G.R. No.
159333 July 31, 2006 its resident agent in the Philippines, authorized to accept summons and processes
ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION,
PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK
AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January
30, 2003 and July 30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the
ruling3 of the National Labor Relations Commission (NLRC), which in turn set aside
the July 30, 2001 Decision4 of the labor arbiter. The labor arbiter declared illegal the
dismissal of petitioner from employment and awarded separation pay, moral and
exemplary damages, and attorney's fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation
organized and existing under the laws of California, USA. It is a subsidiary of
Cellulose Marketing International, a corporation duly organized under the laws of
Sweden, with principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on Representative Office
known as Pacific Forest Resources (Phils.), Inc." 5 with petitioner Arsenio T.
Mendiola (ATM), effective May 1, 1995, "assuming that Pacfor-Phils. is already
approved by the Securities and Exchange Commission [SEC] on the said
date."6 The Side Agreement outlines the business relationship of the parties with
regard to the Philippine operations of Pacfor. Private respondent will establish a
Pacfor representative office in the Philippines, to be known as Pacfor Phils, and
petitioner ATM will be its President. Petitioner's base salary and the overhead
expenditures of the company shall be borne by the representative office and funded
by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and
Pacfor-usa.
On July 14, 1995, the SEC granted the application of private respondent Pacfor for
a license to transact business in the Philippines under the name of Pacfor or Pacfor
Phils.7 In its application, private respondent Pacfor proposed to establish its
representative office in the Philippines with the purpose of monitoring and
coordinating the market activities for paper products. It also designated petitioner as
in all legal proceedings, and all notices affecting the corporation. 8
In March 1997, the Side Agreement was amended through a "Revised Operating
and Profit Sharing Agreement for the Representative Office Known as Pacific Forest
Resources (Philippines),"9 where the salary of petitioner was increased to $78,000
per annum. Both agreements show that the operational expenses will be borne by
the representative office and funded by all parties "as equal partners," while the
profits and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking
confirmation of his 50% equity of Pacfor Phils.10 Private respondent Pacfor, through
William Gleason, its President, replied that petitioner is not a part-owner of Pacfor
Phils. because the latter is merely Pacfor-USA's representative office and not an
entity separate and distinct from Pacfor-USA. "It's simply a 'theoretical company'
with the purpose of dividing the income 50-50."11 Petitioner presumably knew of this
arrangement from the start, having been the one to propose to private respondent
Pacfor the setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes.12
Petitioner claimed that he was all along made to believe that he was in a joint venture
with them. He alleged he would have been better off remaining as an independent
agent or representative of Pacfor-USA as ATM Marketing Corp.13 Had he known
that no joint venture existed, he would not have allowed Pacfor to take the profitable
business of his own company, ATM Marketing Corp.14 Petitioner raised other issues,
such as the rentals of office furniture, salary of the employees, company car, as well
as commissions allegedly due him. The issues were not resolved, hence, in October
2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and
office furniture and equipment rentals, amounting to more than one million dollars. 15
On November 27, 2000, private respondent Pacfor, through counsel, ordered
petitioner to turn over to it all papers, documents, files, records, and other materials
in his or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor
Phils.16 On December 18, 2000, private respondent Pacfor also required petitioner
to remit more than three hundred thousand-peso Christmas giveaway fund for
clients of Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its offers of
settlement and ordered petitioner to transfer title and turn over to it possession of
the service car.18
Private respondent Pacfor likewise sent letters to its clients in the Philippines,
advising them not to deal with Pacfor Phils. In its letter to Intercontinental Paper
Industries, Inc., dated November 21, 2000, private respondent Pacfor stated:
 Until further notice, please course all inquiries and communications for
Pacific Forest Resources (Philippines) to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or
to the offices of ATM Marketing Corporation at Room 504, Concorde
Building, Legaspi Village, Makati City, Philippines.19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated
December 2000, private respondent directed said client "to please communicate
directly with us on any further questions associated with these payments or any
future business. Do not communicate with [Pacfor] and/or [ATM]."20
Petitioner construed these directives as a severance of the "unregistered
partnership" between him and Pacfor, and the termination of his employment as
resident manager of Pacfor Phils.21 In a memorandum to the employees of Pacfor
Phils., dated January 29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc. demanding the
turnover of all records to them effective December 19, 2000. The company
records were turned over only on January 26, 2001. This means our jobs
with Pacific Forest were terminated effective December 19, 2000. I am
concerned about your welfare. I would like to help you by offering you to
work with ATM Marketing Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally
own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis,
Pacfor Phils.' office furniture and equipment and the service car. He also reiterated
his demand for unpaid commissions, and proposed to offset these with the
remaining Christmas giveaway fund in his possession. 23 Furthermore, he did not
renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises
of Pacfor Phils., wherein he was the signatory to the lease agreement.24
On February 2, 2001, private respondent Pacfor placed petitioner on preventive
suspension and ordered him to show cause why no disciplinary action should be
taken against him. Private respondent Pacfor charged petitioner with willful
disobedience and serious misconduct for his refusal to turn over the service car and
the Christmas giveaway fund which he applied to his alleged unpaid commissions.
Private respondent also alleged loss of confidence and gross neglect of duty on the
part of petitioner for allegedly allowing another corporation owned by petitioner's
relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile
numbers of Pacfor, to possibly steal and divert the sales and business of private
respondent for HEPI's principal, International Forest Products, a competitor of
private respondent.25
Petitioner denied the charges. He reiterated that he considered the import of Pacfor
President William Gleason's letters as a "cessation of his position and of the
existence of Pacfor Phils." He likewise informed private respondent Pacfor that ATM
Marketing Corp. now occupies Pacfor Phils.' office premises, 26 and demanded
payment of his separation pay.27 On February 15, 2001, petitioner filed his complaint
for illegal dismissal, recovery of separation pay, and payment of attorney's fees with
the NLRC.28
In the meantime, private respondent Pacfor lodged fresh charges against petitioner.
In a memorandum dated March 5, 2001, private respondent directed petitioner to
explain why he should not be disciplined for serious misconduct and conflict of
interest. Private respondent charged petitioner anew with serious misconduct for the
latter's alleged act of fraud and misrepresentation in authorizing the release of an
additional peso salary for himself, besides the dollar salary agreed upon by the
parties. Private respondent also accused petitioner of disloyalty and representation
of conflicting interests for having continued using the Pacfor Phils.' office for
operations of HEPI. In addition, petitioner allegedly solicited business for HEPI from
a competitor company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive
dismissal. By directing petitioner to turn over all office records and materials,
regardless of whether he may have retained copies, private respondent Pacfor
virtually deprived petitioner of his job by the gradual diminution of his authority as
resident manager. Petitioner's position as resident manager whose duty, among
others, was to maintain the security of its business transactions and communications
was rendered meaningless. The dispositive portion of the decision of the Labor
Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering
herein respondents Cellmark AB and Pacific Forest Resources, Inc., jointly
and severally to compensate complainant Arsenio T. Mendiola separation
pay equivalent to at least one month for every year of service, whichever is
higher (sic), as reinstatement is no longer feasible by reason of the strained
relations of the parties equivalent to five (5) months in the amount of
$32,000.00 plus the sum of P250,000.00; pay complainant the sum
 of P500,000.00 as moral and exemplary damages and ten percent (10%) of
the amounts awarded as and for attorney's fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On
December 20, 2001, the NLRC set aside the July 30, 2001 decision of the labor
arbiter, for lack of jurisdiction and lack of merit.31 It held there was no employer-
employee relationship between the parties. Based on the two agreements between
the parties, it concluded that petitioner is not an employee of private respondent
Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration.32
Petitioner was not successful on his appeal to the Court of Appeals. The appellate
court upheld the ruling of the NLRC.
Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was
denied.
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals committed reversible error and abused
its discretion in rendering judgment against petitioner since jurisdiction has
been acquired over the subject matter of the case as there exists employer-
employee relationship between the parties.
B. The Respondent Court of Appeals committed reversible error and abused
its discretion in ruling that jurisdiction over the subject matter cannot be
waived and may be alleged even for the first time on appeal or considered
by the court motu prop[r]io.35
The first issue is whether an employer-employee relationship exists between
petitioner and private respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he formed with
private respondent Pacfor, and also an employee of the partnership. Petitioner
insists that an industrial partner may at the same time be an employee of the
partnership, provided there is such an agreement, which, in this case, is the "Side
Agreement" and the "Revised Operating and Profit Sharing Agreement." The Court
of Appeals denied the appeal of petitioner, holding that "the legal basis of the
complaint is not employment but perhaps partnership, co-ownership, or independent
contractorship." Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and that no
partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to the firm
capital and of all property that may be acquired thereby and through the efforts of
the members.36 The property or stock of the partnership forms a community of
goods, a common fund, in which each party has a proprietary interest. 37 In fact, the
New Civil Code regards a partner as a co-owner of specific partnership
property.38 Each partner possesses a joint interest in the whole of partnership
property. If the relation does not have this feature, it is not one of partnership.39 This
essential element, the community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner and private
respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason,
private respondent Pacfor's President established this fact when he said that Pacfor
Phils. is simply a "theoretical company" for the purpose of dividing the income 50-
50. He stressed that petitioner knew of this arrangement from the very start, having
been the one to propose to private respondent Pacfor the setting up of a
representative office, and "not a branch office" in the Philippines to save on taxes.
Thus, the parties in this case, merely shared profits. This alone does not make a
partnership.40
Besides, a corporation cannot become a member of a partnership in the absence of
express authorization by statute or charter.41 This doctrine is based on the following
considerations: (1) that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not its duly appointed
and authorized agents and officers, would be inconsistent with the policy of the law
that the corporation shall manage its own affairs separately and exclusively; and, (2)
that such an arrangement would improperly allow corporate property to become
subject to risks not contemplated by the stockholders when they originally invested
in the corporation.42No such authorization has been proved in the case at bar.
Be that as it may, we hold that on the basis of the evidence, an employer-employee
relationship is present in the case at bar. The elements to determine the existence
of an employment relationship are: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee's conduct. The most important element is
the employer's control of the employee's conduct, not only as to the result of the
work to be done, but also as to the means and methods to accomplish it.43
In the instant case, all the foregoing elements are present. First, it was private
respondent Pacfor which selected and engaged the services of petitioner as its
resident agent in the Philippines. Second, as stipulated in their Side Agreement,
private respondent Pacfor pays petitioner his salary amounting to $65,000 per
annum which was later increased to $78,000. Third, private respondent Pacfor holds
the power of dismissal, as may be gleaned through the various memoranda it issued
against petitioner, placing the latter on preventive suspension while charging him
with various offenses, including willful disobedience, serious misconduct, and gross
neglect of duty, and ordering him to show cause why no disciplinary action should
be taken against him.
Lastly and most important, private respondent Pacfor has the power of control over
the means and method of petitioner in accomplishing his work.
The power of control refers merely to the existence of the power, and not to the
actual exercise thereof. The principal consideration is whether the employer has the
right to control the manner of doing the work, and it is not the actual exercise of the
right by interfering with the work, but the right to control, which constitutes the test
of the existence of an employer-employee relationship.44 In the case at bar, private
respondent Pacfor, as employer, clearly possesses such right of control. Petitioner,
as private respondent Pacfor's resident agent in the Philippines, is, exactly so, only
an agent of the corporation, a representative of Pacfor, who transacts business, and
accepts service on its behalf.
This right of control was exercised by private respondent Pacfor during the period of
November to December 2000, when it directed petitioner to turn over to it all records
of Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway fund
intended for clients of Pacfor Phils.; and, when it withdrew all its offers of settlement
and ordered petitioner to transfer title and turn over to it the possession of the service
car. It was also during this period when private respondent Pacfor sent letters to its
clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and
DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its letter
to DAVCOR, private respondent Pacfor replied to the client's request for an invoice
payment extension, and formulated a revised payment program for DAVCOR. This
is one unmistakable proof that private respondent Pacfor exercises control over the
petitioner.
Next, we shall determine if petitioner was constructively dismissed from
employment.
The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils.,
and would not quit however, private respondent Pacfor began to systematically
deprive petitioner of his duties and benefits to make him feel that his presence in the
company was no longer wanted. First, private respondent Pacfor directed petitioner
to turn over to it all records of Pacfor Phils. This would certainly make the work of
petitioner very difficult, if not impossible. Second, private respondent Pacfor ordered
petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.
Then it ordered petitioner to transfer title and turn over to it the possession of the
service car. It also advised its clients in the Philippines, particularly Intercontinental
Paper Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor Phils.
Lastly, private respondent Pacfor appointed a new resident agent for Pacfor Phils. 45
Although there is no reduction of the salary of petitioner, constructive dismissal is
still present because continued employment of petitioner is rendered, at the very
least, unreasonable.46 There is an act of clear discrimination, insensibility or disdain
by the employer that continued employment may become so unbearable on the part
of the employee so as to foreclose any choice on his part except to resign from such
employment.47
The harassing acts of the private respondent are unjustified. They were undertaken
when petitioner sought clarification from the private respondent about his supposed
50% equity on Pacfor Phils. Private respondent Pacfor invokes its rights as an
owner. Allegedly, its issuance of the foregoing directives against petitioner was a
valid exercise of management prerogative. We remind private respondent Pacfor
that the exercise of management prerogative is not absolute. "By its very nature,
encompassing as it could be, management prerogative must be exercised in good
faith and with due regard to the rights of labor – verily, with the principles of fair play
at heart and justice in mind." The exercise of management prerogative cannot be
utilized as an implement to circumvent our laws and oppress employees.48
As resident agent of private respondent corporation, petitioner occupied a position
involving trust and confidence. In the light of the strained relations between the
parties, the full restoration of an employment relationship based on trust and
confidence is no longer possible. He should be awarded separation pay, in lieu of
reinstatement.
IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30,
2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the
December 20, 2001 Decision of the National Labor Relations Commission,
are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor Arbiter
is REINSTATED with the MODIFICATION that the amount of P250,000.00
representing an alleged increase in petitioner's salary shall be deducted from the
grant of separation pay for lack of evidence.
SO ORDERED.
 G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER,
GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon
City Branch, to recover possesion of registered land situated in barrio Tatalon,
Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described the
land as a portion of a lot registered in plaintiff's name under Transfer Certificate of
Title No. 37686 of the land record of Rizal Province and as containing an area of 13
hectares more or less. But the complaint was amended by reducing the area of 6
hectares, more or less, after the defendant had indicated the plaintiff's surveyors the
portion of land claimed and occupied by him. The second amendment became
necessary and was allowed following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had testified that the area occupied
and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff
again, with the leave of court, amended its complaint to make its allegations conform
to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute) under
claim of ownership, adverse to the entire world by defendant and his predecessor in
interest" from "time in-memorial". The answer further alleges that registration of the
land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or
error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January,
1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved,
defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case
was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the
litigation.
V. The trial court erred in holding that the land in dispute is covered by
transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful
owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay the
plaintiff the amount of P132.62 monthly from January, 1940, until he vacates
the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in
litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the present
action is not brought by the real party in interest, that is, by J. M. Tuason and Co.,
Inc. What the Rules of Court require is that an action be brought in the name of, but
not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice
is for an attorney-at-law to bring the action, that is to file the complaint, in the name
of the plaintiff. That practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff"
and commences with the statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
there is nothing against one corporation being represented by another person,
natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can
not act as managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership is without merit, for the true rule is that
"though a corporation has no power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of that venture is in line with
the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston,
80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the
record to indicate that the venture in which plaintiff is represented by Gregorio
Araneta, Inc. as "its managing partner" is not in line with the corporate business of
either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may
be answered by mere reference to section 4 of Rule 17, Rules of Court, which
sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. — When issues not raised by
the pleadings are tried by express or implied consent of the parties, they
shall be treated in all respects, as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon
motion of any party at my time, even of the trial of these issues. If evidence
is objected to at the trial on the ground that it is not within the issues made
by the pleadings, the court may allow the pleadings to be amended and shall
be so freely when the presentation of the merits of the action will be
subserved thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action
or defense upon the merits. The court may grant a continuance to enable
the objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering
judgment on issues proved though not alleged. Thus, commenting on the provision,
Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of
Civil Procedure, ruled that where the facts shown entitled plaintiff to relief
other than that asked for, no amendment to the complaint is necessary,
especially where defendant has himself raised the point on which recovery
is based, and that the appellate court treat the pleadings as amended to
conform to the evidence, although the pleadings were not actually
amended. (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early
stage of the trial, that the land in dispute "is that described or represented in Exhibit
A and in Exhibit B enclosed in red pencil with the name Quirino Bolaños," defendant
later changed his lawyer and also his theory and tried to prove that the land in
dispute was not covered by plaintiff's certificate of title. The evidence, however, is
against defendant, for it clearly establishes that plaintiff is the registered owner of lot
No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3
square meters, more or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio,
having an area of 74,789 square meters, more or less, covered by transfer certificate
of title No. 37677 of the land records of the same province, both lots having been
originally registered on July 8, 1914 under original certificate of title No. 735. The
identity of the lots was established by the testimony of Antonio Manahan and Magno
Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by
defendant was established by the testimony of his own witness, Quirico Feria. The
combined testimony of these three witnesses clearly shows that the portion claimed
by defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4,
and is well within the area covered by the two transfer certificates of title already
mentioned. This fact also appears admitted in defendant's answer to the third
amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was
registered in 1914, the decree of registration can no longer be impugned on the
ground of fraud, error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree. Neither court the decree
be collaterally attacked by any person claiming title to, or interest in, the land prior
to the registration proceedings. (Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor
could title to that land in derogation of that of plaintiff, the registered owner, be
acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse,
notorious and continuous possession under claim of ownership for the period fixed
by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc.,
45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure
possession under a decree of registration does not prescribed. (Francisco vs. Cruz,
43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that
rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940,
until he vacates the premises.' But it appears from the record that that reasonable
compensation for the use and occupation of the premises, as stipulated at the
hearing was P10 a month for each hectare and that the area occupied by defendant
was 13.2619 hectares. The total rent to be paid for the area occupied should
therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and
witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already
been filed against defendant. And it cannot be supposed that defendant has been
paying rents, for he has been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous, exclusive and public and
notorious possession and under claim of ownership adverse to the entire world by
defendant and his predecessors in interest.' This assignment of error is thus clearly
without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed
a motion to dismiss alleging that there is pending before the Court of First Instance
of Rizal another action between the same parties and for the same cause and
seeking to sustain that allegation with a copy of the complaint filed in said action.
But an examination of that complaint reveals that appellant's allegation is not correct,
for the pretended identity of parties and cause of action in the two suits does not
appear. That other case is one for recovery of ownership, while the present one is
for recovery of possession. And while appellant claims that he is also involved in
that order action because it is a class suit, the complaint does not show that such is
really the case. On the contrary, it appears that the action seeks relief for each
individual plaintiff and not relief for and on behalf of others. The motion for dismissal
is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and
CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders can nominate only
six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be,
with cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary
purpose of manufacturing and marketing sanitary wares. One of the incorporators,
Mr. Baldwin Young went abroad to look for foreign partners, European or American
who could help in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise which would engage primarily
in the business of manufacturing in the Philippines and selling here and abroad
vitreous china and sanitary wares. The parties agreed that the business operations
in the Philippines shall be carried on by an incorporated enterprise and that the name
of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases
on the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be
substantially in the form annexed hereto as Exhibit A and, insofar
as permitted under Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board
of Directors, which shall consist of nine individuals. As long as
American-Standard shall own at least 30% of the outstanding stock
of the Corporation, three of the nine directors shall be designated
by American-Standard, and the other six shall be designated by the
other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as
a minority group, including the grant of veto powers over a number of corporate acts
and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According
to the Filipino group, a basic disagreement was due to their desire to expand the
export operations of the company to which ASI objected as it apparently had other
subsidiaries of joint joint venture groups in the countries where Philippine exports
were contemplated. On March 8, 1983, the annual stockholders' meeting was held.
The meeting was presided by Baldwin Young. The minutes were taken by the
Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the
stockholders then proceeded to the election of the members of the board of
directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee,
and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar,
who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled
the last two nominations out of order on the basis of section 5 (a) of the Agreement,
the consistent practice of the parties during the past annual stockholders' meetings
to nominate only nine persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the Chairman and
heated arguments ensued. An appeal was made by the ASI
representative to the body of stockholders present that a vote be
taken on the ruling of the Chairman. The Chairman, Baldwin Young,
declared the appeal out of order and no vote on the ruling was
taken. The Chairman then instructed the Corporate Secretary to
cast all the votes present and represented by proxy equally for the
6 nominees of the Philippine Investors and the 3 nominees of ASI,
thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI
representative, Mr. Jaqua protested the decision of the Chairman
and announced that all votes accruing to ASI shares, a total of
1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles
Chamsay, and instructed the Secretary to so vote. Luciano E.
Salazar and other proxy holders announced that all the votes owned
by and or represented by them 467,197 shares (p. 27, Rollo, AC-
G.R. SP No. 05617) were being voted cumulatively in favor of
Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless
instructed the Secretary to cast all votes equally in favor of the three
ASI nominees, namely, Wolfgang Aurbach, John Griffin and David
Whittingham and the six originally nominated by Rogelio Vinluan,
namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo,
Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The
Secretary then certified for the election of the following Wolfgang
Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr.,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul
A. Boncan, Baldwin Young. The representative of ASI then moved
to recess the meeting which was duly seconded. There was also a
motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This
motion to adjourn was accepted by the Chairman, Baldwin Young,
who announced that the motion was carried and declared the
meeting adjourned. Protests against the adjournment were
registered and having been ignored, Mr. Jaqua the ASI
representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next
room. The Chairman then threatened to have the stockholders who
did not agree to the decision of the Chairman on the casting of votes
bodily thrown out. The ASI Group, Luciano E. Salazar and other
stockholders, allegedly representing 53 or 54% of the shares of
Saniwares, decided to continue the meeting at the elevator lobby of
the American Standard Building. The continued meeting was
presided by Luciano E. Salazar, while Andres Gatmaitan acted as
Secretary. On the basis of the cumulative votes cast earlier in the
meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay.
Luciano E. Salazar voted for himself, thus the said five directors
were certified as elected directors by the Acting Secretary, Andres
Gatmaitan, with the explanation that there was a tie among the
other six (6) nominees for the four (4) remaining positions of
directors and that the body decided not to break the tie. (pp. 37-39,
Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case
No. 2417. The second petition was for quo warranto and application for receivership
by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and
Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC
Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No.
2718. Both sets of parties except for Avelino Cruz claimed to be the legitimate
directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar
(docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the
appellate court in its decision ordered the remand of the case to the Securities and
Exchange Commission with the directive that a new stockholders' meeting of
Saniwares be ordered convoked as soon as possible, under the supervision of the
Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE
ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES
WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS
FROM EXERCISING THEIR FULL VOTING RIGHTS
REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES,
THUS DEPRIVING PETITIONERS AND THE CORPORATION
THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT
DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND
READS PROVISIONS INTO THE AGREEMENT OF THE
PARTIES WHICH WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision
on the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of
binding contractual agreements entered into by stockholders and
the replacement of the conditions of such agreements with terms
never contemplated by the stockholders but merely dictated by the
CA .
11.2. The Amended decision would likewise sanction the
deprivation of the property rights of stockholders without due
process of law in order that a favored group of stockholders may be
illegally benefitted and guaranteed a continuing monopoly of the
control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT,
WHILE RECOGNIZING THAT THE STOCKHOLDERS OF
SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT
AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE
THAT PRIVATE PETITIONERS HEREIN WERE THE DULY
ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-
75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture or a corporation
and (2) whether or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B.
and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press
Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of
the parties hereto partners or joint venturers in respect of any
transaction hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7,
Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and
Young Group never pleaded in their pleading that the "Agreement" failed to express
the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement
have been reduced to writing, it is to be considered as containing
all such terms, and therefore, there can be, between the parties and
their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing, except in the
following cases:
(a) Where a mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties or the validity
of the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed
to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear
that the parties thereto disclaim being partners or joint venturers
such disclaimer is directed at third parties and is not inconsistent
with, and does not preclude, the existence of two distinct groups of
stockholders in Saniwares one of which (the Philippine Investors)
shall constitute the majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident intention of the
Philippine Investors and ASI in entering into the Agreement is to
enter into ajoint venture enterprise, and if some words in the
Agreement appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former (Art. 1370, New Civil
Code). The various stipulations of a contract shall be interpreted
together attributing to the doubtful ones that sense which may result
from all of them taken jointly (Art. 1374, New Civil Code). Moreover,
in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered. (Art. 1371, New Civil Code). (Part I, Original Records,
SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that
the parties joined their efforts in furtherance of an enterprise for their
joint profit, the question whether they intended by their agreement
to create a joint adventure, or to assume some other relation is a
question of fact for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725;
Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as
well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation. The
history of the organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he
negotiated the Agreement with ASI in behalf of the Philippine
nationals. He testified that ASI agreed to accept the role of minority
vis-a-vis the Philippine National group of investors, on the condition
that the Agreement should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that certain provisions
were included to protect the interests of ASI as the minority. For
example, the vote of 7 out of 9 directors is required in certain
 enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI
is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain
transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the
amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv)
and (b) (iii)]. ASI is also given the right to designate the president
and plant manager [Sec. 5 (6)]. The Agreement further provides that
the sales policy of Saniwares shall be that which is normally
followed by ASI [Sec. 13 (a)] and that Saniwares should not export
"Standard" products otherwise than through ASI's Export Marketing
Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide
technology and know-how to Saniwares and the latter paid royalties
for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring
a 7 out of 9 votes of the board of directors for certain actions, in
effect gave ASI (which designates 3 directors under the Agreement)
an effective veto power. Furthermore, the grant to ASI of the right
to designate certain officers of the corporation; the super-majority
voting requirements for amendments of the articles and by-laws;
and most significantly to the issues of tms case, the provision that
ASI shall designate 3 out of the 9 directors and the other
stockholders shall designate the other 6, clearly indicate that there
are two distinct groups in Saniwares, namely ASI, which owns 40%
of the capital stock and the Philippine National stockholders who
own the balance of 60%, and that 2) ASI is given certain protections
as the minority stockholder.
Premises considered, we believe that under the Agreement there
are two groups of stockholders who established a corporation with
provisions for a special contractual relationship between the parties,
i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture.
Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto partners
or joint venturers in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test
the Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint ventures is
not consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in
industries where constitutional and legal requirements reserve controlling ownership
to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right
of stockholders to enter into agreements regarding the exercise of
their voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and
signed by the parties thereto, may provide that in exercising any
voting rights, the shares held by them shall be voted as therein
provided, or as they may agree, or as determined in accordance
with a procedure agreed upon by them.
Appellants contend that the above provision is included in the
Corporation Code's chapter on close corporations and Saniwares
cannot be a close corporation because it has 95 stockholders.
Firstly, although Saniwares had 95 stockholders at the time of the
disputed stockholders meeting, these 95 stockholders are not
separate from each other but are divisible into groups representing
a single Identifiable interest. For example, ASI, its nominees and
lawyers count for 13 of the 95 stockholders. The YoungYutivo family
count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family for
7 stockholders, etc. If the members of one family and/or business
or interest group are considered as one (which, it is respectfully
submitted, they should be for purposes of determining how closely
held Saniwares is there were as of 8 March 1983, practically only
17 stockholders of Saniwares. (Please refer to discussion in pp. 5
to 6 of appellees' Rejoinder Memorandum dated 11 December 1984
and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close
corporation because it has more than 20 stockholders, the
undeniable fact is that it is a close-held corporation. Surely,
appellants cannot honestly claim that Saniwares is a public issue or
a widely held corporation.
In the United States, many courts have taken a realistic approach
to joint venture corporations and have not rigidly applied principles
of corporation law designed primarily for public issue corporations.
These courts have indicated that express arrangements between
corporate joint ventures should be construed with less emphasis on
the ordinary rules of law usually applied to corporate entities and
with more consideration given to the nature of the agreement
between the joint venturers (Please see Wabash Ry v. American
Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des
Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v.
Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v.
Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool,
Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138
U.S. 262; "The Legal Status of Joint Venture Corporations", 11
Vand Law Rev. p. 680,1958). These American cases dealt with
legal questions as to the extent to which the requirements arising
from the corporate form of joint venture corporations should control,
and the courts ruled that substantial justice lay with those litigants
who relied on the joint venture agreement rather than the litigants
who relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint
venture deviate from the traditional pattern of corporation
management. A noted authority has pointed out that just as in close
corporations, shareholders' agreements in joint venture
corporations often contain provisions which do one or more of the
following: (1) require greater than majority vote for shareholder and
director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors; (3)
give to the shareholders control over the selection and retention of
employees; and (4) set up a procedure for the settlement of
disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed.,
Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not
necessarily imply that agreements regarding the exercise of voting
rights are allowed only in close corporations. As Campos and
Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular.
Does this provision necessarily imply that these agreements can be
valid only in close corporations as defined by the Code? Suppose
that a corporation has twenty five stockholders, and therefore
cannot qualify as a close corporation under section 96, can some
of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying
stockholders of corporations other than close ones the right to enter
into not voting or pooling agreements to protect their interests, as
long as they do not intend to commit any wrong, or fraud on the
other stockholders not parties to the agreement. Of course, voting
or pooling agreements are perhaps more useful and more often
resorted to in close corporations. But they may also be found
necessary even in widely held corporations. Moreover, since the
Code limits the legal meaning of close corporations to those which
comply with the requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close corporation will
not come within the definition. In such case, its stockholders should
not be precluded from entering into contracts like voting
agreements if these are otherwise valid. (Campos & Lopez-
Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to
the designation or nomination of directors restricts the right of the
Agreement's signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and binding upon
the signatories thereto, which include appellants. (Rollo No. 75951,
pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional
equity during elections of Saniwares' board of directors, the Court of Appeals
correctly stated:
As in other joint venture companies, the extent of ASI's participation
in the management of the corporation is spelled out in the
Agreement. Section 5(a) hereof says that three of the nine directors
shall be designated by ASI and the remaining six by the other
stockholders, i.e., the Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is
imperative that the parties should honor and adhere to their
respective rights and obligations thereunder. Appellants seem to
contend that any allocation of board seats, even in joint venture
corporations, are null and void to the extent that such may interfere
with the stockholder's rights to cumulative voting as provided in
Section 24 of the Corporation Code. This Court should not be
prepared to hold that any agreement which curtails in any way
cumulative voting should be struck down, even if such agreement
has been freely entered into by experienced businessmen and do
not prejudice those who are not parties thereto. It may well be that
it would be more cogent to hold, as the Securities and Exchange
Commission has held in the decision appealed from, that
cumulative voting rights may be voluntarily waived by stockholders
who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships
between foreign and local stockholders, so long as such
agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make
a general rule on this question. Rather, all that needs to be done is
to give life and effect to the particular contractual rights and
obligations which the parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI
and the contractual allocation of board seats Cannot be
disregarded. On the other hand, the rights of the stockholders to
cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the
second over the first. Upon further reflection, we feel that the proper
and just solution to give due consideration to both factors suggests
itself quite clearly. This Court should recognize and uphold the
division of the stockholders into two groups, and at the same time
uphold the right of the stockholders within each group to cumulative
voting in the process of determining who the group's nominees
would be. In practical terms, as suggested by appellant Luciano E.
Salazar himself, this means that if the Filipino stockholders cannot
agree who their six nominees will be, a vote would have to be taken
among the Filipino stockholders only. During this voting, each
Filipino stockholder can cumulate his votes. ASI, however, should
not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three
directors it is allowed to designate under the Agreement, and may
even be able to get a majority of the board seats, a result which is
clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this
ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy
Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the Corporation
Code which gives the stockholders of a corporation the right to cumulate their votes
in electing directors. Petitioner Salazar adds that this right if granted to the ASI
Group would not necessarily mean a violation of the Anti-Dummy Act
(Commonwealth Act 108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the
board of directors or governing body of corporations or associations
engaging in partially nationalized activities shall be allowed in
proportion to their allowable participation or share in the capital of
such entities. (amendments introduced by Presidential Decree 715,
section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has
no precise legal definition but it has been generally understood to
mean an organization formed for some temporary purpose. (Gates
v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable
 from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual
right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949];
Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v.
Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]).
The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business
with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary
nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931];
Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art.
1783, Civil Code). It would seem therefore that under Philippine law,
a joint venture is a form of partnership and should thus be governed
by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and
has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. (At
p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases, Corporation Code
1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167)
43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in the
process of determining who the group's nominees would be under Section 3 (a) (1)
of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates
to the manner of nominating the members of the board of directors while Section 3
(a) (1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting
within the Filipino group. Otherwise, ASI would be able to designate
more than the three directors it is allowed to designate under the
Agreement, and may even be able to get a majority of the board
seats, a result which is clearly contrary to the contractual intent of
the parties.
Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this
ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy
Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the board
of directors in proportion to their allowance participation of said entity. In the instant
case, the foreign Group ASI was limited to designate three directors. This is the
allowable participation of the ASI Group. Hence, in future dealings, this limitation of
six to three board seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied in the parties'
Agreement to protect the interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which
were impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach,
John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A.
Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the
duly elected directors of Saniwares at the March 8,1983 annual stockholders'
meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning "nominate,
delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees separately
and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under
its original agreement. Cumulative voting may not be used as a device to enable ASI
to achieve stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain the minority status of the foreign
investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach
John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8,1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
G.R. No. 108670 September 21, 1994
LBC EXPRESS, INC., petitioner,
vs.
THE COURT OF APPEALS, ADOLFO M. CARLOTO, and RURAL BANK OF
LABASON, INC., respondents.
PUNO, J.:
In this Petition for Review on Certiorari, petitioner LBC questions the decision 1 of
respondent Court of Appeals affirming the judgment of the Regional Trial Court of
Dipolog City, Branch 8, awarding moral and exemplary damages, reimbursement of
P32,000.00, and costs of suit; but deleting the amount of attorney's fees.
Private respondent Adolfo Carloto, incumbent President-Manager of private
respondent Rural Bank of Labason, alleged that on November 12, 1984, he was in
Cebu City transacting business with the Central Bank Regional Office. He was
instructed to proceed to Manila on or before November 21, 1984 to follow-up the
Rural Bank's plan of payment of rediscounting obligations with Central Bank's main
office in Manila. 2 He then purchased a round trip plane ticket to Manila. He also
phoned his sister Elsie Carloto-Concha to send him ONE THOUSAND PESOS
(P1,000.00) for his pocket money in going to Manila and some rediscounting papers
thru petitioner's LBC Office at Dipolog City. 3
On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo consigned thru
LBC Dipolog Branch the pertinent documents and the sum of ONE THOUSAND
PESOS (P1,000.00) to respondent Carloto at No. 2 Greyhound Subdivision,
Kinasangan, Pardo, Cebu City. This was evidenced by LBC Air Cargo, Inc.,
Cashpack Delivery Receipt No. 34805.
On November 17, 1984, the documents arrived without the cashpack. Respondent
Carloto made personal follow-ups on that same day, and also on November 19 and
20, 1984 at LBC's office in Cebu but petitioner failed to deliver to him the cashpack.
Consequently, respondent Carloto said he was compelled to go to Dipolog City on
November 24, 1984 to claim the money at LBC's office. His effort was once more in
vain. On November 27, 1984, he went back to Cebu City at LBC's office. He was,
however, advised that the money has been returned to LBC's office in Dipolog City
upon shipper's request. Again, he demanded for the ONE THOUSAND PESOS
(P1,000.00) and refund of FORTY-NINE PESOS (P49.00) LBC revenue charges.
He received the money only on December 15, 1984 less the revenue charges.
Respondent Carloto claimed that because of the delay in the transmittal of the
cashpack, he failed to submit the rediscounting documents to Central Bank on time.
As a consequence, his rural bank was made to pay the Central Bank THIRTY-TWO
THOUSAND PESOS (P32,000.00) as penalty interest. 4 He allegedly suffered
embarrassment and humiliation.
Petitioner LBC, on the other hand, alleged that the cashpack was forwarded via PAL
to LBC Cebu City branch on November 22, 1984. 5 On the same day, it was
delivered at respondent Carloto's residence at No. 2 Greyhound Subdivision,
Kinasangan, Pardo, Cebu City. However, he was not around to receive it. The
delivery man served instead a claim notice to insure he would personally receive the
money. This was annotated on Cashpack Delivery Receipt No. 342805.
Notwithstanding the said notice, respondent Carloto did not claim the cashpack at
LBC Cebu. On November 23, 1984, it was returned to the shipper, Elsie Carloto-
Concha at Dipolog City.
Claiming that petitioner LBC wantonly and recklessly disregarded its obligation,
respondent Carloto instituted an action for Damages Arising from Non-performance
of Obligation docketed as Civil Case No. 3679 before the Regional Trial Court of
Dipolog City on January 4, 1985. On June 25, 1988, an amended complaint was
filed where respondent rural bank joined as one of the plaintiffs and prayed for the
reimbursement of THIRTY-TWO THOUSAND PESOS (P32,000.00).
After hearing, the trial court rendered its decision, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering the defendant LBC Air Cargo, Inc. to pay unto plaintiff
Adolfo M. Carloto and Rural Bank of Labason, Inc., moral damages
in the amount of P10,000.00; exemplary damages in the amount of
P5,000.00; attorney's fees in the amount of P3,000.00 and litigation
expenses of P1,000.00;
2. Sentencing defendant LBC Air Cargo, Inc., to reimburse plaintiff
Rural Bank of Labason, Inc. the sum of P32,000.00 which the latter
paid as penalty interest to the Central Bank of the Philippines as
penalty interest for failure to rediscount its due bills on time arising
from the defendant's failure to deliver the cashpack, with legal
interest computed from the date of filing of this case; and
3. Ordering defendant to pay the costs of these proceedings.
SO ORDERED. 6
On appeal, respondent court modified the judgment by deleting the award of
attorney's fees. Petitioner's Motion for Reconsideration was denied in a Resolution
dated January 11, 1993.
Hence, this petition raising the following questions, to wit:
1. Whether or not respondent Rural Bank of Labason Inc., being an artificial person
should be awarded moral damages.
2. Whether or not the award of THIRTY-TWO THOUSAND PESOS (P32,000.00)
was made with grave abuse of discretion.
3. Whether or not the respondent Court of Appeals gravely abused its discretion in
affirming the trial court's decision ordering petitioner LBC to pay moral and
exemplary damages despite performance of its obligation.
We find merit in the petition.
The respondent court erred in awarding moral damages to the Rural Bank of
Labason, Inc., an artificial person.
Moral damages are granted in recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. 7 A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental anguish. 8 Mental
suffering can be experienced only by one having a nervous system and it flows from
real ills, sorrows, and griefs of life 9 — all of which cannot be suffered by respondent
bank as an artificial person.
We can neither sustain the award of moral damages in favor of the private
respondents. The right to recover moral damages is based on equity. Moral
damages are recoverable only if the case falls under Article 2219 of the Civil Code
in relation to Article 21. 10 Part of conventional wisdom is that he who comes to court
to demand equity, must come with clean hands.
In the case at bench, respondent Carloto is not without fault. He was fully aware that
his rural bank's obligation would mature on November 21, 1984 and his bank has
set aside cash for these bills payable. 11 He was all set to go to Manila to settle this
obligation. He has received the documents necessary for the approval of their
rediscounting application with the Central Bank. He has also received the plane
ticket to go to Manila. Nevertheless, he did not immediately proceed to Manila but
instead tarried for days allegedly claiming his ONE THOUSAND PESOS
(P1,000.00) pocket money. Due to his delayed trip, he failed to submit the
rediscounting papers to the Central Bank on time and his bank was penalized
THIRTY-TWO THOUSAND PESOS (P32,000.00) for failure to pay its obligation on
its due date. The undue importance given by respondent Carloto to his ONE
THOUSAND PESOS (P1,000.00) pocket money is inexplicable for it was not
indispensable for him to follow up his bank's rediscounting application with Central
Bank. According to said respondent, he needed the money to "invite people for a
snack or dinner." 12The attitude of said respondent speaks ill of his ways of business
dealings and cannot be countenanced by this Court. Verily, it will be revolting to our
sense of ethics to use it as basis for awarding damages in favor of private
respondent Carloto and the Rural Bank of Labason, Inc.
We also hold that respondents failed to show that petitioner LBC's late delivery of
the cashpack was motivated by personal malice or bad faith, whether intentional or
thru gross negligence. In fact, it was proved during the trial that the cashpack was
consigned on November 16, 1984, a Friday. It was sent to Cebu on November 19,
1984, the next business day. Considering this circumstance, petitioner cannot be
charged with gross neglect of duty. Bad faith under the law can not be presumed; it
must be established by clearer and convincing evidence. 13 Again, the unbroken
jurisprudence is that in breach of contract cases where the defendant is not shown
to have acted fraudulently or in bad faith, liability for damages is limited to the natural
and probable consequences of the branch of the obligation which the parties had
foreseen or could reasonable have foreseen. The damages, however, will not
include liability for moral damages. 14
Prescinding from these premises, the award of exemplary damages made by the
respondent court would have no legal leg to support itself. Under Article 2232 of the
Civil Code, in a contractual or quasi-contractual relationship, exemplary damages
may be awarded only if the defendant had acted in "a wanton, fraudulent, reckless,
oppressive, or malevolent manner." The established facts of not so warrant the
characterization of the action of petitioner LBC.
IN VIEW WHEREOF, the Decision of the respondent court dated September 30,
1992 is REVERSED and SET ASIDE; and the Complaint in Civil Case No. 3679 is
ordered DISMISSED. No costs.
SO ORDERED.
G.R. No. 141994 January 17, 2005
FILIPINAS BROADCASTING NETWORK, INC., petitioner,
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE
OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review1 assails the 4 January 1999 Decision2 and 26 January 2000
Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals
affirmed with modification the 14 December 1992 Decision3 of the Regional Trial
Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held
Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and
Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and
Educational Center-Bicol Christian College of Medicine moral damages, attorney’s
fees and costs of suit.
The Antecedents
"Exposé" is a radio documentary4 program hosted by Carmelo ‘Mel’ Rima ("Rima")
and Hermogenes ‘Jun’ Alegre ("Alegre").5 Exposé is aired every morning over
DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. ("FBNI").
"Exposé" is heard over Legazpi City, the Albay municipalities and other Bicol areas. 6
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various
alleged complaints from students, teachers and parents against Ago Medical and
Educational Center-Bicol Christian College of Medicine ("AMEC") and its
administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita
Ago ("Ago"), as Dean of AMEC’s College of Medicine, filed a complaint for
damages7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are
portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical
course at AMEC-BCCM, advise them to pass all subjects because if they fail
in any subject they will repeat their year level, taking up all subjects including
those they have passed already. Several students had approached me stating
that they had consulted with the DECS which told them that there is no such
regulation. If [there] is no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the
course is not recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject
does not have an instructor - such greed for money on the part of AMEC’s
administration. Take the subject Anatomy: students would pay for the subject upon
enrolment because it is offered by the school. However there would be no instructor
for such subject. Students would be informed that course would be moved to a later
date because the school is still searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived
and has been surviving for the past few years since its inception because of funds
support from foreign foundations. If you will take a look at the AMEC premises you’ll
find out that the names of the buildings there are foreign soundings. There is a
McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and
undeniable evidence that the support of foreign foundations for AMEC is substantial,
isn’t it? With the report which is the basis of the expose in DZRC today, it would be
very easy for detractors and enemies of the Ago family to stop the flow of support of
foreign foundations who assist the medical school on the basis of the latter’s
purpose. But if the purpose of the institution (AMEC) is to deceive students at cross
purpose with its reason for being it is possible for these foreign foundations to lift or
suspend their donations temporarily.8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High
School and the AMEC-Institute of Mass Communication in their effort to
minimize expenses in terms of salary are absorbing or continues to accept
"rejects". For example how many teachers in AMEC are former teachers of
Aquinas University but were removed because of immorality? Does it mean that the
present administration of AMEC have the total definite moral foundation from
catholic administrator of Aquinas University. I will prove to you my friends,
that AMEC is a dumping ground, garbage, not merely of moral and physical
misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs
of AMEC is Justita Lola, as the family name implies. She is too old to work, being
an old woman. Is the AMEC administration exploiting the very [e]nterprising or
compromising and undemanding Lola? Could it be that AMEC is just patiently
making use of Dean Justita Lola were if she is very old. As in atmospheric situation
– zero visibility – the plane cannot land, meaning she is very old, low pay follows.
By the way, Dean Justita Lola is also the chairman of the committee on scholarship
in AMEC. She had retired from Bicol University a long time ago but AMEC has
patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and
physically misfit people. What does this mean? Immoral and physically misfits as
teachers.
May I say I’m sorry to Dean Justita Lola. But this is the truth. The truth is this, that
your are no longer fit to teach. You are too old. As an aviation, your case is zero
visibility. Don’t insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the
scholarship committee at that. The reason is practical cost saving in salaries,
because an old person is not fastidious, so long as she has money to buy the
ingredient of beetle juice. The elderly can get by – that’s why she (Lola) was taken
in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the
students would be influenced by evil. When they become members of society
outside of campus will be liabilities rather than assets. What do you expect from
a doctor who while studying at AMEC is so much burdened with unreasonable
imposition? What do you expect from a student who aside from peculiar problems –
because not all students are rich – in their struggle to improve their social status are
even more burdened with false regulations. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the
supposed exposés, FBNI, Rima and Alegre "transmitted malicious imputations, and
as such, destroyed plaintiffs’ (AMEC and Ago) reputation." AMEC and Ago included
FBNI as defendant for allegedly failing to exercise due diligence in the selection and
supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an
Answer10 alleging that the broadcasts against AMEC were fair and true. FBNI, Rima
and Alegre claimed that they were plainly impelled by a sense of public duty to report
the "goings-on in AMEC, [which is] an institution imbued with public interest."
Thereafter, trial ensued. During the presentation of the evidence for the defense,
Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to
Dismiss11 on FBNI’s behalf. The trial court denied the motion to dismiss.
Consequently, FBNI filed a separate Answer claiming that it exercised due diligence
in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring
a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and
(3) undergo an apprenticeship and training program after passing the interview.
FBNI likewise claimed that it always reminds its broadcasters to "observe truth,
fairness and objectivity in their broadcasts and to refrain from using libelous and
indecent language." Moreover, FBNI requires all broadcasters to pass
the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation test and to
secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre
liable for libel except Rima. The trial court held that the broadcasts are libelous per
se. The trial court rejected the broadcasters’ claim that their utterances were the
result of straight reporting because it had no factual basis. The broadcasters did not
even verify their reports before airing them to show good faith. In holding FBNI liable
for libel, the trial court found that FBNI failed to exercise diligence in the selection
and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rima’s only participation
was when he agreed with Alegre’s exposé. The trial court found Rima’s statement
within the "bounds of freedom of speech, expression, and of the press." The
dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering
the degree of damages caused by the controversial utterances, which are not
found by this court to be really very serious and damaging, and there being
no showing that indeed the enrollment of plaintiff school dropped, defendants
Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner of the
radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago
Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM)
the amount of ₱300,000.00 moral damages, plus ₱30,000.00 reimbursement of
attorney’s fees, and to pay the costs of suit.
SO ORDERED. 13 (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on
the other, appealed the decision to the Court of Appeals. The Court of Appeals
affirmed the trial court’s judgment with modification. The appellate court made Rima
solidarily liable with FBNI and Alegre. The appellate court denied Ago’s claim for
damages and attorney’s fees because the broadcasts were directed against AMEC,
and not against her. The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the
modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with
FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals
denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.15
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court’s ruling that the questioned broadcasts
are libelous per se and that FBNI, Rima and Alegre failed to overcome the legal
presumption of malice. The Court of Appeals found Rima and Alegre’s claim that
they were actuated by their moral and social duty to inform the public of the students’
gripes as insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMEC’s administrators, the
Court of Appeals ruled that the broadcasts were made "with reckless disregard as
to whether they were true or false." The appellate court pointed out that FBNI, Rima
and Alegre failed to present in court any of the students who allegedly complained
against AMEC. Rima and Alegre merely gave a single name when asked to identify
the students. According to the Court of Appeals, these circumstances cast doubt on
the veracity of the broadcasters’ claim that they were "impelled by their moral and
social duty to inform the public about the students’ gripes."
The Court of Appeals found Rima also liable for libel since he remarked that "(1)
AMEC-BCCM is a dumping ground for morally and physically misfit teachers; (2)
AMEC obtained the services of Dean Justita Lola to minimize expenses on its
employees’ salaries; and (3) AMEC burdened the students with unreasonable
imposition and false regulations."16
The Court of Appeals held that FBNI failed to exercise due diligence in the selection
and supervision of its employees for allowing Rima and Alegre to make the radio
broadcasts without the proper KBP accreditation. The Court of Appeals denied
Ago’s claim for damages and attorney’s fees because the libelous remarks were
directed against AMEC, and not against her. The Court of Appeals adjudged FBNI,
Rima and Alegre solidarily liable to pay AMEC moral damages, attorney’s fees and
costs of suit.1awphi1.nét
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEY’S FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE
FOR PAYMENT OF MORAL DAMAGES, ATTORNEY’S FEES AND
COSTS OF SUIT.
The Court’s Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of
Rima and Alegre against AMEC.17 While AMEC did not point out clearly the legal
basis for its complaint, a reading of the complaint reveals that AMEC’s cause of
action is based on Articles 30 and 33 of the Civil Code. Article 30 18 authorizes a
separate civil action to recover civil liability arising from a criminal offense. On the
other hand, Article 3319 particularly provides that the injured party may bring a
separate civil action for damages in cases of defamation, fraud, and physical
injuries. AMEC also invokes Article 1920 of the Civil Code to justify its claim for
damages. AMEC cites Articles 217621 and 218022 of the Civil Code to hold FBNI
solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real
or imaginary, or any act or omission, condition, status, or circumstance tending to
cause the dishonor, discredit, or contempt of a natural or juridical person, or to
blacken the memory of one who is dead.24
There is no question that the broadcasts were made public and imputed to AMEC
defects or circumstances tending to cause it dishonor, discredit and contempt. Rima
and Alegre’s remarks such as "greed for money on the part of AMEC’s
administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical
misfits"; and AMEC students who graduate "will be liabilities rather than assets" of
the society are libelous per se. Taken as a whole, the broadcasts suggest that
AMEC is a money-making institution where physically and morally unfit teachers
abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that
Rima and Alegre were plainly impelled by their civic duty to air the students’ gripes.
FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre
in making the broadcasts. FBNI further points out that Rima and Alegre exerted
efforts to obtain AMEC’s side and gave Ago the opportunity to defend AMEC and its
administrators. FBNI concludes that since there is no malice, there is no libel.
FBNI’s contentions are untenable.
Every defamatory imputation is presumed malicious. 25 Rima and Alegre failed to
show adequately their good intention and justifiable motive in airing the supposed
gripes of the students. As hosts of a documentary or public affairs program, Rima
and Alegre should have presented the public issues "free from inaccurate and
misleading information."26 Hearing the students’ alleged complaints a month before
the exposé,27 they had sufficient time to verify their sources and information.
However, Rima and Alegre hardly made a thorough investigation of the students’
alleged gripes. Neither did they inquire about nor confirm the purported irregularities
in AMEC from the Department of Education, Culture and Sports. Alegre testified that
he merely went to AMEC to verify his report from an alleged AMEC official who
refused to disclose any information. Alegre simply relied on the words of the students
"because they were many and not because there is proof that what they are saying
is true."28 This plainly shows Rima and Alegre’s reckless disregard of whether their
report was true or not.
Contrary to FBNI’s claim, the broadcasts were not "the result of straight reporting."
Significantly, some courts in the United States apply the privilege of "neutral
reportage" in libel cases involving matters of public interest or public figures. Under
this privilege, a republisher who accurately and disinterestedly reports certain
defamatory statements made against public figures is shielded from liability,
regardless of the republisher’s subjective awareness of the truth or falsity of the
accusation.29 Rima and Alegre cannot invoke the privilege of neutral reportage
because unfounded comments abound in the broadcasts. Moreover, there is no
existing controversy involving AMEC when the broadcasts were made. The privilege
of neutral reportage applies where the defamed person is a public figure who is
involved in an existing controversy, and a party to that controversy makes the
defamatory statement.30
However, FBNI argues vigorously that malice in law does not apply to this case.
Citing Borjal v. Court of Appeals,31 FBNI contends that the broadcasts "fall within
the coverage of qualifiedly privileged communications" for being commentaries on
matters of public interest. Such being the case, AMEC should prove malice in fact
or actual malice. Since AMEC allegedly failed to prove actual malice, there is no
libel.
FBNI’s reliance on Borjal is misplaced. In Borjal, the Court elucidated on the
"doctrine of fair comment," thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid
defense in an action for libel or slander. The doctrine of fair comment means that
while in general every discreditable imputation publicly made is deemed false,
because every man is presumed innocent until his guilt is judicially proved, and
every false imputation is deemed malicious, nevertheless, when the discreditable
imputation is directed against a public person in his public capacity, it is not
necessarily actionable. In order that such discreditable imputation to a public
official may be actionable, it must either be a false allegation of fact or a
comment based on a false supposition. If the comment is an expression of
opinion, based on established facts, then it is immaterial that the opinion happens
to be mistaken, as long as it might reasonably be inferred from the
facts.32 (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students
is "genuinely imbued with public interest." The welfare of the youth in general and
AMEC’s students in particular is a matter which the public has the right to know.
Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with
matters of public interest. However, unlike in Borjal, the questioned broadcasts
are not based on established facts. The record supports the following findings of
the trial court:
xxx Although defendants claim that they were motivated by consistent reports of
students and parents against plaintiff, yet, defendants have not presented in court,
nor even gave name of a single student who made the complaint to them, much less
present written complaint or petition to that effect. To accept this defense of
defendants is too dangerous because it could easily give license to the media to
malign people and establishments based on flimsy excuses that there were reports
to them although they could not satisfactorily establish it. Such laxity would
encourage careless and irresponsible broadcasting which is inimical to public
interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to
the mandates of their duties, did not verify and analyze the truth of the reports before
they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer
Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS
that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast,
accreditation to offer Physical Therapy course had already been given the plaintiff,
which certificate is signed by no less than the Secretary of Education and Culture
herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily
known this were they careful enough to verify. And yet, defendants were very
categorical and sounded too positive when they made the erroneous report that
plaintiff had no permit to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations
like Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald
Foundation existing. Although a big building of plaintiff school was given the name
Mcdonald building, that was only in order to honor the first missionary in Bicol of
plaintiffs’ religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants
over the air, not a single centavo appears to be received by plaintiff school from the
aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra.
Ago, that when medical students fail in one subject, they are made to repeat all the
other subject[s], even those they have already passed, nor their claim that the school
charges laboratory fees even if there are no laboratories in the school. No evidence
was presented to prove the bases for these claims, at least in order to give
semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral
teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with
zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found
to be 75 years old. xxx Even older people prove to be effective teachers like
Supreme Court Justices who are still very much in demand as law professors in their
late years. Counsel for defendants is past 75 but is found by this court to be still very
sharp and effective.l^vvphi1.net So is plaintiffs’ counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally
infirmed, but is still alert and docile.
The contention that plaintiffs’ graduates become liabilities rather than assets of our
society is a mere conclusion. Being from the place himself, this court is aware that
majority of the medical graduates of plaintiffs pass the board examination easily and
become prosperous and responsible professionals.33
Had the comments been an expression of opinion based on established facts, it is
immaterial that the opinion happens to be mistaken, as long as it might reasonably
be inferred from the facts.34 However, the comments of Rima and Alegre were not
backed up by facts. Therefore, the broadcasts are not privileged and remain
libelous per se.
The broadcasts also violate the Radio Code35 of the Kapisanan ng mga Brodkaster
sa Pilipinas, Ink. ("Radio Code"). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal
bias, prejudice and inaccurate and misleading information. x x x
Furthermore, the station shall strive to present balanced discussion of
issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public
affairs, public issues and commentary programs so that they conform to the
provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and
announcer to protect public interest, general welfare and good order in the
presentation of public affairs and public issues.36 (Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays
down the code of ethical conduct governing practitioners in the radio broadcast
industry. The Radio Code is a voluntary code of conduct imposed by the radio
broadcast industry on its own members. The Radio Code is a public warranty by the
radio broadcast industry that radio broadcast practitioners are subject to a code by
which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live
up to the code of conduct of their profession, just like other professionals. A
professional code of conduct provides the standards for determining whether a
person has acted justly, honestly and with good faith in the exercise of his rights and
performance of his duties as required by Article 1937 of the Civil Code. A professional
code of conduct also provides the standards for determining whether a person who
willfully causes loss or injury to another has acted in a manner contrary to morals or
good customs under Article 2138 of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a
corporation.39
A juridical person is generally not entitled to moral damages because, unlike a
natural person, it cannot experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or moral shock. 40 The Court of
Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral
damages. However, the Court’s statement in Mambulao that "a corporation may
have a good reputation which, if besmirched, may also be a ground for the award of
moral damages" is an obiter dictum.42
Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article
221943 of the Civil Code. This provision expressly authorizes the recovery of moral
damages in cases of libel, slander or any other form of defamation. Article 2219(7)
does not qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any other form
of defamation and claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law implies damages.45 In
such a case, evidence of an honest mistake or the want of character or reputation
of the party libeled goes only in mitigation of damages. 46 Neither in such a case is
the plaintiff required to introduce evidence of actual damages as a condition
precedent to the recovery of some damages.47 In this case, the broadcasts are
libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of ₱300,000 moral damages unreasonable. The record
shows that even though the broadcasts were libelous per se, AMEC has not suffered
any substantial or material damage to its reputation. Therefore, we reduce the award
of moral damages from ₱300,000 to ₱150,000.
III.
Whether the award of attorney’s fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis
for the award of attorney’s fees. FBNI adds that the instant case does not fall under
the enumeration in Article 220848 of the Civil Code.
The award of attorney’s fees is not proper because AMEC failed to justify
satisfactorily its claim for attorney’s fees. AMEC did not adduce evidence to warrant
the award of attorney’s fees. Moreover, both the trial and appellate courts failed to
explicitly state in their respective decisions the rationale for the award of attorney’s
fees.49 In Inter-Asia Investment Industries, Inc. v. Court of Appeals ,50 we held
that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the
exception rather than the rule, and counsel’s fees are not to be awarded every time
a party wins a suit. The power of the court to award attorney’s fees under Article
2208 of the Civil Code demands factual, legal and equitable justification,
without which the award is a conclusion without a premise, its basis being
improperly left to speculation and conjecture. In all events, the court must
explicitly state in the text of the decision, and not only in the decretal portion thereof,
the legal reason for the award of attorney’s fees.51 (Emphasis supplied)
While it mentioned about the award of attorney’s fees by stating that it "lies within
the discretion of the court and depends upon the circumstances of each case," the
Court of Appeals failed to point out any circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorney’s
fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of
damages and attorney’s fees because it exercised due diligence in the selection and
supervision of its employees, particularly Rima and Alegre. FBNI maintains that its
broadcasters, including Rima and Alegre, undergo a "very regimented process"
before they are allowed to go on air. "Those who apply for broadcaster are subjected
to interviews, examinations and an apprenticeship program."
FBNI further argues that Alegre’s age and lack of training are irrelevant to his
competence as a broadcaster. FBNI points out that the "minor deficiencies in the
KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not
exercise the diligence of a good father of a family in selecting and supervising them."
Rima’s accreditation lapsed due to his non-payment of the KBP annual fees while
Alegre’s accreditation card was delayed allegedly for reasons attributable to the KBP
Manila Office. FBNI claims that membership in the KBP is merely voluntary and not
required by any law or government regulation.
FBNI’s arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally
liable for the tort which they commit.52 Joint tort feasors are all the persons who
command, instigate, promote, encourage, advise, countenance, cooperate in, aid or
abet the commission of a tort, or who approve of it after it is done, if done for their
benefit.53Thus, AMEC correctly anchored its cause of action against FBNI on
Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable
to pay for damages arising from the libelous broadcasts. As stated by the Court of
Appeals, "recovery for defamatory statements published by radio or television may
be had from the owner of the station, a licensee, the operator of the station, or
a person who procures, or participates in, the making of the defamatory
statements."54 An employer and employee are solidarily liable for a defamatory
statement by the employee within the course and scope of his or her employment,
at least when the employer authorizes or ratifies the defamation.55 In this case, Rima
and Alegre were clearly performing their official duties as hosts of FBNI’s radio
program Exposé when they aired the broadcasts. FBNI neither alleged nor proved
that Rima and Alegre went beyond the scope of their work at that time. There was
likewise no showing that FBNI did not authorize and ratify the defamatory
broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence
in the selection andsupervision of its employees, particularly Rima and Alegre.
FBNI merely showed that it exercised diligence in the selection of its broadcasters
without introducing any evidence to prove that it observed the same diligence in
the supervision of Rima and Alegre. FBNI did not show how it exercised diligence
in supervising its broadcasters. FBNI’s alleged constant reminder to its broadcasters
to "observe truth, fairness and objectivity and to refrain from using libelous and
indecent language" is not enough to prove due diligence in the supervision of its
broadcasters. Adequate training of the broadcasters on the industry’s code of
conduct, sufficient information on libel laws, and continuous evaluation of the
broadcasters’ performance are but a few of the many ways of showing diligence in
the supervision of broadcasters.
FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre
as broadcasters, bearing in mind their qualifications." However, no clear and
convincing evidence shows that Rima and Alegre underwent FBNI’s "regimented
process" of application. Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation,56 which is one of FBNI’s requirements before
it hires a broadcaster. Significantly, membership in the KBP, while voluntary,
indicates the broadcaster’s strong commitment to observe the broadcast industry’s
rules and regulations. Clearly, these circumstances show FBNI’s lack of diligence in
selecting andsupervising Rima and Alegre. Hence, FBNI is solidarily liable to pay
damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January
1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No.
40151 with the MODIFICATION that the award of moral damages is reduced from
₱300,000 to ₱150,000 and the award of attorney’s fees is deleted. Costs against
petitioner.
SO ORDERED.
G.R. No. L-12719 May 31, 1962
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
PAREDES, J.:
This is a petition to review the decision of the Court of Tax Appeals, reversing the
decision of the Collector of Internal Revenue, assessing against and demanding
from the "Club Filipino, Inc. de Cebu", the sum of P12,068.84 as fixed and
percentage taxes, surcharge and compromise penalty, allegedly due from it as a
keeper of bar and restaurant.
As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for
short), is a civic corporation organized under the laws of the Philippines with an
original authorized capital stock of P22,000.00, which was subsequently increased
to P200,000.00, among others, to it "proporcionar, operar, y mantener un campo de
golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys), mesas de billar
y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas
generales; y desarollar y cultivar deportes de toda clase y denominacion cualquiera
para el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2,
Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or
by-laws is there a provision relative to dividends and their distribution, although it is
covenanted that upon its dissolution, the Club's remaining assets, after paying
debts, shall be donated to a charitable Philippine Institution in Cebu (Art. 27,
Estatutos del Club, Exh. A-a.).
The Club owns and operates a club house, a bowling alley, a golf course (on a lot
leased from the government), and a bar-restaurant where it sells wines and liquors,
soft drinks, meals and short orders to its members and their guests. The bar-
restaurant was a necessary incident to the operation of the club and its golf-course.
The club is operated mainly with funds derived from membership fees and dues.
Whatever profits it had, were used to defray its overhead expenses and to improve
its golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation
of its real properties, the value or price of which increased, the Club declared stock
dividends; but no actual cash dividends were distributed to the stockholders. In
1952, a BIR agent discovered that the Club has never paid percentage tax on the
gross receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7
licenses. In a letter dated December 22, 1852, the Collector of Internal Revenue
assessed against and demanded from the Club, the following sums: —
As percentage tax on its gross receipts
during the tax years 1946 to 1951 P9,599.07
Surcharge therein 2,399.77
As fixed tax for the years 1946 to 1952 70.00
Compromise penalty 500.00
The Club wrote the Collector, requesting for the cancellation of the assessment. The
request having been denied, the Club filed the instant petition for review.
The dominant issues involved in this case are twofold:
1. Whether the respondent Club is liable for the payment of the sum of 12,068.84,
as fixed and percentage taxes and surcharges prescribed in sections 182, 183 and
191 of the Tax Code, under which the assessment was made, in connection with
the operation of its bar and restaurant, during the periods mentioned above; and
2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.
Section 182, of the Tax Code states, "Unless otherwise provided, every person
engaging in a business on which the percentage tax is imposed shall pay in full a
fixed annual tax of ten pesos for each calendar year or fraction thereof in which such
person shall engage in said business." Section 183 provides in general that "the
percentage taxes on business shall be payable at the end of each calendar quarter
in the amount lawfully due on the business transacted during each quarter; etc." And
section 191, same Tax Code, provides "Percentage tax . . . Keepers of restaurants,
refreshment parlors and other eating places shall pay a tax three per centum, and
keepers of bar and cafes where wines or liquors are served five per centum of their
gross receipts . . .". It has been held that the liability for fixed and percentage taxes,
as provided by these sections, does not ipso facto attach by mere reason of the
operation of a bar and restaurant. For the liability to attach, the operator thereof must
be engaged in the business as a barkeeper and restaurateur. The plain and ordinary
meaning of business is restricted to activities or affairs where profit is the purpose
or livelihood is the motive, and the term business when used without qualification,
should be construed in its plain and ordinary meaning, restricted to activities for
profit or livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE
[Manila Elks Club] & Court of Tax Appeals, G.R. No. L-11176, June 29, 1959, giving
full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et al.
[International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which
are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan.
27, 1960).
Having found as a fact that the Club was organized to develop and cultivate sports
of all class and denomination, for the healthful recreation and entertainment of its
stockholders and members; that upon its dissolution, its remaining assets, after
paying debts, shall be donated to a charitable Philippine Institution in Cebu; that it is
operated mainly with funds derived from membership fees and dues; that the Club's
bar and restaurant catered only to its members and their guests; that there was in
fact no cash dividend distribution to its stockholders and that whatever was derived
on retail from its bar and restaurant was used to defray its overall overhead
expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to
reason that the Club is not engaged in the business of an operator of bar and
restaurant (same authorities, cited above).
It is conceded that the Club derived profit from the operation of its bar and restaurant,
but such fact does not necessarily convert it into a profit-making enterprise. The bar
and restaurant are necessary adjuncts of the Club to foster its purposes and the
profits derived therefrom are necessarily incidental to the primary object of
developing and cultivating sports for the healthful recreation and entertainment of
the stockholders and members. That a Club makes some profit, does not make it a
profit-making Club. As has been remarked a club should always strive, whenever
possible, to have surplus (Jesus Sacred Heart College v. Collector of Int. Rev., G.R.
No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R.
No. L-9276, Oct. 23, 1956).1äwphï1.ñët
It is claimed that unlike the two cases just cited (supra), which are non-stock, the
appellee Club is a stock corporation. This is unmeritorious. The facts that the capital
stock of the respondent Club is divided into shares, does not detract from the finding
of the trial court that it is not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the Club is engaged in such
business is its object or purpose, as stated in its articles and by-laws. It is a familiar
rule that the actual purpose is not controlled by the corporate form or by the
commercial aspect of the business prosecuted, but may be shown by extrinsic
evidence, including the by-laws and the method of operation. From the extrinsic
evidence adduced, the Tax Court concluded that the Club is not engaged in the
business as a barkeeper and restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied with, to
wit: (1) a capital stock divided into shares and (2) an authority to distribute to the
holders of such shares, dividends or allotments of the surplus profits on the basis of
the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of
incorporation or by-laws could be found an authority for the distribution of its
dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a
stock corporation, within the contemplation of the corporation law.
A tax is a burden, and, as such, it should not be deemed imposed upon fraternal,
civic, non-profit, nonstock organizations, unless the intent to the contrary is manifest
and patent" (Collector v. BPOE Elks Club, et al., supra), which is not the case in the
present appeal.
Having arrived at the conclusion that respondent Club is not engaged in the business
as an operator of a bar and restaurant, and therefore, not liable for fixed and
percentage taxes, it follows that it is not liable for any penalty, much less of a
compromise penalty.
WHEREFORE, the decision appealed from is affirmed without costs.
G.R. No. 79182 September 11, 1991
PNOC-ENERGY DEVELOPMENT CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (Third Division) and DANILO
MERCADO, respondents.
PARAS, J.:
This is a petition for certiorari to set aside the Resolution * dated July 3, 1987 of
respondent National Labor Relations Commission (NLRC for brevity) which affirmed
the decision dated April 30, 1986 of Labor Arbiter Vito J. Minoria of the NLRC,
Regional Arbitration Branch No. VII at Cebu City in Case No. RAB-VII-0556-85
entitled "Danilo Mercado, Complainant, vs. Philippine National Oil Company-Energy
Development Corporation, Respondent", ordering the reinstatement of complainant
Danilo Mercado and the award of various monetary claims.
The factual background of this case is as follows:
Private respondent Danilo Mercado was first employed by herein petitioner
Philippine National Oil Company-Energy Development Corporation (PNOC-EDC for
brevity) on August 13, 1979. He held various positions ranging from clerk, general
clerk to shipping clerk during his employment at its Cebu office until his transfer to
its establishment at Palimpinon, Dumaguete, Oriental Negros on September 5,
1984. On June 30, 1985, private respondent Mercado was dismissed. His last salary
was P1,585.00 a month basic pay plus P800.00 living allowance (Labor Arbiter's
Decision, Annex "E" of Petition, Rollo, p. 52).
The grounds for the dismissal of Mercado are allegedly serious acts of dishonesty
committed as follows:
1. On ApriI 12, 1985, Danilo Mercado was ordered to purchase 1,400 pieces
of nipa shingles from Mrs. Leonardo Nodado of Banilad, Dumaguete City,
for the total purchase price of Pl,680.00. Against company policy,
regulations and specific orders, Danilo Mercado withdrew the nipa shingles
from the supplier but paid the amount of P1,000.00 only. Danilo Mercado
appropriated the balance of P680.00 for his personal use;
2. In the same transaction stated above, the supplier agreed to give the
company a discount of P70.00 which Danilo Mercado did not report to the
company;
3. On March 28, 1985, Danilo Mercado was instructed to contract the
services of Fred R. Melon of Dumaguete City, for the fabrication of rubber
stamps, for the total amount of P28.66. Danilo Mercado paid the amount of
P20.00 to Fred R. Melon and appropriated for his personal use the balance
of P8.66.
In addition, private respondent, Danilo Mercado violated company rules and
regulations in the following instances:
1. On June 5, 1985, Danilo Mercado was absent from work without leave,
without proper turn-over of his work, causing disruption and delay of
company work activities;
2. On June 15, 1985, Danilo Mercado went on vacation leave without prior
leave, against company policy, rules and regulations. (Petitioner's
Memorandum, Rollo, p. 195).
On September 23, 1985, private respondent Mercado filed a complaint for illegal
dismissal, retirement benefits, separation pay, unpaid wages, etc. against petitioner
PNOC-EDC before the NLRC Regional Arbitration Branch No. VII docketed as Case
No. RAB-VII-0556-85.
After private respondent Mercado filed his position paper on December 16, 1985
(Annex "B" of the Petition, Rollo, pp. 28-40), petitioner PNOC-EDC filed its Position
Paper/Motion to Dismiss on January 15, 1986, praying for the dismissal of the case
on the ground that the Labor Arbiter and/or the NLRC had no jurisdiction over the
case (Annex "C" of the Petition, Rollo, pp. 41-45), which was assailed by private
respondent Mercado in his Opposition to the Position Paper/Motion to Dismiss dated
March 12, 1986 (Annex "D" of the Petition, Rollo, pp. 46-50).
The Labor Arbiter ruled in favor of private respondent Mercado. The dispositive
onion of said decision reads as follows:
WHEREFORE, in view of the foregoing, respondents are hereby ordered:
1) To reinstate complainant to his former position with full back wages from
the date of his dismissal up to the time of his actual reinstatement without
loss of seniority rights and other privileges;
2) To pay complainant the amount of P10,000.00 representing his personal
share of his savings account with the respondents;
3) To pay complainants the amount of P30,000.00 moral damages;
P20,000.00 exemplary damages and P5,000.00 attorney's fees;
4) To pay complainant the amount of P792.50 as his proportionate 13th
month pay for 1985.
Respondents are hereby further ordered to deposit the aforementioned
amounts with this Office within ten days from receipt of a copy of this
decision for further disposition.
SO ORDERED.
(Labor Arbiter's Decision, Rollo, p. 56)
The appeal to the NLRC was dismissed for lack of merit on July 3, 1987 and the
assailed decision was affirmed.
Hence, this petition.
The issues raised by petitioner in this instant petition are:
 1. Whether or not matters of employment affecting the PNOC-EDC, a
government-owned and controlled corporation, are within the jurisdiction of
the Labor Arbiter and the NLRC.
2. Assuming the affirmative, whether or not the Labor Arbiter and the NLRC
are justified in ordering the reinstatement of private respondent, payment of
his savings, and proportionate 13th month pay and payment of damages as
well as attorney's fee.
Petitioner PNOC-EDC alleges that it is a corporation wholly owned and controlled
by the government; that the Energy Development Corporation is a subsidiary of the
Philippine National Oil Company which is a government entity created under
Presidential Decree No. 334, as amended; that being a government-owned and
controlled corporation, it is governed by the Civil Service Law as provided for in
Section 1, Article XII-B of the 1973 Constitution, Section 56 of Presidential Decree
No. 807 (Civil Service Decree) and Article 277 of Presidential Decree No. 442, as
amended (Labor Code).
The 1973 Constitution provides:
The Civil Service embraces every branch, agency, subdivision and
instrumentality of the government including government-owned or
controlled corporations.
Petitioner PNOC-EDC argued that since Labor Arbiter Minoria rendered the decision
at the time when the 1973 Constitution was in force, said decision is null and void
because under the 1973 Constitution, government-owned and controlled
corporations were governed by the Civil Service Law. Even assuming that PNOC-
EDC has no original or special charter and Section 2(i), Article IX-B of the 1987
Constitution provides that:
The Civil Service embraces all branches, subdivision, instrumentalities and
agencies of the Government, including government-owned or controlled
corporations with original charters.
such circumstances cannot give validity to the decision of the Labor Arbiter (Ibid.,
pp. 192-193).
This issue has already been laid to rest in the case of PNOC-EDC vs. Leogardo,
175 SCRA 26 (July 5, 1989), involving the same petitioner and the same issue,
where this Court ruled that the doctrine that employees of government-owned and/or
con controlled corporations, whether created by special law or formed as
subsidiaries under the General Corporation law are governed by the Civil Service
Law and not by the Labor Code, has been supplanted by the present Constitution.
"Thus, under the present state of the law, the test in determining whether a
government-owned or controlled corporation is subject to the Civil Service Law are
the manner of its creation, such that government corporations created by special
charter are subject to its provisions while those incorporated under the General
Corporation Law are not within its coverage."
Specifically, the PNOC-EDC having been incorporated under the General
Corporation Law was held to be a government owned or controlled corporation
whose employees are subject to the provisions of the Labor Code (Ibid.).
The fact that the case arose at the time when the 1973 Constitution was still in effect,
does not deprive the NLRC of jurisdiction on the premise that it is the 1987
Constitution that governs because it is the Constitution in place at the time of the
decision (NASECO v. NLRC, G.R. No. 69870, 168 SCRA 122 [1988]).
In the case at bar, the decision of the NLRC was promulgated on July 3, 1987.
Accordingly, this case falls squarely under the rulings of the aforementioned cases.
As regards the second issue, the record shows that PNOC-EDC's accusations of
dishonesty and violations of company rules are not supported by evidence.
Nonetheless, while acknowledging the rule that administrative bodies are not
governed by the strict rules of evidence, petitioner PNOC-EDC alleges that the labor
arbiter's propensity to decide the case through the position papers submitted by the
parties is violative of due process thereby rendering the decision null and void (Ibid.,
p. 196).
On the other hand, private respondent contends that as can be seen from
petitioner's Motion for Reconsideration and/or Appeal dated July 28, 1986 (Annex
"F" of the Petition, Rollo, pp. 57- 64), the latter never questioned the findings of facts
of the Labor Arbiter but simply limited its objection to the lack of legal basis in view
of its stand that the NLRC had no jurisdiction over the case (Private Respondent's
Memorandum, Rollo, p. 104).
Petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss dated January 15,
1986 (Annex "C" of the Petition Rollo, pp. 41-45) before the Regional Arbitration
Branch No. VII of Cebu City and its Motion for Reconsideration and/or Appeal dated
July 28, 1986 (Annex "F" of the Petition, Rollo, pp. 57-64) before the NLRC of Cebu
City. Indisputably, the requirements of due process are satisfied when the parties
are given an opportunity to submit position papers. What the fundamental law
abhors is not the absence of previous notice but rather the absolute lack of
opportunity to ventilate a party's side. There is no denial of due process where the
party submitted its position paper and flied its motion for reconsideration (Odin
Security Agency vs. De la Serna, 182 SCRA 472 [February 21, 1990]). Petitioner's
subsequent Motion for Reconsideration and/or Appeal has the effect of curing
whatever irregularity might have been committed in the proceedings below (T.H.
Valderama and Sons, Inc. vs. Drilon, 181 SCRA 308 [January 22, 1990]).
Furthermore, it has been consistently held that findings of administrative agencies
which have acquired expertise because their jurisdiction is confined to specific
matters are accorded not only respect but even finality (Asian Construction and
Development Corporation vs. NLRC, 187 SCRA 784 [July 27, 1990]; Lopez Sugar
Corporation vs. Federation of Free Workers, 189 SCRA 179 [August 30, 1990]).
Judicial review by this Court does not go so far as to evaluate the sufficiency of the
evidence but is limited to issues of jurisdiction or grave abuse of discretion (Filipinas
Manufacturers Bank vs. NLRC, 182 SCRA 848 [February 28, 1990]). A careful study
of the records shows no substantive reason to depart from these established
principles.
While it is true that loss of trust or breach of confidence is a valid ground for
dismissing an employee, such loss or breach of trust must have some basis (Gubac
v. NLRC, 187 SCRA 412 [July 13, 1990]). As found by the Labor Arbiter, the
accusations of petitioner PNOC-EDC against private respondent Mercado have no
basis. Mrs. Leonardo Nodado, from whom the nipa shingles were purchased,
sufficiently explained in her affidavit (Rollo, p. 36) that the total purchase price of
P1,680.00 was paid by respondent Mercado as agreed upon. The alleged discount
given by Mrs. Nodado is not supported by evidence as well as the alleged
appropriation of P8.66 from the cost of fabrication of rubber stamps. The Labor
Arbiter, likewise, found no evidence to support the alleged violation of company
rules. On the contrary, he found respondent Mercado's explanation in his affidavit
(Rollo, pp. 38-40) as to the alleged violations to be satisfactory. Moreover, these
findings were never contradicted by petitioner petitioner PNOC-EDC.
PREMISES CONSIDERED, the petition is DENIED and the resolution of respondent
NLRC dated July 3, 1987 is AFFIRMED with the modification that the moral
damages are reduced to Ten Thousand (P10,000.00) Pesos, and the exemplary
damages reduced to Five Thousand (P5,000.00) Pesos.
SO ORDERED.
G.R. No. 171101 July 5, 2011
HACIENDA LUISITA, INCORPORATED, Petitioner,
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL
BANKING CORPORATION,Petitioners-in-Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER
PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA
NG MGA MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE
GALANG, NOEL MALLARI, and JULIO SUNIGA1 and his SUPERVISORY
GROUP OF THE HACIENDA LUISITA, INC. and WINDSOR
ANDAYA, Respondents.
DECISION
VELASCO, JR., J.:
"Land for the landless," a shibboleth the landed gentry doubtless has received with
much misgiving, if not resistance, even if only the number of agrarian suits filed
serves to be the norm. Through the years, this battle cry and root of discord
continues to reflect the seemingly ceaseless discourse on, and great disparity in,
the distribution of land among the people, "dramatizing the increasingly urgent
demand of the dispossessed x x x for a plot of earth as their place in the sun." 2 As
administrations and political alignments change, policies advanced, and agrarian
reform laws enacted, the latest being what is considered a comprehensive piece,
the face of land reform varies and is masked in myriads of ways. The stated goal,
however, remains the same: clear the way for the true freedom of the farmer.3
Land reform, or the broader term "agrarian reform," has been a government policy
even before the Commonwealth era. In fact, at the onset of the American regime,
initial steps toward land reform were already taken to address social unrest. 4 Then,
under the 1935 Constitution, specific provisions on social justice and expropriation
of landed estates for distribution to tenants as a solution to land ownership and
tenancy issues were incorporated.
In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was passed, setting in
motion the expropriation of all tenanted estates.5
On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was
enacted,6 abolishing share tenancy and converting all instances of share tenancy
into leasehold tenancy.7 RA 3844 created the Land Bank of the Philippines (LBP) to
provide support in all phases of agrarian reform.
As its major thrust, RA 3844 aimed to create a system of owner-cultivatorship in rice
and corn, supposedly to be accomplished by expropriating lands in excess of 75
hectares for their eventual resale to tenants. The law, however, had this restricting
feature: its operations were confined mainly to areas in Central Luzon, and its
implementation at any level of intensity limited to the pilot project in Nueva Ecija. 8
Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring
the entire country a land reform area, and providing for the automatic conversion of
tenancy to leasehold tenancy in all areas. From 75 hectares, the retention limit was
cut down to seven hectares.9
Barely a month after declaring martial law in September 1972, then President
Ferdinand Marcos issued Presidential Decree No. 27 (PD 27) for the "emancipation
of the tiller from the bondage of the soil."10 Based on this issuance, tenant-farmers,
depending on the size of the landholding worked on, can either purchase the land
they tilled or shift from share to fixed-rent leasehold tenancy.11 While touted as
"revolutionary," the scope of the agrarian reform program PD 27 enunciated covered
only tenanted, privately-owned rice and corn lands.12
Then came the revolutionary government of then President Corazon C. Aquino and
the drafting and eventual ratification of the 1987 Constitution. Its provisions
foreshadowed the establishment of a legal framework for the formulation of an
expansive approach to land reform, affecting all agricultural lands and covering both
tenant-farmers and regular farmworkers.13
So it was that Proclamation No. 131, Series of 1987, was issued instituting a
comprehensive agrarian reform program (CARP) to cover all agricultural lands,
regardless of tenurial arrangement and commodity produced, as provided in the
Constitution.
On July 22, 1987, Executive Order No. 229 (EO 229) was issued providing, as its
title14 indicates, the mechanisms for CARP implementation. It created the
Presidential Agrarian Reform Council (PARC) as the highest policy-making body
that formulates all policies, rules, and regulations necessary for the implementation
of CARP.
On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform Law of 1988,
also known as CARL or the CARP Law, took effect, ushering in a new process of
land classification, acquisition, and distribution. As to be expected, RA 6657 met stiff
opposition, its validity or some of its provisions challenged at every possible
turn. Association of Small Landowners in the Philippines, Inc. v. Secretary of
Agrarian Reform 15 stated the observation that the assault was inevitable, the CARP
being an untried and untested project, "an experiment [even], as all life is an
experiment," the Court said, borrowing from Justice Holmes.
The Case
In this Petition for Certiorari and Prohibition under Rule 65 with prayer for preliminary
injunctive relief, petitioner Hacienda Luisita, Inc. (HLI) assails and seeks to set aside
PARC Resolution No. 2005-32-0116 and Resolution No. 2006-34-0117 issued on
December 22, 2005 and May 3, 2006, respectively, as well as the implementing
Notice of Coverage dated January 2, 2006 (Notice of Coverage).18
The Facts
At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a
6,443-hectare mixed agricultural-industrial-residential expanse straddling several
municipalities of Tarlac and owned by Compañia General de Tabacos de Filipinas
(Tabacalera). In 1957, the Spanish owners of Tabacalera offered to sell Hacienda
Luisita as well as their controlling interest in the sugar mill within the hacienda, the
Central Azucarera de Tarlac (CAT), as an indivisible transaction. The Tarlac
Development Corporation (Tadeco), then owned and/or controlled by the Jose
Cojuangco, Sr. Group, was willing to buy. As agreed upon, Tadeco undertook to pay
the purchase price for Hacienda Luisita in pesos, while that for the controlling
interest in CAT, in US dollars.19
To facilitate the adverted sale-and-purchase package, the Philippine government,
through the then Central Bank of the Philippines, assisted the buyer to obtain a dollar
loan from a US bank.20 Also, the Government Service Insurance System (GSIS)
Board of Trustees extended on November 27, 1957 a PhP 5.911 million loan in favor
of Tadeco to pay the peso price component of the sale. One of the conditions
contained in the approving GSIS Resolution No. 3203, as later amended by
Resolution No. 356, Series of 1958, reads as follows:
That the lots comprising the Hacienda Luisita shall be subdivided by the applicant-
corporation and sold at cost to the tenants, should there be any, and whenever
conditions should exist warranting such action under the provisions of the Land
Tenure Act;21
As of March 31, 1958, Tadeco had fully paid the purchase price for the acquisition
of Hacienda Luisita and Tabacalera’s interest in CAT.22
The details of the events that happened next involving the hacienda and the political
color some of the parties embossed are of minimal significance to this narration and
need no belaboring. Suffice it to state that on May 7, 1980, the martial law
administration filed a suit before the Manila Regional Trial Court (RTC) against
Tadeco, et al., for them to surrender Hacienda Luisita to the then Ministry of Agrarian
Reform (MAR, now the Department of Agrarian Reform [DAR]) so that the land can
be distributed to farmers at cost. Responding, Tadeco or its owners alleged that
Hacienda Luisita does not have tenants, besides which sugar lands––of which the
hacienda consisted––are not covered by existing agrarian reform legislations. As
perceived then, the government commenced the case against Tadeco as a political
message to the family of the late Benigno Aquino, Jr.23
Eventually, the Manila RTC rendered judgment ordering Tadeco to surrender
Hacienda Luisita to the MAR. Therefrom, Tadeco appealed to the Court of Appeals
(CA).
On March 17, 1988, the Office of the Solicitor General (OSG) moved to withdraw
the government’s case against Tadeco, et al. By Resolution of May 18, 1988, the
CA dismissed the case the Marcos government initially instituted and won against
Tadeco, et al. The dismissal action was, however, made subject to the obtention by
Tadeco of the PARC’s approval of a stock distribution plan (SDP) that must initially
be implemented after such approval shall have been secured.24 The appellate court
wrote:
The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x
governmental agencies concerned in moving for the dismissal of the case subject,
however, to the following conditions embodied in the letter dated April 8, 1988
(Annex 2) of the Secretary of the [DAR] quoted, as follows:
1. Should TADECO fail to obtain approval of the stock distribution plan for
failure to comply with all the requirements for corporate landowners set forth
in the guidelines issued by the [PARC]: or
2. If such stock distribution plan is approved by PARC, but TADECO fails to
initially implement it.
xxxx
WHEREFORE, the present case on appeal is hereby dismissed without prejudice,
and should be revived if any of the conditions as above set forth is not duly complied
with by the TADECO.25
Markedly, Section 10 of EO 22926 allows corporate landowners, as an alternative to
the actual land transfer scheme of CARP, to give qualified beneficiaries the right to
purchase shares of stocks of the corporation under a stock ownership arrangement
and/or land-to-share ratio.
Like EO 229, RA 6657, under the latter’s Sec. 31, also provides two (2) alternative
modalities, i.e., land or stock transfer, pursuant to either of which the corporate
landowner can comply with CARP, but subject to well-defined conditions and
timeline requirements. Sec. 31 of RA 6657 provides:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer
ownership over their agricultural landholdings to the Republic of the Philippines
pursuant to Section 20 hereof or to qualified beneficiaries x x x.
Upon certification by the DAR, corporations owning agricultural lands may give
their qualified beneficiaries the right to purchase such proportion of the
capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets, under
such terms and conditions as may be agreed upon by them. In no case shall the
compensation received by the workers at the time the shares of stocks are
distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital
stock, equity or participation in favor of their workers or other qualified beneficiaries
under this section shall be deemed to have complied with the provisions of this Act:
Provided, That the following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks
to dividends and other financial benefits, the books of the corporation or
association shall be subject to periodic audit by certified public accountants
chosen by the beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association,
the beneficiaries shall be assured of at least one (1) representative in the
board of directors, or in a management or executive committee, if one exists,
of the corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the
same rights and features as all other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void
ab initio unless said transaction is in favor of a qualified and registered
beneficiary within the same corporation.
If within two (2) years from the approval of this Act, the [voluntary] land or stock
transfer envisioned above is not made or realized or the plan for such stock
distribution approved by the PARC within the same period, the agricultural land of
the corporate owners or corporation shall be subject to the compulsory coverage of
this Act. (Emphasis added.)
Vis-à-vis the stock distribution aspect of the aforequoted Sec. 31, DAR issued
Administrative Order No. 10, Series of 1988 (DAO 10), 27 entitled Guidelines and
Procedures for Corporate Landowners Desiring to Avail Themselves of the Stock
Distribution Plan under Section 31 of RA 6657.
From the start, the stock distribution scheme appeared to be Tadeco’s preferred
option, for, on August 23, 1988,28 it organized a spin-off corporation, HLI, as vehicle
to facilitate stock acquisition by the farmworkers. For this purpose, Tadeco assigned
and conveyed to HLI the agricultural land portion (4,915.75 hectares) and other
farm-related properties of Hacienda Luisita in exchange for HLI shares of stock. 29
Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose Cojuangco, Jr., and
Paz C. Teopaco were the incorporators of HLI.30
To accommodate the assets transfer from Tadeco to HLI, the latter, with the
Securities and Exchange Commission’s (SEC’s) approval, increased its capital
stock on May 10, 1989 from PhP 1,500,000 divided into 1,500,000 shares with a par
value of PhP 1/share to PhP 400,000,000 divided into 400,000,000 shares also with
par value of PhP 1/share, 150,000,000 of which were to be issued only to qualified
and registered beneficiaries of the CARP, and the remaining 250,000,000 to any
stockholder of the corporation.31
As appearing in its proposed SDP, the properties and assets of Tadeco contributed
to the capital stock of HLI, as appraised and approved by the SEC, have an
aggregate value of PhP 590,554,220, or after deducting the total liabilities of the
farm amounting to PhP 235,422,758, a net value of PhP 355,531,462. This
translated to 355,531,462 shares with a par value of PhP 1/share. 32
On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs)
complement of Hacienda Luisita signified in a referendum their acceptance of the
proposed HLI’s Stock Distribution Option Plan. On May 11, 1989, the Stock
Distribution Option Agreement (SDOA), styled as a Memorandum of Agreement
(MOA),33 was entered into by Tadeco, HLI, and the 5,848 qualified FWBs 34 and
attested to by then DAR Secretary Philip Juico. The SDOA embodied the basis and
mechanics of the SDP, which would eventually be submitted to the PARC for
approval. In the SDOA, the parties agreed to the following:
1. The percentage of the value of the agricultural land of Hacienda Luisita
(P196,630,000.00) in relation to the total assets (P590,554,220.00)
transferred and conveyed to the SECOND PARTY [HLI] is 33.296% that,
under the law, is the proportion of the outstanding capital stock of the
SECOND PARTY, which is P355,531,462.00 or 355,531,462 shares with a
par value of P1.00 per share, that has to be distributed to the THIRD PARTY
[FWBs] under the stock distribution plan, the said 33.296% thereof being
P118,391,976.85 or 118,391,976.85 shares.
2. The qualified beneficiaries of the stock distribution plan shall be the
farmworkers who appear in the annual payroll, inclusive of the permanent
and seasonal employees, who are regularly or periodically employed by the
SECOND PARTY.
3. At the end of each fiscal year, for a period of 30 years, the SECOND
PARTY shall arrange with the FIRST PARTY [Tadeco] the acquisition and
distribution to the THIRD PARTY on the basis of number of days worked
and at no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of
the capital stock of the SECOND PARTY that are presently owned and held
by the FIRST PARTY, until such time as the entire block of 118,391,976.85
shares shall have been completely acquired and distributed to the THIRD
PARTY.
4.The SECOND PARTY shall guarantee to the qualified beneficiaries of the
[SDP] that every year they will receive on top of their regular compensation,
an amount that approximates the equivalent of three (3%) of the total gross
sales from the production of the agricultural land, whether it be in the form
of cash dividends or incentive bonuses or both.
5. Even if only a part or fraction of the shares earmarked for distribution will
have been acquired from the FIRST PARTY and distributed to the THIRD
PARTY, FIRST PARTY shall execute at the beginning of each fiscal year
an irrevocable proxy, valid and effective for one (1) year, in favor of the
farmworkers appearing as shareholders of the SECOND PARTY at the start
of said year which will empower the THIRD PARTY or their representative
to vote in stockholders’ and board of directors’ meetings of the SECOND
PARTY convened during the year the entire 33.296% of the outstanding
capital stock of the SECOND PARTY earmarked for distribution and thus be
able to gain such number of seats in the board of directors of the SECOND
PARTY that the whole 33.296% of the shares subject to distribution will be
entitled to.
6. In addition, the SECOND PARTY shall within a reasonable time subdivide
and allocate for free and without charge among the qualified family-
beneficiaries residing in the place where the agricultural land is situated,
residential or homelots of not more than 240 sq.m. each, with each family-
beneficiary being assured of receiving and owning a homelot in the
barangay where it actually resides on the date of the execution of this
Agreement.
 7. This Agreement is entered into by the parties in the spirit of the (C.A.R.P.)
of the government and with the supervision of the [DAR], with the end in
view of improving the lot of the qualified beneficiaries of the [SDP] and
obtaining for them greater benefits. (Emphasis added.)
As may be gleaned from the SDOA, included as part of the distribution plan are: (a)
production-sharing equivalent to three percent (3%) of gross sales from the
production of the agricultural land payable to the FWBs in cash dividends or
incentive bonus; and (b) distribution of free homelots of not more than 240 square
meters each to family-beneficiaries. The production-sharing, as the SDP indicated,
is payable "irrespective of whether [HLI] makes money or not," implying that the
benefits do not partake the nature of dividends, as the term is ordinarily understood
under corporation law.
While a little bit hard to follow, given that, during the period material, the assigned
value of the agricultural land in the hacienda was PhP 196.63 million, while the total
assets of HLI was PhP 590.55 million with net assets of PhP 355.53 million,
Tadeco/HLI would admit that the ratio of the land-to-shares of stock corresponds to
33.3% of the outstanding capital stock of the HLI equivalent to 118,391,976.85
shares of stock with a par value of PhP 1/share.
Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock
Distribution under C.A.R.P.,"35which was substantially based on the SDOA.
Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117
FWBs, out of 5,315 who participated, opted to receive shares in HLI.36 One hundred
thirty-two (132) chose actual land distribution.37
After a review of the SDP, then DAR Secretary Miriam Defensor-Santiago (Sec.
Defensor-Santiago) addressed a letter dated November 6, 198938 to Pedro S.
Cojuangco (Cojuangco), then Tadeco president, proposing that the SDP be revised,
along the following lines:
1. That over the implementation period of the [SDP], [Tadeco]/HLI shall
ensure that there will be no dilution in the shares of stocks of individual
[FWBs];
2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution
of the percentage shareholdings of the [FWBs], i.e., that the 33%
shareholdings of the [FWBs] will be maintained at any given time;
3. That the mechanics for distributing the stocks be explicitly stated in the
[MOA] signed between the [Tadeco], HLI and its [FWBs] prior to the
implementation of the stock plan;
4. That the stock distribution plan provide for clear and definite terms for
determining the actual number of seats to be allocated for the [FWBs] in the
HLI Board;
5. That HLI provide guidelines and a timetable for the distribution of
homelots to qualified [FWBs]; and
6. That the 3% cash dividends mentioned in the [SDP] be expressly
provided for [in] the MOA.
In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI
explained that the proposed revisions of the SDP are already embodied in both the
SDP and MOA.39 Following that exchange, the PARC, under then Sec. Defensor-
Santiago, by Resolution No. 89-12-240 dated November 21, 1989, approved the
SDP of Tadeco/HLI.41
At the time of the SDP approval, HLI had a pool of farmworkers, numbering 6,296,
more or less, composed of permanent, seasonal and casual master list/payroll and
non-master list members.
From 1989 to 2005, HLI claimed to have extended the following benefits to the
FWBs:
(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages and fringe
benefits
(b) 59 million shares of stock distributed for free to the FWBs;
(c) 150 million pesos (P150,000,000) representing 3% of the gross produce;
(d) 37.5 million pesos (P37,500,000) representing 3% from the sale of 500
hectares of converted agricultural land of Hacienda Luisita;
(e) 240-square meter homelots distributed for free;
(f) 2.4 million pesos (P2,400,000) representing 3% from the sale of 80
hectares at 80 million pesos (P80,000,000) for the SCTEX;
 (g) Social service benefits, such as but not limited to free
hospitalization/medical/maternity services, old age/death benefits and no
interest bearing salary/educational loans and rice sugar accounts. 42
Two separate groups subsequently contested this claim of HLI.
On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the
hacienda from agricultural to industrial use,43 pursuant to Sec. 65 of RA 6657,
providing:
SEC. 65. Conversion of Lands.¾After the lapse of five (5) years from its award,
when the land ceases to be economically feasible and sound for agricultural
purposes, or the locality has become urbanized and the land will have a greater
economic value for residential, commercial or industrial purposes, the DAR, upon
application of the beneficiary or the landowner, with due notice to the affected
parties, and subject to existing laws, may authorize the reclassification, or
conversion of the land and its disposition: Provided, That the beneficiary shall have
fully paid its obligation.
The application, according to HLI, had the backing of 5,000 or so FWBs, including
respondent Rene Galang, and Jose Julio Suniga, as evidenced by the Manifesto of
Support they signed and which was submitted to the DAR. 44After the usual
processing, the DAR, thru then Sec. Ernesto Garilao, approved the application on
August 14, 1996, per DAR Conversion Order No. 030601074-764-(95), Series of
1996,45 subject to payment of three percent (3%) of the gross selling price to the
FWBs and to HLI’s continued compliance with its undertakings under the SDP,
among other conditions.
On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of
stocks of Centennary Holdings, Inc. (Centennary), ceded 300 hectares of the
converted area to the latter.46 Consequently, HLI’s Transfer Certificate of Title (TCT)
No. 28791047 was canceled and TCT No. 29209148 was issued in the name of
Centennary. HLI transferred the remaining 200 hectares covered by TCT No.
287909 to Luisita Realty Corporation (LRC)49 in two separate transactions in 1997
and 1998, both uniformly involving 100 hectares for PhP 250 million each.50
Centennary, a corporation with an authorized capital stock of PhP 12,100,000
divided into 12,100,000 shares and wholly-owned by HLI, had the following
incorporators: Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Ernesto G.
Teopaco, and Bernardo R. Lahoz.
Subsequently, Centennary sold51
the entire 300 hectares to Luisita Industrial Park
Corporation (LIPCO) for PhP 750 million. The latter acquired it for the purpose of
developing an industrial complex.52 As a result, Centennary’s TCT No. 292091 was
canceled to be replaced by TCT No. 31098653 in the name of LIPCO.
From the area covered by TCT No. 310986 was carved out two (2) parcels, for which
two (2) separate titles were issued in the name of LIPCO, specifically: (a) TCT No.
36580054 and (b) TCT No. 365801,55 covering 180 and four hectares, respectively.
TCT No. 310986 was, accordingly, partially canceled.
Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO
transferred the parcels covered by its TCT Nos. 365800 and 365801 to the Rizal
Commercial Banking Corporation (RCBC) by way of dacion en pago in payment of
LIPCO’s PhP 431,695,732.10 loan obligations. LIPCO’s titles were canceled and
new ones, TCT Nos. 391051 and 391052, were issued to RCBC.
Apart from the 500 hectares alluded to, another 80.51 hectares were later detached
from the area coverage of Hacienda Luisita which had been acquired by the
government as part of the Subic-Clark-Tarlac Expressway (SCTEX) complex. In
absolute terms, 4,335.75 hectares remained of the original 4,915 hectares Tadeco
ceded to HLI.56
Such, in short, was the state of things when two separate petitions, both undated,
reached the DAR in the latter part of 2003. In the first, denominated as
Petition/Protest,57 respondents Jose Julio Suniga and Windsor Andaya, identifying
themselves as head of the Supervisory Group of HLI (Supervisory Group), and 60
other supervisors sought to revoke the SDOA, alleging that HLI had failed to give
them their dividends and the one percent (1%) share in gross sales, as well as the
thirty-three percent (33%) share in the proceeds of the sale of the converted 500
hectares of land. They further claimed that their lives have not improved contrary to
the promise and rationale for the adoption of the SDOA. They also cited violations
by HLI of the SDOA’s terms.58 They prayed for a renegotiation of the SDOA, or, in
the alternative, its revocation.
Revocation and nullification of the SDOA and the distribution of the lands in the
hacienda were the call in the second petition, styled as Petisyon (Petition).59 The
Petisyon was ostensibly filed on December 4, 2003 by Alyansa ng mga
Manggagawang Bukid ng Hacienda Luisita (AMBALA), where the handwritten name
of respondents Rene Galang as "Pangulo AMBALA" and Noel Mallari as "Sec-Gen.
AMBALA"60 appeared. As alleged, the petition was filed on behalf of AMBALA’s
members purportedly composing about 80% of the 5,339 FWBs of Hacienda Luisita.
HLI would eventually answer61 the petition/protest of the Supervisory Group. On the
other hand, HLI’s answer62 to the AMBALA petition was contained in its letter dated
January 21, 2005 also filed with DAR.
Meanwhile, the DAR constituted a Special Task Force to attend to issues relating to
the SDP of HLI. Among other duties, the Special Task Force was mandated to
review the terms and conditions of the SDOA and PARC Resolution No. 89-12-2
relative to HLI’s SDP; evaluate HLI’s compliance reports; evaluate the merits of the
petitions for the revocation of the SDP; conduct ocular inspections or field
investigations; and recommend appropriate remedial measures for approval of the
Secretary.63
After investigation and evaluation, the Special Task Force submitted its "Terminal
Report: Hacienda Luisita, Incorporated (HLI) Stock Distribution Plan (SDP)
Conflict"64 dated September 22, 2005 (Terminal Report), finding that HLI has not
complied with its obligations under RA 6657 despite the implementation of the
SDP.65 The Terminal Report and the Special Task Force’s recommendations were
adopted by then DAR Sec. Nasser Pangandaman (Sec. Pangandaman). 66
Subsequently, Sec. Pangandaman recommended to the PARC Executive
Committee (Excom) (a) the recall/revocation of PARC Resolution No. 89-12-2 dated
November 21, 1989 approving HLI’s SDP; and (b) the acquisition of Hacienda Luisita
through the compulsory acquisition scheme. Following review, the PARC Validation
Committee favorably endorsed the DAR Secretary’s recommendation afore-
stated.67
On December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01,
disposing as follows:
NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is HEREBY
RESOLVED, to approve and confirm the recommendation of the PARC Executive
Committee adopting in toto the report of the PARC ExCom Validation Committee
affirming the recommendation of the DAR to recall/revoke the SDO plan of Tarlac
Development Corporation/Hacienda Luisita Incorporated.
RESOLVED, further, that the lands subject of the recalled/revoked TDC/HLI SDO
plan be forthwith placed under the compulsory coverage or mandated land
acquisition scheme of the [CARP].
APPROVED.68
A copy of Resolution No. 2005-32-01 was served on HLI the following day,
December 23, without any copy of the documents adverted to in the resolution
attached. A letter-request dated December 28, 200569 for certified copies of said
documents was sent to, but was not acted upon by, the PARC secretariat.
Therefrom, HLI, on January 2, 2006, sought reconsideration. 70 On the same day,
the DAR Tarlac provincial office issued the Notice of Coverage71 which HLI received
on January 4, 2006.
Its motion notwithstanding, HLI has filed the instant recourse in light of what it
considers as the DAR’s hasty placing of Hacienda Luisita under CARP even before
PARC could rule or even read the motion for reconsideration. 72 As HLI later rued, it
"can not know from the above-quoted resolution the facts and the law upon which it
is based."73
PARC would eventually deny HLI’s motion for reconsideration via Resolution No.
2006-34-01 dated May 3, 2006.
By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion, issued a
temporary restraining order,75enjoining the implementation of Resolution No. 2005-
32-01 and the notice of coverage.
On July 13, 2006, the OSG, for public respondents PARC and the DAR, filed its
Comment76 on the petition.
On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity
as "Sec-Gen. AMBALA," filed his Manifestation and Motion with Comment Attached
dated December 4, 2006 (Manifestation and Motion). 77 In it, Mallari stated that he
has broken away from AMBALA with other AMBALA ex-members and formed
Farmworkers Agrarian Reform Movement, Inc. (FARM).78 Should this shift in
alliance deny him standing, Mallari also prayed that FARM be allowed to intervene.
As events would later develop, Mallari had a parting of ways with other FARM
members, particularly would-be intervenors Renato Lalic, et al. As things stand,
Mallari returned to the AMBALA fold, creating the AMBALA-Noel Mallari faction and
leaving Renato Lalic, et al. as the remaining members of FARM who sought to
intervene.
On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang
faction submitted their Comment/Opposition dated December 17, 2006.80
On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and
Admit Attached Petition-In-Intervention dated October 18, 2007.81 LIPCO later
followed with a similar motion.82 In both motions, RCBC and LIPCO contended that
the assailed resolution effectively nullified the TCTs under their respective names
as the properties covered in the TCTs were veritably included in the January 2, 2006
notice of coverage. In the main, they claimed that the revocation of the SDP cannot
legally affect their rights as innocent purchasers for value. Both motions for leave to
intervene were granted and the corresponding petitions-in-intervention admitted.
On August 18, 2010, the Court heard the main and intervening petitioners on oral
arguments. On the other hand, the Court, on August 24, 2010, heard public
respondents as well as the respective counsels of the AMBALA-Mallari-Supervisory
Group, the AMBALA-Galang faction, and the FARM and its 27 members 83 argue
their case.
Prior to the oral arguments, however, HLI; AMBALA, represented by Mallari; the
Supervisory Group, represented by Suniga and Andaya; and the United Luisita
Workers Union, represented by Eldifonso Pingol, filed with the Court a joint
submission and motion for approval of a Compromise Agreement (English and
Tagalog versions) dated August 6, 2010.
On August 31, 2010, the Court, in a bid to resolve the dispute through an amicable
settlement, issued a Resolution84 creating a Mediation Panel composed of then
Associate Justice Ma. Alicia Austria-Martinez, as chairperson, and former CA
Justices Hector Hofileña and Teresita Dy-Liacco Flores, as members. Meetings on
five (5) separate dates, i.e., September 8, 9, 14, 20, and 27, 2010, were conducted.
Despite persevering and painstaking efforts on the part of the panel, mediation had
to be discontinued when no acceptable agreement could be reached.
The Issues
HLI raises the following issues for our consideration:
I.
WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY
PANGANDAMAN HAVE JURISDICTION, POWER AND/OR AUTHORITY
TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA.
II.
[IF SO], x x x CAN THEY STILL EXERCISE SUCH JURISDICTION,
POWER AND/OR AUTHORITY AT THIS TIME, I.E., AFTER SIXTEEN (16)
YEARS FROM THE EXECUTION OF THE SDOA AND ITS
IMPLEMENTATION WITHOUT VIOLATING SECTIONS 1 AND 10 OF
ARTICLE III (BILL OF RIGHTS) OF THE CONSTITUTION AGAINST
DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW AND
THE IMPAIRMENT OF CONTRACTUAL RIGHTS AND OBLIGATIONS?
MOREOVER, ARE THERE LEGAL GROUNDS UNDER THE CIVIL
CODE, viz, ARTICLE 1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x
ARTICLE 1390 x x x AND ARTICLE 1409 x x x THAT CAN BE INVOKED
TO NULLIFY, RECALL, REVOKE, OR RESCIND THE SDOA?
III.
WHETHER THE PETITIONS TO NULLIFY, RECALL, REVOKE OR
RESCIND THE SDOA HAVE ANY LEGAL BASIS OR GROUNDS AND
WHETHER THE PETITIONERS THEREIN ARE THE REAL PARTIES-IN-
INTEREST TO FILE SAID PETITIONS.
IV.
WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE
PARTIES TO THE SDOA ARE NOW GOVERNED BY THE
CORPORATION CODE (BATAS PAMBANSA BLG. 68) AND NOT BY
THE x x x [CARL] x x x.
On the other hand, RCBC submits the following issues:
I.
RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DID
NOT EXCLUDE THE SUBJECT PROPERTY FROM THE COVERAGE OF
THE CARP DESPITE THE FACT THAT PETITIONER-INTERVENOR
RCBC HAS ACQUIRED VESTED RIGHTS AND INDEFEASIBLE TITLE
OVER THE SUBJECT PROPERTY AS AN INNOCENT PURCHASER FOR
VALUE.
A. THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE
NOTICE OF COVERAGE DATED 02 JANUARY 2006 HAVE THE
EFFECT OF NULLIFYING TCT NOS. 391051 AND 391052 IN THE
NAME OF PETITIONER-INTERVENOR RCBC.
B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-
INTERVENOR RCBC CANNOT BE PREJUDICED BY A
SUBSEQUENT REVOCATION OR RESCISSION OF THE SDOA.
II.
THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF
COVERAGE DATED 02 JANUARY 2006 WERE ISSUED WITHOUT
 AFFORDING PETITIONER-INTERVENOR RCBC ITS RIGHT TO DUE
PROCESS AS AN INNOCENT PURCHASER FOR VALUE.
LIPCO, like RCBC, asserts having acquired vested and indefeasible rights over
certain portions of the converted property, and, hence, would ascribe on PARC the
commission of grave abuse of discretion when it included those portions in the notice
of coverage. And apart from raising issues identical with those of HLI, such as but
not limited to the absence of valid grounds to warrant the rescission and/or
revocation of the SDP, LIPCO would allege that the assailed resolution and the
notice of coverage were issued without affording it the right to due process as an
innocent purchaser for value. The government, LIPCO also argues, is estopped from
recovering properties which have since passed to innocent parties.
Simply formulated, the principal determinative issues tendered in the main petition
and to which all other related questions must yield boil down to the following: (1)
matters of standing; (2) the constitutionality of Sec. 31 of RA 6657; (3) the jurisdiction
of PARC to recall or revoke HLI’s SDP; (4) the validity or propriety of such recall or
revocatory action; and (5) corollary to (4), the validity of the terms and conditions of
the SDP, as embodied in the SDOA.
Our Ruling
I.
We first proceed to the examination of the preliminary issues before delving on the
more serious challenges bearing on the validity of PARC’s assailed issuance and
the grounds for it.
Supervisory Group, AMBALA and their
respective leaders are real parties-in-interest
HLI would deny real party-in-interest status to the purported leaders of the
Supervisory Group and AMBALA, i.e., Julio Suniga, Windsor Andaya, and Rene
Galang, who filed the revocatory petitions before the DAR. As HLI would have it,
Galang, the self-styled head of AMBALA, gained HLI employment in June 1990 and,
thus, could not have been a party to the SDOA executed a year earlier.85 As regards
the Supervisory Group, HLI alleges that supervisors are not regular farmworkers,
but the company nonetheless considered them FWBs under the SDOA as a mere
concession to enable them to enjoy the same benefits given qualified regular
farmworkers. However, if the SDOA would be canceled and land distribution
effected, so HLI claims, citing Fortich v. Corona,86 the supervisors would be
excluded from receiving lands as farmworkers other than the regular farmworkers
who are merely entitled to the "fruits of the land."87
The SDOA no less identifies "the SDP qualified beneficiaries" as "the farmworkers
who appear in the annual payroll, inclusive of the permanent and seasonal
employees, who are regularly or periodically employed by [HLI]."88 Galang, per HLI’s
own admission, is employed by HLI, and is, thus, a qualified beneficiary of the SDP;
he comes within the definition of a real party-in-interest under Sec. 2, Rule 3 of the
Rules of Court, meaning, one who stands to be benefited or injured by the judgment
in the suit or is the party entitled to the avails of the suit.
The same holds true with respect to the Supervisory Group whose members were
admittedly employed by HLI and whose names and signatures even appeared in the
annex of the SDOA. Being qualified beneficiaries of the SDP, Suniga and the other
61 supervisors are certainly parties who would benefit or be prejudiced by the
judgment recalling the SDP or replacing it with some other modality to comply with
RA 6657.
Even assuming that members of the Supervisory Group are not regular
farmworkers, but are in the category of "other farmworkers" mentioned in Sec. 4,
Article XIII of the Constitution,89 thus only entitled to a share of the fruits of the land,
as indeed Fortich teaches, this does not detract from the fact that they are still
identified as being among the "SDP qualified beneficiaries." As such, they are, thus,
entitled to bring an action upon the SDP.90 At any rate, the following admission made
by Atty. Gener Asuncion, counsel of HLI, during the oral arguments should put to
rest any lingering doubt as to the status of protesters Galang, Suniga, and Andaya:
Justice Bersamin: x x x I heard you a while ago that you were conceding the qualified
farmer beneficiaries of Hacienda Luisita were real parties in interest?
Atty. Asuncion: Yes, Your Honor please, real party in interest which that question
refers to the complaints of protest initiated before the DAR and the real party in
interest there be considered as possessed by the farmer beneficiaries who initiated
the protest.91
Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are expressly
allowed to represent themselves, their fellow farmers or their organizations in any
proceedings before the DAR. Specifically:
SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x
xxxx
Responsible farmer leaders shall be allowed to represent themselves, their
fellow farmers or their organizations in any proceedings before the DAR:
Provided, however, that when there are two or more representatives for any
individual or group, the representatives should choose only one among themselves
to represent such party or group before any DAR proceedings. (Emphasis supplied.)
Clearly, the respective leaders of the Supervisory Group and AMBALA are
contextually real parties-in-interest allowed by law to file a petition before the DAR
or PARC.
This is not necessarily to say, however, that Galang represents AMBALA, for as
records show and as HLI aptly noted,92 his "petisyon" filed with DAR did not carry
the usual authorization of the individuals in whose behalf it was supposed to have
been instituted. To date, such authorization document, which would logically include
a list of the names of the authorizing FWBs, has yet to be submitted to be part of the
records.
PARC’s Authority to Revoke a Stock Distribution Plan
On the postulate that the subject jurisdiction is conferred by law, HLI maintains that
PARC is without authority to revoke an SDP, for neither RA 6657 nor EO 229
expressly vests PARC with such authority. While, as HLI argued, EO 229 empowers
PARC to approve the plan for stock distribution in appropriate cases, the
empowerment only includes the power to disapprove, but not to recall its previous
approval of the SDP after it has been implemented by the parties.93 To HLI, it is the
court which has jurisdiction and authority to order the revocation or rescission of the
PARC-approved SDP.
We disagree.
Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the
plan for stock distribution of the corporate landowner belongs to PARC. However,
contrary to petitioner HLI’s posture, PARC also has the power to revoke the SDP
which it previously approved. It may be, as urged, that RA 6657 or other executive
issuances on agrarian reform do not explicitly vest the PARC with the power to
revoke/recall an approved SDP. Such power or authority, however, is deemed
possessed by PARC under the principle of necessary implication, a basic postulate
that what is implied in a statute is as much a part of it as that which is expressed.94
We have explained that "every statute is understood, by implication, to contain all
such provisions as may be necessary to effectuate its object and purpose, or to
make effective rights, powers, privileges or jurisdiction which it grants, including all
such collateral and subsidiary consequences as may be fairly and logically inferred
from its terms."95 Further, "every statutory grant of power, right or privilege is
deemed to include all incidental power, right or privilege.96
Gordon v. Veridiano II is instructive:
The power to approve a license includes by implication, even if not expressly
granted, the power to revoke it. By extension, the power to revoke is limited by the
authority to grant the license, from which it is derived in the first place. Thus, if the
FDA grants a license upon its finding that the applicant drug store has complied with
the requirements of the general laws and the implementing administrative rules and
regulations, it is only for their violation that the FDA may revoke the said license. By
the same token, having granted the permit upon his ascertainment that the
conditions thereof as applied x x x have been complied with, it is only for the violation
of such conditions that the mayor may revoke the said permit.97 (Emphasis
supplied.)
Following the doctrine of necessary implication, it may be stated that the conferment
of express power to approve a plan for stock distribution of the agricultural land of
corporate owners necessarily includes the power to revoke or recall the approval of
the plan.
As public respondents aptly observe, to deny PARC such revocatory power would
reduce it into a toothless agency of CARP, because the very same agency tasked
to ensure compliance by the corporate landowner with the approved SDP would be
without authority to impose sanctions for non-compliance with it.98 With the view We
take of the case, only PARC can effect such revocation. The DAR Secretary, by his
own authority as such, cannot plausibly do so, as the acceptance and/or approval
of the SDP sought to be taken back or undone is the act of PARC whose official
composition includes, no less, the President as chair, the DAR Secretary as vice-
chair, and at least eleven (11) other department heads.99
On another but related issue, the HLI foists on the Court the argument that
subjecting its landholdings to compulsory distribution after its approved SDP has
been implemented would impair the contractual obligations created under the
SDOA.
The broad sweep of HLI’s argument ignores certain established legal precepts and
must, therefore, be rejected.
A law authorizing interference, when appropriate, in the contractual relations
between or among parties is deemed read into the contract and its implementation
cannot successfully be resisted by force of the non-impairment guarantee. There is,
in that instance, no impingement of the impairment clause, the non-impairment
protection being applicable only to laws that derogate prior acts or contracts by
enlarging, abridging or in any manner changing the intention of the parties.
Impairment, in fine, obtains if a subsequent law changes the terms of a contract
between the parties, imposes new conditions, dispenses with those agreed upon or
withdraws existing remedies for the enforcement of the rights of the
parties.100 Necessarily, the constitutional proscription would not apply to laws
already in effect at the time of contract execution, as in the case of RA 6657, in
relation to DAO 10, vis-à-vis HLI’s SDOA. As held in Serrano v. Gallant Maritime
Services, Inc.:
The prohibition [against impairment of the obligation of contracts] is aligned with the
general principle that laws newly enacted have only a prospective operation, and
cannot affect acts or contracts already perfected; however, as to laws already in
existence, their provisions are read into contracts and deemed a part thereof. Thus,
the non-impairment clause under Section 10, Article II [of the Constitution] is limited
in application to laws about to be enacted that would in any way derogate from
existing acts or contracts by enlarging, abridging or in any manner changing the
intention of the parties thereto.101 (Emphasis supplied.)
Needless to stress, the assailed Resolution No. 2005-32-01 is not the kind of
issuance within the ambit of Sec. 10, Art. III of the Constitution providing that "[n]o
law impairing the obligation of contracts shall be passed."
Parenthetically, HLI tags the SDOA as an ordinary civil law contract and, as such, a
breach of its terms and conditions is not a PARC administrative matter, but one that
gives rise to a cause of action cognizable by regular courts. 102 This contention has
little to commend itself. The SDOA is a special contract imbued with public interest,
entered into and crafted pursuant to the provisions of RA 6657. It embodies the SDP,
which requires for its validity, or at least its enforceability, PARC’s approval. And the
fact that the certificate of compliance103––to be issued by agrarian authorities upon
completion of the distribution of stocks––is revocable by the same issuing authority
supports the idea that everything about the implementation of the SDP is, at the first
instance, subject to administrative adjudication.
HLI also parlays the notion that the parties to the SDOA should now look to the
Corporation Code, instead of to RA 6657, in determining their rights, obligations and
remedies. The Code, it adds, should be the applicable law on the disposition of the
agricultural land of HLI.
Contrary to the view of HLI, the rights, obligations and remedies of the parties to the
SDOA embodying the SDP are primarily governed by RA 6657. It should abundantly
be made clear that HLI was precisely created in order to comply with RA 6657, which
the OSG aptly described as the "mother law" of the SDOA and the SDP. 104 It is, thus,
paradoxical for HLI to shield itself from the coverage of CARP by invoking exclusive
applicability of the Corporation Code under the guise of being a corporate entity.
Without in any way minimizing the relevance of the Corporation Code since the
FWBs of HLI are also stockholders, its applicability is limited as the rights of the
parties arising from the SDP should not be made to supplant or circumvent the
agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is
the special law on agrarian reform. As between a general and special law, the latter
shall prevail—generalia specialibus non derogant.105 Besides, the present impasse
between HLI and the private respondents is not an intra-corporate dispute which
necessitates the application of the Corporation Code. What private respondents
questioned before the DAR is the proper implementation of the SDP and HLI’s
compliance with RA 6657. Evidently, RA 6657 should be the applicable law to the
instant case.
HLI further contends that the inclusion of the agricultural land of Hacienda Luisita
under the coverage of CARP and the eventual distribution of the land to the FWBs
would amount to a disposition of all or practically all of the corporate assets of HLI.
HLI would add that this contingency, if ever it comes to pass, requires the
applicability of the Corporation Code provisions on corporate dissolution.
We are not persuaded.
Indeed, the provisions of the Corporation Code on corporate dissolution would apply
insofar as the winding up of HLI’s affairs or liquidation of the assets is concerned.
However, the mere inclusion of the agricultural land of Hacienda Luisita under the
coverage of CARP and the land’s eventual distribution to the FWBs will not, without
more, automatically trigger the dissolution of HLI. As stated in the SDOA itself, the
percentage of the value of the agricultural land of Hacienda Luisita in relation to the
total assets transferred and conveyed by Tadeco to HLI comprises only 33.296%,
following this equation: value of the agricultural lands divided by total corporate
assets. By no stretch of imagination would said percentage amount to a disposition
of all or practically all of HLI’s corporate assets should compulsory land acquisition
and distribution ensue.
This brings us to the validity of the revocation of the approval of the SDP sixteen
(16) years after its execution pursuant to Sec. 31 of RA 6657 for the reasons set
forth in the Terminal Report of the Special Task Force, as endorsed by PARC
Excom. But first, the matter of the constitutionality of said section.
Constitutional Issue
FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it affords the
corporation, as a mode of CARP compliance, to resort to stock distribution, an
arrangement which, to FARM, impairs the fundamental right of farmers and
farmworkers under Sec. 4, Art. XIII of the Constitution. 106
To a more specific, but direct point, FARM argues that Sec. 31 of RA 6657 permits
stock transfer in lieu of outright agricultural land transfer; in fine, there is stock
certificate ownership of the farmers or farmworkers instead of them owning the land,
as envisaged in the Constitution. For FARM, this modality of distribution is an
anomaly to be annulled for being inconsistent with the basic concept of agrarian
reform ingrained in Sec. 4, Art. XIII of the Constitution.107
Reacting, HLI insists that agrarian reform is not only about transfer of land ownership
to farmers and other qualified beneficiaries. It draws attention in this regard to Sec.
3(a) of RA 6657 on the concept and scope of the term "agrarian reform." The
constitutionality of a law, HLI added, cannot, as here, be attacked collaterally.
The instant challenge on the constitutionality of Sec. 31 of RA 6657 and necessarily
its counterpart provision in EO 229 must fail as explained below.
When the Court is called upon to exercise its power of judicial review over, and pass
upon the constitutionality of, acts of the executive or legislative departments, it does
so only when the following essential requirements are first met, to wit:
(1) there is an actual case or controversy;
(2) that the constitutional question is raised at the earliest possible
opportunity by a proper party or one with locus standi; and
(3) the issue of constitutionality must be the very lis mota of the case. 108
Not all the foregoing requirements are satisfied in the case at bar.
While there is indeed an actual case or controversy, intervenor FARM, composed of
a small minority of 27 farmers, has yet to explain its failure to challenge the
constitutionality of Sec. 3l of RA 6657, since as early as November 21, l989 when
PARC approved the SDP of Hacienda Luisita or at least within a reasonable time
thereafter and why its members received benefits from the SDP without so much of
a protest. It was only on December 4, 2003 or 14 years after approval of the SDP
via PARC Resolution No. 89-12-2 dated November 21, 1989 that said plan and
approving resolution were sought to be revoked, but not, to stress, by FARM or any
of its members, but by petitioner AMBALA. Furthermore, the AMBALA petition did
NOT question the constitutionality of Sec. 31 of RA 6657, but concentrated on the
purported flaws and gaps in the subsequent implementation of the SDP. Even the
public respondents, as represented by the Solicitor General, did not question the
constitutionality of the provision. On the other hand, FARM, whose 27 members
formerly belonged to AMBALA, raised the constitutionality of Sec. 31 only on May 3,
2007 when it filed its Supplemental Comment with the Court. Thus, it took FARM
some eighteen (18) years from November 21, 1989 before it challenged the
constitutionality of Sec. 31 of RA 6657 which is quite too late in the day. The FARM
members slept on their rights and even accepted benefits from the SDP with nary a
complaint on the alleged unconstitutionality of Sec. 31 upon which the benefits were
derived. The Court cannot now be goaded into resolving a constitutional issue that
FARM failed to assail after the lapse of a long period of time and the occurrence of
numerous events and activities which resulted from the application of an alleged
unconstitutional legal provision.
It has been emphasized in a number of cases that the question of constitutionality
will not be passed upon by the Court unless it is properly raised and presented in an
appropriate case at the first opportunity.109 FARM is, therefore, remiss in belatedly
questioning the constitutionality of Sec. 31 of RA 6657. The second requirement that
the constitutional question should be raised at the earliest possible opportunity is
clearly wanting.
The last but the most important requisite that the constitutional issue must be the
very lis mota of the case does not likewise obtain. The lis mota aspect is not present,
the constitutional issue tendered not being critical to the resolution of the case. The
unyielding rule has been to avoid, whenever plausible, an issue assailing the
constitutionality of a statute or governmental act.110 If some other grounds exist by
which judgment can be made without touching the constitutionality of a law, such
recourse is favored.111 Garcia v. Executive Secretary explains why:
Lis Mota — the fourth requirement to satisfy before this Court will undertake judicial
review — means that the Court will not pass upon a question of unconstitutionality,
although properly presented, if the case can be disposed of on some other ground,
such as the application of the statute or the general law. The petitioner must be able
to show that the case cannot be legally resolved unless the constitutional question
raised is determined. This requirement is based on the rule that every law has in its
favor the presumption of constitutionality; to justify its nullification, there must be a
clear and unequivocal breach of the Constitution, and not one that is doubtful,
speculative, or argumentative.112 (Italics in the original.)
The lis mota in this case, proceeding from the basic positions originally taken by
AMBALA (to which the FARM members previously belonged) and the Supervisory
Group, is the alleged non-compliance by HLI with the conditions of the SDP to
support a plea for its revocation. And before the Court, the lis mota is whether or not
PARC acted in grave abuse of discretion when it ordered the recall of the SDP for
such non-compliance and the fact that the SDP, as couched and implemented,
offends certain constitutional and statutory provisions. To be sure, any of these key
issues may be resolved without plunging into the constitutionality of Sec. 31 of RA
6657. Moreover, looking deeply into the underlying petitions of AMBALA, et al., it is
not the said section per se that is invalid, but rather it is the alleged application of
the said provision in the SDP that is flawed.
It may be well to note at this juncture that Sec. 5 of RA 9700,113 amending Sec. 7 of
RA 6657, has all but superseded Sec. 31 of RA 6657 vis-à-vis the stock distribution
component of said Sec. 31. In its pertinent part, Sec. 5 of RA 9700 provides: "[T]hat
after June 30, 2009, the modes of acquisition shall be limited to voluntary offer
to sell and compulsory acquisition." Thus, for all intents and purposes, the stock
distribution scheme under Sec. 31 of RA 6657 is no longer an available option under
existing law. The question of whether or not it is unconstitutional should be a moot
issue.
It is true that the Court, in some cases, has proceeded to resolve constitutional
issues otherwise already moot and academic114 provided the following requisites are
present:
x x x first, there is a grave violation of the Constitution; second, the exceptional
character of the situation and the paramount public interest is involved; third, when
the constitutional issue raised requires formulation of controlling principles to guide
the bench, the bar, and the public; fourth, the case is capable of repetition yet
evading review.
These requisites do not obtain in the case at bar.
For one, there appears to be no breach of the fundamental law. Sec. 4, Article XIII
of the Constitution reads:
The State shall, by law, undertake an agrarian reform program founded on the right
of the farmers and regular farmworkers, who are landless, to OWN directly or
COLLECTIVELY THE LANDS THEY TILL or, in the case of other farmworkers, to
receive a just share of the fruits thereof. To this end, the State shall encourage and
undertake the just distribution of all agricultural lands, subject to such priorities and
reasonable retention limits as the Congress may prescribe, taking into account
ecological, developmental, or equity considerations, and subject to the payment of
just compensation. In determining retention limits, the State shall respect the right
of small landowners. The State shall further provide incentives for voluntary land-
sharing. (Emphasis supplied.)
The wording of the provision is unequivocal––the farmers and regular farmworkers
have a right TO OWN DIRECTLY OR COLLECTIVELY THE LANDS THEY TILL.
The basic law allows two (2) modes of land distribution—direct and indirect
ownership. Direct transfer to individual farmers is the most commonly used method
by DAR and widely accepted. Indirect transfer through collective ownership of the
agricultural land is the alternative to direct ownership of agricultural land by individual
farmers. The aforequoted Sec. 4 EXPRESSLY authorizes collective ownership by
farmers. No language can be found in the 1987 Constitution that disqualifies or
prohibits corporations or cooperatives of farmers from being the legal entity through
which collective ownership can be exercised. The word "collective" is defined as
"indicating a number of persons or things considered as constituting one group or
aggregate,"115 while "collectively" is defined as "in a collective sense or manner; in
a mass or body."116 By using the word "collectively," the Constitution allows for
indirect ownership of land and not just outright agricultural land transfer. This is in
recognition of the fact that land reform may become successful even if it is done
through the medium of juridical entities composed of farmers.
Collective ownership is permitted in two (2) provisions of RA 6657. Its Sec. 29 allows
workers’ cooperatives or associations to collectively own the land, while the second
paragraph of Sec. 31 allows corporations or associations to own agricultural land
with the farmers becoming stockholders or members. Said provisions read:
SEC. 29. Farms owned or operated by corporations or other business
associations.—In the case of farms owned or operated by corporations or other
business associations, the following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be
owned collectively by the worker beneficiaries who shall form a workers’ cooperative
or association which will deal with the corporation or business association. x x x
(Emphasis supplied.)
SEC. 31. Corporate Landowners.— x x x
xxxx
Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of
the corporation that the agricultural land, actually devoted to agricultural activities,
bears in relation to the company’s total assets, under such terms and conditions as
may be agreed upon by them. In no case shall the compensation received by the
workers at the time the shares of stocks are distributed be reduced. The same
principle shall be applied to associations, with respect to their equity or participation.
x x x (Emphasis supplied.)
Clearly, workers’ cooperatives or associations under Sec. 29 of RA 6657 and
corporations or associations under the succeeding Sec. 31, as differentiated from
individual farmers, are authorized vehicles for the collective ownership of agricultural
land. Cooperatives can be registered with the Cooperative Development Authority
and acquire legal personality of their own, while corporations are juridical persons
under the Corporation Code. Thus, Sec. 31 is constitutional as it simply implements
Sec. 4 of Art. XIII of the Constitution that land can be owned COLLECTIVELY by
farmers. Even the framers of the l987 Constitution are in unison with respect to the
two (2) modes of ownership of agricultural lands tilled by farmers––DIRECT and
COLLECTIVE, thus:
MR. NOLLEDO. And when we talk of the phrase "to own directly," we mean the
principle of direct ownership by the tiller?
MR. MONSOD. Yes.
MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership,
stewardship or State ownership?
MS. NIEVA. In this section, we conceive of cooperatives; that is farmers’
cooperatives owning the land, not the State.
MR. NOLLEDO. And when we talk of "collectively," referring to farmers’
cooperatives, do the farmers own specific areas of land where they only unite in their
efforts?
MS. NIEVA. That is one way.
MR. NOLLEDO. Because I understand that there are two basic systems involved:
the "moshave" type of agriculture and the "kibbutz." So are both contemplated in the
report?
MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng tunay na
reporma sa lupa ay ang pagmamay-ari ng lupa na hahatiin sa individual na
pagmamay-ari – directly – at ang tinatawag na sama-samang gagawin ng mga
magbubukid. Tulad sa Negros, ang gusto ng mga magbubukid ay gawin nila itong
"cooperative or collective farm." Ang ibig sabihin ay sama-sama nilang sasakahin.
xxxx
MR. TINGSON. x x x When we speak here of "to own directly or collectively the
lands they till," is this land for the tillers rather than land for the landless? Before, we
used to hear "land for the landless," but now the slogan is "land for the tillers." Is that
right?
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Ang ibig
sabihin ng "directly" ay tulad sa implementasyon sa rice and corn lands kung saan
inaari na ng mga magsasaka ang lupang binubungkal nila. Ang ibig sabihin naman
ng "collectively" ay sama-samang paggawa sa isang lupain o isang bukid, katulad
ng sitwasyon sa Negros.117 (Emphasis supplied.)
As Commissioner Tadeo explained, the farmers will work on the agricultural land
"sama-sama" or collectively. Thus, the main requisite for collective ownership of land
is collective or group work by farmers of the agricultural land. Irrespective of whether
the landowner is a cooperative, association or corporation composed of farmers, as
long as concerted group work by the farmers on the land is present, then it falls
within the ambit of collective ownership scheme.
Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the
part of the State to pursue, by law, an agrarian reform program founded on the
policy of land for the landless, but subject to such priorities as Congress may
prescribe, taking into account such abstract variable as "equity considerations." The
textual reference to a law and Congress necessarily implies that the above
constitutional provision is not self-executoryand that legislation is needed to
implement the urgently needed program of agrarian reform. And RA 6657 has been
enacted precisely pursuant to and as a mechanism to carry out the constitutional
directives. This piece of legislation, in fact, restates 118 the agrarian reform policy
established in the aforementioned provision of the Constitution of promoting the
welfare of landless farmers and farmworkers. RA 6657 thus defines "agrarian
reform" as "the redistribution of lands … to farmers and regular farmworkers who
are landless … to lift the economic status of the beneficiaries and all other
arrangements alternative to the physical redistribution of lands, such as
production or profit sharing, labor administration and the distribution of shares of
stock which will allow beneficiaries to receive a just share of the fruits of the lands
they work."
With the view We take of this case, the stock distribution option devised under Sec.
31 of RA 6657 hews with the agrarian reform policy, as instrument of social justice
under Sec. 4 of Article XIII of the Constitution. Albeit land ownership for the landless
appears to be the dominant theme of that policy, We emphasize that Sec. 4, Article
XIII of the Constitution, as couched, does not constrict Congress to passing an
agrarian reform law planted on direct land transfer to and ownership by farmers and
no other, or else the enactment suffers from the vice of unconstitutionality. If the
intention were otherwise, the framers of the Constitution would have worded said
section in a manner mandatory in character.
For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer features, is
not inconsistent with the State’s commitment to farmers and farmworkers to advance
their interests under the policy of social justice. The legislature, thru Sec. 31 of RA
6657, has chosen a modality for collective ownership by which the imperatives of
social justice may, in its estimation, be approximated, if not achieved. The Court
should be bound by such policy choice.
FARM contends that the farmers in the stock distribution scheme under Sec. 31 do
not own the agricultural land but are merely given stock certificates. Thus, the
farmers lose control over the land to the board of directors and executive officials of
the corporation who actually manage the land. They conclude that such
arrangement runs counter to the mandate of the Constitution that any agrarian
reform must preserve the control over the land in the hands of the tiller.
This contention has no merit.
While it is true that the farmer is issued stock certificates and does not directly own
the land, still, the Corporation Code is clear that the FWB becomes a stockholder
who acquires an equitable interest in the assets of the corporation, which include
the agricultural lands. It was explained that the "equitable interest of the shareholder
in the property of the corporation is represented by the term stock, and the extent of
his interest is described by the term shares. The expression shares of stock when
qualified by words indicating number and ownership expresses the extent of the
owner’s interest in the corporate property."119 A share of stock typifies an aliquot part
of the corporation’s property, or the right to share in its proceeds to that extent when
distributed according to law and equity and that its holder is not the owner of any
part of the capital of the corporation.120 However, the FWBs will ultimately own the
agricultural lands owned by the corporation when the corporation is eventually
dissolved and liquidated.
Anent the alleged loss of control of the farmers over the agricultural land operated
and managed by the corporation, a reading of the second paragraph of Sec. 31
shows otherwise. Said provision provides that qualified beneficiaries have "the right
to purchase such proportion of the capital stock of the corporation that the
agricultural land, actually devoted to agricultural activities, bears in relation to the
company’s total assets." The wording of the formula in the computation of the
number of shares that can be bought by the farmers does not mean loss of control
on the part of the farmers. It must be remembered that the determination of the
percentage of the capital stock that can be bought by the farmers depends on the
value of the agricultural land and the value of the total assets of the corporation.
There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The
policy on agrarian reform is that control over the agricultural land must always be in
the hands of the farmers. Then it falls on the shoulders of DAR and PARC to see to
it the farmers should always own majority of the common shares entitled to elect the
members of the board of directors to ensure that the farmers will have a clear
majority in the board. Before the SDP is approved, strict scrutiny of the proposed
SDP must always be undertaken by the DAR and PARC, such that the value of the
agricultural land contributed to the corporation must always be more than 50% of
the total assets of the corporation to ensure that the majority of the members of the
board of directors are composed of the farmers. The PARC composed of the
President of the Philippines and cabinet secretaries must see to it that control over
the board of directors rests with the farmers by rejecting the inclusion of non-
agricultural assets which will yield the majority in the board of directors to non-
farmers. Any deviation, however, by PARC or DAR from the correct application of
the formula prescribed by the second paragraph of Sec. 31 of RA 6675 does not
make said provision constitutionally infirm. Rather, it is the application of said
provision that can be challenged. Ergo, Sec. 31 of RA 6657 does not trench on the
constitutional policy of ensuring control by the farmers.
A view has been advanced that there can be no agrarian reform unless there is land
distribution and that actual land distribution is the essential characteristic of a
constitutional agrarian reform program. On the contrary, there have been so many
instances where, despite actual land distribution, the implementation of agrarian
reform was still unsuccessful. As a matter of fact, this Court may take judicial notice
of cases where FWBs sold the awarded land even to non-qualified persons and in
violation of the prohibition period provided under the law. This only proves to show
that the mere fact that there is land distribution does not guarantee a successful
implementation of agrarian reform.
As it were, the principle of "land to the tiller" and the old pastoral model of land
ownership where non-human juridical persons, such as corporations, were
prohibited from owning agricultural lands are no longer realistic under existing
conditions. Practically, an individual farmer will often face greater disadvantages and
difficulties than those who exercise ownership in a collective manner through a
cooperative or corporation. The former is too often left to his own devices when
faced with failing crops and bad weather, or compelled to obtain usurious loans in
order to purchase costly fertilizers or farming equipment. The experiences learned
from failed land reform activities in various parts of the country are lack of financing,
lack of farm equipment, lack of fertilizers, lack of guaranteed buyers of produce, lack
of farm-to-market roads, among others. Thus, at the end of the day, there is still no
successful implementation of agrarian reform to speak of in such a case.
Although success is not guaranteed, a cooperative or a corporation stands in a
better position to secure funding and competently maintain the agri-business than
the individual farmer. While direct singular ownership over farmland does offer
advantages, such as the ability to make quick decisions unhampered by interference
from others, yet at best, these advantages only but offset the disadvantages that are
often associated with such ownership arrangement. Thus, government must be
flexible and creative in its mode of implementation to better its chances of success.
One such option is collective ownership through juridical persons composed of
farmers.
Aside from the fact that there appears to be no violation of the Constitution, the
requirement that the instant case be capable of repetition yet evading review is also
wanting. It would be speculative for this Court to assume that the legislature will
enact another law providing for a similar stock option.
As a matter of sound practice, the Court will not interfere inordinately with the
exercise by Congress of its official functions, the heavy presumption being that a
law is the product of earnest studies by Congress to ensure that no constitutional
prescription or concept is infringed.121 Corollarily, courts will not pass upon questions
of wisdom, expediency and justice of legislation or its provisions. Towards this end,
all reasonable doubts should be resolved in favor of the constitutionality of a law and
the validity of the acts and processes taken pursuant thereof. 122
Consequently, before a statute or its provisions duly challenged are voided, an
unequivocal breach of, or a clear conflict with the Constitution, not merely a doubtful
or argumentative one, must be demonstrated in such a manner as to leave no doubt
in the mind of the Court. In other words, the grounds for nullity must be beyond
reasonable doubt.123 FARM has not presented compelling arguments to overcome
the presumption of constitutionality of Sec. 31 of RA 6657.
The wisdom of Congress in allowing an SDP through a corporation as an alternative
mode of implementing agrarian reform is not for judicial determination. Established
jurisprudence tells us that it is not within the province of the Court to inquire into the
wisdom of the law, for, indeed, We are bound by words of the statute.124
II.
The stage is now set for the determination of the propriety under the premises of the
revocation or recall of HLI’s SDP. Or to be more precise, the inquiry should be:
whether or not PARC gravely abused its discretion in revoking or recalling the
subject SDP and placing the hacienda under CARP’s compulsory acquisition and
distribution scheme.
The findings, analysis and recommendation of the DAR’s Special Task Force
contained and summarized in its Terminal Report provided the bases for the
assailed PARC revocatory/recalling Resolution. The findings may be grouped into
two: (1) the SDP is contrary to either the policy on agrarian reform, Sec. 31 of RA
6657, or DAO 10; and (2) the alleged violation by HLI of the conditions/terms of the
SDP. In more particular terms, the following are essentially the reasons
underpinning PARC’s revocatory or recall action:
(1) Despite the lapse of 16 years from the approval of HLI’s SDP, the lives
of the FWBs have hardly improved and the promised increased income has
not materialized;
(2) HLI has failed to keep Hacienda Luisita intact and unfragmented;
(3) The issuance of HLI shares of stock on the basis of number of hours
worked––or the so-called "man days"––is grossly onerous to the FWBs, as
HLI, in the guise of rotation, can unilaterally deny work to anyone. In
elaboration of this ground, PARC’s Resolution No. 2006-34-01, denying
HLI’s motion for reconsideration of Resolution No. 2005-32-01, stated that
the man days criterion worked to dilute the entitlement of the original share
beneficiaries;125
(4) The distribution/transfer of shares was not in accordance with the
timelines fixed by law;
(5) HLI has failed to comply with its obligations to grant 3% of the gross
sales every year as production-sharing benefit on top of the workers’ salary;
and
(6) Several homelot awardees have yet to receive their individual titles.
Petitioner HLI claims having complied with, at least substantially, all its obligations
under the SDP, as approved by PARC itself, and tags the reasons given for the
revocation of the SDP as unfounded.
Public respondents, on the other hand, aver that the assailed resolution rests on
solid grounds set forth in the Terminal Report, a position shared by AMBALA, which,
in some pleadings, is represented by the same counsel as that appearing for the
Supervisory Group.
FARM, for its part, posits the view that legal bases obtain for the revocation of the
SDP, because it does not conform to Sec. 31 of RA 6657 and DAO 10. And training
its sight on the resulting dilution of the equity of the FWBs appearing in HLI’s
masterlist, FARM would state that the SDP, as couched and implemented, spawned
disparity when there should be none; parity when there should have been
differentiation.126
The petition is not impressed with merit.
In the Terminal Report adopted by PARC, it is stated that the SDP violates the
agrarian reform policy under Sec. 2 of RA 6657, as the said plan failed to enhance
the dignity and improve the quality of lives of the FWBs through greater productivity
of agricultural lands. We disagree.
Sec. 2 of RA 6657 states:
SECTION 2. Declaration of Principles and Policies.¾It is the policy of the State to
pursue a Comprehensive Agrarian Reform Program (CARP). The welfare of the
landless farmers and farm workers will receive the highest consideration to promote
social justice and to move the nation towards sound rural development and
industrialization, and the establishment of owner cultivatorship of economic-sized
farms as the basis of Philippine agriculture.
To this end, a more equitable distribution and ownership of land, with due regard to
the rights of landowners to just compensation and to the ecological needs of the
nation, shall be undertaken to provide farmers and farm workers with the opportunity
to enhance their dignity and improve the quality of their lives through greater
productivity of agricultural lands.
The agrarian reform program is founded on the right of farmers and regular farm
workers, who are landless, to own directly or collectively the lands they till or, in the
case of other farm workers, to receive a share of the fruits thereof. To this end, the
State shall encourage the just distribution of all agricultural lands, subject to the
priorities and retention limits set forth in this Act, having taken into account
ecological, developmental, and equity considerations, and subject to the payment of
just compensation. The State shall respect the right of small landowners and shall
provide incentives for voluntary land-sharing. (Emphasis supplied.)
Paragraph 2 of the above-quoted provision specifically mentions that "a more
equitable distribution and ownership of land x x x shall be undertaken to provide
farmers and farm workers with the opportunity to enhance their dignity and improve
the quality of their lives through greater productivity of agricultural lands." Of note is
the term "opportunity" which is defined as a favorable chance or opening offered by
circumstances.127 Considering this, by no stretch of imagination can said provision
be construed as a guarantee in improving the lives of the FWBs. At best, it merely
provides for a possibility or favorable chance of uplifting the economic status of the
FWBs, which may or may not be attained.
Pertinently, improving the economic status of the FWBs is neither among the legal
obligations of HLI under the SDP nor an imperative imposition by RA 6657 and DAO
10, a violation of which would justify discarding the stock distribution option. Nothing
in that option agreement, law or department order indicates otherwise.
Significantly, HLI draws particular attention to its having paid its FWBs, during the
regime of the SDP (1989-2005), some PhP 3 billion by way of salaries/wages and
higher benefits exclusive of free hospital and medical benefits to their immediate
family. And attached as Annex "G" to HLI’s Memorandum is the certified true report
of the finance manager of Jose Cojuangco & Sons Organizations-Tarlac Operations,
captioned as "HACIENDA LUISITA, INC. Salaries, Benefits and Credit Privileges (in
Thousand Pesos) Since the Stock Option was Approved by PARC/CARP," detailing
what HLI gave their workers from 1989 to 2005. The sum total, as added up by the
Court, yields the following numbers: Total Direct Cash Out (Salaries/Wages & Cash
Benefits) = PhP 2,927,848; Total Non-Direct Cash Out (Hospital/Medical Benefits)
= PhP 303,040. The cash out figures, as stated in the report, include the cost of
homelots; the PhP 150 million or so representing 3% of the gross produce of the
hacienda; and the PhP 37.5 million representing 3% from the proceeds of the sale
of the 500-hectare converted lands. While not included in the report, HLI manifests
having given the FWBs 3% of the PhP 80 million paid for the 80 hectares of land
traversed by the SCTEX.128 On top of these, it is worth remembering that the shares
of stocks were given by HLI to the FWBs for free. Verily, the FWBs have benefited
from the SDP.
To address urgings that the FWBs be allowed to disengage from the SDP as HLI
has not anyway earned profits through the years, it cannot be over-emphasized that,
as a matter of common business sense, no corporation could guarantee a profitable
run all the time. As has been suggested, one of the key features of an SDP of a
corporate landowner is the likelihood of the corporate vehicle not earning, or, worse
still, losing money.129
The Court is fully aware that one of the criteria under DAO 10 for the PARC to
consider the advisability of approving a stock distribution plan is the likelihood that
the plan "would result in increased income and greater benefits to [qualified
beneficiaries] than if the lands were divided and distributed to them
individually."130 But as aptly noted during the oral arguments, DAO 10 ought to have
not, as it cannot, actually exact assurance of success on something that is subject
to the will of man, the forces of nature or the inherent risky nature of business.131 Just
like in actual land distribution, an SDP cannot guarantee, as indeed the SDOA does
not guarantee, a comfortable life for the FWBs. The Court can take judicial notice of
the fact that there were many instances wherein after a farmworker beneficiary has
been awarded with an agricultural land, he just subsequently sells it and is eventually
left with nothing in the end.
In all then, the onerous condition of the FWBs’ economic status, their life of hardship,
if that really be the case, can hardly be attributed to HLI and its SDP and provide a
valid ground for the plan’s revocation.
Neither does HLI’s SDP, whence the DAR-attested SDOA/MOA is based, infringe
Sec. 31 of RA 6657, albeit public respondents erroneously submit otherwise.
The provisions of the first paragraph of the adverted Sec. 31 are without relevance
to the issue on the propriety of the assailed order revoking HLI’s SDP, for the
paragraph deals with the transfer of agricultural lands to the government, as a mode
of CARP compliance, thus:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer
ownership over their agricultural landholdings to the Republic of the Philippines
pursuant to Section 20 hereof or to qualified beneficiaries under such terms and
conditions, consistent with this Act, as they may agree, subject to confirmation by
the DAR.
The second and third paragraphs, with their sub-paragraphs, of Sec. 31 provide as
follows:
Upon certification by the DAR, corporations owning agricultural lands may give
their qualified beneficiaries the right to purchase such proportion of the
capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets, under
such terms and conditions as may be agreed upon by them. In no case shall the
compensation received by the workers at the time the shares of stocks are
distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital
stock, equity or participation in favor of their workers or other qualified beneficiaries
under this section shall be deemed to have complied with the provisions of this Act:
Provided, That the following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks
to dividends and other financial benefits, the books of the corporation or
association shall be subject to periodic audit by certified public accountants
chosen by the beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association,
the beneficiaries shall be assured of at least one (1) representative in the
board of directors, or in a management or executive committee, if one exists,
of the corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the
same rights and features as all other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void
ab initio unless said transaction is in favor of a qualified and registered
beneficiary within the same corporation.
The mandatory minimum ratio of land-to-shares of stock supposed to be distributed
or allocated to qualified beneficiaries, adverting to what Sec. 31 of RA 6657 refers
to as that "proportion of the capital stock of the corporation that the agricultural land,
actually devoted to agricultural activities, bears in relation to the company’s total
assets" had been observed.
Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31
of RA 6657. The stipulation reads:
1. The percentage of the value of the agricultural land of Hacienda Luisita
(P196,630,000.00) in relation to the total assets (P590,554,220.00) transferred and
conveyed to the SECOND PARTY is 33.296% that, under the law, is the proportion
of the outstanding capital stock of the SECOND PARTY, which is P355,531,462.00
or 355,531,462 shares with a par value of P1.00 per share, that has to be distributed
to the THIRD PARTY under the stock distribution plan, the said 33.296% thereof
being P118,391,976.85 or 118,391,976.85 shares.
The appraised value of the agricultural land is PhP 196,630,000 and of HLI’s other
assets is PhP 393,924,220. The total value of HLI’s assets is, therefore, PhP
590,554,220.132 The percentage of the value of the agricultural lands (PhP
196,630,000) in relation to the total assets (PhP 590,554,220) is 33.296%, which
represents the stockholdings of the 6,296 original qualified farmworker-beneficiaries
(FWBs) in HLI. The total number of shares to be distributed to said qualified FWBs
is 118,391,976.85 HLI shares. This was arrived at by getting 33.296% of the
355,531,462 shares which is the outstanding capital stock of HLI with a value of PhP
355,531,462. Thus, if we divide the 118,391,976.85 HLI shares by 6,296 FWBs, then
each FWB is entitled to 18,804.32 HLI shares. These shares under the SDP are to
be given to FWBs for free.
The Court finds that the determination of the shares to be distributed to the 6,296
FWBs strictly adheres to the formula prescribed by Sec. 31(b) of RA 6657.
Anent the requirement under Sec. 31(b) of the third paragraph, that the FWBs shall
be assured of at least one (1) representative in the board of directors or in a
management or executive committee irrespective of the value of the equity of the
FWBs in HLI, the Court finds that the SDOA contained provisions making certain the
FWBs’ representation in HLI’s governing board, thus:
5. Even if only a part or fraction of the shares earmarked for distribution will have
been acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST
PARTY shall execute at the beginning of each fiscal year an irrevocable proxy, valid
and effective for one (1) year, in favor of the farmworkers appearing as shareholders
of the SECOND PARTY at the start of said year which will empower the THIRD
PARTY or their representative to vote in stockholders’ and board of directors’
meetings of the SECOND PARTY convened during the year the entire 33.296% of
the outstanding capital stock of the SECOND PARTY earmarked for distribution and
thus be able to gain such number of seats in the board of directors of the SECOND
PARTY that the whole 33.296% of the shares subject to distribution will be entitled
to.
Also, no allegations have been made against HLI restricting the inspection of its
books by accountants chosen by the FWBs; hence, the assumption may be made
that there has been no violation of the statutory prescription under sub-paragraph
(a) on the auditing of HLI’s accounts.
Public respondents, however, submit that the distribution of the mandatory minimum
ratio of land-to-shares of stock, referring to the 118,391,976.85 shares with par value
of PhP 1 each, should have been made in full within two (2) years from the approval
of RA 6657, in line with the last paragraph of Sec. 31 of said law.133
Public respondents’ submission is palpably erroneous. We have closely examined
the last paragraph alluded to, with particular focus on the two-year period mentioned,
and nothing in it remotely supports the public respondents’ posture. In its pertinent
part, said Sec. 31 provides:
SEC. 31. Corporate Landowners x x x
If within two (2) years from the approval of this Act, the [voluntary] land or stock
transfer envisioned above is not made or realized or the plan for such stock
distribution approved by the PARC within the same period, the agricultural land of
the corporate owners or corporation shall be subject to the compulsory coverage of
this Act. (Word in bracket and emphasis added.)
Properly viewed, the words "two (2) years" clearly refer to the period within which
the corporate landowner, to avoid land transfer as a mode of CARP coverage under
RA 6657, is to avail of the stock distribution option or to have the SDP approved.
The HLI secured approval of its SDP in November 1989, well within the two-year
period reckoned from June 1988 when RA 6657 took effect.
Having hurdled the alleged breach of the agrarian reform policy under Sec. 2 of RA
6657 as well as the statutory issues, We shall now delve into what PARC and
respondents deem to be other instances of violation of DAO 10 and the SDP.
On the Conversion of Lands
Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita
unfragmented is also not among the imperative impositions by the SDP, RA 6657,
and DAO 10.
The Terminal Report states that the proposed distribution plan submitted in 1989 to
the PARC effectively assured the intended stock beneficiaries that the physical
integrity of the farm shall remain inviolate. Accordingly, the Terminal Report and the
PARC-assailed resolution would take HLI to task for securing approval of the
conversion to non-agricultural uses of 500 hectares of the hacienda. In not too many
words, the Report and the resolution view the conversion as an infringement of Sec.
5(a) of DAO 10 which reads: "a. that the continued operation of the corporation with
its agricultural land intact and unfragmented is viable with potential for growth and
increased profitability."
The PARC is wrong.
In the first place, Sec. 5(a)––just like the succeeding Sec. 5(b) of DAO 10 on
increased income and greater benefits to qualified beneficiaries––is but one of the
stated criteria to guide PARC in deciding on whether or not to accept an SDP. Said
Sec. 5(a) does not exact from the corporate landowner-applicant the undertaking to
keep the farm intact and unfragmented ad infinitum. And there is logic to HLI’s stated
observation that the key phrase in the provision of Sec. 5(a) is "viability of corporate
operations": "[w]hat is thus required is not the agricultural land remaining intact x x
x but the viability of the corporate operations with its agricultural land being intact
and unfragmented. Corporate operation may be viable even if the corporate
agricultural land does not remain intact or [un]fragmented."134
It is, of course, anti-climactic to mention that DAR viewed the conversion as not
violative of any issuance, let alone undermining the viability of Hacienda Luisita’s
operation, as the DAR Secretary approved the land conversion applied for and its
disposition via his Conversion Order dated August 14, 1996 pursuant to Sec. 65 of
RA 6657 which reads:
Sec. 65. Conversion of Lands.¾After the lapse of five years from its award when the
land ceases to be economically feasible and sound for agricultural purposes, or the
locality has become urbanized and the land will have a greater economic value for
residential, commercial or industrial purposes, the DAR upon application of the
beneficiary or landowner with due notice to the affected parties, and subject to
existing laws, may authorize the x x x conversion of the land and its dispositions. x
xx
On the 3% Production Share
On the matter of the alleged failure of HLI to comply with sharing the 3% of the gross
production sales of the hacienda and pay dividends from profit, the entries in its
financial books tend to indicate compliance by HLI of the profit-sharing equivalent to
3% of the gross sales from the production of the agricultural land on top of (a) the
salaries and wages due FWBs as employees of the company and (b) the 3% of the
gross selling price of the converted land and that portion used for the SCTEX. A
plausible evidence of compliance or non-compliance, as the case may be, could be
the books of account of HLI. Evidently, the cry of some groups of not having received
their share from the gross production sales has not adequately been validated on
the ground by the Special Task Force.
Indeed, factual findings of administrative agencies are conclusive when supported
by substantial evidence and are accorded due respect and weight, especially when
they are affirmed by the CA.135 However, such rule is not absolute. One such
exception is when the findings of an administrative agency are conclusions without
citation of specific evidence on which they are based, 136 such as in this particular
instance. As culled from its Terminal Report, it would appear that the Special Task
Force rejected HLI’s claim of compliance on the basis of this ratiocination:
 The Task Force position: Though, allegedly, the Supervisory Group
receives the 3% gross production share and that others alleged that they
received 30 million pesos still others maintain that they have not received
anything yet. Item No. 4 of the MOA is clear and must be followed. There is
a distinction between the total gross sales from the production of the land
and the proceeds from the sale of the land. The former refers to the
fruits/yield of the agricultural land while the latter is the land itself. The
phrase "the beneficiaries are entitled every year to an amount approximately
equivalent to 3% would only be feasible if the subject is the produce since
there is at least one harvest per year, while such is not the case in the sale
of the agricultural land. This negates then the claim of HLI that, all that the
FWBs can be entitled to, if any, is only 3% of the purchase price of the
converted land.
 Besides, the Conversion Order dated 14 August 1996 provides that "the
benefits, wages and the like, presently received by the FWBs shall not in
any way be reduced or adversely affected. Three percent of the gross selling
price of the sale of the converted land shall be awarded to the beneficiaries
of the SDO." The 3% gross production share then is different from the 3%
proceeds of the sale of the converted land and, with more reason, the 33%
share being claimed by the FWBs as part owners of the Hacienda, should
have been given the FWBs, as stockholders, and to which they could have
been entitled if only the land were acquired and redistributed to them under
the CARP.
xxxx
 The FWBs do not receive any other benefits under the MOA except the
aforementioned [(viz: shares of stocks (partial), 3% gross production sale
(not all) and homelots (not all)].
Judging from the above statements, the Special Task Force is at best silent on
whether HLI has failed to comply with the 3% production-sharing obligation or the
3% of the gross selling price of the converted land and the SCTEX lot. In fact, it
admits that the FWBs, though not all, have received their share of the gross
production sales and in the sale of the lot to SCTEX. At most, then, HLI had complied
substantially with this SDP undertaking and the conversion order. To be sure, this
slight breach would not justify the setting to naught by PARC of the approval action
of the earlier PARC. Even in contract law, rescission, predicated on violation of
reciprocity, will not be permitted for a slight or casual breach of contract; rescission
may be had only for such breaches that are substantial and fundamental as to defeat
the object of the parties in making the agreement.137
Despite the foregoing findings, the revocation of the approval of the SDP is not
without basis as shown below.
On Titles to Homelots
Under RA 6657, the distribution of homelots is required only for corporations or
business associations owning or operating farms which opted for land distribution.
Sec. 30 of RA 6657 states:
SEC. 30. Homelots and Farmlots for Members of Cooperatives.¾The individual
members of the cooperatives or corporations mentioned in the preceding section
shall be provided with homelots and small farmlots for their family use, to be taken
from the land owned by the cooperative or corporation.
The "preceding section" referred to in the above-quoted provision is as follows:
SEC. 29. Farms Owned or Operated by Corporations or Other Business
Associations.¾In the case of farms owned or operated by corporations or other
business associations, the following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be
owned collectively by the worker-beneficiaries who shall form a workers’ cooperative
or association which will deal with the corporation or business association. Until a
new agreement is entered into by and between the workers’ cooperative or
association and the corporation or business association, any agreement existing at
the time this Act takes effect between the former and the previous landowner shall
be respected by both the workers’ cooperative or association and the corporation or
business association.
Noticeably, the foregoing provisions do not make reference to corporations which
opted for stock distribution under Sec. 31 of RA 6657. Concomitantly, said
corporations are not obliged to provide for it except by stipulation, as in this case.
Under the SDP, HLI undertook to "subdivide and allocate for free and without charge
among the qualified family-beneficiaries x x x residential or homelots of not more
than 240 sq. m. each, with each family beneficiary being assured of receiving and
owning a homelot in the barrio or barangay where it actually resides," "within a
reasonable time."
More than sixteen (16) years have elapsed from the time the SDP was approved by
PARC, and yet, it is still the contention of the FWBs that not all was given the 240-
square meter homelots and, of those who were already given, some still do not have
the corresponding titles.
During the oral arguments, HLI was afforded the chance to refute the foregoing
allegation by submitting proof that the FWBs were already given the said homelots:
Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the
qualified family beneficiaries were not given the 240 square meters each. So, can
you also [prove] that the qualified family beneficiaries were already provided the 240
square meter homelots.
Atty. Asuncion: We will, your Honor please.138
Other than the financial report, however, no other substantial proof showing that all
the qualified beneficiaries have received homelots was submitted by HLI. Hence,
this Court is constrained to rule that HLI has not yet fully complied with its
undertaking to distribute homelots to the FWBs under the SDP.
On "Man Days" and the Mechanics of Stock Distribution
In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of
stock distribution, We find that it violates two (2) provisions of DAO 10. Par. 3 of the
SDOA states:
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI]
shall arrange with the FIRST PARTY [TDC] the acquisition and distribution to the
THIRD PARTY [FWBs] on the basis of number of days worked and at no cost to
them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the
SECOND PARTY that are presently owned and held by the FIRST PARTY, until
such time as the entire block of 118,391,976.85 shares shall have been completely
acquired and distributed to the THIRD PARTY.
Based on the above-quoted provision, the distribution of the shares of stock to the
FWBs, albeit not entailing a cash out from them, is contingent on the number of
"man days," that is, the number of days that the FWBs have worked during the year.
This formula deviates from Sec. 1 of DAO 10, which decrees the distribution of equal
number of shares to the FWBs as the minimum ratio of shares of stock for purposes
of compliance with Sec. 31 of RA 6657. As stated in Sec. 4 of DAO 10:
Section 4. Stock Distribution Plan.¾The [SDP] submitted by the corporate
landowner-applicant shall provide for the distribution of an equal number of
shares of the same class and value, with the same rights and features as all other
shares, to each of the qualified beneficiaries. This distribution plan in all cases, shall
be at least the minimum ratio for purposes of compliance with Section 31 of R.A.
No. 6657.
On top of the minimum ratio provided under Section 3 of this Implementing
Guideline, the corporate landowner-applicant may adopt additional stock distribution
schemes taking into account factors such as rank, seniority, salary, position and
other circumstances which may be deemed desirable as a matter of sound company
policy. (Emphasis supplied.)
The above proviso gives two (2) sets or categories of shares of stock which a
qualified beneficiary can acquire from the corporation under the SDP. The first
pertains, as earlier explained, to the mandatory minimum ratio of shares of stock to
be distributed to the FWBs in compliance with Sec. 31 of RA 6657. This minimum
ratio contemplates of that "proportion of the capital stock of the corporation that the
agricultural land, actually devoted to agricultural activities, bears in relation to the
company’s total assets."139 It is this set of shares of stock which, in line with Sec. 4
of DAO 10, is supposed to be allocated "for the distribution of an equal number of
shares of stock of the same class and value, with the same rights and features as
all other shares, to each of the qualified beneficiaries."
On the other hand, the second set or category of shares partakes of a gratuitous
extra grant, meaning that this set or category constitutes an augmentation share/s
that the corporate landowner may give under an additional stock distribution
scheme, taking into account such variables as rank, seniority, salary, position and
like factors which the management, in the exercise of its sound discretion, may deem
desirable.140
Before anything else, it should be stressed that, at the time PARC approved HLI’s
SDP, HLI recognized 6,296individuals as qualified FWBs. And under the 30-year
stock distribution program envisaged under the plan, FWBs who came in after 1989,
new FWBs in fine, may be accommodated, as they appear to have in fact been
accommodated as evidenced by their receipt of HLI shares.
Now then, by providing that the number of shares of the original 1989 FWBs shall
depend on the number of "man days," HLI violated the afore-quoted rule on stock
distribution and effectively deprived the FWBs of equal shares of stock in the
corporation, for, in net effect, these 6,296 qualified FWBs, who theoretically had
given up their rights to the land that could have been distributed to them, suffered a
dilution of their due share entitlement. As has been observed during the oral
arguments, HLI has chosen to use the shares earmarked for farmworkers as reward
system chips to water down the shares of the original 6,296 FWBs.141 Particularly:
Justice Abad: If the SDOA did not take place, the other thing that would have
happened is that there would be CARP?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: That’s the only point I want to know x x x. Now, but they chose to enter
SDOA instead of placing the land under CARP. And for that reason those who would
have gotten their shares of the land actually gave up their rights to this land in place
of the shares of the stock, is that correct?
Atty. Dela Merced: It would be that way, Your Honor.
Justice Abad: Right now, also the government, in a way, gave up its right to own the
land because that way the government takes own [sic] the land and distribute it to
the farmers and pay for the land, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: And then you gave thirty-three percent (33%) of the shares of HLI to
the farmers at that time that numbered x x x those who signed five thousand four
hundred ninety eight (5,498) beneficiaries, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: But later on, after assigning them their shares, some workers came in
from 1989, 1990, 1991, 1992 and the rest of the years that you gave additional
shares who were not in the original list of owners?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Did those new workers give up any right that would have belong to
them in 1989 when the land was supposed to have been placed under CARP?
Atty. Dela Merced: If you are talking or referring… (interrupted)
Justice Abad: None! You tell me. None. They gave up no rights to land?
Atty. Dela Merced: They did not do the same thing as we did in 1989, Your Honor.
Justice Abad: No, if they were not workers in 1989 what land did they give up? None,
if they become workers later on.
Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to the original…
(interrupted)
Justice Abad: So why is it that the rights of those who gave up their lands would be
diluted, because the company has chosen to use the shares as reward system for
new workers who come in? It is not that the new workers, in effect, become just
workers of the corporation whose stockholders were already fixed. The TADECO
who has shares there about sixty six percent (66%) and the five thousand four
hundred ninety eight (5,498) farmers at the time of the SDOA? Explain to me. Why,
why will you x x x what right or where did you get that right to use this shares, to
water down the shares of those who should have been benefited, and to use it as a
reward system decided by the company?142
From the above discourse, it is clear as day that the original 6,296 FWBs, who were
qualified beneficiaries at the time of the approval of the SDP, suffered from watering
down of shares. As determined earlier, each original FWB is entitled to 18,804.32
HLI shares. The original FWBs got less than the guaranteed 18,804.32 HLI shares
per beneficiary, because the acquisition and distribution of the HLI shares were
based on "man days" or "number of days worked" by the FWB in a year’s time. As
explained by HLI, a beneficiary needs to work for at least 37 days in a fiscal year
before he or she becomes entitled to HLI shares. If it falls below 37 days, the FWB,
unfortunately, does not get any share at year end. The number of HLI shares
distributed varies depending on the number of days the FWBs were allowed to work
in one year. Worse, HLI hired farmworkers in addition to the original 6,296 FWBs,
such that, as indicated in the Compliance dated August 2, 2010 submitted by HLI to
the Court, the total number of farmworkers of HLI as of said date stood at 10,502.
All these farmworkers, which include the original 6,296 FWBs, were given shares
out of the 118,931,976.85 HLI shares representing the 33.296% of the total
outstanding capital stock of HLI. Clearly, the minimum individual allocation of each
original FWB of 18,804.32 shares was diluted as a result of the use of "man days"
and the hiring of additional farmworkers.
Going into another but related matter, par. 3 of the SDOA expressly providing for a
30-year timeframe for HLI-to-FWBs stock transfer is an arrangement contrary to
what Sec. 11 of DAO 10 prescribes. Said Sec. 11 provides for the implementation
of the approved stock distribution plan within three (3) months from receipt by the
corporate landowner of the approval of the plan by PARC. In fact, based on the said
provision, the transfer of the shares of stock in the names of the qualified FWBs
should be recorded in the stock and transfer books and must be submitted to the
SEC within sixty (60) days from implementation. As stated:
Section 11. Implementation/Monitoring of Plan.¾The approved stock distribution
plan shall be implemented within three (3) months from receipt by the corporate
landowner-applicant of the approval thereof by the PARC, and the transfer of the
shares of stocks in the names of the qualified beneficiaries shall be recorded in stock
and transfer books and submitted to the Securities and Exchange Commission
(SEC) within sixty (60) days from the said implementation of the stock distribution
plan. (Emphasis supplied.)
It is evident from the foregoing provision that the implementation, that is, the
distribution of the shares of stock to the FWBs, must be made within three (3)
months from receipt by HLI of the approval of the stock distribution plan by PARC.
While neither of the clashing parties has made a compelling case of the thrust of this
provision, the Court is of the view and so holds that the intent is to compel the
corporate landowner to complete, not merely initiate, the transfer process of shares
within that three-month timeframe. Reinforcing this conclusion is the 60-day stock
transfer recording (with the SEC) requirement reckoned from the implementation of
the SDP.
To the Court, there is a purpose, which is at once discernible as it is practical, for
the three-month threshold. Remove this timeline and the corporate landowner can
veritably evade compliance with agrarian reform by simply deferring to absurd limits
the implementation of the stock distribution scheme.
The argument is urged that the thirty (30)-year distribution program is justified by the
fact that, under Sec. 26 of RA 6657, payment by beneficiaries of land distribution
under CARP shall be made in thirty (30) annual amortizations. To HLI, said section
provides a justifying dimension to its 30-year stock distribution program.
HLI’s reliance on Sec. 26 of RA 6657, quoted in part below, is obviously misplaced
as the said provision clearly deals with land distribution.
SEC. 26. Payment by Beneficiaries.¾Lands awarded pursuant to this Act shall be
paid for by the beneficiaries to the LBP in thirty (30) annual amortizations x x x.
Then, too, the ones obliged to pay the LBP under the said provision are the
beneficiaries. On the other hand, in the instant case, aside from the fact that what is
involved is stock distribution, it is the corporate landowner who has the obligation to
distribute the shares of stock among the FWBs.
Evidently, the land transfer beneficiaries are given thirty (30) years within which to
pay the cost of the land thus awarded them to make it less cumbersome for them to
pay the government. To be sure, the reason underpinning the 30-year
accommodation does not apply to corporate landowners in distributing shares of
stock to the qualified beneficiaries, as the shares may be issued in a much shorter
period of time.
Taking into account the above discussion, the revocation of the SDP by PARC
should be upheld for violating DAO 10. It bears stressing that under Sec. 49 of RA
6657, the PARC and the DAR have the power to issue rules and regulations,
substantive or procedural. Being a product of such rule-making power, DAO 10 has
the force and effect of law and must be duly complied with. 143 The PARC is,
therefore, correct in revoking the SDP. Consequently, the PARC Resolution No. 89-
12-2 dated November 21, l989 approving the HLI’s SDP is nullified and voided.
III.
We now resolve the petitions-in-intervention which, at bottom, uniformly pray for the
exclusion from the coverage of the assailed PARC resolution those portions of the
converted land within Hacienda Luisita which RCBC and LIPCO acquired by
purchase.
Both contend that they are innocent purchasers for value of portions of the converted
farm land. Thus, their plea for the exclusion of that portion from PARC Resolution
2005-32-01, as implemented by a DAR-issued Notice of Coverage dated January 2,
2006, which called for mandatory CARP acquisition coverage of lands subject of the
SDP.
To restate the antecedents, after the conversion of the 500 hectares of land in
Hacienda Luisita, HLI transferred the 300 hectares to Centennary, while ceding the
remaining 200-hectare portion to LRC. Subsequently, LIPCO purchased the entire
three hundred (300) hectares of land from Centennary for the purpose of developing
the land into an industrial complex.144 Accordingly, the TCT in Centennary’s name
was canceled and a new one issued in LIPCO’s name. Thereafter, said land was
subdivided into two (2) more parcels of land. Later on, LIPCO transferred about 184
hectares to RCBC by way of dacion en pago, by virtue of which TCTs in the name
of RCBC were subsequently issued.
Under Sec. 44 of PD 1529 or the Property Registration Decree, "every registered
owner receiving a certificate of title in pursuance of a decree of registration and every
subsequent purchaser of registered land taking a certificate of title for value and in
good faith shall hold the same free from all encumbrances except those noted on
the certificate and enumerated therein."145
It is settled doctrine that one who deals with property registered under the Torrens
system need not go beyond the four corners of, but can rely on what appears on,
the title. He is charged with notice only of such burdens and claims as are annotated
on the title. This principle admits of certain exceptions, such as when the party has
actual knowledge of facts and circumstances that would impel a reasonably cautious
man to make such inquiry, or when the purchaser has knowledge of a defect or the
lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to
inquire into the status of the title of the property in litigation.146 A higher level of care
and diligence is of course expected from banks, their business being impressed with
public interest.147
Millena v. Court of Appeals describes a purchaser in good faith in this wise:
x x x A purchaser in good faith is one who buys property of another, without notice
that some other person has a right to, or interest in, such property at the time of such
purchase, or before he has notice of the claim or interest of some other persons in
the property. Good faith, or the lack of it, is in the final analysis a question of
intention; but in ascertaining the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence as to the conduct and
outward acts by which alone the inward motive may, with safety, be determined.
Truly, good faith is not a visible, tangible fact that can be seen or touched, but rather
a state or condition of mind which can only be judged by actual or fancied tokens or
signs. Otherwise stated, good faith x x x refers to the state of mind which is
manifested by the acts of the individual concerned.148 (Emphasis supplied.)
In fine, there are two (2) requirements before one may be considered a purchaser
in good faith, namely: (1) that the purchaser buys the property of another without
notice that some other person has a right to or interest in such property; and (2) that
the purchaser pays a full and fair price for the property at the time of such purchase
or before he or she has notice of the claim of another.
It can rightfully be said that both LIPCO and RCBC are––based on the above
requirements and with respect to the adverted transactions of the converted land in
question––purchasers in good faith for value entitled to the benefits arising from
such status.
First, at the time LIPCO purchased the entire three hundred (300) hectares of
industrial land, there was no notice of any supposed defect in the title of its
transferor, Centennary, or that any other person has a right to or interest in such
property. In fact, at the time LIPCO acquired said parcels of land, only the following
annotations appeared on the TCT in the name of Centennary: the Secretary’s
Certificate in favor of Teresita Lopa, the Secretary’s Certificate in favor of Shintaro
Murai, and the conversion of the property from agricultural to industrial and
residential use.149
The same is true with respect to RCBC. At the time it acquired portions of Hacienda
Luisita, only the following general annotations appeared on the TCTs of LIPCO: the
Deed of Restrictions, limiting its use solely as an industrial estate; the Secretary’s
Certificate in favor of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage
in favor of RCBC to guarantee the payment of PhP 300 million.
It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots
that were previously covered by the SDP. Good faith "consists in the possessor’s
belief that the person from whom he received it was the owner of the same and
could convey his title. Good faith requires a well-founded belief that the person from
whom title was received was himself the owner of the land, with the right to convey
it. There is good faith where there is an honest intention to abstain from taking any
unconscientious advantage from another." 150 It is the opposite of fraud.
To be sure, intervenor RCBC and LIPCO knew that the lots they bought were
subjected to CARP coverage by means of a stock distribution plan, as the DAR
conversion order was annotated at the back of the titles of the lots they acquired.
However, they are of the honest belief that the subject lots were validly converted to
commercial or industrial purposes and for which said lots were taken out of the
CARP coverage subject of PARC Resolution No. 89-12-2 and, hence, can be legally
and validly acquired by them. After all, Sec. 65 of RA 6657 explicitly allows
conversion and disposition of agricultural lands previously covered by CARP land
acquisition "after the lapse of five (5) years from its award when the land ceases to
be economically feasible and sound for agricultural purposes or the locality has
become urbanized and the land will have a greater economic value for residential,
commercial or industrial purposes." Moreover, DAR notified all the affected parties,
more particularly the FWBs, and gave them the opportunity to comment or oppose
the proposed conversion. DAR, after going through the necessary processes,
granted the conversion of 500 hectares of Hacienda Luisita pursuant to its primary
jurisdiction under Sec. 50 of RA 6657 to determine and adjudicate agrarian reform
matters and its original exclusive jurisdiction over all matters involving the
implementation of agrarian reform. The DAR conversion order became final and
executory after none of the FWBs interposed an appeal to the CA. In this factual
setting, RCBC and LIPCO purchased the lots in question on their honest and well-
founded belief that the previous registered owners could legally sell and convey the
lots though these were previously subject of CARP coverage. Ergo, RCBC and
LIPCO acted in good faith in acquiring the subject lots.
And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for
value. Undeniably, LIPCO acquired 300 hectares of land from Centennary for the
amount of PhP 750 million pursuant to a Deed of Sale dated July 30, 1998.151 On
the other hand, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO
conveyed portions of Hacienda Luisita in favor of RCBC by way of dacion en pago to
pay for a loan of PhP 431,695,732.10.
As bona fide purchasers for value, both LIPCO and RCBC have acquired rights
which cannot just be disregarded by DAR, PARC or even by this Court. As held in
Spouses Chua v. Soriano:
With the property in question having already passed to the hands of purchasers in
good faith, it is now of no moment that some irregularity attended the issuance of
the SPA, consistent with our pronouncement in Heirs of Spouses Benito Gavino and
Juana Euste v. Court of Appeals, to wit:
x x x the general rule that the direct result of a previous void contract cannot be valid,
is inapplicable in this case as it will directly contravene the Torrens system of
registration. Where innocent third persons, relying on the correctness of the
certificate of title thus issued, acquire rights over the property, the court
cannot disregard such rights and order the cancellation of the certificate. The
effect of such outright cancellation will be to impair public confidence in the certificate
of title. The sanctity of the Torrens system must be preserved; otherwise, everyone
dealing with the property registered under the system will have to inquire in every
instance as to whether the title had been regularly or irregularly issued, contrary to
the evident purpose of the law.
Being purchasers in good faith, the Chuas already acquired valid title to the
property. A purchaser in good faith holds an indefeasible title to the property
and he is entitled to the protection of the law.152 x x x (Emphasis supplied.)
To be sure, the practicalities of the situation have to a point influenced Our
disposition on the fate of RCBC and LIPCO. After all, the Court, to borrow
from Association of Small Landowners in the Philippines, Inc.,153 is not a "cloistered
institution removed" from the realities on the ground. To note, the approval and
issuances of both the national and local governments showing that certain portions
of Hacienda Luisita have effectively ceased, legally and physically, to be agricultural
and, therefore, no longer CARPable are a matter of fact which cannot just be ignored
by the Court and the DAR. Among the approving/endorsing issuances: 154
(a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan
of Tarlac favorably endorsing the 300-hectare industrial estate project of
LIPCO;
(b) BOI Certificate of Registration No. 96-020 dated 20 December 1996
issued in accordance with the Omnibus Investments Code of 1987;
(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997,
approving LIPCO’s application for a mixed ecozone and proclaiming the
three hundred (300) hectares of the industrial land as a Special Economic
Zone;
(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of
Tarlac, approving the Final Development Permit for the Luisita Industrial
Park II Project;
(e) Development Permit dated 13 August 1997 for the proposed Luisita
Industrial Park II Project issued by the Office of the Sangguniang Bayan of
Tarlac;155
(f) DENR Environmental Compliance Certificate dated 01 October 1997
issued for the proposed project of building an industrial complex on three
hundred (300) hectares of industrial land;156
(g) Certificate of Registration No. 00794 dated 26 December 1997 issued
by the HLURB on the project of Luisita Industrial Park II with an area of three
million (3,000,000) square meters;157
(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB
authorizing the sale of lots in the Luisita Industrial Park II;
(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain
Parcels of Private Land in Barangay San Miguel, Municipality of Tarlac,
Province of Tarlac, as a Special Economic Zone pursuant to Republic Act
No. 7916," designating the Luisita Industrial Park II consisting of three
 hundred hectares (300 has.) of industrial land as a Special Economic Zone;
and
(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the
PEZA, stating that pursuant to Presidential Proclamation No. 1207 dated 22
April 1998 and Republic Act No. 7916, LIPCO has been registered as an
Ecozone Developer/Operator of Luisita Industrial Park II located in San
Miguel, Tarlac, Tarlac.
While a mere reclassification of a covered agricultural land or its inclusion in an
economic zone does not automatically allow the corporate or individual landowner
to change its use,158 the reclassification process is a prima facie indicium that the
land has ceased to be economically feasible and sound for agricultural uses. And if
only to stress, DAR Conversion Order No. 030601074-764-(95) issued in 1996 by
then DAR Secretary Garilao had effectively converted 500 hectares of hacienda land
from agricultural to industrial/commercial use and authorized their disposition.
In relying upon the above-mentioned approvals, proclamation and conversion order,
both RCBC and LIPCO cannot be considered at fault for believing that certain
portions of Hacienda Luisita are industrial/commercial lands and are, thus, outside
the ambit of CARP. The PARC, and consequently DAR, gravely abused its
discretion when it placed LIPCO’s and RCBC’s property which once formed part of
Hacienda Luisita under the CARP compulsory acquisition scheme via the assailed
Notice of Coverage.
As regards the 80.51-hectare land transferred to the government for use as part of
the SCTEX, this should also be excluded from the compulsory agrarian reform
coverage considering that the transfer was consistent with the government’s
exercise of the power of eminent domain159 and none of the parties actually
questioned the transfer.
While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC
Resolution Nos. 2005-32-01 and 2006-34-01, the Court cannot close its eyes to
certain "operative facts" that had occurred in the interim. Pertinently, the "operative
fact" doctrine realizes that, in declaring a law or executive action null and void, or,
by extension, no longer without force and effect, undue harshness and resulting
unfairness must be avoided. This is as it should realistically be, since rights might
have accrued in favor of natural or juridical persons and obligations justly incurred
in the meantime.160 The actual existence of a statute or executive act is, prior to such
a determination, an operative fact and may have consequences which cannot justly
be ignored; the past cannot always be erased by a new judicial declaration.161
The oft-cited De Agbayani v. Philippine National Bank 162 discussed the effect to be
given to a legislative or executive act subsequently declared invalid:
x x x It does not admit of doubt that prior to the declaration of nullity such challenged
legislative or executive act must have been in force and had to be complied with.
This is so as until after the judiciary, in an appropriate case, declares its invalidity, it
is entitled to obedience and respect. Parties may have acted under it and may have
changed their positions. What could be more fitting than that in a subsequent
litigation regard be had to what has been done while such legislative or executive
act was in operation and presumed to be valid in all respects. It is now accepted as
a doctrine that prior to its being nullified, its existence as a fact must be reckoned
with. This is merely to reflect awareness that precisely because the judiciary is the
government organ which has the final say on whether or not a legislative or
executive measure is valid, a period of time may have elapsed before it can exercise
the power of judicial review that may lead to a declaration of nullity. It would be to
deprive the law of its quality of fairness and justice then, if there be no recognition
of what had transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a
statute, prior to such a determination of [unconstitutionality], is an operative fact and
may have consequences which cannot justly be ignored. The past cannot always
be erased by a new judicial declaration. The effect of the subsequent ruling as to
invalidity may have to be considered in various aspects,––with respect to particular
relations, individual and corporate, and particular conduct, private and official." x x x
Given the above perspective and considering that more than two decades had
passed since the PARC’s approval of the HLI’s SDP, in conjunction with numerous
activities performed in good faith by HLI, and the reliance by the FWBs on the legality
and validity of the PARC-approved SDP, perforce, certain rights of the parties, more
particularly the FWBs, have to be respected pursuant to the application in a general
way of the operative fact doctrine.
A view, however, has been advanced that the operative fact doctrine is of minimal
or altogether without relevance to the instant case as it applies only in considering
the effects of a declaration of unconstitutionality of a statute, and not of a declaration
of nullity of a contract. This is incorrect, for this view failed to consider is that it is
NOT the SDOA dated May 11, 1989 which was revoked in the instant case. Rather,
it is PARC’s approval of the HLI’s Proposal for Stock Distribution under CARP which
embodied the SDP that was nullified.
A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI,
and the qualified FWBs executed the SDOA. This agreement provided the basis and
mechanics of the SDP that was subsequently proposed and submitted to DAR for
approval. It was only after its review that the PARC, through then Sec. Defensor-
Santiago, issued the assailed Resolution No. 89-12-2 approving the SDP.
Considerably, it is not the SDOA which gave legal force and effect to the stock
distribution scheme but instead, it is the approval of the SDP under the PARC
Resolution No. 89-12-2 that gave it its validity.
The above conclusion is bolstered by the fact that in Sec. Pangandaman’s
recommendation to the PARC Excom, what he proposed is the recall/revocation of
PARC Resolution No. 89-12-2 approving HLI’s SDP, and not the revocation of the
SDOA. Sec. Pangandaman’s recommendation was favorably endorsed by the
PARC Validation Committee to the PARC Excom, and these recommendations were
referred to in the assailed Resolution No. 2005-32-01. Clearly, it is not the SDOA
which was made the basis for the implementation of the stock distribution scheme.
That the operative fact doctrine squarely applies to executive acts––in this case, the
approval by PARC of the HLI proposal for stock distribution––is well-settled in our
jurisprudence. In Chavez v. National Housing Authority,163 We held:
Petitioner postulates that the "operative fact" doctrine is inapplicable to the present
case because it is an equitable doctrine which could not be used to countenance an
inequitable result that is contrary to its proper office.
On the other hand, the petitioner Solicitor General argues that the existence of the
various agreements implementing the SMDRP is an operative fact that can no longer
be disturbed or simply ignored, citing Rieta v. People of the Philippines.
The argument of the Solicitor General is meritorious.
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals,
wherein it is stated that a legislative or executive act, prior to its being declared as
unconstitutional by the courts, is valid and must be complied with, thus:
xxx xxx xxx
This doctrine was reiterated in the more recent case of City of Makati v. Civil Service
Commission, wherein we ruled that:
Moreover, we certainly cannot nullify the City Government's order of suspension, as
we have no reason to do so, much less retroactively apply such nullification to
deprive private respondent of a compelling and valid reason for not filing the leave
application. For as we have held, a void act though in law a mere scrap of paper
nonetheless confers legitimacy upon past acts or omissions done in reliance thereof.
Consequently, the existence of a statute or executive order prior to its being
adjudged void is an operative fact to which legal consequences are attached. It
would indeed be ghastly unfair to prevent private respondent from relying upon the
order of suspension in lieu of a formal leave application. (Citations omitted;
Emphasis supplied.)
The applicability of the operative fact doctrine to executive acts was further
explicated by this Court in Rieta v. People,164 thus:
Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order
(ASSO) No. 4754 was invalid, as the law upon which it was predicated — General
Order No. 60, issued by then President Ferdinand E. Marcos — was subsequently
declared by the Court, in Tañada v. Tuvera, 33 to have no force and effect. Thus,
he asserts, any evidence obtained pursuant thereto is inadmissible in evidence.
We do not agree. In Tañada, the Court addressed the possible effects of its
declaration of the invalidity of various presidential issuances. Discussing therein how
such a declaration might affect acts done on a presumption of their validity, the Court
said:
". . .. In similar situations in the past this Court had taken the pragmatic and realistic
course set forth in Chicot County Drainage District vs. Baxter Bank to wit:
‘The courts below have proceeded on the theory that the Act of Congress, having
been found to be unconstitutional, was not a law; that it was inoperative, conferring
no rights and imposing no duties, and hence affording no basis for the challenged
decree. . . . It is quite clear, however, that such broad statements as to the effect of
a determination of unconstitutionality must be taken with qualifications. The actual
existence of a statute, prior to [the determination of its invalidity], is an operative fact
and may have consequences which cannot justly be ignored. The past cannot
always be erased by a new judicial declaration. The effect of the subsequent ruling
as to invalidity may have to be considered in various aspects — with respect to
particular conduct, private and official. Questions of rights claimed to have become
vested, of status, of prior determinations deemed to have finality and acted upon
accordingly, of public policy in the light of the nature both of the statute and of its
previous application, demand examination. These questions are among the most
difficult of those which have engaged the attention of courts, state and federal, and
it is manifest from numerous decisions that an all-inclusive statement of a principle
of absolute retroactive invalidity cannot be justified.’
xxx xxx xxx
"Similarly, the implementation/enforcement of presidential decrees prior to their
publication in the Official Gazette is ‘an operative fact which may have
consequences which cannot be justly ignored. The past cannot always be erased
by a new judicial declaration . . . that an all-inclusive statement of a principle of
absolute retroactive invalidity cannot be justified.’"
The Chicot doctrine cited in Tañada advocates that, prior to the nullification of a
statute, there is an imperative necessity of taking into account its actual existence
as an operative fact negating the acceptance of "a principle of absolute retroactive
invalidity." Whatever was done while the legislative or the executive act was in
operation should be duly recognized and presumed to be valid in all respects. The
ASSO that was issued in 1979 under General Order No. 60 — long before our
Decision in Tañada and the arrest of petitioner — is an operative fact that can no
longer be disturbed or simply ignored. (Citations omitted; Emphasis supplied.)
To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes
or recalls the SDP, what it actually revoked or recalled was the PARC’s approval of
the SDP embodied in Resolution No. 89-12-2. Consequently, what was actually
declared null and void was an executive act, PARC Resolution No. 89-12-2,165and
not a contract (SDOA). It is, therefore, wrong to say that it was the SDOA which was
annulled in the instant case. Evidently, the operative fact doctrine is applicable.
IV.
While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP
are upheld, the revocation must, by application of the operative fact principle, give
way to the right of the original 6,296 qualified FWBs to choose whether they want to
remain as HLI stockholders or not. The Court cannot turn a blind eye to the fact that
in 1989, 93% of the FWBs agreed to the SDOA (or the MOA), which became the
basis of the SDP approved by PARC per its Resolution No. 89-12-2 dated November
21, 1989. From 1989 to 2005, the FWBs were said to have received from HLI
salaries and cash benefits, hospital and medical benefits, 240-square meter
homelots, 3% of the gross produce from agricultural lands, and 3% of the proceeds
of the sale of the 500-hectare converted land and the 80.51-hectare lot sold to
SCTEX. HLI shares totaling 118,391,976.85 were distributed as of April 22,
2005.166 On August 6, 20l0, HLI and private respondents submitted a Compromise
Agreement, in which HLI gave the FWBs the option of acquiring a piece of
agricultural land or remain as HLI stockholders, and as a matter of fact, most FWBs
indicated their choice of remaining as stockholders. These facts and circumstances
tend to indicate that some, if not all, of the FWBs may actually desire to continue as
HLI shareholders. A matter best left to their own discretion.
With respect to the other FWBs who were not listed as qualified beneficiaries as of
November 21, 1989 when the SDP was approved, they are not accorded the right
to acquire land but shall, however, continue as HLI stockholders. All the benefits and
homelots167 received by the 10,502 FWBs (6,296 original FWBs and 4,206 non-
qualified FWBs) listed as HLI stockholders as of August 2, 2010 shall be respected
with no obligation to refund or return them since the benefits (except the homelots)
were received by the FWBs as farmhands in the agricultural enterprise of HLI and
other fringe benefits were granted to them pursuant to the existing collective
bargaining agreement with Tadeco. If the number of HLI shares in the names of the
original FWBs who opt to remain as HLI stockholders falls below the guaranteed
allocation of 18,804.32 HLI shares per FWB, the HLI shall assign additional shares
to said FWBs to complete said minimum number of shares at no cost to said FWBs.
With regard to the homelots already awarded or earmarked, the FWBs are not
obliged to return the same to HLI or pay for its value since this is a benefit granted
under the SDP. The homelots do not form part of the 4,915.75 hectares covered by
the SDP but were taken from the 120.9234 hectare residential lot owned by Tadeco.
Those who did not receive the homelots as of the revocation of the SDP on
December 22, 2005 when PARC Resolution No. 2005-32-01 was issued, will no
longer be entitled to homelots. Thus, in the determination of the ultimate agricultural
land that will be subjected to land distribution, the aggregate area of the homelots
will no longer be deducted.
There is a claim that, since the sale and transfer of the 500 hectares of land subject
of the August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot came
after compulsory coverage has taken place, the FWBs should have their
corresponding share of the land’s value. There is merit in the claim. Since the SDP
approved by PARC Resolution No. 89-12-2 has been nullified, then all the lands
subject of the SDP will automatically be subject of compulsory coverage under Sec.
31 of RA 6657. Since the Court excluded the 500-hectare lot subject of the August
14, 1996 Conversion Order and the 80.51-hectare SCTEX lot acquired by the
government from the area covered by SDP, then HLI and its subsidiary, Centennary,
shall be liable to the FWBs for the price received for said lots. HLI shall be liable for
the value received for the sale of the 200-hectare land to LRC in the amount of PhP
500,000,000 and the equivalent value of the 12,000,000 shares of its subsidiary,
Centennary, for the 300-hectare lot sold to LIPCO for the consideration of PhP
750,000,000. Likewise, HLI shall be liable for PhP 80,511,500 as consideration for
the sale of the 80.51-hectare SCTEX lot.
We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the
500-hectare land and 80.51-hectare SCTEX lot to the FWBs. We also take into
account the payment of taxes and expenses relating to the transfer of the land and
HLI’s statement that most, if not all, of the proceeds were used for legitimate
corporate purposes. In order to determine once and for all whether or not all the
proceeds were properly utilized by HLI and its subsidiary, Centennary, DAR will
engage the services of a reputable accounting firm to be approved by the parties to
audit the books of HLI to determine if the proceeds of the sale of the 500-hectare
land and the 80.51-hectare SCTEX lot were actually used for legitimate corporate
purposes, titling expenses and in compliance with the August 14, 1996 Conversion
Order. The cost of the audit will be shouldered by HLI. If after such audit, it is
determined that there remains a balance from the proceeds of the sale, then the
balance shall be distributed to the qualified FWBs.
A view has been advanced that HLI must pay the FWBs yearly rent for use of the
land from 1989. We disagree. It should not be forgotten that the FWBs are also
stockholders of HLI, and the benefits acquired by the corporation from its possession
and use of the land ultimately redounded to the FWBs’ benefit based on its business
operations in the form of salaries, and other fringe benefits under the CBA. To still
require HLI to pay rent to the FWBs will result in double compensation.
For sure, HLI will still exist as a corporation even after the revocation of the SDP
although it will no longer be operating under the SDP, but pursuant to the
Corporation Code as a private stock corporation. The non-agricultural assets
amounting to PhP 393,924,220 shall remain with HLI, while the agricultural lands
valued at PhP 196,630,000 with an original area of 4,915.75 hectares shall be turned
over to DAR for distribution to the FWBs. To be deducted from said area are the
500-hectare lot subject of the August 14, 1996 Conversion Order, the 80.51-hectare
SCTEX lot, and the total area of 6,886.5 square meters of individual lots that should
have been distributed to FWBs by DAR had they not opted to stay in HLI.
HLI shall be paid just compensation for the remaining agricultural land that will be
transferred to DAR for land distribution to the FWBs. We find that the date of the
"taking" is November 21, 1989, when PARC approved HLI’s SDP per PARC
Resolution No. 89-12-2. DAR shall coordinate with LBP for the determination of just
compensation. We cannot use May 11, 1989 when the SDOA was executed, since
it was the SDP, not the SDOA, that was approved by PARC.
The instant petition is treated pro hac vice in view of the peculiar facts and
circumstances of the case.
WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01
dated December 22, 2005 and Resolution No. 2006-34-01 dated May 3, 2006,
placing the lands subject of HLI’s SDP under compulsory coverage on mandated
land acquisition scheme of the CARP, are hereby AFFIRMED with the
MODIFICATION that the original 6,296 qualified FWBs shall have the option to
remain as stockholders of HLI. DAR shall immediately schedule meetings with the
said 6,296 FWBs and explain to them the effects, consequences and legal or
practical implications of their choice, after which the FWBs will be asked to manifest,
in secret voting, their choices in the ballot, signing their signatures or placing their
thumbmarks, as the case may be, over their printed names.
Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is
entitled to 18,804.32 HLI shares, and, in case the HLI shares already given to him
or her is less than 18,804.32 shares, the HLI is ordered to issue or distribute
additional shares to complete said prescribed number of shares at no cost to the
FWB within thirty (30) days from finality of this Decision. Other FWBs who do not
belong to the original 6,296 qualified beneficiaries are not entitled to land distribution
and shall remain as HLI shareholders. All salaries, benefits, 3% production share
and 3% share in the proceeds of the sale of the 500-hectare converted land and the
80.51-hectare SCTEX lot and homelots already received by the 10,502 FWBs,
composed of 6,296 original FWBs and 4,206 non-qualified FWBs, shall be respected
with no obligation to refund or return them.
Within thirty (30) days after determining who from among the original FWBs will stay
as stockholders, DAR shall segregate from the HLI agricultural land with an area of
4,915.75 hectares subject of PARC’s SDP-approving Resolution No. 89-12-2 the
following: (a) the 500-hectare lot subject of the August 14, l996 Conversion Order;
(b) the 80.51-hectare lot sold to, or acquired by, the government as part of the
SCTEX complex; and (c) the aggregate area of 6,886.5 square meters of individual
lots that each FWB is entitled to under the CARP had he or she not opted to stay in
HLI as a stockholder. After the segregation process, as indicated, is done, the
remaining area shall be turned over to DAR for immediate land distribution to the
original qualified FWBs who opted not to remain as HLI stockholders.
The aforementioned area composed of 6,886.5-square meter lots allotted to the
FWBs who stayed with the corporation shall form part of the HLI assets.
HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000
received by it from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of
the 500 hectares covered by the August 14, 1996 Conversion Order, the
consideration of PhP 750,000,000 received by its owned subsidiary, Centennary
Holdings, Inc. for the sale of the remaining 300 hectares of the aforementioned 500-
hectare lot to Luisita Industrial Park Corporation, and the price of PhP 80,511,500
paid by the government through the Bases Conversion Development Authority for
the sale of the 80.51-hectare lot used for the construction of the SCTEX road
network. From the total amount of PhP 1,330,511,500 (PhP 500,000,000 + PhP
750,000,000 + PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of
the total gross sales from the production of the agricultural land and the 3% of the
proceeds of said transfers that were paid to the FWBs, the taxes and expenses
relating to the transfer of titles to the transferees, and the expenditures incurred by
HLI and Centennary Holdings, Inc. for legitimate corporate purposes. For this
purpose, DAR is ordered to engage the services of a reputable accounting firm
approved by the parties to audit the books of HLI and Centennary Holdings, Inc. to
determine if the PhP 1,330,511,500 proceeds of the sale of the three (3)
aforementioned lots were used or spent for legitimate corporate purposes. Any
unspent or unused balance as determined by the audit shall be distributed to the
6,296 original FWBs.
HLI is entitled to just compensation for the agricultural land that will be transferred
to DAR to be reckoned from November 21, 1989 per PARC Resolution No. 89-12-
2. DAR and LBP are ordered to determine the compensation due to HLI.
DAR shall submit a compliance report after six (6) months from finality of this
judgment. It shall also submit, after submission of the compliance report, quarterly
reports on the execution of this judgment to be submitted within the first 15 days at
the end of each quarter, until fully implemented.
The temporary restraining order is lifted.
SO ORDERED.
G.R. No. 185582 February 29, 2012
TUNA PROCESSING, INC., Petitioner,
vs.
PHILIPPINE KINGFORD, INC., Respondent.
DECISION
PEREZ, J.:
Can a foreign corporation not licensed to do business in the Philippines, but which
collects royalties from entities in the Philippines, sue here to enforce a foreign arbitral
award?
In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna Processing,
Inc. (TPI), a foreign corporation not licensed to do business in the Philippines, prays
that the Resolution2 dated 21 November 2008 of the Regional Trial Court (RTC) of
Makati City be declared void and the case be remanded to the RTC for further
proceedings. In the assailed Resolution, the RTC dismissed petitioner’s Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award3 against
respondent Philippine Kingford, Inc. (Kingford), a corporation duly organized and
existing under the laws of the Philippines,4 on the ground that petitioner lacked legal
capacity to sue.5
The Antecedents
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"),
co-patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and
Indonesian Patent No. ID0003911 (collectively referred to as the "Yamaoka
Patent"),6 and five (5) Philippine tuna processors, namely, Angel Seafood
Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz
Seafoods, Inc., and respondent Kingford (collectively referred to as the
"sponsors"/"licensees")7 entered into a Memorandum of Agreement
(MOA),8 pertinent provisions of which read:
1. Background and objectives. The Licensor, co-owner of U.S.Patent No.
5,484,619, Philippine Patent No. 31138, and Indonesian Patent No.
ID0003911 xxx wishes to form an alliance with Sponsors for purposes of
enforcing his three aforementioned patents, granting licenses under those
patents, and collecting royalties.
The Sponsors wish to be licensed under the aforementioned patents in
order to practice the processes claimed in those patents in the United
States, the Philippines, and Indonesia, enforce those patents and collect
royalties in conjunction with Licensor.
xxx
4. Establishment of Tuna Processors, Inc. The parties hereto agree to
the establishment of Tuna Processors, Inc. ("TPI"), a corporation
established in the State of California, in order to implement the objectives of
this Agreement.
5. Bank account. TPI shall open and maintain bank accounts in the United
States, which will be used exclusively to deposit funds that it will collect and
to disburse cash it will be obligated to spend in connection with the
implementation of this Agreement.
6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor.
Licensor shall be assigned one share of TPI for the purpose of being elected
as member of the board of directors. The remaining shares of TPI shall be
held by the Sponsors according to their respective equity shares. 9
xxx
The parties likewise executed a Supplemental Memorandum of Agreement 10 dated
15 January 2003 and an Agreement to Amend Memorandum of Agreement11 dated
14 July 2003.
Due to a series of events not mentioned in the petition, the licensees, including
respondent Kingford, withdrew from petitioner TPI and correspondingly reneged on
their obligations.12 Petitioner submitted the dispute for arbitration before the
International Centre for Dispute Resolution in the State of California, United States
and won the case against respondent.13 Pertinent portions of the award read:
13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties,
pursuant to the terms of this award, the total sum to be paid by RESPONDENT
KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED
FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS
($1,750,846.10).
(A) For breach of the MOA by not paying past due
assessments, RESPONDENT KINGFORD shall pay CLAIMANT the total
sum of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED
AND FIFTY FIVE DOLLARS AND NINETY CENTS ($229,355.90) which is
20% of MOA assessments since September 1, 2005[;]
(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in
fulfilling the objectives of the MOA, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of TWO HUNDRED SEVENTY ONE
THOUSAND FOUR HUNDRED NINETY DOLLARS AND TWENTY
CENTS ($271,490.20)[;]14 and
(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA
619 PATENT, RESPONDENT KINGFORD shall pay CLAIMANT the total
sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
AND NO CENTS ($1,250,000.00). xxx
xxx15
To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the
RTC of Makati City. The petition was raffled to Branch 150 presided by Judge Elmo
M. Alameda.
At Branch 150, respondent Kingford filed a Motion to Dismiss. 16 After
the court
denied the motion for lack of merit,17respondent sought for the inhibition of Judge
Alameda and moved for the reconsideration of the order denying the motion. 18 Judge
Alameda inhibited himself notwithstanding "[t]he unfounded allegations and
unsubstantiated assertions in the motion."19 Judge Cedrick O. Ruiz of Branch 61, to
which the case was re-raffled, in turn, granted respondent’s Motion for
Reconsideration and dismissed the petition on the ground that the petitioner lacked
legal capacity to sue in the Philippines.20
Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari
under Rule 45, the order of the trial court dismissing its Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was correct in so
dismissing the petition on the ground of petitioner’s lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
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.
It is pursuant to the aforequoted provision that the court a quo dismissed the
petition. Thus:
Herein plaintiff TPI’s "Petition, etc." acknowledges that it "is a foreign corporation
established in the State of California" and "was given the exclusive right to license
or sublicense the Yamaoka Patent" and "was assigned the exclusive right to enforce
the said patent and collect corresponding royalties" in the Philippines. TPI likewise
admits that it does not have a license to do business in the Philippines.
There is no doubt, therefore, in the mind of this Court that TPI has been doing
business in the Philippines, but sans a license to do so issued by the concerned
government agency of the Republic of the Philippines, when it collected royalties
from "five (5) Philippine tuna processors[,] namely[,] Angel Seafood Corporation,
East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc.
and respondent Philippine Kingford, Inc." This being the real situation, TPI cannot
be permitted to maintain or intervene in any action, suit or proceedings in any court
or administrative agency of the Philippines." A priori, the "Petition, etc." extant of the
plaintiff TPI should be dismissed for it does not have the legal personality to sue in
the Philippines.21
The petitioner counters, however, that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with Republic Act
No. 9285 (Alternative Dispute Resolution Act of 2004),22 the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards drafted during the United
Nations Conference on International Commercial Arbitration in 1958 (New York
Convention), and the UNCITRAL Model Law on International Commercial Arbitration
(Model Law),23 as none of these specifically requires that the party seeking for the
enforcement should have legal capacity to sue. It anchors its argument on the
following:
In the present case, enforcement has been effectively refused on a ground not found
in the [Alternative Dispute Resolution Act of 2004], New York Convention, or Model
Law. It is for this reason that TPI has brought this matter before this most Honorable
Court, as it [i]s imperative to clarify whether the Philippines’ international obligations
and State policy to strengthen arbitration as a means of dispute resolution may be
defeated by misplaced technical considerations not found in the relevant laws. 24
Simply put, how do we reconcile the provisions of the Corporation Code of the
Philippines on one hand, and the Alternative Dispute Resolution Act of 2004,
the New York Convention and the Model Law on the other?
In several cases, this Court had the occasion to discuss the nature and applicability
of the Corporation Code of the Philippines, a general law, viz-a-viz other special
laws. Thus, in Koruga v. Arcenas, Jr.,25 this Court rejected the application of the
Corporation Code and applied the New Central Bank Act. It ratiocinated:
Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an
earlier case with similar antecedents, we ruled that:
"The Corporation Code, however, is a general law applying to all types of
corporations, while the New Central Bank Act regulates specifically banks and other
financial institutions, including the dissolution and liquidation thereof. As between a
general and special law, the latter shall prevail – generalia specialibus non
derogant." (Emphasis supplied)26
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian
Reform Council,27 this Court held:
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is
the special law on agrarian reform. As between a general and special law, the latter
shall prevail—generalia specialibus non derogant.28
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall
apply in this case as the Act, as its title - An Act to Institutionalize the Use of an
Alternative Dispute Resolution System in the Philippines and to Establish the Office
for Alternative Dispute Resolution, and for Other Purposes - would suggest, is a law
especially enacted "to actively promote party autonomy in the resolution of disputes
or the freedom of the party to make their own arrangements to resolve their
disputes."29 It specifically provides exclusive grounds available to the party opposing
an application for recognition and enforcement of the arbitral award.30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal
law, applies in the instant petition, we do not see the need to discuss compliance
with international obligations under the New York Convention and the Model
Law. After all, both already form part of the law.
In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New
York Convention in the Act by specifically providing:
SEC. 42. Application of the New York Convention. - The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by the said
Convention.
xxx
SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration
proceeding may oppose an application for recognition and enforcement of the
arbitral award in accordance with the procedural rules to be promulgated by the
Supreme Court only on those grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be disregarded by the regional trial court.
It also expressly adopted the Model Law, to wit:
Sec. 19. Adoption of the Model Law on International Commercial
Arbitration. International commercial arbitration shall be governed by the Model Law
on International Commercial Arbitration (the "Model Law") adopted by the United
Nations Commission on International Trade Law on June 21, 1985 xxx."
Now, does a foreign corporation not licensed to do business in the Philippines have
legal capacity to sue under the provisions of the Alternative Dispute Resolution Act
of 2004? We answer in the affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing
party in an application for recognition and enforcement of the arbitral award may
raise only those grounds that were enumerated under Article V of the New York
Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request
of the party against whom it is invoked, only if that party furnishes to the
competent authority where the recognition and enforcement is sought, proof
that:
(a) The parties to the agreement referred to in article II were, under
the law applicable to them, under some incapacity, or the said
agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law of the
country where the award was made; or
(b) The party against whom the award is invoked was not given
proper notice of the appointment of the arbitrator or of the arbitration
proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not
falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to
arbitration, provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, that part
of the award which contains decisions on matters submitted to
arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure
was not in accordance with the agreement of the parties, or, failing
such agreement, was not in accordance with the law of the country
where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has
been set aside or suspended by a competent authority of the
country in which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if
the competent authority in the country where recognition and enforcement
is sought finds that:
(a) The subject matter of the difference is not capable of settlement
by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary
to the public policy of that country.
Clearly, not one of these exclusive grounds touched on the capacity to sue of the
party seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute
Resolution,31 which was promulgated by the Supreme Court, likewise support this
position.
Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may
petition the court to recognize and enforce a foreign arbitral award." The contents of
such petition are enumerated in Rule 13.5.32 Capacity to sue is not included.
Oppositely, in the Rule on local arbitral awards or arbitrations in instances where
"the place of arbitration is in the Philippines,"33 it is specifically required that a petition
"to determine any question concerning the existence, validity and enforceability of
such arbitration agreement"34 available to the parties before the commencement of
arbitration and/or a petition for "judicial relief from the ruling of the arbitral tribunal
on a preliminary question upholding or declining its jurisdiction"35 after arbitration has
already commenced should state "[t]he facts showing that the persons named as
petitioner or respondent have legal capacity to sue or be sued."36
Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral
award, we deny availment by the losing party of the rule that bars foreign
corporations not licensed to do business in the Philippines from maintaining a suit
in our courts. When a party enters into a contract containing a foreign arbitration
clause and, as in this case, in fact submits itself to arbitration, it becomes bound by
the contract, by the arbitration and by the result of arbitration, conceding thereby the
capacity of the other party to enter into the contract, participate in the arbitration and
cause the implementation of the result. Although not on all fours with the instant
case, also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion
in Asset Privatization Trust v. Court of Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal
and judicial circles here and abroad. If its tested mechanism can simply be ignored
by an aggrieved party, one who, it must be stressed, voluntarily and actively
participated in the arbitration proceedings from the very beginning, it will destroy the
very essence of mutuality inherent in consensual contracts. 38
Clearly, on the matter of capacity to sue, a foreign arbitral award should be
respected not because it is favored over domestic laws and procedures, but because
Republic Act No. 9285 has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the court a quo correctly
observed that the Model Law, not the New York Convention, governs the subject
arbitral award,39 petitioner may still seek recognition and enforcement of the award
in Philippine court, since the Model Law prescribes substantially identical exclusive
grounds for refusing recognition or enforcement.40
Premises considered, petitioner TPI, although not licensed to do business in the
Philippines, may seek recognition and enforcement of the foreign arbitral award in
accordance with the provisions of the Alternative Dispute Resolution Act of 2004.
II
The remaining arguments of respondent Kingford are likewise unmeritorious.
First. There is no need to consider respondent’s contention that petitioner TPI
improperly raised a question of fact when it posited that its act of entering into a
MOA should not be considered "doing business" in the Philippines for the purpose
of determining capacity to sue. We reiterate that the foreign corporation’s capacity
to sue in the Philippines is not material insofar as the recognition and enforcement
of a foreign arbitral award is concerned.
Second. Respondent cannot fault petitioner for not filing a motion for reconsideration
of the assailed Resolution dated 21 November 2008 dismissing the case. We have,
time and again, ruled that the prior filing of a motion for reconsideration is not
required in certiorari under Rule 45.41
Third. While we agree that petitioner failed to observe the principle of hierarchy of
courts, which, under ordinary circumstances, warrants the outright dismissal of the
case,42 we opt to relax the rules following the pronouncement in Chua v. Ang,43 to
wit:
[I]t must be remembered that [the principle of hierarchy of courts] generally applies
to cases involving conflicting factual allegations. Cases which depend on disputed
facts for decision cannot be brought immediately before us as we are not triers of
facts.44 A strict application of this rule may be excused when the reason behind the
rule is not present in a case, as in the present case, where the issues are not factual
but purely legal.1âwphi1 In these types of questions, this Court has the ultimate say
so that we merely abbreviate the review process if we, because of the unique
circumstances of a case, choose to hear and decide the legal issues outright.45
Moreover, the novelty and the paramount importance of the issue herein raised
should be seriously considered.46Surely, there is a need to take cognizance of the
case not only to guide the bench and the bar, but if only to strengthen arbitration as
a means of dispute resolution, and uphold the policy of the State embodied in
the Alternative Dispute Resolution Act of 2004, to wit:
Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively
promote party autonomy in the resolution of disputes or the freedom of the party to
make their own arrangements to resolve their disputes. Towards this end, the State
shall encourage and actively promote the use of Alternative Dispute Resolution
(ADR) as an important means to achieve speedy and impartial justice and declog
court dockets. xxx
Fourth. As regards the issue on the validity and enforceability of the foreign arbitral
award, we leave its determination to the court a quo where its recognition and
enforcement is being sought.
Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of
the motion for time to file petition for review on certiorari before the petition was filed
with this Court.47 We, however, find petitioner’s reply in order. Thus:
26. Admittedly, reference to "Branch 67" in petitioner TPI’s "Motion for Time to File
a Petition for Review on Certiorari under Rule 45" is a typographical error. As
correctly pointed out by respondent Kingford, the order sought to be assailed
originated from Regional Trial Court, Makati City, Branch 61.
27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a
copy of petitioner TPI’s motion was received by the Metropolitan Trial Court, Makati
City, Branch 67. On 8 January 2009, the motion was forwarded to the Regional Trial
Court, Makati City, Branch 61.48
All considered, petitioner TPI, although a foreign corporation not licensed to do
business in the Philippines, is not, for that reason alone, precluded from filing
the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award before a Philippine court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court,
Branch 61, Makati City in Special Proceedings No. M-6533 is
hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61 for
further proceedings.
SO ORDERED.
 G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES
CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST
COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional
Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the
Resolution2 of the CA denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under
Philippine laws. Since 1950, it had been engaged in the manufacture of roofing
materials and pipe products. Its manufacturing operations were conducted on eight
parcels of land with a total area of 47,233 square meters. The properties, located in
Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos.
451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the
name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the
shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a
corporation organized and registered under the laws of Belgium.3 Jack Glanville, an
Australian citizen, was the General Manager and President of EC, while Claude
Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices
in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in
the Philippines and wanted to stop its operations in the country. The Committee for
Asia of ESAC instructed Michael Adams, a member of EC’s Board of Directors, to
dispose of the eight parcels of land. Adams engaged the services of realtor/broker
Lauro G. Marquez so that the properties could be offered for sale to prospective
buyers. Glanville later showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to
Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September
12, 1986, Marquez declared that he was authorized to sell the properties
for P27,000,000.00 and that the terms of the sale were subject to negotiation.4
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to
Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings
offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of
the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium, but the latter
did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium,
inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It was
only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based
on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00
and P2,500,000.00 to cover all existing obligations prior to final liquidation."5
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux.
Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with
Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua
siblings had accepted the counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90 days after execution and
preparation of all documents of sale, together with the necessary governmental
clearances.6
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security
Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to
expedite the sale.7
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the
sale would be implemented. In a telex dated April 22, 1987, Glanville informed
Delsaux that he had met with the buyer, which had given him the impression that
"he is prepared to press for a satisfactory conclusion to the sale." 8 He also
emphasized to Delsaux that the buyers were concerned because they would incur
expenses in bank commitment fees as a consequence of prolonged period of
inaction.9
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic
of the Philippines, the political situation in the Philippines had improved. Marquez
received a telephone call from Glanville, advising that the sale would no longer
proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he
had been instructed by his principal to inform Marquez that "the decision has been
taken at a Board Meeting not to sell the properties on which Eternit Corporation is
situated."10
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC
Regional Office had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez impleaded as additional defendants on account of their purchase of ESAC shares
L.G. Marquez, Inc. of stocks and were the controlling stockholders of EC.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was
Makati, Metro Manila not doing business in the Philippines, it cannot be subject to the jurisdiction of
Philippines Philippine courts; the Board and stockholders of EC never approved any resolution
to sell subject properties nor authorized Marquez to sell the same; and the telex
Dear Sir: dated October 28, 1986 of Jack Glanville was his own personal making which did
not bind EC.
Re: Land of Eternit Corporation
On July 3, 1995, the trial court rendered judgment in favor of defendants and
I would like to confirm officially that our Group has decided not to proceed with the dismissed the amended complaint.12The fallo of the decision reads:
sale of the land which was proposed to you.
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-
The Committee for Asia of our Group met recently (meeting every six months) and Resources Corporation and Eteroutremer, S.A. is dismissed on the ground that
examined the position as far as the Philippines are (sic) concerned. Considering there is no valid and binding sale between the plaintiffs and said defendants.
[the] new political situation since the departure of MR. MARCOS and a certain
stabilization in the Philippines, the Committee has decided not to stop our operations The complaint as against Far East Bank and Trust Company is likewise dismissed
in Manila. In fact, production has started again last week, and (sic) to recognize the for lack of cause of action.
participation in the Corporation.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation
We regret that we could not make a deal with you this time, but in case the policy and Eteroutremer, S.A. is also dismissed for lack of merit.13
would change at a later state, we would consult you again.
The trial court declared that since the authority of the agents/realtors was not in
xxx writing, the sale is void and not merely unenforceable, and as such, could not have
been ratified by the principal. In any event, such ratification cannot be given any
Yours sincerely, retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the
property without a clear authorization from the corporation concerned, that is,
through resolutions of the Board of Directors and stockholders. The trial court also
(Sgd.)
pointed out that the supposed sale involves substantially all the assets of defendant
C.F. DELSAUX
EC which would result in the eventual total cessation of its operation.14
cc. To: J. GLANVILLE (Eternit Corp.)11
The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court
erred in concluding that the real estate broker in the instant case needed a written
When apprised of this development, the Litonjuas, through counsel, wrote EC, authority from appellee corporation and/or that said broker had no such written
demanding payment for damages they had suffered on account of the aborted sale. authority; and (2) the lower court committed grave error of law in holding that
EC, however, rejected their demand. appellee corporation is not legally bound for specific performance and/or damages
in the absence of an enabling resolution of the board of directors." 15 They averred
The Litonjuas then filed a complaint for specific performance and damages against that Marquez acted merely as a broker or go-between and not as agent of the
EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust corporation; hence, it was not necessary for him to be empowered as such by any
Company, and ESAC in the RTC of Pasig City. An amended complaint was filed, in written authority. They further claimed that an agency by estoppel was created when
which defendant EC was substituted by Eterton Multi-Resources Corporation; the corporation clothed Marquez with apparent authority to negotiate for the sale of
Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were the properties. However, since it was a bilateral contract to buy and sell, it was
equivalent to a perfected contract of sale, which the corporation was obliged to
consummate.
In reply, EC alleged that Marquez had no written authority from the Board of
Directors to bind it; neither were Glanville and Delsaux authorized by its board of
directors to offer the property for sale. Since the sale involved substantially all of the
corporation’s assets, it would necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the
RTC. 16 The Litonjuas filed a motion for reconsideration, which was also denied by
the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within
the purview of Article 1874 of the New Civil Code. Under Section 23 of the
Corporation Code, he needed a special authority from EC’s board of directors to
bind such corporation to the sale of its properties. Delsaux, who was merely the
representative of ESAC (the majority stockholder of EC) had no authority to bind the
latter. The CA pointed out that Delsaux was not even a member of the board of
directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel
had been created between the parties.
In the instant petition for review, petitioners aver that
I EC to hold themselves out in the public as having the power to sell the subject
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING
THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT
ETERNIT BEFORE THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND
DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING
POWER TO SELL THE SAID PROPERTIES.17
Petitioners maintain that, based on the facts of the case, there was a perfected
contract of sale of the parcels of land and the improvements thereon for
"US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation."
Petitioners insist that they had accepted the counter-offer of respondent EC and that
before the counter-offer was withdrawn by respondents, the acceptance was made
known to them through real estate broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of
Directors of EC for Marquez to validly act as broker/middleman/intermediary. As
broker, Marquez was not an ordinary agent because his authority was of a special
and limited character in most respects. His only job as a broker was to look for a
buyer and to bring together the parties to the transaction. He was not authorized to
sell the properties or to make a binding contract to respondent EC; hence, petitioners
argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was
able to communicate both the offer and counter-offer and their acceptance of
respondent EC’s counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply
shows that Glanville, who was the President and General Manager of respondent
EC, and Delsaux, who was the Managing Director for ESAC Asia, had the necessary
authority to sell the subject property or, at least, had been allowed by respondent
properties. Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then
President and General Manager of Eternit, to sell the properties of said
corporation to any interested party, which authority, as hereinabove
discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its
properties to the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the
properties as evidenced by the Petitioners’ ACCEPTANCE of the counter-
offer;
 5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with
the Security Bank and that an ESCROW agreement was drafted over the
subject properties;
6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL
IMPLEMENT ACTION TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which
evidenced the fact that Petitioners’ offer was allegedly REJECTED by both
Glanville and Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-
offer to petitioners’ offer and thereafter reject such offer unless they were authorized
to do so by respondent EC. Petitioners insist that Delsaux confirmed his authority to
sell the properties in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the
sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering the
new political situation since the departure of MR. MARCOS and a certain
stabilization in the Philippines, the Committee has decided not to stop our operations
in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the
participation in the Corporation.
We regret that we could not make a deal with you this time, but in case the policy
would change at a later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and
Delsaux were knowingly permitted by respondent EC to sell the properties within the
scope of an apparent authority. Petitioners insist that respondents held themselves
to the public as possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are
factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the
petition, respondents EC (now EMC) and ESAC reiterate their submissions in the
CA. They maintain that Glanville, Delsaux and Marquez had no authority from the
stockholders of respondent EC and its Board of Directors to offer the properties for
sale to the petitioners, or to any other person or entity for that matter. They assert
that the decision and resolution of the CA are in accord with law and the evidence
on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville
and Delsaux, conformed to the written authority of Marquez to sell the properties.
The authority of Glanville and Delsaux to bind respondent EC is evidenced by the
fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of
respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their
positions and their duties in respondent EC at the time of the transaction, and the
fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a
formal resolution of the Board of Directors would be a mere ceremonial formality.
What is important, petitioners maintain, is that Marquez was able to communicate
the offer of respondent EC and the petitioners’ acceptance thereof. There was no
time that they acted without the knowledge of respondents. In fact, respondent EC
never repudiated the acts of Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues
raised by petitioner in this case are factual. Whether or not Marquez, Glanville, and
Delsaux were authorized by respondent EC to act as its agents relative to the sale
of the properties of respondent EC, and if so, the boundaries of their authority as
agents, is a question of fact. In the absence of express written terms creating the
relationship of an agency, the existence of an agency is a fact question. 20 Whether
an agency by estoppel was created or whether a person acted within the bounds of
his apparent authority, and whether the principal is estopped to deny the apparent
authority of its agent are, likewise, questions of fact to be resolved on the basis of
the evidence on record.21 The findings of the trial court on such issues, as affirmed
by the CA, are conclusive on the Court, absent evidence that the trial and appellate
courts ignored, misconstrued, or misapplied facts and circumstances of substance
which, if considered, would warrant a modification or reversal of the outcome of the
case.22
It must be stressed that issues of facts may not be raised in the Court under Rule
45 of the Rules of Court because the Court is not a trier of facts. It is not to re-
examine and assess the evidence on record, whether testimonial and documentary.
There are, however, recognized exceptions where the Court may delve into and
resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when the Court of Appeals, in making its findings, went beyond the issues of the
case and the same is contrary to the admissions of both appellant and appellee; (7)
when the findings of the Court of Appeals are contrary to those of the trial court; (8)
when the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, would justify
a different conclusion; and (10) when the findings of fact of the Court of Appeals are
premised on the absence of evidence and are contradicted by the evidence on
record.23
We have reviewed the records thoroughly and find that the petitioners failed to
establish that the instant case falls under any of the foregoing exceptions. Indeed,
the assailed decision of the Court of Appeals is supported by the evidence on record
and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its
properties and that it had empowered Adams, Glanville and Delsaux or Marquez to
offer the properties for sale to prospective buyers and to accept any counter-offer.
Petitioners likewise failed to prove that their counter-offer had been accepted by
respondent EC, through Glanville and Delsaux. It must be stressed that when
specific performance is sought of a contract made with an agent, the agency must
be established by clear, certain and specific proof.24
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code
of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year and until their successors are elected and
qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or
stockholders and is not affected by the personal rights,
obligations and transactions of the latter.25 It may act only through its board of
directors or, when authorized either by its by-laws or by its board resolution, through
its officers or agents in the normal course of business. The general principles of
agency govern the relation between the corporation and its officers or agents,
subject to the articles of incorporation, by-laws, or relevant provisions of law.26
Under Section 36 of the Corporation Code, a corporation may sell or convey its real
properties, subject to the limitations prescribed by law and the Constitution, as
follows:
SEC. 36. Corporate powers and capacity. – Every corporation incorporated under
this Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of a lawful business of the
corporation may reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or
members, and as such, may not be sold without express authority from the board of
directors.27 Physical acts, like the offering of the properties of the corporation for
sale, or the acceptance of a counter-offer of prospective buyers of such properties
and the execution of the deed of sale covering such property, can be performed by
the corporation only by officers or agents duly authorized for the purpose by
corporate by-laws or by specific acts of the board of directors.28 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the course of, or connected with,
the performance of authorized duties of such director, are not binding on the
corporation.29
While a corporation may appoint agents to negotiate for the sale of its real
properties, the final say will have to be with the board of directors through its officers
and agents as authorized by a board resolution or by its by-laws.30 An unauthorized
act of an officer of the corporation is not binding on it unless the latter ratifies the
same expressly or impliedly by its board of directors. Any sale of real property of a
corporation by a person purporting to be an agent thereof but without written
authority from the corporation is null and void. The declarations of the agent alone
are generally insufficient to establish the fact or extent of his/her authority.31
By the contract of agency, a person binds himself to render some service or to do
something in representation on behalf of another, with the consent or authority of
the latter.32 Consent of both principal and agent is necessary to create an agency.
The principal must intend that the agent shall act for him; the agent must intend to
accept the authority and act on it, and the intention of the parties must find
expression either in words or conduct between them.33
An agency may be expressed or implied from the act of the principal, from his silence
or lack of action, or his failure to repudiate the agency knowing that another person
is acting on his behalf without authority. Acceptance by the agent may be expressed,
or implied from his acts which carry out the agency, or from his silence or inaction
according to the circumstances.34 Agency may be oral unless the law requires a
specific form.35 However, to create or convey real rights over immovable property, a
special power of attorney is necessary.36 Thus, when a sale of a piece of land or any
portion thereof is through an agent, the authority of the latter shall be in writing,
otherwise, the sale shall be void.37
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any
resolution of the Board of Directors of respondent EC empowering Marquez,
Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf,
the eight parcels of land owned by respondent EC including the improvements
thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto
Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as
basis for petitioners’ claim that he had likewise been authorized by respondent EC
to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC,
through its Committee for Asia,38 the Board of Directors of respondent ESAC,39 and
the Belgian/Swiss component of the management of respondent ESAC. 40 As such,
Adams and Glanville engaged the services of Marquez to offer to sell the properties
to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner
that he was authorized to offer for sale the property for P27,000,000.00 and the other
terms of the sale subject to negotiations. When petitioners offered to purchase the
property for P20,000,000.00, through Marquez, the latter relayed petitioners’ offer to
Glanville; Glanville had to send a telex to Delsaux to inquire the position of
respondent ESAC to petitioners’ offer. However, as admitted by petitioners in their
Memorandum, Delsaux was unable to reply immediately to the telex of Glanville
because Delsaux had to wait for confirmation from respondent ESAC. 41 When
Delsaux finally responded to Glanville on February 12, 1987, he made it clear that,
based on the "Belgian/Swiss decision" the final offer of respondent ESAC was
US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final
liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision,"
and not the entire management or Board of Directors of respondent ESAC. While it
is true that petitioners accepted the counter-offer of respondent ESAC, respondent
EC was not a party to the transaction between them; hence, EC was not bound by
such acceptance.
While Glanville was the President and General Manager of respondent EC, and
Adams and Delsaux were members of its Board of Directors, the three acted for and
in behalf of respondent ESAC, and not as duly authorized agents of respondent EC;
a board resolution evincing the grant of such authority is needed to bind EC to any
agreement regarding the sale of the subject properties. Such board resolution is not
a mere formality but is a condition sine qua non to bind respondent EC. Admittedly,
respondent ESAC owned 90% of the shares of stocks of respondent EC; however,
the mere fact that a corporation owns a majority of the shares of stocks of another,
or even all of such shares of stocks, taken alone, will not justify their being treated
as one corporation.43
It bears stressing that in an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so doing, the agent, by legal
fiction, becomes the principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court.44
The petitioners cannot feign ignorance of the absence of any regular and valid
authority of respondent EC empowering Adams, Glanville or Delsaux to offer the
properties for sale and to sell the said properties to the petitioners. A person dealing
with a known agent is not authorized, under any circumstances, blindly to trust the
agents; statements as to the extent of his powers; such person must not act
negligently but must use reasonable diligence and prudence to ascertain whether
the agent acts within the scope of his authority.45 The settled rule is that, persons
dealing with an assumed agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent
of authority, and in case either is controverted, the burden of proof is upon them to
prove it.46 In this case, the petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but
also as their agent. As gleaned from the letter of Marquez to Glanville, on February
26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had
accepted such offer to sell the land and the improvements thereon. However, we
agree with the ruling of the appellate court that Marquez had no authority to bind
respondent EC to sell the subject properties. A real estate broker is one who
negotiates the sale of real properties. His business, generally speaking, is only to
find a purchaser who is willing to buy the land upon terms fixed by the owner. He
has no authority to bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not include an authority to sell.47
Equally barren of merit is petitioners’ contention that respondent EC is estopped to
deny the existence of a principal-agency relationship between it and Glanville or
Delsaux. For an agency by estoppel to exist, the following must be established: (1)
the principal manifested a representation of the agent’s authority or knowlingly
allowed the agent to assume such authority; (2) the third person, in good faith, relied
upon such representation; (3) relying upon such representation, such third person
has changed his position to his detriment.48 An agency by estoppel, which is similar
to the doctrine of apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the
action taken in reliance.49 Such proof is lacking in this case. In their communications
to the petitioners, Glanville and Delsaux positively and unequivocally declared that
they were acting for and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between
the petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The
transactions and the various communications inter se were never submitted to the
Board of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.
SO ORDERED.
G.R. No. 131715 December 8, 1999
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,
vs.
ERNESTO PABION and LOUELLA RAMIRO, respondents.
PANGANIBAN, J.:
The Securities and Exchange Commission (SEC) has jurisdiction over corporations
organized pursuant to the Corporation Code, even if the majority or controlling
shares are owned by the government. Hence, it can competently order the holding
of a shareholders' meeting for the purpose of electing the corporate board of
directors. While the SEC may not have authority over government corporations with
original charters or those created by special law, it does have jurisdiction over
"acquired asset corporations" as defined in AO 59. Specifically, the Philippine
National Construction Company (PNCC) may be ordered by SEC to hold a
shareholders' meeting to elect its board of directors in accordance with its Articles
of Incorporation and By-Laws as well as with the Corporation Code. The chairman
and the members of the PNCC Board of Directors hold office by virtue of their
election by the shareholders, not by their appointment thereto by the President of
the Republic.
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Decision of the Court of Appeals 1 (CA) promulgated on October 23,
1997, as well as its subsequent Resolution 2 dated December 2, 1997, denying
petitioner's Motion for Reconsideration.
The CA effectively affirmed 3 the October 2, 1996 Order issued by the Securities and
Exchange Commission, 4which disposed as follows:
WHEREFORE, premises, considered, this Petition is hereby
GRANTED. The President or the Chairman of the PNCC is hereby
ordered to call a special stockholder's meeting within thirty (30)
days from receipt of this order for the purpose of electing the
members of the Board to hold office up to March, 1997 or until the
next stockholders' meeting will be held. Accordingly, the Corporate
Secretary of PNCC is hereby directed to issue required notices to
the stockholders. 5
In a subsequent Resolution dated April 11, 1997, 6 SEC denied reconsideration,
clarification and annulment of said Order.
The Facts
The Court of Appeals adequately narrates the facts in this wise:
On September 16, 1994, private respondents Ernesto
Pabion and Louella Ramiro, claiming to be stockholders of
the PNCC, filed with the SEC a verified petition, therein alleging that
since 1982 or for a period of twelve (12) years, there has been no
stockholders' meeting of the PNCC to elect the corporation's board
of directors, thus enabling the incumbent directors to hold on to their
position beyond their 1-year term, in violation of PNCC's By-Laws
and the Corporation Code. Pabion and Ramiro, therefore, prayed
the SEC to issue an order "ordering the officers of PNCC or, in the
alternative, authorizing petitioners, to call and hold a meeting of the
stockholders . . . for the purpose of electing new directors . . . ."
Docketed as SEC Case No. 09-94-4876, the verified petition was
assigned to SEC Hearing Officer Manuel Perea.
In due time, PNCC filed its answer. Therein, PNCC claimed that it
is a government-owned corporation whose "organizational and
functional management, administration, and supervision" are
governed by Administrative Order (AO) No. 59, issued by then
President Corazon Aquino on February 16, 1988. PNCC asserts
that its board of directors does not hold office by virtue of a
stockholder's election but by appointment of the President of the
Philippines, relying on Article IV, Section 16 [1], of AO No. 59, which
reads:
(1) Governing Boards. — GOCC (government-
owned and/or controlled corporation) shall be
governed by a Board of Directors or equivalent
body composed of an appropriate number of
members to be appointed by the President of the
Philippines upon the recommendation of the
Secretary of whose Department the GOCC is
attached. The Chairman of the board shall likewise
be appointed by the President upon the
recommendation of the Secretary.
In the same answer, PNCC expressed the fear that if granted, the
prayer in the verified petition would amount to a contravention of
AO No. 59 and an interference with the President's power of control
and appointment over government-owned and/or controlled
corporations (GOCCs). PNCC added that under Executive Order
No. 399, series of 1951, a GOCC is not required to hold a general
meeting of stockholders but, instead, the general manager thereof
is merely required to submit an annual report to the President of the
Philippines.
In the ensuing pre-trial conference conducted by Hearing Officer
Perea, the parties defined the issues, as follows:
(a) Whether or not PNCC is a
GOCC subject to and governed by
LOI 1295 (1983), AO No. 59
(1988) and Executive Order No.
399 (1951), or by its articles-of-
incorporation and by-laws only.
(b) Whether or not PNCC is
required to call a regular annual
stockholder's meetings.
on the basis of which the parties agreed to submit the case for
resolution after they shall have filed their respective memoranda,
which they did.
It appears, however, that in a motion dated September 4,
1995, Pabion and Ramiro prayed for the re-opening of the pre-trial
conference on the ground that the "common assumption" on the
75% ownership by several government financial institutions (GFIs)
in the PNCC was proved false by their discovery that the GFI[s] are
merely a minority among the owners of PNCC. They, therefore,
moved that a trial be conducted to determine the extent of
ownership by the government in the PNCC.
Acting on the aforementioned motion, SEC Hearing Officer Perea
issued, on January 30, 1996, the following order:
In view of the necessity of a prior determination of
whether or not respondent Philippine National
Construction Corporation (PNCC) is a government
owned or controlled corporation before resolving
the instant incident, either or both of the parties are
hereby directed to secure a ruling/opinion from
competent authority as to whether or not the PNCC
is a government corporation or not, as the matter
does not fall within the competence of the
Commission to determine.
Unless said ruling/opinion is obtained by either or
both parties, further proceedings should be held in
abeyance.
SO ORDERED.
Their motion for reconsideration of the aforequoted order having
been denied by the same Hearing Officer in his subsequent order
of April 10, 1996, Pabion and Ramiro then went to the
Commission en banc via a petition for certiorari. Thus came
about SEC-EB No. 495 wherein therein
petitioners Pabionand Ramiro sought the nullification of Hearing
Officer Perea's twin orders of January 30, 1996 and April 10, 1996
for having been allegedly issued with grave abuse of discretion
amounting to lack or in excess of jurisdiction. In the same recourse,
the two likewise asked the SEC en banc to direct Perea to proceed
with the trial on the merits of SEC Case No. 09-94-4876.
In its first assailed order of October 2, 1996, the SEC en
banc declared Hearing Officer Perea to have acted with grave
abuse of discretion in issuing his two (2) questioned orders. The
Commission ruled that Perea should have conducted a trial on the
merits to resolve the factual issue of whether PNCC is majority or
only minority-owned by the government. Explains the
Commission en banc in its challenged order:
Sec. 5 [b] of P.D. # 902-A confers on SEC original
and exclusive jurisdiction to hear and decide intra-
corporate controversies. The main issue in the
petition is clearly an intra-corporate dispute as it is
a controversy between the petitioners as
stockholders of PNCC and respondent corporation
PNCC regarding the holding of regular
stockholder's meeting. This matter, therefore, falls
within the scope of the jurisdiction of the SEC. In
resolving the main issue of whether PNCC should
hold regular stockholder's meetings, the hearing
officer has jurisdiction to resolve the incidental
issue of whether PNCC is a GOCC or not. Having
validly acquired original and exclusive jurisdiction
over the instant petition, the public respondent is
mandated to hear and decide all the issues
involved in the dispute.
In the same order, the Commission en banc, instead of remanding
the case to the Hearing Officer to resolve the question of whether
PNCC is government-owned or controlled, itself resolved the issue
by holding that PNCC, "being incorporated under the Corporation
Code, is, therefore, subject to Section 50 of the Corporation Code
which requires the holding of regular stockholders' meeting for the
purpose of selecting PNCC's Board of Directors", citing, as basis
therefor the ruling in PNOC-EDC vs. NLRC, 20 SCRA 487, to the
effect that the determination as to what law governs a corporation
is the manner of its creation, adding that PNCC is an "acquired
asset corporation" which, by express provision of Section 2 of AO
No. 59, "is not considered as a GOCC". And taking judicial notice
of PNCC's by-laws thereunder the corporation's directors "shall be
elected at the annual meeting of the stockholders", the
Commission en banc concluded that PNCC "is therefore, required
to conduct a regular stockholder's meeting for the purpose of
electing its Board of Directors, considering that the Corporation
Code and its own By-Laws require the holding of such meeting.
xxx xxx xxx
A timely motion for reconsideration was filed by the PNCC but the
same was denied by the Commission en banc in its
assailed Resolution of April 11, 1997. 7 (citations omitted but bold
types and italics found in original)
Ruling of the Court of Appeals
Upholding SEC, the Court of Appeals declared that PNCC, though majority-owned
by government financial institutions (GFIs), retained its character as a private
corporation. As such, PNCC was required under the Corporation Code to hold
regular shareholders' meetings to elect its board of directors. The CA ruled:
The petition lacks merit.
Although the case reached the SEC en banc through a petition
for certiorari, the said body is not helpless to resolve the controversy
on its substantive merits. There are indications that PNCC is not a
GOCC which the SEC en banc cannot ignore. A trial for the purpose
of determining the status of PNCC is unnecessary since the issue
can be resolved on the basis of records. A remand will only delay
the resolution of the case and frustrate the ends of justice.
It may be so, as pointed out by petitioner PNCC, that the rule which
allows the SEC en banc to correct instances of grave abuse of
discretion is patterned after Rule 65 of the 1997 Rules of Civil
Procedure, and therefore, it is only proper that the SEC en
banc adhere to the pronouncements of the Supreme Court on the
proper treatment of petitions for review on certiorari under Rule 65.
It is equally true, however, that the rule enunciated in several cases
to the effect that the inquiry in a petition for certiorariis limited only
to searching for traces of grave abuse [of] discretion is not cast in
stone. For sure, the Supreme Court no less has resolved factual
issues in certiorari cases on the basis of the records before it. If the
Supreme Court can relax the restriction on the disposition
of certiorari cases, We see no reason why a mere quasi-
administrative body unsaddled by the stringent rules of procedure,
like the SEC en banc, cannot follow the High Court's example, more
so when, as rationalized by the same Court in Gokongwei,
Jr. vs. Securities and Exchange Commission, et. al., 89 SCRA 336,
360, the underlying justification for the relaxation of the rule applies
to the instant case as well. Says the High Court in that case:
It is an accepted rule of procedure that the
Supreme court should always strive to settle the
entire controversy in single proceeding, leaving no
root or branch to bear the seeds of future litigation.
Thus, in Francisco v. City of Davao (12 SCRA
682), this Court resolved to decide the case on the
merits instead of remanding it to the trial court for
further proceedings since the ends of justice would
not be subserved by the remand of the case.
In Republic v. Security Credit and Acceptance
Corporation, et. al. (19 SCRA 58), this Court,
finding that the main issue is one of law, resolved
to decide the case on the merits "because public
interest demands an early disposition of the case",
and in Republic v.Central Surety and Insurance
Company, (25 SCRA 641), this Court denied
remand of the third-party complaint to the trial court
for further proceedings, citing precedents where
this Court, in similar situations, resolved to decide
the cases on the merits, instead of remanding them
to the trial court where (a) the ends of justice would
not be subserved by the remand of the case; or (b)
where public interest demand an early disposition
of the case; or (c) where the trial court ha[s] already
received all the evidence presented by both parties
and the Supreme Court is now in a position, based
upon said evidence, to decide the case on the
merits. . . .
Moreover, it cannot be denied that the parties herein are embroiled
in an intra-corporate controversy and the question on the identity of
PNCC is only an incident of that
controversy. Pabion and Ramiro are among the stockholders of
PNCC, a circumstance which classifies the dispute as an intra-
corporate controversy. The authority of the Commission to
determine whether or not PNCC can be compelled to hold a
stockholders' meeting is unquestioned as even PNCC itself
concedes that the "issues of the propriety of calling a stockholders"
meeting is within the competence of the SEC". The source of
authority of the SEC over the present case can be found in Section
5(b) of Presidential Decree (PD) No. 902-A, as amended, which
empowers the SEC to hear and resolve cases involving
"controversies arising out of intra-corporate or partnership relations,
between and among are stockholders, members, or associates;
between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or
association and the State insofar as it concerns their individual
franchise or right to exist as such entity.
The finding of the SEC en banc that PNCC is not a GOCC was
made in the exercise of its jurisdiction over an intra-corporate
controversy. To disallow the Commission to determine the nature
of petitioner PNCC is to deprive it of the power to resolve the intra-
corporate controversy between the parties. The jurisdiction of the
SEC over intra-corporate controversies emanates from law and
PNCC cannot divest the Commission of that jurisdiction. As the
body charged with exclusive authority over intra-corporate
controversies, aside from being possessed under Section 3 of PD
No. 902-A, as amended, with absolute jurisdiction over all
corporations which are grantees of primary franchise from the
government, the SEC en banc can be trusted with the competence
to distinguish a private corporation from a GOCC.
The second assigned error must likewise fall.
Administrative Order No. 59 does not consider the so-called
acquired asset corporations, although majority owned by the
government, as GOCCs. The salient provisions of AO No. 59 read,
as follows:
Sec. 2. Definition of Terms. — As used in this Administrative Order,
the following terms shall mean:
(a) Government-owned and/or
controlled corporation, hereinafter
referred to as GOCC or
government corporation, is a
corporation which is created by
special law or organized under the
Corporation Code in which the
 government, directly or indirectly,
has ownership of the majority of
the capital or has voting
control; Provided, That an
acquired asset corporation as
defined in the next paragraph shall
not be considered as GOCC or
government corporation.
(b) Acquired asset corporation is a
corporation (1) which is under
private ownership, the voting or
outstanding shares of which (i)
were conveyed to the government
agency, instrumentality or
corporation in satisfaction of debts
whether by foreclosure or
otherwise, or (ii) were duly
acquired by the government
through final judgment in a
sequestration proceeding; or (2)
which is a subsidiary of a
government corporation organized
exclusively to own and manage, or
lease, or operate specific physical
assets acquired by a government
financial institution in satisfaction
of debts incurred therewith, and
which in any case by law or by
enunciated policy is required to be
disposed of to private ownership
within a specified period of time.
In order to be considered as an acquired asset corporation, the
aforequoted provision requires, among other things, that the
corporation's conveyance of its outstanding shares to the
government must be aimed at the satisfaction of its debts. While,
on one breath, petitioner admits that the GFIs gained majority
ownership of PNCC by converting their loans into equity, on another
breath, petitioner denies that the debt-to-equity conversion resulted
in the satisfaction of the outstanding debts of PNCC because it did
not pay the loans. If the loans remained unpaid as maintained by
PNCC, what then was the effect on its debt when the GFIs
converted their loans into equity? It would be the height of
irresponsibility for PNCC to surrender majority ownership of its
voting or outstanding shares without getting something in return.
When PNCC ceded the majority ownership to the GFIs, there could
be no other motivation behind the action than PNCC's desire to
satisfy its obligation to the creditors. PNCC's effort to ward off the
exclusionary proviso of AO No. 59 only produces incongruity in its
position.
The Case of Quimpo vs. Tanodbayan, 146 SCRA 137, cannot
assist the petitioner's cause. There, the Supreme Court's inquiry
centered on whether or not Petrophil Corporation is a GOCC
because an affirmative answer will affirm the Tanodbayan's
jurisdiction over the Petrophil employees pursuant to the provisions
of the Anti-Graft and Corrupt Practices Act. In declaring that
Petrophil is a GOCC, the Supreme Court deemed it crucial to its
conclusion that Petrophil was purchased by the government
through the Philippine National Oil Corporation, itself a GOCC. The
situation of Petrophil bears no parallelism with that of PNCC
because the latter was not purchased by the GFIs. The GFIs
became majority owners of PNCC because they converted their
loans into equity. The manner of partial acquisition of PNCC by the
GFIs fits the condition set forth in Section 2, paragraph (b),
subparagraph, (1) (i) of AO no. 59, supra.
PNCC's position that it cannot be considered as an acquired asset
corporation in the absence of law or "enunciated policy" mandating
its privatization within a definite period can only be a product of
strained interpretation of AO No. 59. The Administrative Order
shows that there are only two (2) classes of acquired asset
corporations. Although the description of each class is compressed
in a single paragraph, the disjunctive word "or" separates the first
class from the second class which connotes a variance in their
characteristics. The word "or" is a disjunctive term signifying
disassociation and independence of one thing from each of the
other things enumerated. It should, as a rule, be construed in the
sense in which it ordinarily implies, as a disjunctive word. Each
class has its own set of conditions. The conversion by the GFIs of
their loans into equity in PNOC is sufficient to transform it as an
acquired asset corporation. The requirement for a pretender for the
status of an acquired asset corporation to be subject to a law or
policy that commands its privatization applies to another class of
acquired asset corporations which does not include
PNCC. 8 (citations omitted, emphasis in the original)
The Issue
Disagreeing with the appellate court, petitioner lodged this recourse before us 9 and
presents these issues:
1. WHETHER OR NOT PNCC IS A GOCC;
2. WHETHER OR NOT THE SEC HAS JURISDICTION TO ORDER
PNCC TO HOLD A STOCKHOLDERS' MEETING FOR THE
PURPOSE OF ELECTING THE MEMBERS OF ITS BOARD OF
DIRECTORS;
3. WHETHER OR NOT PNCC IS REQUIRED UNDER THE LAW
TO HOLD A STOCKHOLDERS' MEETING FOR THIS PURPOSE;
AND
4. WHETHER OR NOT THE SEC,
IN CERTIORARI PROCEEDINGS, CAN RULE ON THE MERITS
OF A CASE EVEN BEFORE THE HEARING OFFICER HAS
RECEIVED EVIDENCE. 10
We shall take up the above issues in the following sequence: 1) Whether SEC can
determine the corporate status of PNCC, 2) whether SEC has jurisdiction over
GOCCs, and 3) whether PNCC is an acquired asset corporation.
The Court's Ruling
The Petition has no merit. Simply stated, PNCC claims that SEC has no jurisdiction
over it and that members of the corporation's board of directors hold office, not by
virtue of a shareholders' election but by appointment of the President of the
Philippines. We hold that SEC has authority over PNCC and that the latter's directors
owe their offices to their shareholders and not to presidential fiat. To justify these
plain conclusions, we need to wade through rather complicated legal processes and
reasoning in resolving seriatim the legal issues raised by petitioners.
First Issue:
May SEC Determine
Whether PNCC Is a GOCC?
Underlying this confusing controversy is the misconception that government owned
and/or controlled corporations (GOCCs) are beyond the jurisdiction of SEC. From
this broad and sweeping assumption, petitioner asserts that SEC is without
competence to determine whether PNCC is a GOCC. 11 It insists that such a
determination falls solely upon the President of Philippines and is therefore beyond
SEC's jurisdiction.
We disagree. It is certainly absurd to say that SEC is without jurisdiction to determine
if PNCC is a GOCC simply because the latter claims to be one. The President does
not "determine" whether a corporation is a GOCC or not. It is the law that does.
PNCC's status as a GOCC can be ruled upon by SEC — as well as by other
competent authorities for that matter — based on law, specifically the Revised
Administrative Code of 1987 12 which provides inter alia as follows:
Sec. 2. General Terms Defined. — Unless the specific words of the
text, or the context as a whole, or a particular statute, shall require
a different meaning:
xxx xxx xxx
(13) Government-owned or controlled corporation — refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one
(51) per cent of its capital stock: Provided, That government owned
or controlled corporations may be further categorized by the
Department of Budget, the Civil Service Commission, and the
Commission on Audit for purposes of the exercise and discharge of
their respective powers, functions and responsibilities with respect
to such corporations. (emphasis ours)
Thus, we agree with the CA that "the SEC en banc cab be trusted with the
competence to distinguish a private corporation from a GOCC." 13 Whether such
determination is correct would be an altogether different matter.
SEC Ruled on the Merits
Petitioner argues that certiorari, which was used by private respondents to challenge
the ruling of the hearing officer before the SEC en banc, is generally limited to
determining whether or not there has been grave abuse of discretion committed by
the officer below. It further claims that the SEC rule 14 used by respondents was
patterned after Rule 65 of the 1997 Rules of Court. 15 Hence, the same principles
governing the latter should apply to the former. It thus submits that SEC erred when
it ruled not only on the issue of jurisdiction but also on the merits of the case. It
contends that SEC en banc should have limited itself to the issue of grave abuse
and thereafter remanded the case below for further proceedings.
Again, we disagree. What petitioner invokes is a general rule that admits of
exceptions. 16 As the CA aptly pointed out, this general rule "is not cast in
stone." 17 Indeed, one chiseled exception arises when the court or administrative
agency is in a position to resolve the dispute on the merits based on the records
before it. 18 That is, a reviewing court or agency may decide the lis mota of a case
on its merits if there are enough undisputed facts to warrant such resolution.
Here we stress that SEC's ruling was factually based on the judicial admission of
petitioner that there was a debt-to-equity conversion of PNCC's obligations to
several government financial institutions (GFIs) pursuant to LOI 1295. 19PNCC
admits that at least 76.48 percent of its equity is owned by GFI's. 20 Thus, in view of
such admission extant on the records, SEC en banc was in a position to validly
dispose of the controversy directly, without need of remanding the matter to the
hearing officer. It aptly based its actions on the fact that PNCC was organized
pursuant to the general corporation law and is thus subject to SEC regulation.
We agree with SEC because a remand would have merely delayed unnecessarily
the resolution of the question. As we have said before and say so again:
A litigation is not a game of technicalities in which one, more deeply
schooled and skilled in the subtle art of movement and position,
entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in
issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, ask that
justice be done upon the merits. Lawsuits, unlike duels, are not to
be won by a rapier's thrust. Technicality, when it deserts its proper
office as an aid to justice and becomes its great hindrance and chief
enemy, deserves scant consideration from courts. There should be
no vested rights in technicalities. 21
Indeed, justice unnecessarily delayed is justice necessarily denied.
Second Issue:
Does SEC Have Jurisdiction over GOCCs?
As adverted to above, petitioner proceeds from the erroneous proposition that SEC's
"jurisdiction does not extend to . . . [a] government-owned and controlled corporation
or GOCC . . ." 22 This is an inaccurate generalization. GOCCs may either be (1) with
original charter or created by special law; or (2) incorporated under general
law, 23 via either the Old Corporation Code 24 or the New Corporation Code. 25
We concede that SEC has no jurisdiction over corporations of the first type —
GOCCs with original charter or created by special law — primarily because they are
governed by their charters. 26 But even this concession is not absolute, since the
Corporation Code may apply suppletorily, either by operation of law 27 or through
express provisions in the charter. 28
On the other hand, we have no doubt that over GOCCs established or organized
under the Corporation Code, SEC can exercise jurisdiction. These GOCCs are
regarded as private corporations despite common misconceptions. 29That the
government may own the controlling shares in the corporation does not diminish the
fact that the latter owes its existence to the Corporation Code. More pointedly,
Section 143 of the Corporation Code 30 gives SEC the authority and power to
implement its provisions, specifically for the purpose of regulating the entities
created pursuant to such provisions. These entities include corporations in which
the controlling shares are owned by the government or its agencies.
Glaringly erroneous, therefore, is petitioner's reliance on Quimpo
v. Tanodbayan 31 and its theory that it is immaterial "whether a corporation is
acquired by purchase or through the conversion of the loans of the GFIs into equity
in a corporation [because] such corporation loses its status as a private corporation
and attains a new status as a GOCC." 32 First, based on the discussion above,
PNCC does not "lose" its status as a private corporation, even if we were to assume
that it is a GOCC. Second, neither would such loss of status prevent it from being
further classified into an acquired asset corporation, as will be discussed below.
The Controversy Is Within
SEC Jurisdiction
SEC's assumption of jurisdiction over this case is proper, as the controversy involves
the election of PNCC's directors. Petitioner does not really contradict the nature of
the question presented and agrees that there is an intra-corporate question involved.
However, it emphasizes that the "main" question to be resolved is the status of
PNCC as a GOCC 33 which, it submits, is outside SEC's competence to rule
on. 34 As already explained, there is no reason why SEC cannot make such
determination which, though not final and may be cannot subject to review, is
nonetheless made pursuant to its exercise of its original and exclusive jurisdiction
over cases involving controversies in the election of directors. 35
SEC May Compel
 Stockholders' Meeting
Prescinding from the above premises, it necessarily follows that SEC can compel
PNCC to hold a stockholders' meeting for the purpose of electing members of the
latter's board of directors. 36 This is clearly provided for by Section 50 of the
Corporation Code, which we quote:
Sec. 50. Regular and special meetings of stockholders or members.
— . . . Whenever, for any cause, there is no person authorized to
call a meeting, the Securities and Exchange Commission, upon
petition of a stockholder or member, and on the showing of good
cause therefor, may issue an order to the petitioning stockholder or
member directing him to call a meeting of the corporation by giving
proper notice required by this Code or by the by-laws. The
petitioning stockholder or member shall preside thereat until at least
a majority of the stockholders or members present have chosen one
of their member[s] as presiding officer. (emphasis ours)
As respondents point out, the SEC's action is also justified by its regulatory and
administrative powers 37 to implement the Corporation Code, specifically to compel
the PNCC to hold a stockholders' meeting for election purposes. Apropos here is
the SEC's ruling as follows:
The Commission takes judicial notice of the PNCC by-laws as
follows:
Art. V, Sec. 5
(1) The Board of Directors shall be composed of
eleven (11) directors.
(2) The directors shall be elected at the annual
meeting of the stockholders, each director to hold
office for a term on one (1) year and until his
successor is duly elected and qualified.
Art. IV Sec. 4
(1) The annual meeting of the stockholders shall be
held at 3:00 P.M. on the fourth (4th) Tuesday of
March every year.
Respondent PNCC is therefore required to conduct a regular
stockholders' meeting for the purpose of electing its Board of
Directors, considering that the Corporation Code and its own By-
Laws require the holding of such meeting. The failure of PNCC to
call and hold annual stockholders' meetings since 1983 or for
thirteen (13) years constitutes a gross, continuing violation of its by-
laws and the Corporation Code. For the refusal of PNCC's Board of
Directors to call said meeting, petitioners, as stockholders of PNCC,
can rightfully petition the SEC to order the same.
Third Issue:
What is the Status of PNCC?
Petitioner differs from the foregoing conclusion and avers that there is no necessity
to hold a stockholders' meeting to elect members of the board of directors, because
the President of the Philippines is empowered to appoint them, by virtue of Article
IV, Section 16 (1) of Administrative Order No. 59 38 (December 5, 1988):
xxx xxx xxx
(1) Governing Boards. — A GOCC shall be
governed by a Board of Directors or equivalent
body composed of an appropriate number of
members to be appointed by the President of the
Philippines upon the recommendation of the
Secretary to whose Department the GOCC is
attached. The Chairman of the Board shall likewise
be appointed by the President upon the
recommendation of the Secretary.
Respondents counter that the above-quoted provision is inapplicable, since PNCC
is not a GOCC. Instead, it is an acquired asset corporation, based on the definition
given in Section 2 (a) of the same law, AO 59:
xxx xxx xxx
(a) Government-owned and/or controlled
corporation, hereinafter referred to as GOCC or
government corporation, is a corporation which is
created by special law or organized under the
Corporation Code in which the Government,
directly or indirectly, has ownership of the majority
 of the capital or has voting control; Provided that
an acquired asset corporation as defined in the
next paragraph shall not be considered as GOCC
or government corporation.
(b) Acquired asset corporation is a corporation (1)
which is under private ownership, the voting or
outstanding shares of which (i) were conveyed to
the government or to a government agency,
instrumentality or corporation in satisfaction of
debts whether by foreclosure or otherwise, or (ii)
were duly acquired by the government through final
judgment in a sequestration proceeding; or (2)
which is a subsidiary of a government corporation
organized exclusively to own and manage, or
lease, or operate specific physical assets acquired
by a government financial institution in satisfaction
of debts incurred therewith, and which in any case
by law or by enunciated policy is required to be
disposed of to private ownership within a specified
period of time. (emphasis supplied)
Thus, at this point these questions arise: (a) Is PNCC an acquired asset corporation?
(b) Is Section 2 of AO 59 inconsistent with Section 2 (13) of EO 292? (c) Is Section
16 of AO 59 applicable to PNCC?
PNCC Is an Acquired
Asset Corporation
We agree with the respondents that PNCC falls under the exception carved out from
Section 2 (a and b) above which removes an acquired asset corporation from the
category of a GOCC. 39 In the context of the entire administrative order and in
relation to presidential issuances, 40 these provisions clearly indicate that PNCC is
indeed an acquired asset corporation. This is because PNCC is a corporation that
is, to quote said AO, "under private ownership, the voting or outstanding shares of
which (i) were conveyed to the government" financial institutions "in satisfaction of
debts . . .."
Petitioner posits the interpretation that an acquired asset corporation is one that is
set to be privatized pursuant to a law or an enunciated policy. 41 On this particular
point, we agree. It should be noted that under Section 2 (b) of AO 59, there are two
kinds of acquired assets corporations: one, a corporation which is "under private
ownership, the voting or outstanding shares of which" were either conveyed to the
government or to a government agency, instrumentality or corporation in satisfaction
of debts whether by foreclosure or otherwise, or were duly acquired by the
government in a sequestration proceeding; and two, a corporation which is a
subsidiary of a government entity organized exclusively to own and manage, or
lease or operate specific physical assets acquired by a government financial
institution in satisfaction of debts incurred therewith.
Both kinds of acquired asset corporations are by law or by enunciated policy
required to be privatized within a specified period. Such interpretation of AO 59 is
supported by Section 18 thereof which provides:
Sec. 18. Dissolution of Acquired Asset Corporations. — All
executive agencies, offices and instrumentalities shall take steps to
dissolve any acquired asset corporation which has not been
disposed of to the private sector within five (5) years from the date
of the decision to dissolve the corporation. . . . 42 (emphasis
supplied)
Reading these sections together, it becomes evident that an acquired asset
corporation is singled out for eventual disposition to the private sector or, failing in
that, for dissolution. 43
True, respondents failed to show that PNCC was headed either for privatization or
for dissolution. However, Article I, Section 1 of Proclamation No. 50, 44 provides the
enunciated policy required under AO 59 in this wise:
Sec. 1. Statement of Policy. — It shall be the policy of the State to
promote privatization through an orderly, coordinated and efficient
program for the prompt disposition of the large number of non-
performing assets of the government financial institutions, and
certain government-owned or controlled corporations which have
been found unnecessary or inappropriate for the government sector
to maintain.
Pursuant to this policy, AO 64, 45 which was issued by then President
Corazon Aquino, transferred to the national government certain assets held
by the Philippine Export and Foreign Loan Guarantee (Philguarantee) and
the National Development Company (NDC). Certain shares in PNCC were
included. This fact was confirmed by President Fidel V. Ramos who issued
AO 397 46 on May 13, 1998. The said administrative order states that
"PNCC is one of the corporations slated to be privatized." 47
When confronted with the same question, the Department of Justice (DOJ) in DOJ
Opinion No. 37, Series of 1995, stated that PNCC was an acquired asset
corporation, as follows:
At the outset, we note from the attached papers that in its letter
dated May 20, 1991 to the PNCC, the Office of the President
already declared that PNCC is an "acquired asset corporation as
defined in Administrative Order No. 59". (emphasis supplied)
DOJ Opinion No. 22, Series of 1998, had a similar tenor:
The question whether PNCC is a government-owned or controlled
corporation (GOCC) and, therefore, a government entity ha[s] been
previously passed upon by the Office of the President. In a letter
dated May 20, 1991, Deputy Executive Secretary Sonny Coloma
informed the then PNCC President that PNCC is "an acquired asset
corporations defined under Section 2 of Administrative Order No.
59". The conclusion, although not explicitly stated in said letter, is
that PNCC is not a GOCC." (emphasis supplied)
While not controlling, official opinions of the justice secretary are persuasive. We
uphold such opinions in the present milieu.
There Is No Inconsistency
With the Administrative Code
Its earlier posturing notwithstanding, petitioner simultaneously asserts that AO 59 is
insufficient in its definition of "GOCC," which is allegedly inconsistent with that found
in Executive Order (EO) 292, 48 otherwise known as the Revised Administrative
Code (RAC). The inconsistency, according to petitioner, lies in the fact that AO 59
distinguishes between a GOCC and an acquired asset corporation, while EO 292
does not. Petitioner maintains that "[s]ince A.O. No. 59 is a mere administrative
issuance of the President, it is clear that its definition of a GOCC cannot prevail over
that given by E.O. No. 292, which is a law." 49
We do not find any inconsistency. The definition given in AO 59 explicitly applies
only to that particular administrative order. We quote the section in full:
Sec. 2. Definition of Terms. — As used in this Administrative Order,
the following terms shall mean:
(a) Government-owned and/or controlled
corporation, hereinafter referred to as GOCC or
government corporation, is a corporation which is
created by special law or organized under the
Corporation Code in which the Government,
directly or indirectly, has ownership of the majority
of the capital or has voting control; Provided that
an acquired asset corporation as defined in the
next paragraph shall not be considered as GOCC
or government corporation.
(b) Acquired asset corporation is a corporation (1)
which is under private ownership, the voting or
outstanding shares of which (i) were conveyed to
the government or to a government agency,
instrumentality or corporation in satisfaction of
debts whether by foreclosure or otherwise, or (ii)
were duly acquired by the government through final
judgment in a sequestration proceeding; or (2)
which is a subsidiary of a government corporation
organized exclusively to own and manage, or
lease, or operate specific physical assets acquired
by a government financial institution in satisfaction
of debts incurred therewith, and which in any case
by law or by enunciated policy is required to be
disposed of to private ownership within a specified
period of time." (boldface and emphasis supplied)
AO 59 does not purport to have established a new kind of corporation that
supersedes EO 292. Neither does the former seek to revise the definition of "GOCC"
given in the latter. What AO 59 in fact does is to distinguish GOCCs in general from
those that are sought to be privatized. In fact, the definition given in EO 292 itself
states that the GOCCs may be further categorized. 50 This caveat suggests that the
definition is broad enough to admit distinctions as to the kinds of GOCCs defined
under AO 59.
Thus, contrary to respondent's assertion that PNCC is not a GOCC, 51 we hold that
it may be deemed so under EO 292. However, for purposes of AO 59, particularly
in the application of Section 16 thereof, PNCC is an acquired asset corporation. In
this light, the alleged inconsistency is more apparent than real. It should be
emphasized that an acquired asset corporation is a GOCC set to be privatized
pursuant to the government's policy 52 as enunciated in Proclamation 50, 53 which
defines "assets" to include GOCCs thus:
 Sec. 2. Definition of Terms. — As used in this Proclamation and
unless the context otherwise requires, the term:
(1) Assets shall include . . . (iv) the government institutions
themselves, whether as parent or subsidiary corporations.
(2) Government institutions shall refer to government-owned or
controlled corporations, financial or otherwise, whether organized
by special charter as in the case of a parent cooperation, or under
general law as in the case of a subsidiary corporation." (emphasis
ours)
Under Section 5 54 of same Proclamation thereof, the Committee on Privatization is
empowered to identify and transfer these assets for disposition to the private sector.
The allusions to an implied repeal by EO 292 of Section 2 (a and b) of AO 59
deserves scant consideration. Suffice it to say that, as respondents pointed out, it
would be absurd for an earlier law to impliedly repeal a subsequent one. 55 In any
case, implied repeal is generally not favored. 56 Equally important, there is really no
inconsistency.
Sec. 26 of AO 59 Is
Inapplicable to PNCC
Assuming arguendo that PNCC is a GOCC and not an acquired asset corporation
under AO 59, Section 16 thereof is inapplicable. First, the GOCC referred to in
Section 16 (1) of AO 59 is that which is attached to a department of the executive
branch vis-à-vis the inter-departmental supervision announced in the said
Administrative Order. Here, the President shall appoint members of the board "upon
the recommendation of the Secretary to whose Department the GOCC is
attached." Second, the GOCC referred to in Section 16 is one with an original
charter, and not one created under general corporation law. This evident from a
reading of Section 16 (2) of AO 59:
(2) Powers and Functions of the Board. — Insofar as it is not
inconsistent with the charter of a given GOCC, the Board of
Directors or equivalent body shall have the following powers and
functions:
xxx xxx xxx (emphasis supplied)
In sum, it is clear that PNCC is an acquired asset corporation under AO 59. Thus,
Section 16 (1) of AO 59 is inapplicable. The alleged derogation of the President's
power over GOCCs is without basis. We note, at this point, petitioner's admission
that members of the PNCC board of directors are nominated by the GFIs in
proportion to their equity ownership therein. 57 Petitioner's vacillation in seeking to
apply Section 16 (1) of AO 59 while at same time asserting the invalidity of Section
2 (a and b) thereof betrays the stark weakness of its position.
One final point. Petitioner is represented in this litigation by private counsel, not by
the government corporate counsel or by the solicitor general. In fact, the OSG's
Memorandum submitted in representation of SEC debunks the Petition and sides
with respondents. Petitioner should not find it strange then that it is rightly adjudged
as a private corporation subject to regulation by the SEC, since by its very act of
retaining private counsel and by the government's act of opposing its claims, it is
indeed a SEC-regulated entity.
Epilogue
Lest the focus of our disposition of this case be lost in the maze of arguments strewn
before us, we stress that PNCC is a corporation created in accordance with the
general corporation statute. Hence, it is essentially a private corporation,
notwithstanding the government's interest therein through the debt-to-equity
conversion imposed by PD 1295. Being a private corporation, PNCC is subject to
SEC regulation and jurisdiction.
Petitioner contends that Proclamation 50 58 and AO 59 59 limit the exercise of that
jurisdiction. But, after wading into the complex issues submitted by the parties, we
have shown that such laws and issuances are not applicable to this particular case.
We must emphasize also, and this should be clear to all concerned, that our ruling
here does not in any way affect the factual issue of whether the government owns a
majority of the shares in PNCC. This matter, as; can be gleaned from the factual
narration of the CA, was not settled below. However, from our painstaking
explanation above, it should be obvious that this issue of fact is irrelevant to the
disposition of the legal issues herein raised. To repeat, whether PNCC is majority-
owned by the government or not is unimportant since our decision is essentially
based on the verity that PNCC is a private corporation created pursuant to the
general corporation law.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision and the
Resolution of the Court of Appeals are AFFIRMED. Costs against petitioner.
SO ORDERED.
 G.R. No. 191109 July 18, 2012
REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE
RECLAMATION AUTHORITY (PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, on pure questions of law, assailing the January 8, 2010 Order 1 of the
Regional Trial Court, Branch 195, Parafiaque City (RTC), which ruled that petitioner
Philippine Reclamation Authority (PRA) is a government-owned and controlled
corporation (GOCC), a taxable entity, and, therefore, . not exempt from payment of
real property taxes. The pertinent portion of the said order reads:
In view of the finding of this court that petitioner is not exempt from payment of real
property taxes, respondent Parañaque City Treasurer Liberato M. Carabeo did not
act xxx without or in excess of jurisdiction, or with grave abuse of discretion
amounting to lack or in excess of jurisdiction in issuing the warrants of levy on the
subject properties.
WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and
Admit Attached Supplemental Petition is denied and the supplemental petition
attached thereto is not admitted.
The Public Estates Authority (PEA) is a government corporation created by virtue of
Presidential Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining
its Powers and Functions, Providing Funds Therefor and For Other Purposes) which
took effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of lands, and
the administration and operation of lands belonging to, managed and/or operated
by, the government with the object of maximizing their utilization and hastening their
development consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then
President Ferdinand Marcos, PEA was designated as the agency primarily
responsible for integrating, directing and coordinating all reclamation projects for
and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the
PEA relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and
offshore areas of Manila Bay, including those located in Parañaque City, and was
issued Original Certificates of Title (OCT Nos. 180, 202, 206, 207, 289, 557, and
559) and Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311, 9685,
and 9686) over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo
(Carabeo) issued Warrants of Levy on PRA’s reclaimed properties (Central
Business Park and Barangay San Dionisio) located in Parañaque City based on the
assessment for delinquent real property taxes made by then Parañaque City
Assessor Soledad Medina Cue for tax years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary
restraining order (TRO) and/or writ of preliminary injunction against Carabeo before
the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying PRA’s petition
for the issuance of a temporary restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed
with the public auction of the subject reclaimed properties on April 7, 2003. In
response, Carabeo sent a letter stating that the public auction could not be deferred
because the RTC had already denied PRA’s TRO application.
On April 25, 2003, the RTC denied PRA’s prayer for the issuance of a writ of
preliminary injunction for being moot and academic considering that the auction sale
of the subject properties on April 7, 2003 had already been consummated.
On August 3, 2009, after an exchange of several pleadings and the failure of both
parties to arrive at a compromise agreement, PRA filed a Motion for Leave to File
and Admit Attached Supplemental Petition which sought to declare as null and void
the assessment for real property taxes, the levy based on the said assessment, the
public auction sale conducted on April 7, 2003, and the Certificates of Sale issued
pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRA’s petition. In
ruling that PRA was not exempt from payment of real property taxes, the RTC
reasoned out that it was a GOCC under Section 3 of P.D. No. 1084. It was organized
as a stock corporation because it had an authorized capital stock divided into no par
value shares. In fact, PRA admitted its corporate personality and that said properties
were registered in its name as shown by the certificates of title. Therefore, as a
GOCC, local tax exemption is withdrawn by virtue of Section 193 of Republic Act
(R.A.) No. 7160 Local Government Code (LGC) which was the prevailing law in 2001
and 2002 with respect to real property taxation. The RTC also ruled that the tax
exemption claimed by PRA under E.O. No. 654 had already been expressly
repealed by R.A. No. 7160 and that PRA failed to comply with the procedural
requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010
RTC Order based on the following GROUNDS
I or instrumentality.
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS
LIABLE TO PAY REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS
CONSIDERING
THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE
NATIONAL GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT
OF REAL PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF
REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE VIS-À-VIS MANILA
INTERNATIONAL AIRPORT AUTHORITY V. COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT
RECLAIMED LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE,
EXEMPT FROM REAL PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions
of the Administrative Code. Neither is it a GOCC under Section 16, Article XII of the
1987 Constitution because it is not required to meet the test of economic viability.
Instead, PRA is a government instrumentality vested with corporate powers and
performing an essential public service pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. Although it has a capital stock divided into
shares, it is not authorized to distribute dividends and allotment of surplus and profits
to its stockholders. Therefore, it may not be classified as a stock corporation
because it lacks the second requisite of a stock corporation which is the distribution
of dividends and allotment of surplus and profits to the stockholders.
It insists that it may not be classified as a non-stock corporation because it has no
members and it is not organized for charitable, religious, educational, professional,
cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers as provided in Section
88 of the Corporation Code.
Moreover, PRA points out that it was not created to compete in the market place as
there was no competing reclamation company operated by the private sector. Also,
while PRA is vested with corporate powers under P.D. No. 1084, such circumstance
does not make it a corporation but merely an incorporated instrumentality and that
the mere fact that an incorporated instrumentality of the National Government holds
title to real property does not make said instrumentality a GOCC. Section 48,
Chapter 12, Book I of the Administrative Code of 1987 recognizes a scenario where
a piece of land owned by the Republic is titled in the name of a department, agency
Thus, PRA insists that, as an incorporated instrumentality of the National
Government, it is exempt from payment of real property tax except when the
beneficial use of the real property is granted to a taxable person. PRA claims that
based on Section 133(o) of the LGC, local governments cannot tax the national
government which delegate to local governments the power to tax.
It explains that reclaimed lands are part of the public domain, owned by the State,
thus, exempt from the payment of real estate taxes. Reclaimed lands retain their
inherent potential as areas for public use or public service. While the subject
reclaimed lands are still in its hands, these lands remain public lands and form part
of the public domain. Hence, the assessment of real property taxes made on said
lands, as well as the levy thereon, and the public sale thereof on April 7, 2003,
including the issuance of the certificates of sale in favor of the respondent
Parañaque City, are invalid and of no force and effect.
On the other hand, the City of Parañaque (respondent) argues that PRA since its
creation consistently represented itself to be a GOCC. PRA’s very own charter (P.D.
No. 1084) declared it to be a GOCC and that it has entered into several thousands
of contracts where it represented itself to be a GOCC. In fact, PRA admitted in its
original and amended petitions and pre-trial brief filed with the RTC of Parañaque
City that it was a GOCC.
Respondent further argues that PRA is a stock corporation with an authorized capital
stock divided into 3 million no par value shares, out of which 2 million shares have
been subscribed and fully paid up. Section 193 of the LGC of 1991 has withdrawn
tax exemption privileges granted to or presently enjoyed by all persons, whether
natural or juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment of real property
tax.
THE COURT’S RULING
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987
defines a GOCC as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any agency organized
as a stock or non-stock corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x.
On the other hand, Section 2(10) of the Introductory Provisions of the Administrative
Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated
within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. x x x
From the above definitions, it is clear that a GOCC must be "organized as a stock
or non-stock corporation" while an instrumentality is vested by law with corporate
powers. Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework.
When the law vests in a government instrumentality corporate powers, the
instrumentality does not necessarily become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate
powers.
Many government instrumentalities are vested with corporate powers but they do
not become stock or non-stock corporations, which is a necessary condition before
an agency or instrumentality is deemed a GOCC. Examples are the Mactan
International Airport Authority, the Philippine Ports Authority, the University of the
Philippines, and Bangko Sentral ng Pilipinas. All these government instrumentalities
exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. They are not, however, GOCCs in the strict
sense as understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities. 2
Correlatively, Section 3 of the Corporation Code defines a stock corporation as one
whose "capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." Section 87 thereof defines a non-stock
corporation as "one where no part of its income is distributable as dividends to its
members, trustees or officers." Further, Section 88 provides that non-stock
corporations are "organized for charitable, religious, educational, professional,
cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers."
Two requisites must concur before one may be classified as a stock corporation,
namely: (1) that it has capital stock divided into shares; and (2) that it is authorized
to distribute dividends and allotments of surplus and profits to its stockholders. If
only one requisite is present, it cannot be properly classified as a stock corporation.
As for non-stock corporations, they must have members and must not distribute any
part of their income to said members.3
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-
stock corporation. It cannot be considered as a stock corporation because although
it has a capital stock divided into no par value shares as provided in Section 7 4 of
P.D. No. 1084, it is not authorized to distribute dividends, surplus allotments or
profits to stockholders. There is no provision whatsoever in P.D. No. 1084 or in any
of the subsequent executive issuances pertaining to PRA, particularly, E.O. No.
525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute dividends,
surplus allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have
members. A non-stock corporation must have members.8 Moreover, it was not
organized for any of the purposes mentioned in Section 88 of the Corporation Code.
Specifically, it was created to manage all government reclamation projects.
Furthermore, there is another reason why the PRA cannot be classified as a GOCC.
Section 16, Article XII of the 1987 Constitution provides as follows:
Section 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
The fundamental provision above authorizes Congress to create GOCCs through
special charters on two conditions: 1) the GOCC must be established for the
common good; and 2) the GOCC must meet the test of economic viability. In this
case, PRA may have passed the first condition of common good but failed the
second one - economic viability. Undoubtedly, the purpose behind the creation of
PRA was not for economic or commercial activities. Neither was it created to
compete in the market place considering that there were no other competing
reclamation companies being operated by the private sector. As mentioned earlier,
PRA was created essentially to perform a public service considering that it was
primarily responsible for a coordinated, economical and efficient reclamation,
administration and operation of lands belonging to the government with the object
of maximizing their utilization and hastening their development consistent with the
public interest. Sections 2 and 4 of P.D. No. 1084 reads, as follows:
Section 2. Declaration of policy. It is the declared policy of the State to provide for a
coordinated, economical and efficient reclamation of lands, and the administration
and operation of lands belonging to, managed and/or operated by the government,
with the object of maximizing their utilization and hastening their development
consistent with the public interest.
Section 4. Purposes. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging,
filling or other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose,
lease and sell any and all kinds of lands, buildings, estates and other forms
of real property, owned, managed, controlled and/or operated by the
government.
(c) To provide for, operate or administer such services as may be necessary
for the efficient, economical and beneficial utilization of the above
properties.
The twin requirement of common good and economic viability was lengthily
discussed in the case of Manila International Airport Authority v. Court of
Appeals,9 the pertinent portion of which reads:
Third, the government-owned or controlled corporations created through special
charters are those that meet the two conditions prescribed in Section 16, Article XII
of the Constitution.
The first condition is that the government-owned or controlled corporation must be
established for the common good. The second condition is that the government-
owned or controlled corporation must meet the test of economic viability. Section
16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
The Constitution expressly authorizes the legislature to create "government-owned
or controlled corporations" through special charters only if these entities are required
to meet the twin conditions of common good and economic viability. In other words,
Congress has no power to create government-owned or controlled corporations with
special charters unless they are made to comply with the two conditions of common
good and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good — meaning for economic development
purposes — these government-owned or controlled corporations with special
charters are usually organized as stock corporations just like ordinary private
corporations.
In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of economic
viability. These instrumentalities perform essential public services for the common
good, services that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the "government-
owned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature creates
government instrumentalities vested with corporate powers but performing essential
governmental or public functions. Congress has plenary authority to create
government instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public services.
However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities — known as "government-
owned or controlled corporations" — must meet the test of economic viability
because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank
of the Philippines and similar government-owned or controlled corporations, which
derive their incometo meet operating expenses solely from commercial transactions
in competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to
the Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation
becomes exempt from the test of economic performance. We know what happened
in the past. If a government corporation loses, then it makes its claim upon the
taxpayers' money through new equity infusions from the government and what is
always invoked is the common good. That is the reason why this year, out of a
budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all
taxpayers' money which could have been relocated to agrarian reform, to social
services like health and education, to augment the salaries of grossly underpaid
public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the
"common good," this becomes a restraint on future enthusiasts for state capitalism
to excuse themselves from the responsibility of meeting the market test so that they
become viable. And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by Commissioner Foz,
the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC
TEST," together with the common good.1âwphi1
Father Joaquin G. Bernas, a leading member of the Constitutional Commission,
explains in his textbook The 1987 Constitution of the Republic of the Philippines: A
Commentary:
The second sentence was added by the 1986 Constitutional Commission. The
significant addition, however, is the phrase "in the interest of the common good and
subject to the test of economic viability." The addition includes the ideas that they
must show capacity to function efficiently in business and that they should not go
into activities which the private sector can do better. Moreover, economic viability is
more than financial viability but also includes capability to make profit and generate
benefits not quantifiable in financial terms.
Clearly, the test of economic viability does not apply to government entities vested
with corporate powers and performing essential public services. The State is
obligated to render essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering such essential
public service does not excuse the State from withholding such essential services
from the public.
However, government-owned or controlled corporations with special charters,
organized essentially for economic or commercial objectives, must meet the test of
economic viability. These are the government-owned or controlled corporations that
are usually organized under their special charters as stock corporations, like the
Land Bank of the Philippines and the Development Bank of the Philippines. These
are the government-owned or controlled corporations, along with government-
owned or controlled corporations organized under the Corporation Code, that fall
under the definition of "government-owned or controlled corporations" in Section
2(10) of the Administrative Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the
Introductory Provisions of the Administrative Code or under Section 16, Article XII
of the 1987 Constitution. The facts, the evidence on record and jurisprudence on the
issue support the position that PRA was not organized either as a stock or a non-
stock corporation. Neither was it created by Congress to operate commercially and
compete in the private market. Instead, PRA is a government instrumentality vested
with corporate powers and performing an essential public service pursuant to
Section 2(10) of the Introductory Provisions of the Administrative Code. Being an
incorporated government instrumentality, it is exempt from payment of real property
tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands
managed by PRA. On the other hand, Section 234(a) of the LGC, in relation to its
Section 133(o), exempts PRA from paying realty taxes and protects it from the taxing
powers of local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
SEC. 234. Exemptions from Real Property Tax – The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.
– Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies
and instrumentalities, and local government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the Republic of the
Philippines (the Republic) is exempt from real property tax unless the beneficial use
thereof has been granted to a taxable person. In this case, there is no proof that
PRA granted the beneficial use of the subject reclaimed lands to a taxable entity.
There is no showing on record either that PRA leased the subject reclaimed
properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which
prohibits local governments from imposing "taxes, fees or charges of any kind on
the National Government, its agencies and instrumentalities x x x." The
Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from real estate
tax.
Indeed, the Republic grants the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when the title of the real
property is transferred to an agency or instrumentality even as the Republic remains
the owner of the real property. Such arrangement does not result in the loss of the
tax exemption, unless "the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person."10
The rationale behind Section 133(o) has also been explained in the case of the
Manila International Airport Authority,11 to wit:
Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes taxation as one of the powers
of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The
rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local governments seek
to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer
claiming the exemption. However, when Congress grants an exemption to a national
government instrumentality from local taxation, such exemption is construed liberally
in favor of the national government instrumentality. As this Court declared in Maceda
v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the
benefit of the government itself or its agencies. In such case the practical effect of
an exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non tax-
liability of such agencies.
There is, moreover, no point in national and local governments taxing each other,
unless a sound and compelling policy requires such transfer of public funds from
one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound
and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any
doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming
Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in
any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable activities or
enterprise using the power to tax as "a tool for regulation." (U.S. v. Sanchez, 340
US 42)
The power to tax which was called by Justice Marshall as the "power to destroy"
(McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it. [Emphases
supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of the public
domain, owned by the State and, therefore, exempt from payment of real estate
taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:
Section 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 60 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 provided by law. In cases of
water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of waterpower, beneficial use may be the measure and limit of the
grant.
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
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. [Emphases supplied]
Here, the subject lands are reclaimed lands, specifically portions of the foreshore
and offshore areas of Manila Bay. As such, these lands remain public lands and
form part of the public domain. In the case of Chavez v. Public Estates Authority and
AMARI Coastal Development Corporation,12 the Court held that foreshore and
submerged areas irrefutably belonged to the public domain and were inalienable
unless reclaimed, classified as alienable lands open to disposition and further
declared no longer needed for public service. The fact that alienable lands of the
public domain were transferred to the PEA (now PRA) and issued land patents or
certificates of title in PEA’s name did not automatically make such lands private.
This Court also held therein that reclaimed lands retained their inherent potential as
areas for public use or public service.
As the central implementing agency tasked to undertake reclamation projects
nationwide, with authority to sell reclaimed lands, PEA took the place of DENR as
the government agency charged with leasing or selling reclaimed lands of the public
domain. The reclaimed lands being leased or sold by PEA are not private lands, in
the same manner that DENR, when it disposes of other alienable lands, does not
dispose of private lands but alienable lands of the public domain. Only when
qualified private parties acquire these lands will the lands become private lands. In
the hands of the government agency tasked and authorized to dispose of alienable
of disposable lands of the public domain, these lands are still public, not private
lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public
domain" as well as "any and all kinds of lands." PEA can hold both lands of the
public domain and private lands. Thus, the mere fact that alienable lands of the
public domain like the Freedom Islands are transferred to PEA and issued land
patents or certificates of title in PEA's name does not automatically make such lands
private.13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the
Government.-
(1)The President shall have the power to reserve for settlement or public use, and
for specific public purposes, any of the lands of the public domain, the use of which
is not otherwise directed by law. The reserved land shall thereafter remain subject
to the specific public purpose indicated until otherwise provided by law or
proclamation.
Reclaimed lands such as the subject lands in issue are reserved lands for public
use. They are properties of public dominion. The ownership of such lands remains
with the State unless they are withdrawn by law or presidential proclamation from
public use.
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged
areas of Manila Bay are part of the "lands of the public domain, waters x x x and
other natural resources" and consequently "owned by the State." As such, foreshore
and submerged areas "shall not be alienated," unless they are classified as
"agricultural lands" of the public domain. The mere reclamation of these areas by
PEA does not convert these inalienable natural resources of the State into alienable
or disposable lands of the public domain. There must be a law or presidential
proclamation officially classifying these reclaimed lands as alienable or disposable
and open to disposition or concession. Moreover, these reclaimed lands cannot be
classified as alienable or disposable if the law has reserved them for some public or
quasi-public use.
As the Court has repeatedly ruled, properties of public dominion are not subject to
execution or foreclosure sale.14Thus, the assessment, levy and foreclosure made
on the subject reclaimed lands by respondent, as well as the issuances of
certificates of title in favor of respondent, are without basis.
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the
Regional Trial Court, Branch 195, Parañaque City, is REVERSED and SET ASIDE.
All reclaimed properties owned by the Philippine Reclamation Authority are hereby
declared EXEMPT from real estate taxes. All real estate tax assessments, including
the final notices of real estate tax delinquencies, issued by the City of Parañaque on
the subject reclaimed properties; the assailed auction sale, dated April 7, 2003; and
the Certificates of Sale subsequently issued by the Parañaque City Treasurer in
favor of the City of Parañaque, are all declared VOID.
SO ORDERED.
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY
ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF
PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañaque City under Executive Order No.
903, otherwise known as the Revised Charter of the Manila International Airport
Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by
then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 1 and
2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements
and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,3 including the runways and buildings ("Airport
Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA
Charter further provides that no portion of the land transferred to MIAA shall be
disposed of through sale or any other mode unless specifically approved by the
President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued
Opinion No. 061. The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under Section 21 of
the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay
the real estate tax imposed by the City. MIAA then paid some of the real estate tax
already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from
the City of Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax
delinquency is broken down as follows:
TAX
TAXABLE YEAR TAX DUE PENALTY TOTA
DECLARATION
 E-016-01370 1992-2001 19,558,160.00 11,201,083.20 September 2002 MIAA's motion for reconsideration and supplemental motion for
30,789,243.20
reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
review.7
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 at the Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City;
29,199,803.24
in the public market of Barangay La Huerta; and in the main lobby of the Parañaque
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
City Hall. The City of Parañaque published the notices in the 3 and 10 January 2003
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
issues of the Philippine Daily Inquirer, a newspaper of general circulation in the
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 Philippines. The notices announced the public auction sale of the Airport Lands and
12,521,380.00
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
Session Hall Building of Parañaque City.
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed
GRAND TOTAL P392,435,861.95 P232,070,863.47 before this Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a
P 624,506,725.42
Temporary Restraining Order. The motion sought to restrain respondents — the City
of Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque,
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for City Treasurer of Parañaque, and the City Assessor of Parañaque ("respondents")
P4,207,028.75 — from auctioning the Airport Lands and Buildings.

#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices
of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the
City of Parañaque threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought
a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No.
061. The OGCC pointed out that Section 206 of the Local Government Code
requires persons exempt from real estate tax to show proof of exemption. The
OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt
from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for
prohibition and injunction, with prayer for preliminary injunction or temporary
restraining order. The petition sought to restrain the City of Parañaque from
imposing real estate tax on, levying against, and auctioning for public sale the Airport
Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed
it beyond the 60-day reglementary period. The Court of Appeals also denied on 27
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at
public auction the Airport Lands and Buildings. Respondents received the TRO on
the same day that the Court issued it. However, respondents received the TRO only
at 1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the
TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance
with the directive issued during the hearing, MIAA, respondent City of Parañaque,
and the Solicitor General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and
Buildings in the name of MIAA. However, MIAA points out that it cannot claim
ownership over these properties since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to
devote the Airport Lands and Buildings for the benefit of the general public. Since
the Airport Lands and Buildings are devoted to public use and public service, the
ownership of these properties remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA
from the payment of real estate tax. MIAA insists that it is also exempt from real
estate tax under Section 234 of the Local Government Code because the Airport
Lands and Buildings are owned by the Republic. To justify the exemption, MIAA
invokes the principle that the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its taxation would not inure to any
public advantage, since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code. Respondents
also argue that a basic rule of statutory construction is that the express mention of
one person, thing, or act excludes all others. An international airport is not among
the exceptions mentioned in Section 193 of the Local Government Code. Thus,
respondents assert that MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos8 where we held that the Local Government Code has withdrawn the
exemption from real estate tax granted to international airports. Respondents further
argue that since MIAA has already paid some of the real estate tax assessments, it
is now estopped from claiming that the Airport Lands and Buildings are exempt from
real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings
of MIAA are exempt from real estate tax under existing laws. If so exempt, then the
real estate tax assessments issued by the City of Parañaque, and all proceedings
taken pursuant to such assessments, are void. In such event, the other issues raised
in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax
imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled
corporation, is not exempt from real estate tax. Respondents claim that the deletion
of the phrase "any government-owned or controlled so exempt by its charter" in
Section 234(e) of the Local Government Code withdrew the real estate tax
exemption of government-owned or controlled corporations. The deleted phrase
appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the
entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt
from real estate tax. However, MIAA is not a government-owned or controlled
corporation. Section 2(13) of the Introductory Provisions of the Administrative Code
of 1987 defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of its capital
stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or
non-stock corporation." MIAA is not organized as a stock or non-stock corporation.
MIAA is not a stock corporation because it has no capital stock divided into
shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA
Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed by
the National Government shall be increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,] which may
be contributed by the National Government or transferred by it from any of
its agencies, the valuation of which shall be determined jointly with the
Department of Budget and Management and the Commission on Audit on
the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other
liabilities of the Authority at the time of the takeover of the assets and other
properties;
 (b) That the amount of P605 million as of December 31, 1986 representing
about seventy percentum (70%) of the unremitted share of the National
Government from 1983 to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended, shall be converted
into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in
the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into
shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x." MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of
the Corporation Code defines a non-stock corporation as "one where no part of its
income is distributable as dividends to its members, trustees or officers." A non-
stock corporation must have members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of their income to
their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its
annual gross operating income to the National Treasury.11 This prevents MIAA from
qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar purposes, like trade,
industry, agriculture and like chambers." MIAA is not organized for any of these
purposes. MIAA, a public utility, is organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as
a government-owned or controlled corporation. What then is the legal status of MIAA
within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent
domain,12 police authority13 and the levying of fees and charges.14 At the same time,
MIAA exercises "all the powers of a corporation under the Corporation Law, insofar
as these powers are not inconsistent with the provisions of this Executive Order." 15
Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a "separate and autonomous
body"16 will make its operation more "financially viable."17
Many government instrumentalities are vested with corporate powers but they do
not become stock or non-stock corporations, which is a necessary condition before
an agency or instrumentality is deemed a government-owned or controlled
corporation. Examples are the Mactan International Airport Authority, the Philippine
Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities.
However, they are not government-owned or controlled corporations in the strict
sense as understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. – Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
 xxxx
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalitiesand local government units.(Emphasis
and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes taxation as one of the powers
of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."18
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The
rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local governments seek
to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer
claiming the exemption. However, when Congress grants an exemption to a national
government instrumentality from local taxation, such exemption is construed liberally
in favor of the national government instrumentality. As this Court declared
in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to
the benefit of the government itself or its agencies. In such case the practical
effect of an exemption is merely to reduce the amount of money that has to
be handled by government in the course of its operations. For these
reasons, provisions granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments taxing each other,
unless a sound and compelling policy requires such transfer of public funds from
one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express language
in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local
governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
instrumentalities. As this Court held in Basco v. Philippine Amusements and
Gaming Corporation:
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government. (MC Culloch v. Maryland,
4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government
over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference
to the entire absence of power on the part of the States to touch, in
that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no
state or political subdivision can regulate a federal instrumentality
in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a tool for regulation" (U.S.
v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to
destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power to
wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. The Civil Code
provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character
stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for
public use or for public service, shall form part of the patrimonial property of
the State.
No one can dispute that properties of public dominion mentioned in Article 420 of
the Civil Code, like "roads, canals, rivers, torrents, ports and bridges
constructed by the State," are owned by the State. The term "ports" includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a "port"
constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used
by the public for international and domestic travel and transportation. The fact
that the MIAA collects terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as properties for public use.
The operation by the government of a tollway does not change the character of the
road as one for public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees they pay upon using
the road. The tollway system is even a more efficient and equitable manner of taxing
the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property
whether it is of public dominion or not. Article 420 of the Civil Code defines property
of public dominion as one "intended for public use." Even if the government collects
toll fees, the road is still "intended for public use" if anyone can use the road under
the same terms and conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed restrictions and
other conditions for the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA
charges to airlines, constitute the bulk of the income that maintains the operations
of MIAA. The collection of such fees does not change the character of MIAA as an
airport for public use. Such fees are often termed user's tax. This means taxing those
among the public who actually use a public facility instead of taxing all the public
including those who never use the particular public facility. A user's tax is more
equitable — a principle of taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport
of the Philippines for both international and domestic air traffic," 22 are properties of
public dominion because they are intended for public use. As properties of public
dominion, they indisputably belong to the State or the Republic of the
Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are
properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are outside the commerce of man. The Court has ruled
repeatedly that properties of public dominion are outside the commerce of man. As
early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the
squares, streets, fountains, and public waters, the promenades, and public
works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal
council of Cavite could not in 1907 withdraw or exclude from public use a
portion thereof in order to lease it for the sole benefit of the defendant Hilaria
Rojas. In leasing a portion of said plaza or public place to the defendant for
private use the plaintiff municipality exceeded its authority in the exercise of
its powers by executing a contract over a thing of which it could not dispose,
nor is it empowered so to do.
 The Civil Code, article 1271, prescribes that everything which is not outside
the commerce of man may be the object of a contract, and plazas and
streets are outside of this commerce, as was decided by the supreme
court of Spain in its decision of February 12, 1895, which says: "Communal
things that cannot be sold because they are by their very nature
outside of commerce are those for public use, such as the plazas,
streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to
public use and to be made available to the public in general. They
are outside the commerce of man and cannot be disposed of or even
leased by the municipality to private parties. While in case of war or during
an emergency, town plazas may be occupied temporarily by private
individuals, as was done and as was tolerated by the Municipality of
Pozorrubio, when the emergency has ceased, said temporary occupation
or use must also cease, and the town officials should see to it that the town
plazas should ever be kept open to the public and free from encumbrances
or illegal private constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance, levy
on execution or auction sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction sale. This will
happen if the City of Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must
first withdraw from public usethe Airport Lands and Buildings. Sections 83 and 88
of the Public Land Law or Commonwealth Act No. 141, which "remains to this day
the existing general law governing the classification and disposition of lands of the
public domain other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and
Natural Resources, the President may designate by proclamation any tract
or tracts of land of the public domain as reservations for the use of the
Republic of the Philippines or of any of its branches, or of the inhabitants
thereof, in accordance with regulations prescribed for this purposes, or for
quasi-public uses or purposes when the public interest requires it, including
reservations for highways, rights of way for railroads, hydraulic power sites,
irrigation systems, communal pastures or lequas communales, public parks,
public quarries, public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions
of Section eighty-three shall be non-alienable and shall not be subject
to occupation, entry, sale, lease, or other disposition until again
declared alienable under the provisions of this Act or by proclamation
of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and
are inalienable. Since the Airport Lands and Buildings are inalienable in their
present status as properties of public dominion, they are not subject to levy on
execution or foreclosure sale. As long as the Airport Lands and Buildings are
reserved for public use, their ownership remains with the State or the Republic of
the Philippines.
The authority of the President to reserve lands of the public domain for public use,
and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book
III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government. — (1) The President shall have the power to reserve for
settlement or public use, and for specific public purposes, any of the
lands of the public domain, the use of which is not otherwise directed
by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or
proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are
withdrawn by law or presidential proclamation from public use, they are properties
of public dominion, owned by the Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever real
property of the Government is authorized by law to be conveyed, the deed
of conveyance shall be executed in behalf of the government by the
following:
(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly
vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled
in the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality.
(Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is
clearer because even its executive head cannot sign the deed of conveyance on
behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands
and Buildings from the Bureau of Air Transportation of the Department of
Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. — x x x
x other demands of aviation in Metro Manila;
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall
undertake an actual survey of the area transferred within one year from the
promulgation of this Executive Order and the corresponding title to be
issued in the name of the Authority. Any portion thereof shall not be
disposed through sale or through any other mode unless specifically
approved by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All
existing public airport facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the Airport, and all assets,
powers, rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all
equipment which are necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in
the Bureau of Air Transportation and Transitory Provisions. — The Manila
International Airport including the Manila Domestic Airport as a division
under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the
Republic receiving cash, promissory notes or even stock since MIAA is not a stock
corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of
the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the
Philippines for both international and domestic air traffic, is required to
provide standards of airport accommodation and service comparable with
the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other
facilities, have to be upgraded to meet the current and future air traffic and
WHEREAS, a management and organization study has indicated that the
objectives of providing high standards of accommodation and service
within the context of a financially viable operation, will best be
achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by
Presidential Decree No. 1772, the President of the Philippines is given
continuing authority to reorganize the National Government, which
authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation
to MIAA was not meant to transfer beneficial ownership of these assets from the
Republic to MIAA. The purpose was merely to reorganize a division in the Bureau
of Air Transportation into a separate and autonomous body. The Republic
remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned
solely by the Republic. No party claims any ownership rights over MIAA's assets
adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall
not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines." This only means that the Republic
retained the beneficial ownership of the Airport Lands and Buildings because under
Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing."
Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own
the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands
and Buildings without the Republic paying MIAA any consideration. Under Section
3 of the MIAA Charter, the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms that the Airport
Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any
"[r]eal property owned by the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code,
which prohibits local governments from imposing "[t]axes, fees or charges of any
kind on the National Government, its agencies and instrumentalitiesx x x." The real
properties owned by the Republic are titled either in the name of the Republic itself
or in the name of agencies or instrumentalities of the National Government. The
Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from real estate
tax.
The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real
property is transferred to an agency or instrumentality even as the Republic remains
the owner of the real property. Such arrangement does not result in the loss of the
tax exemption. Section 234(a) of the Local Government Code states that real
property owned by the Republic loses its tax exemption only if the "beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person."
MIAA, as a government instrumentality, is not a taxable person under Section 133(o)
of the Local Government Code. Thus, even if we assume that the Republic has
granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact
does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax. For example, the land area occupied by
hangars that MIAA leases to private corporations is subject to real estate tax. In such
a case, MIAA has granted the beneficial use of such land area for a consideration
to a taxable person and therefore such land area is subject to real estate tax.
In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities
as well as those parts of the hospital leased to private individuals are not
exempt from such taxes. On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because
Section 193 of the Local Government Code of 1991 withdrew the tax exemption of
"all persons, whether natural or juridical" upon the effectivity of the Code. Section
193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise
provided in this Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions are hereby withdrawn upon
effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority
argues that since the Local Government Code withdrew the tax exemption of all
juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority
declares:
It is evident from the quoted provisions of the Local Government Code
that the withdrawn exemptions from realty tax cover not just GOCCs,
but all persons. To repeat, the provisions lay down the explicit proposition
that the withdrawal of realty tax exemption applies to all persons. The
reference to or the inclusion of GOCCs is only clarificatory or illustrative of
the explicit provision.
The term "All persons" encompasses the two classes of persons
recognized under our laws, natural and juridical persons. Obviously,
MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at all.
(Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local
taxation is its status — whether MIAA is a juridical person or not. The minority also
insists that "Sections 193 and 234 may be examined in isolation from Section 133(o)
to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government
Code expressly withdrew the tax exemption of all juridical persons "[u]nless
otherwise provided in this Code." Now, Section 133(o) of the Local Government
Code expressly provides otherwise, specifically prohibiting local governments
from imposing any kind of tax on national government instrumentalities. Section
133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. – Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its
agencies and instrumentalities, and local government units. (Emphasis and
underscoring supplied)
By express mandate of the Local Government Code, local governments cannot
impose any kind of tax on national government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not extend to the
national government, its agencies and instrumentalities, "[u]nless otherwise
provided in this Code" as stated in the saving clause of Section 133. The saving
clause refers to Section 234(a) on the exception to the exemption from real estate
tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all
juridical persons are subject to tax by local governments. The minority insists that
the juridical persons exempt from local taxation are limited to the three classes of
entities specifically enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts;
(b) cooperatives duly registered under Republic Act No. 6938; and (c) non-
stock and non-profit hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within any of the exempt
entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of
the Local Government Code. This theory will result in gross absurdities. It will make
the national government, which itself is a juridical person, subject to tax by local
governments since the national government is not included in the enumeration of
exempt entities in Section 193. Under this theory, local governments can impose
any kind of local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with
juridical personalities will also be subject to any kind of local tax, and not only real
estate tax. Some of the national government instrumentalities vested by law with
juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research
Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion
Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port
Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine
National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which
expressly prohibits local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) does not distinguish between national
government instrumentalities with or without juridical personalities. Where the law
does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to
all national government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not whether MIAA
is a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from imposing any kind of tax on the
national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless
otherwise provided in this Code." This means that unless the Local Government
Code grants an express authorization, local governments have no power to tax the
national government, its agencies and instrumentalities. Clearly, the rule is local
governments have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may tax the
national government, its agencies and instrumentalities only if the Local Government
Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section
234(a) of the Code, which makes the national government subject to real estate tax
when it gives the beneficial use of its real properties to a taxable entity. Section
234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real
estate tax. The exception to this exemption is when the government gives the
beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the
national government, its agencies and instrumentalities are subject to any kind of
tax by local governments. The exception to the exemption applies only to real estate
tax and not to any other tax. The justification for the exception to the exemption is
that the real property, although owned by the Republic, is not devoted to public use
or public service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of
the Local Government Code, the later provisions prevail over Section 133. Thus, the
minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234.
Following an accepted rule of construction, in case of conflict the
subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions attaching
to instrumentalities under Section 133(o) of the Local Government Code
being qualified by Sections 193 and 234 of the same law. (Emphasis
supplied)
The minority assumes that there is an irreconcilable conflict between Section 133
on one hand, and Sections 193 and 234 on the other. No one has urged that there
is such a conflict, much less has any one presenteda persuasive argument that there
is such a conflict. The minority's assumption of an irreconcilable conflict in the
statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because
Section 193 expressly admits its subordination to other provisions of the Code when
Section 193 states "[u]nless otherwise provided in this Code." By its own words,
Section 193 admits the superiority of other provisions of the Local Government Code
that limit the exercise of the taxing power in Section 193. When a provision of law
grants a power but withholds such power on certain matters, there is no conflict
between the grant of power and the withholding of power. The grantee of the power
simply cannot exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local
Government Units." Section 133 limits the grant to local governments of the power
to tax, and not merely the exercise of a delegated power to tax. Section 133 states
that the taxing powers of local governments "shall not extend to the levy" of any kind
of tax on the national government, its agencies and instrumentalities. There is no
clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing power.
If the taxing power of local governments in Section 193 prevails over the limitations
on such taxing power in Section 133, then local governments can impose any kind
of tax on the national government, its agencies and instrumentalities — a gross
absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code
pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in
this Code." This exception — which is an exception to the exemption of the Republic
from real estate tax imposed by local governments — refers to Section 234(a) of the
Code. The exception to the exemption in Section 234(a) subjects real property
owned by the Republic, whether titled in the name of the national government, its
agencies or instrumentalities, to real estate tax if the beneficial use of such property
is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase
"government-owned or controlled corporation" is not controlling. The minority points
out that Section 2 of the Introductory Provisions of the Administrative Code admits
that its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of the text, or
the context as a whole, or a particular statute, shall require a different
meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is
"flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative
Code recognizes that a statute may require a different meaning than that defined in
the Administrative Code. However, this does not automatically mean that the
definition in the Administrative Code does not apply to the Local Government Code.
Section 2 of the Administrative Code clearly states that "unless the specific words x
x x of a particular statute shall require a different meaning," the definition in Section
2 of the Administrative Code shall apply. Thus, unless there is specific language in
the Local Government Code defining the phrase "government-owned or controlled
corporation" differently from the definition in the Administrative Code, the definition
in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining
the phrase "government-owned or controlled corporation" differently from the
definition in the Administrative Code. Indeed, there is none. The Local Government
Code is silent on the definition of the phrase "government-owned or controlled
corporation." The Administrative Code, however, expressly defines the phrase
"government-owned or controlled corporation." The inescapable conclusion is that
the Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code
"incorporates in a unified document the major structural, functional and procedural
principles and rules of governance." Thus, the Administrative Code is the governing
law defining the status and relationship of government departments, bureaus,
offices, agencies and instrumentalities. Unless a statute expressly provides for a
different status and relationship for a specific government unit or entity, the
provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled
corporation" should apply only to corporations organized under the Corporation
Code, the general incorporation law, and not to corporations created by special
charters. The minority sees no reason why government corporations with special
charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations"
under the Administrative Code refer to those corporations owned by the
government or its instrumentalities which are created not by legislative
enactment, but formed and organized under the Corporation Code through
registration with the Securities and Exchange Commission. In short, these
are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a
capital structure for GOCCs whose full ownership is limited by its charter to
the State or Republic. Such GOCCs are not empowered to declare
dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the
Constitution and existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or
controlled corporation" does not distinguish between one incorporated under the
Corporation Code or under a special charter. Where the law does not distinguish,
courts should not distinguish.
Second, Congress has created through special charters several government-owned
corporations organized as stock corporations. Prime examples are the Land Bank
of the Philippines and the Development Bank of the Philippines. The special
charter40 of the Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank shall be
nine billion pesos, divided into seven hundred and eighty million common
shares with a par value of ten pesos each, which shall be fully subscribed
by the Government, and one hundred and twenty million preferred shares
with a par value of ten pesos each, which shall be issued in accordance with
 the provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock of
the Bank shall be Five Billion Pesos to be divided into Fifty Million common
shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this
Charter, the National Government shall subscribe to Twenty-Five Million
common shares of stock worth Two Billion Five Hundred Million which shall
be deemed paid for by the Government with the net asset values of the Bank
remaining after the transfer of assets and liabilities as provided in Section
30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their
special charters are the Philippine Crop Insurance Corporation, 42 Philippine
International Trading Corporation,43 and the Philippine National Bank 44 before it was
reorganized as a stock corporation under the Corporation Code. All these
government-owned corporations organized under special charters as stock
corporations are subject to real estate tax on real properties owned by them. To rule
that they are not government-owned or controlled corporations because they are not
registered with the Securities and Exchange Commission would remove them from
the reach of Section 234 of the Local Government Code, thus exempting them from
real estate tax.
Third, the government-owned or controlled corporations created through special
charters are those that meet the two conditions prescribed in Section 16, Article XII
of the Constitution. The first condition is that the government-owned or controlled
corporation must be established for the common good. The second condition is that
the government-owned or controlled corporation must meet the test of economic
viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of
economic viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned
or controlled corporations" through special charters only if these entities are required
to meet the twin conditions of common good and economic viability. In other words,
Congress has no power to create government-owned or controlled corporations with
special charters unless they are made to comply with the two conditions of common
good and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good — meaning for economic development
purposes — these government-owned or controlled corporations with special
charters are usually organized as stock corporations just like ordinary private
corporations.
In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of economic
viability. These instrumentalities perform essential public services for the common
good, services that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the "government-
owned or controlled corporations" referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature creates
government instrumentalities vested with corporate powers but performing essential
governmental or public functions. Congress has plenary authority to create
government instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public services.
However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities — known as "government-
owned or controlled corporations" — must meet the test of economic viability
because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank
of the Philippines and similar government-owned or controlled corporations, which
derive their income to meet operating expenses solely from commercial transactions
in competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to
the Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when
the government creates a corporation, there is a sense in which this
corporation becomes exempt from the test of economic performance. We
know what happened in the past. If a government corporation loses, then it
makes its claim upon the taxpayers' money through new equity infusions
from the government and what is always invoked is the common good. That
is the reason why this year, out of a budget of P115 billion for the entire
 government, about P28 billion of this will go into equity infusions to support
a few government financial institutions. And this is all taxpayers' money
which could have been relocated to agrarian reform, to social services like
health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together
with the "common good," this becomes a restraint on future enthusiasts for
state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I
reiterate, for the committee's consideration and I am glad that I am joined in
this proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the
common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission,
explains in his textbook The 1987 Constitution of the Republic of the Philippines: A
Commentary:
The second sentence was added by the 1986 Constitutional Commission.
The significant addition, however, is the phrase "in the interest of the
common good and subject to the test of economic viability." The addition
includes the ideas that they must show capacity to function efficiently in
business and that they should not go into activities which the private sector
can do better. Moreover, economic viability is more than financial viability
but also includes capability to make profit and generate benefits not
quantifiable in financial terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested
with corporate powers and performing essential public services. The State is
obligated to render essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering such essential
public service does not excuse the State from withholding such essential services
from the public.
However, government-owned or controlled corporations with special charters,
organized essentially for economic or commercial objectives, must meet the test of
economic viability. These are the government-owned or controlled corporations that
are usually organized under their special charters as stock corporations, like the
Land Bank of the Philippines and the Development Bank of the Philippines. These
are the government-owned or controlled corporations, along with government-
owned or controlled corporations organized under the Corporation Code, that fall
under the definition of "government-owned or controlled corporations" in Section
2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did
not create MIAA to compete in the market place. MIAA does not compete in the
market place because there is no competing international airport operated by the
private sector. MIAA performs an essential public service as the primary domestic
and international airport of the Philippines. The operation of an international airport
requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and
departure of passengers, screening out those without visas or travel
documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on
prohibited importations;
3. The quarantine office of the Department of Health, to enforce health
measures against the spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread
of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to
prevent the entry of terrorists and the escape of criminals, as well as to
secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave Philippine airspace,
as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as runway and
buildings — for the government personnel, passengers, and airlines, and to
manage the airport operations.
All these agencies of government perform government functions essential to the
operation of an international airport.
MIAA performs an essential public service that every modern State must provide its
citizens. MIAA derives its revenues principally from the mandatory fees and charges
MIAA imposes on passengers and airlines. The terminal fees that MIAA charges
every passenger are regulatory or administrative fees 47 and not income from
commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10)
of the Introductory Provisions of the Administrative Code, which provides:
 SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital
structure, MIAA remains a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code. More importantly, as long as
MIAA renders essential public services, it need not comply with the test of economic
viability. Thus, MIAA is outside the scope of the phrase "government-owned or
controlled corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase
"government-owned or controlled corporation" as merely "clarificatory or illustrative."
This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of
"government-owned or controlled corporations." The Administrative Code defines
what constitutes a "government-owned or controlled corporation." To belittle this
phrase as "clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under
Section 2(13) of the Introductory Provisions of the Administrative Code because it is
not organized as a stock or non-stock corporation. Neither is MIAA a government-
owned or controlled corporation under Section 16, Article XII of the 1987 Constitution
because MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and performing essential
public services pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject to any
kind of tax by local governments under Section 133(o) of the Local Government
Code. The exception to the exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local Government Code. Such
exception applies only if the beneficial use of real property owned by the Republic
is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use
and thus are properties of public dominion. Properties of public dominion are owned
by the State or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents,
ports and bridges constructed by the State, banks, shores, roadsteads, and
others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national
wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The
Airport Lands and Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public use or public service,
the Airport Lands and Buildings are properties of public dominion. As properties of
public dominion, the Airport Lands and Buildings are owned by the Republic and
thus exempt from real estate tax under Section 234(a) of the Local Government
Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative
Code, which governs the legal relation and status of government units, agencies
and offices within the entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled corporation. Under
Section 133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to "[t]axes, fees or
charges of any kind" by local governments. The only exception is when MIAA leases
its real property to a "taxable person" as provided in Section 234(a) of the Local
Government Code, in which case the specific real property leased becomes subject
to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to
taxable persons like private parties are subject to real estate tax by the City of
Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the State
or the Republic of the Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and seaports, as properties
of public dominion and owned by the Republic. As properties of public dominion
owned by the Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section 234(a) of the
Local Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions
of the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP
No. 66878. We DECLARE the Airport Lands and Buildings of the Manila
International Airport Authority EXEMPT from the real estate tax imposed by the City
of Parañaque. We declare VOID all the real estate tax assessments, including the
final notices of real estate tax delinquencies, issued by the City of Parañaque on the
Airport Lands and Buildings of the Manila International Airport Authority, except for
the portions that the Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all its effects, of the
Airport Lands and Buildings of the Manila International Airport Authority.
No costs.
SO ORDERED.
G.R. No. L-22619 December 2, 1924
NATIONAL COAL COMPANY, plaintiff-appellee,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
JOHNSON, J.:
This action was brought in the Court of First Instance of the City of Manila on the
17th day of July, 1923, for the purpose of recovering the sum of P12,044.68, alleged
to have been paid under protest by the plaintiff company to the defendant, as specific
tax on 24,089.3 tons of coal. Said company is a corporation created by Act No. 2705
of the Philippine Legislature for the purpose of developing the coal industry in the
Philippine Islands and is actually engaged in coal mining on reserved lands
belonging to the Government. It claimed exemption from taxes under the provision
of sections 14 and 15 of Act No. 2719, and prayed for a judgment ordering the
defendant to refund to the plaintiff said sum of P12,044.68, with legal interest from
the date of the presentation of the complaint, and costs against the defendant.
The defendant answered denying generally and specifically all the material
allegations of the complaint, except the legal existence and personality of the
plaintiff. As a special defense, the defendant alleged (a) that the sum of P12,044.68
was paid by the plaintiff without protests, and (b) that said sum was due and owing
from the plaintiff to the Government of the Philippine Islands under the provisions of
section 1496 of the Administrative Code and prayed that the complaint be dismissed,
with costs against the plaintiff.
Upon the issue thus presented, the case was brought on for trial. After a
consideration of the evidence adduced by both parties, the Honorable Pedro
Conception, judge, held that the words "lands owned by any person, etc.," in section
15 of Act No. 2719 should be understood to mean "lands held in lease or usufruct,"
in harmony with the other provision of said Act; that the coal lands possessed by the
plaintiff, belonging to the Government, fell within the provisions of section 15 of Act
No. 2719; and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted
therefrom, as provided in said section, was the only tax which should be collected
from the plaintiff; and sentenced the defendant to refund to the plaintiff the sum of
P11,081.11 which is the difference between the amount collected under section
1496 of the Administrative Code and the amount which should have been collected
under the provisions of said section 15 of Act No. 2719. From that sentence the
defendant appealed, and now makes the following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719 does not refer to
coal lands owned by persons and corporations.
II. The court below erred in holding that the plaintiff was not subject to the tax
prescribed in section 1496 of the Administrative Code.
The question confronting us in this appeal is whether the plaintiff is subject to the
taxes under section 15 of Act No. 2719, or to the specific taxes under section 1496
of the Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917, by Act No.
2705, for the purpose of developing the coal industry in the Philippine Island, in
harmony with the general plan of the Government to encourage the development of
the natural resources of the country, and to provided facilities therefor. By said Act,
the company was granted the general powers of a corporation "and such other
powers as may be necessary to enable it to prosecute the business of developing
coal deposits in the Philippine Island and of mining, extracting, transporting and
selling the coal contained in said deposits." (Sec. 2, Act No. 2705.) By the same law
(Act No. 2705) the Government of the Philippine Islands is made the majority
stockholder, evidently in order to insure proper government supervision and control,
and thus to place the Government in a position to render all possible
encouragement, assistance and help in the prosecution and furtherance of the
company's business.
On May 14, 1917, two months after the passage of Act No. 2705, creating the
National Coal Company, the Philippine Legislature passed Act No. 2719 "to provide
for the leasing and development of coal lands in the Philippine Islands." On October
18, 1917, upon petition of the National Coal Company, the Governor-General, by
Proclamation No. 39, withdrew "from settlement, entry, sale or other disposition, all
coal-bearing public lands within the Province of Zamboanga, Department of
Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." Almost
immediately after the issuance of said proclamation the National Coal Company took
possession of the coal lands within the said reservation, with an area of about 400
hectares, without any further formality, contract or lease. Of the 30,000 shares of
stock issued by the company, the Government of the Philippine Islands is the owner
of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be the
owner of the land from which it has mined the coal in question and is therefore
subject to the provisions of section 15 of Act No. 2719 and not to the provisions of
the section 1496 of the Administrative Code. That contention of the plaintiff leads us
to an examination of the evidence upon the question of the ownership of the land
from which the coal in question was mined. Was the plaintiff the owner of the land
from which the coal in question was mined? If the evidence shows the affirmative,
then the judgment should be affirmed. If the evidence shows that the land does not
belong to the plaintiff, then the judgment should be reversed, unless the plaintiff's
rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the question of the ownership of the
land in question was Mr. Dalmacio Costas, who stated that he was a member of the
board of directors of the plaintiff corporation; that the plaintiff corporation took
possession of the land in question by virtue of the proclamation of the Governor-
General, known as Proclamation No. 39 of the year 1917; that no document had
been issued in favor of the plaintiff corporation; that said corporation had received
no permission from the Secretary of Agriculture and Natural Resources; that it took
possession of said lands covering an area of about 400 hectares, from which the
coal in question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then
Governor-General, on the 18th day of October, 1917, and provided: "Pursuant to the
provision of section 71 of Act No. 926, I hereby withdraw from settlement, entry,
sale, or other disposition, all coal-bearing public lands within the Province of
Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province
of Tayabas." It will be noted that said proclamation only provided that all coal-bearing
public lands within said province and island should be withdrawn from settlement,
entry, sale, or other disposition. There is nothing in said proclamation which
authorizes the plaintiff or any other person to enter upon said reversations and to
mine coal, and no provision of law has been called to our attention, by virtue of which
the plaintiff was entitled to enter upon any of the lands so reserved by said
proclamation without first obtaining permission therefor.
The plaintiff is a private corporation. The mere fact that the Government happens to
the majority stockholder does not make it a public corporation. Act No. 2705, as
amended by Act No. 2822, makes it subject to all of the provisions of the Corporation
Law, in so far as they are not inconsistent with said Act (No. 2705). No provisions of
Act No. 2705 are found to be inconsistent with the provisions of the Corporation Law.
As a private corporation, it has no greater rights, powers or privileges than any other
corporation which might be organized for the same purpose under the Corporation
Law, and certainly it was not the intention of the Legislature to give it a preference
or right or privilege over other legitimate private corporations in the mining of coal.
While it is true that said proclamation No. 39 withdrew "from settlement, entry, sale,
or other disposition of coal-bearing public lands within the Province of Zamboanga .
. . and the Island of Polillo," it made no provision for the occupation and operation
by the plaintiff, to the exclusion of other persons or corporations who might, under
proper permission, enter upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the
Legislature of the Philippine Island in "an Act for the leasing and development of
coal lands in the Philippine Islands" (Act No. 2719), made liberal provision. Section
1 of said Act provides: "Coal-bearing lands of the public domain in the Philippine
Island shall not be disposed of in any manner except as provided in this Act," thereby
giving a clear indication that no "coal-bearing lands of the public domain" had been
disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company,
nor in the amendments thereof found in Act No. 2822, which authorizes the National
Coal Company to enter upon any of the reserved coal lands without first having
obtained permission from the Secretary of Agriculture and Natural
Resources.lawphi1.net
The following propositions are fully sustained by the facts and the law:
(1) The National Coal Company is an ordinary private corporation organized under
Act No. 2705, and has no greater powers nor privileges than the ordinary private
corporation, except those mentioned, perhaps, in section 10 of Act No. 2719, and
they do not change the situation here.
(2) It mined on public lands between the month of July, 1920, and the months of
March, 1922, 24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton,
as taxes under the provisions of article 1946 of the Administrative Code on the 15th
day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands upon which
said coal was mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day
of October, 1917, by authority of section 1 of Act No. 926, withdrawing from
settlement, entry, sale, or other dispositon all coal-bearing public lands within the
Province of Zamboanga and the Island of Polillo, was not a reservation for the
benefit of the National Coal Company, but for any person or corporation of the
Philippine Islands or of the United States.
(6) That the National Coal Company entered upon said land and mined said coal,
so far as the record shows, without any lease or other authority from either the
Secretary of Agriculture and Natural Resources or any person having the power to
grant a leave or authority.
From all of the foregoing facts we find that the issue is well defined between the
plaintiff and the defendant. The plaintiff contends that it was liable only to pay the
internal revenue and other fees and taxes provided for under section 15 of Act No.
2719; while the defendant contends, under the facts of record, the plaintiff is obliged
to pay the internal revenue duty provided for in section 1496 of the Administrative
Code. That being the issue, an examination of the provisions of Act No. 2719
becomes necessary.
An examination of said Act (No. 2719) discloses the following facts important for
consideration here:
First. All "coal-bearing lands of the public domain in the Philippine Islands shall not
be disposed of in any manner except as provided in this Act." Second. Provisions
for leasing by the Secretary of Agriculture and Natural Resources of "unreserved,
unappropriated coal-bearing public lands," and the obligation to the Government
which shall be imposed by said Secretary upon the lessee.lawphi1.net
Third. The internal revenue duty and tax which must be paid upon coal-bearing lands
owned by any person, firm, association or corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty
and tax upon unreserved, unappropriated coal-bearing public lands which may be
leased by the Secretary of Agriculture and Natural Resources; and, second, that
said Act (No. 2719) provides an internal revenue duty and tax imposed upon any
person, firm, association or corporation, who may be the owner of "coal-bearing
lands." A reading of said Act clearly shows that the tax imposed thereby is imposed
upon two classes of persons only — lessees and owners.
The lower court had some trouble in determining what was the correct interpretation
of section 15 of said Act, by reason of what he believed to be some difference in the
interpretation of the language used in Spanish and English. While there is some
ground for confusion in the use of the language in Spanish and English, we are
persuaded, considering all the provisions of said Act, that said section 15 has
reference only to persons, firms, associations or corporations which had already,
prior to the existence of said Act, become the owners of coal lands. Section 15
cannot certainty refer to "holders or lessees of coal lands' for the reason that
practically all of the other provisions of said Act has reference to lessees or holders.
If section 15 means that the persons, firms, associations, or corporation mentioned
therein are holders or lessees of coal lands only, it is difficult to understand why the
internal revenue duty and tax in said section was made different from the obligations
mentioned in section 3 of said Act, imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is neither a
lessee nor an owner of coal-bearing lands, and is, therefore, not subject to any other
provisions of Act No. 2719. But, is the plaintiff subject to the provisions of section
1496 of the Administrative Code?
Section 1496 of the Administrative Code provides that "on all coal and coke there
shall be collected, per metric ton, fifty centavos." Said section (1496) is a part of
article, 6 which provides for specific taxes. Said article provides for a specific internal
revenue tax upon all things manufactured or produced in the Philippine Islands for
domestic sale or consumption, and upon things imported from the United States or
foreign countries. It having been demonstrated that the plaintiff has produced coal
in the Philippine Islands and is not a lessee or owner of the land from which the coal
was produced, we are clearly of the opinion, and so hold, that it is subject to pay the
internal revenue tax under the provisions of section 1496 of the Administrative Code,
and is not subject to the payment of the internal revenue tax under section 15 of Act
No. 2719, nor to any other provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is
hereby relieved from all responsibility under the complaint. And, without any finding
as to costs, it is so ordered.