G.R. No.

92013 July 25, 1990

SALVADOR H. LAUREL, petitioner,

vs.
RAMON GARCIA, as head of the Asset Privatization Trust, RAUL MANGLAPUS, as Secretary of Foreign
Affairs, and CATALINO MACARAIG, as Executive Secretary, respondents.

G.R. No. 92047 July 25, 1990

DIONISIO S. OJEDA, petitioner,

vs.
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION TRUST CHAIRMAN RAMON T. GARCIA,
AMBASSADOR RAMON DEL ROSARIO, et al., as members of the PRINCIPAL AND BIDDING COMMITTEES
ON THE UTILIZATION/DISPOSITION PETITION OF PHILIPPINE GOVERNMENT PROPERTIES IN
JAPAN, respondents.

Arturo M. Tolentino for petitioner in 92013.

GUTIERREZ, JR., J.:

These are two petitions for prohibition seeking to enjoin respondents, their representatives and agents from proceeding
with the bidding for the sale of the 3,179 square meters of land at 306 Roppongi, 5-Chome Minato-ku Tokyo, Japan
scheduled on February 21, 1990. We granted the prayer for a temporary restraining order effective February 20, 1990.
One of the petitioners (in G.R. No. 92047) likewise prayes for a writ of mandamus to compel the respondents to fully
disclose to the public the basis of their decision to push through with the sale of the Roppongi property inspire of strong
public opposition and to explain the proceedings which effectively prevent the participation of Filipino citizens and entities
in the bidding process.

The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by the Court on March 13, 1990. After G.R.
No. 92047, Ojeda v. Secretary Macaraig, et al. was filed, the respondents were required to file a comment by the Court's
resolution dated February 22, 1990. The two petitions were consolidated on March 27, 1990 when the memoranda of
the parties in the Laurel case were deliberated upon.

The Court could not act on these cases immediately because the respondents filed a motion for an extension of thirty
(30) days to file comment in G.R. No. 92047, followed by a second motion for an extension of another thirty (30) days
which we granted on May 8, 1990, a third motion for extension of time granted on May 24, 1990 and a fourth motion
for extension of time which we granted on June 5, 1990 but calling the attention of the respondents to the length of
time the petitions have been pending. After the comment was filed, the petitioner in G.R. No. 92047 asked for thirty
(30) days to file a reply. We noted his motion and resolved to decide the two (2) cases.

The subject property in this case is one of the four (4) properties in Japan acquired by the Philippine government under
the Reparations Agreement entered into with Japan on May 9, 1956, the other lots being:

(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which has an area of approximately 2,489.96
square meters, and is at present the site of the Philippine Embassy Chancery;

(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of around 764.72 square meters and
categorized as a commercial lot now being used as a warehouse and parking lot for the consulate staff; and

(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara, Nada-ku, Kobe, a residential lot which is now
vacant.

The properties and the capital goods and services procured from the Japanese government for national development
projects are part of the indemnification to the Filipino people for their losses in life and property and their suffering
during World War II.

The Reparations Agreement provides that reparations valued at $550 million would be payable in twenty (20) years in
accordance with annual schedules of procurements to be fixed by the Philippine and Japanese governments (Article 2,
Reparations Agreement). Rep. Act No. 1789, the Reparations Law, prescribes the national policy on procurement and
utilization of reparations and development loans. The procurements are divided into those for use by the government
sector and those for private parties in projects as the then National Economic Council shall determine. Those intended
for the private sector shall be made available by sale to Filipino citizens or to one hundred (100%) percent Filipino-
owned entities in national development projects.

The Roppongi property was acquired from the Japanese government under the Second Year Schedule and listed under
the heading "Government Sector", through Reparations Contract No. 300 dated June 27, 1958. The Roppongi property
consists of the land and building "for the Chancery of the Philippine Embassy" (Annex M-D to Memorandum for Petitioner,
p. 503). As intended, it became the site of the Philippine Embassy until the latter was transferred to Nampeidai on July
22, 1976 when the Roppongi building needed major repairs. Due to the failure of our government to provide necessary
funds, the Roppongi property has remained undeveloped since that time.

A proposal was presented to President Corazon C. Aquino by former Philippine Ambassador to Japan, Carlos J. Valdez,
to make the property the subject of a lease agreement with a Japanese firm - Kajima Corporation — which shall construct
two (2) buildings in Roppongi and one (1) building in Nampeidai and renovate the present Philippine Chancery in
Nampeidai. The consideration of the construction would be the lease to the foreign corporation of one (1) of the buildings
to be constructed in Roppongi and the two (2) buildings in Nampeidai. The other building in Roppongi shall then be used
as the Philippine Embassy Chancery. At the end of the lease period, all the three leased buildings shall be occupied and
used by the Philippine government. No change of ownership or title shall occur. (See Annex "B" to Reply to Comment)
The Philippine government retains the title all throughout the lease period and thereafter. However, the government
has not acted favorably on this proposal which is pending approval and ratification between the parties. Instead, on
August 11, 1986, President Aquino created a committee to study the disposition/utilization of Philippine government
properties in Tokyo and Kobe, Japan through Administrative Order No. 3, followed by Administrative Orders Numbered
3-A, B, C and D.

On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino citizens or entities to avail of
separations' capital goods and services in the event of sale, lease or disposition. The four properties in Japan including
the Roppongi were specifically mentioned in the first "Whereas" clause.

Amidst opposition by various sectors, the Executive branch of the government has been pushing, with great vigor, its
decision to sell the reparations properties starting with the Roppongi lot. The property has twice been set for bidding at
a minimum floor price of $225 million. The first bidding was a failure since only one bidder qualified. The second one,
after postponements, has not yet materialized. The last scheduled bidding on February 21, 1990 was restrained by his
Court. Later, the rules on bidding were changed such that the $225 million floor price became merely a suggested floor
price.

The Court finds that each of the herein petitions raises distinct issues. The petitioner in G.R. No. 92013 objects to the
alienation of the Roppongi property to anyone while the petitioner in G.R. No. 92047 adds as a principal objection the
alleged unjustified bias of the Philippine government in favor of selling the property to non-Filipino citizens and entities.
These petitions have been consolidated and are resolved at the same time for the objective is the same - to stop the
sale of the Roppongi property.

The petitioner in G.R. No. 92013 raises the following issues:

(1) Can the Roppongi property and others of its kind be alienated by the Philippine Government?; and

(2) Does the Chief Executive, her officers and agents, have the authority and jurisdiction, to sell the Roppongi property?

Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the authority of the government to alienate the
Roppongi property assails the constitutionality of Executive Order No. 296 in making the property available for sale to
non-Filipino citizens and entities. He also questions the bidding procedures of the Committee on the Utilization or
Disposition of Philippine Government Properties in Japan for being discriminatory against Filipino citizens and Filipino-
owned entities by denying them the right to be informed about the bidding requirements.

II

In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and the related lots were acquired as part of
the reparations from the Japanese government for diplomatic and consular use by the Philippine government. Vice-
President Laurel states that the Roppongi property is classified as one of public dominion, and not of private ownership
under Article 420 of the Civil Code (See infra).

The petitioner submits that the Roppongi property comes under "property intended for public service" in paragraph 2 of
the above provision. He states that being one of public dominion, no ownership by any one can attach to it, not even
by the State. The Roppongi and related properties were acquired for "sites for chancery, diplomatic, and consular
quarters, buildings and other improvements" (Second Year Reparations Schedule). The petitioner states that they
continue to be intended for a necessary service. They are held by the State in anticipation of an opportune use. (Citing
3 Manresa 65-66). Hence, it cannot be appropriated, is outside the commerce of man, or to put it in more simple terms,
it cannot be alienated nor be the subject matter of contracts (Citing Municipality of Cavite v. Rojas, 30 Phil. 20 [1915]).
Noting the non-use of the Roppongi property at the moment, the petitioner avers that the same remains property of
public dominion so long as the government has not used it for other purposes nor adopted any measure constituting a
removal of its original purpose or use.

The respondents, for their part, refute the petitioner's contention by saying that the subject property is not governed
by our Civil Code but by the laws of Japan where the property is located. They rely upon the rule of lex situs which is
used in determining the applicable law regarding the acquisition, transfer and devolution of the title to a property. They
also invoke Opinion No. 21, Series of 1988, dated January 27, 1988 of the Secretary of Justice which used the lex
situs in explaining the inapplicability of Philippine law regarding a property situated in Japan.

The respondents add that even assuming for the sake of argument that the Civil Code is applicable, the Roppongi
property has ceased to become property of public dominion. It has become patrimonial property because it has not
been used for public service or for diplomatic purposes for over thirteen (13) years now (Citing Article 422, Civil Code)
and because the intention by the Executive Department and the Congress to convert it to private use has been
manifested by overt acts, such as, among others: (1) the transfer of the Philippine Embassy to Nampeidai (2) the
issuance of administrative orders for the possibility of alienating the four government properties in Japan; (3) the
issuance of Executive Order No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the Comprehensive
Agrarian Reform Law] on June 10, 1988 which contains a provision stating that funds may be taken from the sale of
Philippine properties in foreign countries; (5) the holding of the public bidding of the Roppongi property but which failed;
(6) the deferment by the Senate in Resolution No. 55 of the bidding to a future date; thus an acknowledgment by the
Senate of the government's intention to remove the Roppongi property from the public service purpose; and (7) the
resolution of this Court dismissing the petition in Ojeda v. Bidding Committee, et al., G.R. No. 87478 which sought to
enjoin the second bidding of the Roppongi property scheduled on March 30, 1989.
III

In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the constitutionality of Executive Order No.
296. He had earlier filed a petition in G.R. No. 87478 which the Court dismissed on August 1, 1989. He now avers that
the executive order contravenes the constitutional mandate to conserve and develop the national patrimony stated in
the Preamble of the 1987 Constitution. It also allegedly violates:

(1) The reservation of the ownership and acquisition of alienable lands of the public domain to Filipino citizens. (Sections
2 and 3, Article XII, Constitution; Sections 22 and 23 of Commonwealth Act 141).i•t•c-aüsl

(2) The preference for Filipino citizens in the grant of rights, privileges and concessions covering the national economy
and patrimony (Section 10, Article VI, Constitution);

(3) The protection given to Filipino enterprises against unfair competition and trade practices;

(4) The guarantee of the right of the people to information on all matters of public concern (Section 7, Article III,
Constitution);

(5) The prohibition against the sale to non-Filipino citizens or entities not wholly owned by Filipino citizens of capital
goods received by the Philippines under the Reparations Act (Sections 2 and 12 of Rep. Act No. 1789); and

(6) The declaration of the state policy of full public disclosure of all transactions involving public interest (Section 28,
Article III, Constitution).

Petitioner Ojeda warns that the use of public funds in the execution of an unconstitutional executive order is a
misapplication of public funds He states that since the details of the bidding for the Roppongi property were never
publicly disclosed until February 15, 1990 (or a few days before the scheduled bidding), the bidding guidelines are
available only in Tokyo, and the accomplishment of requirements and the selection of qualified bidders should be done
in Tokyo, interested Filipino citizens or entities owned by them did not have the chance to comply with Purchase Offer
Requirements on the Roppongi. Worse, the Roppongi shall be sold for a minimum price of $225 million from which price
capital gains tax under Japanese law of about 50 to 70% of the floor price would still be deducted.

IV

The petitioners and respondents in both cases do not dispute the fact that the Roppongi site and the three related
properties were through reparations agreements, that these were assigned to the government sector and that the
Roppongi property itself was specifically designated under the Reparations Agreement to house the Philippine Embassy.

The nature of the Roppongi lot as property for public service is expressly spelled out. It is dictated by the terms of the
Reparations Agreement and the corresponding contract of procurement which bind both the Philippine government and
the Japanese government.

There can be no doubt that it is of public dominion unless it is convincingly shown that the property has become
patrimonial. This, the respondents have failed to do.

As property of public dominion, the Roppongi lot is outside the commerce of man. It cannot be alienated. Its ownership
is a special collective ownership for general use and enjoyment, an application to the satisfaction of collective needs,
and resides in the social group. The purpose is not to serve the State as a juridical person, but the citizens; it is intended
for the common and public welfare and cannot be the object of appropration. (Taken from 3 Manresa, 66-69; cited in
Tolentino, Commentaries on the Civil Code of the Philippines, 1963 Edition, Vol. II, p. 26).

The applicable provisions of the Civil Code are:

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

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.

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

The Roppongi property is correctly classified under paragraph 2 of Article 420 of the Civil Code as property belonging to
the State and intended for some public service.

Has the intention of the government regarding the use of the property been changed because the lot has been Idle for
some years? Has it become patrimonial?

The fact that the Roppongi site has not been used for a long time for actual Embassy service does not automatically
convert it to patrimonial property. Any such conversion happens only if the property is withdrawn from public use (Cebu
Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]). A property continues to be part of the public domain, not
available for private appropriation or ownership until there is a formal declaration on the part of the government to
withdraw it from being such (Ignacio v. Director of Lands, 108 Phil. 335 [1960]).

The respondents enumerate various pronouncements by concerned public officials insinuating a change of intention. We
emphasize, however, that an abandonment of the intention to use the Roppongi property for public service and to make
it patrimonial property under Article 422 of the Civil Code must be definiteAbandonment cannot be inferred from the
non-use alone specially if the non-use was attributable not to the government's own deliberate and indubitable will but
to a lack of financial support to repair and improve the property (See Heirs of Felino Santiago v. Lazaro, 166 SCRA 368
[1988]). Abandonment must be a certain and positive act based on correct legal premises.

A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of the Roppongi property's original
purpose. Even the failure by the government to repair the building in Roppongi is not abandonment since as earlier
stated, there simply was a shortage of government funds. The recent Administrative Orders authorizing a study of the
status and conditions of government properties in Japan were merely directives for investigation but did not in any way
signify a clear intention to dispose of the properties.

Executive Order No. 296, though its title declares an "authority to sell", does not have a provision in its text expressly
authorizing the sale of the four properties procured from Japan for the government sector. The executive order does
not declare that the properties lost their public character. It merely intends to make the properties available to foreigners
and not to Filipinos alone in case of a sale, lease or other disposition. It merely eliminates the restriction under Rep. Act
No. 1789 that reparations goods may be sold only to Filipino citizens and one hundred (100%) percent Filipino-owned
entities. The text of Executive Order No. 296 provides:

Section 1. The provisions of Republic Act No. 1789, as amended, and of other laws to the contrary
notwithstanding, the above-mentioned properties can be made available for sale, lease or any other
manner of disposition to non-Filipino citizens or to entities owned by non-Filipino citizens.

Executive Order No. 296 is based on the wrong premise or assumption that the Roppongi and the three other properties
were earlier converted into alienable real properties. As earlier stated, Rep. Act No. 1789 differentiates the procurements
for the government sector and the private sector (Sections 2 and 12, Rep. Act No. 1789). Only the private sector
properties can be sold to end-users who must be Filipinos or entities owned by Filipinos. It is this nationality provision
which was amended by Executive Order No. 296.

Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the sources of funds for its implementation,
the proceeds of the disposition of the properties of the Government in foreign countries, did not withdraw the Roppongi
property from being classified as one of public dominion when it mentions Philippine properties abroad. Section 63 (c)
refers to properties which are alienable and not to those reserved for public use or service. Rep Act No. 6657, therefore,
does not authorize the Executive Department to sell the Roppongi property. It merely enumerates possible sources of
future funding to augment (as and when needed) the Agrarian Reform Fund created under Executive Order No. 299.
Obviously any property outside of the commerce of man cannot be tapped as a source of funds.

The respondents try to get around the public dominion character of the Roppongi property by insisting that Japanese
law and not our Civil Code should apply.

It is exceedingly strange why our top government officials, of all people, should be the ones to insist that in the sale of
extremely valuable government property, Japanese law and not Philippine law should prevail. The Japanese law - its
coverage and effects, when enacted, and exceptions to its provision — is not presented to the Court It is simply asserted
that the lex loci rei sitae or Japanese law should apply without stating what that law provides. It is a ed on faith that
Japanese law would allow the sale.

We see no reason why a conflict of law rule should apply when no conflict of law situation exists. A conflict of law
situation arises only when: (1) There is a dispute over the title or ownership of an immovable, such that the capacity to
take and transfer immovables, the formalities of conveyance, the essential validity and effect of the transfer, or the
interpretation and effect of a conveyance, are to be determined (See Salonga, Private International Law, 1981 ed., pp.
377-383); and (2) A foreign law on land ownership and its conveyance is asserted to conflict with a domestic law on
the same matters. Hence, the need to determine which law should apply.

In the instant case, none of the above elements exists.

The issues are not concerned with validity of ownership or title. There is no question that the property belongs to the
Philippines. The issue is the authority of the respondent officials to validly dispose of property belonging to the State.
And the validity of the procedures adopted to effect its sale. This is governed by Philippine Law. The rule of lex situs does
not apply.

The assertion that the opinion of the Secretary of Justice sheds light on the relevance of the lex situs rule is misplaced.
The opinion does not tackle the alienability of the real properties procured through reparations nor the existence in what
body of the authority to sell them. In discussing who are capable of acquiring the lots, the Secretary merely explains
that it is the foreign law which should determine who can acquire the properties so that the constitutional limitation on
acquisition of lands of the public domain to Filipino citizens and entities wholly owned by Filipinos is inapplicable. We
see no point in belaboring whether or not this opinion is correct. Why should we discuss who can acquire the Roppongi
lot when there is no showing that it can be sold?

The subsequent approval on October 4, 1988 by President Aquino of the recommendation by the investigating committee
to sell the Roppongi property was premature or, at the very least, conditioned on a valid change in the public character
of the Roppongi property. Moreover, the approval does not have the force and effect of law since the President already
lost her legislative powers. The Congress had already convened for more than a year.
Assuming for the sake of argument, however, that the Roppongi property is no longer of public dominion, there is
another obstacle to its sale by the respondents.

There is no law authorizing its conveyance.

Section 79 (f) of the Revised Administrative Code of 1917 provides

Section 79 (f ) Conveyances and contracts to which the Government is a party. — In cases in which the
Government of the Republic of the Philippines is a party to any deed or other instrument conveying the
title to real estate or to any other property the value of which is in excess of one hundred thousand
pesos, the respective Department Secretary shall prepare the necessary papers which, together with
the proper recommendations, shall be submitted to the Congress of the Philippines for approval by the
same. Such deed, instrument, or contract shall be executed and signed by the President of the
Philippines on behalf of the Government of the Philippines unless the Government of the Philippines
unless the authority therefor be expressly vested by law in another officer. (Emphasis supplied)

The requirement has been retained in Section 48, Book I of the Administrative Code of 1987 (Executive Order No. 292).

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)

It is not for the President to convey valuable real property of the government on his or her own sole will. Any such
conveyance must be authorized and approved by a law enacted by the Congress. It requires executive and legislative
concurrence.

Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale of the Roppongi property does
not withdraw the property from public domain much less authorize its sale. It is a mere resolution; it is not a formal
declaration abandoning the public character of the Roppongi property. In fact, the Senate Committee on Foreign
Relations is conducting hearings on Senate Resolution No. 734 which raises serious policy considerations and calls for a
fact-finding investigation of the circumstances behind the decision to sell the Philippine government properties in Japan.

The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass upon the constitutionality of
Executive Order No. 296. Contrary to respondents' assertion, we did not uphold the authority of the President to sell
the Roppongi property. The Court stated that the constitutionality of the executive order was not the real issue and that
resolving the constitutional question was "neither necessary nor finally determinative of the case." The Court noted that
"[W]hat petitioner ultimately questions is the use of the proceeds of the disposition of the Roppongi property." In
emphasizing that "the decision of the Executive to dispose of the Roppongi property to finance the CARP ... cannot be
questioned" in view of Section 63 (c) of Rep. Act No. 6657, the Court did not acknowledge the fact that the property
became alienable nor did it indicate that the President was authorized to dispose of the Roppongi property. The resolution
should be read to mean that in case the Roppongi property is re-classified to be patrimonial and alienable by authority
of law, the proceeds of a sale may be used for national economic development projects including the CARP.

Moreover, the sale in 1989 did not materialize. The petitions before us question the proposed 1990 sale of the Roppongi
property. We are resolving the issues raised in these petitions, not the issues raised in 1989.

Having declared a need for a law or formal declaration to withdraw the Roppongi property from public domain to make
it alienable and a need for legislative authority to allow the sale of the property, we see no compelling reason to tackle
the constitutional issues raised by petitioner Ojeda.

The Court does not ordinarily pass upon constitutional questions unless these questions are properly raised in
appropriate cases and their resolution is necessary for the determination of the case (People v. Vera, 65 Phil. 56 [1937]).
The Court will not pass upon a constitutional question although properly presented by the record if the case can be
disposed of on some other ground such as the application of a statute or general law (Siler v. Louisville and Nashville
R. Co., 213 U.S. 175, [1909], Railroad Commission v. Pullman Co., 312 U.S. 496 [1941]).

The petitioner in G.R. No. 92013 states why the Roppongi property should not be sold:

The Roppongi property is not just like any piece of property. It was given to the Filipino people in
reparation for the lives and blood of Filipinos who died and suffered during the Japanese military
occupation, for the suffering of widows and orphans who lost their loved ones and kindred, for the homes
and other properties lost by countless Filipinos during the war. The Tokyo properties are a monument
to the bravery and sacrifice of the Filipino people in the face of an invader; like the monuments of Rizal,
Quezon, and other Filipino heroes, we do not expect economic or financial benefits from them. But who
would think of selling these monuments? Filipino honor and national dignity dictate that we keep our
properties in Japan as memorials to the countless Filipinos who died and suffered. Even if we should
become paupers we should not think of selling them. For it would be as if we sold the lives and blood
and tears of our countrymen. (Rollo- G.R. No. 92013, p.147)

The petitioner in G.R. No. 92047 also states:

 Roppongi is no ordinary property. It is one ceded by the Japanese government in atonement for its past
belligerence for the valiant sacrifice of life and limb and for deaths, physical dislocation and economic
devastation the whole Filipino people endured in World War II.

It is for what it stands for, and for what it could never bring back to life, that its significance today
remains undimmed, inspire of the lapse of 45 years since the war ended, inspire of the passage of 32
years since the property passed on to the Philippine government.

Roppongi is a reminder that cannot — should not — be dissipated ... (Rollo-92047, p. 9)

It is indeed true that the Roppongi property is valuable not so much because of the inflated prices fetched by real
property in Tokyo but more so because of its symbolic value to all Filipinos — veterans and civilians alike. Whether or
not the Roppongi and related properties will eventually be sold is a policy determination where both the President and
Congress must concur. Considering the properties' importance and value, the laws on conversion and disposition of
property of public dominion must be faithfully followed.

WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ of prohibition is issued enjoining the
respondents from proceeding with the sale of the Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary
Restraining Order is made PERMANENT. SO ORDERED.
G.R. No. L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-
appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.

Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.

Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.

FERNANDO, J.:

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New
York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March
27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine
corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided
by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the
motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the Benguet
Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the administration and
liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock
standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3)
directs said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either
the incumbent ancillary administrator or to the Probate Division of this Court."1

From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company
of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The
challenged order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific
problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from
legal doctrines of weight and significance.

The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who
died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant,
the certificates being in the possession of the County Trust Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960,
Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A.
Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the appellee Renato D.
Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the
Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964,
the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and
deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply
with the order, and on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring
the certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet
Consolidated, Inc., be declared [or] considered as lost."3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned
as to "who is entitled to the possession of the stock certificates in question; appellant opposed the petition of the
ancillary administrator because the said stock certificates are in existence, they are today in the possession of the
domiciliary administrator, the County Trust Company, in New York, U.S.A...."4

It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost.
Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock
certificates could be issued. Hence, its appeal.

As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic
affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in
refusing to accord obedience to a court decree. How, then, can this order be stigmatized as illegal?

As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation.
What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without
undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness
as to preclude such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable
principles and supported by the strongest policy considerations.

It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of
the country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought
about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted,
voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27,
1963, and filing a petition for relief from a previous order of March 15, 1963.

Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without
it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary
administrator, with residence abroad, of what was previously ordained by a court order could be thus remedied, it would
have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority.

1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control
and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is
inherent in his duty to settle her estate and satisfy the claims of local creditors.5 As Justice Tuason speaking for this
Court made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly
"extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that
an administrator appointed in one state or country has no power over property in another state or country." 6

It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice
Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate
owning property in the country of his domicile as well as in a foreign country, administration is had in both countries.
That which is granted in the jurisdiction of decedent's last domicile is termed the principal administration, while any
other administration is termed the ancillary administration. The reason for the latter is because a grant of administration
does not ex proprio vigore have any effect beyond the limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper, whenever a
person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets
of the deceased liable for his individual debts or to be distributed among his heirs." 7

It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock
certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated,
Inc...." be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and
subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as
immune from lawful court orders.

Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case, the
actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it
were so minded.

2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged
order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of
precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its
"considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade
Perkins, ..."9 More specifically, appellant would stress that the "lower court could not "consider as lost" the stock
certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by
the appellee, that the said stock certificates are in existence and are today in the possession of the domiciliary
administrator in New York."10

There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the
reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New
York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in
the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to
issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be
discharged and his responsibility fulfilled.

Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled
discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in
refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree
could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard.

It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the
facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered
however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends
have played an important part in its development."11

Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of
justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent
jurist, noting "the quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the empire
of "as if" today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought,
but which at times hides itself from view till reflection and analysis have brought it to the light." 14

What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There
should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial
technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of
a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular
alleged error does not carry persuasion.

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions
of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate;
it would stress that in the event of a contest or the pendency of an action regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the
"final decision by [a] court regarding the ownership [thereof]."15

Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the
foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express
admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock
certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness
and finality. Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter
is to be followed.

It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary
must yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however,
if a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it
but yield to its alleged controlling force.

The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for
its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes
a valid defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus
far, nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a
future prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority.

4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the
basic postulates of corporate theory.

We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...." 16 It owes
its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was
conceived as an artificial person, owing its existence through creation by a sovereign power."17 As a matter of fact, the
statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a
corporation precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law." 18

The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person,
but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct
and separate from its individual stockholders.... It owes its existence to law. It is an artificial person created by law for
certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter." 19Dean Pound's
terse summary, a juristic person, resulting from an association of human beings granted legal personality by the state,
puts the matter neatly.20

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the
reality of the group as a social and legal entity, independent of state recognition and concession." 21 A corporation as
known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state
according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than
that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly
not excluding the judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our
jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the
appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances,
where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it.

To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which
may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state,
the source of its very existence; it is to contend that what any of its governmental organs may lawfully require could
be ignored at will. So extravagant a claim cannot possibly merit approval.

5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then
pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of
money paid to the minor under guardianship, alleging that the lower court had previously granted its petition to consider
the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the
United States. The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an
American federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other
American official to examine the matter anew, "except a judge or judges of the United States court."23 Reconsideration
was denied, and the Administrator appealed.

In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should
be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans'
Administrator final and conclusive when made on claims property submitted to him for resolution; but they are not
applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great
difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that
are imposed by the Veterans' Act, including the exclusive review by United States courts), and those actions where the
Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our
attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions
where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render
them mere subordinate instrumentalities of the Veterans' Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations
made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts
over juridical persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the
whim or caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the
honor of the country.

Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to
be firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal.
Certainly we must at all pains see to it that it does not succeed. The deplorable consequences attendant on appellant
prevailing attest to the necessity of negative response from us. That is what appellant will get.

That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme
and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction
is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and distinguished by its
correspondence with what a sense of realism requires. For through the appealed order, the imperative requirement of
justice according to law is satisfied and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May
18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.
G.R. No. L-27952 February 15, 1982

TESTATE ESTATE OF JOSE EUGENIO RAMIREZ, MARIA LUISA PALACIOS, Administratrix, petitioner-appellee,
vs.
MARCELLE D. VDA. DE RAMIREZ, ET AL., oppositors, JORGE and ROBERTO RAMIREZ, legatees, oppositors-
appellants.

ABAD SANTOS, J.:

The main issue in this appeal is the manner of partitioning the testate estate of Jose Eugenio Ramirez among the
principal beneficiaries, namely: his widow Marcelle Demoron de Ramirez; his two grandnephews Roberto and Jorge
Ramirez; and his companion Wanda de Wrobleski.

The task is not trouble-free because the widow Marcelle is a French who lives in Paris, while the companion Wanda is
an Austrian who lives in Spain. Moreover, the testator provided for substitutions.

Jose Eugenio Ramirez, a Filipino national, died in Spain on December 11, 1964, with only his widow as compulsory heir.
His will was admitted to probate by the Court of First Instance of Manila, Branch X, on July 27, 1965. Maria Luisa Palacios
was appointed administratrix of the estate. In due time she submitted an inventory of the estate as follows:

INVENTARIO

Una sexta parte (1/6) proindiviso de un te

rreno, con sus mejoras y edificaciones, situadoen

la Escolta, Manila............................................................. P500,000.00

Una sexta parte (1/6) proindiviso de dos

parcelas de terreno situadas en Antipolo, Rizal................... 658.34

Cuatrocientos noventa y uno (491) acciones

de la 'Central Azucarera de la Carlota a P17.00

por accion ................................................................................8,347.00

Diez mil ochocientos seize (10,806) acciones

de la 'Central Luzon Milling Co.', disuelta y en

liquidacion a P0.15 por accion ..............................................1,620.90

Cuenta de Ahorros en el Philippine Trust

Co.............................................................................................. 2,350.73

TOTAL.............................................................. P512,976.97

MENOS:

Deuda al Banco de las Islas Filipinas, garan-

tizada con prenda de las acciones de La Carlota ......... P 5,000,00

VALOR LIQUIDO........................................... P507,976.97

The testamentary dispositions are as follows:

A.—En nuda propiedad, a D. Roberto y D. Jorge Ramirez, ambas menores de edad, residentes en Manila,
I.F., calle 'Alright, No. 1818, Malate, hijos de su sobrino D. Jose Ma. Ramirez, con sustitucion vulgar a
favor de sus respectivos descendientes, y, en su defecto, con sustitucion vulgar reciprocal entre ambos.

El precedente legado en nuda propiedad de la participacion indivisa de la finca Santa Cruz Building, lo
ordena el testador a favor de los legatarios nombrados, en atencion a que dicha propiedad fue creacion
del querido padre del otorgante y por ser aquellos continuadores del apellido Ramirez,

B.—Y en usufructo a saber: —

a. En cuanto a una tercera parte, a favor de la esposa del testador, Da. Marcelle Ramirez, domiciliada
en IE PECO, calle del General Gallieni No. 33, Seine Francia, con sustitucion vulgar u fideicomisaria a
favor de Da. Wanda de Wrobleski, de Palma de Mallorca, Son Rapina Avenida de los Reyes 13,
 b.—Y en cuanto a las dos terceras partes restantes, a favor de la nombrada Da. Wanda de Nrobleski
con sustitucion vulgar v fideicomisaria a saber:—

En cuanto a la mitad de dichas dos terceras partes, a favor de D. Juan Pablo Jankowski, de Son Rapina
Palma de Mallorca; y encuanto a la mitad restante, a favor de su sobrino, D. Horace V. Ramirez, San
Luis Building, Florida St. Ermita, Manila, I.F.

A pesar de las sustituciones fideiconiisarias precedentemente ordinadas, las usufiructuarias nombradas

conjuntamente con los nudo propietarios, podran en cualquier memento vender a tercero los bienes
objeto delegado, sin intervencion alguna de los titulares fideicomisaarios.

On June 23, 1966, the administratrix submitted a project of partition as follows: the property of the deceased is to be
divided into two parts. One part shall go to the widow 'en pleno dominio" in satisfaction of her legitime; the other part
or "free portion" shall go to Jorge and Roberto Ramirez "en nuda propriedad." Furthermore, one third (1/3) of the free
portion is charged with the widow's usufruct and the remaining two-thirds (2/3) with a usufruct in favor of Wanda.

Jorge and Roberto opposed the project of partition on the grounds: (a) that the provisions for vulgar substitution in
favor of Wanda de Wrobleski with respect to the widow's usufruct and in favor of Juan Pablo Jankowski and Horacio V.
Ramirez, with respect to Wanda's usufruct are invalid because the first heirs Marcelle and Wanda) survived the testator;
(b) that the provisions for fideicommissary substitutions are also invalid because the first heirs are not related to the
second heirs or substitutes within the first degree, as provided in Article 863 of the Civil Code; (c) that the grant of a
usufruct over real property in the Philippines in favor of Wanda Wrobleski, who is an alien, violates Section 5, Article III
of the Philippine Constitution; and that (d) the proposed partition of the testator's interest in the Santa Cruz (Escolta)
Building between the widow Marcelle and the appellants, violates the testator's express win to give this property to
them Nonetheless, the lower court approved the project of partition in its order dated May 3, 1967. It is this order which
Jorge and Roberto have appealed to this Court.

1. The widow's legitime.

The appellant's do not question the legality of giving Marcelle one-half of the estate in full ownership. They admit that
the testator's dispositions impaired his widow's legitime. Indeed, under Art. 900 of the Civil Code "If the only survivor
is the widow or widower, she or he shall be entitled to one-half of the hereditary estate." And since Marcelle alone
survived the deceased, she is entitled to one-half of his estate over which he could impose no burden, encumbrance,
condition or substitution of any kind whatsoever. (Art. 904, par. 2, Civil Code.)

It is the one-third usufruct over the free portion which the appellants question and justifiably so. It appears that the
court a quo approved the usufruct in favor of Marcelle because the testament provides for a usufruct in her favor of
one-third of the estate. The court a quo erred for Marcelle who is entitled to one-half of the estate "en pleno dominio"
as her legitime and which is more than what she is given under the will is not entitled to have any additional share in
the estate. To give Marcelle more than her legitime will run counter to the testator's intention for as stated above his
dispositions even impaired her legitime and tended to favor Wanda.

2. The substitutions.

It may be useful to recall that "Substitution is the appoint- judgment of another heir so that he may enter into the
inheritance in default of the heir originally instituted." (Art. 857, Civil Code. And that there are several kinds of
substitutions, namely: simple or common, brief or compendious, reciprocal, and fideicommissary (Art. 858, Civil Code.)
According to Tolentino, "Although the Code enumerates four classes, there are really only two principal classes of
substitutions: the simple and the fideicommissary. The others are merely variations of these two." (111 Civil Code, p.
185 [1973].)

The simple or vulgar is that provided in Art. 859 of the Civil Code which reads:

ART. 859. The testator may designate one or more persons to substitute the heir or heirs instituted in
case such heir or heirs should die before him, or should not wish, or should be incapacitated to accept
the inheritance.

A simple substitution, without a statement of the cases to which it refers, shall comprise the three
mentioned in the preceding paragraph, unless the testator has otherwise provided.

The fideicommissary substitution is described in the Civil Code as follows:

ART. 863. A fideicommissary substitution by virtue of which the fiduciary or first heir instituted is
entrusted with the obligation to preserve and to transmit to a second heir the whole or part of
inheritance, shall be valid and shall take effect, provided such substitution does not go beyond one
degree from the heir originally instituted, and provided further that the fiduciary or first heir and the
second heir are living at time of the death of the testator.

It will be noted that the testator provided for a vulgar substitution in respect of the legacies of Roberto and Jorge
Ramirez, the appellants, thus: con sustitucion vulgar a favor de sus respectivos descendientes, y, en su defecto, con
substitution vulgar reciprocal entre ambos.

The appellants do not question the legality of the substitution so provided. The appellants question the sustitucion vulgar
y fideicomisaria a favor de Da. Wanda de Wrobleski" in connection with the one-third usufruct over the estate given to
the widow Marcelle However, this question has become moot because as We have ruled above, the widow is not entitled
to any usufruct.
The appellants also question the sustitucion vulgar y fideicomisaria in connection with Wanda's usufruct over two thirds
of the estate in favor of Juan Pablo Jankowski and Horace v. Ramirez.

They allege that the substitution in its vulgar aspect as void because Wanda survived the testator or stated differently
because she did not predecease the testator. But dying before the testator is not the only case for vulgar substitution
for it also includes refusal or incapacity to accept the inheritance as provided in Art. 859 of the Civil Code, supra. Hence,
the vulgar substitution is valid.

As regards the substitution in its fideicommissary aspect, the appellants are correct in their claim that it is void for the
following reasons:

(a) The substitutes (Juan Pablo Jankowski and Horace V. Ramirez) are not related to Wanda, the heir originally instituted.
Art. 863 of the Civil Code validates a fideicommissary substitution "provided such substitution does not go beyond one
degree from the heir originally instituted."

What is meant by "one degree" from the first heir is explained by Tolentino as follows:

Scaevola Maura, and Traviesas construe "degree" as designation, substitution, or transmission. The
Supreme Court of Spain has decidedly adopted this construction. From this point of view, there can be
only one tranmission or substitution, and the substitute need not be related to the first heir. Manresa,
Morell and Sanchez Roman, however, construe the word "degree" as generation, and the present Code
has obviously followed this interpretation. by providing that the substitution shall not go beyond one
degree "from the heir originally instituted." The Code thus clearly indicates that the second heir must
be related to and be one generation from the first heir.

From this, it follows that the fideicommissary can only be either a child or a parent of the first heir.
These are the only relatives who are one generation or degree from the fiduciary (Op. cit., pp. 193-
194.)

(b) There is no absolute duty imposed on Wanda to transmit the usufruct to the substitutes as required by Arts. 865
and 867 of the Civil Code. In fact, the appellee admits "that the testator contradicts the establishment of a
fideicommissary substitution when he permits the properties subject of the usufruct to be sold upon mutual agreement
of the usufructuaries and the naked owners." (Brief, p. 26.)

3. The usufruct of Wanda.

The appellants claim that the usufruct over real properties of the estate in favor of Wanda is void because it violates the
constitutional prohibition against the acquisition of lands by aliens.

The 1935 Constitution which is controlling provides as follows:

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

The court a quo upheld the validity of the usufruct given to Wanda on the ground that the Constitution covers not only
succession by operation of law but also testamentary succession. We are of the opinion that the Constitutional provision
which enables aliens to acquire private lands does not extend to testamentary succession for otherwise the prohibition
will be for naught and meaningless. Any alien would be able to circumvent the prohibition by paying money to a Philippine
landowner in exchange for a devise of a piece of land.

This opinion notwithstanding, We uphold the usufruct in favor of Wanda because a usufruct, albeit a real right, does not
vest title to the land in the usufructuary and it is the vesting of title to land in favor of aliens which is proscribed by the
Constitution.

IN VIEW OF THE FOREGOING, the estate of Jose Eugenio Ramirez is hereby ordered distributed as follows:

One-half (1/2) thereof to his widow as her legitime;

One-half (1/2) thereof which is the free portion to Roberto and Jorge Ramirez in naked ownership and the usufruct to
Wanda de Wrobleski with a simple substitution in favor of Juan Pablo Jankowski and Horace V. Ramirez.

The distribution herein ordered supersedes that of the court a quo. No special pronouncement as to costs. SO ORDERED.
 PHILIP MATTHEWS, G.R. No. 164584
Petitioner,

Promulgated:

June 22, 2009

- versus -

BENJAMIN A. TAYLOR and JOSELYN C. TAYLOR,

Respondents.

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

DECISION

NACHURA, J.:

Assailed in this petition for review on certiorari are the Court of Appeals (CA) December 19, 2003 Decision[1] and July

14, 2004 Resolution[2] in CA-G.R. CV No. 59573. The assailed decision affirmed and upheld the June 30, 1997

Decision[3] of the Regional Trial Court (RTC), Branch 8, Kalibo, Aklan in Civil Case No. 4632 for Declaration of Nullity of

Agreement of Lease with Damages.

On June 30, 1988, respondent Benjamin A. Taylor (Benjamin), a British subject, married Joselyn C. Taylor (Joselyn), a

17-year old Filipina.[4] On June 9, 1989, while their marriage was subsisting, Joselyn bought from Diosa M. Martin a

1,294 square-meter lot (Boracay property) situated at Manoc-Manoc, Boracay Island, Malay, Aklan, for and in

consideration of P129,000.00.[5] The sale was allegedly financed by Benjamin.[6] Joselyn and Benjamin, also using the

latters funds, constructed improvements thereon and eventually converted the property to a vacation and tourist resort

known as the Admiral Ben Bow Inn.[7] All required permits and licenses for the operation of the resort were obtained in

the name of Ginna Celestino, Joselyns sister.[8]

However, Benjamin and Joselyn had a falling out, and Joselyn ran away with Kim Philippsen. On June 8, 1992, Joselyn

executed a Special Power of Attorney (SPA) in favor of Benjamin, authorizing the latter to maintain, sell, lease, and

sub-lease and otherwise enter into contract with third parties with respect to their Boracay property. [9]

On July 20, 1992, Joselyn as lessor and petitioner Philip Matthews as lessee, entered into an Agreement of

Lease[10] (Agreement) involving the Boracay property for a period of 25 years, with an annual rental of P12,000.00. The

agreement was signed by the parties and executed before a Notary Public. Petitioner thereafter took possession of the

property and renamed the resort as Music Garden Resort.

Claiming that the Agreement was null and void since it was entered into by Joselyn without his (Benjamins) consent,

Benjamin instituted an action for Declaration of Nullity of Agreement of Lease with Damages[11] against Joselyn and the

petitioner. Benjamin claimed that his funds were used in the acquisition and improvement of the Boracay property, and

coupled with the fact that he was Joselyns husband, any transaction involving said property required his consent.

No Answer was filed, hence, the RTC declared Joselyn and the petitioner in defeault. On March 14, 1994, the RTC

rendered judgment by default declaring the Agreement null and void.[12] The decision was, however, set aside by the

CA in CA-G.R. SP No. 34054.[13] The CA also ordered the RTC to allow the petitioner to file his Answer, and to conduct

further proceedings.

In his Answer,[14] petitioner claimed good faith in transacting with Joselyn. Since Joselyn appeared to be the owner of

the Boracay property, he found it unnecessary to obtain the consent of Benjamin.Moreover, as appearing in the
Agreement, Benjamin signed as a witness to the contract, indicating his knowledge of the transaction and, impliedly,

his conformity to the agreement entered into by his wife.Benjamin was, therefore, estopped from questioning the validity

of the Agreement.

There being no amicable settlement during the pre-trial, trial on the merits ensued.

On June 30, 1997, the RTC disposed of the case in this manner:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendants as follows:

1. The Agreement of Lease dated July 20, 1992 consisting of eight (8) pages (Exhibits T, T-
1, T-2, T-3, T-4, T-5, T-6 and T-7) entered into by and between Joselyn C. Taylor and Philip
Matthews before Notary Public Lenito T. Serrano under Doc. No. 390, Page 79, Book I, Series
of 1992 is hereby declared NULL and VOID;

2. Defendants are hereby ordered, jointly and severally, to pay plaintiff the sum of SIXTEEN
THOUSAND (P16,000.00) PESOS as damages representing unrealized income for the
residential building and cottages computed monthly from July 1992 up to the time the
property in question is restored to plaintiff; and

3. Defendants are hereby ordered, jointly and severally, to pay plaintiff the sum of TWENTY
THOUSAND (P20,000.00) PESOS, Philippine Currency, for attorneys fees and other
incidental expenses.

SO ORDERED.[15]

The RTC considered the Boracay property as community property of Benjamin and Joselyn; thus, the consent of the

spouses was necessary to validate any contract involving the property. Benjamins right over the Boracay property was

bolstered by the courts findings that the property was purchased and improved through funds provided by Benjamin.

Although the Agreement was evidenced by a public document, the trial court refused to consider the alleged participation

of Benjamin in the questioned transaction primarily because his signature appeared only on the last page of the

document and not on every page thereof.

On appeal to the CA, petitioner still failed to obtain a favorable decision. In its December 19, 2003 Decision,[16] the CA

affirmed the conclusions made by the RTC. The appellate court was of the view that if, indeed, Benjamin was a willing

participant in the questioned transaction, the parties to the Agreement should have used the phrase with my consent

instead of signed in the presence of. The CA noted that Joselyn already prepared an SPA in favor of Benjamin involving

the Boracay property; it was therefore unnecessary for Joselyn to participate in the execution of the Agreement. Taken

together, these circumstances yielded the inevitable conclusion that the contract was null and void having been entered

into by Joselyn without the consent of Benjamin.

Aggrieved, petitioner now comes before this Court in this petition for review on certiorari based on the following

grounds:
4.1. THE MARITAL CONSENT OF RESPONDENT BENJAMIN TAYLOR IS NOT REQUIRED IN THE
AGREEMENT OF LEASE DATED 20 JULY 1992. GRANTING ARGUENDO THAT HIS CONSENT IS
REQUIRED, BENJAMIN TAYLOR IS DEEMED TO HAVE GIVEN HIS CONSENT WHEN HE AFFIXED HIS
SIGNATURE IN THE AGREEMENT OF LEASE AS WITNESS IN THE LIGHT OF THE RULING OF THE
SUPREME COURT IN THE CASE OF SPOUSES PELAYO VS. MELKI PEREZ, G.R. NO. 141323, JUNE 8, 2005.

4.2. THE PARCEL OF LAND SUBJECT OF THE AGREEMENT OF LEASE IS THE EXCLUSIVE PROPERTY OF
JOCELYN C. TAYLOR, A FILIPINO CITIZEN, IN THE LIGHT OF CHEESMAN VS. IAC, G.R. NO.
74833, JANUARY 21, 1991.

4.3. THE COURTS A QUO ERRONEOUSLY APPLIED ARTICLE 96 OF THE FAMILY CODE OF
THE PHILIPPINES WHICH IS A PROVISION REFERRING TO THE ABSOLUTE COMMUNITY OF
PROPERTY. THE PROPERTY REGIME GOVERNING THE PROPERTY RELATIONS OF BENJAMIN TAYLOR AND
JOSELYN TAYLOR IS THE CONJUGAL PARTNERSHIP OF GAINS BECAUSE THEY WERE MARRIED ON 30
JUNE 1988 WHICH IS PRIOR TO THE EFFECTIVITY OF THE FAMILY CODE. ARTICLE 96 OF THE FAMILY
CODE OF THE PHILIPPINES FINDS NO APPLICATION IN THIS CASE.

4.4. THE HONORABLE COURT OF APPEALS IGNORED THE PRESUMPTION OF REGULARITY IN THE
EXECUTION OF NOTARIAL DOCUMENTS.
 4.5. THE HONORABLE COURT OF APPEALS FAILED TO PASS UPON THE COUNTERCLAIM OF PETITIONER
DESPITE THE FACT THAT IT WAS NOT CONTESTED AND DESPITE THE PRESENTATION OF EVIDENCE
ESTABLISHING SAID CLAIM.[17]

The petition is impressed with merit.

In fine, we are called upon to determine the validity of an Agreement of Lease of a parcel of land entered into by a

Filipino wife without the consent of her British husband. In addressing the matter before us, we are confronted not only

with civil law or conflicts of law issues, but more importantly, with a constitutional question.

It is undisputed that Joselyn acquired the Boracay property in 1989. Said acquisition was evidenced by a Deed of Sale

with Joselyn as the vendee. The property was also declared for taxation purposes under her name. When Joselyn leased

the property to petitioner, Benjamin sought the nullification of the contract on two grounds: first, that he was the actual

owner of the property since he provided the funds used in purchasing the same; and second, that Joselyn could not

enter into a valid contract involving the subject property without his consent.

The trial and appellate courts both focused on the property relations of petitioner and respondent in light of the Civil

Code and Family Code provisions. They, however, failed to observe the applicable constitutional principles, which, in

fact, are the more decisive.

Section 7, Article XII of the 1987 Constitution states:[18]

Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands of the public
domain.

Aliens, whether individuals or corporations, have been disqualified from acquiring lands of the public domain. Hence, by

virtue of the aforecited constitutional provision, they are also disqualified from acquiring private lands.[19] The primary

purpose of this constitutional provision is the conservation of the national patrimony. [20] Our fundamental law cannot

be any clearer. The right to acquire lands of the public domain is reserved only to Filipino citizens or corporations at

least sixty percent of the capital of which is owned by Filipinos.[21]

In Krivenko v. Register of Deeds,[22] cited in Muller v. Muller,[23] we had the occasion to explain the constitutional

prohibition:

Under Section 1 of Article XIII of the Constitution, natural resources, with the exception of public
agricultural land, shall not be alienated, and with respect to public agricultural lands, their alienation is
limited to Filipino citizens. But this constitutional purpose conserving agricultural resources in the hands
of Filipino citizens may easily be defeated by the Filipino citizens themselves who may alienate their
agricultural lands in favor of aliens. It is partly to prevent this result that Section 5 is included in Article
XIII, and it reads as follows:

Section 5. Save in cases of hereditary succession, no private agricultural land will be transferred
or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the
public domain in the Philippines.
This constitutional provision closes the only remaining avenue through which agricultural
resources may leak into aliens hands. It would certainly be futile to prohibit the alienation of public
agricultural lands to aliens if, after all, they may be freely so alienated upon their becoming private
agricultural lands in the hands of Filipino citizens. x x x

xxxx

If the term private agricultural lands is to be construed as not including residential lots or lands
not strictly agricultural, the result would be that aliens may freely acquire and possess not only
residential lots and houses for themselves but entire subdivisions, and whole towns and cities, and that
they may validly buy and hold in their names lands of any area for building homes, factories, industrial
plants, fisheries, hatcheries, schools, health and vacation resorts, markets, golf courses, playgrounds,
airfields, and a host of other uses and purposes that are not, in appellants words, strictly agricultural.
(Solicitor Generals Brief, p. 6) That this is obnoxious to the conservative spirit of the Constitution is
beyond question.[24]
The rule is clear and inflexible: aliens are absolutely not allowed to acquire public or private lands in the Philippines,

save only in constitutionally recognized exceptions.[25] There is no rule more settled than this constitutional prohibition,

as more and more aliens attempt to circumvent the provision by trying to own lands through another. In a long line of

cases, we have settled issues that directly or indirectly involve the above constitutional provision. We had cases where

aliens wanted that a particular property be declared as part of their fathers estate; [26] that they be reimbursed the funds

used in purchasing a property titled in the name of another;[27] that an implied trust be declared in their (aliens)

favor;[28] and that a contract of sale be nullified for their lack of consent.[29]

In Ting Ho, Jr. v. Teng Gui,[30] Felix Ting Ho, a Chinese citizen, acquired a parcel of land, together with the improvements

thereon. Upon his death, his heirs (the petitioners therein) claimed the properties as part of the estate of their deceased

father, and sought the partition of said properties among themselves. We, however, excluded the land and

improvements thereon from the estate of Felix Ting Ho, precisely because he never became the owner thereof in light

of the above-mentioned constitutional prohibition.

In Muller v. Muller,[31] petitioner Elena Buenaventura Muller and respondent Helmut Muller were married

in Germany. During the subsistence of their marriage, respondent purchased a parcel of land in Antipolo City and

constructed a house thereon. The Antipolo property was registered in the name of the petitioner. They eventually

separated, prompting the respondent to file a petition for separation of property. Specifically, respondent prayed for

reimbursement of the funds he paid for the acquisition of said property. In deciding the case in favor of the petitioner,

the Court held that respondent was aware that as an alien, he was prohibited from owning a parcel of land situated in

the Philippines. He had, in fact, declared that when the spouses acquired the Antipolo property, he had it titled in the

name of the petitioner because of said prohibition. Hence, we denied his attempt at subsequently asserting a right to

the said property in the form of a claim for reimbursement. Neither did the Court declare that an implied trust was

created by operation of law in view of petitioners marriage to respondent. We said that to rule otherwise would permit

circumvention of the constitutional prohibition.

In Frenzel v. Catito,[32] petitioner, an Australian citizen, was married to Teresita Santos; while respondent, a Filipina,
was married to Klaus Muller. Petitioner and respondent met and later cohabited in a common-law relationship, during

which petitioner acquired real properties; and since he was disqualified from owning lands in the Philippines, respondents

name appeared as the vendee in the deeds of sale.When their relationship turned sour, petitioner filed an action for the

recovery of the real properties registered in the name of respondent, claiming that he was the real owner. Again, as in

the other cases, the Court refused to declare petitioner as the owner mainly because of the constitutional

prohibition. The Court added that being a party to an illegal contract, he could not come to court and ask to have his

illegal objective carried out. One who loses his money or property by knowingly engaging in an illegal contract may not

maintain an action for his losses.

Finally, in Cheesman v. Intermediate Appellate Court,[33] petitioner (an American citizen) and Criselda Cheesman

acquired a parcel of land that was later registered in the latters name. Criselda subsequently sold the land to a third

person without the knowledge of the petitioner. The petitioner then sought the nullification of the sale as he did not give

his consent thereto. The Court held that assuming that it was his (petitioners) intention that the lot in question be

purchased by him and his wife, he acquired no right whatever over the property by virtue of that purchase; and in

attempting to acquire a right or interest in land, vicariously and clandestinely, he knowingly violated the Constitution;

thus, the sale as to him was null and void.

In light of the foregoing jurisprudence, we find and so hold that Benjamin has no right to nullify the Agreement

of Lease between Joselyn and petitioner. Benjamin, being an alien, is absolutely prohibited from acquiring private and

public lands in the Philippines. Considering that Joselyn appeared to be the designated vendee in the Deed of Sale of

said property, she acquired sole ownership thereto. This is true even if we sustain Benjamins claim that he provided the

funds for such acquisition. By entering into such contract knowing that it was illegal, no implied trust was created in his
favor; no reimbursement for his expenses can be allowed; and no declaration can be made that the subject property
was part of the conjugal/community property of the spouses. In any event, he had and has no capacity or personality

to question the subsequent lease of the Boracay property by his wife on the theory that in so doing, he was merely

exercising the prerogative of a husband in respect of conjugal property. To sustain such a theory would countenance

indirect controversion of the constitutional prohibition. If the property were to be declared conjugal, this would accord

the alien husband a substantial interest and right over the land, as he would then have a decisive vote as to its transfer

or disposition. This is a right that the Constitution does not permit him to have. [34]

In fine, the Agreement of Lease entered into between Joselyn and petitioner cannot be nullified on the grounds advanced

by Benjamin. Thus, we uphold its validity.

With the foregoing disquisition, we find it unnecessary to address the other issues raised by the petitioner.

WHEREFORE, premises considered, the December 19, 2003 Decision and July 14, 2004 Resolution of the Court

of Appeals in CA-G.R. CV No. 59573, are REVERSED and SET ASIDE and a new one is entered DISMISSING the

complaint against petitioner Philip Matthews. SO ORDERED.

G.R. No. 74833 January 21, 1991

THOMAS C. CHEESMAN, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and ESTELITA PADILLA, respondents.

Estanislao L. Cesa, Jr. for petitioner.

Benjamin I. Fernandez for private respondent.

NARVASA, J.:

This appeal concerns the attempt by an American citizen (petitioner Thomas Cheesman) to annul — for lack of consent
on his part — the sale by his Filipino wife (Criselda) of a residential lot and building to Estelita Padilla, also a Filipino.

Thomas Cheesman and Criselda P. Cheesman were married on December 4, 1970 but have been separated since
February 15,1981.1

On June 4, 1974, a "Deed of Sale and Transfer of Possessory Rights" was executed by Armando Altares conveying a
parcel of unregistered land and the house thereon (at No. 7 Neptune Street, Gordon Heights, Olongapo City) in favor of
"Criselda P. Cheesman, of legal age, Filipino citizen, married to Thomas Cheesman, and residing at Lot No. 1, Blk. 8,
Filtration Road, Sta. Rita, Olongapo City . . ."2 Thomas Cheesman, although aware of the deed, did not object to the
transfer being made only to his wife.3

Thereafter—and again with the knowledge of Thomas Cheesman and also without any protest by him—tax declarations
for the property purchased were issued in the name only of Criselda Cheesman and Criselda assumed exclusive
management and administration of said property, leasing it to tenants.4

On July 1, 1981, Criselda Cheesman sold the property to Estelita M. Padilla, without the knowledge or consent of Thomas
Cheesman.5 The deed described Criselda as being" . . . of legal age, married to an American citizen,. . ."6

Thirty days later, or on July 31, 1981, Thomas Cheesman brought suit in the Court of First Instance at Olongapo City
against his wife, Criselda, and Estelita Padilla, praying for the annulment of the sale on the ground that the transaction
had been executed without his knowledge and consent.7 An answer was filed in the names of both defendants, alleging
that (1) the property sold was paraphernal, having been purchased by Criselda with funds exclusively belonging to her
("her own separate money"); (2) Thomas Cheesman, being an American, was disqualified to have any interest or right
of ownership in the land; and (3) Estelita Padilla was a buyer in good faith.8

During the pre-trial conference, the parties agreed upon certain facts which were subsequently set out in a pre-trial
Order dated October 22, 1981,9 as follows:

1. Both parties recognize the existence of the Deed of Sale over the residential house located at No. 7 Granada
St., Gordon Heights, Olongapo City, which was acquired from Armando Altares on June 4, 1974 and sold by
defendant Criselda Cheesman to Estelita Padilla on July 12, 1981; and

2. That the transaction regarding the transfer of their property took place during the existence of their marriage
as the couple were married on December 4, 1970 and the questioned property was acquired sometime on June
4,1974.

The action resulted in a judgment dated June 24, 1982,10 declaring void ab initio the sale executed by Criselda
Cheesman in favor of Estelita M. Padilla, and ordering the delivery of the property to Thomas Cheesman as administrator
of the conjugal partnership property, and the payment to him of P5,000.00 as attorney's fees and expenses of
litigation.11

The judgment was however set aside as regards Estelita Padilla on a petition for relief filed by the latter, grounded on
"fraud, mistake and/or excusable negligence" which had seriously impaired her right to present her case
adequately.12 "After the petition for relief from judgment was given due course," according to petitioner, "a new judge
presided over the case."13

Estelita Padilla filed a supplemental pleading on December 20, 1982 as her own answer to the complaint, and a motion
for summary judgment on May 17, 1983. Although there was initial opposition by Thomas Cheesman to the motion, the
parties ultimately agreed on the rendition by the court of a summary judgment after entering into a stipulation of facts,
at the hearing of the motion on June 21, 1983, the stipulation being of the following tenor:14

(1) that the property in question was bought during the existence of the marriage between the plaintiff and the
defendant Criselda P. Cheesman;

(2) that the property bought during the marriage was registered in the name of Criselda Cheesman and that
the Deed of Sale and Transfer of Possessory Rights executed by the former owner-vendor Armando Altares in
favor of Criselda Cheesman made no mention of the plaintiff;

(3) that the property, subject of the proceedings, was sold by defendant Criselda Cheesman in favor of the other
defendant Estelita M. Padilla, without the written consent of the plaintiff.

Obviously upon the theory that no genuine issue existed any longer and there was hence no need of a trial, the parties
having in fact submitted, as also stipulated, their respective memoranda each praying for a favorable verdict, the Trial
Court15 rendered a "Summary Judgment" dated August 3, 1982 declaring "the sale executed by . . . Criselda Cheesman
in favor of . . . Estelita Padilla to be valid," dismissing Thomas Cheesman's complaint and ordering him "to immediately
turn over the possession of the house and lot subject of . . . (the) case to . . . Estelita Padilla . . ." 16

The Trial Court found that —

1) the evidence on record satisfactorily overcame the disputable presumption in Article 160 of the Civil Code—
that all property of the marriage belongs to the conjugal partnership "unless it be proved that it pertains
exclusively to the husband or to the wife"—and that the immovable in question was in truth Criselda's
paraphernal property;

2) that moreover, said legal presumption in Article 160 could not apply "inasmuch as the husband-plaintiff is an
American citizen and therefore disqualified under the Constitution to acquire and own real properties; and

3) that the exercise by Criselda of exclusive acts of dominion with the knowledge of her husband "had led . . .
Estelita Padilla to believe that the properties were the exclusive properties of Criselda Cheesman and on the
faith of such a belief she bought the properties from her and for value," and therefore, Thomas Cheesman was,
under Article 1473 of the Civil Code, estopped to impugn the transfer to Estelita Padilla.

Thomas Cheesman appealed to the Intermediate Appellate Court. There he assailed the Trial Court acts (1) of granting
Estelita Padilla's petition for relief, and its resolution of matters not subject of said petition; (2) of declaring valid the
sale to Estelita Padilla despite the lack of consent thereto by him, and the presumption of the conjugal character of the
property in question pursuant to Article 160 of the Civil Code; (3) of disregarding the judgment of June 24, 1982 which,
not having been set aside as against Criselda Cheesman, continued to be binding on her; and (4) of making findings of
fact not supported by evidence. All of these contentions were found to be without merit by the Appellate Tribunal which,
on January 7, 1986, promulgated a decision (erroneously denominated, "Report") 17affirming the "Summary Judgment
complained of," "having found no reversible error" therein.

Once more, Thomas Cheesman availed of the remedy of appeal, this time to this Court. Here, he argues that it was
reversible error for the Intermediate Appellate Court —

1) to find that the presumption that the property in question is conjugal in accordance with Article 160 had been
satisfactorily overcome by Estelita Padilla;18

2) to rule that Estelita Padilla was a purchaser of said property in good faith, it appearing:

a) that the deed by which the property was conveyed to Criselda Cheesman described her as "married
to Thomas C. Cheesman," as well as the deed by which the property was later conveyed to Estelita
Padilla by Criselda Cheesman also described her as "married to an American citizen," and both said
descriptions had thus "placed Estelita on knowledge of the conjugal nature of the property;" and

b) that furthermore, Estelita had admitted to stating in the deed by which she acquired the property a
price much lower than that actually paid "in order to avoid payment of more obligation to the
government;"19

3) to decline to declare that the evidence did not warrant the grant of Estelita Padilla's petition for relief on the ground
of "fraud, mistake and/or excusable negligence;"20

4) to hold that Thomas Cheesman had waived his objection to Estelita's petition for relief by failing to appeal from the
order granting the same;

5) to accord to Estelita Padilla a relief other than that she had specifically prayed for in her petition for relief, ie., "the
restoration of the purchase price which Estelita allegedly paid to Criselda;"21 and

6) to fail to declare that Thomas Cheesman's citizenship is not a bar to his action to recover the lot and house for the
conjugal partnership.22

Such conclusions as that (1) fraud, mistake or excusable negligence existed in the premises justifying relief to Estelita
Padilla under Rule 38 of the Rules of Court, or (2) that Criselda Cheesman had used money she had brought into her
marriage to Thomas Cheesman to purchase the lot and house in question, or (3) that Estelita Padilla believed in good
faith that Criselda Cheesman was the exclusive owner of the property that she (Estelita) intended to and did in fact
buy—derived from the evidence adduced by the parties, the facts set out in the pleadings or otherwise appearing on
record—are conclusions or findings of fact. As distinguished from a question of law—which exists "when the doubt or
difference arises as to what the law is on a certain state of facts" — "there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts;" 23 or when the "query necessarily invites calibration
of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding
circumstances, their relation; to each other and to the whole and the probabilities of the situation."24

Now, it is axiomatic that only questions of law, distinctly set forth, may be raised in a petition for the review
oncertiorari of a decision of the Court of Appeals presented to this Court. 25 As everyone knows or ought to know, the
appellate jurisdiction of this Court is limited to reviewing errors of law, accepting as conclusive the factual findings of
the lower court upon its own assessment of the evidence.26 The creation of the Court of Appeals was precisely intended
to take away from the Supreme Court the work of examining the evidence, and confine its task to the determination of
questions which do not call for the reading and study of transcripts containing the testimony of witnesses.27 The rule of
conclusiveness of the factual findings or conclusions of the Court of Appeals is, to be sure, subject to certain
exceptions,28 none of which however obtains in the case at bar.
It is noteworthy that both the Trial Court and the Intermediate Appellate Court reached the same conclusions on the
three (3) factual matters above set forth, after assessment of the evidence and determination of the probative value
thereof. Both Courts found that the facts on record adequately proved fraud, mistake or excusable negligence by which
Estelita Padilla's rights had been substantially impaired; that the funds used by Criselda Cheesman was money she had
earned and saved prior to her marriage to Thomas Cheesman, and that Estelita Padilla did believe in good faith that
Criselda Cheesman was the sole owner of the property in question. Consequently, these determinations of fact will not
be here disturbed, this Court having been cited to no reason for doing so.

These considerations dispose of the first three (3) points that petitioner Cheesman seeks to make in his
appeal.1âwphi1They also make unnecessary an extended discussion of the other issues raised by him. As to them, it
should suffice to restate certain fundamental propositions.

An order of a Court of First Instance (now Regional Trial Court) granting a petition for relief under Rule 38 is interlocutory
and is not appealable. Hence, the failure of the party who opposed the petition to appeal from said order, or his
participation in the proceedings subsequently had, cannot be construed as a waiver of his objection to the petition for
relief so as to preclude his raising the same question on appeal from the judgment on the merits of the main case. Such
a party need not repeat his objections to the petition for relief, or perform any act thereafter (e.g., take formal exception)
in order to preserve his right to question the same eventually, on appeal, it being sufficient for this purpose that he has
made of record "the action which he desires the court to take or his objection to the action of the court and his grounds
therefor."29

Again, the prayer in a petition for relief from judgment under Rule 38 is not necessarily the same prayer in the
petitioner's complaint, answer or other basic pleading. This should be obvious. Equally obvious is that once a petition
for relief is granted and the judgment subject thereof set aside, and further proceedings are thereafter had, the Court
in its judgment on the merits may properly grant the relief sought in the petitioner's basic pleadings, although different
from that stated in his petition for relief.

Finally, the fundamental law prohibits the sale to aliens of residential land. Section 14, Article XIV of the 1973
Constitution ordains that, "Save in cases of hereditary succession, no private land shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain."30Petitioner
Thomas Cheesman was, of course, charged with knowledge of this prohibition. Thus, assuming that it was his intention
that the lot in question be purchased by him and his wife, he acquired no right whatever over the property by virtue of
that purchase; and in attempting to acquire a right or interest in land, vicariously and clandestinely, he knowingly
violated the Constitution; the sale as to him was null and void. 31 In any event, he had and has no capacity or personality
to question the subsequent sale of the same property by his wife on the theory that in so doing he is merely exercising
the prerogative of a husband in respect of conjugal property. To sustain such a theory would permit indirect
controversion of the constitutional prohibition. If the property were to be declared conjugal, this would accord to the
alien husband a not insubstantial interest and right over land, as he would then have a decisive vote as to its transfer
or disposition. This is a right that the Constitution does not permit him to have.

As already observed, the finding that his wife had used her own money to purchase the property cannot, and will not,
at this stage of the proceedings be reviewed and overturned. But even if it were a fact that said wife had used conjugal
funds to make the acquisition, the considerations just set out militate, on high constitutional grounds, against his
recovering and holding the property so acquired or any part thereof. And whether in such an event, he may recover
from his wife any share of the money used for the purchase or charge her with unauthorized disposition or expenditure
of conjugal funds is not now inquired into; that would be, in the premises, a purely academic exercise. An equally
decisive consideration is that Estelita Padilla is a purchaser in good faith, both the Trial Court and the Appellate Court
having found that Cheesman's own conduct had led her to believe the property to be exclusive property of the latter's
wife, freely disposable by her without his consent or intervention. An innocent buyer for value, she is entitled to the
protection of the law in her purchase, particularly as against Cheesman, who would assert rights to the property denied
him by both letter and spirit of the Constitution itself.

WHEREFORE, the appealed decision is AFFIRMED, with costs against petitioner. SO ORDERED.
G.R. No. L-29663 August 20, 1990

GREGORIO LLANTINO and BELINDA LLANTINO assisted by husband Napoleon Barba, plaintiffs-appellants,
vs.
CO LIONG CHONG alias JUAN MOLINA, defendant-appellee.

Delfin de Vera for plaintiffs-appellants.

Antonio G. Sosito for defendant-appellee.

PARAS, J.:

This is an appeal perfected before the effectivity of Republic Act 5440, from the decision * of the Court of First Instance
of Catanduanes in Civil Case No. 611, to quiet title with damages, entitled Gregorio Llantino, et al. vs. Cong Liong Chong
alias Juan Molina, dismissing the complaint and declaring that the contract of lease entered into between the plaintiffs
and the defendant valid and in accordance with law.

The facts of the case as summarized by the trial court are as follows:

Plaintiffs (petitioners herein) aver that they are the owners of a commercial-residential land situated in the municipality
of Virac, Catanduanes, described in paragraph 2 of the complaint, which sometime in 1954 they leased to the defendant
(private respondent) who was then a Chinese national and went by the name of Co Liong Chong for a period of thirteen
(13) years for the sum of P6,150.00 for the whole period. The defendant was placed in possession of the property but
knowing that the period of the least would end with the year 1967, petitioners requested private respondent for a
conference but the latter did not honor the request and instead he informed the petitioners that he had already
constructed a commercial building on the land worth P50,000.00; that the lease contract was for a period of sixty (60)
years, counted from 1954; and that he is already a Filipino citizen. The claim of Chong came as a surprise to the
Llantinos because they did not remember having agreed to a sixty-year lease agreement as that would virtually make
Chong the owner of the realty which, as a Chinese national, he had no right to own and neither could he have acquired
such ownership after naturalization subsequent to 1954. On December 16, 1967, in order to avoid a court litigation the
Llantinos once more invited Chong to a conference about the matter but again Chong ignored the invitation. (Rollo, p.
48; Appellant's Brief, p. 12)

Hence, on January 10, 1968, the Llantinos filed their complaint to quiet title with damages before the Court of First
Instance of Catanduanes (Rollo, p. 12; Record on Appeal, pp. 1-4).

After Chong has filed an answer to the complaint and the Llantinos their reply, (Rollo, p. 12; Record on Appeal, pp. 9-
10) the trial court set the case for pre-trial and trial for April 2, 1968 (Rollo, p. 12; Record on Appeal, pp. 10-11).

At the pre-trial, both parties agreed upon the identity of the land as described in the complaint. It was mutually admitted
that the defendants original name was Co Liong Chong who was then a Chinese national in 1954, when he approached
the plaintiffs and offered to lease the land in question. It was also admitted by the counsel for the defendant that prior
to the filing of the case, the plaintiffs have in fact invited the defendant to a conference about the matter (Rollo, p. 12;
Record on Appeal; p. 14).

Chong's counsel produced the carbon original of the contract of lease entered into between Chong and the Llantinos
and the existence of the contract of lease as a public instrument was admitted (Rollo, p. 12; Record on Appeal, pp. 14-
15).

It was also admitted that Chong had in fact constructed a building of strong materials on the land worth P40,000.00
(Rollo, p. 12; Record on Appeal, p. 15); that Chong has become a naturalized Filipino citizen in 1961 and that his name
is no longer Co Liong Chong but Juan Molina (Rollo, p. 12; Record on Appeal, p. 15).

On May 17, 1968, the trial court rendered a Decision the dispositive portion of which reads:

WHEREFORE, in view of the foregoing considerations, the Court finds the contract of lease entered into
between the plaintiffs and the defendant on October 5, 1954, valid and in accordance with law and the
complaint is dismissed with costs against the plaintiffs.

The Court, however, feels that there is no sufficient ground to award moral damages or attorney's fees
as claimed by the defendant because the Court is fairly convinced that the institution of the suit sprung
from an honest conviction on the part of the plaintiffs that on account of the period fixed in the contract
of lease and the fact that the defendant was a Chinese national at the time of its celebration constituted
valid grounds for annulment.

SO ORDERED. (Rollo, p. 12; Record on Appeal, p. 24).

From this judgment, plaintiffs appealed directly to this Court on a pure question of law (Rollo, p. 12; Record on Appeal,
pp. 24-25).

The plaintiffs-appellants filed their brief on May 26, 1969 (Rollo, p. 48). The defendant-appellee filed his corresponding
brief on July 22, 1969 (Rollo, p. 59).
The appellants raised the following assignment of errors:

THE LOWER COURT ERRED IN DECLARING THE CONTRACT ENTERED INTO BY AND BETWEEN THE APPELLANTS AND
THE DEFENDANTS ON OCTOBER 5, 1954 VALID.

II

THE LOWER COURT ERRED IN REFUSING TO DECLARE THAT CONTRACT NOT A LEASE.

Stripping the case of irrelevant allegations, the pivotal issue in this case is whether or not the contract of lease entered
into by and between the petitioners including Virgilio Llantino now deceased and private respondent on October 5, 1954
for a period of sixty (60) years is valid.

Petitioners contend that when the contract which is sought to be declared void was entered into by and between the
parties, private respondent was still a Chinese national (Rollo, p. 48; Appellants' Brief, p. 2). However, petitioners also
stated that they do not dispute the right of private respondent to hold the landholding in dispute under a contract of
lease but they cannot fathom how Congress could have thought of a lease contract which shall be for an indefinite period
and yet say that the period to be valid should not exceed 99 years (Rollo, p. 48; Appellant's Brief, p. 4; Article 1643 of
the New Civil Code of the Philippines).

On the other hand, private respondent argued that even though he was still an alien when he entered into the contract
of lease (on October 5, 1954), he was not prohibited by law to do so. In fact, prior to his becoming a naturalized Filipino
citizen in 1961, the appellants did not question his right to enter into that contract so that the parties are in pari delicto.
He constructed a building on the property worth P40,000.00 and prays that he be awarded P30,000.00 for moral
damages and P2,000.00 for Attorney's fees. (Rollo, p. 48; Appellant's Brief, p. 2).

The position of private respondent is well taken.

The lower court correctly ruled that the defendant-appellee Chong had at the time of the execution of the contract, the
right to hold by lease the property involved in the case although at the time of the execution of the contract, he was
still a Chinese national (Rollo, p. 59; Appellee's Brief, pp. 10-11).

In the present case, it has been established that there is only one contract and there is no option to buy the leased
property in favor of Chong. There is nothing in the record, either in the lease contract or in the complaint itself, to
indicate any scheme to circumvent the constitutional prohibition. On the contrary, the Llantinos themselves admit openly
that right from the start and before entering into the contract, Chong had merely asked them for a lease of the premises
to which they agreed. Admittedly under the terms of the contract there is nothing to prevent the Llantinos from disposing
of their title to the land to any qualified party but subject to the rights of the lessee Chong. Neither is there under the
terms of the said contract to indicate that the ownership of the Llantinos of the leased premises has been virtually
transferred to the lessee (Rollo, p. 59; Appellee's Brief, p. 14).

Under the circumstances, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to
buy real property on condition that he is granted Philippine citizenship. Aliens are not completely excluded by the
Constitution from use of lands for residential purposes. Since their residence in the Philippines is temporary, they may
be granted temporary rights such as a lease contract which is not forbidden by the Constitution. Should they desire to
remain here forever and share our fortune and misfortune, Filipino citizenship is not impossible to acquire (Philippine
Banking Corporation vs. Lui She, 21 SCRA 52 [1967], citing Krivenko vs. Register of Deeds, 79 Phil. 461 [1947]).

The only instance where a contract of lease may be considered invalid is, if there are circumstances attendant to its
execution, which are used as a scheme to circumvent the constitutional prohibition.

If an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner
cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is
a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land (jus
possidendi, jus utendi, jus fruendi, and jus abutendi) — rights, the sum of which make up ownership. It is just as if
today the possession is transferred, tomorrow the use, the next day the disposition, and so on, until ultimately all the
rights of which ownership is made up are consolidated in an alien (Philippine Banking Corporation vs. Lui She, 21 SCRA
52 [1967]).

Coming back to the case at bar, even assuming, arguendo, that the subject contract is prohibited, the same can no
longer be questioned presently upon the acquisition by the private respondent of Filipino citizenship. It was held that
sale of a residential land to an alien which is now in the hands of a naturalized Filipino citizen is valid (De Castro vs.
Tan, 129 SCRA 85 [1984]).

A contract is the law between the contracting parties, and when there is nothing in it which is contrary to law, morals,
good customs, public policy or public order, the validity of the contract must be sustained (Marimperio Compania
Naviera, S.A. vs. Court of Appeals, 156 SCRA 358 [1987]).

The issue of the nature of the contract in the case at bar was never raised in the basic pleadings or in the pre-trial
(Rollo, p. 59-1; Appellee's Brief, p. 22).

It is too late to raise an issue on appeal in the Supreme Court when it has not been raised in the lower court (Espadera
vs. Court of Appeals, 165 SCRA 364 [1988]).
Moreover, contracts which are not ambiguous are to be interpreted according to their literal meaning and should not be
interpreted beyond their obvious intendment (Plastic Town Center Corporation vs. NLRC, 172 SCRA 580 [1989]; Herrera
vs. Petrophil Corp., 146 SCRA 385 [1986]).

PREMISES CONSIDERED, the decision appealed from is hereby AFFIRMED with costs against the plaintiffs-appellants.
SO ORDERED.
G.R. No. L-19671 November 29, 1965

PASTOR B. TENCHAVEZ, plaintiff-appellant,

vs.
VICENTA F. ESCAÑO, ET AL., defendants-appellees.

I. V. Binamira & F. B. Barria for plaintiff-appellant.

Jalandoni & Jarnir for defendants-appellees.

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

Direct appeal, on factual and legal questions, from the judgment of the Court of First Instance of Cebu, in its Civil Case
No. R-4177, denying the claim of the plaintiff-appellant, Pastor B. Tenchavez, for legal separation and one million pesos
in damages against his wife and parents-in-law, the defendants-appellees, Vicente, Mamerto and Mena,1 all surnamed
"Escaño," respectively.2

The facts, supported by the evidence of record, are the following:

Missing her late afternoon classes on 24 February 1948 in the University of San Carlos, Cebu City, where she was then
enrolled as a second year student of commerce, Vicenta Escaño, 27 years of age (scion of a well-to-do and socially
prominent Filipino family of Spanish ancestry and a "sheltered colegiala"), exchanged marriage vows with Pastor
Tenchavez, 32 years of age, an engineer, ex-army officer and of undistinguished stock, without the knowledge of her
parents, before a Catholic chaplain, Lt. Moises Lavares, in the house of one Juan Alburo in the said city. The marriage
was the culmination of a previous love affair and was duly registered with the local civil register.

Vicenta's letters to Pastor, and his to her, before the marriage, indicate that the couple were deeply in love. Together
with a friend, Pacita Noel, their matchmaker and go-between, they had planned out their marital future whereby Pacita
would be the governess of their first-born; they started saving money in a piggy bank. A few weeks before their secret
marriage, their engagement was broken; Vicenta returned the engagement ring and accepted another suitor, Joseling
Lao. Her love for Pastor beckoned; she pleaded for his return, and they reconciled. This time they planned to get married
and then elope. To facilitate the elopement, Vicenta had brought some of her clothes to the room of Pacita Noel in St.
Mary's Hall, which was their usual trysting place.

Although planned for the midnight following their marriage, the elopement did not, however, materialize because when
Vicente went back to her classes after the marriage, her mother, who got wind of the intended nuptials, was already
waiting for her at the college. Vicenta was taken home where she admitted that she had already married Pastor. Mamerto
and Mena Escaño were surprised, because Pastor never asked for the hand of Vicente, and were disgusted because of
the great scandal that the clandestine marriage would provoke (t.s.n., vol. III, pp. 1105-06). The following morning,
the Escaño spouses sought priestly advice. Father Reynes suggested a recelebration to validate what he believed to be
an invalid marriage, from the standpoint of the Church, due to the lack of authority from the Archbishop or the parish
priest for the officiating chaplain to celebrate the marriage. The recelebration did not take place, because on 26 February
1948 Mamerto Escaño was handed by a maid, whose name he claims he does not remember, a letter purportedly coming
from San Carlos college students and disclosing an amorous relationship between Pastor Tenchavez and Pacita Noel;
Vicenta translated the letter to her father, and thereafter would not agree to a new marriage. Vicenta and Pastor met
that day in the house of Mrs. Pilar Mendezona. Thereafter, Vicenta continued living with her parents while Pastor returned
to his job in Manila. Her letter of 22 March 1948 (Exh. "M"), while still solicitous of her husband's welfare, was not as
endearing as her previous letters when their love was aflame.

Vicenta was bred in Catholic ways but is of a changeable disposition, and Pastor knew it. She fondly accepted her being
called a "jellyfish." She was not prevented by her parents from communicating with Pastor (Exh. "1-Escaño"), but her
letters became less frequent as the days passed. As of June, 1948 the newlyweds were already estranged (Exh. "2-
Escaño"). Vicenta had gone to Jimenez, Misamis Occidental, to escape from the scandal that her marriage stirred in
Cebu society. There, a lawyer filed for her a petition, drafted by then Senator Emmanuel Pelaez, to annul her marriage.
She did not sign the petition (Exh. "B-5"). The case was dismissed without prejudice because of her non-appearance at
the hearing (Exh. "B-4").

On 24 June 1950, without informing her husband, she applied for a passport, indicating in her application that she was
single, that her purpose was to study, and she was domiciled in Cebu City, and that she intended to return after two
years. The application was approved, and she left for the United States. On 22 August 1950, she filed a verified complaint
for divorce against the herein plaintiff in the Second Judicial District Court of the State of Nevada in and for the County
of Washoe, on the ground of "extreme cruelty, entirely mental in character." On 21 October 1950, a decree of divorce,
"final and absolute", was issued in open court by the said tribunal.

In 1951 Mamerto and Mena Escaño filed a petition with the Archbishop of Cebu to annul their daughter's marriage to
Pastor (Exh. "D"). On 10 September 1954, Vicenta sought papal dispensation of her marriage (Exh. "D"-2).

On 13 September 1954, Vicenta married an American, Russell Leo Moran, in Nevada. She now lives with him in
California, and, by him, has begotten children. She acquired American citizenship on 8 August 1958.

But on 30 July 1955, Tenchavez had initiated the proceedings at bar by a complaint in the Court of First Instance of
Cebu, and amended on 31 May 1956, against Vicenta F. Escaño, her parents, Mamerto and Mena Escaño, whom he
charged with having dissuaded and discouraged Vicenta from joining her husband, and alienating her affections, and
against the Roman Catholic Church, for having, through its Diocesan Tribunal, decreed the annulment of the marriage,
and asked for legal separation and one million pesos in damages. Vicenta claimed a valid divorce from plaintiff and an
equally valid marriage to her present husband, Russell Leo Moran; while her parents denied that they had in any way
influenced their daughter's acts, and counterclaimed for moral damages.
The appealed judgment did not decree a legal separation, but freed the plaintiff from supporting his wife and to acquire
property to the exclusion of his wife. It allowed the counterclaim of Mamerto Escaño and Mena Escaño for moral and
exemplary damages and attorney's fees against the plaintiff-appellant, to the extent of P45,000.00, and plaintiff resorted
directly to this Court.

The appellant ascribes, as errors of the trial court, the following:

1. In not declaring legal separation; in not holding defendant Vicenta F. Escaño liable for damages and in
dismissing the complaint;.

2. In not holding the defendant parents Mamerto Escano and the heirs of Doña Mena Escaño liable for damages;.

3 In holding the plaintiff liable for and requiring him to pay the damages to the defendant parents on their
counterclaims; and.

4. In dismissing the complaint and in denying the relief sought by the plaintiff.

That on 24 February 1948 the plaintiff-appellant, Pastor Tenchavez, and the defendant-appellee, Vicenta Escaño, were
validly married to each other, from the standpoint of our civil law, is clearly established by the record before us. Both
parties were then above the age of majority, and otherwise qualified; and both consented to the marriage, which was
performed by a Catholic priest (army chaplain Lavares) in the presence of competent witnesses. It is nowhere shown
that said priest was not duly authorized under civil law to solemnize marriages.

The chaplain's alleged lack of ecclesiastical authorization from the parish priest and the Ordinary, as required by Canon
law, is irrelevant in our civil law, not only because of the separation of Church and State but also because Act 3613 of
the Philippine Legislature (which was the marriage law in force at the time) expressly provided that —

SEC. 1. Essential requisites. Essential requisites for marriage are the legal capacity of the contracting parties
and consent. (Emphasis supplied)

The actual authority of the solemnizing officer was thus only a formal requirement, and, therefore, not essential to give
the marriage civil effects,3 and this is emphasized by section 27 of said marriage act, which provided the following:

SEC. 27. Failure to comply with formal requirements. No marriage shall be declared invalid because of the
absence of one or several of the formal requirements of this Act if, when it was performed, the spouses or one
of them believed in good faith that the person who solemnized the marriage was actually empowered to do so,
and that the marriage was perfectly legal.

The good faith of all the parties to the marriage (and hence the validity of their marriage) will be presumed until the
contrary is positively proved (Lao vs. Dee Tim, 45 Phil. 739, 745; Francisco vs. Jason, 60 Phil. 442, 448). It is well to
note here that in the case at bar, doubts as to the authority of the solemnizing priest arose only after the marriage,
when Vicenta's parents consulted Father Reynes and the archbishop of Cebu. Moreover, the very act of Vicenta in
abandoning her original action for annulment and subsequently suing for divorce implies an admission that her marriage
to plaintiff was valid and binding.

Defendant Vicenta Escaño argues that when she contracted the marriage she was under the undue influence of Pacita
Noel, whom she charges to have been in conspiracy with appellant Tenchavez. Even granting, for argument's sake, the
truth of that contention, and assuming that Vicenta's consent was vitiated by fraud and undue influence, such vices did
not render her marriage ab initio void, but merely voidable, and the marriage remained valid until annulled by a
competent civil court. This was never done, and admittedly, Vicenta's suit for annulment in the Court of First Instance
of Misamis was dismissed for non-prosecution.

It is equally clear from the record that the valid marriage between Pastor Tenchavez and Vicenta Escaño remained
subsisting and undissolved under Philippine law, notwithstanding the decree of absolute divorce that the wife sought
and obtained on 21 October 1950 from the Second Judicial District Court of Washoe County, State of Nevada, on grounds
of "extreme cruelty, entirely mental in character." At the time the divorce decree was issued, Vicenta Escaño, like her
husband, was still a Filipino citizen.4 She was then subject to Philippine law, and Article 15 of the Civil Code of the
Philippines (Rep. Act No. 386), already in force at the time, expressly provided:

Laws relating to family rights and duties or to the status, condition and legal capacity of persons are binding
upon the citizens of the Philippines, even though living abroad.

The Civil Code of the Philippines, now in force, does not admit absolute divorce, quo ad vinculo matrimonii; and in fact
does not even use that term, to further emphasize its restrictive policy on the matter, in contrast to the preceding
legislation that admitted absolute divorce on grounds of adultery of the wife or concubinage of the husband (Act 2710).
Instead of divorce, the present Civil Code only provides for legal separation (Title IV, Book 1, Arts. 97 to 108), and,
even in that case, it expressly prescribes that "the marriage bonds shall not be severed" (Art. 106, subpar. 1).

For the Philippine courts to recognize and give recognition or effect to a foreign decree of absolute divorce betiveen
Filipino citizens could be a patent violation of the declared public policy of the state, specially in view of the third
paragraph of Article 17 of the Civil Code that prescribes the following:

Prohibitive laws concerning persons, their acts or property, and those which have for their object public order,
policy and good customs, shall not be rendered ineffective by laws or judgments promulgated, or by
determinations or conventions agreed upon in a foreign country.
Even more, the grant of effectivity in this jurisdiction to such foreign divorce decrees would, in effect, give rise to an
irritating and scandalous discrimination in favor of wealthy citizens, to the detriment of those members of our polity
whose means do not permit them to sojourn abroad and obtain absolute divorces outside the Philippines.

From this point of view, it is irrelevant that appellant Pastor Tenchavez should have appeared in the Nevada divorce
court. Primarily because the policy of our law cannot be nullified by acts of private parties (Civil Code,Art. 17, jam
quot.); and additionally, because the mere appearance of a non-resident consort cannot confer jurisdiction where the
court originally had none (Area vs. Javier, 95 Phil. 579).

From the preceding facts and considerations, there flows as a necessary consequence that in this jurisdiction Vicenta
Escaño's divorce and second marriage are not entitled to recognition as valid; for her previous union to plaintiff
Tenchavez must be declared to be existent and undissolved. It follows, likewise, that her refusal to perform her wifely
duties, and her denial of consortium and her desertion of her husband constitute in law a wrong caused through her
fault, for which the husband is entitled to the corresponding indemnity (Civil Code, Art. 2176). Neither an
unsubstantiated charge of deceit nor an anonymous letter charging immorality against the husband constitute, contrary
to her claim, adequate excuse. Wherefore, her marriage and cohabitation with Russell Leo Moran is technically
"intercourse with a person not her husband" from the standpoint of Philippine Law, and entitles plaintiff-appellant
Tenchavez to a decree of "legal separation under our law, on the basis of adultery" (Revised Penal Code, Art. 333).

The foregoing conclusions as to the untoward effect of a marriage after an invalid divorce are in accord with the previous
doctrines and rulings of this court on the subject, particularly those that were rendered under our laws prior to the
approval of the absolute divorce act (Act 2710 of the Philippine Legislature). As a matter of legal history, our statutes
did not recognize divorces a vinculo before 1917, when Act 2710 became effective; and the present Civil Code of the
Philippines, in disregarding absolute divorces, in effect merely reverted to the policies on the subject prevailing before
Act 2710. The rulings, therefore, under the Civil Code of 1889, prior to the Act above-mentioned, are now, fully
applicable. Of these, the decision in Ramirez vs. Gmur, 42 Phil. 855, is of particular interest. Said this Court in that
case:

As the divorce granted by the French Court must be ignored, it results that the marriage of Dr. Mory and Leona
Castro, celebrated in London in 1905, could not legalize their relations; and the circumstance that they
afterwards passed for husband and wife in Switzerland until her death is wholly without legal significance. The
claims of the very children to participate in the estate of Samuel Bishop must therefore be rejected. The right
to inherit is limited to legitimate, legitimated and acknowledged natural children. The children of adulterous
relations are wholly excluded. The word "descendants" as used in Article 941 of the Civil Code cannot be
interpreted to include illegitimates born of adulterous relations. (Emphasis supplied)

Except for the fact that the successional rights of the children, begotten from Vicenta's marriage to Leo Moran after the
invalid divorce, are not involved in the case at bar, the Gmur case is authority for the proposition that such union is
adulterous in this jurisdiction, and, therefore, justifies an action for legal separation on the part of the innocent consort
of the first marriage, that stands undissolved in Philippine law. In not so declaring, the trial court committed error.

True it is that our ruling gives rise to anomalous situations where the status of a person (whether divorced or not) would
depend on the territory where the question arises. Anomalies of this kind are not new in the Philippines, and the answer
to them was given in Barretto vs. Gonzales, 58 Phil. 667:

The hardship of the existing divorce laws in the Philippine Islands are well known to the members of the
Legislature. It is the duty of the Courts to enforce the laws of divorce as written by Legislature if they are
constitutional. Courts have no right to say that such laws are too strict or too liberal. (p. 72)

The appellant's first assignment of error is, therefore, sustained.

However, the plaintiff-appellant's charge that his wife's parents, Dr. Mamerto Escaño and his wife, the late Doña Mena
Escaño, alienated the affections of their daughter and influenced her conduct toward her husband are not supported by
credible evidence. The testimony of Pastor Tenchavez about the Escaño's animosity toward him strikes us to be merely
conjecture and exaggeration, and are belied by Pastor's own letters written before this suit was begun (Exh. "2-Escaño"
and "Vicenta," Rec. on App., pp. 270-274). In these letters he expressly apologized to the defendants for "misjudging
them" and for the "great unhappiness" caused by his "impulsive blunders" and "sinful pride," "effrontery and audacity"
[sic]. Plaintiff was admitted to the Escaño house to visit and court Vicenta, and the record shows nothing to prove that
he would not have been accepted to marry Vicente had he openly asked for her hand, as good manners and breeding
demanded. Even after learning of the clandestine marriage, and despite their shock at such unexpected event, the
parents of Vicenta proposed and arranged that the marriage be recelebrated in strict conformity with the canons of their
religion upon advice that the previous one was canonically defective. If no recelebration of the marriage ceremony was
had it was not due to defendants Mamerto Escaño and his wife, but to the refusal of Vicenta to proceed with it. That the
spouses Escaño did not seek to compel or induce their daughter to assent to the recelebration but respected her decision,
or that they abided by her resolve, does not constitute in law an alienation of affections. Neither does the fact that
Vicenta's parents sent her money while she was in the United States; for it was natural that they should not wish their
daughter to live in penury even if they did not concur in her decision to divorce Tenchavez (27 Am. Jur. 130-132).

There is no evidence that the parents of Vicenta, out of improper motives, aided and abetted her original suit for
annulment, or her subsequent divorce; she appears to have acted independently, and being of age, she was entitled to
judge what was best for her and ask that her decisions be respected. Her parents, in so doing, certainly cannot be
charged with alienation of affections in the absence of malice or unworthy motives, which have not been shown, good
faith being always presumed until the contrary is proved.

SEC. 529. Liability of Parents, Guardians or Kin. — The law distinguishes between the right of a parent to interest
himself in the marital affairs of his child and the absence of rights in a stranger to intermeddle in such affairs.
However, such distinction between the liability of parents and that of strangers is only in regard to what will
justify interference. A parent isliable for alienation of affections resulting from his own malicious conduct, as
 where he wrongfully entices his son or daughter to leave his or her spouse, but he is not liable unless he acts
maliciously, without justification and from unworthy motives. He is not liable where he acts and advises his child
in good faith with respect to his child's marital relations in the interest of his child as he sees it, the marriage of
his child not terminating his right and liberty to interest himself in, and be extremely solicitous for, his child's
welfare and happiness, even where his conduct and advice suggest or result in the separation of the spouses or
the obtaining of a divorce or annulment, or where he acts under mistake or misinformation, or where his advice
or interference are indiscreet or unfortunate, although it has been held that the parent is liable for consequences
resulting from recklessness. He may in good faith take his child into his home and afford him or her protection
and support, so long as he has not maliciously enticed his child away, or does not maliciously entice or cause
him or her to stay away, from his or her spouse. This rule has more frequently been applied in the case of advice
given to a married daughter, but it is equally applicable in the case of advice given to a son.

Plaintiff Tenchavez, in falsely charging Vicenta's aged parents with racial or social discrimination and with having exerted
efforts and pressured her to seek annulment and divorce, unquestionably caused them unrest and anxiety, entitling
them to recover damages. While this suit may not have been impelled by actual malice, the charges were certainly
reckless in the face of the proven facts and circumstances. Court actions are not established for parties to give vent to
their prejudices or spleen.

In the assessment of the moral damages recoverable by appellant Pastor Tenchavez from defendant Vicente Escaño, it
is proper to take into account, against his patently unreasonable claim for a million pesos in damages, that (a) the
marriage was celebrated in secret, and its failure was not characterized by publicity or undue humiliation on appellant's
part; (b) that the parties never lived together; and (c) that there is evidence that appellant had originally agreed to the
annulment of the marriage, although such a promise was legally invalid, being against public policy (cf. Art. 88, Civ.
Code). While appellant is unable to remarry under our law, this fact is a consequence of the indissoluble character of
the union that appellant entered into voluntarily and with open eyes rather than of her divorce and her second marriage.
All told, we are of the opinion that appellant should recover P25,000 only by way of moral damages and attorney's fees.

With regard to the P45,000 damages awarded to the defendants, Dr. Mamerto Escaño and Mena Escaño, by the court
below, we opine that the same are excessive. While the filing of this unfounded suit must have wounded said defendants'
feelings and caused them anxiety, the same could in no way have seriously injured their reputation, or otherwise
prejudiced them, lawsuits having become a common occurrence in present society. What is important, and has been
correctly established in the decision of the court below, is that said defendants were not guilty of any improper conduct
in the whole deplorable affair. This Court, therefore, reduces the damages awarded to P5,000 only.

Summing up, the Court rules:

(1) That a foreign divorce between Filipino citizens, sought and decreed after the effectivity of the present Civil Code
(Rep. Act 386), is not entitled to recognition as valid in this jurisdiction; and neither is the marriage contracted with
another party by the divorced consort, subsequently to the foreign decree of divorce, entitled to validity in the country;

(2) That the remarriage of divorced wife and her co-habitation with a person other than the lawful husband entitle the
latter to a decree of legal separation conformably to Philippine law;

(3) That the desertion and securing of an invalid divorce decree by one consort entitles the other to recover damages;

(4) That an action for alienation of affections against the parents of one consort does not lie in the absence of proof of
malice or unworthy motives on their part.

WHEREFORE, the decision under appeal is hereby modified as follows;

(1) Adjudging plaintiff-appellant Pastor Tenchavez entitled to a decree of legal separation from defendant Vicenta F.
Escaño;

(2) Sentencing defendant-appellee Vicenta Escaño to pay plaintiff-appellant Tenchavez the amount of P25,000 for
damages and attorneys' fees;

(3) Sentencing appellant Pastor Tenchavez to pay the appellee, Mamerto Escaño and the estate of his wife, the deceased
Mena Escaño, P5,000 by way of damages and attorneys' fees.

Neither party to recover costs.

G.R. No. L-68470 October 8, 1985

ALICE REYES VAN DORN, petitioner,

vs.
HON. MANUEL V. ROMILLO, JR., as Presiding Judge of Branch CX, Regional Trial Court of the National
Capital Region Pasay City and RICHARD UPTON respondents.

MELENCIO-HERRERA, J.:

In this Petition for certiorari and Prohibition, petitioner Alice Reyes Van Dorn seeks to set aside the Orders, dated
September 15, 1983 and August 3, 1984, in Civil Case No. 1075-P, issued by respondent Judge, which denied her
Motion to Dismiss said case, and her Motion for Reconsideration of the Dismissal Order, respectively.

The basic background facts are that petitioner is a citizen of the Philippines while private respondent is a citizen of the
United States; that they were married in Hongkong in 1972; that, after the marriage, they established their residence
in the Philippines; that they begot two children born on April 4, 1973 and December 18, 1975, respectively; that the
parties were divorced in Nevada, United States, in 1982; and that petitioner has re-married also in Nevada, this time
to Theodore Van Dorn.

Dated June 8, 1983, private respondent filed suit against petitioner in Civil Case No. 1075-P of the Regional Trial Court,
Branch CXV, in Pasay City, stating that petitioner's business in Ermita, Manila, (the Galleon Shop, for short), is conjugal
property of the parties, and asking that petitioner be ordered to render an accounting of that business, and that private
respondent be declared with right to manage the conjugal property. Petitioner moved to dismiss the case on the ground
that the cause of action is barred by previous judgment in the divorce proceedings before the Nevada Court wherein
respondent had acknowledged that he and petitioner had "no community property" as of June 11, 1982. The Court
below denied the Motion to Dismiss in the mentioned case on the ground that the property involved is located in the
Philippines so that the Divorce Decree has no bearing in the case. The denial is now the subject of this certiorari
proceeding.

Generally, the denial of a Motion to Dismiss in a civil case is interlocutory and is not subject to appeal. certiorari and
Prohibition are neither the remedies to question the propriety of an interlocutory order of the trial Court. However, when
a grave abuse of discretion was patently committed, or the lower Court acted capriciously and whimsically, then it
devolves upon this Court in a certiorari proceeding to exercise its supervisory authority and to correct the error
committed which, in such a case, is equivalent to lack of jurisdiction. 1 Prohibition would then lie since it would be
useless and a waste of time to go ahead with the proceedings. 2 Weconsider the petition filed in this case within the
exception, and we have given it due course.

For resolution is the effect of the foreign divorce on the parties and their alleged conjugal property in the Philippines.

Petitioner contends that respondent is estopped from laying claim on the alleged conjugal property because of the
representation he made in the divorce proceedings before the American Court that they had no community of property;
that the Galleon Shop was not established through conjugal funds, and that respondent's claim is barred by prior
judgment.

For his part, respondent avers that the Divorce Decree issued by the Nevada Court cannot prevail over the prohibitive
laws of the Philippines and its declared national policy; that the acts and declaration of a foreign Court cannot, especially
if the same is contrary to public policy, divest Philippine Courts of jurisdiction to entertain matters within its jurisdiction.

For the resolution of this case, it is not necessary to determine whether the property relations between petitioner and
private respondent, after their marriage, were upon absolute or relative community property, upon complete separation
of property, or upon any other regime. The pivotal fact in this case is the Nevada divorce of the parties.

The Nevada District Court, which decreed the divorce, had obtained jurisdiction over petitioner who appeared in person
before the Court during the trial of the case. It also obtained jurisdiction over private respondent who, giving his address
as No. 381 Bush Street, San Francisco, California, authorized his attorneys in the divorce case, Karp & Gradt Ltd., to
agree to the divorce on the ground of incompatibility in the understanding that there were neither community property
nor community obligations. 3 As explicitly stated in the Power of Attorney he executed in favor of the law firm of KARP
& GRAD LTD., 336 W. Liberty, Reno, Nevada, to represent him in the divorce proceedings:

xxx xxx xxx

You are hereby authorized to accept service of Summons, to file an Answer, appear on my behalf and
do an things necessary and proper to represent me, without further contesting, subject to the following:

1. That my spouse seeks a divorce on the ground of incompatibility.

2. That there is no community of property to be adjudicated by the Court.

3. 'I'hat there are no community obligations to be adjudicated by the court.

xxx xxx xxx 4

There can be no question as to the validity of that Nevada divorce in any of the States of the United States. The decree
is binding on private respondent as an American citizen. For instance, private respondent cannot sue petitioner, as her
husband, in any State of the Union. What he is contending in this case is that the divorce is not valid and binding in this
jurisdiction, the same being contrary to local law and public policy.
It is true that owing to the nationality principle embodied in Article 15 of the Civil Code, 5 only Philippine nationals are
covered by the policy against absolute divorces the same being considered contrary to our concept of public police and
morality. However, aliens may obtain divorces abroad, which may be recognized in the Philippines, provided they are
valid according to their national law. 6 In this case, the divorce in Nevada released private respondent from the marriage
from the standards of American law, under which divorce dissolves the marriage. As stated by the Federal Supreme
Court of the United States in Atherton vs. Atherton, 45 L. Ed. 794, 799:

The purpose and effect of a decree of divorce from the bond of matrimony by a court of competent
jurisdiction are to change the existing status or domestic relation of husband and wife, and to free them
both from the bond. The marriage tie when thus severed as to one party, ceases to bind either. A
husband without a wife, or a wife without a husband, is unknown to the law. When the law provides, in
the nature of a penalty. that the guilty party shall not marry again, that party, as well as the other, is
still absolutely freed from the bond of the former marriage.

Thus, pursuant to his national law, private respondent is no longer the husband of petitioner. He would have no standing
to sue in the case below as petitioner's husband entitled to exercise control over conjugal assets. As he is bound by the
Decision of his own country's Court, which validly exercised jurisdiction over him, and whose decision he does not
repudiate, he is estopped by his own representation before said Court from asserting his right over the alleged conjugal
property.

To maintain, as private respondent does, that, under our laws, petitioner has to be considered still married to private
respondent and still subject to a wife's obligations under Article 109, et. seq. of the Civil Code cannot be just. Petitioner
should not be obliged to live together with, observe respect and fidelity, and render support to private respondent. The
latter should not continue to be one of her heirs with possible rights to conjugal property. She should not be
discriminated against in her own country if the ends of justice are to be served.

WHEREFORE, the Petition is granted, and respondent Judge is hereby ordered to dismiss the Complaint filed in Civil
Case No. 1075-P of his Court. Without costs. SO ORDERED.
G.R. No. 80116 June 30, 1989

IMELDA MANALAYSAY PILAPIL, petitioner,

vs.
HON. CORONA IBAY-SOMERA, in her capacity as Presiding Judge of the Regional Trial Court of Manila,
Branch XXVI; HON. LUIS C. VICTOR, in his capacity as the City Fiscal of Manila; and ERICH EKKEHARD
GEILING, respondents.

REGALADO, J.:

An ill-starred marriage of a Filipina and a foreigner which ended in a foreign absolute divorce, only to be followed by a
criminal infidelity suit of the latter against the former, provides Us the opportunity to lay down a decisional rule on what
hitherto appears to be an unresolved jurisdictional question.

On September 7, 1979, petitioner Imelda Manalaysay Pilapil, a Filipino citizen, and private respondent Erich Ekkehard
Geiling, a German national, were married before the Registrar of Births, Marriages and Deaths at Friedensweiler in the
Federal Republic of Germany. The marriage started auspiciously enough, and the couple lived together for some time
in Malate, Manila where their only child, Isabella Pilapil Geiling, was born on April 20, 1980. 1

Thereafter, marital discord set in, with mutual recriminations between the spouses, followed by a separation de facto
between them.

After about three and a half years of marriage, such connubial disharmony eventuated in private respondent initiating
a divorce proceeding against petitioner in Germany before the Schoneberg Local Court in January, 1983. He claimed
that there was failure of their marriage and that they had been living apart since April, 1982. 2

Petitioner, on the other hand, filed an action for legal separation, support and separation of property before the Regional
Trial Court of Manila, Branch XXXII, on January 23, 1983 where the same is still pending as Civil Case No. 83-15866. 3

On January 15, 1986, Division 20 of the Schoneberg Local Court, Federal Republic of Germany, promulgated a decree
of divorce on the ground of failure of marriage of the spouses. The custody of the child was granted to petitioner. The
records show that under German law said court was locally and internationally competent for the divorce proceeding
and that the dissolution of said marriage was legally founded on and authorized by the applicable law of that foreign
jurisdiction. 4

On June 27, 1986, or more than five months after the issuance of the divorce decree, private respondent filed two
complaints for adultery before the City Fiscal of Manila alleging that, while still married to said respondent, petitioner
"had an affair with a certain William Chia as early as 1982 and with yet another man named Jesus Chua sometime in
1983". Assistant Fiscal Jacinto A. de los Reyes, Jr., after the corresponding investigation, recommended the dismissal
of the cases on the ground of insufficiency of evidence. 5 However, upon review, the respondent city fiscal approved a
resolution, dated January 8, 1986, directing the filing of two complaints for adultery against the petitioner. 6 The
complaints were accordingly filed and were eventually raffled to two branches of the Regional Trial Court of Manila. The
case entitled "People of the Philippines vs. Imelda Pilapil and William Chia", docketed as Criminal Case No. 87-52435,
was assigned to Branch XXVI presided by the respondent judge; while the other case, "People of the Philippines vs.
Imelda Pilapil and James Chua", docketed as Criminal Case No. 87-52434 went to the sala of Judge Leonardo Cruz,
Branch XXV, of the same court. 7

On March 14, 1987, petitioner filed a petition with the Secretary of Justice asking that the aforesaid resolution of
respondent fiscal be set aside and the cases against her be dismissed. 8 A similar petition was filed by James Chua, her
co-accused in Criminal Case No. 87-52434. The Secretary of Justice, through the Chief State Prosecutor, gave due
course to both petitions and directed the respondent city fiscal to inform the Department of Justice "if the accused have
already been arraigned and if not yet arraigned, to move to defer further proceedings" and to elevate the entire records
of both cases to his office for review. 9

Petitioner thereafter filed a motion in both criminal cases to defer her arraignment and to suspend further proceedings
thereon. 10 As a consequence, Judge Leonardo Cruz suspended proceedings in Criminal Case No. 87-52434. On the
other hand, respondent judge merely reset the date of the arraignment in Criminal Case No. 87-52435 to April 6, 1987.
Before such scheduled date, petitioner moved for the cancellation of the arraignment and for the suspension of
proceedings in said Criminal Case No. 87-52435 until after the resolution of the petition for review then pending before
the Secretary of Justice. 11 A motion to quash was also filed in the same case on the ground of lack of
jurisdiction, 12 which motion was denied by the respondent judge in an order dated September 8, 1987. The same order
also directed the arraignment of both accused therein, that is, petitioner and William Chia. The latter entered a plea of
not guilty while the petitioner refused to be arraigned. Such refusal of the petitioner being considered by respondent
judge as direct contempt, she and her counsel were fined and the former was ordered detained until she submitted
herself for arraignment. 13 Later, private respondent entered a plea of not guilty. 14

On October 27, 1987, petitioner filed this special civil action for certiorari and prohibition, with a prayer for a temporary
restraining order, seeking the annulment of the order of the lower court denying her motion to quash. The petition is
anchored on the main ground that the court is without jurisdiction "to try and decide the charge of adultery, which is a
private offense that cannot be prosecuted de officio (sic), since the purported complainant, a foreigner, does not qualify
as an offended spouse having obtained a final divorce decree under his national law prior to his filing the criminal
complaint." 15

On October 21, 1987, this Court issued a temporary restraining order enjoining the respondents from implementing the
aforesaid order of September 8, 1987 and from further proceeding with Criminal Case No. 87-52435. Subsequently, on
March 23, 1988 Secretary of Justice Sedfrey A. Ordoñez acted on the aforesaid petitions for review and, upholding
petitioner's ratiocinations, issued a resolution directing the respondent city fiscal to move for the dismissal of the
complaints against the petitioner. 16

We find this petition meritorious. The writs prayed for shall accordingly issue.

Under Article 344 of the Revised Penal Code, 17 the crime of adultery, as well as four other crimes against chastity,
cannot be prosecuted except upon a sworn written complaint filed by the offended spouse. It has long since been
established, with unwavering consistency, that compliance with this rule is a jurisdictional, and not merely a formal,
requirement. 18 While in point of strict law the jurisdiction of the court over the offense is vested in it by the Judiciary
Law, the requirement for a sworn written complaint is just as jurisdictional a mandate since it is that complaint which
starts the prosecutory proceeding 19 and without which the court cannot exercise its jurisdiction to try the case.

Now, the law specifically provides that in prosecutions for adultery and concubinage the person who can legally file the
complaint should be the offended spouse, and nobody else. Unlike the offenses of seduction, abduction, rape and acts
of lasciviousness, no provision is made for the prosecution of the crimes of adultery and concubinage by the parents,
grandparents or guardian of the offended party. The so-called exclusive and successive rule in the prosecution of the
first four offenses above mentioned do not apply to adultery and concubinage. It is significant that while the State,
as parens patriae, was added and vested by the 1985 Rules of Criminal Procedure with the power to initiate the criminal
action for a deceased or incapacitated victim in the aforesaid offenses of seduction, abduction, rape and acts of
lasciviousness, in default of her parents, grandparents or guardian, such amendment did not include the crimes of
adultery and concubinage. In other words, only the offended spouse, and no other, is authorized by law to initiate the
action therefor.

Corollary to such exclusive grant of power to the offended spouse to institute the action, it necessarily follows that such
initiator must have the status, capacity or legal representation to do so at the time of the filing of the criminal action.
This is a familiar and express rule in civil actions; in fact, lack of legal capacity to sue, as a ground for a motion to
dismiss in civil cases, is determined as of the filing of the complaint or petition.

The absence of an equivalent explicit rule in the prosecution of criminal cases does not mean that the same requirement
and rationale would not apply. Understandably, it may not have been found necessary since criminal actions are
generally and fundamentally commenced by the State, through the People of the Philippines, the offended party being
merely the complaining witness therein. However, in the so-called "private crimes" or those which cannot be
prosecuted de oficio, and the present prosecution for adultery is of such genre, the offended spouse assumes a more
predominant role since the right to commence the action, or to refrain therefrom, is a matter exclusively within his
power and option.

This policy was adopted out of consideration for the aggrieved party who might prefer to suffer the outrage in silence
rather than go through the scandal of a public trial. 20 Hence, as cogently argued by petitioner, Article 344 of the Revised
Penal Code thus presupposes that the marital relationship is still subsisting at the time of the institution of the criminal
action for, adultery. This is a logical consequence since the raison d'etre of said provision of law would be absent where
the supposed offended party had ceased to be the spouse of the alleged offender at the time of the filing of the criminal
case. 21

In these cases, therefore, it is indispensable that the status and capacity of the complainant to commence the action be
definitely established and, as already demonstrated, such status or capacity must indubitably exist as of the time he
initiates the action. It would be absurd if his capacity to bring the action would be determined by his
status beforeor subsequent to the commencement thereof, where such capacity or status existed prior to but ceased
before, or was acquired subsequent to but did not exist at the time of, the institution of the case. We would thereby
have the anomalous spectacle of a party bringing suit at the very time when he is without the legal capacity to do so.

To repeat, there does not appear to be any local precedential jurisprudence on the specific issue as to when precisely
the status of a complainant as an offended spouse must exist where a criminal prosecution can be commenced only by
one who in law can be categorized as possessed of such status. Stated differently and with reference to the present
case, the inquiry ;would be whether it is necessary in the commencement of a criminal action for adultery that the
marital bonds between the complainant and the accused be unsevered and existing at the time of the institution of the
action by the former against the latter.

American jurisprudence, on cases involving statutes in that jurisdiction which are in pari materia with ours, yields the
rule that after a divorce has been decreed, the innocent spouse no longer has the right to institute proceedings against
the offenders where the statute provides that the innocent spouse shall have the exclusive right to institute a prosecution
for adultery. Where, however, proceedings have been properly commenced, a divorce subsequently granted can have
no legal effect on the prosecution of the criminal proceedings to a conclusion. 22

In the cited Loftus case, the Supreme Court of Iowa held that —

'No prosecution for adultery can be commenced except on the complaint of the husband or wife.' Section
4932, Code. Though Loftus was husband of defendant when the offense is said to have been committed,
he had ceased to be such when the prosecution was begun; and appellant insists that his status was
not such as to entitle him to make the complaint. We have repeatedly said that the offense is against
the unoffending spouse, as well as the state, in explaining the reason for this provision in the statute;
and we are of the opinion that the unoffending spouse must be such when the prosecution is
commenced. (Emphasis supplied.)

We see no reason why the same doctrinal rule should not apply in this case and in our jurisdiction, considering our
statutory law and jural policy on the matter. We are convinced that in cases of such nature, the status of the complainant
vis-a-vis the accused must be determined as of the time the complaint was filed. Thus, the person who initiates the
adultery case must be an offended spouse, and by this is meant that he is still married to the accused spouse, at the
time of the filing of the complaint.
In the present case, the fact that private respondent obtained a valid divorce in his country, the Federal Republic of
Germany, is admitted. Said divorce and its legal effects may be recognized in the Philippines insofar as private
respondent is concerned 23 in view of the nationality principle in our civil law on the matter of status of persons.

Thus, in the recent case of Van Dorn vs. Romillo, Jr., et al., 24 after a divorce was granted by a United States court
between Alice Van Dornja Filipina, and her American husband, the latter filed a civil case in a trial court here alleging
that her business concern was conjugal property and praying that she be ordered to render an accounting and that the
plaintiff be granted the right to manage the business. Rejecting his pretensions, this Court perspicuously demonstrated
the error of such stance, thus:

There can be no question as to the validity of that Nevada divorce in any of the States of the United
States. The decree is binding on private respondent as an American citizen. For instance, private
respondent cannot sue petitioner, as her husband, in any State of the Union. ...

It is true that owing to the nationality principle embodied in Article 15 of the Civil Code, only Philippine
nationals are covered by the policy against absolute divorces the same being considered contrary to our
concept of public policy and morality. However, aliens may obtain divorces abroad, which may be
recognized in the Philippines, provided they are valid according to their national law. ...

Thus, pursuant to his national law, private respondent is no longer the husband of petitioner. He would
have no standing to sue in the case below as petitioner's husband entitled to exercise control over
conjugal assets. ... 25

Under the same considerations and rationale, private respondent, being no longer the husband of petitioner, had no
legal standing to commence the adultery case under the imposture that he was the offended spouse at the time he filed
suit.

The allegation of private respondent that he could not have brought this case before the decree of divorce for lack of
knowledge, even if true, is of no legal significance or consequence in this case. When said respondent initiated the
divorce proceeding, he obviously knew that there would no longer be a family nor marriage vows to protect once a
dissolution of the marriage is decreed. Neither would there be a danger of introducing spurious heirs into the family,
which is said to be one of the reasons for the particular formulation of our law on adultery, 26 since there would
thenceforth be no spousal relationship to speak of. The severance of the marital bond had the effect of dissociating the
former spouses from each other, hence the actuations of one would not affect or cast obloquy on the other.

The aforecited case of United States vs. Mata cannot be successfully relied upon by private respondent. In applying
Article 433 of the old Penal Code, substantially the same as Article 333 of the Revised Penal Code, which punished
adultery "although the marriage be afterwards declared void", the Court merely stated that "the lawmakers intended to
declare adulterous the infidelity of a married woman to her marital vows, even though it should be made to appear that
she is entitled to have her marriage contract declared null and void, until and unless she actually secures a formal
judicial declaration to that effect". Definitely, it cannot be logically inferred therefrom that the complaint can still be filed
after the declaration of nullity because such declaration that the marriage is void ab initio is equivalent to stating that
it never existed. There being no marriage from the beginning, any complaint for adultery filed after said declaration of
nullity would no longer have a leg to stand on. Moreover, what was consequently contemplated and within the purview
of the decision in said case is the situation where the criminal action for adultery was filed beforethe termination of the
marriage by a judicial declaration of its nullity ab initio. The same rule and requisite would necessarily apply where the
termination of the marriage was effected, as in this case, by a valid foreign divorce.

Private respondent's invocation of Donio-Teves, et al. vs. Vamenta, hereinbefore cited, 27 must suffer the same fate of
inapplicability. A cursory reading of said case reveals that the offended spouse therein had duly and seasonably filed a
complaint for adultery, although an issue was raised as to its sufficiency but which was resolved in favor of the
complainant. Said case did not involve a factual situation akin to the one at bar or any issue determinative of the
controversy herein.

WHEREFORE, the questioned order denying petitioner's motion to quash is SET ASIDE and another one
entered DISMISSING the complaint in Criminal Case No. 87-52435 for lack of jurisdiction. The temporary restraining
order issued in this case on October 21, 1987 is hereby made permanent. SO ORDERED.
 [G.R. No. 142820. June 20, 2003]

WOLFGANG O. ROEHR, petitioner, vs. MARIA CARMEN D. RODRIGUEZ, HON. JUDGE JOSEFINA GUEVARA-
SALONGA, Presiding Judge of Makati RTC, Branch 149,respondents.

DECISION

QUISUMBING, J.:

At the core of the present controversy are issues of (a) grave abuse of discretion allegedly committed by public
respondent and (b) lack of jurisdiction of the regional trial court, in matters that spring from a divorce decree obtained
abroad by petitioner.

In this special civil action for certiorari, petitioner assails (a) the order [1] dated September 30, 1999 of public
respondent Judge Josefina Guevara-Salonga, Presiding Judge of Makati Regional Trial Court,[2] Branch 149, in Civil Case
No. 96-1389 for declaration of nullity of marriage, and (b) the order[3] dated March 31, 2000 denying his motion for
reconsideration. The assailed orders partially set aside the trial courts order dismissing Civil Case No. 96-1389, for the
purpose of resolving issues relating to the property settlement of the spouses and the custody of their children.

Petitioner Wolfgang O. Roehr, a German citizen and resident of Germany, married private respondent Carmen
Rodriguez, a Filipina, on December 11, 1980 in Hamburg, Germany. Their marriage was subsequently ratified on
February 14, 1981 in Tayasan, Negros Oriental.[4] Out of their union were born Carolynne and Alexandra Kristine on
November 18, 1981 and October 25, 1987, respectively.

On August 28, 1996, private respondent filed a petition[5] for declaration of nullity of marriage before the Regional
Trial Court (RTC) of Makati City. On February 6, 1997, petitioner filed a motion to dismiss, [6] but it was denied by the
trial court in its order[7] dated May 28, 1997.

On June 5, 1997, petitioner filed a motion for reconsideration, but was also denied in an order[8] dated August 13,
1997. On September 5, 1997, petitioner filed a petition for certiorari with the Court of Appeals. On November 27, 1998,
the appellate court denied the petition and remanded the case to the RTC.

Meanwhile, petitioner obtained a decree of divorce from the Court of First Instance of Hamburg-Blankenese,
promulgated on December 16, 1997. The decree provides in part:

[T]he Court of First Instance, Hamburg-Blankenese, Branch 513, has ruled through Judge van Buiren of the Court of
First Instance on the basis of the oral proceedings held on 4 Nov. 1997:

The marriage of the Parties contracted on 11 December 1980 before the Civil Registrar of Hamburg-Altona is hereby
dissolved.

The parental custody for the children

Carolynne Roehr, born 18 November 1981

Alexandra Kristine Roehr, born on 25 October 1987

is granted to the father.

The litigation expenses shall be assumed by the Parties.[9]

In view of said decree, petitioner filed a Second Motion to Dismiss on May 20, 1999 on the ground that the trial
court had no jurisdiction over the subject matter of the action or suit as a decree of divorce had already been
promulgated dissolving the marriage of petitioner and private respondent.

On July 14, 1999, Judge Guevara-Salonga issued an order granting petitioners motion to dismiss. Private
respondent filed a Motion for Partial Reconsideration, with a prayer that the case proceed for the purpose of determining
the issues of custody of children and the distribution of the properties between petitioner and private respondent.

On August 18, 1999, an Opposition to the Motion for Partial Reconsideration was filed by the petitioner on the
ground that there is nothing to be done anymore in the instant case as the marital tie between petitioner Wolfgang
Roehr and respondent Ma. Carmen D. Rodriguez had already been severed by the decree of divorce promulgated by the
Court of First Instance of Hamburg, Germany on December 16, 1997 and in view of the fact that said decree of divorce
had already been recognized by the RTC in its order of July 14, 1999, through the implementation of the mandate of
Article 26 of the Family Code,[10] endowing the petitioner with the capacity to remarry under the Philippine law.

On September 30, 1999, respondent judge issued the assailed order partially setting aside her order dated July 14,
1999 for the purpose of tackling the issues of property relations of the spouses as well as support and custody of their
children. The pertinent portion of said order provides:

Acting on the Motion for Partial Reconsideration of the Order dated July 14, 1999 filed by petitioner thru counsel which
was opposed by respondent and considering that the second paragraph of Article 26 of the Family Code was included
as an amendment thru Executive Order 227, to avoid the absurd situation of a Filipino as being still married to his or
her alien spouse though the latter is no longer married to the Filipino spouse because he/she had obtained a divorce
abroad which is recognized by his/her national law, and considering further the effects of the termination of the marriage
under Article 43 in relation to Article 50 and 52 of the same Code, which include the dissolution of the property relations
of the spouses, and the support and custody of their children, the Order dismissing this case is partially set aside with
respect to these matters which may be ventilated in this Court.
SO ORDERED.[11] (Emphasis supplied.)

Petitioner filed a timely motion for reconsideration on October 19, 1999, which was denied by respondent judge in
an order dated March 31, 2000.[12]

Petitioner ascribes lack of jurisdiction of the trial court and grave abuse of discretion on the part of respondent
judge. He cites as grounds for his petition the following:

1. PARTIALLY SETTING ASIDE THE ORDER DATED JULY 14, 1999 DISMISSING THE INSTANT CASE IS NOT
ALLOWED BY 1997 RULES OF CIVIL PROCEDURE.[13]

2. RESPONDENT MARIA CARMEN RODRIGUEZ BY HER MOTION FOR PARTIAL RECONSIDERATION HAD
RECOGNIZED AND ADMITTED THE DIVORCE DECISION OBTAINED BY HER EX-HUSBAND IN HAMBURG,
GERMANY.[14]

3. THERE IS NOTHING LEFT TO BE TACKLED BY THE HONORABLE COURT AS THERE ARE NO CONJUGAL
ASSETS ALLEGED IN THE PETITION FOR ANNULMENT OF MARRIAGE AND IN THE DIVORCE PETITION,
AND THE CUSTODY OF THE CHILDREN HAD ALREADY BEEN AWARDED TO PETITIONER WOLFGANG
ROEHR.[15]

Pertinent in this case before us are the following issues:

1. Whether or not respondent judge gravely abused her discretion in issuing her order dated September 30, 1999,
which partially modified her order dated July 14, 1999; and

2. Whether or not respondent judge gravely abused her discretion when she assumed and retained jurisdiction over
the present case despite the fact that petitioner has already obtained a divorce decree from a German court.

On the first issue, petitioner asserts that the assailed order of respondent judge is completely inconsistent with her
previous order and is contrary to Section 3, Rule 16, Rules of Civil Procedure, which provides:

Sec. 3. Resolution of motion - After the hearing, the court may dismiss the action or claim, deny the motion, or order
the amendment of the pleading.

The court shall not defer the resolution of the motion for the reason that the ground relied upon is not indubitable.

In every case, the resolution shall state clearly and distinctly the reasons therefor. (Emphasis supplied.)

Petitioner avers that a courts action on a motion is limited to dismissing the action or claim, denying the motion, or
ordering the amendment of the pleading.

Private respondent, on her part, argues that the RTC can validly reconsider its order dated July 14, 1999 because
it had not yet attained finality, given the timely filing of respondents motion for reconsideration.

Pertinent to this issue is Section 3 in relation to Section 7, Rule 37 of the 1997 Rules of Civil Procedure, which
provides:

Sec. 3. Action upon motion for new trial or reconsideration.The trial court may set aside the judgment or final order and
grant a new trial, upon such terms as may be just, or may deny the motion. If the court finds that excessive damages
have been awarded or that the judgment or final order is contrary to the evidence or law, it may amend such judgment
or final order accordingly.

Sec. 7. Partial new trial or reconsideration.If the grounds for a motion under this Rule appear to the court to affect the
issues as to only a part, or less than all of the matters in controversy, or only one, or less than all, of the parties to
it, the court may order a new trial or grant reconsideration as to such issues if severable without interfering with the
judgment or final order upon the rest. (Emphasis supplied.)

It is clear from the foregoing rules that a judge can order a partial reconsideration of a case that has not yet
attained finality. Considering that private respondent filed a motion for reconsideration within the reglementary period,
the trial court's decision of July 14, 1999 can still be modified. Moreover, in Saado v. Court of Appeals,[16] we held that
the court could modify or alter a judgment even after the same has become executory whenever circumstances transpire
rendering its decision unjust and inequitable, as where certain facts and circumstances justifying or requiring such
modification or alteration transpired after the judgment has become final and executory [17] and when it becomes
imperative in the higher interest of justice or when supervening events warrant it. [18] In our view, there are even more
compelling reasons to do so when, as in this case, judgment has not yet attained finality.

Anent the second issue, petitioner claims that respondent judge committed grave abuse of discretion when she
partially set aside her order dated July 14, 1999, despite the fact that petitioner has already obtained a divorce decree
from the Court of First Instance of Hamburg, Germany.

In Garcia v. Recio,[19] Van Dorn v. Romillo, Jr.,[20] and Llorente v. Court of Appeals,[21] we consistently held that a
divorce obtained abroad by an alien may be recognized in our jurisdiction, provided such decree is valid according to
the national law of the foreigner. Relevant to the present case is Pilapil v. Ibay-Somera,[22] where this Court specifically
recognized the validity of a divorce obtained by a German citizen in his country, the Federal Republic of Germany. We
held in Pilapil that a foreign divorce and its legal effects may be recognized in the Philippines insofar as respondent is
concerned in view of the nationality principle in our civil law on the status of persons.

In this case, the divorce decree issued by the German court dated December 16, 1997 has not been challenged by
either of the parties. In fact, save for the issue of parental custody, even the trial court recognized said decree to be
valid and binding, thereby endowing private respondent the capacity to remarry. Thus, the present controversy mainly
relates to the award of the custody of their two children, Carolynne and Alexandra Kristine, to petitioner.
 As a general rule, divorce decrees obtained by foreigners in other countries are recognizable in our jurisdiction, but
the legal effects thereof, e.g. on custody, care and support of the children, must still be determined by our
courts.[23] Before our courts can give the effect of res judicata to a foreign judgment, such as the award of custody to
petitioner by the German court, it must be shown that the parties opposed to the judgment had been given ample
opportunity to do so on grounds allowed under Rule 39, Section 50 of the Rules of Court (now Rule 39, Section 48, 1997
Rules of Civil Procedure), to wit:

SEC. 50. Effect of foreign judgments. - The effect of a judgment of a tribunal of a foreign country, having jurisdiction to
pronounce the judgment is as follows:

(a) In case of a judgment upon a specific thing, the judgment is conclusive upon the title to the thing;

(b) In case of a judgment against a person, the judgment is presumptive evidence of a right as between the parties and
their successors in interest by a subsequent title; but the judgment may be repelled by evidence of a want of jurisdiction,
want of notice to the party, collusion, fraud, or clear mistake of law or fact.

It is essential that there should be an opportunity to challenge the foreign judgment, in order for the court in this
jurisdiction to properly determine its efficacy. In this jurisdiction, our Rules of Court clearly provide that with respect to
actions in personam, as distinguished from actions in rem, a foreign judgment merely constitutes prima facie evidence
of the justness of the claim of a party and, as such, is subject to proof to the contrary.[24]

In the present case, it cannot be said that private respondent was given the opportunity to challenge the judgment
of the German court so that there is basis for declaring that judgment as res judicata with regard to the rights of
petitioner to have parental custody of their two children. The proceedings in the German court were summary. As to
what was the extent of private respondents participation in the proceedings in the German court, the records remain
unclear. The divorce decree itself states that neither has she commented on the proceedings [25] nor has she given her
opinion to the Social Services Office.[26] Unlike petitioner who was represented by two lawyers, private respondent had
no counsel to assist her in said proceedings.[27] More importantly, the divorce judgment was issued to petitioner by
virtue of the German Civil Code provision to the effect that when a couple lived separately for three years, the marriage
is deemed irrefutably dissolved. The decree did not touch on the issue as to who the offending spouse was. Absent any
finding that private respondent is unfit to obtain custody of the children, the trial court was correct in setting the issue
for hearing to determine the issue of parental custody, care, support and education mindful of the best interests of the
children. This is in consonance with the provision in the Child and Youth Welfare Code that the childs welfare is always
the paramount consideration in all questions concerning his care and custody. [28]

On the matter of property relations, petitioner asserts that public respondent exceeded the bounds of her
jurisdiction when she claimed cognizance of the issue concerning property relations between petitioner and private
respondent. Private respondent herself has admitted in Par. 14 of her petition for declaration of nullity of marriage dated
August 26, 1996 filed with the RTC of Makati, subject of this case, that: [p]etitioner and respondent have not acquired
any conjugal or community property nor have they incurred any debts during their marriage.[29] Herein petitioner did
not contest this averment. Basic is the rule that a court shall grant relief warranted by the allegations and the
proof.[30] Given the factual admission by the parties in their pleadings that there is no property to be accounted for,
respondent judge has no basis to assert jurisdiction in this case to resolve a matter no longer deemed in controversy.

In sum, we find that respondent judge may proceed to determine the issue regarding the custody of the two
children born of the union between petitioner and private respondent. Private respondent erred, however, in claiming
cognizance to settle the matter of property relations of the parties, which is not at issue.

WHEREFORE, the orders of the Regional Trial Court of Makati, Branch 149, issued on September 30, 1999 and
March 31, 2000 are AFFIRMED with MODIFICATION. We hereby declare that the trial court has jurisdiction over the
issue between the parties as to who has parental custody, including the care, support and education of the children,
namely Carolynne and Alexandra Kristine Roehr. Let the records of this case be remanded promptly to the trial court
for continuation of appropriate proceedings. No pronouncement as to costs. SO ORDERED.
 REPUBLIC OF THE PHILIPPINES, G.R. No. 154380

Petitioner,

- versus –

CIPRIANO ORBECIDO III,

Respondent. Promulgated:

October 5, 2005

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

DECISION

QUISUMBING, J.:

Given a valid marriage between two Filipino citizens, where one party is later naturalized as a foreign citizen

and obtains a valid divorce decree capacitating him or her to remarry, can the Filipino spouse likewise remarry under

Philippine law?

Before us is a case of first impression that behooves the Court to make a definite ruling on this apparently novel

question, presented as a pure question of law.

In this petition for review, the Solicitor General assails the Decision[1] dated May 15, 2002, of the Regional

Trial Court of Molave, Zamboanga del Sur, Branch 23 and its Resolution[2] dated July 4, 2002 denying the motion for

reconsideration. The court a quo had declared that herein respondent Cipriano Orbecido III is capacitated to remarry.

The fallo of the impugned Decision reads:

WHEREFORE, by virtue of the provision of the second paragraph of Art. 26 of the Family Code and by
reason of the divorce decree obtained against him by his American wife, the petitioner is given the
capacity to remarry under the Philippine Law.

IT IS SO ORDERED.[3]

The factual antecedents, as narrated by the trial court, are as follows.

On May 24, 1981, Cipriano Orbecido III married Lady Myros M. Villanueva at the United Church of Christ in the Philippines

in Lam-an, Ozamis City. Their marriage was blessed with a son and a daughter, Kristoffer Simbortriz V. Orbecido and

Lady Kimberly V. Orbecido.

In 1986, Ciprianos wife left for the United States bringing along their son Kristoffer. A few years later, Cipriano

discovered that his wife had been naturalized as an American citizen.

 Sometime in 2000, Cipriano learned from his son that his wife had obtained a divorce decree and then married

a certain Innocent Stanley. She, Stanley and her child by him currently live at 5566 A. Walnut Grove Avenue, San

Gabriel, California.

Cipriano thereafter filed with the trial court a petition for authority to remarry invoking Paragraph 2 of Article 26 of the

Family Code. No opposition was filed. Finding merit in the petition, the court granted the same. The Republic, herein

petitioner, through the Office of the Solicitor General (OSG), sought reconsideration but it was denied.

In this petition, the OSG raises a pure question of law:

WHETHER OR NOT RESPONDENT CAN REMARRY UNDER ARTICLE 26 OF THE FAMILY CODE[4]

The OSG contends that Paragraph 2 of Article 26 of the Family Code is not applicable to the instant case because it only

applies to a valid mixed marriage; that is, a marriage celebrated between a Filipino citizen and an alien. The proper

remedy, according to the OSG, is to file a petition for annulment or for legal separation. [5] Furthermore, the OSG argues

there is no law that governs respondents situation. The OSG posits that this is a matter of legislation and not of judicial

determination.[6]

For his part, respondent admits that Article 26 is not directly applicable to his case but insists that when his naturalized

alien wife obtained a divorce decree which capacitated her to remarry, he is likewise capacitated by operation of law

pursuant to Section 12, Article II of the Constitution.[7]

At the outset, we note that the petition for authority to remarry filed before the trial court actually constituted a petition

for declaratory relief. In this connection, Section 1, Rule 63 of the Rules of Court provides:

RULE 63

DECLARATORY RELIEF AND SIMILAR REMEDIES

Section 1. Who may file petitionAny person interested under a deed, will, contract or other written
instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or other
governmental regulation may, before breach or violation thereof, bring an action in the appropriate
Regional Trial Court to determine any question of construction or validity arising, and for a declaration
of his rights or duties, thereunder.

...

The requisites of a petition for declaratory relief are: (1) there must be a justiciable controversy; (2) the controversy

must be between persons whose interests are adverse; (3) that the party seeking the relief has a legal interest in the

controversy; and (4) that the issue is ripe for judicial determination.[8]

This case concerns the applicability of Paragraph 2 of Article 26 to a marriage between two Filipino citizens

where one later acquired alien citizenship, obtained a divorce decree, and remarried while in the U.S.A. The interests of
the parties are also adverse, as petitioner representing the State asserts its duty to protect the institution of marriage

while respondent, a private citizen, insists on a declaration of his capacity to remarry. Respondent, praying for relief,

has legal interest in the controversy. The issue raised is also ripe for judicial determination inasmuch as when respondent

remarries, litigation ensues and puts into question the validity of his second marriage.

Coming now to the substantive issue, does Paragraph 2 of Article 26 of the Family Code apply to the case of respondent?

Necessarily, we must dwell on how this provision had come about in the first place, and what was the intent of the

legislators in its enactment?

Brief Historical Background

On July 6, 1987, then President Corazon Aquino signed into law Executive Order No. 209, otherwise known as

the Family Code, which took effect on August 3, 1988. Article 26 thereof states:

All marriages solemnized outside the Philippines in accordance with the laws in force in the
country where they were solemnized, and valid there as such, shall also be valid in this country, except
those prohibited under Articles 35, 37, and 38.

On July 17, 1987, shortly after the signing of the original Family Code, Executive Order No. 227 was likewise

signed into law, amending Articles 26, 36, and 39 of the Family Code. A second paragraph was added to Article 26. As

so amended, it now provides:

ART. 26. All marriages solemnized outside the Philippines in accordance with the laws in force
in the country where they were solemnized, and valid there as such, shall also be valid in this country,
except those prohibited under Articles 35(1), (4), (5) and (6), 36, 37 and 38.

Where a marriage between a Filipino citizen and a foreigner is validly celebrated and a divorce
is thereafter validly obtained abroad by the alien spouse capacitating him or her to remarry, the Filipino
spouse shall have capacity to remarry under Philippine law. (Emphasis supplied)

On its face, the foregoing provision does not appear to govern the situation presented by the case at hand. It

seems to apply only to cases where at the time of the celebration of the marriage, the parties are a Filipino citizen and

a foreigner. The instant case is one where at the time the marriage was solemnized, the parties were two Filipino

citizens, but later on, the wife was naturalized as an American citizen and subsequently obtained a divorce granting her

capacity to remarry, and indeed she remarried an American citizen while residing in the U.S.A.

Noteworthy, in the Report of the Public Hearings[9] on the Family Code, the Catholic Bishops Conference of the

Philippines (CBCP) registered the following objections to Paragraph 2 of Article 26:

1. The rule is discriminatory. It discriminates against those whose spouses are Filipinos who
divorce them abroad. These spouses who are divorced will not be able to re-marry, while the
spouses of foreigners who validly divorce them abroad can.

2. This is the beginning of the recognition of the validity of divorce even for Filipino citizens.
For those whose foreign spouses validly divorce them abroad will also be considered to be validly
 divorced here and can re-marry. We propose that this be deleted and made into law only after
more widespread consultation. (Emphasis supplied.)

Legislative Intent

Records of the proceedings of the Family Code deliberations showed that the intent of Paragraph 2 of Article 26,

according to Judge Alicia Sempio-Diy, a member of the Civil Code Revision Committee, is to avoid the absurd situation

where the Filipino spouse remains married to the alien spouse who, after obtaining a divorce, is no longer married to

the Filipino spouse.

Interestingly, Paragraph 2 of Article 26 traces its origin to the 1985 case of Van Dorn v. Romillo, Jr.[10] The Van

Dorn case involved a marriage between a Filipino citizen and a foreigner. The Court held therein that a divorce decree

validly obtained by the alien spouse is valid in the Philippines, and consequently, the Filipino spouse is capacitated to

remarry under Philippine law.

Does the same principle apply to a case where at the time of the celebration of the marriage, the parties were

Filipino citizens, but later on, one of them obtains a foreign citizenship by naturalization?

The jurisprudential answer lies latent in the 1998 case of Quita v. Court of Appeals.[11] In Quita, the parties

were, as in this case, Filipino citizens when they got married. The wife became a naturalized American citizen in 1954

and obtained a divorce in the same year. The Court therein hinted, by way of obiter dictum, that a Filipino divorced by

his naturalized foreign spouse is no longer married under Philippine law and can thus remarry.

Thus, taking into consideration the legislative intent and applying the rule of reason, we hold that Paragraph 2

of Article 26 should be interpreted to include cases involving parties who, at the time of the celebration of the marriage

were Filipino citizens, but later on, one of them becomes naturalized as a foreign citizen and obtains a divorce decree.

The Filipino spouse should likewise be allowed to remarry as if the other party were a foreigner at the time of the

solemnization of the marriage. To rule otherwise would be to sanction absurdity and injustice. Where the interpretation

of a statute according to its exact and literal import would lead to mischievous results or contravene the clear purpose

of the legislature, it should be construed according to its spirit and reason, disregarding as far as necessary the letter

of the law. A statute may therefore be extended to cases not within the literal meaning of its terms, so long as they

come within its spirit or intent.[12]

If we are to give meaning to the legislative intent to avoid the absurd situation where the Filipino spouse remains

married to the alien spouse who, after obtaining a divorce is no longer married to the Filipino spouse, then the instant

case must be deemed as coming within the contemplation of Paragraph 2 of Article 26.
 In view of the foregoing, we state the twin elements for the application of Paragraph 2 of Article 26 as follows:

1. There is a valid marriage that has been celebrated between a Filipino citizen and a
foreigner; and

2. A valid divorce is obtained abroad by the alien spouse capacitating him or her to remarry.

The reckoning point is not the citizenship of the parties at the time of the celebration of the marriage, but their

citizenship at the time a valid divorce is obtained abroad by the alien spouse capacitating the latter to remarry.

In this case, when Ciprianos wife was naturalized as an American citizen, there was still a valid marriage that

has been celebrated between her and Cipriano. As fate would have it, the naturalized alien wife subsequently obtained

a valid divorce capacitating her to remarry. Clearly, the twin requisites for the application of Paragraph 2 of Article 26

are both present in this case. Thus Cipriano, the divorced Filipino spouse, should be allowed to remarry.

We are also unable to sustain the OSGs theory that the proper remedy of the Filipino spouse is to file either a

petition for annulment or a petition for legal separation. Annulment would be a long and tedious process, and in this

particular case, not even feasible, considering that the marriage of the parties appears to have all the badges of validity.

On the other hand, legal separation would not be a sufficient remedy for it would not sever the marriage tie; hence, the

legally separated Filipino spouse would still remain married to the naturalized alien spouse.

However, we note that the records are bereft of competent evidence duly submitted by respondent concerning the

divorce decree and the naturalization of respondents wife. It is settled rule that one who alleges a fact has the burden

of proving it and mere allegation is not evidence.[13]

Accordingly, for his plea to prosper, respondent herein must prove his allegation that his wife was naturalized as an

American citizen. Likewise, before a foreign divorce decree can be recognized by our own courts, the party pleading it

must prove the divorce as a fact and demonstrate its conformity to the foreign law allowing it. [14] Such foreign law must

also be proved as our courts cannot take judicial notice of foreign laws. Like any other fact, such laws must be alleged

and proved.[15] Furthermore, respondent must also show that the divorce decree allows his former wife to remarry as

specifically required in Article 26. Otherwise, there would be no evidence sufficient to declare that he is capacitated to

enter into another marriage.

Nevertheless, we are unanimous in our holding that Paragraph 2 of Article 26 of the Family Code (E.O. No. 209, as

amended by E.O. No. 227), should be interpreted to allow a Filipino citizen, who has been divorced by a spouse who

had acquired foreign citizenship and remarried, also to remarry. However, considering that in the present petition there

is no sufficient evidence submitted and on record, we are unable to declare, based on respondents bare allegations that
his wife, who was naturalized as an American citizen, had obtained a divorce decree and had remarried an American,

that respondent is now capacitated to remarry. Such declaration could only be made properly upon respondents

submission of the aforecited evidence in his favor.

ACCORDINGLY, the petition by the Republic of the Philippines is GRANTED. The assailed Decision dated May 15, 2002,

and Resolution dated July 4, 2002, of the Regional Trial Court of Molave, Zamboanga del Sur, Branch 23, are hereby SET

ASIDE. No pronouncement as to costs. SO ORDERED.

 GERBERT R. CORPUZ, G.R. No. 186571
Petitioner,

Promulgated:
- versus -
August 11, 2010

DAISYLYN TIROL STO. TOMAS and

The SOLICITOR GENERAL,

Respondents. -- -

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

DECISION

BRION, J.:

Before the Court is a direct appeal from the decision[1] of the Regional Trial Court (RTC) of Laoag City, Branch
11, elevated via a petition for review on certiorari[2] under Rule 45 of the Rules of Court (present petition).

Petitioner Gerbert R. Corpuz was a former Filipino citizen who acquired Canadian citizenship through

naturalization on November 29, 2000.[3] On January 18, 2005, Gerbert married respondent Daisylyn T. Sto. Tomas, a

Filipina, in Pasig City.[4] Due to work and other professional commitments, Gerbert left for Canada soon after the

wedding. He returned to the Philippines sometime in April 2005 to surprise Daisylyn, but was shocked to discover that

his wife was having an affair with another man. Hurt and disappointed, Gerbert returned to Canada and filed a petition

for divorce. The Superior Court of Justice, Windsor, Ontario, Canada granted Gerberts petition for divorce on December
8, 2005. The divorce decree took effect a month later, on January 8, 2006.[5]

Two years after the divorce, Gerbert has moved on and has found another Filipina to love. Desirous of marrying

his new Filipina fiance in the Philippines, Gerbert went to the Pasig City Civil Registry Office and registered the Canadian

divorce decree on his and Daisylyns marriage certificate. Despite the registration of the divorce decree, an official of the

National Statistics Office (NSO) informed Gerbert that the marriage between him and Daisylyn still subsists under

Philippine law; to be enforceable, the foreign divorce decree must first be judicially recognized by a competent Philippine
court, pursuant to NSO Circular No. 4, series of 1982.[6]

Accordingly, Gerbert filed a petition for judicial recognition of foreign divorce and/or declaration of

marriage as dissolved (petition) with the RTC. Although summoned, Daisylyn did not file any responsive pleading but

submitted instead a notarized letter/manifestation to the trial court. She offered no opposition to Gerberts petition and,

in fact, alleged her desire to file a similar case herself but was prevented by financial and personal circumstances. She,
thus, requested that she be considered as a party-in-interest with a similar prayer to Gerberts.

In its October 30, 2008 decision,[7] the RTC denied Gerberts petition. The RTC concluded that Gerbert

was not the proper party to institute the action for judicial recognition of the foreign divorce decree as he is a naturalized

Canadian citizen. It ruled that only the Filipino spouse can avail of the remedy, under the second paragraph of Article

26 of the Family Code,[8] in order for him or her to be able to remarry under Philippine law. [9] Article 26 of the Family
Code reads:

Art. 26. All marriages solemnized outside the Philippines, in accordance with the laws in force
in the country where they were solemnized, and valid there as such, shall also be valid in this country,
except those prohibited under Articles 35(1), (4), (5) and (6), 36, 37 and 38.

Where a marriage between a Filipino citizen and a foreigner is validly celebrated and
a divorce is thereafter validly obtained abroad by the alien spouse capacitating him or her to
remarry, the Filipino spouse shall likewise have capacity to remarry under Philippine law.
This conclusion, the RTC stated, is consistent with the legislative intent behind the enactment of the second paragraph

of Article 26 of the Family Code, as determined by the Court in Republic v. Orbecido III;[10] the provision was enacted

to avoid the absurd situation where the Filipino spouse remains married to the alien spouse who, after obtaining a
divorce, is no longer married to the Filipino spouse.[11]

THE PETITION

From the RTCs ruling,[12] Gerbert filed the present petition.[13]

Gerbert asserts that his petition before the RTC is essentially for declaratory relief, similar to that filed

in Orbecido; he, thus, similarly asks for a determination of his rights under the second paragraph of Article 26 of the

Family Code. Taking into account the rationale behind the second paragraph of Article 26 of the Family Code, he contends

that the provision applies as well to the benefit of the alien spouse.He claims that the RTC ruling unduly stretched the

doctrine in Orbecido by limiting the standing to file the petition only to the Filipino spouse an interpretation he claims

to be contrary to the essence of the second paragraph of Article 26 of the Family Code. He considers himself as a proper

party, vested with sufficient legal interest, to institute the case, as there is a possibility that he might be prosecuted for

bigamy if he marries his Filipina fiance in the Philippines since two marriage certificates, involving him, would be on file

with the Civil Registry Office. The Office of the Solicitor General and Daisylyn, in their respective Comments,[14] both
support Gerberts position.

Essentially, the petition raises the issue of whether the second paragraph of Article 26 of the Family Code

extends to aliens the right to petition a court of this jurisdiction for the recognition of a foreign divorce
decree.

THE COURTS RULING

The alien spouse can claim no right under the second paragraph of Article 26 of the Family Code as the
substantive right it establishes is in favor of the Filipino spouse

The resolution of the issue requires a review of the legislative history and intent behind the second paragraph of Article
26 of the Family Code.

The Family Code recognizes only two types of defective marriages void[15] and voidable[16] marriages. In both cases, the

basis for the judicial declaration of absolute nullity or annulment of the marriage exists before or at the time of the

marriage. Divorce, on the other hand, contemplates the dissolution of the lawful union for cause arising after the
marriage.[17] Our family laws do not recognize absolute divorce between Filipino citizens. [18]

Recognizing the reality that divorce is a possibility in marriages between a Filipino and an alien, President

Corazon C. Aquino, in the exercise of her legislative powers under the Freedom Constitution, [19] enacted Executive Order
No. (EO) 227, amending Article 26 of the Family Code to its present wording, as follows:

Art. 26. All marriages solemnized outside the Philippines, in accordance with the laws in force
in the country where they were solemnized, and valid there as such, shall also be valid in this country,
except those prohibited under Articles 35(1), (4), (5) and (6), 36, 37 and 38.

Where a marriage between a Filipino citizen and a foreigner is validly celebrated and
a divorce is thereafter validly obtained abroad by the alien spouse capacitating him or her to
remarry, the Filipino spouse shall likewise have capacity to remarry under Philippine law.
Through the second paragraph of Article 26 of the Family Code, EO 227 effectively incorporated into the law this Courts

holding in Van Dorn v. Romillo, Jr.[20] and Pilapil v. Ibay-Somera.[21] In both cases, the Court refused to acknowledge

the alien spouses assertion of marital rights after a foreign courts divorce decree between the alien and the Filipino. The

Court, thus, recognized that the foreign divorce had already severed the marital bond between the spouses. The Court
reasoned in Van Dorn v. Romillo that:

To maintain x x x that, under our laws, [the Filipino spouse] has to be considered still married
to [the alien spouse] and still subject to a wife's obligations x x x cannot be just. [The Filipino
spouse] should not be obliged to live together with, observe respect and fidelity, and render support to
[the alien spouse]. The latter should not continue to be one of her heirs with possible rights to conjugal
property. She should not be discriminated against in her own country if the ends of justice are
to be served.[22]

As the RTC correctly stated, the provision was included in the law to avoid the absurd situation where the Filipino

spouse remains married to the alien spouse who, after obtaining a divorce, is no longer married to the Filipino

spouse.[23] The legislative intent is for the benefit of the Filipino spouse, by clarifying his or her marital status, settling

the doubts created by the divorce decree. Essentially, the second paragraph of Article 26 of the Family Code

provided the Filipino spouse a substantive right to have his or her marriage to the alien spouse considered

as dissolved, capacitating him or her to remarry.[24] Without the second paragraph of Article 26 of the Family Code,

the judicial recognition of the foreign decree of divorce, whether in a proceeding instituted precisely for that purpose or

as a related issue in another proceeding, would be of no significance to the Filipino spouse since our laws do not

recognize divorce as a mode of severing the marital bond;[25] Article 17 of the Civil Code provides that the policy against

absolute divorces cannot be subverted by judgments promulgated in a foreign country. The inclusion of the second

paragraph in Article 26 of the Family Code provides the direct exception to this rule and serves as basis for recognizing
the dissolution of the marriage between the Filipino spouse and his or her alien spouse.

Additionally, an action based on the second paragraph of Article 26 of the Family Code is not limited to the recognition

of the foreign divorce decree. If the court finds that the decree capacitated the alien spouse to remarry, the courts can

declare that the Filipino spouse is likewise capacitated to contract another marriage. No court in this jurisdiction,

however, can make a similar declaration for the alien spouse (other than that already established by the decree), whose
status and legal capacity are generally governed by his national law.[26]

Given the rationale and intent behind the enactment, and the purpose of the second paragraph of Article 26 of

the Family Code, the RTC was correct in limiting the applicability of the provision for the benefit of the Filipino spouse. In

other words, only the Filipino spouse can invoke the second paragraph of Article 26 of the Family Code; the alien spouse
can claim no right under this provision.

The foreign divorce decree is presumptive evidence of a right that clothes the party with legal interest
to petition for its recognition in this jurisdiction

We qualify our above conclusion i.e., that the second paragraph of Article 26 of the Family Code bestows no

rights in favor of aliens with the complementary statement that this conclusion is not sufficient basis to dismiss Gerberts

petition before the RTC. In other words, the unavailability of the second paragraph of Article 26 of the Family Code to

aliens does not necessarily strip Gerbert of legal interest to petition the RTC for the recognition of his foreign divorce

decree. The foreign divorce decree itself, after its authenticity and conformity with the aliens national law have been
duly proven according to our rules of evidence, serves as a presumptive evidence of right in favor of Gerbert, pursuant
to Section 48, Rule 39 of the Rules of Court which provides for the effect of foreign judgments. This Section states:

SEC. 48. Effect of foreign judgments or final orders.The effect of a judgment or final order
of a tribunal of a foreign country, having jurisdiction to render the judgment or final order
is as follows:

(a) In case of a judgment or final order upon a specific thing, the judgment or final
order is conclusive upon the title of the thing; and

(b) In case of a judgment or final order against a person, the judgment or

final order is presumptive evidence of a right as between the parties and their
successors in interest by a subsequent title.

In either case, the judgment or final order may be repelled by evidence of a want of jurisdiction,
want of notice to the party, collusion, fraud, or clear mistake of law or fact.

To our mind, direct involvement or being the subject of the foreign judgment is sufficient to clothe a party with the

requisite interest to institute an action before our courts for the recognition of the foreign judgment. In a divorce

situation, we have declared, no less, that the divorce obtained by an alien abroad may be recognized in the Philippines,
provided the divorce is valid according to his or her national law.[27]

The starting point in any recognition of a foreign divorce judgment is the acknowledgment that our courts do

not take judicial notice of foreign judgments and laws. Justice Herrera explained that, as a rule, no sovereign is bound

to give effect within its dominion to a judgment rendered by a tribunal of another country. [28] This means that the

foreign judgment and its authenticity must be proven as facts under our rules on evidence, together with the aliens

applicable national law to show the effect of the judgment on the alien himself or herself. [29] The recognition may be
made in an action instituted specifically for the purpose or in another action where a party invokes the foreign decree
as an integral aspect of his claim or defense.

In Gerberts case, since both the foreign divorce decree and the national law of the alien, recognizing his or her

capacity to obtain a divorce, purport to be official acts of a sovereign authority, Section 24, Rule 132 of the Rules of

Court comes into play. This Section requires proof, either by (1) official publications or (2) copies attested by the officer

having legal custody of the documents. If the copies of official records are not kept in the Philippines, these must be (a)

accompanied by a certificate issued by the proper diplomatic or consular officer in the Philippine foreign service stationed
in the foreign country in which the record is kept and (b) authenticated by the seal of his office.

The records show that Gerbert attached to his petition a copy of the divorce decree, as well as the required

certificates proving its authenticity,[30] but failed to include a copy of the Canadian law on divorce. [31] Under this

situation, we can, at this point, simply dismiss the petition for insufficiency of supporting evidence, unless we deem it

more appropriate to remand the case to the RTC to determine whether the divorce decree is consistent with the Canadian
divorce law.

We deem it more appropriate to take this latter course of action, given the Article 26 interests that will be served

and the Filipina wifes (Daisylyns) obvious conformity with the petition. A remand, at the same time, will allow other

interested parties to oppose the foreign judgment and overcome a petitioners presumptive evidence of a right by proving

want of jurisdiction, want of notice to a party, collusion, fraud, or clear mistake of law or fact. Needless to state, every
precaution must be taken to ensure conformity with our laws before a recognition is made, as the foreign judgment,
once recognized, shall have the effect of res judicata[32] between the parties, as provided in Section 48, Rule 39 of the
Rules of Court.[33]

In fact, more than the principle of comity that is served by the practice of reciprocal recognition of foreign

judgments between nations, the res judicata effect of the foreign judgments of divorce serves as the deeper basis for

extending judicial recognition and for considering the alien spouse bound by its terms. This same effect, as discussed

above, will not obtain for the Filipino spouse were it not for the substantive rule that the second paragraph of Article 26
of the Family Code provides.

Considerations beyond the recognition of the foreign divorce decree

As a matter of housekeeping concern, we note that the Pasig City Civil Registry Office has already

recorded the divorce decree on Gerbert and Daisylyns marriage certificate based on the mere presentation

of the decree.[34] We consider the recording to be legally improper; hence, the need to draw attention of the bench
and the bar to what had been done.

Article 407 of the Civil Code states that [a]cts, events and judicial decrees concerning the civil status of persons shall

be recorded in the civil register. The law requires the entry in the civil registry of judicial decrees that produce legal

consequences touching upon a persons legal capacity and status, i.e., those affecting all his personal qualities and

relations, more or less permanent in nature, not ordinarily terminable at his own will, such as his being legitimate or
illegitimate, or his being married or not.[35]

A judgment of divorce is a judicial decree, although a foreign one, affecting a persons legal capacity and status
that must be recorded. In fact, Act No. 3753 or the Law on Registry of Civil Status specifically requires the registration
of divorce decrees in the civil registry:

Sec. 1. Civil Register. A civil register is established for recording the civil status of persons,
in which shall be entered:

(a) births;

(b) deaths;

(c) marriages;

(d) annulments of marriages;

(e) divorces;

(f) legitimations;

(g) adoptions;

(h) acknowledgment of natural children;

(i) naturalization; and

(j) changes of name.

Sec. 4. Civil Register Books. The local registrars shall keep and preserve in their offices the following
books, in which they shall, respectively make the proper entries concerning the civil status of persons:

(1) Birth and death register;

(2) Marriage register, in which shall be entered not only the marriages solemnized but
also divorces and dissolved marriages.

(3) Legitimation, acknowledgment, adoption, change of name and naturalization register.

But while the law requires the entry of the divorce decree in the civil registry, the law and the submission of the decree

by themselves do not ipso facto authorize the decrees registration. The law should be read in relation with the

requirement of a judicial recognition of the foreign judgment before it can be given res judicata effect. In the context of

the present case, no judicial order as yet exists recognizing the foreign divorce decree. Thus, the Pasig City Civil Registry

Office acted totally out of turn and without authority of law when it annotated the Canadian divorce decree on Gerbert
and Daisylyns marriage certificate, on the strength alone of the foreign decree presented by Gerbert.

Evidently, the Pasig City Civil Registry Office was aware of the requirement of a court recognition, as it cited

NSO Circular No. 4, series of 1982,[36] and Department of Justice Opinion No. 181, series of 1982 [37] both of which

required a final order from a competent Philippine court before a foreign judgment, dissolving a marriage, can be

registered in the civil registry, but it, nonetheless, allowed the registration of the decree. For being contrary to law, the

registration of the foreign divorce decree without the requisite judicial recognition is patently void and cannot produce
any legal effect.

Another point we wish to draw attention to is that the recognition that the RTC may extend to the Canadian

divorce decree does not, by itself, authorize the cancellation of the entry in the civil registry. A petition for recognition

of a foreign judgment is not the proper proceeding, contemplated under the Rules of Court, for the cancellation of
entries in the civil registry.

Article 412 of the Civil Code declares that no entry in a civil register shall be changed or corrected, without

judicial order. The Rules of Court supplements Article 412 of the Civil Code by specifically providing for a special remedial

proceeding by which entries in the civil registry may be judicially cancelled or corrected. Rule 108 of the Rules of Court
sets in detail the jurisdictional and procedural requirements that must be complied with before a judgment, authorizing
the cancellation or correction, may be annotated in the civil registry. It also requires, among others, that the verified

petition must be filed with the RTC of the province where the corresponding civil registry is located; [38] that the civil

registrar and all persons who have or claim any interest must be made parties to the proceedings; [39] and that the time

and place for hearing must be published in a newspaper of general circulation.[40] As these basic jurisdictional

requirements have not been met in the present case, we cannot consider the petition Gerbert filed with the RTC as one
filed under Rule 108 of the Rules of Court.

We hasten to point out, however, that this ruling should not be construed as requiring two separate proceedings for the

registration of a foreign divorce decree in the civil registry one for recognition of the foreign decree and another

specifically for cancellation of the entry under Rule 108 of the Rules of Court. The recognition of the foreign divorce

decree may be made in a Rule 108 proceeding itself, as the object of special proceedings (such as that in Rule 108 of

the Rules of Court) is precisely to establish the status or right of a party or a particular fact. Moreover, Rule 108 of the

Rules of Court can serve as the appropriate adversarial proceeding[41] by which the applicability of the foreign judgment

can be measured and tested in terms of jurisdictional infirmities, want of notice to the party, collusion, fraud, or clear
mistake of law or fact.

WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE the October 30, 2008 decision of

the Regional Trial Court of Laoag City, Branch 11, as well as its February 17, 2009order. We order the REMAND of the

case to the trial court for further proceedings in accordance with our ruling above. Let a copy of this Decision be furnished
the Civil Registrar General. No costs. SO ORDERED.
G.R. No. 196049 June 26, 2013

MINORU FUJIKI, PETITIONER,

vs.
MARIA PAZ GALELA MARINAY, SHINICHI MAEKARA, LOCAL CIVIL REGISTRAR OF QUEZON CITY, AND THE
ADMINISTRATOR AND CIVIL REGISTRAR GENERAL OF THE NATIONAL STATISTICS OFFICE,RESPONDENTS.

DECISION

CARPIO, J.:

The Case

This is a direct recourse to this Court from the Regional Trial Court (RTC), Branch 107, Quezon City, through a petition
for review on certiorari under Rule 45 of the Rules of Court on a pure question of law. The petition assails the
Order1 dated 31 January 2011 of the RTC in Civil Case No. Q-11-68582 and its Resolution dated 2 March 2011 denying
petitioner’s Motion for Reconsideration. The RTC dismissed the petition for "Judicial Recognition of Foreign Judgment
(or Decree of Absolute Nullity of Marriage)" based on improper venue and the lack of personality of petitioner, Minoru
Fujiki, to file the petition.

The Facts

Petitioner Minoru Fujiki (Fujiki) is a Japanese national who married respondent Maria Paz Galela Marinay (Marinay) in
the Philippines2 on 23 January 2004. The marriage did not sit well with petitioner’s parents. Thus, Fujiki could not bring
his wife to Japan where he resides. Eventually, they lost contact with each other.

In 2008, Marinay met another Japanese, Shinichi Maekara (Maekara). Without the first marriage being dissolved,
Marinay and Maekara were married on 15 May 2008 in Quezon City, Philippines. Maekara brought Marinay to Japan.
However, Marinay allegedly suffered physical abuse from Maekara. She left Maekara and started to contact Fujiki. 3

Fujiki and Marinay met in Japan and they were able to reestablish their relationship. In 2010, Fujiki helped Marinay
obtain a judgment from a family court in Japan which declared the marriage between Marinay and Maekara void on the
ground of bigamy.4 On 14 January 2011, Fujiki filed a petition in the RTC entitled: "Judicial Recognition of Foreign
Judgment (or Decree of Absolute Nullity of Marriage)." Fujiki prayed that (1) the Japanese Family Court judgment be
recognized; (2) that the bigamous marriage between Marinay and Maekara be declared void ab initiounder Articles 35(4)
and 41 of the Family Code of the Philippines;5 and (3) for the RTC to direct the Local Civil Registrar of Quezon City to
annotate the Japanese Family Court judgment on the Certificate of Marriage between Marinay and Maekara and to
endorse such annotation to the Office of the Administrator and Civil Registrar General in the National Statistics Office
(NSO).6

The Ruling of the Regional Trial Court

A few days after the filing of the petition, the RTC immediately issued an Order dismissing the petition and withdrawing
the case from its active civil docket.7 The RTC cited the following provisions of the Rule on Declaration of Absolute Nullity
of Void Marriages and Annulment of Voidable Marriages (A.M. No. 02-11-10-SC):

Sec. 2. Petition for declaration of absolute nullity of void marriages. –

(a) Who may file. – A petition for declaration of absolute nullity of void marriage may be filed solely by the husband or
the wife.

xxxx

Sec. 4. Venue. – The petition shall be filed in the Family Court of the province or city where the petitioner or the
respondent has been residing for at least six months prior to the date of filing, or in the case of a non-resident
respondent, where he may be found in the Philippines, at the election of the petitioner. x x x

The RTC ruled, without further explanation, that the petition was in "gross violation" of the above provisions. The trial
court based its dismissal on Section 5(4) of A.M. No. 02-11-10-SC which provides that "[f]ailure to comply with any of
the preceding requirements may be a ground for immediate dismissal of the petition." 8 Apparently, the RTC took the
view that only "the husband or the wife," in this case either Maekara or Marinay, can file the petition to declare their
marriage void, and not Fujiki.

Fujiki moved that the Order be reconsidered. He argued that A.M. No. 02-11-10-SC contemplated ordinary civil actions
for declaration of nullity and annulment of marriage. Thus, A.M. No. 02-11-10-SC does not apply. A petition for
recognition of foreign judgment is a special proceeding, which "seeks to establish a status, a right or a particular
fact,"9 and not a civil action which is "for the enforcement or protection of a right, or the prevention or redress of a
wrong."10 In other words, the petition in the RTC sought to establish (1) the status and concomitant rights of Fujiki and
Marinay as husband and wife and (2) the fact of the rendition of the Japanese Family Court judgment declaring the
marriage between Marinay and Maekara as void on the ground of bigamy. The petitioner contended that the Japanese
judgment was consistent with Article 35(4) of the Family Code of the Philippines 11 on bigamy and was therefore entitled
to recognition by Philippine courts.12

In any case, it was also Fujiki’s view that A.M. No. 02-11-10-SC applied only to void marriages under Article 36 of the
Family Code on the ground of psychological incapacity.13 Thus, Section 2(a) of A.M. No. 02-11-10-SC provides that "a
petition for declaration of absolute nullity of void marriages may be filed solely by the husband or the wife." To apply
Section 2(a) in bigamy would be absurd because only the guilty parties would be permitted to sue. In the words of
Fujiki, "[i]t is not, of course, difficult to realize that the party interested in having a bigamous marriage declared a nullity
would be the husband in the prior, pre-existing marriage."14 Fujiki had material interest and therefore the personality
to nullify a bigamous marriage.

Fujiki argued that Rule 108 (Cancellation or Correction of Entries in the Civil Registry) of the Rules of Court is applicable.
Rule 108 is the "procedural implementation" of the Civil Register Law (Act No. 3753) 15 in relation to Article 413 of the
Civil Code.16 The Civil Register Law imposes a duty on the "successful petitioner for divorce or annulment of marriage
to send a copy of the final decree of the court to the local registrar of the municipality where the dissolved or annulled
marriage was solemnized."17 Section 2 of Rule 108 provides that entries in the civil registry relating to "marriages,"
"judgments of annulments of marriage" and "judgments declaring marriages void from the beginning" are subject to
cancellation or correction.18 The petition in the RTC sought (among others) to annotate the judgment of the Japanese
Family Court on the certificate of marriage between Marinay and Maekara.

Fujiki’s motion for reconsideration in the RTC also asserted that the trial court "gravely erred" when, on its own, it
dismissed the petition based on improper venue. Fujiki stated that the RTC may be confusing the concept of venue with
the concept of jurisdiction, because it is lack of jurisdiction which allows a court to dismiss a case on its own. Fujiki
cited Dacoycoy v. Intermediate Appellate Court19 which held that the "trial court cannot pre-empt the defendant’s
prerogative to object to the improper laying of the venue by motu proprio dismissing the case." 20Moreover, petitioner
alleged that the trial court should not have "immediately dismissed" the petition under Section 5 of A.M. No. 02-11-10-
SC because he substantially complied with the provision.

On 2 March 2011, the RTC resolved to deny petitioner’s motion for reconsideration. In its Resolution, the RTC stated
that A.M. No. 02-11-10-SC applies because the petitioner, in effect, prays for a decree of absolute nullity of
marriage.21 The trial court reiterated its two grounds for dismissal, i.e. lack of personality to sue and improper venue
under Sections 2(a) and 4 of A.M. No. 02-11-10-SC. The RTC considered Fujiki as a "third person"22 in the proceeding
because he "is not the husband in the decree of divorce issued by the Japanese Family Court, which he now seeks to
be judicially recognized, x x x."23 On the other hand, the RTC did not explain its ground of impropriety of venue. It only
said that "[a]lthough the Court cited Sec. 4 (Venue) x x x as a ground for dismissal of this case[,] it should be taken
together with the other ground cited by the Court x x x which is Sec. 2(a) x x x."24

The RTC further justified its motu proprio dismissal of the petition based on Braza v. The City Civil Registrar of
Himamaylan City, Negros Occidental.25 The Court in Braza ruled that "[i]n a special proceeding for correction of entry
under Rule 108 (Cancellation or Correction of Entries in the Original Registry), the trial court has no jurisdiction to nullify
marriages x x x."26 Braza emphasized that the "validity of marriages as well as legitimacy and filiation can be questioned
only in a direct action seasonably filed by the proper party, and not through a collateral attack such as [a] petition [for
correction of entry] x x x."27

The RTC considered the petition as a collateral attack on the validity of marriage between Marinay and Maekara. The
trial court held that this is a "jurisdictional ground" to dismiss the petition.28 Moreover, the verification and certification
against forum shopping of the petition was not authenticated as required under Section 5 29 of A.M. No. 02-11-10-SC.
Hence, this also warranted the "immediate dismissal" of the petition under the same provision.

The Manifestation and Motion of the Office of the Solicitor General and the Letters of Marinay and Maekara

On 30 May 2011, the Court required respondents to file their comment on the petition for review. 30 The public
respondents, the Local Civil Registrar of Quezon City and the Administrator and Civil Registrar General of the NSO,
participated through the Office of the Solicitor General. Instead of a comment, the Solicitor General filed a Manifestation
and Motion.31

The Solicitor General agreed with the petition. He prayed that the RTC’s "pronouncement that the petitioner failed to
comply with x x x A.M. No. 02-11-10-SC x x x be set aside" and that the case be reinstated in the trial court for further
proceedings.32 The Solicitor General argued that Fujiki, as the spouse of the first marriage, is an injured party who can
sue to declare the bigamous marriage between Marinay and Maekara void. The Solicitor General cited Juliano-Llave v.
Republic33 which held that Section 2(a) of A.M. No. 02-11-10-SC does not apply in cases of bigamy. In Juliano-Llave,
this Court explained:

[t]he subsequent spouse may only be expected to take action if he or she had only discovered during the connubial
period that the marriage was bigamous, and especially if the conjugal bliss had already vanished. Should parties in a
subsequent marriage benefit from the bigamous marriage, it would not be expected that they would file an action to
declare the marriage void and thus, in such circumstance, the "injured spouse" who should be given a legal remedy is
the one in a subsisting previous marriage. The latter is clearly the aggrieved party as the bigamous marriage not only
threatens the financial and the property ownership aspect of the prior marriage but most of all, it causes an emotional
burden to the prior spouse. The subsequent marriage will always be a reminder of the infidelity of the spouse and the
disregard of the prior marriage which sanctity is protected by the Constitution.34

The Solicitor General contended that the petition to recognize the Japanese Family Court judgment may be made in a
Rule 108 proceeding.35 In Corpuz v. Santo Tomas,36 this Court held that "[t]he recognition of the foreign divorce decree
may be made in a Rule 108 proceeding itself, as the object of special proceedings (such as that in Rule 108 of the Rules
of Court) is precisely to establish the status or right of a party or a particular fact." 37 While Corpuzconcerned a foreign
divorce decree, in the present case the Japanese Family Court judgment also affected the civil status of the parties,
especially Marinay, who is a Filipino citizen.

The Solicitor General asserted that Rule 108 of the Rules of Court is the procedure to record "[a]cts, events and judicial
decrees concerning the civil status of persons" in the civil registry as required by Article 407 of the Civil Code. In other
words, "[t]he law requires the entry in the civil registry of judicial decrees that produce legal consequences upon a
person’s legal capacity and status x x x."38 The Japanese Family Court judgment directly bears on the civil status of a
Filipino citizen and should therefore be proven as a fact in a Rule 108 proceeding.
Moreover, the Solicitor General argued that there is no jurisdictional infirmity in assailing a void marriage under Rule
108, citing De Castro v. De Castro39 and Niñal v. Bayadog40 which declared that "[t]he validity of a void marriage may
be collaterally attacked."41

Marinay and Maekara individually sent letters to the Court to comply with the directive for them to comment on the
petition.42 Maekara wrote that Marinay concealed from him the fact that she was previously married to Fujiki. 43Maekara
also denied that he inflicted any form of violence on Marinay.44 On the other hand, Marinay wrote that she had no reason
to oppose the petition.45 She would like to maintain her silence for fear that anything she say might cause
misunderstanding between her and Fujiki.46

The Issues

Petitioner raises the following legal issues:

(1) Whether the Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages
(A.M. No. 02-11-10-SC) is applicable.

(2) Whether a husband or wife of a prior marriage can file a petition to recognize a foreign judgment nullifying
the subsequent marriage between his or her spouse and a foreign citizen on the ground of bigamy.

(3) Whether the Regional Trial Court can recognize the foreign judgment in a proceeding for cancellation or
correction of entries in the Civil Registry under Rule 108 of the Rules of Court.

The Ruling of the Court

We grant the petition.

The Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of Voidable Marriages (A.M. No. 02-11-10-
SC) does not apply in a petition to recognize a foreign judgment relating to the status of a marriage where one of the
parties is a citizen of a foreign country. Moreover, in Juliano-Llave v. Republic,47 this Court held that the rule in A.M.
No. 02-11-10-SC that only the husband or wife can file a declaration of nullity or annulment of marriage "does not apply
if the reason behind the petition is bigamy."48

I.

For Philippine courts to recognize a foreign judgment relating to the status of a marriage where one of the parties is a
citizen of a foreign country, the petitioner only needs to prove the foreign judgment as a fact under the Rules of Court.
To be more specific, a copy of the foreign judgment may be admitted in evidence and proven as a fact under Rule 132,
Sections 24 and 25, in relation to Rule 39, Section 48(b) of the Rules of Court. 49 Petitioner may prove the Japanese
Family Court judgment through (1) an official publication or (2) a certification or copy attested by the officer who has
custody of the judgment. If the office which has custody is in a foreign country such as Japan, the certification may be
made by the proper diplomatic or consular officer of the Philippine foreign service in Japan and authenticated by the
seal of office.50

To hold that A.M. No. 02-11-10-SC applies to a petition for recognition of foreign judgment would mean that the trial
court and the parties should follow its provisions, including the form and contents of the petition, 51 the service of
summons,52 the investigation of the public prosecutor,53 the setting of pre-trial,54 the trial55 and the judgment of the
trial court.56 This is absurd because it will litigate the case anew. It will defeat the purpose of recognizing foreign
judgments, which is "to limit repetitive litigation on claims and issues."57 The interpretation of the RTC is tantamount to
relitigating the case on the merits. In Mijares v. Rañada,58 this Court explained that "[i]f every judgment of a foreign
court were reviewable on the merits, the plaintiff would be forced back on his/her original cause of action, rendering
immaterial the previously concluded litigation."59

A foreign judgment relating to the status of a marriage affects the civil status, condition and legal capacity of its parties.
However, the effect of a foreign judgment is not automatic. To extend the effect of a foreign judgment in the Philippines,
Philippine courts must determine if the foreign judgment is consistent with domestic public policy and other mandatory
laws.60 Article 15 of the Civil Code provides that "[l]aws relating to family rights and duties, or to the status, condition
and legal capacity of persons are binding upon citizens of the Philippines, even though living abroad." This is the rule
of lex nationalii in private international law. Thus, the Philippine State may require, for effectivity in the Philippines,
recognition by Philippine courts of a foreign judgment affecting its citizen, over whom it exercises personal jurisdiction
relating to the status, condition and legal capacity of such citizen.

A petition to recognize a foreign judgment declaring a marriage void does not require relitigation under a Philippine
court of the case as if it were a new petition for declaration of nullity of marriage. Philippine courts cannot presume to
know the foreign laws under which the foreign judgment was rendered. They cannot substitute their judgment on the
status, condition and legal capacity of the foreign citizen who is under the jurisdiction of another state. Thus, Philippine
courts can only recognize the foreign judgment as a fact according to the rules of evidence.

Section 48(b), Rule 39 of the Rules of Court provides that a foreign judgment or final order against a person creates a
"presumptive evidence of a right as between the parties and their successors in interest by a subsequent title." Moreover,
Section 48 of the Rules of Court states that "the judgment or final order may be repelled by evidence of a want of
jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact." Thus, Philippine courts exercise
limited review on foreign judgments. Courts are not allowed to delve into the merits of a foreign judgment. Once a
foreign judgment is admitted and proven in a Philippine court, it can only be repelled on grounds external to its
merits, i.e. , "want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact." The rule
on limited review embodies the policy of efficiency and the protection of party expectations, 61 as well as respecting the
jurisdiction of other states.62
Since 1922 in Adong v. Cheong Seng Gee,63 Philippine courts have recognized foreign divorce decrees between a Filipino
and a foreign citizen if they are successfully proven under the rules of evidence. 64 Divorce involves the dissolution of a
marriage, but the recognition of a foreign divorce decree does not involve the extended procedure under A.M. No. 02-
11-10-SC or the rules of ordinary trial. While the Philippines does not have a divorce law, Philippine courts may, however,
recognize a foreign divorce decree under the second paragraph of Article 26 of the Family Code, to capacitate a Filipino
citizen to remarry when his or her foreign spouse obtained a divorce decree abroad.65

There is therefore no reason to disallow Fujiki to simply prove as a fact the Japanese Family Court judgment nullifying
the marriage between Marinay and Maekara on the ground of bigamy. While the Philippines has no divorce law, the
Japanese Family Court judgment is fully consistent with Philippine public policy, as bigamous marriages are declared
void from the beginning under Article 35(4) of the Family Code. Bigamy is a crime under Article 349 of the Revised
Penal Code. Thus, Fujiki can prove the existence of the Japanese Family Court judgment in accordance with Rule 132,
Sections 24 and 25, in relation to Rule 39, Section 48(b) of the Rules of Court.

II.

Since the recognition of a foreign judgment only requires proof of fact of the judgment, it may be made in a special
proceeding for cancellation or correction of entries in the civil registry under Rule 108 of the Rules of Court. Rule 1,
Section 3 of the Rules of Court provides that "[a] special proceeding is a remedy by which a party seeks to establish a
status, a right, or a particular fact." Rule 108 creates a remedy to rectify facts of a person’s life which are recorded by
the State pursuant to the Civil Register Law or Act No. 3753. These are facts of public consequence such as birth, death
or marriage,66 which the State has an interest in recording. As noted by the Solicitor General, in Corpuz v. Sto.
Tomas this Court declared that "[t]he recognition of the foreign divorce decree may be made in a Rule 108 proceeding
itself, as the object of special proceedings (such as that in Rule 108 of the Rules of Court) is precisely to establish the
status or right of a party or a particular fact."67

Rule 108, Section 1 of the Rules of Court states:

Sec. 1. Who may file petition. — Any person interested in any act, event, order or decree concerning the civil
status of persons which has been recorded in the civil register, may file a verified petition for the cancellation or
correction of any entry relating thereto, with the Regional Trial Court of the province where the corresponding civil
registry is located. (Emphasis supplied)

Fujiki has the personality to file a petition to recognize the Japanese Family Court judgment nullifying the marriage
between Marinay and Maekara on the ground of bigamy because the judgment concerns his civil status as married to
Marinay. For the same reason he has the personality to file a petition under Rule 108 to cancel the entry of marriage
between Marinay and Maekara in the civil registry on the basis of the decree of the Japanese Family Court.

There is no doubt that the prior spouse has a personal and material interest in maintaining the integrity of the marriage
he contracted and the property relations arising from it. There is also no doubt that he is interested in the cancellation
of an entry of a bigamous marriage in the civil registry, which compromises the public record of his marriage. The
interest derives from the substantive right of the spouse not only to preserve (or dissolve, in limited instances68) his
most intimate human relation, but also to protect his property interests that arise by operation of law the moment he
contracts marriage.69 These property interests in marriage include the right to be supported "in keeping with the financial
capacity of the family"70 and preserving the property regime of the marriage.71

Property rights are already substantive rights protected by the Constitution,72 but a spouse’s right in a marriage extends
further to relational rights recognized under Title III ("Rights and Obligations between Husband and Wife") of the Family
Code.73 A.M. No. 02-11-10-SC cannot "diminish, increase, or modify" the substantive right of the spouse to maintain
the integrity of his marriage.74 In any case, Section 2(a) of A.M. No. 02-11-10-SC preserves this substantive right by
limiting the personality to sue to the husband or the wife of the union recognized by law.

Section 2(a) of A.M. No. 02-11-10-SC does not preclude a spouse of a subsisting marriage to question the validity of a
subsequent marriage on the ground of bigamy. On the contrary, when Section 2(a) states that "[a] petition for
declaration of absolute nullity of void marriage may be filed solely by the husband or the wife"75—it refers to the
husband or the wife of the subsisting marriage. Under Article 35(4) of the Family Code, bigamous marriages are void
from the beginning. Thus, the parties in a bigamous marriage are neither the husband nor the wife under the law. The
husband or the wife of the prior subsisting marriage is the one who has the personality to file a petition for declaration
of absolute nullity of void marriage under Section 2(a) of A.M. No. 02-11-10-SC.

Article 35(4) of the Family Code, which declares bigamous marriages void from the beginning, is the civil aspect of
Article 349 of the Revised Penal Code,76 which penalizes bigamy. Bigamy is a public crime. Thus, anyone can initiate
prosecution for bigamy because any citizen has an interest in the prosecution and prevention of crimes. 77 If anyone can
file a criminal action which leads to the declaration of nullity of a bigamous marriage,78 there is more reason to confer
personality to sue on the husband or the wife of a subsisting marriage. The prior spouse does not only share in the
public interest of prosecuting and preventing crimes, he is also personally interested in the purely civil aspect of
protecting his marriage.

When the right of the spouse to protect his marriage is violated, the spouse is clearly an injured party and is therefore
interested in the judgment of the suit.79 Juliano-Llave ruled that the prior spouse "is clearly the aggrieved party as the
bigamous marriage not only threatens the financial and the property ownership aspect of the prior marriage but most
of all, it causes an emotional burden to the prior spouse."80 Being a real party in interest, the prior spouse is entitled to
sue in order to declare a bigamous marriage void. For this purpose, he can petition a court to recognize a foreign
judgment nullifying the bigamous marriage and judicially declare as a fact that such judgment is effective in the
Philippines. Once established, there should be no more impediment to cancel the entry of the bigamous marriage in the
civil registry.

III.
In Braza v. The City Civil Registrar of Himamaylan City, Negros Occidental, this Court held that a "trial court has no
jurisdiction to nullify marriages" in a special proceeding for cancellation or correction of entry under Rule 108 of the
Rules of Court.81 Thus, the "validity of marriage[] x x x can be questioned only in a direct action" to nullify the
marriage.82 The RTC relied on Braza in dismissing the petition for recognition of foreign judgment as a collateral attack
on the marriage between Marinay and Maekara.

Braza is not applicable because Braza does not involve a recognition of a foreign judgment nullifying a bigamous
marriage where one of the parties is a citizen of the foreign country.

To be sure, a petition for correction or cancellation of an entry in the civil registry cannot substitute for an action to
invalidate a marriage. A direct action is necessary to prevent circumvention of the substantive and procedural safeguards
of marriage under the Family Code, A.M. No. 02-11-10-SC and other related laws. Among these safeguards are the
requirement of proving the limited grounds for the dissolution of marriage, 83 support pendente lite of the spouses and
children,84 the liquidation, partition and distribution of the properties of the spouses,85 and the investigation of the public
prosecutor to determine collusion.86 A direct action for declaration of nullity or annulment of marriage is also necessary
to prevent circumvention of the jurisdiction of the Family Courts under the Family Courts Act of 1997 (Republic Act No.
8369), as a petition for cancellation or correction of entries in the civil registry may be filed in the Regional Trial Court
"where the corresponding civil registry is located."87 In other words, a Filipino citizen cannot dissolve his marriage by
the mere expedient of changing his entry of marriage in the civil registry.

However, this does not apply in a petition for correction or cancellation of a civil registry entry based on the recognition
of a foreign judgment annulling a marriage where one of the parties is a citizen of the foreign country. There is neither
circumvention of the substantive and procedural safeguards of marriage under Philippine law, nor of the jurisdiction of
Family Courts under R.A. No. 8369. A recognition of a foreign judgment is not an action to nullify a marriage. It is an
action for Philippine courts to recognize the effectivity of a foreign judgment, which presupposes a case which was
already tried and decided under foreign law. The procedure in A.M. No. 02-11-10-SC does not apply in a petition
to recognize a foreign judgment annulling a bigamous marriage where one of the parties is a citizen of the foreign
country. Neither can R.A. No. 8369 define the jurisdiction of the foreign court.

Article 26 of the Family Code confers jurisdiction on Philippine courts to extend the effect of a foreign divorce decree to
a Filipino spouse without undergoing trial to determine the validity of the dissolution of the marriage. The second
paragraph of Article 26 of the Family Code provides that "[w]here a marriage between a Filipino citizen and a foreigner
is validly celebrated and a divorce is thereafter validly obtained abroad by the alien spouse capacitating him or her to
remarry, the Filipino spouse shall have capacity to remarry under Philippine law." In Republic v. Orbecido,88 this Court
recognized the legislative intent of the second paragraph of Article 26 which is "to avoid the absurd situation where the
Filipino spouse remains married to the alien spouse who, after obtaining a divorce, is no longer married to the Filipino
spouse"89 under the laws of his or her country. The second paragraph of Article 26 of the Family Code only authorizes
Philippine courts to adopt the effects of a foreign divorce decree precisely because the Philippines does not allow divorce.
Philippine courts cannot try the case on the merits because it is tantamount to trying a case for divorce.

The second paragraph of Article 26 is only a corrective measure to address the anomaly that results from a marriage
between a Filipino, whose laws do not allow divorce, and a foreign citizen, whose laws allow divorce. The anomaly
consists in the Filipino spouse being tied to the marriage while the foreign spouse is free to marry under the laws of his
or her country. The correction is made by extending in the Philippines the effect of the foreign divorce decree, which is
already effective in the country where it was rendered. The second paragraph of Article 26 of the Family Code is based
on this Court’s decision in Van Dorn v. Romillo90 which declared that the Filipino spouse "should not be discriminated
against in her own country if the ends of justice are to be served."91

The principle in Article 26 of the Family Code applies in a marriage between a Filipino and a foreign citizen who obtains
a foreign judgment nullifying the marriage on the ground of bigamy. The Filipino spouse may file a petition abroad to
declare the marriage void on the ground of bigamy. The principle in the second paragraph of Article 26 of the Family
Code applies because the foreign spouse, after the foreign judgment nullifying the marriage, is capacitated to remarry
under the laws of his or her country. If the foreign judgment is not recognized in the Philippines, the Filipino spouse will
be discriminated—the foreign spouse can remarry while the Filipino spouse cannot remarry.

Under the second paragraph of Article 26 of the Family Code, Philippine courts are empowered to correct a situation
where the Filipino spouse is still tied to the marriage while the foreign spouse is free to marry. Moreover, notwithstanding
Article 26 of the Family Code, Philippine courts already have jurisdiction to extend the effect of a foreign judgment in
the Philippines to the extent that the foreign judgment does not contravene domestic public policy. A critical difference
between the case of a foreign divorce decree and a foreign judgment nullifying a bigamous marriage is that bigamy, as
a ground for the nullity of marriage, is fully consistent with Philippine public policy as expressed in Article 35(4) of the
Family Code and Article 349 of the Revised Penal Code. The Filipino spouse has the option to undergo full trial by filing
a petition for declaration of nullity of marriage under A.M. No. 02-11-10-SC, but this is not the only remedy available
to him or her. Philippine courts have jurisdiction to recognize a foreign judgment nullifying a bigamous marriage, without
prejudice to a criminal prosecution for bigamy.

In the recognition of foreign judgments, Philippine courts are incompetent to substitute their judgment on how a case
was decided under foreign law. They cannot decide on the "family rights and duties, or on the status, condition and
legal capacity" of the foreign citizen who is a party to the foreign judgment. Thus, Philippine courts are limited to the
question of whether to extend the effect of a foreign judgment in the Philippines. In a foreign judgment relating to the
status of a marriage involving a citizen of a foreign country, Philippine courts only decide whether to extend its effect
to the Filipino party, under the rule of lex nationalii expressed in Article 15 of the Civil Code.

For this purpose, Philippine courts will only determine (1) whether the foreign judgment is inconsistent with an overriding
public policy in the Philippines; and (2) whether any alleging party is able to prove an extrinsic ground to repel the
foreign judgment, i.e. want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.
If there is neither inconsistency with public policy nor adequate proof to repel the judgment, Philippine courts should,
by default, recognize the foreign judgment as part of the comity of nations. Section 48(b), Rule 39 of the Rules of Court
states that the foreign judgment is already "presumptive evidence of a right between the parties." Upon recognition of
the foreign judgment, this right becomes conclusive and the judgment serves as the basis for the correction or
cancellation of entry in the civil registry. The recognition of the foreign judgment nullifying a bigamous marriage is a
subsequent event that establishes a new status, right and fact92 that needs to be reflected in the civil registry. Otherwise,
there will be an inconsistency between the recognition of the effectivity of the foreign judgment and the public records
in the Philippines.1âwphi1

However, the recognition of a foreign judgment nullifying a bigamous marriage is without prejudice to prosecution for
bigamy under Article 349 of the Revised Penal Code.93 The recognition of a foreign judgment nullifying a bigamous
marriage is not a ground for extinction of criminal liability under Articles 89 and 94 of the Revised Penal Code. Moreover,
under Article 91 of the Revised Penal Code, "[t]he term of prescription [of the crime of bigamy] shall not run when the
offender is absent from the Philippine archipelago."

Since A.M. No. 02-11-10-SC is inapplicable, the Court no longer sees the need to address the questions on venue and
the contents and form of the petition under Sections 4 and 5, respectively, of A.M. No. 02-11-10-SC.

WHEREFORE, we GRANT the petition. The Order dated 31 January 2011 and the Resolution dated 2 March 2011 of
the Regional Trial Court, Branch 107, Quezon City, in Civil Case No. Q-11-68582 are REVERSED and SET ASIDE. The
Regional Trial Court is ORDERED to REINSTATE the petition for further proceedings in accordance with this Decision.
SO ORDERED.
G.R. No. L-4113 June 30, 1952

Testamentary of the late William R. Giberson. LELA G. DALTON, applicant-appellant,

vs.

SPRING GIBERSON, Opposition-Appeal.

The facts are listed in the Court's decision.

Mr C. Johnston and Mr P. Deen representing the appellant.

D. Francisco E. F. Remotique in representation of the appellee.

PABLO, J .:

On February 10, 1949, Lela G. Dalton filed a petition with the Court of First Instance of Cebupidiendo the legalization of
a document which, according to her claims, is a wording of William R. Giberson, granted on April 29, 1920, in San
Francisco, California; that Giberson was a citizen of the state of Illinois, United States, and resident of Cebu; and who
died on August 6, 1943 in the concentration camp of the University of Sto, Tomas, Manila, Philippines.

Spring Giberson, the legitimate son of William R. Giberson, presented an opposition claiming that the will is apocryphal;
which does not represent the true will of the late Giberson: and has not been granted according to law.

On July 1, 1949, the petitioner lodged a motion requesting the dismissal of the petition alleging that, before a testament
granted in a foreign country may be legalized in the Philippine Islands, it must be shown that said will had been
previously legalized in that country , in accordance with Article 1 of Rule 78; that the application does not claim that
the will had already been legalized in California.

The applicant objected to the motion of dismissal. On June 20, 1950, the Judge dismissed the request, stating: "...
under our existing rules only those provisions that have previously been proved and allowed in the United States, or
any state or territory thereof, or any foreign country, according to to the laws of such state, territory, or country, may
be allowed, filed or recorded in the proper court of first instance in the Philippines. Against this order the applicant
appeals.

The opponent, in support of his theory, maintains that Article 635 of the Code of Civil Procedure has been repealed by
Rule 78, by virtue of section 13, Article VIII of the Constitution. Said Article 635 of the Code of Civil Procedure reads as
follows:

A testament granted outside the Philippine Islands, which may be authenticated and legalized under the laws of the
state or country in which it was granted, may be authenticated, legalized and registered in the Philippine Islands, and
shall have the same efficacy as if granted in accordance with the laws of these Islands.

This article has been applied in the case of Babcock Templeton against Rider Babcock, 52 Jur. Fil., 134, in which it was
declared that the testament granted in California and that could be legalized in that state, may be legalized in the
Philippines. In Varela's case against Varela Calderon, 57 Jur. Fil., 291, the testament granted in Paris, France, by the
late Dr. Francisco Varela Calderon was legalized because it was a testament that could be legalized in accordance with
the laws of France.

A person can dispose of his property for after his death by will. The granting of a will is a legal act that can be performed
in the Philippines or abroad; if it is granted in a foreign country, it must be done in accordance with the laws of that
country, which is a universally adopted rule.

The foreigner may dispose of his property in the Philippines after his death by testament and is not obliged to do so in
the Philippines; he may do so in his own country or in another, but in accordance with the laws of the country in which
he grants it. Article 635 of the Code of Civil Procedure, respecting the testator's freedom to grant his will anywhere,
provides that a testament that may be legalized in a foreign country in accordance with the laws of that country may
also be legalized in the Philippines. This provision is substantive, it creates the rights of the beneficiaries of the will:
they are assured to be able to legalize in the Philippines the wills granted outside the Islands if they can be legalized in
the country in which they were granted, giving them cause of action to request the legal compliance of the last will of
the testator whatever the place of its granting. Sinesa disposition would be truncated the faculty of testing.
In amending this Court the Code of Civil Procedure, only amending the procedural part, but not the substantive part.
"The substantive law can not be amended by procedural rules." (Reyes v. Widow of Light, § 16 Lawyer Journal, 623.)
For this reason, article 635 of the Code of Civil Procedure is still subsisting as a substantive right.

And Article 637 states: "The wills authenticated and legalized in the United States, or in any state or territory thereof,
or in a foreign state or country, in accordance with the laws of said state, territory or country, may be legalized, recorded
and filed in the Court of First Instance of the province in which the testator has movable property or real estate effected
by said wills. "This articulation is in conflict with article 635, in fact, is nothing more than its corollary.If a testament
granted in a foreign country which may be legalized in accordance with the laws of that country may also be legalized
in the Philippine Islands, with more reason, wills already legalized in foreign countries in accordance with the laws of
those countries may also be legalized in the Philippines.

Article 1 of Rule 78 is nothing more than a transplantation of Article 637 of the Code of Civil Procedure. We reproduce
the two provisions:

RULE 78, - SECTION 1. Wills provided outside Philippines may be allowed here. - Wills proved and allowed in a foreign
country, according to the laws of such country, may be allowed, filed, and recorded by the proper Court of First Instance
in the Philippines.

SEC. 637. Wills proved outside islands may be allowed here. - Wills proved and allowed in the United States, or any
State or Territory thereof, or in a foreign state or country, according to the laws of such State, Territory, or country,
may be allowed, filed, and recorded in the Court of First Instance of the province in which the testator has actual or
personal estate on which may operate.

The words underlined in the second provision are those that do not appear in the first.

Article 1 of Rule 78 does not prevent a testament granted in a foreign country from being legalized in the Philippines if
it can be legalized in accordance with the laws of that country, nor does it require that it be legalized in that country in
advance. Therefore, the theory of the opponent is unsustainable.

The order appealed against is revoked against the appellee.

G.R. No. L-22595 November 1, 1927

Testate Estate of Joseph G. Brimo, JUAN MICIANO, administrator, petitioner-appellee,

vs.
ANDRE BRIMO, opponent-appellant.

Ross, Lawrence and Selph for appellant.

Camus and Delgado for appellee.

ROMUALDEZ, J.:

The partition of the estate left by the deceased Joseph G. Brimo is in question in this case.

The judicial administrator of this estate filed a scheme of partition. Andre Brimo, one of the brothers of the deceased,
opposed it. The court, however, approved it.

The errors which the oppositor-appellant assigns are:

(1) The approval of said scheme of partition; (2) denial of his participation in the inheritance; (3) the denial of the
motion for reconsideration of the order approving the partition; (4) the approval of the purchase made by the Pietro
Lana of the deceased's business and the deed of transfer of said business; and (5) the declaration that the Turkish laws
are impertinent to this cause, and the failure not to postpone the approval of the scheme of partition and the delivery
of the deceased's business to Pietro Lanza until the receipt of the depositions requested in reference to the Turkish laws.

The appellant's opposition is based on the fact that the partition in question puts into effect the provisions of Joseph G.
Brimo's will which are not in accordance with the laws of his Turkish nationality, for which reason they are void as being
in violation or article 10 of the Civil Code which, among other things, provides the following:

Nevertheless, legal and testamentary successions, in respect to the order of succession as well as to the amount
of the successional rights and the intrinsic validity of their provisions, shall be regulated by the national law of
the person whose succession is in question, whatever may be the nature of the property or the country in which
it may be situated.

But the fact is that the oppositor did not prove that said testimentary dispositions are not in accordance with the Turkish
laws, inasmuch as he did not present any evidence showing what the Turkish laws are on the matter, and in the absence
of evidence on such laws, they are presumed to be the same as those of the Philippines. (Lim and Lim vs. Collector of
Customs, 36 Phil., 472.)

It has not been proved in these proceedings what the Turkish laws are. He, himself, acknowledges it when he desires
to be given an opportunity to present evidence on this point; so much so that he assigns as an error of the court in not
having deferred the approval of the scheme of partition until the receipt of certain testimony requested regarding the
Turkish laws on the matter.

The refusal to give the oppositor another opportunity to prove such laws does not constitute an error. It is discretionary
with the trial court, and, taking into consideration that the oppositor was granted ample opportunity to introduce
competent evidence, we find no abuse of discretion on the part of the court in this particular. There is, therefore, no
evidence in the record that the national law of the testator Joseph G. Brimo was violated in the testamentary dispositions
in question which, not being contrary to our laws in force, must be complied with and executed. lawphil.net

Therefore, the approval of the scheme of partition in this respect was not erroneous.

In regard to the first assignment of error which deals with the exclusion of the herein appellant as a legatee, inasmuch
as he is one of the persons designated as such in will, it must be taken into consideration that such exclusion is based
on the last part of the second clause of the will, which says:

Second. I like desire to state that although by law, I am a Turkish citizen, this citizenship having been conferred
upon me by conquest and not by free choice, nor by nationality and, on the other hand, having resided for a
considerable length of time in the Philippine Islands where I succeeded in acquiring all of the property that I
now possess, it is my wish that the distribution of my property and everything in connection with this, my will,
be made and disposed of in accordance with the laws in force in the Philippine islands, requesting all of my
relatives to respect this wish, otherwise, I annul and cancel beforehand whatever disposition found in this will
favorable to the person or persons who fail to comply with this request.

The institution of legatees in this will is conditional, and the condition is that the instituted legatees must respect the
testator's will to distribute his property, not in accordance with the laws of his nationality, but in accordance with the
laws of the Philippines.

If this condition as it is expressed were legal and valid, any legatee who fails to comply with it, as the herein oppositor
who, by his attitude in these proceedings has not respected the will of the testator, as expressed, is prevented from
receiving his legacy.

The fact is, however, that the said condition is void, being contrary to law, for article 792 of the civil Code provides the
following:

Impossible conditions and those contrary to law or good morals shall be considered as not imposed and shall
not prejudice the heir or legatee in any manner whatsoever, even should the testator otherwise provide.
And said condition is contrary to law because it expressly ignores the testator's national law when, according to article
10 of the civil Code above quoted, such national law of the testator is the one to govern his testamentary dispositions.

Said condition then, in the light of the legal provisions above cited, is considered unwritten, and the institution of
legatees in said will is unconditional and consequently valid and effective even as to the herein oppositor.

It results from all this that the second clause of the will regarding the law which shall govern it, and to the condition
imposed upon the legatees, is null and void, being contrary to law.

All of the remaining clauses of said will with all their dispositions and requests are perfectly valid and effective it not
appearing that said clauses are contrary to the testator's national law.

Therefore, the orders appealed from are modified and it is directed that the distribution of this estate be made in such
a manner as to include the herein appellant Andre Brimo as one of the legatees, and the scheme of partition submitted
by the judicial administrator is approved in all other respects, without any pronouncement as to costs. So ordered.
G.R. No. L-12105 January 30, 1960

TESTATE ESTATE OF C. O. BOHANAN, deceased. PHILIPPINE TRUST CO., executor-appellee,

vs.
MAGDALENA C. BOHANAN, EDWARD C. BOHANAN, and MARY LYDIA BOHANAN, oppositors-appellants.

Jose D. Cortes for appellants.

Ohnick, Velilla and Balonkita for appellee.

LABRADOR, J.:

Appeal against an order of the Court of First Instance of Manila, Hon. Ramon San Jose, presiding, dismissing the
objections filed by Magdalena C. Bohanan, Mary Bohanan and Edward Bohanan to the project of partition submitted by
the executor and approving the said project.

On April 24, 195 0, the Court of First Instance of Manila, Hon. Rafael Amparo, presiding, admitted to probate a last will
and testament of C. O. Bohanan, executed by him on April 23, 1944 in Manila. In the said order, the court made the
following findings:

According to the evidence of the opponents the testator was born in Nebraska and therefore a citizen of that
state, or at least a citizen of California where some of his properties are located. This contention in untenable.
Notwithstanding the long residence of the decedent in the Philippines, his stay here was merely temporary, and
he continued and remained to be a citizen of the United States and of the state of his pertinent residence to
spend the rest of his days in that state. His permanent residence or domicile in the United States depended
upon his personal intent or desire, and he selected Nevada as his homicide and therefore at the time of his
death, he was a citizen of that state. Nobody can choose his domicile or permanent residence for him. That is
his exclusive personal right.

Wherefore, the court finds that the testator C. O. Bohanan was at the time of his death a citizen of the United
States and of the State of Nevada and declares that his will and testament, Exhibit A, is fully in accordance with
the laws of the state of Nevada and admits the same to probate. Accordingly, the Philippine Trust Company,
named as the executor of the will, is hereby appointed to such executor and upon the filing of a bond in the
sum of P10,000.00, let letters testamentary be issued and after taking the prescribed oath, it may enter upon
the execution and performance of its trust. (pp. 26-27, R.O.A.).

It does not appear that the order granting probate was ever questions on appeal. The executor filed a project of partition
dated January 24, 1956, making, in accordance with the provisions of the will, the following adjudications: (1) one-half
of the residuary estate, to the Farmers and Merchants National Bank of Los Angeles, California, U.S.A. in trust only for
the benefit of testator's grandson Edward George Bohanan, which consists of several mining companies; (2) the other
half of the residuary estate to the testator's brother, F.L. Bohanan, and his sister, Mrs. M. B. Galbraith, share and share
alike. This consist in the same amount of cash and of shares of mining stock similar to those given to testator's grandson;
(3) legacies of P6,000 each to his (testator) son, Edward Gilbert Bohana, and his daughter, Mary Lydia Bohanan, to be
paid in three yearly installments; (4) legacies to Clara Daen, in the amount of P10,000.00; Katherine Woodward, P2,000;
Beulah Fox, P4,000; and Elizabeth Hastings, P2,000;

It will be seen from the above that out of the total estate (after deducting administration expenses) of P211,639.33 in
cash, the testator gave his grandson P90,819.67 and one-half of all shares of stock of several mining companies and to
his brother and sister the same amount. To his children he gave a legacy of only P6,000 each, or a total of P12,000.

The wife Magadalena C. Bohanan and her two children question the validity of the testamentary provisions disposing of
the estate in the manner above indicated, claiming that they have been deprived of the legitimate that the laws of the
form concede to them.

The first question refers to the share that the wife of the testator, Magdalena C. Bohanan, should be entitled to received.
The will has not given her any share in the estate left by the testator. It is argued that it was error for the trial court to
have recognized the Reno divorce secured by the testator from his Filipino wife Magdalena C. Bohanan, and that said
divorce should be declared a nullity in this jurisdiction, citing the case of Querubin vs.Querubin, 87 Phil., 124, 47 Off.
Gaz., (Sup, 12) 315, Cousins Hiz vs. Fluemer, 55 Phil., 852, Ramirez vs. Gmur, 42 Phil., 855 and Gorayeb vs. Hashim,
50 Phil., 22. The court below refused to recognize the claim of the widow on the ground that the laws of Nevada, of
which the deceased was a citizen, allow him to dispose of all of his properties without requiring him to leave any portion
of his estate to his wife. Section 9905 of Nevada Compiled Laws of 1925 provides:

Every person over the age of eighteen years, of sound mind, may, by last will, dispose of all his or her estate,
real and personal, the same being chargeable with the payment of the testator's debts.

Besides, the right of the former wife of the testator, Magdalena C. Bohanan, to a share in the testator's estafa had
already been passed upon adversely against her in an order dated June 19, 1955, (pp. 155-159, Vol II Records, Court
of First Instance), which had become final, as Magdalena C. Bohanan does not appear to have appealed therefrom to
question its validity. On December 16, 1953, the said former wife filed a motion to withdraw the sum of P20,000 from
the funds of the estate, chargeable against her share in the conjugal property, (See pp. 294-297, Vol. I, Record, Court
of First Instance), and the court in its said error found that there exists no community property owned by the decedent
and his former wife at the time the decree of divorce was issued. As already and Magdalena C. Bohanan may no longer
question the fact contained therein, i.e. that there was no community property acquired by the testator and Magdalena
C. Bohanan during their converture.

Moreover, the court below had found that the testator and Magdalena C. Bohanan were married on January 30, 1909,
and that divorce was granted to him on May 20, 1922; that sometime in 1925, Magdalena C. Bohanan married Carl
Aaron and this marriage was subsisting at the time of the death of the testator. Since no right to share in the inheritance
in favor of a divorced wife exists in the State of Nevada and since the court below had already found that there was no
conjugal property between the testator and Magdalena C. Bohanan, the latter can now have no longer claim to pay
portion of the estate left by the testator.

The most important issue is the claim of the testator's children, Edward and Mary Lydia, who had received legacies in
the amount of P6,000 each only, and, therefore, have not been given their shares in the estate which, in accordance
with the laws of the forum, should be two-thirds of the estate left by the testator. Is the failure old the testator to give
his children two-thirds of the estate left by him at the time of his death, in accordance with the laws of the forum valid?

The old Civil Code, which is applicable to this case because the testator died in 1944, expressly provides that successional
rights to personal property are to be earned by the national law of the person whose succession is in question. Says the
law on this point:

Nevertheless, legal and testamentary successions, in respect to the order of succession as well as to the extent
of the successional rights and the intrinsic validity of their provisions, shall be regulated by the national law of
the person whose succession is in question, whatever may be the nature of the property and the country in
which it is found. (par. 2, Art. 10, old Civil Code, which is the same as par. 2 Art. 16, new Civil Code.)

In the proceedings for the probate of the will, it was found out and it was decided that the testator was a citizen of the
State of Nevada because he had selected this as his domicile and his permanent residence. (See Decision dated April
24, 1950, supra). So the question at issue is whether the estementary dispositions, especially hose for the children
which are short of the legitime given them by the Civil Code of the Philippines, are valid. It is not disputed that the laws
of Nevada allow a testator to dispose of all his properties by will (Sec. 9905, Complied Nevada Laws of 1925, supra). It
does not appear that at time of the hearing of the project of partition, the above-quoted provision was introduced in
evidence, as it was the executor's duly to do. The law of Nevada, being a foreign law can only be proved in our courts
in the form and manner provided for by our Rules, which are as follows:

SEC. 41. Proof of public or official record. — An official record or an entry therein, when admissible for any
purpose, may be evidenced by an official publication thereof or by a copy tested by the officer having the legal
custody of he record, or by his deputy, and accompanied, if the record is not kept in the Philippines, with a
certificate that such officer has the custody. . . . (Rule 123).

We have, however, consulted the records of the case in the court below and we have found that during the hearing on
October 4, 1954 of the motion of Magdalena C. Bohanan for withdrawal of P20,000 as her share, the foreign law,
especially Section 9905, Compiled Nevada Laws. was introduced in evidence by appellant's (herein) counsel as Exhibits
"2" (See pp. 77-79, VOL. II, and t.s.n. pp. 24-44, Records, Court of First Instance). Again said laws presented by the
counsel for the executor and admitted by the Court as Exhibit "B" during the hearing of the case on January 23, 1950
before Judge Rafael Amparo (se Records, Court of First Instance, Vol. 1).

In addition, the other appellants, children of the testator, do not dispute the above-quoted provision of the laws of the
State of Nevada. Under all the above circumstances, we are constrained to hold that the pertinent law of Nevada,
especially Section 9905 of the Compiled Nevada Laws of 1925, can be taken judicial notice of by us, without proof of
such law having been offered at the hearing of the project of partition.

As in accordance with Article 10 of the old Civil Code, the validity of testamentary dispositions are to be governed by
the national law of the testator, and as it has been decided and it is not disputed that the national law of the testator is
that of the State of Nevada, already indicated above, which allows a testator to dispose of all his property according to
his will, as in the case at bar, the order of the court approving the project of partition made in accordance with the
testamentary provisions, must be, as it is hereby affirmed, with costs against appellants.
G.R. No. L-24006 November 25, 1967

JOSEFINA JUANA DE DIOS RAMIREZ MARCAIDA, petitioner-appellant,

vs.
LEONCIO V. AGLUBAT, in his capacity as Deputy Local Civil Registrar of Manila, respondent-appellee.

Jose W. Diokno for petitioner-appellant.

Office of the Solicitor General for respondent-appellee.

SANCHEZ, J.:

Refusal of the Local Civil Registrar of Manila to record an Escritura de Adopcion executed in Madrid, Spain, is now
challenged before this Court on appeal by registrant-adoptee from a judgment of the Court of First Instance of Manila
confirmatory of such refusal.

The disputed deed of adoption had its inception, thus: Prior to October 21, 1958, proceedings for adoption were started
before the Court of First Instance of Madrid, Spain by Maria Garnier Garreau, then 84 years of age, adopting Josefina
Juana de Dios Ramirez Marcaida, 55 years, a citizen of the Philippines. Both were residents of Madrid, Spain. On that
date, October 21, 1958, the court granted the application for adoption and gave the necessary judicial authority, once
the judgment becomes final, to execute the corresponding adoption document "con arreglo al articulo 177 del Codigo
Civil." The adoption document became necessary for the reason that under Article 177 of the Civil Code of Spain,
"[a]probada definitivamente la adopcion por el Juez, se otorgara escritura, expresando en ella las condiciones con que
se haya hecho, y se inscribira en el Registro Civil correspondiente." In compliance, on November 29, 1958, the notarial
document of adoption — which embodies the court order of adoption — whereunder Maria Garnier Garreau formally
adopted petitioner, was executed before Notary Public Braulio Velasco Carrasquedo of Madrid. In that document, Maria
Gernier Garreau instituted petitioner, amongst other conditions as here unica y universal heredera de todos sus bienes,
derechos y acciones, presentes y futuros.

In conformity with our law, this escritura de adopcion was, on December 10, 1953, authenticated by Emilio S. Martinez,
Philippine Vice Consul, Philippine Embassy, Madrid, who issued the corresponding certificate of authentication. 1

The document of adoption was filed in the Office of the Local Civil Registrar of Manila on January 15, 1959. The Registrar,
however, refused to register that document upon the ground that under Philippine law, adoption can only be had through
judicial proceeding. And since the notarial document of adoption is not a judicial proceeding, it is not entitled to
registration.

Failing in her move to reconsider, petitioner went to the Court of First Instance of Manila on mandamus.2 As adverted
to earlier, the mandamus petition did not prosper. The lower court in its decision of February 28, 1964, dismissed said
petition.

Petitioner's lone assignment of error reads: "The lower court erred in declaring the 'escritura de adopcion' as
authenticated by the Philippine Vice Consul in Madrid, Spain, as not registrable in the Philippines."

1. Act 3753 of the Philippine Legislature, entitled "An Act to establish a civil register," in Section 1 thereof, recites that
a "civil register is established for recording the civil status of persons, in which shall be entered," amongst others, "(g)
adoptions." It provides for local civil registrars. Complementary thereto are Article 407 of our Civil Code which commands
that "[a]cts, events and judicial decrees concerning the civil status of persons shall be recorded in the civil register;"
and Article 408 of the same Code which, in language similar, directs that "[t]he following shall be entered in the civil
register: . . . (8) adoptions; . . ." The law is clear. The compulsory tenor of the word "shall" leaves no alternative. It is
a command.

2. But the Solicitor General, hewing to the line drawn by the court below, argues that petitioner's case does not come
within the purview of Article 409 of the Civil Code, which states that:

Art. 409. In cases of legal separation, adoption, naturalization and other judicial orders mentioned in the
preceding article it shall be the duty of the clerk of the court which issued the decree to ascertain whether the
same has been registered, and if this has not been done, to send a copy of said decree to the civil registry of
the city or municipality where the court is functioning.

and Section 11 of Act 3753, which reads:

Sec. 11. Duties of clerks of court to register certain decisions. — In cases of legitimation, acknowledgment,
adoption, naturalization, and change of given or family name, or both, upon the decree of the court becoming
final, it shall be the duty of the clerk of the court which issued the decree to ascertain whether the same has
been registered, and if this has not been done, to have said decree recorded in the office of the civil registrar of
the municipality where the court is functioning.

It is at once apparent that the cited legal provisions refer to adoptions effected in the Philippines. For, indeed, Article
409 of the Civil Code and Section 10 of the Registry Law speak of adoption which shall be registered in the municipality
or city where the court issuing the adoption decree is functioning. But, the trial court concluded that what is registrable
is only adoption obtained through a judgment rendered by a Philippine court.

We are not persuaded to adopt the Government's theory. We are at a loss to understand how it could be concluded that
the structure of the law did not authorize registration of foreign adoptions. We perceive that Article 409 and Section 10
aforesaid were incorporated into the statute books merely to give effect to our law3 which required judicial proceedings
for adoption. Limitation of registration of adoptions to those granted by Philippine courts is a misconception which a
broader view allows us now to correct. For, if registration is to be narrowed down to local adoptions, it is the function
of Congress, not of this Court, to spell out such limitation. We cannot carve out a prohibition where the law does not so
state. Excessive rigidity serves no purpose. And, by Articles 407 and 408 of our Civil Code, the disputed document of
adoption is registrable.

3. No suggestion there is in the record that prejudice to State and adoptee, or any other person for that matter, would
ensue from the adoption here involved. The validity thereof is not under attack. At any rate, whatever may be the effect
of adoption, the rights of the State and adoptee and other persons interested are fully safeguarded by Article 15 of our
Civil Code which, in terms explicit, provides that: "Laws relating to family rights and duties, or to the status, condition
and legal capacity of persons are binding upon citizens of the Philippines even though living abroad."

4. Private international law offers no obstacle to recognition of foreign adoption. This rests on the principle that the
status of adoption, created by the law of a State having jurisdiction to create it, will be given the same effect in another
state as is given by the latter state to the status of adoption when created by its own law. 4It is quite obvious then that
the status of adoption, once created under the proper foreign law, will be recognized in this country, except where public
policy or the interests of its inhabitants forbid its enforcement and demand the substitution of the lex fori. Indeed,
implicit in Article 15 of our Civil Code just quoted, is that the exercise of incidents to foreign adoption "remains subject
to local law."5

It is high time for this Court to formulate a rule on the registration of foreign adoptions. We hold that an adoption
created under the law of a foreign country is entitled to registration in the corresponding civil register of the Philippines.
It is to be understood, however, that the effects of such adoption shall be governed by the laws of this country. 6

Conformably to the foregoing, the lower court's decision of February 28, 1964 dismissing the mandamus petition
appealed from, is hereby reversed; and the Local Civil Registrar of Manila is hereby directed to register the deed of
adoption (Escritura de Adopcion) by Maria Garnier Garreau in favor of petitioner Josefina de Dios Ramirez Marcaida. No
costs. So ordered.
 [G.R. No. 125932. April 21, 1999]

REPUBLIC OF THE PHILIPPINES, petitioner, vs. CLAUDE A. MILLER and JUMRUS S. MILLER, respondents.

DECISION

PARDO, J.:

The Republic of the Philippines, through the Solicitor General, appealed originally to the Court of Appeals from a
decision of the Regional Trial Court, Branch 59, Angeles City, granting the petition of respondent spouses to adopt the
minor Michael Magno Madayag.

In its decision promulgated on April 17, 1996, the Court of Appeals certified the case to the Supreme Court because
the petition raised only questions of law.

By resolution adopted on September 23, 1996, we accepted the appeal. We shall treat the appeal as
one via certiorari from a decision of the Regional Trial Court under the Supreme Court Circular 2-90, dated March 9,
1990, on pure questions of law.

The facts are undisputed and may be related as follows:

On July 29, 1988, the spouses Claude A. Miller and Jumrus S. Miller, filed with the Regional Trial Court, Branch 59,
Angeles City, a verified petition to adopt the minor Michael Magno Madayag.

The trial court scheduled the petition for hearing on September 9, 1988, at 9:00 in the morning. At the hearing,
with the attendance of an assistant city fiscal of Angeles City, in representation of the Solicitor General, respondents
adduced evidence showing that:

"Claude A. Miller, 38 years old and Jumrus S. Miller, 40 years of age, both American citizens, are husband and wife,
having been married on June 21, 1982.

They were childless and "do not expect to have sibling out of their union on account of a medical problem of the wife."

Claude A. Miller was a member of the United States Air Force, as airman first class, assigned at Clark Air Base since
January 26, 1985.

"The family maintains their residence at Don Bonifacio Subdivision, Balibago, Angeles City, since 1985." [1]

"The minor Michael Magno Madayag is the legitimate son of Marcelo S. Madayag, Jr. and Zenaida Magno. Born on July
14, 1987, at San Fernando, La Union, the minor has been in the custody of respondents since the first week of August
1987. Poverty and deep concern for the future of their son prompted the natural parents who have no visible means of
livelihood to have their child adopted by respondents. They executed affidavits giving their irrevocable consent to the
adoption by respondents."

The Department of Social Welfare and Development, through its Regional Office at San Fernando, Pampanga,
recommended approval of the petition on the basis of its evaluation that respondents were morally, emotionally and
financially fit to be adoptive parents and that the adoption would be to the minor's best interest and welfare."[2]

On May 12, 1989, the trial court rendered decision granting the petition for adoption, the dispositive portion of
which reads as follows:

"WHEREFORE, finding that petitioners possess all the qualifications and none of the disqualifications for adoption, the
instant petition is hereby Granted, and this Court decrees the minor MICHAEL MAGNO MADAYAG freed from all obligation
of obedience and support with respect to natural parents and is hereby declared the child of the herein petitioners by
adoption. The minor's surname shall be changed from "MADAYAG" to "MILLER", which is the surname of the herein
petitioners."[3]

In due time, the Solicitor General, in behalf of the Republic, interposed an appeal to the Court of Appeals. As
heretofore stated, the Court of Appeals certified the case to this Court.

The issue raised is whether the court may allow aliens to adopt a Filipino child despite the prohibition under the
Family Code,[4] effective on August 3, 1988[5] when the petition for adoption was filed on July 29, 1988, under the
provision of the Child and Youth Welfare Code[6] which allowed aliens to adopt.

The issue is not new. This Court has ruled that an alien qualified to adopt under the Child and Youth Welfare Code,
which was in force at the time of the filing of the petition, acquired a vested right which could not be affected by the
subsequent enactment of a new law disqualifying him.[7] 7

Consequently, the enactment of the Family Code, effective August 3, 1988, will not impair the right of respondents
who are aliens to adopt a Filipino child because the right has become vested at the time of filing of the petition for
adoption and shall be governed by the law then in force. "A vested right is one whose existence, effectivity and extent
does not depend upon events foreign to the will of the holder. The term expresses the concept of present fixed interest
which in right reason and natural justice should be protected against arbitrary State action, or an innately just and
imperative right which enlightened free society, sensitive to inherent and irrefragable individual rights, cannot
deny."[8] "Vested rights include not only legal or equitable title to the enforcement of a demand, but also an exemption
from new obligations created after the right has vested."[9]

"As long as the petition for adoption was sufficient in form and substance in accordance with the law in governance
at the time it was filed, the court acquires jurisdiction and retains it until it fully disposes of the case. To repeat, the
jurisdiction of the court is determined by the statute in force at the time of the commencement of the action. Such
jurisdiction of a court, whether in criminal or civil cases, once it attaches cannot be ousted by a subsequent happenings
or events, although of a character which would have prevented jurisdiction from attaching in the first instance." [10]

Therefore, an alien who filed a petition for adoption before the effectivity of the Family code, although denied the
right to adopt under Art. 184 of said Code, may continue with his petition under the law prevailing before the Family
Code.[11]

"Adoption statutes, being humane and salutary, hold the interests and welfare of the child to be of paramount
consideration. They are designed to provide homes, parental care and education for unfortunate, needy or orphaned
children and give them the protection of society and family in the person of the adopter, as well as childless couples or
persons to experience the joy of parenthood and give them legally a child in the person of the adopted for the
manifestation of their natural parent instincts. Every reasonable intendment should be sustained to promote and fulfill
these noble and compassionate objectives of the law."[12]

WHEREFORE, we hereby AFFIRM the appealed decision of the Regional Trial Court, Branch 59, Angeles City, in
SP. Proc. No. 3562. No costs. SO ORDERED.
 CARGILL, INC., G.R. No. 168266
Petitioner,

Promulgated:

March 15, 2010

- versus -

INTRA STRATA ASSURANCE

CORPORATION,
Respondent.
x--------------------------------------------------x
DECISION

CARPIO, J.:

The Case

This petition for review[1] assails the 26 May 2005 Decision[2] of the Court of Appeals in CA-G.R. CV No. 48447.

The Facts

Petitioner Cargill, Inc. (petitioner) is a corporation organized and existing under the laws of the State of Delaware,
United States of America. Petitioner and Northern Mindanao Corporation (NMC) executed a contract dated 16 August
1989 whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of molasses, to be delivered from
1 January to 30 June 1990 at the price of $44 per metric ton. The contract provides that petitioner would open a Letter
of Credit with the Bank of Philippine Islands. Under the red clause of the Letter of Credit, NMC was permitted to draw
up to $500,000 representing the minimum price of the contract upon presentation of some documents.

The contract was amended three times: first, on 11 January 1990, increasing the purchase price of the molasses to
$47.50 per metric ton;[3] second, on 18 June 1990, reducing the quantity of the molasses to 10,500 metric tons and
increasing the price to $55 per metric ton;[4] and third, on 22 August 1990, providing for the shipment of 5,250 metric
tons of molasses on the last half of December 1990 through the first half of January 1991, and the balance of 5,250
metric tons on the last half of January 1991 through the first half of February 1991.[5] The third amendment also required
NMC to put up a performance bond equivalent to $451,500, which represents the value of 10,500 metric tons of molasses
computed at $43 per metric ton. The performance bond was intended to guarantee NMCs performance to deliver the
molasses during the prescribed shipment periods according to the terms of the amended contract.

In compliance with the terms of the third amendment of the contract, respondent Intra Strata Assurance Corporation
(respondent) issued on 10 October 1990 a performance bond [6] in the sum of P11,287,500 to guarantee NMCs delivery
of the 10,500 tons of molasses, and a surety bond[7] in the sum of P9,978,125 to guarantee the repayment
of downpayment as provided in the contract.

NMC was only able to deliver 219.551 metric tons of molasses out of the agreed 10,500 metric tons. Thus, petitioner
sent demand letters to respondent claiming payment under the performance and surety bonds. When respondent
refused to pay, petitioner filed on 12 April 1991 a complaint[8] for sum of money against NMC and respondent.

Petitioner, NMC, and respondent entered into a compromise agreement, [9] which the trial court approved in its
Decision[10] dated 13 December 1991. The compromise agreement provides that NMC would pay
petitioner P3,000,000 upon signing of the compromise agreement and would deliver to petitioner 6,991 metric tons of
molasses from 16-31 December 1991. However, NMC still failed to comply with its obligation under the compromise
agreement. Hence, trial proceeded against respondent.

On 23 November 1994, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, judgment is rendered in favor of plaintiff [Cargill, Inc.], ordering defendant INTRA STRATA
ASSURANCE CORPORATION to solidarily pay plaintiff the total amount of SIXTEEN MILLION NINE
HUNDRED NINETY-THREE THOUSAND AND TWO HUNDRED PESOS (P16,993,200.00), Philippine
Currency, with interest at the legal rate from October 10, 1990 until fully paid, plus attorneys fees in
the sum of TWO HUNDRED THOUSAND PESOS (P200,000.00), Philippine Currency and the costs of the
suit.

The Counterclaim of Intra Strata Assurance Corporation is hereby dismissed for lack of merit. SO ORDERED.[11]

On appeal, the Court of Appeals reversed the trial courts decision and dismissed the complaint. Hence, this petition.

The Court of Appeals Ruling

The Court of Appeals held that petitioner does not have the capacity to file this suit since it is a foreign corporation
doing business in the Philippines without the requisite license. The Court of Appeals held that petitioners purchases of
molasses were in pursuance of its basic business and not just mere isolated and incidental transactions.
 The Issues

Petitioner raises the following issues:

1. Whether petitioner is doing or transacting business in the Philippines in contemplation of the law and
established jurisprudence;

2. Whether respondent is estopped from invoking the defense that petitioner has no legal capacity to
sue in the Philippines;

3. Whether petitioner is seeking a review of the findings of fact of the Court of Appeals; and

4. Whether the advance payment of $500,000 was released to NMC without the submission of the
supporting documents required in the contract and the red clause Letter of Credit from which
saidamount was drawn.[12]

The Ruling of the Court

We find the petition meritorious.

Doing Business in the Philippines and Capacity to Sue

The principal issue in this case is whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before

Philippine courts. Under Article 123[13] of the Corporation Code, a foreign corporation must first obtain a license and a

certificate from the appropriate government agency before it can transact business in the Philippines. Where a foreign

corporation does business in the Philippines without the proper license, it cannot maintain any action or proceeding

before Philippine courts as provided under Section 133 of the Corporation Code:

Sec. 133. Doing business without a license. No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.

Thus, the threshold question in this case is whether petitioner was doing business in the Philippines. The Corporation
Code provides no definition for the phrase doing business. Nevertheless, Section 1 of Republic Act No. 5455 (RA
5455),[14] provides that:

x x x the phrase doing business shall include soliciting orders, purchases, service contracts, opening
offices, whether called liaison offices or branches; appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or
periods totalling one hundred eighty days or more; participating in the management, supervision or
control of any domestic business firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and contemplate to that
extent the performance of acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of the purpose and object
of the business organization. (Emphasis supplied)

This is also the exact definition provided under Article 44 of the Omnibus Investments Code of 1987.

Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Investments Act of 1991, which repealed Articles 44-
56 of Book II of the Omnibus Investments Code of 1987, enumerated not only the acts or activities which constitute
doing business but also those activities which are not deemed doing business. Section 3(d) of RA 7042 states:

[T]he phrase doing business shall include soliciting orders, service contracts, opening offices, whether
called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines
or who in any calendar year stay in the country for a period or periods totalling one hundred eighty
(180) days or more; participating in the management, supervision or control of any domestic business,
firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of acts or works,
or the exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization: Provided, however, That the
phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do business, and/or the exercise of rights as such
investor; nor having a nominee director or officer to represent its interests in such corporation; nor
 appointing a representative or distributor domiciled in the Philippines which transacts business in its
own name and for its own account.

Since respondent is relying on Section 133 of the Corporation Code to bar petitioner from maintaining an action in

Philippine courts, respondent bears the burden of proving that petitioners business activities in the Philippines were not

just casual or occasional, but so systematic and regular as to manifest continuity and permanence of activity to

constitute doing business in the Philippines. In this case, we find that respondent failed to prove that petitioners activities

in the Philippines constitute doing business as would prevent it from bringing an action.

The determination of whether a foreign corporation is doing business in the Philippines must be based on the facts of
each case.[15] In the case of Antam Consolidated, Inc. v. CA,[16] in which a foreign corporation filed an action for
collection of sum of money against petitioners therein for damages and loss sustained for the latters failure to deliver
coconut crude oil, the Court emphasized the importance of the element of continuity of commercial activities to
constitute doing business in the Philippines. The Court held:
In the case at bar, the transactions entered into by the respondent with the petitioners are not a series
of commercial dealings which signify an intent on the part of the respondent to do business in the
Philippines but constitute an isolated one which does not fall under the category of doing business. The
records show that the only reason why the respondent entered into the second and third transactions
with the petitioners was because it wanted to recover the loss it sustained from the failure of the
petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter a
chance to make good on their obligation. x x x

x x x The three seemingly different transactions were entered into by the parties only in an effort to
fulfill the basic agreement and in no way indicate an intent on the part of the respondent to engage in
a continuity of transactions with petitioners which will categorize it as a foreign corporation doing
business in the Philippines.[17]

Similarly, in this case, petitioner and NMC amended their contract three times to give a chance to NMC to deliver to

petitioner the molasses, considering that NMC already received the minimum price of the contract. There is no showing

that the transactions between petitioner and NMC signify the intent of petitioner to establish a continuous business or

extend its operations in the Philippines.

The Implementing Rules and Regulations of RA 7042 provide under Section 1(f), Rule I, that doing business does not
include the following acts:

1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do

business, and/or the exercise of rights as such investor;
2. Having a nominee director or officer to represent its interests in such corporation;
3. Appointing a representative or distributor domiciled in the Philippines which transacts business in the
representative's or distributor's own name and account;
4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by another entity
in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be used in the processing of products for
export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as
installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training
domestic workers to operate it, and similar incidental services.

Most of these activities do not bring any direct receipts or profits to the foreign corporation, consistent with the ruling

of this Court in National Sugar Trading Corp. v. CA[18] that activities within Philippine jurisdiction that do not create

earnings or profits to the foreign corporation do not constitute doing business in the Philippines. [19] In that case, the

Court held that it would be inequitable for the National Sugar Trading Corporation, a state-owned corporation, to evade

payment of a legitimate indebtedness owing to the foreign corporation on the plea that the latter should have obtained

a license first before perfecting a contract with the Philippine government. The Court emphasized that the foreign

corporation did not sell sugar and derive income from the Philippines, but merely purchased sugar from the Philippine

government and allegedly paid for it in full.

In this case, the contract between petitioner and NMC involved the purchase of molasses by petitioner from NMC. It

was NMC, the domestic corporation, which derived income from the transaction and not petitioner. To constitute doing

business, the activity undertaken in the Philippines should involve profit-making.[20] Besides, under Section 3(d) of RA

7042, soliciting purchases has been deleted from the enumeration of acts or activities which constitute doing business.

Other factors which support the finding that petitioner is not doing business in the Philippines are: (1) petitioner does

not have an office in the Philippines; (2) petitioner imports products from the Philippines through its non-exclusive local

broker, whose authority to act on behalf of petitioner is limited to soliciting purchases of products from suppliers

engaged in the sugar trade in the Philippines; and (3) the local broker is an independent contractor and not an agent

of petitioner.[21]

As explained by the Court in B. Van Zuiden Bros., Ltd. v. GTVL Marketing Industries, Inc.:[22]

An exporter in one country may export its products to many foreign importing countries without
performing in the importing countries specific commercial acts that would constitute doing business in
the importing countries. The mere act of exporting from ones own country, without doing any specific
commercial act within the territory of the importing country, cannot be deemed as doing business in the
importing country. The importing country does not require jurisdiction over the foreign exporter who
has not yet performed any specific commercial act within the territory of the importing country. Without
jurisdiction over the foreign exporter, the importing country cannot compel the foreign exporter to secure
a license to do business in the importing country.

Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be considered by the importing
countries to be doing business in those countries. This will require Philippine exporters to secure a business license in
every foreign country where they usually export their products, even if they do not perform any specific commercial act
within the territory of such importing countries. Such a legal concept will have deleterious effect not only on Philippine
exports, but also on global trade.

To be doing or transacting business in the Philippines for purposes of Section 133 of the
Corporation Code, the foreign corporation must actually transact business in the Philippines,
that is, perform specific business transactions within the Philippine territory on a continuing
basis in its own name and for its own account. Actual transaction of business within the
Philippine territory is an essential requisite for the Philippines to toacquire jurisdiction over
a foreign corporation and thus require the foreign corporation to secure a Philippine business
license. If a foreign corporation does not transact such kind of business in the Philippines, even if it
exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign
corporation to secure a Philippine business license.[23] (Emphasis supplied)

In the present case, petitioner is a foreign company merely importing molasses from a Philipine exporter. A foreign

company that merely imports goods from a Philippine exporter, without opening an office or appointing an agent in

the Philippines, is not doing business in the Philippines.

Review of Findings of Fact

The Supreme Court may review the findings of fact of the Court of Appeals which are in conflict with the findings of the
trial court.[24] We find that the Court of Appeals finding that petitioner was doing business is not supported by evidence.

Furthermore, a review of the records shows that the trial court was correct in holding that the advance payment of
$500,000 was released to NMC in accordance with the conditions provided under the red clause Letter of Credit from
which said amount was drawn. The Head of the International Operations Department of the Bank of Philippine Islands
testified that the bank would not have paid the beneficiary if the required documents were not complete. It is a requisite
in a documentary credit transaction that the documents should conform to the terms and conditions of the letter of
credit; otherwise, the bank will not pay. The Head of the International Operations Department of the Bank of Philippine
Islands also testified that they received reimbursement from the issuing bank for the $500,000 withdrawn by
NMC.[25]Thus, respondent had no legitimate reason to refuse payment under the performance and surety bonds when
NMC failed to perform its part under its contract with petitioner.

WHEREFORE , we GRANT the petition. We REVERSE the Decision dated 26 May 2005 of the Court of Appeals in CA-
G.R. CV No. 48447. We REINSTATE the Decision dated 23 November 1994 of the trial court. SO ORDERED.
 STEELCASE, INC., G.R. No. 171995
Petitioner,

- versus -

DESIGN INTERNATIONAL
Promulgated:
SELECTIONS, INC.,

Respondent.

April 18, 2012

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

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 assailing the March 31, 2005 Decision [1] of the Court of

Appeals (CA) which affirmed the May 29, 2000 Order[2] of the Regional Trial Court, Branch 60, Makati City (RTC),

dismissing the complaint for sum of money in Civil Case No. 99-122 entitled Steelcase, Inc. v. Design International
Selections, Inc.

The Facts

Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation existing under the laws of Michigan, United States of

America (U.S.A.), and engaged in the manufacture of office furniture with dealers worldwide. [3] Respondent Design

International Selections, Inc. (DISI) is a corporation existing under Philippine Laws and engaged in the furniture
business, including the distribution of furniture.[4]

Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement whereby Steelcase granted

DISI the right to market, sell, distribute, install, and service its products to end-user customers within

the Philippines. The business relationship continued smoothly until it was terminated sometime in January 1999 after
the agreement was breached with neither party admitting any fault.[5]

On January 18, 1999, Steelcase filed a complaint [6] for sum of money against DISI alleging, among others, that DISI

had an unpaid account of US$600,000.00. Steelcase prayed that DISI be ordered to pay actual or compensatory
damages, exemplary damages, attorneys fees, and costs of suit.

In its Answer with Compulsory Counterclaims[7] dated February 4, 1999, DISI sought the following: (1) the

issuance of a temporary restraining order (TRO) and a writ of preliminary injunction to enjoin Steelcase from selling its

products in the Philippines except through DISI; (2) the dismissal of the complaint for lack of merit; and (3) the payment

of actual, moral and exemplary damages together with attorneys fees and expenses of litigation. DISI alleged that the

complaint failed to state a cause of action and to contain the required allegations on Steelcases capacity to sue in

the Philippines despite the fact that it (Steelcase) was doing business in the Philippines without the required license to

do so. Consequently, it posited that the complaint should be dismissed because of Steelcases lack of legal capacity to
sue in Philippine courts.
 On March 3, 1999, Steelcase filed its Motion to Admit Amended Complaint [8] which was granted by the RTC,

through then Acting Presiding Judge Roberto C. Diokno, in its Order [9] dated April 26, 1999. However, Steelcase sought
to further amend its complaint by filing a Motion to Admit Second Amended Complaint [10] on March 13, 1999.

In his Order[11] dated November 15, 1999, Acting Presiding Judge Bonifacio Sanz Maceda dismissed the

complaint, granted the TRO prayed for by DISI, set aside the April 26, 1999 Order of the RTC admitting the Amended

Complaint, and denied Steelcases Motion to Admit Second Amended Complaint. The RTC stated that in requiring DISI

to meet the Dealer Performance Expectation and in terminating the dealership agreement with DISI based on its failure

to improve its performance in the areas of business planning, organizational structure, operational effectiveness, and

efficiency, Steelcase unwittingly revealed that it participated in the operations of DISI. It then concluded that Steelcase

was doing business in the Philippines, as contemplated by Republic Act (R.A.) No. 7042 (The Foreign Investments Act

of 1991), and since it did not have the license to do business in the country, it was barred from seeking redress from

our courts until it obtained the requisite license to do so. Its determination was further bolstered by the appointment

by Steelcase of a representative in the Philippines. Finally, despite a showing that DISI transacted with the local

customers in its own name and for its own account, it was of the opinion that any doubt in the factual environment

should be resolved in favor of a pronouncement that a foreign corporation was doing business in the Philippines,
considering the twelve-year period that DISI had been distributing Steelcase products in the Philippines.

Steelcase moved for the reconsideration of the questioned Order but the motion was denied by the RTC in
its May 29, 2000 Order.[12]

Aggrieved, Steelcase elevated the case to the CA by way of appeal, assailing the November 15, 1999 and May

29, 2000 Orders of the RTC. On March 31, 2005, the CA rendered its Decision affirming the RTC orders, ruling that
Steelcase was a foreign corporation doing or transacting business in the Philippines without a license. The CA stated
that the following acts of Steelcase showed its intention to pursue and continue the conduct of its business in the

Philippines: (1) sending a letter to Phinma, informing the latter that the distribution rights for its products would be

established in the near future and directing other questions about orders for Steelcase products to Steelcase

International; (2) cancelling orders from DISIs customers, particularly Visteon, Phils., Inc. (Visteon); (3) continuing to

send its products to the Philippines through Modernform Group Company Limited (Modernform), as evidenced by an

Ocean Bill of Lading; and (4) going beyond the mere appointment of DISI as a dealer by making several impositions on

management and operations of DISI. Thus, the CA ruled that Steelcase was barred from access to our courts for being
a foreign corporation doing business here without the requisite license to do so.

Steelcase filed a motion for reconsideration but it was denied by the CA in its Resolution dated March 23,
2006.[13] Hence, this petition.

The Issues

Steelcase filed the present petition relying on the following grounds:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT FOUND THAT STEELCASE
HAD BEEN DOING BUSINESS IN THE PHILIPPINES WITHOUT A LICENSE.
 II

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT FINDING THAT

RESPONDENT WAS ESTOPPED FROM CHALLENGING STEELCASES LEGAL CAPACITY
TO SUE, AS AN AFFIRMATIVE DEFENSE IN ITS ANSWER.

The issues to be resolved in this case are:

(1) Whether or not Steelcase is doing business in the Philippines without a license; and

(2) Whether or not DISI is estopped from challenging the Steelcases legal capacity to sue.

The Courts Ruling

The Court rules in favor of the petitioner.

Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines

Anent the first issue, Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign Investments Act of

1991 (FIA) expressly states that the phrase doing business excludes the appointment by a foreign corporation of a local

distributor domiciled in the Philippines which transacts business in its own name and for its own account. Steelcase

claims that it was not doing business in the Philippines when it entered into a dealership agreement with DISI where

the latter, acting as the formers appointed local distributor, transacted business in its own name and for its own

account. Specifically, Steelcase contends that it was DISI that sold Steelcases furniture directly to the end-users or

customers who, in turn, directly paid DISI for the furniture they bought. Steelcase further claims that DISI, as a non-

exclusive dealer in the Philippines, had the right to market, sell, distribute and service Steelcase products in its own

name and for its own account. Hence, DISI was an independent distributor of Steelcase products, and not a mere agent
or conduit of Steelcase.

On the other hand, DISI argues that it was appointed by Steelcase as the latters exclusive distributor of Steelcase

products. DISI likewise asserts that it was not allowed by Steelcase to transact business in its own name and for its own

account as Steelcase dictated the manner by which it was to conduct its business, including the management and

solicitation of orders from customers, thereby assuming control of its operations. DISI further insists that Steelcase

treated and considered DISI as a mere conduit, as evidenced by the fact that Steelcase itself directly sold its products

to customers located in the Philippines who were classified as part of their global accounts. DISI cited other established

circumstances which prove that Steelcase was doing business in the Philippines including the following: (1) the sale and

delivery by Steelcase of furniture to Regus, a Philippine client, through Modernform, a Thai corporation allegedly

controlled by Steelcase; (2) the imposition by Steelcase of certain requirements over the management and operations

of DISI; (3) the representations made by Steven Husak as Country Manager of Steelcase; (4) the cancellation by

Steelcase of orders placed by Philippine clients; and (5) the expression by Steelcase of its desire to maintain its business

in the Philippines. Thus, Steelcase has no legal capacity to sue in Philippine Courts because it was doing business in
the Philippines without a license to do so.

The Court agrees with the petitioner.

The rule that an unlicensed foreign corporations doing business in the Philippine do not have the capacity to sue before
the local courts is well-established. Section 133 of the Corporation Code of the Philippines explicitly states:

Sec. 133. Doing business without a license. - No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
The phrase doing business is clearly defined in Section 3(d) of R.A. No. 7042 (Foreign Investments Act of 1991), to
wit:

d) The phrase doing business shall include soliciting orders, service contracts, opening offices, whether
called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines
or who in any calendar year stay in the country for a period or periods totalling one hundred eighty
(180) days or more; participating in the management, supervision or control of any domestic business,
firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of acts or works,
or the exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization: Provided, however, That the
phrase doing business shall not be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as
such investor; nor having a nominee director or officer to represent its interests in such corporation;
nor appointing a representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account; (Emphases supplied)

This definition is supplemented by its Implementing Rules and Regulations, Rule I, Section 1(f) which elaborates on the
meaning of the same phrase:

f. Doing business shall include soliciting orders, service contracts, opening offices, whether liaison
offices or branches; appointing representatives or distributors, operating under full control of the foreign
corporation, domiciled in the Philippines or who in any calendar year stay in the country for a period
totalling one hundred eighty [180] days or more; participating in the management, supervision or
control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts
that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally incident to and in
progressive prosecution of commercial gain or of the purpose and object of the business organization.

The following acts shall not be deemed doing business in the Philippines:

1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do

business, and/or the exercise of rights as such investor;

2. Having a nominee director or officer to represent its interest in such corporation;

3. Appointing a representative or distributor domiciled in the Philippines which transacts

business in the representative's or distributor's own name and account;

4. The publication of a general advertisement through any print or broadcast media;

5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed
by another entity in the Philippines;

6. Consignment by a foreign entity of equipment with a local company to be used in the processing of
products for export;

7. Collecting information in the Philippines; and

8. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing
basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines,
servicing the same, training domestic workers to operate it, and similar incidental services. (Emphases
supplied)

From the preceding citations, the appointment of a distributor in the Philippines is not sufficient to constitute doing

business unless it is under the full control of the foreign corporation. On the other hand, if the distributor is an

independent entity which buys and distributes products, other than those of the foreign corporation, for its own name

and its own account, the latter cannot be considered to be doing business in the Philippines.[14] It should be kept in

mind that the determination of whether a foreign corporation is doing business in the Philippines must be judged in light
of the attendant circumstances.[15]
In the case at bench, it is undisputed that DISI was founded in 1979 and is independently owned and managed by the

spouses Leandro and Josephine Bantug.[16] In addition to Steelcase products, DISI also distributed products of other

companies including carpet tiles, relocatable walls and theater settings. [17] The dealership agreement between Steelcase
and DISI had been described by the owner himself as:

xxx basically a buy and sell arrangement whereby we would inform Steelcase of the volume of the
products needed for a particular project and Steelcase would, in turn, give special quotations or
discounts after considering the value of the entire package. In making the bid of the project, we would
then add out profit margin over Steelcases prices. After the approval of the bid by the client, we would
thereafter place the orders to Steelcase. The latter, upon our payment, would then ship the goods to
the Philippines, with us shouldering the freight charges and taxes.[18] [Emphasis supplied]

This clearly belies DISIs assertion that it was a mere conduit through which Steelcase conducted its business in

the country. From the preceding facts, the only reasonable conclusion that can be reached is that DISI was an

independent contractor, distributing various products of Steelcase and of other companies, acting in its own name and
for its own account.

The CA, in finding Steelcase to be unlawfully engaged in business in the Philippines, took into consideration the delivery

by Steelcase of a letter to Phinma informing the latter that the distribution rights for its products would be established

in the near future, and also its cancellation of orders placed by Visteon. The foregoing acts were apparently

misinterpreted by the CA. Instead of supporting the claim that Steelcase was doing business in the country, the said

acts prove otherwise. It should be pointed out that no sale was concluded as a result of these communications. Had

Steelcase indeed been doing business in the Philippines, it would have readily accepted and serviced the orders from

the abovementioned Philippine companies. Its decision to voluntarily cease to sell its products in the absence of a local
distributor indicates its refusal to engage in activities which might be construed as doing business.

Another point being raised by DISI is the delivery and sale of Steelcase products to a Philippine client by Modernform

allegedly an agent of Steelcase. Basic is the rule in corporation law that a corporation has a separate and distinct

personality from its stockholders and from other corporations with which it may be connected. [19] Thus, despite the

admission by Steelcase that it owns 25% of Modernform, with the remaining 75% being owned and controlled by Thai

stockholders,[20] it is grossly insufficient to justify piercing the veil of corporate fiction and declare that Modernform

acted as the alter ego of Steelcase to enable it to improperly conduct business in the Philippines. The records are bereft

of any evidence which might lend even a hint of credence to DISIs assertions. As such, Steelcase cannot be deemed to
have been doing business in the Philippines through Modernform.

Finally, both the CA and DISI rely heavily on the Dealer Performance Expectation required by Steelcase of its distributors

to prove that DISI was not functioning independently from Steelcase because the same imposed certain conditions

pertaining to business planning, organizational structure, operational effectiveness and efficiency, and financial
stability. It is actually logical to expect that Steelcase, being one of the major manufacturers of office systems furniture,

would require its dealers to meet several conditions for the grant and continuation of a distributorship agreement. The

imposition of minimum standards concerning sales, marketing, finance and operations is nothing more than an exercise

of sound business practice to increase sales and maximize profits for the benefit of both Steelcase and its

distributors. For as long as these requirements do not impinge on a distributors independence, then there is nothing
wrong with placing reasonable expectations on them.

All things considered, it has been sufficiently demonstrated that DISI was an independent contractor which sold

Steelcase products in its own name and for its own account. As a result, Steelcase cannot be considered to be doing
business in the Philippines by its act of appointing a distributor as it falls under one of the exceptions under R.A. No.
7042.

DISI is estopped from challenging Steelcases legal capacity to sue

Regarding the second issue, Steelcase argues that assuming arguendo that it had been doing business in

the Philippines without a license, DISI was nonetheless estopped from challenging Steelcases capacity to sue in

the Philippines. Steelcase claims that since DISI was aware that it was doing business in the Philippines without a license

and had benefited from such business, then DISI should be estopped from raising the defense that Steelcase lacks the
capacity to sue in the Philippines by reason of its doing business without a license.

On the other hand, DISI argues that the doctrine of estoppel cannot give Steelcase the license to do business in

the Philippines or permission to file suit in the Philippines. DISI claims that when Steelcase entered into a dealership

agreement with DISI in 1986, it was not doing business in the Philippines. It was after such dealership was put in place

that it started to do business without first obtaining the necessary license. Hence, estoppel cannot work against

it. Moreover, DISI claims that it suffered as a result of Steelcases doing business and that it never benefited from the
dealership and, as such, it cannot be estopped from raising the issue of lack of capacity to sue on the part of Steelcase.

The argument of Steelcase is meritorious.

If indeed Steelcase had been doing business in the Philippines without a license, DISI would nonetheless be
estopped from challenging the formers legal capacity to sue.

It cannot be denied that DISI entered into a dealership agreement with Steelcase and profited from it for 12

years from 1987 until 1999. DISI admits that it complied with its obligations under the dealership agreement by exerting

more effort and making substantial investments in the promotion of Steelcase products. It also claims that it was able

to establish a very good reputation and goodwill for Steelcase and its products, resulting in the establishment and

development of a strong market for Steelcase products in the Philippines. Because of this, DISI was very proud to be

awarded the Steelcase International Performance Award for meeting sales objectives, satisfying customer needs,
managing an effective company and making a profit.[21]

Unquestionably, entering into a dealership agreement with Steelcase charged DISI with the knowledge that

Steelcase was not licensed to engage in business activities in the Philippines. This Court has carefully combed the records

and found no proof that, from the inception of the dealership agreement in 1986 until September 1998, DISI even

brought to Steelcases attention that it was improperly doing business in the Philippines without a license. It was only

towards the latter part of 1998 that DISI deemed it necessary to inform Steelcase of the impropriety of the conduct of

its business without the requisite Philippine license. It should, however, be noted that DISI only raised the issue of the

absence of a license with Steelcase after it was informed that it owed the latter US$600,000.00 for the sale and delivery
of its products under their special credit arrangement.
 By acknowledging the corporate entity of Steelcase and entering into a dealership agreement with it and even

benefiting from it, DISI is estopped from questioning Steelcases existence and capacity to sue. This is consistent with
the Courts ruling in Communication Materials and Design, Inc. v. Court of Appeals[22] where it was written:

Notwithstanding such finding that ITEC is doing business in the country, petitioner is nonetheless
estopped from raising this fact to bar ITEC from instituting this injunction case against it.

A foreign corporation doing business in the Philippines may sue in Philippine Courts
although not authorized to do business here against a Philippine citizen or entity who had
contracted with and benefited by said corporation. To put it in another way, a party is
estopped to challenge the personality of a corporation after having acknowledged the same
by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies
to a foreign as well as to domestic corporations. One who has dealt with a corporation of foreign origin
as a corporate entity is estopped to deny its corporate existence and capacity: The principle will be
applied to prevent a person contracting with a foreign corporation from later taking advantage of its
noncompliance with the statutes chiefly in cases where such person has received the benefits of the
contract.

The rule is deeply rooted in the time-honored axiom of Commodum ex injuria sua non
habere debet no person ought to derive any advantage of his own wrong. This is as it should
be for as mandated by law, every person must in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith.

Concededly, corporations act through agents, like directors and officers. Corporate dealings
must be characterized by utmost good faith and fairness. Corporations cannot just feign ignorance of
the legal rules as in most cases, they are manned by sophisticated officers with tried management skills
and legal experts with practiced eye on legal problems. Each party to a corporate transaction is expected
to act with utmost candor and fairness and, thereby allow a reasonable proportion between benefits and
expected burdens. This is a norm which should be observed where one or the other is a foreign entity
venturing in a global market.

xxx

By entering into the "Representative Agreement" with ITEC, petitioner is charged with
knowledge that ITEC was not licensed to engage in business activities in the country, and is thus
estopped from raising in defense such incapacity of ITEC, having chosen to ignore or even presumptively
take advantage of the same.[23] (Emphases supplied)

The case of Rimbunan Hijau Group of Companies v. Oriental Wood Processing Corporation [24] is likewise
instructive:

Respondents unequivocal admission of the transaction which gave rise to the complaint
establishes the applicability of estoppel against it. Rule 129, Section 4 of the Rules on Evidence provides
that a written admission made by a party in the course of the proceedings in the same case does not
require proof. We held in the case of Elayda v. Court of Appeals, that an admission made in the pleadings
cannot be controverted by the party making such admission and are conclusive as to him. Thus, our
consistent pronouncement, as held in cases such as Merril Lynch Futures v. Court of Appeals, is
apropos:

The rule is that a party is estopped to challenge the personality of a corporation

after having acknowledged the same by entering into a contract with it. And the
doctrine of estoppel to deny corporate existence applies to foreign as well as to
domestic corporations; one who has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its existence and capacity. The principle will be
applied to prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in cases where such person
has received the benefits of the contract . . .

All things considered, respondent can no longer invoke petitioners lack of capacity to sue in this
jurisdiction. Considerations of fair play dictate that after having contracted and benefitted from its
business transaction with Rimbunan, respondent should be barred from questioning the latters lack of
license to transact business in the Philippines.

In the case of Antam Consolidated, Inc. v. CA, this Court noted that it is a common ploy of
defaulting local companies which are sued by unlicensed foreign corporations not engaged in business
in the Philippines to invoke the latters lack of capacity to sue. This practice of domestic corporations is
particularly reprehensible considering that in requiring a license, the law never intended to prevent
foreign corporations from performing single or isolated acts in this country, or to favor domestic
corporations who renege on their obligations to foreign firms unwary enough to engage in solitary
transactions with them. Rather, the law was intended to bar foreign corporations from acquiring a
domicile for the purpose of business without first taking the steps necessary to render them amenable
 to suits in the local courts. It was to prevent the foreign companies from enjoying the good while
disregarding the bad.

As a matter of principle, this Court will not step in to shield defaulting local companies
from the repercussions of their business dealings. While the doctrine of lack of capacity to
sue based on failure to first acquire a local license may be resorted to in meritorious cases,
it is not a magic incantation. It cannot be called upon when no evidence exists to support its
invocation or the facts do not warrant its application. In this case, that the respondent is estopped
from challenging the petitioners capacity to sue has been conclusively established, and the forthcoming
trial before the lower court should weigh instead on the other defenses raised by the
respondent.[25] (Emphases supplied)

As shown in the previously cited cases, this Court has time and again upheld the principle that a foreign

corporation doing business in the Philippines without a license may still sue before the Philippine courts a Filipino or a

Philippine entity that had derived some benefit from their contractual arrangement because the latter is considered to

be estopped from challenging the personality of a corporation after it had acknowledged the said corporation by entering
into a contract with it.[26]

In Antam Consolidated, Inc. v. Court of Appeals,[27] this Court had the occasion to draw attention to the common

ploy of invoking the incapacity to sue of an unlicensed foreign corporation utilized by defaulting domestic companies

which seek to avoid the suit by the former. The Court cannot allow this to continue by always ruling in favor of local
companies, despite the injustice to the overseas corporation which is left with no available remedy.

During this period of financial difficulty, our nation greatly needs to attract more foreign investments and

encourage trade between the Philippines and other countries in order to rebuild and strengthen our economy. While it

is essential to uphold the sound public policy behind the rule that denies unlicensed foreign corporations doing business
in the Philippines access to our courts, it must never be used to frustrate the ends of justice by becoming an all-
encompassing shield to protect unscrupulous domestic enterprises from foreign entities seeking redress in our

country. To do otherwise could seriously jeopardize the desirability of the Philippines as an investment site and would
possibly have the deleterious effect of hindering trade between Philippine companies and international corporations.

WHEREFORE, the March 31, 2005 Decision of the Court of Appeals and its March 23, 2006 Resolution are

hereby REVERSED and SET ASIDE. The dismissal order of the Regional Trial Court dated November 15, 1999 is hereby

set aside. Steelcases Amended Complaint is hereby ordered REINSTATED and the case is REMANDED to the RTC for

appropriate action. SO ORDERED.

G.R. Nos. 79926-27 October 17, 1991

STATE INVESTMENT HOUSE, INC. and STATE FINANCING CENTER, INC., petitioners,
vs.
CITIBANK, N.A., BANK OF AMERICA, NT & SA, HONGKONG & SHANGHAI BANKING CORPORATION, and the
COURT OF APPEALS, respondents.

Roco, Bunag, Kapunan & Migallos for petitioners.

Agcaoili & Associates for Citibank, N.A, and Bank of America NT & SA.

Belo, Abiera & Associates for Hongkong & Shanghai Banking Corp.

NARVASA, J.:

The chief question in the appeal at bar is whether or not foreign banks licensed to do business in the Philippines, may
be considered "residents of the Philippine Islands" within the meaning of Section 20 of the Insolvency Law (Act No.
1956, as amended, eff. May 20, 1909) reading in part as follows: 1

An adjudication of insolvency may be made on the petition of three or more creditors, residents of the Philippine
Islands, whose credits or demands accrued in the Philippine Islands, and the amount of which credits or demands
are in the aggregate not less than one thousand pesos: Provided, that none of said creditors has become a
creditor by assignment, however made, within thirty days prior to the filing of said petition. Such petition must
be filed in the Court of First Instance of the province or city in which the debtor resides or has his principal place
of business, and must be verified by at least three (3) of the petitioners. . . .

The foreign banks involved in the controversy are Bank of America NT and SA, Citibank N.A. and Hongkong and Shanghai
Banking Corporation. On December 11, 1981, they jointly filed with the Court of First Instance of Rizal a petition for
involuntary insolvency of Consolidated Mines, Inc. (CMI), which they amended four days later. 2 The case was docketed
as Sp. Proc. No. 9263 and assigned to Branch 28 of the Court.

The petition for involuntary insolvency alleged:

1) that CMI had obtained loans from the three petitioning banks, and that as of November/December, 1981, its
outstanding obligations were as follows:

a) In favor of Bank of America (BA) P15,297,367.67

(as of December 10, 1981) US$ 4,175,831.88

(b) In favor of Citibank US$ 4,920,548.85

(as of December 10, 1981)

c) In favor of Hongkong & Shanghai Bank US$ 5,389,434.12

(as of November 30, 1981); P6,233,969.24

2) that in November, 1981, State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI) had separately
instituted actions for collection of sums of money and damages in the Court of First Instance of Rizal against CMI,
docketed respectively as Civil Cases Numbered 43588 and 43677; and that on application of said plaintiffs, writs of
preliminary attachment had been issued which were executed on "the royalty/profit sharing payments due CMI from
Benguet Consolidated Mining, Inc;" and

3) that CMI had "committed specific acts of insolvency as provided in Section 20 of the Insolvency Law, to wit:

xxx xxx xxx

5. that he (CMI) has suffered his (CMI's) property to remain under attachment or legal process for three days
for the purpose of hindering or delaying or defrauding his (CMI's) creditors;

xxx xxx xxx

11. that being a merchant or tradesman he (CMI) has generally defaulted in the payment of his (CMI's) current
obligations for a period of thirty days; . . .

The petition was opposed by State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI). 3 It claimed
that:

1) the three petitioner banks had come to court with unclean hands in that they filed the petition for insolvency —
alleging the CMI was defrauding its creditors, and they wished all creditors to share in its assets — although a few days
earlier, they had "received for the account of CMI substantial payments aggregating P10,800,000.00;"
2) the Court had no jurisdiction because the alleged acts of insolvency were false: the writs of attachment against CMI
had remained in force because there were "just, valid and lawful grounds for the(ir) issuance," and CMI was not a
"merchant or tradesman" nor had it "generally defaulted in the payment of (its) obligations for a period of thirty days .
. . ;"

3) the Court had no jurisdiction to take cognizance of the petition for insolvency because petitioners are not resident
creditors of CMI in contemplation of the Insolvency Law; and

4) the Court has no power to set aside the attachment issued in favor of intervenors-oppositors SIHI and SFCI.

CMI filed its Answer to the petition for insolvency, asserting in the main that it was not insolvent, 4 and later filed a
"Motion to Dismiss Based on Affirmative Defense of Petitioner's Lack of Capacity to Sue," echoing the theory of SIHI
and SFCI that the petitioner banks are not "Philippine residents." 5 Resolution on the motion was "deferred until after
hearing of the case on the merits" it appearing to the Court that the grounds therefor did not appear to be indubitable. 6

and served on the three petitioner banks requests for admission of certain facts
SIHI and SFCI filed their own Answer-in-Intervention, 7

in accordance with Rule 26 of the Rules of Court, 8 receiving a response only from Hongkong & Shanghai Bank. 9

SIHI and SFCI then filed a Motion for Summary Judgment dated May 23, 1983 "on the ground that, based on the
pleadings and admissions on record, the trial court had no jurisdiction to adjudicate CMI insolvent since the petitioners
(respondent foreign banks) are not "resident creditors" of CMI as required under the Insolvency Law." 10Oppositions to
the motion were filed, 11 to which a reply was submitted. 12

found merit in the motion for summary judgment. By Order dated October 10, 1983, it rendered
The Regional Trial Court 13

"summary judgment dismissing the . . . petition for lack of jurisdiction over the subject matter, with costs against
petitioners." 14 It ruled that on the basis of the "facts on record, as shown in the pleadings, motions and admissions of
the parties, an insolvency court could "not acquire jurisdiction to adjudicate the debtor as insolvent if the creditors
petitioning for adjudication of insolvency are not "residents" of the Philippines" — citing a decision of the California
Supreme Court which it declared "squarely applicable especially considering that one of the sources of our Insolvency
Law is the Insolvency Act of California of 1895 . . . " And it declared that since petitioners had been merely licensed to
do business in the Philippines, they could not be deemed residents thereof.

The three foreign banks sought to take an appeal from the Order of October 10, 1983. They filed a notice of appeal and
a record on appeal. 15 SIHI and SFCI moved to dismiss their appeal claiming it was attempted out of time. The Trial
Court denied the motion.

SIHI and SFCI filed with this Court a petition for certiorari and prohibition (G.R. NO. 66449), impugning that denial. The
Court dismissed the petition and instead required the three banks to file a petition for review in accordance with Rule
45 of the Rules of Court. 16 This the banks did (their petition was docketed as G.R. No. 66804). However, by Resolution
dated May 16, 1984, the court referred the petition for review to the Intermediate Appellate Court, where it was docketed
as AC SP-03674. 17

In the meantime, the Trial Court approved on May 3, 1985 the banks' record on appeal and transmitted it to this Court,
where it was recorded as UDK-6866. As might have been expected, this Court required the banks to file a petition for
review under Rule 45, but they asked to be excused from doing so since they had already filed such a petition, which
had been referred to the Intermediate Appellate Court and was there pending as AC-G.R. No. SP 03674, supra. This
Court then also referred UDK-6866 to the Intermediate Appellate Court where it was docketed as AC-G.R. No. CV 07830.

Both referred cases, AC-G.R. No. SP 03674 and AC-G.R. No. CV 07830, were consolidated by Resolution of the Court of
Appeals dated April 9, 1986, and Decision thereon was promulgated on July 14, 1987 by the Fifteenth Division of said
Court. 18

The Appellate Court reversed the Trial Court's Order of October 10, 1983 and remanded the case to it for further
proceedings. It ruled:

1) that the purpose of the Insolvency Law was "to convert the assets of the bankrupt in cash for distribution among
creditors, and then to relieve the honest debtor from the weight of oppressive indebtedness and permit him to start life
anew, free from the obligations and responsibilities consequent upon business misfortunes;" 19 and that it was "crystal
clear" that the law was "designed not only for the benefit of the creditors but more importantly for the benefit of the
debtor himself," the object being "to provide not only for the suspension of payments and the protection of creditors
but also the discharge of insolvent honest debtors to enable them to have a fresh start;"

2) that the Trial Court had placed "a very strained and restrictive interpretation of the term "resident," as to exclude
foreign banks which have been operating in this country since the early part of the century," and "the better approach
. . . would have been to harmonize the provisions . . . (of the Insolvency Law) with similar provisions of other succeeding
laws, like the Corporation Code of the Philippines, the General Banking Act, the Offshore Banking Law and the National
Internal Revenue Code in connection with or related to their doing business in the Philippines;"
3) that in light of said statutes, the three banks "are in truth and in fact considered as "residents" of the Philippines for
purposes of doing business in the Philippines and even for taxation matters;"

4) that the banks had "complied with all the laws, rules and regulations (for doing business in the country) and have
been doing business in the Philippines for many years now;" that the authority granted to them by the Securities and
Exchange Commission upon orders of the Monetary Board "covers not only transacting banking business . . . but likewise
maintaining suits "for recovery of any debt, claims or demand whatsoever," and that their petition for involuntary
insolvency was "nothing more than a suit aimed at recovering a debt granted by them to Consolidated Mines, Inc., or
at least a portion thereof;"

4) that to deprive the foreign banks of their right to proceed against their debtors through insolvency proceedings would
"contravene the basic standards of equity and fair play, . . . would discourage their operations in economic development
projects that create not only jobs for our people but also opportunities for advancement as a nation;" and

5) that the terms "residence" and "domicile" do not mean the same thing, and that as regards a corporation, it is
generally deemed an "inhabitant" of the state under whose law it is incorporated, and has a "residence" wherever it
conducts its ordinary business, and may have its legal "domicile" in one place and "residence" in another.

SIHI and SFCI moved for reconsideration and then, when rebuffed, took an appeal to this Court. Here, they argue that
the Appellate Court's judgment should be reversed because it failed to declare that —

1) the failure of the three foreign banks to allege under oath in their petition for involuntary insolvency that they are
Philippine residents, wishing only to "be considered Philippine residents," is fatal to their cause;

2) also fatal to their cause is their failure to prove, much less allege, that under the domiciliary laws of the foreign
banks, a Philippine corporation is allowed the reciprocal right to petition for a debtor's involuntary insolvency;

3) in fact and in law, the three banks are not Philippine residents because:

a) corporations have domicile and residence only in the state of their incorporation or in the place designated
by law, although for limited and exclusive purposes, other states may consider them as residents;

b) juridical persons may not have residence separate from their domicile;

4) actually, the non-resident status of the banks within the context of the Insolvency Law is confirmed by other laws;

5) the license granted to the banks to do business in the Philippines does not make them residents;

6) no substantive law explicitly grants foreign banks the power to petition for the adjudication of the Philippine
corporation as a bankrupt;

7) the Monetary Board can not appoint a conservator or receiver for a foreign bank or orders its liquidation having only
the power to revoke its license, subject to such proceedings as the Solicitor General may thereafter deem proper to
protect its creditors;

8) the foreign banks are not denied the right to collect their credits against Philippine debtors, only the right to "petition
for the harsh remedy of involuntary insolvency" not being conceded to them;

9) said banks have come to court with unclean hands, their filing of the petition for involuntary insolvency being an
attempt to defeat validly acquired rights of domestic corporations.

The concept of a foreign corporation under Section 123 of the Corporation Code is of "one formed, organized or existing
under laws other than those of the Philippines and . . . (which) laws allow Filipino citizens and corporations to do business
. . . ." There is no question that the three banks are foreign corporations in this sence, with principal offices situated
outside of the Philippines. There is no question either that said banks have been licensed to do business in this country
and have in fact been doing business here for many years, through branch offices or agencies, including "foreign
currency deposit units;" in fact, one of them, Hongkong & Shanghai Bank has been doing business in the Philippines
since as early as 1875.

The issue is whether these Philippine branches or units may be considered "residents of the Philippine Islands" as that
term is used in Section 20 of the Insolvency Law, supra, 20 or residents of the state under the laws of which they were
respectively incorporated. The answer cannot be found in the Insolvency Law itself, which contains no definition of the
term, resident, or any clear indication of its meaning. There are however other statutes, albeit of subsequent enactment
and effectivity, from which enlightening notions of the term may be derived.

The National Internal Revenue Code declares that the term "'resident foreign corporation' applies to a foreign corporation
engaged in trade or business within the Philippines," as distinguished from a " "non-resident foreign corporation" . . .
(which is one) not engaged in trade or business within the Philippines." 21

The Offshore Banking Law, Presidential Decree No. 1034, states "that branches, subsidiaries, affiliation, extension offices
or any other units of corporation or juridical person organized under the laws of any foreign country operating in the
Philippines shall be considered residents of the Philippines." 22

The General Banking Act, Republic Act No. 337, places "branches and agencies in the Philippines of foreign banks . . .
(which are) called Philippine branches," in the same category as "commercial banks, savings associations, mortgage
banks, development banks, rural banks, stock savings and loan associations" (which have been formed and organized
under Philippine laws), making no distinction between the former and the later in so far, as the terms "banking
institutions" and "bank" are used in the Act, 23 declaring on the contrary that in "all matters not specifically covered by
special provisions applicable only to foreign banks, or their branches and agencies in the Philippines, said foreign banks
or their branches and agencies lawfully doing business in the Philippines "shall be bound by all laws, rules, and
regulations applicable to domestic banking corporations of the same class, except such laws, rules and regulations as
provided for the creation, formation, organization, or dissolution of corporations or as fix the relation, liabilities,
responsibilities, or duties of members, stockholders or officers or corporations." 24

This Court itself has already had occasion to hold 25 that a foreign corporation licitly doing business in the Philippines,
which is a defendant in a civil suit, may not be considered a non-resident within the scope of the legal provision
authorizing attachment against a defendant not residing in the Philippine Islands;" 26 in other words, a preliminary
attachment may not be applied for and granted solely on the asserted fact that the defendant is a foreign corporation
authorized to do business in the Philippines — and is consequently and necessarily, "a party who resides out of the
Philippines." Parenthetically, if it may not be considered as a party not residing in the Philippines, or as a party who
resides out of the country, then, logically, it must be considered a party who does reside in the Philippines, who is a
resident of the country. Be this as it may, this Court pointed out that:

. . . Our laws and jurisprudence indicate a purpose to assimilate foreign corporations, duly licensed to do
business here, to the status of domestic corporations. (Cf. Section 73, Act No. 1459, and Marshall Wells Co. vs.
Henry W. Elser & Co., 46 Phil. 70, 76; Yu; Cong Eng vs. Trinidad, 47 Phil. 385, 411) We think it would be entirely
out of line with this policy should we make a discrimination against a foreign corporation, like the petitioner,
and subject its property to the harsh writ of seizure by attachment when it has complied not only with every
requirement of law made specially of foreign corporations, but in addition with every requirement of law made
of domestic corporations. . . . .

Obviously, the assimilation of foreign corporations authorized to do business in the Philippines "to the status
of domestic corporations," subsumes their being found and operating as corporations, hence, residing, in the country.

The same principle is recognized in American law: that the "residence of a corporation, if it can be said to have a
residence, is necessarily where it exercises corporate functions . . . ;" that it is .considered as dwelling "in the place
where its business is done . . . ," as being "located where its franchises are exercised . . . ," and as being "present where
it is engaged in the prosecution of the corporate enterprise;" that a "foreign corporation licensed to do business in a
state is a resident of any country where it maintains an office or agent for transaction of its usual and customary
business for venue purposes;" and that the "necessary element in its signification is locality of existence."27 Courts
have held that "a domestic corporation is regarded as having a residence within the state at any place where it is
engaged in the particulars of the corporate enterprise, and not only at its chief place or home office;" 28that "a
corporation may be domiciled in one state and resident in another; its legal domicil in the state of its creation presents
no impediment to its residence in a real and practical sense in the state of its business activities." 29

The foregoing propositions are in accord with the dictionary concept of residence as applied to juridical persons, a term
which appears to comprehend permanent as well as temporary residence.

The Court cannot thus accept the petitioners' theory that corporations may not have a residence (i.e., the place where
they operate and transact business) separate from their domicile (i.e., the state of their formation or organization), and
that they may be considered by other states as residents only for limited and exclusive purposes. Of course, as
petitioners correctly aver, it is not really the grant of a license to a foreign corporation to do business in this country
that makes it a resident; the license merely gives legitimacy to its doing business here. What effectively makes such a
foreign corporation a resident corporation in the Philippines is its actually being in the Philippines and licitly doing
business here, "locality of existence" being, to repeat, the "necessary element in . . . (the) signification" of the term,
resident corporation.

Neither can the Court accept the theory that the omission by the banks in their petition for involuntary insolvency of an
explicit and categorical statement that they are "residents of the Philippine Islands," is fatal to their cause. In truth, in
light of the concept of resident foreign corporations just expounded, when they alleged in that petition that they are
foreign banking corporations, licensed to do business in the Philippines, and actually doing business in this Country
through branch offices or agencies, they were in effect stating that they are resident foreign corporations in the
Philippines.

There is, of course, as petitioners argue, no substantive law explicitly granting foreign banks the power to petition for
the adjudication of a Philippine corporation as a bankrupt. This is inconsequential, for neither is there any legal provision
expressly giving domestic banks the same power, although their capacity to petition for insolvency can scarcely be
disputed and is not in truth disputed by petitioners. The law plainly grants to a juridical person, whether it be a bank or
not or it be a foreign or domestic corporation, as to natural persons as well, such a power to petition for the adjudication
of bankruptcy of any person, natural or juridical, provided that it is a resident corporation and joins at least two other
residents in presenting the petition to the Bankruptcy Court.

The petitioners next argue that "Philippine law is emphatic that only foreign corporations whose own laws give Philippine
nationals reciprocal rights may do business in the Philippines." As basis for the argument they invoke Section 123 of
the Corporation Code which, however, does not formulate the proposition in the same way. Section 123 does not say,
as petitioners assert, that it is required that the laws under which foreign corporations are formed "give Philippine
nationals, reciprocal rights." What it does say is that the laws of the country or state under which a foreign corporation
is "formed, organized or existing . . . allow Filipino citizens and corporations to do business in its own country or state,"
which is not quite the same thing. Now, it seems to the Court that there can be no serious debate about the fact that
the laws of the countries under which the three (3) respondent banks were formed or organized (Hongkong and the
United States) do "allow Filipino citizens and corporations to do business" in their own territory and jurisdiction. It also
seems to the Court quite apparent that the Insolvency Law contains no requirement that the laws of the state under
which a foreign corporation has been formed or organized should grant reciprocal rights to Philippine citizens to apply
for involuntary insolvency of a resident or citizen thereof. The petitioners' point is thus not well taken and need not be
belabored.

That the Monetary Board can not appoint a conservator or receiver for a foreign bank or order its liquidation having only
the power to revoke its license, subject to such proceedings as the Solicitor General may thereafter deem proper to
protect its creditors, which is another point that petitioners seek to make, is of no moment. It has no logical connection
to the matter of whether or not the foreign bank may properly ask for a judicial declaration of the involuntary insolvency
of a domestic corporation, which is the issue at hand. The fact is, in any event, that the law is not lacking in sanctions
against foreign banks or powerless to protect the latter's creditors.

The petitioners contend, too, that the respondent banks have come to court with unclean hands, their filing of the
petition for involuntary insolvency being an attempt to defeat validly acquired rights of domestic corporations. The Court
wishes to simply point out that the effects of the institution of bankruptcy proceedings on all the creditors of the alleged
bankrupt are clearly spelled out by the law, and will be observed by the Insolvency Court regardless of whatever motives
— apart from the desire to share in the assets of the insolvent in satisfying its credits — that the party instituting the
proceedings might have.

Still another argument put forth by the petitioners is that the three banks' failure to incorporate their branches in the
Philippines into new banks in accordance with said Section 68 of the General Banking Act connotes an intention on their
part to continue as residents of their respective states of incorporation and not to be regarded as residents of the
Philippines. The argument is based on an incomplete and inaccurate quotation of the cited Section. What Section 68
required of a "foreign bank presently having branches and agencies in the Philippines, . . . within one year from the
effectivity" of the General Banking Act, was to comply with any of three (3) options, not merely with one sole
requirement. These three (3) options are the following:

1) (that singled out and quoted by the petitioners, i.e.:) "incorporate its branch or branches into a new bank in
accordance with Philippine laws . . . ; or

2) "assign capital permanently to the local branch with the concurrent maintenance of a 'net due to' head office
account which shall include all net amounts due to other branches outside the Philippines in an amount which
when added to the assigned capital shall at all times be not less than the minimum amount of capital accounts
required for domestic commercial banks under section twenty-two of this Act;" or

3) "maintain a "net due to" head office account which shall include all net amounts due to other branches outside
the Philippines, in an amount which shall not be less than the minimum amount of capital accounts required for
domestic commercial banks under section twenty-two of this Act."

The less said about this argument then, the better.

The petitioners allege that three days before respondent banks filed their petition for involuntary insolvency against
CMI, they received from the latter substantial payments on account in the aggregate amount of P6,010,800.00, with
the result that they were "preferred in the distribution of CMI's assets thereby defrauding other creditors of CMI." Non
sequitur. It is in any case a circumstance that the Bankruptcy Court may well take into consideration in determining the
manner and proportion by which the assets of the insolvent company shall be distributed among its creditors; but it
should not be considered a ground for giving the petition for insolvency short shrift. Moreover, the payment adverted
to does not appear to be all that large. The total liabilities of CMI to the three respondent banks as of December, 1981
was P21,531,336.91, and US$14,485,814.85. Converted into Philippine currency at the rate of P7.899 to the dollar, the
average rate of exchange during December, 1981, 30 the dollar account would be P114,423,451.50. Thus, the
aggregate liabilities of CMI to the banks, expressed in Philippine currency, was P135,954,788.41 as of December, 1981,
and therefore the payment to them of P6,010,800.00 constituted only some 4.42% of the total indebtedness.

WHEREFORE, the petition is DENIED and the challenged Decision of the Court of Appeals is AFFIRMED in toto, with costs
against the petitioners. SO ORDERED.
G.R. No. 161026 October 24, 2005

HYATT ELEVATORS AND ESCALATORS CORPORATION, Petitioner,

vs.
GOLDSTAR ELEVATORS, PHILS., INC.,* Respondent.

DECISION

PANGANIBAN, J.:

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

The Case

Before us is a Petition for Review1 on Certiorari, under Rule 45 of the Rules of Court, assailing the June 26, 2003
Decision2 and the November 27, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 74319. The decretal
portion of the Decision reads as follows:

"WHEREFORE, in view of the foregoing, the assailed Orders dated May 27, 2002 and October 1, 2002 of the RTC,
Branch 213, Mandaluyong City in Civil Case No. 99-600, are hereby SET ASIDE. The said case is hereby
ordered DISMISSED on the ground of improper venue."4

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The Facts

The relevant facts of the case are summarized by the CA in this wise:

"Petitioner [herein Respondent] Goldstar Elevator Philippines, Inc. (GOLDSTAR for brevity) is a domestic corporation
primarily engaged in the business of marketing, distributing, selling, importing, installing, and maintaining elevators
and escalators, with address at 6th Floor, Jacinta II Building, 64 EDSA, Guadalupe, Makati City.

"On the other hand, private respondent [herein petitioner] Hyatt Elevators and Escalators Company (HYATT for brevity)
is a domestic corporation similarly engaged in the business of selling, installing and maintaining/servicing elevators,
escalators and parking equipment, with address at the 6th Floor, Dao I Condominium, Salcedo St., Legaspi Village,
Makati, as stated in its Articles of Incorporation.

"On February 23, 1999, HYATT filed a Complaint for unfair trade practices and damages under Articles 19, 20 and 21 of
the Civil Code of the Philippines against LG Industrial Systems Co. Ltd. (LGISC) and LG International Corporation (LGIC),
alleging among others, that: in 1988, it was appointed by LGIC and LGISC as the exclusive distributor of LG elevators
and escalators in the Philippines under a ‘Distributorship Agreement’; x x x LGISC, in the latter part of 1996, made a
proposal to change the exclusive distributorship agency to that of a joint venture partnership; while it looked forward
to a healthy and fruitful negotiation for a joint venture, however, the various meetings it had with LGISC and LGIC,
through the latter’s representatives, were conducted in utmost bad faith and with malevolent intentions; in the middle
of the negotiations, in order to put pressures upon it, LGISC and LGIC terminated the Exclusive Distributorship
Agreement; x x x [A]s a consequence, [HYATT] suffered ₱120,000,000.00 as actual damages, representing loss of
earnings and business opportunities, ₱20,000,000.00 as damages for its reputation and goodwill, ₱1,000,000.00 as and
by way of exemplary damages, and ₱500,000.00 as and by way of attorney’s fees.

"On March 17, 1999, LGISC and LGIC filed a Motion to Dismiss raising the following grounds: (1) lack of jurisdiction
over the persons of defendants, summons not having been served on its resident agent; (2) improper venue; and (3)
failure to state a cause of action. The [trial] court denied the said motion in an Order dated January 7, 2000.

"On March 6, 2000, LGISC and LGIC filed an Answer with Compulsory Counterclaim ex abundante cautela. Thereafter,
they filed a ‘Motion for Reconsideration and to Expunge Complaint’ which was denied.

"On December 4, 2000, HYATT filed a motion for leave of court to amend the complaint, alleging that subsequent to the
filing of the complaint, it learned that LGISC transferred all its organization, assets and goodwill, as a consequence of a
joint venture agreement with Otis Elevator Company of the USA, to LG Otis Elevator Company (LG OTIS, for brevity).
Thus, LGISC was to be substituted or changed to LG OTIS, its successor-in-interest. Likewise, the motion averred that
x x x GOLDSTAR was being utilized by LG OTIS and LGIC in perpetrating their unlawful and unjustified acts against
HYATT. Consequently, in order to afford complete relief, GOLDSTAR was to be additionally impleaded as a party-
defendant. Hence, in the Amended Complaint, HYATT impleaded x x x GOLDSTAR as a party-defendant, and all
references to LGISC were correspondingly replaced with LG OTIS.

"On December 18, 2000, LG OTIS (LGISC) and LGIC filed their opposition to HYATT’s motion to amend the complaint.
It argued that: (1) the inclusion of GOLDSTAR as party-defendant would lead to a change in the theory of the case since
the latter took no part in the negotiations which led to the alleged unfair trade practices subject of the case; and (b)
HYATT’s move to amend the complaint at that time was dilatory, considering that HYATT was aware of the existence of
GOLDSTAR for almost two years before it sought its inclusion as party-defendant.

"On January 8, 2001, the [trial] court admitted the Amended Complaint. LG OTIS (LGISC) and LGIC filed a motion for
reconsideration thereto but was similarly rebuffed on October 4, 2001.
"On April 12, 2002, x x x GOLDSTAR filed a Motion to Dismiss the amended complaint, raising the following grounds:
(1) the venue was improperly laid, as neither HYATT nor defendants reside in Mandaluyong City, where the original case
was filed; and (2) failure to state a cause of action against [respondent], since the amended complaint fails to allege
with certainty what specific ultimate acts x x x Goldstar performed in violation of x x x Hyatt’s rights. In the Order dated
May 27, 2002, which is the main subject of the present petition, the [trial] court denied the motion to dismiss,
ratiocinating as follows:

‘Upon perusal of the factual and legal arguments raised by the movants-defendants, the court finds that these are
substantially the same issues posed by the then defendant LG Industrial System Co. particularly the matter dealing
[with] the issues of improper venue, failure to state cause of action as well as this court’s lack of jurisdiction. Under the
circumstances obtaining, the court resolves to rule that the complaint sufficiently states a cause of action and that the
venue is properly laid. It is significant to note that in the amended complaint, the same allegations are adopted as in
the original complaint with respect to the Goldstar Philippines to enable this court to adjudicate a complete determination
or settlement of the claim subject of the action it appearing preliminarily as sufficiently alleged in the plaintiff’s pleading
that said Goldstar Elevator Philippines Inc., is being managed and operated by the same Korean officers of defendants
LG-OTIS Elevator Company and LG International Corporation.’

"On June 11, 2002, [Respondent] GOLDSTAR filed a motion for reconsideration thereto. On June 18, 2002, without
waiving the grounds it raised in its motion to dismiss, [it] also filed an ‘Answer Ad Cautelam’. On October 1, 2002, [its]
motion for reconsideration was denied.

"From the aforesaid Order denying x x x Goldstar’s motion for reconsideration, it filed the x x x petition for certiorari
[before the CA] alleging grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the [trial]
court in issuing the assailed Orders dated May 27, 2002 and October 1, 2002."5

Ruling of the Court of Appeals

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

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

Hence, this Petition.6

The Issue

In its Memorandum, petitioner submits this sole issue for our consideration:

"Whether or not the Court of Appeals, in reversing the ruling of the Regional Trial Court, erred as a matter of law and
jurisprudence, as well as committed grave abuse of discretion, in holding that in the light of the peculiar facts of this
case, venue was improper[.]"7

This Court’s Ruling

The Petition has no merit.

Sole Issue:

Venue

The resolution of this case rests upon a proper understanding of Section 2 of Rule 4 of the 1997 Revised Rules of Court:

"Sec. 2. Venue of personal actions. – All other actions may be commenced and tried where the plaintiff or any of the
principal plaintiff resides, or where the defendant or any of the principal defendant resides, or in the case of a non-
resident defendant where he may be found, at the election of the plaintiff."

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

Residence is the permanent home -- the place to which, whenever absent for business or pleasure, one intends to
return.9 Residence is vital when dealing with venue.10 A corporation, however, has no residence in the same sense in
which this term is applied to a natural person. This is precisely the reason why the Court in Young Auto Supply Company
v. Court of Appeals11 ruled that "for practical purposes, a corporation is in a metaphysical sense a resident of the place
where its principal office is located as stated in the articles of incorporation."12 Even before this ruling, it has already
been established that the residence of a corporation is the place where its principal office is established.13

This Court has also definitively ruled that for purposes of venue, the term "residence" is synonymous with
"domicile."14 Correspondingly, the Civil Code provides:
"Art. 51. When the law creating or recognizing them, or any other provision does not fix the domicile of juridical persons,
the same shall be understood to be the place where their legal representation is established or where they exercise
their principal functions."15

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

In the present case, there is no question as to the residence of respondent. What needs to be examined is that of
petitioner. Admittedly,16 the latter’s principal place of business is Makati, as indicated in its Articles of Incorporation.
Since the principal place of business of a corporation determines its residence or domicile, then the place indicated in
petitioner’s articles of incorporation becomes controlling in determining the venue for this case.

Petitioner argues that the Rules of Court do not provide that when the plaintiff is a corporation, the complaint should be
filed in the location of its principal office as indicated in its articles of incorporation. 17 Jurisprudence has, however, settled
that the place where the principal office of a corporation is located, as stated in the articles, indeed establishes its
residence.18 This ruling is important in determining the venue of an action by or against a corporation,19 as in the present
case.

Without merit is the argument of petitioner that the locality stated in its Articles of Incorporation does not conclusively
indicate that its principal office is still in the same place. We agree with the appellate court in its observation that the
requirement to state in the articles the place where the principal office of the corporation is to be located "is not a
meaningless requirement. That proviso would be rendered nugatory if corporations were to be allowed to simply
disregard what is expressly stated in their Articles of Incorporation."20

Inconclusive are the bare allegations of petitioner that it had closed its Makati office and relocated to Mandaluyong City,
and that respondent was well aware of those circumstances. Assuming arguendo that they transacted business with
each other in the Mandaluyong office of petitioner, the fact remains that, in law, the latter’s residence was still the place
indicated in its Articles of Incorporation. Further unacceptable is its faulty reasoning that the ground for the CA’s
dismissal of its Complaint was its failure to amend its Articles of Incorporation so as to reflect its actual and present
principal office. The appellate court was clear enough in its ruling that the Complaint was dismissed because the venue
had been improperly laid, not because of the failure of petitioner to amend the latter’s Articles of Incorporation.

Indeed, it is a legal truism that the rules on the venue of personal actions are fixed for the convenience of the plaintiffs
and their witnesses. Equally settled, however, is the principle that choosing the venue of an action is not left to a
plaintiff’s caprice; the matter is regulated by the Rules of Court. 21 Allowing petitioner’s arguments may lead precisely
to what this Court was trying to avoid in Young Auto Supply Company v. CA:22 the creation of confusion and untold
inconveniences to party litigants. Thus enunciated the CA:

"x x x. To insist that the proper venue is the actual principal office and not that stated in its Articles of Incorporation
would indeed create confusion and work untold inconvenience. Enterprising litigants may, out of some ulterior motives,
easily circumvent the rules on venue by the simple expedient of closing old offices and opening new ones in another
place that they may find well to suit their needs."23

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

"The rules on venue, like the other procedural rules, are designed to insure a just and orderly administration of justice
or the impartial and evenhanded determination of every action and proceeding. Obviously, this objective will not be
attained if the plaintiff is given unrestricted freedom to choose the court where he may file his complaint or petition.

"The choice of venue should not be left to the plaintiff’s whim or caprice. He may be impelled by some ulterior motivation
in choosing to file a case in a particular court even if not allowed by the rules on venue." 24

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against
petitioner. SO ORDERED.
G.R. No. L-22238 February 18, 1967

CLAVECILLIA RADIO SYSTEM, petitioner-appellant,

vs.
HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of Cagayan de Oro City
and NEW CAGAYAN GROCERY, respondents-appellees.

B. C. Padua for petitioner and appellant.

Pablo S. Reyes for respondents and appellees.

REGALA, J.:

This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the petition of the Clavecilla
Radio System to prohibit the City Judge of Cagayan de Oro from taking cognizance of Civil Case No. 1048 for damages.

It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System
alleging, in effect, that on March 12, 1963, the following message, addressed to the former, was filed at the latter's
Bacolod Branch Office for transmittal thru its branch office at Cagayan de Oro:

NECAGRO CAGAYAN DE ORO (CLAVECILLA)

REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG

The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New
Cagayan Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the
contents and purport of the same and causing the said addressee to suffer damages. After service of summons,
the Clavecilla Radio System filed a motion to dismiss the complaint on the grounds that it states no cause of
action and that the venue is improperly laid. The New Cagayan Grocery interposed an opposition to which the
Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on September 18, 1963, denied the motion
to dismiss for lack of merit and set the case for hearing.1äwphï1.ñët

Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the Court of First
Instance praying that the City Judge, Honorable Agustin Antillon, be enjoined from further proceeding with the case on
the ground of improper venue. The respondents filed a motion to dismiss the petition but this was opposed by the
petitioner. Later, the motion was submitted for resolution on the pleadings.

In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where it has
its principal office or in Cagayan de Oro City where it may be served, as in fact it was served, with summons through
the Manager of its branch office in said city. In other words, the court upheld the authority of the city court to take
cognizance of the case.1äwphï1.ñët

In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its
principal office.

It is clear that the case for damages filed with the city court is based upon tort and not upon a written contract. Section
1 of Rule 4 of the New Rules of Court, governing venue of actions in inferior courts, provides in its paragraph (b) (3)
that when "the action is not upon a written contract, then in the municipality where the defendant or any of the
defendants resides or may be served with summons." (Emphasis supplied)

Settled is the principle in corporation law that the residence of a corporation is the place where its principal office is
established. Since it is not disputed that the Clavecilla Radio System has its principal office in Manila, it follows that the
suit against it may properly be filed in the City of Manila.

The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was properly laid on
the principle that the appellant may also be served with summons in that city where it maintains a branch office. This
Court has already held in the case of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term "may be
served with summons" does not apply when the defendant resides in the Philippines for, in such case, he may be sued
only in the municipality of his residence, regardless of the place where he may be found and served with summons. As
any other corporation, the Clavecilla Radio System maintains a residence which is Manila in this case, and a person can
have only one residence at a time (See Alcantara vs. Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos, 86
Phil. 387). The fact that it maintains branch offices in some parts of the country does not mean that it can be sued in
any of these places. To allow an action to be instituted in any place where a corporate entity has its branch offices would
create confusion and work untold inconvenience to the corporation.

It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that the laying of the
venue of an action is not left to plaintiff's caprice because the matter is regulated by the Rules of Court. Applying the
provision of the Rules of Court, the venue in this case was improperly laid.

The order appealed from is therefore reversed, but without prejudice to the filing of the action in Which the venue shall
be laid properly. With costs against the respondents-appellees.
G.R. No. L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-
appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.

Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.

Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.

FERNANDO, J.:

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New
York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March
27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine
corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided
by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the
motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the Benguet
Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the administration and
liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock
standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3)
directs said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either
the incumbent ancillary administrator or to the Probate Division of this Court."1

From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company
of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The
challenged order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific
problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from
legal doctrines of weight and significance.

The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who
died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant,
the certificates being in the possession of the County Trust Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960,
Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A.
Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the appellee Renato D.
Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the
Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964,
the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and
deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply
with the order, and on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring
the certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet
Consolidated, Inc., be declared [or] considered as lost."3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned
as to "who is entitled to the possession of the stock certificates in question; appellant opposed the petition of the
ancillary administrator because the said stock certificates are in existence, they are today in the possession of the
domiciliary administrator, the County Trust Company, in New York, U.S.A...."4

It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost.
Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock
certificates could be issued. Hence, its appeal.

As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic
affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in
refusing to accord obedience to a court decree. How, then, can this order be stigmatized as illegal?

As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation.
What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without
undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness
as to preclude such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable
principles and supported by the strongest policy considerations.

It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of
the country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought
about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted,
voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27,
1963, and filing a petition for relief from a previous order of March 15, 1963.

Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without
it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary
administrator, with residence abroad, of what was previously ordained by a court order could be thus remedied, it would
have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority.

1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control
and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is
inherent in his duty to settle her estate and satisfy the claims of local creditors. 5 As Justice Tuason speaking for this
Court made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly
"extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that
an administrator appointed in one state or country has no power over property in another state or country." 6

It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice
Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate
owning property in the country of his domicile as well as in a foreign country, administration is had in both countries.
That which is granted in the jurisdiction of decedent's last domicile is termed the principal administration, while any
other administration is termed the ancillary administration. The reason for the latter is because a grant of administration
does not ex proprio vigore have any effect beyond the limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper, whenever a
person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets
of the deceased liable for his individual debts or to be distributed among his heirs."7

It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock
certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated,
Inc...." be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and
subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as
immune from lawful court orders.

Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue 8 finds application. "In the instant case, the
actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it
were so minded.

2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged
order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of
precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its
"considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade
Perkins, ..."9 More specifically, appellant would stress that the "lower court could not "consider as lost" the stock
certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by
the appellee, that the said stock certificates are in existence and are today in the possession of the domiciliary
administrator in New York."10

There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the
reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New
York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in
the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to
issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be
discharged and his responsibility fulfilled.

Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled
discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in
refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree
could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard.

It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the
facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered
however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends
have played an important part in its development."11

Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of
justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent
jurist, noting "the quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the empire
of "as if" today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought,
but which at times hides itself from view till reflection and analysis have brought it to the light."14

What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There
should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial
technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of
a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular
alleged error does not carry persuasion.

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions
of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate;
it would stress that in the event of a contest or the pendency of an action regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the
"final decision by [a] court regarding the ownership [thereof]."15

Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the
foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express
admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock
certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness
and finality. Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter
is to be followed.

It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary
must yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however,
if a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it
but yield to its alleged controlling force.

The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for
its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes
a valid defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus
far, nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a
future prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority.

4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the
basic postulates of corporate theory.

We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...." 16 It owes
its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was
conceived as an artificial person, owing its existence through creation by a sovereign power."17 As a matter of fact, the
statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a
corporation precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law." 18

The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person,
but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct
and separate from its individual stockholders.... It owes its existence to law. It is an artificial person created by law for
certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter." 19Dean Pound's
terse summary, a juristic person, resulting from an association of human beings granted legal personality by the state,
puts the matter neatly.20

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the
reality of the group as a social and legal entity, independent of state recognition and concession."21 A corporation as
known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state
according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than
that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly
not excluding the judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our
jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the
appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances,
where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it.

To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which
may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state,
the source of its very existence; it is to contend that what any of its governmental organs may lawfully require could
be ignored at will. So extravagant a claim cannot possibly merit approval.

5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then
pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of
money paid to the minor under guardianship, alleging that the lower court had previously granted its petition to consider
the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the
United States. The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an
American federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other
American official to examine the matter anew, "except a judge or judges of the United States court." 23 Reconsideration
was denied, and the Administrator appealed.

In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should
be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans'
Administrator final and conclusive when made on claims property submitted to him for resolution; but they are not
applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great
difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that
are imposed by the Veterans' Act, including the exclusive review by United States courts), and those actions where the
Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our
attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions
where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render
them mere subordinate instrumentalities of the Veterans' Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations
made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts
over juridical persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the
whim or caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the
honor of the country.

Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to
be firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal.
Certainly we must at all pains see to it that it does not succeed. The deplorable consequences attendant on appellant
prevailing attest to the necessity of negative response from us. That is what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme
and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction
is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and distinguished by its
correspondence with what a sense of realism requires. For through the appealed order, the imperative requirement of
justice according to law is satisfied and national dignity and honor maintained.

WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May
18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.
G.R. No. 195580 April 21, 2014

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.

DECISION

VELASCO, JR., J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining Development Corp.
(Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which seeks to reverse
the October 1, 2010 Decision1 and the February 15, 2011 Resolution of the Court of Appeals (CA).

The Facts

Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in mining and exploring certain areas of the province of
Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it learned that the areas
where it wanted to undertake exploration and mining activities where already covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA
and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of
Environment and Natural Resources (DENR).

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling,
Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay
Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and,
on November 6, 2006, assigned to petitioner McArthur.2

Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR
on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares
in barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred
and/or assigned its rights and interests over the MPSA application in favor of Narra.

Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-
IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan.
SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA application to Tesoro.

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for
the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.

In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas
covered by applications since it knows that it can only participate in mining activities through corporations which are
deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.

In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA)
7942 or the Philippine Mining Act of 1995 which provided:

Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in singular or plural,
shall mean:

xxxx

(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership,
association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and financial
capability to undertake mineral resources development and duly registered in accordance with law at least sixty per
cent (60%) of the capital of which is owned by citizens of the Philippines: Provided, That a legally organized foreign-
owned corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or
technical assistance agreement or mineral processing permit.

Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial or
Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-
IVB-07 for Narra, which are granted to foreign-owned corporations. Nevertheless, they claimed that the issue on
nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital
is owned by citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of PLMC (which owns
5,997 shares of Narra),3 40% of the shares of MMC (which owns 5,997 shares of McArthur) 4 and 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 Redmont’s 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 Redmont’s EPAs.
Thereafter, on February 7, 2008, the POA issued an Order7 denying the Motion for Reconsideration filed by petitioners.

Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal 8 and Memorandum
of Appeal9 with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of Appeal 10 and Memorandum
of Appeal.11

In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also, through
a letter, they informed the MAB that they had their individual MPSA applications converted to FTAAs. McArthur’s FTAA
was denominated as AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA application was converted to AFTA-IVB-0813 on
May 28, 2007, and Narra’s 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
Complaint16 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 Redmont’s Complaint and applications for injunctive reliefs, the MAB issued an Order on
September 10, 2008, finding the appeal meritorious. It held:

WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS ASIDE the Resolution
dated 14 December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos. 2001-01,
2007-02 and 2007-03, and its Order dated 07 February 2008 denying the Motions for Reconsideration of the Appellants.
The Petition filed by Redmont Consolidated Mines Corporation on 02 January 2007 is hereby ordered DISMISSED. 17

Belatedly, on September 16, 2008, the RTC issued an Order 18 granting Redmont’s 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 Reconsideration19 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 Redmont’s 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 Redmont’s Motion for Reconsideration and
Supplement Motion for Reconsideration of the MAB’s September 10, 2008 Resolution.

On July 1, 2009, however, the MAB issued a second Order denying Redmont’s 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 POA’s 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 POA’s 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 POA’s 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 OP’s 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 Redmont’s 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 country’s
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 Country’s 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
CA’s 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 CA’s 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 OP’s 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 court’s 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 country’s 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 Chairman’s 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 corporation––MBMI, 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 Court’s 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 Amount Amount Paid

Shares Subscribed

Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Corporation

MBMI Resources, Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60

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. 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 Amount Amount Paid

Shares Subscribed

Olympic Mines Filipino 6,663 PhP 6,663,000.00 PhP 0

&

Development

Corp.

MBMI Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00

Resources,

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. American 1 PhP 1,000.00 PhP 1,000.00

Mason

Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00

Cawkell

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.
MBMI’s 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 PhP 2,708,174.60

10,000,000.00
(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 SMMI’s 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 PhP 2,809,900.00

10,000,000.00
(emphasis supplied)

After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot the glaring similarity between
SMMI and MMC’s 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 Olympic’s participation in SMMI’s 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 PLMDC’s MPSA application, whose
corporate structure’s 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 PhP 2,800,000.00

10,000,000.00 (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 PLMDC’s corporate structure:

Name Nationality Number of Amount Amount Paid

Shares Subscribed
 Palawan Alpha South Filipino 6,596 PhP PhP 0
Resources Development 6,596,000.00
Corporation

MBMI Resources, Canadian 3,396 PhP PhP

3,396,000.00 2,796,000.00
Inc.

Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00

Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00

Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Total 10,000 PhP PhP

10,000,000.00 2,708,174.60
(emphasis
supplied)

Yet again, the usual players in petitioners’ corporate structures are present. Similarly, the amount of money paid by the
2nd tier majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.

Studying MBMI’s 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 Company’s 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, MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint venture" agreements
that it entered into with the "Olympic" and "Alpha" groups––involves 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 CA’s 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 Department’s 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 Department’s 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.

POA’s 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, POA’s 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 Redmont’s 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.1âwphi1 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 POA’s
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 MBMI’s 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.1âwphi1 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.
G.R. No. 176579 June 28, 2011

WILSON P. GAMBOA, Petitioner,

vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND
COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG)
IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL,
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO
PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD.,
PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE
BARIN OF THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE
STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention.

DECISION

CARPIO, J.:

The Case

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of
stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the
Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific).

The Antecedents

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company
(PLDT), are as follows:1

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right
to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American
company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977,
Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr.
Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment
executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC
held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this Court to be
owned by the Republic of the Philippines.2

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of
the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the
Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding
was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio
Capital, submitted their bids. Parallax won with a bid of ₱25.6 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 ₱25,217,556,000 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 Pacific’s 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 Court’s decision 4 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
₱25,217,556,000. 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 PTIC’s Articles of
Incorporation. First Pacific announced its intention to match Parallax’s 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
government’s 111,415 PTIC shares bore due diligence, transparency and conformity with existing legal procedures; and
(b) First Pacific’s intended acquisition of the government’s 111,415 PTIC shares resulting in First Pacific’s
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 ₱25,217,556,000;
(c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTIC’s 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 ₱25,217,556,000
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 Pacific’s common shareholdings in PLDT from 30.7 percent to 37 percent, and this,
combined with Japanese NTT DoCoMo’s 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 Pacific’s 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 Japan’s NTT DoCoMo, which is the world’s 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 PLDT’s common equity. x x x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New
York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities breached
the constitutional limit of 40 percent ownership as early as 2003. x x x"7

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares
to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public respondents
committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether
the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common capital stock violates
the constitutional limit on foreign ownership of a public utility.8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached
Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the Petition-in-
Intervention.

Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the
sale by respondents of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-intervention claim that, as
PLDT subscribers, they have a "stake in the outcome of the controversy x x x where the Philippine Government is
completing the sale of government owned assets in [PLDT], unquestionably a public utility, in violation of the nationality
restrictions of the Philippine Constitution."

The Issue

This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which indisputably demand a
thorough examination of the evidence of the parties, are generally beyond this Court’s 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 ₱25,217,556,000 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 tourist’s 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.17There, petitioner Fernandez assailed
on a pure question of law the Regional Trial Court’s Decision of 21 February 2003 via a petition for review under Rule
45. The Court’s 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 issuewhich
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 PLDT’s franchise could be revoked, a dire consequence
directly affecting petitioner’s 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 Tañada 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 Tañada, 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 petitioner’s 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 PLDT’s 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 petitioner’s arguments and adopt petitioner’s 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 Nazareno’s 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 petitioner’s allegation of foreigners’ dominating the common shareholdings of
PLDT. Nazareno stressed mainly that the petition "seeks to divest foreign common shareholders purportedly
exceeding 40% of the total common shareholdings in PLDT of their ownership over their shares." Thus, "the
foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can be heard."34 Essentially,
Nazareno invokes denial of due process on behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term "capital," he states that "among the factual assertions
that need to be established to counter petitioner’s 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 petitioner’s claim of foreigners holding more than 40 percent of PLDT’s 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 Court’s
jurisdiction over the petition; (2) petitioner’s 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 person’s property (the shareholder’s stock in
the utility company) on the basis of another party’s alleged failure to satisfy a requirement that is a condition only for
that other party’s 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 PLDT’s 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.
xxx

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 Court’s 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 Court’s 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 SEC’s 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 corporation’s "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,
petitioner’s suggestion to reckon PLDT’s foreign equity only on the basis of PLDT’s 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 petitioner’s view that only common shares should form the basis for computing a public utility’s 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 Constitution’s 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 (₱5.00) pesos per share: Provided, further, That
the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not
be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal
requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be
equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such
shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act
as provided in this Code shall be deemed to refer only to stocks with voting rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation.43 This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation.44 In the absence of provisions in the articles of incorporation denying voting rights
to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders
are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other
matters, on the theory that the preferred shareholders are merely investors in the corporation for income in the same
manner as bondholders.45 In fact, under the Corporation Code only preferred or redeemable shares can be deprived of
the right to vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision
in the articles of incorporation restricting the right of common shareholders to vote is invalid. 47

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which
usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election of directors, then the term "capital"
shall include such preferred shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term "capital" in Section 11, Article
XII of the Constitution refers only to shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens
the control and management of public utilities. As revealed in the deliberations of the Constitutional Commission,
"capital" refers to the voting stock or controlling interest of a corporation, to wit:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40
in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity requirement, is
it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation"? Will
the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided
us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of voting
stock."

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital
stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity
invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather
rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.48

xxxx

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling interest."

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or associations
at least sixty percent of whose CAPITAL is owned by such citizens."

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent
of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares.
So we can have a situation where the corporation is controlled by foreigners despite being the minority
because they have the voting capital. That is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Constitutions
is that according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we
say "CAPITAL."

MR. AZCUNA. We should not eliminate the phrase "controlling interest."

MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)

Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the corporation. Reinforcing
this interpretation of the term "capital," as referring to controlling interest or shares entitled to vote, is the definition of
a "Philippine national" in the Foreign Investments Act of 1991,50 to wit:

SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at
least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens
of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly
owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to
vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%)
of the members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order that
the corporation, shall be considered a "Philippine national." (Emphasis supplied)

In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of the Foreign Investments
Act of 1991 provide:

b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by
the citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least
sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens of
the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the benefit of the Philippine
nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange
Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to
vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the
members of the Board of Directors of each of both corporation must be citizens of the Philippines, in order that the
corporation shall be considered a Philippine national. The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to
vote are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-
Philippine nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The
legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals
in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]."

Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the Philippines or to corporations
or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as
Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has reserved certain areas of
investments to Filipino citizens or to corporations at least sixty percent of the "capital" of which is owned by Filipino
citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine
Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977;
(4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004
or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or
P.D. No. 1521. Hence, the term "capital" in Section 11, Article XII of the Constitution is also used in the same
context in numerous laws reserving certain areas of investments to Filipino citizens.

To construe broadly the term "capital" as the total outstanding capital stock, including both common and non-
votingpreferred 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 (₱1.00) 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. PLDT’s 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. PLDT’s
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 PLDT’s 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 PLDT’s 2010 General Information Sheet (GIS),54 which is a document required to be submitted annually
to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos
hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total number of PLDT’s 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
SIP58preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the
common shares at ₱70.00 per share, while the declared dividends for the preferred shares amounted to a measly ₱1.00
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 PLDT’s 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is ₱5.00 per share,
whereas the par value of preferred shares is ₱10.00 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 State’s 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 PLDT’s 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 ₱5.00 have a current stock market value of ₱2,328.00
per share,64 while PLDT preferred shares with a par value of ₱10.00 per share have a current stock market value ranging
from only ₱10.92 to ₱11.06 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 State’s constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation
certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino citizens, such as
the exploitation of natural resources as well as the ownership of land, educational institutions and advertising
businesses. The Court should never open to foreign control what the Constitution has expressly reserved to Filipinos for
that would be a betrayal of the Constitution and of the national interest. The Court must perform its solemn duty to
defend and uphold the intent and letter of the Constitution to ensure, in the words of the Constitution, "a self-reliant
and independent national economy effectively controlled by Filipinos."

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the development of natural resources and ownership of land, educational
institutions and advertising business, is self-executing. There is no need for legislation to implement these self-
executing provisions of the Constitution. The rationale why these constitutional provisions are self-executing was
explained in Manila Prince Hotel v. GSIS,66 thus:

x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the
presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are treated
as requiring legislation instead of self-executing, the legislature would have the power to ignore and practically nullify
the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always been,
that —

. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . . Unless
the contrary is clearly intended, the provisions of the Constitution should be considered self-executing, as
a contrary rule would give the legislature discretion to determine when, or whether, they shall be effective.
These provisions would be subordinated to the will of the lawmaking body, which could make them entirely meaningless
by simply refusing to pass the needed implementing statute. (Emphasis supplied)

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed
that constitutional provisions are presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future legislation
for their enforcement. The reason is not difficult to discern. For if they are not treated as self-executing, the
mandate of the fundamental law ratified by the sovereign people can be easily ignored and nullified by
Congress. Suffused with wisdom of the ages is the unyielding rule that legislative actions may give breath
to constitutional rights but congressional inaction should not suffocate them.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the rights
of a person under custodial investigation, the rights of an accused, and the privilege against self-incrimination. It is
recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions guaranteeing the
fundamental rights of life, liberty and the protection of property. The same treatment is accorded to constitutional
provisions forbidding the taking or damaging of property for public use without just compensation. (Emphasis supplied)

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the provisions
of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68this Court ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as
both the citizen and the alien have violated the law, none of them should have a recourse against the other, and it
should only be the State that should be allowed to intervene and determine what is to be done with the property subject
of the violation. We have said that what the State should do or could do in such matters is a matter of public policy,
entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27,
1956.) While the legislature has not definitely decided what policy should be followed in cases of violations
against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be
null and void as violative of the Constitution. x x x (Emphasis supplied)

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution,
or over the last 75 years, not one of the constitutional provisions expressly reserving specific areas of investments to
corporations, at least 60 percent of the "capital" of which is owned by Filipinos, was enforceable. In short, the framers
of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment,
like the operation by corporations of public utilities, the exploitation by corporations of mineral resources, the ownership
by corporations of real estate, and the ownership of educational institutions. All the legislatures that convened since
1935 also miserably failed to enact legislations to implement these vital constitutional provisions that determine who
will effectively control the national economy, Filipinos or foreigners. This Court cannot allow such an absurd
interpretation of the Constitution.

This Court has held that the SEC "has both regulatory and adjudicative functions."69 Under its regulatory functions, the
SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same.
Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide a
possible violation of any law it administers or enforces when it is mandated by law to investigate such violation.1awphi1

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles
of Incorporation of any corporation where "the required percentage of ownership of the capital stock to be
owned by citizens of the Philippines has not been complied with as required by existing laws or the
Constitution." Thus, the SEC is the government agency tasked with the statutory duty to enforce the nationality
requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This Court, in a
petition for declaratory relief that is treated as a petition for mandamus as in the present case, can direct the SEC to
perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do based on the
2010 GIS that respondent PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the "power and function" to "suspend
or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds provided by law." The SEC is mandated under Section
5(d) of the same Code with the "power and function" to "investigate x x x the activities of persons to ensure
compliance" with the laws and regulations that SEC administers or enforces. The GIS that all corporations are required
to submit to SEC annually should put the SEC on guard against violations of the nationality requirement prescribed in
the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief that is treated as
a petition for mandamus as in the present case, to hear and decide a possible violation of Section 11, Article XII of the
Constitution in view of the ownership structure of PLDT’s voting shares, as admitted by respondents and as stated in
PLDT’s 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.
G.R. No. 140288 October 23, 2006

ST. AVIATION SERVICES CO., PTE., LTD., petitioner,

vs.
GRAND INTERNATIONAL AIRWAYS, INC., respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

Challenged in the instant Petition for Review on Certiorari are the Decision of the Court of Appeals dated July 30, 1999
and its Resolution dated September 29, 1999 in CA-G.R. SP No. 51134 setting aside the Orders dated October 30, 1998
and December 16, 1998 of the Regional Trial Court (RTC), Branch 117, Pasay City in Civil Case No. 98-1389.

St. Aviation Services Co., Pte., Ltd., petitioner, is a foreign corporation based in Singapore. It is engaged in the
manufacture, repair, and maintenance of airplanes and aircrafts. Grand International Airways, Inc., respondent, is a
domestic corporation engaged in airline operations.

Sometime in January 1996, petitioner and respondent executed an "Agreement for the Maintenance and Modification of
Airbus A 300 B4-103 Aircraft Registration No. RP-C8882" (First Agreement). Under this stipulation, petitioner agreed to
undertake maintenance and modification works on respondent's aircraft. The parties agreed on the mode and manner
of payment by respondent of the contract price, including interest in case of default. They also agreed that the
"construction, validity and performance thereof" shall be governed by the laws of Singapore. They further agreed to
submit any suit arising from their agreement to the non-exclusive jurisdiction of the Singapore courts.

At about the same time, or on January 12, 1996, the parties verbally agreed that petitioner will repair and undertake
maintenance works on respondent's other aircraft, Aircraft No. RP-C8881; and that the works shall be based on a
General Terms of Agreement (GTA). The GTA terms are similar to those of their First Agreement.

Petitioner undertook the contracted works and thereafter promptly delivered the aircrafts to respondent. During the
period from March 1996 to October 1997, petitioner billed respondent in the total amount of US$303,731.67 or
S$452,560.18. But despite petitioner's repeated demands, respondent failed to pay, in violation of the terms agreed
upon.

On December 12, 1997, petitioner filed with the High Court of the Republic of Singapore an action for the sum of
S$452,560.18, including interest and costs, against respondent, docketed as Suit No. 2101. Upon petitioner's motion,
the court issued a Writ of Summons to be served extraterritorially or outside Singapore upon respondent. The court
sought the assistance of the sheriff of Pasay City to effect service of the summons upon respondent. However, despite
receipt of summons, respondent failed to answer the claim.

On February 17, 1998, on motion of petitioner, the Singapore High Court rendered a judgment by default against
respondent.

On August 4, 1998, petitioner filed with the RTC, Branch 117, Pasay City, a Petition for Enforcement of Judgment,
docketed as Civil Case No. 98-1389.

Respondent filed a Motion to Dismiss the Petition on two grounds: (1) the Singapore High Court did not acquire
jurisdiction over its person; and (2) the foreign judgment sought to be enforced is void for having been rendered in
violation of its right to due process.

On October 30, 1998, the RTC denied respondent's motion to dismiss, holding that "neither one of the two grounds (of
Grand) is among the grounds for a motion to dismiss under Rule 16 of the 1997 Rules of Civil Procedure."

Respondent filed a motion for reconsideration but was denied by the RTC in its Order dated December 16, 1998.

On February 15, 1999, respondent filed with the Court of Appeals a Petition for Certiorari assailing the RTC Order
denying its motion to dismiss. Respondent alleged that the extraterritorial service of summons on its office in the
Philippines is defective and that the Singapore court did not acquire jurisdiction over its person. Thus, its judgment
sought to be enforced is void. Petitioner, in its comment, moved to dismiss the petition for being unmeritorious.

On July 30, 1999, the Court of Appeals issued its Decision granting the petition and setting aside the Orders dated
October 30, 1998 and December 16, 1998 of the RTC "without prejudice to the right of private respondent to initiate
another proceeding before the proper court to enforce its claim." It found:

In the case at bar, the complaint does not involve the personal status of plaintiff, nor any property in which the
defendant has a claim or interest, or which the private respondent has attached but purely an action for collection
of debt. It is a personal action as well as an action in personam, not an action in rem or quasi in rem. As a
personal action, the service of summons should be personal or substituted, not extraterritorial, in order to confer
jurisdiction on the court.

Petitioner seasonably filed a motion for reconsideration but it was denied on September 29, 1999.

Hence, the instant Petition for Review on Certiorari.

The issues to be resolved are: (1) whether the Singapore High Court has acquired jurisdiction over the person of
respondent by the service of summons upon its office in the Philippines; and (2) whether the judgment by default in
Suit No. 2101 by the Singapore High Court is enforceable in the Philippines.

Generally, in the absence of a special contract, no sovereign is bound to give effect within its dominion to a judgment
rendered by a tribunal of another country; however, under the rules of comity, utility and convenience, nations have
established a usage among civilized states by which final judgments of foreign courts of competent jurisdiction are
reciprocally respected and rendered efficacious under certain conditions that may vary in different countries.1 Certainly,
the Philippine legal system has long ago accepted into its jurisprudence and procedural rules the viability of an action
for enforcement of foreign judgment, as well as the requisites for such valid enforcement, as derived from internationally
accepted doctrines.2

The conditions for the recognition and enforcement of a foreign judgment in our legal system are contained in Section
48, Rule 39 of the 1997 Rules of Civil Procedure, as amended, thus:

SEC. 48. Effect of foreign judgments. – The effect of a judgment or final order of a tribunal of a foreign country,
having jurisdiction to render the judgment or final order is as follows:

(a) In case of a judgment or final order upon a specific thing, the judgment or final order is conclusive
upon the title to the thing; and

(b) In case of a judgment or final order against a person, the judgment or final order is presumptive
evidence of a right as between the parties and their successors in interest by a subsequent title;

In either case, the judgment or final order may be repelled by evidence of a want of jurisdiction, want of notice
to the party, collusion, fraud, or clear mistake of law or fact.

Under the above Rule, a foreign judgment or order against a person is merely presumptive evidence of a right as
between the parties. It may be repelled, among others, by want of jurisdiction of the issuing authority or by want of
notice to the party against whom it is enforced. The party attacking a foreign judgment has the burden of overcoming
the presumption of its validity.3

Respondent, in assailing the validity of the judgment sought to be enforced, contends that the service of summons is
void and that the Singapore court did not acquire jurisdiction over it.

Generally, matters of remedy and procedure such as those relating to the service of process upon a defendant are
governed by the lex fori or the internal law of the forum,4 which in this case is the law of Singapore. Here, petitioner
moved for leave of court to serve a copy of the Writ of Summons outside Singapore. In an Order dated December 24,
1997, the Singapore High Court granted "leave to serve a copy of the Writ of Summons on the Defendant by a method
of service authorized by the law of the Philippines for service of any originating process issued by the Philippines at
ground floor, APMC Building, 136 Amorsolo corner Gamboa Street, 1229 Makati City, or elsewhere in the
Philippines."5 This service of summons outside Singapore is in accordance with Order 11, r. 4(2) of the Rules of Court
19966 of Singapore, which provides.

(2) Where in accordance with these Rules, an originating process is to be served on a defendant in any country
with respect to which there does not subsist a Civil Procedure Convention providing for service in that country
of process of the High Court, the originating process may be served –

a) through the government of that country, where that government is willing to effect service;

b) through a Singapore Consular authority in that country, except where service through such an authority is
contrary to the law of the country; or

c) by a method of service authorized by the law of that country for service of any originating process
issued by that country.

In the Philippines, jurisdiction over a party is acquired by service of summons by the sheriff, 7 his deputy or other proper
court officer either personally by handing a copy thereof to the defendant 8 or by substituted service.9 In this case, the
Writ of Summons issued by the Singapore High Court was served upon respondent at its office located at Mercure Hotel
(formerly Village Hotel), MIA Road, Pasay City. The Sheriff's Return shows that it was received on May 2, 1998 by Joyce
T. Austria, Secretary of the General Manager of respondent company.10 But respondent completely ignored the
summons, hence, it was declared in default.

Considering that the Writ of Summons was served upon respondent in accordance with our Rules, jurisdiction was
acquired by the Singapore High Court over its person. Clearly, the judgment of default rendered by that court against
respondent is valid.

WHEREFORE, we GRANT the petition. The challenged Decision and Resolution of the Court of Appeals in CA-G.R. SP
No. 51134 are set aside. The RTC, Branch 117, Pasay City is hereby DIRECTED to hear Civil Case No. 98-1389 with
dispatch. SO ORDERED.
 [G.R. No. 137378. October 12, 2000]

PHILIPPINE ALUMINUM WHEELS, INC., petitioner, vs. FASGI ENTERPRISES, INC., respondent.

DECISION

VITUG, J.:

On 01 June 1978, FASGI Enterprises Incorporated ("FASGI"), a corporation organized and existing under and by
virtue of the laws of the State of California, United States of America, entered into a distributorship arrangement with
Philippine Aluminum Wheels, Incorporated ("PAWI"), a Philippine corporation, and Fratelli Pedrini Sarezzo S.P.A. ("FPS"),
an Italian corporation. The agreement provided for the purchase, importation and distributorship in the United States
of aluminum wheels manufactured by PAWI. Pursuant to the contract, PAWI shipped to FASGI a total of eight thousand
five hundred ninety four (8,594) wheels, with an FOB value of US$216,444.30 at the time of shipment, the first batch
arriving in two containers and the second in three containers. Thereabouts, FASGI paid PAWI the FOB value of the
wheels. Unfortunately, FASGI later found the shipment to be defective and in non-compliance with stated
requirements, viz;

"A. contrary to the terms of the Distributorship Agreement and in violation of U.S. law, the country of origin (the
Philippines) was not stamped on the wheels;

"B. the wheels did not have weight load limits stamped on them as required to avoid mounting on excessively heavy
vehicles, resulting in risk of damage or bodily injury to consumers arising from possible shattering of the wheels;

"C. many of the wheels did not have an indication as to which models of automobile they would fit;

"D. many of the wheels did not fit the model automobiles for which they were purportedly designed;

"E. some of the wheels did not fit any model automobile in use in the United States;

"F. most of the boxes in which the wheels were packed indicated that the wheels were approved by the Specialty
Equipment Manufacturer's Association (hereafter, `SEMA'); in fact no SEMA approval has been obtained and this
indication was therefore false and could result in fraud upon retail customers purchasing the wheels." [1]

On 21 September 1979, FASGI instituted an action against PAWI and FPS for breach of contract and recovery of damages
in the amount of US$2,316,591.00 before the United States District Court for the Central District of California. In January
1980, during the pendency of the case, the parties entered into a settlement, entitled "Transaction" with the
corresponding Italian translation "Convenzione Transsativa," where it was stipulated that FPS and PAWI would accept
the return of not less than 8,100 wheels after restoring to FASGI the purchase price of US$268,750.00 via four (4)
irrevocable letters of credit ("LC"). The rescission of the contract of distributorship was to be effected within the period
starting January up until April 1980.[2]

In a telex message, dated 02 March 1980, PAWI president Romeo Rojas expressed the company's inability to
comply with the foregoing agreement and proposed a revised schedule of payment. The message, in part, read:

"We are most anxious in fulfilling all our obligations under compromise agreement executed by our Mr. Giancarlo Dallera
and your Van Curen. We have tried our best to comply with our commitments, however, because of the situation as
mentioned in the foregoing and currency regulations and restrictions imposed by our government on the outflow, of
foreign currency from our country, we are constrained to request for a revised schedule of shipment and opening of
L/Cs.

"After consulting with our bank and government monetary agencies and on the assumption that we submit the required
pro-forma invoices we can open the letters of credit in your favor under the following schedule:

"A) First L/C - it will be issued in April 1980 payable 90 days thereafter

"B) Second L/C - it will be issued in June 1980 payable 90 days thereafter

"C) Third L/C - it will be issued in August 1980 payable 90 days thereafter

"D) Fourth L/C - it will be issued in November 1980 payable 90 days thereafter

"We understand your situation regarding the lease of your warehouse. For this reason, we are willing to defray the extra
storage charges resulting from this new schedule. If you cannot renew the lease [of] your present warehouse, perhaps
you can arrange to transfer to another warehouse and storage charges transfer thereon will be for our account. We
hope you understand our position. The delay and the revised schedules were caused by circumstances totally beyond
our control."[3]

On 21 April 1980, again through a telex message, PAWI informed FASGI that it was impossible to open a letter of
credit on or before April 1980 but assured that it would do its best to comply with the suggested schedule of
payments.[4] In its telex reply of 29 April 1980, FASGI insisted that PAWI should meet the terms of the proposed
schedule of payments, specifically its undertaking to open the first LC within April of 1980, and that "If the letter of
credit is not opened by April 30, 1980, then x x x [it would] immediately take all necessary legal action to protect [its]
position."[5]

Despite its assurances, and FASGI's insistence, PAWI failed to open the first LC in April 1980 allegedly due to
Central Bank "inquiries and restrictions," prompting FASGI to pursue its complaint for damages against PAWI before the
California district court. Pre-trial conference was held on 24 November 1980. In the interim, the parties, realizing the
protracted process of litigation, resolved to enter into another arrangement, this time entitled "Supplemental Settlement
Agreement," on 26 November 1980. In substance, the covenant provided that FASGI would deliver to PAWI a container
of wheels for every LC opened and paid by PAWI:

"3. Agreement

"3.1 Sellers agree to pay FASGI Two Hundred Sixty-Eight Thousand, Seven Hundred Fifty and 00/100 Dollars
($268,750.00), plus interest and storage costs as described below. Sellers shall pay such amount by delivering to FASGI
the following four (4) irrevocable letters of credit, confirmed by Crocker Bank, Main Branch, Fresno, California, as set
forth below:

"(i) on or before June 30, 1980, a documentary letter of credit in the amount of (a) Sixty-Five Thousand, Three Hundred
Sixty-nine and 00/100 Dollars ($65,369.00), (b) plus interest on that amount at the annual rate of 16.25% from January
1, 1980 until July 31, 1980, (c) plus Two Thousand Nine Hundred Forty Dollars and 00/100 ($2,940.00) and (d) with
interest on that sum at the annual rate of 16.25% from May 1, 1980 to July 31, 1980, payable on or after August 31,
1980;

"(ii) on or before September 1, 1980, a documentary letter of credit in the amount of (a) Sixty-Seven Thousand, Seven
Hundred Ninety-Three Dollars and Sixty-Seven Cents ($67,793.67) plus (b) Two Thousand, Nine Hundred Forty and
00/100 Dollars ($2,940.00), plus (c) interest at an annual rate equal to the prime rate of Crocker Bank, San Francisco,
in effect from time to time, plus two percent on the amount in (a) from January 1, 1980 until December 21, 1980, and
on the amount set forth in (b) from May 1, 1980 until December 21, 1980, payable ninety days after the date of the bill
of lading under the letter of credit;

"(iii) on or before November 1, 1980, a documentary letter of credit in the amount of (a) Sixty-Seven Thousand, Seven
Hundred Ninety-Three Dollars and Sixty-Seven Cents ($67,793.67) plus (b) Two Thousand, Nine Hundred Forty and
00/100 Dollars ($2,490.00), plus (c) interest at an annual rate equal to the prime rate of Crocker Bank, San Francisco,
in effect from time to time, plus two percent on the amount in (a) from January 1, 1980 until February 21, 1981, and
on the amount set forth in (b) from May 1, 1980 until February 21, 1981, payable ninety days after the date of the bill
of lading under the latter of credit;

"(iv) on or before January 1, 1981, a documentary letter of credit in the amount of (a) Sixty-Seven Thousand, Seven
Hundred Ninety-Three Dollars and Sixty-Seven Cents ($67,793.67) plus (b) Five Thousand, Eight Hundred Eighty and
00/100 Dollars ($5,880.00), plus (c) interest at an annual rate equal to the prime rate of Crocker Bank, San Francisco,
in effect from time to time, plus two percent on the amount in (a) from January 1, 1980 until April 21, 1981, and on
the amount set forth in (b) from May 1, 1980 until April 21, 1981, payable ninety days after the date of the bill of lading
under the latter of credit."[6]

Anent the wheels still in the custody of FASGI, the supplemental settlement agreement provided that -

"3.4 (a) Upon execution of this Supplemental Settlement Agreement, the obligations of FASGI to store or maintain the
Containers and Wheels shall be limited to (i) storing the Wheels and Containers in their present warehouse location and
(ii) maintaining in effect FASGI's current insurance in favor of FASGI, insuring against usual commercial risks for such
storage in the principal amount of the Letters of Credit described in Paragraph 3.1. FASGI shall bear no liability,
responsibility or risk for uninsurable risks or casualties to the Containers or Wheels.

"x x x x x x x x x

"(e) From and after February 28, 1981, unless delivery of the Letters of Credit are delayed past such date pursuant to
the penultimate Paragraph 3.1, in which case from and after such later date, FASGI shall have no obligation to maintain,
store or deliver any of the Containers or Wheels."[7]

The deal allowed FASGI to enter before the California court the foregoing stipulations in the event of the failure of PAWI
to make good the scheduled payments; thus -

"3.5 Concurrently with execution and delivery hereof, the parties have executed and delivered a Mutual Release (the
`Mutual Release'), and a Stipulation for Judgment (the `Stipulation for Judgment') with respect to the Action. In the
event of breach of this Supplemental Settlement Agreement by Sellers, FASGI shall have the right to apply immediately
to the Court for entry of Judgment pursuant to the Stipulation for Judgment in the full amount thereof, less credit for
any payments made by Sellers pursuant to this Supplemental Settlement Agreement. FASGI shall have the right
thereafter to enforce the Judgment against PAWI and FPS in the United States and in any other country where assets
of FPS or PAWI may be located, and FPS and PAWI hereby waive all defenses in any such country to execution or
enforcement of the Judgment by FASGI. Specifically, FPS and PAWI each consent to the jurisdiction of the Italian and
Philippine courts in any action brought by FASGI to seek a judgment in those countries based upon a judgment against
FPS or PAWI in the Action."[8]

In accordance with the aforementioned paragraph 3.5 of the agreement, the parties made the following stipulation
before the California court:

"The undersigned parties hereto, having entered into a Supplemental Settlement Agreement in this action,
"IT IS HEREBY STIPULATED by and between plaintiff FASGI Enterprises, Inc. (`FASGI') and defendants Philippine
Aluminum Wheels, Inc., (`PAWI'), and each of them, that judgment may be entered in favor of plaintiff FASGI and
against PAWI, in the amount of Two Hundred Eighty Three Thousand Four Hundred Eighty And 01/100ths Dollars
($283,480.01).

"Plaintiff FASGI shall also be entitled to its costs of suit, and to reasonable attorneys' fees as determined by the Court
added to the above judgment amount."[9]

The foregoing supplemental settlement agreement, as well as the motion for the entry of judgment, was executed by
FASGI president Elena Buholzer and PAWI counsel Mr. Thomas Ready.

PAWI, again, proved to be remiss in its obligation under the supplemental settlement agreement. While it opened
the first LC on 19 June 1980, it, however, only paid on it nine (9) months after, or on 20 March 1981, when the letters
of credit by then were supposed to have all been already posted. This lapse, notwithstanding, FASGI promptly shipped
to PAWI the first container of wheels. Again, despite the delay incurred by PAWI on the second LC, FASGI readily
delivered the second container. Later, PAWI totally defaulted in opening and paying the third and the fourth LCs,
scheduled to be opened on or before, respectively, 01 September 1980 and 01 November 1980, and each to be paid
ninety (90) days after the date of the bill of lading under the LC. As so expressed in their affidavits, FASGI counsel
Frank Ker and FASGI president Elena Buholzer were more inclined to believe that PAWI's failure to pay was due not to
any restriction by the Central Bank or any other cause than its inability to pay. These doubts were based on the telex
message of PAWI president Romeo Rojas who attached a copy of a communication from the Central Bank notifying
PAWI of the bank's approval of PAWI's request to open LCs to cover payment for the re-importation of the wheels. The
communication having been sent to FASGI before the supplemental settlement agreement was executed, FASGI
speculated that at the time PAWI subsequently entered into the supplemental settlement agreement, its request to open
LCs had already been approved by the Central Bank. Irked by PAWI's persistent default, FASGI filed with the US District
Court of the Central District of California the following stipulation for judgment against PAWI.

"PLEASE TAKE NOTICE that on May 17, 1982 at 10:00 A.M. in the Courtroom of the Honorable Laughlin E. Waters of
the above Court, plaintiff FASGI ENTERPRISES, INC. (hereinafter `FASGI') will move the Court for entry of Judgment
against defendant PHILIPPINE ALUMINUM WHEELS, INC. (hereinafter `PAWI'), pursuant to the Stipulation for Judgment
filed concurrently herewith, executed on behalf of FASGI and PAWI by their respective attorneys, acting as their
authorized agents.

"Judgment will be sought in the total amount of P252,850.60, including principal and interest accrued through May 17,
1982, plus the sum of $17,500.00 as reasonable attorneys' fees for plaintiff in prosecuting this action.

"The Motion will be made under Rule 54 of the Federal Rules of Civil Procedure, pursuant to and based upon the
Stipulation for Judgment, the Supplemental Settlement Agreement filed herein on or about November 21, 1980, the
Memorandum of Points and Authorities and Affidavits of Elena Buholzer, Franck G. Ker and Stan Cornwell all filed
herewith, and upon all the records, files and pleadings in this action.

"The Motion is made on the grounds that defendant PAWI has breached its obligations as set forth in the Supplemental
Settlement Agreement, and that the Supplemental Settlement Agreement expressly permits FASGI to enter the
Stipulation for Judgment in the event that PAWI has not performed under the Supplemental Settlement Agreement."[10]

On 24 August 1982, FASGI filed a notice of entry of judgment. A certificate of finality of judgment was issued,
on 07 September 1982, by the US District Judge of the District Court for the Central District of California.PAWI, by this
time, was approximately twenty (20) months in arrears in its obligation under the supplemental settlement agreement.

Unable to obtain satisfaction of the final judgment within the United States, FASGI filed a complaint for
"enforcement of foreign judgment" in February 1983, before the Regional Trial Court, Branch 61, of Makati,
Philippines. The Makati court, however, in an order of 11 September 1990, dismissed the case, thereby denying the
enforcement of the foreign judgment within Philippine jurisdiction, on the ground that the decree was tainted with
collusion, fraud, and clear mistake of law and fact.[11] The lower court ruled that the foreign judgment ignored the
reciprocal obligations of the parties. While the assailed foreign judgment ordered the return by PAWI of the purchase
amount, no similar order was made requiring FASGI to return to PAWI the third and fourth containers of wheels. [12] This
situation, the trial court maintained, amounted to an unjust enrichment on the part of FASGI. Furthermore, the trial
court said, the supplemental settlement agreement and the subsequent motion for entry of judgment upon which the
California court had based its judgment were a nullity for having been entered into by Mr. Thomas Ready, counsel for
PAWI, without the latter's authorization.

FASGI appealed the decision of the trial court to the Court of Appeals. In a decision,[13] dated 30 July 1997, the
appellate court reversed the decision of the trial court and ordered the full enforcement of the California judgment.

Hence this appeal.

Generally, in the absence of a special compact, no sovereign is bound to give effect within its dominion to a
judgment rendered by a tribunal of another country;[14] however, the rules of comity, utility and convenience of nations
have established a usage among civilized states by which final judgments of foreign courts of competent jurisdiction are
reciprocally respected and rendered efficacious under certain conditions that may vary in different countries. [15]

In this jurisdiction, a valid judgment rendered by a foreign tribunal may be recognized insofar as the immediate
parties and the underlying cause of action are concerned so long as it is convincingly shown that there has been an
opportunity for a full and fair hearing before a court of competent jurisdiction; that trial upon regular proceedings has
been conducted, following due citation or voluntary appearance of the defendant and under a system of jurisprudence
likely to secure an impartial administration of justice; and that there is nothing to indicate either a prejudice in court
and in the system of laws under which it is sitting or fraud in procuring the judgment. [16] A foreign judgment is presumed
to be valid and binding in the country from which it comes, until a contrary showing, on the basis of a presumption of
regularity of proceedings and the giving of due notice in the foreign forum. Rule 39, section 48 of the Rules of Court of
the Philippines provides:
Sec. 48. Effect of foreign judgments or final orders - The effect of a judgment or final order of a tribunal of a foreign
country, having jurisdiction to render the judgment or final order is as follows:

xxxx

(b) In case of a judgment or final order against a person, the judgment or final order is presumptive evidence of a right
as between the parties and their successors-in-interest by a subsequent title.

In either case, the judgment or final order may be repelled by evidence a want of jurisdiction, want of notice to the
party, collusion, fraud, or clear mistake of law or fact.

In Soorajmull Nagarmull vs. Binalbagan-Isabela Sugar Co. Inc.,[17] one of the early Philippine cases on the
enforcement of foreign judgments, this Court has ruled that a judgment for a sum of money rendered in a foreign court
is presumptive evidence of a right between the parties and their successors-in-interest by subsequent title, but when
suit for its enforcement is brought in a Philippine court, such judgment may be repelled by evidence of want of
jurisdiction, want of notice to the party, collusion, fraud or clear mistake of law or fact. In Northwest Orient Airlines,
Inc., vs. Court of Appeals,[18] the Court has said that a party attacking a foreign judgment is tasked with the burden of
overcoming its presumptive validity.

PAWI claims that its counsel, Mr. Ready, has acted without its authority. Verily, in this jurisdiction, it is clear that
an attorney cannot, without a client's authorization, settle the action or subject matter of the litigation even when he
honestly believes that such a settlement will best serve his client's interest.[19]

In the instant case, the supplemental settlement agreement was signed by the parties, including Mr. Thomas Ready,
on 06 October 1980. The agreement was lodged in the California case on 26 November 1980 or two (2) days after the
pre-trial conference held on 24 November 1980. If Mr. Ready was indeed not authorized by PAWI to enter into the
supplemental settlement agreement, PAWI could have forthwith signified to FASGI a disclaimer of the
settlement. Instead, more than a year after the execution of the supplemental settlement agreement, particularly on 09
October 1981, PAWI President Romeo S. Rojas sent a communication to Elena Buholzer of FASGI that failed to mention
Mr. Ready's supposed lack of authority. On the contrary, the letter confirmed the terms of the agreement when Mr.
Rojas sought forbearance for the impending delay in the opening of the first letter of credit under the schedule stipulated
in the agreement.

It is an accepted rule that when a client, upon becoming aware of the compromise and the judgment thereon, fails
to promptly repudiate the action of his attorney, he will not afterwards be heard to complain about it. [20]

Nor could PAWI claim any prejudice by the settlement. PAWI was spared from possibly paying FASGI substantial
amounts of damages and incurring heavy litigation expenses normally generated in a full-blown trial.PAWI, under the
agreement was afforded time to reimburse FASGI the price it had paid for the defective wheels. PAWI, should not, after
its opportunity to enjoy the benefits of the agreement, be allowed to later disown the arrangement when the terms
thereof ultimately would prove to operate against its hopeful expectations.

PAWI assailed not only Mr. Ready's authority to sign on its behalf the Supplemental Settlement Agreement but
denounced likewise his authority to enter into a stipulation for judgment before the California court on 06 August
1982 on the ground that it had by then already terminated the former's services. For his part, Mr. Ready admitted that
while he did receive a request from Manuel Singson of PAWI to withdraw from the motion of judgment, the request
unfortunately came too late. In an explanatory telex, Mr. Ready told Mr. Singson that under American Judicial Procedures
when a motion for judgment had already been filed a counsel would not be permitted to withdraw unilaterally without
a court order. From the time the stipulation for judgment was entered into on 26 April 1982 until the certificate of finality
of judgment was issued by the California court on 07 September 1982, no notification was issued by PAWI to FASGI
regarding its termination of Mr. Ready's services. If PAWI were indeed hoodwinked by Mr. Ready who purportedly acted
in collusion with FASGI, it should have aptly raised the issue before the forum which issued the judgment in line with
the principle of international comity that a court of another jurisdiction should refrain, as a matter of propriety and
fairness, from so assuming the power of passing judgment on the correctness of the application of law and the evaluation
of the facts of the judgment issued by another tribunal.[21]

Fraud, to hinder the enforcement within this jurisdiction of a foreign judgment, must be extrinsic, i.e., fraud based
on facts not controverted or resolved in the case where judgment is rendered, [22] or that which would go to the
jurisdiction of the court or would deprive the party against whom judgment is rendered a chance to defend the action
to which he has a meritorious case or defense. In fine, intrinsic fraud, that is, fraud which goes to the very existence of
the cause of action - such as fraud in obtaining the consent to a contract - is deemed already adjudged, and it, therefore,
cannot militate against the recognition or enforcement of the foreign judgment.[23]

Even while the US judgment was against both FPS and PAWI, FASGI had every right to seek enforcement of the
judgment solely against PAWI or, for that matter, only against FPS. FASGI, in its complaint, explained:

"17. There exists, and at all times relevant herein there existed, a unity of interest and ownership between defendant
PAWI and defendant FPS, in that they are owned and controlled by the same shareholders and managers, such that any
individuality and separateness between these defendants has ceased, if it ever existed, and defendant FPS is the alter
ego of defendant PAWI. The two entities are used interchangeably by their shareholders and managers, and plaintiff
has found it impossible to ascertain with which entity it is dealing at any one time. Adherence to the fiction of separate
existence of these defendant corporations would permit an abuse of the corporate privilege and would promote injustice
against this plaintiff because assets can easily be shifted between the two companies thereby frustrating plaintiff's
attempts to collect on any judgment rendered by this Court."[24]

Paragraph 14 of the Supplemental Settlement Agreement fixed the liability of PAWI and FPS to be "joint and several"
or solidary. The enforcement of the judgment against PAWI alone would not, of course, preclude it from pursuing and
recovering whatever contributory liability FPS might have pursuant to their own agreement.

PAWI would argue that it was incumbent upon FASGI to first return the second and the third containers of defective
wheels before it could be required to return to FASGI the purchase price therefor, [25] relying on their original agreement
(the "Transaction").[26] Unfortunately, PAWI defaulted on its covenants thereunder that thereby occasioned the
subsequent execution of the supplemental settlement agreement. This time the parties agreed, under paragraph
3.4(e)[27] thereof, that any further default by PAWI would release FASGI from any obligation to maintain, store or deliver
the rejected wheels. The supplemental settlement agreement evidently superseded, at the very least on this point, the
previous arrangements made by the parties.

PAWI cannot, by this petition for review, seek refuge over a business dealing and decision gone awry. Neither do
the courts function to relieve a party from the effects of an unwise or unfavorable contract freely entered into. As has
so aptly been explained by the appellate court, the over-all picture might, indeed, appear to be onerous to PAWI but it
should bear emphasis that the settlement which has become the basis for the foreign judgment has not been the start
of a business venture but the end of a failed one, and each party, naturally, has had to negotiate from either position
of strength or weakness depending on its own perception of who might have to bear the blame for the failure and the
consequence of loss.[28] Altogether, the Court finds no reversible error on the part of the appellate court in its appealed
judgment. WHEREFORE, the decision of the Court of Appeals is AFFIRMED. No costs. SO ORDERED.