of the workers...[24] (Emphasis supplied)

The NLRCs reversal of its previous order of denial lacks basis. In the first motion, Mencorp and Spouses Mendoza moved for the reduction of
the appeal bond on the ground that the computation of the monetary award was highly suspicious and anomalous. In their motion for reconsideration
of the NLRCs denial, Mencorp and the Spouses Mendoza cited financial difficulties in completing the appeal bond. Neither ground is well-taken.
Times and Mencorp failed to substantiate their allegations of errors in the computation of the monetary award. They merely asserted
inaccuracies without specifying which aspect of the computation was inaccurate. If Times and Mencorp truly believed that there were errors in the
computation, they could have presented their own computation for comparison. As to the claim of financial difficulties, suffice it to say that the law
does not require outright payment of the total monetary award, but only the posting of a bond to ensure that the award will be eventually paid should
the appeal fail. What Times has to pay is a moderate and reasonable sum for the premium for such bond.[25] The impression thus created was that
Times, Mencorp and the Spouses Mendoza were clearly circumventing, if not altogether dodging, the rules on the posting of appeal bonds.
On the propriety of the piercing of the corporate veil, Times claims that to drag Mencorp, [Spouses] Mendoza and Rondaris into the picture on
the purported ground that a fictitious sale of Times assets in their favor was consummated with the end in view of frustrating the ends of justice and
for purposes of evading compliance with the judgment is the height of judicial arrogance. [26] The Court of Appeals believes otherwise and reckons
that Times and Mencorp failed to adduce evidence to refute allegations of collusion between them.
We have held that piercing the corporate veil is warranted only in cases when the separate legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law will regard the corporations as merged into one.[27] It
may be allowed only if the following elements concur: (1) controlnot mere stock control, but complete dominationnot only of finances, but of policy
and business practice in respect to the transaction attacked; (2) such control must have been used to commit a fraud or a wrong to perpetuate the
violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of a legal right; and (3) the said control and
breach of duty must have proximately caused the injury or unjust loss complained of. [28]
The following findings of the Labor Arbiter, which were cited and affirmed by the Court of Appeals, have not been refuted by Times, to wit:
1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of respondent S. Rondaris of [Times] where she
is/was also a director, as proven by the articles of incorporation of [Mencorp];
 2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R. Mendoza, Vernon Gerard R. Mendoza, Vivian
Charity R. Mendoza, Vevey Rosario R. Mendoza are all relatives of respondent S. Rondaris;
3. The timing of the sale evidently was to negate the employees/complainants/members right to organization as it was effected when
their union (TEU) was just organized/requesting [Times] to bargain;
5. [Mencorp] never obtained a franchise since its supposed incorporation in 10 May 1994 but at present, all the buses of [Times] are
already being run/operated by respondent [Mencorp], the franchise of [Times] having been transferred to it. [29]
We uphold the findings of the labor arbiter and the Court of Appeals. The sale of Times franchise as well as most of its bus units to a company
owned by Rondaris daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is evident that the transaction was
made in order to remove Times remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed
against it.
WHEREFORE, premises considered, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 75291 dated January
30, 2004 and its resolution dated May 24, 2004, are hereby AFFIRMED in toto.
SO ORDERED.

9
THIRD DIVISION

WILLIAM C. YAO, SR., LUISA C. YAO, G.R. No. 168306

RICHARD C. YAO, WILLIAM C. YAO JR., and
ROGER C. YAO,
Petitioners, Present:

YNARES-SANTIAGO,
-versus Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
THE PEOPLE OF THE PHILIPPINES, PETRON NACHURA, JJ.
CORPORATION and PILIPINAS SHELL
PETROLEUM CORP., and its Principal, SHELL
INTL PETROLEUM CO. LTD.,
Respondents.

Promulgated:

June 19, 2007

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

DECISION

CHICO-NAZARIO, J.:

In this Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, petitioners William C. Yao, Sr., Luisa C. Yao, Richard C. Yao, William
C. Yao, Jr., and Roger C. Yao pray for the reversal of the Decision dated 30 September 2004,[2] and Resolution dated 1 June 2005, of the Court of
Appeals in CA G.R. SP No. 79256,[3] affirming the two Orders, both dated 5 June 2003, of the Regional Trial Court (RTC), Branch 17, Cavite City,
relative to Search Warrants No. 2-2003 and No. 3-2003.[4] In the said Orders, the RTC denied the petitioners Motion to Quash Search Warrant[5] and
Motion for the Return of the Motor Compressor and Liquified Petroleum Gas (LPG) Refilling Machine.[6]

The following are the facts:

Petitioners are incorporators and officers of MASAGANA GAS CORPORATION (MASAGANA), an entity engaged in the refilling, sale and
distribution of LPG products. Private respondents Petron Corporation (Petron) and Pilipinas Shell Petroleum Corporation (Pilipinas Shell) are two of
the largest bulk suppliers and producers of LPG in the Philippines. Their LPG products are sold under the marks GASUL and SHELLANE,
respectively. Petron is the registered owner in the Philippines of the trademarks GASUL and GASUL cylinders used for its LPG products. It is the
sole entity in the Philippines authorized to allow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers, products and its
trademarks. Pilipinas Shell, on the other hand, is the authorized user in the Philippines of the tradename, trademarks, symbols, or designs of its
principal, Shell International Petroleum Company Limited (Shell International), including the marks SHELLANE and SHELL device in connection with
the production, sale and distribution of SHELLANE LPGs. It is the only corporation in the Philippines authorized to allow refillers and distributors to
refill, use, sell and distribute SHELLANE LPG containers and products.[7]
 On 3 April 2003, National Bureau of Investigation (NBI) agent Ritche N. Oblanca (Oblanca) filed two applications for search warrant with
the RTC, Branch 17, CaviteCity, against petitioners and other occupants of the MASAGANA compound located at Governors
Drive, Barangay Lapidario, Trece Martires, Cavite City, for alleged violation of Section 155, in relation to Section 170 of Republic Act No. 8293,
otherwise known as The Intellectual Property Code of the Philippines.[8] The two applications for search warrant uniformly alleged that per
information, belief, and personal verification of Oblanca, the petitioners are actually producing, selling, offering for sale and/or distributing LPG
products using steel cylinders owned by, and bearing the tradenames, trademarks, and devices of Petron and Pilipinas Shell, without authority and in
violation of the rights of the said entities.

In his two separate affidavits[9] attached to the two applications for search warrant, Oblanca alleged:
1. [That] on 11 February 2003, the National Bureau of Investigation (NBI) received a letter-complaint from
Atty. Bienvenido I. Somera Jr. of Villaraza and Angangco, on behalf of among others, [Petron Corporation (PETRON)]
and Pilipinas Shell Petroleum Corporation (PSPC), the authorized representative of Shell International Petroleum Company
Limited (Shell International), requesting assistance in the investigation and, if warranted, apprehension and prosecution of
certain persons and/or establishments suspected of violating the intellectual property rights [of PETRON] and of PSPC and Shell
International.

2. [That] on the basis of the letter-complaint, I, together with Agent Angelo Zarzoso, was assigned as the
NBI agent on the case.

3. [That] prior to conducting the investigation on the reported illegal activities, he reviewed the certificates
of trademark registrations issued in favor of [PETRON], PSPC and Shell International as well as other documents and other
evidence obtained by the investigative agency authorized by [PETRON], PSPC and Shell International to investigate and
cause the investigation of persons and establishments violating the rights of [PETRON], PSPC and Shell International,
represented by Mr. Bernabe C. Alajar. Certified copies of the foregoing trademark registrations are attached hereto as
Annexes A to :E.

4. [That] among the establishments alleged to be unlawfully refilling and unlawfully selling and distributing
[Gasul LPG and] Shellane products is Masagana Gas Corporation (MASAGANA). Based on Securities and Exchange
Commission Records, MASAGANA has its principal office address at 9775 Kamagong Street, San
Antonio Village, Makati, Metro Manila. The incorporators and directors of MASAGANA are William C. Yao, Sr., Luisa C. Yao,
Richard C. Yao, William C. Yao, Jr., and Roger C. Yao. x x x.

5. I confirmed that MASAGANA is not authorized to use [PETRON and] Shellane LPG cylinders and its
trademarks and tradenames or to be refillers or distributors of [PETRON and] Shellane LPGs.

6. I went to MASAGANAs refilling station located at Governors

Drive, Barangay Lapidario, Trece Martires City (sic), Cavite to investigate its activities. I confirmed that MASAGANA is indeed
engaged in the unauthorized refilling, sale and/or distribution of [Gasul and] Shellane LPG cylinders. I found out that
MASAGANA delivery trucks with Plate Nos. UMN-971, PEZ-612, WTE-527, XAM-970 and WFC-603 coming in and out of the
refilling plant located at the aforementioned address contained multi-brand LPG cylinders including
[Gasul and] Shellane. x x x.

7. [That] on 13 February 2003, I conducted a test-buy accompanied by Mr. Bernabe C. Alajar. After
asking the purpose of our visit, MASAGANAs guard allowed us to enter the MASAGANA refilling plant to purchase GASUL
and SHELLANE LPGs. x x x. We were issued an order slip which we presented to the cashiers office located near the refilling
station. After paying the amount x x x covering the cost of the cylinders and their contents, they were issued Cash Invoice No.
56210 dated February 13, 2003. We were, thereafter, assisted by the plant attendant in choosing empty GASUL
and SHELLANE 11 kg. cylinders, x x x were brought to the refilling station [and filled in their presence.] I noticed that no valve
seals were placed on the cylinders.

[That] while inside the refilling plant doing the test-buy, I noticed that stockpiles of multi-branded cylinders including GASUL
and SHELLANE cylinders were stored near the refilling station. I also noticed that the total land area of the refilling plant is
about 7,000 to 10,000 square meters. At the corner right side of the compound immediately upon entering the gate is a
covered area where the maintenance of the cylinders is taking place. Located at the back right corner of the compound are
two storage tanks while at the left side also at the corner portion is another storage tank. Several meters and fronting the said
storage tank is where the refilling station and the office are located. It is also in this storage tank where the elevated blue
water tank depicting MASAGANA CORP. is located. About eleven (11) refilling pumps and stock piles of multi-branded
cylinders including Shellane and GASUL are stored in the refilling station. At the left side of the entrance gate is the guard
house with small door for the pedestrians and at the right is a blue steel gate used for incoming and outgoing vehicles.

8. [That] on 27 February 2003, I conducted another test-buy accompanied by

Mr. Bernabe C. Alajar. x x x After choosing the cylinders, we were issued an order slip which we presented to the
cashier. Upon payment, Cash Invoice No. 56398 was issued covering the cost of both GASUL and SHELLANE LPG cylinders
and their contents. x x x Both cylinders were refilled in our presence and no valve seals were placed on the cylinders.

Copies of the photographs of the delivery trucks, LPG cylinders and registration papers were also attached to the aforementioned
affidavits.[10]
 Bernabe C. Alajar (Alajar), owner of Able Research and Consulting Services Inc., was hired by Petron and Pilipinas Shell to assist them in
carrying out their Brand Protection Program. Alajar accompanied Oblanca during the surveillance of and test-buys at the refilling plant of
MASAGANA. He also executed two separate affidavits corroborating the statements of Oblanca. These were annexed to the two applications for
search warrant.[11]

After conducting the preliminary examination on Oblanca and Alajar, and upon reviewing their sworn affidavits and other attached
documents, Judge Melchor Q.C. Sadang (Judge Sadang), Presiding Judge of the RTC, Branch 17, Cavite City, found probable cause and
correspondingly issued Search Warrants No. 2-2003 and No. 3-2003.[12]The search warrants commanded any peace officer to make an immediate
search of the MASAGANA compound and to seize the following items:
Under Search Warrant No. 2-2003:

a. Empty/filled LPG cylinder tanks/containers, bearing the tradename SHELLANE, SHELL (Device) of Pilipinas Shell
Petroleum Corporation and the trademarks and other devices owned by Shell International Petroleum Company, Ltd.;

b. Machinery and/or equipment being used or intended to be used for the purpose of illegally refilling LPG cylinders
belonging to Pilipinas Shell Petroleum Corporation bearing the latters tradename as well as the marks belonging to
Shell International Petroleum Company, Ltd., enumerated hereunder:

1. Bulk/Bullet LPG storage tanks;

2. Compressor/s (for pneumatic refilling system);
3. LPG hydraulic pump/s;
4. LPG refilling heads/hoses and appurtenances or LPG filling assembly;
5. LPG pipeline gate valve or ball valve and handles and levers;
6. LPG weighing scales; and
7. Seals simulating the shell trademark.
c. Sales invoices, ledgers, journals, official receipts, purchase orders, and all other books of accounts, inventories and
documents pertaining to the production, sale and/or distribution of the aforesaid goods/products.

d. Delivery truck bearing Plate Nos. WTE-527, XAM-970 and WFC-603, hauling trucks, and/or other delivery trucks or
vehicles or conveyances being used or intended to be used for the purpose of selling and/or distributing the above-
mentioned counterfeit products.

Under Search Warrant No. 3-2003:

a. Empty/filled LPG cylinder tanks/containers, bearing Petron Corporations (Petron) tradename and
its tradename GASUL and other devices owned and/or used exclusively by Petron;

b. Machinery and/or equipment being used or intended to be used for the purpose of illegally refilling LPG cylinders
belonging to Petron enumerated hereunder;

1. Bulk/Bullet LPG storage tanks;

2. Compressor/s (for pneumatic filling system);
3. LPG hydraulic pump/s;
4. LPG filling heads/hoses and appurtenances or LPG filling assembly;
5. LPG pipeline gate valve or ball valve and handles levers;
6. LPG weighing scales; and
7. Seals bearing the Petron mark;

c. Sales invoices, ledgers, journals, official receipts, purchase orders, and all other books of accounts, inventories and
documents pertaining to the production, sale and/or distribution of the aforesaid goods/products; and

d. Delivery trucks bearing Plate Nos. UMN-971, PEZ-612 and WFC-603, hauling trucks, and/or other delivery trucks or
vehicles or conveyances being used for the purpose of selling and/or distributing the above-mentioned counterfeit
products.

Upon the issuance of the said search warrants, Oblanca and several NBI operatives immediately proceeded to the MASAGANA
compound and served the search warrants on petitioners.[13] After searching the premises of MASAGANA, the following articles described in
Search Warrant No. 2-2003 were seized:

a. Thirty-eight (38) filled 11 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and
the trademarks and other devices owned by Shell International Petroleum Company, Ltd.;

b. Thirty-nine (39) empty 11 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and
the trademarks and other devices owned by Shell International Petroleum Company, Ltd.;
 c. Eight (8) filled 50 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and the
trademarks and other devices owned by Shell International Petroleum Company, Ltd.;

d. Three (3) empty 50 kg. LPG cylinders, bearing the tradename of Pilipinas Shell Petroleum Corporation and the
trademarks and other devices owned by Shell International Petroleum Company, Ltd.;

e. One (1) set of motor compressor for filling system.

Pursuant to Search Warrant No. 3-2003, the following articles were also seized:

a. Six (6) filled 11 kg. LPG cylinders without seal, bearing Petrons tradename and its trademark GASUL and other
devices owned and/or used exclusively by Petron;

b. Sixty-three (63) empty 11 kg. LPG cylinders, bearing Petrons tradename and its trademark GASUL and other
devices owned and/or used exclusively by Petron;

c. Seven (7) tampered 11 kg. LPG cylinders, bearing Petrons tradename and its trademark GASUL and other devices
owned and/or used exclusively by Petron;

d. Five (5) tampered 50 kg. LPG cylinders, bearing Petrons tradename and its trademark GASUL and other devices
owned and/or used exclusively by Petron with tampered GASUL logo;

e. One (1) set of motor compressor for filling system; and

f. One (1) set of LPG refilling machine.

On 22 April 2003, petitioners filed with the RTC a Motion to Quash Search Warrants No. 2-2003 and No. 3-2003[14] on the following
grounds:

1. There is no probable cause for the issuance of the search warrant and the conditions for the issuance
of a search warrant were not complied with;

2. Applicant NBI Agent Ritchie N. Oblanca and his witness Bernabe C. Alajar do not have any authority to
apply for a search warrant. Furthermore, they committed perjury when they alleged in their sworn
statements that they conducted a test-buy on two occasions;

3. The place to be searched was not specified in the Search Warrant as the place has an area of 10,000
square meters (one hectare) more or less, for which reason the place to be searched must be indicated
with particularity;

4. The search warrant is characterized as a general warrant as the items to be seized as mentioned in
the search warrant are being used in the conduct of the lawful business of respondents and the same are
not being used in refilling Shellane and Gasul LPGs.

On 30 April 2003, MASAGANA, as third party claimant, filed with the RTC a Motion for the Return of Motor Compressor and LPG
Refilling Machine.[15] It claimed that it is the owner of the said motor compressor and LPG refilling machine; that these items were used in the
operation of its legitimate business; and that their seizure will jeopardize its business interests.

On 5 June 2003, the RTC issued two Orders, one of which denied the petitioners Motion to Quash Search Warrants No. 2-2003 and No.
3-2003, and the other one also denied the Motion for the Return of Motor Compressor and LPG Refilling Machine of MASAGANA, for lack of
merit.[16]

With respect to the Order denying the petitioners motion to quash Search Warrants No. 2-2003 and No. 3-2003, the RTC held that
based on the testimonies of Oblanca and Alajar, as well as the documentary evidence consisting of receipts, photographs, intellectual property
and corporate registration papers, there is probable cause to believe that petitioners are engaged in the business of refilling or using cylinders
which bear the trademarks or devices of Petron and Pilipinas Shell in the place sought to be searchedand that such activity is probably in violation
of Section 155 in relation to Section 170 of Republic Act No. 8293.
 It also ruled that Oblanca and Alajar had personal knowledge of the acts complained of since they were the ones who monitored the
activities of and conducted test-buys on MASAGANA; that the search warrants in question are not general warrants because the compound
searched are solely used and occupied by MASAGANA, and as such, there was no need to particularize the areas within the compound that
would be searched; and that the items to be seized in the subject search warrants were sufficiently described with particularity as the same was
limited to cylinder tanks bearing the trademarks GASUL and SHELLANE.

As regards the Order denying the motion of MASAGANA for the return of its motor compressor and LPG refilling machine, the RTC
resolved that MASAGANA cannot be considered a third party claimant whose rights were violated as a result of the seizure since the evidence
disclosed that petitioners are stockholders of MASAGANA and that they conduct their business through the same juridical entity. It maintained that
to rule otherwise would result in the misapplication and debasement of the veil of corporate fiction. It also stated that the veil of corporate fiction
cannot be used as a refuge from liability.

Further, the RTC ratiocinated that ownership by another person or entity of the seized items is not a ground to order its return; that in
seizures pursuant to a search warrant, what is important is that the seized items were used or intended to be used as means of committing the
offense complained of; that by its very nature, the properties sought to be returned in the instant case appear to be related to and intended for the
illegal activity for which the search warrants were applied for; and that the items seized are instruments of an offense.

Petitioners filed Motions for Reconsideration of the assailed Orders,[17] but these were denied by the RTC in its Order dated 21 July
2003 for lack of compelling reasons.[18]

Subsequently, petitioners appealed the two Orders of the RTC to the Court of Appeals via a special civil action for certiorari under Rule
65 of the Rules of Court.[19] On 30 September 2004, the Court of Appeals promulgated its Decision affirming the Orders of the RTC. [20] It adopted
in essence the bases and reasons of the RTC in its two Orders. The decretal portion thereof reads:

Based on the foregoing, this Court finds no reason to disturb the assailed Orders of the respondent judge. Grave
abuse of discretion has not been proven to exist in this case.

WHEREFORE, the petition is hereby DISMISSED for lack of merit. The assailed orders both dated June 5, 2003 are
hereby AFFIRMED.

Petitioners filed a Motion for Reconsideration[21] of the Decision of the Court of Appeals, but this was denied in its Resolution dated 1
June 2005 for lack of merit.[22]

Petitioners filed the instant petition on the following grounds:

I.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PRESIDING JUDGE OF RTC CAVITE CITY HAD
SUFFICIENT BASIS IN DECLARING THE EXISTENCE OF PROBABLE CAUSE;

II.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NBI AGENT (RITCHIE OBLANCA) CAN APPLY FOR
THE SEARCH WARRANTS NOTHWITHSTANDING HIS LACK OF AUTHORITY;

III.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE REQUIREMENT OF GIVING A PARTICULAR
DESCRIPTION OF THE PLACE TO BE SEARCHED WAS COMPLIED WITH;

IV.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE APPLICATIONS AND THE SEARCH WARRANTS
THEMSELVES SHOW NO AMBIGUITY OF THE ITEMS TO BE SEIZED;
 V.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE COMPLAINT IS DIRECTED AGAINST MASAGANA
GAS CORPORATION, ACTING THROUGH ITS OFFICERS AND DIRECTORS, HENCE MASAGANA GAS CORPORATION
MAY NOT BE CONSIDERED AS THIRD PARTY CLAIMANT WHOSE RIGHTS WERE VIOLATED AS A RESULT OF THE
SEIZURE.[23]

Apropos the first issue, petitioners allege that Oblanca and Alajar had no personal knowledge of the matters on which they testified;
that Oblanca and Alajar lied to Judge Sadang when they stated under oath that they were the ones who conducted the test-buys on two different
occasions; that the truth of the matter is that Oblanca and Alajar never made the purchases personally; that the transactions were undertaken by
other persons namely, Nikko Javier and G. Villanueva as shown in the Entry/Exit Slips of MASAGANA; and that even if it were true
that Oblanca and Alajar asked Nikko Javier and G. Villanueva to conduct the test-buys, the information relayed by the latter two to the former was
mere hearsay.[24]

Petitioners also contend that if Oblanca and Alajar had indeed used different names in purchasing the LPG cylinders, they should have
mentioned it in their applications for search warrants and in their testimonies during the preliminary examination; that it was only after the petitioners
had submitted to the RTC the entry/exit slips showing different personalities who made the purchases that Oblanca and Alajar explained that they
had to use different names in order to avoid detection; that Alajar is not connected with either of the private respondents; that Alajar was not in a
position to inform the RTC as to the distinguishing trademarks of SHELLANE and GASUL; that Oblanca was not also competent to testify on the
marks allegedly infringed by petitioners; that Judge Sadang failed to ask probing questions on the distinguishing marks of SHELLANE and GASUL;
that the findings of the Brand Protection Committee of Pilipinas Shell were not submitted nor presented to the RTC; that although
Judge Sadang examined Oblanca and Alajar, the former did not ask exhaustive questions; and that the questions Judge Sadang asked were merely
rehash of the contents of the affidavits of Oblanca and Alajar.[25]

These contentions are devoid of merit.

Article III, Section 2, of the present Constitution states the requirements before a search warrant may be validly issued, to wit:

Section 2. The right of the people to be secure in their persons, houses, papers, and effects against unreasonable
searches and seizures of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of
arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched
and the persons or things to be seized. (emphasis supplied).

Section 4 of Rule 126 of the Revised Rules on Criminal Procedure, provides with more particularity the requisites in issuing a search
warrant, viz:

SEC. 4. Requisites for issuing search warrant. A search warrant shall not issue except upon probable cause in
connection with one specific offense to be determined personally by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized
which may be anywhere in the Philippines.

According to the foregoing provisions, a search warrant can be issued only upon a finding of probable cause. Probable cause for search
warrant means such facts and circumstances which would lead a reasonably discreet and prudent man to believe that an offense has been
committed and that the objects sought in connection with the offense are in the place to be searched. [26]

The facts and circumstances being referred thereto pertain to facts, data or information personally known to the applicant and the
witnesses he may present.[27] The applicant or his witnesses must have personal knowledge of the circumstances surrounding the commission of the
offense being complained of. Reliable information is insufficient. Mere affidavits are not enough, and the judge must depose in writing the
complainant and his witnesses.[28]

Section 155 of Republic Act No. 8293 identifies the acts constituting trademark infringement, thus:
 SEC. 155. Remedies; Infringement. Any person who shall, without the consent of the owner of the registered mark:

155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark or the same
container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or
services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with
which such use is likely to cause confusion, or to cause mistake, or to deceive; or

155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature thereof and apply
such reproduction, counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or
advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising
of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive,
shall be liable in a civil action for infringement by the registrant for the remedies hereinafter set forth: Provided, That the
infringement takes place at the moment any of the acts stated in Subsection 155.1 or this subsection are committed regardless
of whether there is actual sale of goods or services using the infringing material.

As can be gleaned in Section 155.1, mere unauthorized use of a container bearing a registered trademark in connection with the sale,
distribution or advertising of goods or services which is likely to cause confusion, mistake or deception among the buyers/consumers can be
considered as trademark infringement.

In his sworn affidavits,[29] Oblanca stated that before conducting an investigation on the alleged illegal activities of MASAGANA, he
reviewed the certificates of trademark registrations issued by the Philippine Intellectual Property Office in favor of Petron and Pilipinas Shell; that he
confirmed from Petron and Pilipinas Shell that MASAGANA is not authorized to sell, use, refill or distribute GASUL and SHELLANE LPG cylinder
containers; that he and Alajar monitored the activities of MASAGANA in its refilling plant station located within its compound at Governors
Drive, Barangay Lapidario, Trece Martires, Cavite City; that, using different names, they conducted two test-buys therein where they purchased LPG
cylinders bearing the trademarks GASUL and SHELLANE; that the said GASUL and SHELLANE LPG cylinders were refilled in their presence by the
MASAGANA employees; that while they were inside the MASAGANA compound, he noticed stock piles of multi-branded cylinders including GASUL
and SHELLANE LPG cylinders; and that they observed delivery trucks loaded with GASUL and SHELLANE LPG cylinders coming in and out of the
MASAGANA compound and making deliveries to various retail outlets. These allegations were corroborated by Alajar in his separate affidavits.

In support of the foregoing statements, Oblanca also submitted the following documentary and object evidence:

1. Certified true copy of the Certificate of Registration No. 44046 for SHELL (DEVICE) in the name of Shell
International;

2. Certified true copy of the Certificate of Registration No. 41789 for SHELL (DEVICE) in the name of Shell
International;

3. Certified true copy of the Certificate of Registration No. 37525 for SHELL (DEVICE) in the name of Shell
International;

4. Certified true copy of the Certificate of Registration No. R-2813 for SHELL in the name of Shell International;

5. Certified true copy of the Certificate of Registration No. 31443 for SHELLANE in the name of Shell International;

6. Certified true copy of the Certificate of Registration No. 57945 for the mark GASUL in the name of Petron;

7. Certified true copy of the Certificate of Registration No. C-147 for GASUL CYLINDER CONTAINING LIQUEFIED
PETROLEUM GAS in the name of Petron;

8. Certified true copy of the Certificate of Registration No. 61920 for the mark GASUL AND DEVICE in the name
of Petron;

9. Certified true copy of the Articles of Incorporation of Masagana;

10. Certified true copy of the By-laws of Masagana;

11. Certified true copy of the latest General Information Sheet of Masagana on file with the Securities and Exchange
Commission;

12. Pictures of delivery trucks coming in and out of Masagana while it delivered Gasul and Shellane LPG;

13. Cash Invoice No. 56210 dated 13 February 2003 issued by Masagana for the Gasul and Shellane LPG purchased by
Agent Oblanca and witness Alajar;
 14. Pictures of the Shellane and Gasul LPGs covered by Cash Invoice No. 56210 purchased from Masagana by
Agent Oblanca and witness Alajar;

15. Cash Invoice No. 56398 dated 27 February 2003 issued by Masagana for the Gasul and Shellane LPG purchased by
Agent Oblanca and witness Alajar; and

16. Pictures of the Shellane and Gasul LPGs covered by Cash Invoice No. 56398 purchased from Masagana by
Agent Oblanca and witness Alajar.[30]

Extant from the foregoing testimonial, documentary and object evidence is that Oblanca and Alajar have personal knowledge of the fact
that petitioners, through MASAGANA, have been using the LPG cylinders bearing the marks GASUL and SHELLANE without permission
from Petron and Pilipinas Shell, a probable cause for trademark infringement. Both Oblanca and Alajar were clear and insistent that they were the
very same persons who monitored the activities of MASAGANA; that they conducted test-buys thereon; and that in order to avoid suspicion, they
used different names during the test-buys. They also personally witnessed the refilling of LPG cylinders bearing the marks GASUL and SHELLANE
inside the MASAGANA refilling plant station and the deliveries of these refilled containers to some outlets using mini-trucks.

Indeed, the aforesaid facts and circumstances are sufficient to establish probable cause. It should be borne in mind that the determination
of probable cause does not call for the application of the rules and standards of proof that a judgment of conviction requires after trial on the merits.
As the term implies, probable cause is concerned with probability, not absolute or even moral certainty. The standards of judgment are those of a
reasonably prudent man, not the exacting calibrations of a judge after a full blown trial.[31]

The fact that Oblanca and Alajar used different names in the purchase receipts do not negate personal knowledge on their part. It is a
common practice of the law enforcers such as NBI agents during covert investigations to use different names in order to conceal their true identities.
This is reasonable and understandable so as not to endanger the life of the undercover agents and to facilitate the lawful arrest or apprehension of
suspected violators of the law.

Petitioners contention that Oblanca and Alajar should have mentioned the fact that they used different names in their respective affidavits
and during the preliminary examination is puerile. The argument is too vacuous to merit serious consideration. There is nothing in the provisions of
law concerning the issuance of a search warrant which directly or indirectly mandates that the applicant of the search warrant or his witnesses
should state in their affidavits the fact that they used different names while conducting undercover investigations, or to divulge such fact during the
preliminary examination. In the light of other more material facts which needed to be established for a finding of probable cause, it is not difficult to
believe that Oblanca and Alajar failed to mention that they used aliases in entering the MASAGANA compound due to mere oversight.

It cannot be gainfully said that Oblanca and Alajar are not competent to testify on the trademarks infringed by the petitioners. As earlier
discussed, Oblanca declared under oath that before conducting an investigation on the alleged illegal activities of MASAGANA, he reviewed the
certificates of trademark registrations issued by the Philippine Intellectual Property Office in favor of Petron and Pilipinas Shell. These certifications of
trademark registrations were attached by Oblanca in his applications for the search warrants. Alajar, on the other hand, works as a private
investigator and, in fact, owns a private investigation and research/consultation firm. His firm was hired and authorized, pursuant to the Brand
Protection Program of Petron and Pilipinas Shell, to verify reports that MASAGANA is involved in the illegal sale and refill of GASUL and SHELLANE
LPG cylinders.[32] As part of the job, he studied and familiarized himself with the registered trademarks of GASUL and SHELLANE, and the distinct
features of the LPG cylinders bearing the same trademarks before conducting surveillance and test-buys on MASAGANA.[33] He also submitted
to Oblanca several copies of the same registered trademark registrations and accompanied Oblanca during the surveillance and test-buys.

As to whether the form and manner of questioning made by Judge Sadang complies with the requirements of law, Section 5 of Rule 126 of
the Revised Rules on Criminal Procedure, prescribes the rules in the examination of the complainant and his witnesses when applying for search
warrant, to wit:

SEC. 5. Examination of complainant; record.- The judge must, before issuing the warrant, personally examine in the
form of searching questions and answers, in writing under oath, the complainant and the witnesses he may produce on facts
personally known to them and attach to the record their sworn statements, together with the affidavits submitted.
 The searching questions propounded to the applicant and the witnesses depend largely on the discretion of the judge. Although there is no
hard-andfast rule governing how a judge should conduct his investigation, it is axiomatic that the examination must be probing and exhaustive, not
merely routinary, general, peripheral, perfunctory or pro forma.The judge must not simply rehash the contents of the affidavit but must make his own
inquiry on the intent and justification of the application.[34]

After perusing the Transcript of Stenographic Notes of the preliminary examination, we found the questions of Judge Sadang to be
sufficiently probing, not at all superficial and perfunctory.[35] The testimonies of Oblanca and Alajar were consistent with each other and their
narration of facts was credible. As correctly found by the Court of Appeals:

This Court is likewise not convinced that respondent Judge failed to ask probing questions in his determination of the
existence of probable cause. This Court has thoroughly examined the Transcript of Stenographic Notes taken during the
investigation conducted by the respondent Judge and found that respondent Judge lengthily inquired into the circumstances of
the case. For instance, he required the NBI agent to confirm the contents of his affidavit, inquired as to where the test-buys were
conducted and by whom, verified whether PSPC and PETRON have registered trademarks or tradenames, required the NBI
witness to explain how the test-buys were conducted and to describe the LPG cylinders purchased from Masagana Gas
Corporation, inquired why the applications for Search Warrant were filed in Cavite City considering that Masagana Gas
Corporation was located in Trece Martires, Cavite, inquired whether the NBI Agent has a sketch of the place and if there was any
distinguishing sign to identify the place to be searched, and inquired about their alleged tailing and monitoring of the delivery
trucks. x x x.[36]

Since probable cause is dependent largely on the opinion and findings of the judge who conducted the examination and who had the
opportunity to question the applicant and his witnesses, the findings of the judge deserves great weight. The reviewing court can overturn such
findings only upon proof that the judge disregarded the facts before him or ignored the clear dictates of reason. [37] We find no compelling reason to
disturb Judge Sadangs findings herein.

Anent the second issue, petitioners argue that Judge Sadang failed to require Oblanca to show his authority to apply for search warrants;
that Oblanca is a member of the Anti-Organized Crime and not that of the Intellectual Property Division of the NBI; that all complaints for
infringement should be investigated by the Intellectual Property Division of the NBI; that it is highly irregular that an agent not assigned to the
Intellectual Property Division would apply for a search warrant and without authority from the NBI Director; that the alleged letter-complaint of
Atty. Bienvenido Somera, Jr. of Villaraza and Angangco Law Office was not produced in court; that Judge Sadang did not require Oblanca to
produce the alleged letter-complaint which is material and relevant to the determination of the existence of probable cause; and
that Petron and Pilipinas Shell, being two different corporations, should have issued a board resolution authorizing the Villaraza and Angangco Law
Office to apply for search warrant in their behalf.[38]

We reject these protestations.

The authority of Oblanca to apply for the search warrants in question is clearly discussed and explained in his affidavit, viz:

[That] on 11 February 2003, the National Bureau of Investigation (NBI) received a letter-complaint from
Atty. Bienvenido I. Somera, Jr. of Villaraza and Angangco, on behalf of among others, Petron Corporation (PETRON)
[and Pilipinas Shell Petroleum Corporation (PSPC), the authorized representative of Shell International Petroleum Company
Limited (SHELL INTERNATIONAL)] requesting assistance in the investigation and, if warranted, apprehension and prosecution
of certain persons and/or establishments suspected of violating the intellectual property rights of PETRON [and of PSPC and
Shell International.]

11. [That] on the basis of the letter-complaint, I, together with Agent Angelo Zarzoso, was assigned as the NBI agent on the
case.[39]

The fact that Oblanca is a member of the Anti-Organized Crime Division and not that of the Intellectual Property Division does not abrogate
his authority to apply for search warrant. As aptly stated by the RTC and the Court of Appeals, there is nothing in the provisions on search warrant
under Rule 126 of the Revised Rules on Criminal Procedure, which specifically commands that the applicant law enforcer must be a member of a
division that is assigned or related to the subject crime or offense before the application for search warrant may be acted upon. The petitioners did
not also cite any law, rule or regulation mandating such requirement. At most, petitioners may only be referring to the administrative organization
and/or internal rule or practice of the NBI. However, not only did petitioners failed to establish the existence thereof, but they also did not prove that
such administrative organization and/or internal rule or practice are inviolable.

Neither is the presentation of the letter-complaint of Atty. Somera and board resolutions from Petron and Pilipinas Shell required or
necessary in determining probable cause. As heretofore discussed, the affidavits of Oblanca and Alajar, coupled with the object and documentary
evidence they presented, are sufficient to establish probable cause. It can also be presumed that Oblanca, as an NBI agent, is a public officer who
had regularly performed his official duty.[40] He would not have initiated an investigation on MASAGANA without a proper complaint. Furthermore,
Atty. Somera did not step up to deny his letter-complaint.

Regarding the third issue, petitioners posit that the applications for search warrants of Oblanca did not specify the particular area to be
searched, hence, giving the raiding team wide latitude in determining what areas they can search. They aver that the search warrants were general
warrants, and are therefore violative of the Constitution. Petitioners also assert that since the MASAGANA compound is about 10,000.00 square
meters with several structures erected on the lot, the search warrants should have defined the areas to be searched.

The long standing rule is that a description of the place to be searched is sufficient if the officer with the warrant can, with reasonable effort,
ascertain and identify the place intended and distinguish it from other places in the community. Any designation or description known to the locality
that points out the place to the exclusion of all others, and on inquiry leads the officers unerringly to it, satisfies the constitutional requirement.[41]

Moreover, in the determination of whether a search warrant describes the premises to be searched with sufficient particularity, it has been
held that the executing officers prior knowledge as to the place intended in the warrant is relevant. This would seem to be especially true where the
executing officer is the affiant on whose affidavit the warrant had been issued, and when he knows that the judge who issued the warrant intended
the compound described in the affidavit.[42]

The search warrants in question commanded any peace officer to make an immediate search on MASAGANA compound located at
Governors Drive, Barangay Lapidario, Trece Martires, Cavite City. It appears that the raiding team had ascertained and reached MASAGANA
compound without difficulty since MASAGANA does not have any other offices/plants in Trece Martires, Cavite City. Moreover, Oblanca, who was
with the raiding team, was already familiar with the MASAGANA compound as he and Alajar had monitored and conducted test-buys thereat.

Even if there are several structures inside the MASAGANA compound, there was no need to particularize the areas to be searched
because, as correctly stated by Petronand Pilipinas Shell, these structures constitute the essential and necessary components of the petitioners
business and cannot be treated separately as they form part of one entire compound. The compound is owned and used solely by MASAGANA.
What the case law merely requires is that, the place to be searched can be distinguished in relation to the other places in the community. Indubitably,
this requisite was complied with in the instant case.

As to the fourth issue, petitioners asseverate that the search warrants did not indicate with particularity the items to be seized since the
search warrants merely described the items to be seized as LPG cylinders bearing the trademarks GASUL and SHELLANE without specifying their
sizes.

A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the
circumstances will ordinarily allow; or when the description expresses a conclusion of fact not of law by which the warrant officer may be guided in
making the search and seizure; or when the things described are limited to those which bear direct relation to the offense for which the warrant is
being issued.[43]

While it is true that the property to be seized under a warrant must be particularly described therein and no other property can be
taken thereunder, yet the description is required to be specific only in so far as the circumstances will ordinarily allow. The law does not require that
the things to be seized must be described in precise and minute details as to leave no room for doubt on the part of the searching authorities;
otherwise it would be virtually impossible for the applicants to obtain a search warrant as they would not know exactly what kind of things they are
looking for. Once described, however, the articles subject of the search and seizure need not be so invariant as to require absolute concordance, in
our view, between those seized and those described in the warrant. Substantial similarity of those articles described as a class or specie would
suffice.[44]

Measured against this standard, we find that the items to be seized under the search warrants in question were sufficiently described with
particularity. The articles to be confiscated were restricted to the following: (1) LPG cylinders bearing the trademarks GASUL and SHELLANE; (2)
Machines and equipments used or intended to be used in the illegal refilling of GASUL and SHELLANE cylinders. These machines were also
specifically enumerated and listed in the search warrants; (3) Documents which pertain only to the production, sale and distribution of the GASUL
and SHELLANE LPG cylinders; and (4) Delivery trucks bearing Plate Nos. WTE-527, XAM-970 and WFC-603, hauling trucks, and/or other delivery
trucks or vehicles or conveyances being used or intended to be used for the purpose of selling and/or distributing GASUL and SHELLANE LPG
cylinders.[45]

Additionally, since the described items are clearly limited only to those which bear direct relation to the offense, i.e., violation of section 155
of Republic Act No. 8293, for which the warrant was issued, the requirement of particularity of description is satisfied.

Given the foregoing, the indication of the accurate sizes of the GASUL and SHELLANE LPG cylinders or tanks would be unnecessary.

Finally, petitioners claim that MASAGANA has the right to intervene and to move for the return of the seized items; that the items seized by
the raiding team were being used in the legitimate business of MASAGANA; that the raiding team had no right to seize them under the guise that the
same were being used in refilling GASUL and SHELLANE LPG cylinders; and that there being no action for infringement filed against them and/or
MASAGANA from the seizure of the items up to the present, it is only fair that the seized articles be returned to the lawful owner in accordance
with Section 20 of A.M. No. 02-1-06-SC.

It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders,
directors or officers. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the
law will regard the corporation as an association of persons,or in the case of two corporations merge them into one.[46] In other words, the law will
not recognize the separate corporate existence if the corporation is being used pursuant to the foregoing unlawful objectives. This non-recognition is
sometimes referred to as the doctrine of piercing the veil of corporate entity or disregarding the fiction of corporate entity. Where the separate
corporate entity is disregarded, the corporation will be treated merely as an association of persons and the stockholders or members will be
considered as the corporation, that is, liability will attach personally or directly to the officers and stockholders.[47]

As we now find, the petitioners, as directors/officers of MASAGANA, are utilizing the latter in violating the intellectual property rights
of Petron and Pilipinas Shell. Thus, petitioners collectively and MASAGANA should be considered as one and the same person for liability purposes.
Consequently, MASAGANAs third party claim serves no refuge for petitioners.

Even if we were to sustain the separate personality of MASAGANA from that of the petitioners, the effect will be the same. The law does
not require that the property to be seized should be owned by the person against whom the search warrants is directed. Ownership, therefore, is of
no consequence, and it is sufficient that the person against whom the warrant is directed has control or possession of the property sought to be
seized.[48] Hence, even if, as petitioners claimed, the properties seized belong to MASAGANA as a separate entity, their seizure pursuant to the
search warrants is still valid.

Further, it is apparent that the motor compressor, LPG refilling machine and the GASUL and SHELL LPG cylinders seized were
the corpus delicti, the body or substance of the crime, or the evidence of the commission of trademark infringement. These were the very
instruments used or intended to be used by the petitioners in trademark infringement. It is possible that, if returned to MASAGANA, these items will
be used again in violating the intellectual property rights of Petron and Pilipinas Shell.[49] Thus, the RTC was justified in denying the petitioners
motion for their return so as to prevent the petitioners and/or MASAGANA from using them again in trademark infringement.
 Petitioners reliance on Section 20 of A.M. No. 02-1-06-SC,[50] is not tenable. As correctly observed by the Solicitor General, A.M. 02-1-06-
SC is not applicable in the present case because it governs only searches and seizures in civil actions for infringement of intellectual property
rights.[51] The offense complained of herein is for criminal violation of Section 155 in relation to Section 170[52] of Republic Act No. 8293.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 79256, dated 30
September 2004 and 1 June 2005, respectively, are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

10
SECOND DIVISION

SEVENTH DAY ADVENTIST G.R. No. 150416

CONFERENCE CHURCH OF
SOUTHERN PHILIPPINES, INC.,
and/or represented by MANASSEH
C. ARRANGUEZ, BRIGIDO P.
GULAY, FRANCISCO M. LUCENARA,
DIONICES O. TIPGOS, LORESTO
C. MURILLON, ISRAEL C. NINAL,
GEORGE G. SOMOSOT, JESSIE
T. ORBISO, LORETO PAEL and
JOEL BACUBAS,
Petitioners, Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,

- v e r s u s - CORONA,

AZCUNA and

GARCIA, JJ.

NORTHEASTERN MINDANAO

MISSION OF SEVENTH DAY

ADVENTIST, INC., and/or

represented by JOSUE A. LAYON,

WENDELL M. SERRANO, FLORANTE

P. TY and JETHRO CALAHAT

and/or SEVENTH DAY ADVENTIST

CHURCH [OF] NORTHEASTERN

MINDANAO MISSION,*

Respondents. Promulgated:

July 21, 2006

x------------------------------------------x
 DECISION

CORONA, J.:

This petition for review on certiorari assails the Court of Appeals (CA) decision [1] and resolution[2] in CA-G.R. CV No. 41966 affirming, with

modification, the decision of the Regional Trial Court (RTC) of Bayugan, Agusan del Sur, Branch 7 in Civil Case No. 63.

This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title (TCT) No. 4468 in Bayugan, Agusan del Sur originally owned by

Felix Cosio and his wife, Felisa Cuysona.

On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union Mission of Seventh Day Adventist Church

of BayuganEsperanza, Agusan (SPUM-SDA Bayugan).[3] Part of the deed of donation read:

KNOW ALL MEN BY THESE PRESENTS:

That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of age, [h]usband and wife, both are citizen[s] of the
Philippines, and resident[s] with post office address in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan,
Philippines, do hereby grant, convey and forever quit claim by way of Donation or gift unto the South Philippine [Union] Mission
of Seventh Day Adventist Church of Bayugan, Esperanza, Agusan, all the rights, title, interest, claim and demand both at law and
as well in possession as in expectancy of in and to all the place of land and portion situated in the Barrio of Bayugan,
Municipality of Esperanza, Province of Agusan, Philippines, more particularly and bounded as follows, to wit:

1. a parcel of land for Church Site purposes only.

2. situated [in Barrio Bayugan, Esperanza].

3. Area: 30 meters wide and 30 meters length or 900 square meters.

4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P-285.

5. Bounded Areas

North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West by Feliz Cosio xxx. [4]

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf of the donee.

Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses Cosio to the Seventh Day

Adventist Church of Northeastern Mindanao Mission (SDA-NEMM).[5] TCT No. 4468 was thereafter issued in the name of SDA-NEMM.[6]
Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the property. This was opposed by respondents who

argued that at the time of the donation, SPUM-SDA Bayugan could not legally be a donee

because, not having been incorporated yet, it had no juridical personality. Neither were petitioners members of the local church then, hence, the

donation could not have been made particularly to them.

On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for cancellation of title, quieting of ownership and possession,

declaratory relief and reconveyance with prayer for preliminary injunction and damages), in the RTC of Bayugan, Agusan del Sur. After trial, the trial

court rendered a decision[7] on November 20, 1992 upholding the sale in favor of respondents.

On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and attorneys fees. [8] Petitioners motion for

reconsideration was likewise denied. Thus, this petition.

The issue in this petition is simple: should SDA-NEMMs ownership of the lot covered by TCT No. 4468 be upheld?[9] We answer in the

affirmative.

The controversy between petitioners and respondents involves two supposed transfers of the lot previously owned by the spouses Cosio:

(1) a donation to petitioners alleged predecessors-in-interest in 1959 and (2) a sale to respondents in 1980.

Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership of a property may be

transferred by tradition as a consequence of a sale.

Petitioners contend that the appellate court should not have ruled on the validity of the donation since it was not among the issues raised

on appeal. This is not correct because an appeal generally opens the entire case for review.

We agree with the appellate court that the alleged donation to petitioners was void.

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who accepts it. The donation

could not have been made in favor of an entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet no one to

accept it.

The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-SDA Bayugan (the local church)

which, at the time, had neither juridical personality nor capacity to accept such gift.

Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation.

But there are stringent requirements before one can qualify as a de facto corporation:
 (a) the existence of a valid law under which it may be incorporated;

(b) an attempt in good faith to incorporate; and

(c) assumption of corporate powers.[10]

While there existed the old Corporation Law (Act 1459),[11] a law under which SPUM-SDA Bayugan could have been organized, there is no proof that

there was an attempt to incorporate at that time.

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de

facto corporation.[12] We have held that an organization not registered with the Securities and Exchange Commission (SEC) cannot be considered a

corporation in any concept, not even as a corporation de facto.[13] Petitioners themselves admitted that at the time of the donation, they were not

registered with the SEC, nor did they even attempt to organize[14] to comply with legal requirements.

Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was ever issued to petitioners

or their supposed predecessor-in-interest at the time of the donation. Petitioners obviously could not have claimed succession to an entity that never

came to exist. Neither could the principle of separate juridical personality apply since there was never any corporation [15] to speak of. And, as already

stated, some of the representatives of petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not even members of

the local church then, thus, they could not even claim that the donation was particularly for them. [16]

The de facto doctrine thus effects a compromise between two conflicting public interest[s]the one opposed to an unauthorized
assumption of corporate privileges; the other in favor of doing justice to the parties and of establishing a general assurance of
security in business dealing with corporations.[17]

Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to favor the defective
or non-existent corporation.[18]

In view of the foregoing, petitioners arguments anchored on their supposed de facto status hold no water. We are convinced that there was

no donation to petitioners or their supposed predecessor-in-interest.

On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The factual findings of the trial court in this regard were not

convincingly disputed. This Court is not a trier of facts. Only questions of law are the proper subject of a petition for review on certiorari.[19]

Sustaining the validity of respondents title as well as their right of ownership over the property, the trial court stated:

[W]hen Felix Cosio was shown the Absolute Deed of Sale during the hearing xxx he acknowledged that the same was his xxx
but that it was not his intention to sell the controverted property because he had previously donated the same lot to the South
Philippine Union Mission of SDA Church of Bayugan-Esperanza. Cosio avouched that had it been his intendment to sell, he
would not have disposed of it for a mere P2,000.00 in two installments but for P50,000.00 or P60,000.00. According to him,
the P2,000.00was not a consideration of the sale but only a form of help extended.
 A thorough analysis and perusal, nonetheless, of the Deed of Absolute Sale disclosed that it has the essential
requisites of contracts pursuant to xxx Article 1318 of the Civil Code, except that the consideration of P2,000.00 is
somewhat insufficient for a [1,069-square meter] land. Would then this inadequacy of the consideration render the contract
invalid?

Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence.

No evidence [of fraud, mistake or undue influence] was adduced by [petitioners].

xxx

Well-entrenched is the rule that a Certificate of Title is generally a conclusive evidence of [ownership] of the land. There is
that strong and solid presumption that titles were legally issued and that they are valid. It is irrevocable and indefeasible and the
duty of the Court is to see to it that the title is maintained and respected unless challenged in a direct proceeding. xxx The title
shall be received as evidence in all the Courts and shall be conclusive as to all matters contained therein.

[This action was instituted almost seven years after the certificate of title in respondents name was issued in 1980.] [20]

According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive

delivery thereof. On this, the noted author Arturo Tolentino had this to say:

The execution of [a] public instrument xxx transfers the ownership from the vendor to the vendee who may thereafter
exercise the rights of an owner over the same[21]

Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive delivery of the property on February 28,

1980 when the sale was made through a public instrument.[22] TCT No. 4468 was thereafter issued and it remains in the name of SDA-NEMM.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

SO ORDERED.

11
THIRD DIVISION
 [G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

DECISION
PANGANIBAN, J.:

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

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477,[1] which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed. [2]

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special
and unique facts and circumstances and the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price
of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;

ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of attachment) to
September 12, 1991 (date of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00
and P68,000.00, respectively, or for the total amount of P600,045.00, this Court noted that these items were attached to guarantee any judgment
that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of
this case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of
the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any
judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by the
sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until
full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this
Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded
and paid for by plaintiff to serve as its bond in favor of defendants.

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

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged
in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted
to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general
partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a Certification from the Securities and
Exchange Commission.[5] On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching
the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He
also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have
waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim
Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.[6] The trial court
maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. [8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a
Compromise Agreement executed by the three[9] in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon,
Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d)
an injunction and (e) damages.[10] The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing
net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3
Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to JL Holding
Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. [11]

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed
from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a
such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is
for commercial fishing x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a
partnership essentially is x x x. By a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a
common fund with the intention of dividing the profits among themselves (Article 1767, New Civil Code). [13]

Hence, petitioner brought this recourse before this Court.[14]

The Issues

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

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE
BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER
LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS GOODS.
 In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the Court must resolve this key
issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

This Courts Ruling

The Petition is devoid of merit.

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

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

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

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

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yaos
partner;

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the
sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim
Tong Lim only to serve as security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expenses for the boats would be shouldered
by Chua and Yao;

(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check,
because of which, Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for
(a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e)
damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already
enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them
the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term common fund under
Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed
that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a
partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing
nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have
proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof
would be divided among them.
 We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual
findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the exceptions to
the rule.[16] In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule
45.

Compromise Agreement Not the Sole Basis of Partnership

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

Petitioner Was a Partner, Not a Lessor

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

Corporation by Estoppel

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

Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no
corporation.

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

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position , entraps and
destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing
aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits,
unlike duels, are not to be won by a rapiers thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.

Third Issue: Validity of Attachment

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

12
FIRST DIVISION

[G.R. No. 119002. October 19, 2000]

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE
FOOTBALL FEDERATION, respondents.

DECISION
KAPUNAN, J.:

On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the Philippine
Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a travel agency to
the latter.[1] The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur
as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets
received, the Federation made two partial payments, both in September of 1989, in the total amount of P176,467.50.[2]
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of
P265,894.33.[3] On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00. [4]
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of the
Federation.[5] Thereafter, no further payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal capacity and
as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid
balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.[6]
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount P207,524.20,
representing the unpaid balance for the plane tickets, he averred that the petitioner has no cause of action against him either in his personal capacity
or in his official capacity as president of the Federation. He maintained that he did not guarantee payment but merely acted as an agent of the
Federation which has a separate and distinct juridical personality.[7]
 On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court. [8]
In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid
obligation of the Federation. In arriving at the said ruling, the trial court rationalized:

Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The
trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the
defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports association xxx."
This has not been denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation, its corporate existence is within the
personal knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the plaintiff that it is a mere sports
association, if it were a domestic corporation. But he did not.

xxx

A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its
officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable.

x x x[9]
The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest thereon at
the legal rate computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and another sum of
P15,000.00 for attorney's fees.

The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby dismissed.

With the costs against defendant Henri Kahn.[10]

Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a decision
reversing the trial court, the decretal portion of said decision reads:

WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered dismissing
the complaint against defendant Henri S. Kahn.[11]

In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed to
prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a separate and
distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid
obligation. The same was denied by the appellate court in its resolution of 8 February 1995, where it stated that:

As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine Football
Federation (PFF) as liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against the Philippine
Football Federation, and the plaintiff did not appeal from this decision. Hence, the Philippine Football Federation is not a party to this appeal and
consequently, no judgment may be pronounced by this Court against the PFF without violating the due process clause, let alone the fact that the
judgment dismissing the complaint against it, had already become final by virtue of the plaintiff's failure to appeal therefrom. The alternative prayer is
therefore similarly DENIED.[12]

Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors: [13]
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE PHILIPPINE
FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI
KAHN WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY
LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF
FULLY SETTLING THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE HONORABLE COURT OF
APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE
OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person. In the
assailed decision, the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise
known as the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which said
Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports
associations. This may be gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides:

SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the following functions, powers and duties:

1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes.

3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their purpose;

4. To affiliate with international or regional sports' Associations after due consultation with the executive committee;

xxx

13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with this Act.

Section 8 of P.D. 604, grants similar functions to these sports associations:

SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations shall have the following functions, powers,
and duties:

1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department and any amendment
thereto shall take effect upon approval by the Department:Provided, however, That no team, school, club, organization, or entity shall be admitted as
a voting member of an association unless 60 per cent of the athletes composing said team, school, club, organization, or entity are Filipino citizens;

2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department;

3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose;

4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of their sport;

5. Affiliate with international or regional sports associations after due consultation with the Department;

xxx

13. Perform such other functions as may be provided by law.

The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical
personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial,
with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded corporate status, such
does not automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special
law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football
Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the
Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the manner by which these
entities may acquire juridical personality. Section 11 of R.A. 3135 provides:

SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each individual sports in the
Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National
Sports' Association shall be filed with the executive committee together with, among others, a copy of the constitution and by-laws and a list of the
members of the proposed association, and a filing fee of ten pesos.

The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act and
particularly section three thereof. No application shall be held pending for more than three months after the filing thereof without any action having
been taken thereon by the executive committee. Should the application be rejected, the reasons for such rejection shall be clearly stated in a written
communication to the applicant. Failure to specify the reasons for the rejection shall not affect the application which shall be considered as unacted
upon: Provided, however, That until the executive committee herein provided shall have been formed, applications for recognition shall be passed
upon by the duly elected members of the present executive committee of the Philippine Amateur Athletic Federation. The said executive committee
shall be dissolved upon the organization of the executive committee herein provided: Provided, further, That the functioning executive committee is
charged with the responsibility of seeing to it that the National Sports' Associations are formed and organized within six months from and after the
passage of this Act.

Section 7 of P.D. 604, similarly provides:

SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for each individual sport in the
Philippines shall be filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the members of the
proposed association.

The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the objectives
of this Decree and has substantially complied with the rules and regulations of the Department: Provided, That the Department may withdraw
accreditation or recognition for violation of this Decree and such rules and regulations formulated by it.

The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the development
and promotion of the particular sport for which they are organized.
 Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be
recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports
Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence of the
Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine
Football Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited by either the
Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule that the Philippine Football
Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine
Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent.[14] As president
of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to
the position taken by the appellate court that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the
corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit
its existence.[15] The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the
doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective
incorporation.[16] In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in
Civil Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.

13
FIRST DIVISION

[G.R. No. 141994. January 17, 2005]

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE
OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.

DECISION
CARPIO, J.:

The Case

This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No.
40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision [3] of the Regional Trial Court of Legazpi City, Branch 10, in
Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima
liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys
fees and costs of suit.

The Antecedents

Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre).[5] Expos is aired every
morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities
and other Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents
against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for damages[7] against FBNI, Rima and Alegre
on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts:

JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because
if they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Several students
had approached me stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation
why is AMEC doing the same?

xxx

Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx

Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the
part of AMECs administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school.
However there would be no instructor for such subject. Students would be informed that course would be moved to a later date because the school
is still searching for the appropriate instructor.

xxx

It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception
because of funds support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there
are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the
support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy
for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the basis of the
latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these
foreign foundations to lift or suspend their donations temporarily.[8]

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in
their effort to minimize expenses in terms of salary are absorbing or continues to accept rejects. For example how many teachers in AMEC
are former teachers of Aquinas University but were removed because of immorality? Does it mean that the present administration of AMEC have the
total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground,
garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita
Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising or
compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in
atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the
chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her.

xxx

MEL RIMA:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and
physically misfits as teachers.

May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation, your
case is zero visibility. Dont insist.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in
salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why
she (Lola) was taken in as Dean.

xxx

xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become
members of society outside of campus will be liabilities rather than assets. What do you expect from a doctor who while studying at AMEC is
so much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar problems because not all students are
rich in their struggle to improve their social status are even more burdened with false regulations. xxx[9] (Emphasis supplied)

The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre transmitted
malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI as defendant for allegedly failing
to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer [10] alleging that the broadcasts against AMEC were fair
and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the goings-on in AMEC, [which is] an
institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares,
filed a Motion to Dismiss[11] on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that
it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should
(1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed
that it always reminds its broadcasters to observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent
language. Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a
KBP permit.
On 14 December 1992, the trial court rendered a Decision [12] finding FBNI and Alegre liable for libel except Rima. The trial court held that the
broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had
no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial
court found that FBNI failed to exercise diligence in the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial court
found Rimas statement within the bounds of freedom of speech, expression, and of the press. The dispositive portion of the decision reads:

WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial
utterances, which are not found by this court to be really very serious and damaging, and there being no showing that indeed the
enrollment of plaintiff school dropped, defendants Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station
DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-
BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.

SO ORDERED. [13] (Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals.
The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The
appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The
dispositive portion of the Court of Appeals decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY
ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.

SO ORDERED.[14]

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.[15]

The Ruling of the Court of Appeals

The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre failed to
overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their moral and social
duty to inform the public of the students gripes as insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made with
reckless disregard as to whether they were true or false. The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of
the students who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According
to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that they were impelled by their moral and social
duty to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping ground for morally and physically
misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the
students with unreasonable imposition and false regulations. [16]
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima and
Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees
because the libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily
liable to pay AMEC moral damages, attorneys fees and costs of suit.

Issues

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND
COSTS OF SUIT.

The Courts Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.[17] While AMEC did not
point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the
Civil Code. Article 30[18] authorizes a separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article
33[19] particularly provides that the injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries.
AMEC also invokes Article 19[20] of the Civil Code to justify its claim for damages. AMEC cites Articles 2176 [21] and 2180[22] of the Civil Code to hold
FBNI solidarily liable with Rima and Alegre.

I.
Whether the broadcasts are libelous
 A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or
circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor,
discredit and contempt. Rima and Alegres remarks such as greed for money on the part of AMECs administrators; AMEC is a dumping ground,
garbage of xxx moral and physical misfits; and AMEC students who graduate will be liabilities rather than assets of the society are libelous per se.
Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their civic duty to
air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further
points out that Rima and Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI
concludes that since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show adequately their good intention and justifiable motive in
airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have presented the public
issues free from inaccurate and misleading information.[26] Hearing the students alleged complaints a month before the expos,[27] they had sufficient
time to verify their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither
did they inquire about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he
merely went to AMEC to verify his report from an alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of
the students because they were many and not because there is proof that what they are saying is true.[28] This plainly shows Rima and Alegres
reckless disregard of whether their report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in the United States apply the
privilege of neutral reportage in libel cases involving matters of public interest or public figures. Under this privilege, a republisher who accurately and
disinterestedly reports certain defamatory statements made against public figures is shielded from liability, regardless of the republishers subjective
awareness of the truth or falsity of the accusation. [29] Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded
comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The privilege of
neutral reportage applies where the defamed person is a public figure who is involved in an existing controversy, and a party to that controversy
makes the defamatory statement.[30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,[31] FBNI contends that the
broadcasts fall within the coverage of qualifiedly privileged communications for being commentaries on matters of public interest. Such being the
case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:

[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair
comment means that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until
his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a
public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be
actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of
opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from
the facts.[32] (Emphasis supplied)

True, AMEC is a private learning institution whose business of educating students is genuinely imbued with public interest. The welfare of the
youth in general and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the newspaper articles
in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based
on established facts. The record supports the following findings of the trial court:

xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not
presented in court, nor even gave name of a single student who made the complaint to them, much less present written complaint or petition to that
effect. To accept this defense of defendants is too dangerous because it could easily give license to the media to malign people and establishments
based on flimsy excuses that there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and
irresponsible broadcasting which is inimical to public interests.

Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth
of the reports before they aired it, in order to prove that they are in good faith.

Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate
coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course
had already been given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R.
Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very
categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they
were offering.

The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is
there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order to
honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single
centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist.

Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made
to repeat all the other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no
laboratories in the school. No evidence was presented to prove the bases for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to
be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove
to be effective teachers like Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants
is past 75 but is found by this court to be still very sharp and effective. So is plaintiffs counsel.

Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.

The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this
court is aware that majority of the medical graduates of plaintiffs pass the board examination easily and become prosperous and responsible
professionals.[33]

Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as long
as it might reasonably be inferred from the facts.[34] However, the comments of Rima and Alegre were not backed up by facts. Therefore, the
broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio
Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

1. x x x

4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information.
x x x Furthermore, the station shall strive to present balanced discussion of issues. x x x.

xxx

7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they
conform to the provisions and standards of this code.

8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good
order in the presentation of public affairs and public issues. [36](Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in
the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The
Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are
measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other
professionals. A professional code of conduct provides the standards for determining whether a person has acted justly, honestly and with good faith
in the exercise of his rights and performance of his duties as required by Article 19[37] of the Civil Code. A professional code of conduct also provides
the standards for determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or good
customs under Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a corporation. [39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et
al.[41] to justify the award of moral damages. However, the Courts statement in Mambulao that a corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219[43] of the Civil Code. This provision expressly authorizes the
recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural
or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for
moral damages.[44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an honest mistake or the want of
character or reputation of the party libeled goes only in mitigation of damages. [46] Neither in such a case is the plaintiff required to introduce evidence
of actual damages as a condition precedent to the recovery of some damages. [47] In this case, the broadcasts are libelous per se. Thus, AMEC is
entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per
se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000
to P150,000.

III.
Whether the award of attorneys fees is proper
 FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that the instant
case does not fall under the enumeration in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce
evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions the
rationale for the award of attorneys fees.[49] In Inter-Asia Investment Industries, Inc. v. Court of Appeals,[50] we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be
awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual,
legal and equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation
and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason
for the award of attorneys fees.[51](Emphasis supplied)

While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and depends upon the
circumstances of each case, the Court of Appeals failed to point out any circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due
diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and
Alegre, undergo a very regimented process before they are allowed to go on air. Those who apply for broadcaster are subjected to interviews,
examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the minor
deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a family
in selecting and supervising them. Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was
delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by
any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit.[52] Joint tort feasors are
all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who
approve of it after it is done, if done for their benefit.[53] Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of
the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts.
As stated by the Court of Appeals, recovery for defamatory statements published by radio or television may be had from the owner of the station, a
licensee, the operator of the station, or a person who procures, or participates in, the making of the defamatory statements. [54] An employer and
employee are solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when the
employer authorizes or ratifies the defamation.[55] In this case, Rima and Alegre were clearly performing their official duties as hosts of FBNIs radio
program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that
time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without introducing any evidence to
prove that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its
broadcasters. FBNIs alleged constant reminder to its broadcasters to observe truth, fairness and objectivity and to refrain from using libelous and
indecent language is not enough to prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the industrys
code of conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters performance are but a few of the many ways of
showing diligence in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications.
However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs regimented process of application. Furthermore, FBNI
admits that Rima and Alegre had deficiencies in their KBP accreditation,[56] which is one of FBNIs requirements before it hires a broadcaster.
Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and
regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable
to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of
Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the award
of attorneys fees is deleted. Costs against petitioner.
SO ORDERED.

14
FIRST DIVISION

COASTAL PACIFIC G.R. No. 118692

TRADING, INC.,
Petitioner, Present:

- versus - Panganiban, CJ,

Chairman,

Ynares-Santiago,

SOUTHERN ROLLING MILLS, CO., INC. (now known Austria-Martinez,

as Visayan Integrated Steel Corporation), FAR EAST BANK & TRUST
COMPANY, PHILIPPINE COMMERCIAL INDUSTRIAL[1]BANK, EQUITABLE Callejo, Sr., and
BANKING CORPORATION, PRUDENTIAL BANK, BOARD OF TRUSTEES-
CONSORTIUM OF BANKS-VISCO, UNITED COCONUT PLANTERS BANK, Chico-Nazario, JJ
CITYTRUST BANKING CORPORATION, ASSOCIATED BANK, INSULAR
BANK OF ASIA AND AMERICA, INTERNATIONAL CORPORATE BANK,
COMMER-CIAL BANK OF MANILA, BANK OF THE PHILIPPINE ISLANDS,
NATIONAL STEEL CORPORA-TION, THE PROVINCIAL SHERIFF OF
BOHOL, and DEPUTY SHERIFF JOVITO DIGAL,[2]
Respondents.

Promulgated:

July 28, 2006

X -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - -- -- X
DECISION

PANGANIBAN, CJ:

irectors owe loyalty and fidelity to the corporation they serve and to its creditors. When these directors sit on the board as representatives of

shareholders who are also major creditors, they cannot be allowed to use their offices to secure undue advantage for those shareholders, in

fraud of other creditors who do not have a similar representation in the board of directors.
D
 The Case

Before us is a Petition for Review[3] under Rule 45 of the Rules of Court, assailing the September 27, 1994 Decision[4] and the January 5,

1995 Resolution[5] of the Court of Appeals (CA) in CA-GR CV No. 39385. The challenged Decision disposed as follows:

WHEREFORE, the decision of the Regional Trial Court is hereby AFFIRMED in toto.[6]

The challenged Resolution denied reconsideration.

The Facts

Respondent Southern Rolling Mills Co., Inc. was organized in 1959 for the purpose of engaging in a steel processing business. It was later

renamed Visayan Integrated Steel Corporation (VISCO).[7]

On December 11, 1961, VISCO obtained a loan from the Development Bank of the Philippines (DBP) in the amount of P836,000. This loan

was secured by a duly recorded Real Estate Mortgage over VISCOs three (3) parcels of land, including all the machineries and equipment found

there.[8]

On August 15, 1963, VISCO entered into a Loan Agreement[9] with respondent banks (later referred to as Consortium [10]) for the amount of

US$5,776,186.71 or P21,745,707.36 (at the then prevailing exchange rate) to finance its importation of various raw materials. To secure the full and

faithful performance of its obligation, VISCO executed on August 3, 1965, a second mortgage[11] over the same land, machineries and equipment in

favor of respondent banks. This second mortgage remained unrecorded.[12]

VISCO eventually defaulted in the performance of its obligation to respondent banks. This prompted the Consortium to file on January 26,

1966, Civil Case No. 1841, which was a Petition for Foreclosure of Mortgage with Petition for Receivership.[13] This case was eventually dismissed

for failure to prosecute.[14]

 Afterwards, negotiations were conducted between VISCO and respondent banks for the conversion of the unpaid loan into equity in the

corporation.[15]Vicente Garcia, vice-president of VISCO and of Far East Bank and Trust Company (FEBTC), [16] testified that sometime in 1966, the

creditor banks were given management of and control over VISCO.[17] In time,[18] in order to reorganize it, its principal creditors agreed to group

themselves into a creditors consortium.[19] As a result of the reorganized corporate structure of VISCO, respondent banks acquired more than 90

percent of its equity. Notwithstanding this conversion, it remained indebted to the Consortium in the amount of P16,123,918.02.[20]

Meanwhile from 1964 to 1965, VISCO also entered into a processing agreement with Petitioner Coastal Pacific Trading, Inc. (Coastal). Pursuant to

that agreement, petitioner delivered 3,000 metric tons of hot rolled steel coils to VISCO for processing into block iron sheets. Contrary to their

agreement, the latter was able to process and deliver to petitioner only 1,600 metric tons of those sheets. Hence, a total of 1,400 metric tons of hot

rolled steel coils remained unaccounted for.[21] The fact that petitioner was among the major creditors of VISCO was recognized by the latters vice-

president, Vicente Garcia.[22] Indeed, on October 9, 1970, it forwarded to petitioner a proposal for a Compromise Agreement. [23] Subsequent

developments indicate, however, that the parties did not arrive at a compromise.

Two years later, on October 20, 1972, Garcia wrote Arturo P. Samonte, representative of FEBTC[24] and director of VISCO,[25] a letter that reads as

follows:

In the light of recent development on IISMI and Elirol which were taken over by the government, I suggest that we take certain
precautionary measures to protect the interests of the Consortium of Banks. One such step may be to insure the safety of the
unexpended funds of VISCO from any contingencies in the future. As of now VISCOs account with the Far East Bank is in the
name of BOARD OF TRUSTEES VISCO CONSORTIUM OF BANKS. It may be better to eliminate the term VISCO and just call
the account BOARD OF TRUSTEES CONSORTIUM OF BANKS.[26]

According to a notation on this letter, an FEBTC assistant cashier named Silverio duly complied with the above request.[27] Indeed, events

would later reveal that the bank held a deposit account in the name of the Board of Trustees-Consortium of Banks.[28]

On September 20, 1974, respondent banks held a luncheon meeting[29] in the FEBTC Boardroom to discuss how they would address the

insistent demands of the DBP for VISCO to settle its obligations. Jose B. Fernandez, Jr., VISCOs then chairman and concurrent FEBTC

President,[30] expressed his apprehension that either the DBP or the government would soon pursue extra-judicial foreclosure against VISCO.

In this regard, Fernandez informed the members of the Consortium that he had received letter-offers from two corporations that were

interested in purchasing VISCOs generator sets.[31] After deliberating on the matter, the members decided to approve the sale of these two generator

sets to Filmag (Phil.), Inc. It was also agreed that the proceeds of the sale would be used to pay VISCOs indebtedness to DBP and to secure the

release of the first mortgage.[32] The Consortium agreed with Filmag on the following payment procedure:
 The payment procedure will be as follows: Filmag pays to VISCO; VISCO pays the Consortium; and then the Consortium
pays the DBP with the arrangement that the Consortium subrogates to the rights of the DBP as first mortgagee to the VISCO
plant. The Consortium further agreed to call a meeting of the VISCO board of directors for the purpose of considering and
formally approving the proposed sale of the 2 generators to Filmag.[33]

Accordingly, on October 4, 1974, the VISCO board of directors had a meeting in the FEBTC Boardroom. [34] The board was asked to decide how

VISCO would settle its debt to DBP: whether by asking the Consortium to put up the necessary amount or by accepting Filmags offer to

purchase VISCOs generator sets.[35] The latter option was unanimously chosen[36] in a Resolution worded as follows:

RESOLVED, That the offer of Filmag (Philippines) Inc. in their letters of December 14, 1973 and March 19, 1974 to
purchase two (2) units of generator sets, including standard accessories, of VISCO is hereby accepted under the following terms
and conditions:

xxxxxxxxx

2. The price for the two (2) generator sets is PESOS: ONE MILLION FIVE HUNDRED FIFTY THOUSAND FIVE
HUNDRED SEVENTY TWO ONLY (P1,550,572) x x x and shall be payable upon signing of a letter-agreement and which shall
be later formalized into a Deed of Sale. The amount, however, shall be held by the depositary bank of VISCO, Far East Bank
and Trust Company, in escrow and shall be at VISCOs disposal upon the signing of Filmag of the receipt/s of delivery of the said
two (2) generator sets.

xxxxxxxxx

FURTHER RESOLVED, That the sales proceeds of PESOS: ONE MILLION FIVE HUNDRED FIFTY THOUSAND
FIVE HUNDRED SEVENTY TWO ONLY (P1,550,572) shall be utilized to pay the liability of VISCO with the Development Bank
of the Philippines.[37]

The sale of the generator sets to Filmag took place and, according to the testimony of Garcia, the proceeds were deposited with FEBTC in a special

account held in trust for the Consortium.[38]

A year after, on May 22, 1975, petitioner filed with the Pasig Regional Trial Court (RTC) a Complaint[39] for Recovery of Property and

Damages with Preliminary Injunction and Attachment.[40] Petitioners allegation was that VISCO had fraudulently misapplied or converted the finished

steel sheets entrusted to it.[41] On June 3, 1975, Judge Pedro A. Revilla issued a Writ of Preliminary Attachment over its properties that were not

exempt from execution.[42]

In compliance with the Writ, Sheriff Andres R. Bonifacio attempted to garnish the account of VISCO in FEBTC,[43] which denied holding that

account.Instead, the bank admitted that what it had was a deposit account in the name of the Board of Trustees-Consortium of Banks, particularly

Account No. 2479-1.[44] FEBTC reported to Sheriff Bonifacio that it had instructed its accounting department to hold the account, subject to the prior

liens or rights in favor of [FEBTC] and other entities.[45]

While petitioners case was pending, VISCOs vice-president (Garcia) and director (Arturo Samonte) requested from FEBTC a cash advance

of P1,342,656.88 for the full settlement of VISCOs account with DBP.[46] On June 29, 1976, FEBTC complied by issuing Check No. FE239249

for P1,342,656.88, payable to [DBP] for [the] account of VISCO.[47] On even date, DBP executed a Deed of Assignment of Mortgage Rights Interest
and Participation[48] in favor of Respondent Consortium of Banks. The deed stated that, in consideration of the payment made, all of DBPs rights

under the mortgage agreement with VISCO were being transferred and conveyed to the Consortium. [49] Thus did the latter

obtain DBPs recorded primary lien over the real and chattel properties of VISCO.

On September 23, 1980, the Consortium filed a Petition for Extra-Judicial Foreclosure with the Office of the Provincial Sheriff

of Bohol.[50] The Notice of Extrajudicial Foreclosure of Mortgage, published in the Bohol Newsweek on October 10, 1980, announced that the auction

sale was scheduled for November 11, 1980.[51]

On November 3, 1980, Southern Industrial Projects, Inc. (SIP), which was a judgment creditor [52] of VISCO, filed Civil Case No. 3383. It was

a Complaint[53] for Declaration of Nullity of the Mortgage and Injunction to Restrain the Consortium from Proceeding with the Auction Sale. SIP

argued that DBP had actually been paid by VISCO with the proceeds from the sale of the generator sets. Hence, the mortgage in favor of that bank

had been extinguished by the payment and could not have been assigned to the Consortium.[54] A temporary restraining order against the latter was

thus successfully obtained; the provincial sheriff could not proceed with the auction sale of the mortgaged assets.[55] But SIPs victory was short-

lived. On March 2, 1984, Civil Case No. 3383 was decided in favor of the Consortium.[56] Judge Andrew S. Namocatcat ruled thus:
The evidence of the plaintiff is only anchored on the fact that the deed of assignment executed by the DBP in favor of
the defendant banks is an act which would defraud creditors. It is the thinking of the court that the payment of defendant banks
to DBP of VISCOs loan and the execution of the DBP of the deed of assignment of credit and rights to the defendant banks is in
accordance with Article 1302 and 1303 of the New Civil Code, and said transaction is not to defraud creditors because the
defendant banks are also creditors of VISCO.[57]

On June 14, 1985, this Decision was affirmed by the Intermediate Appellate Court in CA-GR No. 03719. [58]

The auction sale of VISCOs mortgaged properties took place on March 19, 1985 and the Consortium emerged as the highest

bidder.[59] The Certificate of Sale[60] in its favor was registered on May 22, 1985.[61]

On June 27, 1985, VISCO executed through Vicente Garcia, a Deed of Assignment of Right of Redemption [62] in favor of the National Steel

Corporation (NSC), in consideration of P100,000. [63] On the same day, the Consortium sold the foreclosed real and personal properties of VISCO to

the NSC.[64]

On August 16, 1985, petitioner filed against respondents Civil Case No. 3929, which was a Complaint for Annulment or Rescission of Sale,

Damages with Preliminary Injunction.[65] Coastal alleged that, despite the Writ of Attachment issued in its favor in the still pending Civil Case No.
21272, the Consortium had sold the properties to NSC. Further, despite the attachment of the properties, the Consortium was allegedly able to sell

and place them beyond the reach of VISCOs other creditors.[66] Thus imputing bad faith to respondent banks actions, petitioner said that the sale

was intended to defraud VISCOs other creditors.

Petitioner further contended that the assignment in favor of the Consortium was fraudulent, because DBP had been paid with the proceeds

from the sale of the generator sets owned by VISCO, and not with the Consortiums own funds. [67] Petitioner offered as proof the minutes of the

meeting[68] in which the transaction was decided. Respondent Consortium countered that the minutes would in fact readily disclose that the intention

of its members was to apply the proceeds to a partial payment to DBP.[69] Respondent insisted that it used its own funds to pay the bank.[70]

On August 20, 1985, a temporary restraining order (TRO)[71] was issued by Judge Mercedes Gozo-Dadole against VISCO, enjoining it from

proceeding with the removal or disposal of its properties; the execution and/or consummation of the foreclosure sale; and the sale of the foreclosed

properties to NSC. On September 6, 1985, the trial court issued an Order requiring the Consortium to post a bond of P25 million in favor of Coastal

for damages that petitioner may suffer from the lifting of the TRO. The bond filed was then approved by the RTC in its Order of September 13,

1985.[72]

On December 15, 1986, Civil Case No. 21272 was finally decided by Judge Nicolas P. Lapena, Jr., in favor of Coastal.[73] VISCO was ordered to pay

petitioner the sum of P851,316.19 with interest at the legal rate, plus attorneys fees of P50,000.00 and costs.[74] Coastal filed a Motion for

Execution,[75] but the judgment has remained unsatisfied to date.

On January 5, 1992, a Decision[76] on Civil Case No. 3929 was rendered as follows:

WHEREFORE, this Court hereby renders judgment in favor of the defendants and against the plaintiff Coastal Pacific
Trading, Inc. BY WAY OF THE MAIN COMPLAINT, to wit:

1. Declaring the extrajudicial foreclosure sale conducted by the sheriff and the corresponding
certificate of sale executed by the defendant sheriffs on March 15, 1985 relative to the real properties of
the defendant SRM/VISCO of Cortes, Bohol, Philippines, which were registered in the Register of Deeds
of Bohol, on May 22, 1985 and the Transfer of Assignment to the defendant National Steel Corporation of
any or part of the foreclosed properties arising from the extrajudicial foreclosure sale as valid and legal;
2. Ordering the plaintiff Coastal Pacific Trading Inc. to pay the defendant Consortium of Banks[,]
Southern Rolling Mills, Co., Inc., Far East Bank & Trust Company, Philippine Commercial Industrial Bank,
Equitable Banking Corporation, Prudential Bank, Board of Trustees-Consortium of Banks- [VISCO], United
Coconut Planters Bank, City Trust Banking Corporation, Associated Bank, Insular Bank of Asia and
America, International Corporate Bank, Commercial Bank of Manila, Bank of the Philippine Islands and the
National Steel Corporation in the instant case the amount of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) representing damages;

3. Ordering the plaintiff The (sic) Coastal Pacific Trading Inc. to pay the defendants the amount
of FIFTEEN THOUSAND PESOS (P15,000.00) representing attorneys fees;

4. Dismissing the Amended Complaint of the plaintiff;

5. Ordering the plaintiff to pay the cost; AND

 BY WAY OF CROSS CLAIM INTERPOSED
BY THE DEFENDANT National Steel Corporation against the Consortium of Banks and SRM/VISCO, the
same is dismissed for lack of merit, without pronouncement as to cost.[77]

Insisting that the trial court erred in holding that it had failed to prove its case by preponderance of evidence, Coastal filed an appeal with the

CA. Allegedly, the purported insufficiency of proof was based on the sole ground that petitioner did not file an objection when the properties were

sold on execution. It contended that the court a quo had arrived at this erroneous conclusion by relying on inapplicable jurisprudence. [78]

Additionally, Coastal argued that the trial court had erred in not annulling the foreclosure proceedings and sale for being fictitious and done

to defraud petitioner as VISCOs creditor. Supposedly, the DBP mortgage had already been extinguished by payment; thus, the bank could not have

assigned the contract to the Consortium.[79]

Petitioner also prayed for the annulment of the sale in favor of NSC on the ground that the latter was a party to the fraudulent foreclosure

and, hence, not a buyer in good faith.[80]

Ruling of the Court of Appeals

At the outset, the CA stressed that the validity of the Consortiums mortgage, foreclosure, and assignments had already been upheld in

CA-GR CV No. 03719, entitled Southern Industrial Projects v. United Coconut Planters Bank [81] Citing Valencia v. RTC

of Quezon City, Br. 90[82] and Vda. de Cruzo v. Carriaga,[83]the CA explained that the absolute identity of parties was not necessary for the

application of res judicata. All that was required was a shared identity of interests, as shown by the identity of reliefs sought by one person in a

prior case and by another in a subsequent case.

While Coastal was not a party to Southern Industrial Projects, it should nevertheless be bound by that Decision, because it had raised substantially the

same claim and cause of action as SIP, according to the appellate court. The CA held that the basic reliefs sought by Coastal and SIP were substantially the

same: the nullification of the Deed of Assignment in favor of the Consortium, the foreclosure sale, and the subsequent sale to NSC. Because this identity

of reliefs sought showed an identity of interests, the CA concluded that it need not rule on those issues.[84]

As to the issue that the DBP mortgage had been extinguished by payment, the CA quoted its earlier Decision in Southern Industrial

Projects:

The evidence shows that the proceeds of the sale of the two generating sets were applied by defendants-appellees in
the payment of the outstanding obligation of VISCO. It appears that said proceeds were deposited in the bank account of the
consortium of creditors to avoid it being garnished by the creditors notwithstanding the set-off, VISCO was still indebted to the
defendants-appellees.
 The evidence x x x shows that upon VISCOs request for [cash] advance, the Far East Banks (sic) and Trust Co., the
manager of the consortium of creditors, issued FEBTC check No. 239249 on June 29, 1976 in the amount of P1,342,656.68
payable to the DBP to pay off its loan to the latter.

xxxxxxxxx

x x x. A public document celebrated with all the legal formalities under the safeguard of notarial certificate is evidence
against a party, and a high degree [of] proof is necessary to overcome the legal presumption that the recital is true. The biased
and interested testimony of one of the parties to such instrument who attempts to vary or repudiate what it purports to be, cannot
overcome the evidentiary force of what is recited in the document. [85]

The appellate court also rejected petitioners contention that the Consortiums Petition for Extrajudicial Foreclosure was already barred by

the earlier resort to a judicial foreclosure. The CA clarified that in filing a Petition for Judicial Foreclosure, the Consortium had pursued its right as
junior encumbrancer. On the other hand, the Consortium filed a Petition for Extrajudicial Foreclosure as a first encumbrancer by virtue

of DBPs assignment in its favor.[86]

The CA also rejected petitioners theory of extinguishment of obligation by merger. It observed that the merger could not have possibly

taken place, because respondent banks and VISCO were not creditors and debtors in their own right. [87]

Petitioners Motion for Reconsideration,[88] which was received by the CA on November 15, 1994,[89] was denied for lack of merit.

Hence, this Petition.[90]

Issues

Petitioner raises the following issues for our consideration:

Respondent Court of Appeals, seemingly to avoid the irrefutable evidence of fraud and collusion practised by [respondents]
against [Petitioner] Coastal, erroneously sustained the trial courts holding that the present case is barred by res judicata because
of the previous decision in the case of Southern Industrial Projects, Inc., vs. United Coconut Planters Bank, CA-G.R. No. 03719,
considering that the elements that call for the application of this rule are not present in the case at bar, and the exceptions
allowed by this Honorable Supreme Court are not applicable here for variance or distinction in facts and issues, x x x:[91]
 "II

Respondent Court of Appeals further erred in not annulling the Deed of Assignment of the DBP mortgage x x x, the extrajudicial
foreclosure proceedings of the two mortgages x x x, and the separate sale of the land and machineries as real and personal
properties by the foreclosing banks to NSC, as well as the assignment or waiver of SRM/Viscos legal right of redemption over
the foreclosed properties, for being fraudulently executed through collusion among the [respondents] and in fraud of
SRM/Viscos creditor, [Petitioner] Coastal, x x x;[92]

Stripped of nonessentials, the two issues may be restated as follows:

1. Whether the present action is barred by res judicata

2. Whether respondents disposed of VISCOs assets in fraud of the creditors

The Courts Ruling

The Petition is meritorious.

First Issue:

Res judicata

The CA cited Valencia v. RTC of Quezon City[93] to support the finding that SIP and Coastal were substantially the same parties. We

distinguish.

In Valencia, the plaintiff-intervenor in the first case, Cario, claimed Lot 4 based on an alleged purchase of Valencias squatters rights over

the property. The trial court dismissed the claim and held that no such purchase ever took place.[94] It also held that, on the assumption that a sale

had taken place, the sale was null and void for being contrary to the pertinent housing law. It also found that all current occupants of Lot 4 were

illegal squatters; thus, it ordered their ejectment.

 When this first case attained finality, Carinos daughter, Catbagan, filed another suit against Valencia. Catbagan challenged the applicability

of the ejectmentOrder issued to her; as an occupant of the lot, she was allegedly not a party to the first case. Her Petition was denied for lack of

merit.[95]

The execution of the Decision in the first case was again forestalled when Llanes, Carios sister-in-law who was another occupant of Lot 4,

filed another suit against the same respondent. Like Cario, Llanes insisted on having purchased the subject lot from Valencia.[96] This Court ruled

that the suit was barred by resjudicata. There was a substantial identity of parties, because the right claimed by both Cario and Llanes were based

on each ones alleged purchase of Valencias squatters rights.[97]

In the first case, sales of squatters rights were already categorically declared null and void for being contrary to

law. Thus, Llanes admission that she had purchased Valencias squatters rights placed her in the same category as Cario. The purchase could not

be treated differently, because the final and executory Decision held that all purchases of squatters rights (regardless of who the purchasers were)

were null and void.[98]

Further, the earlier ruling held that the present occupants are illegal squatters. That ruling included Llanes, who was admittedly one of the

occupants.[99]Simply put, she and Valencia were considered identical parties for purposes of res judicata, because they were obviously litigating

under the same void title and capacity as vendees of squatters rights and as occupants of Lot 4.

Moreover, we held in Valencia that Llanes suit was merely a clear attempt to prevent or delay the execution of the judgment in the first

case, which had become final by reason of the three affirmances by this Court. The pattern to obstruct the execution of the first judgment was

obvious: after Cario lost the first case, her daughter filed a second one. When the daughter lost the second, the daughter-in-law filed a third case. It

may be observed that the three successive plaintiffs were all occupants of the same property and belonged to the same family; this fact was also

indicative of their privity.

Given this background, it becomes clear that the finding of a substantial identity of parties in Valencia was based on its peculiar factual

circumstances, which are different from those in the present case.

Unlike Llanes, Coastal is not asserting a right that has been categorically declared null and void in a prior case. In fact, its right based on

the processing agreement was upheld in Civil Case No. 21272. Clearly, Coastal cannot be treated in the same manner as Llanes.

The CA erred in applying Southern Industrial Projects v. United Coconut Planters Bank [100] as a bar by res judicata with respect to the

present case. For this principle to apply, the following elements must concur: a) the former judgment was final; b) the court that rendered it had

jurisdiction over the subject matter and the parties; c) the judgment was based on the merits; and, d) between the first and the second actions, there

is an identity of parties, subject matters, and causes of action.[101]

It is axiomatic that res judicata does not require an absolute, but only a substantial, identity of parties. There is a substantial identity when

there is privitybetween the two parties or they are successors-in-interest by title subsequent to the commencement of the action, litigating for the
same thing, under the same title, and in the same capacity.[102] Petitioner was not acting in the same capacity as SIP when it filed Civil Case No.

3383, which eventually became AC-GR CV No. 03719. It brought this latter action as a creditor under a processing agreement with VISCO; on the

other hand, the latter was sued by SIP, based on an alleged breach of their management contract. Very clearly, their rights were entirely distinct and

separate from each other. In no manner were these two creditors privies of each other.

The causes of action in the two Complaints were also different. Causes of action arise from violations of rights. A single right may be

violated by several acts or omissions, in which case the plaintiff has only one cause of action. Likewise, a single act or omission may violate several
rights at the same time, as when the act constitutes a violation of separate and distinct legal obligations.[103] The violation of each of these separate

rights is a separate cause of action in itself.[104]Hence, although these causes of action arise from the same state of facts, they are distinct and

independent and may be litigated separately; recovery on one is not a bar to subsequent actions on the others.[105]

In the present case, the right of SIP (arising from its management contract with VISCO) is totally distinct and separate from the right of

Coastal (arising from its processing contract with VISCO). SIP and Coastal are asserting distinct rights arising from different legal obligations of the

debtor corporation. Thus, VISCOs violation of those separate rights has given rise to separate causes of action.

The confusion in the resolution of the issue of identity of parties occurred, because the two creditors were assailing the same transactions

of VISCO on the same grounds. Since the two cases they filed presented similar legal issues, the appellate court held that its ruling in AC-GR CV

No. 03719 was also applicable to the instant case.

Common but palpable is this misconception of the doctrine of res judicata. Persons do not become privies by the mere fact that they are

interested in the same question or in proving the same set of facts, or that one person is interested in the result of a litigation involving the

other. Hence, several creditors of one debtor cannot be considered as identical parties for the purpose of assailing the acts of the debtor. They have

distinct credits, rights, and interests, such that the failure of one to recover should not preclude the other creditors from also pursuing their legal

remedies.

Further, petitioner, which was not a party to Southern Industrial Projects (their causes of action being separate and distinct), did not have

the opportunity to be heard in that case, much less to present its own evidence. Thus, to bind petitioner to the Decision in that case would clearly

violate its rights to due process. As a separate party, it has the right to have its arguments and evidence evaluated on their own merits.

Second Issue:
Fraud of Creditors

We now come to the heart of the Petition. Coastal alleges that the assignment of mortgage, the extrajudicial foreclosure proceedings, and

the sale of the properties of VISCO should all be rescinded on the ground that they were done to defraud the latters creditors.
 The CA found no merit in petitioners arguments. It ruled that the assignment conformed to the requirements of law; that the consideration

for the assignment had allegedly been given by FEBTC; and that, hence, the Consortium had a right to foreclose on the mortgaged properties.

By focusing on the innate validity of these Contracts, the CA totally overlooked the issue of fraud as a ground for rescission. Elementary is
the principle that the validity of a contract does not preclude its rescission. Under Articles 1380 and 1381 (3) of the Civil Code, contracts that are

otherwise valid between the contracting parties may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. [106] In

fact, rescission implies that there is a contract that, while initially valid, produces a lesion or pecuniary damage to someone. [107] Thus, when the CA
confined itself to the issue of the validity of these contracts, it did not at all address the heart of petitioners cause of action: whether these

transactions had been undertaken by the Consortium to defraud VISCOsother creditors.

There is more than a preponderance of evidence showing the Consortiums deliberate plan to defraud VISCOs other creditors.

Consortium Banks as Directors

It will be recalled that Respondent Consortium took over management and control of VISCO by acquiring 90 percent of the latters

equity. Thus, 9 out of the 10 directors of the corporation were all officials of the Consortium, [108] which may thus be said to have effectively occupied

and/or controlled the board.Significantly, nowhere in the records can we find any denial by respondent of this allegation by petitioner.[109]

As directors of VISCO, the officials of the Consortium were in a position of trust; thus, they owed it a duty of loyalty. This trust relationship
sprang from the fact that they had control and guidance over its corporate affairs and property. [110] Their duty was more stringent when it became

insolvent or without sufficient assets to meet its outstanding obligations that arose. Because they were deemed trustees of the creditors in those

instances, they should have managed the corporations assets with strict regard for the creditors interests. When these directors became corporate
creditors in their own right, they should not have permitted themselves to secure any undue advantage over other creditors.[111] In the instant case,

the Consortium miserably failed to observe its duty of fidelity towards VISCO and its creditors.

Duty of the Consortium Banks

to VISCOs Creditors

Recall that as early as 1966, the Consortium, through its directors on the board of VISCO, had already assumed management and control

over the latter.Hence, when VISCO recognized its outstanding liability to petitioner in 1970 and offered a Compromise Agreement,[112] respondent

banks were already at the helm of the debtor corporation. The members of the Consortium, therefore, cannot deny that they were aware of those

claims against the corporation.Nonetheless, they did not adopt any measure to protect petitioners credit.
 Quite the opposite, they even took steps to hide VISCOs unexpended funds. Garcias 1972 letter to Samonte unmistakably reveals that

they kept those funds in an account named Board of Trustees VISCO Consortium of Banks. This fact alone shows an effort to hide, with the evident

intent to keep, those funds for themselves. The letter even says that, for the protection of the Consortium, the name VISCO should be eliminated

entirely, so that the account name would read Board of Trustees Consortium of Banks. Clearly, this particular move was found to be necessary to

avoid a takeover by the government, which was also a creditor of VISCO.[113] This express intent of the latter, under the direction and for the benefit

of the Consortium, corroborated petitioners contention that respondent banks had defrauded VISCOs creditors.

Assignment of Mortgage

in Favor of the Consortium Banks

The assignment of mortgage in favor of the Consortium also bears the earmarks of fraud. Initially, respondent banks had agreed that

VISCO should sell two of its generator sets, so that the proceeds could be utilized to pay DBP. This plan was direct, simple, and would extinguish the

encumbrance in favor of the bank.

Then, quite surprisingly, the Consortium set down the following payment procedure: Filmag would pay VISCO; the latter would pay the

Consortium, which would pay DBP; and the Consortium would then subrogate DBP to the latters rights as first mortgagee. One is then led to ask: if

the intention was to pay DBP; from the sales proceeds of the generator sets, why did the money have to pass through the Consortium?

The answer lies in the nature of respondents mortgage. It will be recalled that this mortgage remained unrecorded and not legally binding

on the other creditors.[114] Thus, if DBP had been directly paid by VISCO, the latter could have freed up its properties to the satisfaction of all its other

creditors. This procedure would have been fair to all, but it was not followed by the Consortium.

Instead, the proceeds from the sale of the generator sets were first paid to respondent banks, which used the money to pay DBP. The last

step in the payment procedure explains the reason for this preferred though roundabout manner of payment. This final step entitled the Consortium

to obtain DBPsprimary lien through an assignment by allowing it to pay VISCOs loan to the bank, without incurring additional expenses.

In the end, by collecting the money from VISCO, respondent banks recovered what they had ostensibly remitted to DBP. Moreover, the

primary lien that respondent banks acquired allowed them, as unsecured creditors of VISCO, to foreclose on the assets of the corporation without
regard to its inferior claims. It was a clever ruse that would have worked, were it not done by creditors who were duty-bound, as directors, not to take

clever advantage of other creditors.

 To be sure, there was undue advantage. The payment scheme devised by the Consortium continued the efficacy of the primary lien, this

time in its favor, to the detriment of the other creditors. When one considers its knowledge that VISCOs assets might not be enough to meet its

obligations to several creditors,[115]the intention to defraud the other creditors is even more striking. Fraud is present when the debtor knows that its

actions would cause injury.[116]

The assignment in favor of the Consortium was a rescissible contract for having been undertaken in fraud of creditors.[117] Article 1385 of

the Civil Code provides for the effect of rescission, as follows:

Rescission creates the obligation to return the things which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he
may be obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of
third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

Indeed, mutual restitution is required in all cases involving rescission. But when it is no longer possible to return the object of the contract,

an indemnity for damages operates as restitution. The important consideration is that the indemnity for damages should restore to the injured party

what was lost.

In the case at bar, it is no longer possible to order the return of VISCOs properties. They have already been sold to the NSC, which has not

been shown to have acted in bad faith. The party alleging bad faith must establish it by competent proof. Sans that proof, purchasers are deemed to
be in good faith, and their interest in the subject property must not be disturbed. Purchasers in good faith are those who buy the property of another

without notice that some other person has a right to or interest in the property; and who pay the full and fair price for it at the time of the purchase, or

before they get notice of some other persons claim of interest in the property. [118]

In the present case, petitioner failed to discharge its burden of proving bad faith on the part of NSC. There is insufficient evidence on

record that the latter participated in the design to defraud VISCOs creditors. To NSC, petitioner imputes fraud from the sole fact that the former was

allegedly aware that its vendor, the Consortium, had taken control over VISCO including the corporations assets. [119] We cannot appreciate how
knowledge of the takeover would necessarily implicate anyone in the Consortiums fraudulent designs. Besides, NSC was not shown to be privy to

the information that VISCO had no other assets to satisfy other creditors respective claims.

The right of an innocent purchaser for value must be respected and protected, even if its vendors obtained their title through

fraud.[120] Pursuant to this principle, the remedy of the defrauded creditor is to sue for damages against those who caused or employed the

fraud. Hence, petitioner is entitled to damages from the Consortium.

Award of Damages

It is essential that for damages to be awarded, a claimant must satisfactorily prove during the trial that they have a factual basis, and that the

defendants acts have a causal connection to them.[121] Thus, the question of damages should normally call for a remand of the case to the lower

court for further proceedings. Considering, however, the length of time that petitioners just claim has been thwarted, we find it in the best interest of
substantial justice to decide the issue of damages now on the basis of the available records. A remand for further proceedings would only result in a

needless delay.

Going over the records of the case, we find that petitioner has a final and executory judgment in its favor in Civil Case No. 21272. The

judgment in that case reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs ordering defendant VISCO/SRM to pay the
plaintiffs the sum of P851,316.19 with interest thereon at the legal rate from the filing of this complaint, plus attorneys fees
of P50,000.00 and to pay the costs.[122]

The foregoing is the judgment credit that petitioner cannot enforce against VISCO because of Respondent Consortiums fraudulent

disposition of the corporations assets. In other words, the above amounts define the extent of the actual damage suffered by Coastal and the amount

that respondent has to restore pursuant to Article 1385.

On the basis of the finding of fraud, the award of exemplary damages is in order, to serve as a warning to other creditors not to abuse their

rights. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good. By

their nature, exemplary damages should be imposed in an amount sufficient and effective to deter possible future similar acts by respondent

banks. The court finds the amount of P250,000 sufficient in the instant case.

As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or

sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. [123] The only exception to this rule is when the corporation has a

good reputation that is debased, resulting in its humiliation in the business realm. [124] In the present case, the records do not show any evidence that

the name or reputation of petitioner has been sullied as a result of the Consortiums fraudulent acts. Accordingly, moral damages are not warranted.
WHEREFORE, the Petition is GRANTED. The assailed Decision of the Court of Appeals dated September 27, 1994, and its Resolution

dated January 5, 1995, are hereby REVERSED and SET ASIDE. Respondent Consortium of Banks is ordered to PAY Petitioner Coastal Pacific

Trading, Inc., the sum adjudged by the Regional Trial Court of Pasig, Branch 167, in Civil Case No. 21272 entitled Coastal Pacific Trading, Felix de

la Costa, and Aurora del Banco v. Visayan Integrated Corporation, to wit: x x x the sum of P851,316.19 with interest thereon at the legal rate from

the filing of [the] [C]omplaint, plus attorneys fees of P50,000 and x xx the costs. Respondent Consortium of Banks is further ordered to pay petitioner

exemplary damages in the amount of P250,000.

SO ORDERED.

15

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 101897. March 5, 1993.

LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN, LYCEUM OF
CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES,
LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC., respondents.

Quisumbing, Torres & Evangelista Law Offices and Ambrosio Padilla for petitioner.

Antonio M. Nuyles and Purungan, Chato, Chato, Tarriela & Tan Law Offices for respondents.

Froilan Siobal for Western Pangasinan Lyceum.

SYLLABUS

1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME WHICH IS IDENTICAL OR CONFUSINGLY SIMILAR
TO THAT OF ANY EXISTING CORPORATION, PROHIBITED; CONFUSION AND DECEPTION EFFECTIVELY PRECLUDED BY THE
APPENDING OF GEOGRAPHIC NAMES TO THE WORD "LYCEUM". The Articles of Incorporation of a corporation must, among other things,
set out the name of the corporation. Section 18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned:
"Section 18. Corporate name. No corporate name may be allowed by the Securities an Exchange Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing
or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation
under the amended name." The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or
deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing
laws," is the avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and
duties, and the reduction of difficulties of administration and supervision over corporations. We do not consider that the corporate names of private
respondent institutions are "identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names
of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic
names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the
Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines.

2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED WITH EXCLUSIVITY. It is claimed, however,
by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that word, although originally a
generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents herein. The doctrine of secondary
meaning originated in the field of trademark law. Its application has, however, been extended to corporate names sine the right to use a corporate
name to the exclusion of others is based upon the same principle which underlies the right to use a particular trademark or tradename. In Philippine
Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary meaning was elaborated in the following terms: " . . . a word or phrase originally
incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise descriptive, might nevertheless
have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing
public, the word or phrase has come to mean that the article was his product." The question which arises, therefore, is whether or not the use by
petitioner of "Lyceum" in its corporate name has been for such length of time and with such exclusivity as to have become associated or identified
with the petitioner institution in the mind of the general public (or at least that portion of the general public which has to do with schools). The Court of
Appeals recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, a word or phrase originally incapable of
exclusive appropriation with reference to an article in the market, because geographical or otherwise descriptive might nevertheless have been used
so long and so exclusively by one producer with reference to this article that, in that trade and to that group of the purchasing public, the word or
phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the
distinctiveness into which the name or phrase has evolved through the substantial and exclusive use of the same for a considerable period of time. .
. . No evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired
secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove only that the appellant had been using the disputed
word for a long period of time. . . . In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of
time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because the appellant failed to prove
that it had been using the same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that confusion will
surely arise if the same word were to be used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned
errors must necessarily fail." We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly
that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning.
Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little later with other
private respondent institutions which registered with the SEC using "Lyceum" as part of their corporation names. There may well be other schools
using Lyceum or Liceo in their names, but not registered with the SEC because they have not adopted the corporate form of organization.

3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY ARE CONFUSINGLY OR DECEPTIVELY SIMILAR
TO ANOTHER CORPORATE ENTITY'S NAME. petitioner institution is not entitled to a legally enforceable exclusive right to use the word
"Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given
corporate name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of
"Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the
names of private respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.

DECISION

FELICIANO, J p:

Petitioner is an educational institution duly registered with the Securities and Exchange Commission ("SEC"). When it first registered with the SEC
on 21 September 1950, it used the corporate name Lyceum of the Philippines, Inc. and has used that name ever since.

On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private respondents, which are also educational institutions, to
delete the word "Lyceum" from their corporate names and permanently to enjoin them from using "Lyceum" as part of their respective names.

Some of the private respondents actively participated in the proceedings before the SEC. These are the following, the dates of their original SEC
registration being set out below opposite their respective names:

Western Pangasinan Lyceum 27 October 1950

Lyceum of Cabagan 31 October 1962

Lyceum of Lallo, Inc. 26 March 1972

Lyceum of Aparri 28 March 1972

Lyceum of Tuao, Inc. 28 March 1972

Lyceum of Camalaniugan 28 March 1972

The following private respondents were declared in default for failure to file an answer despite service of summons:

Buhi Lyceum;

Central Lyceum of Catanduanes;

Lyceum of Eastern Mindanao, Inc.; and

Lyceum of Southern Philippines

Petitioner's original complaint before the SEC had included three (3) other entities:

1. The Lyceum of Malacanay;

2. The Lyceum of Marbel; and

3. The Lyceum of Araullo

The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum of Marbel, for failure to serve summons upon
these two (2) entities. The case against the Liceum of Araullo was dismissed when that school motu proprio change its corporate name to
"Pamantasan ng Araullo."

The background of the case at bar needs some recounting. Petitioner had sometime before commenced in the SEC a proceeding (SEC-Case No.
1241) against the Lyceum of Baguio, Inc. to require it to change its corporate name and to adopt another name not "similar [to] or identical" with that
of petitioner. In an Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the corporate name of petitioner and that of the Lyceum
of Baguio, Inc. were substantially identical because of the presence of a "dominant" word, i.e., "Lyceum," the name of the geographical location of
the campus being the only word which distinguished one from the other corporate name. The SEC also noted that petitioner had registered as a
corporation ahead of the Lyceum of Baguio, Inc. in point of time, 1 and ordered the latter to change its name to another name "not similar or identical
[with]" the names of previously registered entities.

The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a case docketed as G.R. No. L-46595. In a Minute
Resolution dated 14 September 1977, the Court denied the Petition for Review for lack of merit. Entry of judgment in that case was made on 21
October 1977. 2

Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational institutions it could find using the word
"Lyceum" as part of their corporate name, and advised them to discontinue such use of "Lyceum." When, with the passage of time, it became clear
that this recourse had failed, petitioner instituted before the SEC SEC-Case No. 2579 to enforce what petitioner claims as its proprietary right to the
word "Lyceum." The SEC hearing officer rendered a decision sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The
hearing officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the word "Lyceum" was capable of
appropriation and that petitioner had acquired an enforceable exclusive right to the use of that word.

On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer was reversed and set aside. The SEC En Banc
did not consider the word "Lyceum" to have become so identified with petitioner as to render use thereof by other institutions as productive of
confusion about the identity of the schools concerned in the mind of the general public. Unlike its hearing officer, the SEC En Banc held that the
attaching of geographical names to the word "Lyceum" served sufficiently to distinguish the schools from one another, especially in view of the fact
that the campuses of petitioner and those of the private respondents were physically quite remote from each other. 3

Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the Court of Appeals affirmed the questioned
Orders of the SEC En Banc. 4 Petitioner filed a motion for reconsideration, without success.

Before this Court, petitioner asserts that the Court of Appeals committed the following errors:

1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L-46595 did not constitute stare decisis as to apply to
this case and in not holding that said Resolution bound subsequent determinations on the right to exclusive use of the word Lyceum.

2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was incorporated earlier than petitioner.

3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in favor of petitioner.

4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the petitioner to the exclusion of others. 5

We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by noting that the Resolution of the Court in G.R. No. L-
46595 does not, of course, constitute res adjudicata in respect of the case at bar, since there is no identity of parties. Neither is stare decisis
pertinent, if only because the SEC En Banc itself has re-examined Associate Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute
Resolution of the Court in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling.

The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. 6 Section 18 of the Corporation Code
establishes a restrictive rule insofar as corporate names are concerned:

"SECTION 18. Corporate name. No corporate name may be allowed by the Securities an Exchange Commission if the proposed name is identical
or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name." (Emphasis supplied)

The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or deceptively or confusingly
similar" to that of any existing corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of
fraud upon the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of
difficulties of administration and supervision over corporations. 7

We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of the
petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are
effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be
mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the
Philippines.

Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the river Ilissius in ancient Athens
"comprising an enclosure dedicated to Apollo and adorned with fountains and buildings erected by Pisistratus, Pericles and Lycurgus frequented by
the youth for exercise and by the philosopher Aristotle and his followers for teaching." 8 In time, the word "Lyceum" became associated with schools
and other institutions providing public lectures and concerts and public discussions. Thus today, the word "Lyceum" generally refers to a school or an
institution of learning. While the Latin word "lyceum" has been incorporated into the English language, the word is also found in Spanish (liceo) and
in French (lycee). As the Court of Appeals noted in its Decision, Roman Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de
Baleno" (in Baleno, Masbate), "Liceo de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as generic in character as the word "university." In the
name of the petitioner, "Lyceum" appears to be a substitute for "university;" in other places, however, "Lyceum," or "Liceo" or "Lycee" frequently
denotes a secondary school or a college. It may be (though this is a question of fact which we need not resolve) that the use of the word "Lyceum"
may not yet be as widespread as the use of "university," but it is clear that a not inconsiderable number of educational institutions have adopted
"Lyceum" or "Liceo" as part of their corporate names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use
this word to designate an entity which is organized and operating as an educational institution.

It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner with the result that that word,
although originally a generic, has become appropriable by petitioner to the exclusion of other institutions like private respondents herein.

The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been extended to corporate names sine the
right to use a corporate name to the exclusion of others is based upon the same principle which underlies the right to use a particular trademark or
tradename. 10 In Philippine Nut Industry, Inc. v. Standard Brands, Inc., 11 the doctrine of secondary meaning was elaborated in the following terms:

" . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or otherwise
descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that
branch of the purchasing public, the word or phrase has come to mean that the article was his product." 12

The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of time and
with such exclusivity as to have become associated or identified with the petitioner institution in the mind of the general public (or at least that portion
of the general public which has to do with schools). The Court of Appeals recognized this issue and answered it in the negative:

"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with reference to an article in the market,
because geographical or otherwise descriptive might nevertheless have been used so long and so exclusively by one producer with reference to this
article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article was his produce (Ana Ang
vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name or phrase has evolved through
the substantial and exclusive use of the same for a considerable period of time. Consequently, the same doctrine or principle cannot be made to
apply where the evidence did not prove that the business (of the plaintiff) has continued for so long a time that it has become of consequence and
acquired a good will of considerable value such that its articles and produce have acquired a well-known reputation, and confusion will result by the
use of the disputed name (by the defendant) (Ang Si Heng vs. Wellington Department Store, Inc., 92 Phil. 448).

With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned requisites. No evidence was ever presented in the
hearing before the Commission which sufficiently proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If
there was any of this kind, the same tend to prove only that the appellant had been using the disputed word for a long period of time. Nevertheless,
its (appellant) exclusive use of the word (Lyceum) was never established or proven as in fact the evidence tend to convey that the cross-claimant
was already using the word 'Lyceum' seventeen (17) years prior to the date the appellant started using the same word in its corporate name.
Furthermore, educational institutions of the Roman Catholic Church had been using the same or similar word like 'Liceo de Manila,' 'Liceo de Baleno'
(in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de Albay' long before appellant started using the word 'Lyceum'. The appellant also failed to prove
that the word 'Lyceum' has become so identified with its educational institution that confusion will surely arise in the minds of the public if the same
word were to be used by other educational institutions.

In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount
to mean that the said word had acquired secondary meaning in its favor because the appellant failed to prove that it had been using the same word
all by itself to the exclusion of others. More so, there was no evidence presented to prove that confusion will surely arise if the same word were to be
used by other educational institutions. Consequently, the allegations of the appellant in its first two assigned errors must necessarily fail." 13
(Underscoring partly in the original and partly supplied)

We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly that petitioner's use of the
word "Lyceum" has not been attended with the exclusivity essential for applicability of the doctrine of secondary meaning. It may be noted also that
at least one of the private respondents, i.e., the Western Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years before the
petitioner registered its own corporate name with the SEC and began using the word "Lyceum." It follows that if any institution had acquired an
exclusive right to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather than the petitioner institution.

In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to reconstruct its records before the SEC in
accordance with the provisions of R.A. No. 62, which records had been destroyed during World War II, Western Pangasinan Lyceum should be
deemed to have lost all rights it may have acquired by virtue of its past registration. It might be noted that the Western Pangasinan Lyceum, Inc.
registered with the SEC soon after petitioner had filed its own registration on 21 September 1950. Whether or not Western Pangasinan Lyceum, Inc.
must be deemed to have lost its rights under its original 1933 registration, appears to us to be quite secondary in importance; we refer to this earlier
registration simply to underscore the fact that petitioner's use of the word "Lyceum" was neither the first use of that term in the Philippines nor an
exclusive use thereof. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared with the Western Pangasinan Lyceum and a
little later with other private respondent institutions which registered with the SEC using "Lyceum" as part of their corporation names. There may well
be other schools using Lyceum or Liceo in their names, but not registered with the SEC because they have not adopted the corporate form of
organization.

We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate
name and that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate name is "identical" or
"confusingly or deceptively similar" with another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both
names. One must evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the names of private respondents,
they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the part of the public respondent Court of Appeals, the Petition for Review
is DENIED for lack of merit, and the Decision of the Court of Appeals dated 28 June 1991 is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

16
FIRST DIVISION

[G.R. No. 137592. December 12, 2001]

ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS, INC. petitioner, vs. IGLESIA NG DIOS KAY
CRISTO JESUS, HALIGI AT SUHAY NG KATOTOHANAN, respondent.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review assailing the Decision dated October 7, 1997 [1] and the Resolution dated February 16, 1999[2] of the Court of
Appeals in CA-G.R. SP No. 40933, which affirmed the Decision of the Securities and Exchange and Commission (SEC) in SEC-AC No. 539.[3]
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus, the Pillar and Ground of
Truth),[4] is a non-stock religious society or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several other members of
respondent corporation disassociated themselves from the latter and succeeded in registering on March 30, 1977 a new non-stock religious society
or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.
On July 16, 1979, respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan to change its corporate name, which petition was docketed as SEC Case No. 1774. On May 4, 1988, the SEC rendered judgment in
favor of respondent, ordering the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to another name
that is not similar or identical to any name already used by a corporation, partnership or association registered with the Commission.[5] No appeal
was taken from said decision.
It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused the registration on April 25, 1980 of petitioner
corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K., sa Bansang Pilipinas. The acronym H.S.K. stands for Haligi at Saligan ng
Katotohanan.[6]
On March 2, 1994, respondent corporation filed before the SEC a petition, docketed as SEC Case No. 03-94-4704, praying that petitioner be
compelled to change its corporate name and be barred from using the same or similar name on the ground that the same causes confusion among
their members as well as the public.
Petitioner filed a motion to dismiss on the ground of lack of cause of action. The motion to dismiss was denied. Thereafter, for failure to file an
answer, petitioner was declared in default and respondent was allowed to present its evidence ex parte.
On November 20, 1995, the SEC rendered a decision ordering petitioner to change its corporate name. The dispositive portion thereof reads:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the petitioner (respondent herein).

Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas (petitioner herein) is hereby MANDATED to change
its corporate name to another not deceptively similar or identical to the same already used by the Petitioner, any corporation, association,
and/or partnership presently registered with the Commission.

Let a copy of this Decision be furnished the Records Division and the Corporate and Legal Department [CLD] of this Commission for their
records, reference and/or for whatever requisite action, if any, to be undertaken at their end.

SO ORDERED.[7]

Petitioner appealed to the SEC En Banc, where its appeal was docketed as SEC-AC No. 539. In a decision dated March 4, 1996, the SEC En
Banc affirmed the above decision, upon a finding that petitioner's corporate name was identical or confusingly or deceptively similar to that of
respondents corporate name.[8]
Petitioner filed a petition for review with the Court of Appeals. On October 7, 1997, the Court of Appeals rendered the assailed decision
affirming the decision of the SEC En Banc. Petitioners motion for reconsideration was denied by the Court of Appeals on February 16, 1992.
Hence, the instant petition for review, raising the following assignment of errors:
I

THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER HAS NOT BEEN DEPRIVED OF ITS RIGHT TO
PROCEDURAL DUE PROCESS, THE HONORABLE COURT OF APPEALS DISREGARDED THE JURISPRUDENCE APPLICABLE TO THE
CASE AT BAR AND INSTEAD RELIED ON TOTALLY INAPPLICABLE JURISPRUDENCE.

II
 THE HONORABLE COURT OF APPEALS ERRED IN ITS INTEPRETATION OF THE CIVIL CODE PROVISIONS ON EXTINCTIVE
PRESCRIPTION, THEREBY RESULTING IN ITS FAILURE TO FIND THAT THE RESPONDENT'S RIGHT OF ACTION TO INSTITUTE THE
SEC CASE HAS SINCE PRESCRIBED PRIOR TO ITS INSTITUTION.

III

THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER AND PROPERLY APPLY THE EXCEPTIONS ESTABLISHED BY
JURISPRUDENCE IN THE APPLICATION OF SECTION 18 OF THE CORPORATION CODE TO THE INSTANT CASE.

IV

THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY APPRECIATE THE SCOPE OF THE CONSTITUTIONAL GUARANTEE
ON RELIGIOUS FREEDOM, THEREBY FAILING TO APPLY THE SAME TO PROTECT PETITIONERS RIGHTS. [9]

Invoking the case of Legarda v. Court of Appeals,[10] petitioner insists that the decision of the Court of Appeals and the SEC should be set
aside because the negligence of its former counsel of record, Atty. Joaquin Garaygay, in failing to file an answer after its motion to dismiss was
denied by the SEC, deprived them of their day in court.
The contention is without merit. As a general rule, the negligence of counsel binds the client. This is based on the rule that any act performed
by a lawyer within the scope of his general or implied authority is regarded as an act of his client. [11] An exception to the foregoing is where the
reckless or gross negligence of the counsel deprives the client of due process of law. [12] Said exception, however, does not obtain in the present
case.
In Legarda v. Court of Appeals, the effort of the counsel in defending his clients cause consisted in filing a motion for extension of time to file
answer before the trial court. When his client was declared in default, the counsel did nothing and allowed the judgment by default to become final
and executory. Upon the insistence of his client, the counsel filed a petition to annul the judgment with the Court of Appeals, which denied the
petition, and again the counsel allowed the denial to become final and executory. This Court found the counsel grossly negligent and consequently
declared as null and void the decision adverse to his client.
The factual antecedents of the case at bar are different. Atty. Garaygay filed before the SEC a motion to dismiss on the ground of lack of cause
of action. When his client was declared in default for failure to file an answer, Atty. Garaygay moved for reconsideration and lifting of the order of
default.[13] After judgment by default was rendered against petitioner corporation, Atty. Garaygay filed a motion for extension of time to appeal/motion
for reconsideration, and thereafter a motion to set aside the decision.[14]
Evidently, Atty. Garaygay was only guilty of simple negligence. Although he failed to file an answer that led to the rendition of a judgment by
default against petitioner, his efforts were palpably real, albeit bereft of zeal.[15]
Likewise, the issue of prescription, which petitioner raised for the first time on appeal to the Court of Appeals, is untenable. Its failure to raise
prescription before the SEC can only be construed as a waiver of that defense. [16] At any rate, the SEC has the authority to de-register at all times
and under all circumstances corporate names which in its estimation are likely to spawn confusion. It is the duty of the SEC to prevent confusion in
the use of corporate names not only for the protection of the corporations involved but more so for the protection of the public.[17]
Section 18 of the Corporation Code provides:

Corporate Name. --- No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing
or is contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name.

Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:

(d) If the proposed name contains a word similar to a word already used as part of the firm name or style of a registered company, the proposed
name must contain two other words different from the name of the company already registered;

Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another corporation,
whether a business or a nonprofit organization, if misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be
prevented by the corporation having a prior right, by a suit for injunction against the new corporation to prevent the use of the name. [18]
Petitioner claims that it complied with the aforecited SEC guideline by adding not only two but eight words to their registered name, to wit: Ang
Mga Kaanib" and "Sa Bansang Pilipinas, Inc., which, petitioner argues, effectively distinguished it from respondent corporation.
The additional words Ang Mga Kaanib and Sa Bansang Pilipinas, Inc. in petitioners name are, as correctly observed by the SEC, merely
descriptive of and also referring to the members, or kaanib, of respondent who are likewise residing in the Philippines. These words can hardly serve
as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing petitioner from respondent. This is especially so,
since both petitioner and respondent corporations are using the same acronym --- H.S.K.;[19] not to mention the fact that both are espousing religious
beliefs and operating in the same place. Parenthetically, it is well to mention that the acronym H.S.K. used by petitioner stands for Haligi at Saligan
ng Katotohanan.[20]
Then, too, the records reveal that in holding out their corporate name to the public, petitioner highlights the dominant words IGLESIA NG DIOS
KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN, which is strikingly similar to respondent's corporate name, thus making it even
more evident that the additional words Ang Mga Kaanib and Sa Bansang Pilipinas, Inc., are merely descriptive of and pertaining to the members of
respondent corporation.[21]
Significantly, the only difference between the corporate names of petitioner and respondent are the words SALIGAN and SUHAY. These words
are synonymous --- both mean ground, foundation or support. Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile
Mills, Inc.,[22] where the Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar
that even under the test of reasonable care and observation confusion may arise.
 Furthermore, the wholesale appropriation by petitioner of respondent's corporate name cannot find justification under the generic word
rule. We agree with the Court of Appeals conclusion that a contrary ruling would encourage other corporations to adopt verbatim and register an
existing and protected corporate name, to the detriment of the public.
The fact that there are other non-stock religious societies or corporations using the names Church of the Living God, Inc., Church of God Jesus
Christ the Son of God the Head, Church of God in Christ & By the Holy Spirit, and other similar names, is of no consequence. It does not authorize
the use by petitioner of the essential and distinguishing feature of respondent's registered and protected corporate name.[23]
We need not belabor the fourth issue raised by petitioner. Certainly, ordering petitioner to change its corporate name is not a violation of its
constitutionally guaranteed right to religious freedom. In so doing, the SEC merely compelled petitioner to abide by one of the SEC guidelines in the
approval of partnership and corporate names, namely its undertaking to manifest its willingness to change its corporate name in the event another
person, firm, or entity has acquired a prior right to the use of the said firm name or one deceptively or confusingly similar to it.
WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The appealed decision of the Court of Appeals is
AFFIRMED in toto.
SO ORDERED.
17

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 104175 June 25, 1993

YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE CHIONG ROXAS, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioners.

Antonio Nuyles for private respondent.

QUIASON, J.:

Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237, which reversed the Order dated February 8,
1991 issued by the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB 6967. The order of the trial court denied the motion to dismiss
filed by respondent George C. Roxas of the complaint for collection filed by petitioners.

It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson Garcia
and Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development Corporation (CMDC) to Roxas. The purchase price was
P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and the balance of P4,000,000.00 in four post dated checks of P1,000,000.00
each.

Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However, the vendors held on to the stock
certificates of CMDC as security pending full payment of the balance of the purchase price.

The first check of P4,000,000.00, representing the down-payment, was honored by the drawee bank but the four other checks representing the
balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO
received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176).

Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the CMDC shares to Nemesio Garcia.

On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that Roxas be ordered to
pay petitioners the sum of P3,400,00.00 or that full control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for
the forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs (Rollo, p. 290).

Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed to do so causing petitioners to file a motion to
have him declared in default. Roxas then filed, through a new counsel, a third motion for extension of time to submit a responsive pleading.

On August 19, 1988, the trial court declared Roxas in default. The order of default was, however, lifted upon motion of Roxas.

On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:

1. The complaint did not state a cause of action due to non-joinder of indispensable parties;
 2. The claim or demand set forth in the complaint had been waived, abandoned or otherwise extinguished; and

3. The venue was improperly laid (Rollo, p. 299).

After a hearing, wherein testimonial and documentary evidence were presented by both parties, the trial court in an Order dated February 8, 1991
denied Roxas' motion to dismiss. After receiving said order, Roxas filed another motion for extension of time to submit his answer. He also filed a
motion for reconsideration, which the trial court denied in its Order dated April 10, 1991 for being pro-forma (Rollo, p. 17). Roxas was again declared
in default, on the ground that his motion for reconsideration did not toll the running of the period to file his answer.

On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with the required affidavit or merit. But
without waiting for the resolution of the motion, he filed a petition for certiorari with the Court of Appeals.

The Court of Appeals sustained the findings of the trial court with regard to the first two grounds raised in the motion to dismiss but ordered the
dismissal of the complaint on the ground of improper venue (Rollo, p. 49).

A subsequent motion for reconsideration by petitioner was to no avail.

Petitioners now come before us, alleging that the Court of Appeals
erred in:

1. holding the venue should be in Pasay City, and not in Cebu City (where both petitioners/plaintiffs are residents;

2. not finding that Roxas is estopped from questioning the choice of venue (Rollo, p. 19).

The petition is meritorious.

In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the address of YASCO, as appearing in the Deed of Sale
dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay City." This was the same address written in YASCO's letters and several
commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p. 48).

In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three letters which he sent to Roxas' brothers and sisters
(Decision, p. 12; Rollo, p. 47). The appellate court held that Roxas was led by petitioners to believe that their residence is in Pasay City and that he
had relied upon those representations (Decision, p. 12, Rollo, p. 47).

The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.

In the Regional Trial Courts, all personal actions are commenced and tried in the province or city where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court].

There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver in their complaint that they are
residents of Cebu City, thus:

1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation duly organized and existing under Philippine laws
with principal place of business at M. J. Cuenco Avenue, Cebu City. It also has a branch office at 1708 Dominga Street, Pasay
City, Metro Manila.

Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business address at Young Auto Supply Co., Inc., M. J.
Cuenco Avenue, Cebu City. . . . (Complaint, p. 1; Rollo, p. 81).

The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:

THIRD That the place where the principal office of the corporation is to be established or located is at Cebu City, Philippines (as
amended on December 20, 1980 and further amended on December 20, 1984) (Rollo, p. 273).

A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical purposes, a corporation is in a
metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation (Cohen v. Benguet
Commercial Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). The Corporation Code precisely requires each
corporation to specify in its articles of incorporation the "place where the principal office of the corporation is to be located which must be within the
Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be
ambulatory.

In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions cannot be filed against a corporation in any place
where the corporation maintains its branch offices. The Court ruled that to allow an action to be instituted in any place where the corporation has
branch offices, would create confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file
personal actions in a place other than its principal place of business unless such a place is also the residence of a co-plaintiff or a defendant.

If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground that its principal place of business was in Cebu
City, Roxas could argue that YASCO was in estoppel because it misled Roxas to believe that Pasay City was its principal place of business. But this
is not the case before us.
With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of business is located, it becomes
unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City
as the venue.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is SET ASIDE and the Order dated February 8, 1991
of the Regional Trial Court is REINSTATED.

SO ORDERED.

18

EN BANC

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

Petitioner,
Present:
- versus -

CORONA, C.J.,

FINANCE SECRETARY MARGARITO B. TEVES, CARPIO,

FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND
COMMISSIONER RICARDO ABCEDE OF THE VELASCO, JR.,
PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG) IN THEIR CAPACITIES AS
LEONARDO-DE CASTRO,
CHAIR AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL,
BRION,
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO.,
LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PERALTA,
PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL
V. PANGILINAN OF PHILIPPINE LONG DISTANCE BERSAMIN,
TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS
MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., DEL CASTILLO,
PRESIDENT NAPOLEON L. NAZARENO OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, ABAD,
CHAIR FE BARIN OF THE SECURITIES EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF THE
VILLARAMA, JR.,
PHILIPPINE STOCK EXCHANGE,

PEREZ,
Respondents.

MENDOZA, and

SERENO, JJ.
 PABLITO V. SANIDAD and Promulgated:

ARNO V. SANIDAD,

Petitioners-in-Intervention. June 28, 2011

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

DECISION

CARPIO, J.:

The Case

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific).

The Antecedents

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), are as follows:1

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major PLDT
stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several
persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three
Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by
PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125
percent of the outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the outstanding capital stock of
PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it would sell the 111,415
PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public bidding to be conducted on 4 December 2006.
Subsequently, the public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia
Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415 PTIC shares by
matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its right to
PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary,
MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of
PTIC, with the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale of 12
million shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacifics common shareholdings in PLDT
increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47
percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not
more than 40 percent.3

On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner
Ricardo Abcede allege the following relevant facts:

On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held 26,034,263 PLDT common
shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other hand, was incorporated in 1977, and became the owner
of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently declared
by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the Republic
of the Philippines in accordance with this Courts decision4 which became final and executory on 8 August 2006.

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding common shares of stock of
PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the Department of Finance and the PCGG, as the disposing entity.
An invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was
held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published in nine
different newspapers.

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of P25,217,556,000. The
government notified First Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February 2007 to exercise its
right of first refusal in accordance with PTICs Articles of Incorporation. First Pacific announced its intention to match Parallaxs bid.

On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing on the particulars of the then
impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who attended the public hearing. The HR
Committee Report No. 2270 concluded that: (a) the auction of the governments 111,415 PTIC shares bore due diligence, transparency and
conformity with existing legal procedures; and (b) First Pacifics intended acquisition of the governments 111,415 PTIC shares resulting in
First Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a public utility since PTIC
holds only 13.847 percent of the total outstanding common shares of PLDT. 5 On 28 February 2007, First Pacific completed the acquisition of
the 111,415 shares of stock of PTIC.

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415 PTIC shares or 46
percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and its affiliates); (b)
Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted
in PTICs Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest bid offered for PTIC shares
on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when MPAH paid IPC P25,217,556,000 and the government
delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other allegations of facts of petitioner.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale of the 111,415
PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in First Pacifics common
shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT DoCoMos common shareholdings in PLDT, would
result to a total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional limit. 6 Petitioner asserts:

If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its common or voting-
stockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign investors in PLDT First Pacific and Japans
NTT DoCoMo, which is the worlds largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the
completion of the sale, data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign
entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDTs common equity. x x x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New
York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities breached
the constitutional limit of 40 percent ownership as early as 2003. x x x7

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares to First Pacific violates the
constitutional limit on foreign ownership of a public utility; (2) whether public respondents committed grave abuse of discretion in allowing the sale of
the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to foreigners in excess of 40 percent of the entire subscribed
common capital stock violates the constitutional limit on foreign ownership of a public utility.8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached Petition-in-Intervention. In the
Resolution of 28 August 2007, the Court granted the motion and noted the Petition-in-Intervention.

Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the sale by respondents of the
111,415 PTIC shares to First Pacific or assignee. Petitioners-in-intervention claim that, as PLDT subscribers, they have a stake in the outcome of the
controversy x x x where the Philippine Government is completing the sale of government owned assets in [PLDT], unquestionably a public utility, in
violation of the nationality restrictions of the Philippine Constitution.

The Issue

This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which indisputably demand a thorough examination of the
evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this well-settled principle, the Court shall confine the resolution of
the instant controversy solely on the threshold and purely legal issue of whether the term capital in Section 11, Article XII of the Constitution refers
to the total common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a
public utility.

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for prohibition is within the original
jurisdiction of this court, which however is not exclusive but is concurrent with the Regional Trial Court and the Court of Appeals. The actions for
declaratory relief,10 injunction, and annulment of sale are not embraced within the original jurisdiction of the Supreme Court. On this ground alone,
the petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall nevertheless refrain from discussing the grounds in
support of the petition for prohibition since on 28 February 2007, the questioned sale was consummated when MPAH paid IPC P25,217,556,000 and
the government delivered the certificates for the 111,415 PTIC shares.

However, since the threshold and purely legal issue on the definition of the term capital in Section 11, Article XII of the Constitution has far-reaching
implications to the national economy, the Court treats the petition for declaratory relief as one for mandamus.12

In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for mandamus considering the grave
injustice that would result in the interpretation of a banking law. In that case, which involved the crime of rape committed by a foreign tourist against a
Filipino minor and the execution of the final judgment in the civil case for damages on the tourists dollar deposit with a local bank, the Court declared
Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment, garnishment or any other order or process of
any court, inapplicable due to the peculiar circumstances of the case. The Court held that injustice would result especially to a citizen aggrieved by a
foreign guest like accused x x x that would negate Article 10 of the Civil Code which provides that in case of doubt in the interpretation or application
of laws, it is presumed that the lawmaking body intended right and justice to prevail. The Court therefore required respondents Central Bank of the
Philippines, the local bank, and the accused to comply with the writ of execution issued in the civil case for damages and to release the dollar deposit
of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity of the petition for declaratory
relief and treated the same as one for mandamus. In Alliance, the issue was whether the government unlawfully excluded petitioners, who were
government employees, from the enjoyment of rights to which they were entitled under the law. Specifically, the question was: Are the branches,
agencies, subdivisions, and instrumentalities of the Government, including government owned or controlled corporations included among the four
employers under Presidential Decree No. 851 which are required to pay their employees x x x a thirteenth (13th) month pay x x x ? The
Constitutional principle involved therein affected all government employees, clearly justifying a relaxation of the technical rules of procedure, and
certainly requiring the interpretation of the assailed presidential decree.

In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has far-reaching
implications. As this Court held in Salvacion:

The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this rule have been
recognized. Thus, where the petition has far-reaching implications and raises questions that should be resolved, it may be
treated as one for mandamus.15 (Emphasis supplied)

In the present case, petitioner seeks primarily the interpretation of the term capital in Section 11, Article XII of the Constitution. He prays that this
Court declare that the term capital refers to common shares only, and that such shares constitute the sole basis in determining foreign equity in a
public utility. Petitioner further asks this Court to declare any ruling inconsistent with such interpretation unconstitutional.

The interpretation of the term capital in Section 11, Article XII of the Constitution has far-reaching implications to the national economy. In fact, a
resolution of this issue will determine whether Filipinos are masters, or second class citizens, in their own country. What is at stake here is whether
Filipinos or foreigners will have effective control of the national economy. Indeed, if ever there is a legal issue that has far-reaching implications to
the entire nation, and to future generations of Filipinos, it is the threshhold legal issue presented in this case.

The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of the Constitution in the case of Fernandez
v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same public utility (PLDT) and substantially the same private respondents.
Despite the importance and novelty of the constitutional issue raised therein and despite the fact that the petition involved a purely legal question, the
Court declined to resolve the case on the merits, and instead denied the same for disregarding the hierarchy of courts. 17 There, petitioner Fernandez
assailed on a pure question of law the Regional Trial Courts Decision of 21 February 2003 via a petition for review under Rule 45. The Courts
Resolution, denying the petition, became final on 21 December 2004.

The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is of transcendental
importance to the national economy and a fundamental requirement to a faithful adherence to our Constitution. The Court must forthwith seize such
opportunity, not only for the benefit of the litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the words of the
Constitution, a self-reliant and independent national economy effectively controlled by Filipinos.18 Besides, in the light of vague and confusing
positions taken by government agencies on this purely legal issue, present and future foreign investors in this country deserve, as a matter of basic
fairness, a categorical ruling from this Court on the extent of their participation in the capital of public utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over 75 years since the 1935
Constitution. There is no reason for this Court to evade this ever recurring fundamental issue and delay again defining the term capital, which
appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on co-production and joint venture agreements for the
development of our natural resources,19 in Section 7, Article XII on ownership of private lands,20 in Section 10, Article XII on the reservation of certain
investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational institutions,22 and in Section 11(2), Article XVI on the
ownership of advertising companies.23

Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which he claims to violate the
nationality requirement prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates the Constitution, then there is a possibility
that PLDTs franchise could be revoked, a dire consequence directly affecting petitioners interest as a stockholder.

More importantly, there is no question that the instant petition raises matters of transcendental importance to the public. The fundamental and
threshold legal issue in this case, involving the national economy and the economic welfare of the Filipino people, far outweighs any perceived
impediment in the legal personality of the petitioner to bring this action.

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to the public, thus:

In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain the enforcement
of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that petitioner is a citizen and as such
is interested in the execution of the laws, he need not show that he has any legal or special interest in the result of the action. In the
aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then recognized in Section 6, Article
IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published in the Official Gazette or
otherwise effectively promulgated. In ruling for the petitioners legal standing, the Court declared that the right they sought to be enforced is a public
right recognized by no less than the fundamental law of the land.

Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus proceeding involves the assertion of a
public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general
public which possesses the right.

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned contract for the
development, management and operation of the Manila International Container Terminal, public interest [was] definitely involved considering
the important role [of the subject contract] . . . in the economic development of the country and the magnitude of the financial
consideration involved. We concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for
upholding the petitioners standing. (Emphasis supplied)

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner has the
requisite locus standi.

Definition of the Term Capital in

Section 11, Article XII of the 1987 Constitution

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities, to wit:
 Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for
a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines. (Emphasis supplied)

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:

Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per
centum of the capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall
be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shall encourage
equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:

Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines sixty per centum of
the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except under
the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis
supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the Filipinization provision in the 1987
Constitution is one of the products of the spirit of nationalism which gripped the 1935 Constitutional Convention.25 The 1987 Constitution provides for
the Filipinization of public utilities by requiring that any form of authorization for the operation of public utilities should be granted only to citizens of
the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by
such citizens. The provision is [an express] recognition of the sensitive and vital position of public utilities both in the national economy
and for national security.26 The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which
may be inimical to the national interest.27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an
overriding economic goal of the 1987 Constitution: to conserve and develop our patrimony 28 and ensure a self-reliant and independent national
economy effectively controlled by Filipinos.29

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement prescribed in Section 11,
Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public utility, at least 60 percent of its capital must be
owned by Filipino citizens.

The crux of the controversy is the definition of the term capital. Does the term capital in Section 11, Article XII of the Constitution refer to common
shares or to the total outstanding capital stock (combined total of common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares because such shares are
entitled to vote and it is through voting that control over a corporation is exercised. Petitioner posits that the term capital in Section 11, Article XII of
the Constitution refers to the ownership of common capital stock subscribed and outstanding, which class of shares alone, under the corporate set-
up of PLDT, can vote and elect members of the board of directors. It is undisputed that PLDTs non-voting preferred shares are held mostly by
Filipino citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every
applicant of a PLDT telephone line to subscribe to non-voting preferred shares to pay for the investment cost of installing the telephone line. 32

Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term capital. 33 Petitioners-in-intervention
allege that the approximate foreign ownership of common capital stock of PLDT x x x already amounts to at least 63.54% of the total outstanding
common stock, which means that foreigners exercise significant control over PLDT, patently violating the 40 percent foreign equity limitation in public
utilities prescribed by the Constitution.

Respondents, on the other hand, do not offer any definition of the term capital in Section 11, Article XII of the Constitution. More importantly, private
respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40 percent of the common shares of PLDT are held by foreigners.

In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of the petition and the
supposed violation of the due process rights of the affected foreign common shareholders. Respondent Nazareno does not deny petitioners
allegation of foreigners dominating the common shareholdings of PLDT. Nazarenostressed mainly that the petition seeks to divest foreign
common shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership over their shares. Thus,
the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can be heard.34 Essentially, Nazareno invokes denial
of due process on behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term capital, he states that among the factual assertions that need to be established to
counter petitioners allegations is the uniform interpretation by government agencies (such as the SEC), institutions and corporations
(such as the Philippine National Oil Company-Energy Development Corporation or PNOC-EDC) of including both preferred shares and
common shares in controlling interest in view of testing compliance with the 40% constitutional limitation on foreign ownership in public
utilities.35

Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII of the Constitution. Neither does he refute
petitioners claim of foreigners holding more than 40 percent of PLDTs common shares. Instead, respondent Pangilinan focuses on the procedural
flaws of the petition and the alleged violation of the due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the
absence of this Courts jurisdiction over the petition; (2) petitioners lack of standing; (3) mootness of the petition; (4) non-availability of declaratory
relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan alleges that the issue should be whether owners of shares in PLDT
as well as owners of shares in companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those companies
without any law requiring them to surrender their shares and also without notice and trial.

Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution] imposes no nationality requirement on the
shareholders of the utility company as a condition for keeping their shares in the utility company. According to him, Section 11 does not
authorize taking one persons property (the shareholders stock in the utility company) on the basis of another partys alleged failure to satisfy a
requirement that is a condition only for that other partys retention of another piece of property (the utility company being at least 60% Filipino-owned
to keep its franchise).36

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and
Chairman Fe Barin, is likewise silent on the definition of the term capital. In its Memorandum37 dated 24 September 2007, the OSG also limits its
discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack of
basis for injunction. The OSG does not present any definition or interpretation of the term capital in Section 11, Article XII of the Constitution. The
OSG contends that the petition actually partakes of a collateral attack on PLDTs franchise as a public utility, which in effect requires a full-blown trial
where all the parties in interest are given their day in court.38

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange (PSE), does not also define the
term capital and seeks the dismissal of the petition on the following grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly
implemented its rules and required all listed companies, including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the
petition would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of PLDT, contended that the term
capital in the 1987 Constitution refers to shares entitled to vote or the common shares. Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock
entitled to vote, i.e., common shares, considering that it is through voting that control is being exercised. x x x

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and partially nationalized
activities is for Filipino nationals to be always in control of the corporation undertaking said activities. Otherwise, if the Trial Courts ruling
upholding respondents arguments were to be given credence, it would be possible for the ownership structure of a public utility corporation
to be divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Courts ruling
adopting respondents arguments, the common shares can be owned entirely by foreigners thus creating an absurd situation wherein
foreigners, who are supposed to be minority shareholders, control the public utility corporation.

xxxx

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the controlling interest.

xxxx

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of
shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares will not suffice but it must be shown that
the legal and beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is already
admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the
Questioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino owners is
likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the proposition that the
meaning of the word capital as used in Section 11, Article XII of the Constitution allegedly refers to the sum total of the shares subscribed
and paid-in by the shareholder and it allegedly is immaterial how the stock is classified, whether as common or preferred, cannot stand in
the face of a clear legislative policy as stated in the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified
by the above-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by an administrative
agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the clear intent of the framers of
the Constitution.

In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory for it is the courts that finally
determine what a law means.39

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B.
Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea,
argued that the term capital in Section 11, Article XII of the Constitution includes preferred shares since the Constitution does not distinguish among
classes of stock, thus:

16. The Constitution applies its foreign ownership limitation on the corporations capital, without distinction as to classes of shares. x x x

In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution was drafted defined
outstanding capital stock as follows:
 Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used in this Code, means the total shares of stock
issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares.

Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude either class of shares,
in determining the outstanding capital stock (the capital) of a corporation. Consequently, petitioners suggestion to reckon PLDTs foreign
equity only on the basis of PLDTs outstanding common shares is without legal basis. The language of the Constitution should be
understood in the sense it has in common use.

xxxx

17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is nothing in the Record of the
Constitutional Commission (Vol. III) which petitioner misleadingly cited in the Petition x x x which supports petitioners view that only
common shares should form the basis for computing a public utilitys foreign equity.

xxxx

18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code, and which also has the
responsibility of ensuring compliance with the Constitutions foreign equity restrictions as regards nationalized activities x x x has
categorically ruled that both common and preferred shares are properly considered in determining outstanding capital stock and the
nationality composition thereof.40

We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case only to common shares, 41 and not to the total outstanding capital stock
comprising both common and non-voting preferred shares.

The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of
which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation:
Provided, That no share may be deprived of voting rights except those classified and issued as preferred or redeemable shares,
unless otherwise provided in this Code: Provided, further, That there shall always be a class or series of shares which have complete
voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles
of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan associations
shall not be permitted to issue no-par value shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation which are
not violative of the provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated par value. The Board
of Directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange
Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be
liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a consideration
less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the corporation for its no-
par value shares shall be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects
to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this
Code shall be deemed to refer only to stocks with voting rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. 43 This is exercised through
his vote in the election of directors because it is the board of directors that controls or manages the corporation. 44 In the absence of provisions in the
articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as common shares. However,
preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other matters, on
the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders.45 In fact, under the
Corporation Code only preferred or redeemable shares can be deprived of the right to vote. 46 Common shares cannot be deprived of the right to vote
in any corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid.47

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights,
the term capital in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to
vote in the election of directors, then the term capital shall include such preferred shares because the right to participate in the control or
management of the corporation is exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII
of the Constitution refers only to shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control and management
of public utilities. As revealed in the deliberations of the Constitutional Commission, capital refers to the voting stock or controlling interest of a
corporation, to wit:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40
in Section 9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with this question: Where do we base the equity requirement, is it on the authorized
capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation? Will the Committee please enlighten me on
this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided us a draft. The
phrase that is contained here which we adopted from the UP draft is 60 percent of voting stock.

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be
entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another
corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.48

xxxx

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase voting stock or controlling interest.

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: corporations or associations at least sixty percent
of whose CAPITAL is owned by such citizens.

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the capital is
owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a situation where
the corporation is controlled by foreigners despite being the minority because they have the voting capital. That is the anomaly
that would result here.

MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have stocks. That is why we say CAPITAL.

MR. AZCUNA. We should not eliminate the phrase controlling interest.

MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)

Thus, 60 percent of the capital assumes, or should result in, controlling interest in the corporation. Reinforcing this interpretation of the term
capital, as referring to controlling interest or shares entitled to vote, is the definition of a Philippine national in the Foreign Investments Act of
1991,50 to wit:

SEC. 3. Definitions. - As used in this Act:

a. The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens of
the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and
registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission
(SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations
must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of
both corporations must be citizens of the Philippines, in order that the corporation, shall be considered a Philippine national. (Emphasis
supplied)

In explaining the definition of a Philippine national, the Implementing Rules and Regulations of the Foreign Investments Act of 1991 provide:

b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens of the
Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the
benefit of the Philippine nationals; Provided,that where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange
Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board of
Directors of each of both corporation must be citizens of the Philippines, in order that the corporation shall be considered a Philippine
national. The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock
whether fully paid or not, but only such stocks which are generally entitled to vote are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks,
the voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or
Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine
nationals. (Emphasis supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the Constitution. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is
considered as non-Philippine national[s].

Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the Philippines or to corporations or associations at least
sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments.
Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of
the capital of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2)
Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine
Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology
Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11, Article XII of the
Constitution is also used in the same context in numerous lawsreserving certain areas of investments to Filipino citizens.

To construe broadly the term capital as the total outstanding capital stock, including both common and non-voting preferred shares, grossly
contravenes the intent and letter of the Constitution that the State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos. A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of
the public utility.

We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume that a corporation has 100 common shares
owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having a par value of one peso
(P1.00) per share. Under the broad definition of the term capital, such corporation would be considered compliant with the 40 percent constitutional
limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino
owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only 100 shares.
The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding
more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over the public utility. This starkly
circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities in the
hands of Filipinos. It also renders illusory the State policy of an independent national economy effectively controlled by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the present case.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation expressly state
that the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for
any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of
stockholders.51

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of
Incorporation52 state that each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters
voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote for the election of directors
and for all other purposes.53

In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise control over PLDT.
Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control over PLDT. In fact, under
PLDTs Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders of preferred shares have no voting right
for any purpose whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on PLDTs 2010
General Information Sheet (GIS),54which is a document required to be submitted annually to the Securities and Exchange Commission,55 foreigners
hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the
total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is
clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership
of public utilities expressly mandated in Section 11, Article XII of the Constitution.

Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the SIP58 preferred shares earn a pittance in
dividends compared to the common shares. PLDT declared dividends for the common shares at P70.00 per share, while the declared dividends for
the preferred shares amounted to a measly P1.00 per share.59 So the preferred shares not only cannot vote in the election of directors, they also
have very little and obviously negligible dividend earning capacity compared to common shares.

As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of
preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and
have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares
constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common
shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the
constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the States grant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44%
owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly
contravenes the express command in Section 11, Article XII of the Constitution that [n]o franchise, certificate, or any other form of authorization for
the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens x x x.

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of
directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock,
and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only
1/70 of the dividends that common shares earn;63 (5) preferred shares have twice the par value of common shares; and (6) preferred shares
constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a
mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per share,64 while PLDT
preferred shares with a par value of P10.00 per share have a current stock market value ranging from only P10.92 to P11.06 per share,65 is a glaring
confirmation by the market that control and beneficial ownership of PLDT rest with the common shares, not with the preferred shares.

Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both voting and non-voting shares will result in the
abject surrender of our telecommunications industry to foreigners, amounting to a clear abdication of the States constitutional duty to limit control of
public utilities to Filipino citizens. Such an interpretation certainly runs counter to the constitutional provision reserving certain areas of investment to
Filipino citizens, such as the exploitation of natural resources as well as the ownership of land, educational institutions and advertising businesses.
The Court should never open to foreign control what the Constitution has expressly reserved to Filipinos for that would be a betrayal of the
Constitution and of the national interest. The Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to
ensure, in the words of the Constitution, a self-reliant and independent national economy effectively controlled by Filipinos.

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinos specific areas of investment, such
as the development of natural resources and ownership of land, educational institutions and advertising business, is self-executing. There is no
need for legislation to implement these self-executing provisions of the Constitution. The rationale why these constitutional provisions are self-
executing was explained in Manila Prince Hotel v. GSIS,66 thus:

x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the presumption now is
that all provisions of the constitution are self-executing. If the constitutional provisions are treated as requiring legislation instead of self-
executing, the legislature would have the power to ignore and practically nullify the mandate of the fundamental law. This can be
cataclysmic. That is why the prevailing view is, as it has always been, that
 . . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . . Unless the contrary is
clearly intended, the provisions of the Constitution should be considered self-executing, as a contrary rule would give the
legislature discretion to determine when, or whether, they shall be effective. These provisions would be subordinated to the will of
the lawmaking body, which could make them entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis
supplied)

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed that constitutional
provisions are presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future legislation for their
enforcement. The reason is not difficult to discern. For if they are not treated as self-executing, the mandate of the fundamental law
ratified by the sovereign people can be easily ignored and nullified by Congress. Suffused with wisdom of the ages is the
unyielding rule that legislative actions may give breath to constitutional rights but congressional inaction should not suffocate
them.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the rights of a person under
custodial investigation, the rights of an accused, and the privilege against self-incrimination. It is recognized that legislation is unnecessary
to enable courts to effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty and the protection of property.
The same treatment is accorded to constitutional provisions forbidding the taking or damaging of property for public use without just
compensation. (Emphasis supplied)

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the provisions of the 1935, 1973 and 1987
Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68 this Court ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as both the citizen and
the alien have violated the law, none of them should have a recourse against the other, and it should only be the State that should be
allowed to intervene and determine what is to be done with the property subject of the violation. We have said that what the State should
do or could do in such matters is a matter of public policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun
Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy should be followed in
cases of violations against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be
null and void as violative of the Constitution. x x x (Emphasis supplied)

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or over the last 75 years, not
one of the constitutional provisions expressly reserving specific areas of investments to corporations, at least 60 percent of the capital of which is
owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to
Filipinos specific areas of investment, like the operation by corporations of public utilities, the exploitation by corporations of mineral resources, the
ownership by corporations of real estate, and the ownership of educational institutions. All the legislatures that convened since 1935 also miserably
failed to enact legislations to implement these vital constitutional provisions that determine who will effectively control the national economy, Filipinos
or foreigners. This Court cannot allow such an absurd interpretation of the Constitution.

This Court has held that the SEC has both regulatory and adjudicative functions.69 Under its regulatory functions, the SEC can be compelled by
mandamus to perform its statutory duty when it unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial functions, the SEC
can be also be compelled by mandamus to hear and decide a possible violation of any law it administers or enforces when it is mandated by law to
investigate such violation.

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of Incorporation of any
corporation where the required percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the Constitution. Thus, the SEC is the government agency tasked with the statutory duty to
enforce the nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This Court, in a petition
for declaratory relief that is treated as a petition for mandamus as in the present case, can direct the SEC to perform its statutory duty under the law,
a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the power and function to suspend or revoke, after proper notice
and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by
law. The SEC is mandated under Section 5(d) of the same Code with the power and function to investigate x x x the activities of persons to
ensure compliance with the laws and regulations that SEC administers or enforces. The GIS that all corporations are required to submit to SEC
annually should put the SEC on guard against violations of the nationality requirement prescribed in the Constitution and existing laws. This Court
can compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, to hear and decide a
possible violation of Section 11, Article XII of the Constitution in view of the ownership structure of PLDTs voting shares, as admitted by respondents
and as stated in PLDTs 2010 GIS that PLDT submitted to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article XII of the 1987 Constitution refers only to shares
of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock
(common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this
definition of the term capital in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company,
and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.

SO ORDERED.

20

Republic of the Philippines

SUPREME COURT
Baguio City

THIRD DIVISION

G.R. No. 195580 April 21, 2014

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and MCARTHUR MINING,
INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.

DECISION

VELASCO, JR., J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining Development Corp. (Narra), Tesoro Mining
and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which seeks to reverse the October 1, 2010 Decision 1 and the February 15,
2011 Resolution of the Court of Appeals (CA).

The Facts

Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and existing under
Philippine laws, took interest in mining and exploring certain areas of the province of Palawan. After inquiring with the Department of Environment
and Natural Resources (DENR), it learned that the areas where it wanted to undertake exploration and mining activities where already covered by
Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA and Exploration Permit
(EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of Environment and Natural Resources (DENR).

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling, Municipality of Bataraza,
Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP
were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006, assigned to petitioner McArthur. 2
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining & Development Corporation
(PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the said application, the
DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan.
Subsequently, PLMDC conveyed, transferred and/or assigned its rights and interests over the MPSA application in favor of Narra.

Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402
hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan. SMMI subsequently conveyed, transferred and
assigned its rights and interest over the said MPSA application to Tesoro.

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the denial of petitioners
applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.

In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources,
Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving force
behind petitioners filing of the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that given that petitioners capital stocks were mostly owned by MBMI, they were
likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.

In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act
of 1995 which provided:

Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in singular or plural, shall mean:

xxxx

(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or cooperative
organized or authorized for the purpose of engaging in mining, with technical and financial capability to undertake mineral resources development
and duly registered in accordance with law at least sixty per cent (60%) of the capital of which is owned by citizens of the Philippines: Provided, That
a legally organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or
technical assistance agreement or mineral processing permit.

Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial or Technical Assistance Agreements
(FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to foreign-owned
corporations. Nevertheless, they claimed that the issue on nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine
Nationals as 60% of their capital is owned by citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of PLMC (which
owns 5,997 shares of Narra),3 40% of the shares of MMC (which owns 5,997 shares of McArthur)4and 40% of the shares of SLMC (which, in turn,
owns 5,997 shares of Tesoro),5 the shares of MBMI will not make it the owner of at least 60% of the capital stock of each of petitioners. They added
that the best tool used in determining the nationality of a corporation is the "control test," embodied in Sec. 3 of RA 7042 or the Foreign Investments
Act of 1991. They also claimed that the POA of DENR did not have jurisdiction over the issues in Redmonts petition since they are not enumerated
in Sec. 77 of RA 7942. Finally, they stressed that Redmont has no personality to sue them because it has no pending claim or application over the
areas applied for by petitioners.

On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held:

[I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On the other hand, [Redmont] having filed its
own applications for an EPA over the areas earlier covered by the MPSA application of respondents may be considered if and when they are
qualified under the law. The violation of the requirements for the issuance and/or grant of permits over mining areas is clearly established thus, there
is reason to believe that the cancellation and/or revocation of permits already issued under the premises is in order and open the areas covered to
other qualified applicants.

xxxx

WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and Development, Inc., and Narra Nickel Mining
and Development Corp. as, DISQUALIFIED for being considered as Foreign Corporations. Their Mineral Production Sharing Agreement (MPSA) are
hereby x x x DECLARED NULL AND VOID.6

The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian company and declared their
MPSAs null and void. In the same Resolution, it gave due course to Redmonts EPAs. Thereafter, on February 7, 2008, the POA issued an
Order7 denying the Motion for Reconsideration filed by petitioners.

Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal8 and Memorandum of Appeal9 with the Mines
Adjudication Board (MAB) while Narra separately filed its Notice of Appeal10 and Memorandum of Appeal.11

In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also, through a letter, they informed the MAB
that they had their individual MPSA applications converted to FTAAs. McArthurs FTAA was denominated as AFTA-IVB-0912 on May 2007, while
Tesoros MPSA application was converted to AFTA-IVB-0813 on May 28, 2007, and Narras FTAA was converted to AFTA-IVB-0714 on March 30,
2006.

Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint15 with the Securities and Exchange Commission
(SEC), seeking the revocation of the certificates for registration of petitioners on the ground that they are foreign-owned or controlled corporations
engaged in mining in violation of Philippine laws. Thereafter, Redmont filed on September 1, 2008 a Manifestation and Motion to Suspend
Proceeding before the MAB praying for the suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra.

Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch 92 (RTC) a Complaint 16 for injunction
with application for issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 08-63379.
Redmont prayed for the deferral of the MAB proceedings pending the resolution of the Complaint before the SEC.

But before the RTC can resolve Redmonts Complaint and applications for injunctive reliefs, the MAB issued an Order on September 10, 2008,
finding the appeal meritorious. It held:

WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS ASIDE the Resolution dated 14 December
2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07
February 2008 denying the Motions for Reconsideration of the Appellants. The Petition filed by Redmont Consolidated Mines Corporation on 02
January 2007 is hereby ordered DISMISSED.17

Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmonts application for a TRO and setting the case for hearing the prayer
for the issuance of a writ of preliminary injunction on September 19, 2008.

Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration 19 of the September 10, 2008 Order of the MAB. Subsequently, it
filed a Supplemental Motion for Reconsideration20 on September 29, 2008.

Before the MAB could resolve Redmonts Motion for Reconsideration and Supplemental Motion for Reconsideration, Redmont filed before the RTC a
Supplemental Complaint21 in Civil Case No. 08-63379.

On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary injunction enjoining the MAB from finally disposing of
the appeals of petitioners and from resolving Redmonts Motion for Reconsideration and Supplement Motion for Reconsideration of the MABs
September 10, 2008 Resolution.

On July 1, 2009, however, the MAB issued a second Order denying Redmonts Motion for Reconsideration and Supplemental Motion for
Reconsideration and resolving the appeals filed by petitioners.

Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. On October 1, 2010, the CA rendered a
Decision, the dispositive of which reads:

WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008 and July 1, 2009 of the Mining Adjudication
Board are reversed and set aside. The findings of the Panel of Arbitrators of the Department of Environment and Natural Resources that
respondents McArthur, Tesoro and Narra are foreign corporations is upheld and, therefore, the rejection of their applications for Mineral Product
Sharing Agreement should be recommended to the Secretary of the DENR.

With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical Assistance Agreement (FTAA) or conversion
of their MPSA applications to FTAA, the matter for its rejection or approval is left for determination by the Secretary of the DENR and the President
of the Republic of the Philippines.

SO ORDERED.23

In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by petitioners.

After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when it realized that petitioners had a
common major investor, MBMI, a corporation composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of Department of Justice
(DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws
pertaining to the exploitation of natural resources, the CA used the "grandfather rule" to determine the nationality of petitioners. It provided:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation
or partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as
owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be recorded as belonging to aliens.24 (emphasis supplied)

In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding common shareholders. Using the
grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of the petitioners as well as at least 60% equity
interest of other majority shareholders of petitioners through joint venture agreements. The CA found that through a "web of corporate layering, it is
clear that one common controlling investor in all mining corporations involved x x x is MBMI."25 Thus, it concluded that petitioners McArthur, Tesoro
and Narra are also in partnership with, or privies-in-interest of, MBMI.

Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA applications suspicious in nature and, as a
consequence, it recommended the rejection of petitioners MPSA applications by the Secretary of the DENR.

With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the POA has jurisdiction over them and that it also has
the power to determine the of nationality of petitioners as a prerequisite of the Constitution prior the conferring of rights to "co-production, joint
venture or production-sharing agreements" of the state to mining rights. However, it also stated that the POAs jurisdiction is limited only to the
resolution of the dispute and not on the approval or rejection of the MPSAs. It stipulated that only the Secretary of the DENR is vested with the power
to approve or reject applications for MPSA.

Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which considered petitioners McArthur, Tesoro and Narra as
foreign corporations. Nevertheless, the CA determined that the POAs declaration that the MPSAs of McArthur, Tesoro and Narra are void is highly
improper.

While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a petition dated May 7, 2010 seeking the cancellation
of petitioners FTAAs. The OP rendered a Decision26 on April 6, 2011, wherein it canceled and revoked petitioners FTAAs for violating and
circumventing the "Constitution x x x[,] the Small Scale Mining Law and Environmental Compliance Certificate as well as Sections 3 and 8 of the
Foreign Investment Act and E.O. 584."27 The OP, in affirming the cancellation of the issued FTAAs, agreed with Redmont stating that petitioners
committed violations against the abovementioned laws and failed to submit evidence to negate them. The Decision further quoted the December 14,
2007 Order of the POA focusing on the alleged misrepresentation and claims made by petitioners of being domestic or Filipino corporations and the
admitted continued mining operation of PMDC using their locally secured Small Scale Mining Permit inside the area earlier applied for an MPSA
application which was eventually transferred to Narra. It also agreed with the POAs estimation that the filing of the FTAA applications by petitioners
is a clear admission that they are "not capable of conducting a large scale mining operation and that they need the financial and technical assistance
of a foreign entity in their operation, that is why they sought the participation of MBMI Resources, Inc."28 The Decision further quoted:

The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the violations and lack of qualification of the
respondent corporations to engage in mining. The filing of the FTAA application conversion which is allowed foreign corporation of the earlier MPSA
is an admission that indeed the respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate documents of
MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are conducting operation only through their local
counterparts.29

The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution 30 dated July 6, 2011. Petitioners then filed a Petition for
Review on Certiorari of the OPs Decision and Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the CA Decision dated February 29,
2012, the CA affirmed the Decision and Resolution of the OP. Thereafter, petitioners appealed the same CA decision to this Court which is now
pending with a different division.

Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners put forth the following errors of the CA:

I.

The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the subject matter of the controversy, the
MPSA Applications, have already been converted into FTAA applications and that the same have already been granted.

II.

The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering that the Panel of Arbitrators has no
jurisdiction to determine the nationality of Narra, Tesoro and McArthur.

III.

The Court of Appeals erred when it did not dismiss the case on account of Redmonts willful forum shopping.

IV.

The Court of Appeals ruling that Narra, Tesoro and McArthur are foreign corporations based on the "Grandfather Rule" is contrary to law,
particularly the express mandate of the Foreign Investments Act of 1991, as amended, and the FIA Rules.

V.

The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.

VI.

The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA Applications were of "suspicious
nature" as the same is based on mere conjectures and surmises without any shred of evidence to show the same. 31

We find the petition to be without merit.

This case not moot and academic

The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit.

Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable controversy by virtue of supervening events, so that a
declaration thereon would be of no practical use or value."32 Thus, the courts "generally decline jurisdiction over the case or dismiss it on the ground
of mootness."33
The "mootness" principle, however, does accept certain exceptions and the mere raising of an issue of "mootness" will not deter the courts from
trying a case when there is a valid reason to do so. In David v. Macapagal-Arroyo (David), the Court provided four instances where courts can
decide an otherwise moot case, thus:

1.) There is a grave violation of the Constitution;

2.) The exceptional character of the situation and paramount public interest is involved;

3.) When constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and the public; and

4.) The case is capable of repetition yet evading review.34

All of the exceptions stated above are present in the instant case. We of this Court note that a grave violation of the Constitution, specifically Section
2 of Article XII, is being committed by a foreign corporation right under our countrys nose through a myriad of corporate layering under different,
allegedly, Filipino corporations. The intricate corporate layering utilized by the Canadian company, MBMI, is of exceptional character and involves
paramount public interest since it undeniably affects the exploitation of our Countrys natural resources. The corresponding actions of petitioners
during the lifetime and existence of the instant case raise questions as what principle is to be applied to cases with similar issues. No definite ruling
on such principle has been pronounced by the Court; hence, the disposition of the issues or errors in the instant case will serve as a guide "to the
bench, the bar and the public."35 Finally, the instant case is capable of repetition yet evading review, since the Canadian company, MBMI, can keep
on utilizing dummy Filipino corporations through various schemes of corporate layering and conversion of applications to skirt the constitutional
prohibition against foreign mining in Philippine soil.

Conversion of MPSA applications to FTAA applications

We shall discuss the first error in conjunction with the sixth error presented by petitioners since both involve the conversion of MPSA applications to
FTAA applications. Petitioners propound that the CA erred in ruling against them since the questioned MPSA applications were already converted
into FTAA applications; thus, the issue on the prohibition relating to MPSA applications of foreign mining corporations is academic. Also, petitioners
would want us to correct the CAs finding which deemed the aforementioned conversions of applications as suspicious in nature, since it is based on
mere conjectures and surmises and not supported with evidence.

We disagree.

The CAs analysis of the actions of petitioners after the case was filed against them by respondent is on point. The changing of applications by
petitioners from one type to another just because a case was filed against them, in truth, would raise not a few sceptics eyebrows. What is the
reason for such conversion? Did the said conversion not stem from the case challenging their citizenship and to have the case dismissed against
them for being "moot"? It is quite obvious that it is petitioners strategy to have the case dismissed against them for being "moot."

Consider the history of this case and how petitioners responded to every action done by the court or appropriate government agency: on January 2,
2007, Redmont filed three separate petitions for denial of the MPSA applications of petitioners before the POA. On June 15, 2007, petitioners filed a
conversion of their MPSA applications to FTAAs. The POA, in its December 14, 2007 Resolution, observed this suspect change of applications while
the case was pending before it and held:

The filing of the Financial or Technical Assistance Agreement application is a clear admission that the respondents are not capable of conducting a
large scale mining operation and that they need the financial and technical assistance of a foreign entity in their operation that is why they sought the
participation of MBMI Resources, Inc. The participation of MBMI in the corporation only proves the fact that it is the Canadian company that will
provide the finances and the resources to operate the mining areas for the greater benefit and interest of the same and not the Filipino stockholders
who only have a less substantial financial stake in the corporation.

xxxx

x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the violations and lack of qualification of
the respondent corporations to engage in mining. The filing of the FTAA application conversion which is allowed foreign corporation of the earlier
MPSA is an admission that indeed the respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are conducting operation only
through their local counterparts.36

On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing and setting aside the September 10, 2008 and July 1,
2009 Orders of the MAB. In the said Decision, the CA upheld the findings of the POA of the DENR that the herein petitioners are in fact foreign
corporations thus a recommendation of the rejection of their MPSA applications were recommended to the Secretary of the DENR. With respect to
the FTAA applications or conversion of the MPSA applications to FTAAs, the CA deferred the matter for the determination of the Secretary of the
DENR and the President of the Republic of the Philippines.37

In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of the petition asserting that on April 5, 2010, then
President Gloria Macapagal-Arroyo signed and issued in their favor FTAA No. 05-2010-IVB, which rendered the petition moot and academic.
However, the CA, in a Resolution dated February 15, 2011 denied their motion for being a mere "rehash of their claims and defenses."38 Standing
firm on its Decision, the CA affirmed the ruling that petitioners are, in fact, foreign corporations. On April 5, 2011, petitioners elevated the case to us
via a Petition for Review on Certiorari under Rule 45, questioning the Decision of the CA. Interestingly, the OP rendered a Decision dated April 6,
2011, a day after this petition for review was filed, cancelling and revoking the FTAAs, quoting the Order of the POA and stating that petitioners are
foreign corporations since they needed the financial strength of MBMI, Inc. in order to conduct large scale mining operations. The OP Decision also
based the cancellation on the misrepresentation of facts and the violation of the "Small Scale Mining Law and Environmental Compliance Certificate
as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584."39 On July 6, 2011, the OP issued a Resolution, denying the Motion for
Reconsideration filed by the petitioners.

Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the OPs Decision and Resolution. In their
Reply, petitioners chose to ignore the OP Decision and continued to reuse their old arguments claiming that they were granted FTAAs and, thus, the
case was moot. Petitioners filed a Manifestation and Submission dated October 19, 2012, 40 wherein they asserted that the present petition is moot
since, in a remarkable turn of events, MBMI was able to sell/assign all its shares/interest in the "holding companies" to DMCI Mining Corporation
(DMCI), a Filipino corporation and, in effect, making their respective corporations fully-Filipino owned.

Again, it is quite evident that petitioners have been trying to have this case dismissed for being "moot." Their final act, wherein MBMI was able to
allegedly sell/assign all its shares and interest in the petitioner "holding companies" to DMCI, only proves that they were in fact not Filipino
corporations from the start. The recent divesting of interest by MBMI will not change the stand of this Court with respect to the nationality of
petitioners prior the suspicious change in their corporate structures. The new documents filed by petitioners are factual evidence that this Court has
no power to verify.

The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations have violated several mining laws and made
misrepresentations and falsehood in their applications for FTAA which lead to the revocation of the said FTAAs, demonstrating that petitioners are
not beyond going against or around the law using shifty actions and strategies. Thus, in this instance, we can say that their claim of mootness is
moot in itself because their defense of conversion of MPSAs to FTAAs has been discredited by the OP Decision.

Grandfather test

The main issue in this case is centered on the issue of petitioners nationality, whether Filipino or foreign. In their previous petitions, they had been
adamant in insisting that they were Filipino corporations, until they submitted their Manifestation and Submission dated October 19, 2012 where they
stated the alleged change of corporate ownership to reflect their Filipino ownership. Thus, there is a need to determine the nationality of petitioner
corporations.

Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule. Paragraph 7 of
DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws
pertaining to the controlling interests in enterprises engaged in the exploitation of natural resources owned by Filipino citizens, provides:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation
or partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as
owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens.

The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality," pertains to the control test or the liberal rule. On the other hand, the
second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the corporation or partnership is less than 60%, only
the number of shares corresponding to such percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent
grandfather rule.

Prior to this recent change of events, petitioners were constant in advocating the application of the "control test" under RA 7042, as amended by RA
8179, otherwise known as the Foreign Investments Act (FIA), rather than using the stricter grandfather rule. The pertinent provision under Sec. 3 of
the FIA provides:

SECTION 3. Definitions. - As used in this Act:

a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by the citizens of the
Philippines; a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is
a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That were a corporation
and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of
the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors, in order that the corporation shall be considered a Philippine national. (emphasis supplied)

The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a "Philippine National" under Sec. 3 of
the FIA does not provide for it. They further claim that the grandfather rule "has been abandoned and is no longer the applicable rule."41 They also
opined that the last portion of Sec. 3 of the FIA admits the application of a "corporate layering" scheme of corporations. Petitioners claim that the
clear and unambiguous wordings of the statute preclude the court from construing it and prevent the courts use of discretion in applying the law.
They said that the plain, literal meaning of the statute meant the application of the control test is obligatory.

We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and pertinent laws, then it
becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has already been abandoned must be discredited for lack of
basis.

Art. XII, Sec. 2 of the Constitution provides:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of
the State. The State may directly undertake such activities, or it may enter into co-production, joint venture or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by
law.

xxxx

The President may enter into agreements with Foreign-owned corporations involving either technical or financial assistance for large-scale
exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by
law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the
development and use of local scientific and technical resources. (emphasis supplied)

The emphasized portion of Sec. 2 which focuses on the State entering into different types of agreements for the exploration, development, and
utilization of natural resources with entities who are deemed Filipino due to 60 percent ownership of capital is pertinent to this case, since the issues
are centered on the utilization of our countrys natural resources or specifically, mining. Thus, there is a need to ascertain the nationality of
petitioners since, as the Constitution so provides, such agreements are only allowed corporations or associations "at least 60 percent of such capital
is owned by such citizens." The deliberations in the Records of the 1986 Constitutional Commission shed light on how a citizenship of a corporation
will be determined:

Mr. BENNAGEN: Did I hear right that the Chairmans interpretation of an independent national economy is freedom from undue foreign control?
What is the meaning of undue foreign control?

MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and the welfare of the Filipino in the economic sphere.

MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply freedom from foreign control? I think that is the
meaning of independence, because as phrased, it still allows for foreign control.

MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the 60/40 possibility in the cultivation of natural resources,
40 percent involves some control; not total control, but some control.

MR. BENNAGEN: In any case, I think in due time we will propose some amendments.

MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.

Mr. BENNAGEN: Yes.

Thank you, Mr. Vice-President.

xxxx

MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in
Section 9, and 2/3-1/3 in Section 15.

MR. VILLEGAS: That is right.

MR. NOLLEDO: In teaching law, we are always faced with the question: Where do we base the equity requirement, is it on the authorized capital
stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation? Will the Committee please enlighten me on this?

MR. VILLEGAS: We have just had a long discussion with the members of the team from the UP Law Center who provided us with a draft. The
phrase that is contained here which we adopted from the UP draft is 60 percent of the voting stock.

MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be entitled to
vote.

MR. VILLEGAS: That is right.

MR. NOLLEDO: Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another corporation
which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS: Yes, that is the understanding of the Committee.

MR. NOLLEDO: Therefore, we need additional Filipino capital?

MR. VILLEGAS: Yes.42 (emphasis supplied)

It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases where corporate layering is present.

Elementary in statutory construction is when there is conflict between the Constitution and a statute, the Constitution will prevail. In this instance,
specifically pertaining to the provisions under Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will have no place of
application. As decreed by the honorable framers of our Constitution, the grandfather rule prevails and must be applied.

Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:

The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation for purposes, among others, of determining
compliance with nationality requirements (the Investee Corporation). Such manner of computation is necessary since the shares in the Investee
Corporation may be owned both by individual stockholders (Investing Individuals) and by corporations and partnerships (Investing Corporation).
The said rules thus provide for the determination of nationality depending on the ownership of the Investee Corporation and, in certain instances, the
Investing Corporation.

Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee Corporation. The first case is the liberal rule,
later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, (s)hares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality. Under the liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of
the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, "but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to
such percentage shall be counted as of Philippine nationality." Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino ownership.

Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and added to the shares directly
owned in the Investee Corporation x x x.

xxxx

In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40
Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than
60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated
differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)

After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the grandfather rule since, as ruled by the
POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is present in the
60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian corporationMBMI,
funded them. However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less than 60%.43

The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Court. DOJ Opinion No. 20,
which petitioners quoted in their petition, only made an example of an instance where "doubt" as to the ownership of the corporation exists. It would
be ludicrous to limit the application of the said word only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of
the total stockholdings in a corporation. The corporations interested in circumventing our laws would clearly strive to have "60% Filipino Ownership"
at face value. It would be senseless for these applying corporations to state in their respective articles of incorporation that they have less than 60%
Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the
application of the Constitution.

Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, creating a cloud of doubt
in the Courts mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.

McArthur Mining, Inc.

To establish the actual ownership, interest or participation of MBMI in each of petitioners corporate structure, they have to be "grandfathered."

As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its application from SMMI. McArthur has a capital stock
of ten million pesos (PhP 10,000,000) divided into 10,000 common shares at one thousand pesos (PhP 1,000) per share, subscribed to by the
following:44

Name Nationality Number of Shares Amount Subscribed Amount Paid

Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Corporation
MBMI Resources, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
 Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
(emphasis supplied)

Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition as McArthur. In fact, it would
seem that MBMI is also a major investor and "controls"45 MBMI and also, similar nominal shareholders were present, i.e. Fernando B. Esguerra
(Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell):

Madridejos Mining Corporation

Name Nationality Number of Shares Amount Subscribed Amount Paid

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Development

Corp.
MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00

Inc.
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the number of shares they subscribed to in
the corporation, which is quite absurd since Olympic is the major stockholder in MMC. MBMIs 2006 Annual Report sheds light on why Olympic failed
to pay any amount with respect to the number of shares it subscribed to. It states that Olympic entered into joint venture agreements with several
Philippine companies, wherein it holds directly and indirectly a 60% effective equity interest in the Olympic Properties. 46 Quoting the said Annual
report:

On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into a series of agreements including a
Property Purchase and Development Agreement (the Transaction Documents) with respect to three nickel laterite properties in Palawan, Philippines
(the "Olympic Properties"). The Transaction Documents effectively establish a joint venture between the Company and Olympic for purposes of
developing the Olympic Properties. The Company holds directly and indirectly an initial 60% interest in the joint venture. Under certain circumstances
and upon achieving certain milestones, the Company may earn up to a 100% interest, subject to a 2.5% net revenue royalty.47 (emphasis supplied)

Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized by MBMI to gain control over
McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur, making the latter a foreign corporation.

Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP 10,000,000) divided into ten thousand
(10,000) common shares at PhP 1,000 per share, as demonstrated below:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Mining, Inc.
MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60

Resources, Inc.

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60

(emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate structure of petitioner McArthur,
down to the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The figures under
"Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same. Delving deeper, we scrutinize SMMIs corporate
structure:

Sara Marie Mining, Inc.

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Development

Corp.

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00

Inc.

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

After subsequently studying SMMIs corporate structure, it is not farfetched for us to spot the glaring similarity between SMMI and MMCs corporate
structure. Again, the presence of identical stockholders, namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando, Mason and
Cawkell. The figures under the headings "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same except
for the amount paid by MBMI which now reflects the amount of two million seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, the
total value of the amount paid is two million eight hundred nine thousand nine hundred pesos (PhP 2,809,900).
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympics participation in SMMIs corporate structure, it is clear that MBMI is in
control of Tesoro and owns 60% or more equity interest in Tesoro. This makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it to
participate in the exploitation, utilization and development of our natural resources.

Narra Nickel Mining and Development Corporation

Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDCs MPSA application, whose corporate structures
arrangement is similar to that of the first two petitioners discussed. The capital stock of Narra is ten million pesos (PhP 10,000,000), which is divided
into ten thousand common shares (10,000) at one thousand pesos (PhP 1,000) per share, shown as follows:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00

Mining &

Development

Corp.

MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00

Resources, Inc.

Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00

Mendoza, Jr.

Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernandez

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Bocalan

Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00

Robert L. American 1 PhP 1,000.00 PhP 1,000.00

McCurdy

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP 10,000,000.00 PhP 2,800,000.00

(emphasis supplied)

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate structure.

Patricia Louise Mining & Development Corporation

Using the grandfather method, we further look and examine PLMDCs corporate structure:

Name Nationality Number of Amount Amount Paid

Shares Subscribed
Palawan Alpha South Resources Development Filipino 6,596 PhP 6,596,000.00 PhP 0
Corporation
MBMI Resources, Canadian 3,396 PhP 3,396,000.00 PhP 2,796,000.00

Inc.
 Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
(emphasis
supplied)

Yet again, the usual players in petitioners corporate structures are present. Similarly, the amount of money paid by the 2nd tier majority stock holder,
in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.

Studying MBMIs Summary of Significant Accounting Policies dated October 31, 2005 explains the reason behind the intricate corporate layering that
MBMI immersed itself in:

JOINT VENTURES The Companys ownership interests in various mining ventures engaged in the acquisition, exploration and development of
mineral properties in the Philippines is described as follows:

(a) Olympic Group

The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as follows:

Olympic- Philippines (the "Olympic Group")

Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%

Tesoro Mining & Development, Inc. (Tesoro) 60.0%

Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective equity interest in the Olympic Property of
60.0%. Pursuant to a shareholders agreement, the Company exercises joint control over the companies in the Olympic Group.

(b) Alpha Group

The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows:

Alpha- Philippines (the "Alpha Group")

Patricia Louise Mining Development Inc. ("Patricia") 34.0%

Narra Nickel Mining & Development Corporation (Narra) 60.4%

Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in the Alpha Property of 60.4%. Pursuant to a
shareholders agreement, the Company exercises joint control over the companies in the Alpha Group. 48 (emphasis supplied)

Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100%
Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners corporate owners,
namely: MMI, SMMI and PLMDC. Going further and adding to the picture, MBMIs Summary of Significant Accounting Policies statement
regarding the "joint venture" agreements that it entered into with the "Olympic" and "Alpha" groupsinvolves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has
joint venture agreements with, practically exercising majority control over the corporations mentioned. In effect, whether looking at the capital
structure or the underlying relationships between and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign
since 60% or more of their capital stocks or equity interests are owned by MBMI.

Application of the res inter alios acta rule

Petitioners question the CAs use of the exception of the res inter alios acta or the "admission by co-partner or agent" rule and "admission by privies"
under the Rules of Court in the instant case, by pointing out that statements made by MBMI should not be admitted in this case since it is not a party
to the case and that it is not a "partner" of petitioners.

Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the party within the scope of his authority and during the
existence of the partnership or agency, may be given in evidence against such party after the partnership or agency is shown by evidence other than
such act or declaration itself. The same rule applies to the act or declaration of a joint owner, joint debtor, or other person jointly interested with the
party.

Sec. 31. Admission by privies.- Where one derives title to property from another, the act, declaration, or omission of the latter, while holding the title,
in relation to the property, is evidence against the former.

Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership relation must be shown, and that proof of the fact
must be made by evidence other than the admission itself."49 Thus, petitioners assert that the CA erred in finding that a partnership relationship
exists between them and MBMI because, in fact, no such partnership exists.

Partnerships vs. joint venture agreements

Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI have a joint
interest" with Narra, Tesoro and McArthur. They challenged the conclusion of the CA which pertains to the close characteristics of

"partnerships" and "joint venture agreements." Further, they asserted that before this particular partnership can be formed, it should have been
formally reduced into writing since the capital involved is more than three thousand pesos (PhP 3,000). Being that there is no evidence of written
agreement to form a partnership between petitioners and MBMI, no partnership was created.

We disagree.

A partnership is defined as two or more persons who bind themselves to contribute money, property, or industry to a common fund with the intention
of dividing the profits among themselves.50 On the other hand, joint ventures have been deemed to be "akin" to partnerships since it is difficult to
distinguish between joint ventures and partnerships. Thus:

[T]he relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that it is ordinarily
held that their rights, duties, and liabilities are to be tested by rules which are closely analogous to and substantially the same, if not exactly the
same, as those which govern partnership. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership
and a joint venture, very little law being found applicable to one that does not apply to the other. 51

Though some claim that partnerships and joint ventures are totally different animals, there are very few rules that differentiate one from the other;
thus, joint ventures are deemed "akin" or similar to a partnership. In fact, in joint venture agreements, rules and legal incidents governing
partnerships are applied.52

Accordingly, culled from the incidents and records of this case, it can be assumed that the relationships entered between and among petitioners and
MBMI are no simple "joint venture agreements." As a rule, corporations are prohibited from entering into partnership agreements; consequently,
corporations enter into joint venture agreements with other corporations or partnerships for certain transactions in order to form "pseudo
partnerships."

Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was executed to circumvent the legal prohibition
against corporations entering into partnerships, then the relationship created should be deemed as "partnerships," and the laws on partnership
should be applied. Thus, a joint venture agreement between and among corporations may be seen as similar to partnerships since the elements of
partnership are present.

Considering that the relationships found between petitioners and MBMI are considered to be partnerships, then the CA is justified in applying Sec.
29, Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur.

Panel of Arbitrators jurisdiction

We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The POA has jurisdiction to settle disputes over rights
to mining areas which definitely involve the petitions filed by Redmont against petitioners Narra, McArthur and Tesoro. Redmont, by filing its petition
against petitioners, is asserting the right of Filipinos over mining areas in the Philippines against alleged foreign-owned mining corporations. Such
claim constitutes a "dispute" found in Sec. 77 of RA 7942:

Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have exclusive and original jurisdiction to hear
and decide the following:

(a) Disputes involving rights to mining areas

(b) Disputes involving mineral agreements or permits

We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.:53

The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or opposition to an application for mineral agreement.
The POA therefore has the jurisdiction to resolve any adverse claim, protest, or opposition to a pending application for a mineral agreement filed with
the concerned Regional Office of the MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40, which provide:

Sec. 38.
 xxxx

Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the authorized officer(s) of the concerned office(s)
shall issue a certification(s) that the publication/posting/radio announcement have been complied with. Any adverse claim, protest, opposition shall
be filed directly, within thirty (30) calendar days from the last date of publication/posting/radio announcement, with the concerned Regional Office or
through any concerned PENRO or CENRO for filing in the concerned Regional Office for purposes of its resolution by the Panel of Arbitrators
pursuant to the provisions of this Act and these implementing rules and regulations. Upon final resolution of any adverse claim, protest or opposition,
the Panel of Arbitrators shall likewise issue a certification to that effect within five (5) working days from the date of finality of resolution thereof.
Where there is no adverse claim, protest or opposition, the Panel of Arbitrators shall likewise issue a Certification to that effect within five working
days therefrom.

xxxx

No Mineral Agreement shall be approved unless the requirements under this Section are fully complied with and any adverse
claim/protest/opposition is finally resolved by the Panel of Arbitrators.

Sec. 41.

xxxx

Within fifteen (15) working days form the receipt of the Certification issued by the Panel of Arbitrators as provided in Section 38 hereof, the
concerned Regional Director shall initially evaluate the Mineral Agreement applications in areas outside Mineral reservations. He/She shall thereafter
endorse his/her findings to the Bureau for further evaluation by the Director within fifteen (15) working days from receipt of forwarded documents.
Thereafter, the Director shall endorse the same to the secretary for consideration/approval within fifteen working days from receipt of such
endorsement.

In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15) working days from receipt of the Certification issued
by the Panel of Arbitrators as provided for in Section 38 hereof, the same shall be evaluated and endorsed by the Director to the Secretary for
consideration/approval within fifteen days from receipt of such endorsement. (emphasis supplied)

It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec. 77(a) specifically refer only to
those disputes relative to the applications for a mineral agreement or conferment of mining rights.

The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further elucidated by Secs. 219 and 43 of
DENR AO 95-936, which read:

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57 above, any adverse claim,
protest or opposition specified in said sections may also be filed directly with the Panel of Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said Sections.

Sec. 43. Publication/Posting of Mineral Agreement.-

xxxx

The Regional Director or concerned Regional Director shall also cause the posting of the application on the bulletin boards of the Bureau, concerned
Regional office(s) and in the concerned province(s) and municipality(ies), copy furnished the barangays where the proposed contract area is located
once a week for two (2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim, protest or opposition was filed within the said forty-five (45) days, the concerned offices
shall issue a certification that publication/posting has been made and that no adverse claim, protest or opposition of whatever nature has been filed.
On the other hand, if there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional Offices concerned, or through the Departments Community Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However previously published valid and subsisting mining claims are exempted from posted/posting required under this Section.

No mineral agreement shall be approved unless the requirements under this section are fully complied with and any opposition/adverse claim is dealt
with in writing by the Director and resolved by the Panel of Arbitrators. (Emphasis supplied.)

It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec. 77(a) specifically refer only to
those disputes relative to the applications for a mineral agreement or conferment of mining rights.

The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further elucidated by Secs. 219 and 43 of
DENRO AO 95-936, which reads:

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57 above, any adverse claim,
protest or opposition specified in said sections may also be filed directly with the Panel of Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said Sections.

Sec. 43. Publication/Posting of Mineral Agreement Application.-

xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the application on the bulletin boards of the Bureau, concerned
Regional office(s) and in the concerned province(s) and municipality(ies), copy furnished the barangays where the proposed contract area is located
once a week for two (2) consecutive weeks in a language generally understood in the locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim, protest or opposition was filed within the said forty-five (45) days, the concerned offices
shall issue a certification that publication/posting has been made and that no adverse claim, protest or opposition of whatever nature has been filed.
On the other hand, if there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional offices concerned, or through the Departments Community Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However, previously published valid and subsisting mining claims are exempted from posted/posting required under this Section.

No mineral agreement shall be approved unless the requirements under this section are fully complied with and any opposition/adverse claim is dealt
with in writing by the Director and resolved by the Panel of Arbitrators. (Emphasis supplied.)

These provisions lead us to conclude that the power of the POA to resolve any adverse claim, opposition, or protest relative to mining rights under
Sec. 77(a) of RA 7942 is confined only to adverse claims, conflicts and oppositions relating to applications for the grant of mineral rights.

POAs jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions and it has no authority to approve or reject said
applications. Such power is vested in the DENR Secretary upon recommendation of the MGB Director. Clearly, POAs jurisdiction over "disputes
involving rights to mining areas" has nothing to do with the cancellation of existing mineral agreements. (emphasis ours)

Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve disputes over MPSA applications subject of
Redmonts petitions. However, said jurisdiction does not include either the approval or rejection of the MPSA applications, which is vested only upon
the Secretary of the DENR. Thus, the finding of the POA, with respect to the rejection of petitioners MPSA applications being that they are foreign
corporation, is valid.

Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the POA, that has jurisdiction over the MPSA
applications of petitioners.

This postulation is incorrect.

It is basic that the jurisdiction of the court is determined by the statute in force at the time of the commencement of the action.54

Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization

Act of 1980" reads:

Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall exercise exclusive original jurisdiction:

1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation.

On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:

Section 77. Panel of Arbitrators.

x x x Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have exclusive and original
jurisdiction to hear and decide the following:

(c) Disputes involving rights to mining areas

(d) Disputes involving mineral agreements or permits

It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to mining areas. One such dispute is an MPSA
application to which an adverse claim, protest or opposition is filed by another interested applicant.1wphi1 In the case at bar, the dispute arose or
originated from MPSA applications where petitioners are asserting their rights to mining areas subject of their respective MPSA applications. Since
respondent filed 3 separate petitions for the denial of said applications, then a controversy has developed between the parties and it is POAs
jurisdiction to resolve said disputes.

Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR Regional Office or any concerned DENRE or
CENRO are MPSA applications. Thus POA has jurisdiction.

Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. Euro-med Laboratories v. Province of
Batangas55 elucidates:

The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise, specialized training and knowledge of an
administrative body, relief must first be obtained in an administrative proceeding before resort to the courts is had even if the matter may well be
within their proper jurisdiction.

Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA and to this Court as a last recourse.

Selling of MBMIs shares to DMCI

As stated before, petitioners Manifestation and Submission dated October 19, 2012 would want us to declare the instant petition moot and academic
due to the transfer and conveyance of all the shareholdings and interests of MBMI to DMCI, a corporation duly organized and existing under
Philippine laws and is at least 60% Philippine-owned.56 Petitioners reasoned that they now cannot be considered as foreign-owned; the transfer of
their shares supposedly cured the "defect" of their previous nationality. They claimed that their current FTAA contract with the State should stand
since "even wholly-owned foreign corporations can enter into an FTAA with the State."57Petitioners stress that there should no longer be any issue
left as regards their qualification to enter into FTAA contracts since they are qualified to engage in mining activities in the Philippines. Thus, whether
the "grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be doubted since it would pass both tests.

The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact should be disregarded. The manifestation
can no longer be considered by us since it is being tackled in G.R. No. 202877 pending before this Court.1wphi1 Thus, the question of whether
petitioners, allegedly a Philippine-owned corporation due to the sale of MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the
State is a non-issue in this case.

In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit of Sec. 2,
Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural resources of the Philippines. When in
the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the
corporation, then it may apply the "grandfather rule."

WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals Decision dated October 1, 2010 and Resolution
dated February 15, 2011 are hereby AFFIRMED.

SO ORDERED.